THE RATINGS GAME
Ulta Beauty Inc. shares jumped 7.4% in Tuesday trading after the retailer and Target Corp. announced a partnership that would bring Ulta shops to Target locations.
Ulta Beauty stock has rallied 16.9% for the week to date.
Target shares finished Tuesday up 2%.
The companies announced a deal in which Ulta will have shop-in-shops in 100 Target stores in 2021, with more to come. The 1,000-square-foot shops are located near Target’s existing beauty departments, and workers have been trained in prestige beauty to better serve customers.
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“Given shopping consolidation trends that have accelerated throughout 2020, this partnership brings Ulta closer to its customer as our analysis finds that 85% of Ulta customers shop at Target, while also opening the door for incremental customers as only ~20% of Target customers shop at Ulta,” wrote Cowen analysts led by Oliver Chen.
Cowen analysts say it will help Target to build on a category that is already important to the business.
“We expect the partnership will further cement Target’s strength with Gen-Z/millennials, and help make the retailer more relevant to new and younger shoppers,” Cowen said.
Cowen rates Ulta Beauty shares outperform with a $280 price target.
GlobalData Retail’s Neil Saunders calls the deal “mutually beneficial.”
“Putting together two very focused and successful retailers is a threat to other beauty players,” Saunders wrote.
“Specialists like Sephora will be able to hold their own because of the strength of their brands and the underlying loyalty of their shoppers. However, department stores and drug store chains – which have been losing [customers] for years – should think carefully about their response to this latest development.”
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Raymond James analysts note the size of both retailers’ loyalty programs: Target has about 75 million members and Ulta has about 32 million.
For Ulta, the near-term financial impact might be “minimal,” but “the goal over time will be to drive spend per member higher by increasing brand awareness and being able to access the tens of millions of Target loyalty customers who are not currently Ulta loyalty customers.”
Raymond James rates Ulta shares market perform.
For Target, it brings access to brands that hadn’t been on its shelves previously.
“The agreement adds prestige beauty brands that were previously out of reach for the company, Ulta brings expertise in merchandising and service that Target could leverage more broadly in the category, and it further raises the profile of the product offering in the store overall,” said Wells Fargo in a note.
Wells Fargo rates both companies’ shares overweight.
Ulta stock is don 0.7% for the year to date. Target shares have rallied 25.4%. And the benchmark S&P 500 index is up 10.4% for the period.