Ulta Salon, Cosmetics & Fragrance Inc. Earnings: Can Stunning Growth Continue?

On Tuesday, Ulta Salon, Cosmetics & Fragrance (NASDAQ: ULTA  ) will release its quarterly report, and shareholders haven't been able to recover from steep losses toward the end of 2013. But with department-store retailers Macy's (NYSE: M  ) and Nordstrom (NYSE: JWN  ) working hard to capture their own share of the beauty market, Ulta Salon will have to work even harder to woo customers into its doors and make the most of the opportunity once they arrive.

Ulta Salon has grown impressively with its combination of in-store salons and premium beauty products at reasonable prices. By giving customers a chance to obtain professional salon services, Ulta gets the benefit of an in-store cross-referral team to drive sales of its retail products, and conversely, retail sales specialists can push buyers toward salon services as well. With the company's bottom line still showing a lot of promise, when will the share price bounce back? Let's take an early look at what's been happening with Ulta Salon over the past quarter and what we're likely to see in its report.


Source: Ulta Salon.

Stats on Ulta Salon

Analyst EPS Estimate

$0.74

Change From Year-Ago EPS

13.8%

Revenue Estimate

$699.85 million

Change From Year-Ago Revenue

20%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Can Ulta Salon earnings look prettier this quarter?
In recent months, investors have suffered a setback in their views on Ulta Salon earnings, with estimtes for the April quarter cut by more than a nickel per share and full-year projections reduced by 3% to 5% over the next couple of years. The stock has stayed down, falling another 2% after plunging late last year.

By all accounts, Ulta Salon's fiscal fourth-quarter report reenergized shareholders in their views on the company. Same-store sales rose 9.2%, pushing overall revenue up more than 14% thanks in part to the opening of 11 new stores during the quarter. Even with a tough promotional environment during the holiday quarter, Ulta managed to keep its gross margins at fairly impressive levels. Moreover, even though guidance of just 4% to 6% growth in comps represented a slowdown, Ulta appears poised to keep moving forward as the economy continues to improve.

Source: Ulta Salon.

After the earnings report, Ulta Salon got positive comments from professional analysts. In particular, many investors believe that Ulta has plenty of room to expand, with demand for its services remaining strong even in a somewhat soft economic recovery. Given the proven popularity of the concept, it makes sense for Ulta Salon to open new stores until it comes much closer to reaching a saturation point.

Still, Ulta faces strengthening competition. Upscale retailers Macy's and Nordstrom have long recognized the value of premium cosmetics as an essential part of their overall success, and as they look for new ways to grow, integrating beauty services of their own could be a direction that would pose a direct threat to Ulta. Moreover, once customers learn which cosmetics and other beauty products they need, Ulta faces the threat of online substitution from lower-priced e-commerce sites.

In the Ulta Salon earnings report, watch to see how well the company is able to keep growing on all fronts. As long as comps stay healthy and expansion plans remain in place, then Ulta will have the ability to recover from its share slump last year.

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