Will Ulta Deliver Attractive Q3 Results?

Beauty chain Ulta Salon, Cosmetics & Fragrance (NASDAQ: ULTA  ) will report third-quarter results after the market close on December 5. The company recently reported stellar second-quarter results that inspired an improved forecast for the full year. Competition exists from Sally Beauty Supply (NYSE: SBH  ) and Sephora counters in J.C. Penney (NYSE: JCP  ) , but Ulta has an established history of holding its own. Will sales slow in the third quarter? 

Ulta operates 609 stores across the United States and those stores stock over 20,000 brands. Recent new brand launches included IT Cosmetics and Jane Cosmetics. Ulta has also expanded the presence of higher-end lines such as Clinique and Lancome in stores. It's that growth potential that drives Ulta's continued success. 

Here's what to watch for in Ulta's earnings press release. 

Quarter estimates-and results-to beat 
Analysts predict third quarter revenue of $622 million and earnings per share of $0.74. Ulta has beat estimates on both metrics for the past five quarters. The company expects revenue between $613 million-$623 million with EPS in the range of $0.71-$0.74, which would represent a 20% profit increase on the low end of the estimate. Ulta also predicts comps growth of 5%-7%. 

Ulta's third quarter report last year included revenue of $506 million-more than 22% year-over-year growth-and EPS of $0.74. Profits were up nearly 43% while comps grew 8.4%.  

It's also useful to compare the latest quarter to the prior one. Ulta reported second quarter revenue of $601 million-nearly 25% growth year over year-and EPS of $0.70. Comps were up over 8% and profits soared 28%, which inspired Ulta to raise its full year guidance. Given these results it is clear Ulta should have no problem meeting expectations for the third quarter. 

Competitors' performance
Sally Beauty recently reported fiscal fourth quarter results. The company reported $906 million in revenue which missed analyst estimates of $910 million. Analysts expected EPS of $0.39 and Sally came in a bit short with $0.38. 

However, Sally's business tailors more to small salon owners and beauty professionals lacking the leverage to make deals directly with manufacturers. Sally's fourth quarter weakness grew out of a slowing of general customers who weren't members of the company's beauty club. Ulta appeals to a broader audience and offers a stronger promotional environment.

Ulta also faces competition from privately owned Sephora, which tends to sell more high end brands-including Hourglass and Yves Saint Laurent- than Ulta and appropriately has a better rewards program for shoppers. But Ulta wins on the promotions front.  Sephora also maintains counters within J.C. Penney stores. J.C. Penney's otherwise lackluster third quarter report included the announced opening of 30 new Sephora counters, which brought the total to nearly 450.

Foolish final thoughts 
Ulta's strength remains in its growth potential both geographically and through the additions of new products and lines. Sally Beauty doesn't offer direct competition. Freestanding Sephora stores do offer competition but Ulta's holding strong. The Sephora counters might help with J.C. Penney's troubles, but they don't pose any threat to Ulta. Expect to see another strong showing in the third-quarter results. 

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