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Following our analysis, we received several questions on the impact of competitors like Sephora to the company and decided to address it in this post.

Sephora is definitely a threat for ULTA but I believe both companies can coexist because they have different business models and target different markets within the cosmetics industry. While Sephora focuses primarily on luxury brands, ULTA offers a wider range of products, from high-end to affordable brands, and has a strong focus on the customer experience with its full-service, in-store salons and free sample offerings.

Sephora caters to customers who are looking for high-end, luxury cosmetics, and skincare products. The store carries a range of high-end brands which might not all be available at ULTA. On the other hand, ULTA caters to a wider range of customers, including those who are looking for both high-end and affordable products. The store carries a range of drugstore brands such as Maybelline and Neutrogena, as well as high-end brands Chanel and Dior. Additionally, ULTA has a strong focus on the customer experience, with its full-service in-store salons and free sample offerings.

In addition to ULTA's best-in-class loyalty program (40m+ members), which represents a unique advantage, the salon services are a way for the company to further differentiate and compete with Sephora. Bloomberg Intelligence is of the same opinion and believes ULTA has the opportunity to differentiate itself further through opportunistic M&A, especially in the area of services. With a solid balance sheet and low leverage, the company has room for consolidation in the fragmented $50bn salon-services industry. Though M&A is not ULTA's typical capital-allocation strategy, adding services could attract new customers, increase foot traffic, and raise average spending per customer. A potential acquisition in the semi-permanent lash extensions and services arena could target proprietary products, processes, and technology, such as Amazing Lash Studio's "GLAMCAM," and be offered within the company's existing store footprint.