Ulta Beauty Predicts Continued Challenges in U.S. Makeup

Things are not looking pretty in the U.S. makeup market.
“It’s clear cosmetics in the overall U.S. market is challenged,” said Ulta Beauty chief executive officer Mary Dillon. “After several years of very strong performance, growth in the makeup category has been decelerating over the last two years, but recently turned negative.”
Dillon said that at Ulta, makeup — which is about 50 percent of the total business — grew in the low single digits.
“When we look at sales growth by brand, we see that most of the top brands across both mass and prestige are negative year-to-date,” Dillon said. “We had expected this trend to stabilize and improve as we moved through 2019, but we now believe that the softness we’ve seen so far in 2019 will continue through the remainder of the year.”
Mass makeup was up double digits, but prestige only grew in the low single digits, executives said.
To try to combat that slowdown, Ulta is leaning into the Kardashians, with launches of Kylie Skin (at all Ulta doors) and 67 stockkeeping units of KKW Beauty, including highlighting, contouring and other Kim Kardashian West favorites. Kylie Cosmetics’ initial launch late last year has been successful for the retailer, executives have said.
Part of the current problem in makeup, according to Dillon, is a lack of innovation.
“Over the past several years, we’ve seen strong growth in cosmetics, driven by new rituals and applications … like contouring, brow stylist and innovative new formats like liquid lipstick. This innovation resulted in makeup routines requiring new products which drove strong incremental growth. The most recent cycle of innovation has just not driven those behaviors, resulting in a soft cycle for the cosmetics category in the U.S. as innovation and newness brought to the market has not driven the expected growth.”
The opposite is happening in skin care, Dillon noted, where innovation is “driving new rituals.” New brands include The Ordinary and Naturally Good for You, a brand that also sells nutritional supplements. Ulta will also be carrying Millie Bobby Brown’s Florence by Mills, a clean skin-care and makeup brand that targets Gen Z.
While non-makeup categories at Ulta remain strong, the slowdown in U.S. makeup caused the retailer to revise its guidance downward.
Ulta is now expected a sales increase of between 9 percent and 12 percent for fiscal 2019, compared to the low double-digit growth it forecast previously. Ulta also decreased expected comparable sales growth from 6 percent to 7 percent, to 4 percent to 6 percent.
Even with U.S. headwinds — which are being felt broadly across the beauty industry — Ulta posted a 12 percent gain in net sales for its second fiscal quarter of 2019, with $1.67 billion in sales. Net income was up 8.7 percent, to $161.3 million, and diluted earnings per share increased 12.2 percent, to $2.76.
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