Ulta Beauty Inc (ULTA) Well-Positioned Heading into Q2 Print: William Blair

Ulta Beauty Inc (NASDAQ:ULTA) will release second quarter results on Thursday, August 24th and analyst Daniel Hofkin of William Blair is out with a research note predicting strong growth ahead. When weighing a number of metrics like prestige boutique rollouts, new TV advertising, and acceleration of loyalty member growth along with branding and marketing initiatives, the analyst believes that the largest beauty retailer in the U.S. is all set to hand in stellar sales outclassing expectation in the foreseeable future.

Even though some on the Street are nervously buzzing when discussing a looming rival like Amazon or department-store promotional activity, even in an “increasingly uncertain” broader retail landscape, Hofkin finds Ulta is handling the environment just fine.

Seeing eye to eye with consensus, Hofkin estimates EPS this year to hit $8.30. Less bullish than consensus at $9.89, the analyst expects Ulta’s EPS to grow to $9.80 by 2018 with growth averaging beyond 20% down the line. Expecting the business is progressing right “on track,” Hofkin sees room for prospective “moderate” upside to his comparable sales expectations that mirror consensus of 12%. Notably, forecasts reach the top-end of the retailer management team’s guide looking for 10% to 12%.

Elaborating on comp sales for a company boasting a “healthy business outlook,” the analyst opines: “Our expectation for gradual comp sales moderation in the quarter, and potentially going forward, partly reflects the law of large numbers, as well as our estimate that last year’s developments […] guidance and estimates for Ulta’s second-quarter comps imply a greater degree of sequential deceleration than the overall beauty industry on both a one- and two-year basis.”

Hofkin further notes “Ulta Beauty remains well positioned to deliver strong, better-than-expected sales and earnings growth in the coming years (with EPS growth averaging 20%-plus), helped by a unique one-stop assortment of brands/products and services, a low-pressure in-store shopping environment, a robust ulta.com business helped by an increasingly seamless experience with the stores, and a powerful ULTAmate Rewards loyalty program.”

By comparing Ulta to competitors like Sephora North America and Nordstrom, both of which saw strong second quarterly sales mix results relative to their respective first quarters, Hofkin speculates that Ulta may actually surpass his expectations on sales comps- particularly with continued strength in store traffic. Therefore, though some investors have pinpointed apprehensions circling department-store promotions in the beauty category, Hofkin on back of his own store checks remains unfazed by differences or impact from promotional levels, bullish on Ulta’s prospects heading into the print.

Determining that “the greater-than-20% pullback in the shares over the past three months as providing a more attractive valuation,” the analyst maintains ULTA as an Outperform without designating a price target. (To watch Hofkin’s track record, click here)

TipRanks analytics demonstrate ULTA as a Buy. Out of 12 analysts polled by TipRanks in the last 3 months, 5 are bullish, while 7 are sidelined on Ulta Beauty stock. With an upside potential of 34%, the stock’s consensus target price stands at $319.50.

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