Ulta should scour online channels for hot products, add them to its lineup and quickly dump less-popular items, says David Swartz, an equity analyst at Morningstar.
“Ulta is going to have to be constantly churning brands,” he says. “If they can get in the product, then customers will follow. That’s what Ulta’s been really good at over the years.”
Dillon noted on the company’s first-quarter earnings call May 27 that Kimbell’s background in merchandising is one of the reasons he was picked for the top job. Kimbell, 54, was promoted to chief merchandising and marketing officer in 2015, about a year after he joined the company. Questions about merchandise on earnings calls usually went to Kimbell.
He became president of Ulta in 2019, and in that role he oversaw Ulta’s loyalty program and e-commerce, two areas that have become vital to the company. The year Kimbell became president, Ulta’s loyalty program boasted more than 34 million members who drove 95 percent of sales.
About 3.3 million members dropped away in 2020, as stores closed for about two months during state-mandated shutdowns and store-only guests failed to move online. Kimbell has emphasized how important the loyalty program is to Ulta. “Everything we do is for our loyalty guests,” he said during a March earnings call. The company is working to reconnect with lost members, he said.
“We know who they are. We know that they didn’t have a bad experience with Ulta,” he said. “They just changed behavior in the short term.”
Kimbell said on the company’s earnings call May 27 that Ulta added back 1.7 million members in the first quarter, boosting the loyalty number back up to 32.3 million.
Kimbell’s marketing know-how will likely come in handy with continued loyalty program growth, says Danielle McIntee, senior retail analyst at consulting firm Creditntell. Kimbell joined Ulta after a stint as chief marketing officer at mobile phone company U.S. Cellular, where Dillon was CEO.
The trick will be getting new customers gained online during the pandemic to shop in stores, too. Omnichannel customers at Ulta spend three times more than those who shop through only one channel, McIntee says.
Beauty is a high-touch category. Customers want to come into stores, try on samples and sit with experts. The pandemic took much of that away.
But makeup is poised for a recovery, McIntee says. Mask mandates are falling and sales of lipstick and similar items are rising. Though some of Ulta’s in-store services have come back, company leadership said on the earnings call that social distancing and capacity restrictions are holding back higher customer flow.
Kimbell said he was encouraged with first-quarter results. Net sales increased 65.2 percent over the year-earlier period to $1.9 billion. That was also an 11.2 percent increase over the first quarter of fiscal 2019.
Same-store sales rose 7 percent compared with the 2019 quarter, which was unaffected by the pandemic. Ulta swung to a quarterly profit of $230.3 million last quarter, compared with a $78.5 million loss in the first quarter of 2020. Results topped Wall Street expectations, pushing shares about 5 percent higher on May 28.
It’s not clear if Ulta’s first-quarter sales rebound is a sign of future growth rates. Kimbell attributed the surge in part to federal stimulus payments, which gave consumers a one-time burst of disposable income to spend.
A deal Dillon made with Target earlier this year could help expand Ulta’s reach. Among Kimbell’s top priorities is the opening of 100 Ulta boutiques in Target stores starting this fall, with plans to expand to more of the mass merchandiser’s outlets. Kimbell must ensure those Target locations do not cannibalize Ulta’s own sales.
Ulta declined to make Kimbell available for an interview, but his public statements walk a fine line between acknowledging the need to adapt and assuring investors that Ulta won’t change too much.
“Of course, our strategies have and will continue to evolve, but we feel that we are operating from a position of strength,” he said during a JPMorgan virtual conference in April. “So you shouldn’t expect a radically different approach to the business or strategies under my leadership.”
Analyst Brian Yarbrough at Edward Jones notes that the CEO succession was years in the making and includes a continuing role for Dillon during the transition. She’ll serve as executive chairman for a year after Kimbell becomes CEO. Still, Yarbrough warns that no CEO transition is without risks.
“He was a big part of their success over the years,” Yarbrough says. “With that being said, being the CEO of a company is a whole different animal.”