Ulta Warns of Cooling Demand Amid Ongoing Consumer Caution

After years of strong sales growth, Ulta Beauty is warning of a slow period ahead.

The retailer’s chief executive said Wednesday (April 3) that he expects moderate mid-single digit sales growth, sending the company’s stock tumbling.

“What we’ve seen so far is a slowdown in the total category across price points and segments. That’s a bit earlier and a bit bigger than we thought,” said CEO David Kimbell, whose comments to J.P. Morgan analysts during a fireside chat were reported by Reuters.

“The competitive environment is intense, and we’re feeling it particularly in a couple of areas. We lost share in prestige makeup. We’ve been challenged in haircare,” Kimbell added.

The Reuters report noted that strong demand for luxury makeup brands like MAC Cosmetics, Clinique and Anastasia Beverly Hills, along with premium fragrances, had helped drive sales at Ulta during the last three years.

“We believe the decline in shares reflects uncertainty rather than a more tangible understanding of earnings downside,” William Blair analyst Dylan Carden wrote in a note, per Reuters.

Last month, Ulta projected annual profit below Wall Street estimates as supply chain costs and increased promotions ate into its margins.

“We know there’s external pressures on the consumer,” Kimbell said during an earnings call. “We think consumers are highly engaged in the category, … but will continue to be thoughtful in all of their spending. But fortunately, we know that beauty is an important one [to consumers].”

As PYMNTS wrote at the time, Ulta’s focus on enhancing the digital consumer experience in the face of ongoing budgetary challenges has helped to fuel continued engagement and draw in eCommerce customers.

Meanwhile, recent research by PYMNTS Intelligence shows that Ulta and other retailers are trying to woo shoppers who have grown more circumspect when it comes to spending.

“As of January, 63% of the consumers surveyed said they were cutting back on spending due to increasing prices,” PYMNTS wrote earlier this week.

“This could be attributed to a holiday-shopping hangover, except that the cutback rate was actually down from 69% in January 2022. Meanwhile, 51% of shoppers told us they were frequenting new merchants specifically to save money.”

Price remains the chief factor influencing consumer shopping decisions. When shoppers consider what to buy, more than 60% said that price is a factor in that choice, with 29% calling it the most significant factor.

“Similarly, when deciding where to shop, more than 48% say price shapes their decision, with 25% saying it is the most significant consideration,” PYMNTS wrote.