By Matt Grossman

Cosmetics retailer Ulta Beauty Inc. plans to open shops inside more than 100 existing Target Corp. stores starting next year and be added to the retailer's website, the companies said Tuesday.

The news lifted Ulta's stock price to its highest level since before the coronavirus pandemic. Ulta has said the pandemic prompted the company to expand ways that customers can find its products. For Target, the move is seen bringing higher-end cosmetics into its lineup and sprucing up Target's beauty aisle.

"This is probably not a foot-traffic driver, but it could be a basket enhancer" for Target, said Michael Baker, an analyst at D.A. Davidson Cos.

The pandemic has not only caused disruption to retailers, it also has increased the importance of innovating how they reach their customers, said David Kimbell, Ulta's president.

"By reaching them in this environment, it will ... ultimately increase their loyalty to us," Mr. Kimbell said, referring to the Target collaboration. "We're giving them new ways to engage."

At Target locations included in the partnership, a roughly 1,000-square-foot retail section will be set aside for Ulta products, and Target workers trained by Ulta will help shoppers browse. The companies said they plan to expand the partnership to hundreds more stores over time. At the end of July, Ulta had 1,264 stores. Target had 1,871.

Target's website will include the Ulta brand, the companies said, and Ulta sales there will be integrated with Target e-commerce options, such as same-day fulfillment and drive-up and in-store pickups.

"For Ulta, it would be difficult to offer same-day delivery without a partnership with someone," Oppenheimer & Co. analyst Rupesh Parikh said. "Target has a really strong ecosystem."

Target has brought other outside brands into its stores and its website in the past. A deal with CVS Health Corp. five years ago gave CVS ownership and branding for Target's in-store pharmacies, and a Disney-focused page on Target's website lets customers shop for products like Disney DVDs and Disney-themed clothes.

Shares of Ulta rose 7.4% to $265.49 Tuesday, moving the stock into the positive for 2020. Target shares added 2% to $158.07 and are now up 23% this year.

The partnership, though, could draw business away from existing Ulta stores depending on how locations for the in-Target shops are chosen, Mr. Parikh said.

After the Covid-19 pandemic began spreading in the U.S. earlier this year, Ulta temporarily closed all of its stores starting in mid-March, fully reopening them by the end of July. Ulta generates most of its revenue from stores, where customers can try on makeup, buy skin-care products or book appointments for haircuts and other beauty services. Normal operations continued more smoothly for Target, which kept locations open as an essential retailer.

Also hurting the beauty industry was reduced demand for cosmetics as people are spending less time in offices and at social gatherings, but the sector's results have improved over time. Total sales for Estee Lauder Cos., another cosmetics maker, declined 32% year over year in April through June, but were down by only 9% year over year between July and the end of September.

Ulta's business has followed a similar path. In early May, Ulta's comparable sales were down by 37% year over year, but the trend improved to a single-digit decrease over the first three weeks of August, Ulta said. Still, Ulta's profit for the May through July period declined by nearly 95%.

In September, Ulta suspended a previously planned expansion in Canada, adding that it would instead give priority to U.S. operations. That decision was expected to result in costs of $55 million to $65 million, Ulta said.

Write to Matt Grossman at matt.grossman@wsj.com

(END) Dow Jones Newswires

11-10-20 1659ET