Ulta Salon: Beauty Buy

09/22/2016 8:00 am EST


Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

Our latest featured value recommendation is the largest beauty retailer in the US; the company provides one-stop shopping for 21,000 prestige, mass market and salon products and services, notes J. Royden Ward, editor Cabot Benjamin Graham Value Investor.

Ulta Salon (ULTA) offers affordable indulgence to its customers by combining the product breadth, value and convenience of a beauty superstore with the distinctive environment and experience of a specialty retailer.

Ulta offers cosmetics, fragrance, haircare, skincare, bath and body products, and salon styling tools, as well as salon haircare products. Ulta also offers men’s skincare, haircare and fragrance products, and a full-service salon in all of its stores.

During the 12 months ended July 30, Ulta recorded sales and EPS gains of 21% and 23% respectfully, bolstered by same-store sales growth of over 10% and e-commerce sales growth of 40%.

Sales will likely increase 17% and EPS will jump 22% to $6.70 during the next 12 months ending July 31, 2017. New store openings and new store sales could propel sales and earnings higher.

Ulta delivered exceptional results for the quarter ended July 30. Sales surged 22% and EPS climbed 24% after increasing 24% and 39% in the prior quarter.

Same-store sales jumped 14%, and internet sales soared 55%. Management raised its guidance for sales and earnings for the third and fourth quarters.

ULTA shares are not cheap, but sales and earnings growth of 20% per year during the past seven years justifies the current P/E of 45.4.

The company’s 25% return on equity makes the stock attractive to investors like Warren Buffett. ULTA shares will likely rise 25% to $306.98 within 12 months. Buy at $246.56 or below.

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By J. Royden Ward, Editor of Cabot Benjamin Graham Value Investor

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