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Ulta Beauty


Ulta is “all things beauty, all in one place.”[1] The company operates over a thousand retail stores nationwide offering more than 20,000 products from 500 well-established and emerging brands, including Estee Lauder, MAC, Bare Minerals, Too Faced, Lancôme and more. [2] When Ulta was founded in 1990, beauty products were sold in department stores, drug stores, salons and specialty shops.[3] The founder saw an opportunity to introduce a platform for consumers to purchase mass and prestige cosmetics, fragrance, skin and haircare products and salon services all in one place.[4]

Investment thesis

The stock peaked in June 2017 over fears of slowing growth after years of rapid expansion. [5] Investors feared that Amazon would enter the beauty space and wipe away the competition as it appeared to be doing to grocers with its purchase of Whole Foods. [6] Reinforcing the bear case, same store sales started to slow as the company lapped two very strong years of innovation and growth in the cosmetics category. [7] As consumers, we thought the beauty category was different, and that at some price this stock would be worth owning.

Confirmation through research

Ulta has just 4% of the $127B U.S. beauty market compared to grocery, drugstores and department stores, which account for more than half of total market sales. [8] Though Ulta has taken share over the last fifteen years, we believe there is still significant room for Ulta and other specialty retailers to gain more.[9] Ulta appeals to the beauty enthusiast, those that want to come into the store, learn about the latest brands and test out different products. Online makes sense for replenishment purchases, and Ulta has a strong online presence, but we think beauty is about more than just replenishment. Data shows that 77% of beauty product dollars spent in the U.S. are by beauty enthusiasts.[10]

We think Ulta has a fantastic platform with room to grow. The 1,400-1,700 store target set out by management appears reasonable to us and we think it could be pushed further. The rewards program has over 28M guests enrolled and its data is a powerful tool to drive more transactions. [11] Our conversations with Ulta’s brand partners gave us confidence that the innovation coming out in skincare and makeup would continue. Further, management has identified several cost savings opportunities, which should help margins and drive cash flow.

Variant Perception

We believe that Ulta will continue to grow by being at the forefront of all things beauty. We expect to earn a nice return on our investment as the company’s efforts are realized.