Ulta Beauty slides as rising costs hit margins; focus on TikTok push under new CEO

By Neil J Kanatt

March 13 (Reuters) – Ulta Beauty’s shares fell as much as 9.6% in early trading on Friday as rising costs overshadowed strong demand, though analysts expressed optimism about its TikTok-led digital push under a new CEO to attract younger and affluent shoppers.

While the retailer posted strong sales for the holiday quarter and forecast upbeat annual sales amid robust demand at its outlets for trendy assortments, including celebrity labels such as Rihanna’s Fenty Beauty, rising costs were a sore point.

CEO Kecia Steelman, who took charge in January 2025, also sounded caution on the potential impact from “global conflicts.”

While the quarter showed a “lack of flow-through” from strong sales to earnings, Ulta is taking a conservative approach to its outlook, J.P. Morgan analysts said – a sentiment echoed by several other brokerages.

Ulta’s selling, general and administrative (SG&A) costs rose 23% to $1 billion in the December quarter, driven by a spike in incentive compensation and continued investment in marketing and Space NK, a British high-street chain it acquired last year.

To draw younger and more affluent shoppers, the company has leaned on celebrity-owned and premium labels such as Beyonce’s Cecred haircare line. It also ran holiday campaigns featuring Khloe Kardashian and Paris Hilton.

Ulta historically guides with caution and shares had been “priced close to perfection,” making the investor pullback unsurprising, analysts at Oppenheimer Research said.

The company plans to launch an exclusive-brand assortment on TikTok Shop, in a move to attract Gen Z and Gen Alpha shoppers and capitalize on online beauty sales as brick-and-mortar competition intensifies from Target and Walmart.

“To Ulta’s credit, it is capturing share in what we believe is a larger beauty category migration online,” William Blair analysts said, expressing confidence about an upside to the annual sales forecast.

Ulta expects double-digit SG&A growth in the first half of fiscal 2026 as Space NK-related costs and investments continue, before easing in the back half as integration expenses annualize.

At least seven brokerages cut price targets on the stock following the results.

The company’s forward price-to-earnings multiple, a common benchmark for valuing stocks, is 21.62, compared with 29.53 for Estee Lauder and 19.84 for Elf Beauty.

(Reporting by Neil J Kanatt in Bengaluru; Editing by Arpan Varghese and Shreya Biswas)