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Will Ulta Beauty’s (ULTA) Positive Comps Aid Q4 Earnings?

Zacks

Ulta Beauty, Inc. ULTA is slated to announce fourth-quarter fiscal 2017 earnings on Mar 15. In the preceding quarter, it came up with a positive earnings surprise of 1.8%.

In the trailing four quarters, the company’s earnings outperformed the Zacks Consensus Estimate by an average of 4.1%. In fact, it delivered an earnings beat for 16 straight quarters. Let’s see how things are shaping up for this announcement.

Ulta Beauty Inc. Price, Consensus and EPS Surprise

Ulta Beauty Inc. Price, Consensus and EPS Surprise | Ulta Beauty Inc. Quote


What to Expect?

Investors are keen on finding out whether Ulta Beauty will be able to continue with its positive earnings surprise streak in the to-be-reported period. The Zacks Consensus Estimate for fourth-quarter 2017 is pegged at $2.77 per share, reflecting year-over-year growth of 23.7%. However, the consensus mark has been witnessing a downtrend in the last 30 days. Further, analysts polled by Zacks expect revenues of $1.94 billion, representing a 22.6% increase from the year-ago quarter.

Nonetheless, we note that shares of the company have underperformed the industry in the past six months. The stock has declined 9%, wider than the industry’s decrease of 0.9%.



Factors at Play

Ulta Beauty has been gaining from its effective marketing initiatives, loyalty program, sturdy e-commerce business, superb salon operations as well as strength in prestige cosmetics. Additionally, a favorable traffic is driving comparable store sales (comps) growth. Its notable growth in e-commerce sales has also helped it stand out amid intense online competition.

Furthermore, Ulta Beauty has maintained a solid earnings surprise trend, having reported 16 straight quarters of earnings beat. The company’s top line has also surpassed estimates in 15 of the last 16 quarters. Robust top and bottom-line performances can be attributed to enhanced market share gains and benefits from attractive loyalty program offers. Additionally, the company is witnessing sturdy growth across all product categories with prestige cosmetics standing out.

Looking ahead, the company expects comps growth (including e-commerce) in the 10-11% range for fiscal 2017. Meanwhile, it anticipates e-commerce sales growth of 50-60%. Earnings per share are envisioned to rise in the band of high 20s’ percentage.

However, declining margins and stiff competition remain impediments. Ulta Beauty witnessed contraction of both gross and operating margins in the fiscal third quarter. Also, the company is exposed to risk in the customer-driven industry as cheaper alternatives might hinder buyers’ loyalty for the brand, thereby impacting the sale of products under Ulta banner.

What the Zacks Model Unveils

Our proven model does not conclusively show that Ulta Beauty is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ulta Beauty has an Earnings ESP of -1.38% and a Zacks Rank #2. While the company’s Zacks Rank #2 increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to beat on earnings this time around:

DICK’S Sporting Goods Corp. DKS has an Earnings ESP of +2.95% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Children’s Place Inc. PLCE has an Earnings ESP of +0.40% and a Zacks Rank #2.

Dollar General Corp. DG has an Earnings ESP of +1.69% and a Zacks Rank #2.

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