Why do people pay up for a stock like that of Ulta Salon, Cosmetics & Fragrance (ULTA) yet give up on a name like PVH (PVH) even as both beat their respective quarterly guidance?
It all has to do with destiny: Ulta's in charge of its own; PVH is hostage to the environment.
When Ulta -- a holding in the Trifecta Stocks portfolio -- reported its 12% comparable store sales gain last night, the only double-digit grower in my coverage universe, I was struck by how little stands in this company's way.
The weather? Meaningless. Hot or cold, women buy cosmetics and get their hair done. Strong dollar? Weak dollar? Means nothing to them. Online offline? Ulta's about the only outfit left that seems to be beating Amazon (AMZN) at its own game, or at least Ulta's game. That's how you get the best comparable sales in the public history of this rapidly growing, almost 900-store chain. CEO Mary Dillon has cracked the code on customer loyalty both online and offline and some say she is just scratching the surface now that the company's done a massive national television, radio and digital campaign.
But PVH? Despite excellent management -- no one has ever had a bad word to say about Manny Chirico, the CEO -- it is linked to too many factors beyond its control. The big locations where you find their apparel tend to be in tourist destinations and the strong dollar has cut back trips to Florida, Chicago, New York, San Francisco and Los Angeles. That's who buys the pricier Tommy Hilfiger items. It's bad enough that the strong dollar is crimping their overseas businesses. Who would have thought it could be so powerful as to impact America so badly, turning it into the company's weakest market.
PVH makes tons of cold weather apparel and that's precisely what's not selling this holiday season. I can't count how many times Chirico said the holiday season is promotional. That's code for look out, the numbers are not going to be made. Not only that, but PVH products are sold in heavily mall-based retailers. PVH can't bring in new customers and their goods are sold in so many places that it can't be differentiated. I keep thinking about how telling it was that Chirico said we are overstored. You would think that the more stores the merrier for PVH, but that's just not the case.
If PVH wants to grow it has to do still one more acquisition and I think that's not likely, even as you have to be encouraged that Calvin Klein is finally working out for the company. Chinese spending is helping and the strength in Europe for the whole product line is good news. Again, though, the strong dollar is a bruiser.
Ulta's so different. It's in some tremendous locations and accentuated that it continues to get great real estate opportunities. It sells a full range of cosmetics, expensive to cheap. People who buy online from Ulta actually spend much more with the company that those who just use bricks-and-mortar locations and the 56% growth in Ulta.com is extraordinary as is the astounding loyalty program, more than 17 million strong.
PVH and ULTA what a contrast. No wonder one sells at just 12 times earnings and the other at triple the premium.
