TIVP003: Ulta Beauty (ULTA): A Beautiful Compounder w/ Shawn O’Malley

The Intrinsic Value Podcast - The Investor’s Podcast Network

The Investor's Podcast Network

Investing, Education, Business

4.6 • 593 Ratings

🗓️ 19 January 2025

⏱️ 69 minutes

🔗️ Recording | iTunes | RSS

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Summary

In today’s episode, Shawn O’Malley (@Shawn_OMalley_) breaks down what you might call a beautiful compounder. That is, Ulta Beauty, one of America’s largest retailers for cosmetics, skincare, and hair care products, with an impressive track record of generating returns on capital while benefiting from industry trends where beauty enthusiasts increasingly see beauty products as being key to their wellness and self-care routines. Shawn outlines what has worked well for Ulta, why its customers are so loyal, how it survived disruption from Amazon, his thoughts on the company’s valuation, and finally, his decision on whether to add the company to The Intrinsic Value Portfolio he’s building each week on the show, plus so much more! Prefer to watch? Click here to watch this episode on YouTube. IN THIS EPISODE, YOU’LL LEARN 00:00 - Intro 02:28 - How Mary Dillon made Ulta into an e-commerce giant. 11:27 - What customers love about Ulta. 13:35 - What makes the in-person experience at Ulta so special. 26:39 - How Ulta stacked up 44 million members in its loyalty program. 29:08 - How Ulta compares to Sephora and other competitors. 39:44 - Why Ulta has been able to generate such impressive returns on capital. 42:53 - What’s attractive about Ulta’s current valuation. 48:44 - Whether the company can continue growing. And much, much more! *Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Kyle and the other community members. Sign up for The Intrinsic Value Newsletter. ROIIC Formula: Intrinsic Value Compounding Rate = ROIC x Reinvestment Rate. John Huber on calculating the incremental return on invested capital. Berkshire Hathaway’s 1992 shareholder letter from Warren Buffett. Ulta’s 2024 Investor Day webcast. An interview with Ulta’s CEO , Dave Kimbell, on why Ulta is winning despite industry disruption. Attend the 2025 Berkshire Hathaway shareholder meeting and meet-ups with The Investors Podcast Network. Check out the books mentioned in the podcast here. Enjoy ad-free episodes when you subscribe to our Premium Feed. NEW TO THE SHOW? Follow our official social media accounts: X (Twitter) | LinkedIn | Instagram | Facebook | TikTok. Browse through all our episodes (complete with transcripts) here. Try Shawn's favorite tool for picking stock winners and managing our portfolios: TIP Finance. Enjoy exclusive perks from our favorite Apps and Services. Learn how to better start, manage, and grow your business with the best business podcasts. SPONSORS Support our free podcast by supporting our sponsors: TurboTax Public Bluehost Airbnb Connect with Shawn: Twitter | LinkedIn | Email HELP US OUT! Help us reach new listeners by leaving us a rating and review on Spotify! It takes less than 30 seconds and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it! Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

Transcript

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0:00.0	You're listening to TIP.
0:02.8	Hey, hey, welcome back to the Intrinsic Value podcast.
0:06.3	Three weeks into my hunt to build a portfolio of the best intrinsic value compounders for long-term investors.
0:12.9	I've yet to find my first bet.
0:14.5	I started with Madison Square Garden Sports Corporation, the holding company that owns the Knicks
0:18.8	and Rangers, which has compounded its value at
0:21.2	impressive double-digit rates, but I passed on it since that value is only an estimate
0:25.6	of what the teams could sell for, not based on the actual profitability of the underlying
0:30.1	business. Madison Square Garden is a trophy asset, and that's compelling, but not something
0:34.8	I felt confident enough in going forward to invest in.
0:37.9	And last week, I reviewed Kupang, the so-called Amazon of South Korea. There was a lot to
0:43.0	love about the company, but I couldn't wrap my head around its growth prospects, and given the
0:47.7	scale of its logistics and technology, I just felt I was too far behind in my circle of competency
0:53.1	to understand that company
0:54.3	with any real conviction.
0:56.4	This week, I've got my eyes on another candidate for the intrinsic value portfolio.
1:01.0	One you might say has been a beautiful compounder.
1:04.0	I say beautiful literally there because I'll be covering the investment thesis for
1:08.1	Ulta Beauty, ticker ULTA, deconstructing its business model,
1:13.7	and trying to estimate its intrinsic value.
1:16.4	Ulta is one of the largest brick-and-mortar cosmetics retailers in the U.S.
1:20.5	with some truly impressive economics.
	...

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