Ulta Beauty Inc (NASDAQ:ULTA) faces a major structural transition as its shop-in-shop agreement with Target Corp (NYSE:TGT) winds down in August. BofA Securities Global Research analyst Lorraine Hutchinson views the end of the partnership as a growth opportunity rather than a loss for the specialty retailer.
BofA reiterated its Buy rating and $685 price forecast on Ulta stock on Wednesday, pointing to a substantial revenue recapture potential.
Recapturing Target GMV Offers Incremental Growth
According to the analyst note, the $650 million in estimated gross merchandise value (GMV) previously generated through Target locations sat directly on Target’s profit and loss (P&L) statement. Consequently, any sales Ulta re-routes back to its standalone footprint will register as incremental to its comparable store sales.
Hutchinson said recapturing a portion of the beauty spending that previously flowed through Ulta Beauty’s Target shop-in-shop locations could add 100 to 315 basis points to annual revenue growth beginning in the third quarter of 2026.
BofA modeled three potential win-back scenarios:
- 20% Recapture: Adds $130 million in revenue (104.9 bp growth impact).
- 40% Recapture: Adds $260 million in revenue (209.8 bp growth impact).
- 60% Recapture: Adds $390 million in revenue (314.7 bp growth impact).
The analyst said recaptured spending would be worth about three times more to Ulta in EBIT than the royalty stream it replaces. As a result, the company would need to recover roughly one-third of the lost gross merchandise value to maintain flat operating profit, with any additional recovery providing further upside.
Because recaptured sales leverage Ulta’s existing store footprint, BofA assumes they will convert at a 29% incremental operating margin.
Footprint Overlap and Digital Enhancements Support Win-Back
Ulta’s store proximity to Target locations strengthens its ability to convert former shop-in-shop shoppers into higher-value standalone store visitors.
Furthermore, ULTA’s ongoing investments in systems, loyalty data and speed — including Ship-from-Store in 1,000-plus locations and an Uber Eats partnership covering 1,500-plus stores — help mitigate competitive pressures from Amazon.
Target Assortment Shift Creates Competitive Gap
As Target expands its Target Beauty Studio to 600 stores in August with a mass-to-prestige lineup, BofA notes that Ulta represented under 5% of Target’s $13 billion beauty business. The note concluded that Ulta shops likely “offered too much prestige product for the average Target customer,” positioning Ulta to recapture prestige-focused beauty consumers as the partnership ends.
ULTA Stock Price Activity: Ulta Beauty shares were up 1.40% at $508.54 at the time of publication on Wednesday, according to Benzinga Pro data.
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