Ulta banks on exclusives to fuel growth after earnings beat
Ulta Beauty on Thursday reported fourth quarter net sales rose 9.7% to $2.12 billion from $1.94 billion in the year-ago quarter. Excluding the extra week last year, sales increased by 16.2%, according to a company press release.
Comparable sales at the beauty retailer increased 9.4%, up from 8.8% for the year prior. That increase was driven primarily by transaction growth of 7.1% and a 2.3% rise in average ticket size. Broken out, retail comparable sales rose 7%, while salon comps grew 6.2% and e-commerce comparable sales increased 25.1%.
Net income for the quarter increased 3.1% to $214.7 million, compared to $208.2 million in the prior year. Operating income rose 10.5% to $281.2 million, or 13.2% of net sales, compared to $254.4 million in the year-ago quarter. Gross profit as a percentage of net sales increased 90 basis points to 34.9%, up from 34% in Q4 2017.
In addition to beating analyst expectations for its fourth quarter, per MarketWatch, Ulta also posted impressive full-year results, with net sales increasing 14.1% to $6.7 billion compared to $5.9 billion the year before and net income rising 18.6% to $658.6 million from $555.2 million in the prior year.
Comparable sales for the year increased 8.1%, compared to an increase of 11% in fiscal 2017, with retail comparable sales rising 5.1%, salon comparable sales up 3.6% and e-commerce comparable sales increasing 35.4%.
On a conference call with analysts, executives discussed the company's focus on partnering with digitally native brands as key to Ulta's strategy, noting that about 6% or 7% of merchandise is exclusive and that the retailer will continue to try to grow that number going forward. CEO Mary Dillon said the beauty retailer was gaining "significant share across all major categories," especially with the digitally native brands that have tapped Ulta as their only brick-and-mortar outlet.
"Our strategy to be the partner of choice for digitally-native brands like Morphe and Kylie cosmetics are paying off," she said, according to a Seeking Alpha transcript. "Both brands drove very strong traffic in stores suggesting our guests are motivated to make more trips to the store to try these products in person."
The beauty and personal care space is increasingly crowded with direct-to-consumer brands serving niche customer bases and actively looking for opportunities to have a physical presence, and Ulta executives homed in on those exclusive partnerships as part of a growth strategy that seems to be paying off across the board.
The retailer opened 11 net new stores in the fourth quarter and plans to open around 80 in 2019, building on several years of 100-plus store openings. In addition to financial accomplishments, Dillon also touted the number of members now enrolled in its loyalty program, which reached 31.8 million active members at the end of the year, a growth of 14.4% year over year, as well as a deeper focus on technology.
Two acquisitions in 2018 are now being put to use to create more personalized experiences and trial capabilities related to skin diagnostics and foundation matching. In terms of personalization, the retailer is focused on product recommendation, replenishment reminders and site personalization.
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