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Ulta Beauty CEO Says Strong Pipeline in Place for Second Half

Bumble and bumble, MAC and NuMe are brands that will help Ulta Beauty grow in the second half.

Shares of Ulta Beauty Inc. fell in after-market trading, even though the company bested Wall Street’s projections, as comp sales growth — including e-commerce — slowed from a year ago.

Shares of Ulta Beauty ended the day’s trading session up 0.7 percent to $233.71, but fell 4.5 percent to $223.20 after the company posted second-quarter results after the markets closed.

For the three months ended July 29, net income rose 26.9 percent to $114.2 million, or $1.83 a diluted share, from $90 million, or $1.43, a year ago. Net sales rose 20.6 percent to $1.29 billion from $1.07 billion. Comparable sales for stores open at least 14 months and e-commerce sales rose 11.7 percent on top of last year’s 14.4 percent gain in the same quarter. The company said comp sales growth was driven by a 5.5 percent transaction growth and by a 6.2 percent growth in average ticket.

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Wall Street was expecting EPS of $1.78 on revenues of $1.28 billion.

For the third quarter, the company said it expects net sales in the range of $1.33 billion to $1.35 billion. EPS is projected at between $1.63 to $1.68. Ulta Beauty also raised its previous fiscal 2017 guidance and now sees comparable sales growth rising 10 percent to 11 percent, including its e-commerce business, from prior guidance of 9 percent to 11 percent.

Ulta Beauty said it would open 100 new stores for the year, remodel 11 locations and relocate seven stores.

Chief executive officer Mary Dillon said, “We accelerated our market share gains while continuing to reduce promotional intensity and increase personalized offers through our industry-leading loyalty program.”

Dillon also said that product category growth was broad-based, with prestige cosmetics still driving the majority of the company’s growth. Other categories such as skin care, fragrance and hair care all gained momentum in the quarter, the ceo said.

In the call to Wall Street analysts, Dillon said, “We exceeded the high end of our guidance for total company sales driven by strong new store productivity.”

She told Wall Street that the company elected to “prioritize earnings growth and margin expansion over comp sales growth.” That resulted in fewer incremental promotions in July, she said.

One of the firm’s imperatives for the quarter has been to “deepen the loyalty of existing guests,” she said. The ceo said the company’s rewards program grew to 25.4 million active members, and was up 23 percent year over year. The program had 1.4 million new members added in the quarter, and nearly 5 million new active members acquired over the past year. The ceo also noted that the new grocery store gift card program continues to expand, with recent launches at Albertson’s, Safeway and Publix.

As for the future, Dillon said interest in beauty in key demographics such as Latinas, Millennials and teens “continues to work in our favor.” She also said the company has a strong pipeline for newness, excitement and innovation, one that is stronger in the back half of the year compared with the second quarter. One example is the addition of Bumble and bumble hair-care products that will roll out online and in 500 stores next month. Further, it offers an exclusive solutions-based skin-care makeup line for active lifestyles from Clinique called Clinique Fit to capitalize on the ath-leisure trend. The MAC boutique rollout will be in more than 100 Ulta stores by year-end. The retailer added 600 MAC stockkeeping units online in early May, and  MAC boutiques are currently in 60 Ulta stores. Also new to Ulta is the NuMe brand collection of hair tools, as well as Korean skin care.

Separately, Myles McCormick, chief executive officer of Morphe, said Thursday that the cosmetic brand just signed an exclusive partnership with Ulta Beauty as its first nationwide retail distributor. He said a limited store rollout is slated to begin in October for the brand’s top-performing palettes and brushes.

Dillon said e-commerce at grew 72.3 percent in the quarter, helped by “excellent results from promotions like our Gorgeous Hair Event and online-only promotions.” The ceo also noted that mobile traffic grew 104 percent, driven by investments in digital marketing. On the company’s mobile app, traffic was up 450 percent year-over-year with 41 million visits during the quarter, she added.

“Our beauty enthusiast is obsessed with newness and the vast majority of our online purchases are items she hasn’t purchased in the last 12 months,” Dillon said.