Ulta's Q1 Was A Real Beauty

While Ulta Beauty Inc ULTA seems unaffected by retail’s poor landscape, Buckingham research analyst Kelly Halsor lowered his rating to Neutral and raised the price target to $330.

The leading beauty-product retailer reported very strong earnings on Thursday as they continue to capture a larger market share through building and maintaining customer loyalty. However, Halsor is “moving to the sidelines based on a more balanced risk/reward at current levels. ULTA remains one of the fastest growing companies in retail and we see no signs of a slowdown in the business near-term as the company continues to take meaningful share in the growing prestige beauty category.”

A Lot To Like About Ulta

Fueled by a transaction growth rate of 8.7 percent and an e-commerce industry that grew by 71 percent, Ulta’s 14.3 percent comps greatly exceeded expectations. According to Halsor, this was driven by:

• Growth in the prestige cosmetic industry.
• Ulta’s loyalty program reached 24.5 million users (up 26 percent year over year).

Halsor concluded by noting that there is further upside to Ulta’s fiscal year 2017 guidance, but it is largely already priced in. “ULTA's premium valuation is supported by substantial expected future EPS beats, making the stock susceptible to a pullback in shares on any indication of [a] slowdown in growth. As such, we will move to the sidelines for now and recommend investors remain opportunistic around valuation to add to positions.”

Ulta was trading up nearly $12 at $304.88 at time of writing.