Ulta Beauty to focus on speedy delivery as some pandemic habits stick

Florida, Port St. Lucy, The Landing at Tradition, Outdoor Mall, Ulta, Cosmetics Beauty Store.

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Ulta Beauty said Tuesday it will roll out same-day delivery in select markets and speed up curbside pickup orders, as the company chases consumers who are used to buying lip gloss without leaving home.

On Virtual Investor Day, the cosmetics retailer shared its financial forecast for the next three years. For fiscal year 2022 through 2024, Ulta Beauty said it expects diluted earnings per share to grow in low double digits and that capital expenditures will be between 4% and 5% of sales, roughly $1.1 billion to $1.4 billion.

Ulta said its net sales growth is expected to outpace the rest of the beauty and personal care industry, with a growth target of 5% to 7% versus 2% to 4% for the rest of the industry. Meanwhile, same-store sales will rise between 3% and 5% annually. It is expected to open 50 stores annually.

Shares fell more than 10% on Tuesday amid disappointing expectations. Investors had high expectations of an explosion in demand as shoppers updated their makeup bags and made plans to go out again. As of Monday’s close, Ulta shares are up 42% this year.

Ulta Beauty — and the beauty industry in general — has been quick to adapt during the pandemic. The global health crisis has disrupted the high-touch retail category, which in the past used testers, aromatic fragrances and advice from beauty consultants to boost sales. Consumers have pulled back from cosmetics purchases because they wore masks, worked from home and largely skipped social events.

Ulta, for example, added a roadside pickup truck to its stores in April 2020, shortly after the pandemic began.

Online and in-store sales that have been open for at least 14 months have fallen 17.9% in the fiscal year ending Jan. Transactions were also down 24.5% in the last fiscal year as shoppers made fewer trips to Ulta stores and its website.

Epidemiological habits are constant

In the last quarter, Ulta sales rebounded and exceeded pre-pandemic levels. Same-store sales in the second quarter of the year increased 56.3% compared to the same period last year. Transactions jumped 52.5% from the same period last year. On a two-year basis, comparable sales grew 13.1%.

With its forecast, Ulta Beauty expects skin care sales to remain high, makeup sales to return to growth and hair care product sales to accelerate. He also mentioned growth opportunities, such as launching a new advertising business, attracting more black and Hispanic clients with an expanded range of woven hair products, and more.

Ulta executives said some of the habits around the pandemic are going to be sticky. Consumers have embraced self-care items, such as face masks, deep conditioners, and household scents. They have a growing interest in health related beauty products. And they are smarter digitally.

Chief Operating Officer, Kecia Stillman, said the line between in-person and online shopping is blurring. For example, she said, a customer can toss items into her virtual shopping cart based on a TikTok video. Days later, she might visit a store and receive cues from both the screen and the eye-catching reviews she reads on her smartphone while browsing the aisles.

Ulta’s most important clients

Head of Digital Marketing Prama Bhatt said these customers are the retailer’s most valuable because they shop more frequently and spend more. Typically, a customer shopping on both channels spends three times as much as a customer shopping online alone. She said they make four times as many purchases as they make online shoppers alone.

This finding inspired Ulta’s efforts. Before the holiday, same-day delivery will be rolled out in some markets. Ulta declined to share the fees and markets in which the service will be available, saying more details are coming soon.

It also promises customers that they will have their curbside pickup ready within two hours or less after they hit the “buy” button.

Its competitor, LVMH-owned Sephora, launched a same-day delivery option last week in most major cities and suburbs. It charges a flat fee of $6.95 for delivery. Products must be ordered before 4pm local time to be delivered on the same day.

Ulta’s Bhatt said shoppers are increasingly expecting quick service and responding well to it.

“This improved speed makes the products in their hands really the speed of beauty,” she said. “We think this will be an important differentiating factor as we move forward.”

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