Ulta avoids inflation concerns as sales rise over 16%

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Diving brief:

  • Ulta’s second quarter was brighter than most retail businesses, the retailer net sales up 16.8% to $2.3 billion, as comps jumped 14.4%.
  • Operating profit and net profit both rose nearly 18% and gross profit also rose by double digits, according to a company press release.
  • Cutting the trendUlta raised its outlook for the year and expects sales of up to $9.75 billion for the year and sales of up to 10.5%.

Overview of the dive:

While Mary Dillon has officially left Ulta, land as CEO of Foot Lockerhis successor Dave Kimbell has no trouble continuing the beauty retailer’s winning streak.

“We recognize that beauty is not immune to macro challenges, but the category’s deep emotional connection has historically resulted in greater resilience compared to other discretionary categories,” Kimbell said on a call with analysts on Thursday, adding that the popularity of wellness and personal care has further supported this. “As we look to the future, we know there will be challenges, especially with the far-reaching impact of rising inflation, on both our business and our customers. But we remain confident in the resilience of the beauty category and our ability to lead the beauty category and deliver long-term profitable growth.

Makeup – who had one a few difficult years, especially with the impact of the pandemic on events — experienced double-digit growth in the prestige and mass segments. As Ulta’s largest category, makeup strength is particularly important to the retailer. But even outside of makeup, Kimbell said the retailer is seeing strength in every category and hasn’t seen a drop from shoppers. GlobalData chief executive Neil Saunders said in emailed comments that the retailer could benefit from consumers’ reluctance to part with “small treats and beauty indulgences” despite inflation.

“Apart from indulgences, it’s also true that many beauty and skincare routines are very entrenched in people’s lives, so there’s a great reluctance to cut back on products associated with them,” said Saunders. “All of these factors are helpful to Ulta.”

Ulta is also outpacing growth in the overall beauty market, according to Saunders, suggesting the retailer is taking market share from others in the space. Selling through Target could also help, as it makes Ulta even more convenient for shoppers. As for the deal, the retailer now has 186 active Target stores, after opening 59 in the second quarter.

As Sephora continues to expand its deal with Kohl’s – both retailers announced last week that they would extend the concept to all department store locations — which will inevitably put him in closer contact with Ulta stores, and its Target shop-in-shops. But Ulta may have the edge, according to Saunders.

“[W]We think Ulta still has the edge because Kohl’s Sephora stores are slightly less convenient, have a much smaller range, and aren’t as visible as most of the Ulta stores they will be competing with,” Saunders said. . “We also believe that, despite its current issues, Target is a much better vehicle for Ulta’s expansion than Kohl’s for Sephora’s expansion.”

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