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Ulta Salon Earnings Preview: Another Victim Of Winter Weather?

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Ulta Salon (NASDAQ: ULTA), which announced the appointment of a new board of directors member last week, is scheduled to report its fiscal first-quarter results on Tuesday, June 10, after the markets close.

This specialty retailer has seen its profits grow by double-digit percentages or better over the past 16 quarters, and the question for investors is whether the harsh winter weather that dragged on the results of other retailers will end that streak. Ulta Beauty's stock has underperform the overall market in so far this year and could use a boost.

See also: 3 Stocks To Watch After Strong Earnings Reports

Expectations

Analysts on average predict that Ulta Beauty will report that its revenue for the quarter increased about 20 percent year-over-year to $699.85 million. Earnings of $0.74 per share are also in the consensus forecast. That would be a rise from a reported profit of $0.65 per share in the comparable period of last year.

Note that the consensus earnings per share (EPS) estimate has not changed in the past 60 days, and the estimates only range from $0.76 to $0.72. The company topped analysts' EPS expectations in the previous quarter by about two percent, though if fell short of estimates by less than three percent in the period before that.

Ulta Beauty attributed strong fourth-quarter earnings in part to growth in its customer loyalty program and the addition of 25 significant new brands to its offerings. It also said it opened 11 new locations in the period. The share price rose more than 16 percent in the week following the fourth-quarter report.

Looking ahead, the EPS forecast for the three months that end in July so far calls for revenue up almost 16 percent for a year ago, as well as sequential and year-over-year growth on the top line. That consensus EPS estimate also is unchanged from 60 days ago.

The Company

Ulta Beauty is the largest specialty retailer of beauty products in the United States, selling branded and private label products at approximately 675 retail stores in 46 states. It also operates full-services salons in its stores and distributes its products through its website, Ulta.com.

The company was founded in 1990, and its headquarters are in suburban Chicago. It has a market capitalization of more than $5 billion. Mary Dillon has been Ulta Beauty's chief executive officer since July 2013.

Sally Beauty (NYSE: SBH) is a rival, and the company also competes with the likes of Walgreen, CVS Caremark and Wal-Mart. Sally Beauty is expected to show marginal year-over-year growth on the top and bottom lines when it shares the results of the current quarter, but it fell short of expectations in the previous period.

See also: Sally Beauty Q2 Earnings Miss Ests, Flat Y/Y

During the three months that ended in April, Ulta Beauty saw an upgrade to Buy from Goldman Sachs due to the company's expansion plans, as well as a reiterated Outperform rating from Credit Suisse, citing the company's plans to "reinvest in infrastructure, brand positioning, marketing and customer relationships."

Performance

Ulta Beauty has a long-term earnings per share growth forecast of about 19 percent, but its price-to-earnings (P/E) ratio is greater than that of Sally Beauty. Its operating margin is greater than the industry average, and it has a return on equity of more than 22 percent. It does not offer a dividend.

The number of Ulta Beauty shares sold short, as of the most recent settlement date, represented more than four percent of the total float, after short interest grew in the previous two periods. At the current average daily volume, it would take more than two days to close out all short positions.

Of the 15 analysts surveyed by Thomson/First Call who follow the stock, five rate it at Strong Buy and another five also recommend buying shares. A move to their mean price target would represent a gain of more than 20 percent for the shares. But shares traded higher than that as recently as last December.

At the close on Friday, shares were down about 10 percent year to date. The share price is below the 50-day and 200-day moving averages. Over the past six months, the stock has outperformed Sally Beauty, but it underperformed the broader markets, Walgreen and Wal-Mart.

At the time of this writing, the author had no position in the mentioned equities.

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Posted-In: cvs caremark sally beauty Ulta Beauty Wal-MartEarnings News Previews Trading Ideas Best of Benzinga

 

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