#284: The Warren Buffett Stock No One Is Talking About

0:00But getting away from like the frothiness of it, the AI dominance, this kind of circular economy between top AI companies and the hyperscalers and all the rest. This is a company that is a bit away from all that and incredibly defensive, isn't going anywhere that you could happily hold through bad periods. even though it is going to be very closely attached to the US economy and GDP growth and all the rest it is still like not going to go anywhere in the next 5, 10, 20 years.

0:37Emmet:Emmett, how are we getting at? Good to see you Mike, how are you keeping? Mighty now, mighty. I'm looking forward to our little My Wall Street outing next week. yeah i'll see you down in ronda so the team are descending on south of spain next monday for a few days for us for our annual get together in this remote working world that we live in it's important just to get together work on the strategy work on the big picture make sure our products are better than anything anyone else is offering and i completely believe they are already but hey let's try and push it further yeah yeah i was looking up because i i get into malaga airport way earlier than the rest of you so I was looking up things to do in Malaga and then the first I think it's the second thing on TripAdvisor says uh go visit Rhonda so I think we're doing all right well for those um well why would anyone know our CTO our chief technical officer lives in Rhonda he's from Rhonda and about 10 years ago I went there I had the great privilege of visiting the place with my dad my late father who died during the year and um and Alejandro RCTO was just so amazing he was just such he was just the perfect host as we all know as you and i know mike he's a perfect gentleman but he brought my dad and i around all these beautiful ancient moorish sites and the thing that defines that town in my mind is the fact that it was so conflicted between christianity and the muslim faith and how the architecture is influenced by both the story and the history and it's just a really great place so i'm excited to return all these years later actually that wasn't even 10 years ago that was probably only five years ago you'll see that an awful lot of uh andalusia um so they're kind of that region there's so much of the moorish architecture that's come over and stuff like all the uh alhambras the alhambra in granada is incredible and yeah yeah just in the architecture and the kind of like the what it's left behind i suppose as well so yeah it's very cool and then by the way that's where the uh the kind of spanish lisp comes from as well where from uh from like the moors really like as in whatever that area spain was run by the moors for hundreds of years or something back and forth well one of the great privileges of my life is i've seen a good bit of the world i lived in new zealand when i was in my early 20s and even before then i'd i'd been to america i'd say 20 times because of a lot of family in america and from a young age i had again the privilege of going to america quite a lot 1988 and lived in maine with my family for a while and you know i've seen a better world but my point is that of everything i've seen the alhambra palace down there is in granada city is just spectacular it's definitely in my top five it is so amazing um you know the temple of the recline reclining buddha in in thailand is up there as well and you have to put the vatican up there but like certainly as a hidden gem hidden in plain sight like anyone who's worldly would know all about the palace but it is just amazing it's a must do if you ask me that city is just beautiful the whole thing is an is a museum yeah we won't do it on this either now but uh our new travel podcast i know this is what i'm gonna say i keep bringing up things but did you when you're in granada did you see the naked man no no i didn't see any naked men there's a yeah sure uh so there's a famous nudist um that lives in granada he's like he's like a millionaire and uh yeah so did you say a millionaire yeah yeah like isn't he's like very very rich apparently and uh so he does whatever he wants and he hates clothes always did pretty much yeah uh so he's like kind of like uh he's kind of like a famous he's one of the sites is this naked fella that strafes around granada well i didn't see that site there you go to some of our listeners that's in its own right worth the trip to granada but i'm gonna give that one a miss yeah it was sticking the alhambra for uh for the pg ratings okay um where are we going today you want to talk a little bit more about horizon well i was last night i i met one of our uh one of horizon's uh long time members called gareth hello gareth if you listen stock club i didn't didn't even ask you and it It was an eye opener for me because he brought to my attention the emotional journey that is stock investing.

5:01Emmet:And it is huge. It brought me back to when John and I started the company first, we got a grant to spend with more or less any university in the world. So we went to a U.S. university and asked them to conduct a proper analysis of why don't people invest in the stock market? It was absolutely fascinating. And it came back to me last night when I met Gareth. So there's a pile of reasons. Sorry, there are two piles of reasons as to why people don't invest in the stock market. And one is completely rational. And the other pile of reasons is completely emotional. And the rational points that you hear and that are proven are, I don't know where to begin.

5:45Emmet:I don't know what a broker is. What is an exchange? How much commission do I pay? things that have a binary answer and it's analogous to buying a car when you go to buy a car there there's a lot of considerations going in your mind but some are completely rational like is it electric or is it petrol or is it diesel if it's petrol what's its efficiency how many people can i fit in it um how far does it go on a full tanker on a full chart completely binary decisions or comparison points. Then when you consider there are more emotional decision points when you buy a car, what color is it? What shape is it?

6:22Emmet:What brand is it? Did my brother recommend it? These are things that, and you, you meld them all together in your mind. You don't categorize all your decision points, but you arrive at a place. And some people are completely driven by the emotion. We all know that. We all know someone who's just totally emotionally driven. We know people who are completely rational. They couldn't care what their car looks like once it gets to a place but when i bring it back to stock investing and that study all those years ago it was right there in front of me again when i met gareth because all the rational stuff is easy peasy lemon squeezy it's the emotional stuff that stops people in their tracks and the number one emotional response for stock investors is um seeing red after they've invested and as i found myself talking to Gareth who had put a lot of money into the stock market and some of his positions were very red maybe through 30 years of practice on my behalf I was like part of me is like what are you worried about should that's the journey we're on but I remembered you know this study from from a university of Kentucky um that John and I spent the longest time looking over and designing our products as a consequence of it and it kind of brought to my mind i'm going to start a something it might be a video series it might be a a written thing on the monthly mindset because people need to be reminded not to panic like my friend said i have shares in crisper therapeutics and i was like you lucky thing do nothing except leave it under your bed for 10 years don't worry and by telling people don't worry that seeing red is part of the journey look 94 I think it was 94 and a half percent of every stock I ever bought in my life went red after I bought it and that's very typical because that's the way the market plays out we don't time the market we time great investments and I found myself when I was talking to Gareth getting really genuinely excited about his opportunity when he said to me i'm going to be at this for 10 years i was like well look if you do nothing just do nothing put your stocks away and forget about it and i found myself so i have a great passion for stock investing because i've seen in so many people their transformative powers and along the way i've really seen to my great disappointment people who quit because of the emotion.

8:54Emmet:They put 30 grand in and was worth 15k, for example, a few months later. And that just blew their mind when in fact, the greatest wealth creation machine in the history of humanity is available to everyone. And it's the thing we spend, that we talk about every week here on Stock Club. It is the stock market, most generally the US stock market. And as I said last week, the greatest, one of the greatest wealth creation events in history was just buying shares in Microsoft in 1986 and looking at them go red or flat for 16 years it's absolutely insane because 16 years is a lot of daily checkups if you look at your folio every day but I can tell you this Mike there's 26 sorry 24 stocks in the horizon portfolio seven of them are currently up over 100 100%.

9:46Emmet:And I know that there's going to be something in there that at least grows tenfold. I'm highly, I'm quite certain, but not 100%. There's a 50 bagger in there waiting. And I have invested my reputation and my name and my life's experience to say, I think we'll find 100 bagger, but it will take 16 to 20 years. That's a lot of telling people, don't worry, don't panic. but that's what I'm going to do more of because people shouldn't worry my job and your job because you and I work on Horizon together very closely is to keep people stay calm we're investors we're not panickers so anyway well all of that is to say Horizon is a product that I am so immensely proud of we launched it I think it was um 12 days before the first reported case of coronavirus and that wasn't the world's best timing but i am still certain we're going to find 100 bagger we are we are going to increase the price to two thousand dollars next year that's just a given and my inclination is just close the door locket that's it if you're in you're in um and that is not a some kind of strange sales message it's because i can see the direction we're going to bring my wall street and i'll never quit horizon so all of that is say you can sign up now for 499 nine dollars drop an email to pot at my wallstreet.com when it's gone it's gone that's great and you've also exposed something as well that i think probably goes under the radar a bit in that investing is such an individual endeavor it is yeah and and that opportunity to kind of allay your fears to someone else who might be more experienced it doesn't come across a lot of people's desks that often do you know what i mean that's right you kind of you kind of have this like your mind is your own worst enemy in a sense of like you get into a bit of a pit of despair over x or y when all you needed was someone being like oh yes that happens all the time entirely it's like going to a doctor you know with something and a doctor i have nothing to worry about once you hear those words from someone who's qualified an expert you suddenly you relax into it okay look fine i just sit around um if there's anything that uh david gardener who interviewed here in the podcast a few weeks ago taught me over the years was look we're out to find businesses that are a changed world that's a rocky road it's a zigzag we just go along and he did a study and i subsequently did a study that the best thing i could have ever done and he best thing he could have ever done was never sell anything never sell anything in other words panic a lot of people sell in a panic um and that is inevitably the worst thing to do because you are panicking along with everyone else because something has come to light that a whole bunch of intelligent people are being paid a whole load of money to figure the way around inside that business that suddenly has done a cliff dive yeah it we move on after this point but do you know that um so like they're talking about index investing and like the biggest benefit of index investing is basically the passivity of it and you know it'll rebalance for you it'll get rid of losers it'll add new winners yada yada they were saying that if you went back and whenever the first like kind of S &P 500 index was made for the biggest 500 companies or whatever if you never bought or sold a company from that so even if like a bunch of companies went bankrupt within it and whatever else it would have actually outperformed the rebalanced historical performance of the S &P 500 which is mad and there's obviously outliers in that in that you know they sold the wrong company and whatever else.

13:29But the fact that that is the case for probably the greatest asset behind passive investing and index investing is kind of nuts. And just is more testament to that fact. But again, you need the mind of a Buddhist monk to get to that spot.

13:43Emmet:And there is no such thing as perfection. Like anyone who is in horticulture will know there's no such thing as a perfect garden. You might walk away from it satisfied and honestly, four weeks later, come back and things have happened. And that's the exact same. There's so many analogies in nature. But anyway, in stock investing, you won't get everything right. You only need to get one or two things very right and enjoy the journey. It's a lovely thing. I mean, I sometimes feel very privileged to have a podcast about stock investing because the world hands us so many stories every week. It's not like it's like what we talk about this week.

14:17Emmet:There's a lot of podcasts where it starts off a great energy with hosts who have a great wit and observations on life. but then eventually they run out you know like if we've done 240 podcasts or something 284 oh sorry there you go 284 podcasts like there is absolute despite the fact that you and i have lived quite a varied life thankfully so far we still would have run out of stories but this thing just keeps handing us exciting stuff to talk about so on that note you couldn't have found a less exciting I was about to say exciting things to talk about and Moody's Corp don't really before the mic went live I said hey what are you talking about and uh and Mike said Moody's and I said to Mike uh I was a shareholder in that I don't even know what they do and I know we're talking about 25 years ago um and I said I muttered something about credit ratings but you're going to illuminate us now Mike with the exciting story of Moody's well you're talking about you know selling mistakes there is one for you right there why has it done well that's incredibly profitable business especially in the last 15 years so maybe 10 years uh you would have had to sit through a lot but yeah so moody's very boring business probably heard the name thrown around a lot without really even asking what they do but it essentially it's one of the world's leading credit rating agencies for fixing income securities so credit ratings is essentially if an investor wants to invest in company x and their bonds they'll check with moody's s &p global or fitch which is the oligopoly there they control about 90 of the entire market um and each one will have an independent unbiased analysis of whether company a is liable to repay its debts on time and whether it will risk default on those loans so when you if you ever heard the term like triple a rated that's where moody's comes from essentially so it's their objective assessments which underpin like a hundred trillion dollar plus global bond and loan markets so it's part of the kind of financial global system without really uh it's kind of part of the architecture do you know what i mean oh it is yeah yeah you do i've heard it over the years occasionally especially when uh recessions kick Again, you start to hear about government bonds have been re-rated from AAA to a AA or a single A or whatever the non-AAA rating is.

16:51Yeah, yeah, absolutely. So yeah, look, it is very much a boring business, but it's a very successful one. And it's one of these companies that kind of goes under the radar, but is really well protected. It's often seen, the ratings industry in general is often seen as one of the kind of widest moat industries. So I mentioned the three companies there. it's moody's s &p global and fitch they control 90 market share of credit ratings agency credit ratings agency market um so s &p global is about 47 i think moody's is about 30 and mitch is down at 11 12 and and why it's so protected i think is because it's so difficult to get into this market So like as in Moody's S &P Fitch, they have 30, 40 years of history there.

17:42They have the global reach. So essentially, if a company or a country or any kind of project that wants money for whatever they want to fund, having the Moody stamp on things just makes it so much easier. So essentially, the investors desperately want a company like Moody, a company like Moody's to have a credit rating agency there. It's easy for them to compare, you know, say a B1 from Moody's here to a B1 from Moody's 20 years ago or from B1 to Moody's in another country. So that stature and global presence goes a long way because debt buyers, they can easily compare assets country to country, industry to industry.

18:22And so that ultimately what they want to do is make the most informed decision possible. So that's why it's kind of brand name. Do you know what I mean? Oh, yeah, yeah. It's the label. why would you bother going to anyone else but the big three credit rating agencies you're just going

18:36Emmet:to make your life more difficult and i presume uh there's a slew of information out there that proves that their ratings play out better so they can show that with 100 years of data their triple a's outperformed the double a's probably performed you know what i mean like it's kind of they they like you would want to have past performance proof before you bank your company's future on a certain investment do you know very much so and like as an investment managers and any kind of asset manager will seek out these credit agencies but it also goes the other way as well but because of that the people the bond issuers are also going to do the same it's actually shown that um bond issuers if they receive a rating from moody's or s p or fitch they can pay as much as a half percent less in annual interest because of that so it's this it's this giant stamp of approval essentially yeah and and then the beauty of it is that like both sides of the deal rely so heavily on moody's here yeah do you know what i mean so it's an incredibly strong business position to be in um so i didn't sorry i'm talking about the the ratings agency is moody's for sure it is actually only half of revenue so we're going to go into moody's analytics uh next but there wouldn't be a moody's analytics without moody's radiance agency or moody's investor service is what it's called um but the kind of the the gem and the reason why i think it's perceived as such a high quality business really comes down to pricing power and the operating margins it's able to command so essentially because of the strength of that position because both sides of the deal rely on it so heavily it has amazing pricing power up to prices every year without really anyone leaving.

20:25It's priced inelastic and it's got an operating margin. So the investor services side, the rating agency side, has a 65 % operating margin in its most recent quarter. So it's kind of out of this world profitable. It's a very simple business. An awful lot of it is based on its reputation, its brand power and all the rest. And yeah, it's no wonder. So this is also muchly touted about the stock when we mention it is that Buffett's Berkshire Hathaway owns about 14 % of shares. I think it's about 5 % of Berkshire Hathaway's total stock portfolio, I think. Wow.

21:04Emmet:For all of those reasons. Yeah. And obviously someone like Warren Buffett would be very intimate with the inner workings of the business and how important it is. And so even further, like we were talking about stamp of approvals, that really does stick out as a stamp of approval. Oh, for sure. You can only imagine if your company was going to issue a bond that you had that financial strength. The importance of getting the AAA rating from Moody's is so high that you would have a team of analysts inside your company who fully understand the workings of the Moody's rating process to make sure that before you have your bond issuance ready that you're clean and green on all their checkpoints.

21:46Yeah, absolutely. And then look, this isn't why you would invest in Moody's, but it is worth talking about Moody's analytics as well. So it actually makes up just under half of revenue, only about a third of profits. But then again, it is competing with the other side of the business, which has 65 % operating margins. So it's not to be sniffed at at all. It's growing twice the rate of the Moody's investor services since 2012. It's got about a 12 % CAGR since 2012. And the company is reinvesting quite heavily here. It's kind of like it started off as basically research reports based on Moody's ratings.

22:27So, you know, a little ancillary service on the side. And then it's kind of evolved into this hodgepodge of a lot of vital tools and research capabilities. So there's decision solutions, research and insights and data information. And it's kind of been built up through a lot of acquisitions as well. The most prominent back in 2017, they bought a company called Bureau Van Dyke for three and a half billion. What did they do? It was so it is a more interesting. It's a data provider that publishes information on private and public companies in Europe. But what is really interesting about the Moody's analytics side of things is just the flat out figure.

23:11So it's got 96 % recurring revenue, 93 % client retention, 108 % net revenue retention and 34 % operating margins. That jumps off the page. Any software company would be salivating over that. Oh, yeah. And that is on the side.

23:29If the rating agency is your stake, this is just the fries that come with it. So it is, it's a really high quality business. There's a lot to like. There's incredibly high barriers to entry. And it just seems to be one of those boring ones off to the side. Not a lot of people talk about it. There might be some kind of Buffett nerds that get really, really involved. And it just seems to be doing everything right in terms of creating shareholder value. So since 2005, the company has reduced its total outstanding share count by about 40%. so if you were a shareholder which you could have been since 2005 and you own one share that share would be worth that's incredible 1.6 of those shares now do you know what i mean oh yeah on top of that consistently growing dividends so very much a shareholders type of business if that makes sense um yeah we talked about the barriers to entry brand there's actually regulatory requirements as well.

24:31So there's a thing called like a national recognized statistical rating organization, which is a designation from the SEC. But to get that to be a nationally recognized rating agency, it means the rating agency needs to be recognized in the United States as an issuer of credible and reliable ratings by the predominant users of security markets. However, it's like basically a chicken and egg situation because to do that, to be seen as credible, you also need that national recognition. Do you know what I mean? So there's only three of them, three big ones. I think since 2006, only 10 of these national rating designations have been issued.

25:11So that just shows like even from a regulatory standpoint, aside from all the brand power, the reputation and everything else, even just from like a regulatory standpoint, how difficult it is to enter this market. And that's why Moody's is seen as such a kind of wide mode stock. So yeah, there's a lot to like there. It's boring.

25:31Emmet:Yeah, super boring. Very boring. Boring as all else. It's not going to be a very interesting podcast topic to discuss. We're not talking about quantum computing. We should interlace it with what's the most exciting stock in the world, like Rocket Labs or something like, yeah, we're going to send a rocket tomorrow. Sending people to the moon, exactly. But you just look at the chart over the last 15 years. You look at the margins. You look at what are the businesses doing and how protected it is and how defensive it is. and this could be a very strong stock to own in my opinion and then maybe if people are getting a bit worried now it is expensive i think it's always going to be expensive these quality yeah it always was yeah but even its name is melancholy like you know moody's it's like moody i'm feeling a bit moody today it's honestly like there's such little razzmatazz is that the word razzmatazz there's such little razzmatazz jazz hands on this stock it's it's actually you should have a health morning we should have a moody's rating on this podcast triple triple b rated for boring boring boring uh no no there's nothing wrong with that this is a peter peter lynch-esque uh stock and the one person left listening well done you've got just unlocked a year's free trip to dublin for for a lot of people though that are getting a bit concerned about say what valuations probably is an appropriate consider and it's up above 30 times earnings but But getting away from the frothiness of it, the AI dominance, this kind of circular economy between top AI companies and the hyperscalers and all the rest.

27:04This is a company that is a bit away from all that and credibly defensive, isn't going anywhere that you could happily hold through bad periods. even though it is going to be very closely attached to the US economy and GDP growth and all the rest, it is still not going to go anywhere in the next 5, 10, 20 years. So yeah, that's Moody's Corp. If you're a boring effer like me, you might enjoy that. But yeah. God, that was tough going.

27:36Emmet:I'm only messing. That was a triple A, Mike. The one thing, how do we get excited about anything? money we want to make money exactly and the thing is throw it in there it is a beautiful bedrock stock now at your christmas or or whatever you know party you don't really walk from family member to family member going hey i have a little story about this stock called moody's it's a hundred year old credit rating agency already they're eating their prawn sandwich to get out of dodge real fast you need to go in with something very sexy you go and go have you heard about blade air mobility and they're like no what's that they they fly organs they fly organs from a person to a hospital you couldn't believe this business their ground revenue at 150 and it's like whoa this guy's super i love being in this family anyway so uh right mike um let's go well done thank you for that um it's following profit we need a little jingle but uh as our regular listeners know we have a new segment called following profit where you and i are going to take turns in shining a spotlight on one of profit's current 10 stocks which is our just tell me what to do service so profit always holds 10 stocks and it rebalances every four weeks and it's for the people who are like, I don't care, just tell me what to buy.

29:07Emmet:And it has face melting returns. We genuinely spent 16 years building, refining, checking, testing, real money, not real money, backtesting. We've data nerds crawling out our ears in Massachusetts, as it happens, who we've worked with closely for years. Anyway, so I kicked off following profit two weeks ago with how met aerospace which is up 70 70 since profit uh added it to its microfolio of 10 holdings and then last week you did core and main you really pick a mic um and core and main is up uh 7.55 since it was added just days before we recorded podcast last week and this week i was going to pick the one of the the third one from the 10 current life 10 that I was going to pick was Carpenter Technology Group which is up 31 percent since it was added to profit uh but it produces speciality alloys and engineered materials and it felt and sounded a bit too much like helmet aerospace or whatever it's called helmet how I met your mother so I'm going to go uh with one of the 10 that i once owned for a very reasonable period of time and it's b2c and basically everyone in america will know it and anyone who's been to america might know it and it's ulta salon um now i need to start this section i'll try and remember forevermore that we are talking about a business that profit may sell in the days ahead we don't know profit isn't powered by a bunch of intelligent people it's powered by nvidia chips with a whole load of code sitting on top of it so as with everything we say on stock club caveat emptor do your own research don't just buy ulta because i'm buying because i'm talking about it but nonetheless i think it's a really interesting business and i'm going to start with everyone's favorite segment it's the describing the shape of the graph which is um well the graph i have in front of me folks it begins it appears in around 2006 oh no i couldn't 2007 and it goes up up up up up up up just constantly till around something like 2017 then it fell a bit then went up up up up up up to around 2023 then it fell a bit then went up again to the other height and then down a bit and up so it's like it's like alligator's teeth over the last couple of years at the top but when you look to what it was a cut to wide shot it's up up up it's a it's a it's a 23 billion dollar chain of stores so here's the boiler plate opener ultra beauty which used to be known as ultra salon cosmetics and fragrance when my own shares in it way back when was founded in 1990 by two guys, Richard George and Terry Hansen.

32:11And there were former Osco drug execs who figured that, uh, beauty retailing didn't need to

32:18Emmet:be either super high end department stores, like going into Brown Thomas, Sophia in Ireland, or whatever the high end ones are in America. Macy's, Macy's high end, I think it is, um, or low-end drug stores so there was this kind of middle zone that um that an in-betweeny opportunity i suppose you'd say so their idea was to create a single destination where customers could find prestige and mass market brands with in-store salons and you could go in and get your hair done and your skin done and your brows done and your eyelashes done and walk out looking even better than when you walked in. The type of place where you and I would look so the security guards would be watching us.

33:02Emmet:Like if we walked in, they'd be like, what are they doing here? I was about to put that to you as well, the two of us talking about it here on the podcast. I'm sure we are there. Target market for sure. Celtic lumps. I mean, what are you, 6 '4"? Yeah. 6 '5 and a good day. 6 '10 and heels. I'm 6 '2 and 6 '5. Nine feet and stilts. Two hulking big Irish Celtic lads about hairy faces walking through Ulta Salon is not a good look so no we don't go there but needless to say despite our demographic walking past the front door not even seeing it the concept really took off and by the time Ulta went public in 07 it had already carved out this position as the only major US retailer spanning the entire beauty price spectrum under one roof and what I have observed um just through life is that you can spend whatever you want on cosmetic stuff and um there's entry-level brands and then there's super high-end brands and before i i dive in i'll say one thing for a brand that's concerned with beauty and style it's ir presentation it's investor relations presentation it's like a five-year-old did it uh now but so what i mean I found that that's not a prohibitive fact at all.

34:22Sometimes it's actually a good thing, the less they care.

34:25Emmet:That's correct. I mean, they've grown to 1 ,500 locations across the United States from a handful of early stores in the early days. And so you can use whatever typography you like. You can actually get your five-year-old to do it and color it in once the growth continues. But let me, while I'm on the subject, to summarize the latest IR deck, investor relations deck. And for our listeners, it's dead handy when you want to get the latest, latest story pictures and coloring in from a stock you're interested in is you type it in, the name of the business, Ulta space IR, investor relations, Ulta IR into Google and bing, the first website you'll see.

35:05Emmet:Virtually every listed business has its own dedicated investor relations website. And you can generally, not always, but generally download a recent enough deck which is how the management want to explain their business not to be confused with how every analyst wants to be explained to but anyway it's their opportunity and when you look through it the latest when you do get a picture of a mature business but it still has some growth left in it and it's what peter lynch in his famous book one up on wall street would have called a stalwart so uh comparable sales for ulta which is the the key metric for a business a b2c business consumer yeah especially retail retail especially retail and restaurants is comps you hear the word comps comparative same store growth is that how it comes how are you saying same store sales sales same store sales thank you yes i know i always get tongue twisted on that so you you could look at a restaurant group and say wow revenue grew fivefold in the last year only to realize they quite like they they grew their restaurant count by 12x and and then all of a sudden it doesn't sound as good what you want to know is that particular shop on main street or restaurant how did it grow so comps is the number we look for in comps is and that's and that's like the flywheel for a lot of these kind of chains is are you able to meaning meaningfully grow store count while also growing same store same store sales uh yeah or a restaurant i'm not sure exactly the restaurant but comps in general and so if you have those two together that is like an absolute snowball going downhill it's like the secret to success behind say chipotle yeah find any of these chains that grow rapidly if you have those two firing together you're you're in a great position you've to i'm going to be pitching a stock not not the next one i do in horizon but this calendar year i want to do a few b2c's and um i have a really i have a brand everyone knows that i'll be pitching um at the end of november and i think the one i'll do after is is exactly what you described it's comps are growing and its store count has tons of run uh run rate and it's open i'm like mad but anyway back to ulta its comps um rose 3.1 year over year which you know you wouldn't get hyper excited about but at least it's up um and And that's thanks to skincare and fragrance and prestige cosmetics, whatever that is.

37:40Emmet:I have no idea. And earnings per share grew 9 % to$5.78 and it raised full year guidance to about$12 billion in revenue and reckoned that by the end of this year, the comps, it would come in between 2.5 % and 3.5%, which is quite a wide band really when you're talking about those percentages. and it's the same old that's seen these type companies when you look at the IR deck and especially when I looked at their pillar but the story gets more interesting folks don't abandon us yet so they talk about their three pillar growth strategy which you and I and any two of our podcast listeners could have come up with if we're locked in a room with a whiteboard and the three pillars of our growth strategy is deepen guest engagement through its 42 million member loyalty ecosystem i suppose you could call it number two is yes i'll be coming back to that i'm glad you said wow there to expand omni-channel capabilities so when you think about these kind of stores they're experiential it's like we were talking last week about lvmh if you're going to buy sephora makeup it's it feels like it's a product you buy in the flesh as opposed to online and going omni-channel is something that they need to do very carefully these businesses and ulta is no uh it's no exception and digital as they call it now counts for about 20 of sales and they want a higher margin they can collect traffic that's the second pillar of their growth and then the third is elevate operational excellence which is just supply chain stuff and as i said without being cynical it's what you'd expect but there's a lot behind that one you said wow for 42 million member loyalty program.

39:27Emmet:And that's what I immediately think of when I hear about Ulta. They have a program called the Ulta Mate Rewards, which has become the most effective in US retail history. And by extension, you can assume the entire world. And that membership base provides Ulta with a ton of rich consumer data for an unbelievable engine for targeted promotions. You have 42 million people who've told you who they are and what they're like and what they buy and what they're out to achieve. You can absolutely put a laser pointer on the products that they need. So that in no small way has contributed to consistently strong same store sales growth tongue twister over the past decade.

40:13Emmet:And even as the broader retail sector has really come under pressure, they've managed to keep their comps positive. So kudos to them for that. But I can't mention, whenever I hear the word Ulta, or whenever I encounter it in a screener or in the stock market, two things bring to mind. Number one is that loyalty program that is 42 million people deep and arguably the most successful in history. And the other is Mary Dillon. Now, Mary Dillon was the architect of Ulta's modern success story. She's one of the greatest business people in the world. And it was she who transformed it from a niche chain into this really strong dominant force that's known by more or less anyone who lives in a city in America.

40:58Emmet:And she became the CEO in July 2013, which is circa around the time that I invested in. Just coincidental. I'd heard about her, but it wasn't that I invested because Mary Dillon had gone in. And at that time, Ulta was kind of still a mall brand, which is, I suppose, a second tier brand in America. if you go to malls they're in every mall and she had come from background in mcdonald's and pepsico and a couple of other companies us cellular i think was one and she brought this operational discipline but above that brand storytelling which is a real skill and she completely revolutionized and redefined all this position and let me just tell you what happened in that company while she was ceo before i tell you where she's ceo now which is worth their luck in its own right um um so her she had an eight-year tenure from 2013 to 2021 revenue tripled more or less from 2.7 billion to 8.6 billion earnings per share increased fivefold store count doubled and went over 1 200 locations again all in the u.s as far as i know and the stock went up more than 400%, making Ulta one of the top-performing consumer stocks of the decade.

42:19Emmet:Now, while her biggest strategic move was in sharpening Ulta's all-things-beauty, all-in-one-place positioning, she was the one that built this ultimate rewards juggernaut that now drives 90%, 90 % of sales. So we hear there's 42 million members. That's pretty cool. She came up with this. It drives nine out of$10 that come into the register are a consequence of that. And I challenge any listener to think of a mainstream brand that has done anything like that. Now the plot thickens. There's more to this story. She also forged a relationship in 2021 with Target. and target is a great big everything shop i don't know how you describe it i was over in colorado about a year and a half or two the two years ago and i was with my cousins we were there for a family event there was a bereavement and we my cousins i was the driver um i'd rented a car a nice big car and my cousins were banging the door down on morning one we're going to target i was like why what i don't want to go you have to go you're the driver so we went to target and it's just like Willy Wonka's Chocolate Factory for everything really um but she had forged this Target partnership and brought these mini Ulta boutiques into Target stores which immediately widened the reach and introduced the brand to younger I presume and more diverse shoppers alas that partnership is concluding in 2026 and before I talk about that for one minute I want to say that Dylan she stood down as CEO in 2021 and handed the leadership to a guy called dave kimble who was ulta's long time present and then this year changed hands again to keisha steelman in 2025 and and uh she stayed on as executive chair until dylan stayed on as executive chair till 2022 but now she's the ceo foot blocker where she's currently leading another turnaround and that's one to watch um and i'll conclude by saying that ulta's target shop in shop partnership it had 600 locations it wasn't trivial like this like that's a lot of places it's going to wind down as i said soon august 2026 so less than a year away and management using best management speak said they expect short-term headwinds uh from that wrap up but they see opportunity to recapture the sales through standalone stores and direct channels um but longer term growth from ulta is going to come from about 50 to 60 new store openings per year which is not insignificant i mean that's like uh one per state u.s state per year and they're going to remodel their high volume sites which generally once you see a formula that works and everyone is crowding in and crushing in and going at it like think of a very busy starbucks it doesn't take too long for to look tired and that remodeling thing is coming in and they're expanding uh ulta beauty um with the target customers into these full line ultra customers so that's it according to according to to their that's all according to their ir deck except for the mary dylan stuff so strategically the company is leaning into emerging categories like men's grooming so we're welcome mike we're welcome we're going to go in and we're going to walk out looking a million dollars we're going to walk out looking the exact way we walked in because anytime i've been quote unquote treated to something like that which i don't like uh i look no different at the end and i feel basically violated i hate i don't touch me i've no interest leave me alone look at me i'm happy um but from an innovation no i was just going to say one final point on ulta before we finish up as well is that it's only in the u.s as it stands yes it's making plans to finally do some international expansion in the middle east and mexico soon but if you've seen the success and like the omnipresence of a company like sephora now in international markets yeah that's right i think that that's a big untapped opportunity there and you're saying 50 60 stores um plan for next year in the US what does it look like when they hit major global cities across the world and then and that that opportunity ahead so it's definitely worth pointing out too oh that's a it's a very very valid point and I can't think of another brand that offers that full experience where you go in get your hair done your eyebrows done your makeup done where it isn't just the the one thing you know Sephora from my limited understanding is all things makeup but I don't think they have a hair salon in there and i don't think they have a brows salon in there i can't help you with that one i'm not sure i'm looking at your nose hair you're looking at me like i'm supposed to know the answer to this i don't yeah i'm like throw me throw me a line but anyway do you know what i kind of got a kick out of i looked and from an innovation standpoint they say their effort they're they're going to be going into a or try-ons so i don't actually know what that is presume you can see makeup through a or augmented reality it will show you if you have blue blush on your eyes or whatever and then ai driven recommendations of course i mean who doesn't have ai so that's just table stakes in in the world we're in now so ultra salon one of profits 10 current stocks it's up since it was selected a few weeks ago and very interesting business um especially the mary dylan epoch which i just think she's amazing and i i I ended up just sidebar going over to have a look at Foot Locker.

48:10Emmet:And it in itself is very possibly worth conversation here in Stock Club because she has the Midas Touch. And that is a business that could certainly do with a Midas Touch. I could imagine it needed Midas and more. I know, yeah. Even its name, it's a bit Moody's-ish. It's like, no, you need a new name. Foot Locker, just kind of, it sounds a bit smelly. Sounds smelly. that's so funny i was literally about the words about to come out of my mouth yeah like i don't yeah that's not a very nice brand yeah you just don't use the word foot anyway there you go we'll leave it there olfactory uh olfactory offenses um yeah okay emish that was very interesting ulta uh thank you for joining me today and thank you everyone for listening we'll talk to you next week