Ulta’s Sales Growth in 4Q16: A Secret Weapon?
Strong sales growth
Ulta Beauty (ULTA), a leading beauty retailer, saw its sales rise 24.6% to $1.58 billion in fiscal 4Q16, (ended January 28, 2017). The company surpassed the consensus analysts’ sales estimate of $1.54 billion for fiscal 4Q16.
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Key growth drivers
The company’s 24.6% growth rate in sales in fiscal 4Q16 was higher than its sales growth in fiscal 3Q16 and fiscal 4Q15. The company delivered sales growth of 24.2% in fiscal 3Q16 and 21.1% in fiscal 4Q15. Notably, the strong growth rate in fiscal 4Q16 was driven by an overall same-store sales growth of 16.6% and strong new store performance.
Ulta Beauty’s overall same-store sales consist of sales from stores open for at least 14 months and online sales. The company’s 4Q16 overall same-store sales growth was driven by a 10.9% rise in transaction growth and a 5.7% growth in average ticket size.
The company’s online sales rose 63.4% on a YoY (year-over-year) basis to $154.9 million in fiscal 4Q16. Online sales contributed 380 basis points to the company’s overall same-store sales growth in fiscal 4Q16.
The beauty business has been delivering better results than other retail merchandise categories, such as apparel. For this reason, department stores Macy’s (M) and JCPenney (JCP) are enhancing their beauty offerings. JCPenney considers the Sephora stores inside JCPenney locations to be one of the key sales drivers, and in fiscal 2016, the company opened 61 new Sephora stores within JCPenney locations, ending the year with 577 stores. Sephora is owned by the luxury group LVMH Moet Hennessy Louis Vuitton SE (LVMUY) (MC.PA).
Overall, Ulta’s sales rose 23.7% to $4.9 billion in fiscal 2016.
Outlook for fiscal 2017
For fiscal 2017, Ulta Beauty expects its same-store sales growth to be in the 8%–10% range, including the impact of its online business. The company expects same-store sales growth in the 9%–11% range in fiscal 1Q17, which would be lower than its 15.2% same-store sales growth in fiscal 1Q16.
We’ll look at Ulta’s margins in Part 4.