I have been bullish on the shares of Ulta Beauty (ULTA) for two years. When I last wrote about the company, I slapped a ridiculously high target price of $120 on the stock. With the stock over $150 now, it turns out it was a pretty good call. I remain bullish on ULTA.
ULTA Beauty reported last week the strongest fourth quarter sales and earnings for a company in the consumer discretionary sector we've seen this season. This was the 17th straight quarter of double-digit earnings growth.
Ulta is probably the fastest growing off-mall retailer in the United States. For the fourth quarter, the company posted a same-store sales number of 11% on top of a 9.2% comp in the same period last year. Ulta reported earnings of $1.35, $0.07 better than the consensus estimate. Revenue rose 20.7% to $1.05 billion. During the fourth quarter, the company opened 10 new stores.
For the year, net sales grew 21.4% to $3.24 billion. Same-store sales increased 9.9% and ecommerce sales increased 56.4%. Operating income rose 25.3% to $410.4 million. At the end of 2014, ULTA operated 774 stores in the U.S. The company plans to open another 100 this year.
Ulta has taken the store-within-a-store concept to the extreme. At the end of the year, ULTA had 105 Lancôme, 600 Benefit, and 100 Clinique boutiques. Customers can come in and get makeup lessons and free trials just like the department stores, but Ulta also carries 3,000 hair care products. There's a hair salon too. Ulta also has a huge selection of nail, skin and fragrance products as well.
The company tested an eyebrow bar in 2008 and the service took off. Management believes it will end up plucking over 1 million bushy eyebrows this year. The company also expanded into skin care and now offers microdermabrasion and skin peel services.
I like to think of Ulta as the Home Depot (HD) for women.
Because the stores are off mall and larger than Sephora, Ulta can pack more products into their stores. Ulta has lots of hard-to-find brands and special items that are left out of mall stores. You've never seen so many different types of curling irons and hair dryers in your life.
I think this stock can keep going higher. The company's strategy really works. The stores are in convenient locations near other high volume national tenants such as Target (TGT) and TJMaxx (TJX). At 10,000 square feet, the stores are large enough to carry an overwhelming amount of beauty supplies, but small enough to offer investors a quick payback.
The stores typically cost less than $2 million to open, furnish and stock. The stores pay back in two years and by year five each store generates $4 million in sales. The company has 15 million members in its loyalty program named "Smooch".
The loyalty program and the salon offerings are driving increased visits. The company is spending the time and money to better train its hair stylists to improve retention. New initiatives such as better scheduling software and customer tracking have been put in place to reduce no-shows and increase frequency.
About 10% of ULTA's stylists are certified colorists that have been trained by Redkin. Salon customers are ULTA's best customers but only 7% of its 15 million loyalty members have used the salon. They are working hard to drive that number higher.
Wall Street thinks the company can post revenue of $3.8 billion this year, up 18.9%, and earn $4.71 a share. Analysts have an average price target of $166 on the stock and I wouldn't be surprised if it was able to hit the analysts' target.
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