Company Update (NASDAQ:ULTA): Ulta Salon, Cosmetics & Fragrance, Inc. Announces Second Quarter 2015 Results


Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) announced financial results for the thirteen week period (“Second Quarter”) and twenty-six week period (“First Six Months”) ended August 1, 2015, which compares to the same periods ended August 2, 2014.

“The Ulta Beauty team achieved outstanding results in the second quarter, with top line momentum delivering better than expected earnings growth,” said Mary Dillon, Chief Executive Officer. “Strong traffic growth drove healthy comparable sales increases across stores, salon and e-commerce, while average ticket growth also contributed. An exciting pipeline of new products, combined with increasing effectiveness of our marketing strategies, drove market share gains across all categories. In light of the excellent performance of the business in the first half of the year, we are raising our outlook for the full year and now expect to achieve earnings per share growth in the high teens.”

For the Second Quarter

  • Net sales increased 19.4% to $877.0 million from $734.2 million in the second quarter of fiscal 2014;
  • Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 10.1% compared to an increase of 9.6% in the second quarter of fiscal 2014. The 10.1% comparable sales increase was driven by 7.0% growth in transactions and 3.1% growth in average ticket;
  • Retail comparable sales increased 8.9%, including salon comparable sales growth of 10.1%;
  • Salon sales increased 19.7% to $51.6 million from $43.1 million in the second quarter of fiscal 2014;
  • E-commerce sales grew 43.4% to $36.1 million from $25.2 million in the second quarter of fiscal 2014, representing 120 basis points of the total company comparable sales increase of 10.1%;
  • Gross profit decreased 40 basis points to 34.9% from 35.3% in the second quarter of fiscal 2014 primarily due to supply chain initiatives including the new Greenwood, Indiana distribution center;
  • Selling, general and administrative (SG&A) expense as a percentage of net sales decreased 50 basis points to 21.0% compared to 21.5% in the second quarter of fiscal 2014 primarily due to marketing efficiencies;
  • Pre-opening expenses increased to $4.1 million, compared to $3.6 million in the second quarter of fiscal 2014. Real estate activity in the second quarter of fiscal 2015 included 20 new stores, one relocation and two remodels compared to 19 new stores and four remodels in the second quarter of fiscal 2014;
  • Operating income increased 20.9% to $118.5 million, or 13.5% of net sales, compared to $98.0 million, or 13.3% of net sales, in the second quarter of fiscal 2014;
  • Net income increased 22.0% to $74.2 million compared to $60.8 million in the second quarter of fiscal 2014; and
  • Income per diluted share increased 22.3% to $1.15 compared to $0.94 in the second quarter of fiscal 2014.

For the First Six Months

  • Net sales increased 20.5% to $1,745.1 million from $1,448.0 million in the first six months of fiscal 2014;
  • Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 10.8% compared to an increase of 9.2% in the first six months of fiscal 2014. The 10.8% comparable sales increase was driven by 7.2% growth in transactions and 3.6% growth in average ticket;
  • Retail comparable sales increased 9.3%, including salon comparable sales growth of 10.2%;
  • Salon sales increased 20.1% to $102.9 million from $85.7 million in the first six months of fiscal 2014;
  • E-commerce comparable sales grew 46.8% to $80.1 million from $54.5 million in the first six months of fiscal 2014, representing 150 basis points of the total company comparable sales increase of 10.8%;
  • Gross profit as a percentage of net sales was equal to the first six months of fiscal 2014 at 34.9%;
  • SG&A expense as a percentage of net sales decreased 50 basis points to 21.6% compared to 22.1% in the first six months in fiscal 2014;
  • Pre-opening expense increased to $7.2 million compared to $6.2 million in the first six months of fiscal 2014. Real estate activity in the first six months of 2015 included 44 new stores, two relocations and two remodels compared to 40 new stores and four remodels in the first six months of fiscal 2014;
  • Operating income increased 26.4% to $226.0 million, or 13.0% of net sales, compared to $178.9 million, or 12.4% of net sales, in the first six months of fiscal 2014;
  • Net income increased 27.4% to $141.1 million compared to $110.7 million in the first six months of fiscal 2014; and
  • Income per diluted share increased 28.1% to $2.19 compared to $1.71 in the first six months of fiscal 2014.

Balance Sheet

Merchandise inventories at the end of the second quarter of fiscal 2015 totaled $705.7 million, compared to $541.5 million at the end of the second quarter of fiscal 2014, representing an increase of $164.2 million. This increase was driven by 102 net new stores, the opening of the Company’s fourth distribution center in Greenwood, Indiana, as well as new brand additions. Average inventory per store increased 14%, compared to the second quarter of fiscal 2014. This increase was primarily driven by the new Greenwood, Indiana distribution center, investments in inventory to ensure high in-stock levels to support strong sales growth and incremental inventory for new brands and in-store prestige brand boutiques. Average inventory per store, excluding the investment in the newGreenwood, Indiana distribution center, increased 10.9%.

The Company ended the second quarter of fiscal 2015 with $475.4 million in cash and short-term investments.

Share Repurchase Program

During the second quarter, the Company repurchased 291,227 shares of its stock at a cost of approximately $46 million under its 10b5-1 plan. As of August 1, 2015, $286.3 million remained available under the $400 million share repurchase program.

Store Expansion

During the second quarter, the Company opened 20 stores located in Albuquerque, NM; Ammon, ID; Bristol, TN; Chattanooga, TN;Clark, NJ; Federal Way, WA; Jacksonville Beach, FL; Laurel, MD; Miami, FL; Myrtle Beach, SC; Rancho Cordova, CA; Redlands, CA; Reno, NV; Roseville, MI; San Francisco, CA; San Luis Obispo, CA; Shawnee, OK; Sioux City, IA; Twin Falls, ID and Waterford, CT. The Company ended the second quarter with 817 stores and square footage of 8,628,213, representing a 14% increase in square footage compared to the second quarter of fiscal 2014.

Outlook

For the third quarter of fiscal 2015, the Company currently expects net sales in the range of $869 million to $883 million, compared to actual net sales of $745.7 million in the third quarter of fiscal 2014. Comparable sales for the third quarter of 2015, including e-commerce sales, are expected to increase 8% to 10%. The Company reported a comparable sales increase of 9.5% in the third quarter of 2014.

Income per diluted share for the third quarter of fiscal 2015 is estimated to be in the range of $1.00 to $1.05. This compares to income per diluted share for the third quarter of fiscal 2014 of $0.91. As previously communicated, earnings growth in the second half of 2015 is expected to moderate compared to the first half of the year, reflecting the timing of marketing expenses and supply chain investments including a new distribution center in Greenwood, Indiana which opened on August 3, 2015.

The Company is raising its previously announced fiscal 2015 guidance. The Company plans to:

  • achieve comparable sales growth of approximately 8% to 10%, including the impact of the e-commerce business, compared to previous guidance of 7% to 9%;
  • increase total sales in the mid to high teens percentage range;
  • grow e-commerce sales in the 40% range;
  • expand square footage by approximately 13% with the opening of 100 net new stores;
  • remodel four locations;
  • deliver earnings per share growth in the high teens, compared to previous guidance of the high end of the range of 15% to 17%. This includes planned supply chain and system investments, excluding the $0.02 non-recurring tax benefit in the fourth quarter of 2014, and assuming continued share repurchases to offset dilution; and
  • incur capital expenditures in the $300 million range in fiscal 2015, compared to $249 million in fiscal 2014.(Original Source)

Following earnings, shares of Ulta Salon are up 4.62% to $167.65 in after-hours trading. ULTA has a 1-year high of $176.77 and a 1-year low of $95.83. The stock’s 50-day moving average is $166.30 and its 200-day moving average is $154.41.

On the ratings front, Ulta Salon has been the subject of a number of recent research reports. In a report issued on August 25, William Blair analyst Daniel Hofkin maintained a Buy rating on ULTA. Separately, on the same day, Piper Jaffray’s Stephanie Wissink reiterated a Buy rating on the stock and has a price target of $170.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Daniel Hofkin and Stephanie Wissink have a total average return of 15.4% and 3.6% respectively. Hofkin has a success rate of 79.2% and is ranked #529 out of 3734 analysts, while Wissink has a success rate of 45.8% and is ranked #1330.

Overall, one research analyst has assigned a Hold rating and 7 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $172.75 which is 7.4% above where the stock opened today.

Ulta Salon Cosmetics & Fragrances Inc is a beauty retailer that provides one-stop shopping for mass and salon products and salon services in United States. Its brands include Bare Minerals and Urban Decay prestige cosmetics.