Ulta Beauty Inc. Earnings: Solid Holiday Season Growth and an Aggressive Outlook for 2017

By Demitrios Kalogeropoulos Markets Fool.com

Ulta Beauty (NASDAQ: ULTA) investors had plenty of confidence heading into the company's fourth-quarter report this week. After all, the beauty retailer had beaten its sales guidance in each of the year's first three quarters while consistently raising its full-year forecast.

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On March 9, Ulta Beauty beat expectations again by posting robust sales and earnings growth over the key holiday shopping period.

Here's how the big-picture results stacked up against the prior year:

Metric

Q4 2016

Q4 2015

Year-Over-Year Change

Revenue

$1.58 billion

$1.27 million

25%

Net income

$140.2 million

$107.8 million

30%

Earnings per share

$2.24

$1.69

33%

Data source: Ulta Beauty's financial filings.

What happened this quarter?

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The company paired sharp customer traffic growth with an aggressive expansion of its store base to deliver 25% higher sales.

Image source: Getty Images.

Here are the key highlights of the quarter:

  • Comparable-store sales rose 16.6%, or just slightly less than the prior quarter's 17% that represented a record high for the company. That result significantly outperformed management's target of 14% comps gains.
  • Ulta Beauty ended the year with 16% comps gains, compared to the 9% rate it had originally targeted.
  • Customer traffic soared 11% and average spending per visit rose by a healthy 6%.
  • E-commerce growth accelerated for the fourth straight quarter, spiking 63% while Ulta Beauty was targeting just a 40% increase.
  • Gross profit margin ticked lower due to investments in the supply chain and a higher mix of e-commerce sales that carry lower profitability. Ulta said that its level of promotions held steady against the prior year.
  • Operating income jumped 32% as expenses rose at a slower pace than revenue. As a result, bottom-line profitability rose to 8.9% of sales from 8.5% last year and helped push earnings per share higher by over 30%.

What management had to say

"The Ulta Beauty team delivered outstanding fourth quarter results," CEO Mary Dillon said in a press release, "capping an exceptional year of sales and earnings growth while investing to drive market share gains and create sustainable long term shareholder value."

Executives are encouraged by the deep bench of new products set to keep customer traffic growth churning higher over the coming year. "Our new brand pipeline is very healthy and we are particularly excited to announce the addition of the Estee Lauder Companies' MAC brand, which will launch on Ulta.com and begin to roll out to stores this spring," Dillon explained.

Looking forward

Dillon and her team issued an aggressive outlook for fiscal 2017 that includes the addition of 100 new stores and will keep its expansion pace level with the prior year. Comps are expected to rise by between 8% and 10%, beginning with a 10% improvement in the first quarter. That growth pace marks a slowdown from the past year and includes a sharp deceleration of e-commerce growth to 40% from 56%.

Yet that comp target is above management's long-term guidance, issued back in October, that projected 8% gains in fiscal years 2017 through 2019.

Ulta Beauty's growth pace is still running ahead of the company's plans. And investors have good reason to believe that the retailer can ride booming e-commerce demand, a fast-rising store base, and increased customer traffic to improved sales this year.

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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Ulta Salon, Cosmetics and Fragrance. The Motley Fool has a disclosure policy.