Ulta Beauty touts plans to invest in faster delivery, but shares dive on disappointing outlook

Asia's Tech News Daily

Florida, Port St Lucie, The Landing at Tradition, outdoor mall, Ulta, beauty cosmetics store.Jeff Greenberg | Universal Images Group | Getty Images

Ulta Beauty said Tuesday that it will roll out same-day delivery in select markets and speed up curbside pickup orders, as the company chases consumers who have gotten used to buying lip gloss without leaving home.

At a virtual investor day, the specialty beauty retailer shared its financial outlook for the next three years. For fiscal 2022 through 2024, Ulta Beauty said it anticipates that diluted earnings per share will grow in the low double-digits and that capital expenditures will be between 4% and 5% of sales, roughly translating to between $1.1 billion to $1.4 billion.

Ulta said its net sales growth is expected to outpace the rest of the beauty and personal care industry, with a growth target of 5% to 7% versus 2% to 4% for the rest of the industry. Meanwhile, same-store sales will rise between 3% and 5% annually. Each year, it expects to open 50 stores.

Shares dove more than 10% Tuesday on the disappointing forecast. Investors had high expectations for an explosion in demand as shoppers refreshed makeup bags and made plans to go out again. As of Monday's close, Ulta shares have risen 42% this year.

Ulta Beauty — and the beauty industry at large — has scrambled to adapt during the pandemic. The global health crisis disrupted the high-touch retail category, which has historically used testers, perfume spritzes and advice from beauty consultants to drive sales. Consumers pulled back on beauty purchases as they wore masks, worked from home and largely skipped social events.

Ulta, for instance, added curbside pickup to its stores in April 2020, shortly after the pandemic began.

Sales online and at stores open for at least 14 months fell 17.9% in the fiscal year ended Jan. 30. Transactions also dropped by 24.5% last fiscal year as shoppers made fewer trips to Ulta's stores and its website.

Pandemic habits are sticking

In the most recent quarter, Ulta's sales rebounded and surpassed pre-pandemic levels. The retailer's second-quarter same-store sales rose 56.3% compared with the year-ago period. Transactions jumped by 52.5% from the year-ago period. On a two-year basis, comparable sales grew 13.1%.

With its outlook, Ulta Beauty anticipates skincare sales will remain elevated, makeup sales will return to growth and haircare product sales will accelerate. It also pointed to growth opportunities, such as launching a new advertising business and attracting more to Black and Hispanic customers with an expanded assortment of textured hair products and more.

Ulta executives said some pandemic-related habits will be sticky. Consumers have embraced self-care items, such as face masks, deep conditioners and home scents. They have a heightened interest in wellness-related beauty products. And they are more digitally savvy.

Chief Operating Officer Kecia Steelman said the line between in-person and online shopping has blurred. For instance, she said, a customer may toss items into her virtual cart based on a TikTok video. Days later, she may visit a store and take cues from both the eye-catching display and reviews that she reads on her smartphone while browsing aisles.

Ulta's most valuable customers

Chief Digital Officer Prama Bhatt said those customers are the retailer's most valuable because they shop more frequently and spend more. A customer who shops in both channels typically spends three times more than a customer who is an online only shopper. They make four times as many purchases per year than an online-only shopper, she said.

That finding has inspired Ulta's efforts. Ahead of the holidays, it will roll out same-day delivery in some markets. Ulta declined to share the fee and markets where the service will be available, saying more details are coming soon.

It is also promising customers that it will have curbside pickup orders ready in two hours or less after they hit the “buy” button.

Its competitor, LVMH-owned Sephora, launched a same-day delivery option last week in most major cities and suburbs. It is charging a flat fee of $6.95 for the delivery. Items must be ordered before 4 p.m. local time to be delivered same day.

Ulta's Bhatt said that shoppers increasingly expect fast service and respond well to it.

“That improved speed really gets the products in their hands at the speed of beauty,” she said. “We think that's going to be an important differentiator as we go forward.”

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