Why Ulta Salon, Cosmetics & Fragrance Inc. Jumped 11% in May

By Markets Fool.com

What: Beauty retailer Ulta Salon rose 11% in May, according to data provided by S&P Global Market Intelligence.

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ULTA data by YCharts.

The rally pushed shares to a new all-time high -- up 50% over the last year.

So what: Ulta's business blew away expectations in its first-quarter earnings announcement late in the month. Comparable-store sales improved by 15%, or a full 5 percentage points above management's target. The secret to Ulta's success was an 11% boost in customer traffic, which marked a solid acceleration over the prior quarter's 9%.

"We are off to a phenomenal start to the year," CEO Mary Dillon said in a press release, "delivering excellent top and bottom line growth." Earnings spiked higher by 39% thanks to that surging customer traffic, a growing store base, and a gross profit margin that ticked up to 36% of sales from 35% a year ago.

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Now what: Ulta seems to be in a strong position to grow both sales and profits from here. It is soaking up more than its fair share of an industry that's outpacing many other segments of the retailing world. At the same time, its salon services and beauty products are finding wide acceptance, which is why management raised its comps growth guidance to 11% from the 9% it projected back in February.

Given that encouraging sales environment, Dillon and her team are focused on aggressively expanding their reach by adding 100 new stores to Ulta's roughly 900 location base this year. Executives also aim to keep customer traffic rising at existing stores with bigger marketing and branding initiatives and through a loyalty program that now counts 19 million active users -- or 25% above last year's size.

The good news for investors is that this expansion spending won't take much away from the retailer's bottom line. In fact, Ulta says it is on pace to deliver EPS growth of more than 20% over last year, which is a slight upgrade over the 19% profit improvement it last projected.

The article Why Ulta Salon, Cosmetics & Fragrance Inc. Jumped 11% in May originally appeared on Fool.com.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool owns shares of and 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.