Ulta Beauty: Selling Trust not Location

As consumers discretionaries go, Ulta Beauty is a great businesss as the salon business seems to be about location but it really is about trust between hairstylists and their clients which make for good conversations. You do see salons in very busy parts of cities have great grossing sales but their rents are high too and the reason they are selling so much beyond their location is their ability to run a salon in a busy city at all which entails trust. The salons that sell a lot without trust are usually franchises of salons with a lot of trust.

These franchises are in the same trust network. If a franchise is unable to maintain the trust, the franchise will naturally drop out. Any one can find a good location, but how many can build trust? To build a trust network on the scale of Ulta is almost impossible to replicate. The only question is what happens in an economic downturn and trust networks don’t dissolve in downturns they get stronger, assuming Ulta can survive as a business which it probably can because it has so many stores and such a large footprint that for all those stories to lose their business function would take a massive downturn especially as most stores are off-mall locations and thus diversified in an uncorrelated way to malls having trouble for example. As for the other beauty products, what people look for in beauty products is again trusted brands, and in absence of trusted brands, trustworthy people selling the items. I take that as self-evident.

Not only does the store carry l’Oreal which has the trusted La Mer cream which is in high regard among some people in Newbury Street in Boston, but the store is really only in competition with upscale department stores through CVS which sell these items. If you trust your hairstylist you will buy products from her. And if you trust products from a store which carries many trusted brands, you will get a hairstylist from that store. Of course the salons probably can’t compete with high-end Newbury Street salons but they are really fulfilling a different niche as I wouldn’t go to a Newbury Street salon for trust, I would go in there for leading fashion, like the Latin American take on Portugal, which is more of a one-off item.

Ulta Beauty is thus complementary to much of the fragmented beauty market and it is no surprise its stock has done so well as it has a great business with strong fundamentals though it has risks as a consumer discretionary business to economic downturns. Jeff Bezos of Amazon says it is about regret minimization: if you thought the business was a good buy at $10 and now it is at $100, it is a great buy because the business is better now, and in that way a stock is much more like a kid or an investment analyst joining a hedge fund out of college than it is like a shirt you can buy on-sale at Ross Stores. Think of a girl looking at a guy like a stock, if he was a great buy as an artist then he is an excellent buy as an economist and an even better buy as a physician in my view. In a business like consumer discretionary, it is all about stopping the horror takes that make fear about the macroeconomy, and the way to do that is to introduce hope as hope severs the sword, and shatters the spear and burns the shield with fire just like a deity.

The hope is evident here that Ulta wants to increase their stores to 1200 stores in the USA if you read their securities filing. After love comes hope as you can fall in love with a stock if the business not the stock price has hope. Making money from stocks is another thing let’s focus on investing first which is putting your money in the most optimized places. The type of physician I am referencing is not psychiatrist but endocrinologist who looks at charts as the psychiatrist is busy with ghoulish and ghost stories about the economy, but the endocrinologist is capable of solving the energy needs of America as ultimately you can think of all the facial creams as coming from crude oil being refined, so Ulta Beauty is in a way an import of crude into your daily life, and we know that’s not going away anytime soon because we are fundamentally short of crude oil: American baby boomers are getting older and demographically there will be a greater spending on beauty products to reverse aging because they haven’t made it as a generation so have to keep struggling while Generation X I think has done a good job and those who joined Generation X, as perhaps one or two or some of the honorary Generation X did a bonfire of the vanities and don’t worry about trendiness of clothes for example anymore but still care about beauty.

That is because beauty is intrinsically classic while clothing can be trendy or classic. As diamonds go with anything so does a good haircut. And all this is to say beauty is a good business to be in as long as we trust, for example, that pants might be too expensive for what they are worth but skin products are rarely so because you can’t return skin products so they are usually made well, while if someone tried to return me for example, I would know probably back then I was a trendy accessory while now I know I can’t be returned easily as I am like a salon and skin product: back then I was from a good family, which is trendy, while now I am my own man, which is classic, and it is classic for beauty not classic clothing for though clothes make the man, manners make the gentleman and I still lack classic clothing that is a great family.

I was told I would be great but I like the other quote instead: a man can do anything and go anywhere as long as he doesn’t mind who gets the credit. A five year investment thesis may not win a lot of awards in attention-span-of-a-gnat-land of traders but at least you know if you are trading a stock that deserves looking at while most stocks are not worth a look after research because their business models are yet inscrutable and Peter Lynch said to trade what you know. Now if you don’t trade what you know and make a lot of money from churning stocks with machines in market microstructure you should be aware that isn’t really investing, that is pure trading which is dumb as rocks. What is interesting is taking investing and turning it into trading as they say some people live in dreams and some in reality and some turn one into the other.

You’ve got to start with one and I personally find investing interesting as investing naturally gears towards fundamentals of the business while trading thinks about fundamentals of supply and demand. Investing is psychology and trading is sociology in other words. As someone interested in political philosophy as you may tell, it is natural to learn psychology after the obstacles in my way were removed that being a distrust of psychology because I was too disturbed to use psychology just like some people are so crippled by math at a young age they don’t talk about quantitative concepts which is totally different, it is natural to do investing and master my mind as that is psychology to render it rational to invest for the profitable long-run and save the very interesting and potentially hot area of sociology though it is looked down upon by computer scientists, for when I understand the moving parts of society and how they are reflected in the stock price.

What is the point of money if you can’t do good with it? As every dollar you make gambling on the markets, it own you through and through – AC/DC as it becomes the gauge by which you measure your success which can only repeated by more gambling which if you haven’t noticed resembles a team sport as I’ve never seen a gambler who keeps a system entirely to himself but I haven’t met many gamblers as I never needed to hear their buffoonery.

At the end of the day, it is about the courage to be loyal and that involves being loyal to an investment philosophy or thesis for example as I’ve never seen a gambling or trading system worth being loyal to. But trading I emphasize is real when it is not gambling. There is real skill. It’s just that my trade of “New York’s gay gilded waters her sons drinking love from the eyes of her daughters” for “Chicago’s blue mountains wild where hoary cliffs are piled, towering in grandeur are dearer tae me” actually went through so I am involved with businesses now not medicine primarily, as I was never ready for medicine as military doesn’t work in medicine and neither does business but only the strong can be Spartans in medicine.

It’s like 300 doctors take on 1,000,000 manifestations of psychosis. What is psychosis? Something to do with young traders killing each other’s careers by playing poker with each other before they understand trading like sociology is not class warfare it is beauty not turning from the beast as the beast seemed hungry to the beauty and that is the only reason they met, and for why she stayed, he was wealthy but not in the ways of men, he was wealthy in the ways of women because she gave them to him and his resources which had no use anymore until she came. In short, investment is like psychology which comes after the story is identified and overcome. Trading is like sociology where the fundamentals tell you what’s going on after you realize winning is the only thing in trading.

But what is winning? Screwing someone on a price of a bond, or disembarking risk that someone couldn’t take so gave you? Winning in sociology is solving the deep-seated imbalance that led to the sociological crisis in the first place that motivated the existence of traders and it is that way you make a little money and hit singles in baseball. If you want to make a lot of money and hit home-runs, you have to own up to what you said, and for me that was to take on the world if I need to, to show I am not Catholic. What does religion mean in trading? It’s the way you make excuses. I have no religion and hope one day to have no politics.

But this is all for investing that I am making the case for Ulta Beauty. For a trading case for Ulta Beauty I will just say it this way: front-run the investors and ride the trend while making the news from your fundamentals of supply and demand of stocks while providing liquidity. Or maybe I should say instead: traders should act like investors here as the trade was on you; there is no ecosystem for the trader because the investor sees a clear case, so what is the trader looking for that is different besides horizon?

The trader looks for an imbalance. The fact that the stock price has gone up so much on a strong business doesn’t show a surplus of demand but in an efficient market, that there is an imbalance in the business that is delaying its growth and that is a trading opportunity to anticipate more growth. What is that imbalance? American salons are widely viewed as second-rate to European salons particularly by the newly emerging wealthy Asian demographic world-wide and in America. That is irrationality. Exploit it! Like I said that is how old man Soros thought when he looked at governments saying they shouldn’t protect their markets so he said that is irrational and I will destroy your markets to show you protection is necessary.

Someone wake me up when that Bismarck Donald Trump gets his head out of East Asia and back over here where his officer corps of real estate developers are letting him run wild but I tell him he can do this for one term and after that there will be chaos. What makes a prince isn’t Machiavelli it is sostenuto pedals on pianos. And this tells me the beauty business is in good hands as truly it is mostly run by women, the men who hover around it think it is the best business but they are really in a neighboring business; beauty is really about trust I will argue while hope is about truth. “Life may change but it may fly not. Hope may vanish but it may die not. Truth be veiled and still it burneth, love repulsed but it returneth.” – Keats.

For the sake of entertainment, no, not King Arthur, Simba. Sir Lancelot. The American episcopals as an Englishman is the worst option to talk another Englishman into subservience and the greater number of Englishman one day may live on this side of the Atlantic as Benjamin Franklin said. In truth this was all strange? In truth for Christ and Church and peace and light. How many Hellenized Islamists are there who can’t stand Christianity but are okay with Icarus and would Poseidon look at me if I just one for one doth seek. East Asian let’s say Chinese is just like Caucasian except faster and more aggressive the men but same style, we are dark side! The sith have been extinct for five hundred years! English Catholicism cause Ulta Beauty made me feel smart so maybe I can help it feel beautiful. Glamour stock. Here’s to heretical everywhere, queens and rogues, make this wide-eyed wanderer and restless warrior think the best. – something like human by fuel or rather something like Elton John: tiny dancer, blue jeans baby, L.A. lady, she will marry a music man. Hold me closer, tiny dancer…..pale blue colored eyes, the angel opens her eyes. An old mother dies, her placenta crashes to the floor, a young mother cries, can you feel it? – Live, British rock band


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