Courtesy: ULTA
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It's all glitter and glam once again for beauty and fragrance retailer Ulta Salon, Cosmetics, & Fragrance (ULTA +0.14%). Following a very successful first quarter, the company posted great second-quarter results released Thursday evening, as well. Compared to competitor Regis (RGS 1.05%), which has posted poor results in the last two quarters, ULTA seems to be a beautiful company right now.
Second-quarter highlights for Ulta
- Total sales increased 22.2% year over year
- Comparable-store sales Increased 9.6% year over year
- Diluted EPS increased 34.3% year over year
- E-commerce sales grew 54.9% year over year
- Company raised guidance for fiscal year 2014
In the company's earnings call on Thursday, ULTA management said that bringing new brands into its stores, while using new ways of gaining even more insight into what customers want, has been driving growth this year. Prestige products particularly have done very well for the company. However, it's not just new products that are helping ULTA to grow, but also smart customer engagement in stores and online.
The company announced that it made advancements in its loyalty rewards program, getting all loyalty customers on track in one program that should help to increase order size and frequency. Going forward, this is expected to increase sales.
E-commerce has been another key growth driver for the company. During this quarter, the company benefited from 54.9% growth year over year in e-commerce sales. With even more of an online push, new online salon booking capabilities, live chats with brand creators, and the release of the company's first iPad app, e-commerce should continue to be a growth driver for the rest of this year and beyond.
ULTA's new iPad app. Courtesy: ULTA.
Following trends from Q1
These great Q2 results follow a very strong showing from the company's Q1 results, in which net sales increased 22.5% year over year. During Q1, ULTA opened 21 new stores, and e-commerce was already a growth segment for the company with more than 70% growth year over year in online sales. In Q2, Ulta opened 19 new stores.
One more trend that investors will enjoy seeing is that costs are being better managed. This will help to improve future profits even more. Selling, general, and administrative (SG&A) expense as a percentage of net sales continued to decrease even further from Q1 to Q2, now accounting for 21.5% of sales compared to 22.4% in the second quarter of 2013.
Competitor Regis' most recent quarterly results have followed the previous quarter's trends, as well, with the company posting losses and lackluster results in both quarters. Revenues this past quarter dropped 3.6% due to a more than 9% decrease in product sales. Regis has announced initiatives this year to turn the company in a new direction going forward, but while that may or may not play out well for Regis at some stage in the future, the company doesn't seem to be a current threat to ULTA's continued growth.
Foolish final thought: Will the beauty fade?
Can ULTA continue to produce these great results for the rest of this year and years to come? The company increased its 2014 guidance during this Q2 release, with total sales expected to increase in the 20% range for the fiscal year driven by increased same-store sales, and continued strength in e-commerce.
The company also showed its commitment to continue growing its footprint, with plans to speed up its store openings in the next two quarters to total 100 new stores through the year, expanding square footage by about 15%; it's currently at 40 additional stores in the last two quarters). However, the company is also remodeling stores; it fully remodeled four stores this recent quarter, and is expecting to remodel 12 by year end.
As for more long-term plans, the company plans to open 100 new stores each year for the next five years. However, physical stores are only part of the long-term growth plan. In a continued e-commerce drive, the company plans for online sales to represent 10% of total sales within the next five years.
Finally, the company plans to continue to deepen its loyalty programs and brand distinction to drive more growth for the near and short term. Great e-commerce results, aggressive growth in a number of stores, and more cost control will continue to drive this company's revenue growth and profits.
