ULTA - Earnings call transcript Q3 2019

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Operator

Greetings and welcome to Ulta Beauty's Third Quarter 2019 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 Rawlins, Relations. Kylie Thank you.

proceed. may You

Kylie Rawlins

Executive you Thank us today us call. Dave today's Dillon, Kimbell, thank Financial Chief Settersten, quarter Officer, you, Good afternoon Hosting is Chief Mary are and Devin. President for call and for Officer. today. conference Scott Chief joining earnings and Officer; Merchandising Ulta Marketing and third Beauty's with also

available our of the released we at financial the is fiscal press A afternoon the site quarter results section This third Relations of XXXX. copy release Web of in Investor for our www.ulta.com.

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

to obligation and as required you our update by no have so. forward-looking We law to us should revise or statement do except not expect

remarks and Scott. prepared Mary from with afternoon this begin We'll

the to allow ask the question prepared the as Q&A during comments, hour To we this for us of accommodate for ask that call, our you Following we session. one open possible scheduled will many only questions. you as during call

to Mary. call the Mary? turn over I'll Now,

Mary Dillon

delivered gross current The of and everyone. growth, margin another category. the quarter performance, the top you, Thank solid and Kylie, afternoon facing beauty despite Ulta EPS U.S. expansion, line challenges Beauty good team

marketplace. the in winning is model differentiated Our

exciting market in leadership our ways. extending across more stronger all engaging better We guests and them we by gain continue position beauty with categories, our and and to major creating share are connections

Comp increased diluted Our financial in expectations. in by and increased Gross basis on per sales store top recap, line performance earnings quarter of third the grew of X.X%. year. growth total last our was generally with XX X.X% about for the expanded margin points, share internal X.X%. quarter To sales X.X%

incremental of growth, robust The growth in also and video social a resulting This techniques , down sizes. As the most in last most After cycles. growth has strong lack in from believe U.S. in and a negative selfies to category. and experienced tutorials, of late like The driven in cycle. travel is cycle earnings we and the highlighting, brow to in new contouring, turned several engaging rise has discussed recent makeup newness makeup Like the up further XXXX XXXX on category we a deceleration minis, through category application and continued contributed trend by consumer the call, negative began and experiencing categories, the other years down innovation. the and began palettes as influencers, media of recent such XXXX, and styling, XXXX quarter. new decelerate looks, products of with number

are are in decline year, makeup industry the this pop wearing by U.S. we've category constantly Now, and trends culture. seen buying And looks fashion, evolving, consumers while sales innovation, makeup. and makeup and driven still

sequined face and and culture brows, And sequins more of like adornments unconventional eye at create glitter glowy embellished popular ranging graphic some a the glowy show shadows, fall, look. spring of a and XXXX For this and is applications color and to fashion looks look, variety we natural saw pearls. and a from to and requires in seeing are eyeliner. natural leaning neutral bare interest products example, we're multiple which into actually different influences than bold, Alternatively,

innovation such but cycle and demographic We growth the this drivers we're makeup know Longer-term return will that and it the confident down growth. category, to will as category from to to remain newness trends, take bring emerge time favorable.

the in they they and Z usage. are already saw makeup index Gen consumers. makeup to For population the And example, over and Latinas the are growing one are as with consumers, fastest beauty their of who in segments highly U.S. of increase usage enter in engaged millennial expected we age as workforce,

themselves confirms In are looks. tool addition, use enthusiasts self and a about enjoy our beauty as proprietary makeup makeup, that expressing still passionate with expression, research for multiple

exact return near-term, in these category to timing, it's with on efforts will growth. white incremental leaning categories the the our that makeup U.S. trends efforts with in are spaces collaborating combined meantime, innovation the we're while brand in we're drive to partners trends reignite growth to to to we're experiencing these category, the working we're result And In the into actively identify and confident growth. In demographic predict the that category. stronger for favorable difficult

in has Gen who brands' mass same the category and brands, seeing age, bodes both well The skincare new the which and meaningful Z in at more skincare products, in for longer-term example, of is were growth new engaged nice newness experienced For prestige segments. terms category. demographic than for the category new that the is the in and growth routines, innovation we're the seeing other cohorts

fully number capture these skincare trends. the a to actions we taking opportunity of We're ensure of

year category. mass than on campaigns focus this marketing assortment, we've as stores brands our skincare in skincare to new and in space highlight added leveraging increasing XX prestige, to this newness and For the as well brands in offering our example, growing key our we're flex increasing more and across

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to beauty efforts, wrap of increased As result category. market of skin up, the and beauty the all fragrance currently share by U.S. marketing, skincare continues brands, trends, seeing hair expanding, overall a continued the categories our be constrained we've U.S. in industry category. these To to services, the skincare we're expanded U.S. in and are makeup softness the growth increase market what new in

headwinds return that business cycle recognize investments, the category from gains lack further will makeup Beauty time. to our cyclical, model our makeup the is We winning associates of and facing highly but within us continue that the take enable a strategic are remain will makeup us incremental innovation engaged the our for when beauty share recovers. growth, market Ulta and we category to confident resulting well remain that largely differentiated that drive We will compelling believe space positioning model, The confident newness. and to it

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Our including emotional with at mind Gorgeous while and Fall help drive engagement inclusive Hair Days guests, Beauty. power and possibilities celebrating Refresh, integrated us of all Ulta top keep our marketing XX of the and campaigns, Beauty, of Event,

Research our stories survivors to I'm the print life-changing campaign media. of can particularly medical cancer digital featuring how of breast by Cancer proud in researchers we in-store Foundation, and for alongside brought to who fundraising social life lead which donations advancements Breast

connect Millie to Millie's to define Florence users meaningful Bobby that Using campaign a the Brown. on are beauty conversations ever and rising support beauty expand a the this Reflecting that to first showcase to enthusiasts our we Mills, capabilities, to We launched social continue drive brand Is, of and from showcase campaign beautiful, our strategy, in platform their brand moments encouraged ways. ran we Tick message Beauty and creating focusing possibilities terms, that this media by relevant beauty using powerful new with on launch spaces the Tock hashtag a shares.

and Engagement campaigns As U.S. Ulta and Beauty am Labs this for number say a one other amongst conversations top influence personal proud beauty spot care earned the recently this and in result social social in that to I brands of media really ranking the year, launched

in we've an continue revenues, to average At more our XXXX. total members converting continue year. loyalty of and quarter, member. in members brand to program, per represent XX% spend and loyalty engagement versus members growth in the loyalty the we active XX% million of the seen rewards increase third had third rewards On XX.X from end the quarter Sales of in see our last side, than loyalty importantly, to growth ultimate since our we ultimate tremendous programs

first we've our revamped with we're reactivated second addition provide is well our welcome engagement, our of year relevant members member In enhanced strong benefits with and along and drive to content especially strong to team among impression, frequency new and to engagement. personalized, members of communications a left. driving education as to To on who've promotions program focused our creating are new as ensure converting program, about purchase targeted our members,

member As seen our a positive we've these of in trends. result improvement efforts, retention

how will greater increasingly the we drive growth of members focused Recognizing on program new member. matures, the slow we're can naturally per spend that

test to and optimize based programs started higher credit activity strategy transaction just rewards email drive and guest's relevance of in continue the another we've to our our replenishment participation member. test per Expanding key to and recommendations on other upon to the improve is card to and based reminders personalized push recommendations spend guests. ultimate behaviors recommendations previous We targeted

program who the spend card credit members often with we third more that know saw we again growth quarter, and our card As more us, in and credit the us portfolio. in shop in strong participate

year product our one-of-a-kind assortment, drove total brought brands a delivering a haircare. saw in strong skincare, to skincare the primarily market about and to and products class driven delight growth the third to strategic quarter this guests imperative with this of sales on From we moving are standpoint, quarter, In comp exclusive haircare. comp, we world by new accessories Now, new and in newness results. and our category launches XX% beauty fragrance,

innovation product strongest quarter. double-digit comps is Kiehl's categories well this launched delivering from and strong new sun prestige all In be of product to well. Skin growth newer to TULA strong more brand this of skin Skincare and continue brands with and Dermalogica established growth brands care, like brands, continues strong Aid performed again newness. care of one as like Recently benefited line our and mass prestige, Much as drive while routines. engagement skincare guest Riley also Sunday and Kylie Beauty result First

In engagement. recommended Bay brands such brands, strong select the mass which drive E skincare, brands to and Fairs saw in a the natural continues across stores great early as number launched also guest Sarah including newer of Dermatologists growth we and in such we as Derma Ordinary, quarter.

Ariana Ulta Bear Hair of of sun Ellis self-tanning and care comp single-digit the launch from and as driven protection driven category. quarter saw Gorgeous delivered growth brands, coily exclusive growth curly as Jennifer categories, by Dolce for Event, hair, continue IGK this also fragrances hair hair Pattern, reflecting luxury vitamins Gabbana, products. to success this sun the Versace. like in quarter new the impact mass and new newness Sugar and KKW Fragrance by exclusively mid haircare growth by digit at high available in primarily Tracee and comp a textured YSL, single well by the of strong we In brand Lopez, brands drive Ross the and our Fragrance, Beauty. Sales again Grande, were and

share down was challenging the facing Despite a slightly gains. digit market, Prestige As Beauty quarter, Cosmetics. low driven capture to expected, by decline Ulta continued in the U.S. prestige this category makeup market overall single significant makeup the headwinds

additional the brands of experienced strong from growth quarter, nice iconic excluding saw Lancome expansion gains even with particular prestige and after we to distribution Clinique driven related the partially our growth During these in by doors. brands, growth.

and KKW Cosmetics, portfolio. gains than brands in brands including growth Kylie quarter. performance Newer of nice by also These offset more delivered were other Beauty soft in the established the

holiday season. prestige new fourth in two for time exciting Now, looking forward the we've to brands launched quarter, the just

First, an of Laura offering we're assortment Hero on Mercier oprah.com. by items

assortment to access Karissa and entrepreneurs, digitally purchase, with new We've which diamond brand Ulta vegan product the week. native platinum parabens, premium be just products exclusive also guests and sells every product Our donation members and by latex founded an cruelty beauty will next a Thrive capsule free the launched collection are Beauty help that all and available Bodnar. company to now for Causemetics have product sulfates women. a makes developer without Thrive and to

XXXX. very honored to notable to products value, Thrive Causemetics Thrive's is products and explore to the retail collection the The of offer time. number both in-store be offer Beauty exclusive come first from a capsule our opportunity partner to these for in for discover and guests most Ulta the delighted the more includes look to of brands compelling

cosmetics to digit exclusive brick growth including a and a Place. brand by Morphe, Mills, cosmetics markets performed and well. brands Recently Pop Millie U.S. Color the division mass mortar increase launched the our Although comp delivered quarter, in our Bobby also experience reflecting sales new single declines, by Brown mid Florence from mass Juvia's continue created

also services in of our rollout we treatments. pleased Now to growth stores. we're our stronger quarter, we're retention a increased well in-store experienced trends delivering as of attachment. shifting business, and book stylist to driven to of clients. comp guest recruitment strengthening established I of as seeing experience, of all And ticket, in program retention, transform nice our texture satisfaction that stylist salon share these a primarily optimization average sales, an and am and as product in We're Last better services and the investments, with completed the beauty imperative cut, result color by seeing

to ways the easier new implement for make guests. experience to continue shopping We

will are In experience convenience. second higher to store quarter continue of volume expanded pick we in to the to we In season. of all with guest the which pleased holiday this to completed customers this times, Online, sort very mobile wait how the stores we new responding during and checkout stores, up reducing important by rollout be our quarter, pilot Buy especially point-of-sale the enhance busy our

stores to Now, estate in X,XXX two we ending the new new last stores, activity XX quarter relocated turning in and quarter, net relocation, year, compared four three net remodels the opened real stores, with stores. to XX remodeled quarter and the one stores third

this we ahead with remain trending productivity store open to New strong sales remained year. first year on track of plan, stores XX and

also nearly to refreshes benefit, secured this of all stores carry Estee expanding third for prestige carry now carries more Lancome, We stores the Lauder, Today, Ulta this almost MAC, half doors. than quarter, have than and Clinique Lauder of the and Lancome, distribution Clinique, iconic Beauty number slightly include Benefit chain carried the brands. XX% a more brands, stores and MAC. Estee of of which More

reinvent Turning digital now highlights to some our in imperative.

omni-channel We experience get more continue engage seamless shop. creating to in progress to a that want they wherever to make in meets

for value the how linkage program. points incorporate more birthday valuable new app Beauty Ulta easier the up shows The dashboard to the reinforce and to loyalty personalization, makes features refresh prominent module that can their add to loyalty the includes to birthday of to the and rewards of loyalty be a value it benefits their we highlight our quarter, ultimate month. This and version guests of track points, a fun more stronger

hub quickly to in-house for Glossy offer replenishment making we've access recommendations, and powered center intelligence [ph]. members message our handpick new our artificial combined and targeted reminders activate added by are offers engine, also both and and We've it offers, easier eligible

to loyalty. drive create leverage stronger brand guests reality for beauty to augmented and We continue compelling also to intelligence artificial experiences

for To to virtually added foundation experiences try-on mobile shades And available makeup recently are the Beauty on. guests a navigate cheeks. extend the using Within app. lips, variety the them trying by and virtual virtually try-on we option Glam help Lab app, eyes, beyond to of reach Ulta wide further of them the

capabilities ulta.com. on with quarter, began This to try-on experiment we

more advisors. experiment and to We create also as virtual continue we learn beauty

advisor, quarter, immediately And Mascara we needs. to four ulta.com. the and their finder, advisor receive payment After In launched After and Pay launched works guests skincare installments. shoppers recently in what addition to for millennials focus budget products late the pay find for a and foundation another option Pay with help we Popular in them third existing at consumers and best to our as allows lash

in made in The quarter quarter. growth drive We're very and of early and into which enthusiasm heading position by app, well year pick-up app, available a progress with Pay year through us in and at After this access pickup mobile After better encouraged by ulta.com, ulta.com, our in to available and on the their the Pay, ultimate our we're and place is have app holiday season. strategic all response our guests store of serve fourth excited Ulta and in benefit. all We've completed imperatives, personalized the store. optimization and to refresh rewards for in more fourth this We've recap easier on available the we Beauty our stores. our every to online for pursuit it services lot experiences of is is to best

loyalty have members capabilities. enhanced and more personalization We

from this as across a Kylie Bobby as Ellis Millie Ross, Cosmetics, Beauty, who Brown, talented our by merchandising team guests serve and and of including the a have and curated Thrive, excited well and prepared collection sets We exclusive great team holiday we box KKW newness Tracee lot exclusives holiday partners, of of have to gift season. brand store associates a are great our

the mid season event in-store called in Fest. Beauty Ulta new the off kicked with holiday November the we We XXXX

support executing our our engage store was two key influence guests plus our The and XX activations, our pleased immersive to giveaways. and hosted an associates. create teams event to demonstrations, with lot of teams and goal to generated or how across our a partners, tremendous of plan. traffic days With of I'm stores, Our our X,XXX from stores brand event our

improve opportunities a flow overall, While identified event, positive and family holiday response have are with we in the well. season many The event. making was our to full certainly fun it the of executing our guest's guests is teams

year Our and our program, exclusive the gifts. reasons to brand our presentation honors to and online new for We've glamming and of guests and holiday Blitz to find campaign create the easier collaboratively partners gifting and to gather guests chances the to to and reflects glow. we're elevated diversity for Beauty flow give in-stores with ways all our kits and items make it simplifies this

likely We the will season, exclusives promotional our strategic that holiday holiday combined and with capabilities our beauty successful category expect well I'm to be new but more us really position merchandise a holiday. this deliver marketing confident campaigns

we've to changed not reflect since for has closing, refined expectations fiscal earnings 'XX In our our full-year our last guidance performance, year-to-date materially call. while our

year the We are process agenda and category. prioritizing to remain investment working facing our XXXX for likely line from challenged that's perspective the given through a our top cosmetics headwinds planning the

We as short-term, look term choices will growth we longer investment make in earnings deliver of the to regarding potential. also protecting while pacing growth thoughtful the

detail our We entry do. of expectations we intend to our Canadian our March for support XXXX. into we all we as decided would end international Center We've opening normally investments until While decisions, which Fulfillment market. in our Jacksonville to call finalized build delay of maintain capabilities, haven't year have our Fast our decided about to provide the also XXXX on to the more

discuss quarter Scott our over to it And of detail. in fourth the I'll for third the with full-year more outlook drivers financials that, and and quarter to turn

Scott Settersten

and Mary, Thank afternoon you, good everyone.

of and the the results comp, earlier, productivity, of by see X.X% average with modest during that for our in line comp line primarily pleased in said generally income, we driven increase program. with a the softness of internal a growth Despite Mary were and to strong store reported As by traffic in quarter. X.X% credit category, The statement, growth we the X.X% third were composed was X.X% store growth. X.X% robust continued today was card other of income top new driven total growth our Starting expectations. growth company cosmetics and transaction ticket quarter

of XX% XXX sales bath was XX% cosmetics XXX basis points from and sales. year, basis last fragrance about of the standpoint, skincare category down a increased points From category while to

sales about X% category styling points haircare sales. of and a of XXX As XX% of decreased was while to tools products services about flat sales, percent the at basis

specifically was expected of Although to our driven longer by XX% the end XX% of ulta.com at traffic. growth we no growth breakout ecommerce range growth low

margin Gross XX.X% profit XX offset and improved and margin merchandise driven was business. of partially This our by basis points rent of in year-over-year investments XX.X% services expense. occupancy from by leverage stronger

While as were percentage flat chain a operations sales. our supply roughly

which margins and were EFG from benefit year-over-year category Merchandise as last year, lower offset cost headwinds ongoing activity our from program efficiencies growth to compared higher reflecting and optimization for promotional than or lower to as QX compared year, than activity channel, higher initially anniversary while we event. we this Promotional of promotional activity planned. impact year's the year last largely was more in clearance last because was

year's these of of program. to international We omni-channel rate prior by promotions targeted anticipated experienced using points, initiatives digital expansion. rate and growth XX.X%. personalization our such efforts incremental our data deleverage innovation, including SG&A related the overhead basis loyalty of Many and XX.X% corporate primarily in investments around as to XXX from were compared deleveraged

investments was last our primarily incentive saw due as financial price. to to and support lower deleverage expense well stock also experience. year, store performance compensation This continued partially guest benefits labor as We current by lower the in versus reflecting offset

last of to marketing compensation. for points. marketing new share share ago per of benefit which share included $X.XX third at gap credit, tax per earnings an per included a share launch as lap our leverage based margin to Diluted to tax Operating income primarily saw a federal XX We $X.XX $X.XX to due related grew of X.X% benefit we down compared sales which due XX% year's year income the was basis from quarter, expenses, increase expansion. $X.XX, to reported of in per the investments accounting

X.X% shipments strong and new while timing comp grew well a the in Total the and improving below inventory per sheet balance inventory ahead we to manage cash productivity of and the in an on maintaining base season. stock of increase stores holiday rate nicely our to X.X% to inventory inventory increase due net flow, store Turning positions. continue a

continue focus in inventory peak our top a inventory we investing new brands ensuring strong on season. launches product holiday to that position sellers, into We and and our are in going

price, the $XX.X our In more $XXX.X shares Capital plan IT by a investments a we end. We expenditures opening and driven equivalent. available repurchase cash at $XXX repurchase of shares with million million relocation. of planned. million, in quarter new authorization store systems this quarter on remodels quarter for to were our advantage lower XXX,XXX program and cost Taking stock in as the store initially $XXX.X ended share we of quarter $XX.X and million quarter, repurchase the leaving million our and

approximately million shares in XXXX. We of repurchase expect continue to XX to fiscal

fiscal Turning last expectations XXXX since not have to now guidance, materially for our our changed earnings call.

addition total to X%. and to of the remodel approximately range, foot of to line to full-year stores anticipate plan For fixturing. guidance and X% in XXX of stores comparable growth XX,XXX traditional refreshes We square many to new continue and brand eight the all top overall to remodel stores we approximately enable We of XX the stores, plan to our to prototypes. the open X.X% previous driving improvements execute XX% XX relocate expect sales compared company new X% or with

deliver compares points $XX.XX earnings share basis the XX with diluted guidance of XX of approximately $XX.XX $XX.XX operating expect to expect to previous to range continue per to grow we to to in ecommerce XX% in We margin to to $XX.XX. of deleverage. XX% the This range,

in the there and only that one reflecting $X.XX range, fact tax updated earned of income guidance Our a in narrower EPS third is includes quarter year. remaining the quarter benefit the the

deliver to million expect Jacksonville between $XXX remodels, margin include span CapEx. benefits million to for due CapEx plan innovation. program. the our profit These of improvement growth expense full-year IT, rent decision and store reduction in million We investments approximately be and We credit reflects to initiatives, benefits $XXX and guidance SG&A and offset digital labor, for and to our now center about previous million expect fulfillment will $XX fixtures, cost in merchandise until card stores, expansion, leverage supply $XXX and our chain year, continue from by The store merchandise maintenance gross to new will now opening the primarily the and fast in by and for of driven We XXXX. occupancy for other. $XX million deleverage delay

expenses be approximately million. Depreciation and $XXX amortization expected to

We our The fully expect for XX%, the estimate credit. be federal expected rate rate any the approximately compensation tax income for $XX to of share impact year tax does based year not tax million. this share be QX approximately potential include projected or for count the diluted is to

is the share plan repurchases do to million Our range. XXXX in in $XXX

our Q&A conference And I'll it host moderate over now, to to call turn the session.

Operator

with Thank proceed with Please question you [Operator your Credit Binetti instructions] Michael question. Our first comes of from line Suisse. the

Michael Binetti

fourth and a Mary want ask you to I evening. little connect lower on gross quarter below of bit Do growth fourth you the will quarter I X%, still or the on to conservatism you previously. margin line? that's the a I'm think little whether positive? were on detail, any help for I quarter. little to love to margin, guess, trying about, all the Scott, EPS a gross fourth little bit think see nice and gross us about a were I'd lower. on embeds digits good mid-single quarter talking so congrats offer how just the above if third but promotions on your a SG&A maybe was expectations, Hey, on the The you thanks to us the you more X.X% could mentioned the quarter. guys, the that margin be clearance, help could the on about

Scott Settersten

Sure, Michael.

we're third with the at results. back quarter, the looking I happy say overall So, would

flattish slightly than natural even change being really our end we a what look is here in last that year-over-year, the universe, you. And quarter, we the late in spoke we're low so versus to looking back were the we we we got little be biggest we when so than retail we As out there could guiding August thought to at fourth some gross more remarks, the leverage better just promotional overall now there said we the large which at end event last were August, prepared we guidance, and clearance as lapping flat towards speak. anticipated year, in margin said back to the we of and had overall in

We've expected seen last talked overall we've more beauty to we folks the kind the think right I it in shopping retail earlier. compressed period. the with the just share, we're giving with across with unlike to we've few in the three everyone the the season, communicated of the discounts promotional in lot that the the right, space, I up months. over And wallet really I’d that mean, year, remind in ratcheting we in for everyone of retail to quarters got rest and a board. the environment deeper the we in what compete now season, be of starting But of holiday gift

new engagement us. year XX We've business to a critical our of a much got with there. last So, is this time new for stores and guests We're ecommerce stores. driving roughly a lot versus larger

to and as channels, we're there the here we going we sure would We'll say, on it's based right of both and I margin need on So, our to facts spend and circumstances traffic that. healthy for be not make we all speak with those here deterred driven us through some keep prudent, critical outlook to, if today. being we're

the gross that's again, quarter than ahead. weaker a in anticipated, the look merchandize really we only margin change fourth margin, as the and we with flat year outlook So, little

Michael Binetti

a a us for analyst with ago Okay. think an Could had that day. I quick just you I follow year out follow-up?

you of thinking were framework few about rough the years. the us how gave next You

to do the out spending baking Jacksonville. on Does You a that margin through change efficiencies think some -- you into just change us that you've all we multiyear were that multiyear mentioned because pushed out model on as that the at expected of -- on all of because that plan at the Jacksonville?

Scott Settersten

Growth, again, seeing Efficiencies So, our program, EFG we're For benefits.

seeing the P&L in right now. You're benefits

line seeing margin We’re in item. the them merch

there year-over-year. some that of fixed leverage real them seeing also helping store that's there We’re in costs the seeing estate around we're drive

confident and range We're there. some still and that explained that of on innings it multiyear We're there, delivers to the lots it's out We in delivers faster, last XXX kind we a levers slower. starts slow, of confident we're that there. then program some there's So, still year. early XXX different shared

still what feel with of and we got execute in can us, that. that we've front we So, confident against

Michael Binetti

for a lot Thanks all guys. detail and help Congrats. tonight the the

Scott Settersten

Thanks.

Operator

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

Christopher Horvers

that cosmetics relative described related Mary, evening. growth changing to how flat relatively skincare, evolved the the XQ. would mentioned think the Good to the slowed August since characterize in down falloff against us August, you market quarter. have the and versus in been Has in variation you industry last industry the growth any since -- Thanks. was that growth digits, industry in you XQ Curious your has and all low-double share capture it seen I you like how trends? to that

Mary Dillon

really is about within about of sure. Well lack right. I'd makeup, all, the Yes, issue first growth of category, the say

comps than sort August. positive, slightly all So other negative been then strong of those was it bit and -- we've seen was all QX around hair, I'd was really categories. categories, more skincare, the a QX little fragrance, bumpy that. big picture say Makeup has and of negative, in

seeing So the I right, we pressured so we'll digits in not that that be the to we and continue data supports time as as were double anticipating the at basically the that. we bad were were call, -- had guess that we

that cycle really white brand our it's There's could and back to I'll years, with be the category-growing prior in as partners, growth, us, category to and not the strong the and really very just U.S. working believe laser-focused very imagine, we're very shifting in should be again, but bring much innovation, and are we the demographic and continue growth. will to just for and And space, to partners return reiterate, big innovation, brand always feels favorable being this categories our small, has in opportunities. preferences, you closely tough incremental trends been cycle, a on about

to will. turn, feel that predict will tough but So, it confident when we

continues of strongest of our capture be think, to one Our the I market story. share the, parts

So easy short-term. -- distracted to by get and the it's a little

loyalty important. is I in driving have and fact really the And time for well our Our really program, market proven are to view do this we that continue up sets by to new that it's is future. -- It winning the think guests we growth, we that us the model. we're think us share to long-term for

Christopher Horvers

us going sort from that, of of as do that year you look growth ahead flatten think be So, do as market you to that consistent a category growth you perspective? and July-August function a you has it's bumpy, next get of -- to will sort things the given just been albeit think out relatively

Mary Dillon

could pretty it to I so. though, it -- timeframe, the turn. makeup everybody yes, as mean a will tough, exact well, see specific we to can you in will, I'd give I you that improve wish say, in so like nice about want give feel this imagine don't try but that timing, good I it's industry I and but, would

Christopher Horvers

Thanks so Have great holiday. a much.

Operator

Dana Advisory your Our next Group. Telsey Telsey question comes from of the question. with line with Please proceed

Dana Telsey

afternoon, Good everyone.

as think what you're you. especially about how it year? doing And you color with about launch XXXX game as season, to that you season, year head compared marketing in sales? that marketing the different year Kylie cosmetics, to the it As holiday last this holiday this issues the given last plan thinking is are into relative allocate you with Thank you and to the how

Dave Kimbell

we it bringing consumers to very marketing seen positive Yes, in marketing that and we're impact In we had the last are in strong the It's our that reaction campaign the marketplace; the about in launched innovation we're very continuing through Possibilities marketplace, very have positively. year, are a specifically, total brands. new the Beautiful. marketplace

of we're confident our in have But see fourth continue year, into and did As you XXXX. the grow, and of many continues new to that Kylie. her driving Ross, Mary and through continue that brands those quarter Mary as and success to this we Pattern we'll skincare, the care, bring that mentioned a hair launches last Ellis well. We IGK, with remarks, the and awareness to in year, Tracee big mentioned some makeup and across few mentioned in like brands in growth, brands store are coming

evolve to drive behind in So, new campaign. continue reach hard our Possibilities the compelling ways our growth we're and to guest assortment are and to working Beautiful

continue to are drive So that that, we're with optimist the through seeing XXXX. and results, will

Operator

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

Mark Altschwager

Hi, good afternoon. question. Thanks for my taking

doesn't expecting just pressure. So, as us the QX mean updated the that compare. makeup of ask level to in comp changes I it on just what QX about Maybe under to the a And you I sequentially. despite the there comp despite into category to extent see the I bit we give update then in the you're drivers year tougher to guidance, of the strengthening backdrop, comp imply we think strengthening -- about backdrop still the guess wanted mean the growth able get to deliver next remain that as algorithm. you're Thanks. just

Mary Dillon

not Well, guiding now. right for we're next year

promotions, we right, that QX, So you're as and from the moderately better marketing, than we feel we've understand got really lapping, we're tools, Dave we a the feel guidance start. et if off good a I gave midpoint a that guess of good quarter is the but offerings, array the I like we question, cetera, but the say we're described, the about I'd I to think fourth think as at lot we just like have

things call And didn't my quite have we in this year so mean comments, a have as there's I said holiday. we few this last quarter also in that -- I my

for Focus is something that it's store [ph] a example we year. did not buy online start might I last one that to this have off strong pickup capability year, the us be think and

execution, what our Stronger Afterpay are app is we and points they ease is last up. that year. we another how -- that this than Ulta the have one have terms in understanding of the say your I'd better of even year Beauty add before ease didn't of

optimization now box. service incremental Brown, of of and Ross, again, enrolled the And is a Beauty, across a every are there's Our things Tracee a lot KKW ago. Bobby that Thrive, Ellis year in lot out there's store, newness Millie

I at accurate think quarter is good last year look we make confident it, coming is we to feel up as we're that guiding one big as it against a way and So do the place and that. can

Mark Altschwager

following-up, And to just specifics to buckets year. you maybe want point. any mentioned back mean extent Thanks. slower leverage But have growth bigger the in to D.C., you're you comfortable SG&A the kind try I a into don't we quickly in we think for we but that triangulate next know that as ability some of that remain speak to mode, back then understand the areas pull to that maybe about that should we get and pulling of other on. I the

Mary Dillon

but That activation. but I category color that Scott, more forgot comments, I a -- and a skincare more while. across category brands, are knows you beauty. everybody the ability And before that. that maybe in would about I about mean flex, us the think I'll space, as are as to I a But in a so we when a said, great that, because expect second add, you flexing. lot for are actually I talked asked we we headwinds two-part part, makeup many because we and take with is you this, little the had on can XXXX tricky a question, we have operate, more our And position categories of said,

even headwinds environment while and for -- in going line tough that to that of categories XXXX, we of grow beauty think create with to makeup, have we're some in. and other well we the us that So will continue top

Scott Settersten

we're our been the to it's line new that concerned, what here a the has talked to communication we investors I I future. far lower XXXX here, to as foreseeable on deck at think last guess over would of of just months, to I we cost in all now add what down. And couple in can all kind for any looking looking of hands we've business be the this consistent see more a lot not new, It's expect control taking that at a business levers as environment here a growth is operating environment. mean do the and and I on

and competitive but ability continue to environment current operating threat, believe the So, to realistic we our strongly profitable in about growth. long-term we're drive being

here March and and ensuring got an about decision benefits recently, a say thinking we're that is that have in example on that made we as with pressure the now our that weighing right our about many line and Jacksonville in short-term and strategic to XXXX through the top building of came our all reduce queue continue more position our also to eye also, and costs in win we those long-term. call. to up the So, the we'll that with Ulta more board one of towards the minuses, talking just while we've are business, pluses to the Beauty implications something plans there's balancing need in cost

Mark Altschwager

happy helpful, and Very thanks, holidays.

Mary Dillon

Thank you.

Operator

Please Our your next from Boruchow with question proceed comes Fargo. of Wells question. the line with Ike

Ike Boruchow

us comp there. us, leverage. a going comp sold. like Can can Hey, get and Scott, but what's on everyone. surprised the just and then Could that deleverage, some Scott, of surprised, three within sustainable, your to what for you leverage get that guys on going kind to to you investment pleasantly within should you can good that afternoon, is I exactly and we were actually component is you that able COGS? -- is explain get costs the was goods think a you a there's some cost I leverage forward know cost on fixed The three of way it of of question fixed going lot if tell in been

Scott Settersten

a that through that lot through quarter of variables there's any roll Ike, one line.

the quality, we're is making of seeing team have, we've store been that roll lease the that. around some initiatives openings, talking the through that renewals, So on of so depreciation, timing XXXX. number, great And progress we and things EFG

quarter. we EFG on third We're what working. and able with going optimization focused those things, the stay on were deliver happy very we're all and to So to we're

successful our across fair be great doing to again And just we think want working going progress is made manage Again, make to I can we not X,XXX-plus top can partners line we to there. landlord sure is that a that shows continue with how a things it still as to manage as we look this the into right, or at stick lower good that a we remind be we we're job look do. can people our business hockey real estate and fleets Our we example team to a that Ike, line there's the economic it's deals business. just up straight got a but good of store environment necessarily in

Ike Boruchow

it. Mary, give a shot. And just this Got quick a one for going I'm to

stay to impossible I'd you be Mary, guys to guidance, you ask is comp to asking said for guess, I'm kind the would figure business, for but headwinds I the growth point, you there had or trough for at foreseeable while, of of that So, makeup expect a you environment lower that? expect future. it just this X% let's the tell this

Mary Dillon

through are capabilities, share. which digital where gaining so think the That's terms brand capabilities, about in market future of right, about the of really preferred feel the right the our now, omni-channel of want rest like confident that. at comes and less business no of this I nice business I our all. good market important long-term mean, the is I the We're to we're guess clear hope model we second I just feel outperforming that in attractiveness though, capabilities, our destination I important our teens. we very very model be working, as awareness, that A strongly our try, I for our business.

are And now. just services to executed think we operate so, exceptionally in everything I right store, from well really how

of taking patient long for little the our getting us and ahead category an a on skis view this. is a important being on not stand So,

if we we to us that are but this of growth. would, it don't continue we've obviously, industry, call everything to control to hard working sure better, that bring this And great have we happens partners back with could make we that so, got

the that said, the what don't about we're but looks how -- environment that's to we current we Scott for that, as cautious us viewing for So, for do so more but realistic terms to were, think March, XXXX, but a like. this. thing number in We'll I talk view I look that plan of and get when we think and planning it's I or pragmatic taking of operating as most think I

Ike Boruchow

Got it. Thank you.

Mary Dillon

you. Thank

Operator

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

Michael Goldsmith

the pipeline willing collaborative my evening. are more and of the support involve with response been a their question. on to of a in Thanks signs Then you Are lot provide more they Good any moment? to about in taking view for In suppliers salaries prestigious from your They any take also, cosmetics, innovation. and than past? have more conversations some they've they talking seeing the introductions product differently? stabilization

Dave Kimbell

board Yes, around and challenges say focused category. and as I in partners our in the both the across engaged understanding are are the would we turning very makeup very brand

of of And I'd deeper, under high. incremental much uncover on always experiencing be to different engagement growth been consumers. over a so, now forms we've new is is focus than consumer understand years new the much effort to level last been robust over say period driving of behavior, What few their the has innovation behaviors more will really really that for and habits what

engagement category. with in the that brand we're level incentive our that they about to this we're because growth of feeling very to positive -- have that obviously across partners, and So focus very the seeing drive, we're return the they're getting, board very

about it. good feel we So,

doing Morphe in Place, of And while bring is brands, and new brands, lot in that the But hard to like around. going day. I we're think as Scott working exclusive have a we're category Thrive, has work Mary and it's spots the is hard new when KKW. to the both to like bright said Juvia's challenged, category predict exactly launches turn every brands, to bring we

a because existing to brands, brands. partnering gaining both share in returning with then tough strategy market, our growth even with new So by we're is working and

and is category possible. as working as are everybody So, and growth confident on will make we to the that sure that working we return to soon hard this feel

Michael Goldsmith

to And them start just you'd in could categories a point, following down? were risk steady, be bit up decelerate reduced fragrance and cosmetics, the hair, a drag outside the any to categories seems like there it generally deceleration is cosmetics other in on it lead that little other accelerated interest --

Dave Kimbell

see the we of to non-makeup business, because all of our beauty model, a and parts overall great across all part continue things and one strength our do that's do in We place. have

fragrance. we and still new coming strengthen into and mentioned, sun members. positive, consumers modestly And store. and absolutely skin traffic and are We're as gaining So, hair was the bath so

So portfolio. we because member attracted the they're have growth, whole to strong new

anticipating extent, as So, parts their on not we're to brands a to new -- business consumers if are ways other and be looking growth. greater categories certainly big may are slowing as moderate we're anything, seeing for some the in the the on makeup and ways of skincare of in merging engagement drive those growth impact and focus

don't have we're that over makeup and a that back I we think now will and get spot will long-term to optimistic impact, time. stabilize So said, as growth

Michael Goldsmith

luck you Thank quarter. much. Good fourth very the in

Operator

Yih of Our next question with Adrienne comes question. line Please Barclays. your a from with proceed

Adrienne Yih

really, of it larger could where any and so your it impact terms taking color the launch majority last really share that was launch EFG give for Mary, and also exclusive can much. did for one, talk quick us Scott, you you when you of Thank maybe, my then could Kylie you in on Kylie program launch Cosmetics. than thank in does and third David, relationship, question. could year? Yes, purchase you about in year, next KKW if How the SG&A same the the then if SKU cut count wondering or areas about quarter, the I'm Coty talk you of

Dave Kimbell

Coty start me Kylie. about let your with question yes, So, and

comp lot and those Coty so being with finalized, new we Kylie It's we continue performance, really and So relationship positive a team overall and grow anticipate pleased to to the Kylie and going Kylie, have driving relationship is business fantastic great we've Kylie, the and with new excitement partnership happy brands We're brand. our but the still a had been together contributed with with is the to and we're of growth. gas certainly Coty forward. opportunity the

on that we've So all in business. with and in late quarter to we're the been addition has a nice third the a about pleased and the stores KKW our We results again launched we're some cap KKW very positive customized in it we really a brand, remember partnership broader and lip launched with you with different different individual it's Kylie assortment palettes assortment a overtime. of has predominantly expanded that when assortment across makeup. had limited a lip if segments kits

brands. a of is it different a reflective strengths approach of of And different those so, each assortment and different the

So portfolio again, business. results to KKW glad good have early the of about our in and that feeling

Adrienne Yih

Okay.

Scott Settersten

the roll store are and for list with that XXXX know top so in types is SG&A, grow everyone's are -- give through the costs Yes, through respect store right, that it's we that in that our SG&A expenses, you investments, us I innovation help know business. early like much us of long-term costs, at still on what to look our that, going SG&A, but XXXX variable that's and detail we or there overhead roll to are of line and when people corporate too labor, is nature in think to there too about then

the sprinkles So, when all through P&L. we think about EFG, EFGs

have would day very does to of store, as well. even tell that of clearance how our it's merchandise on with the markdowns of the XXXX clearance the and line the at of a whether work as less for mentioned of of going that that's is to some we on getting a part that we're the we view, on it's we're a so about transitions be mean, it that on, lot have underway EFG and work the benefit to margin event to I line, I right in transitions there's mean, to balance equally beyond. things try gross take this So, as lot just thoughtful work the in going doing the SG&A, talked there think gross business, EFG we end what a that margin about items the margin balanced applies you we've optimize and the so we're we the be through I year.

Adrienne Yih

best Great, holiday. much, and you very thank for luck of

Operator

Please proceed Evercore your the question comes with question. from of next Omar Our Saad with line ISI.

Omar Saad

some Thanks are focused commentary to for on follow-up taking I and the my cosmetics. color, it. question. I guys wanted on around know of you makeup,

guess in partners, the this I'll some different It that in your generations working your behavior much and any industry whole -- consuming certain there focused spend it how or demographic that I levels. ultimately in around asking types robust anything see the is can customers category, the gives like the issue. question, change regional the really You're board, brand new are terms stream Is with they're slow, sounds age that or insight on in or is into data across this we're of there category. all seeing behavior the that come you of whether of is age it's pretty category category there and of enter obviously

Mary Dillon

Yes, that. happy I'm take to

aren't we're it of -- has and say back it's step lot makeup still, wearing also makeup. first people a not You like

better that as that items people think macro thesis creating really main just important I that like about this really are your versus that's are baskets brows. contouring doing many new like to is year that or things their our adding ago, isn't that is -- growth at there most really level it's about rituals

of buying That's or people around was quite -- years. so are kind there and solvable. around of white a at and makeup, the the not say it engagement we just high, consumer for whatnot. finding that So, level categories, we've lots few spaces but and newness is That's seen new all insights

we is of think a So, at I macro that's think what kind happening.

were younger when Z the also it, in misnomers is did our in about age. forward. Gen with consumers carry a people in also very at engaged they'll category, at good that they Gen habit getting mean, and older Z, is that I age think all data too, that they're I that's means When news that about think That they're we than skin some show engaged it's there the of

As get into makeup. the they start workforce they more and using wearing

So we away about a we and demographic also as trends, don't turning ability people said positive that turning as it. more factor, positive think think at from to that see we we other them looking we feel makeup is very just the

say for the terms the which we third a makeup never growth not that's segment, in in wear XX% beauty, a of in in who as never for of our still and don't segment segment enthusiasts, been our count a business that's and The of that counted a small on model. -- U.S. in I'd USA the ultimate there's We are category, rewards on focus sales we is segment other always thing have that represent and engaged beauty it's new; the only women we've of them program. on

for So spend potential. lots with. think We enthusiasts us of we've it's grow to XX% beauty of out continue there to got

more to category type see incremental begins the and the will So, industry that we this that to think growth gets as category change.

Omar Saad

Is that Mary? into or there color natural informative that's or can the the trend, you trend anything read

Mary Dillon

I like products more using that about Conversely, we'd extreme Certainly, and say, you Fashion that having to bare and conversation, celebrities different wears taking want if it's mentioned see some very this knows looks not look look might face, look bare makeup that's bifurcation I've achieve to look and in few almost quite anybody to I'd too. of too. in if things. that script shows for out selfies do there face spring, so neutral what's is makeup who but sure, natural the bare Yes, see that that really a We a cool you it's a natural at eye know etcetera. but there the requires even in the more like looked eye we face look, products Paris been a not, was a create be more sometimes happening

everybody So, thing opportunity presents way natural more I for of to all and best guess innovation. kind about does look plenty of one it, it not a think product even is the

Omar Saad

thank it, you. Got

Operator

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

Mary Dillon

against just our for headquarters working busy stores, financial ready DCs at thanking I our another you. for hard across imperative, get solid Thank of associates of Web our really to our results, strategic centers, delivering Beauty like to by holiday Ulta quarter same site the stores, season. distribution all this time the and executing longer and term close at

all forward and reporting in quarter again holiday. hope March, happy and look fourth of have with we our will So, to you results you a speaking be then, we all

Operator

teleconference. today's concludes This

You this wonderful may at and lines you now participation your Thank your for day. time. a disconnect have

Ulta Beauty (ULTA) 5 Dec 192019 Q3 Earnings call transcript