Ulta Salon, Cosmetics & Fragrance, Inc. - Momentum

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ULTA Beauty ( ULTA )

When you think of the return of the American consumer, the last thing on your mind is hairspray, perfume and skincare products; but the fact of the matter is that Ulta Beauty and competitors like Sally Beauty Supply might already be reaping the rewards of a stronger consumer who is armed with credit and ready to make a fresh start. 

Recent economic data supports the thesis that consumer strength and spending is indeed improving.  Ulta is what I would consider a "discretionary-staple" company in that they offer many of the day to day aesthetic needs of American consumers (mostly women, but men as well) which help keep revenue flowing under normal financial circumstances.   In times of growth, ULTA will enjoy higher net sales, but also a gravitation towards high price, high margin products and services.

Company Description & Financials
Founded in 1990, Ulta Beauty is the largest beauty retailer in the U.S. that provides one-stop shopping for salon products and services through their 449 stores across 43 states in addition to their robust e-commerce business.  They offer a unique combination of over 20,000 prestige and mass beauty products across the categories of cosmetics, fragrance, haircare, skincare, bath and body products and salon styling tools. We also offer a full-service salon in all of our stores.

Recent strength in sales numbers from the majority of U.S. retailers suggests that ULTA could see another strong quarter in profits.  ULTA is a mid-cap (5.74 billion) company that is trading at about 37.68 times forward (expectations for next quarter) earnings with a low PEG ratio of 1.47.  ULTA has been a Zacks Rank 1 strong buy since December 2, 2011  

Total sales increased 23% compared to the same period one year prior.  Earnings increased from $1.16 in FY2011 to $1.90 in FY2012.  They are expected to earn $2.44 in FY2013, according to the Zacks Consensus Estimate. 

Earnings Estimates
Of the 10 analysts who cover Ulta Beauty, the consensus is for the company to grow earnings by 28.32% in the current year (FY2013) and roughly 26.4% in FY2014.  The discount beauty company has exceeded analysts' expectations to the upside 4 quarters in a row; with an average upside surprise of 14% over the past year.   

In terms of the magnitude of analyst estimate trends, we are seeing consensus estimates the same or higher than they were 90 days ago for the current quarter as well as FY2013 and FY2014. Positive adjustments to earnings estimates have been minor and next quarter's estimates are 1 cent lower than they were 90 days prior.  ULTA is expected to earn 48 cents when they report on June 5th.

Ulta's same store sales have been steadily growing over the past year with Q4 2011: +11.5%, Q3 2011: +9.6% and Q2 2011: +11.3%

Market Performance & Technicals
Ulta spent the last quarter of 2011 and part of January 2012 in a channel between $64 and $74.  On January 5th, 2012 Ulta boosted their Q4 outlook, sales, revenue and EPS all higher, which propelled the stock higher through the 50 day moving average.  Since that date, Ulta has remained above its 50 and 200 day moving averages which now stand at $86.95 and $71.50 respectively.

Volume is fairly strong, averaging roughly 700k daily.  Ulta Beauty almost doubled the S&P 500's performance over the past year; exceeding it by 76%.  It outpaced it by 18% in the past 3 months alone and by almost 5% in the last 30 days. 

Jared A Levy is the Senior Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

 


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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