Ulta’s focus on digital advertising drives sales gains

August 26, 2016 01:26 PM

Cosmetics retail chain Ulta Beauty is shifting its focus to digital advertising from print—and it’s paying off.

Ulta, No. 153 in the Internet Retailer 2016 Top 500 Guide, reported e-commerce sales of $55.9 million in the fiscal second quarter of 2016, up 54.8% from $36.1 million in the same period last year. E-commerce accounted for 5.2% of sales during the quarter, compared to 4.1% last year. Through the first half of fiscal 2016, ended July 30, Ulta’s online sales were $116.9 million, up 45.9% from $80.1 million last year.  E-commerce now accounts for 5.5% of overall sales, compared to 4.6% last year.

“Site traffic accounted for almost all of the growth, as we continue to invest in digital marketing,” CEO Mary Dillon told analysts on Ulta’s Q2 2016 earnings call, according to a transcript from Seeking Alpha. “We believe our evolving marketing strategy with a growing focus on multimedia advertising and digital marketing is working to raise our profile in consumer awareness and to better define our brand.” Dillon didn’t specify just how much traffic was up to Ulta’s site year-over-year.

Dillon told analysts the company has more than 20 million members across its loyalty programs, something she views as key to Ulta’s continued growth. Online, the retailer will focus on generating more site content to engage shoppers.

“We continue to improve the guest experience at with more content for the beauty enthusiasts, and recently we launched a new feature called Ulta Beauty Mix with tips, articles and how-tos,” she said. “The content is shoppable and we view this as our first significant step toward merging content and commerce.”

The company also is making other improvements to its growing e-commerce business. Last month, Ulta opened a new distribution center in Dallas, which now fulfills about 30% of its online orders. Dallas is home to Ulta’s second fulfillment center designated for online orders. Ulta’s other new e-commerce fulfillment center is in Greenwood, Ind., and opened last year.

“The new buildings are just much more efficient,” Ulta chief financial officer Scott Settersten told analysts. Combined, the new facilities handle 70% of Ulta’s e-commerce orders. “They’re designed to actually do e-commerce—pick and fill and ship processes—unlike the older buildings, which were retrofitted and not quite as efficient.”

“In terms of margin on e-commerce, that’s getting strong,” Dillon added. “The big reason behind the investments that we’ve done in our distribution centers is to really improve the efficiency and effectiveness. I'd say the guest is happier with the speed of delivery, and certainly the margins are improving.”

For the fiscal second quarter ended July 30, Ulta reported:

  • Net sales of $1.069 billion, up 21.9% from $877.0 billion last year.
  • A comparable-store sales increase, including e-commerce, of 14.4%, compared with a 10.1% increase.
  • Net income of $90.0 million, up 21.3% from $74.2 million.

For the first six months of fiscal 2016, Ulta reported:

  • Net sales of $2.143 billion, up 22.8% from $1.745 billion last year.
  • A comparable-store sales increase, including e-commerce, of 14.8%, compared to a 10.8% increase.
  • Net income of $182.0 million, up 29.0% from $141.1 million.



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