• Research

Oct 13, 2017

S3 Analytics: Ulta Beauty Is Not Looking Too Pretty?

Short interest in shares of Ulta Beauty (ULTA US) have pulled back from record highs last month as the stock price languishes.  Bearish bets stand at 2.8 million shares as of today.  S3 Partners real-time short analytics calculates the real time dollars at risk, on the short side, at $532.5 million.  This is a decrease of 35% or $293 million of dollars at risk, since mid-September. 

The once “Darling” retailer has seen its stock price drop 15% over the past month, even as short sellers have curtailed bets.  However, should investors want to increase contrarian bets, there is plenty of stock to borrow.  Ulta Beauty shares trade at GC levels, the cheapest fee or easiest to borrow stock.  Since January, S3 estimates that short sellers have made $145.7 million (a 27% return).

Undoubtedly the retail sector has faced substantial opposition brought on by Amazon.  Up until June, Ulta Beauty was believed to have been one of the few retail stocks that were Amazon-proof.  Ulta has seen its sales grow from less than a billion dollars in 2007 to $5.3 billion on a trailing basis.  Although momentum has cooled this year, sales growth should still be around 10%. 

Headwinds aside, Ulta Beauty is still a success story.  The “Ultamate Rewards Program” gives them a competitive advantage against others in retail industry.  Ulta intends to add an additional 100 stores in the upcoming year, (including 5 urban locations in shopping meccas) a 10% increase.  Their E-Commerce business is growing rapidly, even though it’s a minor percentage of total revenues.  And lastly, Ulta still has low double-digit margins.

Ulta Beauty is not alone in the Retail onslaught.  Sally Beauty, a much smaller competitor, has seen short sellers increase bets against them.  S3 calculates real-time short interest to have increased to 16.3 million shares, $286 million of dollars at risk.  The number of shares short has increased 6.5 million since the beginning of the year (a 67% increase).  Bearish investors have been rewarded $112.9 million since January (a 38.4% return).

As the stock market keeps hitting records, the retail sector seems to remain under considerable pressure.  Even the once glowing darling, Ulta Beauty, is looking a bit haggard right now. 

Want deeper insight into the above analysis? Contact:
Brett.Weiss@S3Partners.net
Director, S3 Partners
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.


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