Ulta Beauty 2018 Analyst and Investor Day: Ultamate Rewards Loyalty Program Driving 95% of Revenue with 30 Million Members; Ulta Continues to Diversify Beyond Mass Cosmetics

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Key Points

  • More than 95% of Ulta’s sales go through the company’s Ultamate Rewards loyalty program, which now has more than 30 million members. Membership in the program grew by 64.8% from 2015 to 2018.
  • Ulta has added more than 250 brands since 2016. The company is concentrating on newness and on diversifying its product portfolio. Ulta’s focus is on exclusives (which account for 9% of sales), independent brands and prestige brands.
  • The company is partnering with celebrity Kim Kardashian West to sell four of her fragrances in stores beginning November 25, and with her sister, Kylie Jenner, to sell Jenner’s Lip Kit in stores beginning November 17. These collaborations will provide customers the opportunity to try products that were previously available only online. Both Kardashian West and Jenner have millions of social media followers.
  • Ulta is investing in technology to build an innovation ecosystem, with the goal of becoming the digital store of the future. The company is focusing on personalization and connecting online and offline experiences in order to tailor its communications and help consumers navigate the beauty space. Ulta invested in tech startup Spruce to facilitate guest booking for its salon business and in digital workflow platform Iterate. The company also acquired artificial intelligence (AI) startup QM Scientific and AI and augmented reality (AR) startup GlamST.

On November 8, Ulta Beauty hosted its annual Analyst and Investor Day in Itasca, Illinois. The day consisted of presentations from CEO and Director Mary Dillon, SVP of Brand Marketing Shelley Haus, Chief Merchandising and Marketing Officer Dave Kimbell, SVP of Merchandising for Prestige Beauty Tara Simon, CFO Scott Settersten, Chief Store Operations Officer Kecia Steelman, SVP of Digital and E-Commerce Prama Bhatt and Chief Supply Chain Officer Derek Hornsby.

The main themes of the day included customer loyalty, new products, celebrity collaborations, technology investments and bringing newness to the product assortment with a focus on exclusives, independent brands and prestige brands.

The company announced that it will no longer provide quarterly guidance. Ulta will provide specific annual guidance on its fourth-quarter earnings calls and update that as needed throughout the year. Ulta also announced that it is retiring its “All Things Beauty, All in One Place” slogan and replacing it with “The Possibilities Are Beautiful” as its new brand expression.

Ulta’s Net Sales Grew by 120% from 2013 to 2017

As of November 8, Ulta operated 1,163 stores in 50 states as well as its Ulta.com online store. Some 96% of Ulta stores are approximately 10,000 square feet in size. The company is moderating its store opening plans, and now plans to open 80 stores in 2019, and 70–75 stores in each of the following two years, with a target of operating 1,399 stores in 2021. The company’s previous estimate, as of August 30 this year, was to operate 1,400–1,700 stores in the US over the next few years. When asked about international expansion, CEO and Director Mary Dillon said, “We’re studying; we don’t have anything to announce today.”

Ulta grew revenues by 120% from 2013 to 2017, from $2.67 billion to $5.88 billion. The company raised its fiscal year 2018 comp guidance from 6%–8% growth to 7%–8% growth and reiterated its full-year EPS guidance of “low 20% growth.”


Slide from Ulta Beauty 2018
Analyst and Investor Day presentation
Source: Ulta Beauty

More than 95% of Ulta’s Sales Go Through the Ultamate Rewards Loyalty Program

Dave Kimbell, Chief Merchandising and Marketing Officer, said that membership in the company’s Ultamate Rewards loyalty program has grown by 64.8% over the past three years, from 18.2 million members in 2015 to 30 million members as of November 2018. Kimbell said that more than 95% of the company’s sales go through the loyalty program, which enables Ulta to track all of those items back to an individual, providing the company with a deep understanding of purchasing behavior.


Slide from Ulta Beauty 2018
Analyst and Investor Day presentation
Source: Ulta Beauty

Ultamate Rewards Loyalty Members Spend $200 Annually and Hold 30% Share of Wallet

Kimbell said that Ultamate Rewards loyalty program members spend an average of $200 per year at Ulta and account for 30% of all beauty spending at Ulta. They also represent 30% of all “beauty enthusiasts,” he said. Ulta’s loyalty program has three tiers, Member, Platinum and Diamond. Its Platinum and Diamond members represent more than 40% of beauty spending, while Regular members account for 30% of beauty spending.


Slide from Ulta Beauty 2018
Analyst and Investor Day presentation
Source: Ulta Beauty

Ulta Has Added 250+ Brands Since 2016 and Has Focused on Exclusives and Independent Brands and on Introducing Customers to Prestige Brands

Ulta reported that it has added more than 250 brands since 2016, 100 of which are in skincare. The company reported that it is seeing a blurring of the lines between mass (drugstore brands) and prestige (premium) brands, with most Ulta guests shopping across both brand segments. Tara Simon, SVP of Merchandising for Prestige Beauty, said that the company’s customers are exhibiting “mass migration,” meaning they may start at Ulta buying mass brand products and then, over time, begin buying prestige products, while continuing to buy just as many, or more, mass brand items.

By introducing consumers to prestige brands, the company is gaining share of wallet. Simon reported that Ulta currently holds 23% of the prestige beauty market, according to The NPD Group, up from 15% in 2016, with the majority of the growth since 2016 coming from cosmetics.


Slide from Ulta Beauty 2018
Analyst and Investor Day presentation
Source: Ulta Beauty

Simon said that over the past two years, Ulta has added more prestige brands and increased penetration of its prestige portfolio, which includes Chanel, Clinique, Estée Lauder, Kate Somerville, Kiehl’s, Lancôme, MAC, Mario Badescu, NARS and Peter Thomas Roth.

The company is also focused on bringing independent brands in-store and is working with digitally native brands. Ulta reported that it is seeing significant growth in brands that it has introduced, including ColourPop, Dose of Colors, Juvia’s Place and Morphe. Simon said that the company sees the expansion of all brands across its portfolio as an opportunity to increase its share of wallet.

Ulta has increasingly focused on new and exclusive products to include in its Ulta Collection. Exclusive products that are sold only at Ulta represent 9% of the company’s portfolio. The Ulta Collection and products that were designed specifically for Ulta, such as IT Brushes for Ulta and Tarte Double Duty Beauty products, represent about 6% of the business. The remaining 3% of the exclusive portfolio includes partnerships with brands such as Morphe and Kylie Cosmetics, where Ulta serves as the brand’s exclusive brick-and-mortar retail partner.


Slide from Ulta Beauty 2018
Analyst and Investor Day presentation
Source: Ulta Beauty

Ulta Announces Collaborations with Kylie Jenner and Kim Kardashian West

Simon announced that Kylie Jenner will launch Kylie Cosmetics at Ulta on November 17, both in stores and online, beginning with the brand’s Lip Kit. Jenner has more than 118 million followers on Instagram and, in 2016, her Lip Kit sold out within one day of the initial launch. This announcement followed news that Kylie Jenner’s sister, Kim Kardashian West, is launching four scents in her KKW Fragrance line at Ulta for the holiday season. The KKW Fragrances will be available in Ulta stores (but not on Ulta.com) beginning November 25. Simon highlighted that these partnerships will provide customers with an opportunity to try products that were previously only available online. She added that Kylie Jenner “is super excited to be able to have a place for her fans to come and actually touch the product and try it because she’s selling a whole lot of this online, and nobody’s ever touched the stuff before they buy it. So, we couldn’t be happier. We think it is going to drive a lot of traffic to the stores.”


Slide from Ulta Beauty 2018
Analyst and Investor Day presentation
Source: Ulta Beauty

Ulta Is Investing in Technology to Build an Innovation Ecosystem with the Goal of Becoming the Digital Store of the Future

Prama Bhatt, SVP of Digital and E-Commerce, said that the company is creating a commerce and content platform that connects its physical and digital guest journeys. The company emphasized that its main focus is on personalization and connecting online and offline experiences in order to tailor its communications and help consumers navigate the beauty space. Bhatt provided an overview of the company’s technology partnerships and acquisitions:

  • Ulta invested in technology startup Spruce to develop a services system to facilitate booking salon appointments. The system aims to increase consumer engagement. Spruce is live in Ulta’s pilot store and Ulta plans to launch the new system in a limited number of stores in 2018 and then roll it out to its entire fleet in 2019.
  • In September 2018, Ulta acquired QM Scientific, an AI startup with capabilities in computer vision, recommendations, natural language processing and visual search. QM Scientific has been recognized by the National Retail Federation as a disruptor in the retail space.
  • Ulta also acquired GlamST, which it had partnered with to develop the GLAM LAB virtual try-on experience, in order to help build out its capabilities for AI and AR. GlamST combines AI, AR and machine learning capabilities with a focus on virtual makeover solutions, image processing, graphics and effects.
  • Ulta has made foundational investments in Iterate, a digital workflow platform that tracks trends, provides research and curates technology partnership opportunities. Iterate enables rapid prototyping and provides access to startups.

Slide from Ulta Beauty 2018
Analyst and Investor Day presentation
Source: Ulta Beauty
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