Soft Cosmetics Market Could Create Ripple Effect At Ulta

BOLINGBROOK, IL— In recent years, Ulta Beauty has been one of the retail world’s shining stars with annual sales rising more than 70% from 2016.

But the beauty specialty chain is now facing headwinds in the marketplace as softening sales in the cosmetics segment, which accounts for approximately 50% of Ulta’s business, is expected to have a negative impact on sales.

In announcing second quarter results that saw the company’s quarterly and year-to-date revenue increase 12% and 12.5% respectively, Ulta officials restated guidance, lowering previously released forecasts on total sales growth, comparable store sales growth and earnings.

“We have adjusted our expectations for the second half of 2019 to reflect the headwinds and volatility we are currently seeing in the U.S. cosmetics market,” Mary Dillon, Ulta’s CEO, said during a recent investor conference call.

She noted that after several years of strong growth, sales industry-wide in cosmetics has been slowing and recently turned negative. The main reason for the deceleration of sales, Dillon said, is that new products introduced this year have failed to drive growth at levels seen in previous years.

In restating its sales forecast for the remainder of fiscal year 2019, company officials expect a total sales increase of between 9% and 12% (the previous forecast called for low double-digit growth), comparable-store sales growth of 4% to 6% (previously 6% to 7%) and diluted earnings per share in the range of $11.86 to $12.06 (previously $12.83 to $13.03).

While the company still expects sales to grow, the challenge it faces— and one Ulta officials acknowledged— is how the drop in cosmetics sales will impact other product categories.

“It’s a huge part of our business and it’s very high margin for us,” Scott Settersten, Ulta’s CFO, said referring to cosmetics. “So when there is disruption there, it creates a lot of ripple effects across the business.”

Part of that effort will be driving sales in product categories such as
personal care appliances, which through the first half of the year have done well for Ulta. Dillon noted that appliances delivered double-digit growth. Driving this was strong demand for Dyson products and the Revlon One-Step Volumizer Hair Dryer, along with new one-step products from Bed Head and Hot Tools.

To offset the predicted softness in cosmetics in the near term, Ulta is moving forward with a planned third quarter launch of KWW Beauty by Kim Kardashian West. The new collection will include more than 50 SKUs and two Ulta-exclusive holiday kits.

Recently, the retailer launched
Florence by Mills, a collection created by actress Millie Bobby Brown. Also an Ulta exclusive, the line of skin care and makeup is focused on attracting the burgeoning Generation Z consumer group.