Ulta Salon, Cosmetics & Fragrance Inc. (ULTA) posted first quarter 2011 earnings of 37 cents per share, which surpassed the Zacks Consensus Estimate of 31 cents. Quarterly earnings shot up 60.9% from the year-ago quarter earnings of 23 cents per share and also beat management’s guided range of 29 cents to 31 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 quarter increased 20.6% year over year to $386.0 million and were also above the Zacks Consensus Estimate of $371.0 million. The increase was driven by a rise in comparable store sales, which escalated 11.1% from 10.8% reported in the prior-year quarter. The company also benefited from unit expansion.
According to management, the enhancement was spread across all major categories and generated this marked improvement in results, amid a sluggish economic recovery, based on dynamic marketing initiatives and brands strategies implemented in 2009.
Gross margin expanded 230 basis points (bps) year over year to 34.9% in the first quarter, mainly attributable to cost reductions through improved supply chain and marketing leverage.
Selling, general and administrative expenses, as a percentage of sales, slipped 70 bps to 24.5% in the quarter.
In the reported quarter, operating income jumped 67.4% year over year to $39.1 million, while the operating margin grew 280 bps to 10.1%.
Financial Position
Ulta ended the quarter with cash and cash equivalents of $116.8 million and did not have any debt on its balance sheet.
Merchandise inventories at the end of the quarter stood at $255.5 million compared with $228.1 million at the end of the previous quarter. The increase was mainly due to an addition of 47 new stores since May 1, 2010. However, average inventory per store dropped 1.3% year over year on the back of better inventory management initiatives.
Store Update
Ulta opened 5 new stores in the quarter and relocated 1 store and remodeled 2 stores, thus bringing the total number of stores to 394.
The company will continue to focus on store expansion and hence, plans to open 61 during the full year.
Outlook
Ulta expects its earnings growth to expand further in the second quarter of 2011. The company expects earnings per share to remain between 31 cents and 33 cents, a significant growth from 22 cents recorded in the year-earlier quarter, aided by Ulta’s sound marketing, merchandising and stores expansion strategies.
Net sales are estimated between $378 million and $384 million based on a comparable store sales rise of 6% to 8%. During the first quarter, management succeeded in driving traffic on the back of leverage in value offerings, marketing initiatives and introduction of new brands 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 also provided second quarter earnings outlook above the Zacks Consensus estimate of 30 cents. Hence, we expect an upward movement in estimates in the coming days. The Zacks Consensus Estimates for 2011 and 2010 are pegged at $1.52 and $1.88 per share.
Meanwhile, one of Ulta’s competitors, Regis Corp. (RGS) reported third quarter 2011 adjusted net earnings of 25 cents per share, which missed the Zacks Consensus Estimate of 31 cents on the back of sluggish same-store sales results.
REGIS CORP/MN (RGS): Free Stock Analysis Report
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