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


Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) announced financial results for the thirteen week period (“Third Quarter”) and thirty-nine week period (“First Nine Months”) ended October 31, 2015, which compares to the same periods ended November 1, 2014.

“Ulta Beauty’s excellent performance in the third quarter was highlighted by top line momentum driven by double digit traffic growth, leading to above-plan earnings growth,” said Mary Dillon, Chief Executive Officer. “Delivering against our six strategic imperatives continues to drive our business forward. We believe our efforts to build awareness of the Ulta Beauty brand are bringing more guests to discover our differentiated assortment and the benefits of our loyalty program, now boasting 17 million active members. As a result of our financial performance in the third quarter and our position of strength heading into the holiday season, we are raising our guidance and now expect our 2015 full year earnings growth rate to be in the low twenties.”

For the Third Quarter

  • Net sales increased 22.1% to $910.7 million from $745.7 million in the third quarter of fiscal 2014;
  • Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 12.8% compared to an increase of 9.5% in the third quarter of fiscal 2014. The 12.8% comparable sales increase was driven by 10.6% growth in transactions and 2.2% growth in average ticket;
  • Retail comparable sales increased 10.9%, including salon comparable sales growth which also increased 10.9%;
  • Salon sales increased 20.0% to $51.7 million from $43.1 million in the third quarter of fiscal 2014;
  • E-commerce sales grew 56.3% to $46.2 million from $29.6 million in the third quarter of fiscal 2014, representing 190 basis points of the total company comparable sales increase of 12.8%;
  • Gross profit decreased 90 basis points to 36.9% from 37.8% in the third quarter of fiscal 2014 primarily due to supply chain initiatives including the new Greenwood, Indiana distribution center;
  • Selling, general and administrative (SG&A) expenses as a percentage of net sales decreased 30 basis points to 24.0% compared to 24.3% in the third quarter of fiscal 2014 primarily due to lower variable store expenses and variable compensation offset by planned investments in marketing to drive brand awareness;
  • Pre-opening expenses decreased to $6.1 million, compared to $6.6 million in the third quarter of fiscal 2014. Real estate activity in the third quarter of fiscal 2015 included 45 new stores, two relocations and two remodels compared to 50 new stores, two relocations and five remodels in the third quarter of fiscal 2014;
  • Operating income increased 17.7% to $110.8 million, or 12.2% of net sales, compared to $94.1 million, or 12.6% of net sales, in the third quarter of fiscal 2014;
  • Tax rate decreased to 36.0% compared to 37.3% in the third quarter of fiscal 2014 primarily due to changes in state income taxes;
  • Net income increased 20.2% to $71.1 million compared to $59.1 million in the third quarter of fiscal 2014; and
  • Income per diluted share increased 22.0% to $1.11 compared to $0.91 in the third quarter of fiscal 2014.

For the First Nine Months

  • Net sales increased 21.1% to $2,655.8 million from $2,193.7 million in the first nine months of fiscal 2014;
  • Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 11.4% compared to an increase of 9.3% in the first nine months of fiscal 2014. The 11.4% comparable sales increase was driven by 8.3% growth in transactions and 3.1% growth in average ticket;
  • Retail comparable sales increased 9.9%, including salon comparable sales growth of 10.4%;
  • Salon sales increased 20.1% to $154.7 million from $128.8 million in the first nine months of fiscal 2014;
  • E-commerce comparable sales grew 50.2% to $126.3 million from $84.1 million in the first nine months of fiscal 2014, representing 150 basis points of the total company comparable sales increase of 11.4%;
  • Gross profit decreased 30 basis points to 35.6% from 35.9% in the first nine months of fiscal 2014 primarily due to supply chain initiatives including the new Greenwood, Indiana distribution center;
  • SG&A expenses as a percentage of net sales decreased 50 basis points to 22.4% compared to 22.9% in the first nine months in fiscal 2014;
  • Pre-opening expenses increased to $13.3 million compared to $12.8 million in the first nine months of fiscal 2014. Real estate activity in the first nine months of 2015 included 89 new stores, four relocations and four remodels compared to 90 new stores, two relocations and nine remodels in the first nine months of fiscal 2014;
  • Operating income increased 23.4% to $336.8 million, or 12.7% of net sales, compared to $272.9 million, or 12.4% of net sales, in the first nine months of fiscal 2014;
  • Net income increased 24.9% to $212.2 million compared to $169.9 million in the first nine months of fiscal 2014; and
  • Income per diluted share increased 25.5% to $3.30 compared to $2.63 in the first nine months of fiscal 2014.

Balance Sheet

Merchandise inventories at the end of the third quarter of fiscal 2015 totaled $884.4 million, compared to $709.7 million at the end of the third quarter of fiscal 2014, representing an increase of $174.7 million. This increase was driven by 95 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 10.9%, compared to the third 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 sales growth and incremental inventory for new brands and in-store prestige brand boutiques.

The Company ended the third quarter of fiscal 2015 with $359.8 million in cash and short-term investments.

Share Repurchase Program

During the third quarter, the Company repurchased 288,427 shares of its stock at a cost of approximately $47.5 million under its 10b5-1 plan. As of October 31, 2015, $238.8 million remained available under the $400 million share repurchase program.

Store Expansion

During the third quarter, the Company opened 45 stores located in Euless, TX; Greenwood, SC; Las Vegas, NV; Mt. Pleasant, WI;Selinsgrove, PA; Spring Hill, TN; Superior, CO; Tigard, OR; Upper Arlington, OH; Anchorage, AK; Bastrop, TX; Bel Air, MD; Butler, PA;Chicago, IL; Chillicothe, OH; Chula Vista, CA; Columbus, MS; Dulles, VA; Emeryville, CA; Grove City, OH; Harrisonburg, VA; Indianapolis, IN; Janesville, WI; La Habra, CA; Livingston, NJ; San Diego, CA; Springfield, OR; St. Clairsville, OH; Statesboro, GA; Tarpon Springs, FL;Warrington, PA; Newport News, VA; Alabaster, AL; Bellevue, WA; Bismarck, ND; Bridgeport, WV; Cape Coral, FL; Guilford, CT; Kingston, NY; Lawrence, KS; Newark, DE; Niagara Falls, NY; Rosemead, CA; Sevierville, TN and Silverdale, WA. In addition, the Company closed two stores. The Company ended the third quarter with 860 stores and square footage of 9,080,084, representing a 12% increase in square footage compared to the third quarter of fiscal 2014.

Outlook

For the fourth quarter of fiscal 2015, the Company currently expects net sales in the range of $1,212 million to $1,233 million, compared to actual net sales of $1,047.6 million in the fourth quarter of fiscal 2014. Comparable sales for the fourth quarter of 2015, including e-commerce sales, are expected to increase 8% to 10%. The Company reported a comparable sales increase of 11.1% in the fourth quarter of 2014.

Income per diluted share for the fourth quarter of fiscal 2015 is estimated to be in the range of $1.48 to $1.53. This compares to income per diluted share for the fourth quarter of fiscal 2014 of $1.35.

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

  • achieve comparable sales growth of approximately 10% to 11%, including the impact of the e-commerce business, compared to previous guidance of 8% to 10%;
  • increase total sales growth percentage range to the low twenties, compared to previous guidance of a 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 low twenties percentage range, compared to previous guidance of high teens percentage range. This includes planned supply chain and system investments, excludes the $0.02 non-recurring tax benefit in the fourth quarter of 2014, and assumes 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)

Shares of Ulta Salon Cosmetics are up 4.30% following the earnings release. ULTA has a 1-year high of $176.77 and a 1-year low of $120.38. The stock’s 50-day moving average is $168.22 and its 200-day moving average is $163.31.

On the ratings front, ULTA has been the subject of a number of recent research reports. In a report issued on November 30, J.P. Morgan analyst Christopher Horvers maintained a Buy rating on ULTA, with a price target of $215, which implies an upside of 30.8% from current levels. Separately, on the same day, Oppenheimer’s Rupesh Parikh reiterated a Buy rating on the stock and has a price target of $195.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Christopher Horvers and Rupesh Parikh have a total average return of 8.7% and 4.2% respectively. Horvers has a success rate of 66.3% and is ranked #382 out of 3642 analysts, while Parikh has a success rate of 57.4% and is ranked #751.

Overall, one research analyst has assigned a Hold rating and 4 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 $205.00 which is 24.7% 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.