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Kylie, Morphe and Other Digital Brands Drive Ulta Beauty Foot Traffic

The business posted $6.7 billion in sales for the full year.

Ulta Beauty may have cracked the foot-traffic code.

The beauty retailer, which has been growing double-digits for years, said part of the $6.7 billion in sales it was able to drive in 2018 were due to its focus on launching digitally native brands like Kylie Cosmetics and Morphe, which have driven consumers to physical stores in order to test the products.

“Our strategy to be the partner of choice for digitally native brands like Morphe and Kylie Cosmetics is paying off,” said Mary Dillon, Ulta Beauty chief executive officer, on the company’s earnings call. “Both brands drove very strong traffic in stores, suggesting our guests are motivated to make more trips to the store to try these products in person.”

“The strength of these digitally native brands was even more concentrated in-store than we planned,” Dillon continued. Ulta Beauty quickly sold through products like the Morphe x James Charles Artistry Palette, which has been restocked multiple times, and Kylie Cosmetics lip products. The Kylie assortment will be broadened in the coming months with eye shadow palettes and more lip products.

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“We experienced a very strong sell-through on the 28 lip products we offer.…This popular brand clearly drove store traffic and new customer acquisition with an uptick in younger, more diverse guests,” Dillon said.

For the quarter, Ulta’s net sales were up 9.7 percent year-over-year to $2.1 billion, with net income up 3.1 percent to $214.7 million. E-commerce sales were up 25.1 percent in the quarter, moderated by the strength of in-store offerings and a softening in online makeup purchases across prestige and mass, Dillon said on the call. Salon sales increased 4.7 percent to $77.2 million.

For the full year, net sales were up 14.1 percent, to $6.7 billion, up from $5.9 billion the prior year.

That could potentially position Ulta as the largest specialty beauty retailer in the U.S., over Sephora. In mid 2018, WWD reported that Sephora North America was at about $5 billion in sales.

At the same time as Ulta’s been building up its digital-brand merchandising assortment, the business has been building its loyalty program, which now has 31.8 million members. Ulta’s loyalty program members can now use points on services like skin, brow, makeup and hair.

Mass makeup, prestige boutique brands (Lancôme, Clinique, MAC and Estée Lauder), fragrance and prestige skin care, were solid growth drivers, the company said. Accessories and skin care also posted double-digit gains. In mass cosmetics, Morphe, Makeup Revolution and E.l.f. did well after Ulta refocused its mass assortment to give more space to its fast-growing brands. Colourpop is launching in 250 more doors, bringing the brand’s total to about 800 doors, and E.l.f., L.A. Girl, Milani, Wet ‘n’ Wild and BH Cosmetics are also growing with Ulta.

In prestige, Ulta is anticipates strong launches from Tarte’s Facetape Foundation, Tarte’s new Sugar Rush makeup, brow products from Urban Decay and Smith & Cult.

For the year, Ulta’s net income increased 18.6 percent, to $658.6 million. In 2019, Ulta plans to open 80 stores. Sales are expected to grow in the low double-digits.