While some retailers are still stabilizing following the disruptions from COVID-19, Ulta Beauty (ULTA 1.08%) is well positioned to handle the ongoing volatility. The largest beauty retailer saw a nice improvement in comparable sales in August and believes this recovery will continue. Here is why Ulta is set up to succeed.

Layout of a variety of cosmetics

Image source: Ulta.com.

Ulta reports an uptick in July and August

Like many retailers, Ulta stores were closed earlier this year due to COVID-19. The company began reopening locations during the fiscal second quarter with 90% of its fleet open at the end of June and 100% open by mid-July .

Comps bounced back post-opening, jumping from down 37% in early May to down 10% in July. CEO Mary Dillon noted on the second-quarter earnings call that trends further improved in August: "Sales trends have continued to improve with comps down in the mid single-digit range for the first three weeks of August."

A wide range of products and price points

Ulta has a strong position in the premium cosmetics market and continues to take share, noted CEO Mary Dillon on the latest earnings call: "During the second quarter, we increased our market share across most major prestige beauty categories, and we saw an improving trend in our share of mass beauty as we reopened stores."

The company's status as a retailer that provides "all things beauty" -- offering every category across a range of price points -- is working in its favor. Because of COVID-19, many shoppers are sensitive to safety and health concerns and choosing to make fewer shopping trips. Management saw this preference take shape as the average ticket size increased 15%. And as a one-stop shopping destination, the beauty retailer is able to serve both value shoppers and those looking for prestige products.

Building customer loyalty

Customer loyalty is another big driver of revenue for Ulta as the company engages with shoppers with launch events and special programs. For example, August was member appreciation month, which President Dave Kimbell said "really worked and helped to reengage our members." The company is focusing on strategic promotions that are more personalized, which it believes will garner more repeat business.

In September, the beauty retailer is running "21 Days of Beauty," one of the biggest promotional events of the year. This event also has a strategic effect of allowing customers to try new prestige brands for the first time, who can then become repeat buyers. Dave Kimbell elaborated that with the promotion, customers "come back and engage in those items in [the] entire brand, and there is equity built for us as we get more greater share [of] their wallet, we're introducing them, we're moving them up and the brands."

Omnichannel continues to be important

While Ulta is cautious about the 2020 holiday season because of a likely decrease in office parties, holiday events, and other gatherings that typically boost demand, the company is confident about gift sales. And e-commerce should continue to be strong going into the holiday season -- this omnichannel presence should help offset weakness at physical stores as it did during the second quarter.

In fact, the company's most engaged omnichannel shoppers spend three times what a normal brick-and-mortar shopper spends on average per year. Ulta has set up a robust omnichannel experience, spanning direct-to-consumer, BOPIS (buy online, pick up in store), ship from store, and brick and mortar.

CFO Scott Settersten said of BOPIS, which rolled out in 2019: "[W]e are really just beginning to see kind of the power of what that can bring to the mix overall." The company also plans on ramping up ship-from-store capabilities to 100 locations in major markets in the fourth quarter as part of its omnichannel effort.

In the current fast-changing retail environment, Ulta stands out because of its ability to adapt how it serves consumers with investments in loyalty programs, strategic promotions, and the omnichannel. As the broad market recovers, the company can quickly return to revenue growth and maintain its position as a leader in beauty retail.