Shares of beauty retailer Ulta Beauty (ULTA -2.73%) underperformed the market in 2019, as demand for cosmetics weakened. The stock was up a mere 3% vs. the S&P 500's 29% gain.

Consumers continue to shift spending away from makeup and into skincare. Piper Jaffray noted a 21% decrease in cosmetics purchases among teens, an important demographic for the industry, year over year in its fall 2019 survey.

However, Ulta's been able to gain market share and drive increased traffic to stores in a tough environment for beauty. It's positioning itself as a one-stop shop for all things beauty and its partnerships with key, exclusive brands gives it an edge over the competition. The specialty retailer has an effective omnichannel strategy that engages customers. For all these reasons (and others), now may be a good time to look at Ulta stock.

Ulta products

Image source: Ulta.

Ulta's recent results and how it's gaining share

According to strategist, Ulta was one of the top retailers in terms of foot traffic for the holiday period, with Black Friday traffic running 300% above baseline. This was a 9% increase from the prior year. The top player in beauty likely had a good holiday season with strong sales given the robust traffic.

The beauty retailer's third-quarter earnings in December came in above expectations, with a 3.2% comparable sales gain that was also higher than projections of 3.1%. Total sales increased by 7.9% in the quarter, on top of a 7.8% increase in the same period a year ago.

The beauty specialist has been gaining share from department stores, benefiting from their increased store closures. As department stores like Macy's continue to shut down underperforming stores each year, Ulta is opening new stores and gaining share in the beauty segment. Ulta's store expansion plans included the opening of 80 new stores in 2019. The company opened 67 new stores through October 2019.

The largest beauty retailer in the U.S. is seen as a one-stop shopping destination, offering convenience and a huge range of products. It's differentiated from department stores and competitor Sephora, as Ulta sells everything from drugstore lines to prestige brands.

Ulta's personalized in-store experience helps draw customers. Further, the company has a strong omnichannel strategy that incorporates its Ulta Beauty app and a successful loyalty program.

Collaborations with influencers are hugely important for beauty product sales. Sixty-three percent of 18- to 34-year-olds trust influencers' opinions of brands more than advertising done by the brand itself, according to a survey in Edelman's 2019 Trust Barometer brand.  

Ulta is the only retailer that carries influencer and celebrity Kylie Jenner's Kylie Cosmetics, which had revenues of $177 million in the 12-month period that ended November 2019.

The company is also the exclusive retail partner to a number of digitally native brands, such as Thrive Causemetics, a vegan, cruelty-free, and clean beauty brand.

Ulta's valuation and growth projections

The company trades at 21 times forward earnings vs. the consumer discretionary sector's 26 times and the S&P 500's 20 times. Analysts expect earnings to increase by 10% in fiscal 2020 and fiscal 2021 on sales growth increases of 10% and 8% during the same periods.

With continued market share gains and strong execution, Ulta shares may be worth buying, especially on any price pullbacks.