Why Ulta Beauty is a retail leader

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Why Ulta Beauty is a retail leader

By Gina Acosta - 12/01/2017

The Ulta Beauty business model continues to offer a master class on how to execute a successful omnichannel strategy. 

Ulta, which has been delivering positive earnings and impressive same store sales increases for more than three years, kept its red-hot streak alive in the third quarter. 

The retailer saw growth across all product categories and gained market share through its popular rewards program. Other strong marketing initiatives and continued enhancements to the company’s salon operations were elements that also drove results. 

But perhaps the most impressive feat from Ulta is that it is driving traffic and sales growth both in store and online, at the same time.

Same store sales for the third quarter ended Oct. 28 were up 10.3%. Retail comps increased 6.6%, including salon comparable sales growth of 3.8%. Ulta recorded 6% transaction growth and saw a 4.3% increase in average ticket. 

Meanwhile, Ulta is also luring legions of shoppers online. Ulta had single-digit online sales just five years ago. Now e-comm is growing at 60% plus, way ahead of the company's internal forecast of 50% e-commerce sales. In the third quarter, e-commerce sales were up an incredible 63% to $120 million. 

“Our third quarter results clearly demonstrate the strength and distinct advantages of the Ulta Beauty business model,” said Mary Dillon, Chief Executive Officer. “We delivered double digit comparable sales growth, in spite of a moderation in the growth rate of our largest category - makeup - and meaningful disruption from hurricanes. We flexed our merchandising and marketing plans, leveraged our consumer insights and CRM platform, and worked with our brand partners to create compelling offers for our guests. We also benefitted from the unmatched breadth of beauty categories and products we offer. These levers allowed us to drive significant share gains, continue to rapidly grow our base of loyalty members, and thrive amidst shifting category trends within the beauty industry.”

Despite the strong sales growth, gross margin fell 110 basis points to 36.7% off a lower merchandise margin. Net sales increased 18.6% to $1,342.2 million from $1,131.2 million in the third quarter of fiscal 2016.

During the third quarter, the company opened 48 new stores. The company ended the third quarter with 1,058 stores and square footage of 11,140,819, representing a 11.3% increase in square footage compared to the third quarter of fiscal 2016.

Ulta CFO Scott Settersten said during a call with analysts that international expansion is looking likely.

"I mean, there’s lots of things that we have on our roadmap that potentially we’d like to accelerate to drive the core business. There’s things, other growth levers like international things that we’ve been thinking about that perhaps we could get a little quicker start on and then of course, capital structure overall just making sure we optimize that for the long-term," Settersten said.

Looking ahead, Ulta expects a 10% to 11% gain in same store sales in the fourth quarter. Revenue is estimated at $1.926 billion to $1.959 billion.