Ulta Beauty (NASDAQ:ULTA) rose 11% after the company reported third-quarter results that beat revenue and earnings expectations. Is the worst over for this firm?
Ulta earned $2.23 a share (non-GAAP) as revenue grew 7.7% Y/Y to $1.68 billion. The company demonstrated improved performance over last quarter’s dismal results. Comparable sales rose 3.2% and transactions rose 2.3% in the quarter.
Marketing and merchandising strategies led to higher gross margins of 37.1%. And although investments in salon services dragged results lower, fixed store costs suggest the operating efficiencies will turn higher from here.
Ulta forecast sales growth of 10%, within the 9% - 12% prior view. At a P/E of 22 times and EPS growth rates resuming, growth investors will look at ULTA’s $230 level ‘multiple bottoms’ on shares. Though profit-taking may pull the stock below the $262 close, investors may consider accumulating on the dip.
Ulta has no debt and may potentially grow revenue in the double digits over the next few years. Other retailers struggle to sustain that level of growth, whereas Ulta struggled only in the last quarter.
Ulta could earn $13 - $14 a share in the next few years. It updated its forecast to an $11.93 - $12.03 EPS. Getting above that will require a strong execution of its business.
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