Ulta shares drop despite earnings surge and upbeat outlook

By Siyuan Du

Ulta Salon, Cosmetics & Fragrance Inc. reported a 34 percent increase in quarterly net income, driven by strong growth in both retail and online traffic and sales.

Sales increased 21.6 percent to $868.1 million, and comparable sales increased 11.4 percent.

The results, released late Thursday, sent the company’s shares up 2.3 percent initially in after-hours trading. But on Friday, Ulta reversed course, closing down $3.65, or 2.34 percent at $152.62.

“We achieved our best comparable sales growth since 2011, driven by strong traffic growth in both retail and e-commerce, market share gains across all categories, and continued successful execution of our marketing strategies,” said Mary Dillon, chief executive officer.

The company earned $66.9 million, or $1.04 per diluted share, for the quarter ended May 2, compared with $50 million, or 77 cents per diluted share, in the year earlier quarter.

The results beat the analysts’ consensus expectation of 93 cents per diluted share, according to Bloomberg L.P.

According to Mark Altschwager, analyst with Robert W. Baird & Co., Ulta is a top growth retail company because of the shifting trend from department stores to specialty retailers, the company’s one-stop shopping concept and its expanding loyalty program.

The beauty retailer expects to earn $1.07 to $1.12 per diluted share for the second quarter, compared with 94 cents for the year earlier quarter. Analysts’ consensus expectation of its second-quarter earnings is $1.10 per diluted share, according to Bloomberg L.P.

The company raised its estimate of comparable sales growth for full-year 2015 to between 7 percent and 9 percent from its previous estimate of 6 percent to 8 percent.

“We believe the solid momentum in the first quarter has been continued and underscored by management’s confidence in its current product pipeline and 9 percent growth in per store inventory levels,” Kelly Halsor, analyst with the Buckingham Research Group, wrote in a note.

According to Halsor, new stores, ecommerce, new products and salon services are the main drivers of Ulta’s accelerating growth trend.

Photo at top: Ulta store on State Street in Chicago (Siyuan Du/Medill)