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ULTA Salon, Cosmetics & Fragrance, Inc. Message Board

  • beauty90210211 beauty90210211 Sep 10, 2011 1:48 PM Flag

    use extreme caution at this price

    I admire a good quarter like anyone else, but yesterdays run was a little hard to believe and the price will not hold long term. The brand will continue to grow, but not in the range of these outlandish expectations. Here is why I may consider a short, outside of the unusally high P/E.

    Ulta is a destination mainly for suburban shoppers to get beauty by convenience, A nice idea, but few great brands have a model that cannot compete in major cities where the selection of alterantives is too great to be competitive. Ulta's 400 plus stores are in choice locations, it is hard to fathom that they will be able to maintain the same quality of location moving forward which will eventually hurt comp growth. There are no great fashion/beauty brands that cannot compete in NY/LA. For many women, Ulta serves as an alternative to Sephora or higher end beauty locations that may not be near them, as Sephora also continues to expand, this suburban landscape will get much more competitive.

    The lack of brand awareness also limits any meaningful international growth prospects.

    Ulta is late to the game on-line and the business convenince model doesn't hold there, which will limit growth.
    Ulta has had challenges with effective private label initiatives. Private label is very lucrative on bottom line. Without a stronger brand image, they may not be able to compete in this area, which will hurt margins competitively.

    The exponential growth that has been priced into this stock is simply not possible with thier business model. They will continue to make reasonable margin and grow modestly moving forward annually--but nowhere near the optimism that is priced in currently. Overly optimistic buyers should be extremely cautious at this point in my opinion.

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    • Thanks smcap. On the simplest level, what investors are willfully ignoring is that Ulta just doesn't make that much money..yes, the comps are strong- but the near exponential growth over the past year is off profits of 39m in 09 and 71m in 2010. Ulta is a 20 year old beauty chain with upside that is marginal at best. The current valuations would require near 30-40% growth every year for the next 4-5 years to grow into. I certainly wouldn't bet on that. Smart money will be moving this one in the near term. I would want to be long on them even this week. August will be the month where retail sales overall start to show some weakness, which will spook retail stocks going into the holiday season--where the real money is made. With Ulta's numbers being so bloated, I would look for a relatively strong pullback.

    • Thanks. Never mind the fact that consumer confidence is brutally low and getting worse...this is a nice story with some upside, but that and much more are already priced in. The net income of Ulta was $71m last year. The company's valuation in now $4.2 billion. This is not a high scalable business model--so even if they come in at $130 million this year whick would be incredibly strong..they would still be over 30 times earnings at current numbers. If they had the same growth in 2012 they would still be over 20 times earning. This is a nice $40-45 stock with high hopes built in. $68 is outrageous and anyone long is going to get burned in the relative near term...

      • 1 Reply to beauty90210211
      • Company should be raising money at these prices. The could sell shares here and easily pick them back up in the $50's in the next year and add another 10 Million or so to the bottom line.

        There are many other great stocks with huge growth potential at much much lowre P/E's. One of my favorites is OVTI.

        Read the DD link on the OVTI board and after you short ULTA for a few bucks, but some OVTI. JMO!

    • Nice analysis. Agree it is a short opportunity here as it run too fast Friday. I am expecting it will come down to around $62-63


      I will short anything above $67 monday pre-market. Hopefully it will open at 67-68 price

 
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