Stock Update (NASDAQ:ULTA): Ulta Salon, Cosmetics & Fragrance, Inc. Announces Second Quarter 2016 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 July 30, 2016, which compares to the same periods ended August 1, 2015.

“The Ulta Beauty team achieved another quarter of excellent top and bottom line performance, while making significant progress on many elements of our growth strategy,” said Mary Dillon, Chief Executive Officer. “Our second quarter results reflect a strong pipeline of newness and innovation in merchandising, progress in growing our brand awareness, major milestones related to our loyalty program, continued rapid growth in our e-commerce business, and successful execution of our supply chain investments.”

For the Second Quarter

  • Net sales increased 21.9% to $1,069.2 million from $877.0 million in the second quarter of fiscal 2015;
  • Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 14.4% compared to an increase of 10.1% in the second quarter of fiscal 2015. The 14.4% comparable sales increase was driven by 9.7% growth in transactions and 4.7% growth in average ticket;
  • Retail comparable sales increased 12.6%, including salon comparable sales growth of 8.0%;
  • Salon sales increased 14.3% to $59.0 million from $51.6 million in the second quarter of fiscal 2015;
  • E-commerce sales grew 54.9% to $55.9 million from $36.1 million in the second quarter of fiscal 2015, representing 180 basis points of the total company comparable sales increase of 14.4%;
  • Gross profit increased 110 basis points to 36.0% from 34.9% in the second quarter of fiscal 2015, due to improvements in merchandise margins and leverage in fixed store costs, partly offset by planned supply chain deleverage related to our new distribution centers;
  • Selling, general and administrative (SG&A) expense as a percentage of net sales increased 110 basis points to 22.1%, compared to 21.0% in the second quarter of fiscal 2015, due to increased headcount to support our growth initiatives and an impairment charge associated with the closure of our Chicago State Street store, due to damage resulting from construction in an adjacent building;
  • Pre-opening expenses increased to $4.7 million, compared to $4.1 million in the second quarter of fiscal 2015. Real estate activity in the second quarter of fiscal 2016 included 24 new stores, one relocation and five remodels compared to 20 new stores, one relocation and two remodels in the second quarter of fiscal 2015;
  • Operating income increased 21.4% to $143.8 million, or 13.5% of net sales, compared to $118.5 million, or 13.5% of net sales, in the second quarter of fiscal 2015;
  • Net income increased 21.3% to $90.0 million compared to $74.2 million in the second quarter of fiscal 2015; and
  • Income per diluted share increased 24.3% to $1.43 compared to $1.15 in the second quarter of fiscal 2015.

For the First Six Months

  • Net sales increased 22.8% to $2,142.9 million from $1,745.1 million in the first six months of fiscal 2015;
  • Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 14.8% compared to an increase of 10.8% in the first six months of fiscal 2015. The 14.8% comparable sales increase was driven by 10.4% growth in transactions and 4.4% growth in average ticket;
  • Retail comparable sales increased 13.3%, including salon comparable sales growth of 7.9%;
  • Salon sales increased 14.5% to $117.9 million from $102.9 million in the first six months of fiscal 2015;
  • E-commerce comparable sales grew 46.0% to $116.9 million from $80.1 million in the first six months of fiscal 2015, representing 150 basis points of the total company comparable sales increase of 14.8%;
  • Gross profit increased 130 basis points to 36.2% from 34.9% in the first six months of fiscal 2015;
  • SG&A expense as a percentage of net sales increased 70 basis points to 22.3% compared to 21.6% in the first six months of fiscal 2015;
  • Pre-opening expenses were equal to the first six months of 2015 at $7.2 million. Real estate activity in the first six months of 2016 included 37 new stores, one relocation and five remodels compared to 44 new stores, two relocations and two remodels in the first six months of fiscal 2015;
  • Operating income increased 28.7% to $290.9 million, or 13.6% of net sales, compared to $226.0 million, or 13.0% of net sales, in the first six months of fiscal 2015;
  • Net income increased 29.0% to $182.0 million compared to $141.1 million in the first six months of fiscal 2015; and
  • Income per diluted share increased 32.0% to $2.89 compared to $2.19 in the first six months of fiscal 2015.

Balance Sheet

Merchandise inventories at the end of the second quarter of fiscal 2016 totaled $930.2 million, compared to $705.7 million at the end of the second quarter of fiscal 2015, representing an increase of $224.5 million. Average inventory per store increased 18.7%, compared to the second quarter of fiscal 2015. The increase in inventory was primarily driven by 90 net new stores, the opening of the Company’s fourth and fifth distribution centers in Greenwood, Indiana and Dallas, Texas, 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. Average inventory per store, excluding the investment in the new Dallas, Texasdistribution center, increased 14.5%.

The Company ended the second quarter of fiscal 2016 with $304.1 million in cash and short-term investments.

Share Repurchase Program

During the second quarter, the Company repurchased 107,725 shares of its stock at a cost of $25.8 million under its 10b5-1 plan and completed the accelerated share repurchase (ASR) under an agreement entered into in March 2016. Under the ASR agreement, the Company paid $200 million and received initial delivery of 851,653 shares in the first quarter of 2016, which were retired and represented 80% of the total shares the Company expected to receive based on the market price at the time of the initial delivery. In May 2016, the ASR settled and an additional 153,418 shares were delivered to the Company and retired. The final number of shares delivered upon settlement was determined with reference to the average price of the Company’s common stock over the term of the agreement.

Year to date, including the ASR and activity under our 10b5-1 plan, the Company has repurchased 1,270,552 shares at an average price of $198.69. As of July 30, 2016, approximately$193 million remained available under the $425 million share repurchase program announced in March 2016.

Store Expansion

During the second quarter, the Company opened 24 stores located in Asheboro, NC; Baytown, TX; Beavercreek, OH; Canton Township, MI; Chambersburg, PA; Cincinnati, OH;Downey, CA; Elko, NV; Fort Collins, CO; Glenwood Springs, CO; Joliet, IL; King of Prussia, PA; Las Vegas, NV; Lodi, CA; Lufkin, TX; Naples, FL; Norwalk, CT; Oklahoma City, OK;Omaha, NE; Pittsburgh, PA; Porterville, CA; Salinas, CA; Tampa, FL and Yulee, FL. In addition, the Company closed three stores during the quarter. The Company ended the second quarter with 907 stores and square footage of 9,555,192, representing an 11% increase in square footage compared to the second quarter of fiscal 2015.

Outlook

For the third quarter of fiscal 2016, the Company currently expects net sales in the range of $1,072 million to $1,090 million, compared to actual net sales of $910.7 million in the third quarter of fiscal 2015. Comparable sales for the third quarter of 2016, including e-commerce sales, are expected to increase 11% to 13%. The Company reported a comparable sales increase of 12.8% in the third quarter of 2015.

Income per diluted share for the third quarter of fiscal 2016 is estimated to be in the range of $1.25 to $1.30. This compares to income per diluted share for the third quarter of fiscal 2015 of $1.11.

The Company is raising its previously announced fiscal 2016 guidance. The Company plans to:

  • achieve comparable sales growth of approximately 11% to 13%, including the impact of the e-commerce business, compared to previous guidance of 10% to 12%;
  • increase total sales in the high teens percentage range;
  • grow e-commerce sales in the 40% range;
  • expand square footage by approximately 11% with the opening of 100 net new stores;
  • remodel 12 locations;
  • deliver earnings per share growth in the low to mid-twenties percentage range, compared to previous guidance of low twenties percentage range, including the impact of the newDallas distribution center, the accelerated rollout of prestige brand boutiques, the accelerated share repurchase program, and continued open market share repurchases; and
  • incur capital expenditures in the $390 million range in fiscal 2016, compared to $299 million in fiscal 2015. The planned increase in capital expenditures includes approximately $80 million to fund an accelerated rollout of prestige brand boutiques and enhancements to the Ulta Beauty Collection and fragrance fixtures in hundreds of stores. (Original Source)

Shares of Ulta Salon are down nearly one percent to $268.95 in pre-market trading. ULTA has a 1-year high of $278.63 and a 1-year low of $146.77. The stock’s 50-day moving average is $259.28 and its 200-day moving average is $215.80.

On the ratings front, ULTA has been the subject of a number of recent research reports. In a report released yesterday, Robert W. Baird analyst Drew North reiterated a Buy rating on ULTA, with a price target of $300, which represents a potential upside of 10.1% from where the stock is currently trading. Separately, on August 22, Piper Jaffray’s Stephanie Wissink reiterated a Buy rating on the stock and has a price target of $290.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Drew North and Stephanie Wissink have a total average return of 15.8% and 7.6% respectively. North has a success rate of 50% and is ranked #2460 out of 4127 analysts, while Wissink has a success rate of 60% and is ranked #497.

Overall, 6 research analysts have assigned a Hold rating and 6 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 $270.83 which is -0.6% under where the stock opened today.

Ulta Salon, Cosmetics & Fragrance, Inc. operates as a beauty retailer in U.S. The company, through its stores, offers beauty products across the categories of cosmetics, fragrance, hair-care, skincare, bath and body products and salon styling tools, as well as salon hair care products. It also offers a full-service salon in all of its stores.