Earnings preview: Ulta Beauty to thrive on digital push, comp sales in Q1

Ulta Beauty (Nasdaq: ULTA), a specialist in spa and beauty products, stands out among peers for expanding its market share steadily even when the market conditions turned hostile. The company’s April-quarter results are scheduled to be published Thursday after the market’s close.

The projected earnings of $3.06 per share represent a 13% increase from the year-ago period. The positive forecast reflects an estimated growth of 13% in net sales to $1.75 billion, which is slightly above the management’s guidance range.

The results are expected to benefit from the rapidly expanding e-commerce division and strong new store productivity. Ulta Beauty ended the fourth quarter with 1,107 stores with total square footage that is about 12% higher compared to the year-ago period.

The results are expected to benefit from the rapidly expanding e-commerce division and strong new store productivity

Ever since the company returned to growth mode last year, after making a few strategic investments, it recorded improvement in sales and margin regularly. The initiatives continue to yield results, bringing cheer to investors who can look forward to yet another upbeat quarterly report. The company was quite successful in overcoming the general slump the cosmetic industry witnessed in the early part of last year.

GROWTH DRIVERS

The favorable inventory position, after last year’s clearance sales that helped the company during the holiday season, is expected to boost comparable-store performance and gross margin during the remainder of the year. Competitive pricing, both in-store and online, will add to margin growth.

Meanwhile, it is speculated that growth, in terms of sales and market share, might not be as strong as it was last year, the second half of which was exceptionally good for the beauty sector. Particularly, existing stores will likely witness a slowdown due to the continuing shift to online shopping.

LOOKING BACK

On the back of stronger-than-expected comparable sales growth, Ulta Beauty’s earnings and revenues increased sharply in the fourth quarter, continuing the recent trend. Net sales climbed 10% annually to $2.12 billion, driving earnings higher by 6% to $3.61 per share. Both store sales and e-commerce sales moved up, helped by new store openings and solid online traffic.

The stock, one of the high-growth derivatives that gained consistently over the years, reached an all-time high last month, crossing the $350-mark for the first time. After suffering a major loss towards the end of last year, the shares gained 35% so far this year. Over the past twelve months, they advanced 36%.

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