Ulta Salon, Cosmetics & Fragrance Incorporated (ULTA)
Q4 2011 Earnings Conference Call
March 8, 2012 5:00 PM ET
Allison Malkin – ICR, Inc.
Chuck Rubin – President and CEO
Gregg Bodnar – CFO
Brian Tunick – JP Morgan Chase
Neely Tamminga – Piper Jaffray
Daniel Hofkin – William Blair & Company
Erika Maschmeyer – Robert W. Baird
Sam Panella – Raymond James
Jill Caruthers – Johnson Rice
Christina [ph] – Oppenheimer & Co.
Connie Edwards [ph] – Wells Fargo Securities
Previous Statements by ULTA
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It is now my pleasure to introduce your host, Allison Malkin of ICR. Thank you, Ms. Malkin. You may begin.
Thank you. Good afternoon. Before we get started, I would like to remind you of the company's Safe Harbor language, which I'm sure you're all familiar with.
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 will make references during this call to the metrics free cash flow, a non-GAAP financial measure defined as cash provided by operating activities, minus purchases of property and equipment.
Now, I would like to turn the call over to Ulta's President and CEO, Chuck Rubin.
Thanks, Allison. Good afternoon, everyone. Thank you for joining us to discuss our fiscal 2011 fourth quarter and full year results. On the call with me today is our Chief Financial Officer, Gregg Bodnar.
Following my opening remarks, Gregg will review in more detail our fourth quarter and full year financial results and provide our outlook. I will then offer some closing comments and turn the call over to the operator so that we can answer the questions you have for us today.
The fourth-quarter concluded another outstanding year of growth at Ulta. We surpassed the sales and earnings guidance we provided in our holiday release in January, and delivered our second consecutive year of double-digit comp store growth, while growing our operating margin and net income at a rate far faster than our sales growth. Our consistent strong performance validates the success of our customer offering, the motivation of our marketing, and the power of our operating model.
I’m proud of all that we have accomplished in fiscal 2011, and equally confident in our ability to continue our favorable performance in 2012 and beyond. Briefly touching on the highlights of our fourth quarter results, net sales rose 23% to $582.5 million from $473.7 million last year.
Comp store sales increased 11.5%, following a comp increase of 10.4% last year for a two-year comp gain of 21.9%. Comp growth was mostly driven by traffic increases, with average selling price rising slightly.
Gross profit margin rose 100 basis points, inclusive of a 40 basis point expansion in merchandise margin. Strong sales growth, combined with expansion in gross profit margin and leverage in SG&A, led to a 49.5% increase in operating income, with operating margin up 230 basis points to 12.6% of net sales.
Net income increased by 53.8% and income per diluted share increased to $0.73 from $0.49 in the fourth quarter last year. Our strong sales resulted in additional market share gains during the quarter across all of our major categories, as more customers continue to choose Ulta instead of other shopping venues for their beauty needs and wants. Our growth during Q4, as well as all of 2011 was driven by our 5 key growth initiatives. Let me provide some color on each.
First we continued our new store expansion by opening seven stores in the quarter for a total of 61 new stores open in 2011. This represented a 16% net expansion in square footage in 2011, and resulted in a year end store count of 449. Additionally, we remodeled 17 stores for the year. We are very pleased with the performance of both our new and remodeled stores. Our second growth initiative is the continued enhancement of our guest offering, especially through the addition of new products, new brands and new services.
During Q4, our sales were strong across categories with prestige skin, prestige make-up and fragrance leading the way. A few noteworthy strengths included our new and exclusive holiday gift sets from Urban Decay, Benefit, Tarte, bareMinerals, and Ulta. New fragrances from Fendi, Vera Wang Princess Night and continued strength from Justin Bieber's Someday, and Taylor Swift Wonderstruck and the successful growth of new brands and products introduced in Q3, including Laura Geller, Art of Shaving, and Mia 2 from Clarisonic.
Our third growth initiative of expanding our marketing reach also contributed to our strong sales. During Q4, we enhanced our special eventing that combines our product and service offering into a fabulous guest experience that highlights our unique beauty offering. Our January skincare event, our brand specific days that we have in our stores, and our lunchtime specials at ulta.com are all examples of our marketing events, which animate the experiential shopping experience that Ulta offers.