1. Better Than Bare:
A Financial Analysis of Estee Lauder (EL) and Ulta (ULTA)
Alexis Gramera, Tiffany Potthast, & Chloe Smith
MBA 501: Professor Merlin
October 18th, 2016
Historical Information:

2. What is better than the look of natural, bare skin? The look of a freshly polished face,
accentuating one’s features with any range of subtle to full, glamorous makeup. Makeup, although
originating from very primitive and natural ingredients, has developed into a high technology and
research based industry, where chemistry is driving research and development behind what was once
considered simplistic or a costume feature. Makeup as an industry has many differences within it, from
the hundred of varying ingredient based products, to diverse target consumer audiences, resulting in
different shelves on which it is sold. When investigating a luxury or high-end brand of cosmetics, such as
Estee Lauder,one cannot simply walk into a local CVS or Target to purchase some of their most
renowned products, such as Estee Lauder Double-Wear Foundation. While looking at timeless brands
such as Covergirl or Maybelline, those drug store or low-end cosmetics have been in the public’s eye for
generations and can be found in almost every convenience store within the United States and are
considered staples within the industry.
Like any other major market, brand recognition within a specific industry is critical for a
company to thrive. Luxury makeup brands, such as Estee Lauder,are very different in how they market
to the public, from companies considered drug-store or affordable, such as ULTA. Estee Lauder is a
manufacturer and marketer of prestige skincare, makeup, fragrance,and hair care products. The company
was founded in 1946 by Josephine Esther (Estee) and her husband Joseph Lauter (Lauder) from their
kitchen. They started by creating chemical formulations of cosmetics that were graded safe to use on the
face and skin. Just one year later, Estee opened her first department store with these originally formulated
products. Little did she realize that within a decade,her business would expand from one kitchen and a
concept, to an international storefront and further expanding the scope of her audience to both genders by
developing a men’s product line.
Estee Lauder Historical Timeline1
1
"Estée Lauder Official Site." Estée Lauder Official Site. N.p.,n.d. Web. 3 Oct.2016.

3. 1946 Estee Lauder Inc is opened
1947 First department store account at Saks Fifth Avenue
1960 First international account in London
1964 Aramis, a line for men, is created
1968 Clinique line is created
1979 Prescriptives is created
1981 Clinique products made available in the USSR
1990 Origins Natural Resources is created
1994 MAC is acquired
1995 IPO of The Estée Lauder Companies Inc.
1995 Bobbi Brown is acquired
1997 Sassaby is created: includes Aveda
1999 Stila Cosmetics is created
2000 Bumble and bumble is acquired
2010 Acquired Smashbox
In contrast, ULTA was founded with the business plan to be the largest beauty retail store in the
United States,scoping from affordable makeup brands to skin and hair care. In 1990, Richard George
opened the first ULTA storefront, focusing on having “all things beauty, all in one place2
.” As the
company expanded, opening hundred of storefronts across the United States,the focus evolved from
simply a beauty retailer, but a retailer driven to be on the side of the customer. Each store would provide
a unique customer experience based upon personal preferences,all while maintaining an affordable price-
point for all products sold within each store. With the convenience of 907 stores in over 48 states,Ulta
ranks as one of the most convenient places to touch up on one’s beauty, all while saving time and money
compared to department stores.
2
"Ulta Beauty | Investors | Company Overview." Ulta Beauty | Investors | Company Overview. N.p., n.d. Web. 22Sept. 2016.

4. Ulta Beauty Historical Timeline3
1990 Ulta Salon, Cosmetics & Fragrance, Inc. Founded
2007 Company became publicly traded on NASDAQ
2008 A second distribution center is opened in Arizona
Financial Positions:
When comparing Estee Lauder and ULTA’s financial statements, it is crucial to note that,
although both are involved within the same industry of cosmetics, haircare,skin care,etc.,they conduct
their business in different ways. One cannot enter an analysis with preconceived notions about which
company is considered better. Estee Lauder is a well-established company compared to ULTA’s newly
rapid growth trends. Estee Lauder is a larger company in terms of size (market capitalization), sales
(revenue), and net income with higher margins (gross and net profit). ULTA, as a smaller company,
operates more efficiently, based upon their shortened operating cycle and their higher inventory turnover
ratio.
ULTA (2016) EL (2016)
Revenue (in millions) 3,924.1 11,262.3
Net Income (in millions) 320.008 1114.6
Working Capital 978.95 1,544.60
Gross Profit Margin 35.28% 80.79%
Net Profit Margin 8.15% 9.95%
Earnings Per Share (EPS) 4.98 2.96
Closing Market Price 181.17 91.02
Market Capitalization (in millions) 11,540.35 20,259.14
Price/Earnings (P/E) Ratio 36.38 30.75
3
"Ulta Beauty | Investors | Company Overview." Ulta Beauty | Investors | Company Overview. N.p., n.d. Web. 22Sept. 2016.

5. Comparing the earnings of ULTA and Estee Lauder, Estee Lauder brings in a higher net income.
Estee Lauder is the larger company with more assets than ULTA,resulting in Estee Lauder’s higher
working capital. ULTA has a higher net income per share as seen in the earnings per share (EPS).
Looking into ULTA’s higher EPS is crucial, due to this being the way that the financial industry monitors
earnings. Continuing to analyze their stock ratios, ULTA has a higher price to earnings ratio (P/E),
denoting ULTA’s stock price over their earnings is higher than that of Estee Lauder.
Although much smaller than Estee Lauder,ULTA has an impeccable growth trend. Looking at
the market capitalization, it shows a defined growth trend of ULTA from only sixteen percent of the size
of Estee Lauder to greater than one half in five years.
ULTA EL
Ratio
5 Year
Average
5 Year
Average
Days' Sales in Receivables 6.15 41.56
Accounts Receivable Turnover in Days 5.58 40.15
Accounts Receivable Turnover 65.46 9.09
Days' Sales in Inventory 109.48 213.11
Inventory Turnover in Days 96.50 209.09
Inventory Turnover 3.78 1.75
Operating Cycle 102.08 249.24
When observing a company over time, it is necessary to look at a company’s accounts receivable
and inventory. This is the indicator for how the company generates sales and then collects on those sales.
These ratios above indicate in a strong way that ULTA is better at turning their inventory over and then
collecting on that sale than Estee Lauder is. ULTA having an operating cycle that is more than half as
long as Estee Lauder means that the cash from a sale is being collected more than twice as fast. They are

6. able to have a constant flow of cash coming in from conducting their business. Estee Lauder,because
they turn their inventory over at a slower rate,carries more inventory on their books than ULTA.
ULTA EL
Ratio
5 Year
Average
5 Year
Average
Current Ratio 3.47 1.58
Acid Test (Quick Asset) Ratio 1.36 0.99
Cash Ratio 1.20 0.52
Debt Ratio 0.00% 24.30%
Debt/Equity Ratio 0.00% 62.75%
Debt to Tangible Net Worth Ratio 0.00% 112.10%
Times Interest Earned (EBIT) 1,513.39 20.45
Fixed Charge Coverage 1,513.39 20.45
Degree of Financial Leverage 0.9977 1.1716
ULTA is the smaller company in terms of the quantity of assets that they hold. However,as a
ratio of liquid assets to total assets,ULTA consistently has more liquid assets on hand than Estee Lauder.
As a company, ULTA carries no debt currently, while Estee Lauder carries a modest amount of
debt, which is expected based on the company’s size and breath. The last year that ULTA carried debt
on their balance sheet was in 2013, when they retired all outstanding loans. For the limited amount of
time that ULTA carried debt, they also had an impressively strong ability to service that debt. Estee
Lauder having debt requires them to have enough funds to service their debt. It really is no comparison in
this category as ULTA having no debt cannot be understated as a positive for ULTA. Due to ULTA not
carrying any debt, they are not carrying any outstanding interest, allowing them to utilize that revenue in
other capacities, such as reinvesting in the company.

7. ULTA EL
Ratio
5 Year
Average
5 Year
Average
Return on Assets 15.01% 12.84%
Net Profit Margin (ROA DuPont - a) 8.15% 9.95%
Total Asset Turnover (ROA DuPont -b) 1.84 1.29
Return on Operating Assets 38.42% 41.92%
Operating Income Margin (DuPont - a) 12.90% 16.18%
Operating Asset Turnover (DuPont -b) 2.98 2.59
When looking into the return on assets (ROA) of ULTA and Estee Lauder the DuPont analysis
comes into focus. The DuPont analysis allows for the ROA to be broken down to determine if the returns
on a company are coming from profits or from turning over assets. In the case of these two companies,
Estee Lauder has a better net profit margin while ULTA maintains a stronger turnover ratio.
ULTA EL
Ratio
5 Year
Average
5 Year
Average
Return on Investment (ROI) 33.78% 36.21%
Return on Total Equity (ROE) 23.79% 30.78%
Return on Common Equity 23.79% 30.90%
The other side of returns that warrants discussion is the returns on equity (ROE) and investment.
In this case, Estee Lauder is continuing their trend of having stronger returns than ULTA. Estee Lauder
makes more net income per dollar of equity and investment than ULTA. It is noteworthy that ULTA does
not have any preferred stock and therefore their ROE and their return on common equity are identical.
This differs from Estee Lauder who has a small amount of preferred equity.
ULTA EL

8. Ratio
5 Year
Average
5 Year
Average
Dividends (in millions) – for 2016 0 422.5
Dividend Payout 0.00% 37.91%
Dividend Yield 0.00% 1.25%
Percentage of Earnings Retained 100% 62.09%
Estee Lauder pays a dividend and ULTA does not. This simple yet drastic difference in how each
company returns value to their investors displays the different types of companies ULTA and Estee
Lauder truly are. As a growth oriented company with a strong foundation for the future and no signs of
slowing down, ULTA does not need to offer a dividend to their investors to continue to attract them. By
simply conducting their business as they have in the past and continually beating earnings estimates,
ULTA can increase its stock price. Estee Lauder on the other hand is one of the biggest companies in the
cosmetic industry and as such will struggle to grow at the rate of a smaller company like ULTA. In order
to attract investors, Estee Lauder offers a stable dividend. Through this dividend, investors are
compensated for their capital in the company. One thing to note about the dividend of ULTA here; since
they do not offer a dividend they can reinvest one hundred percent of their net income back into the
company. This is their primary source of funding since they do not carry any debt on their balance sheet.
To summarize these two companies from a financial perspective, ULTA and Estee Lauder are
both good at what they do. They do things differently because of their relative size and maturity, but
through this analysis, it can be seen that both of these companies would be sound investments for
different reasons. Estee Lauder would be a classic dividend stock where the investor holds the common
equity in order to collect income. ULTA is a strong growth company where the investor holds the
common equity in hopes that the stock price increases. In the end, needing to choose one company, the
choice is clear between the two – ULTA. The reason for this choice has more to do with the company’s

9. suitability for this group as investors. This group contains younger investors with a long time horizon and
no need for dividend income in the short term. ULTA fits this profile better than Estee Lauder.
Organizational Alternatives:
ULTA
Understanding ULTA’s fast-paced, business model for growth, it is important to analyze
further strategies and opportunities that they can explore in order to enhance their current
growth, while still maintaining a loyal client base.
● Option 1. Increased amount of men’s products and services available in stores.
● Option 2. Fashion items and accessory lines in stores/online.
● Option 3. Open stores internationally.
Option 1:
An increase in the quantity of men’s products and services in stores would increase
ULTA’s client base. ULTA currently offers a limited selection of men’s products and fragrances
but most products and services available are geared towards women. ULTA could increase
advertising related to men’s services available at ULTA salons and offer a new option such as a
shave bar. Additionally, ULTA could carry a greater number of hair and skincare products for
men. These changes would require ULTA to either increase the square footage of their stores or
require them to create a new layout to include space for men’s products and/or the shave bar.
Option 2:
Including fashion items and accessories in stores and online seems like a natural step
after hair products, skincare, and makeup. This could make ULTA an affordable one stop shop
for style. ULTA currently has their salons and their own line of cosmetics so the fashion and/or
accessory lines could be ULTA owned as well. Similar to adding men’s products or a shave bar,
adding accessories and fashion items to ULTA’s product line would require either increased

10. retail space or a change in their current store layout which is very uniform across the board.
Option 3:
By opening storefronts internationally, it would make the wide variety and cost effective
products of ULTA available to potential consumers around the world. There are stores with
concepts similar to that of ULTA in Canada and Europe but none that offer the same immense
variety of product lines or salon experiences. International stores would increase their client
base and even offer access to new product lines that are not available in the Unites States. There
would be difficulties associated with opening stores internationally as there would be different
tax and labor regulations. Additionally, the product standards for Europe are much stricter than
in the United States so a number of products currently available in the United States could not be
sold abroad and product costs would likely go up to replace these products.
Estee Lauder
Although traditional strategies within Estee Lauder as a whole have been driven toward a
specific target audience, theoretically plateauing the company’s growth, they have been able to
maintain a steady level of income over the past seventy years. In order to progress in the newly
saturated industry of cosmetics, there are newer and more innovative strategies that Estee Lauder
can adapt in order to grow.
● Option 1. Greater emphasis on MAC, Smashbox, and similar product lines.
● Option 2. Update the Estee Lauder work place.
● Option 3. Create and Estee Lauder app.
Option 1:
Providing a greater emphasis on MAC,Smashbox, and similar product lines, would draw
in more business from a younger customer base. Estee Lauder and Clinique products are known

11. as prestigious products but also as products for an older and more mature client case; these
specific lines seem out of touch to the cosmetic trends of today. Through MAC, the Estee Lauder
Companies have recently released a line of makeup dedicated to deceased singer Selena
Quintanilla which has drawn in major amount of business which would not be possible through
the Estee Lauder line because of its traditional product line and the prices associated with Estee
Lauder. A recommendation for the Estee Lauder Corporation would be to continue with product
lines like Selena by MAC which would increase sales in younger markets without tainting the
image of Estee Lauder as a whole.
Option 2:
Enhancing and updating the Estee Lauder work place would make products more
accessible to clients in every sense of the world. Estee Lauder products are sold exclusively in
high end department stores. These makeup counters can be intimidating for clients who feel they
do not fit the Estee Lauder image or are unfamiliar with their cosmetic lines. Estee Lauder could
make products available on their website; currently they are not. Making these products
available on the Estee Lauder site would increase their favorability to all customers, especially
young ones, because they could be purchased at any time--for some consumers driving to the
store is reason enough to not buy a product when there are dozens of other options available
online. This could be implemented quite simply by setting up the website to take client orders.
One drawback of creating the online store would be that the brand may seem less exclusive
because it could be purchased anywhere. Additionally, it would take away from the traditional
“Estee Lauder experience” which for almost 70 years has involved going going to a department
store to purchase the product.
Option 3:

12. By creating an Estee Lauder app this new technology would help to bring this line into
the 21st century. Currently there are subsidiaries of Estee Lauder, such as MAC, who currently
have apps. Creating an app could allow customers to see available products, locations of stores
that carry Estee Lauder products, and even make purchases. The customer of 2016 has become
accustomed to making a purchase and viewing products at the touch of a button and creating an
app would allow for Estee Lauder customers to do this as well. Although the creation of an app
may take away from the exclusivity of the Estee Lauder image this could be repaired by creating
an app similar to that of MAC. The MAC app is a members only experience that offers
exclusive offers and updates that are not available to the general public as well as the opportunity
to make purchases. One step further would even be to remove the possibility of making
purchases through the app but still allowing customers to view product lines, store locations, and
even which products are available in each store. This final option for the app would still allow
for Estee Lauder customers to continue with the traditional Estee Lauder experience with modern
conveniences.

13. Works Cited
"Estée Lauder Official Site." Estée Lauder Official Site. N.p., n.d. Web. 3 Oct. 2016.
"Estee Lauder Biography." Biography.com. Ed. Biography.com. N.p., 11 May 2015.
Web. 20 Sept. 2016.
The Estee Lauder Companies Inc. (2015). Form 10-K 2015. Retrieved from SEC
EDGAR Website
Https://www.sec.gov/Archives/edgar/data/1001250/000110465914062259/a14-
14862_110k.htm
"Ulta Beauty | Investors | Company Overview." Ulta Beauty | Investors | Company
Overview. N.p., n.d. Web. 22 Sept. 2016.
Ulta Salon, Cosmetics, & Fragrance, Inc. (2015). Form 10-K 2015. Retrieved from Ulta
Beauty Website http://ir.ulta.com/phoenix.zhtml?c=213869&p=irol-sec