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Why Ulta Salon Cosmetics & Fragrance Soared Today

By Timothy Green - Mar 11, 2016 at 12:35PM

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The beauty retailer had a stellar quarter, and strong growth is set to continue in 2016.

What: Shares of beauty retailer Ulta Salon Cosmetics & Fragrance (ULTA 1.24%) soared on Friday following the company's fourth-quarter earnings report. Ulta handily beat analyst estimates for both revenue and earnings, and its guidance was above analyst expectations. At 11:45 a.m. ET Friday, the stock was up about 17%.

Image source: Ulta.

So what: Ulta reported quarterly revenue of $1.27 billion, up 21% year over year and about $40 million higher than analysts were expecting. Comparable sales, which include e-commerce sales, grew 12.5% year over year, boosted by an 8.6% increase in transactions and a 3.9% jump in average ticket. E-commerce sales jumped 44.2% to $94.8 million during the quarter.

It posted earnings of $1.69 per share, up from $1.35 per share during the prior-year period and $0.15 higher than the average analyst estimate. Gross margin rose to 34.6%, up 1.2 percentage points year over year, driving an operating margin of 13.4%, up from 13.1% during the prior-year period. Ulta pointed to increased merchandise margins, an improvement in e-commerce profit contribution, and leverage in fixed store costs as the main drivers of its gross margin improvement.

"Our fourth quarter results capped an exceptional year during which we made significant progress against our strategic imperatives, while achieving outstanding sales and earnings growth," said CEO Mary Dillon. "We continue to benefit from the powerful combination of strong demand in the beauty category and Ulta Beauty's highly differentiated offering that propels our business to transcend prevailing trends across the retail landscape."

Now what: In addition to beating fourth-quarter estimates, Ulta provided guidance that was above analyst expectations. For the first quarter, sales are expected between $1.016 billion and $1.033 billion and EPS between $1.25 and $1.30. Analysts were guiding for $1.01 billion and $1.22, respectively. For the full year, Ulta forecasts comparable sales to rise between by 8%-10%.

Ulta's rapid growth continued during the fourth quarter, and there was no sign of it slowing down. It plans to spend $390 million on capital expenditures in 2016, up from $299 in 2015, in an effort to accelerate the rollout of its prestige brand boutiques and add enhancements to fixtures in hundreds of stores. As Ulta's growth story continues to play out, investors keep driving the stock price higher.

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