Ulta shares fall despite profit beat as sales guidance disappoints

Despite reporting better-than-expected quarterly profits driven by strong sales growth, Ulta Beauty shares fell as much as 5.4 per cent in after-hours trading after the cosmetics retailer issued revenue guidance for the first quarter of 2017 that fell short of analysts’ expectations.

The Illinois-based company, which has been investing in both online and in-store offerings and an expanded product portfolio across a range of price points, saw revenue increase 24.6 per cent to $1.58bn in the quarter ending January 30, compared to the same period last year. That beat the $1.54bn expected by analysts surveyed by Bloomberg.

While many retailers have suffered from digital competition, Ulta’s investment in e-commerce helped lift online sales 63.4 per cent in the quarter compared to the year-ago period. Comparable store sales – a key industry metric – had also increased 16.5 per cent from the previous year’s quarter, better than the 13.7 per cent expected.

Net income increased 30 per cent to $140.2m, or $2.24 per diluted share, compared to $107.8m, or $1.69 per share, in the fourth quarter of 2015. That beat expectations of $133.6m, or $2.14 per share.

Despite the strong performance, however, Ulta rattled investors by issuing lower-than-expected guidance for next quarter’s earnings. The retailer expects revenue of $1.24bn to $1.27bn. Analysts had forecast revenue of $1.28bn.

Ulta said it expects comparable sales growth to come in between 9 and 11 per cent in the first quarter, versus the 15.2 per cent growth it posted during the year-ago period. It is also projecting earnings per share in the range of $1.75-$1.80. Analysts are projecting earnings for the upcoming quarter to clock in at $1.78.

Chief executive Mary Dillon said the fourth-quarter results were “outstanding”, and that it is confident in its 2017 outlook and product pipeline, which includes the debut of Estee Lauder Companies’ MAC brand on Ulta.com this spring.

Shares in the company had pared some of their after-the-bell losses to trade down 4.2 per cent by pixel time. Over the past 12 months, the beauty retailer has been one of Wall Street’s fastest-rising stars, with shares rising 71 per cent over the past 12 months.