In beauty, the Internet isn’t just for replenishment anymore — at least for Ulta Beauty shoppers, who also use digital for discovery, executives said at the company’s analyst and investor day on Thursday.
Ulta is hoping to capitalize on that shift, as the company plans for 10 percent of overall sales to come from e-commerce by 2019, up from around six percent this year.
“She is really shopping online the same way she’s shopping in stores,” said Dave Kimbell, chief merchandising and marketing officer. “She’s looking to discover.”
Ulta is also adding more focus to mobile, launching a virtual reality try-on segment called Glamlab for its app, as well as Apple Pay. “It is big for us as we’re seeing a majority of our traffic come through mobile,” Kimbell said.
The Ulta Beauty team focused on the market opportunities left for the retailer in the U.S., also detailing Ulta’s retail and real estate strategies, demographic opportunities and digital goals during the meeting. On the financial side, the company raised its earnings forecast, prompting shares to soar more than 11 percent to $266.14 at market close.
For the third quarter, Ulta now expects comparable sales, including e-commerce sales, to increase 14 to 15 percent, compared with previous guidance of 11 to 13 percent. Ulta posted a comparable sales increase of 12.8 percent in the third quarter of fiscal 2016. Income per diluted share is now estimated to be $1.35 to $1.38, up from previously projected $1.25 to $1.30. Income per diluted share was $1.11 in the third quarter of fiscal 2015.
Ulta is also raising its full-year guidance to comparable sales growth of 12 to 14 percent, from 11 to 13 percent. Earnings per share is expected to be in the mid-20s percentage range, compared to the low- to mid-20s percentages previously projected. Ulta also said it expects to maintain that level of EPS growth for fiscal 2017, 2018 and 2019, as it has raised its long-term comparable sales growth view, and is expecting 7 to 9 percent comparable sales growth for that time frame (compared to 5 to 7 percent).
The beauty retailer and service provider said its current 4 percent share of the total $127 billion U.S. beauty market and 20 percent share of the $72 million U.S. female beauty enthusiast market, provides it a substantial opportunity for future growth. “The market is actually quite a bit larger than our prior study and insights would have led us to believe,” said Ulta chief executive officer Mary Dillon.
Ulta executives also shared that the company has a 13 percent share of the prestige beauty market, but only a 3 percent share of the top five brands, which include Clinique, Lancôme, Estée Lauder, Chanel and MAC Cosmetics, providing another avenue to expand. The company is additionally looking to Millennial, Latina and teen beauty enthusiasts, especially as incomes for Millennials and Latinas increase. “Shopping for beauty for the beauty enthusiast is not a chore,” Dillon said. “It’s almost like a hobby.…These folks are not just replenishing, I guess you could almost say they’re collecting, they’re amassing — they love beauty.”
To keep its beauty-hungry shoppers excited, Ulta continues to onboard new brands, the executive team said, including Origins, Estée Lauder, Proactiv and Soap & Glory, all of which launched recently, Kimbell said. For the first-time, Shiseido-owned Nars will make its way into Ulta later this year, he added. Nars confirmed the move, saying a select group of products are slated to launch in late November, with further selections for 2017. The brand is also sold at Sephora.
Ulta’s dialogue with prestige beauty brands has shifted over the years, according to Tara Simon, senior vice president of prestige merchandising. “Four and a half years ago, we’d make phone calls and wouldn’t even [get a call back],” she said. But things have shifted as the department store climate has worsened, and Ulta is ramping up programs around closing Macy’s locations, for example, she said.
Ulta’s scale is helping it in terms of exclusivity on the mass-market side as well. “This year for the first time, we have had exclusive Maybelline palettes,” said Julie Tomasi, senior vice president of merchandising for mass. “In the past, we were not big enough to warrant that attention.”
Exclusivity is key to Ulta’s success, Kimbell said, and on the mass side, it helps brings customers in who later shift to shop in prestige. “What we find is very quickly she gets exposed to the rest of our store and in many cases, she get introduced to prestige brands that she otherwise wouldn’t,” Kimbell said.
Ulta, now at about 974 doors, plans to continue opening about 100 stores per year until it has 1,400 to 1,700 U.S. locations. The real estate plan includes more suburban markets, smaller markets and beginning to develop urban markets. International expansion is still a long-term idea, the executives said, adding no international locations were baked into the overall store target number.