Ulta's comparable sales, which includes ecommerce, declined 35.3% in the cosmetics retailer's fiscal first quarter. But introducing curbside pickup gives Ulta a much-needed boost.

As the coronavirus pandemic forced Ulta Beauty Inc. to close its stores across the U.S. in mid-March, the cosmetics retailer had to quickly pivot to an online-only operation.

“When we began 2020, we certainly did not plan to operate into a digital-only business,” said Mary Dillon, CEO, on an earnings call transcribed by Seeking Alpha. “Anticipating an increase in demand, our digital teams quickly leverage existing capabilities to support higher ecommerce order volumes and manage order flow.”

Ulta reported 33% revenue decrease

The cosmetics retailer reported its total revenue decreased 32.7% to $1.173 billion in the first fiscal quarter ended May 2, 2020, compared with $1.743 billion in the first quarter of fiscal 2019. Even though it had “double-digit growth” in ecommerce sales, its comparable sales—which includes sales for stores open at least 14 months, including stores temporarily closed due to COVID-19, and ecommerce sales—took a hit, falling 35.3% compared with an increase of 7.0% in the first quarter of fiscal 2019.

80% of Ulta’s revenue is generated in stores, so the retailer knew that an acceleration in ecommerce would still not make up for the lost bricks-and-mortar sales, Dillon said. But even though comparable sales after mid-March declined in all categories as a result of its store closures, the skin care, hair care, bath and nail categories all increased as a percentage of sales, Ulta reported but did not break out exact figures.

 

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Focus on in-store experience hurt online sales in the past

Ecommerce was just not enough to offset store closures, says Sucharita Kodali, vice president and principal analyst at Forrester Research Inc. “They’ve always been a bit sluggish online though in large part because they were prioritizing stores and store inventory,” she says.

And while the cosmetics retailer grew its loyalty members 2% to 33.1 million members compared with the same period a year ago, it was still lower than Ulta planned. “Stores have been the largest source of new member acquisition,” Dillon said. “And while we saw significant growth in new member acquisitions through our digital channels, it was not enough to offset the impact of store closures.”

To mitigate some of the store sales loss, however, Ulta on April 23 introduced curbside pickup at 70 stores, and soon after grew the service to more than 800 locations (or two-thirds of its entire store base). After launching this omnichannel option, Ulta increased its average number of orders per store and “strong” average order values compared with earlier in the pandemic when curbside was not an option, Dillon said without revealing specifics.

As stores begin to open, the sales increase

Within the last couple of weeks, some states have lifted their stay-at-home ordinances, so Ulta has opened 333 stores as of the date of publication. “While it’s early in the reopening process, we’ve seen stronger-than-expected sales in reopened stores,” Dillon said without revealing specifics.

Based on current projections, Ulta expects to have most of its stores reopened by the end of June. But it is still keeping its guest makeup testers off the sales floor, encouraging its shoppers instead to use its digital makeup app GLAMlab to visualize makeup and skin care products.

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“Store sales are a key element in beauty sales as there is a lot of ‘try-before-you-buy,’ however, that ability has been completely stripped away—all consumers are online, and perhaps not bridging the gap lost by in-store sales,” according to Graham Cooke, CEO at marketing technology provider, Qubit, which works with hundreds of retail brands.

Since the pandemic began, consumer engagement with its GLAMlab virtual tool has increased nearly 5 times, and more than 30 million makeup shades have been tested virtually, Ulta reported.

Ulta is not releasing a 2020 earnings outlook

Given the uncertainty presented by the pandemic, Ulta has withdrawn its 2020 guidance and is not providing an earnings outlook. It also reduced its new store opening and relocation plans. It now plans to open 30-40 stores, down from its plan to open 75, and will relocate only three stores rather than its previously planned 15.

“As we look beyond the reopening process, we’re adjusting our plans for the rest of 2020 and we are reimagining holiday [plans],” Dillon said. “Despite our universal desire to return to normal, COVID-19 will likely have sustained effects on consumers, the competitive environment and how we all operate and work. We’re talking through all of these changes and what they may mean to our business model going forward, but we know we’ll emerge strong.”

Ulta is No. 69 in the 2020 Digital Commerce 360 Top 1000.

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For the first fiscal quarter of 2020, Ulta reported:

  • Net sales decreased 32.7% to $1.173 billion compared with $1.743 billion in the first quarter of fiscal 2019.
  • Comparable sales (sales for stores open at least 14 months, including stores temporarily closed due to COVID-19, and ecommerce sales) decreased 35.3% compared with an increase of 7.0% in the first quarter of fiscal 2019. Ulta says the decrease was driven by a 38.6% decline in transactions, which was partially offset by a 3.3% increase in average ticket size.
  • Gross profit decreased 52.9% to $303.6 million compared with $644.8 million in the first quarter of fiscal 2019.
  • Operating loss was $101.5 million, or 8.7% of net sales, compared with operating income of $237.5 million, or 13.6% of net sales, in the first quarter of fiscal 2019.
  • Net loss was $78.5 million compared with net income of $192.2 million in the first quarter of fiscal 2019.
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