My Top Retailer to Buy on the Bounce

Today, the Dow is down over 100 points as Wall Street reacts to weak trade data from China. The news that China’s exports fell 10% in September has renewed concerns that global growth is slowing.

However, there’s at least one retailer that hasn’t got the memo: As I write this, shares of ULTA Salon Inc. (ULTA) is rallying over 8% after it raised its Q3 and 2016 guidance. Can the cosmetics retailer keep up the momentum? Let’s find out.

For those of you who aren’t as familiar with ULTA Salon, this is a one-stop beauty shop, with over 20,000 unique cosmetic products from over 500 brands. In addition, ULTA operates in-store salons, which offer hair, skin and brow services. ULTA currently operates over 900 stores across 48 states, and it boasts over 18 million loyalty program members.

As I mentioned, ULTA is causing a stir today with its updated guidance. For the third quarter, it now expects between 14% and 15% comparable sales growth (up from 11% to 13% previously), and between $1.35 and $1.38 EPS (up from $1.25 to $1.30 previously).

The revised guidance represents between 21.6% and 24.3% annual earnings growth. To put this into perspective, analysts are calling for 17.1% earnings growth, but they’ll likely revise this estimate higher between now and its next earnings report.

And that’s not all; ULTA also has high hopes for this fiscal year and beyond. It now expects comparable sales growth between 12% and 14%, up from 11% and 13% previously. Earnings growth is expected to be in the mid-twenties range, compared with the previous target of low- to mid-twenties. For fiscal 2017 through 2019, ULTA is shooting for earnings growth in the low twenties percent range.

This announcement surprised Wall Street, because ULTA Salon released a somewhat conservative Q3 forecast in its last earnings report. In fact, ULTA shares pulled back from its 52-week high after its Q2 report in late August. And the stock hadn’t recovered…until today.

I expect that ULTA will continue climbing as we approach its next earnings report in early December. These targets are well above the Street view, so the analyst community will undoubtedly raise their sales and earnings forecasts. In the meantime, I consider ULTA a B-rated Buy.

Sincerely,

Louis Navellier

Louis Navellier

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