Fri. Jan 24th, 2020

Ulta Beauty, Inc. (NASDAQ: ULTA)

36 min read

Ulta Beauty, Inc. (NASDAQ: ULTA) released its fiscal results for the 13.0-week duration (“3rd-Quarter”) and 39.0 week duration (“1st-9.0 Months”) finished November 2, 2k19 compared to the similar durations finished November 3, 2k18.

For the 3rd-Quarter of Fiscal 2k19

  • Net sales inclined 7.90 percent to $1,682.50M compared to $1,560.00M in the 3rd-quarter of fiscal 2k18;
  • Comparable sales (sales for stores open at least 14.0 months and e-commerce sales) inclined 3.20 percent compared to an incline of 7.80 percent in the 3rd-quarter of fiscal 2k18. The 3.20 percent comparable sales incline was driven by 2.30 percent transaction growth and 0.90 percent growth in average ticket;
  • Gross profit as a percentage of net sales inclined 40.0 basis points to 37.10 percent compared to 36.70 percent in the 3rd-quarter of fiscal 2k18, primarily due to improvement in merchandise margins driven by marketing and merchandising strategies and leverage of fixed store costs, partially offset by investments in salon services;
  • Selling, general and administrative (SG&A) costs as a percentage of net sales inclined 140.0 basis points to 26.70 percent compared to 25.30 percent in the 3rd-quarter of fiscal 2k18, primarily due to deleverage of corporate overhead related to investments in growth initiatives and store labor, partially offset by lower incentive compensation cost and leverage in marketing cost;
  • Pre-opening costs declined to $6.50M compared to $7.60M in the 3rd-quarter of fiscal 2k18. Real estate activity in the 3rd-quarter of fiscal 2k19 included 31 new stores, three remodels, and two relocations, compared to 42 new stores, four remodels, and one relocation in the 3rd-quarter of fiscal 2k18;
  • Operating income was $167.80M, or 10.00 percent of net sales, compared to $169.20M, or 10.80 percent of net sales, in the 3rd-quarter of fiscal 2k18;
  • Tax rate was 23.10 percent, flat as compared to the 3rd-quarter of fiscal 2k18;
  • Net income was $129.70M compared to $131.20M in the 3rd-quarter of fiscal 2k18; and
  • Diluted earnings for each share inclined 3.20 percent to $2.250, which included a $0.020 for each share benefit primarily due to an incline in federal income tax credits, compared to $2.180 in the 3rd-quarter of fiscal 2k18, which included a $0.020 for each share benefit due to income tax accounting for share-based compensation.

For the 1st-9.0 Months of Fiscal 2k19

  • Net sales inclined 10.90 percent to $5,092.20M compared to $4,591.90M in the 1st-9.0 months of fiscal 2k18;
  • Comparable sales inclined 5.40 percent, compared to an incline of 7.50 percent in the 1st-9.0 months of fiscal 2k18. The 5.40 percent comparable sales incline was driven by 4.0 percent transaction growth and 1.40 percent growth in average ticket;
  • Gross profit as a percentage of net sales inclined 50.0 basis points to 36.80 percent compared to 36.30 percent in the 1st-9.0 months of fiscal 2k18, primarily due to improvement in merchandise margins driven by marketing and merchandising strategies and leverage of fixed store costs, partially offset by investments in salon services and supply chain operations;
  • SG&A costs as a percentage of net sales inclined 100.0 basis points to 24.50 percent compared to 23.50 percent in the 1st-9.0 months of fiscal 2k18, primarily due to deleverage of corporate overhead related to investments in growth initiatives and store labor, partially offset by leverage in marketing cost;
  • Pre-opening costs declined to $15.70M compared to $17.40M in the 1st-9.0 months of fiscal 2k18. Real estate activity in 1st-9.0 months of fiscal 2k19 included 73 new stores, 12 remodels, and 6.0 relocations, compared to 95 new stores, 13 remodels, and two relocations in the 1st-9.0 months of fiscal 2k18;
  • Operating income inclined to $613.30M, or 12.00 percent of net sales, compared to $572.90M, or 12.50 percent of net sales, in the 1st-9.0 months of fiscal 2k18;
  • Tax rate declined to 21.80 percent compared to 23.00 percent in the 1st-9.0 months of fiscal 2k18. The lower effective tax rate is primarily due to income tax accounting for share-based compensation and federal income tax credits;
  • Net income inclined to $483.20M compared to $443.90M in the 1st-9.0 months of fiscal 2k18; and
  • Diluted earnings for each share inclined 12.50 percent to $8.270, which included a $0.240 for each share benefit primarily due to income tax accounting for share-based compensation, compared to $7.350 in the 1st-9.0 months of fiscal 2k18, which included a $0.090 for each share benefit due to income tax accounting for share-based compensation.

Balance Sheet

Merchandise inventories, net at the end of the 3rd-quarter of fiscal 2k19 totalled $1,616.90M compared to $1,484.60M at the end of the 3rd-quarter of fiscal 2k18, representing an incline of $132.40M. The incline in total inventory was driven by 78 net new stores and timing of shipments ahead of the holiday season. Average inventory for each store inclined 2.10 percent compared to the 3rd-quarter of fiscal 2k18.

The Company finished the 3rd-quarter of fiscal 2k19 with $208.80M in cash and cash equivalents.

Recent Accounting Pronouncement – Leases

On February 3, 2k19, the Company adopted Accounting Standards Codification (ASC) 842 using the modified retrospective approach. The new standard requires leases to be recorded on the balance sheet as lease liabilities with corresponding right-of-use assets. Upon adoption, the Company recognized and measured leases without revising comparative duration information or disclosures. The adoption of ASC 842 resulted in the recording of operating lease assets and liabilities of $1.460B and $1.840B, respectively, as of February 3, 2k19. As part of the adoption, the Company recorded an adjustment to retained earnings of $2.40M.

Share Repurchase Program

Throughout the 3rd-quarter of fiscal 2k19, the Company repurchased 529,404 shares of its common stock at a cost of $128.60M. Throughout the 1st-9.0 months of fiscal 2k19, the Company repurchased 1,639,438 shares of its common stock at a cost of $506.90M. As of November 2, 2k19, $388.80M remained available under the $875.00M share repurchase program announced in March 2k19.

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