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Ulta Beauty actual and target prices

SHENG Xin, MEDILL

Wall Street analysts raised their target price after Ulta Beauty's strong first quarter earnings report. In the background, Ulta's big State Street store.


Analysts, investors exult over Ulta

by Xin SHENG
Jun 12, 2013


Ulta Beauty EPS GAAP

SHENG Xin, MEDILL

Ulta Beauty's earnings per share have risen sharply and consistently, with hefty spikes at holiday time. First quarter 2013 EPS was 65 cents.

Ulta Beauty sales 2

SHENG Xin, MEDILL

Ulta Beauty's rising profits are solidly supported by year-over-year quarterly sales increases. First quarter 2013 sales jumped 22.9 percent to $582.7 million from $474.1 million in the first quarter of fiscal 2012.

 

Analysts and investors are even more bullish on Bolingbrook-based Ulta Salon, Cosmetics & Fragrance Inc. after its unexpectedly strong first quarter earnings report released late Tuesday.


Ulta shares surged Wednesday $13.37, or 16 percent, to $97.50, and analysts boosted their target price to $104.50 from $101.88 a day earlier, according to surveys by Bloomberg.

 

In the quarter ended May 4, 2013, net income increased 20 percent to $41.8 million, or 65 cents per diluted share from $34.9 million, or 54 cents per diluted share, in the first quarter of 2012. Analysts surveyed by Bloomberg LP had been expecting 62 cents.

Net sales increased 22.9 percent to $582.7 million from $474.1 million. Sales at stores open at least a year rose 6.7 percent.

 

Ulta Beauty’s price to earnings ratio is 36.12, while the Standard & Poor ratio is 18.38.

 
Eight out of 13 analysts who rate the stock call it a buy; five analysts say hold, in the Bloomberg survey. 

Ike Boruchow, an analyst with Stern, Agee & Leach Inc., on Wednesday reiterated his buy rating and raised his price target to $100 from $98.

“As one of the most ‘feared’ names in our group, Ulta shares deserve a re-rating following a solid Q1 beat and improved margin outlook, ” Boruchow wrote in a research note to clients. “Ulta remains a ‘category killer’ with its unique model which continues to drive impressive top-line growth.”

Boruchow said that Ulta Beauty has a “superb business model” in which the three beauty industry distribution channels -- prestige, mass channel, and salon--are combined under one roof. “We estimate Ulta still has 5-7 years of 15-20 percent footage growth ahead of it."

 
Evren Kopelman, senior analyst with Wells Fargo Securities LLC, raised the valuation range to $103 to $107 from $94 to $98. Kopelman said the slight premium is due to the solid performance and increased confidence in future growth trends in a research note on June 12.

Meanwhile, Kopelman also raised his 2014 earnings per share estimate from $4.09 to $4.12 and maintained his 2013 earnings per share estimate of $3.28.

“Importantly, Ulta’s industry-leading growth will continue to be driven by the rollout of the Clinique/Lancome boutiques, the updated loyalty program and CRM initiatives as well as ongoing strength of new stores, ” Kopelman wrote in the research note. “We think Ulta has the opportunity to double its store base and become the dominant beauty superstore in the U.S. ”

Joseph Altobello, an analyst with Oppenheimer & Co Inc, raised his 2013 earnings per share estimate by 2 cents to $3.32 based on the company’s better-than-expected first quarter earnings.

However, Altobello is cautious about Ulta’s performance and points out potential problems.  He is maintaining his hold rating on Ulta.

“While we like the company’s category killer strategy and believe it is executing well,” Altobello said. “The slowdown in comp growth and our skepticism regarding gross margin expansion don’t necessarily argue for meaningful multiple expansion near term.”
 
During the first quarter Ulta Beauty opened 28 stores, including Ann Arbor, Mich.; Branson, Mo.; Carmel, Ind.; Carson City, Nev. The company ended the first quarter with 576 stores and square footage of 6,121,399, which represents a 24 percent increase in square footage compared with the first quarter of fiscal 2012.

The company said it expects to open approximately 32 stores in the second quarter, 55 stores in the third quarter and 15 stores in the fourth quarter of 2013. All of Ulta Beauty’s stores have a 10,000-square-foot footprint. Two-thirds of the new stores for 2013 are located in existing markets; one-third are in new markts to Ulta. In 2012 Ulta opened 102 new stores. All of Ulta’s stores are company-owned, and it has no plans to franchise.

“We continue to gain market share by offering a broad assortment of mass, prestige and salon products and services,” Laurel Lefebvre, vice president of investor relations, said in an interview. “Having the right product assortment meshed with a great guest experience in convenient locations continues to drive rapid growth. ”

Lefebvre also said that the primary driver of Ulta growth has been the introduction of new brands, products and services. Ulta is introducing new product lines, including Perricone MD’s skincare products, St. Tropez luxury bronzing products, Lipstick Queen—a line of lipsticks with a cult following, she said--and Deborah Lippman prestige nail lacquer. Ulta is also expanding the number of Clinique boutiques, and rolling out its exclusive CK One cosmetics brand to all of its locations.

 

Customers interviewed at Ulta's huge State Street store said they like its affordable prices. 

Laura Sunders, 17, shops frquently at Ulta. She likes a brand called “NYX,” which is sold in Ulta. “Their prices are really good,” Sunders said. “They are affordable for me, especially I am only 17, so I can’t afford really expensive make up.”

Ihoana Miranda, 27, a medical assistant, said she shops at Ulta once or twice a month. Her favorite brand is also NYX. “They have really good stuff with very good prices,” Miranda said. “I really like that.”


Tina Leggattte, a 50-year-old employee of another retail chain, said she's shopped at Ulta four times in the past year, especially during holiday season. She likes to see what's new. Leggattte said she's had "nice experience in the store; some of the associates that I've met have been very helpful and friendly."

With Wednesday's leap, Ulta stock has recovered nearly all its loss suffered in the wake of the February resignation of CEO Chuck Rubin, who left to become chief executive officer at Michaels Stores Inc., a retailer of arts and crafts. Shares plummeted from $99 to $74 in March. The 52-week closing high, set last January, was $101.99.