Ulta redefines the beauty category

America’s hottest retailer has done it again, posting a remarkable 16.6 percent increase in same store sales en route to opening its 1000th store this year.

For the fourth quarter ended Jan. 28, same store sales at Ulta were boosted by a 63% surge in online sales. Analysts had predicted the company's same-store sales would rise 13.7 percent. Net sales jumped 24.6% to $1.6 billion, also better than expected. Net income increased 30% to $140.2 million compared to $107.8 million in the fourth quarter of fiscal 2015. Revenue increased 24.6 percent to $2.24 a share. A year ago, the company earned $1.69 a share. 

There are many things that differentiate Ulta in the retail landscape, but the main ingredient to the beauty retailer’s secret sauce is loyalty.

“Loyalty program members are driving the majority of our sales,” CEO Mary Dillon told analysts during a conference call. “We’ve simplified the loyalty program. I think our communication about how the program works, how we communicate with that guest, how we convert new members and potential members in-store -- are all components of what we've done that’s working well and driving great value and experience.”

Indeed, Ulta has been focused on ever-improving its value proposition by providing a store experience, product assortment and communication strategy that are irresistible to its core customer. 

“We continue to find way to connect with beauty enthusiasts,” Dillon said. “We are very optimistic about her long-term engagement. In fact every indicator we have shows that she is just getting more engaged and that’s largely due to the relatively new tools that she has at her disposal through social media and the ability to learn more, to share more, to be more engaged in makeup and hair trends and skin trends.”

Ulta’s secret sauce is working so well that the company announced several new initiatives for fiscal 2017. 

The retailer plans to open its sixth distribution center, this time in Fresno, Calif. The new DC will allow the company to more efficiently serve stores in California, where roughly 10 percent of Ulta stores are located. (104 of 874 stores at end of last year were in California.) 

Ulta is also planning several expansions of its most popular prestige beauty lines, such as Lancome and Clinique. Ulta currently stocks only a limited assortment of certain beauty brands, although the retailer has been ramping up the mass and prestige assortment already.

This spring the company plans to launch Ulta gift cards in major grocery chains across the country, which will allow Ultato reach thousands of locations with a new point of presence for the brand.

And possibly the company’s most important announcement was this: MAC is coming. 

The retailer plans to roll out MAC Cosmetics this year to all stores and online. MAC is a hugely popular brand among beauty enthusiasts, but the brand can be difficult to find. Consumers who depend on shopping for the products online will now be able to find all of their MAC favorites at Ulta.

“MAC is the number one prestige makeup brand in the U.S. and one of the strongest brands in America,” Dillon said. “Its addition to our assortment will help us reach and better serve audiences that are important to us including teens, millennials and diverse customers. We plan to offer MAC makeup services at all stores in which we roll out the brand. The service components of the MAC offering is yet another example of how we're able to enhance and differentiate the shopping experience and drive traffic to our stores.”

In addition to adding beauty products, Ulta is also leveraging its customer engagement programs to drive sales at the salon. Salon sales increased 15.2% and comps were 8.8%, with strength in hair color and makeup services. 

On the e-commerce front, sales grew 63.4% on top of 44.2% growth last year, contributing 380 basis points to total company comps. This revenue growth was driven almost entirely by increased transactions. While total traffic growth was up almost 63%, mobile traffic rose more than 90%, driven by growth in digital marketing paid channels including search, affiliates, display and Facebook.

For the current quarter, the company said it expects sales of $1.24 billion to $1.27 billion, with comparable sales rising 9% to 11%. Per-share earnings are expected in the range of $1.75 to $1.80. 

“Our performance puts us in a unique position in the beauty industry and within the broader retail landscape to take advantage of the many opportunities before us to invest to drive the business for the long-term,” Dillon said.