Can a Strong Fourth-Quarter Report Send Ulta Back to Its Highs?

Ulta is about to report fourth-quarter results, so let's see if we should be buying right now.

Mar 9, 2014 at 9:00AM

Ulta (NASDAQ:ULTA), the largest beauty retailer in the United States, has widely under-performed the market and traded erratically in 2014. The weakness began after Ulta's disappointing third-quarter report in December and its shares have remained weak since then. Investors are hopeful that the stock will get back on track following its fourth-quarter report, so let's take a look at the current expectations and determine if we should buy Ulta right now or if we should wait to see what the report holds.

Ulta Instagram

Source: Ulta's Instagram

The last time out
Dec. 5 brought Ulta's third-quarter report and it was a heart-breaker for investors. Here's an overview of the quarter and a year-over-year comparison:

Metric Reported Expected
Earnings Per Share $0.72 $0.74
Revenue $618.8 million $621.9 million

Ulta's earnings per share increased by 18.6% and revenue increased by 22.4% year-over-year, but these both narrowly missed analyst expectations. To make things much worse, Ulta then cut its earnings outlook for the fourth quarter which caused a major sell-off. The company sees fourth-quarter earnings per share in the range of $1.07-$1.10 on revenue of $853 million-$867 million when analysts had expected to hear earnings of $1.24 per share on revenue of $895 million. The combination of a miss on earnings and a reduced outlook caused Ulta's shares to plummet over 20% in the next trading session and they have remained weak. Ulta now sits more than 30% below its 52-week high.

Expectations & what to watch for
Fourth-quarter results are due out after the market closes on March 13 and analysts expect moderate year-over-year growth. Here's a breakdown of the current estimates:

Metric Expected Year Ago
Earnings Per Share $1.07 $1.00
Revenue $857.49 million $758.84 million

These estimates call for the company's earnings per share to increase by 7% and revenue to rise by 13% year-over-year, well below the 20%-plus growth we are used to seeing out of Ulta. Other than the key metrics, it will be important to keep an eye on three things: the gross margin, the market conditions in the first two months of fiscal 2014, and guidance for fiscal 2014:

  1. The holiday season contained one of the most intense promotional environments that retailers have ever seen, so chances are the gross margin will take a hit, but watch closely to make sure it does not fall too drastically. 
  2. Management will likely speak about the promotional environment, either in the quarterly release or the conference call, so watch for their comments on the conditions in the first two months of fiscal 2014; hopefully the company has not had to offer additional promotions to maintain customer traffic.
  3. Guidance for fiscal 2014 will rely on the previous metrics, but it will likely be the most important factor in the performance of Ulta's stock following the release; currently, analysts call for earnings per share in the range of $3.69-$3.90 on revenue of $3.0 billion-$3.2 billion.

Overall, this is the weakest set of earnings expectations we have seen for Ulta in many years, so I am confident that the company will at least match the estimates. I think better-than-expected customer traffic will offset the revenue lost from promotions and result in revenue growth of over 15%; the margin will take a hit, but I think the positives will outweigh the negatives here. With this said, if Ulta can deliver on earnings and provide solid guidance for fiscal 2014, we could see the stock slowly push back toward its 52-week high; however, if the opposite comes true, the stock could set a new 52-week low. For this reason, Foolish investors should be very cautious and wait until after the release to consider initiating positions.

How has the competition fared?

Screen Shot

Source: Sephora's Instagram 

A few weeks ago, Ulta's largest competitor in the beauty industry, Sephora, reported quarterly results of its own. Sephora is owned by Louis Vuitton Moet Hennessy (NASDAQOTH:LVMUY) and it is the market leader in France, Italy, and Russia. It also has growing presences in North America, Latin America, the Middle East, and China. Louis Vuitton released its fourth-quarter results on Jan. 30 and Sephora's results are reported within the company's selective retail segment, so we will focus on that segment's results; here's how the segment performed:

Metric 4Q 2013 4Q 2012
Revenue 2.62 billion Euros 2.43 billion Euros

Revenue from selective retail increased by 8% year-over-year, driven by sales growth and market share gains in all of Sephora's regions. The company noted that sales in both stores and the online channel gained strength and that it has been innovating in order to offer more products and services, which has resulted in a more personalized experience for the customer.

In terms of expansion, Sephora now operates over 1,300 stores worldwide and says it has "an expanding base of over 300 stores across North America." This could be seen as a direct threat to Ulta, but Ulta's expansion is also a threat to Sephora; regardless, I believe the two can grow in harmony for the time being. However, if you are looking for a pure play on the beauty industry, Ulta is the company to own. 

The Foolish bottom line
Ulta was once one of the market's top high-growth stocks, but its growth has become a cause for concern since its third-quarter report. Its fourth-quarter results are due out shortly and I believe the current expectations are well within reach, especially since the company's products were in high demand during the holiday season. However, Foolish investors should be cautious and wait until after the release before initiating any new positions; this way, we will have the most up-to-date financial information so we can make educated decisions on the health of the company and the condition of the industry.

Ulta is a good stock today and may be a great stock following the fourth-quarter report, but there's still a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Joseph Solitro owns shares of Ulta Salon, Cosmetics & Fragrance. The Motley Fool recommends Ulta Salon, Cosmetics & Fragrance. The Motley Fool owns shares of Ulta Salon, Cosmetics & Fragrance. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers