Digital Sales Soar 200% at Ulta
Beauty consumers are shifting from makeup to skin care during the pandemic, and that trend has partly led Ulta Beauty to post a 200% increase from its e-commerce operations in the second quarter.
In a quarterly earnings call, Ulta CEO Mary Dillon said that "the makeup category continues to be challenged" by the coronavirus crisis as consumers stay home and wear less makeup. However, the pandemic has led to more sales, especially digital sales, in bath care, skin care and hair care, according to Dillon. Ulta plans to expand its skin care, bath and hair assortments to leverage these new trends.
"COVID-19 has amplified self-care and consumer interest in skin care and hair," Dillon said. "We're accelerating our focus in these areas to drive market share growth. In skin care, our merchant teams have made terrific progress at expanding our assortment and improving the profitability of this important growth category. We're dedicating more space for skin care in prominent areas of the sales floor and on ulta.com. And next year, we plan to implement more holistic changes to the layout in select new stores, which allocates more prominence and easy-to-navigate space for skin, more intuitive adjacencies, and spaces in the front of the stores for curated events."
For the second quarter ended Aug. 1, Ulta’s net sales declined 26.3% to $1.2 billion, down from $1.7 billion in the prior-year period. Net income was $8.1 million, down from $161.3 million in the same quarter last year. Same-store sales decreased 26.7% compared with a year ago, as a result of pandemic-related stores closures from March to May.
“Comp sales improved significantly throughout the quarter from down 37% in early May, as we began reopening stores, to down only 10% in July after most of the stores have reopened. Sales trends have continued to improve, with comps down in the mid-single-digit range for the first three weeks of August. We're excited about the positive signals we're seeing from guests. However, we believe it will take some time to fully return to pre-COVID levels and expect demand will continue to be suppressed for the rest of the year," Dillon said.
According to Ulta, the pandemic has obviously accelerated online shopping, and the company is working to expand the micro-fulfillment capabilities of at least 100 of its stores. The company will also look to expand offerings such as app-based virtual makeup try-on and skin analysis services.
"We're investing in digital innovation to help our guests identify and address skin care concerns with the launch of a new skin analysis tool in the Ulta Beauty app," Dillon said. "This new skin analysis tool uses augmented-reality technology and AI to assess skin care needs and offer personalized recommendations and skin care tips. To support these launches, we've increased our storytelling through our marketing vehicles and elevated the visibility of our stylists via social media."
The Bolingbrook, Illinois-based company ended the second quarter of fiscal 2020 with $1.2 billion in cash and cash equivalents. During the first quarter of fiscal 2020, as a precautionary measure during the economic uncertainty due to COVID-19 and to enhance financial flexibility, the company drew down $800 million under its $1 billion credit facility.
New store activity was temporarily paused during the quarter due to COVID-19. The company ended the second quarter with 1,264 stores and total square footage of 13,294,607, representing a 4.2% increase in square footage compared with the second quarter of fiscal 2019. In addition, during the second quarter of fiscal 2020, the company revealed that it would permanently close 19 stores. These previously announced store closures will occur during the third quarter of fiscal 2020.
Ulta withdrew its guidance for fiscal 2020 on March 17 and is not providing an earnings outlook at this time. However, the company provided the following updated assumptions for fiscal 2020:
- Ulta expects to incur between $35 million and $40 million in PPE and COVID-19 related costs in the second half of fiscal 2020
- The company expects to open approximately 30 new stores and execute approximately five relocation projects. Although plans for fiscal 2021 have not been finalized, it expects to open at least 30 new stores in fiscal 2021. The company will continue to evaluate these plans based on demand and location economics
- Ulta anticipates capital expenditures will be between $180 million and $200 million, compared with the previous expectation of between $200 million and $210 million