X A brutal retail earnings season walloped department stores and knocked around the shares of all but a few major names, such as Wal-Mart (WMT) and Target (TGT), as retail's ongoing existential crisis flails on.
Ulta Beauty (ULTA), which reports late Thursday, is something of an outlier, with consistent quarterly beats and double-digit same-store sales growth at a time when other stores are posting declines or mild single-digit gains.
Shares have generally made modest moves, with the stock rising in line with the S&P 500 over the last nine months. But Ulta has had big swings in the session following after-the-close earnings reports, with shares getting punished for two of the last three quarters, even when the retailer has posted a beat-and-raise quarter.
Investors are extra jittery this time around: Ahead of Thursday's results, shares fell 3.5% to 280.51 in the stock market today on a downgrade to hold from buy from Edward Jones, diving below their 289.37 buy point. Before Wednesday's tumble, Ulta stock has nearly doubled since February of last year to an all-time high of 301.40 in early May, with shares testing the 300 price mark in recent weeks.
"While we expect profit margins still have some room to expand, we do believe it will become more difficult over the longer term as more business shifts to online," wrote Brian Yarbrough of Edward Jones. "Online sales have lower profit margins than sales in the stores."
He otherwise sounded positive on the company, calling it "one of the most compelling growth stories in the retail landscape due to its store-growth opportunity and because it operates in an attractive industry and has the potential to realize further profit expansion."
For Q1, profit is expected to rise 24% to $1.80 a share on a 19% revenue rise to $1.27 billion. Expect laser-focus on same-store sales growth, a closely watched metric in the retail space.
Piper Jaffray analyst Erinn Murphy, who rates the stock overweight, expects 11.5% in comparable-sales growth, a tick higher than Street views.
IBD'S TAKE: Need a refresher? Ulta Beauty has reported same-store sales growth of 16.6%, 16.7%, 14.4% and 15.2% in the most recent four quarters. Consensus is for 11% comp growth in Q1, says Piper Jaffray. There are reasons why Ulta and other specialty beauty retailers haven't succumbed to the Amazon Effect.
Like off-price stores, the beauty sector frequently gets a call-out for being impervious to Amazon's (AMZN) offensive tactics in the retail sphere. Experts chalk it up to the in-store experience, the test-and-trial nature of beauty products and robust rewards programs, among other factors.
Murphy cited confidence in Ulta's loyalty program and indicated that Ulta is likely to benefit from the decline of department stores, noting that only J.C. Penney (JCP) and Nordstrom (JWN) are notching cosmetic sales gains. Plus, the firm's biannual teen survey revealed that Ulta was gaining "considerable share" as a go-to shopping hot spot.
J.C. Penney in particular has benefited from its Sephora shops-in-shops, and said earlier in the month that it will open another 16 in-store Sephoras in June, with plans to open 70 new locations of the upscale makeup retailer in 2017. That will bring its end-of-year total to 650 shops, in 75% of all J.C. Penney stores.
Ulta Beauty offered up light Q1 guidance in March. But that doesn't worry some analysts.
"Ulta has beaten its sales guidance in all but one quarter since (the first quarter of 2010) as one of the best guiders we cover," wrote Instinet analyst Simeon Siegel in March, following the company's most recent earnings report. "We expect this to prove conservative yet again."
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