As Makeup Slumps, Ulta Leans Into Skin Care

Executives acknowledged an increase in discounting.

Ulta Beauty is stocking up on skin care, as makeup sales continue to struggle.

The beauty retailer has added more than 30 skin-care brands recently, chief executive officer Mary Dillon said on the company's earnings call Thursday, and is seeing growth across skin care and sun care, driven by new brands, new products and “new routines.” She also said Gen Z is more engaged in skin care than other groups have been at their age.

To make sure Ulta capitalizes on the skincare boom, Dillon said the company will increase its focus in marketing campaigns, and has expanded multibrand skin bars, which offer quick skin services, to 100 more stores. Dillon said Tula, Kiehl's, First Aid Beauty, Dermalogica, Kylie Skin, Sunday Riley and The Ordinary were selling well. Sun category sales were driven by self tanners and sunscreen.

For the third fiscal quarter, Ulta's sales increased 7.9 percent to about $1.7 billion, with net income of $129.7 million and diluted earnings per share up 3.2 percent, to $2.25. For the first nine months of the fiscal year, net sales increased 10.9 percent to close to $5.1 billion, with net income of $483.2 million and diluted earnings per share of $8.27.

Ulta's skin-care focus comes as U.S. makeup sales continue to decline. Figures from The NPD Group put prestige makeup sales down 7 percent for the third quarter. Dillon said while makeup boomed from

2014 to 2017 when trends like contouring were big, today's struggles are “resulting from a lack of engaging newness.”

The pickup in makeup in the spring 2020 fashion shows — including glitter brows and embellishments like sequins and pearls — gave Dillon hope, she said, that makeup's return will come. “While we've seen sales decline in the U.S. makeup category this year, consumers are still buying and wearing makeup,” Dillon said. Right now, they're going for a “neutral and glowy” look, but are still using makeup to get there, she said.

The problem is mostly in prestige makeup, where Ulta saw a low-single-digit decline for the quarter, Dillon said. Some brands, including Lancôme and Clinique did well, as did Kylie Cosmetics and KKW Beauty, but their success was overshadowed by problems with sales from more established brands.

Ulta has recently scored some newness in prestige makeup, including Laura

Mercier, which it is launching online, and Thrive Causemetics, a previously direct-toconsumer-only makeup business. “Look for more to come from both of these brands in 2020,” Dillon said.

In mass makeup, Morphe, Colourpop and Juvia's place continue to do well, as did Florence by Mills, the skin-care and makeup brand of actress Millie Bobby Brown.

Ulta executives acknowledge an increase in beauty discounting this holiday season Thursday.

“We were slightly more promotional in the end than we had anticipated,” said Ulta chief financial officer Scott Settersten. “In holiday season, unlike the rest of the three quarters of the year, we compete with everyone in retail for wallet share.”