UPDATE 2-Ulta Salon Q2 results beat estimates; shares up

* Q2 EPS $0.10 vs est $0.05

* Sales up 10 pct to $273.5 mln vs est $270.9 mln

* Sees Q3 EPS $0.08-$0.11

* Sees Q3 sales $270 mln to $278 mln

* Shares up 4 pct in after-hours trade (Adds conference call details)

Sept 3 (Reuters) - Ulta Salon, Cosmetics & Fragrance Inc (ULTA.O) posted better-than-expected quarterly results, boosted by higher traffic, and forecast third-quarter results in line with market estimates, sending shares up 4 percent in trading after the bell.

On a conference call with analysts, Chief Executive Lyn Kirby said the company's merchandise margins are expected to improve in the third quarter.

She also said Ulta Salon is set to drive traffic and market share in the third quarter through the introduction of new brands, growing existing lines, as well as launching a new salon service.

The company, which is looking to open 35 new stores in 2009, expects to earn 8 cents to 11 cents a share on revenue of $270 million to $278 million in the third quarter.

Analysts were expecting earnings of 9 cents a share, before items, on revenue of $273.6 million, according to Reuters Estimates..

"As we begin the second half of the year, the consumer environment remains difficult but appears to be more stable than earlier quarters," Kirby said in a statement.

The company now expects to reduce expenses by about $18 million, including supply chain, store and other operating costs, up from its earlier forecast of $15 million.

Ulta Salon continues to expect capital expenditures to range between $72 million to $74 million for the year.

For the second-quarter ended Aug. 1, net income rose to $5.8 million, or 10 cents a share, from $3.7 million, or 6 cents a share, a year ago.

Sales rose 10 percent to $273.5 million, but sales at stores open at least a year fell 1.7 percent.

Analysts were looking for earnings of 5 cents a share, before items, on revenue of $270.9 million.

Increased promotions, new brand introductions and loyalty coupons have driven traffic at the beauty products retailer. The company is also looking to rein in costs by reducing supply chain and store operating costs, and by freezing corporate office headcount.

Shares of the Romeoville, Illinois-based company were up 4 percent at $13.00, in trading after the bell. They closed at $12.49 Thursday on Nasdaq. (Reporting by Viraj Nair in Bangalore; Editing by Anil D'Silva)