Ulta Salon, Cosmetics & Fragrance Shares Jump On Solid Earnings Beat

Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) released its latest quarterly earnings report this week, beating the estimates of analysts and its own guidance. Earnings per share for the first quarter were 77 cents, compared to the retailer’s guidance of between 70 cents and 75 cents.

Ulta comes out ahead of peers

In a report dated June 10, 2014, Stern Agee analysts Ike Boruchow and Tom Nikic say Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) appears to be a “rare standout” in the retail industry. Numerous retailers with high multiples have watched their stocks slumped after they reported earnings per share. The Sterne Agee team said Ulta saw a “positive inflection in traffic.” Shares had fallen by about 20% over the last few months, so this earnings report and the positive second quarter guidance seem to have alleviated some of the elevated fears.

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The analysts believe Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) has the potential to post strong follow-throughs, noting the retailer’s strong fundamentals and the fact that it is outperforming its peers.

Breaking down Ulta’s earnings results

The Sterne Agee analysts say Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA)’s gross margins were weaker than they expected, coming in at -50 basis points rather than their estimate of 20 basis points. They say the channel / product mix brought in more dollars but caused the lower gross margin rate.

However, Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA)’s ecommerce segment continued to grow rapidly, increasing by 72% in the quarter even though last year saw strong growth as well. However, they note that Ulta still saw an increase in comparable store sales of 6.8%, which is solid. Also store traffic improved by 2.5%, which was Ulta’s best performance in 12 months. Also the average ticket size increased by 6.2%. They call Ulta’s top-line results “impressive” during “a very challenging time for retailers.”

Ulta guides for second quarter

In its earnings report this week, Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) also provided solid guidance for the current quarter, and Sterne Agee analysts see possible upside to the company’s fiscal year guidance. For the current quarter, Ulta projects earnings per share of between 78 cents and 83 cents, compared to Wall Street’s estimate of 82 cents. The retailer reiterated its fiscal year guidance of 4% to 6% comps and mid-teens growth in earnings per share and sales.

The analysts think Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA)’s guidance could be conservative because it assumes “significant deceleration of comp trends and EPS growth” in the second half of this year.

The Sterne Agee team continues to rate Ulta Salon, Cosmetics & Fragrance , Inc. (NASDAQ:ULTA) as a Buy with a $108 per share price target.