MW Ulta Beauty is starting to separate itself from the competition, analyst says

By Bill Peters

'Ulta seems to have more differentiation versus competitors than what we saw in January,' D.A. Davidson analyst says

Over recent months, cosmetics chain Ulta Beauty Inc. has faced competition from retail giants like Amazon.com Inc., Walmart Inc. and Target Corp., and some analysts on Wall Street have said its shelf selection leaned too heavily on older brands.

But a new D.A. Davidson analysis of Ulta's $(ULTA)$ best-selling products suggests that trend is changing somewhat, thanks in part to efforts to stock its stores with newer products.

"The biggest takeaway is that Ulta seems to have more differentiation versus competitors than what we saw in January," D.A. Davidson analyst Michael Baker said in a research note on Monday.

"This is consistent with our key positive investment theme that the competitive pressures to ULTA are subsiding," he continued. "To be sure, it remains a competitive space, both in terms of availability and price. But the worst does appear to be behind us."

Baker said that there was less product overlap between Ulta and Sephora , Amazon $(AMZN.UK)$ and Target (TGT) than six months ago. Over that time, Ulta's overlap with those three rivals fell to 56%, 79% and 46%, respectively, from 64%, 94% and 52%. However, Ulta's overlap with Walmart $(WMT)$ increased, to 69% from 64%.

Baker said Amazon was a bigger threat to Ulta than Sephora, as Amazon sold many of those overlapping beauty products directly from the brands themselves. Walmart's cosmetics were largely cheaper than Ulta's, at least on products where the two overlapped. But much of Walmart's fare, Baker said, "was sold by smaller resellers which may not endear customer confidence, and had average ship times of 6.4 days."

Shares of Ulta were down 0.7% on Monday. However, the stock is up around 9% so far this year.

Higher living costs and concerns about tariffs have kept consumers cautious. Ulta, in May, cited "uncertainty around how consumer demand could evolve" against that backdrop.

Ulta has faced greater competition, particularly within prestige cosmetics. Along with threats from retailers, it also faces more pressure from TikTok. Ulta's management has said it would try to improve store layouts and merchandise presentation, while moving deeper into wellness products and online sales.

Still, Goldman Sachs analysts, earlier in the spring, said Ulta's shares had "likely reached a bottom," arguing that the beauty industry had "largely normalized" after pandemic-related demand fluctuations.

Baker, in Monday's note, said the competition against Ulta wasn't going away. But he suggested it could be more manageable.

"The conclusion from this work is that while we acknowledge that competitive pressures within the beauty space are higher than pre-COVID levels as seen in product overlap and pricing studies going back several years, that dynamic has peaked," Baker said.

-Bill Peters

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July 07, 2025 15:47 ET (19:47 GMT)

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