Ulta Beauty (ULTA) Gains on Growth in Digital Sales & Skincare

The usage of masks amid the pandemic has been a deterrent for makeup products sales, which put pressure on several players in the beauty industry. Nevertheless, few companies such as Ulta Beauty, Inc. ULTA managed to stay afloat in such challenging times on the back of strong omni-channel capabilities. The company’s virtual try-on tools, efforts to boost online assortments as well as prudent rewards and loyalty programs have been yielding. Additionally, increased self-grooming practices amid the pandemic have been acting as a boon for the company’s skincare unit. Thanks to such upsides, this Zacks Rank #3 (Hold) stock has increased 35.6% in the past six months compared with the industry’s rise of 14.8%.

Digital Strength is Key to Growth

Ulta Beauty’s digital sales nearly doubled year over year during fiscal 2020. The company’s well-chalked initiatives to boost online promotions and customer engagement have been supporting digital sales growth. Markedly, sales from e-commerce operations soared 70% in fourth-quarter fiscal 2020, with continued strength in the buy online, pickup in store initiative (BOPIS) that contributed 15% to the company’s e-commerce sales.

With consumers’ growing enthusiasm toward online sales, management is on track with expanding capacity at fulfillment centers, expansion of ship from store capabilities as well as curbside pickups. In fact, the company’s investments to expand fulfillment centers have aided elevating Ulta Beauty’s e-commerce shipping capacity and are likely to enhance its delivery speed. To further strengthen its omni-channel presence, the company concluded the rollout of BOPIS across all stores, refreshed its mobile app and introduced “Afterpay” to ease online purchases. The company is also augmenting virtual try-on capabilities. Additionally, the company rolled out a new booking tool for services in its app and on ulta.com.

Apart from these, management is excited about its planned partnership with Target Corporation TGT this year. The company stated that it plans to introduce Ulta Beauty at Target across nearly 100 stores during fall, which will be a shop-in-shop experience across certain Target locations as well as online.

Strong Brands & Growth in Skincare

Ulta Beauty focuses on offering exclusive range of beauty products through innovation. Toward this end, the launch of Conscious Beauty at Ulta Beauty in October 2020 (across all stores and online) has been yielding results. In January this year, the company launched Briogeo, a brand formulated for all hair types, across all stores and online.

Speaking of brands, we note that the company’s skincare products have been performing well, backed by consumers’ focus on self-care as well as interests driven by social media amid the pandemic. Consumers have been depicting rising interests toward new brands like The Ordinary as well as established brands like CeraVe and La Roche-Posay. Their increased focus on skin and hair care regimes amid higher at-home grooming is likely to keep aiding this category.

Wrapping Up

With COVID-19 vaccines being rolled out, and society gradually moving toward the old normal, management expects its makeup category and salon business to strengthen. In fact, management expects growth in the top line as well as comparable sales during fiscal 2021. Moreover, the company’s digital business and strong brand offerings are likely to keep complementing its performance in the forthcoming periods.

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