Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) announced financial results for the thirteen week period ended April 30, 2016 (“First Quarter”), which compares to the same period ended May 2, 2015.

“We are off to a phenomenal start to the year, delivering excellent top and bottom line growth in the first quarter,” said Mary Dillon, Chief Executive Officer. “Several positive factors are coming together to drive the momentum in our business, exemplified by the best comparable sales growth in our history as a public company. These include healthy consumer demand in the beauty category, our unique format and offering which are supporting sustained share gains, and effective collaboration across the enterprise to ensure strong execution of our growth strategies.”

For the First Quarter

  • Net sales increased 23.7% to $1,073.7 million from $868.1 million in the first quarter of fiscal 2015;
  • Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 15.2% compared to an increase of 11.4% in the first quarter of fiscal 2015. The 15.2% same store sales increase was driven by 11.0% growth in traffic and 4.2% growth in average ticket;
  • Retail comparable sales increased 13.9%, including salon comparable sales growth of 7.7%;
  • Salon sales increased 14.7% to $58.9 million from $51.3 million in the first quarter of fiscal 2015;
  • E-commerce sales grew 38.8% to $61.0 million from $44.0 million in the first quarter of fiscal 2015, representing 130 basis points of the total company comparable sales increase of 15.2%;
  • Gross profit increased 150 basis points to 36.4% from 34.9% in the first quarter of fiscal 2015, due to leverage in fixed store costs and increased merchandise margins;
  • Selling, general and administrative expense as a percentage of net sales increased 20 basis points to 22.4% compared to 22.2% in the first quarter of 2015;
  • Pre-opening expenses were $2.5 million, compared to $3.1 million in the first quarter of fiscal 2015. Real estate activity in the first quarter of fiscal 2016 included 13 new stores compared to 24 new stores and one relocation in the first quarter of fiscal 2015;
  • Operating income increased 36.8% to $147.2 million, or 13.7% of net sales, compared to $107.6 million, or 12.4% of net sales, in the first quarter of fiscal 2015;
  • Tax rate decreased to 37.6% compared to 38.0% in the first quarter of fiscal 2015;
  • Net income increased 37.4% to $92.0 million compared to $66.9 million in the first quarter of fiscal 2015; and
  • Income per diluted share increased 39.4% to $1.45 compared to $1.04 in the first quarter of fiscal 2015.

Balance Sheet

Merchandise inventories at the end of the first quarter of fiscal 2016 totaled $843.5 million, compared to $662.9 million at the end of the first quarter of fiscal 2015, representing an increase of $180.6 million. Average inventory per store increased 14.5%, compared to the first quarter of fiscal 2015. The increase in inventory was driven by 89 net new stores, the opening of the Company’s fourth distribution center in Greenwood, Indiana, 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 first quarter of fiscal 2016 with $369.3 million in cash and short-term investments.

Share Repurchase Program

During the first quarter, the Company repurchased 157,765 shares of its stock at a cost of $26.7 million under its 10b5-1 plan and in March 2016, the Company entered into an accelerated share repurchase agreement with Goldman, Sachs & Co. to repurchase $200.0 million of its common stock. Under the agreement, the Company paid $200.0 million and received initial delivery of 851,653 shares in the first quarter of 2016, which represents 80% of the total shares the Company expects to receive based on the market price at the time of the initial delivery. The final number of shares delivered upon settlement of the agreement will be determined with reference to the average price of the Company’s common stock over the term of the agreement. As of April 30, 2016, approximately $219 million remained available under the $425 million share repurchase program announced inMarch 2016.

Store Expansion

During the first quarter, the Company opened 13 stores located in Dover, DE; Eldersburg, MD; Morgantown, WV; Muskogee, OK; Orlando, FL; San Clemente, CA; Sarasota, FL; Suffolk, VA; Tucson, AZ; Warren, MI; Washington, D.C.; Waxahachie, TX and Wooster, OH. In addition, the Company closed one store. The Company ended the first quarter with 886 stores and square footage of 9,348,577 which represents an 11% increase in square footage compared to the first quarter of fiscal 2015.

Outlook

For the second quarter of fiscal 2016, the Company currently expects net sales in the range of $1,041 million to $1,058 million, compared to actual net sales of $877.0 million in the second quarter of fiscal 2015. Comparable sales for the second quarter of 2016, including e-commerce sales, are expected to increase 11% to 13%. The Company reported a comparable sales increase of 10.1% in the second quarter of 2015.

Income per diluted share for the second quarter of fiscal 2016 is estimated to be in the range of $1.32 to $1.37. This compares to income per diluted share for the second quarter of fiscal 2015 of $1.15.

The Company is raising its previously announced fiscal 2016 sales and earnings per share guidance. The Company plans to:

  • achieve comparable sales growth of approximately 10% to 12%, including the impact of the e-commerce business, compared to previous guidance of 8% to 10%;
  • increase total sales in the high teens percentage range, compared to previous guidance of mid to 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 twenties percentage range, compared to previous guidance of 18% to 20%, including the impact of the new Dallas 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 Cosmetics are up over 6% to $227.25 in after-hours trading. ULTA has a 1-year high of $214.44 and a 1-year low of $120.38. The stock’s 50-day moving average is $206.10 and its 200-day moving average is $183.58.

On the ratings front, ULTA has been the subject of a number of recent research reports. In a report issued on May 23, Oppenheimer analyst Rupesh Parikh reiterated a Buy rating on ULTA, with a price target of $235, which represents a potential upside of 9.8% from where the stock is currently trading. Separately, on May 16, Wells Fargo’s Ike Boruchow reiterated a Hold rating on the stock .

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Rupesh Parikh and Ike Boruchow have a total average return of 19.0% and 4.7% respectively. Parikh has a success rate of 67.5% and is ranked #23 out of 3869 analysts, while Boruchow has a success rate of 56.4% and is ranked #858.

The street is mostly Bullish on ULTA stock. Out of 14 analysts who cover the stock, 9 suggest a Buy rating and 5 recommend to Hold the stock. The 12-month average price target assigned to the stock is $214.80, which represents a slight upside potential from current levels.

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. Ulta Salon, Cosmetics & Fragrance was founded on January 9, 1990 and is headquartered in Bolingbrook, IL.