The analyst increased EPS estimate for FY16 and FY17/18 following updated guidance issued ahead of the company’s investor meeting
Stifel reiterated a Hold rating on Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) along with a $277 price target on the stock, which reflects an upside potential of 4.08% over the closing price of $266.14. On Thursday, the firm weighed in on the beauty retailer soon after it issued an updated guidance ahead of the investor meeting.
Mark Astrachan, Stifel analyst, highlighted that the most notable aspect is the increased third quarter guidance of comp store, which indicates significant growth. It implies about 100 basis points of acceleration in the two year compound annual growth rate compared to previous quarter where comp growth decelerated approximately 100 basis points from Q1 comps.
He noted further that other metrics are approximately inline with the his and consensus expectations. Accordingly, the firm has raised FY2016 EPS estimate by two cents to $6.25, and FY2017/FY2018 EPS estimate by three cents to $7.79 and $9.01, respectively.
“We attribute the stronger comp to the accelerating shift in beauty sales from traditional sales channels such as department stores to specialty retailers, online, and mobile, and to Ulta’s increasing focus on its loyalty program, targeted promotions, and on-trend product offerings, mainly mass and prestige cosmetics,” said Mr. Astrachan. He anticipates the company to disclose additional details about many of such growth drivers at the next investors meeting. However, the analyst is more interested about how Ulta plans to stay ahead of emerging trends in beauty category. This includes the acceleration in cosmetics sales at the cost of skin care contributions over the past 18 months and the continued growth of prestige offerings due to relatively more favorable growth compared to mass.
Stifel analyst noted the long term store opportunity forecast is in line with his analysis that suggests up to 1,700 doors, based on two analyses on average that utilizes the examination of current Ulta stores to total US Sephora stores.