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A Promising Pick for the Future

June 29, 2014 | About:
Suravi Thacker

Suravi Thacker

1 followers

Although people are calculative about their spending, they do not mind paying a premium for good quality products. This has been the case for beauty product retailer Ulta Salon, Cosmetics & Fragrance (ULTA), which provide salon services as well as professional beauty products in its boutiques. People prefer to buy its branded products rather than spending long hours in the salon, which are more expensive.

Ulta Salon’s success was once again proved right when it posted an exciting first quarter results which beat Mr. Market’s expectations, pushing its share price higher.

By the numbers

Driven by the great demand for its products, revenue surged 22.5% to $713.8 million. This was much higher than the analysts’ expectations of $700 million. The results were driven by a same store sales growth of 8.7% and new store openings of 21. Ulta Salon has been a remarkable performer and has won over customers’ hearts by providing premium products such as L’Oreal and Estee Lauder.

One of the primary drivers of revenue was the online business, which has been growing at a fast pace. Shoppers now find it convenient to shop for the required products online and get it delivered at their doorstep. Moreover, chilled winters forced customers to be at home and shop online. This led to e-commerce same store sales growth of 72.3%.

Earnings also jumped 19% to $0.77 per share, better than the estimate of $0.74 per share. Higher sales and efficient management of costs helped improve the bottom line. However, gross margin shrunk to 34.5% from 35% in the prior year, mainly because of shift in products and channel mix. Also, the company deleveraged its fixed store costs, which were because of the number of new stores added to its portfolio.

Delving deeper

Moreover, Ulta Salon has a great customer loyalty program which provides an additional reason to shop at its stores. This program provides great discounts to its loyal customers. As a result, customers keep hooked to it’s the beauty retailer. In fact, the remaining 50% of its customers got converted to the ULTAmate Rewards program which has additional benefits.

The Illinois based retailer also managed its inventory well during the period which helped in performing better. Also, it rolled out new brands into its portfolio of offerings so that it can lure more customers.

However, Ulta faces competition from upscale retailers such as Macy’s (M) who have also started providing premium cosmetics. Macy’s realized the popularity of premium cosmetics and related services and used it as a vehicle of growth.

Nonetheless, Ulta has been able to combat competition from peers such as Regis Corporation (RGS). In the last one year, Regis Corp’s stock price has declined 21.4%, whereas Ulta has posted an increase of 15.4%. Also, Regis Corp’s revenue growth has been flat over the period and Ulta has registered revenue growth of 18.8% over the last one year.

The final verdict

Ulta has been performing well with great quarterly numbers each quarter. Also, its efforts in its loyalty program and new brands have been quite successful in attracting shoppe numbers each quarter. Also, its efforts into its loyalty program and new branrs. Moreover, its efforts to expand its stores and enhance its e-commerce business should add to its success. It has been able to outperform its peers and post a bright outlook for the year. I find no reason to ignore this company.


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