ULTA’s persistent growth
Ulta’s stock price fell through the floor in early September when the company announced disappointing quarterly results and lowering full-year guidance by approximately a range of $11.86-12.06. Ulta’s management blamed a slowdown in the overall industry for the firm’s underwhelming results as revenues failed to meet analyst expectations. The stock plummeted from approximately $335 to below $260, with the company failing to recover anywhere above this level. Currently, the stock is trading at just 20.8x earnings, which may seem high, but is actually a 40% discount to the firm’s five years average Price/Earnings Ratio. The beauty industry has grown robustly in for many years, but Ulta’s core business, makeup, has faced rising competition from retailers such as Macy’s and Kohl’s has begun to slow Ulta’s sales growth and affect earnings. This is not to say however that Ulta has taken what I believe are strong positive steps to combat the changing environment, as they have taken initiatives to improve multichannel retail offerings like offering skin care products and promoting its loyalty program. This program has been a major focus for the company for many years, with loyalty members now making up 95% of sales in 2018. This membership program is an incredibly valuable asset for the company, as they have begun to leverage the data from customer purchases to better market their products to customers. Not to mention, the firm’s balance sheet is rock solid, as they hold no external debt, have a cash position of $327 Million, and generated $637 million in Free Cash Flow in 2018, after spending $319 million to support future growth. The future looks beautiful for such a well run company, who has grown revenue every year for the last 20 years and never seen a negative earnings growth, even in the depths of the Great Recession. A simple eye test of any Ulta store shows the popularity of such a strong brand that has an incredible moat around their business as it is consistently busy. Such a simple test, sans any financial analysis or stock price research, can point to what will be continued success for the company.