A Beauty Product Retailer with No Beasts
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Over the last few months, people have started loosening their wallets after they spent sometime last year trying to stretch their dollars due to macroeconomic uncertainty. This was affirmed by the better than expected quarter posted recently by some prominent players like the apparel retailer Ralph Lauren (NYSE: RL) and watch maker Movado (NYSE: MOV). Ralph Lauren’s revenue grew 14% due to strong consumer demand in its wholesale segment. Similarly, Movado’s top line rose 15% driven by high demand for its new and innovative product designs. Both the retailers witnessed remarkable earnings growth in the recent quarter led by consumers’ demand for their products. This highlights that the consumer are getting lenient with their spending bringing good news for these companies. This begets huge spending on beauty products, cosmetics and hair products being the most common, by the people. This trend has given way to another outperformer in the Street for the quarter. The beauty products retailer, Ulta Salon, Cosmetics and Fragrance (NASDAQ: ULTA), posted exciting results beating Mr. Market’s expectations. Let’s take a look at the quarter.
Performance Gets Greener!
Higher consumer traffic drove revenue north by 22.8% to $474 million compared to the same quarter last year. The company managed to attract customers with its focused initiatives of new marketing strategies, launch of new brands and better service. It also enhanced focus on its website Ulta.com. These initiatives seemingly worked for Ulta as stronger sales had a multiplying effect on the earnings of the company. The earnings per share shot up 46%, reaching 54 cents per share for the quarter. Comparable store sales grew by 10.1% for the quarter, which is quite incredible.
Expansion at its Best
A key driver for the increase in revenue was sales from new store openings of the Illinois based company. It opened a total of 18 new stores during the quarter and has plans to open another 82 in the coming quarters this year. Moreover, the beauty retailer plans to include a total of 1,200 stores in the long term. The only point to note here is that this store expansion is all U.S. centric, as the company hasn’t looked outside the States yet. But this looks like a good strategy of making its domestic presence pretty strong and sound before moving out.
It also longs to focus on its high end products such as the Lancôme boutiques range which will enhance its gross margin further. The company expanded its gross margins to 36% from 34.9% in the year ago quarter, highlighting the fact that the company is already in the path of margin expansion by controlling its expenses.
My Takeaway
Ulta definitely looks super strong with increasing sales and great demand for its products. Even the expansion strategies of the company are made with proper care and analysis of viability thereby giving them even greater sales with each additional store. But there is more to it. Ulta has given a bright outlook for the second quarter with the income between $0.49 and $0.51 per share and this is given even after considering additional costs related to expansion of its prestige brands and the introduction of its new distribution center in Chambersburg. To me Ulta looks attractive from all sides.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of Movado Group. Motley Fool newsletter services recommend Ulta Salon, Cosmetics & Fragrance. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
