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Ulta Beauty reported lackluster second quarter results yesterday, as cooling demand and increased competition pressured sales.
Net sales were up 0.9% YoY to $2.6 billion, but comparable sales dropped 1.2%, as transactions dropped 1.8%. Though the retailer anticipated challenges from Q1 to continue, the results were “short of our expectations,” CEO Dave Kimbell said on the company’s earnings call. “We do not believe these results reflect the strong engagement with our brand, the strength of our operating model, or the performance I know we can deliver over the longer term,” he said.
“Fragrance delivered double-digit growth,” Kimbell said, thanks to new products from existing brands along with Ulta exclusives like Bella Hadid’s Orebella. Skincare garnered mid-single-digit growth, getting a boost from body care but taking a hit from prestige skincare. Makeup sales dropped in the mid-single digits, with new products from brands that “did not meet expectations” or had “increased points of distribution.” Haircare dipped in the high single digits, which Kimbell attributed in part to a shift in promotional strategy.
Kimbell said the beauty category is normalizing after three years of rapid growth, mass beauty sales have flattened, and cautious consumers have been focusing on value. He also noted that points of distribution for beauty products continue to expand, particularly in prestige, causing the beauty retailer to lose share. “More than 80% of our stores have been impacted by one or more competitive openings in recent years,” he said, “with more than half impacted by multiple competitive openings,” causing a “prolonged sales impact.” Additionally, incremental promotions in the quarter “did not deliver the expected sales lift,” despite an increase on digital platforms, Kimbell said.
Ulta has established a five-pronged plan to brighten up its performance, focusing on improving its product assortment, boosting social relevance (it’s grown its creator and influencer network and added a new affiliate program), strengthening its digital experience, leveraging its loyalty program, and evolving its promotions (its semiannual 21 Days of Beauty Sale, kicking off today, got a refreshed look, Kimbell said).
Despite the underwhelming performance, Kimbell said the retailer is seeing “positive signals” across areas like consumer engagement and new store openings that emphasized the “underlying strength and health” of its business.