Equity markets were spooked Friday morning following news that former National Security Advisor Michael Flynn had pleaded guilty to lying to the FBI, but major benchmarks ultimately recovered to close with small losses. The Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) fell less than a quarter percent.
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Industrial stocks retreated, but energy stocks extended their gains after a good week. The Industrial Select SPDR ETF (NYSEMKT: XLI) fell 1.2% and the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEMKT: XOP) added 2%.
As for individual stocks, shares of Ulta Beauty (NASDAQ: ULTA) tumbled after the retailer reported earnings, and American Woodmark (NASDAQ: AMWD) soared on acquisition news.
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Ulta Beauty fails to meet high expectations
Ulta Beauty reported third-quarter results that beat expectations for profit but slightly missed on sales, and the stock slumped 4.1%. Sales rose 18.6% to $1.34 billion and earnings per share increased 21.4% to $1.70. Wall Street was expecting a revenue increase of 18.9% and an EPS gain of 19.3%.
Comparable sales rose 10.3%, driven by 6% transaction growth and 4.3% growth in average ticket. Comps in physical stores were up 6.6%, while e-commerce sales grew 62.9% to account for 3.7 percentage points of the comparable-sales growth. The company opened 48 new stores during the quarter to bring the total store count to 1,058. Ulta reaffirmed previous guidance for the full year for comps growth of 10% to 11% and EPS growth "in the high twenties percentage range."
"Our third quarter results clearly demonstrate the strength and distinct advantages of the Ulta Beauty business model," said CEO Mary Dillon in the press release. "We delivered double digit comparable sales growth, in spite of a moderation in the growth rate of our largest category-makeup-and meaningful disruption from hurricanes."
Ulta reported results that just about any other brick-and-mortar retailer could only dream of, but it was not enough for investors today. Sales were within the guidance given last quarter and EPS exceeded it, but the fact that the company didn't extend its streak of beating sales expectations and reported a small drop in gross margin apparently disappointed Mr. Market.
American Woodmark nails an acquisition
Shares of cabinet manufacturer American Woodmark soared 28.2% on news it is acquiring privately held RSI Home Products in a $1.075 billion deal, including $140 million in American Woodmark stock, $346 million in cash, and $589 million of acquired debt. The company also announced fiscal second-quarter results that missed analyst expectations. Revenue grew 4% to $274.8 million and earnings per share increased 13% to $1.21. Analysts were expecting EPS of $1.26 on sales of $283 million.
"The acquisition of RSI will further enhance American Woodmark by creating a broader product and brand portfolio that is well-positioned to fully leverage our industry-leading service platform across all channels and to drive improved profitability and long-term value for shareholders," said Woodmark Chairman and CEO Cary Dunston in the press release.
The market was willing to overlook the earnings miss because the acquisition is such an excellent fit for American Woodmark. RSI, about half Woodmark's size with an estimated $560 million in 2017 revenue, does 87% of its sales through home center superstores with popular brands such as Hampton Bay and Glacier Bay. Woodmark sells most of its products to builders for new construction and only 38% through home centers for remodels. Better still, RSI has efficient manufacturing operations with margins significantly higher than Woodmark's. The company expects the combination will improve EBITDA margin to around 16%, compared with Woodmark's 12.3% today, and help the company expand into lower-cost offerings attractive to first-time homebuyers.
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