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 29, 2016, which compares to the same periods ended October 31, 2015.

“Ulta Beauty’s top line accelerated in the third quarter, driving record sales and earnings performance,” said Mary Dillon, Chief Executive Officer. “Our associates continue to execute against our growth strategies, resulting in success across several areas: new brand acquisition, increased Ulta Beauty brand awareness, rapid growth in our loyalty program, improving supply chain performance, and robust e-commerce growth.”

For the Third Quarter

  • Net sales increased 24.2% to $1,131.2 million from $910.7 million in the third quarter of fiscal 2015;
  • Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 16.7% compared to an increase of 12.8% in the third quarter of fiscal 2015. The 16.7% comparable sales increase was driven by 11.1% growth in transactions and 5.6% growth in average ticket;
  • Retail comparable sales increased 14.3%, including salon comparable sales growth of 10.3%;
  • Salon sales increased 16.7% to $60.4 million from $51.7 million in the third quarter of fiscal 2015;
  • E-commerce sales grew 59.1% to $73.6 million from $46.2 million in the third quarter of fiscal 2015, representing 240 basis points of the total company comparable sales increase of 16.7%;
  • Gross profit increased 90 basis points to 37.8% from 36.9% in the third quarter of fiscal 2015, due to product margin expansion and leverage in fixed store costs, partly offset by planned supply chain deleverage related to supply chain investments;
  • Selling, general and administrative (SG&A) expense as a percentage of net sales increased 80 basis points to 24.8%, compared to 24.0% in the third quarter of fiscal 2015, primarily due to investments to support growth initiatives and deleverage of corporate overhead costs, in part due to a $1.8 million impairment charge related to a Louisiana store impacted by the August floods;
  • Pre-opening expenses increased to $6.9 million, compared to $6.1 million in the third quarter of fiscal 2015. Real estate activity in the third quarter of fiscal 2016 included 42 new stores, one relocation and six remodels compared to 45 new stores, two relocations and two remodels in the third quarter of fiscal 2015;
  • Operating income increased 26.1% to $139.7 million, or 12.4% of net sales, compared to $110.8 million, or 12.2% of net sales, in the third quarter of fiscal 2015;
  • Net income increased 23.2% to $87.6 million compared to $71.1 million in the third quarter of fiscal 2015; and
  • Income per diluted share increased 26.1% to $1.40 compared to $1.11 in the third quarter of fiscal 2015.

For the First Nine Months

  • Net sales increased 23.3% to $3,274.2 million from $2,655.8 million in the first nine months of fiscal 2015;
  • Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 15.4% compared to an increase of 11.4% in the first nine months of fiscal 2015. The 15.4% comparable sales increase was driven by 10.6% growth in transactions and 4.8% growth in average ticket;
  • Retail comparable sales increased 13.6%, including salon comparable sales growth of 8.7%;
  • Salon sales increased 15.2% to $178.2 million from $154.7 million in the first nine months of fiscal 2015;
  • E-commerce comparable sales grew 50.8% to $190.5 million from $126.3 million in the first nine months of fiscal 2015, representing 180 basis points of the total company comparable sales increase of 15.4%;
  • Gross profit increased 110 basis points to 36.7% from 35.6% in the first nine months of fiscal 2015;
  • SG&A expense as a percentage of net sales increased 70 basis points to 23.1% compared to 22.4% in the first nine months of fiscal 2015. This includes 10 basis points related to the impairment charges in the second and third quarters of fiscal 2016 for the Chicago and Louisiana store closures;
  • Pre-opening expenses increased to $14.2 million, compared to $13.3 million in the first nine months of 2015. Real estate activity in the first nine months of 2016 included 79 new stores, two relocations and eleven remodels compared to 89 new stores, four relocations and four remodels in the first nine months of fiscal 2015;
  • Operating income increased 27.8% to $430.6 million, or 13.2% of net sales, compared to $336.8 million, or 12.7% of net sales, in the first nine months of fiscal 2015;
  • Net income increased 27.0% to $269.5 million compared to $212.2 million in the first nine months of fiscal 2015; and
  • Income per diluted share increased 29.7% to $4.28 compared to $3.30 in the first nine months of fiscal 2015.

Balance Sheet

Merchandise inventories at the end of the third quarter of fiscal 2016 totaled $1,137.0 million, compared to $884.4 million at the end of the third quarter of fiscal 2015, representing an increase of $252.6 million. Average inventory per store increased 16.5%, compared to the third quarter of fiscal 2015. The increase in inventory was primarily driven by 89 net new stores, the scaling up of the Greenwood, Indiana and the opening of the Dallas, Texas distribution centers, 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, Texas distribution center, increased 9.8%.

The Company ended the third quarter of fiscal 2016 with $243.1 million in cash and short-term investments.

Share Repurchase Program

For the first nine months, including the Accelerated Share Repurchase and activity under the 10b5-1 plan, the Company has repurchased 1,449,594 shares of its stock at a cost of $297 million at an average price of approximately $205. As of October 29, 2016, approximately $148 million remained available under the $425 million share repurchase program announced in March 2016.

Store Expansion

During the third quarter, the Company opened 42 stores located in Albuquerque, NM; Allentown, PA; American Fork, UT; Brick, NJ; Brownsville, TX; Castle Rock, CO; Cheyenne, WY; Conway, AR; Danbury, CT; Edmond, OK; Fairfield, CA; Farmington, NM; Fenton, MI; Frisco, TX; Goshen, IN; Houston, TX; Houston, TX; Hutchinson, KS; Lapeer, MI; Las Vegas, NV; Marysville, WA; Menomonee Falls, WI; Meridian, ID; Morristown, TN; Ontario, CA; Orange, CA; Oshkosh, WI; Oxford, MS; Peachtree City, GA; Prattville, AL; Redding, CA; Rochester, NH; San Antonio, TX; Seminole, FL; Shelby Township, MI; Sherman, TX; Smyrna, TN; Temecula, CA; Valley Stream, NY; Warner Robins, GA; Wayne, NJ and Wichita, KS. The Company ended the third quarter with 949 stores and square footage of 10,012,142, representing a 10% increase in square footage compared to the third quarter of fiscal 2015.

Outlook

For the fourth quarter of fiscal 2016, the Company currently expects net sales in the range of $1,516 million to $1,541 million, compared to actual net sales of $1,268.3 million in the fourth quarter of fiscal 2015. Comparable sales for the fourth quarter of 2016, including e-commerce sales, are expected to increase 12% to 14%. The Company reported a comparable sales increase of 12.5% in the fourth quarter of 2015.

Income per diluted share for the fourth quarter of fiscal 2016 is estimated to be in the range of $2.08 to $2.13. This compares to income per diluted share for the fourth quarter of fiscal 2015 of $1.69.

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

  • achieve comparable sales growth of approximately 13% to 15%, including the impact of the e-commerce business;
  • increase total sales in the low twenties percentage range, compared to previous guidance of high teens percentage;
  • 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 high twenties percentage range, compared to previous guidance of mid-twenties percent growth, including the impact of the new Dallasdistribution 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 roes nearly 5% to $269.50 in after-hours 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 $256.51 and its 200-day moving average is $245.20.

On the ratings front, ULTA stock has been the subject of a number of recent research reports. In a report released yesterday, Deutsche Bank analyst Michael Baker maintained a Hold rating on ULTA, with a price target of $280, which represents a potential upside of 8% from where the stock is currently trading. Separately, on November 10, Oppenheimer’s Rupesh Parikh reiterated a Buy rating on the stock and has a price target of $300.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Michael Baker and Rupesh Parikh have a yearly average return of 5.5% and 17.2% respectively. Baker has a success rate of 66% and is ranked #416 out of 4243 analysts, while Parikh has a success rate of 62% and is ranked #53.

Overall, 3 research analysts have 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 $296.67 which is 14.2% above 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.