I actually shorted ULTA for a hot minute earlier in year, then got cold feet. Would have been a good trade if I stuck with it.
Now we find ULTA basically flat over past 12 months, and not terribly higher off March 2019 highs and even the highs in 2017 aren’t drastically lower.
So is this a reasonable price?
Will women stop buying beauty products in 2024?
I liked their ER commentary…about being everything from entry to luxury, so they claim to catch spending habit changes in either direction. I don’t know enough about Sephora and competition, but will ask around to the fairer sex for their opinions on ULTA these days.
My wife is huge into beauty products in general (used to have a second part time job in a salon and is seriously a professional level nail artist); she’s constantly watching youtube makeup artists/reviews on brands/etc. and buys almost everything exclusively from Ulta. Ironically she recommended I look into investing a couple years ago but I didn’t have much interest at the time. I do own some shares now (might as well benefit from the amount of money we spend a month). She’s has commented several times that women will ALWAYS spend money on beauty products, regardless of the financial situation. They will eat ramen daily before they stop buying their anti-wrinkle creams. I believe her.
I was invested in ULTA back around 2016 to maybe early 2020, seems like an investing lifetime ago, when I was a “TomE (TMF1000)” disciple. “Buying at better value points” I purchased around $200 and sold around $300 2-3 times before converting all that money to the Saul method and losing 2/3 to 3/4 of it in the 2022 destruction (looking at the current price, wish I’d stayed with the TomE method). Water under the bridge, gotta move on, I’m a mixture of the 2 methods now, but haven’t followed ULTA since.
I know at the time I was invested in them, I checked in with my wife, her sisters, and my nieces and they all loved ULTA. Can’t say I know their feelings currently, but maybe I’ll look back into them now, also.
ULTA’s top line growth is not going anywhere…averaging 4% qoq for the past 6 quarters…it was 5% average before that. They are over-valued right now based on forward growth estimates. And I am not a fan of their balance sheet (debt to cash).
I do like their constant share buybacks and reduction in shareholder dilution, along with steady uptick in margins and cashflows.
In contrast, ELF has much better growth, better margin expansion AND better valuations at this point.
Depends on what you are looking for in the stock and the role it plays in your portfolio.
I don’t view the long term debt as out of line, given the bulk of it is likely long term lease obligations. Also, if you look at net income, it’s less than 2x the total long term debt obligation, so it could easily be paid down in short order.
ULTA has an above average ROI and as you mentioned is buying back shares aggressively, nearly a 20% reduction in share count over the last 5 years. Even at single digit revenue growth, I could see this one continuing to be a stealthy compounder in terms of shareholder value.