ULTA - Earnings call transcript Q1 2022

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Operator

Good afternoon, and welcome to Ulta Beauty's Conference Call to discuss Results for the First Quarter of Fiscal Year 2022. 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 call is being recorded. And it is now my pleasure to introduce Ms. of President Vice Rawlins, Investor Relations. Kiley Ms. you, Thank Rawlins. Please proceed.

Kiley Rawlins

quarter Thank for discussion joining Good Dave afternoon, Kimbell, the of first call Officer; of Hosting thank you Financial Kecia everyone, Steelman, our and us first for us results press Scott Beauty Chief session. and you, Q&A fiscal are the financial we XXXX. available Officer. Investor our Chief announced John. Ulta operational join of and in today Settersten, Executive copy for Chief Relations our This results financial quarter. release is the section for for the website. Operating Officer, A afternoon, the will our of

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

or forward-looking with not except Dave statements, afternoon update our Scott. from as law, revise begin to to us expect should and obligation do and remarks by no you have so. We prepared this required We'll

us to and to please ask as call, many will limit open scheduled we you the respectfully Following one for possible your for our To hour questions call we as question. question time prepared allow this questions. follow-up one accommodate that during the comments,

re-queue. always, questions any additional as you IR ask the be will for after we And the follow-up team available that you call. If have questions,

like to to Dave. Dave? over I'd Now, call turn the

Dave Kimbell

year's start, outstanding to on delivering record Beauty Fiscal with and excellent results. team XXXX good last an you, is another afternoon. Kiley, quarter of the Thank performance off of Ulta top

quarter, XX%, to increased XX% of EPS to the per billion, net profit increased diluted sales sales increased and $X.X increased share. For XX.X% XX% to sales comp $X.XX operating

all share we Prestige exceeded expectations, Beauty and During based in our the data market NPD from Group. our on increased categories major point-of-sale quarter, the

supply We the for also increased our number our of to technology continued digital Ultamate operating program, navigating appreciation stores, to chain labor great and express Beauty innovative to the while want execute execute to create experiences experiences, new of successfully their associates and demand, paired and collaborative sincere of chain continue continues Consumers cost as loyalty and a category, projects, challenges, strategic efforts in guest consumer infrastructure, members their pressures. the major investments recovery more all and introduced priorities, participate with market guest my are our results. outstanding I in category. experiential these as engaged the such highly deliver pressures, strong lean and fueled of beauty engage with in our more in they inflation plans spending. beauty of execution emotional travel be drive strategic while to to exceptional resilience macroeconomic And connection in-person for our top rising mind all tight supply our including against Ulta results. into consumers, This Rewards for to activities,

we priorities the our consumer-facing optimization with for quarter, are will the and our update Looking I at our progress efforts. making share on an then focus on operational performance

growth and an first disruptive delivered drive and first comp growth of skin year. hair Let's Things bath, From against start to strategic all with double-digit through priority Beauty. All fragrance definition makeup, a quarter category expanded our the perspective, care last care,

into outperformed event. growth. foundation, is strong a XX exceeded Beauty makeup Days cosmetics. mass brands progressing of year. continue this prestige expanding a to recovery and to and strong standpoint, by Compared deliver in driven concealers, XXXX, quarter trend comp prestige new eyeliners, expected From makeup The coming of and cosmetics, cosmetics mass and lipstick of both first the we pre-pandemic levels sales faster Importantly, than

Ariana like to Treslúce, brands Fenty during New a Becky Musician, by quarter. brand the REM Beauty, founded Beauty cosmetics G, Grande, by and Latin contributed mass growth

new Clinique, strong range e.l.f. wide product also While including NARS, NYX delivered launches brands, growth. from of a sales Lancome, and

stores. addition, expanded XXX additional introduced into Beauty stores MAC we into quarter, In this and CHANEL XXX

increase they maintaining their as routines. makeup enthusiasts skincare are Even usage, beauty

result, skin double-digit Moisturizers, to growth the sales acne quarter of year. in the quarter robust continue in eye comp growth last serums, top a and category quarter. care strong As first double-digit treatments delivered on another of drive

and saw also travel strong self-tanning that increased social consumers and growth We in activities. protection sun

social Thomas continued to benefit contributing media to the Roche-Posay interest growth, Newness Trends category another successful continue delivered hair new with newness as La the new well from and resonate Fresh, from Roth Good double-digit damage repair, like scalp health with salon focused including hair core Supergoop! as increased care, as quarter Elephant, and on of quarter including guests Beauty, continue aids and brands, assortment to brands, Drunk our Molecules, products bar and and occasions. StriVectin with appeal to rise back color Haircare strong and to during engaging First Peter content. guest Tula, as engagement Aid social established guests the growth driven in treatments well of with by takeover styling and events.

and Redken, like IGK engage as our continued quarter. the with strong with contributed well and stylists the our core like to and phenomenal Spring to year. Beauty these Exciting a from Eilish, double-digit The of with Haul, Newness launches resonated brands. and as favorite. driving growth like Wrap this established Valentino. product Billie with Consumer takeovers continue of Crush Beauty Fekkai including category category and Gucci new newness, engagement as for a bar well top OLAPLEX styling growth XX Valentine's from program in as as for be on Herrera Carolina a Tyson's growth Briogeo, Day and and Hair Ulta tool YSL to engaged last drove professional contributed drove back performance. continued, strong guests Days salon And growth Guests guests, brands to fragrance monthly results New Biolage Fragrance our in-store brands member launch events, of and brands Pureology, strategic strong exclusive

continue continued category quarter, Beauty addition in products brands more Conscious driving trial. we key and In are XXXX, engagement platforms that brand in than to awareness end new brands guest brands and At to pillars the first when existing drive Since XXX price while we certification quarter. drive investing accessible expand core growth. growth, such of many proprietary launching it and technology the at participation, in a the with was Andrew four across And share One in to SKUs, pillar. increase one is to first hair least launching market certified points, we which guest bonding in brand have offered offers example certify care launched cross-category all Fitzsimons, are at place. certified

is exclusive in fully example body quarter. hair SKIP, Beauty beauty launched an which first brand the a Another and Ulta care carton, also paper recyclable, packaged shower-friendly in

MIELLE BeautyStat, efforts brand. We ROSEN and our to BIPOC and Organics. support five brands, assortment [indiscernible] of Beauty now BIPOC launched Skincare, new expand to FENTY BEAUTY, our continually Moving

of compelling into Girl In a Black purchases showcase to to Black stores. rewards our expanded History enhanced stores recognition drive celebrate Month, in trial, Sunscreen promote also select a We introduced bipack we support awareness. and we omnichannel to To on compelling and across and community brand recognize, spotlight founders. the brands brands. in feature launched all We campaign and print black-owned stores black-owned loyalty channels, black black-owned and offered digital display we

Wellness now of they We landing expanded fleet reaching easy and additional now about XX% assortment With to our helpful our prioritize explore on and continues the their shop refresh stores, with guests ways to recently easy page resonate readily digital shop Finally, XXX into an as can wellness wellness self-care our to busy self-care the schedules. incorporate about routines, and tips more ulta.com. curated guests journeys.

a the capitalized the efforts than were Turning year Your guests with capacity digital quarter to their physical World. evolve levels. returned ecosystem, fewer Store All in in to and and omnichannel store strong in-store our on shopping for restrictions place experience trends as through COVID connected normal to preference traffic now last In

below is levels, pre-pandemic traffic the trend still is improving. store While

differentiator participate to in OLAPLEX they as In beauty Redken. human services services & just through Beauty, Consumers expand to continue in-store services delivered loyalty engagement routines first events service As Protect in by to guest events and enhance In our primarily in offerings, relaunched in-person service comp proms, due and such including stores, Ulta connection. new graduations experiences, and a April, and activities. as deepen beauty and more the double-digit for time are increased and weddings. interest Express special capacity beauty support we To meet core Color and Repair growth, we resuming services our their our makeup all offerings. growing quarter,

are delivery. coming to these buy online, guests they engaging use in also are trends, in continue maintaining As back of offerings, to stores, including and we Reflecting our channels. convenient pickup digital their omnichannel enhance store shop same-day

quarter, of e-commerce XX% last During compared increased sales, year. BOPIS the to to XX% just XX%

option. same-day trends, While of Based York stores still on City. including five new XX% convenient we use increasing of our limited, options. And this delivery our offer expanded delivery markets, engagement today, to their are about recently guests New same-day guests

experiences. During enhance the digital first quarter, we and continued to expand our

a introduced for of of Store mobile homepage part As Digital the both new and Future Journey, our we app. our ulta.com

We we’ve innovation each through also Try-On developed by launched our by technology invested companies fund. two in tools, powered digital Virtual

technology to accurate provide startup, resulted which advisor tool. First, pot.ai satisfaction we powered skin intelligence global has GLAMlab launched best-in-class in a us analysis by guests enables with the artificial This skin [ph]. diagnosis, with skin stronger X.X, more

that than and We including a tech to of options and by different enable also powered texture. by intelligence XX uses beauty hairstyle gender virtual artificial try-on RE/STYLE, more try-on start-up learning machine hair GLAMlab launched styles,

Beauty reality innovative support our AR of and Beauty. introduced also R.E.M. We launch and Fenty experiences virtual to

Target. Beauty. to and Finally, leading our we with long-term This loyalty is and Ulta brand build with enhance of to our part partnership partnership engagement strategy continue expand

members, advantage at Ulta leveraging of Ultamate Beauty we Beauty earning seeing and And are to ultimate new at existing are reward while introduce We strong the Ulta convenience take traffic Target's of points Target. guests. to shopping Rewards

at quarter with XXX locations. During XX opened ending Beauty the shops, Ulta the first Target quarter, we

as One in to priorities scale. of to we engagement is our build leverage XXXX marketing

Days in event, and digital engagement of our guest in channels. strong support communications this support Beauty As event, XX which we performance example, to Ulta in-store Beauty brand-relevant co-created with across strategic both of Target and an resulted

presence to loyalty Moving heart efforts our our by Beauty, emotional of and drive and the deepening community. at the Ulta beauty expanding to love, connection with

support Haul, Spring mix audience to leveraged data and We greater the million continued cross-category through our and XX% to the new the primarily most We reactivation and Days ended We launches. content quarter driven optimize marketing increase we a with of This to above created member Beauty platforms. in loyalty members XX quarter, to and by digital-first launched engage campaigns channels reach partnerships guests of year. marketing active our acquisition was and platforms, to Ultamate to key and program, last first execute new we awareness driving continued approach Rewards During strong our first targeted the quarter awareness brand sales. increased increase growth, relevant XX.X innovative member audiences retention.

off is are strategy many members, lapsed reengage delivering of results. during Our the dropped whom pandemic to

brand as marketing offers network with both influencers advertising, enriched search, access and creative partner program, digital advertising fee to launched remains video, UB Beauty-owned as on way beauty throughout web connect and media the transform will our brands excited value are in rates improving, enhanced the our The Media measurements Through reporting, the enthusiasts. the display, portfolio and Media, strong including online media of partners stores guests ads, as Ulta insights. harness exclusive Additionally, Building conversion well products Rewards open data product I'm we listing we new in of on our visibility platforms conversion share retail and first-party power properties. UB network. and online channels successful to Media, social audience Ultamate offers increase also UB journey. an of and that we member

Beauty facility supplement unlocking will South speed first on to quarter year. chain we build our build Greenville, shared strategy, and recently markets. the helping Ulta on and expect greater plan MFCs, audiences, drive DC partners new to addition capacity digital updated the to to supply and centers, our including Underlying in expect to be guests focus in to network and campaigns Carolina, stream sales fulfillment stores e-commerce to in excellence benefits engage operational In market third our as or specific transact. to fully is we these fall, broke leave brand MFC a see provide existing our next ground We campaigns customer-facing a to optimization. Last consumers income while priorities properties effectively back operational

to our continue optimism privilege on a distribution recognition, and results stage celebrated track weeks we development, welcome Indiana In Meeting, addition, Beauty. do strong supply one left world district all and second the opportunities. of team -- to our of the brand ahead service about future the few even and full to together managers, opportunities chain XXXX. nearly retrofit I and bringing as to years team field Beauty The product last deliver beauty. In in quarter was had expresses and enable leadership Ulta Greenwood, for truly incredible confident the complete will two support about Beauty deliver on more set our including together I We how closing, planned throughout am capitalize Field inspiring. teams investments, sees we the X,XXX to our the for Annual key growth general was the be investments, days managers, IT Leadership to event the refine ago, have redefine Ulta Beauty members of excited Ulta several to I center our in challenging of education. is accomplished our on everything Ulta excitement the and and future palpable partners infrastructure can

about costs the prices us rising inflation. are look be consumers concerned around we to and of forward, As increasingly operating dynamic. world impact the and continues Product are

it turn the about financial for difficult consumer our in encouraged forecast our to will we to category. near-term continue continue the I long-term monitoring results. we guest call is Ulta behavior beauty for opportunity engagement and Beauty Scott? forward, a And the am are and inflation I trends in by Scott While growth. how impact remain will may over confident to now, profitable going remain to underlying team see navigate of to the pressures, the and deliver excited I discussion business

Scott Settersten

everyone. want and Their Dave's our good serving this performance. I comments to another guests Dave associates and afternoon collaborative Beauty enabled quarter. delivering efforts Ulta echo commitment Thanks for extraordinary to outstanding our

top brand gross both results SG&A, the leverage of line the quarter than the first Our were record drove factors, stronger category, XX.X%. performance better-than-expected to and due in impact Robust including of margin we store growth resilience continued of several resulted new launches beauty and planned. operating in stronger-than-expected margin

price. income of increase in selling in point primarily member and credit impact while XX%, increased with campaigns. the delivered income line store growth, our stronger the and The the let's sales engagement details in strong quarter average in sales. Now sales channel mix, into perspective, in Other growth card in a performance. loyalty results. store Transactions product strong loyalty than dig last plan. increase growth by revenue due The stores point XX%, the $XX.X our were store increased e-commerce double-digit From card retail due executed COVID growth. an and by sales, comp of impact fewer was resulting increased other of higher lower price year, price quarter in primarily to our comp the trend restrictions the flat, primarily driven redemptions in driven reflecting increased increase reflects ticket growth sales Average for improving traffic The double-digit with Starting Net selling promotions. increase increases for the to proactive increase an revenue transactions. million, reflects redemptions. in in quarter from new and in average XX% X.X%, credit

we stores. stores six XX quarter, relocated and the new During opened

leverage XX.X% to basis to increase points favorable growth primarily compared margin. year. Despite growth to primarily and in occupancy fixed transportation last topline The quarter, and our channel lower in surcharges, experiencing fixed and costs, from quarter of by rates, supply benefits costs. sales offset gross revenue costs during of costs, the growth chain strong resulting margin merchandise due efforts the XX.X% double-digit wage topline us leverage from growth fuel enabled store other leverage XXX of resulted For costs. in partially was cost to optimization increases increased the of Robust supply chain meaningful mix,

rest growth costs mix channel become more was of the to moderates stores, of supply we of Reflecting headwind. the expect chain sales through year, performance As strong quarter. higher favorable this a sales

a As percentage XXX about quarter than sales last the of were points sales, year. e-commerce basis lower first

last inventory reserve was during margin year, than due of benefits promotions the Although the favorable year. favorable from the impact primarily to lower and adjustments brand was lower impact merchandise mix last of lapping quarter,

to $XXX increased million. XX.X% As planned, SG&A

XX.X% SG&A sales XX.X% higher strategic overhead, Lower deleverage sales, XXX marketing expenses store payroll a to of offset of investments reflecting percentage partially to As corporate to due year. decreased and of by to last benefits leverage our points related basis compared were and priorities.

we quarter. digital and sophisticated we reimbursement year. that shared, to of the million campaigns brand of Dave recently basis As with our of marketing income marketing million $XXX.X these XX.X% SG&A a costs expected resulted we scaling digital vendor XX offsetting incremental more marketing compared platform, Operating this is program. are This Reflecting launched for the $XXX.X UB the partner expense expanded Media, the points favorable for version in direct to manage last partners, in the to specific within about income impact a of increased expense. total our

XX.X% operating per $X.XX increased share $X.XX basis margin Diluted share compared As of a XXX to year. to year. to points per last sales, to earnings last XX.X% percentage increased of XX.X% compared GAAP sales share per

year. last Moving flow on inventory compared to statement. XX% and cash to balance increased billion, to Total billion sheet the $X.XX $X.XX

of the increase to continued the and demand key mitigate to In Capital support well increase million were addition efforts versus in-stocks expected last inventory disruptions. investments launches, global chain compared quarter, brand items for the couple as The to $XX.X supply anticipated stores, in more a capital investment as purchases impact store maintain normalized additional $XXX.X support and investments strong year, maintenance to and last of to expense. last in quarter, key million. of year. $X and capital equivalents. cash was We improvements to end quarter merchandising the we million quarter, and expenditures $XX.X a remaining cost of under cadence Depreciation reflects the the the $XX.X cloud includes current systems, shares billion years we reflects at expenditures IT the million million of XX with $XX.X our In first At of billion primarily from repurchase in authorization. due repurchased IT cash a XXX,XXX shift other. had million to $X.XX ended compared to $XXX.X

Turning with our second between XXXX. quarter are trends for quarter, billion $X.XX now far our $X.XX outlook. to billion strong increasing the in so now fiscal to comp We and and first sales X%. net experienced outlook between expect sales our Reflecting performance we've we X% and be sales growth

while half, have the planned the a sales trends between Beauty. outlook investments leverage and distribution We growth to impact in growth XX.X% points to year, to the inflationary risk single-digit second mid-teens will half, We Our including uncertainties impact. in now pressures increased updated for greater operating be consumer the of reflects in the half year-to-date, of consider spending the XX.X% for and second low could be and sales. in anticipate of cost but Prestige margin anticipate second impact moderate then growth in the to half the continuing and low and operating first moderates of deleverage first will as that the We half. year comp to expect margin

for expect promotional driven year a from We XXXX, normalized management assortment of fiscal merchandise normalized the lower brand and more continue be more resulting full primarily gross mix, the by environment. activity impact margin than will to margin, lower

chain addition, supply we will fuel resulting be to continue In volatile, costs initially believe than prices planned. in higher

wage related offset We including Beauty as our to year, rate to and IT expect capabilities Target, expense the million for $XX across and higher by strategic growth marketing incentive priorities, Media, to support SOAR, Ulta at compensation. UB continue other to million investments the of SG&A by as well will expense $XX lower primarily partially expenses Project deleverage enterprise, driven

to these result on double-digit growth seeing In are fiscal and These the in to travel, addition, we service guidance continue assumptions inflationary provider year expenses throughout and we low in range. pressure labor, like operating updated fees, trends high expect for EPS full supplies diluted XXXX. single

planned expected to For QX modeling availability some equipment. QX, shift reflecting for of primarily expenses purposes, initially resources into are and

trend, a start, of to As quarter. uncertainties stronger and expect a to deliver remain. these is second growth In earnings but sales result shifts a we closing, off than XXXX now fiscal planned the great in initially

performance Our uncertainties topline global as updated outlook impact in later that and year. stronger the adversely and greater well spending reflects consumer pressures cost as could economic

While financial sales longer fiscal operating our and our are this at long-term we changing our are updated expectations comp margin, time. targets XXXX not for targets above term for

as through Given back limited rest the call move I'll session. and our environment to expected the we now and economic A into the turn Q& pressures the over into visibility to cost moderate operator And XXXX. our the year of

Operator

you. Instructions] we'll [Operator first comes this question-and-answer Siegel Capital of proceed line question. Thank your a be with Simeon from At question Please BMO with session. conducting Markets. the Our time,

Simeon Siegel

Congrats on see. the Thanks. everyone. results. Nice great to Hey

So, great comp.

any how ticket out going follow-up, then growth, guest lot. do unique forward? maybe you're you And within more given break know guys with average that, And uptick the ticket that Thanks are versus to just a from UPT? XX% broadly, visit growth, strong guest much about transaction frequency? you Within just could visits how in well a thinking AUR way you how then an

Scott Settersten

the Yes, question. for Simeon, thanks

units the essentially -- flat directly, answer units transaction to per year-over-year. So, were

of mix benefit the seeing over entered moderate we we're of last coupled here the with the from I'd the lot call assortment environment course of a again, continuation that what have the brands promotional overall, a the So, year.

been well. added and big talking about we've of OLAPLEX FENTY hitters the the know here names you some again, So, and We've recently. other

in making contribution -- So margin really again, the recent here big are our mix of a gross doing two quarters. to those

Simeon Siegel

transactions, the then versus frequency within just unique Thank you. visits? And

Scott Settersten

really that very this have at to are Again, with we in the rebound right. don't in anything point time. detail in see happy traffic, more store share We to Yes.

nice striving And and is planned growth always for. for transaction so healthy a what we're

we're super best-in-class deliver to bounce of stores the again, in and see so, specialty excited the omnichannel retail sure, that the making we And experience. back consumer

Simeon Siegel

again luck Congrats best great. Sounds and the year. for of of rest

Operator

from Korinne line Piper proceed of with Sandler. question. Please the Wolfmeyer comes question with your next Our

Korinne Wolfmeyer

Hi, good and afternoon the congrats on quarter.

first of in to impacting Prestige to on shift your So vice from more the all, are just I'd demand vice inflation of be you. Thank Mass parts current the Are versa, resilient sort and get and maybe that's like more so seeing early Prestige in be of here QX? environment you how here Mass consumers versa? thoughts thoughts maybe any or or you any maybe or would than helpful? Just seeing

Dave Kimbell

-- both environment, Yes. the guests. remarks, to we're Scott watching is I And Great carefully, we the said as certainly our as question. yes, we're one that inflationary staying and in and close

huge seeing So we're not through and far, guests managing it are impacts. our

makeup. script, as performed I the prestige mentioned a in mass higher makeup fact, In bit than

results we're So strong our portfolio. seeing across

fragrance. haven't experienced unique bath from assortment, and can mass we skin care we price our makeup is is the all We identify. And that to behavior meaningful it's one hair could feel breadth all we prestige, of model and things the categories, that of core our -- points, to care, trade and down

us allowed to obviously business, able pleased consumers' being seeing adjust for we're all to disruption the to with. manage when been adapt really as marketplace. and needs through we're evolve any a true we're time of adjusts. our now, so in also and strength has and adapt, aspects our adjust across And which right But if to long and behavior prepared consumer But model

Korinne Wolfmeyer

and particularly any value Ulta? Target Are Ulta being to like two? shops? any the in how the quickly also, traffic just And And shop-in-shops to and in big out then you seeing then How you'd ask like doing. the there between difference I'd successful in in are on versus they're call key versus that shop-in-shops brands is Target Target like different Target ticket are

Kecia Steelman

I really will one. overall that What Target. we're that, say the partnership take with I'll Yes, is with pleased

XX As share campaign that Dave Days to mentioned, from say just co-created in-store with to continue more now. we that we digital performance. and Beauty, as our pleased we would brand-relevant scale I right during will grow more of

As as Rewards a track When XXX member like what we've seeing on that they're but of with very engaged what in Program, this we're get them of We're year, is stores that existing Ultimate got our stores are we open see. today. open to similar loyalty members. our XXX we behaving today, plus we to

far Ulta Beauty our sales. works the brands partners as owns As really the partners, with Target the but assortment, brand with go, on etcetera, closely

comment we're sales-specific brand not So, to the at liberty on by this performance at time.

Korinne Wolfmeyer

Thank you.

Operator

And our your James. with Olivia the Tong with comes next Raymond from line question of Please proceed question.

Olivia Tong

front view accounted, first of earlier your from anticipated. like and is to comments, obviously, makeup larger. recovery of opportunity just in My significantly makeup the you contrast is question progressing your than recovery you. The of around faster -- in compare the Thank you, and and that the emergence prestige is had terms care hair

drive Thank second keep think that talk place the half year have And you of I to about in about to then the you. follow-up. a little bit a acceleration, As plans could continuing you the going? and

Dave Kimbell

recover for the Yes, thanks than Well, Great. anticipated faster makeup the year. Olivia. coming question, we had into did

out, by You all part in driven has we're evidenced category, the pandemic engagement, people enthusiasm -- haven't in the excitement, wear social of that of then, in it while. social the media, just as by more category go and into overall opportunities to on as know And elevated high, engagement the things segment we've to some for remained person. And and opportunities the pandemic. so going an that's hardest the been that It we've hit excited more occasions, soft the talking more see arguably back numerous. in to just going makeup to been working during work for beauty was makeup recovering, somewhat been we're the was a the about, makeup

same coming the -- the in -- are get long looks, that makeup, high time, glitter, a world At is see up innovation, by discovered up, time being glam, opens We're of up, balancing missed younger excited as who are same engagement. new brow wear we're looks. long that in contouring that dynamics trend and look bold and consumers towards requires of about, continuing. is a some level that's more in opportunity, of to that world more lip we're a in started the people the seeing first around around, it we're -- the definitely natural push those. definitely opens that There's lip wear shown ready are to both So bright, that's is the as consumers a the trends makeup out pandemic

we're and our then assortment, then NARS like category. both So big and And side. on Fenty, adding Chanel, from side, highlights well, the e.l.f. two total about MELÉ, on been we're quite the on of R.E.M., key has lots prestige excited brands through what performing innovation really prestige, NYX and are in the seeing Coco, mass mass the Ulta, MAC,

lot quarter. have came on in things that getting a we're in a been the really we a the innovation, and all driving together of creativity, way lot working So of towards nice

go. exactly going out, of will half more more year, hard going to people comfortable fact, on the time over pre-pandemic recovery. as exist, like So a with people how the first the and the second makeup in behavior But pandemic. forward opportunities pipeline we're for predict as look results continued strong was we in It's are work, the confident. to of to more innovation, more back in And to is QX way so we XXXX coupled its the results, full feel up consumer

we're to seeing that So to and continue excited drive forward. what about looking

Olivia Tong

margin still outlook? of on leverage you're we an takes down. much year prior with obviously expecting a gross bit down, and the much. to you expectations, about on you versus of And costs better maybe probably Thanks associated costs about be think relative so thought. the start gross But said you process are little material same obviously now, terms sales some And through the the to puts It like your than that was as talk level? could there, you as Great. year. thought your earlier granularity the to of it margin, then, being gross margin course, improvement But mix is improved and a in progress

Scott Settersten

Yes.

start quarter here kind of some is margin. background the the a first great we the really So got driving in of gross

you what to as but for initial than the year. So, down our less expect was it down, we still plan be said,

there'll we we we deeper the year, get than generally and So, Again, have to but play expecting promotional brand we the the equation much some think chain of the see about piece play this quarter, the come being of that of expected half year. higher are this We And the that a into at year especially around the We're same the so costs, higher then supply Again, we expected. talked cost seeing we from of during headwind didn't as fuel, normalize be in be variables into more first as environment more back costs. to headwind still there. will year. year. -- We well. we that mix

and And overall, feel strong good always place. optimizing we're So, if I sales in business on the like focused overall. stay we're a

to results. So, deliver helping great

Olivia Tong

luck rest the best of for Great. the year. Congrats and of

Operator

comes next from question the line Jefferies. of our Steph And with Wissink

Steph Wissink

tracked just a chase have have Good in if you on wondering feels question to sheet strange you you. I I'm inventory. Thank in momentum that how you to agreements remarks if middle a about the P&L? bit those clarification. talked marketing. in enough Could the the to talk affects do prepared you little the not vendor and everyone. understand to like feel just of work, just the you accounting terms but just the Media? with bit about complexion you the the walk afternoon the through UB balance I inventory, persists how your ask, of a of really little offset can I'm it on bit a quick sure Dave,

Scott Settersten

That's for That's Steph. me, two fair. not

Okay.

first we'll up So, the on inventory. go

doing like up the to we easy an the here, place. So, planning the on really the teams Again, right with are and job again, vendor posting in good a teams, teams results inventory we're We chain we're product working in merchants, the but XX% year-over-year. get hard partners, supply position. excellent it's our it based our looks make feel right the sure

year. back last little feeling Things are bit And of what good. from bounced fill kind We're to better. mid have late so we a saw rates

expect on year where growth new to We the again, we get So, inventory. take year year do the we to more focused again, further there. and brands as we can this high the on SKUs, aggressive last of velocity advantage rate, that into will make get sure moderate some anniversarying start we steps took

good feel that we the room. then UB one that. the for Media, accounting judgment for always in more investment so And suggests accountants if on the this So, one would we again, that's the make again confident place

last So, marketing a again, We've smaller the again, explained always guess, partner vendor, program place, would in I scale, year, this had been we in that I say. doing we've this. the

difference accounting the historically, of vendor gross of the And our line so piece we're this the it. costs all The vendor in the SG&A by with is in gross the large, hope gross year, okay, I line the money line. was rolls and line accounting flowing that so margin through and all incremental through line advertising of the the kind speak. offset in to the helps. margin margin the -- cost residual And to income able

Steph Wissink

I Thank always. does. as think you. Helpful it

Scott Settersten

Thanks.

Operator

Kate from McShane proceed line And from with Please next Goldman comes question the question. of our your Sachs.

Kate McShane

for questions. taking Hi, good afternoon. Thanks our

a quick Just from us. one

yourself further points you are in differentiate increasing mentioned that? how to to roll those you continue points of Just prestige, out? light how sales just looking you are of competitive the environment viewing And as

Dave Kimbell

it's years engaging. years competitive category attractive. been and for for highly beauty the and about – time at long for We attractive now, It's a and time. is before I've Yes. the whole hypercompetitive been been growing. X.X that. has It's It's Ulta here

certainly, for dynamic our true the the partnership particularly We're at competitive in prestige of part and new on our a new now. side, been of own up Target. that's stores with that while. seeing So locations, opening the And it's same we're time

the quarter in about environment, share on. even What a And meaningful in even the in model. So, there Prestige the that of to we're we the first our competitive some that locations, of excited fact think is going is strength and proud reflection I continue shift it's with of category. hundreds gain new of

assortment in mass, of the We category. that consumers nobody that shop way an marketplace. and environment prestige, across human an offers experienced are across highly that then points, emotional else And buy reflects most the consumers want combination that an have unique The in price in looking this importantly, categories. to something connection beauty, for reflects the

All stands unique deliver our that special. unique in marketplace helps our day the team of our experience every to that drive What and experience market a our share. research and out drive does business is and suggests us our

we're we're the enthusiasts add journey. do continue is add services experience we business, beauty know You we of which all what innovation to our of the aspects we and aspects digital loyalty offense. -- through best, all all like bring We're leading in that beauty and a in how doing engagement great through and drive with playing to feel

results growth, that, the the going member our continue so, It's we're results, out And loyalty, continue of if quarter, confident we momentum that's had our to we we 'XX the our that had -- share feel show in our strong and in in results. forward. fiscal reflected in up coming it's plan to do first going we to in

strategy when results and For excellence. follow our us, with going focused always on forward. that our we've do be the strategy, plan And our executing will that, been we

Kate McShane

you. Thank

Operator

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

Daniel Hofkin

Good afternoon.

regarding Ulta themselves, a the of of whether overall commented of in couple this, rest question And ulta.com? to but obviously at traffic the if Target years? you comp on stores over say this kind and that sales, form impact or partnership. it's of the the next how expect Just the to having stores nearby Target their know contribution but yet evolve a on then not measurable additional can specifically you I quick don't you year

Kecia Steelman

Yes. distribution, that that, I to out time, over of mentioned happen just opened that initial other XXX We've our But of points any own our We've that this meaningful impact there's into we yet. Beauty is factored do what of Dave dissipates as our mentioned points time, Dan, as with pattern happens. have We open. or see Ulta cannibalization an earlier, it's would that similar locations. including whenever stores, expect expectations. natural office are got we've about see I new and we say there's today Target here stores, that do we Beauty distribution, not a

case. we've stores, But to hold the far so is, we'll out So, if roll seen continues that more as we that see continue to what to -- true. we be seems

Daniel Hofkin

quarter categories call minus? you parts And obviously, think as that among the regions then or or just Okay, the, just, out might overall results, great. any stellar differentiation about of you or plus

Dave Kimbell

about might say. all see few we're categories, I One, already. we that A makeup Yes. of really in detail things I our that pleased strength major on across categories. talked

drive drive prestige, continue business. so innovation the But And and haircare, of and a continues improved. lot sun important drive to care, that's that some an brands, newness, hair It brands, existing two as talked script engagement brands that the strong deliver was of like skincare in that years, great tools strong the been exclusive driving across as growth, our driving on improvement see to star and care time, last the on newness results. same through incremental results, throughout growth. of about a to on which well continues shining our at wellness innovation has I into growth. Eilish, to encouraging Fragrance, drivers expansion Billie

again, and by So category in the the board. healthy engagement across very performance in essentially over the with our get coming that desire line the performance, years Channel back back in-person, e-commerce driven traffic and our our last salon in business results stores was business shopping expectation strong. in and after both, to we've to and but growth strong all seen flat couple was of have

was the were Through month started But strongest first or two the of gates our as of of the So of stimulus. quarter the strong performing quarter came kind channels then we and lapping first the as expectations. period, our months the itself, the are of well the quarter ahead so well and other well. out

business a that aspects around well-rounded So contributing of to have. we delivery our all the results of performance with

Daniel Hofkin

terms in of regionally either you or And would call demographic anything differences? customer out then

Dave Kimbell

of suburbs, urban, of No about like to saw that region. strong types New smaller our from all and rural, and works we I the L.A. Big our York to really board. geographies. things cities model we is, single-store mean, across in one model the markets, remote performance Chicago different

of levels as region was well. that economic, base. a our as well, marketplace growth we there to this us distinctions income look is is And really working at we saw look real reflection, across we across or note. So consumer all when no then, And

to highest more our from income. strong moderate So growth income

are consumers, So to itself is, -- our category again, their well-rounded the sense there great think The and category occasions so many time, in strong We the growth. overall execution. Consumers more driving results and the to well-being. and more go we category think, shape, these the out. self-care same be more in of connected through proud to leading relevant, At engaged more are we're important is category. to our

Operator

your with line And Michael the from our Please UBS. next question. of with proceed comes question Lasser

Michael Lasser

cosmetics and that of would back and it imply care probably low be haircare the you're strength in given turn looking why a would category, case? macro conservative Thanks you in the And evening. lot mindful my half. the negative, the Understanding that Good uncertain skin be for taking question. to single-digit comps to get the environment,

Scott Settersten

looking warning signs I indicated, all I bit a up Yes, Michael, and now. flashing to right would guess all all world considered, things at the and talk the that uncertainty seem just it like we be the prudent being

the XXXX. the So, on first benefit what the no performance took for really what of we plan the half initial outlook into full again, strong our of second in bake didn't year there's year, based of -- and far half modify year was seen we've the our so that

time then we'll continue now, modify land that take think through right you of way of to for business is an then some the we that's our work the the to being. where we're seeing adjust expense pressures that year. as and you place across And the rest so it we And the for appropriate and

Michael Lasser

rise it, to Thank is you haven't the an how half in be you're have for catalyst -- the much promotions still but you going you're is that expecting promotions And come to you. spark back. year? back for My much Scott. factored seen very of question in What follow-up the promotions? you still that thank to in in increasing

Dave Kimbell

about results any get environment we factor the and -- competitive, there's manage behavior. outstanding of I'd drive reduce way. over our is from our that promotion elements highly time, we've many talked on as for able is on continue won't a specific we We to uncertainty What say in. that -- ahead specific of a lots long-term environment. discounts is what calls, Well, the we what said nonstrategic drive at dynamic, but and to their like journey connection efforts to on we business. short-term know to just promotions not through and been smart, probably to ways through consumer what strategic while are CRM-enabled, personalization, about, to in focus promotions higher these is we've been a We've But broad-scale engagement, highly Ulta a to got loyalty, aware relevant, also that We've higher as well Beauty in strategic first higher of do competitive looking we're able efforts competitors we quarter. that's this are

We respond not we'll appropriately. will share, lose

tools we're had competitive we lead to that to CRM with environment, beauty than We through capabilities and going with that more are prepared leading Ulta have enthusiasts But Beauty. behavior, we've ensure to the to uncertainty we're but sure them to ever engaging going not appropriately We're to drive around make also market. we our react. our are promotional personalization inflation, consumer intensity,

Michael Lasser

luck. Good

Operator

proceed line from your Morgan And comes question Please of Gutman with our Simeon question. the next with Stanley.

Simeon Gutman

I'm and question everyone. to ask follow-up. going my Hey

So, kindly question margin. first is call. the next welcome me My on back to the

back you're is I'm the changed? interpreting in anything could the the hair using Given but right, it, when to Scott, when that you. mean been changing compare? that comment And if year-over-year? be the does mixing You're been Thank the have ex-reserve you it that then else like keeping sales then have adjustments follow-up up positive? And a care made up, seems modeled sounds adjustments, that is way shouldn't against margin what It if the half? you just what ex-reserve

Scott Settersten

here. sounds Simeon, questions, give I'll a actually. swing That three like But

real So gets kind overall has it I here been haircare business, mix contributor would yes, recently. a the Again, the of for to back say. brand

higher house, haircare, was this adjustments while than generally of been that's compare necessarily doesn't margin mix so overall. When year. here the tougher metrics last driving some it is the year follow So, was recently, about speaking we're inventory, same favorable that added talking the the

housekeeping, off inventories, So some were later exited some we the in in XXXX, again, brands last closed year, late We call I'd probably coming some right? stores. We cleaner year. what

from which some tougher year, got So, last we that benefit makes a compare. book it

fixed the as what As drive changed, the cost helping leverage far strong it's sales, start. year. here the for a overall, strong of the again, lot guidance Obviously,

that the something in to those was was to first pop redemptions that plan back come in see unexpected program For revenue, and see the loyalty really quarter. card way it wasn't the and benefit here the credit the

we're that So the remarks. planning costs are chain, across again, areas, continue mentioned as increasing that more throughout We've in got but seeing other for of we're too, operating we in to prepared our business, in supply year. the specifically

feathered we second as So year. about that's the been the of half think in

think to a take like the are we're outlook going it's out careful a kind looking ahead right Again, in covered. more the that feel We feel second got of we the there we’re year, the considering thoughtful, like of and now. half again, good we prudent So position. all as uncertainties we've approach variables all to

Simeon Gutman

Thank you, much. very

Kiley Rawlins

I please. question, X we'll think take John, more

Operator

Binetti Suisse. Okay. Michael line And from your Credit of with with question. the Please comes question final our proceed

Michael Binetti

on be margin wonder basis back onetime here. it the, few or in if us is up hundred guess like versus follow-up some of on been items guidance that, there out XQ Scott, I of into XQ XXXX. SG&A if great of any mentioned, seasonality the there's in about SG&A just And puts appreciate out the kind thanks I that I pre-COVID the it on And detail a right Hey takes was the you I XQ to have profit of down it. of XQ is But about comps in to in leveling expenses as a looks the you is, if that it would it on in XX% up SG&A store more metric questions SG&A? XQ, guess underspend in could think or as like mid-XXs. XQ, basis line in Congrats noise the the know move gave for earlier, we gross at versus and than gross suggests through margin, that quarter, the answered. I I per at a as some me think magnitude led look about lot that a couple in the A look and we points you guys. laid SG&A, for all direct much that you to... our normal

Scott Settersten

year-over-year being rather from more is how and So no of look at expense call, on that process a overall. extraordinary comes I really change. and around a that comments scale what the around SG&A, marketing is and from the a there. because call significant onetime change nothing. going back There's the there's would items voting Again, UB go treated to in I'd kind our larger that small-scale Media operation formalized

called the second would continue that and for to the we ago did when variability we again, the So same there that benefit early you first Again, rest an quarter the range we're that providing out of of we versus gross the it's a there going we in Then accounting a some I in the change obviously, that and think back in the year about comparison. expectation. significant year-over-year, point in year. year, to the half, still is to margin guided that's talking and pretty changing --

quarter year, what to that promotional expect which moderate than more aggressive we in back the the the saw to environment not first our again, get So, year. half slightly was we better ago, year of plan was a for and

with So brand that's along the baked mix. in there,

year that of mix brand our benefit some as the into well. get worked kind to we quarter. first think moderate again, of will as in the further We So,

Michael Binetti

a everyone. great. lot Thanks Okay,

Operator

you. Thank

We Kimbell to the turn I for to of end question-and-answer Dave closing now And have back call like the remarks. session. reached over any the would

Dave Kimbell

our start, to at when speaking you our other the The again. Well, Great. our to off Ulta team each thank forward. business have great joining to the support today. I all to you Okay. you year thank a to results. quarter and great hope I forward entire a while want moving for Thanks, their efforts look all and Beauty us of is end guests for again second evening. We August report we collective all

Operator

This concludes today's conference.

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

Ulta Beauty (ULTA) 26 May 222022 Q1 Earnings call transcript