How 3Q17 Results Affected Ulta Beauty’s Valuation
12-month forward PE
As of December 4, Ulta Beauty (ULTA) was trading at a 12-month forward PE (price-to-earnings) ratio of 23.6x. The company’s valuation multiple fell 4.0% on December 1 in reaction to its fiscal 3Q17 results, which were announced after the close of financial markets on November 30. As discussed previously in this series, Ulta Beauty exceeded earnings expectations and was almost in line with analysts’ sales estimate in fiscal 3Q17.
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Ulta Beauty’s valuation multiple is higher than the S&P 500 Index, which was trading at a 12-month forward PE of 18.7x as of December 4.
Beauty retailer Ulta Beauty operates 1,058 retail stores across 48 states and the District of Columbia. The company’s expansion plan for fiscal 2017 includes opening about 100 new stores, remodeling 11 locations, and the relocation of seven stores. In the first nine months of fiscal 2017, Ulta Beauty opened 86 new stores, made five relocations, and ten remodels.
The 12-month forward PE is significantly influenced by growth expectations. Analysts expect Ulta Beauty’s sales to rise 21.4% to $5.9 billion in fiscal 2017. Analysts expect the company’s adjusted EPS (earnings per share) to rise 28.8% to $8.40.
Currently, analysts expect Ulta Beauty’s sales and EPS to rise 14.0% and 16.8%, respectively, in fiscal 2018.
Rising competition in the beauty space from department stores like Macy’s (M) and JCPenney (JCP) as well as other retailers is expected to put pressure on Ulta Beauty’s performance.
Ulta Beauty is trying to boost its sales further by enhancing its merchandise offerings through both mass and prestige brands. The company is also making significant investments to further boost its online channel sales. In fiscal 3Q17, the company’s e-commerce traffic grew 57% and mobile traffic grew 92% due to higher investments in digital marketing.
For more updates, visit Market Realist’s Consumer Discretionary page.