Inside Ulta’s Strong Earnings Growth in 4Q16

Earnings surpass estimates

Ulta Beauty (ULTA) delivered impressive earnings in fiscal 4Q16, which ended on January 28, 2017. The company reported adjusted EPS (earnings per share) of $2.24 ahead of the consensus Wall Street analysts’ estimate of $2.13.

Specifically, the company’s strong sales growth has helped it surpass analysts’ earnings expectations in each of the quarters of fiscal 2016.

Inside Ulta’s Strong Earnings Growth in 4Q16

Strong earnings growth

Ulta Beauty’s EPS grew 32.5% in fiscal 4Q16, driven by a 24.6% in net sales and enhanced operating margins (see Parts 3 and 4 of this series). The EPS growth in 4Q16 was higher than the 26.1% growth in fiscal 3Q16 EPS and the 25.2% growth in fiscal 4Q15.

Ulta Beauty’s strong performance reflects the demand for cosmetics and beauty products. Notably, the company delivered better earnings than beauty product peers Macy’s (M) and Kohl’s (KSS), whose adjusted EPS fell 3.4% and 8.9%, respectively, in fiscal 4Q16.

Share repurchases

Overall, in fiscal 2016, Ulta Beauty’s EPS rose 30.9% to $6.52. Aside from higher sales, the company’s bottom line in fiscal 2016 also gained from share repurchases. In fiscal 2016, Ulta Beauty repurchased 1.6 million shares for $344 million.

Remember, share repurchases enhance a company’s EPS by bringing down the average share count. In the 4Q16 conference call, Ulta Beauty’s CFO (chief financial officer) Scott Settersten indicated that share repurchases enhanced the fiscal 2016 EPS growth by three percentage points.

Company guidance

The company expects its EPS to grow in the low 20% range in fiscal 2017. This guidance includes the 53rd additional week in 2017 and the impact of $300 million in share repurchases that will be made in fiscal 2017. For fiscal 1Q17, the company expects its EPS to be in the $1.75–$1.80 range, as compared to $1.45 in fiscal 1Q16.

We’ll look at key drivers behind Ulta Beauty’s 4Q16 sales in the next part of this series.