Ulta Salon, Cosmetics & Fragrances Inc (NASDAQ:ULTA) is continuing its stunning growth.
Without a doubt, this is the preeminent retailer in the market today. The only one that even comes close is Amazon.com, Inc. (NASDAQ:AMZN), but AMZN doesn’t have brick and mortar stores to impede its stunning growth. Meanwhile, ULTA has mega-stores that average 10,000 square feet, with many housing a 1,000-square-foot salon.
As of August 2015, it had 815 of these stores spread from sea to shining sea. And it continues to open stores at stunning rates, up to 100 stores a year. Some of the newer stores are somewhat smaller than their traditional stores, but these are usually stores that are operating where there is a standard Ulta store nearby. The slimmed-down stores offer more premium products and services.
For years, analysts have been saying that ULTA stock can’t keep up this pace and that eventually we’ll start to see a deterioration of its sales growth and margins.
Well, Q3 numbers came out last week and they didn’t disappoint. Same-store sales (the true measure of a retailers’ strength) were up once again by double digits, and even outpaced the company’s own raised guidance for the quarter.
Revenues were up 24% year over year. Net income was up 23%.
These are impressive numbers. And it’s hard to compare Ulta to other big-box retailers, since their product lines are entirely different. So, if we take Target Corporation (NYSE:TGT) as a big-box competitor and look at its recent numbers, you might get an idea of the difference in ULTA’s growth versus TGT’s.
In the most recently reported quarter, Target actually raised its guidance on same-store sales range from -2% to 0, to -1% to 1%. And same-store sales were down 0.2% for the quarter. Ulta same-store sales were up 17% for the quarter.
What about online? TGT is doing well online, where online sales growth grew 26% year over year. But TGT has declining same-store sales, so it’s vital that TGT makes up some ground on its waning brick and mortar business.
On the other hand, ULTA online sales are up almost 60% so far this fiscal year.
The one concern you will hear about ULTA is that it can’t keep growing at this pace. And once the growth stops, it will collapse. But the ‘experts’ have been saying that for the past decade. Even a broken clock is right twice a day.
The fact is, ULTA stock has proven it can sustain this growth and make its brick-and-mortar stores as valuable as its growing online business. Right now, margins aren’t growing as fast as they could, but that’s because it is continually rolling money back into expansion plans.
This is a good thing, but it’s the same knock people use against Amazon. And that company has been on a growth tear for a very long time. I expect the same for Ulta.
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.
