Dive Brief:
- Sales, comps and profits were all up double digits at Ulta in the third quarter as the beauty category stayed strong.
- Net sales increased 17% to $2.3 billion, while comps were up nearly 15% and net income grew by more than 27%, according to a company press release.
- Where others have cut guidance in recent weeks, Ulta raised its own. The retailer now expects full-year sales to reach up to $10 billion and comps to increase up to 13.2%.
Dive Insight:
Ulta doesn’t seem to be facing the same challenges as the rest of retail. Even inflation, which is causing shoppers to pull back from discretionary purchases and trade down, isn’t seriously burdening the retailer, which CEO Dave Kimbell attributed to Ulta’s range of price points.
“Ulta Beauty is uniquely positioned to capture any consumer shifts within price points in the beauty category,” Kimbell said on a call with analysts Thursday.
GlobalData Managing Director Neil Saunders also pointed out in emailed comments that beauty tends to be one of the discretionary purchases customers are reluctant to cut out, as they have established routines in the category and it is “a relatively affordable indulgence.” That benefits Ulta, but the retailer also deserves credit for its own success, and is taking share from other sellers like department stores and drugstores, Saunders added.
“Both operating profit and net income are up by over 27%, which is an exceptional performance. Quite a lot of this is simply down to greater productivity as more volume is pushed through the business, but Ulta also deserves credit for keeping a tight grip on costs even during a time of inflation,” Saunders said. “Strong uplifts in premium beauty, which delivers better margins, have also been helpful.”
One downside to the tight finances of its shoppers is that shrink is going up. Chief Financial Officer Scott Settersten acknowledged that Ulta is more susceptible to shrink than other retailers, but said the problem is “not new to us.”
“When times get tough, shrink goes up,” Settersten told analysts. “We've seen that in retail over a long period of time.”
With sales and profits up, Ulta continues to invest in expansion: The retailer broadened its assortment of BIPOC brands in the quarter, expanded its wellness category to include “intimate wellness” and rolled out more of its new concepts. A new store layout focused on organizing by category versus price has been introduced to a dozen stores, Kimbell said, and the retailer’s Target partnership is showing some positive trends.
“This touchpoint enables us to connect and reconnect with members and while the partnership isn’t material yet to our overall member growth, it has contributed positively,” Kimbell said. “Importantly, we are seeing members bounce back to Ulta Beauty after becoming an active member while at the Ulta Beauty at Target shop.”
