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Why Ulta Beauty Is Postponing Its Push Into Canada

By Rhian Hunt – Sep 24, 2020 at 11:24AM

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The suspension is happening despite the potential loss of tens of millions in prepaid Canadian leases and other costs.

Cosmetics and personal care company Ulta Beauty (ULTA 3.33%) said in an SEC filing yesterday it is halting its plans to carry out a major expansion into Canada, despite a strong August stock market rally. The strategic initiative is suspended, rather than entirely canceled, but the 8-K Current Report gives no indication when the Canadian push might be resumed.

As Bloomberg reports, the company has spent years working toward its first foray into international markets. The decision to open stores and salons in Canada was made in May of last year, when CEO Mary Dillon described the United States' northern neighbor as "an attractive and logical place to start" and said the company was "prepared to scale quickly as we learn and see success."

The Canadian flag flying over Quebec with a sunset sky in the background.

Image source: Getty Images.

The expansion plan hit its first roadblock as COVID-19 swept across the United States. In April, a news release from Ulta said it was slowing its level of investment but still planned to launch its Canadian venture, but in 2021 rather than in the original scheduled timeframe of 2020.

Now Ulta says it is suspending its Canadian expansion altogether in order to focus on supporting its existing American operations, investing its available capital there. In the U.S., it plans to open new stores, boost loyalty programs, develop more personalized services for customers, grow its market share, and extend its omnichannel, which means a nexus of cooperating e-commerce, social media, and physical retail initiatives.

The decision comes despite the fact that Ulta stands to lose between $55 million and $65 million on lease obligations, infrastructure investments, and other costs. The company does note, however, that it "continues to believe international markets provide a long-term growth opportunity."

Rhian Hunt has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ulta Beauty. The Motley Fool has a disclosure policy.

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