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A Brick-and-Mortar Believer, Ulta Could Grow to 1,700 US Stores

E-Commerce Sales Surge in High Double Digits, but Beauty Chain Sees Leased Locations as Main Driver

Courtesy of Sundry Photography

Ulta Beauty is staying on track to beef up its brick-and-mortar outlets, with plans to add another 30 stores next year and more beyond even as e-commerce sales soar.

The Bolingbrook, Illinois, cosmetic and skincare giant said it opened 17 new stores in the third quarter and expects to have more completed before the year is out for a total of 30 to add to its fleet of 1,262 stores.

“We are still finalizing our plans for next year but continue to expect to open at least 30 new stores in 2021,” CEO Mary Dillon said on a conference call with analysts. “We remain confident in the long-term opportunity to continue to expand our store fleet.”

Ultimately, she’s looking at a total U.S. footprint of 1,500 to 1,700 stores even with plans to add shops at Target stores, announced last month. Dillon has long said Ulta’s approach to brick-and-mortar is a key part of its business strategy, even when stores were closed for weeks at a time during pandemic-related restrictions.

Ulta has suspended its planned foray into Canada, but Dillon still expects that expansion to get underway next year.

The company halted new-store openings in the first half of the year but resumed them in August. At the same time, e-commerce and buy online, pick up in store sales jumped 90% in the third quarter, 8.9% below the second quarter’s results, but still healthy on a year-over-year basis, reflecting the consumer shift to online shopping.

Overall, however, total sales and profit tumbled in the quarter but have improved sequentially since the onset of the COVID-19 outbreak as Ulta continues “navigating through this difficult period,” Dillon said.

Net sales tumbled 7.8% to $1.55 billion and per-share income plunged 42% to $1.32. Like other retailers, Ulta saw transactions fall, by 15.4%, while its average ticket swelled, by 7.6% as shoppers were making fewer trips but buying more.

Dillon also said her team has been able to renegotiate leases with many landlords, again in line with broader trends, to pull down rents.

“As sales stabilize and return to growth, we will be able to leverage fixed costs,” she said. “Our real estate team is capturing significant benefits from lease renegotiation efforts, reflecting the market impacts of COVID-19 and these efforts will help us reduce occupancy costs over the longer term.”

That, she said, further supports her brick-and-mortar strategy. “We believe we can still build out the number of stores that we have mapped out,” Dillon said. “This yet gives us yet another point of distribution, a way to reach millions of new guests with a trial and discovery version of Ulta.”

Confident, too, in the strength of its liquidity and cash flow, Ulta paid back the $800 million it drew down from its $1 billion revolving credit facility earlier this year.

Source: 2020 CoStar News.

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