Ulta Salon 'Firing On All Cylinders' In Baird's View

Mentioning that Ulta Salon, Cosmetics & Fragrance, Inc. ULTA was “firing on all cylinders,” Baird’s Mark R. Altschwager recommended that investors should “remain involved and add on dips as this durable earnings-growth story still appears to be in early innings.”

Altschwager maintained an Outperform rating on the company, while raising the price target from $300 to $305.

Impressive Quarter

The analyst noted that with Q2, the company “continued its string of impressive quarters, delivering a top- and bottom-line beat and raising guidance.”

Ulta Salon reported its Q2 EPS at $1.43, ahead of the consensus, with higher than expected comps of 14.4 percent, driven by robust growth in transactions and stable ticket expansion.

“Cosmetics led although management noted growth across the assortment, including strong performance in professional haircare,” the analyst stated.

The EBIT margin also beat expectations, with higher merchandise margin and fixed cost leverage driving robust gross margin expansion, although offset by supply chain and SG&A deleverage.

Guidance Conservative

According to the Baird report, “As Q1/Q2-2016 demonstrated, margin guidance may prove conservative if strong execution continues. Q3 should mark the point of maximum pain from a supply chain deleverage standpoint, setting the stage for more substantial EBIT margin expansion in F2017.”

The EPS estimate for F2016 has been raised to reflect the Q2 beat and raised guidance. The F2017 EPS estimate was also raised.

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