ULTA Salon (ULTA -2.05%) posted second-quarter results on Thursday that included plenty of good news for shareholders. Sales jumped by 19% as earnings shot 22% higher. Both figures were above the forecast that management issued back in May. The results also beat the expectations of the pros on Wall Street:
| Metric | Expected | Actual |
|---|---|---|
| Revenue | $870 million | $877 million |
| Profit | $1.12 per share | $1.15 per share |
Expected is the average forecast of 19 Wall Street analysts who cover the stock. Sources: Yahoo! Finance and ULTA's filings.
Busier stores drive profit gains
ULTA's revenue boost was powered by a 10% sales improvement at existing shops along with the benefit of 20 new locations added to the store base. While the sales figures represent a slowdown from the first quarter's 11% comps jump and 22% revenue gain, they show continued healthy demand for ULTA's beauty products and services.
Source: ULTA.
The company logged 7% higher customer traffic for the second quarter in a row even as average spending rose by 3%. "The Ulta Beauty team achieved outstanding results in the second quarter, with top line momentum delivering better than expected earnings growth," said CEO Mary Dillon. Management said that new products helped it gain market share across all of its business lines.
The retailer's online business also posted strong results, rising 43% to make a solid contribution to overall comps growth: Online sales accounted for 1.2 percentage points out of the total 10% comps growth.
Meanwhile, profitability ticked lower as the company ramped up investments in its supply chain and opened a new distribution center. Gross margin slipped to 34.9% of sales from 35.3% a year ago. However, by keeping a lid on operating expenses ULTA still managed to improve its operating margin and drive net income higher by 22% to $74 million.
Steadily improving outlook
Those surprisingly strong results gave executives confidence to raise their 2015 guidance for the second time this year. Comps are now targeted at rising 9%, rather than the 8% the team forecast in May -- and the 7% improvement it expected to begin this fiscal year.
Source: ULTA.
ULTA says it should book earnings growth somewhere in the neighborhood of 18% above last year's $3.96 per share. Yes, that's a much slower pace than the 26% profit growth it logged in 2014. But the retailer believes it is seizing an opportunity to make major investments in its supply chain, marketing, and prestige boutiques.
If all goes to plan, that spending will keep a lid on profit growth in 2015 while paving the way for stronger operating results in the years ahead.
