Ulta Salon Tops, Maintains Momentum on Astini News
, On Friday September 9, 2011, 1:30 pm EDT
Ulta Salon, Cosmetics & Fragrance Inc. (NasdaqGS: ULTA - News) posted second quarter 2011 earnings of 38 cents per share, which surpassed the Zacks Consensus Estimate of 32 cents. Quarterly earnings shot up 72.7% from the year-ago quarter earnings of 22 cents per share and also beat management's guided range of 31 cents to 33 cents.
The better-than-expected results were due to double-digit growth in the top line resulting from robust guest count.
Quarter Highlight
Net sales in the reported quarter increased 22.6% year over year to $394.6 million and were well above management's projected range of $378.0 million to $384.0 million. The year-over-year increase was driven by higher comparable store sales, which escalated 11.3% from 10.8% reported in the prior-year quarter. The company also benefited from unit expansion and double-digit online growth.
Gross margin expanded 170 basis points (bps) year over year to 34.0% in the second quarter, mainly attributable to cost reductions through improved supply chain and marketing leverage.
Selling, general and administrative expenses, as a percentage of sales, slipped 180 bps to 23.0% during the quarter.
In the reported quarter, operating income surged 72.7% year over year to $78.7 million, while the operating margin grew 300 bps to 10.1%.
Financial Position
Ulta ended the quarter with cash and cash equivalents of $142.5 million and had no debt on its balance sheet.
Merchandise inventories at the end of the quarter stood at $258.8 million compared with $224.3 million at the end of the previous quarter. The increase was mainly due to the addition of 59 new stores since July 31, 2010. However, average inventory per store dropped 1.1% year over year on the back of better inventory management initiatives.
Store Update
Ulta opened 21 new stores in the quarter and remodeled 15 stores, thus bringing the total number of stores to 415.
The company will continue to focus on store expansion and hence, plans to open 61 stores during the full year.
Outlook
Ulta expects its earnings growth to expand further in the third quarter of 2011. The company expects earnings per share between 36 cents and 38 cents, a significant growth from 25 cents in the year-earlier quarter, aided by Ulta's sound marketing, merchandising and stores expansion strategies.
Net sales are estimated in the range of $400 million to $407 million based on a comparable store sales growth of 6% to 8%. During the second quarter, management succeeded in driving traffic based on leverage in value offerings, marketing initiatives, introduction of new brands and customer service and expects the same trend to continue going forward.
Our Take
The company reported better-than-expected results and will continue to introduce exciting merchandising and marketing programs to attract customers in 2011. The beauty retailer has also provided third quarter earnings outlook, which is above the Zacks Consensus estimate of 34 cents. Hence, we expect an upward movement in estimates in the coming days. The Zacks Consensus Estimates for 2011 and 2012 are pegged at $1.63 and $2.04 per share, respectively.
Ulta has a Zacks 3 Rank, implying a short-term Hold rating on the stock. Our long-term recommendation for the stock remains Neutral.
Meanwhile, one of Ulta's competitors, Regis Corp. (NYSE: RGS - News) reported fourth quarter 2011 adjusted net earnings of 37 cents per share, which surpassed the Zacks Consensus Estimate of 30 cents as well as the prior-year quarter earnings of 34 cents per share.
