Author Topic: ULTA - Ulta Beauty  (Read 9058 times)

BG2008

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Re: ULTA - Ulta Beauty
« Reply #30 on: September 04, 2019, 02:12:54 PM »
This is such a man's way of thinking...men seeks efficiency and lowest price...women seeks adventure and discovery and all over again

That is such a man's way of thinking..

You got me good


wescobrk

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Re: ULTA - Ulta Beauty
« Reply #31 on: September 04, 2019, 07:39:27 PM »
down to $227 a share in after hours...

KCLarkin

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Re: ULTA - Ulta Beauty
« Reply #32 on: September 11, 2019, 10:36:45 AM »
Own the brands, L'Oreal, EL, LVMH etc. EM and travel is where the growth is at, not the US.

Thanks for this. I am warming up to the brands, but not willing to pay current prices. I recently watched a Fundsmith video where they named L'Oreal as the one stock in the universe they would own forever. Not sure I agree, but they made a compelling argument.

I'm currently reading a phenomenal interview with Bill Stewart in Graham & Dodsville:
https://www8.gsb.columbia.edu/valueinvesting/sites/valueinvesting/files/Graham%20&%20Doddsville_Issue%2036_vF.pdf

One of the things that struck me from the interview is how many phenomenal growth stocks over the years have been retailers: Home Depot, CVS, Walmart, Costco, TJX, Dollar General, Tractor Supply, Lululemon, Alimentation Couche-Tard, Ulta come immediately to mind. Over most time periods, several of the best performing stocks are retailers. For example, Kiplingers has a list of the top performing S&P 500 stocks over a 50 year period. Four of the top fifteen are retailers:

4. Dollar General
7. Lowe's
13. Walgreen's
15. TJX

Notably, there aren't many company's from the "growth" sectors like technology and healthcare. ADP at number 10 was the closest to a "technology" company in the top 15. And only two healthcare companies (Abbott and Medtronic) made the top 15.

There is something about retail (insert past performance caveat here) that allows for long periods of sustainable growth even though retailing is very competitive and the moats are squishy at best. Part of it is the simple growth formula of SSS + store openings. Operating leverage probably plays a role too.

Obviously, retail is a terrible business. But there are a few select companies that can unlock a sustainable growth formula. I think Ulta is one of them and I think the current pessimism will create a tremendous buying opportunity. I currently have a 2.5% starter position but hoping for further weakness.

Management seems top-notch, the strategy is sound, substantial white-space remains. And, as evidenced by some of the comments on this thread, the company is deeply misunderstood.

Cigarbutt

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Re: ULTA - Ulta Beauty
« Reply #33 on: September 17, 2019, 03:22:19 PM »
Thank you for this very interesting retail idea.
There may have been a 'wave' which is hard to assess for the long term but ULTA has taken a lot of good decisions in order to build significant market share along the way.
Is this a Walgreen moment, a simple temporary lull of 'innovation' in the cosmetics market or somewhere in between?

Like Costco, TJX and some others, ULTA has been able to focus on a specific segment of customers with impressive growth (top line AND bottom line) and some of this is likely to be enduring as they and their respective market keep evolving, despite the expected growing online threat (vs brick and mortar stores). They also have built what seems to be a very efficient loyalty program.
For valuation, I try to see what sales and net profit margins will be in five years and put a relative multiple on earnings then, and discount to now with additional discounting of free cash flows generated in the interim (which will be used for share buybacks presumably which adds another layer of uncertainty since the buybacks have not been done opportunistically in the past and returns on future buybacks will be related to multiples applied by the market).

A concern I have is the moving target of the number of stores in the US vs potential residual retail white space. Years ago, management implied a threshold at around 1000 stores, then 1200, then 1400 to 1700 stores. There is concern for cannibalization of sales and lower profitability for new stores. Unlike Costco which provides avg sales per warehouse vs year opened, I didn't see anything similar coming from ULTA (apart from occasional individual store maturation curves and a two-year payback objective) and wonder if the lower profitability and the context of the announcement may not be related to the realization that expansion plans will have to be adjusted. Also, remembering how Target fared in Canada, international expansion is not a guaranteed slam dunk.

All in all, despite the segment and despite the need to understand what certain customers really want, ULTA has built a significant franchise but I expect growth to be lower and consider that the recent net profit margins are not sustainable. It will be interesting to see how sales and profits line up for Q4, which is the most important quarter of the year.

KCLarkin

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Re: ULTA - Ulta Beauty
« Reply #34 on: September 17, 2019, 06:46:49 PM »
Also, remembering how Target fared in Canada, international expansion is not a guaranteed slam dunk.

Target's failure was a unique situation. They bought a failing discount department store's leases and opened up stores across the country. They didn't take time to localize their product or setup distribution. The execution was so awful, they completely destroyed their brand in Canada.

Ulta is going slow-and-steady, so they won't make that mistake. In Canada there is already a dominant retailer that carries both mass and prestige cosmetics - Shopper's Drug Mart. It will be interesting to see if Ulta can differentiate itself. Access to exclusive direct-to-consumer brands might help.
https://www.retail-insider.com/retail-insider/2019/7/makeup-monopoly-a-look-at-ulta-beautys-canadian-competitors