Ulta Beauty Store Sales Hit by Increased Competition and Market Shifts

Amid escalating competitive pressures, Ulta Beauty is facing a challenging retail environment that impacted its store performance in the second quarter, according to earnings results.

Although the beauty sector remains strong, the rapid influx of new competitors has challenged Ulta’s ability to sustain its market share, particularly in the prestige beauty category.

During the company’s second-quarter earnings call Thursday (Aug. 29), CEO Dave Kimbell discussed the situation after net sales increased by 0.9%, to $2.6 billion, while comparable sales (sales for stores open at least 14 months and eCommerce sales) decreased by 1.2%.

“[T]he strength of the beauty category, combined with an attractive margin profile, has drawn substantial and diverse competition to the category,” Kimbell explained.

“Although we anticipated the headwinds experienced in the first quarter would continue, our results were short of our expectations, driven by a decrease in comp store sales, specifically comp store transactions,” he added. “eCommerce sales increased as expected. We do not believe these results reflect the strong engagement with our brand, the strength of our operating model, or the performance I know we can deliver over the longer term. Importantly, we are clear about the factors that adversely impacted our store transaction growth in the second quarter, and we have actions underway to address the trends.”

Competitive intensity in the beauty category remains high, Kimbell noted, stating: “Today, there are significantly more places to buy beauty, especially prestige beauty, with more than 1,000 new points of distribution opened in the last three years. As a result, our market share continues to be challenged, particularly within prestige beauty.”

Based on Circana data for the 13 weeks ended Aug. 3, Kimbell said, “we maintained our share in mass beauty but lost share in the prestige beauty, particularly driven by makeup and hair categories. We know beauty enthusiasts love to shop for beauty, and they love Ulta Beauty and the unique experiences we offer. But they also love engaging in new beauty offerings.”

Kimbell explained the unique aspect of the current environment is the scale and pace of change.

“More than 80% of our stores have been impacted by one or more competitive openings in recent years, with more than half impacted by multiple competitive openings,” he said. “This significant portion of our store fleet is experiencing a prolonged sales impact.”

After three years of growth, the beauty category is normalizing, Kimbell said.

“[C]onsumer behavior is starting to shift as consumers increasingly focus on value and become more cautious with their spending,” he explained. “Based on data from Circana, U.S.

beauty growth slowed to approximately 3% through the first half of 2024, with prestige beauty experiencing high single-digit growth and mass beauty maintaining low single-digit growth.”

Ulta Beauty executives are focusing on five areas to reinforce their competitive position and drive stronger performance. They want to strengthen assortment, expand social relevance, enhance digital experience, use the Ulta Beauty Rewards loyalty program and evolve promotional levers.

“Notably, the positive signals we see in our broader business reinforce the appeal of our differentiated model and our confidence that we will mitigate these near-term competitive pressures,” Kimbell said. “… At the end of the second quarter, Ulta had 43.9 million active rewards members, a 5% increase from the previous year.”

Meanwhile, Ulta’s digital enhancements include improved search functionality and a new add-to-bag feature, designed to drive traffic and sales. The app saw a 16% increase in engagement, accounting for about two-thirds of eCommerce sales.

Looking ahead, Ulta plans to continue expanding its brand portfolio with new launches and collaborations.

“While it will take time to shift the top-line trend, I remain extremely confident in our model and in our ability to execute and win in an increasingly competitive category,” Kimbell said.