Ulta Counters Increasing Competition With Advantages in Merchandising, Stores, and Loyalty

We think Ulta Beauty’s brand strength provides a narrow moat and has allowed the company to thrive despite economic conditions and other external challenges. 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 about 44 million active members—an enhanced loyalty program. Annual sales have increased to about $11.3 billion from $912 million in 2007 as Ulta has opened more than 1,000 stores, its shops have become more productive, and its e-commerce has matured. This success has made Ulta 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 Amazon and other e-commerce. We believe that teen girls and women like to sample products in Ulta’s stores and that its salons, selection, promotions, and service encourage frequent visitation.