(ULTA - Free Report
) is the $11 billion darling of high-end suburban strip malls with cosmetics, bodycare, styling and other salon and spa services unparalleled by any other retailer.
Since I chose Shopify
(SHOP - Free Report
) as the Bull of the Day, I couldn't resist profiling the earnings decline in ULTA since the two could represent dueling stories in the quarantine-induced recession battleground.
As I noted in the SHOP story, Wedbush analysts pointed out a reason for caution on that stock: "There is also the factor that Shopify's merchants largely represent consumer discretionary spend on items from categories like fashion, cosmetics, health and beauty."
But SHOP's gain in that department may be ULTA's pain as the $68 billion e-commerce disruptor begins to eat some of the brick-n-mortar's lunch money, which is expected to total $7 billion on the top line this year, representing a 5.44% decline.
Of course, it's the downward earnings estimate revisions that have made ULTA a Zacks #5 Rank this month.
In the past 60 days, the current fiscal year 2021 (ends in January) saw consensus EPS projections drop a whopping 31.6% from $13.09 to $8.95, representing a 25% annual decline. Next year only dropped half as much from $14.34 to $12.05.
I made a quick video Wednesday morning highlighting why I think the stock market relief rally is on borrowed time, especially as led by a handful of stocks making up the strength...
I could have included SHOP in the FAAMNG group -- Facebook
(FB - Free Report
) , Apple, Amazon
(AMZN - Free Report
) , Microsoft, Netflix
(NFLX - Free Report
) and Alphabet -- that's holding up the market. Though it's not in the same class as those behemoths with giant revenues and cash flows, it will emerge from this crisis even stronger as the go-to e-tailing platform for many small companies and distributors.
And both SHOP and ULTA will tell us a lot overall, through their growth challenges, about this crisis and the road ahead.
As I write this on Wednesday evening, I saw that Cramer profiled Victoria's Secret as a microcosm of the terminal pain for shopping malls. Here were his key points...
“It’s not just the department store that’s dying. It’s the whole mall."
“We knew we didn’t need the department stores, but now the pandemic’s making us realize that maybe we may not need anything in the mall at all.”
“Only two kinds of retailers are working here: the ones that have enormous scale and sell essentials or the ones with fabulous digital businesses.”
ULTA may be one mall story that is most likely to adapt and come out stronger than others. And trading at only 1.6 times sales, it remains an incredible bargain vs SHOP at over 30X.
There will be a time soon to pick up shares of ULTA again soon under $175. The Zacks Rank will let you know.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.