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ULTA Salon (ULTA) Rises after Solid Q3 Earnings Report
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Shares of ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA - Free Report) jumped over 6% yesterday in the after-hour trading session following the company’s impressive third-quarter fiscal 2016 results. The cosmetics company’s third-quarter revenues and earnings not only surpassed their respective Zacks Consensus Estimate but also marked significant year-over-year improvement. Apart from this, an upbeat guidance for the full year also helped the stock’s upside.
Third Quarter Highlights
The company’s net sales for the third quarter increased 24.2% year over year to $1.131 billion, mainly driven by new brand acquisition, better sales execution, rapid growth in its loyalty program, robust e-commerce growth and increased Ulta Beauty brand awareness. ULTA Salon’s quarterly revenues also topped the Zacks Consensus Estimate of $1.108 billion.
Third quarter comparable store sales (comps) increased 16.7% compared with 12.8% growth registered in the year-ago quarter. The growth in comps was primarily driven by 11.1% growth in transactions and 5.6% growth in average ticket.
ULTA Salon witnessed a whopping 59.1% year-over-year growth in e-commerce sales, which reached $73.6 million during the third quarter from $46.2 million in the year-ago quarter.
Gross profit grew 27.2% year over year to $427.1 million. Moreover, gross profit margin improved 90 basis points (bps) to 37.8% mainly driven by product margin expansion and leverage in fixed store costs, which was partially offset by planned supply chain deleverage related to supply chain investments.
Operating income for the quarter increased 26.1% year over year to $139.7 million, while operating margin improved 20 bps to 12.4%. The robust expansion in gross margin was partially offset by increased selling, general and administrative expenses as a percentage of net sales.
Net income surged 23.2% year over year to $87.6 million compared with $71.1 million in the third quarter of fiscal 2015. On a per share basis, earnings came in at $1.40, representing year-over-year growth of 26.1% from $1.11 reported in the year-ago quarter. The robust bottom-line growth was mainly driven by solid top-line performance and lower share count. The company’s earnings also surpassed the Zacks Consensus Estimate of $1.37 per share.
Buoyed by strong third quarter performance, ULTA Salon raised its fiscal 2016 outlook once again. Notably, this is the third time this year that ULTA Salon has raised its full year outlook.
The company now anticipates total sales to grow in the low twenties percentage range as against its previous guidance of a high teens percentage. Comps for the fiscal are now expected to grow in a range of 13% to 15%, up from the previous growth projection of 11% to 13%. Furthermore, the company is expected to deliver earnings per share growth in the high twenties percentage range, up from its earlier guidance of mid-twenties percentage growth.
Apart from this, ULTA Salon reiterated its other guidance metrics. The company continues to expect 40% year-over-year growth in e-commerce sales, approximately 11% expansion in square footage with the opening of 100 net new stores, remodeling of 12 locations and capital expenditure of $390 million.
Additionally, ULTA Salon provided guidance for the fourth quarter of fiscal 2016. For the quarter, the company anticipates net sales in a range of $1.516 billion to $1.541 billion, representing year-over- year growth of 19.5% to 21.5%. The Zacks Consensus Estimate is currently pegged at $1.51 billion. Comps are anticipated to witness growth in the range of 12% to 14% compared with 12.5% increase registered in the fourth quarter of fiscal 2015.
Earnings per share for the fourth quarter are anticipated to come in the range of $2.08 to $2.13, representing year-over-year growth of 23% to 26% from fourth quarter fiscal 2015 earnings of $1.69. The Zacks Consensus Estimate for the quarter is currently pegged at $2.05.
Are More Gains in Store?
To some, choosing the stock now may appear to be a no-brainer because right after an earnings release, a company is almost always on investors’ radar. While better-than-expected results make the stock a good pick, lower-than-expected results dampen investors’ spirit. So, the period following earnings releases is often marked by high market activity.
The company has delivered an average positive earnings surprise of 7.7% over the trailing four quarters, and has a long-term earnings growth rate of 19.5%, which is significantly higher than the Zacks Retail-Miscellaneous/ Diversified industry’s average of 10.7%. Furthermore, the company is expected to witness earnings growth of 26.1% in fiscal 2016 and 23% in fiscal 2017.
Its better-than-expected performance in back-to-back quarters has raised investors’ confidence. It should be noted that the company’s share price has been on the rise since its first-quarter fiscal 2016 results reported on Mar 10. The stock has gained approximately 58% since then, outperforming the Zacks Retail-Miscellaneous/ Diversified industry’s gain of a mere 8%.
Therefore, looking at ULTA Salon’s robust third quarter results along with an upbeat guidance for fiscal 2016, we believe that it’s worth betting on. Also, considering yesterday’s more than 6% gain in the after-hour trading session, we opine that the stock has a high chance of witnessing a sharp rise in its share price in the near term.
Bottom Line
Headquartered in Bolingbrook, IL, ULTA Salon is a leading specialty retailer of cosmetics products in the U.S. With the product mix increasingly catering to higher-margin prestige products and better supply-chain management, ULTA Salon is poised for margin expansion in the upcoming quarters.
Moreover, the company’s mass beauty products, prestige beauty and salon services, and salon-quality products offered at off-mall locations attract beauty product shoppers from varied socio-geographic backgrounds and offer the company an edge over other players in the same space.
Some other stocks worth considering in the broader retail sector are Big 5 Sporting Goods Corp. (BGFV - Free Report) , Zumiez Inc. (ZUMZ - Free Report) and Target Corp. (TGT - Free Report) , all carrying the same Zacks Rank as ULTA Salon.
Big 5 Sporting has witnessed upward estimate revisions in the last 30 days and has surpassed the Zacks Consensus Estimate thrice in the trailing four quarters with an average positive surprise of 4.78%.
Estimates for Zumiez also moved up in the last 30 days. It has surpassed the Zacks Consensus Estimate in the trailing four quarters with an average positive surprise of 32.03%.
Target has witnessed upward estimate revisions in the last 30 days and has surpassed the Zacks Consensus Estimate thrice in the trailing four quarters with an average positive surprise of 9.85%.
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ULTA Salon (ULTA) Rises after Solid Q3 Earnings Report
Shares of ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA - Free Report) jumped over 6% yesterday in the after-hour trading session following the company’s impressive third-quarter fiscal 2016 results. The cosmetics company’s third-quarter revenues and earnings not only surpassed their respective Zacks Consensus Estimate but also marked significant year-over-year improvement. Apart from this, an upbeat guidance for the full year also helped the stock’s upside.
Third Quarter Highlights
The company’s net sales for the third quarter increased 24.2% year over year to $1.131 billion, mainly driven by new brand acquisition, better sales execution, rapid growth in its loyalty program, robust e-commerce growth and increased Ulta Beauty brand awareness. ULTA Salon’s quarterly revenues also topped the Zacks Consensus Estimate of $1.108 billion.
Third quarter comparable store sales (comps) increased 16.7% compared with 12.8% growth registered in the year-ago quarter. The growth in comps was primarily driven by 11.1% growth in transactions and 5.6% growth in average ticket.
ULTA Salon witnessed a whopping 59.1% year-over-year growth in e-commerce sales, which reached $73.6 million during the third quarter from $46.2 million in the year-ago quarter.
Gross profit grew 27.2% year over year to $427.1 million. Moreover, gross profit margin improved 90 basis points (bps) to 37.8% mainly driven by product margin expansion and leverage in fixed store costs, which was partially offset by planned supply chain deleverage related to supply chain investments.
Operating income for the quarter increased 26.1% year over year to $139.7 million, while operating margin improved 20 bps to 12.4%. The robust expansion in gross margin was partially offset by increased selling, general and administrative expenses as a percentage of net sales.
Net income surged 23.2% year over year to $87.6 million compared with $71.1 million in the third quarter of fiscal 2015. On a per share basis, earnings came in at $1.40, representing year-over-year growth of 26.1% from $1.11 reported in the year-ago quarter. The robust bottom-line growth was mainly driven by solid top-line performance and lower share count. The company’s earnings also surpassed the Zacks Consensus Estimate of $1.37 per share.
ULTA SALON COSM Price, Consensus and EPS Surprise
ULTA SALON COSM Price, Consensus and EPS Surprise | ULTA SALON COSM Quote
Guidance
Buoyed by strong third quarter performance, ULTA Salon raised its fiscal 2016 outlook once again. Notably, this is the third time this year that ULTA Salon has raised its full year outlook.
The company now anticipates total sales to grow in the low twenties percentage range as against its previous guidance of a high teens percentage. Comps for the fiscal are now expected to grow in a range of 13% to 15%, up from the previous growth projection of 11% to 13%. Furthermore, the company is expected to deliver earnings per share growth in the high twenties percentage range, up from its earlier guidance of mid-twenties percentage growth.
Apart from this, ULTA Salon reiterated its other guidance metrics. The company continues to expect 40% year-over-year growth in e-commerce sales, approximately 11% expansion in square footage with the opening of 100 net new stores, remodeling of 12 locations and capital expenditure of $390 million.
Additionally, ULTA Salon provided guidance for the fourth quarter of fiscal 2016. For the quarter, the company anticipates net sales in a range of $1.516 billion to $1.541 billion, representing year-over- year growth of 19.5% to 21.5%. The Zacks Consensus Estimate is currently pegged at $1.51 billion. Comps are anticipated to witness growth in the range of 12% to 14% compared with 12.5% increase registered in the fourth quarter of fiscal 2015.
Earnings per share for the fourth quarter are anticipated to come in the range of $2.08 to $2.13, representing year-over-year growth of 23% to 26% from fourth quarter fiscal 2015 earnings of $1.69. The Zacks Consensus Estimate for the quarter is currently pegged at $2.05.
Are More Gains in Store?
To some, choosing the stock now may appear to be a no-brainer because right after an earnings release, a company is almost always on investors’ radar. While better-than-expected results make the stock a good pick, lower-than-expected results dampen investors’ spirit. So, the period following earnings releases is often marked by high market activity.
The company has delivered an average positive earnings surprise of 7.7% over the trailing four quarters, and has a long-term earnings growth rate of 19.5%, which is significantly higher than the Zacks Retail-Miscellaneous/ Diversified industry’s average of 10.7%. Furthermore, the company is expected to witness earnings growth of 26.1% in fiscal 2016 and 23% in fiscal 2017.
Its better-than-expected performance in back-to-back quarters has raised investors’ confidence. It should be noted that the company’s share price has been on the rise since its first-quarter fiscal 2016 results reported on Mar 10. The stock has gained approximately 58% since then, outperforming the Zacks Retail-Miscellaneous/ Diversified industry’s gain of a mere 8%.
Therefore, looking at ULTA Salon’s robust third quarter results along with an upbeat guidance for fiscal 2016, we believe that it’s worth betting on. Also, considering yesterday’s more than 6% gain in the after-hour trading session, we opine that the stock has a high chance of witnessing a sharp rise in its share price in the near term.
Bottom Line
Headquartered in Bolingbrook, IL, ULTA Salon is a leading specialty retailer of cosmetics products in the U.S. With the product mix increasingly catering to higher-margin prestige products and better supply-chain management, ULTA Salon is poised for margin expansion in the upcoming quarters.
Moreover, the company’s mass beauty products, prestige beauty and salon services, and salon-quality products offered at off-mall locations attract beauty product shoppers from varied socio-geographic backgrounds and offer the company an edge over other players in the same space.
ULTA Salon currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some other stocks worth considering in the broader retail sector are Big 5 Sporting Goods Corp. (BGFV - Free Report) , Zumiez Inc. (ZUMZ - Free Report) and Target Corp. (TGT - Free Report) , all carrying the same Zacks Rank as ULTA Salon.
Big 5 Sporting has witnessed upward estimate revisions in the last 30 days and has surpassed the Zacks Consensus Estimate thrice in the trailing four quarters with an average positive surprise of 4.78%.
Estimates for Zumiez also moved up in the last 30 days. It has surpassed the Zacks Consensus Estimate in the trailing four quarters with an average positive surprise of 32.03%.
Target has witnessed upward estimate revisions in the last 30 days and has surpassed the Zacks Consensus Estimate thrice in the trailing four quarters with an average positive surprise of 9.85%.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>