Ulta Beauty's shop-in-shop agreement with Target is ending, which BofA Securities views as a significant opportunity for Ulta to recapture revenue. The analyst projects potential annual revenue growth of 100 to 315 basis points by re-routing sales to its standalone stores, leading to a reiterated Buy rating and $685 price target.
Ulta Beauty's partnership with Target, which generated an estimated $650 million in GMV, is winding down in August. While this initially appears as a loss, BofA Securities analyst Lorraine Hutchinson argues it's a growth opportunity for Ulta. By recapturing a portion of these sales into its standalone stores, Ulta can realize incremental revenue growth and significantly higher EBIT due to leveraging existing infrastructure. This transition presents a short-term challenge in managing the exit but a long-term opportunity for Ulta to improve its operating profit and comparable store sales, especially given its store proximity to Target locations and digital investments. The key opportunity for traders is the potential for Ulta to exceed market expectations on revenue and profit growth as it successfully re-routes these sales.