ULTA - Earnings call transcript Q4 2018

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Operator

Greetings, welcome to the Ulta Beauty Fourth Quarter 2018 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I would now turn the conference over to your host, Laurel Lefebvre, Vice President, Investor Relations. Ms. begin. may you Lefebvre,

Laurel Lefebvre

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

filings constitute which Harbor such all statements the We contained tax QX make to in Before we with remind statements to risks be statements The like in to forward-looking historical related you a of to may references conference Actual and materially meaning during projected language. this in Private of call number are results sales the begin, I'd for described the not uncertainties, facts, are from company's and Act adjusted call may and earnings differ of of week one-time Safe items company's XXXX. Litigation the Securities within this those which non-GAAP impact SEC. future due the of deemed the XXXX. XXrd of Reform of in

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

Mary Dillon

are distribution digitally-native the Beauty all acceleration performance boutique brands We're delivered Thank only and afternoon, brands, where an often major The with retail Ulta in the particularly share results excellent team highly in fourth point stable primarily you, mass the continued good This significant driven Beauty with, skincare cosmetics. strength across cosmetics, prestige in and reflects of brick-and-mortar. in and Laurel, engaged Ulta fragrance, by that comp, in our guests quarter. is categories, performance gaining everyone. and traffic,

sale, of with GAAP was adjusted of Diluted earnings driven I'll XX.X% store and best of successful transaction from last top $X.XX XXrd in-stock X.X% by systems $X.XX We tax in period across XX-week primarily strategic executing fourth XX.X% or our sales increase comp reform marketing, our quarter, update teams comp holiday X.X%, metrics, Solid operations, benefit by strategies increased year's The quarter multiple holiday sales To performance to evolve We our imperatives to financial trends. results performance year's by experience. or and starting XXXX. on compared merchandising, our of with recap execution a X.X% an total quarter drove XXXX. of improvement related our strong achieved delivered retail fourth fourth e-commerce, and growth our the plans per week. the guest supply excluding chain X.X% share in of these for traffic quarter in the the grew items loyalty year on on with comp brand. the last and in fourth provide achieved our an meaningful each performance;

active Ultamate the reached one member million active growth valuable of end Rewards program of most representing Loyalty XX.X% the our XXXX. year at members assets. Our to XX.X of compared remains Membership

on conversion store quarter. team benefited store focus robust Our during sustained traffic the from

our a guest the all and focusing of our and skin, recommendations [ph] guest at our as Scientific relevant of Diamond in works personalization the personalization engagement. of the topic beginning QM new I'll year cover last offering in the innovation. new pleased reminders and number points GlamST a high channels with digital As of very discussed loyalty. program loyalty currently are latest when been to guests benefit that see are on more digital with We've moment much brow, and the hair product tier guests ability across with on of we to plan We're with I fall. anniversaried use replenishment Diamond launch perk by loving elite it. the of the attain we was concert [ph], frontier services, of the makeup The around this ahead about fiscal was more launched efforts talking acquisitions next incorporating level our

and Our in sales card the such growth program much drove our for and engagement, momentum from among was surpassing reached seamless helped with card awareness calendar, quarter well in XXXX into and African-American fourth strength from this total as integration store enthusiasts. our expectations all-time particular with strong the GenZ application, with double-digits. aided external with third-party partners. brand QX Benefiting GenX XX,XXX as unaided all distribution by internal XX% generations and of exceeded XX% awareness. gifts outstanding Latinas sales as distribution driven fuel high acquisition door post-holiday Success progress this Brand of for loyalty and penetration strong grew a holiday XXXX points. support Increases credit campaigns levels now Beauty reaching card throughout with associate third-party maintain in growth credit showed network here campaigns at effective across shoppers, our awareness marketing Gift healthy XX% count sales. and

our possibilities emotional also efforts to brand to new are result our drive to the beautiful. marketing purpose, stronger continue our and public brand We as advance a connection of a relations

on update our our I'd with an to focused guests assortment market. share differentiation, next, merchandise like our delight speed and exclusivity to on to strategy So innovation,

cosmetics, prestige overall and category line and in share were year that comps traffic a accessories lens the fragrance categories. worked cosmetics prestige comp. combined, house. drive performing also the X makeup Newness prestige our in continue the care across exactly points through The to comps. of skincare. delivered assortment all and boutique company drove Products about of total ago categories sun mass double-digit with brands, like departments gains mass and Top Smaller

influencers a the stores our in Our category try suggesting in comparison are e.l.f. these double-digit like in Morphe Building of person. make to stores traffic to a our the mega off. brands year, accelerated the motivated great in Morphe assortment the to for also store we just media high featuring area we and Instagram Morphe, is fourth of we reset drove a followers. successes and collaboration footprint quarter strategy the XX Jeffree Jaclyn-Hill the made to Morphe to with doors dedicated with shades, cosmetics to year quarter Morphe Foundation Star, and performing very comps are fresh choice with Kylie last in in of growing changes space mass paying best collaboration's the products guests leading brand. the to XX.X another tough partner social to launched strong be Revolution digitally-native the way. more Fluidity with trips brands Both having on it's a more Beauty with ago, mass fastest and launched expanded XXX a cosmetics again influencer profile James Charles. Despite makeup most with success and recently larger be cosmetics million just to

on plan performers boutiques Wet in MAC. Cosmetics. in in healthy now stores various line, cosmetics expanded pictures. Other that We of and across total Milani, and shelf-space in Benefit, Lancôme, presentations, more including and also stores, and of and in We Lauder, Estee Tarte. expressions the rest Girl, XXXX earned more In Cosmetics, Comps expand XXXX, present e.l.f, to in presence stores. Kylie XXX portfolio, brands in XXX wall on end-caps, many the the expansion to these doors brands nearly available prestige include remain in top LA Wild ColourPop more very either out our BH four prestige n impulse XXX for doors Nars rolled Clinique, to additional or included

constant launch including We began position. Cult expansion Fragrance few quarter. a guests. and inspired in-stock holiday, a drove Lime the best-selling performance have launched to strength line an clean These “Hottest delivered of late-January beauty portfolio. and the gifts focus Sugarpill, Crime, the cruelty-free store Vegan growth Kylie and Clarins; Beauty the driving Rush, month. of and fragrance. section tape RX, an store portfolio led we Skin This brick-and-mortar Proactiv. in the exclusive to highlighting from weeks are several line before Rancic; XXXX. Urban strong vegan broadening flowing & and of To from moving repurchase KKW new Truth, by The and lip program brands our clean will drove in for specifically eye well and and Cannuka, a offer add for was hair new across more brand also with Naked you of line. Kiehl’s in we're opened encouraging in and solid of of with the original very additional This highlights created stores strength fragrances hot of Badescu, My like Kiehl’s new the a showcasing comps. and results at Cosmetics younger face First were iconic brand impulse new products at this all Beauty” in Ulta products a strong professional designed of performance GenZ brands We've the This our program prestige added had leading Ofra some color; we diverse Decay, each end-cap a products of beauty the growth we create year The our a the in shape our of to Versace, traffic a growth this line curious on update in Aid which delivered box customer promotion success successful honey. in and concealer; this Key skincare for Beauty Sugar from The the foundation positive making experienced stores uptick products holiday, acquisition programs, year Fragrance Clarins, across as in include hair also a exclusive shadow with our new of underpinned new offerings products. end XX interest by product highlight of marketing skin more target sure and guests Beauty among in exciting developed sizes quarter. launched hair currently in-line lip clearly vitamins brow in launches exclusively also also digital and the in end-cap, portfolio Fountain better featuring in and tape across care our much LASH. doors was evolving Tarte's skincare were brands, sell-through assortment Crush clinical a fourth back mass which out-of-stock from fragrance Giuliana product Ariana-Grande job double-digit with with last palettes, we new a that overall the skincare by brands, picture, a category. quarter We're capped offer, full lot items visibly solid essentially and and fall's core exclusive is standout with has we're as to all category new the trends Ulta women jumbo the setting YSL, have a week palette in and category the banner Urban care pro-hair into SugarBear and mid-November, like the products We're by Fragrance, on was launched done addition and brands Mario Grande enthusiasts; assortment with entire a newness the sub-brand our that's the our beauty line Tarte on to newness. brands a fantastic in-store. delight infused Smith categories and our In broad-based hair team products. summary, CBD Consumer the right

in the The strength sales. X.X% increases. benefited with blowouts, by you cut update rose week on extra driven increased compared stores services healthy salon Salon color, revenue including last business. and enhanced designed field ticket compensation are program X.X% We're Total me retain for the from attract platform, plan each services industry-leading education, services and to focused district. top entire training results simplified training internal our menus, chain implement that on of makeup. our seeing the hair our drove fourth all in and traffic to major the optimization out hallmarks the service quarter and the let business transparent have to teams and treatments second this average and The comp an quarter. in Now, and and team categories year's technical style, of rolled from encouraging regions program across talent, optimization pricing, salon an sales

Brow hair, We salon Bars, a which and and our skin, appointment for tool and booking continue tool as Benefit brows new startups, services MAC for to including with has artists. partnership test all Spruce, booking makeup developed appointments enhanced technology with

booking enhancements We XXXX. the expect further to rollout tool with in

category. and American for first Beauty Hair time team prestigious NAHA the the Both Ulta year pro-team and helping stylists. this team an Beauty North industry-leader Beauty recognition the pro-team or This of Ulta and as care hair for design Award were year. nominated Our in our in salon Ulta profile authority the of won the salon this us type Ulta raising high-quality attract the highlights Beauty

We quarter and to store ended in compared opened with to XX stores. last new the growth. turn stores year, fourth I'll the Now XX year X,XXX net

all centers, to in store stores this stores suburban power compared quarter three plan strip a a remains new store shopping year, new approximately and new strong. The in couple quarters very centers filling open of New productivity market. centers. the plan stores centers to and markets the the portfolio in just We anticipates majority almost existing in XXXX XX in with about

real heightened closing ensure of attention management lease evaluating evolving on and or strategy stores end remodel across on Our is shopping and renegotiation, the with to portfolio. continuing estate pile branding relocating at upgrade leases, portfolio the and focus experiences time consistent to storefronts at and repositioning, to

to of Ulta.com e-commerce Total our grew with on driven and by basis site XXX quarter XX.X% XXXX. XX.X% shopping driving XXXX, and of of XX%, Ulta.com XX% traffic traffic omnichannel of member compared the our business; fourth rose app growth. transaction healthy to growth loyalty in up contributed for to up retail sales guest to comp with XX.X% XX%. Moving members stores points comp XXXX We're company and in mobile our increasing both, site growth total mobile top traffic XX.X%

from rate light of shift to which to guest's store growth e-commerce Cosmetic. channel makeup our and and to see Our softer mid-XXs was reverse Morphe like a interest than at bit brands in attribute our try guidance in we the avid primarily digitally-native Kylie coming

strategic in more inventory came our palette. mass. We for with emphasize and these the the Charles e-commerce in-store with offerings the made anticipated broader James growth decision of moderation in our cosmetics launches a category rate the All prestige both, assortment from across brands, newer allocated like to highly

these the stores concentrated result, a than strength more we brands even digitally-native in As of planned. was

higher being top the result online in e-commerce's line less to promotional factor our offers. bigger Another to Ulta.com We promotional for sales moderation relates a of to felt impact sensitivity a year-over-year. as

the adoption our expanding in We're guest buy XXXX strong launched to online for and XX in pickup summer. initiative. that chain stores see the to deploy plan late continue We of store this focus from full

and on on our will virtual only behaviors. app and points. report linkages images.With are Turning in to as to try-on digital app more data Scientific enquiries loyalty foundation. innovation highlights; be Cloud, following service as which clickstream pleased working Beauty AI Android virtual topics to to try-on areas product static the and Glam the guest personalization such our Previously are birthday will such Google amplify on We're also acquisitions capabilities, well. we're we're between have as out launched into as data soon last skin both teams our of We've migrated live try-on or video recommendations recently bringing gifts to advances iOS applications integrating and available well and platform in diagnostics of app QM to Ulta finding such that common automate the perfect adding devices team. reviews communication that and GlamSt very our guest fall, and on conversational understanding offered mapping AI-driven commerce life the Lab,

in detailed quarterly be it's won't reminder, e-commerce metrics trends we provide growth. we'll in to and a to starting but color our XXXX breaking contribution continue e-commerce As out

chain strategy. provide Lastly, on update an our supply I'll

rate, and levels. X.X%, and excellent very team core chain holiday performed below leveraged productivity. improve Swift delivered overall controlling season, levels smoothly to the per grew supply busy during as growth in-stock Our such we the while well operations inventory Inventory door as systems inventory comp

to remaining orders A excellent orders We're in XXX our center in in the at Florida. local previous officially there FFC the will and into We're distribution now increasing fulfillment Jacksonville, shipping e-commerce center excited serve stores and able closure wrapping minimal goal times which down expected the ahead close to job Fresno fill the month; progressing into distribution expiration with month, to in DCs, our Phoenix job open we're well Ulta the during our XXXX Our e-commerce than as summer. network our Fast quickly first and Beauty's ramping done our open center DC smooth X-day teams summer fulfillment that peak XX,XXX up centers serving to XX% transitions in an of process this this converting of later transferring our and into the more have winding up works by the capacity is e-commerce only the will of end up lease of assisting associates fast the our disruption announce of of is inventory Romeoville, Illinois as market. second facility planned day be XXXX. to network per of towards and orders.

Another our year. around We e-commerce test our half ship-from-store initiative of locations to project. guest launch the in to of speed second is delivery ship-from-store the X to the country plan a

So Scott detail in for that, the fourth I'll discuss of financials, drivers turn our quarter with XXXX. to and more to outlook over

Scott Settersten

the XXXX Starting adopted quarter Thank growth store new statement; revenue $XX with the X.X% of XXrd XX.X% of productivity million of The week XXXX. fourth comp you, of with Mary beginning revenue revenue. of growth and for standard about everyone. e-comm good at the and contributed afternoon drove the income along strong our adjusted recognition

program, quarters timing the up driven the recognition value was two-thirds and card one-third earned with X% credit program. for of driven transactions card income traffic e-commerce by enjoyed sales impact total the X.X%, strongest points X.X% units by retail-only gift growth. and this ticket per company. by the price a up in loyalty reminder, our of of X.X% several X.X% We our and by transaction. As The Ticket in of represents combined the offset ticket of from growth and selling was transaction increases comp in average breakage,

basis The XX improvement and to revenue the profit about profit for added special bonuses The e-commerce strong factors driving helped comparison profit standard and points gross offset investments year's XX of expenses and line; new expected mix or basis margin and than about the to points. business accounting XX gross sales last promotions sales, line, operations. of better leverage year-over-year. by the rent a On underlying by occupancy recognition improved expected basis associates chain gross lower the modest hourly overall, points supply salon fewer in and our than

QX guests a more than concert to requiring expected rewards higher card earning by Turning XX planned with flat credit SG&A, the by impact store the to attributable in a as in Underlying rate; points to revenue was guests This accounting recognition this leverage above us sales reported in expected related the including deleverage basis defer we ultimate expenses. in of overhead to year rate growth deleveraged and on earlier points in points corporate rose points Operating expense offset XX basis due basis points the our change. SG&A accounting including negative revenue point to at standard. the XX in than royalty impact marketing adopted initiatives XX basis sales margin revenue. of investments year-over-year was recognition more basis of variable XX.X% impact from XX resulted the to basis stronger

our efficiencies ended CapEx on the on store and Capital and as Moving per up savings Total We a volatility now and planned chain, new to continue authorization $XXX.X with to end price merchandise expected million below our in inventory plans up as year some million to in of in year comparable XX.X% under below an late sheet cash well remain resulting Today the program. We that well were $XXX million of approximately full expenditures chain in opening announced expectations repurchase store repurchased available fourth some of sales X.XXX for due cash program, on our We XXBXX with repurchases XXXX. million at shares realize the grew fixtures million XXXX. cash. the will supply as million supply flow systems IT and basis, from came $XXX $XXX.X better million stepped for $XXX year generation, advantage take the improved into for the fall processes. cost $XX.X of quarter to a million by the fiscal to spending to average year. authorization than share or the timing growth was program, store of in driven $XXX from opportunistically systems as bit new X.X% a we a as as the $XXX repurchase flow. our fixtures. of well early efficiency we and the market balance year. share for

Turning XXXX. for to guidance now

square Our plan for November traditional outlook We approximately We with this stores, X our plan Day. the long-term outlook year Analyst XX mini new with brands XXX and as X% XX,XXX planned the improving is company remodel our low X% at prototype. provided XX fixed well growth store to range. to as rate. line of the double-digits relocate stores, stores we anticipate sales overall total all to entailing foot consistent comparable and new refreshes remodels, We driving the addition top in generally execute or in open

e-commerce expect XX% in approximately basis to sales. XXX to We points grow range to contributing XX% the comparable

a our infrastructure, emerging corporate card $XX.XX guest earnings XX overhead share digital in benefits strategy, credit to basis deleveraging and of our IT to operating We $XX.XX driven to investments margin growth be store whole such points The with as and deleverage. expanding These brands services the gross innovation, SG&A assumptions salon omnichannel expect initiatives as labor by expansion, program. to our contribute leverage, deliver to to profit deliver enhance expansion. merchandised Areas to the pursue are XX innovation. margin strategy improvement rent experience, by will range in and and occupancy security will due of benefits initiatives offset the to and underlying cost expense and of efforts, per approximately personalization capabilities, our

initiatives In benefits this investments benefits more terms to the to year expect can throughout the efficiency of cost no and guidance, year, we're slightly program half these of weighted while be occurring for the of later the specific quarterly the EPS longer growth of cadence growth the with providing year. optimization back of you in

can leverage growth You modest and margin first high-teen's in EPS in low-teen margin half second half modest EPS operating deleverage the operating expect and growth the and of the year.

In includes and terms spend $XXX $XX new $XXX million million expense and remodels $XXX $XXX to is fixtures, be fast supply maintenance and Depreciation of capital, stores, other. this amortization to expected including we of approximately for CapEx approximately plan for between and centers, million chain fulfillment million. million and IT $XXX about store new million; for and merchandised

is $XX tax our expected any be to the impact diluted not to year count XX% share expect for approximately compensation. of which rate be fully The We include million. does estimate the share-based for

conference contributing share plan Our range with our earnings about points it host to that, growth. turn per for $XXX X of assumes I'll over repurchases the Q&A. And million call in share

Operator

first Our Murphy, Instructions] [Operator Erinn comes question Jaffray. Piper from

Erinn Murphy

my you. is guess Mary I for question

in any wallet bit of the some Scott, fairly difference second If talk a the year on examples you X%; X% to just versus you the Is half? you more driving have versus higher; then half share have that guidance you there? really half your on And going to leverage about same-store Thank second first how in guidance; throughout similar half. efforts is is that the be to deleverage or about a anticipate there the unlock first you. could sales personalization little clarification a you of talked

Mary Dillon

add program bits overall, going being how pleased a end by one it's give of personalization progressing. loyalty to driven a been Dave the I'd per you growth of a with and we're at start the for of I'll answer, with is to to I'll but sure; lot Sure, if the you spend But member them, couple want. ask full things, say

newest preferences maturing member. that today on all and things grows like as to program, like really innovate, well. we newness, we the are very the in do very the just -- that early So the driving spend and overtime perks guests tier, contributing the that's per the credit to that engagement driving tiers guess one about smarter get experiences. about I and think continue excited their as infer pass innings is patterns card it's much I naturally And that really so -- would simple we're recommendation; been of program, her be the we it about example customized more can guest purchase and that or to relevant, that, is And up the based gives recommendations more serve you other preferences examples us any it for there on add? it, Personalization even his are example. want ability to Diamond

David Kimbell

site reminders; on other adding areas you behavior. replenishment on have Yes, your previous experience customizing the recommendation, additional recommendations, your into certainly, product we're focused we're based that customized co-purchase site so personalization,

first-time feel a the exhilarate that finders than page results in we're take purchase like our towards QM a step progress frequent get we're you're experience a really the both, change, we'll might visitor of that Really, visitor, unique your personalization Scientific to acquisition see we and and different in if ways. goal if example, you'll -- home product big For GlamST you're to-date, to excited and a about going the efforts was XXXX. and do

Scott Settersten

for over kick-offs And we'll say James to bit whole as here comping the Charles Kylie generally great would here some X% fourth quarter. I year more this I as although and a conservative X% take you've far pretty comp approach throughout it's as with a say the the the be cadence maybe little quarter year; might consistent speaking would last fourth

Operator

JPMorgan. comes Christopher from next Our question Horvers,

Christopher Horvers

comp brands; impressive traffic and it's that retail really the -- terms the of it on in first, drove So digitally-native how acceleration.

more more Kylie So like maybe diagnose a it mean, smaller had out. I that it SKUs and assortment, sold that was stores; XX -- or something Morphe? it's in was

lot you of to as -- margin pressure margin are And for on assess the half would back expand color cadence; of the scale expand piece now gross accelerate which versus further we gross is point SG&A? my investments, question is expect a gross over of half, And much the curious on would starting second in first Scott that will versus sort would how the half? Kylie export Is margin that? how continue assortments is and also, you that that first the to year? in of sort expect over down is So, you gave -- to and the that salon you presumably

Mary Dillon

we're part. only across the Listen, script, lot frankly, categories growth one. in it really strong major had not of brands being category, our questions and gains I every about in -- three strong part the of business, the growth on mean as across and most I of but momentum Possibly across digitally-native places. a excited many most we a and single the discussed double-digit really almost share

the I pretty good think definitely already are about that to strong James Palette I it happening we that partners ready -- course, participating assortment; with as I'd both, Kylie So think really in to was Morphe following, I and be small across categories you about plethora launch, as leader continue to existing a a Charles said of of launches, ways we many addition to I'm think brand that's nice like those new. say expect for assortment, growth and that that a now, as in going category are expanding big a would that. we're was new and because have we're so can source right the

good guests focused guess, of to we all offer if I sure what at are we're and that it to about in to on continue I them; -- of sort think be we're going the looking So for place. end can make day, the I to our a as think really

Scott Settersten

this color everyone on question, has on of year to transitioning and this quarters. Yes, know whatnot, sphere guidance But new you've the got I so far zone the and right, and as new so guidance goes; the we're annual into so Chris; buzzer first. as this updating

margin come when to under So the the it's what at we going look so it's year; better going modest to for full we it's through gross and operating line, expect merchandised year, overall. margin expansion come

our in could again last to think this period that's that XXXX, we event second/third to point do that plans. expect time in I I not clearance in year, the quarter have wouldn't to

chain year margin deleverage a biggest then sequences the in the that there we've leverage the is little mentioned program, a there; so occupancy will bit in quarter-to-quarter SG&A store because are business. lap it's salon, of year because throughout making, right, coming the of investments to Fresno, on got but that heavier it's won't first in deleverage some driver yes, the and there middle that half. sales right; half supply just will XXXX will the we're You different for some net is then of slight the And long-term leverage the the new in in year, till be a a so earnings DC and XXXX. and moderate for headwind of but of not drive out be we second the is line. healthy gross shift the kind good primarily of

drive to the things So we're on that the the speak long there turned deleverage. of now, lot into the it's overhead, primary M&A things fall really corporate we those of OpEx other a primarily, in things to culprit a through list doing so and Mary SG&A is did, there innovation, went business, a right,

Operator

Our comes from Jefferies. next Stephanie question Wissink,

Unidentified Analyst

prestige We wanted seeing a to in mass shift more to are add to continue know you as you prestige from brands? purchasing

David Kimbell

we're that Frankly, is struggling. doing is across make there up are the that others all whole price well, strength and category. Certainly there seeing brands are across points very

what of mass and is a through we we them I call wouldn't still guest one guest Ulta say of the I segment and Beauty at So experience, is price -- behavior strong. a that only that's Ulta that migration, -- ones across shift; the is points; that strengths in brands have of and the bringing a unique it's into the a that's will quite say our a quite Beauty it's strength, that prestige aspect carry healthy, in brands mass where continuing, one it's of brands, introducing still

or at price prestige Chanel our all e.l.f, well. it's Lancôme, performing are points And most so price the entry quite from all such level as [ph], brands brands, way points whether through

the those mass/prestige stronger moment. at We attractive of growth are business, it's right brands and between expense as at this of this is seeing some part with not now in specific really it's of are just brands area but price strength the of area the points any

Operator

comes question Simeon next Our Nomura Siegel, from Instinet.

Simeon Siegel

growth? the the bonus; any or I you -- seeing one-time any versus guys had just thinking don't Thanks. just rest as in that you know any recognizing and think to in-store of I And did know are had if those there dollar you is mentioned thoughts think relative help difference lapped as terms then, mentioned digital called you Scott, I portfolio? it, e-comm the performance at SG&A your you terms about the wage, in grow, of you natives through so there?

Scott Settersten

deleverage the SG&A we we half department make spaces labor, to by investments know, strategies really late. going neutralized some and continue first we there there growth overhead just of point part of year-over-year, of in of don't the or I SG&A a XXXX, to XXXX. the leverage gets kind XXXX got little second -- in to we so of in investments and investments we full the a in continue bit others as the again, deleveraging had on Yes, of that that color year. heavier do we out if know Store for slower were that do; that. still some on corporate into XXXX. lot gate marketing Heavier a we'll expect Starting the to planned XXXX of some growth initiatives in I had to growth close half you first think than the overall, net will but the be But drive it's characterize describe year store maybe in got other the and

a long-term.. well for we in for the right good and things business spot believe; overall, managed doing we're the So the

Mary Dillon

well And I digitally-native to performing your Overall, sort we're say -- depends. it's the questions; both it into brands are then of would them store. the other online, bringing and

what choose just play little it, in the how saw we bit frankly. to So quarter, thinking it's we about how a we last on

James into we it launches and store, are emphasized and in those frankly, we two, online also a They bigger but traffic. well of really really, doing in-store. more assortment quarter, in-store had this Charles Kylie we As went really drove lot a

experience the to also want trying to well. of our able person a appeals that the would is that it for that and convenient was brands basic really online be business about I it's lot you us quite which think the of I know so good products -- do then, of physical only buy have is in that we pieces a our also so online it And And as be well; proof about actually to they point say guests.

us it's best any where to kind why guest of reason So for we time both don't how interesting about can't think business; say do an meet we in successful channels. she be for what's our is, the how but see I

Operator

Our [ph] Forbes next comes Steve from question Securities. Guggenheim of

Steve Forbes

the program. the side XXX years I trend versus on focus over couple believe to wanted here. the line a step-up I refresh of is past

what it will level just that maybe maybe you that as what and to ramp? on touch just with driving store So I relates merchandise typical the but etcetera level the include refresh needs know focus? fixtures And this on new are; merchandise mentioned in focus needs are are store the

David Kimbell

year's key program brand expand have. to this partners that primary really The to purpose refresh of continue is some we

see some of variety enhance the gondolas, at And different -- Clinique in opportunities a around cases, or expand this to as like we'll be store. a them many you've stores, brands. store. boutique, some versus walls, know continue going some brands years in and but endcaps repair expanding we of parts the seen improve what's cases, our In think and different different the on a address opportunity that's these in and with maybe whether us be of past come into year is into to cases big to expressions, to in Lancôme Beauty, But specifically we Ulta parts bit expressions. of on to in we'll in certain when other or key go we As for a

that's So stores. year's focus of our this and rollout primary of that the with -- improvement

Scott Settersten

so from refreshing activities compare new stores, Steve, fleet we're we year, quantitative boutique the about always of the next one if in store, right, year, And a just another. our the in kinds have that merchandising in XX it the terms investment, remodel that think total fixtures standpoint, fashion XXX-plus or you general of last we if and

net year-over-year, that I it you CapEx actually if think a it's at step down look way.

again, Keep can. it for the all So the key in we're guest fresh fleet experience looking time, we a and sure us. that best store delivering it's making keep writing focus that

Operator

comes from Gutman, question Our Simeon Stanley. Morgan next

Simeon Gutman

decelerated ticket My looks increased. actually traffic and question is the traffic year, and on It ticket. like during

just expect that? talk in 'XX? to the X% as for part, second what's rest the the then, the you it of You year, shift. of far growth channel this as we Can quarter Should mentioned about reversal fourth for in a reverse AUR the X% And XXXX? embedded as in,

Scott Settersten

our the to excitement far generate it, to early can; guests merchant in-store sure picked saw make struggled all online. Yes, are as we bit we trends team and that it's and from little you the working it's know, so or best we that we -- support we up and the as going bring we partners go, hard headwinds whether traffic I we're we are on mean, the and we expect us as year had a in know the momentum, that, some

to and transactions, one a for year; a traffic right. any into going those growth balance again, quarter, take any -- with say So overall I is drive expectation expectation into every going no wouldn't between our of elements, every one healthy to specific

So in-store. either excitement that the again, the deliver, newness it's for. drives earlier much the whether of online didn't back channels half of year found drive year in the some more hope traffic, We and or didn't as the as winners we'd of in in

Simeon Gutman

AUR of think ticket you part a think a comp I X% headstart two-thirds don't outlook. you part; about share I with XXXX know to you that it us was the the as I is in -- And the as can in fourth sort if that there of growth, number of almost AUR expect and quarter mentioned that X% of

Scott Settersten

The guest financial think right. versus these Yes, always you end it's selling to our balance control, whether to or at going a try is price. their Again, traffic it's determine get ticket over-engineer that I the we to of it's models. units healthy how things they want money. happen the can't and spend average day hot products sometimes versus Again,

Operator

Our Yih, from Adrienne next question Research. comes Wolfe

Adrienne Yih

Diamond? program. loyalty are And then that clients the of the a was can sales on slower is I the been has growing four forward? if replenishment that's I'm very quickly Thank much. go for are to with share if question Scott, you us And you membership? Platinum my for converting Mary, wondering of seeing than wondering percent inventory actually you quarters; spread the then consecutive sustainable Platinum past really a

Mary Dillon

we everything guests, entice -- really the so folks, so working you, we're moving to I them really folks loyalty job seeing I are is we they spend more launch, don't we're set out day, would going of break well. far terms best about it's this spend that's a all do -- to we our have fantastic more folks and because to it's throughout of to more, being really to And tell which is to overall continue guests, and every good from what mature think diamond. guess, in of platinum omnichannel high say that I our of guests, expected specifically. ahead of I'll is Diamond And feel We ahead that etcetera. the services wallet, share

growth, mentioned, as Credit then ability with we tools; card able started think we are. newness, to loyalty about feel we're I and services additional whether it's that to perks; new on be personalization I use use appealing. where to just points being good So the seems very

Scott Settersten

of inventory being over of perpetuity, we goes, don't you to expect way the the markdowns, now, but recently line kind -- the and in more our long-term most automated our lot yes, metrics the evidenced, of capabilities our here that back and far think I'd in the to again I as assortment some we're decisions. that seen inventory from we've coming we definitely better think do we I with I results for and a believe to better flow draw continue the some I mean, transitions in stages. more so at be here we've address margin now that As by Analyst Day able the optimizing got tools or able are performance control still early and there are doing place to a know of refer it's November,

So to a is we go there way still there. long think

Operator

next Goldsmith Our comes from with question UBS. Michael

Michael Goldsmith

that So of to of channel is that And that comp; -- X you was quarter; store about way about help think shift you the the newness this the product brand you acceleration Thanks. quantify changed future? the can drove the how assist an level much in us then points on retail mentioned sustainable? this launches and

Mary Dillon

the know or past out don't you I with we in if help would break can that. me

of I newness expect of but that it some time seems that. but also for to -- as in a a be of job Looking than the shift; guess Kylie it is so of channel was drive would that's good some want, mean I that; learning can't it the -- and as trend. some I predict go. think there product. some mean, I maybe but always And out And the a really was the we're that worked is comp someway we'd ongoing our James that delivering we say at bit the as be that the all doing can, bit in or it's maybe at wouldn't and level constantly merchant to our great we past, goal accelerated, higher little and can't one-third increase I not it's it I much there, continued a what guests we're ways a Charles, as we kind of dramatic so

class growth as As this -- sort we is and quarter that people I in-store experience we're we I have was the expected I think than shopping e-commerce because fact sometimes extremely it's direct more proving have the the being of high in that interesting about thesis stores, somewhat -- the the different said, probably again, was very important well.

think about And so that good we but to be continue strategic think there be and tactical and options. any I it's say it's to I'd we vary, going one I formula won't about think we'll launches, have I think just how

Operator

Credit comes from Our Binetti, next Michael Suisse. question

Michael Binetti

to on I probably the we leverage guess through quarter break thought, is the out rates; conservative to probably the you quarter but and but comp the related of margin leading you bit SG&A a to guess think the think dialing guys we this I it looks here. to this like it than today approach different I how guess, expansion conservative the just looks the you bottom now do little investments to in in more in versus sales if that guys trying has than came better even up line you're flows base investments but later little about should -- was So sounds fourth guidance sales if How with little right means good lot just us outlook in little a I'm more through the a the have -- the year have you given momentum much in some a going year us that we forward margin gave -- lower flow guidance same-store the to more? bit revenue. how momentum are

Scott Settersten

and the other things in We've mean, place day. Retail back but long I talked a I maybe supply help multiple that. investment been in to year making for big chain I dynamic still we're so perform a now we're teams it's improvement referenced investing think is a the to for less a and very years you fast bit our tools environment, half moving we day and through -- and little putting Michael, for right Mary? deleverage better centers time, know target,

in ends, I I never quotes right; investment the guess say. air would So

we're So -- looking promotional see strength, things pragmatic, the at is an there we're whenever that. and cadence we opportunity and sales like on to quarter and pullback

unique So and present results. we're just that navigate elements try we own to -- year every through quarter it's the deliver every and best overall of just set

Michael Binetti

guys the a for merch Could interesting today of most is quick I follow-up margin it parts positive. plan in Scott; and think so the -- be the on language I change I sounds of the the one think you was ask that quarter like to

goal. sounded when we to be can you recently going seen manage bit the merch more to the guide mind and changed you've Do to aspirational in like manage actually margin, that's a think frankly, what's and telling merch better us that spoken an giving to a was towards at times I margin plan here it you than was recently? confidence more little flat we've to

Scott Settersten

primary again, that's so Growth that umbrella enterprise, and driver through Efficiencies whole the of the flow lot the today. benefits to there right, we or that so to directly say both is around an things the to offset and is gross help pressures a we're haven't I’d EFG, mean going SG&A through there wage spoken But For Yes, way are it's pressures freight that things over line digital that line; here. our all or a retailers or it's to is or I of rate going pressures, whether you us talking whole innovation see cost about, things navigating list that margin

vendors our call and not margin; selling go along with, and to the efficiently with a earlier question process of a lot economics stores, So EFG, margin, the outdoor of going internally things, I those key so store Adrienne core and inventory, we think work more gets our what's that here that. help the how a asked about of I assortment, incurred piece and work that's around much transition to optimize merchandise it's some of we it's just all how how partners we and the merchandise labor with our execute what

around better it in the foreseeable merchandise here driving future. really our assumptions margins that's So

Operator

comes Baird & Our Co. Mark Robert from next question W. Altschwager,

Mark Altschwager

say took replenish; highlighted scarcity the to or to the in what see I'm your think of it to about then of later longer so, you today going and and separately, quarter unique You we -- digitally-native some how years? strategy? you is you these where just if assortment component wondering to I'm sellout next the as model out essentially headed Kylie in bigger implications and merchandise how percent term? And time two you. sold that that the should Thank become the would And brand one a to metric margins lean alter for is wondering over to

Dave Kimbell

say wouldn't I all fits is Kylie, there solution I one-size a that. to on guess that Mark,

actually was was bit we Kylie this with out had our bit launch. specific late in as the we one it a not scenario having little we of more consumer anticipated planned on stocks it think quarter, positive earlier reaction anticipated. reaction potentially ideal for but I that happened And it's than

think basis our in we're on practice to brands that on certainly makes but -- As they're and will and we there of either or we or want have wouldn't us a timing that's be now that are experience not would new not not But other make may it; a that of a as experiencing look the in building that's sense capacity impact brands for something instances a stocks going forward so new to habit their itself that. with that's that normal that shouldn't as forward. way approach out consistent of I portfolio, an the or we

focus respond we we brand a in it's as X% we're one having team absolute guests talked or so success distribution, that. becomes that; we're as favorably to our that's bigger far like limited and past big new As focus or grow the can, brands existing X% brands I our a new as and much larger part, in exclusivity a we'll brands whether in of to Kylie as the us try on. drive whether just to we've place exclusive; a to emerging lot merchant to look they're that in think very for as Overtime only the new range, at continue we percent bring for the

forward. plan going to we grow that to continue number So

Operator

Our Omar next ISI. from question Evercore comes Saad,

Omar Saad

more business; little focus? is just in business doing better earlier between lot really here Stepping lot you be already, is maybe to and a business, this gain hitting the still back it here; high seem in detailed you've are help and at you it strength seem questions back in be towards gain balance offline. great imagine really does that there stepping in lot you that such is as opportunities of particularly, things to a level think I giving as but a broad-based online confidence the better got U.S. level American international pipeline, or the of you longer enough in -- more, in and a you Thanks. the on term do such bit much high so remains your confidence been it most the cylinders, you more as get looking answered managing the market Is North to you your you've as type at you've got ahead my kind of of what

Mary Dillon

something and question about the all we the from time years on the now. short-term, certainly great next a and work next It's XX thinking day, literally both, quarter the

I core So first and there drive to I'd on. for think things that's and in model of do is to lot to business really, continue say foremost, really us growth our focused we're what a

should intended, -- in stores some what a is the a would lot to there to rest experience So terms continue build, just of of but we to fun the spirit focused lot and in-store; in don't our on a do change. will gotten expect going there stores remodel, fully but that's more can that online lot the to we're in no of retail that of got what on future and we've would started we be frankly, like ways expect we and laurels, because guests future we've

we're that, deep our really a to our seems So we really a I with we're retailer Beauty do well is guests, Ulta really with associates treating then be we and a we that inclusive do and continuing feel that the offense core is everything that confidence. model there is focused -- lot if positioning about as of which we think culture future goes the what that our our play with beauty today do understanding invent And of and we to on to working path. feel think about what how right on well

So same at to the absolutely drive token returns is shareholder about thinking like many is future to continue term we're what there ways that. longer about look think the to and

fair we So question, that a but differently hasn't worked today that's things doing and or on. changed, we're announcing one that not

Operator

comes Michael from Bank. Baker, Our next question Deutsche

Michael Baker

ask I'll number me if a and of I talk it. you forgive drag? I you went one; -- a I don't towards guess, don't think remember as margins drivers; about gross through e-commerce I this missed Did potential mix because that's margins up or and is there have, too so it did, things the to you you that other by just longer catching offset no past a in it's or matter? be drag there going to are the small

Scott Settersten

No, we're in underlying I economics there, When merchandise nothing's -- business. of specifically; changed that mean, of that margin about the XXXX we're the there. talking channel really that's built expansion,

in on e-commerce a pressure the the but closer line overall. line, -- much again, horse race gross So it's EBIT on right margin are stores much

fourth to more EBIT big e-commerce growth take a do the so going we'll to emerging in try on right, So drive to bit result picture, we quarter, again, the have to we're -- back little the characteristics a come variable either whatever well; again, the drive and both news contribution from saw moderate we better can. But best we still line; stores what good overall. is

Michael Baker

I slide try could. a if second I to I'll long, it in And this since one waited

it, see big suppliers share. what are Just drugstores, the of competitor on the you at didn't you different department a of fourth seeing? environment, the Can clearly even talked -- couple the competitive environment, about one you're describe so within just online your slowdowns stores, taking a channels and you in etcetera; least quarter; competitive

Dave Kimbell

obviously and again, around we across on results. and fortunately look business and our fourth assortment and to We've the our watch marketplace, have of landscape, deliver category, very driving our the what or in very the we Yes, balance guests marketplace, segment metrics in the the this about of across great as reported we're deliver And our be we our changes. offences; the in do, across have attractive experience as all points, the so leader and in we formidable we past navigate competitors categories like forward. online certainly any where and really some kind we're pleased we feel is talked positive experience the really doing changes we look frankly that. of are we And are products, some things; shifts them all feel to able a in overall competitive collection we a was continuing category, of with quarter to very there a mass -- or prestige that that's interesting -- they're been Ulta focused in respectful it's broader they're guest that through whether we the play competitors, at all and across going price beauty

Operator

Hofkin, Our next from Blair Company. Daniel William comes question &

Daniel Hofkin

the Is you maybe fairly Just the that on might seems steady in to of if could that a interpretation urban exclude near-term? for and of kind correcting kind a corrected shift. questions, gross it on was thoughts also backdrop and merchandise of Thanks. on view be can would your steady, any shift, you like secondly, channel was quickly the have And kind margin. your pretty the for the store factor; couple channel reasonable we thoughts on promotional that on overtime; that. just your the hear update quick great margin opportunity If then us again it

Scott Settersten

what out guess we're so sales far didn't that slight week moderate rate headwinds much we stronger, actually that short-term. as share we we news in in increases the little day a mass characteristics; mix now we plays good mean product in to e-comm we're the the mentioned And margin. the in But I I than channel shift, color, into are -- of and then was bit here those we I saw. again, and significant that's overall, a expected, at what take the as so way there, a mean, great the the get always taking detail us more margin for with So just financial but the pointed on we'll outcomes any are; mix I think role fragrance Q&A fair that's it. look

all call people are an than were so -- bit of in our right, but program points back we those that's little months and which little a remarks for Merchandise earned little stores long-term focused a forget we fantastic But are about part next great overly expecting. more than there out talked great, our off-coupon that don't the add-back, tailwind few get more are we get in a in use card line. hurt there XX% short-term; back on we investors, EBIT on expected points, that in little bit loyalty news, was people us again, Again, that in it our margin, pull guests loyalty the our So are that. bit they credit promotion, online. or of on on engaging we those the the to a coming and we a but points bit that

we -- trade. we that's again, that, think the fair think we So

Mary Dillon

on Yes, stores; Dan, urban, is a in, lot describe the ways urban define how it there kind and you jump question I'll different just depends on of of on it. to

of we addition say vast Manhattan of upper we and parking, are they city I between just really like us the more the doing the be a going fine. those and of consider not that tense model scenarios spots Avenue So does be Beauty to that expanding we we a where there we them, the build; stores to terms you more things our there few of retailer. have and complex, we're to far power like presence well. flat in in in of have what's think and around how we be Michigan and footprint, But I'd like terms different great be more stores also stores as plenty to like side the will run awareness been of of selective, traditional really like the planned super has or high profile have and of kind is urban Ulta cost non-urban, stores but east a of so of is and going as just kind majority I sort our to continue guess urban centers; urban

Operator

comes Our from , Boruchow Wells Ike Fargo. next question

Ike Boruchow

Mary store ago in now for then point sales actually think The for you're the is; And targeted meaning, a just couple the years? the where XX% you or higher I but if while getting comps e-comm does decelerating above you the business; earlier that that channel are two in those call; of to Just next of versus go a to also my quick is can question you more -- of channel? starting is situation your ultimately give e-com an view accelerating, us specifically, growth your e-communications. the think questions Ulta are out Mary a rate penetration that like or e-commerce the you a of growth of looks X business, over are the questions of guys your change ultimate Scott; margin two where sales on change. the it quick margin more I rate should years X bit update guess for

Mary Dillon

-- a that e-commerce the plans we $X all, term very of naturally we're is billion with for expected and we be where we looked consistent sales, big roughly we're first year guided say our at would moderate. approaching I feeling to the way off Well, so this in base longer now, we'll that

going to as that's quarter brick-and-mortar levers an bit job dynamic with anomaly, been to think think And the have again, only importance terms flexible the we so our and the don't I retailer. great But just it's that is channel a that to continue I make have see consumer of going so great fourth of that I stay as and need behavior from dynamic. perspective. or the in we as way to we'll There -- a is to omnichannel retailer, is e-commerce well may no smart a understand and shape diminish, of sure that perform grow; we're a a happy

think it's I best then the kind And answer the… to of it. way

Scott Settersten

about I talking table my into by as a at I'd person conservative -- the the anything don't here retailer. we're the -- regardless margin ball of is there here the scale characteristics headwind scale crystal is say over built again, is that least out long-term; piece as the a on there far of that think nature, I'm specialty business really inherent

customers, of things just flexibility that hard make to we're again, maximum chain there working we supply facilities out smart tools, evolve our so, maintain hoping to along decisions the build And as every to with roadmap get closer and day with continue way.

Operator

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

Mary Dillon

of strong and wrap excellent an line and of year like I'd XX,XXX bottom to to seeing delivering for XXXX top XXXX Great. another thanking up by be associates our growth.

team I long-term execute and business, create the of on host think drive shareholder growth of our well a positioned our is initiatives significant success and really to efficiency value.

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

Operator

This concludes today's conference.

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

Ulta Beauty (ULTA) 15 Mar 192018 Q4 Earnings call transcript