Ulta Beauty: Share price gains on strong 2Q18 results

Ulta Beauty Inc. reported 2Q18 results on Thursday, 30 August. The firm topped 2Q18 consensus earnings estimates, although 3Q18 profit guidance fell slightly short of views, amid weakness in some of its makeup brands. Nevertheless, EPS of $2.46 (+34% YoY) was above consensus estimates of $2.40, while revenue of $1.49bn (+15.5% YoY) was in-line with expectations. EPS upside was driven by a lower tax rate, increased sales and operating margin, as well as a slightly lower share count.

Same-store sales growth of 6.5% YoY was on the back of 3.1% transaction growth and 3.4% growth in average ticket. Retail comparable sales rose 4.0% YoY, including salon comparable sales growth of 1.7%, while e-commerce sales jumped an impressive 37.9% YoY to $132.8mn.

On the conference call, CEO Mary Dillon said the firm grew its Ultamate Rewards loyalty programme to 29.5mn active members at the end of 2Q18, representing a 15.5% YoY increase. Dillon noted that “… as we’ve seen over the past few quarters, we expect the absolute growth in members to continue to moderate, but still exceed square footage growth.”

The company also announced new brand partnerships, although very little detail on these were given. It was however highlighted that Ulta Beauty will be the exclusive retailer of Kylie Cosmetics and that the brand will be available in Ulta Beauty stores and online in time for the 2018 US holiday shopping season, which is likely to drive growth.

Looking ahead to 3Q18 (the current quarter), Ulta said it expects revenue in the range of $1.55bn-$1.56bn, while consensus has expected revenue of $1.54bn. However, its 3Q18 EPS forecast of $2.11-$2.16 was below consensus expectations of $2.30. Management sees 3Q18 comp sales growth of 7%-8%.

Ulta shares have climbed 22.7% YTD and WoW the share price is up 13.2%, closing yesterday at $274.37/share.



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