Beauty category and brand loyalty remain strong
The company benefited from a beauty category that has shown resilience throughout the year as consumers have continued to spend and are focused on wellness. New brands and product innovations continue to drive interest in the Ulta Beauty assortment. “Holiday season is in full swing, and with Ulta Beauty’s assortment and marketing initiatives, the company is positioned to deliver another robust holiday season,” stated Kimbell.
Ulta Beauty’s loyalty members are emotionally connected to the brand and highly engaged. “Loyalty members have a higher frequency of shopping visits and spend more money,” said Kimbell. Q3 ended with 9% more loyalty members than at the same time last year. “We had record-breaking loyalty members reaching 39 million as we continue to curate all things beauty for a deeply engaged customer base,” commented Kimbell. While it remains to be seen if consumers are trading down during this challenging economic environment, the wide range of products at a variety of price points allows the company to serve the needs of many demographics and income levels.
Contributors to the strong performance include store design and display changes, holiday stock arriving early, and key categories that drove demand. “Skincare is one of the fastest-growing categories as consumers continue to invest in taking care of their skin,” stated Kimbell. The company added a Skincare We Love Wall in stores which showcased key products and brands that performed well and resonated with customers. Also noted were holiday fragrance gift sets available early in the holiday season. The make-up category had double-digit comp growth driven by the intense marketing events during the quarter, including 21 Days of Beauty and Fall Haul. New products across make-up created a fresh assortment that resonated with consumers.
Ulta Beauty continues to invest in stores, and Kimbell discussed the introduction of a new layout to improve the shopper experience: Stores moved skincare to the front, grouped products by categories, and installed new fixtures to make it easier for shoppers to identify products and shop the store. The front of the stores also have designated space for new products and brand launches. Ulta Beauty opened 18 new stores in the quarter.
“While the traffic in stores is one of the most important aspects of the business, we know that customers often begin their journey with us online,” said Kimbell. According to Kimbell, shopper visits to stores exceeded pre-pandemic levels, and buy-online-pick-up-in-store sales were up 18%, representing 23% of the total eCommerce sales.
Profit margins accelerated
The company’s gross margin was over 41% for the quarter compared to 40% last year. As explained by Scott Settersten, chief financial officer, treasurer, and assistant secretary, Ulta Beauty experienced a benefit from vendor partner price increases for products purchased at a lower cost which nets out to a better cost of goods performance. “While the average ticket increased 3.5%, fewer units per transaction were sold,” stated Settersten. The higher average ticket was mainly due to the price increases that took place in the quarter.
Ulta Beauty may hit $10 billion in Sales by the end of the fiscal year
“Sales trends through Thanksgiving, including Cyber Monday, have shown positive results proving the resilience of the beauty category,” said Settersten. Based on current business and higher expectations for the holiday season and fourth quarter, the company raised its guidance for the year, projecting annual sales in 2022 of $9.9 to $10 billion. At the end of Q3, the company operated 1,343 stores totaling 14.1 million square feet.