Ulta Beauty Sets Its Course For 2021

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The recently announced invasion of Ulta Beauty in 100 Target stores next year is a big deal, since it brings the full assortment of Ulta to the Target customer. Many more stores will be added in the next few years. The company will continue to expand in the United States and hopes to have 1500 to 1700 stores in the next few years. At the end of the 3^rd fiscal quarter ended October 31, 2020 Ulta operated 1262 stores, the company had opened 17 stores so far this year and will open another 13 by the end of the fiscal year 2020. (19 stores were closed) For next year the company promises at least 30 new stores. Based on these facts, opening in Target stores will add materially to the openings.

The COVID-19 pandemic changed some of Ulta’s expansion plans. The announced expansion into Canada has been cancelled and some of the costs have to be written off in the third and fourth quarter of 2020. I think it was a decisive decision to concentrate on U.S. expansion.

In their traditional conference call management indicated that November businesses was encouraging, however,they could not give any guidance for the fourth quarter because of the resurgence of the coronavirus throughout the United States. It was conceded that some of the stores may have to close if the incidence of the virus gets any worse. (At this writing, California’s governor is considering severe measures.)

Digital sales were strong. While they were less than 200% as they were in the second quarter, they did rise 90% and strengthened sales. However, management feels that direct in-store sales were better for the company as customers could see and buy more products.

The third quarter results were encouraging and above management’s expectations. Net sales decreased 7.8% to $1.6 Billion from $1.7 Billion last year. Comparable sales decreased 8.9% compared to an increase of 3.2% in the third quarter last year. Fully diluted earnings pert share dropped to $1.32 from $2.25 in the third quarter of last year. The drop in earnings is due to lower sales, exit costs from the entry plan into Canada, lower gross margin, tax increases and costs related to COVID-19.

One must look ahead. 2021 shapes up as a growth year. While the first half of the year may still be impacted by closings and shopper’s reluctance to shop in stores, the new openings and the partnership with Target stores should make the full year very exciting and profitable.