Ulta Beauty (ULTA): 2019 Top Picks' Mid-Year Update

07/10/2019 5:00 am EST

Focus: CONSUMER

Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

Ingrid Hendershot selected Ulta Beauty (ULTA) as her favorite investment idea for 2019. The stock has since risen 37%. Here's the latest update from the money manager and editor of Hendershot Investments.

Ulta Beauty rang up stylish gains in first fiscal quarter sales to $1.7 billion with net income increasing 17% to $192 million and EPS up 21% to $3.26.

Comparable sales ― sales for stores open at least 14 months plus e-commerce sales ― increased 7%, driven by 4.3% transaction growth and 2.7% growth in average ticket. During the quarter, the company opened 22 new stores and remodeled one, ending the quarter with 1,196 stores.

During the quarter, Ulta Beauty generated nearly $200 million in free cash flow with the company repurchasing $107.4 million of its shares at an average cost per share of $337.28. Ulta Beauty ended the quarter with $521 million in cash and investments.

For the full fiscal year, Ulta Beauty expects to open about 80 new stores, execute approximately 20 remodel or relocation projects and complete about 270 store refreshes.

After a long period of intense study, management has decided to take the next step in its growth trajectory by expanding into Canada. The company expects to start small in its global expansion footprint and scale quickly if it is successful.

Fiscal 2019 sales growth is expected in the low double digits percentage range on comparable stores growth of 6% to 7%, including e-commerce growth of 20% to 30%.

Management raised its EPS guidance to between $12.83 and $13.03 from $12.65 to $12.85. This new guidance assumes $700 million in share repurchases during the fiscal year and a 24% effective tax rate.

With Ulta’s stock ringing up an alluring 40%  gain since the beginning of the year, the stock currently appears fully valued. We rate the stock a "Hold".

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