Ulta Beauty Inc (ULTA) Stock Dips on Earnings. Buy It!

Vince Martin
Updated
0

Ulta Beauty Inc (NASDAQ:ULTA) was perhaps the best stock in all of brick-and-mortar retail over the past few years, but it was scuffling heading into the company’s second-quarter earnings report. ULTA stock better than tripled between early June, but had pulled back some 26% since then.

Source: Mike Mozart via Flickr

Today’s report didn’t change that momentum.

Q2 earnings seemed like an opportunity to halt that slide. After all, the decline in ULTA stock wasn’t fundamentally driven. The retailer’s last earnings report, in May, beat the consensus and sent shares to all-time highs.

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Like every retailer, Ulta has had to deal with fears of Amazon.com, Inc. (NASDAQ:AMZN) entering its space, fears amplified by rumors of a partnership between Amazon and privately held Violet Gray. Heavy promotions of cosmetics by desperate department store chains like Macy’s Inc (NYSE:M) and J C Penney Company Inc (NYSE:JCP) have raised worries about near-term margin pressure as well.

Ulta’s second-quarter earnings report should have assuaged those worries, at least somewhat. Revenues and profits both beat  consensus estimates rather handily. Guidance is a bit light relative to expectations, but 25%-plus EPS growth this year shows the growth story behind ULTA stock isn’t over yet.

And yet, here we are. Shares are down about 4% in after-hours trading, slightly recovered after an initial 6% hit. Whatever the size of the dip, this is an opportunity to buy what still is one of the best retail stocks around — at now nearly a one-third discount to its June highs.

Ulta Q2 Earnings Recap

Fundamentally, Ulta’s second-quarter report looked pretty sound. The highlights:

  • Revenue of $1.29 billion increased 20% year-over-year, and came in just ahead of consensus expectations of $1.28 billion.

  • Earnings came to $1.83 per share, up 28% year-over-year, including a 2-cent benefit from accounting changes relative to share-based compensation.

  • That figure beat Street estimates of $1.78 per share.

Ulta Beauty was strong across channels as well. Retail comparable sales increased 8.3%, salon sales jumped 15% and e-commerce revenue increased 72.3%, clearing 7% of the total. The combination led comparable-store sales as a whole to rise 11.7% on top of a 14.4% gain the year before.

Guidance might be considered a bit light, and is likely the reason for the knee-jerk selloff in ULTA stock after hours. Q3’s profit outlook of $1.63-$1.68 per share is a bit below consensus estimates of $1.68.

But full-year guidance, including EPS growth in “the high twenties” on a percentage basis, looks in line with expectations.

And Ulta traditionally has guided rather conservatively.

For a stock that had been nose-diving into the report, Thursday’s initial selloff is quite a surprise. At the least, one might expect a “relief rally” given what looks like a solid quarter.

But the decline in Ulta Beauty continues unabated, at least for now.

Buy the Dip in ULTA Stock

This decline in Ulta shares is an opportunity. The stock isn’t cheap, trading at about 27 times FY17 (ending January 2018) consensus estimates. However, the company is growing earnings at an impressive pace, and its increasing presence online provides a potential bulwark against e-commerce competitors like Amazon.

There are concerns here, to be sure, and retail is a tough space. But those concerns aren’t new; retailers across the industry are flailing wildly, hoping just to keep sales from declining each quarter.

Ulta, in contrast, is growing double-digits – and growing online and offline. That makes it an outlier in the industry, and that makes ULTA stock worth buying on the post-earnings dip.

As of this writing, Vince Martin did not hold a position in any of the aforementioned securities.

More From InvestorPlace

The post Ulta Beauty Inc (ULTA) Stock Dips on Earnings. Buy It! appeared first on InvestorPlace.

Advertisement

Recommended Stories