A group of anonymous short sellers have been trying to knock Ulta Salon  (ULTA - Get Report)   shares down to $80. After the close Thursday, the company reported its fourth-quarter fiscal 2016 results and blew away expectations by 15 cents a share.

The stock is soaring 14% in premarket trading as the shorts run for cover. After that drubbing, I bet they stay anonymous.

On Thursday, Ulta reported fourth-quarter and year-end results. Fourth-quarter sales increased 21% to $1.26 billion. Same-store sales (ex-e-commerce results) increased 10.4%. E-commerce sales jumped 44.2% to $94.8 million. Gross margin increased 120 basis points to 34.6%. Operating income increased to $169.5 million. The company earned $1.69 a share vs. the consensus estimate of $1.55.

For the year, sales rose 21.1% to $3.9 billion and the company earned $4.98 per share.

The company raised first-quarter guidance from $1.22 to a range of $1.25 to $1.30. Management sees 2017 revenue between $1.016 billion to $1.033 billion (vs. the consensus estimate of $1.01 billion).

The company bought back $46 million worth of shares during the quarter, for a total of $167 million for the year. The Board of Directors authorized a new buyback program. Effective March 15, the company will direct Goldman Sachs to repurchase $200 million worth of stock under an accelerated share repurchase program. In addition, the company will continue to buy back shares until it reaches the $425 million authorization. This authorization replaces the program that was authorized in September 2014.

Ulta plans to open 100 new locations next year and remodel 12 locations. Sales are expected to grow in the mid- to high-teens and e-commerce is expected to grow 40%.

For fiscal 2017, analysts think Ulta can report revenue of $4.5 billion, up 17%, and earn $5.93. Analysts are using a 33 multiple on earnings to get a consensus price target of $193. But with the premarket action, the stock is almost there.

Although I have been bullish on the stock in the past, I would be cautious. For 2016, inventory grew 31%, much faster than sales of 21%. Management says store-level inventory is up only 16%, because the stores are stocking additional product lines. They also blame construction of the new distribution center for exaggerating inventory levels.

Also, I wonder why its necessary to launch an accelerated share buyback program. Ulta only bought back $167 million worth of stock last year, and now it seems to be a major priority to retire $200 million worth of shares, pronto.

I think I'll sit on the sidelines for the time being until I'm more comfortable with inventory levels and the emergency stock buyback plan.


This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.