Ulta Beauty Q2 Results: Sales Up, Comparable Sales Up, Earnings Up 28.0%

Written by Lorimer Wilson

Ulta Beauty, Inc. (NASDAQ:ULTA) today announced outstanding Q2 financial results and raised its previously announced fiscal 2017 guidance.

About Ulta Beauty

Ulta Beauty is the largest beauty retailer in the United States of cosmetics, fragrance, skin, hair care products and salon services. Since opening its first store in 1990, The Company offers more than 20,000 products from approximately 500 well-established and emerging beauty brands across all categories and price points, including Ulta Beauty’s own private label. Ulta Beauty also offers a full-service salon in every store featuring hair, skin and brow services.

Q2 2017 Financial Results vs. Q2 2016 

• Net sales: UP 20.6% to $1,289.9 million
• Comparable sales (sales for stores open at least 14 months and e-commerce sales): UP 11.7% driven by 5.5% transaction growth and 6.2% growth in average ticket
  • >Retail comparable sales: UP 8.3%, including salon comparable sales growth of 7.7%
• Salon sales: UP 15.3% to $68.0 million
• E-commerce sales: UP 72.3% to $96.3 million representing 340 basis points of the total company comparable sales increase of 11.7%;
• Gross profit as a percentage of net sales: UP 40 basis points to 36.4% due to improvements in merchandise margins and leverage in fixed store costs
• Selling, general and administrative (SG&A) expenses as a percentage of net sales: DOWN 10 basis points to 22.0% due to leverage in corporate overhead and variable store expenses attributed to cost efficiencies and higher sales volume, partially offset by investments in store labor to support our growth initiatives
• Operating income: UP 25.1% to $179.8 million, or 14.0% of net sales
• Net income: UP 26.9% to $114.2 million
• Income per diluted share: UP 28.0% to $1.83

Share Repurchase Program

• During the second quarter, the Company repurchased 462,421 shares of its stock at a cost of $126.5 million.
• Year to date, the Company has repurchased 647,088 shares at a cost of $178.1 million.
• As of July 29, 2017, $268.1 million remained available under the $425.0 million share repurchase program announced in March 2017.

Store Expansion

During the second quarter of fiscal 2017, the Company opened 20 stores ending the quarter with 1,010 stores and square footage of 10,631,474 (UP 11.3%) across 48 states and the District of Columbia.

Outlook

For the third quarter of fiscal 2017, the Company expects:

• net sales in the range of $1,331 million to $1,353 million,
• comparable sales for, including e-commerce sales, to increase 9% to 11%.
• Income per diluted share to be in the range of $1.63 to $1.68.

The Company is raising its previously announced fiscal 2017 guidance. The Company plans to:

• achieve comparable sales growth of approximately 10% to 11%, including the impact of the e-commerce business, compared to previous guidance of 9% to 11%;
• grow e-commerce sales in the 50% to 60% range, compared to previous guidance of 50%;
• open approximately 100 new stores; remodel 11 locations and relocate 7 stores;
• deliver earnings per share growth in the high 20s percentage range, compared to previous guidance of mid-twenties percentage range. This includes the impact of the 53rd week, the impact of approximately $350 million in share repurchases, and the impact of the tax rate benefit recorded year to date, and excludes any tax rate impact from the new accounting standard related to share-based payment for the rest of the year; and
• incur capital expenditures in the $460 million range in fiscal 2017, compared to $374 million in fiscal 2016. The planned increase in capital expenditures includes approximately $80 million to fund prestige brand expansions.

Mary Dillon, Chief Executive Officer, said the following in today's press release:

“The Ulta Beauty team delivered another quarter of excellent performance with strong top line growth coupled with robust margin expansion. We accelerated our market share gains while continuing to reduce promotional intensity and increase personalized offers
through our industry leading loyalty program.

Product category strength was broad based, with prestige cosmetics still driving the majority of our growth, and with skincare, fragrance, and haircare all gaining momentum.

We are also benefitting from continued success of our marketing programs, rapid growth in e-commerce, and solid operational execution across the enterprise.”