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Ulta Beauty's Growth Efforts Look Promising: Time to Buy?

Ulta Beauty, Inc. ULTA looks good on the back of its splendid surprise history, robust marketing initiatives and solid e-Commerce as well as omni-channel focus. This Zacks Rank #2 (Buy) stock boasts a VGM Score of “B”, with a long-term earnings growth rate of 20.4%, which also highlights its inherent potential. Let’s delve deep to find out more.

Growth Initiatives

Being a leading beauty retailer, Ulta Beauty has created a niche market based on the products it offers. It features prestigious and discounted brands as well as offers salon products and services under one roof. Going forward, the company remains keen on enhancing beauty products offerings and improving store traffic with superior customer services.

Notably, the company added 69 new brands and executed more than 500 prestige brand expansions across new and existing stores in fiscal 2016. In addition to its portfolio of prestige brands, the beauty retailer is on track with the roll out of The Estee Lauder Companies Inc.’s EL most popular MAC brand in its stores, and expanding it to about 100 stores by the end of fiscal 2017. Furthermore, management expects to enhance its services by offering the MAC makeup services at all its stores, where the brand is featured.

Meanwhile, Ulta Beauty remains well on track backed by the expansion of its store base. While the company had been opening stores in suburban regions, given the advantage of lower rents and leaner competition, it is now ready to explore urban markets as evident from its recent plans to open about five stores in urban locations.

It is to be noted that Ulta Beauty is known for its strategy of striking the right balance between online and physical stores. While the key players in the retail industry are struggling due to rising competition from online retailers like Amazon.com, Inc. AMZN, Ulta Beauty has managed to grow both e-Commerce and in-store sales. Evidently, it registered whopping 70.9% growth in e-Commerce sales in first-quarter fiscal 2017, which also marked its highest ever quarterly growth since 2014.

Sturdy Performance

Backed by its robust strategies, Ulta Beauty has been delivering better-than-expected top-line and bottom-line results consistently for over three years.  In fact, the company maintained this robust trend in first-quarter fiscal 2017 as well, which marked its 14th straight quarter of earnings and sales beat.

In the fiscal first quarter, results were driven by constant merchandise innovations and marketing initiatives, along with outstanding e-Commerce improvement and continued progress at the company’s salon operations. Consequently, management raised its comparable store sales and earnings outlook for fiscal 2017. Currently, the company envisions earnings per share growth to come in mid-twenties percentage band, up from low-twenties percentage range, guided earlier.

Moreover, earnings for the fiscal second quarter are projected in the range of $1.72–$1.77 per share compared with $1.43 delivered in second-quarter fiscal 2016. The Zacks Consensus Estimate, which has been stable in the last 30 days, is currently pegged at $8.28 and $1.78 for fiscal 2017 and the fiscal second quarter, respectively.



The company’s strategic initiatives and solid performance are well reflected in its share price movement. Shares of Ulta Beauty have inched up 1.5% year to date against the Zacks categorized Retail – Miscellaneous/Diversified industry’s decline of 10.5%.

Ulta Beauty Vs Industry



Bottom Line

While the company’s limited global brand awareness, challenges related to cheaper alternatives and changing consumer preference remain major concerns, we believe Ulta Beauty can easily overcome these headwinds on the back of its robust growth strategies.

Meanwhile, you may have a look at another top-ranked stock in the same industry that is Barnes & Noble, Inc. BKS. Barnes & Noble has a long-term earnings growth rate of 10% and currently carries the same Zacks Rank as Ulta Beauty. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
 
Estee Lauder Companies, Inc. (The) (EL): Free Stock Analysis Report
 
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