It used to be smooth sailing for Ulta Beauty (NASDAQ: ULTA) shareholders. The retailer, focused on the beauty market, has beaten the market since going public close to 20 years ago. It’s now up 1,190% compared to the S&P 500‘s 381% total return.
Unfortunately, this year has not been so kind. Ulta’s stock is down 22% year to date even though the S&P 500 is up 12% and pushing through to all-time highs on the back of the artificial intelligence boom. Investors are worried about slowing growth at the brand’s retail locations, and the stock now trades at its cheapest earnings multiple in years.
What happened to Ulta Beauty stock, and is it a buy at this discounted price? Let’s look closer and find out.
Ulta Beauty: Specialty beauty at scale
Ulta Beauty is a retailer that caters specifically to the beauty market. This mainly includes women, with a skew toward capturing the younger millennial and Gen Z beauty spenders. It estimates there are 70 million beauty “enthusiasts” who are its target, recurring customers in the United States.
With an omnichannel strategy that includes robust e-commerce sales, Ulta believes it can be the go-to shopping destination for any beauty customer around the country. So far, this has proven true with an astounding 43 million shoppers currently on its Ulta loyalty program.
This focus on a single niche has resonated with many shoppers. Ulta did $11.2 billion in revenue last year, up from $10.2 billion a year prior. Ten years ago, it was only doing $3 billion in annual revenue. With a $112 billion beauty-products market in the United States, the company still has a long runway to steal market share from legacy operators like department stores and mass merchandisers. As long as it keeps up its superior customer offering, I think it can do just that.
Comp sales slow, but that’s nothing to be concerned about
If the company keeps growing, why is the stock down? It all comes down to comparable-sales growth, which is a retail metric that measures revenue growth from existing locations a year prior. Last quarter, Ulta reported comp sales of just 2.5%,…
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