Ulta Beauty’s Focus on Domestic Market Growth Likely to Aid

Ulta Beauty, Inc. ULTA has created a strong niche for its products and services in the market on the back of robust growth strategies and efforts to enhance customers’ experiences. To this end, the company’s focus on strengthening the omnichannel business through store and online expansions surely counts. Incidentally, the beauty retailer recently notified that it has identified solid investment options to aid growth in its domestic market, which include expansion of omnichannel capacity, enhanced guest experience, elevated loyalty and personalization endeavors, new store openings and market share gains in core merchandising categories.

The company also stated that it is suspending its planned expansion in Canada, as part of its efforts to prioritize the advancement of its domestic operations amid the pandemic-led scenario. Management expects to incur costs of about $55-$65 million due to its suspension decision, most of which are expected to show up in fiscal 2020.

Concurrently, the company also informed that on Sep 2, 2020, it had repaid its borrowings drawn from the revolving credit facility. Incidentally, the company drew $800 million under its revolving credit facility in March as a precautionary method to protect its financial flexibility amid the pandemic.

Suspending Canada Expansion – Here’s Why

Ulta Beauty had unveiled plans to make international expansion in 2019, with an initial foray into Canada. Though the company still sees solid long-term growth prospects in international markets, it suspended its planned Canadian expansion due to the difficult pandemic-led environment. We note that coronavirus-related concerns weighed on the company’s second-quarter fiscal 2020 results, wherein the top and bottom lines declined year over year due to coronavirus-led store closures as well as escalated costs.

Nevertheless, the company has been on track with undertaking actions to manage its business amid the pandemic. To this end, it has reopened stores with limited capacity and reduced hours to maintain social distancing. Also, it has implemented Shop Safe standards across all stores. By Jul 20, the company’s entire store fleet was operational. As of Aug 1, salon services were available in about 88% stores, with brow services offered in nearly 85% stores.

Certainly, increasing focus on the U.S. operations appears to be the right thing to do for Ulta Beauty at the current juncture. Toward this end, it remains focused on its five strategic priorities. The company’s foremost priority is to strengthen the omnichannel business and explore the potential of both physical and digital facets. The pandemic has, in fact, speeded up this process for the company, given consumers’ increased online engagement.

Additionally, 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. Further, the company concentrates on offering customers a curated and exclusive range of beauty products through innovation. In connection with this, the launch of Conscious Beauty at Ulta Beauty this fall (across all stores and online) is likely to be fruitful. Further, the company is focused on fueling innovation at its Ultamate Rewards program in several ways. Finally, management is committed to optimizing its cost structure.

Shares of this Zacks Rank #3 (Hold) company have gained 9.2% in the past three months compared with the industry’s growth of 11.4%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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