Ulta Beauty says the beauty industry has gotten more competitive

By Bill Peters

Beauty retailer plans to enter Mexico next year, says international growth remains a long-term opportunity

Shares of Ulta Beauty Inc. fell after hours on Thursday after the beauty-products retailer forecast full-year profit that was a bit below expectations, as the beauty industry remains competitive despite a slowdown from a massive post-pandemic rebound.

Markdowns on beauty products were more aggressive than last year, management said, but still well below what the company saw in 2019. And they said demand for prestige-tier beauty products has been under pressure as those items get sold in more places. However, they also said pricing across the industry has become more "normalized."

"Beauty is an attractive category, and competitive intensity continues to increase as channels blur and distribution expands," Chief Executive Dave Kimbell said during the company's earnings call.

Ulta Beauty (ULTA) said it expects to earn between $26.20 and $27 a share this year, slightly below FactSet forecasts for $27.03.

The chain said it expects full-year sales of $11.7 billion to $11.8 billion, with a same-store sales increase of 4% to 5%. That was better than FactSet forecasts for $11.69 billion and a 3.4% same-store sales gain.

Shares fell 6.7% after hours.

Consumers over the past two years have navigated higher prices for essentials, and the beauty industry is coming off a huge recovery following the economy's broader reopening in 2021, which brought more people back to offices and public gatherings and increased demand for makeup and skincare products.

As that demand settles, growth internationally remains "an incremental, long-term opportunity," Kimbell said in Ulta Beauty's earnings release. He said the company has formed a joint venture with Axo to launch Ulta Beauty in Mexico next year.

During the call, management did not offer many further details about that expansion. But Chief Operating Officer Kecia Steelman said Ulta's stores that were closer to the U.S. border with Mexico had performed well.

For its fourth quarter, Ulta reported net income of $394.4 million, or $8.08 a share, compared with $340.8 million, or $6.68 a share, in the same quarter last year.

Revenue increased to $3.55 billion from $3.23 billion in the same quarter last year. Same-store sales rose 2.5%.

Those results were better than expected. Analysts polled by FactSet expected Ulta to report earnings per share of $7.53, on revenue of $3.53 billion and a same-store sales increase of 2.2%.

As with the prior quarter, skin care was the fastest-growing segment for Ulta during the quarter, as customers try out new regimens. New fragrance offerings from Burberry and pop star Billie Eilish were also popular.

"We closed out a strong 2023 with better-than-expected fourth-quarter financial performance," Kimbell said in the earnings release. "Our compelling holiday plans and thoughtfully curated assortment resonated with our guests and delivered healthy traffic, record brand awareness and strong member growth."

He added that while the current economic backdrop remained "dynamic," he was upbeat about the beauty industry's "resiliency."

Kimbell, during the call, said that both mass-market beauty-product lines and higher-end ones were still resonating with customers, and that pricing didn't matter so much.

"Yes, consumers are engaged, and young consumers are engaged in [mass-market lines], but they're also engaged in prestige," he said. "They're loving our luxury experience."

"So it's really not so much about price to promotion, necessarily, as what brand is really delivering great innovation, great marketing, engaging with them in social media," he said. "Those brands will win regardless of the price points."

-Bill Peters

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03-14-24 2008ET

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