Is Ulta Still Looking Good?
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Ulta Salon, Cosmetics & Fragrance Inc (NASDAQ: ULTA) is reporting soon, on September 6. Ulta has a P/E of 44.93 a little above the average for the diversified services sector (41 P/E) but it has been a monster, rising from a low of under $9 in January 2009 to an all time high of $98.42. That my friends, is a ten bagger. No analysts are currently rating it a sell and the average price target is $105.00 for more than 10% upside.
So What’s The Fairest Stock of All?
I had to wait until my daughter, the beauty product expert, could accompany me to get her take on Ulta as a member of their favored demographic. We went on a Saturday afternoon to see it when it should be the most crowded. But it wasn’t. There were about ten lady customers, one getting a makeover from the aesthetician and a single middle aged gentleman looking forlorn as he waited for his lady love to finish shopping.
It was laid out similarly to their main competitor Sephora (owned by Louis Vuitton Moet Hennesy, LVMH, the French luxury conglomerate), but not nearly as busy as I’ve seen Sephora on a Saturday. The weekend before the start of school I expected to see hordes of teenage girls getting product before that first day, first impression gauntlet. The Kohl’s store next door was busy, as was the h.h.Gregg, and the Wal-Mart was packed.
It was neat and clean and some customers were getting their hair done at the full service Salon at the back (which is not a service available at Sephora). A full fifth of the store was taken up by hair tools, straighteners, dryers, curlers etc. Who knew so many even existed? It had a nice mix of the cosmetics and fragrances usually available at drugstores and department stores and then some more of the very high end products only available at Sephora and Ulta. Daughter was in heaven.
My favorites were the Bliss beauty products named “Fat Girl Soap’ with massaging nubs and caffeine to get rid of cellulite, and the acne line “No Zit, Sherlock.’ The sales staff was helpful and well informed (according to daughter, who would know) and not nearly as intimidating as Sephora staff.
Now anecdotal channel checks have their purpose but what about earnings? The company has had impressive quarterly earnings growth of 49.70% year over year and no debt. The company has 467 stores in 44 states and plans to open 100 more within a year eventually, almost tripling to 1,200 stores. The short share of the float has climbed in the last month as the company has edged closer to $100 before earnings. It’s hard to compare Ulta directly to what are considered its competitors: Regis Corp. (NYSE: RGS), mainly beauty salons and not supplies, Macy’s Inc (NYSE: M), which does have cosmetics (but as a department store cosmetics is only a part of their success), and Sephora, which is the closest competitor but does not have the Salons. Sephora has 400 stores in the US, of which 150 are located in JC Penney stores, but those are not as well stocked as mall Sephoras.
Ulta is considered a ‘destination’ store where almost all your beauty supplies, over 20,000, are available, and it has a very well supplied men’s grooming section. Their online site is bright and informative with customer reviews of products and appealing promotions--same with their catalogs. In fact, I have to save them for my daughter so she can pore (no pun intended) over them.
Ulta has an insider hold at 25.04% and institutional hold at 72.60%. One troubling note is the sale of over 8 million shares by insiders in the last six months. One can see it as a natural occurrence after a 57% run up over 52 weeks or a warning sign. The company has a very strong and popular loyalty rewards program but has no dividend to reward shareholders or to deter short sellers.
While daughter and I liked shopping there, any bad news at all could send Ulta down to the mid-sixties. Elizabeth Arden and Estee Lauder both reported good numbers so it looks likes women (and men) are shopping for beauty and grooming supplies more than expected. And competitor Regis beat on earnings just last week. But as Ulta has run up big, earnings growth will have to accelerate further for the momentum upward to continue. The bottom line is this is a name to approach with caution at this level.