Beauty Retailers Confirm Slow Holiday Sales, Predict Slump Will Continue

Premonitions of a difficult holiday season for beauty came true for two beauty retailers that released holiday sales figures.

Bad weather keeping shoppers at home, competition from other retail categories such as clothing, and consumers' reluctance to shop until the last few days before Christmas were a drag on the holiday season for retailers Ulta and Limited Brands.

In November, market researchers speaking at a Fragrance Foundation "State of the Industry" event augured that the holiday season would not be as cheery as in 2007, with NPD Group calling for flat to declining holiday sales (¹ (Also see "Consumer Confidence, Brand Awareness Down; Marketers Must Get Creative" - HBW Insight, 1 Dec, 2008.), p. 3).

Owing to its lackluster holiday sales performance, beauty retailer Ulta announced Jan. 8 that it is reducing its fourth quarter and fiscal 2008 guidance.

Ulta now expects Q4 sales of $339 million to $343 million, versus the previously anticipated $354 million to $368 million.

For the full year the retailer expects to net $1.082 billion to 1.086 billion in revenue, versus $1.1 billion to $1.11 billion.

During the holiday season, Ulta saw its total net sales reach $221.9 million for the Nov. 16-Jan. 3 period, which is a 10 percent increase from the prior year figure of $201.7 million.

However, comparable store sales declined 5.8 percent, compared with a 4.6 percent increase the previous year.

Declining consumer traffic was due to competition from other retail segments and bad weather during the holiday season, according to an exec.

"We experienced a significant drop in customer traffic in the 10 key selling days leading up to Christmas. We believe that the unprecedented level of discounting and promotion in the apparel category in the last days before Christmas resulted in consumers favoring apparel," Ulta President and CEO Lyn Kirby said.

In order to compete Ulta increased its promotional activity but held back on "more aggressive" discounting to avoid cutting into earnings, the firm said.

"In the 13 days post-Christmas our business has rebounded to solid positive comps which we believe is due to the consumable nature of our category, and that our value proposition and marketing strategies remain attractive to our customers given that we did not participate in the unprecedented discounting during the holiday season," Kirby said.

Limited Brands had a similarly rocky holiday stretch with sales results "below expectations." The company booked sales of $1.644 billion for the five week period ending Jan. 3, 2009, as opposed to $1.744 billion in 2008, it reported Jan. 8.

"During the first half of December we saw softer-than-anticipated sales as customers delayed their holiday purchases," VP-Investor Relations Amy Preston said during a Jan. 8 monthly sales call.

"In the second half of the month sales improved with stronger-than-expected results in the final days before Christmas and a strong start to our semi-annual sale," she said.

Limited Brands launched the sale earlier than usual this year. It will continue through most of January.

Comparable stores sales fell 10 percent during the period for all of its stores; Victoria's Secret store comps were down 9 percent, with a reduction in sales of Victoria's Secret Beauty.

Limited Brands expects a January comp decline in the "mid to high teens." the company says.

Bath and Body Works comps in the December period performed "below expectations," slumping 11 percent.

Limited Brands will introduce a new Noir fragrance for Victoria's Secret Beauty and new additions to Bath and Body Works True Blue Spa line in 2009, Preston said.

- Molly Laas ([email protected])