Ulta Salon, Cosmetics, & Fragrance (NASDAQ:ULTA), the largest specialty retailer of beauty products in the United States, has watched its stock widely underperform the overall market in 2014, but a few strong earnings reports could get it back on an upward track. The company has just announced that first-quarter results will be released on June 10, so let's take a look at the most recent earnings release, the expectations for the upcoming report, and then check in on one of Ulta's largest competitors, Sally Beauty (NYSE:SBH), to determine if we should be initiating a long-term position right now or if we should wait to see what the report holds. 

Source: Ulta's Facebook

The last time out
On March 13, Ulta released its fourth-quarter report to finish off fiscal 2013 and the results exceeded expectations on both the top and bottom lines; here's a breakdown:

Earnings Per Share $1.09 $1.07
Revenue $868.08 million $856.38 million

Source: Benzinga

Earnings per share increased 9% and revenue increased 14.4% year-over-year, driven by comparable-store sales growing an impressive 9.2%. It is also worth noting that the fourth-quarter of fiscal 2012 contained an extra week, so on a 13-week comparative basis, earnings per share increased 14.7% and revenue increased 23.3%. 

Source: Ulta

Gross profit increased 13.1% to $293.56 million and the gross margin took a slight hit, contracting 40 basis points to 33.8%; this small contraction was welcomed with open arms, because it was much smaller than anticipated given the highly promotional retail environment during the holiday season.

Also, 11 new stores were opened during the quarter, bringing Ulta's total count to 675 in the United States. The company went on to note that it plans to have at least 1,200 stores over the long-term, so with the 127 new stores opened in fiscal 2013, it is now more than half-way to achieving this goal.

In summary, it was a great quarter for Ulta and its stock reacted accordingly by spiking more than 6% higher in the trading session that followed. Its shares continued higher over the next few weeks before being hit with a wave of negativity, now sitting more than 10% lower, but before we decide if this is an opportunity to buy, let's see what analysts expect for the first-qurater...

Expectations & what to watch for
First-quarter results are due out after the market closes on June 10 and the current expectations call significant growth on both the top and bottom lines; here's an overview:

MetricExpectedYear Ago
Earnings Per Share $0.74 $0.65
Revenue $699.12 million $582.71 million

Source: Estimize

These estimates call for earnings per share to increase 13.8% and revenue to increase 20% compared to the first-quarter of fiscal 2013; these estimates seem quite attainable, but other than the key metrics, investors will want to watch for three other statistics and updates:

Source: Ulta

  1. It will be important for Ulta to provide guidance for the second-quarter that is within or above analysts' expectations; currently, the consensus estimates call for earnings per share of $0.81 and revenue of $701.80 million, representing year-over-year growth of 15.7% and 16.8%, respectively. 
  2. While providing satisfactory guidance for the second-quarter, it will be crucial for Ulta to also reaffirm its full-year outlook on fiscal 2014; this outlook was for earnings per share and revenue growth in the mid-teens percentage range, comparable-store sales growth of 4%-6%, and free cash flow in excess of $100 million.
  3. Watch for the number of new stores opened during the quarter and make sure Ulta is on track to achieve its goal of opening 100 new stores in fiscal 2014. As mentioned before, the company plans to have over 1,200 location over the long-term, so meeting short-term expansion plans is important.
If Ulta can meet or exceed earnings expectations and satisfy the three elements above, and I think it will, its stock will likely make a sharp move higher; for these reasons, I would be a buyer of Ulta right now and would add to the position on any weakness following the report. 

Are Sally Beauty's losses Ulta's gains?
Sally Beauty Holdings, the international distributor and retailer of beauty products, recently released earnings results of its own and its stock has reacted by making a sharp move lower; here's a summary of the second-quarter report released on May 1:

Earnings Per Share $0.36 $0.39
Revenue $919.47 million $931.57 million

Source: Estimize

Earnings per share were flat and revenue increased 2.4% compared to the same period a year ago, but both of these results fell short of analysts' expectations. Comparable-store sales rose 1%, including 0.5% growth at Sally Beauty Supply stores and 2.2% growth at Beauty Systems Group.

Source: Sally Beauty Holdings

In terms of overall profitability, gross profit increased 2.7% to $456.4 million, but operating profit decreased 2.9% to $124.09 million; in relation, the gross margin expanded 10 basis points to 49.6% and the operating margin contracted 70 basis points to 13.5%. These statistics were negatively affected by a 2% increase in costs of goods sold, a 4.5% increase in general and administrative expenses, and a 13% increase in depreciation and amortization. 

Overall, it was a disappointing quarter for Sally Beauty and its stock responded by falling 7.48% in the next trading session; this poor performance is likely attributed to Ulta gaining market share in North America, and with this in mind, I would avoid an investment in Sally Beauty indefinitely.

The Foolish bottom line
Ulta Salon, Cosmetics, & Fragrance was once one of the most talked about stocks in the market, but its growth has slowed over the last few quarters and its stock has stalled as a result. A strong earnings report on June 10 could jump-start the stock once again and the current consensus analyst expectations are well within reach; with this being said, I believe Foolish investors should strongly consider initiating a position right now, and adding to it on any weakness following the report, to allow price appreciation to provide significant returns over the next several years.