• by Sarah Mahoney  @mahoney_sarah, December 6, 2024

Ulta Beauty seems to be emerging from a rough patch, announcing third-quarter sales and earnings ahead of expectations. And while there’s evidence that beauty and fragrance sales are thriving in multiple channels heading into the holiday period, a new report from Deutsche Bank says Ulta’s gains are especially heartening, given slower growth in Sephora at Kohl’s.

Sales at Ulta rose 1.7% to $2.53 billion, compared to $2.49 billion in the third quarter of 2023, with most of the gains due to new store contributions. Comparable sales eked out a 0.6% gain.  

Net income was $242.2 million compared to $249.5 million.

The results “easily laid to rest a considerable level of uncertainty,” writes analyst Krisztina Katai, who covers retail for Deutsche Bank. She adds that the company’s ability to make those sales gains in a tough retail climate shows Ulta’s marketing, promotional and brand strategies are paying off, with traffic accelerating 9.2% on a two-year basis and 7.2% compared to last quarter.

“We are particularly encouraged by the contrasting sales performance with Sephora, which reported a deceleration in the quarter with Sephora @ Kohl’s stores' sales momentum slowing to 15% from 45% in the second quarter,” she said.

Katai is also encouraged by reports of strong performance this quarter, through Cyber Monday, which "will spark a new debate on how much market share will shift in 2025.”

Marketing is playing a key role in those gains, with events that built enough buzz to deliver double-digit growth in earned media, said David Kimball, Ulta’s chief executive officer, in a conference call webcast for investors.

The company continues to focus on a sprawling ecosystem of influencers. “During the third quarter, we leveraged our marketing and social capabilities to lean into emerging trends, amplify key growth brands, and activate new trend-focused events,” he said. “We also engage talent from our UB Collective, our affiliate program, and Ulta Beauties, our new associate ambassador program, as well as key brand founders to support brand launches, exclusive collaborations, and tentpole events in new and innovative ways across social channels to drive guest buzz and engagement.”

Overall projections for the beauty business look promising, according to a new report from Circana. The market research company says that year-to-date, sales of prestige beauty products are up 7%, while mass market sales are up 2%.

In prestige products, lips remain the big story, up to a 21% increase in dollars and a 23% increase in units sold.

The report also notes a shift in skincare, with consumers increasingly switching to “masstige” brands, which are growing six times faster than prestige products.