Shares of Ulta Beaty (ULTA) fell 15% on Wednesday after the company warned that demand appeared to be cooling. Loop Capital Markets Managing Director Anthony Chukumba told Yahoo Finance the announcement was "a little surprising" given that the beauty retailer released earnings just three weeks ago.

Chukumba recently downgraded Ulta's shares to Hold, given the stock's valuation. However, there are things that give the beauty retailer a leg up over rivals. Chukumba notes that Ulta carries both prestige and drugstore brands, giving it a diverse product mix. He also notes that some stores have spas and that, generally, their stores tend to be less intimidating than others. The most important advantage Ulta has is its loyalty program, Chukumba says, arguing it has "the most compelling" program.

Watch the video above to hear Chukumba explain why, for some customers, cosmetics are not a discretionary purchase.

Be sure to watch the full interview with Anthony Chukumba. For more expert insight and the latest market action, click here to watch this full episode of Market Domination

Editor's note: This article was written by Stephanie Mikulich.

Video Transcript

JOSH LIPTON: And in this space, Anthony, I'm just curious, this name Ulta Beauty, what are their competitive advantages if you were to spell them out, Anthony?

ANTHONY CHUKUMBA: Oh, absolutely, they've got a ton of competitive advantages. So you know, look, Ulta Beauty, one of their big advantages is that they have both prestige brands, so the higher-end brands, think like a Mac or a Drunk Elephant, but then they have also those kind of mass brands, like the type of stuff that you'd find, like L'Oreal, you know, in a drugstore. The most sort of beauty products retailers have one or the other, they don't have both.

Another thing is that they also have spas in their stores. And another thing is that their stores particularly relative to Sephora. I mean, they're just not as intimidating, quite frankly, for the shopper. But one of the most important competitive advantages from my perspective is their customer loyalty program, Ulta Beauty rewards, used to be called Ultimate Rewards.