Dive Brief:
- After years of strong growth, Ulta Beauty is slowing down. CEO Dave Kimbell began an earnings call Thursday by saying the company is “not satisfied with our market share trends” and is taking action to rectify recent losses.
- In response, Kimbell laid out a plan to return to growth that tackles five areas: improving its assortment, social relevance and digital experience; and using its loyalty program and promotions to better effect.
- Ulta also cut its financial outlook for the year on the expectation that the trends it’s seeing now will continue for the rest of the year. The retailer now projects net sales to hit $11.5 billion to $11.6 billion for the year, down from $11.7 billion to $11.8 billion, and comps to grow between 2% and 3%, down from 4% to 5% prior.
Dive Insight:
While Ulta still posted 3.5% net sales growth, with that metric reaching $2.7 billion in Q1, the company is seeing troubling trends on market share. The beauty retailer lost share in prestige beauty in the quarter, which Kimbell said occurred in stores versus online.
Kimbell blamed heavy competition in the sector, saying there are “significantly more places to buy beauty” now than before. He said that more than 1,000 points of distribution for prestige beauty have opened in the past two years, an “unprecedented” amount in such a short time period, and that this was having an impact on Ulta. Notably, Sephora had opened in about 900 of Kohl’s 1,200 stores by the end of 2023.
“What's unique about what’s going on today is the cumulative impact of the competitive intensity — really driven by significant increase in distribution of prestige, both in store and online — and as consumers navigate that broader choice, they're making choices,” Kimbell said. “We're confident in our ability to continue to engage … but it certainly is an impact.”
To combat the loss of market share, which was specifically in prestige hair and makeup, Ulta is focused on adding more brands, with 25 new brands expected to join the assortment in 2024. The retailer also touted an expanded relationship with DoorDash, which broadens its reach to that customer.
Comps at Ulta were up 1.6% in the first quarter, and the retailer’s net income fell nearly 10%, to $313 million.
