Dive Brief:
- Consumers continued to buy beauty in the first quarter, sending Ulta Beauty’s sales up 12.3% to $2.6 billion, according to a company press release. The retailer’s comps increased 9.3%.
- While the beauty giant has largely stayed resilient to the impacts of inflation, CEO Dave Kimbell noted some potential concerns this quarter, with its cheaper mass beauty category growing faster than prestige.
- Like many in the retail industry, Ulta executives called out theft as an “increasingly concerning challenge,” with Kimbell telling analysts that incidents have become more violent and aggressive.
Dive Insight:
While Ulta’s sales and comps were strong, the first quarter showed some warning signs. Wells Fargo analysts noted that Ulta missed expectations for the first time in three years, while UBS analysts said the retailer’s decline in average ticket size was a first since 2012.
“While the results were quite good, especially relative to the rest of discretionary retail, it foreshadowed a few risks,” UBS analysts led by Michael Lasser said in emailed comments. “First, the company’s comp slowed to a [mid-single-digit] rate exiting the quarter … Further, the company lowered its [operating margin] guidance slightly as it's contending with higher shrink.”
When it comes to theft, Kimbell said the beauty retailer is investing in a range of efforts to combat the issue, including increasing staffing, hiring security and using in-store fixtures to prevent theft. Fragrance, which is one of the target areas for organized retail crime, will go behind locked cabinets at 70% of stores by the end of the year, Chief Operating Officer Kecia Steelman said.
“We've invested in security guards, armed security guards in some locations. We’re partnering with our landlords on what can we do to help police the parking lots and deter them from even coming in,” Steelman said. “It's a full court press out there.”
But the retailer is also facing challenges from its consumer base, which might be showing signs of trade-down behavior.
“It is difficult to know with certainty if the robust growth of mass products is due to strong engagement with innovative mass brands such as e.l.f. and La Roche-Posay or due to increased consumer price sensitivity,” Kimbell said.
The retailer continued to tout, however, that its stores offer products at every price point, which protects it from some of the shifts in consumer purchasing behavior. Also, Ulta’s loyalty program continued to expand, with 9% growth in the quarter. And the number of members in its higher-spending Diamond and Platinum tiers increased more than 30% year over year.
