Stifel affirms Ulta Salon, Cosmetics, & Fragrance (Nasdaq: ULTA) at Hold with a price target of $277 following updated guidance issued ahead of the company's investor meeting today.

Analyst Mark Astrachan offered the following observations on Thursday:

• The increased F3Q16 comp store growth expectation is most notable, in our view, given it implies an approximate 100bps of acceleration in the 2-year CAGR from F2Q, where comp growth decelerated about 100bps from F1Q. The other metrics, while above prior company expectations, are about inline with our and consensus expectations. Accordingly, we lift our F2016E EPS by $0.02 to $6.25 and F2017E-F2018E EPS each by $0.03 to $7.79 and $9.01, respectively.
• We attribute the stronger comp to the accelerating shift in beauty sales from traditional sales channels such as department stores to specialty retailers, online, and mobile, and to Ulta’s increasing focus on its loyalty program, targeted promotions, and on-trend product offerings, mainly mass and prestige cosmetics. We anticipate more details about many of these drivers at today’s meeting and are most interested in hearing how the company plans to stay ahead of evolving beauty category trends, including the acceleration in cosmetics sales at the expense of skin care offerings over the last approximately 18 months, and the continued evolution of prestige offerings given more favorable growth compared to mass.
• The long-term store opportunity estimate is consistent with our analysis suggesting up to 1,700 doors, which is based on the average of two analyses utilizing an examination of current Ulta locations to total U.S. Sephora locations.

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