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Ulta Beauty Gains 13.2% YTD: Strategic Efforts Aid Growth

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Shares of Ulta Beauty Inc. (ULTA - Free Report) have displayed momentous growth year to date, benefitting from an impressive loyalty program, sturdy e-commerce sales, store-growth initiatives and strong brand of portfolio. Moreover, the company’s robust surprise history is influencing investors’ favorable view on the stock.

This Zacks Rank #2 (Buy) stock has gained approximately 13.2% year to date, outperforming the industry’s rise of 5.6%.

 

Let's delve deeper into the factors that are propelling the stock’s performance.

Robust Surprise History

Ulta Beauty has an impressive surprise history on both earnings and revenue fronts. Notably, the company has delivered sales beat in 16 of the last 18 quarters. Moreover, the company has a more than three-year long positive earnings trend, barring a miss in the fourth-quarter fiscal 2017.

However, first-quarter fiscal 2018 marked a comeback, where Ulta Beauty reverted to the aforementioned positive earnings trend. Results were fueled by enhanced market share gains, solid marketing and store-growth initiatives, impressive e-commerce improvement and continued progress on salon operations. Additionally, favorable traffic drove comps growth in the fiscal first quarter.

Endeavors Supporting Ulta Beauty’s Growth

Ulta Beauty’s goodwill and the fact that it remains unaffected by Amazon-dominated (AMZN - Free Report) market, stems from its ability to strike the right chord between physical and online store sales. While key players in the retail industry are endangered due to the rising competition from online retailers, Ulta has managed to grow both e-commerce and in-store sales.

Notably, the company registered e-commerce sales growth of 48% in first-quarter fiscal 2018, which reflects about 340 bps of the total comps growth. For fiscal 2018, management anticipates e-commerce sales to grow in the 40% range.

Further, the company is making efforts to strengthen its e-commerce business by enhancing supply chain capabilities. In this regard, the company is bringing up a new distribution center in Fresno, CA. It already has distribution centers in Dallas, TX and Greenwood, IN.

The company’s loyalty program is another key sales driver for the company, which boosted its first-quarter fiscal 2018 sales. The company increased its Ultamate Rewards membership by 17% driven by its excellent marketing and merchandising endeavors as well as in store conversions. Meanwhile, sales per member, average member ticket, retention rates and frequency of shopping remained solid in the quarter.

Furthermore, Ulta Beauty boasts of a strong mix of beauty products. The company’s stores are a one stop shop for beauty enthusiasts, featuring prestige and discount beauty brands, and offering salon products and services, all under one roof.

Additionally, it remains keen on enhancing beauty products offerings besides improving store traffic with superior services. Notably, Ulta Beauty rolled out The Estee Lauder Companies Inc.’s (EL - Free Report) most popular MAC brand in fiscal 2017.

Bottom Line

We believe all these aforementioned initiatives are likely to increase the company’s market share and boost profitability.

However, Ulta Beauty is also grappling with soft margins due to higher SG&A and pre-opening expenses. Although operating margin is expected to contract in the band of 50-70 bps in fiscal 2018, we are optimistic that Ulta Beauty’s growth plans will help offset margins.

Meanwhile, investors looking to expand their retail exposure can bet on Shoe Carnival (SCVL - Free Report) , which has a long-term earnings growth of 12% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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