Dec. 05--Ulta Beauty continued to put its best face forward Thursday, reporting a 30 percent increase in net income in the third quarter, surpassing Wall Street's expectations.
The Bolingbrook-based cosmetics company had net income of $59.1 million, or 91 cents per diluted share, during the 13 weeks ended Nov. 1, handily beating analysts' average estimate of 84 cents. During the same period last year, Ulta's net income was $45.4 million, or 70 cents per diluted share.
Revenue grew 20.5 percent to $745 million. It opened 50 new stores during the quarter.
CEO Mary Dillion, who took the helm of the company in July 2013, said she owed the "excellent sales and earnings growth" to a number of factors, including continued strength in cosmetics, the introduction of new products and brands, an improved marketing strategy and high growth in its salon business.
Salon sales increased 20.5 percent during the quarter.
Sales at stores operating for at least 14 months grew 9.5 percent, fueled by both more transactions and larger purchases, the company said. Analysts had expected same-store sales growth of 7.4 percent, according to Consensus Metrix.
The same-store sales jump includes growth in e-commerce sales, which surged 46.7 percent.
The brand's ULTAmate Rewards loyalty members, whose numbers grew 16.1 percent to 14.5 million, drove much of the same-store sales growth, the company said during an earnings conference call.
Ulta, which ended the quarter with 765 stores, earlier this year announced a five-year strategic plan that includes opening 100 new stores annually and growing e-commerce to represent 10 percent of sales. Currently, online sales account for 5 percent.
Edward Jones Brian Yarbrough praised Ulta for doing "an outstanding job" and posting some of the best same-store sales growth in the industry.
Better messaging, more targeted promotions, investments in training and the revamped loyalty program all have contributed to the retailer's success, he said.
"They're firing on all cylinders," he said.
Ulta is testing several initiatives, including an advertising campaign and media partnerships to raise brand awareness, Dillon said during the call.
The company is also assessing higher staffing levels to see if customer satisfaction improves as employees have more time to interact with them, she said.
Two smaller-format stores, one in Utah and one in North Carolina, are in test mode to see if they make sense for certain small-town environments. The 5,000-square-foot stores, half the size of a typical Ulta, offer a curated assortment of products from every category and have full salon and dermatology services and brow bars. Customers can order items not carried in the store from an in-store iPad and have them delivered to their homes.
The company has gradually pulled back on discounting, which helped increase the average order value at stores, Dillon said. But she expects the cut-throat holiday season to be highly promotional as many customers continue to feel pressure on their budgets.
"The last couple of years we've been very promotional and we can expect that to continue," Dillon said. "Everyone is going to be competing for that shared wallet during the holiday."
Ulta plans to open a new distribution center in Greenwood, Ind., in the middle of 2015 and another in the South in 2016, which the company warned could make for "lumpy" earnings over those quarters.
Other investments in infrastructure and systems improvements, such as supply chain and point of sale, also are moderating what could be even higher earnings growth.
The company raised its outlook for the year due to its strong performance over several quarters and says it expects to achieve same-store sales growth of 8 to 9 percent in fiscal 2014.
Ulta's stock was up more than $7, or 5.7 percent, in after hours trading to $133.
aelejalderuiz@tribpub.com
