Ulta set for solid fourth quarter results with eye on making-over stores

A woman enters an Ulta location on State Street in downtown Chicago.

By Bethel Habte

Ulta Salon, Cosmetics & Fragrance Inc. doesn’t need to cover up. The 25-year-old retailer based in Bolingbrook, Illinois is poised to produce another strong earnings report Thursday.

Reflecting robust performance, the stock has ranged from $83.54 to $143.69 in the past 52 weeks and closed near its peak on Tuesday at $140.47. The stock’s price-to-earnings ratio is a potent 37.56 compared to the S&P 500’s 20.50.

Thursday’s earnings report, for the fourth quarter ended Feb. 2, 2015, will include the company’s holiday results.

The consensus estimate is $1.27 per diluted share, compared with $1.09 in the year-earlier quarter.

Analysts estimate annual profits will show a rise of 15.4 percent to $81.60 million from $70.68 million in the year-earlier period in the year ended February 2015.

[field name=”ultaprofits”]

The fiscal year is a 52-week period ending about Feb. 1. (Bethel Habte/Medill)

Estimates call for the company to break the billion-mark in sales to $1.01 billion. Sales were $868.08 million in the year-earlier quarter.

Ulta has reported more than 20 percent year-over-year sales growth for three consecutive years. Annual revenues were $2.22 billion in the year ended February 2013, a 25 percent increase from the year earlier.

Oliver Chen, analyst at Cowen & Co., says the company’s focus on creating a shopping “experience” has led to singular success.

“ULTA’s unique shopping format is a differentiated crowd pleaser which keeps loyal customers coming back,” Chen stated in a note to his clients.

Analyst Rupesh Parikh of Oppenheimer & Co Inc. noted that the company’s “proven store prototype” has shielded its brick-and-mortar stores from direct competition with online retailers. Ulta stores also offer in-store make-up tutorials as well as full-scale salon services.

Ulta has simultaneously embraced Web integration. The company coincided a 2013 redesign of its website with an expansion of its loyalty program to online customers. The company has also added video tutorials and online beauty consultations. The company reported a 74.4 percent rise in e-commerce sales following the redesign.

Chen added the company’s offering of both high-end and mass brands has also helped to differentiate it in the beauty market.

But despite the wealth of beauty products inside its stores, Ulta has an aging problem.

Chen noted that by fiscal year 2018, about 55 percent of the stores will be 6 years or older, which could require significant remodeling to “maintain freshness and drive store productivity.”

The company operates more than 750 stores in 47 states. Management estimates it can grow the number of stores to 1,200 over time. At the end of the third quarter, Ulta operated 765 stores and 8,089,616 sq. feet of store space, a 15 percent increase in square footage compared to year earlier quarter.

Photo at top: An Ulta location on State Street in downtown Chicago is one of more than 750 stores across the U.S. (Bethel Habte/Medill)