Inflation and slowing consumer spending on discretionary items haven't put the brakes on Ulta's (ULTA) momentum in the beauty category.
In its fiscal fourth-quarter earnings last month, the beauty retailer reported record annual revenue in 2022 that surpassed $10 billion for the first time in its 33-year history while its customer loyalty program reached an impressive 40.2 million members.
"The whole store is hot," Ulta Beauty COO Kecia Steelman told Yahoo Finance's Brian Sozzi at the 2023 Shoptalk Conference (video above). "But I would say one of the categories that we're really seeing that's coming through COVID that's really stuck is wellness. ... So we're seeing wellness stick, and we're also seeing [consumers] really lean in a little bit more to cosmetics, which is great."
According to Susan Anderson, analyst at Canaccord Genuity, Ulta's strength can be attributed to the strength of the category overall as well as factors specific to the retailer, such as its rewards program, omnichannel presence, and range of products and services across mass and prestige cosmetics, skincare, and wellness.
The beauty category has "continued to be strong into this year," Anderson told Yahoo Finance Live following her bullish Buy rating on Ulta stock. "I think that's only going to benefit Ulta."
"We also see them as a share gainer despite the higher growth category," added Anderson, who has a $622 price target on the stock. "We see them taking share from department stores, particularly as they roll out their prestige business further and then also add luxury such as Dior to their lineup of brands that they sell in the store."
Even as Ulta makes a push into more luxury segments, Steelman noted that the retailer is still attracting a broad range of consumers.
"What we're really pleased that we see is that the consumer across all income sectors is spending at a great pace," the COO said. "There's not one income sector that's outperforming another. So it's very consistent across the spectrum, and I think part of that is because we do offer everything in one place across all price points."
Ulta Beauty's momentum has given its collaborator Target (TGT) reason to celebrate as it saw a boost in makeup sales in the fourth quarter. The 350 Ulta shop-in-shops in Target stores have also incrementally boosted Ulta's sales and expanded its customer base.
"Target has over a hundred million customers in their loyalty program," Anderson said. "The next largest is probably Ulta. So it's definitely very large, but there's over a hundred million adult women in the U.S., so we think there's still opportunity for them to grow that loyalty program."
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