Bolstered by Its Strategic Initiatives, Narrow-Moat Ulta’s Brand Provides a Competitive Edge

We think Ulta Beauty’s brand strength provides a narrow moat and has allowed it to thrive since the worst of the coronavirus crisis, which disrupted its store operations. Over the past decade, Ulta has become the largest specialty beauty retailer in the United States through store openings, product and brand introductions, improved marketing, and, with more than 37 million members, an enhanced loyalty program. Ulta’s sales increased to $8.6 billion in 2021 from $912 million in 2007 as it opened more than 1,000 stores and its stores have become more productive. Ulta’s success has made it a desirable partner for prestige, mass, and emerging beauty brands. While the firm faces intense competition and is affected by innovation and product cycles in cosmetics, we think it has developed a following that has allowed it to take share from mall-based stores while competing effectively against wide-moat Amazon and other e-commerce. We believe teen girls and women like to sample products in Ulta’s stores and that its salons, selection, promotions, and service encourage frequent visitation.