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Ulta Salon, Cosmetics & Fragrance

ULTA

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A strong first-quarter performance helped shares of Ulta Salon, Cosmetics & Fragrance Inc. (ULTA - Snapshot Report) hit their 52-week high on June 6, 2012. This Zacks #2 Rank (Buy) salon operator looks attractive has now beaten the Zacks Consensus Estimate for seven consecutive quarters, with an average surprise of 12.03%.

On June 5, the company reported first-quarter 2012 profit of 54 cents, surpassing the Zacks Consensus Estimate by 1.89%. Moreover, quarterly earnings shot up 45.9% from last year’s 37 cents and were ahead of management’s guided range of 46 cents - 48 cents per share.

Net sales rose 22.8% year over year to $474.1 million and were well above management’s projected range of $452 million-$460 million. The revenue upside was driven by double-digit growth in comps and unit expansion. Operating income surged 47.1% year over year to $57.4 million.

Guidance Further Adds Strength

For 2012, the company expects to achieve comparable store sales growth 200 to 300 basis points above the high end of its long term goal of 3% to 5%. Net income growth is also expected to be more than its long term target of 25% - 30%.

Earnings Estimates Climbing Higher

In response to the solid quarter, eight of nine estimates for fiscal 2012 have moved up in the last 7 days, pushing the Zacks Consensus Estimate up by 2% to $2.55. The current estimate represents an upside of almost 34% over 2011.

The Zacks Consensus Estimate for 2013 increased 2% to $3.21 as 7 of 8 estimates moved up in the past week. This implies a year-over-year growth of more than 25%.

Valuation Looks Expensive

Though the stock of Ulta Salon is expensive with respect to most valuation metrics, it looks attractive from a return on equity (ROE) perspective. It has a trailing 12-month ROE of 23.6%, which is substantially above its peer group average of 14.0%. This implies that the company reinvests its earnings more efficiently than its peer group. The company's long-term EPS growth projection of 24.2% is also higher than the peer group average of 12.5%.

Market Performance & Technicals

The stock has been consistently trading above its 200-day moving average for the past 6 months. Volume is fairly strong, averaging roughly 964K daily.

The year-to-date return is at 44.78%, compared to the S&P 500's return of 5.41%.

About the Company

Incorporated in 1990 and headquartered in Bolingbrook, Illinois, Ulta Salon is the largest beauty retailer in the U.S. With about 4,500 employees, the company provides salon product and services through their 467 stores across 44 states. With a market capitalization of $5.92 billion, Ulta Salon competes with Regis Corp. (RGS) and Sally Beauty Holdings Inc. (SBH).

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