ULTA - Ulta Beauty

[KCLarkin]

"Ulta Beauty is the largest U.S. beauty retailer and the premier beauty destination for cosmetics, fragrance, skin care products, hair care products and salon services."

Over the past 10 years, Ulta has grown at the following rates (per share Valueline figures):
- Sales: 18.5%
- Cash flow: 41%
- EPS: 34%

Over the past 5 years, it has slowed a bit:
- Sales: 22.5%
- Cash Flow: 26.5%
- EPS: 27%

ROIC has climbed steadily and is now 33%

Ulta shares are down almost 30% today after missing Q2 2019 earnings and lowering 2019 guidance. They are now guiding:
- 9-12% sales growth
- 4-6% same store sales (mostly traffic)
- $11.86 to $12.06 EPS
- EPS growth is 9% at the mid-point

Shares are currently selling for $239
- 22x 2018 EPS
- 20x 2019e (midpoint)

Ulta has no debt (other than operating leases which are now on balance sheet)
Ulta is now using a significant portion of it's net income to repurchase shares (over 100% YTD)
Despite the high growth, FCF seems extremely high (97% in 2018)

I just started looking into Ulta this afternoon, but it looks like an incredible business selling at a modest premium to the market. Am I missing anything?

Edit: Typo in original. Comps are mostly transactions not ticket.

[Gregmal]

Haven't you heard? We're having a recession!

Let people give away their stocks and then watch them complain for the next decade about how everything is too expensive...

[roark33]

Value investors are typically not great "retail" investors, once the customers move on, they seldom come back, but you have value investors looking at past financials and thinking, well, if the company does 80% (or whatever number) of what it did in the past 5 years, this will be a great investment.  My two cents.  Not saying this is perfectly applicable to ULTA (I looked at it this morning also), but retail companies are typically something that growth investors do much better at than value investors. 

[KCLarkin]

Value investors are typically not great "retail" investors, once the customers move on, they seldom come back, but you have value investors looking at past financials and thinking, well, if the company does 80% (or whatever number) of what it did in the past 5 years, this will be a great investment.  My two cents.  Not saying this is perfectly applicable to ULTA (I looked at it this morning also), but retail companies are typically something that growth investors do much better at than value investors.

I tend to agree with you, but Ulta is still growing same store sales faster than GDP. I tend to avoid retail. But I've seen a couple good ones sell-off temporarily in the last few years. Costco, Lulu, and TSCO come to mind. Though I only bought Lulu. I'm very tempted to buy a starter here. Someone talk me off the ledge...

[peterHK]

Own the brands, L'Oreal, EL, LVMH etc. EM and travel is where the growth is at, not the US.

[KCLarkin]

Own the brands, L'Oreal, EL, LVMH etc. EM and travel is where the growth is at, not the US.

Not familiar with the space, but why are existing brands not going to lose market share to emerging brands like Kylie and private label brands?

The brands also seem to be trading at a significant premium.

[peterHK]

Own the brands, L'Oreal, EL, LVMH etc. EM and travel is where the growth is at, not the US.

Not familiar with the space, but why are existing brands not going to lose market share to emerging brands like Kylie and private label brands?

The brands also seem to be trading at a significant premium.

Because those brands don't exist in China. They want the exclusivity of EL/LVMH etc. EL EM sales grew 30% last year and it's something like 30% of their business.

[KCLarkin]

Because those brands don't exist in China. They want the exclusivity of EL/LVMH etc. EL EM sales grew 30% last year and it's something like 30% of their business.

Or probably more accurately, the emerging brands have and will be purchased by EL or LVMH.

[KCLarkin]

I purchased a starter position (2.5%) in ULTA. Ulta continues to gain market share within one of the most attractive retail segments. The strategy of offering both mass market and premium categories will allow it to continue to win against Amazon and Sephora. And specialty will continue to win share from department stores, etc.

Current weakness in cosmetics is related to macro product cycles. Specifically, the weakness is caused by very strong product cycles in recent years. Barring a recession, I expect the market to resume modest growth once it works through this cycle. Ulta will continue to gain market share, open new stores, and gain operating leverage.

Ulta is also just beginning international expansion, so there is a long runway for potential growth.

If this gets below $200, it is a no-brainer.

[Spekulatius]

I don’t know, the CEO didn’t seem that confident in the latest earnings CC. I feel they make have ridden some fads recently (those upstart brands, that failed to deliver) or perhaps they are the fad. I don’t understand the moat with their business (no surprise as a middle aged male).