Can Ulta Earnings Keep Looking Prettier?

Ulta Salon (ULTA 14.33%) will release its quarterly report on Thursday, and investors have gotten optimistic about the stock, bidding shares up last month to new all-time highs. After a slump earlier in the year, the rebound in shares reflects positive expectations for Ulta earnings, putting pressure on the salon company to deliver the goods in its coming report.

Ulta has been a favorite of high-growth investors for years, thanks to the strong popularity of its retail locations combining both beauty products and in-store salon services. Yet the expectations that those investors have for companies to keep the pace of their growth extremely high can lead to temporary cracks in the stock, as Ulta experienced earlier this year. Can Ulta keep moving forward and upward this quarter and beyond? Let's take an early look at what's been happening with Ulta over the past quarter and what we're likely to see in its report.

Stats on Ulta Salon

Source: Yahoo! Finance.

Will Ulta earnings keep climbing higher this quarter?
Analysts have had mixed views on Ulta earnings in recent months. They've cut their July quarter estimates by a penny per share, but boosted their full-year projections by the same penny. The stock has done a good job of bouncing back, climbing about 17% since early June.

Most of those gains came right after Ulta's first-quarter earnings report, in which the company reported strong revenue and profit improvement. Sales jumped by nearly 23%, while earnings-per-share climbed more than 20% on same-store sales gains of 6.7%. Even though those comps were down from double-digit percentage figures in the year-ago quarter, rapid expansion plans to boost store counts by more than 25% this year appeared to be on track. Interestingly, bullish investors ignored what could have been construed as weak guidance, as projections for the second quarter were below what analysts had previously predicted.

Ulta has demonstrated its superiority over some of its salon-products competitors in the industry. With extremely high returns on invested capital, Ulta fares far better than hair-products retailer Sally Beauty (SBH +0.90%). Although it comes with a much higher valuation than cruise-ship salon operator Steiner Leisure (STNR +0.00%), Ulta also has sustained better profitability figures and has much greater expansion potential, with ambitious plans to open new stores throughout the next several years.

Ulta solved one of its problems during the quarter, bringing on Mary Dillon to become its new CEO in June. With experience as CEO of wireless carrier U.S. Cellular, chief marketing officer at McDonald's, and service at PepsiCo and Target, Dillon has the retail and marketing experience that could help boost Ulta to the next level of retail success. Given that Ulta already has impressive cachet, Dillon's efforts could put the finishing touches on a strong future for the company.

In the Ulta earnings report, watch to see how Dillon handles her first quarterly report with the company. With investors enthusiastic about Ulta's prospects, the salon business just needs to keep moving ahead and taking advantage of growth opportunities as they arise.

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