A few weeks ago, we looked at whether beauty could continue its momentum. At the time, our visitation data suggested that the answer to this question was an emphatic yes, but Ulta’s Q4 2022 confirmed this stance with top-line results that came in well ahead of market expectations. Ulta’s results reaffirm the durability of the category as a whole, and helps to support the idea that consumer routines are increasing as consumers return to the office, events, and other social activities. Management also pointed out that “consumer engagement with beauty is stronger than ever and is more connected with wellness.” However, it’s clear that there is more going on with Ulta than just strong category demand and the ongoing consumer shift away from physical goods to services, which we explore in more detail below.
- Visitation momentum carries into 2023. Ulta’s comparable sales increased +15.6% during the quarter, which was well ahead of market expectations calling for an +8.4% increase. Transactions grew +13.6% year-over-year, and the average ticket +1.8% (a +5% increase in the average selling price was partly offset by lower units per transaction). Looking specifically at the Q4 2022 timeframe (November 2022 to January 2023), Placer.ai’s year-over-year visitation data was consistent with the transaction data as was the cadence. Management reported that sales moderated in November compared to Q3 2022 as they lapped more challenging comparisons, but improved in December due to holiday strategies and that momentum accelerated in January due to “robust guest traffic in stores” and the lapping of weather and Omicron last year.
- Additional visitation share gains expected in 2023. For 2023, Ulta’s management team is calling for sales to increase 7%, with comparable sales growing 4% and the remainder driven by new store growth. The company anticipates comp growth in the first half will be in the upper single-digit range, driven by stronger growth in the first quarter (and aligning with our February visitation data) then moderate to low single-digit growth in the second half of the year. The 7% growth rate is noteworthy, as management also expects the U.S. beauty category to “the higher end of the category's historical annual growth rate of between 2%,” suggesting that the company expects market share gains this year. Below, we’ve compared Ulta’s visitation share versus nine of the other largest beauty, health, and wellness retailers in the U.S. Ulta gained 2.3% of visit shares from 2017-2021, but another 2.8% in 2022 alone. This indicates that Ulta is more than a “rising tide lifts all boats” scenario.
- Ulta is attracting a more diverse visitor base. It’s difficult to pin Ulta’s visitation share gains to one factor, but we believe that its efforts to attract a more diverse customer base have paid off. According to the company, it saw “meaningful gains among key audiences including Gen Z, Hispanic and Black beauty consumers” during 2022 and “healthy growth in spend per member across all income demographics.” Placer.ai data reinforces that Ulta’s collective store trade areas are more diverse than national benchmarks, validating the company’s efforts to broaden its visitor base.
- Expanding the Ulta/Target partnership. Ulta reported an increase in royalty income from its partnership with Target. And plans to expand this partnership to additional stores in 2023 while “evolving” the assortment and “elevating” the guest experience. Management noted that this partnership continues to introduce new consumers to Ulta Beauty, and the company has used data from these store-in-store interactions to drive customer acquisition and bounce back to standalone Ulta Beauty stores.
- New store plan. Ulta plans to open between 25-30 net new stores and remodel/relocate an additional 20-30 existing stores in 2023. Like many retailers, management reported seeing project delays resulting from external real estate and construction issues as well as supply chain disruption for key store equipment. The company remains committed to opening about 100 stores over the next two years but the timing of openings are expected to shift between fiscal 2023 and 2024.