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Ulta Projects a Solid Q1

Zacks Equity Research

Ulta Salon, Cosmetics & Fragrance Inc. (ULTA) recently gave an update on its preliminary earnings for its upcoming first quarter. Income per diluted share for first quarter fiscal 2012 is expected between 52 cents and 53 cents. This equates to an increase of approximately 42% year over year. The income per diluted share for first quarter fiscal 2012 takes into account an additional pre-opening expense of a penny per share from the new store program. Earlier, Ulta had guided income per diluted share in the range of 46 cents to 48 cents.

The company anticipates total net sales of $474 million for first quarter fiscal 2012, reflecting an increase of 28% year over year. Total revenue will surpass the guidance range of $452 million to $460 million. Comparable store sales (comps) for first quarter fiscal 2012 are expected to rise 10.1%, exceeding the company’s guidance of an increase in a range of 6% to 8%. Higher traffic remains the strength for the company which sells fragrance, cosmetics, skincare, haircare, and other styling products. The company continues to introduce loyalty program, new offerings and various promotions.

While Ulta continues to exhibit a strong trend in same-store sales, one of its close competitors Regis Corporation’s (RGS) comps have been going downhill for quite some time. Comps for Regis’ recently concluded third quarter fell 3.4% year over year and the rate of decline was sharper than the year-ago drop.

Ulta opened 18 new stores in first quarter fiscal 2012 compared to 5 in the comparable period of the last year. The number of openings was also more than the guided figure of 13 units.

Ulta has embarked on a solid long-term growth trajectory. Its business model is aimed at yielding 25% to 30% annual net income growth with the help of 3% to 5% annual growth in comps.

The Bolingbrook, Illinois-based company currently retains a Zacks #2 Rank, implying a short-term Buy rating on the stock. Our long-term recommendation for the stock remains Outperform. Ulta is slated to release its first quarter earnings on June 5, 2012.

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