Initiation of Coverage October 26, 2019 Luke Greenley | Lead Analyst
[email protected] | (610) 613-0219 Nathan Latimer | Associate Analyst Ulta Beauty, Inc.
[email protected] | (484) 868-6191 Exchange: NASDAQ | Ticker: ULTA | Target Price: $291.00 Fred Shub | Associate Analyst
[email protected] | (215) 840-9391 INVESTMENT THESIS Key Statistics (US$ in M, except per share data) • ULTA stock became pressured following the 3Q’19 earnings report $240.90 $224.43 that disappointed investors following a moderation of store opening Price (26-Oct) 52-Week Low forecasts. The sell-off continued over the summer, when Amazon Exp. Return 21% 52-Week High $368.83 announced plans to enter the beauty products market. ULTA’s sell Shares O/S 58.8 Div. Yield - off culminated with the 2Q’20 earnings release, when the Company Market Cap $14,061 Ent. Value $15,529 reported a slight miss on revenue, EPS, and comparable store sales growth. Management also guided comp sales and earnings downward One-Year Price Graph for the remainder of FY’20, reflecting industry-wide headwinds in the U.S. cosmetics market that are expected to persist through 2H’20. $400 10M • Overall, we understand the negative sentiment around 2Q’20 $350 8M earnings and management’s renewed outlook, however we believe the magnitude of the selloff is highly overblown. Management has $300 5M cited U.S. cosmetics headwinds since FY’17, and has returned improved efficiency accordingly. We believe the ~30% correction $250 3M has priced in lower expectations for FY’20, and an untouched long- term outlook reiterates our conviction in ULTA outperforming $200 0M beauty retail peers and broader retail over the next 12-18 months.