Ulta Beauty on Thursday reported third quarter net sales rose 18.6% to $1.34 billion compared to the year-ago quarter, according to a press release. Driven in part by transaction and ticket growth, same-store sales in Q3 rose 10.3%, compared to an increase of 16.7% in the same period last year.
E-commerce sales grew 62.9% to $119.8 million compared to the year-ago period, representing 370 basis points of the total company same-store increase, the company said. Overall retail same-store sales rose 6.6%, which includes the company’s salon same-store sales growth of 3.8%.
Gross profit as a percentage of net sales fell 110 basis points to 36.7% from 37.8% in the year-ago period, due to decreases in merchandise margins. Selling, general and administrative expenses as a percentage of net sales fell 90 basis points to 23.9%, thanks to cost efficiencies and higher sales volume, partially offset by investments in store labor to support growth initiatives and charges related to the hurricanes. The company estimated that Hurricanes Harvey and Irma resulted in approximately $14 million in lost sales.
Ulta has been a retail darling in recent months, with strong brick-and-mortar growth at a time when many retailers are shuttering doors. New stores are adding to sales, which helped mitigate slowing sales of makeup at existing stores, executives said. Despite that physical store focus, e-commerce is also booming at the retailer.
Ulta’s number of online shoppers and omnichannel shoppers are both continuing to "steadily increase," and it's boosting its e-commerce with online-only merchandise offerings, CEO Mary Dillon told analysts, while noting that overall the company's highest sales growth was in skincare and fragrance, according to a conference call transcript from Seeking Alpha.
"Guests purchasing both in-store and online now represent 9.1% of our loyalty members, compared to 7.5% a year ago, and she’s spending 21.7 times more than a retail-only guest when she shops in both channels, including doubling her spend in our stores," Dillon said.
The company said it has improved its supply chain operations and is achieving economies of scale in its distribution network, supporting growth. E-commerce costs for orders are down 10% year-over-year, with a 4.4% reduction in retail replenishment costs over the same period. Its supply chain team has achieved a 20% reduction in retail replenishment lead times, so that most e-commerce orders are processed within 24 hours of being placed.
But Dillon said that the company's e-commerce growth won’t distract the retailer from its stores.
"We love the fact that our e-commerce growth is picking up," Dillon told analysts. "We’re agnostic about it from a bottom line profit perspective, but we’re actually really positive about it as it relates to customer engagement. So the folks that are like 9% of our loyalty members that are on the channel, multi-channel, right now by far [are] our best guests in terms of spending almost three times the amount of somebody who’s only shopping in store, but she is also shopping even more in-store than before."
As for physical stores, Dillon said the company's new Manhattan store is "off to an excellent start in its first few weeks" and other new, high-profile stores in Chicago and the Mall of America are also doing well. All told, the company opened 48 stores in the quarter and plans to maintain its target of 1,400 to 1,700 doors over the next few years, executives also said. In the next year, Ulta plans to open 100 stores, Dillon said.
The company estimates that fourth quarter same-store sales, including e-commerce, will be down from last year, rising 8% to 10% compared to its 16.6% increase in the fourth quarter of 2016. But it reaffirmed its guidance for the year, with same-store sales growth of approximately 10% to 11% (including e-commerce, which it expects to grow between 50% to 60%) and earnings growth of well over 20%.