If anyone knows how to make heads turn for another glimpse,
it's the folks at Ulta stores.
Makeup, anti-aging creams, hair styling tools -- name a type
of product that ups a person's beauty quotient andUlta Beauty (
) sells it.
Recently, the one-stop salon and beauty products retailer has
been upping its own beauty quotient -- on Wall Street and with
Ulta stock surged 17% on Sept. 13, after it reported
second-quarter financials that sailed past views as it wowed
customers with trendy new products, added more Clinique and
Lancome branded boutiques to its stores, and lured more members
into its generous loyalty program. Earnings climbed 30% to 70
cents a share, 3 cents ahead of forecasts.
Revenue popped 25% to $601 million, ahead of analyst views for
Sales for stores open at least 14 months grew 8.4% vs. a year
earlier, including the impact of e-commerce. That's a faster pace
than the 6.7% gain it saw in the first quarter. E-commerce sales
grew 72%, representing 130 basis points of the total company
same-store sales increase.
Ulta has seen its profits grow by double digit percentages or
better for the past 17 quarters. And if Wall Street is on target,
that trend will continue. Analysts surveyed by Thomson Reuters
see full-year 2013 earnings rising 25% to $3.34 a share. They
expect a 26% rise in 2014 and a 25% gain in 2015.
The impressive report was the first financial showing
announced by CEO Mary Dillon, who took the helm July 1. Dillon
had been CEO ofU.S. Cellular (
). She replaced Chuck Rubin, who left Ulta in February to become
CEO of arts and crafts retailer Michaels Stores.
Middleman At Both Ends
Ulta has carved a niche in the specialty retail space as a
one-stop shop for hair salon services and beauty and salon
products at a variety of prices. It features more than 20,000
products, ranging from high-priced so-called prestige brands sold
in department and specialty stores to lower-priced labels sold
via the mass channel, including drugstores and discounters. It
also offers a full-service hair salon in its stores.
"The key to Ulta's success is providing customers with
convenience as a one-stop shop for beauty across all price
segments and categories as well as an exciting shopping
environment with a continual flow of new products and brands,"
said Telsey Advisory Group analyst David Wu. "Most recently we've
seen a solid comp acceleration driven primarily by a higher
ticket as the prestige skin care and color cosmetics continue to
outperform all other categories."
Ulta has seen a nice run-up in its stock, which has traded at
several fresh highs since the earnings report. Wu attributes the
stock lift to the fact that Ulta saw an improving comp trend in
the second quarter.
"It also saw a better-than-expected operating margin
improvement," he added. "And the company continues to take
significant market share in the U.S. beauty market from
department stores, which continue to lose share."
Ulta's expansion of prestige brand boutiques for major
flagship lines such as Clinique and Lancome, says Wu, has
"strongly resonated" with customers and helped drive a higher
ticket during the quarter.
Ulta added 39 Clinique boutiques in the second quarter; so it
now has 90 stores featuring thisEstee Lauder (
)-owned brand. It expects to add 10 more Clinique boutiques
during 2013. Five Lancome boutiques were added, bringing the
total stores offering Lancome products to 85, with 20 additional
Lancome boutiques underway.
Wu says the prestige segment continues to outperform all other
segments in the beauty industry, a lot of which has been driven
by strong innovation and solid demand, particularly in skin
From September 2012 to August 2013, the prestige beauty market
grew 6% from a year earlier to $10.7 billion in sales, tallies
Karen Grant, vice president and global industry analyst at the
Skin care sales grew 8% over that time, and makeup sales
Grant says while the growth in prestige beauty sales is still
"steady and positive," it's not quite as accelerated as it had
been last year or the prior year, as the industry faces tough
Ulta has been cashing in on the segment's growth.
"Part of what's going on with stores like Ulta is we continue
to see the specialty-store channel as the top channel for the
prestige shopper," Grant told IBD. "One of the things consumers
tell us is they love the format, which offers the freedom to
choose from multiple brands. They also love the low pressure of
the sales associates."
Department Store Rival
Wu calls Ulta, Sephora and other specialty beauty product
stores "the future of U.S. beauty retailing."
"I expect these specialty beauty retailers to continue to take
a significant share from department stores as consumers opt for
convenience, a wide range of product options and a less
intimidating environment," he said.
Ulta has drawn a loyal customer base. In the second quarter,
its loyalty program membership grew to 12 million active members,
up 19% from a year earlier.
On the new product front, Ulta is launching several new brands
in the current quarter that have a strong following and unique
The names include Jamie Kern Lima's It Cosmetics line of color
cosmetics that uses recently developed anti-aging ingredients
along with appearance enhancers such as brightening pigments.
Another brand is former supermodel Cindy Crawford's Meaningful
Beauty anti-aging skin care system lineup.
Wu expects Dillon will be an "effective leader," given her
experience in managing high-growth consumer companies.
"I think she's a great cultural fit," he said.
He sees Dillon continuing to pursue the company's existing
"Her top priority is to support store growth plans, address
the business needs in supply chain management and omnichannel,
and add an emotional point of view to the Ulta brand," adds Citi
Research analyst Oliver Chen. "She's very highly energized."
Ulta ended the second quarter with 609 stores in 46 states. It
expects to have 675 stores by year-end. The company's long-term
guidance is to grow its square footage by 15% to 20% a year.
Chen says that long-term goal translates to "extremely
attractive" square footage growth. He says the sector average in
the companies he follows is between 3% and 5%.
Wu expects Ulta's sales to rise at around a 20% compound
annual growth rate over the next five years as it benefits from
mid-single-digit comp growth and "robust" store expansion. He
says it has the ability to double its store base to about 1,200
locations over time.
Chen expects Ulta to keep its momentum as it benefits from
strong traffic and pricing growth and new product innovations. It
has the opportunity to keep gaining share from department stores,
Ulta is the third-largest company in IBD's Retail-Specialty
industry group, after eyewear makerLuxottica Group (
) andPetSmart (
), and just ahead ofGNC Holdings (GNC) and beauty products
sellerSally Beauty Holdings (SBH).