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Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA) Beats Expectations for Second Quarter

Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) announced its second quarter fiscal 2015 financial results after the bell on Thursday. The beauty product retailer reported diluted earnings per share of $1.15, surpassing the market’s expectations of $1.11. Its EPS also advanced by 22.3% in comparison to the prior-year quarter. Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) also delivered an annual 19.4% sales growth to $877.0 million, topping slightly the Wall Street estimate of $859.3 million for the quarter. For the third quarter, Ulta Salon expects net sales between $869 million and $883 million, with earnings per share in the range of $1.00 to $1.05.

The company also had a 10.1% increase in comparable sales during the second quarter, versus 9.6% increase a year earlier. At the end of the second quarter, Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) operated 817 stores throughout the country. For the third quarter, comparable sales are expected to grow in the range between 8% and 10%.

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The stock of Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) has done well since the beginning of 2015, advancing by more than 24%. On the other hand, during the second quarter, the company lost popularity among the hedge funds from our database. During the second quarter, the number of investors with long positions in Ulta Salon declined by six to 32, while the aggregate value of their holdings slid by 15.50% on the quarter to $1.53 billion. Nevertheless, at the end of June, these investors held over 15% of the company’s outstanding stock.

Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole. These small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 123% over the last 35 months, which is more than 65 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).

Insider activity offers an insight into the latest action going on within an organization. The insiders of Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) were slightly bearish on the stock with at least four sale transactions in 2015. The largest among them, involves the Chief Merchandising Officer Janet Taake, who sold 10,000 shares on March 18.

What does the smart money think about Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA)?

The top four shareholders of Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) trimmed their stakes in the company, as mentioned in their latest 13F Filings. Among them, Stephen Mandel’s Lone Pine Capital reduced its stake by 6% to 2.33 million shares, while Columbus Circle Investors, led by Donald Chiboucis, cut its position by 7%, to 1.61 million shares.

On the other hand, there was another group of hedge funds that increased their holdings in the company. Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke, and John Campbell, boosted its stake in Ulta Salon, Cosmetics & Fragrance by 122%, closing the quarter with 699,409 shares.

The growth in the share prices of Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) in 2015 and positive second quarter fiscal 2015 results take precedence over the bearish hedge fund outlook. We would recommend a buy rating for the shares of the company.

Disclosure: None

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