Just this morning Ulta Beauty (NASDAQ: ULTA) announced financial results for the thirteen week period (“Fourth Quarter”) and fifty-two week period (“Fiscal Year”) ended January 28, 2017, which compares to the same periods ended January 30, 2016.

“The Ulta Beauty team delivered outstanding fourth quarter results, capping an exceptional year of sales and earnings growth while investing to drive market share gains and create sustainable long term shareholder value,” said Mary Dillon, Chief Executive Officer. “We are confident in our outlook for continued success in 2017 as we execute our strategy to be a destination for All Things Beauty, All in One Place™. Our new brand pipeline is very healthy and we are particularly excited to announce the addition of the Estée Lauder Companies’ MAC brand, which will launch on Ulta.com and begin to roll out to stores this spring.”

For the Fourth Quarter

  • Net sales increased 24.6% to $1,580.6 million from $1,268.3 million in the fourth quarter of fiscal 2015;
  • Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 16.6% compared to an increase of 12.5% in the fourth quarter of fiscal 2015. The 16.6% comparable sales increase was driven by 10.9% growth in transactions and 5.7% growth in average ticket;
  • Retail comparable sales increased 12.8%, including salon comparable sales growth of 8.8%;
  • Salon sales increased 15.2% to $62.9 million from $54.6 million in the fourth quarter of fiscal 2015;
  • E-commerce sales grew 63.4% to $154.9 million from $94.8 million in the fourth quarter of fiscal 2015, representing 380 basis points of the total company comparable sales increase of 16.6%;
  • Gross profit as a percentage of net sales decreased 10 basis points to 34.5% from 34.6% in the fourth quarter of fiscal 2015, due to planned supply chain investments and a higher mix of e-commerce sales, partly offset by leverage in fixed store costs. In the fourth quarter of fiscal 2015, the company benefitted from a significant reduction in promotional activity, contributing to gross profit improvement of 120 basis points. Promotional levels in the fourth quarter of 2016 were in line with the prior year period;
  • Selling, general and administrative (SG&A) expense as a percentage of net sales decreased 110 basis points to 20.0%, compared to 21.1% in the fourth quarter of fiscal 2015, due to leverage of advertising and corporate overhead expenses attributed to higher sales volume;
  • Pre-opening expenses increased to $4.4 million, compared to $1.4 million in the fourth quarter of fiscal 2015. Real estate activity in the fourth quarter of fiscal 2016 included 25 new stores and one remodel compared to 14 new stores and one relocation in the fourth quarter of fiscal 2015;
  • Operating income increased 32.3% to $224.2 million, or 14.2% of net sales, compared to $169.5 million, or 13.4% of net sales, in the fourth quarter of fiscal 2015;
  • Tax rate increased to 37.5% compared to 36.5% in the fourth quarter of fiscal 2015;
  • Net income increased 30.0% to $140.2 million compared to $107.8 million in the fourth quarter of fiscal 2015; and
  • Income per diluted share increased 32.5% to $2.24 compared to $1.69 in the fourth quarter of fiscal 2015.

For the Fiscal Year 2016

  • Net sales increased 23.7% to $4,854.7 million from $3,924.1 million in fiscal 2015;
  • Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 15.8% compared to an increase of 11.8% in fiscal 2015. The 15.8% comparable sales increase was driven by 10.7% growth in transactions and 5.1% growth in average ticket;
  • Retail comparable sales increased 13.4%, including salon comparable sales growth of 8.7%;
  • Salon sales increased 15.2% to $241.1 million from $209.2 million in fiscal 2015;
  • E-commerce comparable sales grew 56.2% to $345.3 million from $221.1 million in fiscal 2015, representing 240 basis points of the total company comparable sales increase of 15.8%;
  • Gross profit as a percentage of net sales increased 70 basis points to 36.0% from 35.3% in fiscal 2015;
  • SG&A expense as a percentage of net sales increased 10 basis points to 22.1% compared to 22.0% in fiscal 2015;
  • Pre-opening expenses increased to $18.6 million, compared to $14.7 million in fiscal 2015. Real estate activity in fiscal 2016 included 104 new stores, two relocations and twelve remodels compared to 103 new stores, five relocations and four remodels in fiscal 2015;
  • Operating income increased 29.3% to $654.8 million, or 13.5% of net sales, compared to $506.3 million, or 12.9% of net sales, in fiscal 2015;
  • Tax rate increased to 37.5% compared to 36.9% in fiscal 2015;
  • Net income increased 28.0% to $409.8 million compared to $320.0 million in fiscal 2015; and
  • Income per diluted share increased 30.9% to $6.52 compared to $4.98 in fiscal 2015.

Balance Sheet

Merchandise inventories at the end of the fourth quarter of fiscal 2016 totaled $944.0 million, compared to $761.8 million at the end of the fourth quarter of fiscal 2015, representing an increase of $182.2 million. Average inventory per store increased 11.2%, compared to the fourth quarter of fiscal 2015. The increase in inventory was primarily driven by 100 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 the expansion of certain prestige brands.

The Company ended the fourth quarter of fiscal 2016 with $415.0 million in cash and short-term investments.

Share Repurchase Program

During fiscal 2016, including the shares repurchased under the 2016 Accelerated Share Repurchase Program and activity under the 10b5-1 plan, the Company has repurchased 1,639,226 shares of its stock at a cost of $344.3 million at an average price of approximately $210 per share. As of January 28, 2017, approximately $101 million remained available under the $425 million share repurchase program announced in March 2016.

The Company’s board of directors approved a new share repurchase authorization of $425 million, effective March 14, 2017, which replaces the prior authorization implemented in March 2016.

Store Expansion

During the fourth quarter, the Company opened 25 stores located in Albany, NY; Bellingham, MA; Bellingham, WA; Chapel Hill, NC; Charlotte, NC; Chico, CA; Cypress, TX; Dallas, TX; Dobbs Ferry, NY; Eagan, MN; Enid, OK; Hemet, CA; Hoffman Estates, IL; Huntington Beach, CA; Johnson City, TN; La Quinta, CA; Minot, ND; Newtown Square, PA; Parma, OH; Phillipsburg, NJ; San Francisco, CA; San Jose, CA; Simi Valley, CA; Taunton, MA; and Yorktown Heights, NY. The Company ended the fourth quarter with 974 stores and square footage of 10,271,184, representing an 11% increase in square footage compared to the fourth quarter of fiscal 2015.

Outlook

For fiscal 2017, the Company plans to:

  • achieve comparable sales growth of approximately 8% to 10%, including the impact of the e-commerce business;
  • grow e-commerce sales in the 40% range;
  • open approximately 100 net new stores;
  • remodel 13 locations;
  • deliver earnings per share growth in the low twenties percentage range, including the impact of the 53rd week and the impact of approximately $300 million in share repurchases; and
  • incur capital expenditures in the $460 million range in fiscal 2017, compared to $374 million in fiscal 2016. The planned increase in capital expenditures includes approximately $80 million to fund prestige brand expansions.

For the first quarter of fiscal 2017, the Company currently expects net sales in the range of $1,244 million to $1,265 million, compared to actual net sales of $1,073.7 million in the first quarter of fiscal 2016. Comparable sales for the first quarter of 2017, including e-commerce sales, are expected to increase 9% to 11%. The Company reported a comparable sales increase of 15.2% in the first quarter of 2016.

Income per diluted share for the first quarter of fiscal 2017 is estimated to be in the range of $1.75 to $1.80. This compares to income per diluted share for the first quarter of fiscal 2016 of $1.45.