Ulta slows openings on 'increased confidence' in stores
Ulta Beauty reported Thursday that net sales in the third quarter rose 16.2% to $1.6 billion from $1.3 billion in the year-ago quarter, according to a company press release. Comparable sales increased 7.8% in the quarter, due to growth in transactions and average ticket size, though that number was slightly down from the 10.3% comps rise in Q3 2017. Retail comparable sales grew 4.4%.
Net income for the quarter was $131.2 million, up 25.3% from last year's $104.6 million, and operating income grew by 4% to $169.2 million. Gross profit remained flat, at 36.7% as a percentage of net sales, due mainly to investments in salon services and supply chain operations.
The company continues to see huge e-commerce growth as well, with those sales increasing by 42.5% to $170.7 million from the prior year and accounted for nearly 11% of total company revenue, CEO Mary Dillon said on a conference call.
There were many familiar trends in Ulta's Q3 earnings, including large e-commerce growth and continued store openings. The retailer opened 42 new stores in the quarter, on track for the company's planned 100 by the end of the year.
However, execs said on a conference call that the company's long-term brick-and-mortar strategy has been revised down to between 1,500 and 1,700 total stores, and with it, the number of store openings per year. The retailer has been in expansion mode for quite some time, with 100 stores opening every year since 2012, but execs cited the high performance of new stores as a reason to cut back on openings, lowering the number of openings to 80 in 2019, 75 in 2020 and 70 in 2021.
The company has been a big player in the beauty space for some time, thanks in no small part to its robust loyalty program. Dillon noted that as of the third quarter, the retailer had amassed 30.6 million members in its loyalty program, who now account for over 95% of the retailer's total revenues. That should help the company in competing with the rest of the beauty sector, including rival Sephora, which updated its own loyalty program this year and is likewise known for retaining a loyal set of customers.
Ulta execs also expressed excitement over its recent tech acquisitions, noting that bringing augmented reality capabilities in-house would allow it to move faster with any future features — a potential advantage considering how many beauty retailers have taken to using AR in stores to spruce up their experience.
The one dark spot in Ulta's earnings was a lower-than-expected fourth quarter outlook, which hit the company's stock Thursday night, but Dillon nevertheless feels confident in the upcoming holiday season, saying that the company is "lined up really well to be competitive and have a strong quarter."
Scott Settersten, the company's CFO, also noted that the muted holiday guidance was the retailer being prudent with its estimate, and pointed to increased competition during the holidays as a partial explanation. "This is a place where we compete with all of retail, not just the beauty competitors," he told analysts.
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