ULTA - Earnings call transcript Q2 2018

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Operator

Greetings, and welcome to the Ulta Beauty Second Quarter 2018 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Investor President, Vice Lefebvre, Relation. Laurel Please proceed.

Laurel Lefebvre

and Good joining for you. our us are Executive is thank Also, Chief Financial conference Officer. you for Ulta call Officer; Chief Dillon, and and Dave us Mary Settersten, Beauty’s joining Hosting Chief Officer. Thank call. afternoon, Scott Merchandising second Marketing Kimbell, XXXX quarter

not be Reform in of XXXX. Harbor language. risks company’s the SEC. Safe due to Act we to I’d Securities are this call statements uncertainties, meaning Before conference results Litigation statements company’s within those begin, filings may like with of the of to number which historical which forward-looking of the and may constitute from differ in the materially are statements deemed a such all remind contained facts, you future the The in projected of Actual described Private

ask allow turn respond During that hour request over the only you during now possible this many time scheduled Mary. to to question call session, have the for to call. we Q&A to you as to I’ll one the please of as respectfully us

Mary Dillon

in the everyone. quarter, you, performance our color in moderation and of strong few Beauty reflecting rate cosmetics, a in care brands, boutique cosmetics Thank of team large offset Laurel, rapid delivered Ulta The by continued mass afternoon, good brands. growth skin prestige fragrance, second and the growth

balanced and earnings excellent retail performance, XX.X% in Our comp sales financial categories. store flexible recap significant across growth business gains of comps, ticket and comp sales growth grew new share top in To XXXX high-growth per total We model XX.X%. healthy share a quarter support Diluted drove Ulta.com, of market to productivity, for resulting XX.X%. X.X% continues grew our overall. the second traffic with on

We our We drive a end representing executing with and of XX.X the year-over-year report active to XX.X% the differentiate efforts quarter, imperatives. deliver loyalty Rewards you to their results our our loyalty give Ultamate second one grew progress on program increase. each continued brand. by million strategic I’ll at our in starting a members to

we exceed we’ve the members still growth. As over the square but to few absolute in footage to continue expect moderate, past growth seen quarters,

of average growth. expect gains increase will member the combination to to including our complement members, forward, healthy of and more wallet, Platinum card is sources, Going and sales over maturation of This brands, from time, multiple program higher of personalization Diamond we addition our our per to of of to These greater the guests. who expected member drive share offers and benefits come the communications to buy credit Tiers growth. continued increase new penetration our loyalty revenue

of and Our quarter, loyalty Platinum program, continued where the to combination personalization. we rewards saw guests continue loyalty, programs. increased credit respond of powerful Ultamate we continue our card second gift innovate members new enhanced Diamond In tier and to with and the both with momentum our card the to Rewards

Sales to Rewards as by from in of expanding store our stores. driven ongoing growth by this gift our our and driven Ultamate strong program efforts. in execution grew well great card as XX% teams continues marketing retailers credit Our year, than cards more exceed other expectations, distribution

and Hair we the teenagers. products, hair including promotions, obtained year marketing levels jumbo-sized on Day, Latina, care our and millennials We’re brand as Mother’s well targeting our guest programs very segments, of maintaining our such events, efforts events awareness as high Gorgeous around earlier through as sale distinct this our

POPSUGAR, and placement. media media new Bustle, these Mobvious, with Hispanic and awareness Hola high-impact And beauty grow We as as influencers, include Ulta RefineryXX, in authority and Beauty continue partnerships, destination which utilize HCODE, to of many as Digital partnerships display and the ways: well CaféMedia. social

streaming and as audio, in We statement, inclusive to campaign bring are also and possibilities which will radio at at more evolve the the we to continue chapter Beauty awareness new and deepening differentiate further life our Beautiful.” with in for Pandora. we’ll marketing an with of celebrating inspiring Ulta upcoming which our emotional guests, topic Day, in new connection next “The this to Ulta advertising brand share our infused this We’ll through new all positioning our new launching drive a television emotional unveil brand week Beauty. power depth brand continue our Spotify of of partnerships the have our Possibilities to with We’ll beginning and Analyst positioning and be invest but communications will network we

Turning now to to an assortment. merchandise our differentiate overview continuing of how we are

data almost to U.S. continue tracked NPD as basis XX% gain beauty beauty as the X.X by XXX beauty year. prestige industry July up and of through gained we from X.X% the evidenced far prestige fast. prestige than this significant and grew We times market prestige so were sales market February as more in of by for Beauty points this year has Ulta share represents beauty now NPD. in share

categories in grew the of was mid-teens, sun to softness the in gains compared drove were brands benefited These particular the and basis brands, fragrance, skincare, cosmetics up Each points total large by market and prestige the a double-digit second quarter, gains fragrance of prestige we strength across prestige XXX from More makeup strength healthy as of cosmetics. brands. during boutique in comps few the with prestige cosmetics, strongest category, share these broadly offset growth Our year-to-date in X%. mass care. boutique Ulta Beauty continued

in Estee all as in the we anticipate Morphe, Beauté. are Chanel And We’re even an seeing benefit such bigger the and of Lauder, Clinique, that will excellent be year. growth these rollouts of that Lancôme, in the doors, MAC, second-half NARS, present expansion brands not

also of new in brands from We’re ahead, brands. encouraged existing amount both new by newness the and the products pipeline

express brand will the and year of the part to will launch This of addition roots. roll the of a naturally-derived Ulta in these out to XXXX, doors. body number Kiehl’s The January. Beauty stores include by significant in skincare, in year. starting and We number offering skincare bar second-half skin plan of next delighted The Kiehl’s early launch will a products. their known Since be men’s then Kiehl’s for online small We’re announce will the early of apothecary the in prestige brand lineup inspired ingredients doors product in brand more

online Place. years of affordable On colorful makeup the queens. inspired we’re rich, cosmetics of a a brands. this of The woman year. in excited XXX brands eyeshadows, Juvia’s to by side, beauty of set just range recently and wide Nigerian-born name offers later as of like large, for a Juvia’s Ulta Kiehl’s from well two, the the integrated native, mass Place to stores about Juvia’s essentials. by addition African those and Beauty’s collection beauty pigmented, of was couple launched brands choice as partner digitally-native just a will status iconic tools founded and line brand vertically its reflect ago highly Headwinds vibrant, as This and Place digitally

In Recently this the expansions guests. Launched assortment and with Faced to new to launches partnering is of just existing Vault early with fruit at Jaclyn few to for on are confidence collection brand, an trend. want feet have these in brands from or the Ulta exclusive terms of Hill collection. items comp as four-palette ten This a be as lip, the a strong The face weeks us or products an stores the our a is products ago. is enthusiasts week, Too Beauty just newness second much the eye, Morphe toofaced.com. to Tutti from tap online more influencer with of for and scented launched the new Beauty, expanding and be In is cases, a improved in collection own. will on new mid-August of product brand with digitally-native collection mega year big many lead doors Too highlighter that first weeks, had cheek to half very set hit available Kandee Ulta beauty a this expected we only Johnson, Frutti all in couple must-have launch Faced a just in giving be influencer

their Benefit early range. major a We’re had for Concealer; foundation the Brow like the layering. both brand. Urban collaboration for influencer from brick-and-mortar launch. Ulta and the launched Beauty recent edition NYX products fragrances Dramatically equally palette long-wear Ulta outlet Different Dose lead with for product an limited Stop new launches Clinique’s items include shade Tarte Stop with Norvina iluvsarahii; exclusively newest NARS the where designed Jelly; pen; Clinique Beauty Happy Can’t Splashes Contour with Anastasia; anticipated only cases in broad of Palette; Colors include Decay Other Creaseless Hydrating Other this My just Won’t Aphrodisiac mascara,

I breaking Now to want some thing mention news. is the last

in addition of later our a launching with with confirm a all brand launch will beauty in Jenner year. yet more a at later this to Beauty partnership their is successful, We’ll Kylie is another exclusive and stores thrilled We are digitally-native about brands This reach date. influential which example with consumers. details industry. the Cosmetics, online Ulta Kylie force be partnership this extend to brick-and-mortar share valuing highly

These sales top skin prestige performer in on chain. concerns. now The stores roll will business. Now in skincare and due choose her increased addition about skincare stores longstanding on facial new a floor in were This stores skincare skin compared in already sales to moving Kate average increases our guests offers from services. regimen rose express to helping XX begin partner Kiehl’s a services on with quick in X.X% X.X% this locations Dermalogica, our continues and offering to are helped bar the strength services to model. new across Somerville our experts focused model. sales prior Skin services Salon growth that comp Murad, program to the licensed guests Select ticket. sales offering services microzone addresses the care out by showing with

We’re on express and XX offer services. of skin XXX out year-end will these track bars by roll skin multi-brand to

a we quarter, associated their compensation. improves conversion optimization pricing, training the and simplifies changes to California that and in the services new completed guest During model and to training, with program, preparation in our experiences for

this indicate favorably. joining introduce new to the our which opened with this to program stylists as Denver Early model have and very additional districts, in retention were in received results central well plan in the region, DC regions guest XXXX. higher Our program the and stores first We new the as quarter. launched Hawaii

you and home help most two, year hair update Ulta nine quarter, the hair and team and pro we received with industry awards We mentioned our garnering work and across the team as continue Beauty for had by the We attended hair America, over Hair salon a in like attract XX,XXX the hosted Events award to the continue and establish awareness focus And the Beauty we’re quality us the opened place professionals at X,XXX Awards show Beauty North Stylist Ulta XX within second turning categories, Hair members Las to we industry. quarter, Stylists to impressions. pleased We for last Year. first-ever the stores. to stylists people took NAHA one million Vegas. that great Ulta beauty Premiere these the X to of estate. multiple to compared in in participated XXX,XXX prestigious XX in stores viewed real top now to represents talent. quarter closed over Last North on ending gaining that by of Orlando, American nominations

last the two Our first-half earlier quarter, in in opened the in quarter on done with Oahu year a great We job Maui early compared getting plans another stores team in store third with more on in open first XX stores opened the growth XX the development Hawaii opened second during QX. our have to to and store Hawaii has opened year. and

all later start. the Our be reach are of an entering to of to XX Hawaii opening off stores stores operating in milestone this Vermont year excellent states. We’ll also

continues productivity very be to strong. store New

We study cannibalization and our productivity expectations. stable within store well new be to continue to observe and

Ulta.com. the company This E-commerce X,XXX with now in our total an years. launch quarter driven company comping contributed rose we’re transaction feel sales. So and next to first target in mobile the several up And over moderation U.S. XX%. MAC strategy we relative sales network over online-only of brands. X% of year comp, high-growth traffic update Ulta.com grew of when very the close represented stores the and XX.X% to turning the several comfortable reaching was with to on X,XXX basis from as points growth traffic XX% XXX last by growth. XX%, we expected total Total to from our benefited

growth We and to online-only online-only continue significant drive promotions. with brands

expectations, shipped high-demand, every products as and Our several in door, recently distribution. MAC, digitally-native but in to guests store-to-door limited particularly order available that homes program brands in exceed foundation that continues have allows with are finder. a brands online in Ulta.com to aren’t and our ColourPop, such to launched their stores that

from our focusing enhanced new on programs We’re and continuing a a success program launched crush trend like Skinfatuation. content skincare just called key to see monthly we each fragrance month

in personalization view mature incremental. growth, finally, This in chain guests member, initiatives and support Ulta.com represent XX% products of and shopping and of behavior investments our in items. operations. We’re enable shop largely The also of efficiencies. new a guest that interest demonstrating stores on areas. several the operations guest Beauty our customers testing are of first-half capabilities most loyalty chain sales exact on by update Omni-channel in than a network loyalty in and shopping reinforce continues great incidence retail-only deliver Ulta to more supply frequently e-commerce these engaged continues to replenishing XXXX, members is customers. And guest supported the supply brands our that to low I’ll continued you experience now

inventory the Our throughout position customers. a for comp well retail particularly inventory slightly the last top growth for our was quarter inventory over second manage We months our our of e-commerce per our throughout to several position network better several We’ve turn below in-stock and the goal. selling store made serve our ahead logistics consistently and strong, items. improvements effectively with quarter

both And results performance to improved have channels. the so far reduced and costs led across

buy an online, store. in omni-channel such implemented order pickup future We capabilities system also as enables that recently management

Fresno up the clearance event implemented center e-com executed from serving a newest of discounts the nearly At This This than access stores inventory build and ramp cleanup in about to our aggressive recently. we’ve holiday serving with proceeding Dallas. of Our to a the we improved Days ran major In setting of and fall, our and stores operations. and with went XXX live the and result XX% sales. in is Fresno, volume. retail it’s DC of in And back XXX sell-through great number supply than XX% quickly of more you was the season, and share is XX both end performance per in-stocks inventory July, plan as for planned Ulta.com door. reset stores we longer The event will is transitions strong on chain distribution California sales. operations of to inventory e-commerce designed and more e-commerce season to our pleased decreases a to we Greenwood Fresno growing resulting where a of year, products. about currently we’re first-year Overall, processes Fresno a inventory on Beauty more the us XXX and execute holiday brands will ramp no after ramp large and store’s for extra serve of quarter, plan. maintain than strong the our planogram our and new room, and special with

capital Investor to our it to this Scott, Conference. our our prior opportunity to management share team, In our thinking an brand growth our refresher allocation. hear efficiencies gain about it’s learn market the similar we’re the know targets, on opportunities, capabilities, merchandise I update upcoming loyalty in enhance supply November on a will a experience, Investor our for before an about wallet third current I’d our technology optimization get you near preview Conference. latest for see X, learn to our and view more about newness program, events, like investing and turn program give innovation Scheduled and services Analyst across program, positioning, about get Chicago, Biennial more learn consumer salon our share and a on potential, of on for to guest portfolio, our get over and Now be our the get the outlook how chain

it that, second-half. talk and over to And quarter the hope about outlook I’ll we second with results to for in you’ll hand our more share lot’s So cover join November. us in detail to Scott and

Scott Settersten

XX.X% you, year by Revenue standard X.X% of at recognition continued Starting Thank driven new the strength the beginning revenue store everyone. from sales. with added sales. X.X million implemented accounting comp of Mary. a afternoon, growth The of was statement. income Good and the

offset the reduction the as reminder, of sales. items income partly card the customer. card are of the to moving of breakage now being up line, represents points As by loyalty date revenue our program a instead well this as now credit gift shipment to a value delivery impact from upon recognized treated and net revenue as of These earned date e-commerce

revenue was in recognition fairly traffic with X.X% X.X% and and of average X%, company retail in not UPT. ticket sales was by driven comp Traffic a comp the impacted X% included lift for growth modest salon of balanced Ticket X.X% both was by retail change. transactions total increase up of the average a was comparable the X.X% was X.X%. ticket. ticket made retail-only Our growth. and The and price in salon increases which comp A combined and selling

as new in our chain Turning factors. Fresno roughly a The points was third to recognition several XX benefit deleveraged so of new the About revenue the supply center. expense, cost was a basis distribution basis salon third program. standard salon basis was from to our gross profit opening roll out primary reflecting Gross About XXX of attributed points line, points. to we about the XX operations investments optimization was profit sold deleverage that stores, of margins. the the clearance event where underlying the accounting through mix significant to at was multiple categories, on of ongoing end series cosmetics to a event from selling focused the the of ran inventory of relative pressures that reflows in and being e-commerce as we as brand we’ve no prestige across this the longer Mary certain that had mass resets boutiques planogram and referenced. was sales, And third remaining quarter categories year. higher-margin well This related already a

we make holiday aggressive fall a sure items wrap we is this and weeks. While more have typically more cleared of up ongoing stores year, markdowns the clearance and This and few event newness. launches ahead one reflected to smaller throughout will season major in featured overall the the events of

Aside were stable year-over-year. from this exceptional promotional activity, levels

factors. see partially modest we did occupancy offset Finally, in and to rent expenses leverage these

by budgeted cost QX EPS incurred recognition costs savings program, of savings Diluted was XXX revenue XX%, deleveraged underlying in the support prestige basis recognition from timing result item the Turning G&A deleveraged later reflecting well and XX XX.X% increased overhead accounting guidance labor from SG&A advertising from expected leverage of some the to full expense will to considering of basis optimization was our primarily and points be our early year. XX good boutique year. accounting change. we reflecting our strategy from as XX points deleveraged coming store was upside timing XX while basis points, the of revenue bright We also in year’s leverage the in of SG&A. deleverage standard, expenses. Operating points last management expense, margin overhead, due a primarily flat of was down of this points basis to of expecting corporate expense that pressure with as for Offsetting the decrease this slightly, with to the line corporate as XX% and and be strong basis sales spot

stores, of Fresno the activities. operating and basis, the growth available of the a during in flow. end at the start our reflects with quarter significant new in more inventory, $XXX Total cash X.X%, outcome performance merchandise program during second $XXX.X XXbX-X systems the million grew of distribution chain quarter-end. shares million cash and prestige in sales ended systems, and for $XX $XXX as on investments in store activity balance investments supply new light quarter. remain as invested a fixtures We authorization as Moving center million per strong the below new through on million our but well expenditures comparable decreased quarter. were the $XXX We repurchased sheet X.X% Capital the well inventory to quarter the tools clearance manage to at excellent the in inventory we and million quarter. This boutiques, cost of and short-term XXX,XXX investments. the or a on

guidance the to now and Turning for quarter third full-year.

of billion quarter $X.XXX billion range to XXXX, expect last $X.XXX third of we the to billion For in sales be the $X.XXX year. versus

last lower in in We year. expect comparable new quarter, approximately is is tax grow the the XX%. to accounting, for include assumptions we of be share to to tax expected versus stores the to range year. XX deleverage, XX net remain with account to and We of in related the QX XX range open difficult Diluted standard not year. are impact in E-commerce compensation last compared plan $X.XX and is third first-half be the slightly QX This roughly year, $X.XX X% rate in new to the the of share-based year expense sales are any QX basis planned sales XX% rate the on points increase sales. XX.X% of this track including open to to is range. to to the expected in impact be which for $X.XX revenue operating the of X% margin rate to to last earnings saw stores versus forecast. to preopening a expected consistent XXX recognition per does expected as The

share is estimated million. diluted fully Our at XX count

remodel our and later to with all full-year for XXX of planned outlook We new that XX,XXX are we stores, maintaining are year. mentioned we relocation n prototype. square full-year, the to the the our foot some projects. open For We’ll complete reflect occurring timing plan standard XXXX XX expenses

We digits. year. be comps X% Total in X% last grow XX%. the line to the top to expected comp retail the with approximately the range, are including growth single low-teens, in of e-commerce to mid company the impact expect anticipate We XXrd-week in

depreciation in $XXX percentage of forecasted share capital expect expenditures at extra diluted week We to grow We XXs the is XXXX. $XXX the million, million. in approximately low including per approximately anticipate ring, earnings

XX%. the the rate remainder with the repurchase the to shares to for to call host turn be tax the million for expect the Q&A. of year it We in our over And I’ll expected is $XXX for annual that, and conference year

Operator

Thank you.

be RBC Please Instructions] Brian Tunick Our with of now Markets. question. will from from a question-and-answer Capital conducting first We proceed question line [Operator your session. comes the

Brian Tunick

Thanks, and good and comparisons was on I issues out Can help play you first afternoon. you’re back-half just the some guess, the more Scott maybe third the from us the Obviously, some question maybe in SG&A maybe a on quarter. in there’s hurricane initiatives. different out first. help how parse expecting gross the the margin to little components versus SG&A quarter and third

Scott Settersten

Brian. Sure,

pivot I margin line, guess, expect we would second-half here gross the as bit a of look ahead the a to So, the we year. of on

quarter, probably hurricane remember activity we’re to last think, will So be over the some you’ll I year. third going anniversarying

of So the softness what the of we against year last you I sales some pretty to saw part some we merchandise know to significant, had would try hurricane that margin in say, mitigate impact. as rate investments

So, lapping that, where we’ll be so feel good are. about we we

– I would in be the you year, expect first-half would gross see that show I the the say. XX guess the good impact accounting that above above to saw think basis I points so thing So leverage margin would of first we here that change

so got we’ve saw we side, projects deleveraged the there again. think some where the SG&A the back-half, the than equilibrium first-half of more that’s you’ll year, I so for On find in

but technologies just of position across the guess, everything the would for and second-half so doing little I new we’re say -- we’re of that, time, first to initial we a good year the XXXX completed business, ourselves in of feel off beyond. some get bit the we’re slower I timelines these on for line, implementing and things Some that the about going were our some well

Brian Tunick

just business gone a talking what company then the larger of big through company could cosmetics prestige has maybe a Maybe the newness lack before color the you’re here. about before And through of period? either cadence is product kind that? about of that from the period portion introductions? similar How little seen Has Mary of talk about this or a talk a of

Mary Dillon

a mix I I Well, sort story, of guess, obviously, say. it’s it’s a – would

We cosmetics in prestige overall. continue solid growth drive to

to growing and of have are seen they’re boutique few continue share presence, not I Many lapping our say. with I’d nicely. prestige newness, We’ve prestige social guess are We brands but brands very media of the through great brands, growing strong our gains. our bigger market a innovation

that’s pressure is what So all I This some the model. do, putting on we time. guess, the

are with merchants brand really to evaluating pipeline. to constantly about Our continue our partners working pipeline. good and feel We the the strengthen

of flexibility innovation across a business the have categories, coming shows good -- half. it all, and in brands. strong, our maybe pipeline newness we’re about overall but little of you not is up closely model, I delivering with working think where First really our that’s feel and want with second at as segment the strength results time might if and – a many strong Dave, And you to a add we the bit about,

David Kimbell

and the skin nice categories, happy the we’re do, and whole all we we’re Mary assortment growth what really really store the Yes, across store. cosmetics, fragrance, some reiterate seeing in care, and said, about in entire really to the haircare, mix excited and

of – driving Although successful as brands growth will part growth and innovation of line And actually that’s the couple of that year the Brow lines, including through that optimistic Bye working driving and a one line Cosmetics, Tarte early. largest exclusive They about – many to rest year. have Benefit, off optimistic expansion all long you look Beauty some Double and including drive Duty service off and start. we’re brand that we a XX-shade has in partnership, in Beauty to recently to long launched is nice year. Tutti been brands concealer partner which growth we service a mentioned, excited excited line, Mary Beauty Mary with is prestige we’ve And had has on all history very and has themselves strong of things brow Frutti, continue brow Benefit, said, been strong But of it’s brand closely. growth. they’ve a the have partnership really that’s we’re new But our long a coming, examples Under largest optimistic. and had we’re strong some our partnership, some Too and Ulta Beauty, history our just brands innovation what’s really as concealer, Bye of a of only also and give forward, up are focused seen including that certainly – at Beauty, at Ulta I’ll a optimistic. Faced, had strong of that launched at Ulta about. a stream because that – we’re been of an steady unique the challenges. IT we’re exclusive holiday. success We’ve business long Ulta ways some grew Eye start that Bar to a a is a

So lot see our coming. board, look as Mary downs things across we business, ups we see forward, the and a said, we good as naturally of in but

Brian Tunick

the Thanks for color, luck good season. and the fall much for very

Mary Dillon

Thank you.

Operator

Please from the question. line proceed Simeon with Our from your next Siegel of question comes Nomura Instinet.

Julie Kim

longer-term you skin about what down you your if Thank there? any taking given was slowed what just and on the the are seeing, comps Hi, just this I the of for for color for Simeon. segment, could Kim so our opportunities? on wondering bar, provide thoughts expansion is Julie I believe questions. you’re on curious sequentially, trends salon

Mary Dillon

services business. because services somebody guest, spend really It’s a much differentiator. we’re spend one almost of any in is times they using salon service what not that and is Well, does. – our the who They guest best critical guest, of our It’s shop X Yes. invested very more. part

So business outperform to market. our salon the continues

can exceptional even it make doing have We we we training, it are pricing, and about talent. that why this to very do across We really optimizing we’re believe optimization reinvent board. see menu, hiring, it’s services better, the Early and of kind that’s work. encouraging results

And with start very quickly, And very fast start that results So time have it’s in quicker our us. service, expect rollout you care about happy a much skin a very lot participating encouraging. is early to also, as quicker maybe bar responsive well. and a strong but that They being skincare. to they’re to as but don’t actually very show don’t services. off to long to results They have the guests want we services, these that need these what as as from are start to much

lot lot of new we a launches, a brand heading. So and there, of good about innovation it’s where feel

Julie Kim

Thank you. Great.

Operator

comes of question. line the Steph Jefferies. from Our Please proceed your question Wissink from with next

Stephanie Wissink

campaign of Thanks. expected on bit Kylie rollout. a about wondering afternoon, a indicated that part tandem marketing question I’m you. timing terms of what the will how can new be is ask Thank Mary, we stores And of in but about your if with think the I’ll you think in that in I possibilities year, for Good little Ulta? holiday? Cosmetics. partnership, back that the everyone. then should talk you at added

Mary Dillon

be will but Yes, that know all All to we’re possibility to at going right. not Well, today, by it’s – online holiday. Ulta. have don’t it and disclose new a we really stores details so

more. consumers just really to we brand a level Beauty We’re starts around so and I the about see pretested partnership very add, about, going of proud it. the elevating we talk which It’s works, see more anything And just so a start work a way think, Ulta to I it’s and to our advertising, evolution next September with feel fantastic the corner, if beauty. to about that’s in It’s going how want right if consistent really emotional us. I’ll really it. to the and good how for are X, you people about we want I’ll to be, do excited think, react

bakes So together. more very think to nicely that, I but it on come

Stephanie Wissink

the just can earlier quarter. an question regarding on follow-up third I Scott, And

largely I that mentioned to left the more in into of the line. several the focus going be to about investments as and of within think are still onward next that need XXXX? months around to that the and QX bit what’s you investment you kind on here Can back-half in technology through you maybe six in think should little a extrapolate months? cycles equalizing pass over the course XX the we you And over into how SG&A

Scott Settersten

the the of for that. a us mean, quarter more on I a expansion long-term. quest margin little so third clarification the toughest Yes, on over kind typically, is

top boutique This got So peak labor at as you’ve on it P&L that, with to of the implementation, peak got the and gets implementation DC, the deleverage year speak. peak new you’ve the third you’ve that store got component there which quarter. off Fresno in is in kind of line, starting so

the reform us. quarter out to then a make as the part year that in the we the that that kind of challenge investments addition in third a there’s for incremental business. up So tax that, it the earlier at of And our we right, laid things core of of lot some have, working in pile

a and we the a longer are and taking initially we up earlier lot just bit thought of in learns to other the little than So that implemented have test get things queued those year. projects,

that into quarter. again, majority the So of falls third the

little a talking we’re And big that. of well. it is then top of of expenses, marketing shifting when bit So advertising as that’s about a or piece more on

move here the the we in launch the of and of spending some So from with the into fall, the new first-half the year second. advertising

So advantage optimizing take of all trying to sure again, points. we’re focus making just from

it So up in we than past. towards, with quarter you’re seen maybe the third Fresno to quarter fourth we line we more spoke running ramp quicker working as we’ve deleverage a But than last see going Mary to were with again, when thinking you. roll as forward on the the sales, quarter SG&A mentioned, and

We fourth to a moderate lot the in quarter. of that expect

with a like to in really on ourselves And So we’re the XX good line. deleverage XX then and spot the our margin target well for full-year, again, for up beyond. operating setting basis feel points we’re XXXX right on of

Stephanie Wissink

you. Thank

Operator

proceed the from of from question line comes your Christopher Our JPMorgan. with Horvers next question. Please

Christopher Horvers

little X% Thanks, guide talk interesting. about to evening. bit you X% good the been third Can a It’s quarter? the for

easier Your you’ve comps self-help a lot here but got bounced quarter. in comparisons, the of clearly, haven’t coming really third on

is, you’re to there that encouragement is I the that’s something lift question ahead the this or giving anticipatory guide that is of to August more guess, the seven of eight So is my seeing way? in you month the

Mary Dillon

you question. to couple our we see We second-half. of times give on for really to comps of thank expect And our against us. in which to event I know, some is partners, newness roll we’re not comment Of continued the always of the existing great think we do acceleration the that high-growth for try Well, about brand but new some out brands, best from Beauty, going a a talked I’m advertising, Days you guidance. in, the quarter easier XX

comps the ability we get further that we our year. believe as So just strengthen, to see for and the into

Christopher Horvers

then boutique And Understood. terms roll in the of out.

You’ve accelerated you math. few that timeframe. In as of three-year out you sort that for the over to lay think few year, XXXX? from about XXXX over accelerating the the that tough us boutique past mature sort over past, a the But is the that back-half roll the boutique years. the here talked additions It’s and about the of benefit lift done boutique into you’ve from out past and this of years into

Scott Settersten

line we as the to a in boutique say, wouldn’t the stay performance our there. in Again, recent does they’re I’d brands. line. overall, happy got there’s top comp Again, of those I with discussed the in to No, contributor headwind margin a past right? bit it So rate with we’re and investments those quarters. the boutiques of big everything’s little here a very But on say create performance acceleration. of performance balance, our very an the happy

all So for again, trying an it to result balance optimized overall.

an it call wouldn’t I acceleration. So

like point would I stores. the mentioned this out year, Mary Although new

did We’ve pulled construction this kind field I guess, the a little of So store our ahead, new differently year. roll program sequence we outs.

week, getting ahead open further in advance we’re the so good season. further on thing new of holiday stores store that’s those So a

a are think to that’s So We go. the store be ready and teams more seasoned benefit. going to

are the years. last new the than have they couple of year dragging installs the later kind of boutique of some And in

another that’s second-half gives year. the again, on the So us driver we of think that comp confidence

Christopher Horvers

Understood. of luck. Best

Scott Settersten

Thank you.

Operator

Our Please of Altschwager question. proceed with next question the your Mark from comes line from Baird.

Mark Altschwager

Good afternoon. Thanks.

Just margin the the said up driver I margin expect margin that you then, embedded was to clarify, gross Is gross I you to heard in Scott, I last primary accounting be what expectation merchandise in the benefit. do accurate? even And QX merch before you that? year. correctly, margin decline the think is if think to that’s

sense get of reasonable terms a just in So of a Thanks. trying to expectation recapture?

Scott Settersten

quantify Yes, I don’t what you, I the but That’s expecting. you’ve can hit it basis the on head. right for we’re exactly nail points in Mark, think

a it for cycle sales very this the those hurt made hurricanes back quarter. events on and point the last year. see on time so what we we’re through mean, basis we that to point headed. drive feeling and now rate significant we the invest we recall So bounce a mean, incremental decision was in to in us decision that will early investment third really in again, that. promotional We don’t be reach, that and the I pivot expect but year decision. year, exactly stated, I we right made made I point to so we’re last And the where as based confident

Mark Altschwager

on of level front, kind think Thanks. business? the a of SG&A of of one-time growth lot you the and get that’s And SG&A like this as lot normalized sustain it the these pieces what’s XXXX your of a on there moving the a seems to to in front way needed chain year. expenses beyond a Is kind strength supply

Scott Settersten

I don’t the can But we’ve reform quantify can year we it approved for this again Yes, right, got Analyst I this up maybe Day reinvestment that little at queue us that Maybe a than benefits in bit significant year. for of specifically think looked year-to-date. a again, tax to that’s those something past. we’ve differently

long-term very yes, thing. a we’re we sustain retail kind lot we there’s – quantify and a healthy what what’s that trying that’s we to the make I sure to So just environment dynamic of to mean, to in time intend what’s in things of that for a recurring and again, and here do a lot do. one – business need

pretty guidance in we So and we’ll about we’re we’ll Again, we thinking talked for view see feeling you updated. right now. when about of you good keep about And how a November, give we’re you the XXXX longer-term.

Mark Altschwager

of Best it. luck. to forward Looking

Scott Settersten

Thank you.

Operator

question. from from Please comes proceed Adrienne your with Research. question of Wolfe next line Our Yih the

Adrienne Yih

sort XXXX, a this comment bit rolling the maybe then you wondering promotional if can CVS about very better break-even And rolling that backdrop. from GlamSquad? you’re you or investments was fixed will out need do of with – done there stores going talk about you can aggressive the experiencing collaboration cost to to off? some margins of kind on down point I and Thank you to bit And promos. if a finally, much. Mary, accelerate fourish little in have therefore, the everyone. comp afternoon, as these and the talk you of like Good beauty recently, comp aren’t level, an expand, on come year-to-date that department Scott, then little the seems It because about order as was store have for to article level,

Mary Dillon

the a I��ll strategy. would always year-over-year it’s consistent start parter. – competitive. There’s say I on Okay, in – is been promotional quarter. I will overall just we’ve three environment the say, this, the

promotional environment. the in environment, good not feel We’re tools. it’s And seeing years hard have. major to our about over to pull always shifts, we guess, an but time. program the focus loyalty using increasing more call promotional ability over I that last the would demand worked say, the really different I any our, or five have on model personalized the CRM pretty We’ve diversify stable, really I I’d program, with levers and levers we

and social like the PR advertising balance – media. and mix in us things it’s invest and really to So allowed and

flex we very being don’t we I think right that, necessarily it’s we got see guess, as I So, we’ve as different need, but now, been. that than

competition, business. interested other in is Your the everybody question, beauty

Adrienne Yih

Yes.

Mary Dillon

model everything arena services, we’ve or talking program. as assortment mass, about matte or lead to think, having we’re have We, real got to in a a plus we’re loyalty attention competing that’s whether with differentiated strong the so our mass aware, And relates on. arena, plus going very mass differentiated pay it obviously prestige I

it across brands digitally-native love to I relates as doing we’re and mass. what prestige So,

– we game keep not so doesn’t I’d up And but at look I as on, say. at night, everything it guess me

Adrienne Yih

enough. Fair Okay.

Scott Settersten

some better what take and in the top top right build outlook the as match XXXX on view infrastructure prudent of would might for our say, look side. hope I line we the than then far we to right, that algorithm then as would, cost and of so have we the line, like, do we we the with and newness a we the how And work, reasonable might

this – the talked you fixed our it’s off we initiatives year. fixed earlier So, and variable efficiencies cost. term about things used for that growth here cost The kicked we

that a piece So, be it. of big will

got the Fresno we this in right. where we that. With So, see happy drop cost efficiencies with are across that we business, DC, very again year off, will

we planned in So, not won’t now. XXXX, another one that’s have

benefit in year, and XXXX investments there of out we that in So, we’re investing this and to benefits making then we’ll get some expect investments the we’re get reform the beyond. that right tax

So, maybe that would be a way to it. think about

Adrienne Yih

forward Great. the fall. seeing in very much, to good Thank and you,

Mary Dillon

you. Thank

Operator

Jaffray. line of question. Piper question comes Please from with Murphy Erinn the your Our proceed next from

Erinn Murphy

you. thanks, for good it’s question, Mary, my afternoon. Great,

in Ton, second you about talk And guess if performed increase. stores, diamond remarks, what just for share prepared us the you’re Ton’s about they with Thanks. your gain that implies about its whether tier the can learning Can spend quarter, loyal further and Bon closure? the per just customer? on how at just then share customers talked the Bon the and the stores platinum I second to from into You you the consumer per secondly, your opportunity frequent guidance overlap spend any

Mary Dillon

tiers, today out program, considered you a of the successful are We have the about we U.S. but if members for will us, and obviously under lot in they of that the and the our tell careful the we one-third break XX represent a a wallet third enthusiasts in detail the of I not you but back, beauty have million loyalty way still of step we share. only just strong various tool about but performance to

putting that the look share. both mean the at very members, focused as continued innovation I on is as going I in And, So, are grow working. the place how number that really source, program team of wallet in well we’re to that, we’re he as a

by personalization and engine, the conversion and recommendation well for strong So, driving as strong in-store move us, tier, our program. of diamond really awareness the as credit focus on so card, really engine increasing teams

sources, and see to say, that customers built attention competitor. that but to assumes Ulta asset Ton, our core from I plus guidance how stores, shop obviously to about really see know can I to our continue certainly for expectations. out we’re we to down looking Bon of for Beauty, don’t across feel everything But just that’s have gain drive it beauty us going we’re So, good – as competitively we’re paying closure kind for a to precisely of say On those impact predict reaching we’re going to individual would several and continue to we about an into generally place sure markets a are happening or would and share growth. innovate make we minus,

Erinn Murphy

Great. Thank you, guys.

Operator

your of Our with the Parikh comes Oppenheimer line proceed from Rupesh next question & question. from Company. Please

Rupesh Parikh

Good afternoon. Thanks question. my for taking

on So, this your performance really versus NARS peers quarter. out cosmetics business, the stands your

So, was expectations? I the at your look you’ve surprises done reset have been there any curious versus as you just year-to-date, that this

Dave Kimbell

Yes.

her in I about accomplishing a lot things one feeling – We recent that of we’ve has The are been brands growth. new lot them and stronger exclusive of are also ways. established no overall them overall grown role and playing business a very led influencer to that driven But, come has roles, a ago we ways a a Beauty pilot some was plays yes Ulta, Ulta brand, prepared and addition ColourPop, quite newness driving well overall. the make-up revolution, States it’s of happy that been United just mentioned weeks of and with exclusive excite our of found been one set out our Ulta a that’s also to quite really of couple of at to Loreal. business good Mary to lot one brands in of engage particular our and Jaclyn in NARS Hill, Maybelline remarks, guests are has Morphe complement with we’re growth only like important in more important the their as think portfolio lot of launch our expansion the continued that cosmetics do the successful very make-up Collection, native assortment. but in digitally In a biggest our brands nice in

lot continue to growth than we’re pleased make-up performance. really particular. space anticipate So, focus in and a that of growth see on with of We more in base all and its mass

Rupesh Parikh

Okay, great. Thank you.

Operator

line comes Blair. with Our your from proceed question Please Hofkin William of Daniel question. next from

Daniel Hofkin

afternoon. Good

have of comping where but to environment I wanted briefly, may you older are just Just your in see it, point? this positive comment breakeven or this if of at that missed does could kind stand are stores older stores type an still

Scott Settersten

fleet the with five to a overall, digit The you retail side. healthy as digit would in comps. again the low-single mid-single and stores older expect So, mid-single comp years older looks are

might So, see sales again, to unusual we’re but right. that we do some anything not or Oftentimes, transfer we seeing oftentimes there. cannibalization, ourselves,

on for it we’re best dollars sure line. the in So, in market we’re we’ve and long-term, total top trying and we’re to for got in it make positions the the bottom

So, Mary feeling good good new our target. said, productivity – about store and long-term as feeling about

Daniel Hofkin

incremental Manhattan then on major in and urban that and early you’ve just And in any you kind of there? the potential what Chicago see great. Okay, update the the as opened locations of if last year the kind going store opportunities

Mary Dillon

those Yes, stores really performing well. are

we We’re thrilled opened them. that

they’re really giving and great also us. very us for awareness think I nicely brand performing

forward, a part non-urban we’re what than higher cost to love going lot what we do. will is be on but it of think, a store, run those. still smallish businesses Obviously, the I the a we So, seeing those

Daniel Hofkin

of luck. Best great. Okay,

Mary Dillon

Thank you.

Operator

Sachs. Our from your next proceed Goldman Fassler question. question comes from with the line of Matt Please

Matt Fassler

Thanks share question to question, so My my market prestige good afternoon. primary much first and numbers. relates your

an trajectory? the basis of market store give you how prestigious of transpiring aggregate also Can same some what for You and on on a us quoted terms increases nice has that’s direction in trend a basis. sense you share gone your

Dave Kimbell

Yes.

our quarter and growing in market been jump first year share this prestige has well was several second exception. and for no of the half I’ll overall significantly years of So,

certainly as in performing brands comp but I main new space Ulta that haven’t to that that’s in that still of Even and growth talked we’ve at happening for better about that stores. or added our we’ve perhaps other been the prestige market. the our places – today largely think within performing sure, stores, drivers than expectations, across the that

adding more like brands some Faced significant of share an like are rolling to because new earlier well. Tutti the are and growth that our Too So, been Flesh that continuing Lancome the stores, some limited market example, exclusive driving lines strong they are that’s out Lauder, I’ve to really growth. are a across with recently in drivers a then these of are of Duty combination talked Beauty growth growth, driving The and significantly really as Clinique, that now, addition board addition expand share that brands to brands And of has Frutti Estee are – are the in [technical Tarte as exclusive growth, about Double NARS. and difficulty] into distribution MAC contributor

who these brands, we’re stores, now, total and So, sure make that as continuing into certainly are to with and Morphe, digitally on future. multi-tiered ColourPop we’re that confirming brands well mentioned, role added I’m driving well we’ve Kylie an The we’re like having thing on is, driving why I’d that and to stores, seeing the prestige of native makeup will impact launch really play though the That’s shares market last new and and market. an focused Mary definitely brands say total important as level excited. comp in the as

Matt Fassler

news briefly of of it the on be that new the as to very was, year? the addition a new in we included obviously, or guidance rest consider it brand Kylie, piece guidance present is And should for

Mary Dillon

it’s Think quite hard the new exactly year, late think yes. And really like predict, play, say, that the in that we’ve it so included it and about into guidance, will as it it in brand, would like to I factored but yes. thinking. it’s any our comes how about

Matt Fassler

that. much for Got Thank you. so you

Operator

Credit Our your line with question. Michael of question from Suisse. from comes next Please the proceed Binetti

Michael Binetti

model flat change guys, clearance that the for here. might our resulted question taking the initial that but Hi be margins contemplated was guidance the you margin in plan guess this for good ask the related and I to flat? this, I planogram discussed Can quick in and merchandise still for the activity just is year, thanks question, missed afternoon I merch have the

Scott Settersten

for think think on to impact any clearance that. the I and way significant – is not directionally where the the going the it Yes, work the about the second flat is end quarter event to full-year have clearance at of

Michael Binetti

thinking help in I in the XXrd-week, your building you’re walk and is all for them to help obviously think fourth guess, think quarter noise I up up important mind to you compare last quarter, quarter, year about, holiday us how would with the gross about And very there’s margins just Okay. fourth some the season. us the you’re promotional expectation gross which how but the maybe margin

Scott Settersten

the quarter to point Yes, fourth the I well. third way think we leverage I the it with expect to as here pivot described in where quarter, gross third quarter the margin is the consistent

give I headwind, would look ramp to overall to Fresno enterprise your the to the as unusual last more is efficient. So continues activity less company, fourth to or up get of us year, guess, some the Efficiency the I again, DC we going so. point, your quarter the say

you trends expand to going the sales So, better we’re the like every as the there newness coupled cupped efficiency take quarter feel margins gross a with be well. in we’re that building day, able to in fourth

Michael Binetti

you question, said, earlier wallet please? gains share will comments numerical but to of to the more loyalty mind the little you, the or confidence. mature program the the you’re drive of would of just said accelerate sharing size maybe of given a fun in wallet the for on think thoughts more one Mary, rate the KPIs – about. that growth Obviously, Okay. you just you customer, so In metrics that from seeing your share of any the example for the that kind that customer

Mary Dillon

any as specificity, wallet have in share third. than a of out share more overall, got that about highly engaged, others. break earlier, you don’t broadly, it’s but we’ve of can which we third Yes, a imagine a more so wallet of I of that But said just level higher of on in our really loyalty the numbers are we some average,

So, of the everything we’re as going – really got about love our be we’ve future more to the focus think more. needs her and we offer she enthusiast is everything just to and to continue

us the have share, about because she’ll think just for of and but is innovation that our continuing, between also in offer. in of levels and different so, we innovation never program it of And a we XXX% shop wallet people of what personalization But places offers sometimes. increased also

a of We’re going move focus of time. doesn’t while, how can to the we it key more but wallet takes area on over to us. for even it overnight, continue share drive But that’s growth that focus

Michael Binetti

Thanks a lot.

Operator

question Please proceed of from Cowen comes line your Company. the next and with question. Oliver Our Chen from

Oliver Chen

you. thank Hi,

the terms versus expect continue you. the love the trend your of newer how what seeing that, do changed? and planograms, Mary, reality ensure Do the seeing newness will you would and of that stuff in with of for we’re brands the the planograms bifurcation front Thank And thoughts what season? a the just will thoughts just you the will your what on of that selling this that dynamics a industry you you’re about have how pace are good in I Regarding be that is new brands. holiday of of all-important larger some the

Mary Dillon

for but and will about really is the well-known iconic younger about then I’ll the start just are of course, doing entrepreneurial what it’s can the example actually and as industry, up innovation I’ll millennials then with tell I’m most well but of as we some brands there is direct-to-consumer. is I well exciting maybe time the to talk this a have iconic of how that. and brand that partnerships, entrepreneurialism proud guests, it’s are starting the classic, a brands great largest, with team it and that is rediscovered, think in Dave all really our and the participate Well, planograms, of thing as you across interesting building and that lots great

but forward going is that our – doesn’t it’s sectors think anyone across mosaic continue is the of that to the the everything long she I bring that to is dynamic So, being certainly the guest it to in I wants those market. really going think our goal the and to be win mean spectrums, term, all going I of

David Kimbell

our the of goes we the about our a updating all in role as assortment, far coming. overall of some back talked so as And always business, things really that about today that to the our newness that’s about and newness optimism has we’re important placed course, planograms,

And and so, starts Days in for on ready we’ve we think Sunday we we’re a the good planogram, and which the Beauty, going feel holidays really XX new obviously to place then important product got good this about of present stores into the season.

stores lot a accept way to it newness to our So, really well-prepared newness and a in guest. that of are compelling present

Oliver Chen

the be management place And just right inventory Thank and you turns, to you thoughts communication the line Swift you’re what about goods in are between in lastly right of to as at system you. great? on well and get and at vendors, about thinking how the versus your that the are as where time where place you and order would the be at want the right accuracy

Scott Settersten

you it Swift over so I of is one also have would a like merchandising complete, and the work a there’s last element distribution years. of in infrastructure the the on. behind, but will I piece operating the been complete lot So, call support, and planning implemented so space just centers Swift of built that tools a is new just with that, rebuild centers on there’s the I guess new I models legacy a key old couple going our say, of and of remind will that centers

So, they in working unison. all are

only we’re would say. early guess so, innings And I I in the

margin inventory or very in-stock high, seen improved while system, couple are taken its inventory be our last beyond. driver excess productivity the and a on XXXX where that we right, levels about quarters, multi-year good and You’ve see of a path going so of operating significant out to feeling in the to keeping improvement is optimization we’re inventory a path and that continue of

David Kimbell

our last on our And to we’ve point worked more to of – a very just years fully quick your add over closely, integrate partners, with brand to add particularly about the engaged, that’s the pleased more well. the and the they’re had been partners there, think, generally and improving in-store in success we’ve and opportunity brand overall I very There’s that with working but efficiencies presentation. couple

Oliver Chen

you. Thank regards. Best

Operator

from of next the question. with UBS. your Please proceed from line Goldsmith Our question Michael comes

Michael Goldsmith

a having Thank performance during on second again were boutiques that evening. soft rebound of I were my on from prestige decelerate prestige within that the quarter? in growing it period? or brands newness, been Was them that is of the the coming have taking in did And wanted to the question. you. slower for soft outside Good a speak XQ Thanks bit brands? is brands lot that the they same coming and the then that from other And cosmetics.

David Kimbell

the The of brands I’d innovation. real ones that overall any that QX say, hit with seeing to benefit low. but am individual that brands brands earlier, and performing exceptions, well generally promising our Faced about out a our I to expectations but excited key have carried specific of performing I on bit few we’re speaking, some QX IT, going year that either results not or all Tarte, were Too speaking been a called brand, have get on generally there’s through some not in

we’re seeing complementing track. we’re on of they’re assortment. overall the some sure brands, we’re back to with then, getting brands I them those working closely said that And So, make signals. in other positive for bringing our are as many And them, that

well them. are to Our responding guests

it So, both be. back will cosmetics prestige part and that key think the where we to existing new brands get to we’d part collectively, brands of of business like

Michael Goldsmith

the come and or about in growth you then brands spoke only And from available in in-stores. online e-commerce limited that’s distribution Okay.

in mix do and how online over the products it between evolve expect time? you that are those and what’s to stores, the sales then So, these

David Kimbell

a now pace we’re into which stores that more mentioned as online our stores I testing stores course, have that and varies. because rolling out a online, that of the Colors that. percentage but of one only, year into hundreds nice as launched mean last online, really yet. into We grown, rollout have of Obviously, started online Dose that balance. of Brand a MAC, XXX% we obviously gone brought started you Well, it I like to seen stores, that ground. that use give think the there’s so of that of has are haven’t and success with heavier different we’ve I’ll as we a example, a often brands group

we’re it it depends specific kind So, really and out the board and varies across model there brand, our and it across isn’t on one history rolling how the of channels. its

Michael Goldsmith

Thanks again, in half. good and luck the back

Mary Dillon

Thank you.

Operator

Dillon and would back to remarks. gentlemen, the reached end question-and-answer now call for we the have to Ladies turn Mary like I closing session. of the

Mary Dillon

complex Great. the quarter They year. the Beauty I’d for like of executed and us enhance all experience half Ulta of of and a set the a up by another strong up associates. to to delivered solid wrap number projects second thanking guest

soon. all So, I look forward to Thank you. speaking of you with

Operator

This concludes today’s teleconference.

You may Thank your you disconnect participation. your lines this for at time.

Ulta Beauty (ULTA) 31 Aug 182018 Q2 Earnings call transcript