Is Ulta Beauty starting to lose its luster?

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Is Ulta Beauty starting to lose its luster?

By Gina Acosta - 08/24/2017

The extraordinary sales growth at Ulta Beauty appears to be slowing, if the retailer's second quarter results are any indication.

For the second quarter ended July 29, same store sales at Ulta rose 11.6%, much less than the blockbuster increase of 14% in the second quarter of 2016.

However, the company earned $114 million, or $1.83 a share, compared with $90 million, or $1.43 a share, in the second quarter of 2016. Sales rose 21% to $1.29 billion, from $1.07 billion a year ago.

“The Ulta Beauty team delivered another quarter of excellent performance with strong top line growth coupled with robust margin expansion,” said Mary Dillon, Chief Executive Officer. “We accelerated our market share gains while continuing to reduce promotional intensity and increase personalized offers through our industry leading loyalty program. Product category strength was broad based, with prestige cosmetics still driving the majority of our growth, and with skincare, fragrance, and haircare all gaining momentum. We are also benefitting from continued success of our marketing programs, rapid growth in e-commerce, and solid operational execution across the enterprise.”

Ulta has been on a five-year sales growth tear by providing shoppers with the perfect mix of merchandise and engagement. It’s a value proposition that has paid off for the Midwestern chain, which has become nearly immune to competitors or the economic climate. In fact, Ulta has found a way to sustainably capitalize on the Instagram era, in which looking good online is more important than ever, with a unique business model: Allowing shoppers to buy both mass and prestige beauty products, as well as get salon services, all in one place. No other retailer offers that mix in an easy-to-shop, 10,000 square foot box.

However, some of Ulta's momentum appears to be waning as Sephora and other retailers load up on technology and promotions in order to better compete.

For the third quarter, Ulta said it expects net sales in the range of $1.33 billion to $1.35 billion, which would be up from $1.13 billion in the third quarter of fiscal 2016. Same store sales for the third quarter of 2017, including e-commerce sales, are expected to increase 9% to 11%.

For full-year fiscal 2017, the company aimed for comparable-store sales growth between 10% and 11%, compared with a previous guidance of growth between 9% and 10%. 

As of July 29, Ulta Beauty operates 1,010 retail stores across 48 states and the District of Columbia and also distributes its products through its website, which includes a collection of tips, tutorials and social content.

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