Ulta: Zacks’ Bull of the Day Play

Ulta Beauty (ULTASnapshot Report) is cashing in on the extra cash in consumers pockets. This Zacks Rank #1 (Strong Buy) is hitting new highs as earnings are expected to jump by the double digits.

Ulta Beauty operates 874 retail stores across 48 states and also sells beauty products through its website.

Some of the stores also operate a full-service hair salon, offering hair, skin and brow services.

It sells over 20,000 products from 500 beauty brands, including both men’s and women’s products.

Ulta Continues to Add Top Products

While Ulta is known for selling drugstore brand products, such as Maybelline and Cover Girl, it has been expanding into more up market brands such as Lancome and Urban Decay.

On Apr 11, it announced it would be carrying Drybar products.

Drybar operates its own hair salons but also sells 37 hair styling products and tools, including its popular Buttercup Blow Dryer, Detox Dry Shampoo and the recently released Triple Sec 3-in-1.

9 Earnings Beats in a Row

Ulta has been on a roll as other retailers have stumbled. It has put together 9 quarters of earnings beats in a row, which is impressive.

The fourth quarter of 2015 was another exceptional quarter as the company was hitting on all cylinders.

Net sales rose 21.1% to $1.3 billion from $1.05 billion in the fourth quarter of fiscal 2014.

Comparable store sales have been crushing it, rising 12.5% year over year, driven by 8.6% growth in transactions and 3.9% in growth in average ticket.

It saw growth in all areas.

Retail comparable sales rose 10.4%, including salon comparable sales growth of 9.2%. Salon sales have been one of their key drivers of growth, as those sales rose 16.7% to $54.6 million year over year.

E-commerce continues to see gains thanks to a site redesign a few quarters back. E-commerce was up 44.2% to $94.8 million from $65.7 million in the fourth quarter of 2014. E-commerce is now 210 basis points of the total comparable store sales results.

Even gross profit rose to 34.6% from 33.4%.

Estimates Rise as 2016 Guidance is Bullish

If there is a recession looming, Ulta isn’t yet feeling it as its 2016 guidance, provided in March, was very optimistic.

Comparable store sales are expected to grow another 8% to 10% in the year while e-commerce sales are expected to jump by 40%.

100 new stores are expected to open with 12 to be remodeled.

The analysts are all buying the story as 12 estimates were raised for 2016 in the last 2 months.

The Zacks Consensus Estimate jumped to $5.97 from $5.68 during that time. That is earnings growth of 19.9%.

Six estimates were also raised for 2017, pushing the Zacks Consensus Estimate up to $7.25 from $6.80. That’s another 21.5% growth.

Shares at Record Highs

As the beats kept adding up, and the comparable store comps remained strong, investors dove into the shares.

Shares are at all-time highs and they’re not cheap. If you’re buying in now, you’ll pay. Shares are now trading with a forward P/E of 34.9x.

But, for now, investors are willing to pay the high multiple for the growth prospects. Few other retailers have the kind of store comps that Ulta has been putting up.

For investors looking for a high growth retail name that still has momentum, Ulta is one to keep on the short list.

[In full disclosure, the author of this article owns shares of Ulta.]

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec and she also hosts the Zacks Market Edge Podcast on iTunes.


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