Ulta Beauty, Inc. (ULTA - Free Report) has been climbing up the charts after it reported impressive results in first-quarter fiscal 2018. Results were driven by the company’s solid strategic efforts along with excellent marketing and store-growth initiatives, impressive e-commerce improvement and continued progress on salon operations. Also, it raised fiscal 2018 GAAP earnings view.
As a result, the company’s shares were up nearly 2.5% since May 31, when it released the quarterly results. In the past three months, this Zacks Rank #3 (Hold) stock has advanced 21.9%, outperforming the industry’s 10.2% upside.
Additionally, analysts are growing bullish on the stock as apparent from the solid uptrend in earnings estimates. The Zacks Consensus Estimate of $10.92 for fiscal 2018 and $12.76 for fiscal 2019 moved north 16 cents and 2 cents, respectively, in the last 30 days. Also, Ulta Beauty has an impressive long-term earnings growth rate of 18.6% and a VGM Score of A. Let’s delve deep.
Solid Q1 Results & Surprise Trend
Ulta Beauty has an impressive surprise history on both earnings and revenue fronts. In first-quarter fiscal 2018, the company reverted to its more than three-year long positive earnings trend, after a miss in the preceding quarter. Also, it reported sales beat in 16 of the last 18 quarters. Both the top and bottom line also improved year over year. Results were fueled by enhanced market share gains, strength in loyalty program, solid e-commerce business and other growth initiatives. Additionally, favorable traffic drove comparable store sales (comps) growth in the quarter.
Ulta Beauty is also known for its strategy of striking the right balance between online and physical stores. Notably, the company registered e-commerce sales growth of 48% in first-quarter fiscal 2018, which reflects about 340 basis points (bps) of the total comps growth. This upside was driven by traffic growth of 38% and mobile traffic surge of 52%. For fiscal 2018, management anticipates e-commerce sales to grow in the 40% range.
Based on the above-mentioned tailwinds, management raised its GAAP earnings per share view. The metric is projected to grow in the low 20% range versus the earlier guidance of roughly 20% range.
Ulta Beauty’s loyalty program is significantly contributing to the company’s results, thus boosting the top line and profitability. In fact, it was one of the major sales drivers in first-quarter fiscal 2018. The company also increased its Ultamate Rewards membership by 17%, courtesy of 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, the company remains committed to its store-expansion endeavors and enhancement of its supply chain capabilities apart from strengthening its e-commerce business. Evidently, it is on track to open 100 stores in fiscal 2018.
Ulta Beauty has also created a niche market backed by the sold mix of beauty products it offers. Currently, 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. We believe all these afore-mentioned initiatives to increase the company’s market share and boost profitability.
While all the above factors speak well about Ulta Beauty, we note that the company has been 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 believe Ulta Beauty’s robust strategies to offset margins decline going ahead.
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