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What Wall Street Expects from Ulta Beauty’s Profitability

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Jan. 28 2019, Updated 4:20 p.m. ET

Better-than-expected earnings

Ulta Beauty (ULTA) beat analysts’ expectations in each of the first three quarters of fiscal 2018. In the last reported quarter (fiscal 2018’s third quarter), the company’s adjusted EPS grew 24.6% to $2.18, beating analysts’ estimate of $2.16. This growth resulted from strong top-line growth and lower taxes, partially offset by higher expenses.

For the fourth quarter of fiscal 2018, which ends on February 2, 2019, Ulta Beauty expects its reported EPS in the $3.50–$3.55 range. The company’s reported EPS were $3.40 in fiscal 2017’s fourth quarter.

Ulta Beauty expects its fiscal 2018 EPS growth in the low-twenties percentage range.

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The company’s gross margin was flat at 36.7% in fiscal 2018’s third quarter, but its operating margin fell by 130 basis points to 10.8%. The company’s operating margin took a hit from deleveraging in its selling, general, and administrative expense rate due to the impact of a new recognition standard, a higher store payroll, and marketing expenses.

Ulta Beauty’s gross margin decreased ten basis points to 36.3% in the first nine months of fiscal 2018, and its operating margin fell by 100 basis points to 12.5%.

Analysts’ expectations

Analysts expect Ulta Beauty’s adjusted EPS to rise 29.1% to $3.55 in the fourth quarter of fiscal 2018. For fiscal 2018 as a whole, analysts expect Ulta Beauty’s adjusted EPS to grow 31% to $10.89, driven by higher sales and lower taxes. Fiscal 2018’s margins are expected to be affected by a higher mix of e-commerce sales and growth investments.

Currently, analysts expect Ulta Beauty’s adjusted EPS to rise about 17% in fiscal 2019.

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