This Beauty Retailer is a Promising Pick for the Future
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The fact that prioritizing customers’ needs always pays off was reaffirmed by beauty products retailer Ulta Salon, Cosmetics & Fragrance (NASDAQ: ULTA). The retailer posted an excellent second quarter, sending its stock price to new highs. The key drivers for this extraordinary performance were its products, which met the needs of customers at a lower cost than would be found in a salon.
Customer satisfaction has always been the driver for success of any company. For example, grocer Kroger (NYSE: KR) lays great stress on the customers’ needs, and this enables it to deliver consistently good results. It continues to strive for making its customers’ shopping experience better by having customer loyalty programs and reducing the waiting time for shoppers at their checkout lanes. Moreover, innovation of new products has been a major driver behind its sweet performance. All these initiatives drove Kroger's revenue 4% north.
Customer Delight is the Key Principle
By providing premium products of L’Oreal and Estee Lauder, Ulta Salon lured affluent customers which enabled its revenue to grow 22% to $481.7 million. The customers went gaga over the high quality products which were made available in its new Lancome and Clinique boutiques. They did not mind paying the extra price in spite of the prevailing economic conditions where customers are quite cautious about their spending. Additionally, its loyalty programs for its regular customers kept shoppers hooked on to it. Consumers preferred buying Ulta’s new products rather than emptying their wallets in salons.
The beauty retailer’s expansionary moves have also been quite favorable to the retailer’s results. With 22 new stores opened during the quarter, the company intends to add another 52 before the current quarter ends. Ulta salon has a lot of room for growth. Solid demand for its products has instigated plans for 1000 new stores in the future. Moreover, the company has not considered expanding its wings on an international level. If that is done then Ulta might grow in a big way.
If we look at the services segment, Ulta has done a commendable job here also. Its continuous promotional efforts such as events and contests kept the customer traffic flowing into its stores.
Greater Plans Ahead
Along with its 52 new stores and a number of new boutiques in partnership with Lancome and Clinique, Ulta Salon has many other plans in order to sizzle the market. It has a whole new collection developed for the winter. With a new range of products and innovative hairstyles, the beauty retailer is surely going to be reaping huge benefits.
The events will be coupled with increased marketing efforts via social media. It will also conduct online events for its website’s customer base which has been growing considerably.
Some Hot Numbers…
The retailer has been quite impressive when it comes to giving returns to investors. It has returned a stunning 52% since the beginning of the year, which is way ahead of its competitor Regis Corporation (NYSE: RGS). Regis’s year to date return has been 13% giving investors all the reasons to switch to the leader.
If we look at the PEG ratio, we see that Ulta Salon is expected to grow faster when compared to Regis. Ulta’s PEG ratio of 1.51 is lower than Regis’ multiple of 1.57.
Even though Ulta’s market presence is not as huge as Regis, Ulta has been a better performer. Regis has a worldwide presence whereas Ulta Salon is a domestic player which leaves room for the player to grow.
The Takeaway
This retailer is surely stealing the show with its remarkable efforts. Its increasing margins are a great sign of a brilliant performer. Moreover, it is planning to expand its boutique offerings further with another 50 Lancome boutiques and 35 more boutiques in partnership with Clinique. This will come as a major booster to both its top line and the gross margins. A number of strategies in play and a bright outlook are all signs of a great long term growth. I think investors should not ignore the beauty of Ulta.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of Regis. Motley Fool newsletter services recommend Ulta Salon, Cosmetics & Fragrance. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
