Ulta Surpasses Zacks Estimate - Analyst Blog

Ulta Salon, Cosmetics & Fragrance Inc. (ULTA) posted its third-quarter 2010 adjusted earnings of 25 cents per share, which were well ahead of the Zacks Consensus Estimate of 20 cents. Including one-time compensation charges, Ulta Salon recorded a quarterly net income of $14.2 million or 23 cents per share, well above $8.5 million or 14 cents recorded in the year-earlier quarter.

Total revenue in the quarter under review surged 19.4% year over year to $339.2 million. The increase was driven by a rise in comparable store sales, which escalated 12.2% from a hike of 1.5% in the prior-year quarter. Management pointed out that the enhancement was spread across all major categories and generated this marked improvement in results, amid a sluggish economic recovery, based on strategies implemented in 2009, dynamic marketing initiatives and renowned brands.

Inside the Headline Numbers

Gross margin expanded 280 basis points (bps) year over year to 35.1%, mainly on account of cost reductions derived from improved supply chain and leverage in marketing.

Selling, general and administrative expenses, as a percentage of sales, slipped down 30 bps to 26.6%. Accordingly, operating income more than doubled year over year to $24.3 million, while operating margin grew 200 bps to 7.2%.

Financial Position

Ulta ended the quarter with cash and cash equivalents of $8.4 million, and no debt in its balance sheet.

Merchandise inventories at the end of the quarter stood at $301.6 million, compared with $274 million at the end of the previous quarter. The increase was mainly due to an addition of 39 net new stores since October 31, 2009. Moreover, average inventory per store dropped 1.1% year over year due to better inventory management initiatives.

Store Update

Ulta opened 30 stores in the quarter, bringing the total number of stores to 384. The company has opened approximately 47 new stores, remodeled 13 stores and relocated 5 stores till date.

Outlook

Ulta expects its earnings growth to expand further in the fiscal fourth quarter. The company expects its adjusted earnings per share to remain between 40 cents and 42 cents, a significant growth from 34 cents recorded in the year-earlier quarter, aided by Ulta's sound marketing, merchandising and stores expansion strategies.

Net sales are estimated between $447 million and $456 million based on a comparable-store sales rise of 4% to 6%. Management also remains optimistic about driving traffic, riding on leverage in value offerings and introduction of new brands.

Our Take

The company reported better-than-expected results and introduced exciting merchandising and marketing programs to attract customers in the holiday period. We also expect an upward movement in estimates over the coming days.

Meanwhile, one of Ulta's competitors, Regis Corp. (RGS) reported its first-quarter 2011 net earnings of 30 cents per share, in line with the Zacks Consensus Estimate.

 
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