The Beauty Company Stock That's Looking Really Pretty
The New York Times ran a story last summer about how haircut outfits were bucking the economic downturn. Ulta Salon, Cosmetics & Fragrance (ULTA) seems to be a shining example of that, at first glance. In the last quarter, comparable sales increased 9.3% at the Bolingbrook, Illinois-based outfit. That was driven by a 5.5% increase in traffic and 3.8% rise in the average amount each customer spent. Margins rose, too.
But on second look, Ulta is more of a beauty disruptor. It was founded in 1990 as a discount beauty seller whose focus is “affordable indulgence.” It has 489 stores, where it combines salons with specialty retailing. In a typical, 10,000 square foot store, it has 950 square feet dedicated to salon space, with eight to ten stations. It also has a beauty superstore of sorts with 20,000 products on the shelves. Last year it had salon service sales of $98.5 million, and total net sales of $321.4 million.
Ulta has carved out a niche between them and represents something more than an economic play, lessening the risk that Ulta’s customers will decamp for higher-end salons if and when the economy turns around. Anyway Ulta is tackling that head-on. It’s adding upscale brands including Clinique and Lancome Paris. It’s been testing Clinique boutiques within its stores, and it’s adding 35 more such boutiques. It also has an active loyalty program, and loyalty members brought in more than half of last year’s net sales.
William Blair calls it “one of the more exciting long-term growth opportunities in retail.” And so far, so good.