May 19, 2008 –
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RELATED TICKERS: BARE.DL
, ULTA
, SIGM
OK, no one can promise to double your money. But if there is one story stock that makes me want to grab the shoulders of my relatives and shake them until they listen, it's BARE. The stock has taken a series of hits over the last year, some deserved and some not. But the company hasn't. The company, its brand, its product, the brand recognition and the brand loyalty are growing like crazy. And the financial markets haven't quite noticed yet. [more]
May 10, 2008 –
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RELATED TICKERS: ULTA
, EL
, REV
Here's what you've probably heard:
Makeup is recession/depression proof!
Even during the war, women still bought lipstick. It's that one little treat, when you can't even afford meat or gasoline, and definitely not $500 Jimmy Choo shoes.
Here's what's been reported as happening now:
Major cosmetics companies report slowing sales!
Most major cosmetics companies have been reporting slowing sales and have lowered forecasts for the year due to economic headwinds. If you take a look at RDEN (Elizabeth Arden), you'll see headlines like "Arden posts surprise loss, slashes outlook." Ouch.
And since reporters report and don't really investigate, there were a flurry of stories after the RDEN news. The Wall Street Journal's title and article were typical "Amid Downturn, the Beauty Market Sags".
OK, what's REALLY happening now?
EL (Estee Lauder) beat and raised guidance. Even REV (Revlon), arguably the worst looking cosmetics company in the world beat estimates and gave decent guidance (of course a Revlon beat is like an American car company beat - it lost less than expected).
So this sounds confusing, what do you do now?
a) nothing, makeup is like women - too confusing
b) do some research
c) listen to SarahGen (and then do your own due diligence)
Hmm, I like c!
OK, here's the deal. Women are addicted to makeup like a drug addict is to drugs. But maybe you don't know which drugs are most popular or growing? So? Invest in the drug dealer!
I give you ULTA!
ULTA, which is both the ticker and the huge name on the front of the store at your local mall, is a new concept in makeup and hair care sales. At first I just ignored it, both the stock and the store. Too weird I thought. What on earth are they doing?
First - the groundbreaker, Sephora
Sephora broke ground years ago by bringing department store makeup out of department stores and made it accessible all in one store. Wow! Great concept!
When I explained to my husband how department store makeup sales actually are made, he was shocked. If I want to buy a MAC lipstick or Clinique self-tanner at the department store, I have to go to that specific counter and I have to wait for a salesperson to be available. Typically there are one or two sales people per counter, and they work for the company not the department store. The MAC person sells MAC. The Shiseido person sells Shiseido. Etc. If they are busy, too bad for me! And I have to talk to them about what I want, and then they go below the counter and get it for me. It's like the general stores were in Little House on the Prairie!
Sephora carries department store level makeup ("premium" is what it's called). And yes they have lots of salespeople. But I can wander around on my own and fill a small basket with hundreds of dollars of makeup in just minutes - a $25 NARS blush here, a $24 Dior mascara there. No waiting! Just buying!
Sephora has been selling goods like crazy, and has been expanding like crazy. Their downfall as an investment? They're owned by the mega-conglomerate Louis Vuitonn Moet Hennessy (LVMH aka LVMUY on the pinksheets). Big drag (but of course I own some stock).
So ULTA, what is it they do?
ULTA sells premium brands (already defined above as expensive $20+ mascara) AND it sells cheap drugstore brands AND it sells hair products (shampoo, conditioners and a ton of accessories and appliances like 15 kinds of hair dryers) AND it has a salon in the back.
What on earth?
I don't like to invest in ideas that are unclear about their vision so I stayed away from this IPO last year. Yuck, I thought.
I went to the stores a couple times to investigate - to see how they were doing, and to see how my favorite makeup brand was selling - but I still didn't get it.
And then one day I needed a bunch of stuff - some mascara, some extra pots of my favorite mineral makeup, some travel shampoo, and some hair mabobs. Hmmmm, "I get it!" I thought. Here was a place I could buy the world's best selling most recommended mascara (Maybelline's Great Lash - only $4.59), and my $60 night mineral treatment, and a new Pilates DVD, and a new curling iron. And when it came to buying that Pilates DVD I didn't have to muscle past a bunch of crazy kids at Dick's Sporting Goods. And when it came to buying the cheap drugstore mascara, I didn't have to mingle with a bunch of sick people waiting on prescriptions for who knows what. And again, like at Sephora, I could buy all that fancy premium brand stuff without dealing with the sales person gatekeepers. heaven. They should have just called it "What Women Want" but I think "ULTA" was shorter. :)
The last ULTA earnings were great, as was the forecast. No dimunition in demand they said. They did say that mall traffic was just terrible, and they thought they could grow faster if they got some walk-by traffic. But, they're growing anyway without that. Women drive to ULTA as a destination because they know they can get some bargains and get everything they need.
Oh, did I forget the "bargain" part? If you shop at ULTA you get:
1. an ULTA card entitling you to all sorts of goodies
2. regular gift with purchase events - and you don't have to buy Estee Lauder to get an Estee Lauder gift like at the department store. It's spend $X on whatever, and get lots of little goodies for free at the checkout.
3. regular coupons in the mail
4. regular discounts in the store on many popular brands (never the premium brands, but I got my favorite salon-sold-only shampoo at a real deal)
Did I mention women love bargains and free gifts? Did I need to?
And last but not least, what is SarahGen's favorite indicator of "time to buy?" Yes, that's right - Insider Buying. And you ask, what is even better than regular old insider buying? Insider buying by the CFO! CFO's are notoriously careful with their money. No irrational exuberance and company hype for them. Besides, they have their heads buried in the books, they know just how scary the debt is, or how late payments are etc.
Well, check it out - Insider Buying, and a recent purchase by the CFO - yum yum!
The CFO made his first open market purchase April 22nd - buying about $200k worth of stock at $14.06.
And guess what? ULTA is still trading around that price right now. Sweet!
Here's the earnings call transcript courtesy of Seeking Alpha.
And here's the last earnings press release from March 19. [more]
May 07, 2008 –
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RELATED TICKERS: M
, JCP
, JWN
Will April be the month that finally surprises everyone? C'mon American consumer, you know you love to spend! If you read a lot of popular stock analysts, they'll tell you that tonight/tomorrow is going to be a blood bath. Really? That's not what the International Council of Shopping Centers (ICSC) said yesterday. [more]
May 06, 2008 –
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RELATED TICKERS: EWZ
, ITU
, PBR
Brazil, the whole country, was upgraded last week by S&P to investment grade. This isn't just some meaningless upgrade/downgrade. With the new designation of "investment grade", the Brazilian market has just gained a ton of potential new and very large investors. But there is more to come, this was just the first shoe. From this Business Week story: Brazil Goes Investment Grade: [more]
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