Ulta Beauty slashes store expansion amid dismal Q1

The COVID-19 pandemic took a big toll on Ulta Beauty, which reported a first-quarter loss amid plunging store sales. 

The beauty giant also said it is cutting its fiscal 2020 new store openings to 30 to 40 stores and will undertake about three relocation projects. Previously, Ulta expected to open approximately 75 stores, remodel or relocate roughly 15 and refresh nearly 42. (During the quarter, Ulta Beauty opened 11 stores, relocated one and permanently closed another, giving it a total of 1,264 stores.)

Ulta posted a net loss of $78.5 million, with diluted loss per share $1.12 per share, in the quarter ended May 2, compared to net income of $192.2 million, and earnings of $3.26 per share, in the year-ago period.

Net sales fell 32.7% to $1.2 billion. Total comparable sales plunged 35.3%. Pre-pandemic, more than 80% of Ulta’s sales came from its physical stores, CEO Mary Dillon said on the company’s earnings call with analysts.

“For much of the first quarter, Ulta Beauty operated as a digital-only business, and while e-commerce sales exceeded our expectations, it was not enough to fully offset the impact of our store closings,” Dillon said.

To date, Ulta has reopened roughly 840 stores for curbside pickup, with 333 locations also open to shoppers. All reopened stores will follow the chain’s new “Shop Safe Standards, which include increased cleaning, social distancing signage, one-way aisles, limited occupancy and mandatory employee wellness checks. In another change, open product is now for display only. 

“While it is still early, we have seen stronger-than-expected sales in reopened stores, and we’re seeing great engagement with our salon services, where available,” Dillon said.

On the call, Dillon predicted COVID-19 would have a lasting impact on consumer behavior. It is also likely to have an impact on the chain’s store expansion. 

"While we believe there's opportunity to open more stores and reach new guests, we are also evaluating our long-term store target in the U.S., given the acceleration we are experiencing with our e-commerce business," CFO Scott Settersten said on the call.

Ulta ended the quarter with $1.2 billion in cash, cash equivalents, and short term investments. The company is confident that it currently has sufficient liquidity to fund its operations.