ULTA Salon Has Never Looked Prettier

By Markets Fool.com


Source: ULTA Salon.

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Beauty is big business, and for years, ULTA Salon has used its innovative business model to cater to customers seeking a wide array of products and services to help them look the way they want to. By combining full-service salons with assortments of retail products, ULTA gives its clientele the guidance they want, while building up customer loyalty and helping to give itself the pricing power it needs to keep margins high.

Going into Thursday afternoon's fiscal fourth-quarter financial report, ULTA Salon investors had high expectations for the company; but ULTA delivered with even faster growth in sales and earnings than most investors were expecting. Let's look more closely at ULTA's strong results, and what it means for the company in 2015.

ULTA saves the best for last
ULTA Salon's headline numbers show just how strong the company was during the holiday quarter. Net sales jumped almost 21%, to $1.05 billion, marking the first time that the company had ever seen quarterly revenue go above the $1 billion mark. Adjusted net income rose at a similar rate of nearly 22%, to $86 million, even after taking out the favorable impact from a one-time tax adjustment. That translated to adjusted earnings per share of $1.33, well above the $1.27 per share consensus among those following the stock.

Source: ULTA Salon.

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Looking more closely at the results, ULTA had success on many different fronts. Comparable-store sales soared 11.1%, accelerating from last year's increase, and marking the best growth in comps for the entire fiscal year. ULTA managed to get more customers in the door and get them to spend more, with 7.7% more transactions and a 3.4% increase in average purchases adding up to the gain in comps.

E-commerce contributed hugely to growth, with a 55% jump making up about a fifth of ULTA's overall growth in comps. In-store salon sales also posted healthy gains of 21%, with comparable-salon growth also in double-digit percentages.

CEO Mary Dillon was proud of ULTA's accomplishments, citing "continued strength in prestige and mass color cosmetics, a successful holiday selling season, [and] execution of more effective marketing and CRM strategies" as playing instrumental roles in driving the company's overall sales and profits higher. As customer traffic accelerated, and the salon and e-commerce channels kept expanding, ULTA Salon was able to cash in on favorable trends.

Can ULTA Salon look any better in 2015?
Even with those strong results, ULTA Salon has high hopes for 2015. The beauty company's guidance includes comparable-sales growth of 6% to 8%, with e-commerce again making a huge contribution of 40% growth, and earnings should rise 15% to 17% to between $4.55 and $4.63 per share. That range is on the high side of current consensus projections, and similarly ambitious guidance for the first quarter shows that ULTA Salon doesn't expect anything to slow it down anytime soon.

Source: ULTA Salon.

Store expansion will play a key role in ULTA Salon's growth this year. During the fourth quarter, the company opened 10 stores, but ULTA expects its store count to climb by 100 locations this year, expanding overall square footage by about 13%. ULTA is also committed to remodeling efforts at some of its locations, with plans for four projects during the coming year.

ULTA also has confidence in its stock as an investment, despite the big run-up in share prices recently. The beauty retailer still has $260 million remaining under its current stock repurchase authorization, and ULTA said that it would add another $100 million to potential buybacks later this month. With the stock up 75% from its lows during the past year alone, the fact that ULTA has been conservative in spending just $30 million on repurchases in the fourth quarter points to fiscal discipline in not wanting to let its shares appreciate too quickly.

Investors in ULTA Salon were ecstatic about the results, sending shares up more than 5% in the first 45 minutes of after-hours trading following the announcement. Despite sporting a high earnings multiple, ULTA's growth prospects appear undiminished by its recent success. As long as it keeps executing well on its business strategy, ULTA Salon looks like a solid investment for the future.

The article ULTA Salon Has Never Looked Prettier originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Ulta Salon, Cosmetics & Fragrance. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.