Ulta Beauty Reported Another Strong Quarter With No Slowdown In Sight

Ulta Beauty Inc ULTA reported another better-than-expected quarterly print, with comp and EPS growth stole the limelight along with e-commerce, loyalty card and new product introductions being notable positives.

Brief Recap

• Ulta reported fourth-quarter EPS $2.24 versus the estimated $2.13.
• Sales came in at $1.581 billion versus the estimated $1.54 billion.
• Comps came in up 16.6 percent.
• Ulta Beauty sees first-quarter EPS coming in at $1.75–$1.80 versus the estimated $1.80.
• The company guides sales between $1.244 billion–$1.265 billion versus the estimated $1.54 billion.
• Ulta expects FY comps growth between 8 and 10 percent.

Analyst Commentary: Ulta Should Beat Guidance

“While it may be hard to assume a continuation of mid-teens comps, we do believe that ULTA has the drivers in place to maintain materially above average comps relative to other retailers,” Deutsche Bank analyst Mike Baker wrote in a note.

Baker believes the company should higher traffic from product newness, while comps should be boosted by e-commerce as its loyalty program keeps shoppers sticky to their site. Ulta may also gain share from the recent department store closings.

However, the company’s conservative guidance is weighing on the stock, especially first quarter sales forecast missing consensus. On the comp line, the 8–10 percent guide for the full year is similar to their original guidance last year when the company came in at 15.8 percent. For the first quarter, the comp plan is 9–11 percent, which is the lowest guidance in a year.

But, Baker said Ulta Beauty can top its guidance as it has beaten the last four quarters by an average of 4 percent and the last three years’ original plan by an average of 5 percent.

“So, while it is natural to assume some slowdown in comps, we would still expect ULTA to beat these forecasts,” Baker explained.

Hold Rating Explained

That said, the analyst maintains his Hold rating and $295 price target on the shares.

“[T]here may be concern that increased investments and the lapping of some benefits may mean less upside to the likely conservative guidance. All of this, as well as the high multiple, keep us at a Hold rating,” Baker added.

Shares of Ulta Beauty closed Thursday’s trading at $273.77. In the pre-market hours Friday, shares fell 1.95 percent to $268.44. However, at time of publication, Ulta shares were up 3.05 percent at $282.12.

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