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Ulta Salon, Cosmetics & Fragrance Inc. Posts Record Sales Growth

By Demitri Kalogeropoulos - May 27, 2016 at 3:20PM

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The beauty retailer trounced management's first quarter revenue and profit targets.

Investors were looking for good news from beauty retailer Ulta Salon (ULTA -0.68%) in its first quarter earnings announcement on May 26. With the stock at all-time highs, expectations included strong sales and profit growth -- and perhaps a small boost in its outlook for the full year.

Ulta overdelivered on those fronts as the business enjoyed its fastest comparable-store sales growth on record.

Here's how the big picture numbers stacked up against the prior year:

 Metric

Q1 2016 Actuals

Q1 2015 Actuals

YoY Growth

Revenue

$1.1 billion

$0.9 billion

24%

Net income

$92 million

$67 million

37%

EPS

$1.45

$1.04

39%

Data source: Ulta's financial filings

What happened this quarter?

Customers flooded into the retailer's nearly 900 locations across the U.S. as traffic spiked by 11% compared to 9% traffic growth in the fourth quarter.

Here are the other key highlights from the period:

  • Comparable-store sales improved by 15%, trouncing management's 10% forecast and marking Ulta's fastest growth by that metric since it went public in 2007.
  • Comps were powered by a healthy mix of higher traffic (+11%) and greater average spending (+4%).
  • E-commerce sales spiked 40% to reach $60 million.
  • Gross profit margin rose to 36% of sales from 35% a year ago.
  • Expenses grew at a slower pace than revenue, leading to a jump in bottomline profitability. Net income margin improved to 9% of sales from 8%.
  • Per share earnings rose by 40%, helped along by a declining share count.

What management had to say

"We are off to a phenomenal start to the year, delivering excellent top and bottom line growth in the first quarter," CEO Mary Dillon said in a press release.

The chief executive credited several positive trends that are combining to produce Ulta's best growth pace yet. "These include healthy consumer demand in the beauty category, our unique format and offering which are supporting sustained share gains, and effective collaboration across the enterprise to ensure strong execution of our growth strategies," Dillon explained.

Looking forward

The stepped-up growth pace has Dillon and her team feeling more optimistic about the year ahead. Executives raised their 2016 comps guidance from 9% to 11%. Their profit outlook also jumped higher, ticking up from 19% to growth "in the low twenties percentage range."

Ulta continues to target adding 100 new stores to its base, which will expand its selling square footage by 11%. Yet the real engine of its growth is surging customer traffic at existing locations. The retailer's loyalty program, along with effective marketing and branding initiatives, are helping market share gains rise even as the overall industry churns higher. All of that good news points to additional operating records ahead for Ulta.

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