Will Ulta Salon Recover After Big Earnings Miss Last Quarter?

| About: Ulta Salon, (ULTA)

Ulta Salon (NASDAQ:ULTA) is set to report FQ4 2014 earnings after the market closes on Thursday, March 13th. Ulta Salon is a beauty store chain in which each store is equipped with its own full service salon. In each of the past eight quarters, Ulta Salon has posted a minimum of a 22% gain in both EPS and revenue on a year over basis. However, share prices plunged 21% last quarter as ULTA missed analyst expectations. This quarter continued growth is expected from ULTA although the company is vulnerable to having its sales adversely affected by frequent snowstorms and the extreme cold that have marked this holiday season and plagued other retailers. This quarter growth expectations are lower. Wall Street is only expecting about 12% growth in year-over-year revenue compared to the 22% growth reported last quarter, which wasn't good enough to meet expectations. Here's what investors are expecting from Ulta Salon on Thursday.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.image

(Click Here to see Estimates and Interactive Features for Ulta Salon)

The current Wall Street consensus expectation is for ULTA to report $1.07 EPS and $855.65M revenue while the current Estimize.com consensus from 12 Buy Side and Independent contributing analysts is $1.09 EPS and $858.61M in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Ulta Salon to beat the Wall Street consensus on both EPS and revenue.

Over the previous 6 quarters the consensus from contributing analysts on the Estimize.com platform have been more accurate than Wall Street in forecasting ULTA’s EPS and revenue 5 and 4 times respectively. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students and non professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly, it does a better job of representing the market’s actual expectations.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case, we are seeing a moderate difference between the two groups' expectations.image

The distribution of estimates published by analysts on the Estimize.com platform range from $1.04 to $1.13 EPS and from $854.00M to $865.00M in revenues. This quarter we're seeing a larger than usual distribution of estimates on ULTA.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market could mean greater volatility post earnings. image

Over the past four months, the Wall Street EPS consensus dropped from $1.13 to $1.07 while the Estimize consensus increased late in the quarter from a low of $1.07 to $1.09. Meanwhile the Wall Street revenue forecast decreased from $864.17M to $855.65M while the Estimize forecast pushed higher right before the report from $856.90M to $858.61M. Timeliness is correlated with accuracy and upward analyst revisions at the end of the quarter are often a bullish indicator. In this case, we saw divergent revenue expectations between Wall Street and Estimize at the end of the quarter. Over the three days prior to the report date, the stock price climbed 5%.image

The analyst with the highest estimate confidence rating this quarter is turbinecity who projects $1.08 EPS and $858.85M in revenue. In the Winter 2014 season, turbinecity is the highest rated analyst and is ranked 7th overall among over 3,950 contributing analysts. This season turbinecity has been more accurate than the Street in forecasting EPS and revenue 61% and 59% of the time, respectively, throughout more than 1,200 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research, which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, turbinecity is expecting ULTA to narrowly beat the Estimize consensus on revenue but come up just short on earnings per share.

Ulta Salon has been one of the biggest growth stores in cosmetic retailing over the past couple of years. However, investors were in for a rude awakening last quarter when the company failed to live up to stellar expectations. This quarter contributing analysts on the Estimize.com platform have set the bar high again and are expecting Ulta Salon to beat Wall Street consensus on both the top and bottom line.

Disclosure: None.