Cosmetic retailer ULTA Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) is trending higher today with shares up more than 3% after it posted earnings and revenue for the quarter that gave no indications that ULTA stock is losing steam.
The company topped Wall Street’s expectations for the fifth consecutive quarter. Revenue came in at $1 billion, slightly above what Wall Street was anticipating. Earnings per share for the quarter hit $1.33, 5 cents higher than what was predicted.
Compared to the same quarter last year, revenue was up 21% while EPS rose 22%.
These results were largely due to same-store-sales increasing 11.1% as the number of transactions and average amount of money each customer spent both increased. CEO Mary Dillion stated that ULTA growth was widely driven by better marketing and sales strategies by the company.
Moving forward, management believes it will have sales of $833 million to $847 million and earnings of 88 cents to 93 cents for the current quarter. Wall Street is expecting revenue of $832 million and EPS of 91 cents.
ULTA also plans to open 100 new stores in each of the next five years — a big increase from the 700 stores it currently operates. While 100 stores per year is an aggressive number, the company previously had a goal of 125 stores per year.
Growth slowdown can be either a good or a bad sign for a company like ULTA, a specialty retailer. In the past when this slowdown was announced, the stock was hammered as investors indicated they wanted growth.
But, this could be seen as a positive move or an indication that management doesn’t want to get in over its head. Remember, slow and steady wins the race. ULTA currently has no debt on its books and slowing growth may be how ULTA keeps it that way.
Should You Buy ULTA?
ULTA share price is up more than 366% since October 2007, while the S&P 500 has only risen 33%. That’s an amazing performance, but one concern I would have owning the company is how ULTA would perform during an economic downturn. With big plans to grow store count over the next few years, ULTA needs customers to continue pouring into existing locations.
Let’s be honest, if household income shrinks or is expected to, cutting back on beauty products is an easy way to lower personal spending. If the economy turns sour and customers begin cutting back, ULTA could find itself in a situation where it has overgrown demand and possibly over-leveraged itself.
I do think investors can make money with ULTA stock — but they need to tread lightly.
At this writing, Matt Thalman does not own shares of any of the aforementioned stocks. Follow him on Twitter@mthalman5513.
