Ulta Salon (ULTA) had a great concept that wasn’t faring very well until Mary Dillon, former CEO of U.S. Cellular (USM) took the reins in July 2013. Since then, the stock has almost doubled.
It also has helped that ULTA is perfectly packaged for the new retail environment. While it’s more convenient and usually cheaper to shop online, ULTA stores, averaging 10,000 square feet and hosting 20,000 beauty, hair and bath products, give women a chance to compare and contrast, touch and see these products.
And, those women are willing to pay a premium for the opportunity.
It turns the typical concept of brick and mortar on its head. Instead of trying to compete with online pricing in a brick and mortar business, ULTA doesn’t drop its prices for the opportunity to bring in buyers. And buyers pay for the privilege.
The stores also offer full-service salons, so you can get your hair cut and then buy the hair products or get a mani-pedi and pick up the nail polish for touch ups. It also provides a valuable place for mothers to bring their daughters to get a sense of the beauty products that are a rite of passage for young women, and learn techniques that will carry them for years. That type of experience builds brand loyalty as well.
ULTA Is Continuing to Expand
ULTA isn’t just satisfied with its 800+ brick and mortar megastores. It’s now experimenting with smaller 5,000-square-foot stores and opening in smaller markets.
Its internet presence is growing as well. Once you get customers in the stores and they know what they want, buying online becomes much easier. Plus, since the margins are lower online, ULTA can be more price-competitive with its competition. Online sales are up 40% for the year.
If the customer wants something new or special, they can then go back to the store to try new products. ULTA is developing a virtuous circle of customer buying experiences, which is why same store sales are up 10% year over year — and 2014 was a very big year, so to top those numbers means something.
ULTA had a one-day selloff in November when big retailers Macys (M) and Norsdstrom (JWN) missed on earnings and revenue, and lowered guidance for the year.
But, ULTA doesn’t carry the same baggage as those retailers and is widely differentiated in a specific niche. That has been, and continues to be, its strategic advantage.
ULTA is certainly fully-valued at current prices, but if its numbers continue to deliver solid double-digit growth and its new initiatives continue to deliver in similar fashion, you will see growing interest in ULTA from institutions and other smart money, regardless of valuations.
Given its bulletproof balance sheet, this expectation isn’t too optimistic. ULTA is a unique brand that continues to surprise to the upside under the leadership of Dillon.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
