J.P. Morgan Comments On ULTAmate Growth Vehicle

In a report published by J.P. Morgan, Ulta Salon, Cosmetics & Fragrance's ULTA momentum heading into what should be a very challenging year for most specialty retailers does not seem to be waning at all.

J.P. Morgan said that success within their merchandise marketing, e-commerce, and store expansion strategies continues to accelerate – as evidenced by Q4's January comp acceleration over an already robust holiday. “During a month when the retail industry weakened materially (primarily weather driven), ULTA actually saw business tick up in January, driven by a highly successful skincare event as they continue to take share (from both the department store and mass channel) at a rapid pace. Management commented that both comps and bottom-line growth should come in at the high end of the company's targeted annual goals this year (meaning ~5% comps and ~30% NI growth for 2011) as the biz continues to fire on all cylinders while they are becoming a growing authority in the beauty industry. When looking across our retail spectrum, we see very few companies that have little cotton exposure (except for salon towels and cotton balls) and pricing power. Add on 15-20% footage growth, MSD+ comps, and multiple margin levers, and we see a business that could grow the bottom line 30%+ in 2011 and beyond. Despite its premium valuation, we feel all of the above points give ULTA a “scarcity” value that investors needing retail or growth exposure should continue to find very attractive in 2011.”

Ulta Salon, Cosmetics & Fragrance closed yesterday at $45.77.