Why Ulta Salon, Cosmetics, & Fragrance Should Help You Earn More

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Jan 13, 2015

Consumer sentiment is improving and the holiday season is here. These things should make people smile and give them enough reasons to shop. Thus, the retailers are gearing up for the peak season of the year. The excitement is getting better because of rising consumer spending, increase in personal incomes and lower oil prices.

With an increase in the willingness of people to spend, demand for beauty products is also on the rise. This was clear when the beauty product retailer Ulta Salon, Cosmetics & Fragrance (ULTA, Financial) reported its third-quarter results. The numbers were much ahead of the Street’s estimates, sending its share prices higher. Let’s discuss.

Detailed insights

Revenue for the quarter surged 21% to $745.7 million over last year. However, the top line was way ahead of the analysts’ expectations of $734 million. Sales were driven by higher demand for its products and 50 new stores added during the quarter. But, it was not only new stores which added to the revenue base, but also sales at the existing stores increased. Same store sales surged 9.5% during the quarter, which was remarkable.

Salon sales were one of the bright spots during the quarter as it increased 20.5% over the prior year. Revenue was driven by comp salon sales growth of 10.1%. Occasions such as Thanksgiving and Black Friday led many customers to flock into the salon for professional services, resulting in higher sales.

The ecommerce business grew a whopping 46.7% over the previous year. Since online shopping has become very popular with customers, retailers have started expanding this section of the business. Therefore, Ulta Salon’s beauty products are offered online, which is resonating well with the customers.

The gross margin of the company also expanded 40 basis points to 37.8% during the quarter. Also, earnings surged to $0.91 per share from $0.70 per share last year and higher than the estimate of $0.84 per share. Thus, the beauty retailer is being able to manage its costs pretty well.

Positive cues

The growing demand for mass color cosmetics and prestige products enabled the company to register growth. In addition, the growing demand for online sales was another important driver. Thus, Ulta Salon plans to expand these categories further.

The company also introduced a number of new products during the quarter. These new launches of products as well as new brands resulted in growth. Furthermore, these new items should help the company in attracting customers in the all-important holiday season.

Moreover, Ulta Salon raised its outlook for the fourth quarter because of the higher sales expected during the period. Its top line is expected to rise 20%, and same-store sales are estimated to increase between 8% and 9%. This is higher than the earlier estimate of 7% to 8%.

Final thoughts

Shares of Ulta Salon have risen by 40% in the last one year. This is solely because of the great performance of the company during the same time. Moreover, its efforts to attract customers by bringing in new products and offerings look impressive. Also, its expansion of the e-commerce business and an upgraded guidance add to the merriment of the investors. Thus, this beauty retailer looks increasingly attractive.