Hi, my name is Cat, and I spend way, way too much money on my hair. Between the keratin treatments, the highlights, and the cuts, it's not pretty -- at least, the bills aren't.
Channeling my inner Peter Lynch by investing in what I know is what has brought me to Ulta Salon, Cosmetics & Fragrance
It's true that a ton of retailers -- including big boys like Wal-Mart, Target, Walgreen and Nordstrom, to name just a few -- sell cosmetics. But even in this crowded market, Ulta stands out.
A 21,000-item edge over competitors
Here's the hook: Each Ulta store stocks about 21,000 different products. That's a lot of varieties of mascara, foundation, lipstick, and perfume across a wide range of price points. As both a consumer and an investor, I find this comprehensiveness appealing. It's what makes Ulta stores so unique and fun. All the brands, from the high end to the low end, are there in one place. This is great for consumers who move up or down in their brand choices, because they can still shop in the same place.
And, as fun and relaxing as it can be to cruise Amazon
In short, while the cosmetics retail landscape may seem overgrown, Ulta actually has a serious competitive edge.
No, really, Ulta stores are delightful
In its latest 10-K, Ulta lays out its store strategy according to "Five E's": escape, education, entertainment, "esthetics," and empowerment. This means that customers are treated to a pleasant experience in an attractive, well-laid-out store in which the salespeople know their stuff yet don't employ high-pressure tactics to move product.
Ulta stores also contain salons, so patrons can get a haircut and manicure before or after browsing the aisles. What's more, Ulta stores are primarily located in strip malls, not in malls, making them more easily accessible.
No wonder Ulta enjoys such loyal customers. More than 8 million customers (including myself) have enrolled in its rewards program, and the company reports that these ultra-loyal customers shop with greater frequency and spend more per visit. In fact, these customers account for 50% of the chain's total sales.
Emerging leader in a $100 billion market
Apparently, I'm not the only consumer dropping loads of money on all this. Americans spend almost $100 billion in salons and on cosmetics each year. With trailing-12-month revenue of just under $2 billion and management's plans to open about 1,000 stores, this company's future looks bright.
The stock price reflects as much. Trading at 50 times earnings, Ulta's $80-ish shares aren't cheap. But when I consider how well Ulta's management is executing, how same-store sales have been growing, and the potential for Ulta to grow revenue through its website and new stores -- to say nothing of international expansion -- I'm reassured.
That's why this beauty of a stock is going on my watch list. (Brace yourself: Awful pun ahead.) Who knows? ULTA may one day be the highlight of my portfolio.
Another great pick
Some people may be apprehensive about investing in an industry that's as niche-focused as cosmetics, and that's fine! If you're looking for a great broad-line retailer that has a huge runway of emerging market growth ahead of it, you can read our special free report: The Motley Fool's Top Stock for 2012. The report is free today, and you can access your copy by clicking here. Enjoy, and Fool on!