Despite surging fourth quarter sales growth, Ulta Beauty on Thursday gave Wall Street some jitters with its tentative Q1 guidance.
The cosmetics retailer's Q4 net sales increased 24.6% to $1.58 billion from $1.27 billion in the year-ago quarter. Same-store sales, which include e-commerce sales, rose 16.6% compared to the year-ago increase of 12.5%, driven by 10.9% growth in transactions and 5.7% growth in average ticket, the company said. E-commerce sales grew 63.4% to $154.9 million from $94.8 million a year ago, representing 380 basis points of the overall same-store sales increase. Q4 retail same-store sales increased 12.8%, including salon same-store sales growth of 8.8%, while salon sales alone in the period rose 15.2% to $62.9 million from $54.6 million in the year-ago period.
Ulta nevertheless expects Q1 net sales to fall between $1.24 billion and $1.27 billion, with same-store sales growth landing between 9% and 11%, and in this fiscal year, the company expects same-store sales growth of approximately 8% to 10%, including e-commerce growth in the 40% range. Ulta also plans to open approximately 100 net new stores — same as last year.
It isn’t the first time Ulta Beauty has made investors jittery despite quarterly and full-year performances that are the envy of retail: Last year, Wall Street adjusted its shares downward despite a second-quarter report that flew past expectations.
This time the company did miss expectations, announcing guidance and a few other numbers that failed the outlook from some analysts. The retailer's continued brick-and-mortar ambitions may also be leading to some scratching of heads in an era when the prudent play to many seems to be in e-commerce.
Of course, Ulta is boosting its e-commerce sales, in a big way. E-commerce same-store sales grew 56.2% to $345.3 million from $221.1 million in fiscal 2015, representing 240 basis points of total company comparable sales increases of 15.8%. Ulta's full-year 2016 net sales increased 23.7% to $4.855 billion from $3.92 billion in 2015, and same-store sales rose 15.8% compared to an 11.8% increase of in fiscal 2015, driven by 10.7% growth in transactions and 5.1% growth in average ticket.
GlobalData Retail analyst Carter Harrison says that due to the highly personal nature of the beauty segment, where people want to see and try products, Ulta has plenty of room to grow, despite an already torrid pace of an 11% expansion to 974 stores. “[G]iven current retail traffic trends and the travails of other store-based retailers, this pace of growth may, to some, seem like a problem waiting to happen. In our view, this is not necessarily so, and we actually believe that there is still significant headroom for further growth,” Harrison said in a note emailed to Retail Dive.
There are several factors on Ulta’s side that will remain assets for the foreseeable future, Harrison said. In addition to beauty consumers’ predilection to favor brick-and-mortar tryout opportunities, ailing department stores — once the major players in beauty sales — continue to cede market share to the likes of Ulta and rival Sephora. Plus, consumers don’t want to travel far to make their choices, making it necessary for Ulta and other players to host plenty of locations.
“Our consumer data shows that beauty is, essentially, a local business,” Harrison said. “Shoppers do not want to travel long distances to look at and buy products. Nor do they want to always buy them online; there is a significant social element to beauty purchasing which means stores remain highly relevant. Ulta has bolstered this relevance with a range of in-store beauty services and a level of customer service that cannot be replicated online and has given their stores much more ‘pulling power.’"
E-commerce is important in beauty, but Ulta is hardly ignoring that, Harrison added. “None of this means that online is completely irrelevant for beauty, as Ulta itself has shown with its 62% e-commerce growth this quarter… driven by a number of factors,” he said. “These include strong, targeted marketing underpinned by the company's loyalty scheme; and, investment in the site to make it easier and more interesting to use across both desktop and mobile platforms.”
All players are benefiting from consumers’ enthusiasm for beauty products, and from an increasing willingness to choose on quality rather than price, and Ulta in particular is positioning itself to take advantage of that. Wall Street may have to learn to live with the way Ulta’s stellar results bump up against previously stellar results.
“[H]ow long can Ulta keep up this pace of growth? The answer is that comparable sales are likely to moderate in the coming year as the company laps tough prior year comparatives,” Harrison said. “However, they will remain, at least, in the high single digit range. Overall sales will continue to outpace comparables by some margin, thanks to 100 new store openings targeted across 2017. In other words, Ulta will remain one of the stars of the retail world for quite some time yet.”