By Charlene Zhang
Medill Reports

Ulta Beauty Inc. (NASDAQ: ULTA) stock soared 7.6 percent on Friday after the company announced strong fourth quarter results Thursday following market close. Helped by a tax benefit, net income increased 48.5 percent to $208.2 million, or $3.40 per diluted share, compared with $140.2 million, or $2.24 per diluted share, in the same period a year earlier.

“We achieved strong sales and earnings growth in the fourth quarter, while continuing to gain market share and make significant progress on our strategic imperatives,” CEO Mary Dillon said in a prepared statement during the conference call.

Adjusted earnings per diluted share excluding the tax bill benefit were $2.75, missing the analysts’ estimate by 3 cents.

Net sales increased 22.6 percent to $1.94 billion from $1.58 billion in the fourth quarter a year earlier.

Answering a question from Oliver Chen, managing director at Cowen equity research, about the company’s edge over Amazon and other competitors, Dillon said, “I believe we are really well-positioned to really be a leader in this category for many years to come, both in the physical space as well as digital.”

She said that “price points, a great in-store experience and online experience” together are reasons Ulta has loyal customers.

In notes published by Chen’s research team, despite the company’s excellent financial results in 2017, Ulta Beauty is deemed to face headwinds in 2018: e-commerce growth that will carry a lower margin due to current penetration of the market, elevating labor cost as the company expands prestige brand boutiques, and a continuing slowdown in Ulta’s largest category of cosmetics.

Chief Financial Officer Scott Settersten said that in addition to utilizing store warehouse inventory fulfillment tool Swift, Ulta will continue to make significant investments to optimize its supply chain network and improve operational efficiency.

The company’s other investment initiatives include artificial intelligence and data for personalization for loyalty program members and bringing more prestige skincare brands, according to Dillon.

In her prepared statement Dillon responded to recent lawsuits alleging that Ulta Beauty has resold used products, “We do not sell used, damaged or expired products, and have zero tolerance for any actions that would compromise the integrity of the products.”

Ulta Beauty’s net income in 2017 increased 35.5 percent to $555.2 million, or $8.96 per diluted share, from $409.8 million, or $6.52 per diluted share, in 2016.

Adjusted earnings per diluted share excluding a 65-cents tax reform benefit and a 15-cents benefit due to accounting for share-based payments was $8.16 compared with $6.52 in 2016.

Sales in 2017 increased 21.2 percent to $5.89 billion from $4.85 billion in 2016.

The stock surged to $221.88, up $15.74.