Ulta Beauty CEO Sees Demand Cool Across the Board

While Ulta Beauty enjoyed a good fourth quarter, the first two months of its fiscal 2024 is off to a slower start — and the news caused the company’s share price to drop 15 percent Wednesday.

Speaking at a J.P. Morgan conference in New York City, Ulta chief executive officer Dave Kimbell told investors that he has witnessed a slowdown across the beauty category, albeit coming off of many strong years of growth.

“We had planned for moderation in total category growth to kind of the midsingle-digit range. What we’ve seen so far is a slowdown in the total category across price points and segments. That’s a bit earlier and a bit bigger than we thought,” he said.

He did not pinpoint the slowdown to one particular factor, but stressed that there is a lot going on in consumers’ lives. 

“There’s mixed data points around the economic situation for the majority of consumers with healthy employment rates, wage growth, but also pressures that we see with rising credit card debt, student loan dynamics,” he continued. “More broadly, we know what’s going on in the world around us, whether it’s some of the political challenges, global conflicts and then our political environment here as we go through an election year. It just creates this soup of activity for our consumers that they’re trying to navigate through.”

He also reiterated that the beauty market is getting more and more competitive, pointing to Sephora’s partnership with Kohl’s, which began in August 2021. They are in 910 stores, with plans to enter the whole fleet. In comparison, Ulta Beauty ended fiscal 2023 in 510 Target locations. Macy’s-owned Bluemercury is also increasing its footprint, adding 30 new stores and remodeling 30 other stores.

“There have been more than a thousand new points of distribution in prestige…so the competitive environment continues to intensify,” said Kimbell. “I’ve been with this company for 10 years. I’ve seen a lot of different versions of competition and it’s always been competitive. But there’s certainly some dynamics going on right now that are somewhat unique.” 

As for why the company switched plans and is beginning its international journey in Mexico as opposed to Canada, he pointed to the pandemic.

Last month, Ulta announced a joint venture with Axo, a global brands operator, to launch and operate Ulta in Mexico in 2025. In 2019, the retailer announced a Canada launch under previous CEO Mary Dillon, but that never materialized.

“We started this journey of expanding into Canada in 2019. Our approach then was we were going in independently and we were building from the ground up. We pulled back on that expansion during the pandemic to refocus on the growth and opportunity we saw in the U.S.,” said Kimbell. “We still believe that Canada is an expansion opportunity for us over the long term. We don’t see any viable JV or partnership models currently for that. And we do believe partnership is a way for us to enter the market, particularly in Mexico, faster, scale faster and manage or mitigate risk.”

Ulta’s share price closed down 15 percent, or $79.70, to $439.98 on Tuesday.

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