On March 15, Ulta Beauty Inc. (ULTA, Financial) said fourth-quarter net sales increased 22.6% year over year, completing another year of strong sales and earnings growth.
The Illinois-based beauty retailer reported diluted earnings per share of $3.40 for the quarter ending Feb. 3, up approximately 51.8% from the three months ending Feb. 4, 2017.
Company reports strong sales and earnings growth in 2017
Ulta CEO Mary Dillon said the company delivered an “excellent fiscal 2017,” including 11% comparable sales growth and 25% adjusted earnings growth. The comp sales included 6.7% of transaction growth, primarily driven by higher growth in average ticket sales and strong January sales.
Dillon mentioned in the earnings call several key drivers of earnings growth, including the loyalty program, brand awareness, Prestige Skin Care and e-commerce. The company launched a new “Diamond” tier, with perks including higher points earned per dollar and everyday free shipping on orders above $25. Alphabet Inc. (GOOG, Financial)(GOOGL, Financial) subsidiary Google placed Ulta as the most searched beauty store during 2017, suggesting strong brand recognition and awareness among customers.
Dillon also noticed strong momentum in Ulta’s e-commerce business, which represented approximately 13% of the company’s net sales from the quarter. The company’s supply-chain management teams had high efficiency during January, reducing the costs per order by approximately 10%. E-commerce sales are expected to increase 40% in the upcoming year, according to Dillon.
Company offers strong value potential for 2018
Chief financial officer Scott Settersten offered a light fiscal 2018 earnings guidance, which included total revenue growth in the low teens and comp sales growth between 6% and 8%. Despite this, Ulta’s financial position remains strong with eight positive investing signs.
As discussed in a previous article, high-quality companies show strong financial strength and consistent profitability. GuruFocus ranks Ulta’s profitability 9 out of 10, driven by several factors, including expanding operating margins, a solid business predictability rank of 4.5 stars and a strong Piotroski F-score of 7.
Ulta’s financial strength ranks 8 out of 10 as the company has no long-term debt and robust Altman Z-scores. The company made both the Undervalued Predictable screener and Warren Buffett (Trades, Portfolio)’s list of companies as of March 9 as discussed in a previous article.
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On Jan. 16, our Forum users applied the discount cash flow model to Ulta and discovered that the stock was slightly overvalued. The stock traded around $212.45 at market open March 16, up approximately 3.06% from its previous close.
Ulta’s margin of safety based on the discounted earnings model is 4.57%, suggesting moderate undervaluation. Several gurus, including Louis Moore Bacon (Trades, Portfolio) and PRIMECAP Management (Trades, Portfolio), invested in Ulta during the past five months as the company offers good value potential.
Disclosure: No positions.
