The Street Agrees: Buy Ulta Beauty On Q4 Earnings Beat

Retailer Ulta Beauty Inc ULTA reported fourth-quarter results that came in better than expected, including a 9.4-percent same-store sales increase versus expectations of 7.9 percent. Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

• Credit Suisse's Michael Binetti maintains an Outperform rating on Ulta Beauty with a price target lifted from $340 to $380.
• Wells Fargo's Ike Boruchow maintains at Outperform, price target lifted from $280 to $350.
• UBS' Michael Goldsmith maintains at Buy, price target lifted from $350 to $365.
• Tigress Financial Partners' Ivan Feinseth.

Shares of Ulta Beauty hit a new 52-week high of $345.24 Friday morning. The stock traded at $340.23 per share at time of publication.

Credit Suisse: Strong In-Store Experience

Ulta Beauty's earnings report marks the first time since mid-2017 when same-store sales and gross margins (up 90 basis points year over year to 34.9 percent) beat the Street's estimates, Binetti said in a research report. Transaction growth accelerated from 5.6 percent on a two-year stack last quarter to 7.6 percent.

Online sales growth slowed from 42 percent in the third quarter to 25 percent, but in-store same-store sales rose 4.4 percent to 7 percent. The analyst said this demonstrates the company is able to "control the power consumer migration" to online with the help of a strong in-store experience.

Wells Fargo: Momentum Is Back

Ulta's stock has been hotly contested by bulls and bears over the past two years but Thursday's print marks the return to top-line momentum, Boruchow said in a research report. The retailer showed its best comp in a year coupled with new margin visibility from expanding merchandises, lower promotional activity, supply chain improvements, and an acceleration of in-store comps which offsets some of the e-commerce related headwinds.

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UBS: Bull Vs. Bear Debate Not Settled

Bulls will look at Ulta's 2019 comp guidance range of 6-7 percent and expect fourth-quarter trends will continue, Goldsmith said in a research report. Bulls will also expect recent margin improvements to continue throughout the year from continued cost optimization improvements. On the other hand, bears will argue momentum is likely to slow down and margin pressure in the first half of 2019 will justify a compression in the stock's multiple.

For now, the bulls may be winning the debate as recent first-hand checks suggest the first quarter is "off to a solid start." The analyst said investors will be able to look passed any operating margin contraction in the first half of the year so long as there are no gross margin surprises.

Tigress: Kylie Jenner Partnership

Ulta's strong earnings report was in part driven by Kylie Jenner's exclusive cosmetics line, Feinseth said in his daily newsletter. The celebrity billionaire boasts 114 million follows on Instagram and her ability to "reach and motivate" the large base represents a powerful sales and traffic driver for the beauty company.

Ulta is also focused on improving the operational infrastructure of its business and expanding loyalty and e-commerce offerings, the analyst wrote.

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