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Ulta Beauty Posts 17.4% Sales Gain for Q1

Ulta opened 34 new stores during the quarter.

Softening growth in the prestige makeup category does seem to be hurting Ulta Beauty.

The retailer posted a 17.4 percent year-over-year gain in net sales, with more than $1.5 billion in sales for the first quarter of the year, up from $1.3 billion the prior-year period.

“As we look across the prestige landscape, there’s definitely changing dynamics as some of the big brands face new competitors from smaller, independent brands, and we’re having a lot of success with those and rolling those out across our portfolio,” said Ulta Beauty’s chief merchandising and marketing officer Dave Kimbell on the company’s earnings call Thursday. Brands such as Estée Lauder, Nars, Benefit, Tarte and Anastasia Beverly Hills, were called out as successful by the Ulta team, as well as newer lines like Dose of Colors, Beauty by PopSugar, Morphe and ColourPop.

The brands that operate through prestige boutiques, like Lancôme and MAC, also do well, executives said. Newcomer Chanel Beauté is off to “a terrific start in the first few stores,” said Ulta chief executive officer Mary Dillon, adding that the Chanel rollout would extend into more doors.

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In the first quarter, Ulta increased the size of its loyalty program by 17 percent from the prior-year period to 28.6 million members. The business also increased the number of gift cards it sold by 45 percent, which was driven by distribution at third-party retailers. Dillon said the chain planned to sell gift cards in about 15,000 more doors going forward. “Analysis demonstrates that gift cards are driving significant incremental sales and margin dollars,” Dillon said. Gift cards tend to get consumers more engaged and can lead to new customers, Kimbell added.

Asked about M&A — specifically buying brands — Dillon told a Wall Street analyst that it was not the company’s focus, and that Ulta remains focused on “partnering with innovators.”

“Can we buy brands? Sure, we could. We haven’t,” Dillon said.

Ulta’s net income increased 28.2 percent to $164.4 million, up from $128.2 million in the prior-year period. Earnings per diluted share were up 31.7 percent to $2.70. E-commerce sales were up 48 percent to $154.4 million from $104.3 million in the year-ago period. Mobile traffic, Dillon said, was up 52 percent in the quarter. Sales of online-only brands like Storybook Cosmetics, Dominique Cosmetics, Sugarbear Hair Vitamins and Too Cool for School helped boost sales, Dillon said.

Salon sales were also up, gaining 10 percent year-over-year to $75.7 million from $68.7 million.

Ulta opened 34 new stores during the quarter, bringing the retailer to 1,107 stores total at the end of the first quarter. For the second quarter, Ulta is forecasting net sales between $1.47 billion and $1.48 billion, up from net sales of $1.29 billion in the prior-year period.