Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA)
Q3 2012 Results Earnings Call
November 29, 2012 5:00 pm ET
Laurel Lefebvre – Vice President, IR
Chuck Rubin - President and CEO
Scott Settersten - Chief Financial Officer
Brian Tunick - JPMorgan
Matthew Fassler - Goldman Sachs
Joseph Altobello - Oppenheimer
Neely Tamminga - Piper Jaffray
Daniel Hofkin - William Blair
Erika Maschmeyer - Robert W. Baird
Evren Kopelman - Wells Fargo
Jason Gere - RBC Capital Markets
Jill Caruthers - Johnson Rice
Previous Statements by ULTA
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It is now my pleasure to introduce your host, Laurel Lefebvre of Ulta Beauty. Thank you. You may now begin.
Thank you. Good afternoon and thank you for joining us for Ulta’s third quarter 2012 conference call. Hosting our call are Chuck Rubin, President and Chief Executive Officer and Scott Settersten, Chief Financial Officer.
Before we begin, I would like to remind you of the company’s Safe Harbor language. The statements contained in this conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those projected in such statements due to a number of risks and uncertainties, all of which are described in the company’s filings with the SEC. We may make references during this call to the metric free cash flow, a non-GAAP financial measure defined as cash provided by operating activities minus purchases of property and equipment.
With that, I’ll turn it over to Chuck.
Thanks Laurel. Good afternoon, everyone. I’m pleased to announce very strong third quarter results. Ulta continues to drive significant market share gains across all of our categories as we delivered 22.4% top line growth.
Same-store sales increased 8.4% maintaining solid top line momentum [wrapping] a 9.6% comp in Q3 2011 and a 12.2% comp in 2010. We expanded gross margin and leveraged SG&A more than expected driving operating margin up 140 basis points from 10.7% in Q3 of last year to 12.1% this year.
Earnings grew 40% to $0.59 per share. These excellent results position us to deliver sales and earnings performance for the full year well above our initial expectations. At the beginning of the year, we expected to see same-store sales at or slightly above 5% and to achieve earnings per share growth of approximately 30%. We now expect to achieve about 8% comp growth and about 40% earnings growth for 2012 assuming we achieve the midpoint of our Q4 guidance.
We delivered these numbers through our team’s disciplined focus on the five components of our multi-year growth strategy accelerating store growth, introducing new product, services and brands, enhancing our loyalty program, broadening our marketing reach and increasing our digital focus including ulta.com.
Our consistent execution of these strategies continues to drive meaningful market share gains in the beauty industry across all of our major product categories. I would like to recap a couple of our accomplishments in each of these five areas during the third quarter and touch on what to head for the fourth quarter.
First, store growth; in Q3, we opened 49 new stores representing about 10% of our store base, which is a record number of new store openings for us in a tremendous accomplishment in a single quarter. We ended Q3 with 537 stores in 45 states. New store productivity continues to be very strong with the class of 2012 stores consistently outperforming their targets.
So we're very pleased with the quality of real estate we added to the portfolio and proud of the Ulta team’s execution in getting new stores open. We also completed 11 remodels during the third quarter and also are happy with their performance, with about 90% of the chain opened or remodeled to our most recent store formats, we've done a nice job keeping the portfolio updated in the shopping environment and experience very consistent throughout the chain.
In the first month of the fourth quarter, we opened 13 additional stores successfully completing our 2012 new store program. With these, we will end the year with 550 stores for 23% square footage increase for the year.
As we've said many times, our real estate expansion is predicated on finding great financially attractive sites. Simply put, we will not sacrifice quality for quantity. We do however have strong financial and operational capabilities that allow us to accelerate store growth if we believe the right opportunities exist.
Looking ahead to 2013, that opportunity does exist and we expect next year to be another year where we can exceed our long-term goal of 15% to 20% square footage growth.
Most specifically, we're currently planning to open approximately 125 new stores in 2013 or about 22% square footage growth. This program will look a lot like 2012 or 2012 plan in terms of opening stores primarily located in suburban shopping centers with roughly 80% of the stores in existing centers as opposed to new shopping center development. We are confident that we have the resources and expertise to execute this aggressive new store program successfully without relaxing our high standards for the quality of the real estate, yet maintaining our high standards for store staffing and training.