Ulta reported another strong quarter of sales and comps growth in Q3, firing on all cylinders as it heads into the important holiday season. Here’s a quick look at the retailer’s performance and outlook on new initiatives.
By the numbers
Topline growth of 16% was driven by an 8% comp as well as high productivity in new stores opened in the past year. The retail only comp of 4.4% was evenly driven by both traffic and ticket increases. Online sales grew a whopping 42% accounting for 11% of total sales, driven by mobile which saw a 44% increase in traffic. Ulta’s store to door program has fueled some of this traffic, and investments are underway to launch click & collect services in future. Salon sales also achieved a 3.5% comp with Ulta’s new Services Optimization model now live in 30% of stores.
The only negative statistic attributable to the performance was margin. While reported margins were flat year over year, a 50 bp increase derived from new accounting standards covers up the 50bp deleverage the company experienced. This deleverage was driven by a combination of strength in low-margin prestige sales, as well as increased costs of eCommerce operations and unexpectedly deep clearance cuts and was more significant than the retailer expected. Just goes to show that even retail’s most resilient stars can’t escape the economic pressures of an increasingly costly supply chain.
Much of the outlook is based on fresh plans Ulta revealed at its recent Investor Day in November. The biggest change is a new marketing position, switching from the functional “All things beauty. All in one place” tagline to the more emotional “The Possibilities are Beautiful.” New strategic imperatives for the retailer include a greater focus on maximizing spend from top Ultamate Rewards members (a program that is now more than 30.6 million strong) and creating more personalized connections across omnichannel touchpoints.
To further this effort, it has acquired two new tech startups. GlamStreet helped Ulta develop its GlamLab and virtual try-on capabilities already, and will fuel further personalization through AI and machine learning. QM Scientific additional has voice and vision recognition software that could fuel further developments in virtual reality and conversational commerce.
After the highly publicized and successful launch of Kylie Cosmetics in Q3, Ulta has formed an emerging brands team, creating a more formalized structure for finding and incubating small brands
For the holiday season, Ulta expects comparable sales for the quarter to increase 7%-8% vs. 8.8%, dropping slightly to account for the 53rd week in 2017. It also expects online penetration to be lower as in-store traffic ramps up for the holiday period.
Stay tuned for complete results coverage on KRIQ.com in the coming weeks.