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Ulta Salon Continues to Drive Impressive Results

Stock (Symbol)

Ulta Salon (ULTA)

Stock Price

$283

Sector
Retail & Travel
Data is as of
April 13, 2017
Expected to Report
May 25
Company Description
Ulta Salon, Cosmetics & Fragrance, Inc. (Ulta) is a beauty retailer. The Company provides salon products and salon services in the United States. It offers a combination of more than 20,000 prestige and mass beauty products. As of January 31, 2015, it operated 774 stores in 47 states. The Company offers products in the categories, including cosmetics, which includes products for the face, eyes, cheeks, lips and nails; haircare, which includes shampoos, conditioners, styling products and hair accessories; salon styling tools, which includes hair dryers, curling irons and flat irons; skincare and bath and body, which includes products for the face, hands and body; fragrance; nail polish and nail care products; men’s skincare, haircare and fragrance products; private label, consisting of Ulta branded cosmetics, skincare, bath and body products and haircare, and other health and beauty products. Source: Thomson Financial
Sharek’s Take
David SharekUlta Salon (ULTA) has been delivering profit growth of around 25% to 35% for pretty much a decade now. Still, the company continues to churn out excellent results, as last qtr profits surged 33% on a 25% gain in sales. What’s driving the profit growth is outstanding same store sales (SSS) growth — which clocked in at 17% for the 2nd straight qtr. To me SSS is the most important number to a retail stock, with premier growth stocks attaining SSS growth of 10% or more. In fact, I can’t remember a retail stock going down after reporting double-digit SSS growth, but that’s not a finding I have analyzedE-commerce will be the next leg of growth for Ulta. Online sales jumped 64% last qtr, yet are still only 10% of overall sales. Oh, one thing I wish to point out is ULTA combines online and store sales when reporting SSS, so these are kinda artificially inflated. Another negative is the company didn’t increase 2017 estimates as much as it had. This figure has gone from $7.49 to $7.77, $8.00 and $8.07 the past 4 qtrs. Perhaps momentum is slowing? I doubt it, the malls are getting creamed and women need to buy makeup somewhere. ULTA is an amazing stock and one of the worst misses I have ever made. I have followed the stock for almost 10 years and have always had an excuse not to buy. And still — I’m not buying today. The stock is up almost 50% in the last year, and its history shows the stock has had dips that were buyable. So I wait for a better buying opportunity. Management expects at least 20% profit growth to continue through 2017, 2018 and 2019, thus this stock is at the top of my radar.
One Year Chart
The P/E of 35 is high for a box retailer, but about right for this stock. If ULTA had a P/E of 25 I would be in, as the numbers here look great. Qtrly profit Estimates are 24%, 24%, 21% and 25%. so if ULTA beats the street it could be generating 30% profit growth during the next year — wow. Still, this chart looks weird to me. I would feel more comfortable buying at $275.
Fair Value
So I think ULTA will sell for $341 next year which gives the stock good upside. But still, I don’t have a good feeling about that chart and a retailer with a P/E of 35 can’t have a misstep or the stock could go for a drop too.
Bottom Line
Ulta Salon has been a ten-bagger since we came out of the Financial Crisis. And still today the company continues its torrid growth. I love this stock, and desperately want to get in, but I’m not this desperate. This stock is a little high right now so I’m being patient and waiting for a correction. I would love to get in at $275, but with the company executing as well as it is that might not happen. ULTA is at the top of my radar.
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