Beauty and personal products retailer, Ulta,(NASDAQ:ULTA) reports its fourth quarter results after today’s closing bell. Estimize is looking for EPS of $1.30, four cents higher than the Street’s expectation for $1.26, and even higher than the company’s own guidance of $1.23. Take that last figure with a grain of salt however, Ulta has low-balled guidance for the last 3 quarters. Estimize revenue estimates of $1.0B are in-line with Wall Street. No matter which way you slice it, this is a company that has posted double digit sales growth every quarter since their IPO in late 2007, and this quarter should be no exception with revenue growth expected to hit 19%. Earnings growth has also been in the double digits for every quarter since Q2 2009.
Beauty is a big business, one that has grown exponentially in the last 5 years, and Ulta has swiftly turned into one of the top specialty beauty retailers in the country. Part of its success results from a unique product mix, offering very high-end items that can be found at department stores, with lower-end products typically found at pharmacies. Also, unlike many of its competitors, Ulta offers salon services, making it a one-stop shop for all of a woman’s beauty needs. However, it is beginning to face some fierce competition as the space heats up. Kohl’s has started to roll out full beauty departments in their stores, and J.C. Penney has doubled down on the expansion of Sephora shops within each of their stores.
Ulta recently announced a five year plan which includes opening 100 stores per year, raising e-commerce to 10% of total sales from the current 4% and aiming for comparable store sales growth of 5 - 7%. So far the company is off to a good start on all measures, specifically with store expansion. While many retailers have been forced to close stores in the last 5 years due in part to the popularity of e-commerce, Ulta has more than doubled their numbers in that time, increasing its fleet to 715 locations. The retailer also made a decision in the early days to limit their mall locations, which were experiencing a decrease in foot traffic and were also seen as less convenient for shoppers. Instead, they focus on opening in shopping centers, which allows them to also customize store sizes. Currently, the average store is 10,000 square feet and located in larger cities, but they’ve also increased their 5,000 square foot model which allows them to target customers in smaller towns.
When the company reports tomorrow, expect to see mention of deep discounts over the holiday shopping season as a way to deal with stiff competition. We’ll also be looking to see how Ulta’s investment in better messaging, targeted promotions, employee training and a new loyalty program have paid off.