- Ulta will delay the opening of its second "fast fulfillment center" in Jacksonville, Florida until 2021 after disappointing sales in the third quarter triggered a second look at planned expenditures, CEO Mary Dillon said on the company's earnings call Thursday. The site was to due open next year.
- The warehouses are intended to bring the beauty retailer's shipping speed down to two days for all orders by 2021. Executives did not explain the full impact of the delay.
- The company had allocated $130 million for supply chain and IT in Q4, including the new warehouses, as of its second-quarter earnings release in August.
Dillon heralded the conversion of the retailer's Romeoville, Illinois distribution center to the fast fulfillment model in August as seamless, adding the facility handled 10% of the company's e-commerce volume within weeks.
The plan to achieve two-day shipping on all e-commerce orders was made in better times.
Cosmetics is experiencing what Dillon called a "down cycle," which brought the retailer to lower its guidance for the year back in August. Other categories within Ulta stores are growing in sales but makeup, Ulta's bread and butter, is shrinking and expected to do so through the first half or 2020 according to analysts.
Ulta stopped breaking out e-commerce sales several quarters ago, though CFO Scott Settersen offered a range of 20-30% e-commerce growth for each of the last two quarters on earnings calls, adding that omnichannel offerings like buy online pickup in-store are growing too.
Without a specific growth figure for shipped e-commerce orders, it's difficult to tell whether the softness in cosmetics sales is shared among digital and brick and mortar, perhaps informing the fulfillment center stall. But sales are soft enough that Ulta is pumping the brakes on capital expenditures for the time being.
The company decreased CapEx projections for 2019 by $35 million and will share the extent of the similar cuts for 2020 in its next earnings release.
Credit-Suisse analysts called the delayed fulfillment center an encouraging sign that management is actively addressing the soft sales, in a research note.But holding off on speedier fulfillment could exacerbate an already highly competitive market.
Sephora currently offers free three-day shipping on orders over $50 and many non-category-specific retailers bring in Ulta's product categories just for peak season.
"I'd just remind everyone that in the holiday season, unlike in the rest of the three quarters of the year, we compete with everyone in retail for wallet share, right, in the gift giving period. So, this is a critical time for us," said Settersten on the call.