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Ulta Beauty: Store Visits and Target Partnership Driving Category Market Share

RJ Hottovy
Aug 26, 2022
Ulta Beauty: Store Visits and Target Partnership Driving Category Market Share

Ulta Beauty continued to reap the benefits from the ongoing consumer shift from physical goods to services this quarter, as the retailer posted healthy visitation trends. While sales haven’t returned to pre-pandemic levels, the key takeaway is that Ulta continues to gain share from the category while also finding ways to widen its target audience through its partnership with Target.

  • Visitation trends validate customer acquisition strategies. While store traffic remained slightly below pre-pandemic levels, the trend continues to improve. Comparable-store sales grew +14.4% during the quarter, with transactions making up more than half of the increased (up +8.3%), primarily driven by growth from stores (as opposed to online). Average ticket increased 5.6%, resulting primarily from an increase in average selling price (due to the impact of product mix changes and 300 basis points from retail price increases executed this year). While the transaction growth is encouraging, Ulta’s visitation trends continued to outpace the broader beauty & wellness retail category this quarter, reinforcing the chain’s various customer acquisition strategies.

  • Consumer behavior. Like other retailers reporting results this week, Ulta noted a modest slowdown in the trends right at the end of June and early July (consistent with Placer.ai data), but “nothing alarming about the business”. Similar to commentary from the department stores, Ulta noted that it is not seeing evidence of trade-down, with strong growth across all categories (each category saw sales grow in double-digits, with balanced strength across stores, online sales, and services) and all income levels.  Management attributed the lack of trade-down to “the importance that this category plays in its customer’s lives…as the world reopens.”
  • Target partnership mutually beneficial. Ulta’s partnership with Target remains one of the better-executed “store-as-a-service” partnerships we’ve seen in retail the past few years. During the second quarter, the company opened 59 Ulta Beauty at Target shops, ending the quarter with 186 locations. Ulta has also refreshed the assortment, expanding the fragrance offering, launched two Black-owned brands, SUNDAY II SUNDAY and Melanin Haircare, and introduced new products from existing brand partners, including Benefit, Morphe and TULA. The initial 50 Ulta Beauty at Target locations continue to outperform the rest of the Target chain (below), suggesting that Target will continue to make Ulta a preferred store-in-store partner.

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RJ Hottovy

Head of Analytical Research, Placer.ai

R.J. Hottovy, CFA has covered the restaurant, retail, and e-commerce sectors for nearly 20 years as an equity analyst and strategist for Morningstar, William Blair & Co., and Deutsche Bank.

R.J. also brings a wealth of experience with early-stage investments as an investment committee member for the IrishAngels / Vitalize venture capital group. Over the past three years, he has advised over 50 foodservice and foodservice tech companies on more than $200 million in early-stage capital raises and M&A transactions.

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