Ulta Shares Tumble As Prescience Point Says Stock Worth ~$88

by Jayson Derrick

February 18, 2016 11:53 AM | 2 min read | Make a Comment

Shares of

Ulta Salon, Cosmetics & Fragrance, Inc.

ULTA

tumbled more than 6 percent on Thursday after

Prescience Point issued a scathing short thesis on the company. Prescience Point stated that a "plethora of red flags" surfaced during the 2012 to 2013 timeframe. Specifically, the company entered a trend of declining same-store sales in the first quarter of 2012 and then "declined rapidly" into 2013. The report also noted that Ulta Salon "inexplicably" raised its store count guidance from 1,000 stores to 1,200 stores back in June, 2012 at a time when the business was showing "signs of deterioration." Prescience Point also pointed out that insiders sold approximately $60 million worth of stock following its store count guidance, and preceding further "reported deterioration" in 2013. Moreover, the company began including online sales in its same-store sales calculations to perhaps inflate the metric. Despite the red flags, Ulta Salon's stock has doubled since 2013 and trades at 30x next-twelve-months P/E. "Paradoxically, the market cap/store has increased nearly 4x since 2010 and is currently close to all-time highs, even though the company will be 97% saturated by FYE'16 (based on the Company's initial guidance)," Prescience Point concluded. KeyBanc Analysts Disagree With Short Thesis Analysts at KeyBanc issued a mid-day note defending Ulta Salon. The analysts noted that Ulta Salon has "ample" locations for their demographics and can increase their store count and create shared costs and synergies. In addition, the inclusion of online sales in same-store sales metrics is merely the "industry norm." In fact, Ulta Salon's e-commerce customers are "becoming more profitable." Meanwhile, Ulta Salon's prior CEO left the company to run Michaels Companies Inc MIK's pre-IPO and its prior CFO left the company for personal reasons. As such, there is "nothing out of the ordinary" in these executives selling their holdings in Ulta Salon.

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Posted In: Analyst Color News Analyst Ratings KeyBanc Prescience Point ulta salon Ulta Salon Short Thesis

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