Is This Cosmetics Retailer the Ultimate Stock?: Greenberg

Ulta Salon is one of those stock stories that, at this stage of its life, anybody with half a brain knows not to question.

Ulta Salon
Ulta Salon

But given that I have been accused of having only half a brain...: Ulta Salon’s stock has been a rocketship, from a stock-market standpoint, for good reason — the cosmetics retailer and salon has been posting consistently impressive results.

But in large part, this is a story about new store openings. And anytime a company can open new stores it can generally feed the growth Wall Street wants — until it can’t.

It’s one thing to put up stores, another to put up good stores and still something else to predict the number of stores years (and I do mean years) out.

Which brings us Ulta . As part of its first quarter results, the company said “We’re pleased to announce that we have completed an analysis of the long-term potential in the U.S. for our 10,000 square foot store model and have increased our store plan by 20 [percent] to 1,200 stores, compared to our previous estimate of 1,000 stores.”

Sounds great on paper, but it’s unclear how many years such a rollout will take. Four? Five? Too much can happen between here or there, which is why anytime a company puts what a long-term target on store openings you take it with a grain and remember the lesson of the restaurant chain, Buca di Beppo.

As I wrote in Fortune in 2001, the company bragged that it was on track to open 450 stores. At the time it had only 68. Its stock, which had been a high-flyer, wound up collapsing until it was acquired in 2008 by Planet Hollywood for pennies per share. It now has (a drumroll!) 86 units.

Which is why, even with Ulta’s impressive performance, investors should not be entirely dismissive of last month’s sale by Ulta’s largest holder, Mousse Partners of 7 million shares, or around two-thirds of its stake. Mousse is run by beauty and fragrance industry veteran Charles Heilbronn, who is also an Ulta director.

People sell for all sorts of reasons, including margin calls, spousal pressure and estate planning. And Ulta has certainly been a big winner, the kind any sane big investor would start peeling off.

But Hielbronn didn’t just peel off, he unloaded.

And all we know is this: He gets to see the company without any makeup!

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