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Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA): A New CEO for This Growing Company

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Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) is a one-stop beauty superstore. Each location has a full-service salon and sells cosmetics, fragrances, haircare, skincare, bath and body products, and salon styling tools. The company operates 576 retail stores in 46 states and online.

Ulta just hired Mary Dillon from U.S. Cellular to be its new CEO. Prior to U.S. Cellular, Dillon held key positions at McDonald’s Corporation (NYSE:MCD) and PepsiCo, Inc. (NYSE:PEP).

Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA)

A compelling growth story

What’s most interesting to me about the Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) story is that there is no large-scale competitor. The company competes with Sally Beauty Holdings, Inc. (NYSE:SBH) in beauty supplies and Regis Corporation (NYSE:RGS) in the hair salon business. However, neither one has adopted the Ulta business model and combined the two businesses. In many ways the concept is a no-brainer. Go to the salon and get your hair done and then buy your cosmetics at the same salon.

In the first quarter of this year, revenues grew 22.9% and comparable store sales increased 6.7%. E-commerce sales grew 70%.  Earnings per share increased 20.4% to $0.65 per share. Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) repurchased $37 million in stock.

In terms of store openings, the company opened 26 new stores during the quarter.. Each store averages $2.8 million in revenues for the first year and ramps up to $4 million by year five. Total new store investment is about $1 million and payback is roughly two years. The company has already approved 50 new locations. For the rest of the year, the company expects to have opened a total of 125 new stores. Ulta will also remodel seven stores. The company is also active is putting new products onto the shelves for its customers to choose from.

Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) has seen strong growth in online sales. That is likely to continue as the company redesigns its website and streamlines the checkout process. The company is also expanding its distribution center to handle orders more efficiently.

For the rest of the year, the company is forecasting comparable store sales growth of 4% to 6%. The company expects earnings growth of 25% to 30%. Ulta is going to spend $125 million on new store openings and an additional $100 million will be re-invested in the business.

The competition

Sally Beauty Holdings, Inc. (NYSE:SBH) operates over 2,700 beauty supply stores worldwide. The company does have a larger retail presence than Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA), but it’s primary customer is the professional salon. Sally Beauty is also growing considerably less than Ulta. Consolidated same-store sales actually decreased by 0.8% in the second quarter. Overall sales grew 1% to $898 million.

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