Ulta rides increased consumer spending on beauty products to best stock gain in state

As consumer spending rebounded last year, beauty products rose to the top of the heap, bolstering the already rosy fortunes of Ulta Salon, Cosmetics & Fragrance Inc.

The Bolingbrook-based retailer ranked as the best-performing local stock of 2011, surging 91 percent to $64.92. It is the second year in the row the purveyor of moisturizers and hair products ranked among the Chicago region’s top-10 best performing stocks.

One reason: Ulta occupies a unique spot. It is, in essence, the Best Buy of the beauty market, offering everything from drugstore mascaras to prestige-brand moisturizers and a full-service hair salon under one roof.

The superstore has been drawing shoppers from department stores and drugstores with its one-stop shop that offers the service of beauty consultants, but also lets customers browse and sample makeup on their own.

“A woman has many places to choose to buy her beauty products, and increasingly she is choosing us,” said Ulta CEO Chuck Rubin.

When Ulta was founded in 1990, department store counters sold prestige brands, and drugstores sold to the mass market. The chain broke down the barriers, eventually wooing high-end brands such as Smashbox and Lancome into its free-standing stores alongside Maybelline and Almay. By the time it went public in 2007, Ulta had captured female shoppers in their 20s and early 30s who were bypassing department stores.

“It’s just more convenient,” said Erika Maschmeyer, an analyst at Robert W. Baird in Chicago, who rates the stock a buy. “It fits the way women like to shop nowadays. Rather than going to a mall, you can park right outside the store and run in. You can buy a Cover Girl mascara and then splurge on a nicer foundation.”

With 449 stores, Ulta has plenty of room to expand, particularly on the East Coast and in the Northwest, analysts said. The company plans to expand its store base at a rate of 15 to 20 percent a year until it reaches 1,000 stores nationwide, Rubin said.

And it continues to add categories at existing stores, which are typically 10,000 square feet. Last summer, it launched a 300-square-foot shop inside its stores devoted to men’s skin care and grooming products, including American Crew, Clinique Men and Jack Black.

Some analysts caution that the highflying stock could be poised for a sell-off in 2012, pointing out shares trade at a lofty multiple of 32 times estimated earnings. They also contend competition is heating up, as drugstore chains Walgreens and CVS dress up their beauty departments and more shoppers buy beauty products online.

Still, Ulta this month boasted a 12.6 percent increase in sales at stores open at least one year, a key measure of retail health, for the seven-week holiday shopping season. The rate is three times the 4.1 percent gain industrywide, as measured by the National Retail Federation. Ulta also raised its fourth-quarter outlook and said it expects earnings per share for fiscal 2011 to soar 59 percent from fiscal 2010, to a range of $1.84 to $1.85.

“We’re still a small player,” Rubin told investors at a Piper Jaffray conference last week. “But we are gaining share, and I think that promises a lot of exciting things in the future.”

Source: http://articles.chicagotribune.com/2012-01-15/business/ct-biz-0115-ulta–20120115_1_beauty-products-beauty-departments-mascaras

 

 

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