NEW YORK, United States — Believe it or not, there's a brick-and mortar-shop thriving out there in the wasteland of struggling retailers.
Ulta Beauty Inc. on Thursday said fourth-quarter sales grew 16.6 percent from the year before, marking its eighth straight quarter of double-digit same-store sales growth.
It's also the highest sales growth, by far, among the 100 retailers in the S&P Retail Select Industry Index. On average, that group's sales fell by 1 percent in the latest quarter from the year before.
Ulta's shares are up 70 percent in the past year, outpacing even Amazon.com Inc., the e-commerce giant eating into sales at all the other retailers.
Curiously, the stock fell about 5 percent Thursday in after-market trading, possibly a knee-jerk reaction to first-quarter guidance coming in lower than analysts expected. Or perhaps investors were just getting nervous about the company's rich valuation and wanted to bag some gains.
But Simeon Siegel — Instinet retail analyst and keeper of a handy guide to historical sales guidance — points out Ulta has beaten its conservative sales guidance in every quarter but one over the past seven years. And although Ulta is trading at 34 times forward earnings, that's only slightly higher than its two-year average multiple of 33.
In other words, it's silly to worry about a company "warning" about 11 percent comparable sales growth, at a time when most retailers would kill for just half of that.
So what is Ulta doing right?
For one, it's in the $57 billion global cosmetics business at just the right time. In the U.S., spending on personal-care products is growing faster than overall spending, and cosmetics is leading the charge. Lipsticks and face masks are affordable luxuries at a time of rising health-care and housing costs. And now that an entire generation is expected to document its every move on Snapchat, Instagram, and other social media, it pays to be in the business of helping people look good.
Ulta also benefits from services that require customers to show at physical locations. Salon sales — including hair colouring, facials, brow boutiques, and makeup services — increased 15.2 percent in the latest quarter from the year before.
Ulta has built a devoted following, growing its loyalty membership by 29 percent in the past year. It now has 23 million loyalty members — twice as many as Starbucks Corp. — who regularly come in to replenish their foundation and powder.
That dedicated base has given Ulta the means to stock its stores with higher-end products, such as MAC cosmetics, which it will offer for the first time this year. Adding prestige cosmetics will help it attract higher-end customers, who will presumably spend more.
Ulta plans to open stores in urban centres such as New York, Chicago, and Santa Monica, along with about 100 new stores across the country this year. Historically, Ulta's store base has been mostly suburban — pretty much the opposite strategy from most retailers, which tend to open in bigger cities first and then foolishly assume they can count on the same sales flow in smaller markets.
Taking the opposite tack will give Ulta a sales boost from higher-end locations, while introducing the brand to international customers shopping in places like Chicago's Magnificent Mile.
That will be especially important as Ulta embraces e-commerce. Its online sales grew 63 percent in the latest quarter, driven mostly by a higher number of transactions: Ulta customers who shop online and in stores end up buying 2.5 times as much as store-only customers do.
Of course, Ulta isn't immune to Amazon. The e-commerce giant brought in $2.5 billion in beauty sales last year, up 47 percent from the year before, according to data firm One Click Retail.
That represents nearly half of Ulta's entire annual revenue. And the growth rate implies it won't be long before Amazon's beauty sales overtake Ulta's completely.
But until Amazon figures out how to colour hair, pluck eyebrows, or provide a makeup consult virtually, Ulta stands to remain retail's beauty queen.
By Shelly Banjo; editor: Mark Gongloff.