Comparable store sales up at ULTA Salon Cosmetics

05 Sep '08

6 min read

• Operating income was $15.3 million, which included incremental pre-opening expenses of $3.2 million. This compares to operating income of $14.8 million in the first six months of fiscal 2007;

• Net income was $8.0 million, compared to $7.5 million in the first six months of fiscal 2007;

• Income per diluted share was $0.13, including $0.01 per share of severance costs, and $0.14 per diluted share excluding the severance costs, compared to a loss per diluted share of $0.01 in the first six months of fiscal 2007; the severance costs were not included in the Company's guidance for the first six months; and

• Adjusted income per diluted share was $0.13, including $0.01 of severance costs, compared to adjusted income per diluted share of $0.13 in the first six months of fiscal 2007. Adjusted income per diluted share excludes the effects of preferred stock dividends and equalizes the dilutive effects of the preferred shares and IPO shares for the period. See Exhibit 4 for a complete description of adjusted income per basic and diluted share and reconciliation to the GAAP equivalents.

Balance Sheet:
Merchandise inventories at the end of the second quarter totaled $197.0 million, compared to $148.6 million at the end of second quarter fiscal 2007, representing an increase of $48.4 million. Average inventory per store was flat compared to the prior year quarter. The merchandise inventory increase of $48.4 million is due to the addition of 72 net new stores opened since August 4, 2007.

Store Expansion:
During the second quarter, the Company opened 18 stores, one each in Montgomery, AL; Casa Grande, AZ; Gilbert, AZ; Ocala, FL; Wellington, FL; Annapolis, MD; Allen Park, MI; Portage, MI; Fayetteville, NC; Greensboro, NC; Cincinnati, OH; Midwest City, OK; Warwick, RI; Kingsport, TN; Cedar Hill, TX; Lubbock, TX; Riverdale, UT; and Sterling, VA. In addition, the Company remodeled 5 stores, one each in Peoria, AZ; Minnetonka, MN; Dallas, TX; Webster, TX; and Woodlands, TX. The Company ended the second quarter with 283 stores and square footage of 2,938,569, which represents a 34.6% increase compared to the second quarter of fiscal 2007.

Outlook:
The Company is introducing third quarter guidance for fiscal 2008, which reflects the Company's current business trends and the current retail and economic environment. For the third quarter of fiscal 2008, the Company estimates net sales in the range of $259 million to $263 million, compared to actual third quarter fiscal 2007 net sales of $208.2 million.

Comparable store sales are expected to increase in the range of 3% to 5%, compared to a 6.7% increase in the prior year quarter. Income per diluted share is estimated in the range of $0.08 to $0.10. The Company plans to open approximately 21 new stores during the third quarter of fiscal 2008 compared to 26 stores in the third quarter of fiscal 2007.

The Company is reiterating full year earnings guidance for fiscal 2008. For the full year fiscal 2008, the Company estimates net sales in the range of $1.12 billion to $1.13 billion, compared to actual fiscal 2007 net sales of $912.1 million. Comparable store sales are expected to increase by 3% to 5%, compared to a 6.4% increase last year.

Income per diluted share is estimated in the range of $0.52 to $0.57. The Company's full year guidance excludes the $0.01 per share severance expense. The Company expects to open 63 new stores and remodel 8 stores in fiscal 2008. Capital expenditures for fiscal 2008 are expected to be in a range of $115 million to $120 million.

The Company's annual long term growth targets include: (i) comparable store sales increase in the 3% to 5% range; (ii) square footage expansion of 20% - 25%; and (iii) net income growth of 25% - 30%.

ULTA Salon Cosmetics & Fragrance INC

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