Ulta Salon, Cosmetics & Fragrance Inc. (ULTA) posted fourth-quarter 2010 adjusted earnings of 48 cents per share, which surpassed the Zacks Consensus Estimate of 44 cents as well as the year-ago quarter earnings of 34 cents. Including one-time compensation charges, Ulta Salon recorded a quarterly net income of $30.1 million or 49 cents per share.
Net Sales in the quarter under review hiked 19.5% year over year to $473.7 million and was also above the Zacks Consensus Estimate of $467.0 million. The increase was driven by a rise in comparable store sales, which escalated 10.4% from 6.2% reported in the prior-year quarter. Management pointed out that the enhancement was spread across all major categories and generated this marked improvement in results, amid a sluggish economic recovery, based on dynamic marketing initiatives and renowned brands strategies implemented in 2009.
The company’s full-year income was $71.0 million or $1.16, compared with $39.4 million or 66 cents per share in fiscal 2009. Total revenues in fiscal 2010 were $ 3.4 billion, up 19% year over year due to higher same-store sales (up 11%).
Inside the Headline Numbers
Gross margin expanded 110 basis points (bps) year over year to 33.1% in the fourth quarter, mainly attributed to cost reductions derived from improved supply chain and leverage in marketing. In fiscal 2010, gross margin increased 250 bps to 33.3%.
Selling, general and administrative expenses, as a percentage of sales, slipped 60 bps to 22.6% in the quarter and also dropped 40 bps to 24.6% in fiscal 2010.
In the reported quarter, operating income surged 43.0% year over year to $49.0 million, while the operating margin grew 350 bps to 10.3%. In 2010, operating income climbed three fold to $118.9 million and operating margin soared 260 bps to 8.2%.
Financial Position
Ulta ended the year with cash and cash equivalents of $111.2 million and no debt in its balance sheet.
Merchandise inventories at the end of the quarter stood at $218.5 million compared with $206.9 million at the end of the previous quarter. The increase was mainly due to an addition of 43 new stores since January 30, 2010. However, average inventory per store dropped 6.1% year over year due to better inventory management initiatives.
Store Update
Ulta opened 5 new stores in the quarter and 47 new stores in the year, bringing the total number of stores to 389.
The company will continue to focus on store expansion and hence, plans to open 5 new stores in the first quarter of 2011 and 61 during the full year.
Outlook
Ulta expects its earnings growth to expand further in the first quarter of 2011. The company expects earnings per share to remain between 29 cents and 31 cents, a significant growth from 23 cents recorded in the year-earlier quarter, aided by Ulta’s sound marketing, merchandising and stores expansion strategies.
Net sales are estimated between $364 million and $370 million based on a comparable store sales rise of 5% to 7%. Management also remains optimistic about driving traffic riding on leverage in value offerings and introduction of new brands.
Our Take
The company reported better-than-expected results and will continue to introduce exciting merchandising and marketing programs to attract customers in 2011. We also expect an upward movement in estimates in the coming days.
Meanwhile, one of Ulta’s competitors, Regis Corp. (RGS) reported second-quarter 2011 adjusted net earnings of 25 cents per share, which missed the Zacks Consensus Estimate of 28 cents.
REGIS CORP/MN (RGS): Free Stock Analysis Report
ULTA SALON COSM (ULTA): Free Stock Analysis Report
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