Q1 2024 Ulta Beauty Inc Earnings Call
Operator: Good afternoon, and welcome to Ulta Beauty's conference call to discuss results for the company's first quarter 2024 earnings results. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. We ask that you please limit yourself to one question and then re-enter the queue for any additional questions.
Good afternoon, and welcome to Ulta Beauty's conference call to discuss results for the Ulta Beauty's first quarter 'twenty 'twenty four earnings feedstocks.
Speaker Change: At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. We ask that you. Please limit yourself to one question and then reenter the queue for any additional questions. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Ms. Kylie Rawlins, Vice President of Investment Relations. Ms. Rawlins, please proceed.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: Now my pleasure to introduce MS Kiley, Rawlins, Vice President of Investor Relations. Mr. <unk>. Please proceed.
Kiley F. Rawlins: Thank you for joining us for a discussion of Ulta Beauty's results for the first quarter of fiscal 2024. Hosting our call today are Dave Kimbell, Chief Executive Officer, and Paula Oyibo, Chief Financial Officer. Kecia Steelman, President and Chief Operating Officer, will join us for the Q&A session.
Sherry: Thank you Sherry and good afternoon, everyone and thank you for joining us for a discussion of Ulta Beauty's adult for the first quarter of fiscal 'twenty 'twenty for hosting our call today are Dave Kimbell, Chief Executive Officer, and Paolo <unk>, Chief Financial Officer, Keisha, Spielmann, President and Chief operating officer will join us for the Q&A session.
Kiley F. Rawlins: Before we begin, I'd like to remind you of the company's Safe Harbor language. The statements contained in this conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those projected in such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC.
Speaker Change: Before we begin I'd like to remind you of the company's Safe Harbor language. The statements contained in this conference call, which are not historical facts may be deemed to be account to constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Speaker Change: Actual future results may differ materially from those projected in such statements due to a number of risks and uncertainties all of which are described in the company's filings with the SEC.
Kiley F. Rawlins: We caution you not to place undue reliance on these forward-looking statements, which speak only as of today, May 30, 2024. We have no obligation to update or revise our forward-looking statements, except as required by law, and you should not expect us to do so. Now I'll turn the call over to Dave. Dave?
Speaker Change: We caution you not to place undue reliance on these forward looking statements, which speak only as of today may 30th 'twenty 'twenty four we have no obligation to update or revise our forward looking statements, except as required by law and you should not expect us to do so.
Speaker Change: Now I'll turn the call over to day date. Thank.
David C. Kimbell: Thank you, Kylie, and good afternoon, everyone. We appreciate your interest in Ulta Beauty. For the first quarter, net sales increased 3.5% to $2.7 billion, and comp sales grew 1.6%. Operating profit was 14.7% of sales, and diluted EPS was $6.47 per share.
Speaker Change: Thank you Kiley and good afternoon, everyone. We appreciate your interest in Ulta beauty.
Speaker Change: For the first quarter net sales increased three 5% to $2 7 billion and comp sales grew one 6%.
Speaker Change: Operating profit was 14, 7% of sales and diluted EPS was $6 47 per share.
David C. Kimbell: We expected comp growth this quarter to be in the low single-digit range as we lagged strong performance last year. I am proud of how our teams adjusted our go-to-market activity to adapt to a rapidly evolving marketplace. Thoughtfully managed expenses across the enterprise and, importantly, continue to execute our transformational agenda with excellence. As we look forward to the rest of the year, we believe it is prudent to anticipate a continuation of the dynamic environment we experienced in the first quarter, and therefore, we have adjusted our expectations for the remainder of the year. Paula will give more detail on these revisions later in her preparation group comments.
Speaker Change: We expected comp growth this quarter would be in the low single digit range as we lapped strong performance last year I am proud of how our teams adjusted our go to market activity to adapt to a rapidly evolving marketplace.
Speaker Change: Fully managed expenses across the enterprise and importantly continued to execute our transformational agenda with excellence.
Speaker Change: As we look forward to the rest of the year. We believe it is prudent to anticipate a continuation of the dynamic environment, we experienced in the first quarter and therefore have adjusted our expectations for the remainder of the year.
Speaker Change: Paula will give more detail on these revisions later in her prepared comments.
David C. Kimbell: Before we talk about the quarter, I want to emphasize a few important points. First, we are confident in our model and our ability to gain, share, and drive significant sustainable value over the long term. The actions we have taken and investments we have made over the past few years have fortified our operating foundation, and we are a stronger, more profitable company today than we were just a few years ago. And we have an outstanding team that knows how to execute and deliver profitably, and they do so every day with focus, passion, and determination.
Speaker Change: Before we talk about the quarter I wanted to emphasize a few important points.
Speaker Change: First we are confident in our model and our ability to gain share and drive significant sustainable value over the long term.
Speaker Change: The actions, we have taken and investments we have made over the past few years have fortified our operating foundation and we are a stronger more profitable company today than we were just a few years ago.
Speaker Change: And we have an outstanding team that knows how to execute and deliver profitably and they are doing so every day with focus passion and determination.
David C. Kimbell: However, we are not satisfied with our market share trends, and we are taking actions to reinforce our leadership position and accelerate growth. For more than 30 years, Ulta Beauty has disrupted the beauty industry by bringing mass brands, prestige brands, luxury brands, and services together in an accessible, fun shopping environment.
Speaker Change: However, we are not satisfied with our market share trends and we are taking actions to reinforce our leadership position and accelerate growth.
For more than 30 years, Ulta beauty has disrupted the beauty industry by bringing mass brands prestige brands luxury brands and services together in an accessible fun shopping environment.
David C. Kimbell: This differentiated strategy, combined with welcoming and inclusive guest experiences, has enabled us to shape consumer expectations and drive profitable growth. Today, we operate nearly 1,400 stores and manage a multi-billion dollar digital business, providing guests with unique opportunities to play, discover, and try beauty. With warm and authentic experiences, our passionate associates are creating strong emotional connections with our guests and helping them discover beauty on their own terms.
Speaker Change: This differentiated strategy combined with welcoming and inclusive guest experiences has enabled us to shape consumer expectations and drive profitable growth.
Speaker Change: Today, we operate nearly 1400 stores and manage a multibillion dollar digital business, providing guests with unique opportunities to play discover and try beauty.
Speaker Change: With warm and authentic experiences are passionate associates are creating strong emotional connections with our guests and helping them discover beauty on their own terms.
David C. Kimbell: We've created a world-class loyalty program that engages with more than 43 million active members and provides us with valuable customer and transaction data. And we've expanded our differentiated assortment and built strong strategic partnerships with large and emerging brands around the world. We operate in a healthy, growing category.
Speaker Change: We created a world class loyalty program that engages with more than 43 million active members and provides us with valuable customer and transaction data.
Speaker Change: And we've expanded our differentiated assortment and build strong strategic partnerships with large and emerging brands around the world.
Speaker Change: We operate in a healthy growing category, while growth is moderating as expected after three years of unprecedented expansion.
David C. Kimbell: While growth is moderating, as expected after three years of unprecedented expansion, and competitive intensity is increasing, we have a powerful operating model, excellent brand partnerships, and I believe the impact of our winning culture and outstanding teams will enable us to protect and expand our leadership position. In the first quarter, we strengthened our market position in several areas. Consumer awareness and brand love for Ulta Beauty continues to increase. Our marketing amplification of key brand launches, elevation of our tentpole events, and culturally relevant social activation delivered four points of improvement in unaided brand awareness this quarter, driven primarily by key growth cohorts.
Speaker Change: Competitive intensity is increasing we have a powerful operating model excellent brand partnerships and I believe the impact of our winning culture and outstanding teams will enable us to protect and expand our leadership position.
In the first quarter, we strengthened our market position in several areas.
Speaker Change: Consumer awareness and brand love for Ulta Beauty continues to increase our marketing amplification of key brand launches elevation of our tentpole events in culturally relevant social activation delivered four points of improvement in unaided brand awareness this quarter, driven primarily by key growth cohorts.
David C. Kimbell: Trust for our expertise, welcoming guest experiences, a diverse assortment, and efforts to increase convenience through multiple touchpoints drove our brand beloved metric to record levels, with strong gains among both Gen Z and baby boomers, which demonstrates the broad appeal of our model. Newness is resonating with our guests.
Speaker Change: Trust for our expertise welcoming guest experiences a diverse assortment and efforts to increase convenience through multiple touch points drove our brand beloved metric to record levels with strong gains among both Gen Z and baby boomers, which demonstrates the broad appeal of our model.
Speaker Change: Newness is resonating with our guests recent brand launches, including Sol de Janeiro, Charlotte Tilbury and exclusive brands win by Serena Williams and Kylie Jenner fragrance are driving sales new member acquisition and member Reengagement.
David C. Kimbell: Recent brand launches, including Sol de Janeiro, Charlotte Tilbury, and exclusive brands Wynn by Serena Williams and Kylie Jenner Fragrance are driving sales, new member acquisition, and member re-engagement. We deliver traffic growth in both our store and digital channels. We increased marketing investments across TV, audio, and social platforms to maximize our brand launches, support our semi-annual beauty and spring haul tent pole events, and amplify our brand equity with the Joy Project. These strategic media investments drove higher traffic across our web and app platforms and increased traffic growth per store, even as we lapped strong double-digit growth last year.
Speaker Change: We delivered traffic growth in both our store and digital channels, we increased marketing investments across T D audio and social platforms to maximize our brand launches support our semiannual beauty beauty and spring haul tent pole events and amplify our brand equity with the joint project.
Speaker Change: These strategic media investments drove higher traffic across our web and app platforms and increased traffic growth per store, even as we lapped strong double digit growth last year.
David C. Kimbell: A world-class loyalty program expanded again this quarter, with the retention of our most valuable members remaining very strong. We ended the quarter with 43.6 million Ulta Beauty Rewards members, 6% higher than last year, primarily driven by member retention.
Speaker Change: Our World Class loyalty program expanded again this quarter with the retention of our most valuable members remains very strong.
Speaker Change: We ended the quarter with 43.6 million Ulta beauty rewards members, 6% higher than last year, primarily driven by member retention.
David C. Kimbell: Additionally, we continue to acquire new members and re-engage LAPS members. Targeted marketing efforts are elevating more members to our Platinum and Diamond tiers, and exclusive promotions, point accelerators, and personalized content are driving engagement and retention of these valuable members. Additionally, our new store portfolio continues to perform well. During the quarter, we opened 12 stores, seven more than last year, and their performance exceeded our expectations.
Speaker Change: Additionally, we continued to acquire new members and Reengage lapsed members.
Speaker Change: Targeted marketing efforts are elevating more members to our platinum and diamond tiers and exclusive promotions point accelerators and personalized contents are driving engagement and retention of these valuable members.
Speaker Change: Our new store portfolio continues to perform well during the quarter. We opened 12 stores seven more than last year and their performance exceeded our expectations.
David C. Kimbell: Our associate retention has improved across stores, distribution centers, and our corporate team. And we are on track to complete critical elements of our transformational agenda this year, giving us a stronger foundation for future growth. Our teams are operating at a high level as we execute these transitions, and it is worth noting that they delivered several significant operational milestones this quarter. First, we successfully completed the final phase of our digital store transition and are on track to decommission the legacy platform in the second quarter.
Speaker Change: Our associate retention has improved across stores distribution centers and our corporate teams.
And we are on track to complete critical elements of our transformational agenda. This year, given us a stronger foundation for future growth.
Speaker Change: Our teams are operating at a high level as we execute these transitions and it is worth noting that they delivered several significant operational milestones this quarter.
Speaker Change: First we successfully completed the final phase of our digital store transition and are on track to decommission the legacy platform in the second quarter.
David C. Kimbell: Second, we completed an important phase of Project SOAR with the successful transition of our Dallas, Greenwood, and Fresno distribution centers to our new ERP system. Now, all of our primary distribution centers are operating on the same platform.
Speaker Change: Second we completed an important phase of projects store with a successful transition of our Dallas Greenwood and Fresno distribution centers to our new ERP system.
Speaker Change: Now all of our primary distribution centers are operating on the same platform.
David C. Kimbell: Third, we began the process of migrating stores to our new ERP system, and I am pleased to share that we have completed the transition in 30% of our fleet. The benefits include an upgrade of a key digital application to provide our store teams with a guided user experience, enhanced reporting to support inventory management, and increased visibility to product information to elevate the guest experience. Beauty is a competitive category, and our success reflects the differentiation we provide in the market and our effectiveness in creating meaningful and enduring guest connections. These strengths have enabled us to outperform the market, especially during the pandemic recovery.
Speaker Change: Third we began the process of migrating stores to our new ERP system and I am pleased to share that we have completed the transition and 30% of our fleet.
Speaker Change: The benefits include an upgrade of our key digital application to provide our store teams with a guided user experience enhanced reporting to support inventory management and increased visibility to product information to elevate the guest experience.
Speaker Change: Beauty is a competitive category and our success reflects the differentiation, we provide in the market and our effectiveness and creating meaningful and enduring guest connections.
Speaker Change: These strengths have enabled us to outperform the market and especially through the pandemic recovery. According.
David C. Kimbell: According to Circona data, between 2019 and 2023, Ulta Beauty expanded its share of both prestige and mass beauty significantly. More recently, the strength of the beauty category combined with an attractive margin profile has drawn significant and diverse competition to the category. Today, there are significantly more places to buy beauty, especially prestige beauty, with more than 1,000 new points of distribution opened in the last two years. Additionally, Prestige Brands are expanding their online availability as digital penetration grows in the category. As a result, our market share has been more challenged for the last few quarters, particularly within the prestige beauty category.
Speaker Change: According to sarcoma data between 2019, and 2023 Ulta beauty expanded its share of both prestige and mass beauty significantly.
Speaker Change: More recently the strength of the beauty category combined with an attractive margin profile has drawn significant and diverse competition to the category.
Speaker Change: Today, there are significantly more places to buy beauty, especially prestige beauty with more than 1000, new points of distribution opened within the last two years. Additionally.
Speaker Change: Additionally, prestige brands are expanding their online availability has digital penetration grows in the category.
Speaker Change: As a result, our market share has been more challenged for the last few quarters, particularly within the prestige beauty category.
David C. Kimbell: Using the consumer lens of how guests experience Ulta Beauty through all of our touch points, we estimate we maintained our share of the total U.S. beauty product industry this quarter. Based on Circana data for the 13 weeks ended May 5, 2024, we outpaced the growth of the mass market but lost share in prestige beauty, primarily driven by pressure in makeup and hair. This prestige share pressure was concentrated in stores as we increased share in Ecom for the quarter. Given our proven ability to engage our guests and lead the industry, I am confident we can reinvigorate market share gains.
Speaker Change: Using the consumer lens of how guests experience Ulta beauty through all of our touch points. We estimate we maintained our share of the total U S beauty product industry this quarter.
Speaker Change: Just answer Kana data for the 13 weeks ended May five 2024, we outpaced the growth of the mass market, but lost share in prestige beauty, primarily driven by pressure in makeup and hair.
Speaker Change: This prestige share pressure was concentrated in stores as we increased share in E com for the quarter.
Speaker Change: Given our proven ability to engage our guests and lead the industry I am confident we can reinvigorate market share gains.
David C. Kimbell: At our Analyst Day in October, we will share longer-term plans to drive shared growth, but today, I want to highlight actions we are taking now to leverage our traffic growth, increase conversion, and accelerate top-line growth. Our plans are focused on five key areas, strengthening our assortment, accelerating our social relevance, enhancing our digital experience, leveraging our world-class loyalty program, and evolving our promotional leverage, starting with our We are enhancing our assortment with the addition of highly recognized brands as well as emerging and exclusive brands.
Speaker Change: At our analyst day in October we will share longer term plans to drive share growth, but today I want to highlight actions. We are taking now to leverage our traffic growth increased conversion and accelerate top line growth.
Speaker Change: Our plans are focused on five key areas strengthening our assortment and accelerating our social relevance enhancing our digital experience leveraging our world class loyalty program and evolving our promotional levers.
Speaker Change: Starting with our assortment.
Speaker Change: We are enhancing our assortment with the addition of highly recognized brands as well as emerging and exclusive brands.
David C. Kimbell: This year, our brand pipeline includes more than 25 new brands, including many exclusive to Ulta Beauty. Importantly, this year's pipeline includes a balanced mix of category growth-driving brands like Sol de Janeiro and Charlotte Tilbury and Naturium and emerging exclusive brands like Whim, a makeup brand developed by Serena Williams, and Orabella, a fragrance brand developed by Bella Hadid.
Speaker Change: This year, our brand pipeline includes more than 25, new brands, including many exclusive to Ulta Beauty importantly, this year's pipeline includes a balanced mix of category growth driving brands like Sol de Janeiro, and Charlotte Tilbury and niche area and.
Speaker Change: And emerging exclusive brands like Wynn and makeup brand developed by Serena Williams and or Abella of fragrance brand developed by Bella Hadid.
David C. Kimbell: To support stronger growth of our core assortment, we plan to accelerate growth with key exclusive brands, including Polite Society, Lid Tinted, and Lola Bae, among others. We plan to expand key growth-driving brands into more stores, and we are excited to relaunch the Ulta Beauty collection this summer. Additionally, we intend to leverage our marketing and social capabilities to lean into emerging trends, amplify key growth brands, drive relevance and engagement, and activate new trend-focused events across all our channels. Social media is amplifying and accelerating beauty.
Speaker Change: To support stronger growth of our core assortment, we plan to accelerate growth with key exclusive brands, including polite society lid tinted in low levee among others, we plan to expand key growth driving brands into more stores and we are excited to relaunch the Ulta beauty collection. This summer.
Speaker Change: Additionally, we intend to leverage our marketing and social capabilities to lean into emerging trends amplify key growth brands and drive relevance and engagement and activate new trend focused events across all our channels.
Speaker Change: Social media is amplifying and accelerating beauty social relevance is the gateway to customer reach connection and engagement and relevance drive sales and loyalty.
David C. Kimbell: Social relevance is the gateway to customer reach, connection, and engagement, and relevance drives sales and loyalty. While we have increased our EMV and share voice across key platforms, including TikTok and Instagram, we see further opportunity to ensure we are at the heart of the social and cultural conversation for beauty. To accelerate our social relevance, we will scale our creator network, amplify brand networks and collaborations, and use our platforms to showcase our unique assortment.
Speaker Change: While we have increased our E M D and share of voice across key platforms, including Tictac in Instagram, we see further opportunity to ensure we are at the heart of the social and cultural conversation for beauty.
Speaker Change: To accelerate our social relevance, we will scale, our creator network amplified brand networks and collaborations and use our platforms to showcase our unique assortment.
David C. Kimbell: With the completion of our digital store transition, we are increasing our focus on leveraging new capabilities and optimizing the guest experience to accelerate traffic, drive conversion, and increase average tickets. We recently expanded our partnership with DoorDash with our launch on the DoorDash Marketplace, which extends our unique assortment to the more than 70 million active users of the DoorDash app. We will introduce new digital buying guides that amplify search engine optimization while providing guests with educational content, beauty tips, and product recommendations.
Speaker Change: With the completion of our digital store transition, we are increasing our focus on leveraging new capabilities and optimizing the guest experience to accelerate traffic drive conversion and increase average ticket.
Speaker Change: We recently expanded our partnership with door dash with our launch on door dash marketplace, with which extends our unique assortment to the more than 70 million active users of the door Dash app.
Speaker Change: We will introduce new digital buying guides that amplifies search engine optimization, while providing guests with educational content beauty tips and product recommendations we.
David C. Kimbell: We will improve the path to purchase through guided navigation and leverage new, innovative search capabilities to facilitate discovery. And we will accelerate app adoption through targeted communication and offers, as app users spend nearly two times more. In the first quarter, our app accounted for 57% of our e-commerce sales, up more than 450 basis points compared to last year. Our loyalty program is a powerful strategic asset, and we will lean into this platform to drive greater engagement and support top-line growth. Earlier this year, we rebranded the program to Ulta Beauty Reward.
Speaker Change: We will improve the path to purchase through guided navigation and leverage new innovative search capabilities to facilitate discovery and we will accelerate app adoption through targeted communication and offers as app users spend nearly two times more in.
Speaker Change: In the first quarter, our App accounted for 57% of our e-commerce sales up more than 450 basis points compared to last year.
Speaker Change: Our loyalty program is a powerful strategic asset and we will lean into this platform to drive greater engagement and support topline growth.
Earlier this year, we rebranded the program to Ulta beauty rewards enhance the birthday experience and launched a refreshed look in stores online and across social.
David C. Kimbell: Enhanced the birthday experience and launched a refreshed look in stores, online, and across social media. These improvements are driving greater awareness and deepening connections with our members. We have also introduced new mobile POS capabilities to engage existing members and drive new member acquisition, and we are testing new ways for guests to engage with loyalty benefits in store transactions. At the same time, we are leaning in to amplify the value of the program through member love events and social engagement.
Speaker Change: These improvements are driving greater awareness and deepen connections with our members.
Speaker Change: We have also introduced new mobile P O S capabilities to engage existing members and drive new member acquisition, and we are testing new ways for guests to engage with loyalty benefits in store transactions.
Speaker Change: At the same time, we are leaning in to amplify the value of the program through member love events, and social engagement and we are also testing new gamification platforms, creating new ways to engage with our program and Ulta beauty.
David C. Kimbell: And we are also testing new gamification platforms, creating new ways to engage with our program and Ulta Beauty. And later this year, we will activate new marketing technology that will advance our personalization efforts with our guests. Finally, we will continue to enhance our promotional events and strategies. We will evolve our unique temple events to drive basket and new member acquisition, increase our use of effective targeted offers while eliminating or shifting less promotional, less productive offers, and create new platforms and offers to excite and engage our guests.
Speaker Change: And later this year, we will activate new marketing technology that will advance our personalization efforts with our guests.
Speaker Change: Finally, we continue to enhance our promotional events and strategies, we will evolve our unique temporal events to drive basket and new member acquisition increase our use of effective targeted offers while eliminating our shifting less promotion less productive offers.
Speaker Change: And to create new platforms and offers to excite and engage our guests.
David C. Kimbell: In closing, we continue to expect the beauty category to grow in the mid-single-digit range this year, barring a major economic event. We are confident we have identified the right actions to deliver stronger revenue growth, and our associates are working together as one unified Ulta Beauty team to expand our leadership position and deliver engaging guest experiences across all our touch points. I look forward to sharing our progress with you throughout the year. Now, I will turn the call over to Paula for a discussion of the financial results. Paula?
Speaker Change: In closing we continue to expect the beauty category will grow in the mid single digit range. This year barring a major economic event.
Speaker Change: We are confident we are we have identified the right actions to deliver stronger revenue growth and our associates are working together as one unified Ulta beauty team to expand our leadership position and deliver engaging guest experiences across all our touch points.
Speaker Change: I look forward to sharing our progress with you throughout the year.
Speaker Change: And now I will turn the call over to Paula for a discussion of the financial results Paula.
Paula Oyibo: Thanks, Dave. And good afternoon, everyone.
Paula: Thanks, Dave and good afternoon, everyone and they shared our team responded to the dynamic operating environment with focus and financial discipline.
Paula: As a result, we delivered net income and diluted EPS in line with our internal expectations.
Paula: We are focused on reinforcing our leadership position and driving stronger performance.
Paula Oyibo: As Dave shared, our team responded to the dynamic operating environment with focus and financial discipline. As a result, we delivered net income and diluted EPS in line with our internal expectations. We are focused on reinforcing our leadership position and driving stronger performance, and while we believe our efforts will deliver results, we think it is prudent to expect that many of the pressures we identified and faced throughout the first quarter may continue for the balance of the year. Therefore, we have revised our annual guidance. I'll begin with a discussion of our first quarter results, followed by comments about our updated full year outlook.
Paula: And while we believe our efforts will deliberately built we think it is prudent to expect many of the pressure we identified throughout the first quarter may continue for the balance of the year and therefore have revised that annual guidance.
Paula: I'll begin with a discussion of our first quarter results.
Paula: My comment about our updated full year outlook.
Paula Oyibo: Net sales for the quarter increased 3.5%, driven by 1.6% growth in comp sales, plus the contribution from 36 net new stores opened since the first quarter last year and a $9 million increase in other revenue, primarily due to an increase in credit card income and growth in royalty income from our target partnership. Comp transactions for the quarter increased 1.3%, driven by traffic growth in stores and on our digital platform. Average ticket prices increased 0.3%.
Paula: Net sales for the quarter increased three 5% driven by one 6% growth in comp sales. The contribution from 30 to 36 net new stores opened since the first quarter last year and a $9 million increase in other revenue primarily due to an increase in credit card income and growth.
Paula: Any royalty income from our target partnership.
Paula: Comp transactions for the quarter increased one 3% driven by traffic in stores and on our digital platform.
Paula: Average ticket increased 3%.
Paula Oyibo: Looking at the cadence of sales throughout the quarter, comp sales in February decreased slightly as we lapped strong double-digit comps last year. Comp growth accelerated in March, reflecting the impact of our semi-annual beauty event and the benefit of the Easter ship. April twins were positive but softened compared to March, primarily reflecting the adverse impact of the Easter shift.
Paula: Looking at the cadence of sales throughout the quarter comp sales in February and decreased slightly as we lapped strong double digit comp last year.
Paula: <unk> accelerated in March reflecting the impact of our semi annual beauty event and the benefit of the Easter shift.
Paula: April trends were positive, but softened to care until March primarily reflecting the adverse impact of the Easter shifts.
Paula Oyibo: From a channel perspective, e-commerce sales increased in the high single-digit range. Sales from comparable stores were flat compared to last year, reflecting the expansion of brick-and-mortar distribution points and the lapping of strong comp growth last year. Turning to CompSales performance by category, fragrance delivered double-digit growth, driven by newness from existing brands and exciting brand launches, including Cosmic from Kylie Jenner, which is exclusive to Ulta Beauty. Additionally, Valentine's Day drove strong growth across both men's and women's fragrances.
Paula: From a channel perspective e-commerce sales increased in the high single digit range.
Paula: Sales from comp stores were flat compared to last year, reflecting the expansion of brick and mortar distribution points and the lapping of strong comp growth last year.
Paula: Tiny for comp sales performance by category for.
Paula: I went to deliver double digit growth driven by units from existing brands and exciting brand launches, including cognate from Kylie Jenner, which is exclusive to Ulta beauty. Additionally, Valentine's day drove strong growth across both men and women fragrances.
Paula Oyibo: The skin care category delivered mid-single-digit count growth this quarter, primarily driven by double-digit growth in body care and mass skin care, which was partially offset by a decline in prestige skin care. The strong performance of body care was driven primarily by the launch of Full Days in Arrow and the expansion of key emerging brands into additional Ulta Beauty stores. The growth of mass skincare was primarily due to strong engagement with our dermatologist-recommended platform, as well as the expansion of in-store presentations of select emerging brands.
Paula: The skincare category delivered mid single digit comp growth this quarter, primarily driven by double digit growth in body care and mass skincare, which was partially offset by a decline in prestige skincare.
Paula: The strong performance of body here was driven primarily by the launch of all day Tomorrow and the expansion of key emerging brands into additional Ulta beauty stores.
Paula: Growth of landscape here was primarily due to strong engagement.
Paula: Mythologies recommended platform as well as the expansion of in store presentation of select emerging brand.
Paula Oyibo: Our perceived business was challenged this quarter, reflecting the impact of increased distribution for key brands, timing shifts of product movements, and the lapping of the impact of strong social media engagement with certain brands last year. Caretare top sales increased to a low single-digit range, primarily due to newness in Caretare. The Inclusion of Prestige Hair Care in a Semi-Annual Beauty Event and High Engagement with Mass Hair Care Products During a Spring and
Our prestige business was challenged this quarter, reflecting the impact of increased distribution for key bindings timing shifts of product units and the lapping of the impact of strong social media engagement with certain clients last year.
Paula: Cherokee and comp sales increased to low single digit range, primarily due to net wound care tool the inclusion of prestige hair care and our semi annual media event and high engagement with mass hair care products during our spring policy.
Paula Oyibo: Make-up comp sales decreased to the mid-single-digit range. While new brands and guest engagements with our luxury platform were strong, this growth was more than offset by sales decreases from brands that experienced extraordinary growth last year, newness from existing brands that did not meet expectations, and increased points of distribution. In addition, sales of the Ulta Beauty collection were impacted by planned markdowns as we prepare to relaunch the brand this summer.
Paula: Make a comp sales decrease to mid single digit range, while new brands and gas engagements with our luxury platform was strong. This wealth was more than offset by sales decreases from brands that exploring extraordinary growth last year.
Paula: Unit from existing brands that did not meet expectations and increase points of distribution and.
Paula: In addition sales of the Ulta beauty collection were impacted by planned markdowns as we prepared to relaunch the brand this summer.
Paula Oyibo: And finally, the strength of our services business continued with high single-digit comp growth in the quarter, driven by increases in hair treatment, specialty services, including ear piercing, brow, and makeup, and core salon cut and color services. For the quarter, growth margin decreased 80 basis points to 39.2% compared to 40% last year. This decrease was primarily due to lower merchandise margins and higher inventory strength, which were partially offset by growth in other revenue.
Paula: Finally, the strength of our services business continued with high single digit comp growth in the quarter driven by increases in her treatment specialty services, including Air P go out and make up and cause the line cut and color services.
Paula: For the quarter gross margin decreased 80 basis points to 39, 2% compared to 40% last year.
Paula: This decrease was primarily due to lower merchandise margin and higher inventory shrink, which were partially offset by growth in other revenue.
Paula Oyibo: Merchandise margin declined during the quarter primarily due to increased promotions, adverse impacts from brand mix, and the lapping of benefits from price increases last year. Promotional activity in the quarter was higher than last year, reflecting the expansion of our semi-annual beauty event and incremental offers to drive traffic. Inventory shrink was higher in the quarter, but our investments in new fixtures and operating processes are reducing shrink in the fragrance category. But this improvement is being offset by higher shrink in other prestige categories.
Paula: Merchandise margin declined during the quarter, primarily due to increased promotions.
Paula: Martha from brand mix and the lapping of benefit from price increases last year.
Paula: Promotional activity in the quarter was higher than last year, reflecting the expansion of our semi annual beauty event and incremental offers to drive traffic.
Paula: Inventory was higher in the quarter, our investments in new fixtures and operating profit are reducing shrink in the fragrance category, but this improvement is being offset by higher shrink and other prestige categories.
Paula Oyibo: Moving to expenses, SG&A increased 8.8% to $666 million. Overall, SG&A's plan was better than planned due to disciplined expense management. As a percentage of sales, SG&A increased 120 basis points to 24.4% compared to 23.2% last year. In addition to the impact of lower top-line growth, higher corporate overhead, store payroll, and benefits, and store expenses contributed to the deleverage in the quarter. Corporate overhead expense increased in the quarter primarily due to technology-related strategic investments.
Paula: Moving to expenses.
Paula: <unk> increased eight 8% to 666 million overall SG&A spend was better than planned due to disciplined expense management.
Paula: As a percentage of sales SG&A increased 140 basis points to 24, 4% compared to 23, 2% last year.
Paula: In addition to the impact of lower top line growth higher corporate overhead store payroll and benefits and store expenses contributed to the deleverage in the quarter.
Paula: Corporate overhead expense increased in the quarter, primarily due to technology related strategic investments the increase in store payroll and benefits was driven primarily by higher average wage rate and the increase in store expenses was primarily due to investments and increased testers.
Paula Oyibo: The increase in store payroll and benefits was driven primarily by higher average wage rates, and the increase in store expenses was primarily due to IT investments and increased testing. Operating margin was 14.7% of sales compared to 16.8% of sales last year. Net interest income for the quarter was $6.9 million, compared to $7.3 million last year. Lower average cash balances were partially offset by the benefit of higher average interest rates. The company's tax rate increased to 23.2% compared to 32.8% in the first quarter last year. The higher effective tax rate is primarily due to less benefit from income tax accounting for stock-based compensation.
Paula: Operating margin was 14, 7% of sales compared to 16, 8% last year.
Paula: Net interest income for the quarter was $6 9 million compared to $7 3 million last year.
Paula: The lower average cash balances were partially offset by the benefit of higher average interest rates the companys tax rate increased to 23 points.
Paula: <unk> to 42, 8% in the first quarter of last year.
Paula: Higher effective tax rate is primarily due to less benefit from income tax accounting for stock based compensation.
Paula Oyibo: For the quarter, the Looted Gap Earned Per Share was $6.47 compared to $6.88 last year. Now moving to the balance sheet and capital allocation, we ended the quarter with $524.6 million in cash and cash equivalents.
Paula: For the quarter diluted GAAP.
Paula: RNA <unk> per share was $6 47 compared to $6 88.
Paula: Gotcha.
Paula: Now moving to the balance sheet and capital allocation.
Paula: We ended the quarter with $524 six.
Paula: $6 million in cash and cash equivalents total inventory increased eight 8% from $1 9 billion compared to $1 8 billion last year.
Paula Oyibo: Total inventory increased 8.8% to $1.9 billion compared to $1.8 billion last year. In addition to the impact of 36 net new stores, the increase was primarily due to the inventory needed to support new brands in our new Market Fulfillment Center in Greer, South Carolina. Capital expenditures were $91 million for the quarter, reflecting investments in merchandise fixtures, new and existing stores, and IT investments. Depreciation was $64.7 million compared to $57.9 million last year, primarily due to higher depreciation related to new stores and IT investments.
Paula: In addition to the impact of 36 net new stores. The increase was primarily due to inventory needed to support new bringing in a new market fulfillment center in South Carolina.
Paula: Capital expenditures were 91 million for the quarter, reflecting investments in merchandize fixtures, new and existing stores and it investments.
Paula: Depreciation was $64 7 million compared to $57 9 million last year, primarily due to higher depreciation related to new stores and it investments.
Paula Oyibo: In the first quarter, we returned $285.1 million of capital to our shareholders through the repurchase of 588,000 shares. At the end of the quarter, we had $1.8 billion remaining under our current $2 billion repurchase authorization. Now, turning to our retail business.
Paula: In the first quarter, we returned $285 1 million of capital to our shareholders through the repurchase of 588000 shares.
Paula: At the end of the quarter, we had $1 8 billion remaining under our current 2 billion repurchase authorization.
Paula: Now turning to our outlook, we have updated our expectations for the full year to reflect our third quarter performance the dynamic operating environment and the actions we are taking to drive to drive stronger top line growth.
Paula Oyibo: We have updated our expectations for the full year to reflect our first quarter performance, the dynamic operating environment, and the actions we are taking to drive stronger top-line growth. With this in mind, we currently expect net sales to be between $11.5 and $11.6 billion, with comp sales growth in the range of 2 to 3%. We continue to expect comp growth to be in the low single-digit range in the first half of the year. We expect comp growth to accelerate in the second half of the year and be between 2% and 4%.
Paula: With this in mind, we currently expect net sales to be between 11, five to $11 6 billion with comp sales growth in the range of two to three 8%.
Paula: And you can say hey to expect comp growth to be in the low single digit range in the first half of the year.
Paula: We expect comp growth to accelerate in the second half of the year to be between two and 4%.
Paula Oyibo: Reflecting the impact of our sales driving initiative, our movement pipeline, and decelerating growth in the second half of last year, we currently expect operating margins to be between 13.7 and 14% of net sales, primarily driven by SG&AD leverage as we protect sales driving investments, including marketing and store labor. Complete many of the elements of our transformational agenda and operationalize it as we have done in 2023.
Paula: Reflecting the impact of our sales driving initiatives are numerous pipeline and decelerating growth in the second half of last year.
Paula: We currently expect operating margin to be between $13, seven and 14% of net sales primarily driven by SG&A deleverage as we protect sales driving investments, including marketing and store labor.
Paula: Complete many of the elements of our transformational agenda and operationalize it that we've made in 2023.
Paula Oyibo: We will also continue to maintain our financial discipline. For the full year, we now expect FD&A growth to be in the mid-to-high-single-digit range, with growth in the low-double-digit range in the first half of the year and in the low-to-mid-single-digit range in the second half of the year. We expect gross margin for the year to be down modestly, as lower merchandise margin and deleverage of fixed costs are mostly offset by lower supply chain costs and other revenue growth.
Paula: We will also continue to maintain our financial discipline.
Paula: For the full year, we now expect <unk> growth to be in the mid to high single digit range with growth in the low double digit in Asia in the first half of the year and in the low to mid single digit range in the second half of the year.
Paula: We expect gross margin for the year to be down modestly as lower merchandize margin and deleverage of fixed costs are mostly offset by lower supply chain costs and other revenue growth.
Paula Oyibo: For modeling purposes, we anticipate growth margin will be leveraged in the first half of the year, primarily driven by lower merchandise margin. We leverage a fixed cost due to lower sales and higher shippers. Partially offset by growth of other revenue. In the second half of the year, we expect growth margin to be flat to up modestly as higher merchandise margin and lower supply chain costs offset the leverage of fixed costs. As a result, we now anticipate diluted EPS to be in the range of $25.20 to $26 per share.
Paula: For modeling purposes, we anticipate gross margin will deleverage in the first half of the year, primarily driven by lower merchandise margin.
Paula: Deleverage of fixed costs due to lower sales and higher huge.
Paula: Partially offset by growth of mobile revenue in there.
The second half of the year, we expect gross margin to be flat to up modestly as higher merchandise margin and lower supply chain costs offset deleverage of fixed costs.
Paula: As a result, we now anticipate diluted EPS to be in the range of $25.20 to $26 per share we expect diluted EPS to the time in the first half of the year and be flat to up modestly in the second half of the year, including the impact of the extra week.
Paula Oyibo: We expect diluted EPS to go high in the first half of the year and be flat to up modestly in the second half of the year, including the impact of the extra week in fiscal 2023, which was $181.9 million of net sales and 46 cents of diluted EPS. Finally, we continue to expect to repurchase $1 billion of Ulta Beauty stock this year, reflecting the strength of our cash flow and the confidence we have in our future.
Paula: In fiscal 2023, which was 181 9 million of net sales grew 46 cents of diluted EPS.
Paula: Finally, we continue to expect to repurchase $1 billion of Ulta beauty stock this year, reflecting the strength of our cash flow and the confidence we have in our feature.
David C. Kimbell: And now, I'll turn the call back over to Dave. Dave?
Speaker Change: And now I'll turn the call back over to Dave.
David C. Kimbell: Before we begin the Q&A session, I'd like to recap our perspective on the first quarter and reiterate our confidence in our plans. Love for the Ulta Beauty brand is growing, our member retention is strong, and our teams are laser focused on delivering great guest experiences while managing through an evolving environment. We are pleased with the progress we are making across key areas of our business, and we are taking steps to drive stronger performance through strengthening our assortment, expanding our relevance, enhancing our digital experience, leveraging our world-class loyalty program, and evolving our promotional leverage.
David C. Kimbell: Before we begin the Q&A session I'd like to recap our perspective on the first quarter and reiterate our confidence in our plans.
Speaker Change: Love for the Ulta Beauty brand has grown our member retention is strong and our teams are laser focused on delivering great guest experiences while managing through an evolving environment.
We are pleased with the progress we're making across key areas of our business and we are taking steps to drive stronger performance through strengthening our assortment expanding our relevance enhancing our digital experience leveraging our world class loyalty program and evolving our promotional leathers.
David C. Kimbell: We have a strong plan in place to navigate near-term pressures while continuing to invest in support of the long-term opportunity. I am confident in the power of our differentiated business model and our team's ability to execute with excellence against our priorities and deliver value for our shareholders. Ulta Beauty is a force in the beauty industry as we have captured a large share of this dynamic category, and I am as optimistic as ever about the future of our business. Now, I'll turn the call over to our operator to moderate the Q&A session.
Speaker Change: We have a strong plan in place to navigate near term pressures, while continuing to invest in support of the long term opportunity.
Speaker Change: I am confident in the power of our differentiated business model and our team's ability to execute with excellence against our priorities and deliver value for our shareholders.
Speaker Change: Ulta beauty is a force in the beauty industry as we captured a large share of this dynamic category and I am as optimistic as ever about the future of our business.
Speaker Change: And now I'll turn the call over to our operator, operator to moderate the Q&A session.
Operator: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and then re-enter the queue for any additional questions. Our first question is from Simeon Siegel with BMO Capital Markets. Please proceed.
Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question.
Speaker Change: Thank you.
Speaker Change: To ask a question. Please press star one on your telephone keypad.
Speaker Change: Information Tonala indicate your line is in the question queue. You May press star two if he would like to remove your question friendly Q and for participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Ask that you please limit yourself to one question and then reenter the queue for any additional questions.
Speaker Change: Our first question is from Simeon Siegel with BMO capital markets. Please proceed.
Simeon Siegel: Thanks, Hi, everyone. Good afternoon.
David C. Kimbell: Dave I guess, maybe following up on that.
Simeon Siegel: Just hoping you could elaborate a little bit more on the guidance change perhaps to oversimplify it and I apologize. If this is annoying question, but I guess are you comfortable that you are lowering it to even out and work towards the long term margin rate just any help in terms of thing how you're thinking about your margin target and the underlying opportunity would probably be helpful. Thank you guys.
Speaker Change: Well, thanks Sumit for the question I'll start with some overarching thoughts and then maybe Paulo, you can give some specific because on the AR on the.
David C. Kimbell: Paula, you can give some specifics on the operating margin outlook. I'd say, broadly, we are confident in our outlook for the year. As we've assessed the landscape in which we're operating, we see the opportunities ahead of us. As I mentioned in my prepared remarks, there are a lot of positives across our business right now. As we see strong engagement in our brand, growth in brand love and awareness, strength in key parts and aspects of our business, traffic continuing to be healthy in stores and online, newness working, and new stores performing well, we are confident in many of the key metrics of our business, and then clear about our opportunity to address some of the areas that we've been more pressured on.
Speaker Change: Operating margin outlook I'd say broadly we are confident in our outlook for the year as we've assessed the landscape in which we're operating we see the opportunities ahead of us as I mentioned in the prepared remarks.
Speaker Change: There are a lot of positives across our business right now as we see strong engagement in our brand growth and brand love and awareness.
Speaker Change: Strength in key parts in aspects of our business traffic continuing to be healthy in stores and online newness working new stores performing well. So we are confident.
Speaker Change: In many of the key metrics of our business and then clear about our opportunity to two two.
Speaker Change: Dress some of the areas that we've been more pressured when we look at the comp outlook that we've.
David C. Kimbell: When we look at the comp outlook that we've updated for the year, which is obviously a key part of our overall model, we feel very clear and confident about that revised outlook. We do see, particularly in the second half of the year, our lap becomes a bit easier.
Speaker Change: Updated for the year, which is obviously a key part of our overall model.
Speaker Change: We feel.
Speaker Change: Very clear and confident about that that revised outlook here, we do see over the.
Speaker Change: Particularly in the second half of the year, our lap becomes a bit easier and so as we look at it on a two year stack, we're very comfortable and confident in that but I'd say more important we are taking actions as I described in the prepared remarks to address where we have some potential to drive our business.
David C. Kimbell: As we look at a two-year stack, we feel very comfortable and confident in that. I'd say more important, we are taking actions, as I described in my prepared remarks, to address areas where we have some potential to drive our business even more with more newness, strong marketing, enhanced digital capabilities as we take advantage of the new platform that we put in place, and, of course, leaning heavily on our loyalty program to take full advantage of our relaunch there.
Speaker Change: And it's even more with more newness strong marketing and enhanced digital.
Speaker Change: Capabilities as we take advantage of the new.
Speaker Change: Platform that we put in and of course leaning heavily on our loyalty program to take full advantage of our relaunch there. So we feel.
David C. Kimbell: Clear about what's ahead of us confident in our comp and then as that relates specifically to the margin outlook follow do you want to give some more color on that sure. Thanks, Dave Good afternoon.
David C. Kimbell: We feel clear about what's ahead of us, confident in our comp, and then, as that relates specifically to the margin outlook, Paula, do you want to give some more color on that? Sure. Thank you, Dave. Good afternoon, Simeon.
Paula Oyibo: Sure. Thank you, Dave. Good afternoon, Simya.
Speaker Change: What I would say is you know as we think about our operating margin guide of 13000 or 14 on the comp of T. Theoretically you know we've shared the top line performance plays an important role in driving fixed cost leverage and with the comps now below our long term algorithm of 3% to 5% comp we.
Speaker Change: Less leverage and have adjusted our operating margin expectations. Accordingly, one thing that I will also share is that in addition to the fixed cost Oh.
Paula Oyibo: What I would say is, you know, as we think about our operating margin guide of 13-7-14 on the comp of 2-3, you know, we've shared that top-line performance plays an important role in driving fixed cost leverage for us. And with the comps now below our long-term algo of 3-5% comps, we expect less leverage and have adjusted our operating margin expectations accordingly. One thing that I will also share is that in addition to the fixed cost... [inaudible]
Speaker Change: Deleverage on lower lower sales, we even have it embedded flexibility in our guidance to invest in sales levers like promo marketing and store labor has strengthen our topline and defend share and so that also gives us confidence in the Uh huh.
Speaker Change: Adjusted comp guide.
Speaker Change: <unk> spoke about.
Speaker Change: Great. Thanks, a lot guys best of luck for the rest of the year.
Simeon: Thanks Simeon.
Operator: Our next question is from Simeon Gottman with Morgan Stanley. Please proceed.
Speaker Change: Our next question is from Simeon Gutman with Morgan Stanley. Please proceed.
Unknown Attendee: All right, that was a setup. Hi, everyone.
Simeon Gutman: Alright that was a setup hi, everyone.
Simeon Gutman: So my question, Dave talking about prestige.
Speaker Change: And the increased shifting to channels.
David C. Kimbell: So my question, Dave, talking about prestige and the increased shift to channels, can you share if that's brands that are deciding to sell on different channels, or you're just seeing the customer, I guess, moving over to themselves, and have we absorbed the worst of that? That's the first part, and then this is connected to the question. Is it fair to think that merchandise margins are about 200 basis points above where we were around the pre-COVID time?
Speaker Change: Can you share if that's brands that are deciding to sell on different channels or youre, just seeing the customer I guess moving over themselves and have we absorbed the worst of that that's.
Speaker Change: That's the first part and then this is connected to the question.
David C. Kimbell: And it feels like you have an appropriate mix. Now you kind of see where the business is going in terms of the trade-off between sales and gross margin such that we're not going to retest, you know, those pre-COVID lows. Thank you.
Speaker Change: Is it fair to think that merchandise and merchandize margins about 200 basis points above where we were around the pre COVID-19 time and it feels like you have an appropriate mix now you kind of see where the business is going in terms of the trade off between sales.
Speaker Change: Sales and gross margin such that we're not gonna retest.
Speaker Change: Those pre COVID-19 levels. Thank you.
David C. Kimbell: All right, well, yeah, I'll talk about the overall competitive environment and what we're seeing there, and then Paula can give you some more color on the merchandise margin and our outlook related to that.
Speaker Change: Alright.
Speaker Change: I'll talk.
Speaker Change: About the overall competitive environment and what we're seeing in there in Butler can give you some more color on the merch margin in the end our outlook related to that so to reiterate as we look at the competitive environment.
David C. Kimbell: So to reiterate, as we look at the competitive environment, as I mentioned in the remarks, this category has always been attractive, and it's always been very competitive, given the growth potential, the connection it has with consumers, its margin profile. So we've long, for the entire 33-year history of this company, we've been competing in a very competitive environment. What's unique about what's going on today is the cumulative impact of the competitive intensity, really driven by a significant increase in the distribution of prestige, both in-store and online. And as consumers navigate that broader choice, they're making choices.
Speaker Change: We.
Speaker Change: As I mentioned in the remarks. This category has always been an attractive and it's always been.
Speaker Change: Very competitive given the growth potential of the connection it has with consumers.
Speaker Change: Margin profile, so we've long.
Speaker Change: For the entire hit 33 year history of this company, we've been competing in a very competitive environment of what's unique about what's what's going on today is is the cumulative impact of the competitive intensity really driven by a significant increase in distribution of prestige both in store and online and as.
Speaker Change: Consumers navigate that that broader choice, they're making sure they're making choices, we're confident in our ability to continue to engage and that shows up in some of the results I highlighted but it certainly has an impact when we look at.
David C. Kimbell: We're confident in our ability to continue to engage, and that shows up in some of the results I highlighted, but it certainly has an impact. When we look at Transcribed by https://otter.ai, Holding share in Total Beauty for the quarter was a real positive as we gained in mass, and we gained in prestige e-comm. Again, our brand love, our brand awareness, our total loyalty members, our member retention, our traffic, all up, all positive, all healthy as we see strength with our consumer connection.
Speaker Change: Stores opening near our stores.
Speaker Change: We talked about this in the past historically.
We do see a short term hit to a.
Speaker Change: Nearby store when a competitor opens up.
Speaker Change: And we're able to recover in those stores comping at our at our enterprise level Whats unique about right now is the scale of it to have over 1000, new locations within a short term periods it's unprecedented.
Speaker Change: In our history in and probably in retail more broadly.
Speaker Change: So it's it's it means that we're navigating that in understanding consumer behavior as we go forward.
Speaker Change: But even with that too.
Speaker Change: To kind of highlight again some of the things that we'd see our strengths even in this.
Speaker Change: Elevated competitive environment.
Speaker Change: Holding share in total beauty for the for the quarter as a real positive as we gained in mass and we gained in prestige E Com and our brand love our brand awareness. Our total loyalty members our member retention our traffic all up all all positive all healthy as we as we see strength with our consumer connections.
David C. Kimbell: So your question about our consumers, the fact that we gained... 6% of total members, our retention is healthy, we're moving more members up into platinum and diamond, and retention of those guests is very high, and our brand love reached an all-time high. The connection to Ulta Beauty is strong, and we're managing through this really, again, unprecedented competitive environment. And all the things I talked about, our confidence in our model, our confidence in the health of this category, and our ability to adapt and adjust our strategies and initiatives, as I discussed, give us confidence both in delivering the updated guidance, but I'd say, even more importantly, the future continues to be very bright for Ulta Beauty because we' Paula, do you want to talk, then, about Merch Margin? Sure, Dave. Simeon, I'll give you just a little.
Speaker Change: So your question about our consumer the fact that we gained.
Paula Oyibo: Sure. Thanks, David.
Speaker Change: 6% and total members our retention is healthy we're moving more members up into platinum and diamond and the retention of those guest is very high and our brand love reached.
An all time high the connection to Ulta beauty is strong and we're managing through this really again unprecedented competitive environment and all the things I talked about our confidence in our model our confidence in the health of this category.
And our ability to adapt and adjust.
Speaker Change: Our strategies and initiatives as I discussed you'll give us confidence both in delivering the updated guidance, but what I would say even more importantly, the future continues to be very bright for Ulta beauty, because we're well positioned with a strong share of the category strong connection to consumers and the ability to navigate and adjust our plans as necessary as we have been.
Speaker Change: Doing throughout the history of this of this company.
Speaker Change: Paula do you want to talk then about merch margin sure.
Paula Oyibo: Cindy, I'll give you a little color on merchandise margin. When we think about merchandise margin from a guidance perspective, we currently expect lower merchandise margin for the year due to lower sales, increased promotional activity, and category mix. We saw merchandise margin decline in Q1, generally for these similar reasons, increased in promo, adverse impacts from brand mix, and then we had a bit of lapping price increases from 2023. When we think about 20 versus 2019, you are correct.
Cindy: Cindy I'll give a little color on margin.
Paula: Well when you think about hurts margin from a guidance perspective, we currently expect lower merchandize margin for the year due to the lower sales increase.
Increased promotional activity and category mix.
Speaker Change: Next we saw merchandise margin decline in Q1.
Speaker Change: Generally for the similar reason increase in promo adverse impact from brand mix and then we had a bit of lapping price increases from 2023.
Speaker Change: We think about 'twenty versus 2019, you are correct.
Paula Oyibo: As of last year, we were about 200 basis points of merchant margin above 2019 levels. And really, what I would say is a lot of that benefit that we saw is coming from, you know, ongoing category performance improvement efforts by our merchant team, category mix, and promo efficiency. Now, we are seeing that some of that merchant margin is getting a bit pressured, as we're seeing in Q1 and as reflected in our current guide. Our next question is from Kate McShane with Goldman Sachs. Please. Hi, good afternoon. Thanks for taking our question. We wanted to drill down a little bit.
Speaker Change: As of last year, we were about 300 basis points in merch margin.
Speaker Change: <unk> above 2019 level and really what I would say is a lot of that that benefit that we saw coming from.
Speaker Change: Ongoing category performance improvement efforts.
Speaker Change: Our merchant team category mix and promo efficiency now we are saying that some of that merch margin.
Speaker Change: Is it getting a bit, albeit pressured as we're seeing in that in.
Speaker Change: In Q1 and as reflected in our guide.
Speaker Change: Okay. Thank you good luck.
Operator: Our next question is from Kate McShane with Goldman Sachs. Please proceed. Hi, good afternoon. Thanks.
Speaker Change: Our next question is from Kate Mcshane with Goldman Sachs. Please proceed.
Speaker Change: Hi, good afternoon, thanks for taking our question.
Katharine Amanda McShane: Wanted to drill down a little bit more on the marketing spend.
Katharine Amanda McShane: That you are planning to increase for the year. We were just wondering how much how much of an increase are we talking about what are some of the tactics here and are you building in a corresponding sales lift with the marketing spend and then finally just within that.
Speaker Change: Did you elevate the marketing in the midst of Q1 and did that have any impact on the company.
Operator: Well, what I'd say is, as we look forward throughout the year to clarify, Paula mentioned in her remarks that we are protecting our investment in marketing, in store labor, and other aspects that we know drive our business. And that's reflected in our updated operating margin outlook. And we'll continue to invest appropriately as we see opportunities to support growth. So all of that is reflected.
Speaker Change: Well, what I'd say is as we look forward throughout the year to clarify we Paula mentioned in her in her remarks that we are protecting our investment in marketing in store labor and other aspects that we know drive our business and that's reflected in our in our updated.
Speaker Change: Operating margin outlook, and we will continue to invest appropriately as we see opportunities to to support. So all of that is reflected the types of things. We're doing are continuing to strengthen our connection with our guests as I said, our unaided awareness and our brand love both increased.
David C. Kimbell: The types of things we're doing are continuing to strengthen our connection with our guests. As I said, our unaided awareness and our brand love both increased meaningfully in Q1. After strong growth throughout 2023, we are on a good trajectory as it relates to connecting our guests. The fact that we're driving traffic to both our stores and online, we're growing our connection to our app, our loyalty, engagement, and retention is strong, and our marketing efforts are working. The point of discovering and engaging in the category
Speaker Change: <unk> in Q1 after strong growth throughout 2023, we are on a good trajectory as it relates to connecting our guests. The fact that we're driving traffic in both to our stores and online we're growing our connection to our App our loyalty engagement and retention is strong our marketing efforts are working the point in our in my <unk>.
Speaker Change: <unk> about us finding even.
Better ways and stronger ways to connect as a as an always on focus for us and we see continued opportunity to drive greater.
Speaker Change: Greater connection through social so that'll be a big focus for us I highlighted our growth in <unk>, which is which we're pleased with but we know we can do even more it is the key driver of this category. The way. So many consumers are learning and discovering and engaging in the category. So we haven't we will continue to have a focus.
David C. Kimbell: So we have and will continue to have a focus there. And importantly, we're partnering with our brands to find ways to connect as their brands drive growth within our environment. So we're pleased with the efficiency of our spend, it is driving our results, and we'll continue to optimize our spend and add appropriately throughout the year as we see opportunities. And all of that is reflected both in our top line and our operating margin outlook.
Speaker Change: There are and importantly, we're partnering with our brands to find ways to connect as their brands drive growth within our environment. So.
Speaker Change: We're pleased with the efficiency of our spend it is driving our results.
Speaker Change: We will continue to optimize our spend in that appropriately.
Speaker Change: Throughout the year as we see opportunities and all of that is reflected both in our in our top top line and our operating margin outlook.
Speaker Change: Yes.
Speaker Change: Thank you.
Operator: Our next question is from Kris Horvers with J.P. Morgan. Please proceed.
Speaker Change: Our next question is from Chris <unk> with J P. Morgan. Please proceed.
Unknown Attendee: Thanks and good morning. So I'll also do a two-prong question here. So it seems like the 1.6% comp wasn't really different from your internal plan. And you had mentioned, and you had expected improvement over the year on all the factors that you mentioned. So at the same time, you lowered the back half. So can you just share it with us? Was it just you're being preemptive about a hockey stick that you set up? And then can you also talk about, you know, April X Easter? Was that better than the 1.6 for the quarter X Easter shift in any commentary on how May is doing so far?
Speaker Change: Thanks, and good morning, So also do us.
Speaker Change: Two pronged question here. So it seems like the 1.6% comp wasn't really different from your internal plan and you had mentioned and you had expected improvement over over the ear on all the factors that you mentioned so at the same time you lowered the back half so.
Speaker Change: Can you just share with US was it just you're being preemptive to may be a hockey stick that you set up and then can you also talk about you know April ex Easter was that better than the one six for the quarter X the Easter shift and any commentary on how may is doing so far.
David C. Kimbell: All right, thanks, Kris. Yeah, let me take the first part.
Alright, Thanks, Chris Yeah, Let me take the first part and then I'll ask Paula to talk about our most recent most recent trends, yes, one six comp is and we talked about delivering.
Speaker Change: Delivering.
Speaker Change: Comps in the first half of the year in the low single digits.
Speaker Change: But the reason that we see the need to adjust our outlook for the year is.
Speaker Change: One six is clearly and we talked about this earlier in the quarter Chris.
Speaker Change: At the at the low end of of that of that range of low single digits, we anticipate the pressures and dynamics that I've been talking about to continue into Q2, and so as we looked at the second half of the year, while we see upside.
Speaker Change: The upside potential.
Speaker Change: Through the activities that were that I that I mentioned in driving.
Speaker Change: Elevated efforts across many parts of our business strong newness platform and an easier overlap we do anticipate an increase in the second half of the year, but because of our.
David C. Kimbell: And again, I'll ask Paula to talk about the latest, most recent trends. Yes, 1.6 comp is, and we talked about delivering your comps in the first half of the year in the low single digits. The reason that we see the need to adjust our outlook for the year is the 1.6, and we talked about this earlier in the quarter, Kris. We do anticipate an increase in the second half of the year, but because of the first half landing at the low end of that range, we would see, you know, we felt it was appropriate to update our outlook for the whole year, anticipating some of the pressures, even with growth in the second half of the year, elevated So that all lands us in that updated outlook of 2 to 3%. As far as April and the more recent outlook, Paula, do you want to talk about that?
Speaker Change: The first half's landing at the low end of that.
Speaker Change: That range.
Speaker Change: You can see we felt it was appropriate to update our outlook for the whole year anticipated some of the pressures even with growth in the second half of the year elevated growth in the second half of the year those pressures continuing through throughout the year, so that all lands us in that.
Speaker Change: Updated outlook of 2% to 3% as far as April.
Speaker Change: And the more recent more recent outlook Pablo do you want to talk about.
Pablo: Yes, yes. Thank you.
Chris: So Chris as it relates to the cadence for the quarter in April.
Speaker Change: I don't know about an exit rate for the quarter.
Speaker Change: March was the strongest period for a quarter and it's for all the reasons, you mentioned and benefiting from the Easter timing as well as our expansion of our Q1 beauty event.
Paula Oyibo: Comps in April were positive, but they did moderate from March, as we expected, negatively impacted by the timing of the Easter shift. With regard to May and what we're seeing in the quarter today, I won't comment on that specifically, but what I will share is that we expect Q2 comps to look very similar to the first quarter.
Speaker Change: In April were positive, but did moderate from March as we expected negatively impacted from the timing of the Easter shift with regards to nae and what we're seeing quarter to date I won't comment on on that specifically, but what I will share is that we expect Q2 comps to look very similar.
Speaker Change: In the first quarter gentlemen.
Unknown Attendee: Got it. And then just one quick follow-up. You did mention that you expect merchandise margin, I believe, to be up in the back half of the year but lower in the first half. So what drives the change in the merchandise margin dynamic?
Speaker Change: Got it and then just one quick follow up you did mention that you expect merchandise margin I believe up in the back half of the year, but lower than the first half so what what drives the change in the merchandize merchandize margin dynamic. Thank you.
Speaker Change: Yeah, well so in the end that we expect more pressure in the first half do set a promo and brand mix and that lapping effect of those price increases and so when we think about the second half we're not lapping the price increase benefit and we will be largely past the inventory markdowns associated.
Speaker Change: With our rebranding of Ulta beauty collection will still have the brand mix and promo impacts, but net net we're expecting the second half to be flat.
Paula Oyibo: Thank you.
Our next question is from Mark <unk> with Baird. Please proceed.
Operator: Yeah, well, in that we expect more pressure in the first half due to the promotion and brand mix and the lapping effect of those price increases. And so when we think about the second half, we're not lapping the price increase benefits, and we will be largely past the inventory markdowns associated with our rebranding of the Ulta Beauty Collection. We'll still have the brand mix and promo impact, but net-net, we're expecting the second half to be flat.
Speaker Change: Good afternoon, and thank you for taking my question.
Mark R. Altschwager: Wanted to follow up on the competitive backdrop, but maybe slightly different angles. So.
Speaker Change: You've talked about the increased points of distribution, but at the same time also has been investing a lot in its loyalty program and its data analytics capabilities for years.
In fact, you can drive a lot of value for our brand partners. So how is your value proposition for these brands evolving and what gives you the confidence that you can remain a premier distribution point for established and emerging brands, even as this competitive environment continues to two <unk>.
Speaker Change: <unk>.
Unknown Attendee: Our next question is from Mark Altschwager with Baird. Please proceed.
Mark: Mark that's a great question and we're very confident in that we have.
Speaker Change: <unk> worked hard over many years to build very strong relationships with our brand partners. Both the largest brands in the category and a real dedicated effort in supporting.
Speaker Change: Emerging new smaller brands and <unk> and we have that as an area of.
Speaker Change: High confidence that we will continue to be a connect.
Speaker Change: Connected and partnering with our brands, we are a very large part of the category across all segments mass and prestige makeup haircare skincare fragrance Bath wellness, we play a significant role we have a unique proposition nobody does what ulta beauty does our stores and our experience with <unk>.
David C. Kimbell: Good afternoon. Thank you for taking my question. I wanted to follow up on the competitive backdrop, but maybe slightly different angles. So you've talked about the increased points of distribution, but at the same time, Ulta's been investing a lot in its loyalty program and its data analytics capabilities for years, which I suspect can drive a lot of value for brand partners. So how is your value proposition for these brands evolving, and what gives you the confidence that you can remain a premier distribution point for established and emerging brands, even as this competitive environment continues to evolve?
Speaker Change: The liver and special and differentiated in our brands recognize that.
Speaker Change: They value the opportunity that they have in our stores and on our online to connect with now nearly 44 million loyalty members and the activation and capabilities we have.
Speaker Change: To activate.
Speaker Change: Their strategies directly with the largest pool of beauty enthusiasts in the country.
Speaker Change: And and we are a we have long been a destination for growth and so many of our brands are.
Speaker Change: Our driving growth and taking full advantage of that experience. So.
Speaker Change: I am confident in our in our brand relationships. So as we work through.
Speaker Change: Some of the changes in the category and my direct discussion with brands and our overall relationships.
David C. Kimbell: Mark, that's a great question. And we're very confident that we have worked hard over many years to build very strong relationships with our brand partners, both the largest brands in the category and a real dedicated effort to supporting, you know, emerging new, smaller brands. And we we're, that is an area of high confidence that will continue to be connected and partnering with our brands. We are working together to continue to drive growth and strengthen our partnership, add new brands, many of which I've highlighted, and drive our business forward in partnership with our brands. And that will continue for sure.
Speaker Change: We are working together to continue to drive growth and strengthen our partnership add new brands, many of which I've highlighted and drive our business forward in partnership with our brands and that will continue.
For sure.
Paula Oyibo: Thank you, Dave. Quick follow-up for Paula on inventory. As we look at the inventory growth versus the sales growth, the spread is, I think, wider there than we've seen in a bit, and obviously, you're adjusting your demand outlook for the back half of the year. Any pockets of aging inventory that could weigh on margins and anything incorporated there from a clearance markdown perspective in the second quarter? Thank you.
Speaker Change: Thank you Dave a quick follow up for Paula on inventory.
Speaker Change: As we look at the inventory growth versus the sales growth the spread is wider than we've seen a bit of if you are adjusting your demand outlook for the back half of the year.
Speaker Change: Any pockets of aging inventory that could weigh on margins.
Speaker Change: Incorporated there from a clearance markdown perspective in the second quarter. Thank you.
Paula Oyibo: Hi. No, no, no, no, no real concern with regard to inventory. I guess for perspective, approximately 75% of that inventory growth in the quarter was attributable to our new brands and our new stores that were named due to opening at DC. We do expect that growth to normalize as we progress during the year, and I know we've shared this previously, but as you think about inventory, keep in mind that most of our inventory is current and largely what we consider core product, which means very little seasonal or at-risk inventory. And as you mentioned, we do look for opportunities to invest in inventory to best position ourselves to capture future demand, and so we are also doing that as well.
Speaker Change: Alright.
Speaker Change: No no no no.
Speaker Change: Well confirmed with regards to inventory I guess for perspective, approximately 75% of that inventory growth in the quarter was attributable to our new brands and our new stores that were mainly due to hopefully that that D. C. We do expect that growth to normalize as we progress during the year and I know we've said this is crazy.
Speaker Change: With me, but as you think about inventory keep in mind that.
Speaker Change: Most of our inventory is current and largely what we consider our core product, which means they're literally seasonal or at risk inventory and as you mentioned, we do look for opportunities to invest in inventory to best position ourselves to capture future demand until we are also doing a film that as well.
Operator: Our next question is from Oliver Chen with TD Cowen. Please proceed.
Speaker Change: Our next question is from Oliver Chen with TD Cowen. Please proceed.
Unknown Attendee: Hi David and Paula. Regarding makeup being down mid-single digits and also thinking about the newness opportunity there, what's embedded with guidance for how that meaningful category may proceed? And we continue to see a lot of innovation at competitors such as Amazon, which is leveraging a lot of personalization as well as affiliates and community members. What are your thoughts in terms of how you'll remain competitive? And I know there's always been a lot of overlap with products that they sell and you sell as well. Thank you. Well, so first,
Oliver Chen: Hi, David and Paula regarding makeup being down mid single digits and also thinking about the newness opportunity there what what's embedded with guidance for how that a meaningful category may proceed.
Speaker Change: We continue to see a lot of innovation that competitor such as Amazon, which is leveraging a lot of personalization as well as the affiliates and community members what are your thoughts in terms of.
Speaker Change: How you will remain competitive and I know that there's always been a lot of overlap with product that saves telling yourself as well. Thank you.
David C. Kimbell: Well, so first on makeup, you know, we it's it's the largest part continues to be the largest part of our business about 44% of our business and, and we have a very large share of that of that category. And, you know, when we look at our business right now, you know, we talked about some pressure on the prestige side, many of the things that I've highlighted, and the mass the category slowed some as we're lapping a very strong q1 and first half of last year, when I look out and embedded in our guidance is, you know, competence on many parts of our makeup business and the ability to, you know, strengthen our performance and that on the mass side, we see, you know, continued opportunities with several brands, including elf has performed very well, and it's been an important partner for us, exclusive partnership with Morphe.
Speaker Change: Well so first on makeup.
Speaker Change: We know it's the largest part continues to be the largest part of our business about 44% of our business and in.
And we have a very large share of that of that category.
Speaker Change: When we look at our business right now we.
Speaker Change: We talked about some pressure on the prestige side many of the things that I've highlighted.
Speaker Change: The mass the category slowed some as we were lapping a very strong Q1, and first half of last year, when I look out and embedded in our guidance is.
David C. Kimbell: We've got key partnership with Nick's early lead on some of their innovation, and we've got brands like Juvia's place and About Base that have demonstrated strong partnership and growth in our business. So we're confident in our ability to continue to evolve that.
Speaker Change: Confidence on many parts of our makeup business and the ability to.
Speaker Change: We have strengthened our performance in that on the mass side, we see.
Speaker Change: Continued opportunities with several brands, including <unk> performed very well and it's been an important partner for us exclusive partnership with Murphy.
Speaker Change: We've got a key partnership with mix early lead on some of their innovation and we've got brands like Julius place in about base that.
Speaker Change: They have demonstrated.
Speaker Change: Wrong partnership and growth growth in our business so.
Speaker Change: We're confident in our ability to continue to evolve that and on a per seat side, the newness that I've highlighted.
Speaker Change:
Speaker Change: Has has contributed and while we've got more work to do there Charlotte Tilbury is now in 600 stores and online and has contributed meaningfully to our business we highlighted the expansion.
Speaker Change: Continued expansion and performance of our luxury business brands like when the launch with Serena.
Speaker Change: We're expanding Mac into more doors that is just rolling out.
David C. Kimbell: And then on the prestige side, the newness that I've highlighted, expanding Mac into more doors that is just rolling out really as we speak into more doors. And we've got a number of really exciting exclusive brands, brands like Lip Tinted, Polite Society, Ribbon, Wynn, and others in the makeup space that are just an outstanding portfolio of emerging brands that we are confident will drive growth over time. So we will continue to drive makeup connection; we've got a very big makeup business, and we've got clear plans to drive that going forward.
Speaker Change: Really as we as we speak into more doors and we've got a number of really exciting exclusive brands brands like Lyft tend to polite society Rabban win and others in the makeup space that.
Speaker Change: R R.
Speaker Change: Just an outstanding portfolio of emerging brands that we are confident will drive growth over time so.
Speaker Change: We will continue to drive makeup connection we've got a very big makeup business and we've got clear plans to drive that going forward.
David C. Kimbell: As far as other competitive environments in the digital space, the efforts that I talked about across our entire business, apply both in store and online. One of the great things about our business is when we get our in store guests shopping online, they increase their brain love their brain connection, our share of wallet, and their spend goes up two and a half times. And our efforts there and we gained share in the prestige ecom business in Q1, despite some of the other pressures that I talked about.
Speaker Change: As far as other competitive environment in the digital space are the efforts that I talked about.
Speaker Change: Across our across our business.
Speaker Change: Applied both in store and online one of the great things about our businesses when we get our in store guest shopping online they increase their brand love the brand connection and our share of wallet their spend goes up two and a half times and our efforts there and we gained share in the prestige E com.
David C. Kimbell: So we see opportunity to continue to drive programs like communities and affiliates; we're doing a lot of that to drive more influencers, expand our assortment, and drive newness across the business. So competing both in store and online is what we do. And we're focused on that and makeup, as we are with all of our categories looking forward.
<unk> business in Q1, despite some of the other pressures that I talked about so we see opportunity to continue to drive our.
Speaker Change: Program Slide communities and affiliates were doing a lot of that drive more influencers expand our assortment.
Speaker Change: Drive newness across the business so competing both in store and online is what we do and we're.
Speaker Change: On that and make up.
Speaker Change: As it as we are with all of our categories looking forward.
Thank you best regards.
Speaker Change: Thanks Oliver.
Operator: Our next question is from Michael Binetti with Evercore ISI. Please proceed. Hey guys, thanks for taking our question.
Speaker Change: Our next question is from Michael Binetti with Evercore ISI. Please proceed.
Unknown Attendee: Hey guys, thanks for taking our question here. So, Paula, I think the math for the rest of the year puts operating margin below 14 for just the rest of the year on a comp range of 2 to 4, not far from your long-term guide. Can you speak to how we rebuild to the level back to the long-term 14 to 15 margin if the comp trend continues at the two to four type rate in the second half?
Hey, guys. Thanks for taking our question here, So Paul I think the math for the rest of the year puts operating margin below 2014.
Michael Charles Binetti: The rest of year on a comp range two to four not far from your long term guide can you speak to how we rebuild to the level back to long term 14 to 15 margin if the comp trend continues.
Speaker Change: <unk> continues at the two to four type rate in the second half or a comment that you think you can hold share in a category that grows mid single digits is that supportive of 14% to 15% margins and then I guess secondly.
Unknown Attendee: Or a comment that you think you can hold a share in a category that grows mid single digits; is that supportive of 14 to 15% margins? And then, I guess secondly, as you look at the higher markdowns in the marketplace today and think about the backdrop of some of the key brands and the expanding distribution you pointed out, are you seeing promotions more pronounced in the products and brands that have expanded their distribution the most? I'm curious about any link there.
Speaker Change: As you look at the.
Speaker Change: The higher markdowns in the marketplace today and think about the backdrop of some of the key brands.
Expanding distribution. He pointed to are you seeing promotions more pronounced than in the products and brands that have expanded their distribution. The most I'm curious with any any link there.
Speaker Change: Okay.
Paula Oyibo: Let me take the first question and then Dave will talk about what we're seeing in the coalition environment with the Marines. So, Michael, what we've shared is that, you know, the top line performance plays a really important role in our ability to drive fixed cost leverage. And COPS below our long-term algorithm really causes a challenge for us to be able to drive margins at that range above the 14 and 15.
Speaker Change: Let me I'll take the first question and then.
Dave will talk about what we're seeing too bullish environment with the Marines.
Michael Charles Binetti: So Michael what we what we've shared is that you know.
Speaker Change: The topline performance plays a really important role in our ability to drive fixed cost leverage and cost are below our long term algorithm.
Speaker Change: Really.
Speaker Change: Causes a challenge for us to be able to.
Speaker Change: To drive margin and add back at that range and above.
Speaker Change: 2015, and you'll see that what we're how we've adjusted our guidance. So on a quantity of three our low end has come down because of the effect of that.
Speaker Change: The difficulty of leveraging occupancy costs.
Paula Oyibo: And you see that with how we've adjusted our guidance. And so on a two or three, our low end has come down because of the effect of that difficulty in leveraging occupancy costs. What I would say is, from a long-term perspective, we're not sharing long-term guidance on this call today. But we do have an investor day in October, and we plan to share more about the opportunities ahead, how we're thinking about the next phase of growth, and, of course, how that impacts our financial results.
Speaker Change: What I would say is from a long term perspective, we're not sharing that long term guidance on the call today, but we do have an investor day in October and we plan to share more about the opportunities ahead in how we're thinking about the next phase of growth and of course, how that <unk>.
Speaker Change: The impacts are.
Speaker Change: Please.
Michael Charles Binetti: And as far as promotional environment, Michael Yeah, we came into the year.
Paula Oyibo: As far as the promotional environment is concerned, Michael, we came into the year with the assumption that the promotional environment would increase but remain rational. We built in expectations that we would be able to continue to invest in core parts of our business going forward. What we're seeing now is that largely that's holding true. We continue to plan for promotional levels to increase in 2023 because of the competitive nature of this business right now. But as we saw in the first quarter and we anticipate through the rest of the year, we're not looking to an irrational level of promotion, I guess I'd say, of promotion, and we expect our promotional levels to be below 2019 levels for the year, and that's in large part due to our CRM capabilities and promotional efficiencies.
Michael Charles Binetti: With the assumption that the promotional environment would would increase but remain.
Speaker Change: Rational and we built in expectations that we would be able to continue to invest in core parts of our business.
Speaker Change: Going forward as well.
Speaker Change: What we're seeing now is largely that's holding true we continue to plan for promotional levels to increase in 2023 because of the competitive nature of this business right now.
Speaker Change: But as we as we.
Speaker Change: We saw in the first quarter and we anticipate through the rest of the year, we're not looking to.
Speaker Change: A in a rational level I guess I'd say of promotional and we expect our.
Speaker Change: Our promotional levels to be below 2019 levels for the year and that's.
Speaker Change: In large part due to our CRM capabilities promotional efficiencies as far as specifically about brands.
Paula Oyibo: As far as specifically about brands, we haven't really witnessed any specific trends, brands that are in this competitor or in a certain marketplace. It's a broad dynamic going on across the industry, again, elevated but still below historic Ohio.
Speaker Change: We haven't really witness any specific trends brands that are in this this competitor or in a certain marketplace.
Speaker Change: It's a broad dynamic going on across the industry again elevated.
Speaker Change: But still below historical highs.
Operator: Operator, I think we have time for one more question. Our next question is from Krisztina Katia with Deutsche Bank. Please proceed. Hi, good afternoon, and thanks for squeezing me in. So, Dave, I wanted to follow up on the call-to-action items. Maybe if you could talk a bit more about how these are helping.
Speaker Change: So operator, I think we have time for one more question.
Operator: Our next question is from Krisztina Katia with Deutsche Bank. Please proceed.
Speaker Change: Our next question is from Cristina <unk> with Deutsche Bank. Please proceed.
Cristina: Hi, good afternoon, Thanks for squeezing me in.
Cristina: I wanted to follow up on the call to action item, maybe if you could talk a bit more about how these are helping with just increased member retention, you're seeing and what you can share on the promotional efficiencies of your different end point multiplier events that you have been working on since then market share and then secondly, just how do you view the composition of your brand portfolio.
Speaker Change: Currently and I'm asking this in particular, just your legacy brands with some of them getting their own storefront at a competitor's website. Thank you.
Speaker Change: Well, let's see on the on the actions that were taken to drive our business I've highlighted them into all of them come in as we came into the plant ended the year with a number of initiatives that we're continuing to drive and then we're finding ways to.
David C. Kimbell: Well, let's see on the actions that we're taking to drive our business. I've highlighted them, and not all of them come in there. We came at the end of the year with a number of initiatives that we're continuing to drive, and then we're finding ways to do even more.
Speaker Change: To do even more newness being a big part of that we're excited about our program I highlighted many of the activities, we talked about social and marketing efforts specifically around promotional.
Speaker Change: The program in a few things I'd highlight is.
David C. Kimbell: Newness being a big part of that, we're excited about our program, I highlighted many of the activities; we talked about social and marketing efforts, specifically around the promotional program. And a few things I'd highlight are we're continuing to amplify and elevate our key tentpole events, like our semi-annual beauty event we held in Q1, our Spring Hall event, we've got an event coming up in the summer this year and more throughout the rest of the year and certainly going into holiday.
Speaker Change: We're continuing to amplify.
Speaker Change: And elevate our key tentpole events.
Like our semiannual beauty event, we held in Q1, our spring Hall event, we've got a.
Speaker Change: A bank coming up.
Speaker Change: In the summer of this year and more throughout the rest of the year and certainly going into holiday that is a an effort that every year, we continue to find ways to improve elevate the connection and the relationship that we build with our guests through the power of these tent pole events, we complement that through.
Speaker Change: Steady.
Speaker Change: Effort in promotional connection that's more targeted through the power of our loyalty program.
Speaker Change: The strength in the personalization efforts and we see that right now we're in the midst of a program that you've seen in the market what we call member love It it's a three week.
Speaker Change: Graham each week, highlighting a different category. This week focused on skin care and what we see with that is a really differentiated way to connect with our guests to again add more value to our guests in a way that only ulta beauty can to leverage our personalization and differentiation capabilities the strength of our loyalty program and we're pleased with.
Speaker Change: The results that we will continue to.
Speaker Change: Amplify the big the.
Speaker Change: Big efforts that we have throughout the year and complement that with targeted efficient promotions that we have a lot of data to continue to optimize as far as our brand portfolio I'm really.
Speaker Change: Proud and pleased with the portfolio that we that we have we've got.
Speaker Change: The very best of beauty, we've got brands across all major categories all price points from the biggest most established longest term brands in this category to continue to provide great performance and outlook for us brands like Mac and Clinique and lancome.
Speaker Change: Yesterday Lauder brand newer brands like cosmic from Kylie.
Speaker Change: And and win from Serena.
Speaker Change: We've got the portfolio of emerging large emerging brands large brands.
Speaker Change: Strength in all key segments of the category, So I highlighted that the.
Speaker Change: The competitive environment continues to evolve and brands will adapt to that and take advantage of growth prospects, where they see them, but to reiterate something I mentioned.
Speaker Change: You mentioned in a previous question our brand relationships are incredibly strong it's something that we value immensely and worked hard to.
Speaker Change: To continue to develop and so our brands see us as a place for growth that are experiencing so many of them are experiencing that growth right now and that's one of the one of the many reasons that I'm very confident in the future of Ulta beauty.
Speaker Change: And we're very.
Speaker Change: Clear on our what's ahead of us throughout 'twenty throughout 2024, and ready to continue to lead the category for the long term.
Speaker Change: Okay, so with that.
David C. Kimbell: That is an effort that every year we continue to find ways to improve, elevate the connection and the relationship that we build with our guests through the power of these tentpole events. We complement that through, you know, a steady effort in promotional communication that's more targeted through the power of our loyalty program and the strength of the personalization efforts. And we see that right now, we're in the midst of a program that you've seen on the market, what we call Member Love.
Speaker Change: Let me wrap up today with just a couple of quick remarks, our teams are working hard to deliver against our short term objectives, while also taking necessary steps to position Ulta beauty for longer term profitable growth and I want to thank our more than 50000, Ulta beauty associates across the country for <unk>.
David C. Kimbell: So, we'll continue to amplify the big efforts that we have throughout the year and complement that with targeted, efficient promotions that we have a lot of data to continue to optimize. Our brands see us as a place for growth, and so many of them are experiencing that growth right now.
David C. Kimbell: That's one of the many reasons that I'm very confident in the future of Ulta Beauty. We're very clear on what's ahead of us throughout 2024 and ready to continue to lead the category for the long term. Okay, so with that.
David C. Kimbell: Let me wrap up today with just a couple of quick remarks. Our teams are working hard to deliver against our short-term objectives while also taking the necessary steps to position Ulta Beauty for longer-term profitable growth. And I want to thank our more than 50,000 Ulta Beauty associates across the country for all that they are doing. Again, I appreciate your interest in Ulta Beauty, and we look forward to speaking to you all again when we report our results for the second quarter on August 29th. I hope you all have a great evening. Thanks again for joining us.
Speaker Change: All that they are doing again I appreciate your interest in Ulta beauty and we look forward to speaking to you all again when we report our results for the second quarter on August 29.
Speaker Change: I Hope you all have a great evening, thanks again for joining.
Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Speaker Change: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Speaker Change: Okay.
Speaker Change: [music].