Historically, most companies focus either on selling products, or on offering services. Yet the hybrid approach that ULTA Salon (NASDAQ:ULTA) adopted in bringing together both full-service salon services and the high-end products that customers want has proven to be uniquely successful.
Coming into Thursday afternoon's fiscal first-quarter financial report, investors had hoped that ULTA would continue to post the impressive growth that many have come to expect. To its credit, ULTA Salon lived up to its reputation, with even better results than most of those following the stock had looked for. Let's take a closer look at ULTA, and what its growth means for the retailer going forward.
ULTA never looked more beautiful
As we've seen in past quarters, ULTA Salon managed to satisfy the most demanding investors with its growth. Net sales climbed nearly 22%, to $868.1 million, accelerating from its pace last quarter. Net income grew at an even more impressive rate of 34%, translating to earnings of $1.04 per share, more than $0.10 higher than the consensus figure among investors following the stock.
A deeper look at ULTA's results shows broad-based business performance. Comparable-store sales climbed 11.4%, continuing to accelerate both sequentially and from last year's first quarter. Average per-customer ticket size rose 4.2%, and ULTA brought in a lot more traffic, with customer counts rising 7.2%. E-commerce continued to contribute to overall results with a 50% jump in sales; but even excluding that fast-growing segment, retail comps rose 9.7%, with salon-comparable sales topping the 10% mark.
Expansion has continued to play a key role for ULTA. During the quarter, the company opened 24 stores, boosting its overall count nearly to the 800-store mark. Total square footage of nearly 8.43 million was up 14% from the first quarter of last year, as ULTA opened new locations from Alaska to Florida.
CEO Mary Dillon heralded the beauty company's performance to begin the new fiscal year, noting that its comps were the best it had seen in four years. Citing successful marketing efforts, Dillon believes that the across-the-board growth in all of its key categories sets the stage for even more impressive results in the future.
What's next for ULTA?
ULTA Salon doesn't expect things to slow down anytime soon. In its guidance for the fiscal second quarter, ULTA said it believes that it can achieve comparable sales growth of 7% to 9%, and it set expectations for earnings of $1.07 to $1.12 per share, up between 14% and 19% from last year's quarter.
For the full year, ULTA marked up its expectations, boosting its comps guidance by a percentage point to a range of 7% to 9%. With plans to open 100 new stores, ULTA thinks it will expand its square footage by another 13%, and it now believes its earnings growth will come in at the high-end of its previously announced 15% to 17% range.
Margin growth has played a key role in ULTA's profitability, and investors hope that the beauty company will be able to continue that positive trend. Net margin improvement of just seven-tenths of a percentage point might not sound like much, but it contributed nearly $6 million to overall net income, and therefore was almost entirely responsible for the $0.10 per share by which ULTA outperformed consensus estimates on the earnings front.
ULTA also continues to buy back its shares, albeit at a modest pace. After adding $100 million to its buyback authorization, ULTA still has $332 million outstanding, having spent just $28 million to repurchase 192,000 shares during the fiscal first quarter. Given the stock's big run lately, the slow pace of buybacks makes sense to those who would ordinarily take issue with repurchases with a stock at all-time highs.
Investors in ULTA Salon celebrated the report, sending the stock up about 1.5% in the first hour of after-hours trading following the announcement, and touching a new record high. ULTA will need to keep performing well; but at least for now, the loyalty that the beauty company's customers have shown with repeat business demonstrates the value of ULTA's business model.
Dan Caplinger owns shares of Apple. The Motley Fool owns shares of Apple and recommends Apple and Ulta Salon, Cosmetics & Fragrance. Try any of our Foolish newsletter services free for 30 days. 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.