How This Stock Could Beautify Your Portfolio Returns

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Everyone has days where they need a little help in the looks department. Fear not -- Ulta's (Nasdaq: ULTA  ) here to help. And with strong sales and earnings growth so far this year, the salon and beauty boutique may be just what your portfolio needs to spruce up before the holidays.

What (hot roller) sets it apart
An endless number of retailers sell cosmetics and personal goods -- but can you get your hair cut while you're shopping with them, too? Unless you're in Ulta, the answer is probably no. Unlike its rival Sephora, which is owned by LVMH Louis Vuitton Moet Hennessey (OTC: LVMUY) and focuses solely on the sale of goods, Ulta provides salon services in its stores.

These services provide an added boost to Ulta's revenues for two reasons: return-customer trends, and cross-selling. If Ulta can hire good stylists who provide great service and styling to their clients, it'll increase the probability that those customers return time and again for further appointments. And salon professionals aren't just pros at hairdos -- they're trained to cross-sell merchandise, too. Because Ulta carries more lux brands than your average corner store, the products that its stylists recommend frequently bring in higher revenue and glossier margins.

Speaking of premiere brands, Ulta is moving in on Macy's (NYSE: M  ) and other department stores' territory by adding both Lancôme and Clinique product lines to its stores this year. Do you hear the collective sigh of relief from shoppers tired of being sprayed in the face with perfume at department-store cosmetics counters? Ulta does sell perfume, but customers browse freely, and sniff as they choose. Not only are consumers' olfactory functions spared but, by not having to wait around for a salesperson, they also save time at Ulta.

I see what you did there...
With a focus on cosmetics, hair care, and salon services, Ulta has built a business that lives on high-margin products and services.


Gross Margin

Operating Margin










Target (NYSE: TGT  )



Source: Motley Fool CAPS

Macy's has some serious pricing power; as one of the largest department store chains in the country, with a bevy of premium products, it clearly enjoys a higher gross margin. But Ulta is the clear winner when compared to CVS and Target, which carry a similar mix of the non-premium cosmetic and personal care brands.

The good, the not so bad, and the pretty
With earnings coming out tonight, most analysts are expecting revenues and EPS to grow by 22% and 33%, respectively. Not a bad boost during an already outperforming year, with the stock rising 47% year to date. Though Ulta endured a small stock-price blip in October, when CFO Gregg Bodnar left, that stumble just gave investors a buying opportunity.

Though we won't know how this beauty queen stacks up to analysts' estimates until later, it's clear that Ulta has created a shopping experience with the customer in mind. As shoppers get more selective, focusing on the customer is not a bad business model. And with Ulta's growth moving forward at a quick clip, investors have an opportunity to get in on one of the prettiest stocks in town.

Ulta has some company in the retailers-with-growth-opportunities sphere. To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report, The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail. In it, you'll see how two cash kings are able to consistently outperform, and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

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10/24/2016 4:01 PM
CVS $88.00 Up +0.59 +0.67%
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M $36.64 Up +0.13 +0.36%
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Ulta Salon, Cosmet… CAPS Rating: ****