Ulta Rallies on Earnings and Guidance

ULTA Salon, Cosmetics & Fragrance ULTA announced Third Quarter 2012 results yesterday. The stock jumped 7% ahead of the open. Ulta is a beauty retailer that provides one-stop shopping for prestige, mass and salon products. Ulta Beauty also offers a full-service salon in all of its stores. As of October 27, 2012, Ulta operates 537 retail stores across 45 states and also distributes its products through the Company's website: www.ulta.com According to Ulta, net sales in third quarter 2012 increased 22.4% to $505.6 million from $413.1 million in the third quarter of fiscal 2011. Operating income increased 38.6% to $61.3 million, or 12.1% of net sales, compared to $44.2 million, or 10.7% of net sales, in the third quarter of fiscal 2011. Income per diluted share increased 40.5% to $0.59 compared to $0.42 in the third quarter of fiscal 2011. In a research note on November 30th, Goldman Sachs reports: “We still consider ULTA the best retail growth story in our coverage universe and reiterate our Buy rating.” Goldman sets a 12-month price target from $115 to $117, based on risk/reward analysis. They mention key risks of slower consumer spending and a thin margin of safety. In a similar note, Piper Jaffray raised their EPS outlook and set their price target between $118 and $123, praising Ulta but simultaneously cautioning about risks of increased competition and dependence on key top management. This accounts for the impact of Hurricane Sandy, which should weigh more heavily on fourth quarter results. Looking at some of Ulta's competitors: Macy's M earnings were up 12.5% to 36 cents per diluted share for the third quarter of 2012, compared to 32 cents in last year's third quarter. Macy's operating income was up 11.68% to $325 million compared with $291 million for the same period last year. Sally Beauty SBH, an international specialty retailer and distributor of professional beauty supplies, reported a 6.0% increase in net sales over last year. Nordstrom's JWN net sales increased $204 million, or 11.5%, compared with the same period in fiscal 2011 JC Penney JCP, which reported a net loss for the third quarter, opened 38 Sephora shops inside JC Penney stores. Sephora is a privately-held division of France-based Sephora, which has 280 standalone stores in addition to the 300+ JC Penney shops. The Outlook for Ulta: For the fourth quarter of fiscal 2012, the Company expects net sales in the range of $742 million to $754 million, compared to actual net sales of $582.5 million in the fourth quarter of fiscal 2011. This assumes comparable store sales increase 5% to 7%, and includes the impact of Hurricane Sandy. Income per diluted share for the fourth quarter of fiscal 2012 is estimated to be in the range of $0.96 to $0.98. This compares to income per diluted share for fourth quarter of fiscal 2011 of $0.73. Ulta has an aggressive expansion strategy for the future, expecting to open at least 25 stores, a significant square footage growth of 22%. After its earning's bump, Ulta is currently trading at 99.97, up 7.30% from its open on November 30, 2012.