Ulta Beauty delivers $ 75 million in profit in Q3 despite declining sales

In the Q3 Ulta Beauty

earnings call the company reported positive net profit of $ 75 million for the third quarter ended October 31, which was 42% lower than the same period last year. With the ongoing challenges facing the retail industry as a result of the coronavirus pandemic (exacerbated by an increase in the number of falls), the results are considered good. While sales were down 8.9%, results exceeded the company’s expectations.

The average spend of all customers increased by 7.6%, driven by an increase in the number of units purchased. Retail traffic was weak, but ecommerce sales were up 90% compared to last year. Buying and picking up in-store online equates to 16% of ecommerce sales, doubling penetration from last year. Inventory declined 11% year-on-year as the company adjusted to current consumer demand and reduced holiday revenues.

Consumers focused on self-care

Mary Dillon, CEO of Ulta Beauty, stated in the call, “Increased interest in home skin care treatments and novelty in innovation, body treatments, facial serums and eye creams are driving strong growth in the category.” Ulta Beauty customers will continue to maintain their skincare routines and wellness programs as part of their self-care during the pandemic. DIY products also boost purchasing, including home hair coloring and one-step hair styling tools.

Positive signals for shopping traffic

In-store traffic trends improved compared to previous quarters, and Dillon said in the call, “Our consumer insights and results still confirm that our members prefer brick-and-mortar stores for beauty, even though they have increasingly started shopping online.” While traffic improved, ongoing restrictions due to COVID continued to have a serious impact on salon services, which fell 30% in the third quarter from last year.

32 million active members in Ulta Rewards

Ulta Rewards continues to be a strong driver of sales with members in the highest loyalty tiers (diamond and platinum). However, the company saw a 6% drop in Ultimate Reward members compared to the third quarter of last year. The company is focused on renewed engagement and recruiting new members as store closings earlier this year impacted some previously active users.

A five-pillar strategy moves the brand forward

Ulta is focused on five strategies that will continue to evolve the brand and deepen customer loyalty: omnichannel (seamless experience for shoppers), product discovery, curated product assortments, Ulta Rewards program, and a cost-efficient retail labor model.

Omnichannel experience is a primary goal with improvements to curbside, the Ulta Beauty app, and fulfillment center expansions. Curbside parking has been expanded, signage has been updated, and new curb reporting technology has been implemented. The Ulta Beauty app has been upgraded with store-specific occupancy levels for greater security and transparency for shoppers. A new booking tool helps customers make appointments for salon services. Additional fulfillment locations have been opened and activities in existing centers have been expanded. Dillon stated, “These investments have increased our e-commerce shipping capacity and will improve delivery speed.”

Product discovery, a hallmark of the beauty retailer’s brand ethos, has expanded to include higher technology applications. GLAMlab, Ulta Beauty’s virtual trial app, has been enhanced with skin analysis tools and more accurate personalized product recommendations. The app allows guests to save analysis and view historical changes over time. The company is testing one-on-one video conferencing across all beauty categories to aid in product selection and further deepen the customer experience.

Curated beauty ranges focuses on exclusivity and leading brands. The company launched Conscious Beauty at Ulta Beauty, a program that offers greater transparency about products that come in sustainable packaging and contain ingredients that are pure, cruelty-free and vegan. In addition, Ulta Beauty highlights brands that have initiatives that demonstrate a positive impact on communities. The Conscious Beauty Advisory Board was developed by Ulta Beauty to bring together a coalition of experts at the forefront of clean beauty, product development and packaging sustainability.

The company continues to use data analysis within the Ulta Rewards Program to create personalized offers and recommendations. The decline in the number of active members in the third quarter has created the need to reactivate members to pre-pandemic levels and focus on higher returns on promotions.

In an effort to create one more cost-efficient retail labor modelUlta Beauty has made some organizational changes, including a restructuring of store positions. The company also announced that it is suspending its expansion into Canada.

Target + Ulta Beauty is a big win for both companies

Ulta Beauty and Target announced in a joint press release last month that they will enter into a strategic partnership in 2021 that will significantly benefit both companies. Dillon discussed from an Ulta Beauty perspective, his beauty authority and in-depth understanding of the beauty category combined with the size of Target’s business will benefit its more than 100 million loyalty customers.

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