We came across a bull case thesis for Ulta Beauty (ULTA) on ValueInvestorsClub and thought we should share its summary with you. We often pay attention to the analysis posted by VIC because their analysts put a lot of time and effort in their stock research. Click here for the full article about Ulta Beauty. Below we summarized the ULTA bullish thesis.
Ulta Beauty is one of the biggest beauty store chains in the U.S. The company offers 25,000 skincare, haircare, cosmetic, beauty tools, nail and bath products catering to all three genders in their over 1260 stores nationwide. The company’s vendors include major names like Estee Lauder, LÓreal and Sheseido. They account for 61% of the total sales.
Key Strengths of ULTA
ULTA belongs to a perpetually growing and evolving industry, wherein the demand for the products has never been greater, especially among the millennials. Amid declining foot traffic and the coronavirus-related restrictions, the company has hastened its switch to e-commerce and omni-channel sales. As of the second quarter of 2020, ULTA’s e-commerce sales accounted for 44% of its total sales.
Despite a slowdown in the store count growth recently due to ongoing uncertainty, ULTA aims to increase total number of stores to 1,500-1,700. A portion of the stores is dedicated to personalized in-store professional services like hair styling, make up, skin care etc. The company has registered a 10% revenue growth on the back of same-store sales growth every year for the 15 years.
ULTA’s unique strategy of consolidating products, services and price points into one store has helped it capture market share from malls and large general retailers. The company believes it can increase the e-commerce average order size due to fixed shipping cost. ULTA reckons it has 8% market share in the beauty market and 1% of the salon market.
The company has no public debt. Executive incentives are linked to earnings, and diligent management performance is a given.
While the current valuations are not cheap, a clean balance sheet, consistent positive FCF, double-digit ROC, high ROE, strong growth with high single-digit same store sales, favorable industry trends and ULTA’s unique business model are some of the compelling reasons to look at the stock on major dips. The stock has been rather volatile enough to yield periodic opportunities.