Ulta Beauty Announces Third Quarter 2016 Results

Ulta Beauty (NASDAQ:ULTA) today announced financial results for the thirteen week period ("Third Quarter") and thirty-nine week period ("First Nine Months") ended October 29, 2016, which compares to the same periods ended October 31, 2015.

"Ulta Beauty's top line accelerated in the third quarter, driving record sales and earnings performance," said Mary Dillon, Chief Executive Officer. "Our associates continue to execute against our growth strategies, resulting in success across several areas: new brand acquisition, increased Ulta Beauty brand awareness, rapid growth in our loyalty program, improving supply chain performance, and robust e-commerce growth."

For the Third Quarter
  • Net sales increased 24.2% to $1,131.2 million from $910.7 million in the third quarter of fiscal 2015;
  • Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 16.7% compared to an increase of 12.8% in the third quarter of fiscal 2015. The 16.7% comparable sales increase was driven by 11.1% growth in transactions and 5.6% growth in average ticket;
  • Retail comparable sales increased 14.3%, including salon comparable sales growth of 10.3%;
  • Salon sales increased 16.7% to $60.4 million from $51.7 million in the third quarter of fiscal 2015;
  • E-commerce sales grew 59.1% to $73.6 million from $46.2 million in the third quarter of fiscal 2015, representing 240 basis points of the total company comparable sales increase of 16.7%;
  • Gross profit increased 90 basis points to 37.8% from 36.9% in the third quarter of fiscal 2015, due to product margin expansion and leverage in fixed store costs, partly offset by planned supply chain deleverage related to supply chain investments;
  • Selling, general and administrative (SG&A) expense as a percentage of net sales increased 80 basis points to 24.8%, compared to 24.0% in the third quarter of fiscal 2015, primarily due to investments to support growth initiatives and deleverage of corporate overhead costs, in part due to a $1.8 million impairment charge related to a Louisiana store impacted by the August floods;
  • Pre-opening expenses increased to $6.9 million, compared to $6.1 million in the third quarter of fiscal 2015. Real estate activity in the third quarter of fiscal 2016 included 42 new stores, one relocation and six remodels compared to 45 new stores, two relocations and two remodels in the third quarter of fiscal 2015;
  • Operating income increased 26.1% to $139.7 million, or 12.4% of net sales, compared to $110.8 million, or 12.2% of net sales, in the third quarter of fiscal 2015;
  • Net income increased 23.2% to $87.6 million compared to $71.1 million in the third quarter of fiscal 2015; and
  • Income per diluted share increased 26.1% to $1.40 compared to $1.11 in the third quarter of fiscal 2015.

For the First Nine Months
  • Net sales increased 23.3% to $3,274.2 million from $2,655.8 million in the first nine months of fiscal 2015;
  • Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 15.4% compared to an increase of 11.4% in the first nine months of fiscal 2015. The 15.4% comparable sales increase was driven by 10.6% growth in transactions and 4.8% growth in average ticket;
  • Retail comparable sales increased 13.6%, including salon comparable sales growth of 8.7%;
  • Salon sales increased 15.2% to $178.2 million from $154.7 million in the first nine months of fiscal 2015;
  • E-commerce comparable sales grew 50.8% to $190.5 million from $126.3 million in the first nine months of fiscal 2015, representing 180 basis points of the total company comparable sales increase of 15.4%;
  • Gross profit increased 110 basis points to 36.7% from 35.6% in the first nine months of fiscal 2015;
  • SG&A expense as a percentage of net sales increased 70 basis points to 23.1% compared to 22.4% in the first nine months of fiscal 2015. This includes 10 basis points related to the impairment charges in the second and third quarters of fiscal 2016 for the Chicago and Louisiana store closures;
  • Pre-opening expenses increased to $14.2 million, compared to $13.3 million in the first nine months of 2015. Real estate activity in the first nine months of 2016 included 79 new stores, two relocations and eleven remodels compared to 89 new stores, four relocations and four remodels in the first nine months of fiscal 2015;
  • Operating income increased 27.8% to $430.6 million, or 13.2% of net sales, compared to $336.8 million, or 12.7% of net sales, in the first nine months of fiscal 2015;
  • Net income increased 27.0% to $269.5 million compared to $212.2 million in the first nine months of fiscal 2015; and
  • Income per diluted share increased 29.7% to $4.28 compared to $3.30 in the first nine months of fiscal 2015.

Balance Sheet

Merchandise inventories at the end of the third quarter of fiscal 2016 totaled $1,137.0 million, compared to $884.4 million at the end of the third quarter of fiscal 2015, representing an increase of $252.6 million. Average inventory per store increased 16.5%, compared to the third quarter of fiscal 2015. The increase in inventory was primarily driven by 89 net new stores, the scaling up of the Greenwood, Indiana and the opening of the Dallas, Texas distribution centers, investments in inventory to ensure high in-stock levels to support sales growth, and incremental inventory for new brands and in-store prestige brand boutiques. Average inventory per store, excluding the investment in the new Dallas, Texas distribution center, increased 9.8%.

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