Q2 2024 Ulta Beauty Inc Earnings Call
Good afternoon, and welcome to Ulta Beauty's conference call to discuss results for the Ulta beauty second quarter 'twenty 'twenty four earnings results.
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.
Speaker Change: Keypad as a reminder, this conference is being recorded it is now my pleasure to introduce you to Miske Island Wall Lynch, Vice President of Investor Relations Ms. Walgreens. Please proceed.
Speaker Change: Okay.
Speaker Change: Thanks Louise.
Speaker Change: Good afternoon, everyone and thank you for joining us for a discussion about gbt's results for the second quarter and fiscal 2020 for hosting our call today are Dave Kimbell, Chief Executive Officer, and all of you Bowe Chief Financial Officer, Keisha, Spielmann, President and Chief operating officer will join us for the Q&A session.
Speaker Change: Before we begin I'd like to remind you of the Companys 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.
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.
Speaker Change: We caution you not to place undue reliance on these forward looking statements, which speak only as of today August 29, 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.
Speaker Change: We'll begin this afternoon with prepared remarks from David follow up following our prepared comments, we'll open up the call for questions to allow us to accommodate as many questions as possible during the hour scheduled for this call. We respectfully ask that you limit your time to one question. If you have an additional question. Please re queue as always the IR team will be available for any follow ups.
Dave: <unk> after the call and now I'd like to turn the call over to Dave Dave. Thank you Kelly and good afternoon, everyone. We appreciate your interest in Ulta beauty.
Speaker Change: For the quarter net sales increased 9% to $2 6 billion and comparable sales decreased one 2% operating profit was 12, 9% of sales and diluted EPS was $5 30 per share.
Speaker Change: Although we anticipated the headwinds experienced in the first quarter would continue our results were short of our expectations driven by a decrease in comp store sales specifically comp store transactions.
Speaker Change: Commerce sales increased as expected.
Speaker Change: We do not believe these results reflect the strong engagement with our brand the strength of our operating model or the performance I know, we can deliver over the longer term.
Speaker Change: Importantly, we are clear about the factors that adversely impacted our store transaction growth in the second quarter and we have actions underway to address the trends.
We attribute the decline in comp store transactions to four factors.
Speaker Change: First while the beauty category remains resilient growth is normalizing after three years of unprecedented gauge. Additionally.
Speaker Change: Additionally, consumer behavior is starting to shift as consumers increasingly focus on value and become more cautious with their spending base.
Speaker Change: Based on data from Serco U S beauty growth slowed to approximately 3% through the first half of 2024.
Speaker Change: With prestige beauty experiencing high single digit growth in mass beauty, maintaining low single digit growth.
Speaker Change: Second competitive intensity in the beauty category remains high as we have shared previously the strength of the beauty category combined with an attractive margin profile has drawn substantial 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 in the last three years.
Speaker Change: As a result, our market share continues to be challenged particularly within prestige beauty.
Speaker Change: Based on <unk> data for the 13 weeks ended August three 2024, we maintained our share in mass beauty, but lost share in the beauty prestige beauty, particularly driven by makeup and hair categories.
Speaker Change: We know beauty enthusiasts love to shop for beauty and they loved Ulta beauty and the unique experiences we offer but they also love engaging a new beauty offerings. As a result, we often see a short term impact of new distribution points on an existing nearby store, whether its a competitor opening or a new ulta beauty store.
Speaker Change: What is unique about the current environment has the scale and pace of change.
Speaker Change: More than 80% of our stores have been impacted by one or more competitive opening in recent years with more than half impacted by multiple competitive openings.
Speaker Change: This significant portion of our store fleet is experiencing a prolonged sales impact.
Speaker Change: Notably the positive signals, we see in our broader business reinforced the appeal of our differentiated model and our confidence that we will mitigate these near term competitive pressures.
Speaker Change: Our brand awareness and brand love continue to increase with strong gains across multiple demographics, demonstrating the broad appeal of our unique all things beauty all in one place offering.
Speaker Change: We continue to attract new and lapsed members to our loyalty program, while maintaining strong retention of our existing members.
Speaker Change: At the end of the second quarter, we had $43 9 million active Ulta beauty rewards members, 5% more than last year.
Speaker Change: Importantly, we continued to experience healthy growth in our platinum and Diamond members.
Speaker Change: Newness continues to resonate with guests and drive growth newer brands, including Sol de Janiero, Charlotte Tilbury and only hendrickson, our driving sales new member acquisition and member Reengagement, while newness from a variety of existing brands, including Clinique weigh in pizza and Lilly are driving healthy comp growth.
Speaker Change: Guests continue to engage with our unique in store services, offering which delivered mid single digit growth in the quarter and new stores contingent continued to perform well during the quarter, we opened 17 stores, including our 1400 store and.
Speaker Change: And their performance was in line with our expectations.
Speaker Change: Now we disrupted the beauty category for more than 30 years, and we understand how to successfully manage competitive forces.
Speaker Change: To reinforce our competitive position and drive stronger performance, we are aggressively taking actions across five areas.
Strengthening our assortment expanding our social relevance.
Speaker Change: Hansen, our digital experience leveraging our powerful loyalty program and evolving our promotional levers.
Speaker Change: We'll discuss each of these areas in detail shortly.
Speaker Change: Now in addition to these external factors, we experienced unanticipated operational disruption during the quarter, resulting from the completion of our ERP transformation.
Speaker Change: In March we began updating key store assistance through a thoughtful and controlled implementation plan and in July we finished the migration of all of our stores to our new ERP platform.
Speaker Change: We are pleased to have successfully completed this important phase, but we have experienced some unexpected operational challenges as our teams have adjusted to new capabilities, new processes and new ways of working associated with the new systems, specifically through the transition our teams were managing portions of our fleet on.
Speaker Change: Both the old and new systems, which led to some store inventory allocation disruption.
Speaker Change: With all of our stores in D. C is now operating on the same core systems. We are shifting from implementation to system optimization and are working quickly to help our teams navigate these new ways of working in order to balance inventories across our network and deliver an optimized guest experience.
Speaker Change: Minimize future disruption, we have identified key legacy processes that are creating friction and implemented proactive monitoring as well as dedicated support to quickly address issues when they arise.
Speaker Change: I am confident that our new capabilities will support better more agile decision, making in the future and I am grateful for our collective team's hard work and dedication to manage through this critical transformation.
The fourth factor impacting our performance this quarter was the effect of incremental promotions, which did not deliver the expected sales lift.
Operator: Good afternoon and welcome to Ulta Beauty's conference call to discuss results for the Ulta Beauty second 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 would please limit yourself to one question and then re-enter the queue for any additional questions. If anyone wants to require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
As the top line trends softened in late June and July we executed incremental promotions to drive revenue.
Speaker Change: These offers drove strong sales and traffic across our digital platforms, but did not deliver the expected incrementals city in stores.
Speaker Change: The increased frequency of offers combined with the introduction of new offer structures put pressure on average selling price without activating incremental purchases in stores.
Speaker Change: We understand why the incremental promotions did not deliver as expected and we'll apply these learnings as we manage promotional activity in the second half.
Kylin Walwins: It is now my pleasure to introduce you to Miss Kylin, Walwins, Vice President of Investor Relations. Miss Walwins, please proceed. Thanks, Alicia. Good afternoon, everyone and thank you for joining us for a discussion of Ulta Beauty's results for the second quarter of fiscal 2024. Posting our call today are Dave Kimball, Chief Executive Officer, and Paul Oyibo, Chief Financial Officer.
Speaker Change: Turning now to performance by category fragrance delivered double digit growth driven by strong guest engagement with mothers' day and exciting newness.
Speaker Change: Newness from existing brands, including Valentino, YSL, and Burberry as well as new brands noise or Bella and Kylie Jenner all of which are exclusive to ulta contributed to the categories growth.
Kylin Walwins: Keisha Steelman, President and Chief Operating Officer will join us for the Q&A session.
Speaker Change: Our exciting mother's day gift with purchase offers and gift sets fueled strong guest engagement and our unique assortment of gift sets for father's day and back to school also delivered growth for the category.
Kylin Walwins: 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 Security's litigation reform act of 1995. Actual future results make it from materially from those projected in such statements due to a number of risks and uncertainties all of which are described in the company's filing to the SEC.
Speaker Change: The skincare category delivered mid single digit comp growth this quarter driven by strong growth in body care.
Speaker Change: Sol de Janiero continues to excite guests and this quarter, we introduced an exclusive party mist, which is resonating well.
Speaker Change: Reflecting the appeal of dermatologists recommended brands and favorite in the Roche pose and new brands and that's all in banner cream delivered strong Roes and.
Kylin Walwins: We caution you not to place undue alliance on the forward-looking statements, which speak only as of today, August 29, 2024. We have no obligations to update or revise our forward-looking statements except as required by law and you should not expect us to do so.
Speaker Change: And relevant mass brands, including bubble in biomarker continued to engage guests.
Speaker Change: Overall prestige skincare was pressured as engaging newness from pizza and Lily in early Hendrickson was offset by softness from certain brands impacted by increased distribution or the lapping of strong social media engagement last year.
Kylin Walwins: We'll begin this afternoon with a pair of remarks from Dave and Paula. Following our prepared comments, we'll open up the call for questions. To allow us to accommodate as many questions as possible during the hour scheduled for this call, we respectfully ask that you limit your time to one question. If you have an additional question, please read you.
Speaker Change: Comp sales in the makeup category decreased in the mid single digit range.
Speaker Change: New brands, Charlotte, Tilbury polite society and win beauty as well as exclusive newness from Clinique delivered strong growth. This growth was more than offset by sales decreases from existing brands that had newness that that did not meet expectations or have experienced increased points of distribution in the market.
Kylin Walwins: As always, the IR team will be available for any follow-up questions after the call.
Dave Kimball: And now I'd like to turn the call over to Dave. Thank you, Kylie. And good afternoon, everyone. We appreciate your interest in ultra-beauty. For the quarter, net sales increased 0.9 percent to $2.6 billion, and comparable sales decreased 1.2 percent. Operating profit was 12.9 percent of sales, and the looted EPS was $5.30 per share. Although we anticipated the headwinds experienced in the first quarter would continue, our results were short of our expectations, driven by a decrease in comp-store sales, specifically comp-store transactions.
Speaker Change: In Mathematica health about face and Milani delivered strong growth, but this growth was mitigated by planned softness and Ulta beauty collection as we prepared for the brand relaunch.
Speaker Change: Comp sales for the hair care category decreased in the high single digit range, driven primarily by planned promotional shift.
Speaker Change: As we shared previously we incorporated prestige hair care offers in our first quarter semiannual beauty sale and eliminated our gorgeous hair event, which took place in may of last year.
Dave Kimball: E-commerce sales increased as expected. We do not believe these results reflect the strong engagement with our brand, the strength of our operating model, or the performance I know we can deliver over the longer term. Importantly, we are clear about the factors that adversely impacted our store transaction growth in the second quarter, and we have actions underway to address the trends.
Speaker Change: In addition, the impact of exciting newness from way Debbie you know Dell and strong engagement with Reg can was offset by pressure from key brands lapping strong newness last year.
Speaker Change: As I mentioned at the outset, we are focused on five key areas to reinforce our competitive position and we are pleased with the progress we've made in many areas and I've added in and have identified further opportunities to shift our momentum.
Dave Kimball: We attribute the decline in comp-store transactions to four factors. First, what the beauty category remains resilient, growth is normalizing after three years of unprecedented gain. Editionally, consumer behavior is starting to shift as consumers increasingly focus on value and become more cautious with their spending. Based on data from Serkana, US beauty growth slowed to approximately 3% through the first half of 2024, with prestige beauty experiencing high single digit growth and mass beauty maintaining low single digit growth.
Speaker Change: Starting with our efforts to strengthen our assortment during the quarter, we continued to enhance our brand portfolio with new engaging brands, including our Bella <unk> and naked Sundays, while also launching several emerging exclusive brands through our spark program, including door, a clean French beauty inspired skincare brand magic molecule.
<unk> skincare healing brand and noise, a premium gender neutral fragrance.
Dave Kimball: Second, competitive intensity in the beauty category remains high. As we have shared previously, the strength of the beauty category combined with an attractive margin profile has drawn substantial 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 three years. As a result, our market share continues to be challenged, particularly within prestige beauty.
Speaker Change: We also expanded in key growth driving brands like Solvay, Janeiro, Mack and keels into additional stores.
Speaker Change: Looking ahead, we have an exciting pipeline that brand launches planned for the balance of the year, including the recently announced Elia beauty a clean skin centric prestige makeup brand and did this beauty a multipurpose easy to use makeup brand.
Speaker Change: In addition to enhancing our assortment with compelling newness, we are focused on building greater awareness and engagement with key exclusive brands, including Pizza Lilly Polite society, when beauty and Lola Bay, while also collaborating closely with strategic legacy brands to drive stronger growth and profitability.
Dave Kimball: Based on Serkana data for the 13 weeks ended August 3rd, 2024, we maintain our share in mass beauty, but lost share in the beauty prestige beauty, particularly driven by makeup and hair categories. We know beauty enthusiasts love to shop for beauty, and they love Ulta Beauty and the unique experiences we offer. But they also love engaging in new beauty offerings. As a result, we often see a short term impact of new distribution points on an existing nearby store, whether it's a competitor opening or a new Ulta Beauty store.
Speaker Change: I'm excited to share that we have relaunched Ulta beauty collection to inspire beauty discovery celebrate self expression and create a deeper emotional connection with guests.
Speaker Change: We simplified and good for you formulas. The new collection includes refresh refreshed fan favorites as well as new innovations that reflect modern trends across skincare body care fast Sun care and cosmetics.
Dave Kimball: What is unique about the current environment is the scale and pace of change, more than 80% of our stores have been impacted by one or more competitive opening in recent years, with more than half impacted by multiple competitive openings. This significant portion of our store fleet is experiencing a prolonged sales impact. Notably, the positive signals we see in our broader business reinforce the appeal of our differentiated model and our confidence that we will mitigate these near term competitive pressures.
Speaker Change: Certified with clean ingredients and cruelty free products across the entire assortment to re imagine cannot collection is positioned at a masstige price point and is designed to make beauty discover.
Speaker Change: Beauty discovery purposeful and accessible for beauty enthusiasts of all ages.
Speaker Change: While the new assortment has only been available for a few weeks and it's still ramping up as we roll out additional skus. We are pleased with our early results.
Speaker Change: Social relevance powers customer connection and loyalty.
Speaker Change: To accelerate our social relevance and enhance our brand awareness, we have scaled our creator and Influencer networks and we are expanding our culture forward Activations to ensure we are at the heart of the social and cultural conversation for beauty as.
Dave Kimball: Our brand awareness and brand love continued to increase with strong gains across multiple demographics demonstrating the broad appeal of our unique all things beauty all in one place offering. We continue to attract new and last members to our loyalty program while maintaining strong retention of our existing members. At the end of the second quarter, we have 43.9 million active Ulta Beauty rewards members, 5% more than last year. Importantly, we continue to experience healthy growth in our platinum and diamond members.
Speaker Change: As a result this quarter, we delivered meaningful growth in earned media value and social sentiment and drove more than 250 million social impressions.
Speaker Change: During the quarter, we doubled the size of our Influencer network to include a double a diverse range of influencers across key audience segments to reflect our inclusive audience targeting strategy.
Dave Kimball: Nunes continues to resonate with guest and drive growth. Newer brands, including Soldage Nero, Charlotte Tilbury and Holy Hendrickson, are driving sales, new member acquisition and memory engagement, while Nunes from a variety of existing brands, including Clinique, Way and Peach and Lily are driving healthy comp growth. Guests continue to engage with our unique in-store services offering which delivered mid single-digit growth in the quarter, and new stores continue to perform well. During the quarter, we opened 17 stores, including our 1,400th store, and their performance was in line with our expectations. Now, we've disrupted the beauty category for more than 30 years and we understand how to successfully manage competitive forces.
Speaker Change: We also launched Ulta Beauty's, our new Associate Ambassador program to harness the superpowers of our team and highlight the expertise and passion of our talented associates.
Speaker Change: As a group these talented creators developed compelling content and support of our Big Summer beauty sale back to school and the Joy project, which increased our <unk> by more than 10% this quarter.
Speaker Change: Additionally, we launched a new affiliate program UV creates to drive traffic and conversion.
Speaker Change: Last year, we launched the Joy project, a multiyear initiative to make beauty and the world and more joyful place in celebration of National day of Joy, We kicked off the second chapter of our joint project with the launch of a social movement to spark positivity in the beauty space partnering with brands celebrities and creators as well as our own Ub collective and UV beauties.
Dave Kimball: To reinforce our competitive position and drive stronger performance, we are aggressively taking actions across five areas. Strington in our assortment, expanding our social relevance, enhancing our digital experience, leveraging our powerful loyalty program, and evolving our promotional levers. I will discuss each of these areas in detail shortly.
Speaker Change: Our viral complement change we reached more than 260 million people and generated meaningful growth in E&P.
Speaker Change: To continue to expand our social relevance, we plan to deploy amplification and content strategies in the second half leading into trend and cultural moments leveraging our expanded creator network and enhancing brand partner Activations.
Dave Kimball: Now, in addition to these external factors, we experienced unanticipated operational disruption during the quarter, resulting from the completion of our ERP transformation. In March, we began updating[inaudible] of our fleet on both the old and new systems, which led to some store inventory allocation disruption. With all of our stores and DCs now operating on the same core systems, we are shifting from implementation to system optimization, and are working quickly to help our teams navigate these new ways of working in order to balance inventories across the network and deliver an optimized guest experience.
Speaker Change: Leveraging new capabilities, we are enhancing our digital experiences to drive traffic and sales.
Speaker Change: During the quarter, we enhanced search and filtering functionality to make it easier for guests to find what they want quickly and we streamlined the path to purchase with a new quick add the bag feature making it more convenient for guests to add products to their cart.
Speaker Change: And to facilitate greater basket building, we introduced new personalized product recommendations and additional upsell placements along the guests purchasing journey.
Speaker Change: Importantly, we continued to drive increased app adoption through associate engagement targeted communications and App only offers.
Speaker Change: In the second quarter member engagement with our App increased 16% and now our App accounts for about two thirds of our E Commerce sales 600 basis points higher than last year.
Speaker Change: The App is a vital tool to drive e-commerce sales the majority of our spend from App users actually incurs in store.
Speaker Change: The app another key engagement tool to drive sales per member.
Dave Kimball: To minimize future disruption, we have identified key legacy processes that are creating friction and implemented proactive monitoring as well as dedicated support to quickly address issues when they arise. I am confident that our new capabilities will support better, more agile decision making in the future, and I am grateful for our collective team's hard work and dedication to manage through this critical transformation.
As we look forward, we will continue to create and applying new digital features and functionality to give our guests new and more convenient ways to discover transact and engage with Ulta beauty.
Speaker Change: With more than 44 million active members. Our loyalty program is a strategic asset that provides us with unique insights across categories price points and channels and enables us to drive traffic and spend per member.
Dave Kimball: The fourth factor impacting our performance this quarter was the effect of incremental promotions, which did not deliver the expected sales lift. As the top line trends softened in late June and July, we executed incremental promotions to drive revenue. These offers drove strong sales and traffic across our digital platforms, but did not deliver the expected incrementality in stores. The increased frequency of offers combined with the introduction of new offer structures put pressure on average selling price without activating incremental purchases and stores.
Speaker Change: To drive deeper connection and greater awareness, we are amplifying the value of our rewards program through member only events, social engagement and marketing Activations.
Speaker Change: In May we launched remember love a member only event of enticing category focus points offers which deliver healthy member engagement is higher spend per member and in July we launched our first member tiered offer to drive traffic New member acquisition and member reactivation.
Speaker Change: In addition to targeted events and communications, we have integrated our rewards program into our digital experience mags and tentpole events to drive engagement and reinforced the value of the program.
Dave Kimball: We understand why the incremental promotions did not deliver as expected and will apply these learnings as we manage promotional activity in the second half. Turning now to performance by category, fragrance delivered double digit growth driven by strong guest engagement with Motherstay and exciting newness. Nunes from existing brands, including Palatino, YSL and Burberry, as well as new brands, noise or Bella and Kylie Jenner, all of which are exclusive to Ulta contributed to the category's growth.
Looking ahead, we are focused on attracting customer segments.
Speaker Change: To drive new member growth driving differentiated engagement early in the lifecycle to enhance retention and leveraging our extensive member data to accelerate traffic.
Speaker Change: Finally, we continue to evolve our promotional strategies to drive traffic and sales.
Speaker Change: Supported by a robust media strategy in store amplification and engaging social content, we enhanced our big summer beauty sale event with compelling offers across categories and price points in.
Dave Kimball: Our exciting Motherstay gift with purchase offers and gift sets fueled strong guest engagement and our unique assortment of gifts sets for Fatherstay and back to school also delivered growth for the category. The skin care category delivered mid single digit comp growth this quarter driven by strong growth and body care. Soldation error continues to its site guest and this quarter, we introduced an exclusive body mist which is resonating. Now, reflecting the appeal of dermatologist-recommended brands and favorite La Roche-Pose, and new brands Hanoxo and Vannecreme delivered strong roles, and relevant mass brands, including bubble and bioma, continued to engage guests.
Speaker Change: In addition to driving strong sales at the event delivered growth in new members and member reactivation as well as increased penetration of existing members.
And always a fan favorite and we're excited to kick off 21 days of beauty with a new look new beauty steals and unique events for our best members as the competitive and promotional environment evolves, we will apply the learnings I mentioned earlier and leverage our member insights to execute productive targeted offers while eliminating less effective.
Speaker Change: Motions and applying new capabilities to create engaging events for our guests.
Speaker Change: In closing Ulta beauty remains a key beauty destination with strong consumer awareness and brand love and our exceptional teams are committed to offering guests unique inclusive beauty experiences across all of our touch points.
Dave Kimball: Overall, prestige skin care was pressured as engaging newness from Peach and Lily and Olae Hendrickson, was offset by softness from certain brands impacted by increased distribution or the lapping of strong social media engagement last year. Comp sales and the makeup category decreased in the mid-single-digit range. While new brands starletoeberry, polite society, and wind beauty, as well as exclusive newness from Clinique, delivered strong growth, this growth was more than offset by sales decreases from existing brands that had newness that did not meet expectations, or have experienced increased points of distribution in the market.
Speaker Change: We are confident we have identified the factors that impacted our performance in the second quarter and are focused on the right actions to deliver stronger performance.
As we turn to the second half of the year. Our teams are focused on driving stronger sales and traffic executing with excellence for our guest.
Speaker Change: Exercising financial discipline, as we adapt to a more challenging operating environment.
Dave Kimball: In mass makeup, elf about face and melani delivered strong growth, but this growth was mitigated by planned softness in Ulta Beauty collection as we prepared for the brand relaunch. Comp sales for the hair-care category decreased in the high single-digit range, driven primarily by planned promotional shift. As we share previously, we incorporated prestige hair-care offers in our first quarter semiannual beauty sale, and eliminated our gorgeous hair event, which took place in May of last year. In addition, the impact of exciting newness from Way, Divi, and O'Dell, and strong engagement with Regkin, was offset by pressure from key brands lapping strong newness last year.
Speaker Change: And protecting and cultivating our unique culture, driven by our talented and passionate associates.
Speaker Change: While it will take time to shift the topline trend I remain extremely confident in our model and in our ability to execute and win in an increasingly competitive category.
And now I will turn the call over to Paula for a discussion of the financial results and outlook Paula. Thanks.
Paula: Hey, good afternoon, everyone I'll begin with a discussion of our second quarter financial results and then provide more color on our updated outlook, we faced greater than expected challenges in the second quarter, resulting in overall financial performance that were below our expectations.
Dave Kimball: As I mentioned at the outset, we are focused on five key areas to reinforce our competitive position. We are pleased with the progress we've made in many areas and have identified further opportunities to shift our momentum. Starting with our efforts to strengthen our assortment. During the quarter, we continued to enhance our brand portfolio with new engaging brands, including our Bella, Naturium, and Naked Sundays, while also launching several emerging exclusive brands through our Spark program, including Door, a clean French beauty inspired skincare brand, Magic Molecule, a skincare healing brand, and Noise, a premium gender neutral fragrance.
Paula: Sales wealth from comp stores with softer than expected and gross margin was pressured by incremental promotional offers however, our teams exercise financial discipline, and we took swift action to mitigate impacts of the topline trends.
Paula: Net sales for the quarter increased <unk>, 9% solid start performance from 49, net new store and a 12% increase in other revenue primarily due to an increase in credit card income and growth in royalty income from our target partnership with partially offset by a one 2%.
Paula: Decline in comparable sales during.
Paula: During the quarter, we opened 17, new stores closed one store and remodeled nine stores and relocated one store.
Dave Kimball: We also expanded key road-striving brands like Soldation Arrow, Mac, and Keele's into additional stores. Looking ahead, we have an exciting pipeline that brand launches planned for the balance of the year, including the recently announced Ilya Beauty, a clean skin-centric prestige makeup brand, and Divi's beauty, a multi-purpose easy-to-use makeup brand. In addition to enhancing our assortment with compelling notice, we are focused on building greater awareness and engagement with key exclusive brands, including Peach and Lily, light society, wind beauty, and Lola Bay, while also collaborating closely with strategic legacy brands to drive stronger growth and profitability.
Paula: Comp sales decline was driven by a one 8% decline in transactions, which was partially offset by a 6% increase in average ticket.
Paula: The increase in average ticket reflects growth in average selling price per item.
Paula: Set by lower average units per transaction.
Paula: Looking at the cadence of sales net sales trends can be accelerated as we moved through the quarter with July being our most challenged period.
Paula: Comp store sales declined in the low single digit rate, primarily driven by a decrease in store transactions.
Dave Kimball: I'm excited to share that we have relaunched ultra-beauty collection to inspire beauty discoveries, celebrate self-expression, and create a deeper emotional connection with Guest. With simplified and good for you formulas, the new collection includes refreshed, refreshed band favorites, as well as new innovations that reflect modern trends across skin care, body care, bath, sun care, and cosmetic. Certified with clean ingredients and cruelty-free products across the entire assortment, the reimagined collection is positioned at a mass-dage price point and is designed to make beauty discovery purposeful and accessible for beauty enthusiasts of all ages. While the newest assortment has only been available for a few weeks and is still ramping up as we roll out additional skewers, we are pleased with our early results.
Paula: Average ticket also decrease our digital channel performance was strong with E. Commerce sales increase in the low single digit range across digital channels. The sales trends accelerated as we moved through the quarter with incremental promotional activity driving stronger guest engagement, particularly in July.
If I look quarter gross margin decreased 100 basis points to 38, 3% compared to 39, 3% last year the.
Paula: The decline was primarily due to lower merchandise margin and deleverage of store fixed costs, which were partially offset by growth in other revenues and lower shrink.
Paula: Merchandise margin declined primarily due to increased promotional activity.
Dave Kimball: Social relevance powers customer connection and loyalty. To accelerate our social relevance and enhance our brand awareness, we have scaled our creator and influencer networks and we are expanding our culture forward activations to ensure we are at the heart of the social and cultural conversation for beauty. As a result, this quarter we delivered meaningful growth and earned media value and social sentiment and drove more than 250 million social impressions. During the quarter, we doubled the size of our influencer network to include a diverse range of influencers across key audience segments to reflect our inclusive audience targeting strategy.
Paula: Impact from brand mix and the continued lapping of benefits from price increases last year.
While the impact of the promotional activity with higher than planned it.
Paula: It was well below 2019.
Paula: Yes.
Paula: Store fixed costs also deleveraged.
Driven by lower top line growth and more net new store openings.
Paula: As a percentage of sales inventory shrink with lower in the quarter.
Paula: We completed the rollout of our new fragrance fixtures to all stores and introduced an additional fixture to protect our assortment of popular smaller rollerball fragrances.
Paula: These investments are having a meaningful impact on Franklin staff, and we expect that additional fixtures will support a continuation of the trend.
Dave Kimball: We also launched Ulta Beauty's, our new associate ambassador program to harness the superpowers of our team and highlight the expertise and passion of our talented associates. As a group, these talented creators developed compelling content in support of our big summer beauty sale back to school and the Joy Project, which increased our EMV by more than 10% this quarter. Additionally, we launched a new affiliate program, UV creates to drive traffic and conversion.
Paula: In addition, we continue to increase our ORP focus and have deployed new tools capabilities and training to our store and failed loss prevention teams.
Paula: Year to date shrink as a percentage of sales is flat with last year and we continue to expect shrink will be roughly flat for the full year.
Paula: Moving to expenses SG&A increased seven 3% to $645 million.
Dave Kimball: Last year, we launched the Joy Project, a multi-year initiative to make beauty and the world a more joyful place. In celebration of National Day of Joy, we kicked off the second chapter of our Joy Project with a launch of a social movement to spark positivity in the beauty space, partnering with brands, celebrities and creators, as well as our own UV collective and UV beauties, our viral complement chain reached more than 260 million people and generated meaningful growth in EMV. To continue to expand our social relevance, we plan to deploy amplification and content strategies in the second half, leading into trend and cultural moments, leveraging our expanded creator network and enhancing brand partner activations.
Paula: Overall SG&A spend was better than plan again, this quarter, primarily due to focused expense management.
Paula: As a percentage of sales SG&A increased 160 basis points to 25, 3% compared to 23, 7% last year.
Paula: Reflecting lower topline growth most expenses deleveraged this quarter.
Paula: In addition, we preserved sales driving expenses, including store labor and marketing and completed key elements of our transformation agenda this quarter.
Paula: These pressures were partially offset by lower incentive compensation, reflecting operational performance that was below our internal targets.
Dave Kimball: Leveraging new capabilities, we are enhancing our digital experiences to drive traffic and sales. During the quarter, we enhanced search and filtering functionality and make it easier for guests to find what they want quickly, and we streamlined the path to purchase with a new quick add to bag feature, making it more convenient for guests to add products to the cart. And to facilitate greater basket building, we introduced new personalized product recommendations and additional upsell placements along the guest purchasing journey.
Paula: Operating margin was 12, 9% of sales compared to 15, 5% sales last year and diluted GAAP earnings per share was $5 30 compared to $6 two since last year.
Paula: Moving to the balance sheet and capital allocation priorities, we ended the quarter with $414 million in cash and cash equivalents total inventory increased 10, one for close to.
Dave Kimball: Importantly, we continued to drive increased app adoption through associate engagement, targeted communications and app only offers. In the second quarter, member engagement with our app increased 16%, and now our app accounts for about two thirds of our e-commerce sales, 600 basis points higher than last year. While the app is a vital tool to drive e-commerce sales, the majority of our spend from app users actually incurs in store, making the app another key engagement tool to drive sales per member.
Paula: The $2 billion compared to one $8 billion last year.
Paula: In addition to the impact of 49 net new stores. The increase was primarily due to inventory to support new brand and the opening of our new market fulfillment Center in South Carolina, which opened in the third quarter last year.
Paula: Year to date through the second quarter, we generated $359 million in operating cash flow capital expenditures were $95 million for the quarter, primarily reflecting investments in new and existing stores.
Dave Kimball: As we look forward, we will continue to create and apply new digital features and functionality to give our guests new and more convenient ways to discover, transact, and engage with Ulta Beauty. With more than 44 million active members, our loyalty program is a strategic asset that provides us with unique insights across categories, price points and channels, and enables us to drive traffic and spend for members. To drive deeper connection and greater awareness, we are amplifying the value of our rewards program through member-only events, social engagement, and marketing activations.
Investments in merchandize fixtures.
Paula: Depreciation was $65 million compared to $62 million last year, primarily due to higher depreciation related to new stores and it investments.
Paula: In the second quarter, we returned $212 million of capital to our shareholders through the repurchase of 550000 shares at.
Paula: At the end of the quarter, we had $1 6 billion remaining under our current $2 billion repurchase authorization.
Dave Kimball: In May, we launched Member Love, a member-only event of enticing category-focused points offers which delivered healthy member engagement if higher spend per member. And in July, we launched our first member tiered offer to drive traffic, new member acquisition, and member reactivations. In addition to targeted events and communications, we have integrated our rewards program into our digital experience, mags, and tent pole events, to drive engagement and reinforce the value of the program. Looking ahead, we are focused on attracting customer segments to drive new member growth, driving differentiated engagement early in the life cycle to enhance retention, and leveraging our extensive member data to accelerate traffic.
Paula: Now turning to our outlook, we have taken a more cautious view for the year. We now expect net sales for the year will be between 11, and $11 2 billion with comp sales in the range of down 2% to flat.
Paula: In addition to reflecting our first half performance our updated outlook for sales, but certainly it will take more time for our actions to change the top line trajectory and that stores impacted by multiple competitive openings will continue to be pressured more than the rest of the fleet.
Paula: The operating environment remains dynamic and the low end of our range implies incremental pressure on consumer spending.
Dave Kimball: Finally, we continue to evolve our promotional strategies to drive traffic and sales. Supported by a robust media strategy, in-store amplification, and engaging social content, we enhanced our big summer beauty sale event with compelling offers across categories and price points. In addition to driving strong sales, the event delivered growth in new members and member reactivations, as well as increased penetration of existing members. And always a fan favorite, we're excited to kick off 21 days of beauty with a new look, new beauty sales, and unique events for our best members.
Paula: For the year, we expect operating margin will be between 12, 7% and 13% of net sales most of the reduction in our expectation for operating margin compared to our previous view is due to the lower top line, but we have also included flexibility to respond to the evolving promotional environment.
For the year, we expect gross margin will deleverage 70 to 90 basis points as lower merchandize margin and deleverage of store fixed costs are partially offset by other revenue growth and lower transportation costs.
Dave Kimball: As a competitive and promotional environment evolves, we will apply the learnings I mentioned earlier and leverage our member insights to execute productive, targeted offers while eliminating less effective promotions and applying new capabilities to create engaging events for our guests.
Paula: For the year, we expect SG&A expense will increase in the mid single digit range.
Paula: We expect many of the trends we experienced in the first half will continue in the second half with SG&A driving most of the operating margin deleverage.
Dave Kimball: In closing, ultra beauty remains a key beauty destination with strong consumer awareness and brand love, and our exceptional teams are committed to offering guest unique, inclusive beauty experiences across all of our touch points. We are confident we have identified the factors that impacted our performance in the second quarter, and are focused on the right actions to deliver stronger performance. As we turn to the second half of the year, our teams are focused on driving stronger sales and traffic, executing with excellence for our guest, exercising financial discipline as we adapt to a more challenging operating environment, and protecting and cultivating our unique culture driven by our talented and passionate associates. Well, it will take time to shift the top line trend. I remain extremely confident in our model and in our ability to execute and win in an increasingly competitive category.
Paula: Reflecting these assumptions, we now anticipate diluted EPS will be in the range of $22 60.
Paula: To $23 50 per share.
Paula: We continue to expect to generate strong operating cash flow for the year, which will support our planned capex investments of $400 million to $450 million and share repurchases of $1 billion.
Paula: In closing we are focused on improving performance in the second half and we believe our Neiman and go to market strategy, along with continued operational and financial discipline will enable us to navigate the dynamic environment and drive improved sales and profit momentum overtime and <unk>.
Speaker Change: Now I'll turn the call over to our operator to moderate the Q&A section.
Paula: Operator.
Speaker Change: Thank you we will now be conducting a question and answer session.
Speaker Change: I 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 from the queue for participants using speaker equipment. It.
Paula Oyibo: And now I will turn the call over to Paula for a discussion of the financial results and outlook. Paula. Thanks Dave, and good afternoon everyone. I'll begin with a discussion of our second quarter financial results and then provide more color on our updated. Outlook.
Speaker Change: May be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Paula Oyibo: We face greater than expected challenges in the second quarter, resulting in overall financial performance that were below our expectations. Sales growth from comp stores was softer than expected and rose margin was pressured by incremental promotional offers. However, our teams exercised financial discipline and we took swift actions to mitigate impacts of the top line trend. Net sales for the quarter increased 0.9 percent. Solid news store performance from 49 net news stores and a 12 percent increase in other revenue.
Speaker Change: Thank you. Our first question comes from the line of Steven Forbes with Guggenheim Securities. Please proceed with your question.
Steven Forbes: Good evening, David Paula.
Steven Forbes: Dave I was hoping you could expand on the competitive pressures you noted in the prepared remarks any way to help us contextualize the size of this headwinds such as year, one cannibalization rates and any early insights on the recovery path.
Speaker Change: What does the recovery for those stores impacted looked like and maybe you can give US. An example of some of those earlier stores that were impacted any timeframe just sort of get back to those.
Paula Oyibo: Primarily due to an increase in credit card income and growth and royalty income from our target partnership was partially offset by a 1.2 percent decline in comparable sales. During the quarter, we opened 17 new stores, closed one store, remodeled nine stores and relocated one store. The comp sales decline was driven by a 1.8 percent decline in transactions, which was partially offset by a 0.6 percent increase in average ticket. The increase in average ticket reflects growth in average selling price per item offset by lower average unit per transaction.
Speaker Change: Prior levels pre cannibalization. Thank you.
Speaker Change: Great. Thanks for the question Steve.
Speaker Change: And yes, let me just start with saying we of course are no strangers to competition, we know how to compete effectively.
Speaker Change: And this is as I said in the remarks, a very attractive category that continues.
Speaker Change: To increase in the competitive environment.
Speaker Change: As it relates to.
Speaker Change: Increased points of pressure, what we've shared before is that we.
Speaker Change: Have you historically seen a short term impact on new distribution points on our existing store when a competitor opens near one of our stores. What's unique about this time in this environment is the scale and the pace of change which is so it made it difficult for us to fully forecast the cumulative impact.
Paula Oyibo: Looking at the cadence of sales, net sales trends accelerated as we move to the quarter, which July being our most challenged period. Comp store sales declined in the low single digit range, primarily driven by a decrease in store transactions. In addition, average ticket also decreased. Our digital channel performance was stronger, with e-commerce sales increasing in the low single digit range. Across digital channels, the sales trends accelerated as we move through the quarter, with incremental promotional activities driving stronger gas engagement, particularly in July.
Speaker Change: Yes.
Speaker Change: 80% of our stores have been impacted.
Speaker Change: By one at least one store and as I said in the remarks more than half of our stores have been impacted by multiple competitive openings, which we give you.
Speaker Change: Context, so what that means is if you take a single Ulta beauty store.
Paula Oyibo: For the quarter, growth margin decreased 100 basis points to 38.3 percent compared to 39.3 percent last year. The decline was primarily due to lower merchandise margin and the leverage of store fixed costs, which were partially offset by growth in other revenues and lower shrink, merchandise margin declined primarily due to increased promotional activity, averse impact from brand mix, and the continued laughing of benefits from price increases last year. While the impact of promotional activity was higher than planned, it was well below 2019 levels.
Speaker Change: Two or more competitive stores have opened within that stores trade area, which is unusual for us historically.
Speaker Change: And something that we're navigating through what we saw during this quarter is that stores that have had multiple competitive openings, which again could happen.
Speaker Change: Although over the at different times over the three years that we've been navigating this those stores with multiple competitive openings are underperforming those stores with no or limited competitive impact.
Speaker Change: Stores that have the segment of stores that have not had a direct in market trade area of competitive impact deliver positive comps for the quarter, which is another.
Paula Oyibo: Store fixed costs also do leverage driven by lower top line growth and more net new store openings. As a percentage of sales inventory shrink was lower in the quarter, we completed the rollout of our new fragrance fixtures to all stores and introduced an additional fixture to protect our sortment of popular, smaller rollable fragrances. These investments are having a meaningful impact on fragrance best, and we expect the additional fixtures will support a continuation of the trend.
Speaker Change: A reason that we feel confident in our model and our business and our guest engagement star.
Speaker Change: Stores that have just one competitive opening that occurred early in the expansion cycles are performing in line with historical trends. Another data point that gives us confidence as we look look forward.
Speaker Change: But we know we're still in the midst of this stores have opened aggressively over the last couple of years. These competitive pressures will likely continue into the near term, but the positive signals I highlighted.
Paula Oyibo: In addition, we continue to increase our ORC focus and have to deploy new tools, capabilities, and training to our store and fill lost prevention teams. Year to date, shrink as a percentage of sales is flat with last year, and we continue to expect shrink will be roughly flat for the full year.
Speaker Change: In our broader business the guest engagement the impact of newness the impact of our new stores and success of our Salon business. The loyalty growth all of those factors suggest to us and give us a lot of confidence that our business continues to have underlying strength in health and we're navigating through the short term we know it will take time, but we.
Paula Oyibo: Moore. Moving to the expenses, S-DNA increased 7.3% to $645 million. Overall, S-DNA's been with better than planned, again, this quarter, primarily due to focus expense management. As a percentage of sales, S-DNA increased 160 basis points to 25.3%, compared to 23.7% last year. Reflecting lower top line growth, most expenses, D-loverage, this quarter. In addition, we preserved sales driving expenses, including store labor and marketing, and completed key elements of our transformational agenda, this quarter.
We're not sitting still and we're aggressively taken actions across all of the things that I highlighted in the prepared remarks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Mark Outswinger with Baird. Please proceed with your question.
Amy husky: Hi, Good afternoon. This is Amy husky on for Mark with the demand continuing to be pressured can you talk more about the actions you are taking within SG&A to limit the amount of deleverage youre seeing in the model. Thank you.
Speaker Change: Sure. Thank you. Thank you Amy.
Paula Oyibo: These pressures were partially offset by lower incentives compensation, reflecting operational performance that was below our internal targets. Operating margin was 12.9% of sales, compared to 15.5% of sales last year. And eluded gap earnings per share, with $5.30, compared to $6.02 last year. Moving to the balance sheet and capital allocation priorities, we ended the quarter with $414 million in cash and cash equivalents. Total income, compared to $1.8 million last year. In addition to the impact of 49 net new stores, the increase was primarily due to inventory to support new brands in the opening of our new markets fulfillment center in Greer South Carolina, which opened in the third quarter last year.
Speaker Change: As I as I mentioned in our prepared remarks, we did deliver better than planned SG&A due to focused and disciplined cost management as we navigate it alright topline pressure.
Speaker Change: As we think about the second half we land.
Speaker Change: SG&A expenses to increase in the mid single digit range for the year, reflecting a more moderate growth in the second half.
Speaker Change: We continue to exercise financial discipline as we navigate these near term pressures.
Speaker Change: While still making sure that we're investing in Asia, we are well positioned for success over the long term.
Speaker Change: But as we as we look ahead.
Speaker Change: We are where we're expecting that moderation in <unk> growth because we are completing our transformation many of our transformational investments.
Speaker Change: Are completed and we will continue to exercise financial discipline has been as we navigate.
Paula Oyibo: Year-to-date, through the second quarter, we generated $359 million in operating cash flow. Capital expenditures were $95 million for the quarter, primarily reflecting investments in new and existing stores, IT investments, and merchandise fixtures. Depreciation was $65 million compared to $62 million last year, primarily due to higher depreciation related to new stores and IT investments. In the second quarter, we returned $212 million of capital to our share holders through the repurchase of 550,000 shares. At the end of the quarter, we had $1.6 billion remaining under our current $2 billion repurchase authorization.
Speaker Change: Thank you. Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.
Michael Lasser: Good evening. Thank you so much for taking my question given the competitive overlap with all these new points of distribution not going to go away anytime soon how long do you expect that it will take to restore the business to positive comps.
Michael Lasser: And since it seems that hitting the promotional lever is not having the intended impact what is the backup plan or what is the alternative if the actions you're taking work to restore positive comps. Thank you.
Paula Oyibo: Now turning to our outlook, we have taken a more cautious view for the year. We now expect next sales for the year will be between $11 and $11.2 billion, with comp sales in the range of down 2% to flat. In addition to reflecting our first task performance, our updated outlook for sales assumes it will take more time for our actions to change the top line trajectory, and that stores impacted by multiple competitive openings will continue to be pressured more than the rest of the fleet.
Michael Lasser: Thanks, Michael.
Speaker Change: Yes, it is as we've discussed.
Speaker Change: A dynamic and competitive environment that we're navigating through what I gave you.
Speaker Change: Some of those <unk>.
Speaker Change: Dynamics in my prepared remark remarks, we are in.
Speaker Change: And as I've said, we remain confident and bullish in the long term outlook for this business because of all the positives that I've highlighted.
Speaker Change: We're executing across a number of efforts to drive our business tiers, here's here's what I know about our business right. Now we are seeing many positive signals that are gaining traction.
Paula Oyibo: The operating environment remains dynamic, and the low end of our range implies incremental pressure on consumer spending. For the year, we expect operating margin will be between 12.7 and 13% of net sales. Most of the reduction in our expectation for operating margin compared to our previous views is due to the lower top. Line. But we have also included flexibility to respond to the evolving promotional environment. For the year, we expect growth margin will be leveraged 70-90 basis points as lower merchandise margin and the leverage of store six costs are partially offset by other revenue growth and lower transportation costs.
Speaker Change: And we are addressing areas that maybe are not working as well as as we had hoped assortment is always key so when we look at key levers.
Speaker Change: <unk> is critical newness is working and resonating with our guests brands like Solvay Janeiro, Charlotte all the hendrickson are driving sales our new our exclusive brands are playing an important role and we continue to add brands mature in Q2 and tomorrow, we launched earlier.
Speaker Change: An important makeup brand that we're excited to add to our assortment. So continued innovation is a key lever for us that's working and will continue to drive that I talked about the importance of marketing in social relevance and connecting deepening brand love. We're pleased with the progress all time high of of brand Love and in brand awareness and we will continue to drive that because.
Paula Oyibo: For the year, we expect SGNA expense will increase in a mid-single-digit range. We expect many of the trends we experienced in the first task will continue in the second task with SGNA driving most of the operating margin be leveraged. Reflecting these assumptions, we now anticipate the loot at EPS will be in a range of $22.60 to $23.50 per share. We continue to expect to generate strong operating cash flow for the year, which will support our plan, CAPX investments of 400-400-50 million dollars and share repurchases of $1 billion.
Speaker Change: We know that drives connection and awareness and and reinforces the role that we play in our guests' lives. Our digital business is critical and died and I shared that our digital sales were an expectation and we're focused on delivering.
Speaker Change: Across all of the experiences you know.
No that we've invested heavily in our digital capabilities over the last couple of years earlier this year, we completed.
Speaker Change: Our new digital store platform and Thats, given us new ways to delight, our guests and that's working and we will be focused on driving that.
Paula Oyibo: In closing, we are focused on improving performance in the second task. And we believe our needs and go-to-market strategy, along with continued operational and financial discipline, will enable us to navigate the dynamic environment and drive improved sales and profit momentum over time.
Speaker Change: Loyalty is.
Speaker Change: <unk> to our long term success, we're pleased with the 5% year over year growth high level of retention high level of engagement from our best guest our platinum and Diamond guest and a critical part of that business going forward services and experiences also driving positive.
Operator: And now I'll turn the call over to our operator to moderate the Q&A section.
Operator: Operator. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press the R1 on your telephone keypad. A confirmation to indicate your line is in the question Q. You may press R2 if you would like to remove your question from the Q. For participants using speaker equipment, it may be necessary to pick up your hand set before pressing the star keys. One moment please while we pull for questions. Thank you.
Speaker Change: Promo is an important piece of our business and I'm glad you highlighted it as I mentioned in the prepared remarks, some of the incremental offers that we added as.
Speaker Change: Our performance decelerated in the second half of the quarter did.
Speaker Change: It did not.
Speaker Change: Have the intended effect in particularly in our store.
Speaker Change: <unk> promos generally, though our tentpole events I.
Speaker Change: I mentioned, our big Summer beauty sale Tomorrow, we launched 21 days of beauty are big promotional events are working are attracting new guests are demonstrating the behaviors and we continue to amplify and elevate those and you'll see that come to market with our next one again, starting tomorrow with 21 days of beauty, but we'll take our learnings and.
Stephen Forbes: Our first question comes from the line as Stephen Forbes with Guggenheim Securities. Please proceed with your question. Good evening, Dave Fallow. Dave, I was hoping you could expand on the competitive pressures you noted in the prepare remarks. Any way to help us contextualize the size of this headwind, such as year-one cannibalization rates and any early insights on the recovery path. What does the recovery for those stores impacted look like? And maybe you can give us an example of some of those earlier stores that were impacted any time frame to sort of get back to those prior levels pre-canibalization. Thank you.
Speaker Change: Promotional impact that we had.
Speaker Change: In the second quarter as we navigate this challenging competitive environment through the second half of the year.
Speaker Change: Continue to focus on the highest return highest impact promos. So promos are working.
Speaker Change: But we did have some experiences and last thing I'd just say if you just step back Michael.
Speaker Change: Michael and just think about our business, we feel very confident that we're well positioned to recover we've got a differentiated business model.
Dave Kimball: Great, thanks for the question, Steve. And yeah, let me just start with saying we, of course, are no strangers to competition. We know how to compete effectively, and this is, as I said in the remarks, a very attractive category that continues to increase in the competitive environment. As it relates to increased points of pressure, what we've shared before is that we have historically seen a short-term impact on new distribution points on our existing store when a competitor opens near one of our stores.
Michael Lasser: And while some elements have been pressured.
Speaker Change: Our model continues to be connected to our guests and the experiences we offer unique enduring nobody does what ulta beauty does their guests value of the assortment that loyalty.
Speaker Change: A unique services offer our omnichannel offerings and I'd say, most importantly, the unique experience we deliver to our guests in our stores and online we allow our guests to discover beauty on their own terms and and we continue to deliver that every day in our stores and I'm very proud of what our teams are doing so we're sharpening our.
Dave Kimball: What's unique about this time and this environment is the scale and the pace of change, which is, it made it difficult for us to fully forecast the cumulative impact. Act. 80% of our stores have been impacted by at least one store. And as I said in the remarks, more than half of our stores have been impacted by multiple competitive openings, which to give you context. So what that means is if you take a single Ulta Beauty store, two or more competitive stores have opened within that store's trade area, which is unusual for us historically and something that we're navigating through.
Speaker Change: <unk> model, we're focused on leaning in on what's working addressing.
Speaker Change: The dynamics that where we have opportunity and well as I said, it's going to take a little time to turn it back to our accustomed position of being a share gain or we are confident we will get there.
Speaker Change: Our actions are designed to do just that.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of group has parkey with Oppenheimer. Please proceed with your question.
Speaker Change: Good afternoon, and thanks for taking my question. So just going back to unit growth and also target rollout just given the more difficult environment right now like any thoughts on unit growth and then as you look at target I believe that continues to rollout.
Dave Kimball: What we saw during this quarter is that stores that have had multiple competitive openings, which again could happen over the different times over the three years that we've been navigating as those stores with multiple competitive openings are underperforming those stores with no or limited competitive impact. Stores that have the segment of stores that have not had a direct in market trade area, competitive impact, deliver positive cons for the quarter, which is another reason that we feel confident in our model and our business and our guest engagement.
Speaker Change: Curious, how that's playing out.
Speaker Change: The current backdrop.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: As far as our own stores, we're pleased with.
Speaker Change: Our new store openings as I mentioned in my prepared remarks, our new stores.
Speaker Change: Despite some of the other dynamics going on continued to perform well.
Speaker Change: And we are.
Speaker Change: We have.
Dave Kimball: Stores that have just one competitive opening that occurred early in the expansion cycle are performing in line with historical trends. Another data point that gives us confidence as we look forward. But we know we're still in the midst of this. Stores have opened aggressively over the last couple of years. These competitive pressures will likely continue into the near term. But the positive signals I highlighted in our broader business, the guest engagement, the impact of newness, the impact of our new stores, the success of our salon business, the loyalty growth, all of those factors suggest us and give us a lot of confidence that our business continues to have underlying strength and health and we're navigating through this short term. We know it'll take time, but we are not sitting still and we're aggressively taking actions across all the things that I highlighted in the prepared remarks. Thank you.
Speaker Change: Opportunities across the country in a variety of different types of market to continue to to.
Speaker Change: To fill in to reach new markets to reach new consumers I've shared before.
Speaker Change: In previous calls the work, we're doing with our small format store, that's performing well so we're going to lean in more there and so we're confident that.
Speaker Change: Again, we will work through these competitive pressures and and we want to make sure we're reaching as many beauty enthusiast in all parts of the country as possible with our with our new stores and then our target partnership is working I will let <unk> give a little bit of color, but we're pleased with our partnership with strategic role that it plays.
Speaker Change: In.
Speaker Change: In our in our member engagement program.
Speaker Change: It is still very strong and we're positive and optimistic about that path, but yeah in the last quarter. We opened four property and your targets are if you have 541 total locations during the quarter.
Speaker Change: And we're still on track to.
Speaker Change: We hit our 800 stores through our commitment.
Speaker Change: About deepening that guest engagement, it's about driving growth of the new member in the conversion of Reengagement of lapsed members and we're seeing that and then I think it's also really key that nearly 4 million guests have linked our ulta beauty and their target circle loyalty programs together, we do see this as another way to just continue to connect with that guest and <unk>.
Amy Tatsuki: Our next question comes from the line of Mark Alpswagger with Baird. Please proceed with your question. Hi, good afternoon. This is Amy Tatsuki on from Mark. With the demand backdrop continuing to be pressured, can you talk more about the actions you are taking within SG&A to limit the amount of delivery you're seeing in the model? Thank you. Sure. Thank you. Thank you, Amy.
Speaker Change: And then back into the Ulta beauty home store.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Kelly Crago with Citi. Please proceed with your question.
Paula Oyibo: As I mentioned in our prepared remarks, we did deliver better than planned SG&A due to focus and discipline cost management as we navigated our top line pressure. As we think about the second half, we planned SG&A expenses to increase in the mid-single digit range for the year reflecting a more moderated growth in the second half. We continue to exercise financial discipline as we navigate these year-term pressures while still making sure that we're investing and ensure we're well positioned for success over the long term.
Kelly Crago: Hi, Thanks for taking our question I just wanted to follow up on the promotional.
Kelly Crago: Levels that youre kind of assuming this year and what gives you the confidence that.
Speaker Change: Promo level.
Speaker Change: Can sustain at this lower rate relative to pre COVID-19.
Speaker Change: You know the category following the consumer seeking value.
Speaker Change: And.
Speaker Change: There has been a big step up in the competitive environment and then just secondly, just curious your thoughts on the makeup of the product assortment.
Speaker Change: Any.
Speaker Change: Rethinking of how maybe think you are in some of these.
Paula Oyibo: But as we look ahead, we're expecting that moderation in SG&A growth because we are completing our transformation, many of our transformational investments are completing. And we will continue to, like I said, exercise financial discipline as we navigate. Thank you.
Speaker Change: Brands that are distributed.
Speaker Change: Not over distributed but have seen the distribution points.
Speaker Change: Carnival, but some of these more established brands.
Speaker Change: Any thoughts on how.
Speaker Change: You see the.
Speaker Change: Brand assortment evolving over the next couple of years. Thanks.
Michael Lasser: Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.
Speaker Change: Okay. Thanks Kelly.
Speaker Change: On the promotional levers.
Speaker Change: When we look out.
Dave Kimball: But evening, thank you so much for taking my question. Given the competitive overlap with all these new points of distribution, not going to go away anytime soon, how long do you expect that it will take to restore the business to positive comp? And since it seems that hitting the promotional lever is not having the intended impact, what is the backup plan or what is the alternative if the actions you are taking don't work to restore positive comp?
Over the well when we look through this year and whats at what's ahead of us promotional activity has increased.
Speaker Change: As I highlighted and that does reflect both the cause of the normalization of the category and increased competition and as I shared we were more promotional in the.
Speaker Change: In the first half of the year as we turn to the second half promotion will play an important role the second half driven by holiday is always a more promotional period holiday is a different dynamic and.
Dave Kimball: Thank you. Thanks, Michael. Yeah, it is as we discussed a dynamic and competitive environment that we're navigating through and I gave you some of those dynamics in my prepared mark remarks. And as I said, we remain competent and bullish in the long term outlook for this business because of all the positives that have highlighted, you know, we're executing across a number of efforts to drive our business. Here's what I know about our business right now.
Speaker Change: And as and is intensely promotional to begin with it has been for years, regardless of the competitive environment as we're competing not just in beauty, but we're competing for gifting occasions across across consumers' baskets and so we are prepared for that.
Speaker Change: We continue to take our learnings as we look back pre Covid, we continue to believe that.
Speaker Change: The environment, while intense will remain rational our guidance assumes that while higher than last year will be below 2019 levels for the year driven by smart execution CRM capabilities that we have built aggressively over the years.
Dave Kimball: We are seeing many positive signals that are gaining traction. And we're addressing areas that maybe are not working as well as we hope. Assortment is always key. So when we look at key levers, assortment is critical. Newness is working and resonating with our guests, brands like Sold, Asian Arrow, Charlotte, all the Hendricks in are driving sales. Our new, our exclusive brands are playing an important role. And we continue to add brands in the Turium and Q2 and tomorrow we launched Ilya an important makeup brand that we're excited to add to our show.
Speaker Change: Driving efficiency leaning into our tentpole events and maximizing those.
Speaker Change: No.
Speaker Change: While promotional has played a bigger role we feel we've got it right sized as we look into the second half of the year, knowing it's a higher promotional period as far as our assortment and what's ahead.
Speaker Change: Ulta beauty has a very unique assortment.
Speaker Change: All price points across mass and prestige strengthened makeup hair care skincare fragrance Bath wellness.
Dave Kimball: And so continued innovation is a key lever for us. That's working and we'll continue to drive that. I talked about the importance of marketing and social relevance and connecting deepening brand love. We're pleased with the progress all time high of brand love and and brand awareness and we'll continue to drive that because we know that drives connection and awareness and and reinforces the role that we play in our guest lives. Our digital business is critical and I and I shared that our digital sales were on expectation and we're focused on delivering across all of the experiences.
Speaker Change: Services as well and we're really proud of that it's one of the things our guests continue to tell us that they like that they really love about us and the fact that we deliver that in an omnichannel way in store and online. So to your specific question around legacy brands. They play an important role, we're really pleased and proud of our partner.
Speaker Change: A shift with some of the biggest brands in the world and we're focused on driving growth with those brands. We have a very unique experience in store with many of these brands.
Speaker Change: That brings education entertainment events to our guest we drive exclusivity with.
Dave Kimball: You know that we've invested heavily in our digital capabilities over the last couple of years earlier this year we completed our new digital store platform and that's giving us new ways to delight our guests and that's working and we'll be focused on driving that. Loyalty is or to our long term success were pleased with the 5% year over year growth high level of retention high level of engagement from our best guest our platinum and diamond guest and and a critical part of that business going forward services and experiences also driving positive.
Speaker Change: With our with our guest through some of these brands and example is like Honey with Clinique that we've launched.
Speaker Change: That's in market right now and so we'll continue to partner with these brands to bring new experiences. These brands play an important role because of the trust and engagement that they have the opportunity to.
Speaker Change: Bring new guest in and delight, our existing guests, but at the same time, we are focused on finding what's new it's one of the greatest things about this category is the level of entrepreneurship newness innovation and and we will continue to drive that I've highlighted a few already.
Dave Kimball: Chromo is an important piece of our business and I'm glad you highlighted it. As I mentioned in the prepared remarks some of the incremental offers that we added as our performance decelerated in the second half of the quarter did not have the intended effect in particularly in our store channel. Chromo's generally though our 10 poll events I mentioned our big summer beauty sale tomorrow we launch 21 days of beauty our big promotional events are working are attracting new guests are the demonstrating the behaviors and we continue to amplify and elevate those and you'll see that come to market with our next one.
Speaker Change: In the fragrance category as an example, or abella Kiley noise, all new all exclusive all exciting all performing wells brands in makeup like when in flight Society, both new both exclusive and we have many others. So we'll lean into the broad mix for us, it's all things beauty and to do that.
Speaker Change: We need to be winning and leading across all types of brands.
Speaker Change: And that's what we're focused on going into the future.
Thank you.
Speaker Change: Our next question comes from the line of chlorine Wolf Meyer with Piper Sandler. Please proceed with your question.
Dave Kimball: Again starting tomorrow with 21 days of beauty but we'll take our learnings and in the promotional impact that we had in in in the second quarter as we navigate this challenging competitive environment through the second half of the year and continue to focus on the highest return highest impact. Chromo's are working but we did have some experiences that and last thing I just say if you just step back Michael and just think about our business we feel very confident that we're well positioned to recover we've got a differentiated business model.
Speaker Change: Hey, good afternoon. Thanks for taking the question I'd like to hear a little bit more about the.
Speaker Change: The operational disruption you referenced the ERP transition can you provide a little bit more color on what exactly happens how the business was impacted and what gives you confidence that the assays cleared out going forward. Thank you.
Speaker Change: Yes, as Steve mentioned in his earlier comments that we executed by far the most complex element of our multiyear ERP implementation during this quarter and that was the rollout to our stores.
Dave Kimball: And while some elements have been pressured our model continues to be connected to our guest and and the experiences we offer are unique enduring nobody does what all to beauty does their guest value the assortment the loyalty the unique services offer our omnichannel offerings and I'd say most importantly the unique experience we deliver to our guests in our stores and online we allow our guests to discover beauty on their own terms and and we continue to deliver that every day in our stores and I'm very proud of what our teams are doing. So we're sharpening our differentiated model we're focused on leaning in on what's working addressing the dynamics that where we have opportunity.
Speaker Change: Our team had been managed dual systems as we phase through 2000, 1400, plus stores that we have so that just really added a lot of complexity. It created challenges to our purchasing our store allocation and our planning processes and systems and we do see this as a short term headwind the great news is that we have.
Speaker Change: <unk> completed those challenging phase so we're we're through it now.
Speaker Change: What I would say what we're doing is that we're really fine tuning and optimizing our system and while theres still some investments for continued argument compensation. We've really built that early into ERP budget plan and it's reflected in our current guidance.
Speaker Change: A change of this magnitude when youre going through Dcs and stores.
Dave Kimball: And while as I said it's going to take a little time to turn back to our custom position of being a share gainer we are confident we'll get there and and our actions are designed to do just that. Thank you.
Speaker Change: It's really not easy and adapting takes some time, but we're really grateful to our teams for embracing transformative changes and we feel like we're really making progress and we're confident that we're positioned and ready to have a great holiday season.
Rupesh Parikh: Our next question comes from the line of Rupesh Parikh with Oppenheimer. Please proceed with your question.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Ike.
<unk> with Wells Fargo. Please proceed with your question.
Kylin Walwins: Good afternoon. Thanks for taking my question. So, just going back to Unicro's and also to Target Rollout, just given the more difficult environment right now, like any thought that's a strong Unicro's then, as you look at Target, it will be back continues to roll out. Just curious how that's flying out in this current backdrop. Yeah, we as far as our own stores. We're pleased with our new store openings. As I mentioned, I'm in my prepared remarks, our new stores, you know, despite some of the other dynamics going on, continue to perform well.
Speaker Change: Alright. Thank you for taking my question. This is julianna on for Ike Anthony hadn't senior analyst.
Speaker Change: Okay.
Speaker Change: I was just wondering if there's any preliminary update on the long term algo or it's a long term margin target that you can go by.
Speaker Change: Yes.
Speaker Change: Hi, Juliana. Thank you for the question and I certainly understand and appreciate the reason for the question, but we are not providing an update on our long term expectations on the call today, but as you mentioned, we do plan to do so at our Investor day.
Kylin Walwins: And we are we can we have opportunities across the country in a variety of different types of market to continue to to fill in to reach new markets to reach new consumers. I've shared before. In previous calls, the work we're doing with our small format store, that's performing well. So we're going to lean in more there and so we're confident that again, we will work through these competitive pressures and we want to make sure we're reaching as many beauty enthusiasts in all parts of the country as possible with with our new stores.
Speaker Change: Cobra and at that time, we are very much looking forward to sharing how we're thinking about our future growth.
Speaker Change: And on the growth opportunities ahead in this category.
Speaker Change: But typically.
Speaker Change: What investments if any.
Speaker Change: It will take to support those and how that translates into our long term financial expectations.
Speaker Change: So.
Looking forward looking forward.
That and just about a month.
Okay.
Thank you very much.
Kylin Walwins: And then our target partnership is working on like he should give a little bit of color, but we're pleased with that partnership, the strategic role that it plays in in our in our member engagement program is still very strong and and we're positive and optimistic about that path. Yeah, the last quarter, we opened for hope to be a target source. We have 541 total locations through the quarter. We're still on track to, you know, hit our 800 stores through our commitment.
Thank you. Our next question comes from the line of Michael Baker with D. A Davidson. Please proceed with your question.
Michael Baker: Okay, Alright, thanks, I wanted to ask about the pace of the share losses in prestige to your business seems to have gotten worse.
Michael Baker: But.
Speaker Change: Some industry data and competitive data are also seeing a deceleration.
Speaker Change: Wonder if you can give us any color on the gap between what Youre seeing in your own business.
Kylin Walwins: You know, it's about deepening that guest engagement. It's about driving growth of the new member and the conversion and the re engagement of last members and we're seeing that. And then I think it's also really key that nearly 4 million guests have linked our ultra beauty and their target circle will be programs together. We do see this is another way to just continue to connect with that guest and engage them back into the ultimate home store.
Dave Kimball: Thank you.
Speaker Change: Competitors.
Speaker Change: Are you seeing the share losses actually get worse here I guess the question. Thanks.
Speaker Change: Yes, Michael Thanks for the question as you said that the category has as I highlighted moderated really is anticipated through the year after multi years of growth as far as our performance as I as I said we.
We maintained mass share in mass.
Kelly Criago: Our next question comes from line of Kelly Criago with city. Please proceed with your question. Hi, thanks for taking our question. I just wanted to follow up on the promotional levels that you're kind of assuming this year. It's what gives you the confidence that promo levels can can sustain at this lower rate relative to pre-COVID. Just given, you know, the categories flowing to consumer seeking value and there's been a bit step up in the competitive environment.
Speaker Change: But continued to be pressured in in prestige and Thats driven in particular by hair and makeup which are the categories that I've talked about in the past.
Kelly Criago: And then just secondly, just curious your thoughts on the makeup of the product assortment and any any rethinking of how maybe big you are in some of these brands that are, you know, distributed, not over distributed but have seen the distribution points. Increased credit rate that some of these more established brands to any any thoughts on how you see the brand assortment evolving over the next couple years. Thanks, Kelly. Yeah, on the promotional levers, you know, when we look out over the, well, when we look through this year and what's ahead of us, promotional activity has increased as I highlighted, and that does reflect both the normalization of the category and increased competition.
Speaker Change: No we wouldn't say that it's.
Speaker Change: And any any worse the dynamics are as they've been for much of the year as it relates to share some reflection of both monitoring and category a continued competitive pressures and then some of the other dynamics that that.
Speaker Change: We've highlighted and discussed here today.
<unk> contributed to the performance we delivered in the second quarter.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Ashley Hogan with Jefferies. Please proceed with your question.
Ashley Hogan: Hey, Thanks for taking our question and answer a question around kind of increasing competitive environment.
Ashley Hogan: Change the ability to get new brand at all and then when you're adding new brands like <unk> do you factor in a way that is currently distributed.
Speaker Change: Yes, great Great question nationally and thanks for sharing.
Speaker Change: Say big picture no. Meanwhile, our brand partners are so key to our success and something that.
Speaker Change: Yeah.
Ben: Ben So proud of how our team manages our relationships and works as true partners to building our brands brands continue to see Ulta beauty as a leading destination to expand their business, whether they are an existing.
Kelly Criago: And as I shared, we were more promotional in the first half of the year. As we turn to the second half, promotion will play an important role. The second half driven by holiday is always a more promotional period. Holiday is different dynamic and is intensely promotional to begin with, has been for years, regardless of the competitive environment, as we're competing not just in beauty, but we're competing for giftine occasions across, across consumers, your baskets.
Ben: Brands like <unk> or a new brand Thats just been created that's looking to reach $44 million of the best beauty enthusiasts across the country.
Ben: And we're demonstrating that right now our brands continue to lean into cyber highlighted a few things rolling established brands through innovation.
Ben: Exclusives on those brands expansion of those brands.
Ben: And finding new ways.
Ben: Mentioned, expanding keels, a brand that we've had for a while and finding new ways to reach our guests expanding that into stores brands are excited about that because they see growth launching big established brands like <unk> and discovery, new and exclusive brands. So.
Kelly Criago: And so we were prepared for that. And we'll, you know, we continue to take our learnings as we look back pre-COVID, we continue to believe that the environment, while intense, will remain rational, our guidance assumes that while higher than last year will be below 2019 levels for the year driven by smart execution, CRM capabilities that we have built aggressively over the years, drive inefficiency, leaning into our tent pole events and maxing up.
Ben: We are focused everyday on created an environment that our brands see value with us and they do 44 million members Fortune 500 stores, a strong and dynamic digital environment.
Ben: And an experience that's unique despite the competitive environment Nobody does what Ulta beauty does and our brands probably understand that better than other and that's why we've had such success, creating deep relationships and continuing to attract both existing and brand new to the world brands and that's something that I see we will continue to drive our business going forward.
Kelly Criago: And so while promotional has played a bigger role, we feel we've got it right sized as we look into the second half of the year knowing it's a higher promotional period, as far as assortment and what's ahead. And ultra beauty has a very unique assortment. All price points across mass and prestige, strength and makeup, hair care, skincare, fragrance, bath, wellness, services as well. And we're really proud of that. It's one of the things our guests continue to tell us that they like, that they really love about us.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Olivia Tong with Raymond James. Please proceed with your question.
Olivia Tong: Great. Thank you a.
Olivia Tong: A few questions.
Olivia Tong: First.
Olivia Tong: How much of the Miss relative to your expectations. This quarter do you think that's a function of the category decelerating versus your own share loss and then second why do you think the promos that you did.
Kelly Criago: And the fact that we deliver that in an omnichannel way, in store and online. So to your specific question around legacy brands, they play an important role. We're really pleased and proud of our partnership with some of the biggest brands in the world. And we're focused on driving growth with those brands. We have a very unique experience in store with many of these brands that brings education, entertainment, events to our guests.
Speaker Change: This quarter didn't quite work and then as you think about.
Speaker Change: The rest of the year.
Speaker Change: You have to deploy more promo or or different promo because it looks like from your full year outlook revision that.
Speaker Change: You expect comps to potentially falling out of 100 basis points in the second half versus Q2, and just lastly, if you could talk about what you saw towards the end of the quarter and into this quarter.
Kelly Criago: We drive exclusivity with our guests through some of these brands. An example is black hunting with Clinique that we've launched that's in market right now. And so we'll continue to partner with these brands to bring in new experiences. These brands play an important role because of the trust and engagement that they have, the opportunity to bring new guests in and delight our existing guests. But at the same time, we are focused on finding what's new.
Speaker Change: That influences your guidance.
Speaker Change: Got it thank you.
Great. Thanks Olivia.
Speaker Change: Let's see.
Speaker Change #100: First on <unk>.
Speaker Change #100: The mix of the drivers we highlighted four primary elements that.
We believe impacted our business in the second quarter and we think each played a role in our sales performance with the competitive pressures are continuing to be the largest.
Kelly Criago: It's one of the greatest things about this category, so level of entrepreneurship, newness, innovation, and we will continue to drive that. I've highlighted a few already, a few in the fragrance category as an example. For Bella, Kylie, noise, all new, all exclusive, all exciting, all performing well, brands in makeup, like win and polite society, both new, both exclusive and we have many others. So we'll lean into the broad mix. For us, it's all things beauty. And to do that, we need to be winning and leading across all types of brands.
Speaker Change #100: Largest driver so.
Speaker Change #100: As we've talked about here today and continue to focus on the competitive pressure recognizing.
Speaker Change #100: The category, while still healthy has moderated some so requires us to continue to elevate our efforts and then addressing.
Speaker Change #100: Some of the internal dynamics around our operational.
Speaker Change #100: Efforts as well as promotional so all contributed and were focused on driving them for promos specifically.
Speaker Change #100: As I mentioned.
Dave Kimball: And that's what we're focused on going into the future. Thank you.
Speaker Change #101: It has not.
Speaker Change #101: Maybe.
Speaker Change #101: What did not work as much was not our tentpole events, our core strategic elements are loyalty events that key connections that we have but as I said, we are our sales moderated.
Korinne Wolfmeyer: Our next question comes from the line of Korinne Wolfmeyer with Piper Sandler. Please proceed with your question. Hey, good afternoon. Thanks for taking the question. I'd like to hear a little bit more about the operational disruption you referenced with the ERP transition. If you provide a little bit more color on what exactly happened, how the business was impacted, and what gives you confidence that the issue is cleared out going forward? Thank you. Yes, Karinne.
Speaker Change #101: Throughout the quarter and as we saw that call. It in mid June and into July.
Speaker Change #101: On top of some of the efforts we are already had like our big summer beauty sale and other programs, we layered in incremental promotions and historically, we've done some of that and it's worked in different ways, but this.
Speaker Change #101: At this time, what we saw was that layering helped in the E. Comm business is as we highlighted and did drive.
Paula Oyibo: As Dave mentioned in his earlier comments, that we executed by far the most complex element of our Montpellier ERP implementation during this quarter, and that was there a lot to our stores. Our teams had been managed dual systems as we faced through the 1400 plus stores that we have. So that just really added a lot of complexity, it created challenges to our purchasing, our store allocation, and our planning process of the systems.
Speaker Change #101: Traffic and sales on E com, but added some complexity in store and how that came to life and did not resonate as well.
Speaker Change #101: And so when we saw consumers engaging with them.
Paula Oyibo: And we do see this as a short-term headwind. The great news is that we've completed this challenging phase, so we're through it now. And what I would say what we're doing is that we'll really fine-tune in optimizing the system. And while there's still some investments for continued optimization, we've really built that already into a ERP budget plan and it's reflected in the current guidance. A change of this magnitude when you're going through DCs and stores, it's really not easy.
Speaker Change #101: We create an environment that was not as clear and crisp as we needed it to be and so we're addressing that going forward.
Speaker Change #101: As far as our outlook.
Speaker Change #101: Into the rest of the year and the role of promo as well as other things we have assessed the impact of the new and existing challenges that we've been talking about here today, and we evaluated a number of scenarios.
Speaker Change #101: That anticipate a variety of macro consumer changes competitive category performance holiday shifts and a more promotional environment, we've taken all that into into account and that's reflected in our in our outlook.
Paula Oyibo: And adapting takes some time, but we're really grateful to our teams for embracing these transformative changes. And we feel like we're really making progress, and we're confident that we're positioned and ready to have a great holiday season. Thank you.
Speaker Change #101: But I'd say last thing I'd say to all of that is I hope it's clear we're not standing still I've highlighted many of the things that we're doing we're taking action we're building off successes with newness and other efforts that we have across the business we do not.
Ike Boruchau: Our next question comes from the line of Ike Boruchau with Rails Fargo. Please proceed with your question. Hi, thank you for taking my question.
Speaker Change #101: Anticipate having to leave only on promo that's never what we've had to do and in all of the actions across loyalty innovation newness services guest experience digital will come together to drive us and give us confidence in our comp guidance for the second half of the year.
Juliana: This is Juliana on for Ike. As we head into your analyst day in a few weeks, I was just wondering if there's any preliminary update on the long-term AGO or the long-term margin targets that you can give us. Thank you. Hi, Juliana. Thank you for the question. And I certainly understand and appreciate the reason for the question, but we are not providing an update on our long-term expectations on the call today.
Operator, I think we have time for one more question.
Speaker Change #101: Great.
Speaker Change #102: Last question comes from the line of Susan Anderson with Canaccord Genuity. Please proceed with your question.
Susan Anderson: Hi, good evening. Thanks for fitting me in here I guess I was curious it sounds like most of the competitive pressure is on the printing side and it does sound like you maintained that math sure. But are you also seeing any increased competition on the mass side maybe being.
Juliana: But as you mentioned, we do plan to do so at our investor day in October, and at that time, we are very much looking forward to sharing how we're seeking about our future growth, including some of the growth opportunities ahead in the category, opportunities specifically for us. What investments, if any, it will take to support those and how that translates into our long-term financial expectations. And so looking forward to that, and just about a month or so. Thank you very much. Thank you.
Speaker Change #104: Retailer getting more competitive from a promotional standpoint, and then also just really quick on the hair care was that decline or change there primarily driven by procedure or did you see anything else on the mat side as well.
Speaker Change #104: Great.
Speaker Change #105: Yes. This is a very competitive category and so while we're pleased that we maintained share of mass we know theres competition happening both on the mass and prestige side.
Speaker Change #105: But we haven't seen we haven't seen and masses.
Michael Baker: Our next question comes from a line of Michael Baker with DA Davidson. Please proceed with your question. Okay. Hi. Thanks. I want to ask you about the pace of the sheer losses and prestige. So your business seems to have gotten worse based on your comp, but some industry data and competitive data are also seeing a desolvation. So I wonder if you can give us any color on the gap between what you're seeing in your own business and competitors. Are you seeing the sheer losses actually get worse here? I guess it's a question. Thanks.
Speaker Change #105: The dramatic increase in points of distribution or expanded presence, both with physical stores and online and that's allowed us to continue to drive our experience and an important aspect as well we talk about our business in mass and prestige our guests really looks at the whole thing and it comes in for both together and by both together in the same basket from entry level.
Speaker Change #105: Mess up through Masstige prestige and luxury and so we need all things to be clicking to driving traffic and engagement in basket.
So when there's pressure on one part of the business. It impacts our holds our whole store, but our mass business is performing well and we're confident in our outlook there.
Dave Kimball: Yeah, Michael, thanks for the question. As you said, the category has, as I highlighted, moderated, really has anticipated through the year after multi years of growth, as far as our performance as I said, we maintained mass, share and mass, but continue to be pressured in prestige, and that's driven in particular by hair and makeup, which are the categories that I've talked about in the past. No, we wouldn't say that it's getting any worse, the dynamics are as they've been for much of the years, it relates to share, so reflection of both the moderating category, continued competitive pressures, and then some of the other dynamics that we've highlighted and discussed here today, are what contributed to the performance we delivered in the second quarter. Thank you.
Ashley Helgans: Our next question comes from the line of Ashley Helgans with Jeffries. Please proceed with your question. A, thanks for taking our question.
Speaker Change #105: As far as the hair hair.
Speaker Change #105: Dynamics.
Speaker Change #105: Mentioned in the remarks, the primary driver we're pleased with our hair business is a critical part of our business I mentioned, our salon is performing well the hair business primary driver of the performance. There was a shift in one of our strategic tentpole events in hair from the second quarter into the first quarter.
Speaker Change #105: And that.
Speaker Change #105: So that was the primary driver of the <unk>.
Speaker Change #105: The lower lower results of that but our hair business is important.
Speaker Change #105: And we continue to find ways to drive that business going forward.
Speaker Change #106: Great. Thanks.
Speaker Change #106: Yes. Thank you. Thank you Susan and thank you all again for joining us today.
Speaker Change #106: We very much appreciate your interest in Ulta beauty.
Speaker Change #107: Wanted to take this last moment to thank our more than 55000, Ulta beauty associates for their continued focus and commitment to serving our guests. So our teams have managed through significant change over these last three years and I. So appreciate how quickly they've embraced new technology, new processes, new ways of working all always.
Dave Kimball: So, a question around kind of increasing competitive environment, has that changed the ability to get new brands at all, and then when you're adding new brands like Ilya, do you factor in whether it's currently distributed? Thanks. Yeah, no, great question, Ashley. Thanks for sharing. I'd say, big picture, no. I mean, our brand partners are so key to our success and something that you know, I have been so proud of of how our team manages our relationships and works as true partners to building our brands.
Speaker Change #107: While keeping our guests and each other at the center of everything that we do so we look forward to speaking to you all again, a little sooner than normal after one of our quarterly calls in.
Speaker Change #107: At our Investor event in October I hope to see you there and I Hope you all have a good evening and thanks again for joining.
Speaker Change #107: Okay.
Speaker Change #108: Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
Dave Kimball: Brands continue to see all to beauty as a leading destination to expand their business, whether they're in existing brand like Ilya, or a new brand that's just been created that's looking to reach 44 million of the best beauty enthusiasts across the country. And we're demonstrating that right now. Our brands continue to lean into us. I've highlighted a few things, rolling established brands through innovation, exclusives on those brands, expansion of those brands, and finding new ways.
Speaker Change #108: [music].
Speaker Change #108:
Speaker Change #108: Yeah.
Dave Kimball: I mentioned expanding keels of brand that we've had for a while and finding new ways to reach our guests, expanding that into stores. Brands are excited about that because they seek growth, launching big established brands like Ilya and discovery new and exclusive brands. So, you know, we are focused every day on creating an environment that our brands see value with us and they do. 44 million members, 1400 stores, a strong and dynamic digital environment, and an experience that's unique.
Dave Kimball: Despite the competitive environment, nobody does what ultra beauty brand does, and our brands probably understand that better than other than that's why we've had such success creating deep relationships and continuing to attract both existing and brand new to the world brands.
Speaker Change #108: Yeah.
Speaker Change #108: Uh-huh.
Speaker Change #108: [music].
Dave Kimball: And that's something that I see will continue to drive our business going forward.
Speaker Change #108: Mhm.
Speaker Change #108: [music].
Olivia Tongue: Thank you.
Dave Kimball: Our next question comes from the line of Olivia Tongue with Raymond James. Please proceed with your question. Thank you.
Speaker Change #108: Oh.
Speaker Change #108: Oh.
Okay.
Speaker Change #108: Yeah.
Dave Kimball: A few questions left. First, how much of the misrelative to your expectations is quarter, do you think was a function of the category decelerating versus your own share loss? And then second, why do you think the promos that you did this quarter didn't quite work? And then as you think about, you know, the rest of the year. Is it you have to deploy more promo or or or or different promo because it looks like from your full year outlook revision that you expect comes to to potentially fall another hundred basis points where it's in second half, versus Q2.
Speaker Change #108: Okay.
[music].
Dave Kimball: And just lastly, if you could talk about what you saw towards the end of the quarter into this quarter that influences your guidance. Thank you. Great. Thanks, Olivia. Let's see, first on the mix of the drivers. We highlighted for primary elements that we believe impacted our business in the second quarter. And we think each played a role in our sales performance with the competitive pressures continuing to be the largest drivers. So as we've talked about here today, continue to focus on the competitive pressure, recognizing the category while still healthy has moderated some.
Dave Kimball: So requires us to continue to elevate our efforts and then addressing some of the internal dynamics around our operational efforts as well as promotional. So all contributed and we're focused on on driving them for promo specifically. You know, we, as I mentioned, the what it has not. Maybe what did not work as much was not our temple events, our core strategic elements, our loyalty events, the key connections that we have. But as I said, we are our sales moderated throughout the quarter.
Dave Kimball: And as we saw that. We call it in mid June and in July. On top of some of the efforts we already have like our big summer beauty sale and other programs. We layered in incremental promotions and historically we've done some of that and it's worked in different ways. But this, this time what we saw was that layering helped in the e-com businesses as we highlighted and did drive, you know, traffic and sales and e-com.
Dave Kimball: But added some complexity in store and how that came to life and did not resonate as well and and so when we saw our consumers engaging with them. We created an environment that was not as clear and crisp as we needed it to be. And so we're addressing that going forward. As far as our outlook into the rest of the year and the role of promo as well as other things, we've assessed the impact of the new and existing challenges that we've been talking about here today.
Dave Kimball: And we've evaluated a number of scenarios that anticipate a variety of macro consumer changes, competitive category performance, holiday shifts and a more promotional environment. We've taken all that into into account and that's reflected in in our in our outlook. But I'd say last thing I'd say to all that is, you know, I hope it's clear we're not standing still. I've highlighted many of the things that we're doing. We're taking action. We're building off successes with newness and other efforts that we have across the business.
Dave Kimball: We do not anticipate having to lean only on promo. That's never what we've had to do and all of the actions across loyalty, innovation, newness services, guest experience digital will come together to drive us and give us confidence in our comp guidance for the second half of the year.
Operator: Operator, I think we have time for one more question.
Susan Anderson: All right, great. Our last question comes from the line of Susan Anderson with Canon Core Genuity. Please proceed with your question. Hi, good evening. Thanks for fitting me in here. I guess I was curious.
Susan Anderson: It sounds like most of the competitive pressure is on the proceed side, and it does sound like you maintain that mass share, but are you also seeing any increased competition on the mass side, maybe being, you know, some of the mass retailers getting more competitive from a promotional standpoint? And then also just really click on the hair care, was that decline or change their primarily driven by procedure? Did you see anything else on the mass side as well?
Susan Anderson: Thanks. Great. Yeah, this is a very competitive category. So while we're pleased that we maintain share of mass, we know there's competition happening both on the mass and the prestige side. But we haven't seen what we haven't seen in mass is the, you know, dramatic increase in points of distribution or expanded presence both with physical stores and online. And that's a lot us to continue to drive our experience. And an important aspect is while we talk about our business and mass and prestige, our guest really looks at the whole thing and comes in for both together and buy both together in the same basic from entry level mass, up through mass, prestige, prestige and luxury.
Susan Anderson: And so we need all things to be clicking to drive in traffic and engagement and basket. And so when there's pressure on one part of the business, it impacts our whole store. But our mass business is performing well and we're confident in our outlook there. As far as the hair dynamics I mentioned in the remarks, the primary driver, we're pleased with our hair business. It's a critical part of our business. I mentioned our salon is performing well.
Susan Anderson: The hair business primary driver of the performance there was it shipped in one of our strategic tent pole events in hair from the second quarter into the first quarter. And that was the primary driver of the lower results in that. But our hair business is important and we continue to find ways to drive that business going forward. Great. Thank you so much. Yep. Thank you. Thank you, Susan.
Dave Kimball: And thank you all again for joining us today. We very much appreciate your interest in the ultra beauty. And I want to take this last moment to thank our more than 55,000 ultra beauty associates for their continued focus and commitment to serving our guest. There are teams that manage through significant change over these last three years. And I so appreciate how quickly they've embraced new technology, new processes, new ways of working, all always while keeping our guests and each other at the center of everything that we do.
Dave Kimball: So we look forward to speaking to you all again a little sooner than normal after one of our quarterly calls at our investor event in October. Hope to see you there. And I hope you all have a good evening and thanks again for joining. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. And I'm sorry, I'm sorry, I'm sorry, I'm sorry[inaudible]