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Following quarter after quarter of rampant growth, some signs of a slowdown in the U.S. beauty market are starting to appear, cooling some optimism for this once-hot sector.
The initial warning sign occurred in early July when reports surfaced that there was more promotional activity at department stores' cosmetics counters — once a big no-no for these large retailers.
"We've seen our competitors start to discount items like cosmetics, and I'm sure they're saying we're doing it," Jerry Storch, CEO of Hudson's Bay, the parent company of department store chain Saks Fifth Avenue, said on a recent conference call. "Once you get into that kind of a situation, everyone is fighting for every inch."
Department stores had long been the only destination for women to browse for more expensive brands of blushes, lipsticks and perfumes. But nontraditional players like Ulta, LVMH's Sephora and Macy's Bluemercury came into the mix and changed the beauty landscape, and were rewarded with robust growth.
However, cosmetics giant L'Oreal on its latest earnings conference call pointed to softer trends in its North American beauty business. This caught one analyst's attention, and he quickly issued a downgrade on Ulta's stock.
"If our read of L'Oreal's assessment is accurate, this, coupled with increased department store discounting, could suggest a less robust U.S. beauty market," Oppenheimer & Co. analyst Rupesh Parikh wrote in a Monday note to clients. "As a result, we now view the backdrop as more challenging for ULTA to deliver the same level of comp and earnings upside investors have grown accustomed to."
This news, when combined with tough year-over-year comparisons, all point to a more "challenging beauty backdrop" for certain retailers in the coming quarters, Parikh said.
And one can't forget the ever-present threat of Amazon, which is rumored to be considering partnering with beauty supplier Violet Grey. The younger e-retailer's website sells products from big-name brands ranging from Chanel to MAC to Tom Ford to Dior. These are partnerships Amazon.com hasn't been able to secure yet.
"Because you have this area of strength [in beauty], a lot of retailers are trying to play," Parikh said.
A representative from Amazon didn't immediately respond to CNBC's request for comment.
Within the past two years, Ulta has surpassed smaller rivals Sephora, Bluemercury and others to become the nation's largest makeup merchant. Amid growing competition and the threat of falling foot traffic at stores, Ulta is still finding ways to lure shoppers through its doors.
"ULTA's loyalty, prestigious brand access, & mass offerings drive traffic and are competitive moats, enabling ULTA to protect & gain share," Cowen and Co. analyst Oliver Chen wrote in a recent note to clients. In some ways, Chen said he believes Ulta could become the "Amazon of beauty."
The beauty retailer has managed to turn itself into both an online and offline shopping destination, and importantly one that key cosmetics and skin care brands are actually looking to partner with, he added.
"As our readers know, we have been and remain quite bullish on ULTA's prospects due to a combination of company-specific initiatives, new product launches including MAC, and one of the strongest managements in retail," Oppenheimer's Parikh made sure to mention when he downgraded the stock earlier this week.
But for now, the company is struggling to convince Wall Street of the same story. Expectations have been set sky-high.
Ulta's stock has fallen about 8 percent over the past six months and is down nearly 14 percent for the past three months, owing much to recent chatter about increased promotions and makeup demand on the decline.
"Ulta is a victim of their own success," KeyBanc analyst Jason Gere told CNBC. "I think the stock is weak because people are saying all these good things can't last forever. … [Business] has to slow at some point."
But if you "peel back the layers of the onion," Ulta still has tremendous runway for growth, he added, and at least for a number of years.
Ulta has managed to come out of the "shadow" of the department stores, proving it can survive and thrive as a stand-alone business, Chris Conlon, chief operating officer of retail real estate investment trust Acadia, told CNBC in an interview. "They are the best example of moving out of that [department store] box."
After being "defined for decades as the ground floor of a department store where you were assaulted ... with samples and testers," the beauty sector has shown it's capable of changing from that, Conlon said.
The beauty business, he added, is still a hot-ticket item for real estate folks. Landlords want a bite of that apple, if they can get it.
Time Equities, a New York-based real estate agency and advisor, told CNBC that its business is still seeing strong demand from beauty operators in 2017, despite talk of the sector cooling off. Ami Ziff, who leads the firm's national retail team, said Time Equities is currently working on four prospective Ulta stores within its portfolio.
Meantime, Ulta is scheduled to open its first location in Manhattan later this year — a 12,000-square-foot box on the Upper East Side. Sephora and Bluemercury are both in close proximity down the block, but Ulta's footprint will undoubtedly be the biggest of the group.
The market still looks to be fair game for other retail players, too. At least no one company is really slowing growth.
Target and internet giant Amazon, for example, are looking to beef up their beauty offerings.
"[Target is] bringing in things that are trending, bringing in reasonably priced product and trying to get consumers excited," NPD Group's beauty analyst, Larissa Jensen, told CNBC. "Amazon is definitely going after beauty in a different way."
Amazon, Jensen said, is really able to win in beauty when it comes to replenishment — when women know exactly what they want, and when they want it.
Online players still only bring in less than 20 percent of total beauty dollar sales, NPD has found. Most females refuse to give up the "touch and feel" aspect of shopping when looking for the right shade of powder, lip gloss or eye shadow.
The threats and talk of Amazon making a bigger push into prestige beauty online are overblown and shouldn't steal from Ulta's success, Cowen's Chen said. In fact, Ulta is looking to make its own push online, he pointed out.
Ulta has set the bar high because of what investors have seen — double-digit growth in the high teens for same-store sales, quarter after quarter, Anthony Chukumba, an analyst at Loop Capital, told CNBC in an interview.
"But a sequential slowdown wouldn't end well. Absolutely not. … The next earnings report is going to be so pivotal." Ulta is set to report earnings after the bell on Thursday, Aug. 24.
For now, Ulta's biggest concern is that the company doesn't get too complacent with where it stands against its competitors. And that it keeps its store concept fresh, its customers satisfied and its investors believers.