Ulta Beauty (ULTA 0.35%) this week announced first-quarter results that beat management's expectations thanks to a healthy mix of traffic gains both online and in its retailing shops. The company raised its full-year sales targets, as well.
More on that improving outlook in a moment. First, here's how the big-picture results stacked up against the prior-year period:
| Metric |
Q1 2017 |
Q1 2016 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$1.31 billion |
$1.01 million |
22.5% |
|
Net income |
$128 million |
$92 million |
39.4% |
|
EPS |
$2.05 |
$1.45 |
41.4% |
Data source: Ulta Beauty's financial filings.
What happened this quarter?
The spa services and beauty supplies retailer boosted overall sales by 23% thanks to a growing store base, spiking traffic at existing locations, and a sharp gain in the online sales channel. Expenses rose at a slower pace, which allowed bottom-line profitability to rise to 9.8% from 8.6% a year ago.
Image source: Getty Images.
Here are the key highlights of the quarter.
- Comparable-store sales increased 14% to far outpace management's forecast of 9%.
- Customer traffic grew 9%, and average spending per visit expanded by 6%.
- Ulta Beauty managed a surprising acceleration in its e-commerce business, whose growth sped up to a 70% pace from the holiday quarter's 63% jump. The digital channel contributed just over 3 full percentage points to the retailer's blowout comps figure.
- Gross profit ticked down to 36.2% of sales from 36.4% thanks to the higher mix of e-commerce sales and spending on supply chain improvements.
- Other expenses fell as a percentage of sales so that operating margin expanded to 14.3% of sales from 13.7%.
- The company opened 18 new stores during the quarter to stay on pace to add 100 locations over the full year.
- Ulta Beauty spent $52 million buying back its shares, which allowed earnings per share to outpace net income growth.
What management had to say
Executives cited broad-based success around their retailing strategies as helping deliver the market-thumping sales and profit growth. "The Ulta Beauty team kicked off 2017 with excellent performance in the first quarter," CEO Mary Dillon said in a press release. "Strong execution of our growth strategies delivered above plan sales and earnings growth," Dillon added. "Our results reflect continued newness and innovation in merchandising, successful marketing programs, steady progress in our salon business and exceptional growth in e-commerce."
Looking forward
Dillon and her team raised their outlook for the full year while issuing an aggressive forecast for the current quarter. Comps should jump by between 10% and 12% in the second quarter, they predicted, as earnings rise to as much as $1.77 per share from $1.40 per share in the prior-year period.
Ulta Beauty now sees comps improving by between 9% and 11% in 2017, up from the prior forecast range of 8% and 10% and above their long-term plan that calls for annual gains of 8% through 2019. E-commerce will play a key role in that outperformance, as the channel is now expected to grow by 50% this year rather than the 40% increase they had initially targeted. Ulta Beauty's online business grew 56% in fiscal 2016.
Executives still aim to add 100 physical locations to the portfolio this year, and the impressive traffic trends at existing spas suggest they'll have no problem finding room for them. As for the bottom line, management would like to see operating margin rise to 15% by 2019. The company made good progress toward that goal this quarter, despite the jump in less-profitable online sales.
