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Ulta Beauty (ULTA) Stock Up on Q4 Earnings & Sales Beat

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Ulta Beauty, Inc. (ULTA - Free Report) reported solid fourth-quarter fiscal 2018 results, wherein earnings and sales outpaced the Zacks Consensus Estimate. Also, both the top and the bottom lines improved year over year. Further, management issued guidance for fiscal 2019.

Results were fueled by the company’s solid retail business, driven by increased traffic as well as gains from the revenue standard and higher market share gains at all major categories, digitally-native brands in particular. Robust performance of mass cosmetics, boutique, skincare and fragrance remained tailwinds. Also, a successful holiday season, backed by the smooth execution of the company’s merchandising, marketing, e-commerce and supply-chain efforts boosted the performance.

Following the quarterly results, shares of Ulta Beauty rose 3.7% in after-hours trading on Mar 14. Overall, the stock has advanced 29.1% in the past three months, outperforming the industry's 14.5% rally.

 



Q4 Numbers

Ulta Beauty’s earnings were $3.61 per share, which outpaced the Zacks Consensus Estimate of $3.56. Also, the bottom line improved 31.3% year over year.

Net sales of this cosmetics retailer grew 9.7% year over year to $2,124.7 million and surpassed the Zacks Consensus Estimate of $2,101.7 million. Excluding the impact of sales from the 53rd week last year, the company’s top line rose 16.2%. We note that Ulta Beauty adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers on Feb 4, 2018. The adoption of this revenue standard contributed nearly $15 million to the top line in the reported quarter.

Comparable sales (comps) — including stores and e-commerce — climbed 9.4%, up from 8.8% growth in the prior-year quarter. Increase in traffic and ticket along with higher store productivity led to comps growth. During the fiscal fourth quarter, the company registered a transaction increase of 7.1% while average ticket was up 2.3%.

Retail business (comprising retail and salon) witnessed comps growth of 7% — including 6.2% improvement in salon comps. Sales for the salon business, including gains from the 53rd week last year, rose 4.7% to $77.2 million. Further, e-commerce sales grew 25.1%, reflecting about 240 basis points (bps) of total comps growth.

Gross profit increased 12.5% year over year to $740.9 million, with gross margin expansion of 90 bps to 34.9%. Of the 90-bps expansion in gross margin, 60 bps was due to gains from revenue recognition accounting. The remainder 30 bps was backed by higher merchandise margins, stemming from impressive marketing and merchandising strategies as well as leveraged fixed store expenses. Growth was somewhat compensated by deleveraging, owing to investments in salon services and supply chain.

Further, operating income was up 10.5% year over year to $281.2 million, with operating margin growth of 10 bps to 13.2%. This upside was due to higher gross margin coupled with lower pre-opening expenses, which declined 44.2% to $2.4 million. Growth was offset by rise of 90 bps in SG&A expenses (as a percentage of sales).

Ulta Beauty Inc. Price, Consensus and EPS Surprise

 

Ulta Beauty Inc. Price, Consensus and EPS Surprise | Ulta Beauty Inc. Quote

Other Financials

Ulta Beauty ended the quarter with cash and cash equivalents of $409.3 million, and total stockholders’ equity of $1,820.2 million. Merchandise inventories summed $1,214.3 million as of Feb 2, 2019, marking a 10.8% increase from the year-ago period. Also, average inventory per store grew 1.3% year over year.

Net cash provided by operating activities was roughly $956.1 million in fiscal 2018.

Management bought back 2,463,555 shares for $616.2 million in the fiscal year. With this, the company had nearly $46.1 million outstanding as of Feb 2, 2019, under its $625-million share repurchase plan announced in March 2018. Additionally, its board approved a new share buyback authorization of $875 million, replacing the aforementioned authorization. Since 2014, the company has returned $1.5 billion to shareholders via share repurchases.

Store Updates

In the fiscal fourth quarter, Ulta Beauty opened 12 stores while shuttered one. As of Feb 2, 2019, it operated 1,174 stores, increasing its total square footage by 9.2% year over year.

In fiscal 2019, the company plans to open nearly 80 stores as well as remodel 12 and relocate 8 outlets. Also, it intends to complete roughly 270 store refreshes.

Guidance

Following the impressive quarterly results, management issued guidance for fiscal 2019. Total sales are projected to grow in a low-double-digit percentage range, with nearly 6-7% increase in comps, down from 8.1% growth registered in fiscal 2018. Comps growth includes e-commerce improvement of 20-30%.

Further, the company expects leverage operating margin rate of 10-20 bps for fiscal 2019. Earnings per share are envisioned to be $12.65-$12.85, up from adjusted earnings of $10.85 recorded in the last fiscal year. Earnings guidance includes the impact of share repurchases worth roughly $700 million and an effective tax rate of 24%. The Zacks Consensus Estimate for earnings for fiscal 2019 currently stands at $12.74.

While Ulta Beauty expects earnings per share growth in low teens and modest deleverage in the operating margin for the first half of fiscal 2019, it anticipates earnings to improve in high teens and modest leverage in the operating margin for the second half.

The company plans to spend about $380-$400 million as capital expenditure in fiscal 2019 compared with $319 million used last year. Also, it expects to incur depreciation and amortization charges of $315 million.

Ulta Beauty currently carries a Zacks Rank #4 (Sell).

Want Better-Ranked Stocks in the Retail Space? Check These

Abercrombie & Fitch Co. (ANF - Free Report) has an impressive long-term earnings growth rate of 15.3% and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Foot Locker, Inc. (FL - Free Report) is also a Zacks Rank #1 stock. It has an expected long-term earnings growth rate of 9.2%.

MarineMax, Inc. (HZO - Free Report) pulled off a positive earnings surprise of 53.4% in the last four quarters. It currently has a Zacks Rank #2 (Buy).

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