Ulta Beauty's Earnings Show Continued Upside

| About: Ulta Salon, (ULTA)

After the close Thursday, Ulta Beauty (NASDAQ:ULTA) announced earnings that easily surpassed estimates. Earnings came in at $.38 versus estimates of $.32 and 72% higher than last year on only a 22.6% increase in revenue. Revenue beat due to very strong comps of 11.3% over 2010.

ULTA appears to be firing on all cylinders with gross margins up 170 basis points and inventory per square foot down over 1%. The ability to grow revenue while decreasing inventory suggests superb inventory controls.

Clearly the Ulta Beauty store is becoming the authority in beauty, just as a Dicks Sporting Goods (NYSE:DKS) has become the leader in sporting goods. This leaves years of growth ahead for ULTA, which only has 415 stores and plans to open 61 stores this year.

Guidance for Q3 was upped to sales over $400M and earnings of $.36 to $.38, slightly above analyst estimates. Expect them to beat or meet the high end. Ulta's stock remains aggressively priced. The forward P/E is roughly 30 now, even considering that fiscal year 2013 estimates will undoubtedly rise after a $.06 beat and guide up. Look to buy on pullbacks.

Highlights from Q3, per PR:

  • Net sales increased 22.6% to $394.6 million from $321.8 million in the second quarter of fiscal 2010.
  • Comparable store sales (open at least 14 months) increased 11.3% compared to an increase of 10.8% in the second quarter of fiscal 2010.
  • Gross profit increased 170 basis points to 34.0% from 32.3% in the second quarter fiscal 2010.
  • Selling, general and administrative expense as a percentage of net sales decreased 180 basis points compared to the second quarter in fiscal 2010. Second quarter fiscal 2010 included a $2.8 million non-recurring compensation charge.
  • Operating income increased 78.2% to $39.7 million, or 10.1% of net sales, compared to $22.3 million, or 6.9% of net sales, in the second quarter of fiscal 2010.
  • Net income increased 83.0% to $23.9 million compared to $13.1 million in the second quarter of fiscal 2010.
  • Income per diluted share increased to $0.38 compared to $0.22 in the second quarter of fiscal 2010.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.