What retail funk? Ulta Beauty’s Mary Dillon shows how to buck a trend

September 12, 2014, 5:35 PM UTC
2014 Outstanding Mothers Awards
NEW YORK, NY - MAY 08: Outstanding Mother Awards 2014 honoree Mary Dillon, CEO, ULTA Beauty attends the 2014 Outstanding Mothers Awards at The Pierre Hotel on May 8, 2014 in New York City. (Photo by Slaven Vlasic/Getty Images)
Photograph by Slaven Vlasic — Getty Images

Anybody who thinks retail CEOs’ talk of a “retail funk” lately is a cop-out will find new ammo for their skepticism in the latest stellar results from specialty retailer Ulta Beauty (ULTA) .

The 715-store chain of beauty products and salon services, which is part of Fortune’s 100 Fastest-Growing Companies in 2013, reported comparable sales rose 9.6% in the three months ended August 3, and raised its sales and profit growth forecast for the year, sending its shares through the roof on Friday.

So what’s Ulta’s secret sauce? It has pushed more so called “prestige,” or high-end beauty products at a time mass market items have struggled. (Ask Coty (COTY) and Elizabeth Arden how things are going at the lower end of the market.) Its salons, where customers can get mani-pedis, have been a big help in the surge in customer visits since customers can’t get those services online and seem to buy items in store during those visits. (Though Ulta’s e-commerce sales rose 54.9% last quarter show it’s getting the best of both worlds.) That’s a big contrast to the rest of retail land where everyone from Wal-Mart Stores (WMT) to Walgreen (WAG) have been complaining about lower traffic for months.

And CEO Mary Dillon, a head of marketing at McDonald’s (MCD) a few years ago, is overhauling Ulta’s loyalty program, which she said on Friday was the biggest source of the sales surge.

The result is Ulta now expects sales and profit to be up 20% this year. Not bad for a CEO 15 months into her stint. (Between Ulta and McDonald’s, Dillon was CEO of U.S. Cellular.)

Ulta’s growth has outpaced that of smaller competitor Sally Beauty and even that of LVMH’s Sephora chains. And Dillon sees opportunity for more- she told investors on a call Thursday afternoon that there was room for 1,200 stores eventually.

“We believe that there is more market share that we can gain with the beauty enthusiasts,” Dillon said.