Ulta Beauty Inc (NASDAQ:ULTA) is a good long-term investment choice due to its steady profitable growth from the company's strong brand name and loyalty program. Improved omnichannel customer experience and personalization strategy have strengthened Ulta's competitive position. The company is entering the downturn in a position of strength due to its strong liquidity position from an $800M drawdown of its credit facility. At an 18x EV/EBITDA multiple, the stock is not cheap but it is not trading above historical 5-year highs.
Ulta Beauty's sales will recover
The crisis hit Ulta Beauty badly. The company temporarily closed all its 1200+ stores and only kept its e-commerce store open. As a result, net sales decreased by 32.7% to $1,173M from $1,743M in the first quarter of fiscal 2019.
The rapid escalation of COVID-19 resulted in significant disruption to our operations. For much of the first quarter, Ulta Beauty operated as a digital-only business, and while e-commerce sales exceeded our expectations, it was not enough to fully offset the impact of our store closings.
(Source: Press Release)
But the strength of Ulta's brand should allow the company to recover quickly. Since being founded in 1990, Ulta has transformed into the largest specialty retailer through its large store presence. The company also has over 25,000 SKUs and over 500 brands with a full-service salon. Ulta's loyalty program has over 30M active members, which helps drive a large portion of Ulta's revenue. Over a longer-term trend, the company has grown revenue from $1.4B in fiscal 2011 to $7.4B in fiscal 2020 at an annual growth rate of 18%.
The company appears to be recovering quickly from the store closures too. As the health concerns gradually subside, Ulta should experience resuming of sales growth. However, this is expected to take place gradually.
With safety continuing to
