Ulta Beauty Delivers $75 Million Profit For Q3 Despite Downtrend In Sales

In the Q3 Ulta Beauty
ULTA
earnings call the company reported a positive net profit of $75 million for the third quarter ending October 31st which was down 42% compared to the same period last year. However, with the continuing challenges facing the retail industry due to the coronavirus pandemic (compounded by a surge in cases for fall) the results are deemed good. While sales were down 8.9%, the results exceeded the company’s expectations. 

The average spend across customers was up 7.6%, driven by an increase in the number of units being purchased. Store traffic was soft, however, e-commerce sales were up 90% compared to last year. Buy online and pickup in store equated to 16% of e-commerce sales, doubling the penetration from last year. Inventory decreased by 11% compared to last year, as the company adjusted to current consumer demand and reduced holiday receipts. 

Consumers focused on self-care

Mary Dillon, CEO of Ulta Beauty, stated in the call, “Increased interest for home skincare treatments as well as newness in innovation, in body treatments, face serums and eye creams are driving strong category growth.” Ulta Beauty customers continue to maintain their skincare routines and wellness programs as a part of their self-care during the pandemic. DIY products are also driving purchasing including in-home hair coloring and one-step hair styling tools. 

Positive signs for store traffic

Store traffic trends improved compared to prior quarters and Dillon said in the call, “Our consumer insights and results continue to confirm that our members prefer to shop in physical stores for beauty even as they have increased their adoption of online shopping.” While traffic improved, continued restrictions due to COVID continued to severely impact salon services, which dropped 30% in the third quarter compared to last year. 

32 million active members in Ulta Rewards

Ulta Rewards continues to be a strong driver of sales with members in the highest loyalty categories (diamond and platinum). However, the company experienced a drop of 6% in Ultimate Reward members compared to the third quarter of last year. The company is focused on re-engagement and new member acquisition as store closures earlier in the year impacted some previously active users. 

Five-pillar strategy moves the brand forward

Ulta is focused on five strategies that will continue to evolve the brand and deepen customer loyalty: Omnichannel (seamless experience for shoppers), product discovery, curated product assortments, Ulta Rewards program and a cost-efficient store labor model. 

Omnichannel experience is a primary goal with enhancements to curbside, the Ulta Beauty App and fulfillment center expansions. Curbside parking has been expanded, signage has been refreshed and new curbside notification technology has been deployed. The Ulta Beauty App has been upgraded to include store-specific occupancy levels for greater safety and transparency for shoppers. A new booking tool helps customers with appointments for salon services. Additional fulfillment locations have opened and operations in existing centers have expanded. Dillon stated, “These investments have increased our e-commerce shipping capacity and will improve delivery speed.” 

Product discovery, a hallmark of the beauty retailer’s brand ethos, has been expanded to include higher technological applications. GLAMlab, the Ulta Beauty virtual try-on app, has been enhanced with skin analysis tools and more precise personalized product recommendations. The app allows for guests to save analyses and view historical changes over time. The company is testing one-on-one video consultations across all beauty categories to help with product selection and further deepen the customer experience.

Curated beauty assortments is focussed on exclusivity and leading brands. The company launched Conscious Beauty at Ulta Beauty, a program providing greater transparency about products that are delivered in sustainable packaging and contain ingredients that are pure, cruelty-free and vegan. Additionally, Ulta Beauty is highlighting brands that have initiatives demonstrating a positive impact on communities. The Conscious Beauty Advisory Council was developed by Ulta Beauty to bring together a coalition of experts at the forefront of clean beauty, product development and packaging sustainability. 

The company continues to use data analytics within the Ulta Rewards program to create personalized offers and recommendations. The drop in active members in the third quarter has created a need to reactivate members to pre-pandemic levels and focus on a higher return on promotions. 

In an effort to create a more cost-efficient store labor model, Ulta Beauty has made some organizational changes including a restructuring of store positions. The company also announced that it is suspending its expansion into Canada. 

Target + Ulta Beauty is a big win for both companies

Ulta Beauty and Target announced in a joint press release last month that they will be embarking on a strategic partnership in 2021 which is expected to significantly benefit both companies. Dillon discussed from an Ulta Beauty perspective, it’s beauty authority and deep understanding of the beauty category coupled with Target’s scale of business operations will be beneficial to the over 100 million loyalty customers.