Ulta Beauty (ULTA 273.77) is a case in point that not everything in retail is ugly these days. This beauty retailer, which operates 974 retail stores across 48 states and the District of Columbia, reported fourth quarter results that would be the envy of most retailers and most companies in general. Its stock, however, hasn't reacted all that well to the strong fourth quarter report because the company's guidance wasn't as robust as some had hoped it would be.
The stats for the fourth quarter pretty much speak for themselves in relation to the popularity of Ulta Beauty.
Net sales increased 24.6% to $1.58 billion, total comparable sales increased 16.6%, and retail comparable sales increased 12.8%. E-commerce sales surged 63.4% to $154.9 million and accounted for 380 basis points of the total comparable sales increase of 16.6%.
The best indication perhaps of the strong demand Ulta Beauty enjoyed is the recognition that the comparable sales increase was driven by an increase in both transactions (+10.9%) and average ticket (+5.9%). There aren't a lot of retailers that can resolutely declare that they have pricing power, but Ulta Beauty can.
The latter point notwithstanding, Ulta Beauty's gross margin rate dipped 10 basis points in the period to 34.5%. That decline, however, was a byproduct of a higher mix of e-commerce sales and planned supply chain investments. In other words, it was really a byproduct of a growing business. Operating margins, on the other hand, increased 80 basis points to 14.2% as the strong sales growth provided the company with expense leverage.
That flowed through to the bottom line, too, evidenced by the 30% increase in net income, despite a higher tax rate, and the 32.5% surge in income per diluted share to $2.24. Ulta Beauty's net sales and earnings per share were both ahead of analysts' average expectations.
For fiscal 2016, Ulta Beauty reported a 23.7% increase in net sales to $4.85 billion, a 15.8% increase in total comparable sales, and a 30.9% increase in income per diluted share of $6.52.
The year ahead will be another year of growth. The rub for some investors, as well as a stock trading at 42x trailing twelve month earnings, is that the company's outlook points to a deceleration in its stellar growth rates. That's owed in large part to the fact that Ulta Beauty faces some tough comparisons.
For the first quarter, Ulta Beauty anticipates net sales in the range of $1.244-1.265 billion and total comparable sales to increase 9-11% versus a 15.2% increase in the same period a year ago. Its income per diluted share is expected to range from $1.75 to $1.80, up roughly 22% at the midpoint.
Looking to 2017, Ulta Beauty expects to achieve total comparable sales growth of approximately 8-10%, e-commerce sales growth in the 40% range, and deliver earnings per share growth in the low-20s percentage range, including the impact of a 53rd week and approximately $300 million of share repurchases.
Once again, that is solid growth most retailers would be happy to forecast, yet it's enough of a slowdown to prompt some profit taking in a stock that has been as pretty as they come. Over the last 52 weeks alone, ULTA has risen 67.6%.
ULTA shares are trading 4.3% lower in pre-market action, which is below the stock's 50-day simple moving average (269.25). Investors will be keen to see how ULTA responds as the 50-day simple moving average has often held up as an important support level in the stock's run to its current heights.
It may not be a pretty open, then, but make no mistake about it. Ulta Beauty lived up to its name with its fourth quarter performance. The few things in its way right now are tough comparisons and a premium valuation that doesn't allow for any major blemishes on its growth profile.