Everything You Need to Know About Ulta Beauty

Ulta Beauty is the largest beauty retailer in the United States. It is a major rival to Sephora. While the beauty industry has taken a hit during the pandemic, Ulta Beauty has survived better than most. With their environmental initiatives and expansion into Target stores, Ulta Beauty is on course for a global expansion. A major leadership change is about to occur in June, with Ulta Beauty’s CEO stepping down. We’re taking an in-depth look at Ulta Beauty and the current expansion plans, as well as challenges, that will impact whether you decide to invest in ULTA stock.

About Ulta Beauty

Ulta Beauty is a chain of beauty stores, with store locations in all 50 states within the US. Their stores carry beauty and cosmetic products, ranging from hair care to body and fragrance. Every Ulta Beauty store contains a Benefit brow bar, along with a Dermalogica skin bar.

The company was founded in 1990 by Richard E. George (former Osco Drug Inc. President) and Terry Hanson. The brand was then named ‘Ulta Salon, Cosmetics and Fragrance’. What made Ulta Beauty unique was that the store offered both affordable drugstore and high-end luxury products. Other executives from Osco joined the business, bringing $11.5 million in venture capital for the company’s launch.

1996 saw the hiring of Osco veteran Charles Weber, who ran the company with Lyn Kirby, from 1999 to 2006. Ulta Beauty joined the NASDAQ in October 2007. Following its launch onto the stock market, they opened their second distribution center in Arizona. In 2010, Ulta’s CEO, Carl Rubin, earned over $11.1 million, making him one of Chicago’s highest-paid CEOs.

The current CEO, Mary Dillion, took over the company’s leadership in June 2013. During her first year, Ulta Beauty opened 125 stores, bringing the total to almost 700. Most of the brand’s now 1,174 stores are located on the East Coast, with California having the highest number of stores per state.

By 2017, Ulta Beauty had a net income of almost $270 million, stocking more than 20,000 products. The company offers products from more than 500 brands across various market segments and price points. Out of Ulta’s 35,000 employees – known as associates – 88% of them are women.

Ulta Beauty has continued to introduce brands previously sold exclusively online into their physical stores. 2018 saw the launch of both Kylie Cosmetics and Colourpop Cosmetics in Ulta Beauty stores.

Services offered in Ulta Beauty stores include hairstyling with Redken-trained stylists and facial treatments by Dermalogica-trained skin therapists. OPI-trained manicurists are also available across several Ulta Beauty stores. Every store contains a Benefit Brow Bar, which offers several beauty treatments.

In 2016, the company launched its ‘Ulta Beauty Charitable Foundation’, intending to provide education and support to women and families through partnerships with other foundations and charities. Their partners include the Breast Cancer Research Foundation and Dress for Success. Ulta’s foundation remains amongst one of BCRF’s top three donors, funding 16 research projects. 

In 2020, Ulta Beauty announced a partnership with Target, which included opening smaller cosmetic counters inside Target stores to offer the company’s beauty and skincare products to a larger demographic. The product range offered by Ulta Beauty, a blend of drugstore and high-end, isn’t readily available in stores like Target. The partnership between the two companies allows Target to offer brands that they didn’t previously carry. 

These ‘Ulta Beauty at Target’ stores are expected to open this year, with 100 initial locations, as well as Target.com. Growth plans include expanding to Target stores through the United States. These mini-stores will offer Ulta’s GLAMlab software, a virtual makeup try-on service. They will train Target staff on the products sold within the Ulta Beauty concession.

Sephora, Ulta Beauty’s main competitor, already offers their products through a similar scheme at JC Penny stores. By comparison, the Sephora/JC Penny partnership was launched in 2006. 

The Ulta Beauty/Target partnership may not have had the impact on the brand’s stock that they expected. It comes when beauty sales have taken a major hit because of the pandemic’s shift to working from home.

The Future of Ulta Beauty

In March, Ulta Beauty announced a dedicated shopping platform with Loop, a recycling company, which allows customers to shop for beauty products that can be refilled and reused by the brand. The platform works by requiring customers to pay a small deposit per purchase, which is then refunded when the packaging is returned. Ulta Beauty’s partnership with Loop began in 2020 as part of the company’s ‘Conscious Beauty’ initiative.

Ulta is one brand that took a hit as a result of the pandemic, with more shoppers staying at home, resulting in reduced footfall to the Ulta Beauty stores. In 2019, Ulta Beauty’s comparable sales had risen by 5%, before decreasing by 17.9% because of the pandemic in 2020. While the company has announced that they expect comparable sales to jump back up by 17%, it falls short of the analyst forecasts of 20%. As a result of the news, Ulta stock dropped 11%.

The brand’s loyalty program, a major draw for customers, lost 10% of its membership over the last year. While this was primarily due to store closure, Ulta notes that they still have a high retention rate for its most engaged members. Brand loyalty remains one of the six strategic focuses for the brand in 2021. Other goals for 2021 include opening 40 new stores after a significant scale-back of new openings due to the pandemic.

Ulta Beauty has strengthened its online presence by refreshing its mobile app, as well as offering ‘afterpay’ for online orders. Their app and website now include the function to book in-store services.

Ulta Beauty is currently preparing for several leadership changes, including the position of CEO. Ulta Beauty’s current Chief Store Operations Officer, Kecia Steelman, will move up to the position of Chief Operating Officer. Her new position will focus on overseeing store and service operations, along with Ulta Beauty at Target and other major initiatives. Another noteworthy change is that Lorna Nagler, who has been on the board since 2009, will become a ‘Lead Independent Director’, working alongside Mary Dillon. 

Ulta Beauty’s Current Rating

Steven Forbes, a leading analyst, has downgraded Ulta Beauty stock from ‘buy’ to ‘neutral’. His recommendation came as a result of less than expected fiscal fourth-quarter earnings, which came with a downbeat full-year guidance. The upcoming departure of the brand’s CEO, Ulta Beauty, has also caught investors off-guard. Stephanie Wissink, Jefferies analyst, described it as a “headline shock…the timing is years earlier than expected”.

Ike Boruchow, a Wells Fargo analyst, gave Ulta stock an ‘overweight’ rating while raising his target price from $356 to $365. 

Analysts are still positive about Ulta Beauty, as the brand’s survival during the pandemic and quick recovery has been fuelled by their virtual try-on tools and e-commerce platform. The shift in focus on self-grooming during the pandemic has boosted sales for Ulta Beauty’s skincare product range.

Ulta stock, with a Zacks Rank #3 rating, has increased 35.6% in the last six months – well above the industry’s average rise of 14.8%. Ulta’s digital sales doubled during 2020, powered by their online promotes and successful online customer engagement. E-commerce sales soared 70% during the fourth-quarter fiscal for 2020. The brand’s ‘pick up in stock’ program continued to 15% of these digital sales.

About Mary Dillon, Ulta Beauty CEO

Mary Dillon took over as the CEO of Ulta Beauty in July 2013. In 2016, she was named as one of Fortune’s most powerful women. Dillion is one of only a small number of female CEOs of Fortune 500 companies. She graduated with a bachelor’s degree from the University of Illinois in Marketing and Asian Studies. Dillion has four children and lives with her family in Evaston, IL.

Before joining Ulta beauty, Dillion was the Global Chief Marketing Officer and Executive Vice President for another iconic American brand, McDonald’s, from 2005 to 2010. She served as CEO and President of U.S. Cellular from 2010 until she joined Ulta Beauty in 2013. Along with Ulta Beauty, Dillion is a non-executive Director at Starbucks.

While Dillion was at U.S. Cellular, she focused on expanding the brand’s product and services while fortifying distribution channels and maintaining their high level of customer satisfaction. Her tenure saw U.S. Cellular drive up in profitability and shareholder value. As CEO and President, she oversaw the brand’s focus on philanthropic work for K-12 education, including the donation of over $3 million to schools, non-profits, and teachers.

During her time at McDonald’s, Dillion led the fast-food giant’s global marketing efforts and brand strategy. Dillion’s CV also includes her role as President of PepsiCo Corporation’s Quaker Foods division, along with other positions at PepsiCo, including VP of Marketing for Gatorade.

Dillion is a member of the Board of Trustees for Loyola Academy and is on the Board of Directors for Northshore University Health System, World Business Chicago, Executive’s Club of Chicago, and Retail Industry Leaders Association. She is also part of the Civic Committee of the Commercial Club of Chicago.

In 2019, she announced plans for Ulta to expand their business globally, starting with an initial store opening in Canada. The following month, she was named as one of the best CEOs by Barron’s. Dillon is credited with the expansion of the brand in recent years, including doubling their physical stores and boosting Ulta’s online presence. Her work has also focused on making Ulta Beauty a leader in terms of transparency and environmental initiatives.

Throughout Dillion’s tenure, the ULTA stock more than tripled to over $18 billion, with stakeholder returns of 245%. The company joined the S&P and Fortune 500 listings during her time as CEO. Under Dillion’s leadership, Ulta has expanded to almost 1,200 stores in all 50 states.

Dillion is due to step down from her position as Ulta Beauty’s CEO in June 2021 as part of a series of changes in leadership positions at the company. She told reporters that, “It has been the honor of my career to lead the Ulta Beauty family for the last eight years”. At the 2021 stockholder meeting on June 2nd, Dave Kimbell, the current President of Ulta Beauty, will be nominated to become the company’s CEO.

Kimbell joined Ulta following Dillion’s appointment as CEO, starting as Chief Marketing Officer before taking over as Chief Merchandising and Marketing Officer in 2015. He transitioned to the role of President in 2019.

Although the departure has been labeled as “unexpected” by analysts, Dillion insists it is the right time for her to make the transition. During a call with analysts, she stated that “we’re emerging from the 2020 pandemic with a strong foundation and good operational momentum”. 

Kimbell has said that he intends to “continue to build upon the foundation she set to ensure Ulta Beauty is a destination where every guest feels welcome and every associate can have a fulfilling career”. Mary Dillion will be transitioning over to the role of Executive Chair of the Board of Directors. She’s expected to remain in the post for at least a year, replacing the former Executive Chair, Robert DiRomuald. He had previously been with Ulta Beauty for over 17 years, including three in his position as Chair of the Board of Directors.

ULTA stock is one to watch in the future as the brand emerges post-pandemic. While it suffered from store closures, the brand saw a boost in sales of its skincare products. With their continued global expansion plans and partnership with Target, there’s much to be optimistic about when it comes to ULTA stocks. Although Dillion’s departure was unexpected, she’s being replaced by a company veteran with a proven track record of delivering. It’ll be interesting to see how the new leadership of Ulta Beauty fulfills their global expansion ambitions, along with future-proofing the brand with more environmental and virtual initiatives.