On Thursday, Ulta Beauty released a cautious outlook for the upcoming year as it confronts multiple internal challenges, intensifying competition, and what it describes as “consumer uncertainty.”

Financial Outlook for 2025

Following the appointment of Kecia Steelman as CEO in January, the retailer projected that comparable sales would remain flat or increase by just 1% in 2025. This is below analysts’ expectations of a 1.2% rise, as reported by StreetAccount.

Additionally, Ulta anticipates its full-year earnings will fall between $22.50 and $22.90, which is below the market expectation set at $23.47 according to LSEG.

Factors Impacting the Forecast

Ulta is not alone in forecasting a tough year ahead; its guidance reflects concerns over uncertain consumer spending as well as company-specific difficulties. Steelman characterized 2025 as a transitional year, asserting that addressing these challenges will require financial investment, contributing to the anticipated lower profits.

“I’ve shared our plan to make important guest-facing investments, which are necessary to improve our competitiveness and re-accelerate long-term share growth,” said Steelman during a conference call with analysts. “These investments will pressure profitability in 2025, but we believe they are critical to driving long-term sustainable growth in a competitive, innovative category.”

Fourth Quarter Performance Summary

In its fiscal fourth quarter, Ulta reported results that exceeded Wall Street’s forecasts. Key metrics included:

• Earnings per share: $8.46 vs. $7.12 expected
• Revenue: $3.49 billion vs. $3.46 billion expected

The retailer’s net income for the three months ending February 1 was approximately $393 million, equating to $8.46 per share, slightly down from $394 million, or $8.08 per share, the previous year.

However, sales fell to $3.49 billion, a decline of about 2% compared to the $3.55 billion generated in the prior year. This drop can be partly attributed to an extra selling week in the previous year’s data that has negatively impacted the comparison.

Challenges in the Beauty Market

Despite beauty retailing being a standout sector in recent years, Ulta’s growth has faltered due to self-inflicted hurdles, particularly as it has expanded. The complexity of its operations has grown, leading to difficulties in executing strategies such as buy online, pick up in-store, same-day delivery, and shipping from store locations.

“As a result, our in-store presentation and guest experience today are not as strong as we would like,” stated Steelman, highlighting areas where Ulta has control to improve.

Leadership Changes and Strategic Direction

Steelman took over as CEO from longtime leader Dave Kimbell in January. With over a decade’s experience at Ulta, Steelman’s focus is on rectifying execution issues and capturing lost market share.

During her inaugural earnings call as CEO, she acknowledged both strengths and weaknesses within the company, emphasizing efforts to restore Ulta’s market position amid growing competition in the beauty sector. “The competitive environment in beauty has never been more intense,” she remarked. “For the first time, we lost market share in the beauty category in 2024.”

Consumer Spending Trends

In its recent holiday quarter, Ulta saw comparable sales grow by 1.5%, surpassing expectations of just 0.8%. Customers increased their spending, leading to a 3% rise in average transaction value. However, foot traffic declined, with a 1.4% drop in customer transactions.

This decline is reflective of broader trends as more retailers dive into the beauty segment, with companies like Sephora and mass retailers such as Macy’s, Walmart, and Amazon intensifying the competition by enhancing their beauty product offerings.

Outlook and Strategic Focus

While Ulta acknowledged a cooling market for beauty products last year, some competitors such as E.l.f. Beauty and Oddity have maintained strong sales, in contrast to Ulta’s experiences. The company remains committed to enhancing profitability and returned to growth during the last quarter, even with fewer selling weeks compared to the previous year.