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Why Shares of Ulta Soared Today

By Timothy Green – Oct 13, 2016 at 9:43AM

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The beauty retailer raised its already impressive guidance for the third quarter and the full year, anticipating rapid growth going forward.

Image source: Ulta Beauty.

What happened

Shares of Ulta Salon, Cosmetics and Fragrance (ULTA 1.73%) soared on Thursday following the company's analyst and investor conference. Ulta raised its guidance for the third quarter and the full year, prompting the stock to jump 10.5% by 3:00 p.m. EDT.

So what

Ulta now expects to produce comparable-sales growth between 14% and 15% during the third quarter, up from previous guidance calling for growth of 11% to 13%. This new guidance represents an acceleration compared to the third quarter of 2015, when the company managed comparable growth of 12.8%.

Ulta's EPS guidance for the third quarter was also increased. The company now expects to produce EPS in the range of $1.35 to $1.38, up from a previous guidance range of $1.25 to $1.30, and up substantially from the $1.11 in EPS Ulta reported during the third quarter of 2015.

Due to the better-than-expected performance during the third quarter, Ulta also increased its guidance for the full year. The company now believes that it can achieve comparable sales growth between 12% and 14%, up from a previous range of 11% to 13%. EPS is also expected to grow by a mid-20s percentage, at the high end of the company's previous guidance.

Looking further out, Ulta expects to grow EPS by a low-20s percentage in fiscal 2017, 2018, and 2019. Cumulatively, that would represent EPS growth of roughly 75% over the next three years. Ulta also raised its long-term comparable sales growth target to 7% to 9%, up from a previous guidance range of 5% to 7%.

Now what

Ulta certainly didn't disappoint investors. The company expects its incredible pace of comparable-sales growth to accelerate during the third quarter and remain high for years to come, driving rapid earnings growth that helps to justify the stock's lofty valuation. There may be no better growth story in retail than Ulta.

Of course, predicting 20% annual earnings growth for the next three years and actually delivering it are two different things. But Ulta has a long record of revenue and earnings growth, so hitting these targets would be business as usual for the company.

Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Ulta Salon, Cosmetics and Fragrance. 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.

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