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Ulta Beauty Stock Must Hold This Level After Strong Earnings

Ulta beauty stock is set to open at new all-time highs, but it's the close that matters now

By Bret Kenwell, InvestorPlace Contributor

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On Thursday after the close, Ulta Beauty (NASDAQ:ULTA) delivered a top- and bottom-line earnings beat for the fourth quarter. The report and conference call was enough to vault Ulta Beauty stock higher by roughly 5% in after-hours trading. If the stock maintains those levels on Friday, ULTA will hit a new 52-week and all-time high.

But those highs are a lot more important than making longs feel good going into the weekend. In fact, if Ulta stock can close around where it opens, up around 5% or so, it will have cleared multi-year resistance and give investors a chance to ride significant upside.

Let’s look at the charts first, then check out the quarter.

Trading Ulta Beauty Stock

Ulta Beauty stock

I don’t care for two-year daily charts, but it’s the best way to show the long (and painful) road Ulta Beauty stock has been on. After surging higher for years on the back of CEO Mary Dillon’s leadership, Ulta came under intense pressure in 2017. The stock fell from $315 to sub-$200 in just a few months, cementing the former figure as resistance.

13 months after bottoming in 2017, Ulta stock was again back at $315. Surprisingly, this was in November 2018, right as the broader market was struggling through a nasty Q4 correction. Ulta Beauty stock wasn’t immune though, finally falling in December and bottoming near $230, down more than 25% from those highs.

The bulls just won’t give it up though. Lately, Ulta Beauty stock has been bumbling along between $305 and $315, itching for a big-time breakout. That’s why Friday’s rally is so important. If Ulta can hold Friday’s rally — which currently in pre-market trading has it priced near $328 — then the breakout can officially begin.

Most importantly, we need to see Ulta stock close over $320. It helps that the stock isn’t wildly overbought at this point and that could allow the share price some room to run. A disastrous way to end the week would be for Ulta stock to end lower on Friday. If the gains hold, a push into the upper $330s to lower $340s doesn’t seem unrealistic.

Was the Quarter That Good?

We really need to examine the most recent earnings report to get the best idea of whether Ulta Beauty stock will be able to maintain its recent gains. So how did the company do?

Earnings of $3.61 per share came in 5 cents ahead of expectations and grew 31% year-over-year. Revenue of $2.12 billion topped estimates by $10 million and grew 9.3% year-over-year. In other words, it was a very solid quarter for Ulta, but one where the company squeaked by analysts’ estimates.

Under the surface though, this one was strong.

Comp-store sales grew 9%, ahead of management’s expectation for 7% to 8% growth, as well as consensus estimates of 8%. E-commerce sales blazed higher by 25% and gross margins expanded 90 basis points. Operating margins inched higher by 10 basis points, even after a 30 basis point impact from a change in accounting rules. Finally, full-year earnings guidance of $12.65 to $12.85 per share (midpoint of $12.75 per share) came in just ahead of consensus expectations for $12.73 per share.

Ultimately, Ulta’s earnings remind me of Costco Wholesale (NASDAQ:COST) from last week, and just look at how that one’s done since its report. I’m not saying Ulta Beauty stock will do the same thing, but I wouldn’t be surprised if we saw continued momentum over the next few sessions. The company didn’t blow investors away with the quarter necessarily, but it showed that it’s doing extremely well right now.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2019/03/trading-ulta-beauty-stock-earnings/.

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