Ulta Beauty Sees Resilient Demand, Eyes Fragrance, Wellness Growth After Target Exit

Key Points

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• Resilient demand: Ulta Beauty reported steady consumer spending across income and age groups, raised its full-year outlook, and cited higher loyalty-member spending. Its broad price range, stores, services and 47 million-member loyalty program support its competitive position.

• Growth opportunities: Fragrance, K-beauty, hair health and wellness are key expansion areas, with wellness potentially becoming a billion-dollar category. Ulta is also pursuing international growth through Space NK in the U.K.

• Target exit and shareholder returns: After ending its Target partnership in August, Ulta expects to recapture sales as prestige products return to its stores and ecosystem. The company raised its planned annual share repurchases to $1.8 billion while targeting modest margin improvement.

Ulta Beauty (NASDAQ:ULTA) executives said the company is seeing continued resilience in consumer beauty spending, supported by its broad price range, loyalty program, stores, services and investments in technology.

Speaking at a Barclays conference, President and Chief Executive Officer Kecia Steelman said Ulta has not seen a meaningful change in customer shopping behavior despite what she described as a dynamic macroeconomic environment. She said customers view beauty as both an affordable luxury and a form of self-care, while Ulta’s assortment spans entry-level through luxury price points.

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Steelman pointed to the company’s second-quarter results, saying Ulta exceeded its prior guidance and raised its full-year outlook. Chief Financial Officer Chris DelOrefice added that average spending per loyalty member increased during the second quarter and that the company did not see material changes in demand across age groups or income cohorts.

Category trends and international growth

Steelman said fragrance is among Ulta’s fastest-growing categories and contributed to higher average transaction value in the second quarter. The company has publicly stated its goal of becoming the No. 1 fragrance retailer in the U.S., she said. Fragrance is also attracting younger male shoppers, who are increasingly buying multiple scents and layering products rather than relying on a single signature fragrance.

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In skincare, Steelman said K-beauty remains an important opportunity. Ulta has been the No. 1 retailer of K-beauty for the past 18 months, according to Steelman, and exclusives accounted for 50% of the company’s K-beauty sales in the most recent quarter. She also said Ulta plans to add Proya, which she described as the leading C-beauty brand from China.

Makeup trends are shifting toward heavier glam looks and eye makeup, Steelman said, while haircare demand is expanding beyond shampoo and conditioner into scalp treatments and hair health. She said GLP-1 use is influencing both skincare and haircare needs.

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Ulta continues to invest in Space NK in the United Kingdom, where Steelman said the business has previously reported strong double-digit comparable sales. She described the U.K. as the sixth-largest beauty market and said Space NK remains an important growth opportunity.

Target exit and competitive positioning

Steelman said Ulta ended its Target partnership in mid-August and that prestige brands involved in the relationship returned to the Ulta ecosystem. She said the company has data on customers who shopped both Target and Ulta and is using marketing efforts to retain and regain those shoppers.

She acknowledged that the Target partnership initially cannibalized Ulta store sales, similar to the effect of a new competitor opening nearby. However, Steelman said Ulta expects an opportunity to recover those sales as prestige beauty products associated with the partnership are again available through Ulta.

The executive also emphasized Ulta’s positioning across mass and prestige beauty, describing the company as the only specialty beauty retailer serving customers from low-end to luxury price points. She said the company’s store associates, services and ability to create an experiential shopping environment are difficult advantages for competitors to replicate.

Loyalty, AI and profitability

Steelman said Ulta’s loyalty program has 47 million members, with 95% of sales coming through members. The company’s investments in foundational systems and data governance are now supporting more targeted marketing and artificial-intelligence applications, she said. Ulta also uses its customer data to demonstrate returns for brand partners through its UB Media offering.

DelOrefice described a “flywheel” in which brands, exclusive products, customer engagement, loyalty data and higher customer spending reinforce one another. He said the company’s strategy begins with healthy top-line growth and is intended to support double-digit earnings-per-share growth over time.

On margins, DelOrefice said Ulta plans to maintain financial discipline while continuing to invest in growth initiatives. He said the company expects selling, general and administrative expenses to grow slightly below sales, helping produce modest operating-margin improvement. He also said the company has moved beyond the concept of a 12% operating-margin floor, noting that it is already above that level and expanding margin this year.

After supporting capital expenditures and organic growth investments, Ulta is prioritizing share repurchases, DelOrefice said. The company increased its planned buybacks to $1.5 billion and later to $1.8 billion for the year, he said.

Wellness and future expansion

Steelman identified wellness as a major long-term opportunity. She said wellness is a $400 billion category that is currently growing faster than beauty, and that 95% of Ulta guests are already shopping wellness products. Ulta has focused its wellness assortment on supplements and nutrition, rest and renew, intimate care, and everyday essentials.

The company has opened several wellness shops and is using early learnings to refine the concept. Steelman said wellness could become Ulta’s next billion-dollar category. Additional growth avenues include its marketplace, TikTok Shop engagement, international expansion and products for men, she said.

Steelman said investors may underestimate the continuing relevance of physical stores. Stores account for 80% of Ulta sales, while online represents 20%, she said. Additionally, 75% of loyalty members shop exclusively in stores, 20% shop across channels and 5% shop only online.

She added that only 15% to 20% of member sales are replenishment purchases, with the remainder coming from products customers have not previously purchased, including new items, categories and innovations.

About Ulta Beauty (NASDAQ:ULTA)

Ulta Beauty, Inc is a specialty beauty retailer operating under the Ulta Beauty brand. The company sells a broad selection of cosmetics, skincare, haircare, fragrance, bath and body products, and beauty tools across a range of price points. Its merchandise includes both established brands and private-label products, as well as prestige, mass-market and professional beauty offerings.

In addition to retail sales, Ulta Beauty provides services through salon locations within many of its stores, including hair, skin and brow services.

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