Ulta Beauty (ULTA) Gains From E-commerce & Growth in Skincare

Despite the challenges induced by the coronavirus pandemic in the beauty industry, Ulta Beauty, Inc. ULTA has managed to stay afloat on strong omni-channel capabilities. The company’s virtual try-on tools, efforts to boost assortments as well as prudent rewards and loyalty programs have been yielding well. Moreover, the company’s skincare unit has been growing, gaining from rise in at-home grooming trends. Let’s delve deeper.

Omni-Channel Fares Well

Amid rising online competition, Ulta Beauty has managed to drive e-commerce sales. Markedly, sales from e-commerce operations soared 70% in fourth-quarter fiscal 2020, with continued strength in the buy online, pickup in store initiative (BOPIS) initiative, which formed 15% of the company’s e-commerce sales. Management highlighted that digital sales have nearly doubled year over year during fiscal 2020.  With consumers’ growing enthusiasm toward online sales, management is on track with expanding capacity at fulfillment centers, expansion of ship from store capabilities as well as curbside pickups. The company is also augmenting virtual try-on capabilities. Apart from these, management is excited about its planned partnership with Target Corporation TGT this year. The company said that it plans to introduce Ulta Beauty at Target across nearly 100 stores during fall, which will be a shop-in-shop experience across certain Target locations as well as online.

The company is undertaking measures to strengthen its omni-channel presence. To this end, it concluded the rollout of BOPIS across all stores, refreshed its mobile app and introduced “Afterpay” to ease online purchases.

Other Strategic Growth Efforts

Ulta Beauty focuses on offering exclusive range of beauty products through innovation. Toward this end, the launch of Conscious Beauty at Ulta Beauty in October 2020 (across all stores and online) has been yielding favorable results. In January this year, the company launched Briogeo, a brand formulated for all hair types, across all stores and online. Speaking of brands, we note that the company’s skincare products have been performing well, backed by consumers’ increased focus on self-care as well as interests driven by social media. Consumers have been showing rising interests toward new brands like The Ordinary as well as established brands like CeraVe and La Roche-Posay. Their increased focus on skincare and hair amid higher at-home grooming is likely to keep aiding this category.

Ulta Beauty is also focusing on deepening customer engagement by boosting rewards and loyalty programs. The success of the company’s loyalty programs is largely credible to prudent marketing and merchandising endeavors. The company is also committed toward optimizing its cost structure. In this context, it has undertaken meaningful steps such as optimizing store portfolio, store management structure, rightsizing corporate structure as well as enhancing the operating cost structure.


Pandemic-Related Headwinds

The pandemic has been weighing upon the company’s top-line performance, as witnessed during the fourth quarter. Specifically, the pandemic has gravely impacted the company’s makeup sales trend. Delayed innovation along with reduced makeup usage due to masks as well as the pandemic-led social distancing and fewer outings, remains a worry for the makeup category. Moreover, the company’s salon services have remained soft.

Nevertheless, with COVID-19 vaccines being rolled out, management expects its business to gradually strengthen. In fact, management expects growth in top line as well as comparable sales during fiscal 2021.

We note that shares of this Zacks Rank Zacks Rank #3 (Hold) company have rallied 19% in the past three months compared with the industry’s growth of 11.4%.

Check These Key Picks

L Brands, Inc. LB, flaunting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 13%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tapestry, Inc. TPR, holding a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 10%.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?

Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.

Access Zacks Top 10 Stocks for 2021 today >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Target Corporation (TGT): Free Stock Analysis Report
Ulta Beauty Inc. (ULTA): Get Free Report
L Brands, Inc. (LB): Free Stock Analysis Report
Tapestry, Inc. (TPR): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.