Why Shares of Ulta Salon, Cosmetics, & Fragrance Inc. Got Freshened Up

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Ulta Salon, Cosmetics & Fragrance  (NASDAQ: ULTA  ) were looking rejuvenated today, gaining as much as 16% and finishing up 14% after turning in a strong first-quarter earnings report.

So what: The beauty-products and salon chain beat estimates across the board, and delivered robust growth in all three key revenue streams: organic same-store sales, e-commerce, and new stores. Earnings per share improved from $0.65 to $0.77, beating estimates of $0.74 as revenue jumped 22% to $713.8 million, topping expectations of $700 million. Same-store sales improved briskly, up 8.7% in the quarter, which includes a 72% jump in online revenue.  

Now what: Profit growth was slower than top-line growth as the company works on converting members of its loyalty program to ULTAmate rewards program, which forced gross margin lower by 50 basis points to 34.5%. For the current quarter, management expects earnings per share of $0.78-$0.83 against the Wall Street view of $0.82, but its revenue forecast of $706 million to $717 million was ahead of the consensus at $704 million. UIta shares are priced for growth, and the company has disappointed the market before with its financial results, but during a quarter where many retailers struggled, it bested expectations and appears to be firing on all cylinders, with an aggressive store expansion ensuring continued growth. With shares still trading at a relative discount, now may be a good time to get in.

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Jeremy Bowman

Fool since 2011. I write about consumer goods, the big picture, and whatever else piques my interest. Follow me on Twitter to see my latest articles, and for commentary on hot topics in retail and the broad market.

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Related Tickers

8/27/2015 4:00 PM
ULTA $160.24 Up +2.19 +1.39%
Ulta Salon, Cosmet… CAPS Rating: ****