Ulta Beauty (ULTA) Q3 2025: E-Commerce Grows Mid-Teens, Driving Channel Mix and Margin Dynamics
Ulta Beauty’s third quarter saw digital sales climb at a mid-teens pace, reshaping the channel mix and fueling top-line growth even as SG&A investments weighed on margins. Management is signaling a shift from heavy investment to prioritization in 2026, with a continued focus on newness, loyalty, and omnichannel innovation. Strategic initiatives in international expansion, marketplace, and wellness are early but gaining traction, positioning Ulta for long-term share gains despite a competitive and value-focused consumer environment.
Summary
- Digital Channel Shift: E-commerce outpaced stores, driving mix changes and operational complexity.
- SG&A Investment Peak: Management signaled 2025 as a catch-up year, with tighter cost focus ahead.
- International and Marketplace Momentum: Early-stage global and marketplace moves lay groundwork for future growth.
Performance Analysis
Ulta Beauty delivered robust top-line growth in Q3, with net sales up 12.9% and comparable sales up 6.3%, driven by a 3.8% increase in average ticket and 2.4% more transactions. E-commerce sales rose in the mid-teens, outpacing mid-single digit store comps and signaling a clear acceleration in digital engagement. This channel outperformance is meaningful, as digital now accounts for a growing share of Ulta’s business, with app engagement reaching 65% of online member sales, up from 63% last quarter.
Gross margin improved by 70 basis points, supported by lower inventory shrink and higher merchandise margin, though this was partially offset by a less favorable channel mix as digital gains dilute margin. SG&A expense growth stood out, rising 23.3%, reflecting incentive compensation, technology amortization, and investments in marketing and store payroll. Operating margin compressed to 10.8% from 12.6% last year, as the cost of supporting growth and digital capabilities weighed on profitability. Notably, Ulta’s inventory climbed 16%, supporting new brand launches and store expansion, while capital expenditures were focused on new stores and IT upgrades.
- Digital Outperformance: E-commerce’s mid-teens growth is reshaping the business mix and requiring ongoing investment in fulfillment and digital capabilities.
- Margin Headwind from SG&A: Elevated SG&A, driven by labor, marketing, and technology, pressured operating margin despite strong sales.
- Inventory Build: Inventory rose to $2.7 billion, reflecting new brands, SpaceNK, and store growth, but also signals a need for disciplined management as the business scales.
Ulta’s performance underscores the tension between investing for digital and omnichannel growth and maintaining margin discipline, a dynamic likely to persist as the business scales new initiatives.
Executive Commentary
"The third quarter highlights are a clear result of these actions and include comparable sales growth of 6.3%, positive comps across all categories and channels with notable double-digit strength in our e-commerce results. Continued market share gains in mass and prestige beauty, including prestige market share gains in both brick-and-mortar and digital channels. Loyalty member growth of 4% year-over-year to a record 46.3 million members, and ongoing improvement across several key performance indicators, including brand engagement, earned media value, and app engagement."
Keisha Steelman, President and Chief Executive Officer
"Consolidated gross margin for the quarter increased 70 basis points to 40.4% of sales compared to 39.7% last year. The increase was primarily due to lower inventory shrink and higher merchandise margin, which was partially offset by adverse channel mix, reflecting strong growth from our digital platforms. Our team's focus on reducing inventory shrink, while also delivering great guest experiences, continues to produce meaningful results."
Chris Lealios, Interim Chief Financial Officer
Strategic Positioning
1. Omnichannel Acceleration and Digital Innovation
Ulta’s digital business is scaling rapidly, with e-commerce delivering mid-teens growth and app engagement rising to 65% of online member sales. Investments in features like replenish and save, wish lists, and expanded ship-from-store capabilities are driving higher conversion and loyalty. Buy Online, Pick Up In Store (BOPUS), a blended fulfillment model, is increasingly valued by guests, enhancing Ulta’s competitive differentiation. The company’s focus on personalization and frictionless digital experience is paying off, but also introduces margin headwinds as digital becomes a larger mix of sales.
2. Merchandising Newness and Brand Exclusivity
Ulta’s merchandising strategy is centered on constant newness, exclusive launches, and a balanced low-to-luxury assortment. Q3 saw more than 35 new brands launched, including exclusives like Beyonce’s Sacred (prestige haircare) and a robust K-Beauty pipeline. Fragrance and skincare led category growth, with fragrance shelf space expanded in 60% of stores. The Only at Ulta portfolio and viral brands in mass and prestige drove incremental traffic and differentiation, reinforcing Ulta’s position as a launch partner of choice.
3. International Expansion and Marketplace Initiatives
Ulta opened seven stores in Mexico and its first franchise location in the Middle East (Kuwait), signaling early but tangible progress in global expansion. The SpaceNK acquisition in the UK provides both a platform for learning and a testbed for smaller format, high-touch retail. The UB Marketplace, Ulta’s curated third-party online marketplace, launched with 120+ brands and 3,500 SKUs, allowing Ulta to expand its assortment with minimal inventory risk and to test new categories like wellness and luxury.
4. Cost Structure Realignment and Supply Chain Investment
Heavy investment in technology and supply chain modernization peaked in 2025, with upgrades to ERP, POS, and distribution centers completed. Management signaled a shift to tighter SG&A discipline in 2026, as foundational investments are expected to yield operational leverage. Shrink reduction initiatives and more effective promotional strategies have already contributed to margin improvement, but the challenge remains to balance growth investments with profitability.
5. Loyalty and Guest Experience as Moats
Ulta’s 46.3 million loyalty members are a strategic asset, driving repeat traffic, data-driven personalization, and successful brand launches. In-store events, celebrity activations, and a focus on operational excellence continue to differentiate the guest experience, supporting both traffic and conversion across channels.
Key Considerations
Ulta Beauty’s Q3 results reflect the interplay of top-line momentum, channel mix evolution, and the costs of scaling a modern omnichannel platform. The company’s ability to sustain growth while restoring margin leverage will be a central theme heading into 2026.
Key Considerations:
- Channel Mix Complexity: Rapid e-commerce growth introduces margin pressure as digital sales dilute overall profitability, requiring ongoing investment in fulfillment and technology.
- SG&A Leverage Inflection: 2025 marked a peak in investment, with management signaling a shift to tighter cost controls and prioritization in 2026, especially as foundational tech projects wind down.
- Inventory and Working Capital: Inventory build supports growth but must be managed carefully to avoid overhang as new brands and stores ramp up.
- International and Marketplace Scale: Early-stage international and marketplace initiatives are promising but not yet material; execution will determine their long-term impact.
- Competitive Intensity: Ulta’s low-to-luxury assortment, loyalty moat, and omnichannel experience are key differentiators, but the category remains highly competitive, with Amazon, Sephora, and mass retailers all targeting share.
Risks
Ulta faces risks from elevated SG&A, consumer spending volatility, and channel mix dilution as digital grows. Competitive intensity remains high, with both e-commerce giants and specialty retailers pushing into beauty. Inventory management and the ability to convert heavy investment into profitable growth will be closely watched. Management’s prudence in Q4 guidance reflects macro caution and the unpredictable nature of holiday traffic and consumer sentiment.
Forward Outlook
For Q4, Ulta guided to:
- Comparable sales growth of 2.5% to 3.5%
- Operating margin between 12% and 12.3%
- EPS of $7.61 to $7.90
For full-year 2025, management raised guidance:
- Net sales of approximately $12.3 billion
- Operating margin of 12.3% to 12.4%
- EPS of $25.20 to $25.50
Management highlighted several factors that will shape Q4 and 2026:
- Holiday demand remains robust but volatile, with value and gifting as key themes
- SG&A growth to moderate as 2025 investment cycle concludes
- International and marketplace initiatives to scale gradually
Takeaways
Ulta’s Q3 results demonstrate strong consumer demand, digital momentum, and merchandising discipline, but also highlight the challenge of balancing growth and profitability in a shifting retail environment.
- Digital and Loyalty Engines: E-commerce and loyalty are driving share gains, but require ongoing investment in technology, supply chain, and guest experience.
- Margin Management: SG&A and channel mix are key watchpoints, with management signaling a move to tighter cost discipline and operational leverage in 2026.
- Strategic Growth Bets: International, marketplace, and wellness are early-stage growth vectors that could drive upside, but execution risk remains as these efforts scale.
Conclusion
Ulta Beauty’s Q3 performance validates its omnichannel and merchandising strategy, with digital and loyalty engines powering growth. The company now faces the challenge of converting investment into sustained margin leverage as it enters a new phase of disciplined expansion and operational optimization in 2026.
Industry Read-Through
Ulta’s results reinforce several key retail and beauty industry trends: Omnichannel capability and digital innovation are now table stakes, with app engagement and BOPUS driving both traffic and conversion. Merchandising newness and exclusive launches are critical for differentiation, especially as consumers seek both value and discovery. Rising SG&A and channel mix dilution are common themes for retailers investing in digital scale, highlighting the importance of operational efficiency as growth normalizes. International expansion and curated marketplaces are emerging as growth levers, but require careful execution and local adaptation. The competitive bar is rising, and only retailers with a strong loyalty base, differentiated assortment, and seamless experience will sustain share gains.