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Ulta Beauty (ULTA) Looks Great: 6 Core Strategies a Key Driver

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Ulta Beauty, Inc. (ULTA - Free Report) appears to be in splendid shape, and has been focused on its six core strategies. Apart from this, the company is benefiting from its skincare business. With things opening up and consumers getting back to normal, the company’s stores business is witnessing solid growth. That said, this renowned beauty retailer continues to gain on its robust digital operations. Certainly, efforts to strengthen the omni-channel capabilities, improve services and expand the product offerings have kept Ulta Beauty on a firm footing.

Focus on Strategic Priorities

The company’s foremost priority is to strengthen its omnichannel business, and explore the potential of both physical and digital facets. Ulta Beauty has made significant progress on this front, evident from its solid e-commerce initiatives. Next, the company is undertaking various tools to enhance the experience of guests, like offering a virtual try-on tool and in-store education, and reimagining fixtures, among others. Thirdly, the company concentrates on offering customers a curated and exclusive range of beauty products through innovation. Fourthly, the company is focused on deepening customer engagement by boosting its rewards and loyalty programs. Fifthly, management is committed to optimizing its cost structure. Apart from these, the company strives to boost organizational talent and strengthen culture.

Other Factors Adding Sheen to Ulta Beauty

Ulta Beauty has been seeing market-share gains in major beauty categories for a while now, with skincare standing out, thanks to consumers’ rising interest toward self-care and the company’s focus on newness and innovation. The trend continued in the second quarter of fiscal 2021, wherein skincare sales saw robust double-digit growth compared with the 2019 level. Category growth continued to be backed by serums, cleansers and moisturizers. Guests’ increased focus on self-care and maintaining healthy skincare routines works well for this category.

Moving on, the company is known for its strategy of striking the right balance between online and physical stores. Although the e-commerce sales declined from last year’s major increase in the second quarter, it more than doubled from the 2019 level. Buy online, pick-up in-store or BOPIS penetration remained high and formed 20% of total e-commerce sales in the quarter, up from the preceding quarter’s 16%. Additionally, the company’s initiatives to boost online promotions and customer engagement have been supporting online sales growth. With consumers growing enthusiasm toward online sales, management is on track with the expanding capacity at fulfillment centers, expansion of ship from store capabilities as well as curbside pick-ups. The company is also benefiting from its mobile app and virtual try-on capabilities.

Other companies like The Estee Lauder Companies (EL - Free Report) , Coty Inc. (COTY - Free Report) and Sally Beauty Holdings (SBH - Free Report) are also gaining from the solid online trends. Moving to stores, Ulta Beauty introduced seven stores during the second quarter and plans to open 44 net new stores in fiscal 2021, along with carrying out 18 store remodeling and relocation projects. Apart from this, management remains encouraged about its partnership with Target. The company, on its second-quarter earnings call, said that Ulta Beauty at Target had launched in 58 stores and online. Ulta Beauty at Target is expected in nearly 100 Target stores by the end of the third quarter.

A Look at Q2 & Ahead

In second-quarter fiscal 2021, both top and bottom lines advanced year over year and surpassed the Zacks Consensus Estimate. This robust show was backed by the beauty category revival, along with the impact of the company’s prudent investments undertaken over the past year to adapt according to the market hurdles. The company witnessed higher market share in all core prestige beauty categories, alongside seeing strength in all main mass categories. Also, Ulta Beauty’s services business is seeing momentum and the company intends to re-launch its skin services in certain stores during the third quarter.

Management raised its fiscal 2021 view. It now expects net sales of $8.1-$8.3 billion, up from the $.7-$7.8 billion expected before. Comps growth is now estimated in the range of 30-32% compared with the prior band of 23-25%. Management expects operating margin to be nearly 13% now, up from around 11% projected before. Growth in operating margin is likely to be driven by an expansion in gross margin, which, in turn, is expected to benefit from fixed cost leverage, better merchandise margin, lower salon costs and reduced headwinds related to channel shift. Earnings are now envisioned in the range of roughly $14.5-$14.7 per share, in comparison with the $11.5-$11.95 per share forecasted earlier.