Ulta Salon Trades Down 17% on Weak Q1 Guidance

Shares of Ulta Salon, Cosmetics, & Fragrance

were among the worst market performers on Friday. In afternoon trading, the stock was last down more than 17 percent and sitting near session lows. In fact, after the big decline in the stock, Ulta put in a new 52-week low of $73.02. Year-to-date, the stock has now lost more than 25 percent. The catalyst for the move lower in the name was the company's fiscal fourth-quarter earnings results and guidance for the first-quarter. Both profits and revenue were above expectations for Q4, but the company's guidance was very weak. Dennis Eck, Interim Chief Executive Officer, stated, “The Ulta team achieved strong fourth quarter results to complete an exceptional year in 2012. Excellent execution of our multi-year growth strategy was evident in the milestones achieved during the year: we increased square footage by 23% with the addition of 101 net new stores, we greatly enhanced our offering with newness across the board, we implemented a new Customer Relationship Management platform, broadened our marketing reach and brand awareness, and improved our digital capabilities including rapid growth in our e-commerce business.” For Q4, Ulta reported net income of $64.5 million or $1.00 per share, compared to $46.3 million or $0.73 per share, in last year's corresponding period. This beat Wall Street analysts' consensus EPS estimates of $0.98 by two cents. Revenues for the fourth-quarter were $758.8 million, a 30.3 percent increase over the $582.5 million the company reported last year. This also beat analysts' consensus of $752.27 million. Comparable store sales rose 8 percent in the fourth-quarter compared to an increase of 11.5 percent last year. Although the company's fourth-quarter results were solid, traders are reacting to Ulta's guidance for Q1 in driving the stock down. The company said that it sees earnings per share in a range between $0.60 to $0.63 on revenue of $568 million to $577 million. This is below current Wall Street consensus estimates of $0.72 on revenue of $579.66 million. The company's weak earnings guidance comes as Ulta plans on spending approximately $0.13 of income per diluted share on incremental investments to expand the business. For fiscal 2013, Ulta expects capital expenditures of $225 million versus $189 million in fiscal 2012. Management did not elaborate on the weak sales guidance. The company also said that it intends to achieve comparable store sales growth of around 4 percent to 6 percent in fiscal 2013, remodel seven store locations, and expand company-wide square footage by 22 percent with the opening of 125 net new stores.