UPDATE: March 17, 2020: On Saturday, Ulta Beauty announced the temporary closure of stores in "certain locations" as a result of the coronavirus outbreak, followed a day later by the suspension of all hair services and a temporary reduction in store hours. That has now escalated to a chain-wide closure, with all Ulta stores shuttering beginning Thursday. They will remain closed through "at least" March 31. The company also withdrew its fiscal 2020 guidance.
In response to COVID-19, a disease caused by a member of the coronavirus family, Ulta is temporarily suspending its in-store makeup, skin, brow, lash and waxing services, CEO Mary Dillon wrote in a note to customers Thursday. Hair services will continue, with increased focus on hand washing, cleaning and sanitization.
Store associates will also take a "no-touch approach" when helping customers with things like shade matching, and customers interested in using a tester product are requested to ask an associate for help.
"We have a cross-functional team meeting daily to respond to and plan for any potential impacts this may have on our associates or operations, and we're working closely with our partners to manage any potential disruption to our supply chain" Dillon said on a conference call with analysts, according to a Seeking Alpha transcript.
Like many others in the retail space, Ulta executives spent a portion of the fourth quarter earnings call discussing actions to address the coronavirus outbreak and what impact, if any, it could have on the business.
So far, the biggest impact to Ulta's business has been the decision to temporarily shut down many of its in-store services, which has accounted for 5% of the retailer's sales the past two years. In talking to analysts, Dillon said the company hasn't yet quantified the impact of closing the services, and it's uncertain at the moment how long they'll stay closed.
However, she also noted that hair services, which are still being performed, represent the bulk of the retailer's sales from services. The retailer's supply chain has not seen "any material impact" from the coronavirus, Dillon said, noting that the beauty retailer has been pulling forward high-demand products for weeks.
"We started to see some impact on store traffic this week, but it really varies by market," Dillon said. "On the flip side, our e-commerce business has continued to perform strongly, and I'd say that's true broadly, really even including affected areas."
Despite disruptions, the retailer remains confident in its business model, not only to stand up through the coronavirus outbreak, but also with the potential of a recession on the horizon. Heading into 2020, the retailer has plans to open about 75 new stores, remodel or relocate 15 and perform "refreshes" at 42 stores.
Ulta's Q4 performance
|Net sales||$2.3 billion||+8.5%|
|Net income||$223 million||+3.7%|
|Operating income||$288 million||+2.3%|
|Gross profit margin||35%||+10 BPS|
Source: Ulta press release
"Our business model, while it could moderate like others during a recession, our category will we think perform better than others in retail, as we've seen historically," Dillon said.
The only threat to that at this point appears to be the makeup category, which remains in a downcycle and made up 50% of the retailer's sales in 2019. In Q4, the category was negative in both prestige and mass, but it still delivered low-single-digit comp growth in 2019. Execs expect more of the same in 2020, but Dillon noted that Ulta research shows "strong interest" in makeup among Gen Z and millennial customers.
To close out 2019, Ulta's net sales grew 10% to $7.4 billion, compared to $6.7 billion the year prior. Comparable sales were up 5% and net income increased 7.2% to $706 million.