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Ulta Salon Tumbles As Prescience Point Says Stock Worth ~$88

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Ulta Salon Tumbles As Prescience Point Says Stock Worth ~$88

Shares of Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ: 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-12-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 (NASDAQ: 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.

Latest Ratings for ULTA

DateFirmActionFromTo
Sep 2020DA DavidsonInitiates Coverage OnBuy
Sep 2020Morgan StanleyMaintainsEqual-Weight
Aug 2020UBSMaintainsBuy

View More Analyst Ratings for ULTA
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