Whatever the news that causes the equity market to gyrate, I’m reminded that the most important news for investors is what underlying businesses say about their operations. Amidst all the turmoil and shocks that can affect the broader market, a good, underlying business that has the liquidity will always get recognized by the investing marketplace. And one growing company that’s a good example of a more confident consumer is ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA), which is a good sign for the upcoming fourth-quarter earnings season.
The company is headquartered near Chicago and is now the U.S. market’s largest dedicated retailer of salon and beauty products. As of last month, the company operated 765 stores in 47 states. It has been—and continues to be—a very good business.
For the 13 weeks ended November 1, 2014, ULTA’s total sales grew a substantial 20.5% to $745.7 million over the same period in 2013. Comparable store sales grew 9.5% comparatively in the most recent quarter, which is a solid accomplishment for any retailer.
In its most recent quarter, the company opened 50 new stores, but it also experienced a substantial increase in its e-commerce business, up 47% comparatively to $29.6 million. Earnings for the company improved 30% to $59.1 million.
Chart courtesy of www.StockCharts.com
Management increased its expectations above previous guidance for full-year 2014, and the fourth quarter of 2014 is expected to produce sales of between $997 million and $1.01 billion, compared to $868.1 million in the fourth quarter of 2013.
This business continues to execute very well and its most recent two quarters reveal solid strength in both sales volume and higher prices. The company’s financial performance points to a more confident consumer willing to spend. (See “Should Investors Be Listening to What Costco’s Numbers Say?”)
This stock, while fully priced, is likely to keep ticking higher in the first quarter of 2015. Wall Street earnings and sales estimates continue to move higher and the stock is getting more liquid, trading just fewer than one million shares a day on average.
The ownership of big, brand-name cosmetics and salon products is quite consolidated. The Estée Lauder Companies Inc. (EL) owns and is a licensee of countless well-known brands in the industry.
For years, Estée Lauder didn’t do anything on the stock market, up until just after the financial crisis of 2008/2009. The stock sat around the $20.00-per-share level for a good 10 years before the market collapsed.
But it’s been clear sailing ever since, with the company’s share price appreciating very consistently to its current level around $75.00.
Going back to ULTA, the company has been volatile on the stock market over the last 12 months, but I think it can keep its upward price momentum going into 2015. The company’s operational growth is solid.
So it’s what underlying businesses have to say that is material in this market. Retail sales numbers for November were genuinely good and companies are saying there’s more confidence among consumers.
It all bodes well for what should be a very good fourth-quarter earnings season.