Q4 2024 Ulta Beauty Inc Earnings Call
Speaker Change: Good afternoon and welcome to Ulta Beauty's conference call to discuss the results for the Ulta Beauty 4th quarter 2024 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 limit yourself to one question and then re-enter cue for any additional questions.
Speaker Change: If anyone to require operator systems during the conference, please press star zero on your telephone keypad As a reminder, those conference is being recorded It is now my pleasure to introduce Ms. Kylie Rawlins, Vice President of Investor Relations Ms. Rawlins, please proceed
Thank you.
Kiley Rawlins: Thank you, Alicia, and good afternoon everyone. Thank you for joining us for a discussion of Ulta Beauty's fourth quarter and fiscal 24 results.
Speaker Change: Hosting our call today are Kecia Steelman, Chief Executive Officer, and Paula Oyibo, Chief Financial Officer
Kiley Rawlins: Before we begin, I'd like to remind you of the company's Safe Harbor language. Many of our remarks today will contain forward-looking statements. Would speak only as of today, March 13th, 2025.
Kiley Rawlins: We refer you to our earnings release and SEC filings, where you will find a number of factors which could cause actual results to differ materially from those forward looking statements.
Thank you.
Kiley Rawlins: Kecia will begin our call with key highlights from our fiscal 24 results and share our priorities for fiscal 25 Then Paula will review our fourth quarter results and more detail and discuss our outlook for fiscal 25
Speaker Change: Following our prepared remarks, we will open the call for question.
Speaker Change: Our call will be a little longer than usual this time, and so 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
Speaker Change: If you have additional questions, please re-cue. And as always, the IR team will be available for any follow-up questions after the call.
Speaker Change: Before I turn the call over to Kecia, I want to share that both Paula and Kecia are fighting seasonal colds, and you may notice that their voices are a bit raspy this afternoon. And with all, I'll turn the call over to Kecia. Kecia?
Keisha Seelman: Thank you, Kylie, and good afternoon, everyone. I've had the pleasure of participating in these calls over the last three years as COO, and I'm excited to host my first call as CEO today. I appreciate your continued interest in Alta Beauty and look forward to engaging with each of you. Thank you.
Keisha Seelman: Today I'll provide my perspective on the strength of our business, highlight where I focus my first 60 days as CEO and share some of our 2024 achievements and discuss how I'm thinking about our long-term growth opportunities and prioritizing our actions.
Keisha Seelman: It all starts with her mission. Simply put, there's magic in her mission. Every day we seek to use the power of beauty to bring to life the possibilities that lie within each of us. [inaudible]
Keisha Seelman: We have a unique opportunity to serve beauty enthusiasts at nearly every stage of life in so many milestone moments.
Keisha Seelman: from their first date to their first job interview to their wedding day and so many moments in between. It's a mission uniquely suited for all to beauty. One, I feel very privileged to steward and I know that no one can bring this mission to life the way we can. Thank you very much.
Keisha Seelman: While I've been at Alta Beauty for more than a decade, in my first 60 days as CEO , I made it a priority to spend meaningful time with our brand partner, guest, leadership team, and store associates to assess the state of our business, including where we're winning and where we have opportunities. Thank you.
Keisha Seelman: I've made organizational changes to streamline decision making and align our teams around gastrointric goals and I've leaned in where we have immediate opportunities to improve our execution. All through the lens of protecting and nurturing the culture that we believe makes us so special.
Keisha Seelman: I step into this role with incredible optimism because it's evident to me that the foundational advantages of our business model are strong and more relevant than ever. Thank you very much.
Keisha Seelman: We have an unmatched breadth of a stormant. We provide convenient and engaging army channel accessibility. We've built meaningful brand equity and a leading loyalty program. We have a strong financial foundation with stable operating cash flow. Thank you very much.
Keisha Seelman: And we have more than 58,000 talented associates who are the heart of our company and represent our brand to our guests every day.
Speaker Change: I'm aware of the challenges that we face. Some of them are external. Well, others we own. [inaudible]
Speaker Change: Our business is bigger, and we've managed unprecedented category growth, and it is more complex as we've expanded our
Speaker Change: These capabilities are driving guest engagement and enhanced accessibility but have also resulted in execution challenges particularly in product transitions and launches as we leverage new tools and processes.
Speaker Change: As a result, our insert presentation and guest experience today are not as strong as we would like
Speaker Change: These are opportunities well within our control. We've identified specific gaps and we're working quickly to address and I'm leaning in with our teams and brand partners to improve
Speaker Change: It's clear to me that how we've operated must change to ensure that we capture the opportunities in front of us. [inaudible]
Speaker Change: We are focusing to ensure the guest is at the center of everything we do and we intend to move faster, invest strategically, and optimize our business to achieve our long-term goals to drive profitable growth and market share [inaudible]
Speaker Change: I'll dive into our long-term plan to achieve these objectives shortly, the first. Let's review the progress made in 2024.
Speaker Change: We're proud to have finished the year ahead of our expectations. Paula will share more about our financial performance in a few minutes, but I want to highlight just a few of our key 2024 achievements, including enhancing our Sorbonne through the relaunch of our Altsaboodie collection.
Speaker Change: and the launch of 40 new brands, including exclusive brands like Exo Chloe, Noise, Wind Beauty, and guest favorites like Charlotte Tilbury, Ilya and Tacha. Thank you very much for your time.
Speaker Change: Expanding accessibility through the opening of 60 net new stores, a hundred new altibuty at target shop and shop locations, and improved digital functionality.
Speaker Change: We also initiated plans to launch in Mexico and most recently announced our expansion into the Middle East in 2025.
Speaker Change: Re-launching and growing our loyalty program 3% to a record high of 44.6 million members, driving significant gains in brand love and social engagement through compelling marketing and advertising efforts.
Speaker Change: and completing several transformational infrastructure investments, including the upgrade of our ERP system, digital store, and data ecosystem.
Speaker Change: Looking forward to remaining optimistic about the strength and resilience of the beauty category.
Speaker Change: We are mindful that consumers are navigating a dynamic macro-environment, but we continue to expect healthy consumer engagement and beauty .
Speaker Change: While the category has normalized, we believe in the positive dynamics within the categories, including a strong and growing connection between beauty and wellness.
Increased Digital usage
Speaker Change: A strong innovation pipeline and consumer engagement. And we expect these dynamics will support continue category growth in the low to mid single digit range over the next few years.
Speaker Change: Now, I want to share how we're prioritizing our actions as we look to deliver a stronger guest experience and value to our stakeholders [inaudible]
Speaker Change: The long-term strategies and financial targets that we outlined in our October investor day will continue to guide our paths forward.
Speaker Change: To bring further focus to our efforts, we've aligned our plan around three main priorities [inaudible]
First, Drive Core Business Growth
Speaker Change: Second, Gayle New Acreated Businesses, and third, realign our foundation for the future. We're calling our plan, Ulta Beauty Unleashed. [inaudible]
Speaker Change: We recognize the need to move quickly, and we will be deliberate about pacing and prioritization to ensure that we can execute well and manage the short term financial impact. Thank you very much.
Turning to our first priority, driving core business growth.
Speaker Change: We have a strong model and have identified significant opportunities to unlock further advantages. This means continuing to push for excellence in all areas of our operations and strengthening our go-to-market approach with the guests always at the center of everything we do.
Speaker Change: As I shared earlier, our teams are focused on opportunities to sharpen our execution and get back to the basics of running excellent stores that are easy to navigate fully stocked, appropriately staffed, clean and inviting.
Speaker Change: Beyond a Return to Best in Class Execution, in 2025, we'll focus primarily on three initiatives to drive core growth, brand building, personalization, and digital acceleration .
Speaker Change: We will enhance our assortment through further investments in brand building, with the particular focus on exclusive emerging and established brand.
Speaker Change: We've kicked off 2025 with an exciting start with the announcement of several notable brand launches. These include fan favorite note makeup and the innovative K Beauty skincare brand and Nua, exclusive to Alta Beauty.
Speaker Change: And we're thrilled about the upcoming retail debut of Beyonce's hair care brand, Sacred, also exclusive to Ulta Beauty, which we will bring to life in unique ways through our Simeon.
Speaker Change: We'll continue to build this momentum throughout the year and into 2026. [inaudible]
Speaker Change: We will accelerate our digital efforts, delivering new enhanced features on our app and website aimed at elevating the guest experience [inaudible]
Speaker Change: Second, we intend to scale new and creative businesses to capitalize on key growth opportunities and ensure that we remain resilient in a rapidly changing world.
In 2025, we'll focus on four initiatives.
Speaker Change: Accelerating our focus on wellness, launching a new marketplace which will expand our e-commerce presence and allow us to offer a broader array of beauty and wellness products to our guests.
Speaker Change: Bill DePron, our International Presence, and we also plan to introduce several key enhancements to our Ulta Beauty media offering, including new product innovation that provides brands with new ways to reach consumers, along with enhanced closed loop measurements.
Speaker Change: Finally, turning to our third objective, re-aligning our foundation for the future.
Speaker Change: To successfully achieve our long-term growth ambitions, re-assert our leadership position, and deliver value to our stakeholders, we must optimize ways of working in streamline our cost structure.
Speaker Change: It starts by focusing on the heart of our company, our teams and our culture [inaudible]
Speaker Change: At our core, I believe that we have the very best talent and culture and retail, and we're taking steps to re-energize this critical competitive advantage by optimizing the ways of working and positioning our leadership team to meet the needs of our evolving business.
Speaker Change: We've made several organizational changes to accelerate decision making, remove friction, and align teams and resources around guest-centric goals.
Speaker Change: This includes taking steps to optimize our corporate and field support staff, reducing management layers, and shifting resources to higher growth driving areas.
Speaker Change: Additionally, I made several changes to our Executive Leadership team to better focus on our key priorities.
Speaker Change: To support a stronger guest experience in stores, we've centralized all store functions under Amy Bayer-Thomas, an Ulta Beauty veteran who will serve in the newly created role of Chief Retail Officer [inaudible]
Speaker Change: With this change, Amy will add real estate and store design to our existing scope, which includes leadership of our store teams and the last prevention organization.
Speaker Change: To align our transformation efforts with our cost optimization initiatives, Mike Noreska, who joined our team in 2023, will add enterprise-wide responsibilities to his scope and will now serve as Chief Technology and Transformation Officer [inaudible]
Speaker Change: Amy and Mike are transformational leaders who are guest and associate centric and result driven and they will continue to impact our organization with broader scope that result our strategic focus and vision for the future.
Speaker Change: To facilitate a stronger army channel assortment of all things beauty and wellness, we've brought our digital and e-commerce teams together with our merchandising and planning teams under Monica Arnaudo, who now serves as Chief Merchandising and Digital Officer.
Speaker Change: As you may know, Monica announced her plans to retire later this spring. Monica has been a great partner to me and her vision has elevated our assortment, enhanced her brand partnerships, and driven meaningful market share growth. I look forward to sharing an update on her successor very soon.
Speaker Change: We've also promoted Kelly Mahoney to Chief Marketing Officer to advance our brand, personalization and loyalty efforts [inaudible]
Speaker Change: Kelly is uniquely qualified for this role. Her understanding of the beauty and disease is unmatched, and in her 10 years with Altschwager, she has played a pivotal role in evolving and expanding the Altschwager Rewards loyalty program to more than 44 million members.
Speaker Change: Additionally, Jody Carl, our General Counsel, Chief Risk and Compliance Officer, has shared her intention to retire later this spring, after more than 10 years of service to Alta Beauty. An energetic and passionate leader, Jody has been a true business partner, and I want to thank her for her contributions.
Speaker Change: After conducting a nationwide search, I'm pleased to announce that Renee Kazaris, previously Chief Legal Officer for Academy Sports, will be joining our team next month as Chief Legal Officer. Renee and Jody will work together to ensure a seamless transition.
Speaker Change: Today I've shared our plan to make important guest-facing investments, which are necessary to improve our competitors and re-accelerate long-term shared growth.
Speaker Change: These investments will pressure profitability in 2025, but we believe they are critical to driving long-term sustainable growth and a competitive innovative category.
Speaker Change: However, we cannot sustain this level of annual expense growth and achieve our long-term profitability goals [inaudible]
Speaker Change: Discipline Management of our cost structure is an ongoing area of focus. As we shared at our investor day in October , we are targeting cost optimization as 200 to 250 million over the next three years.
Speaker Change: Since 2019, we've delivered 550 million and cost savings from optimization efforts across merchandising, real estate, and operational process improvements. And I'm confident that we can deliver our cost-creature saving target.
Speaker Change: We're in the early stages of these efforts and will provide regular updates on our progress [inaudible]
Speaker Change: Our Ulta Beauty Unleashed Plan of positions us to re-assert our leadership position, building on our strengths by feeling growth of our core business, getting new accretive businesses that further our differentiation and re-lining our foundation for the future.
Speaker Change: While sales growth is the ultimate performance indicator, we are closely tracking a series of KPIs for each of our focus areas, including in-store conversion, member growth and retention, and app engagement.
Speaker Change: Over the coming quarters, we'll provide more details of our plan and updates on our progress.
Speaker Change: In closing, I'm incredibly optimistic of the future of Ulta Beauty
Speaker Change: 2025 will be an important year as we improve our execution and lay the groundwork to deliver on our long-term financial target including net revenue growth of 46% mid single-digit operating profit growth and low double-digit EPS growth
Speaker Change: It will take time for us to fully see the impact of our efforts but with our exceptionally talented team leading the charge. I believe we are taking the right steps to drive profitable growth and market share leadership in beauty and wellness over the long term.
Speaker Change: And with that, I'll turn it over to Paula for some specific quarter results and our financial outlook before we take some questions. Paula?
and Scott Settersten. Thank you. Thank you.
Paula Oyibo: Thanks, Kecia, and good afternoon everyone. Today I will start with a discussion of our fourth quarter and full year financial results, and then provide color on our expectations for fiscal 2025.
Paula Oyibo: Net sales for the 13-week quarter decreased 1.9% to 3.5 billion compared to 3.6 billion in the 14-week period last year. During the quarter, we opened nine new stores, closed one store, and remodeled five stores.
Paula Oyibo: Comparable net sales, comparable sales for the 13-week period increased 1.5 percent, driven by a 3 percent increase in average ticket, partially offset by a 1.4 percent decrease in transactions [inaudible]
Paula Oyibo: Other revenue declined $6 million to $71 million, primarily due to lower income from our credit card program.
Paula Oyibo: Now, looking at the cadence of sales through the quarter, cop sales decreased in November and accelerated in December , reflecting the shift of Thanksgiving and a compressed holiday season.
Growth moderated in January , primarily reflecting adverse winter weather [inaudible]
Paula Oyibo: Sharing more detail on our holiday performance, comp sales for the combined November and December period increased in the low single-digit range, reflecting the cross-functional efforts of our team to deliver for our guest this holiday season [inaudible]
Paula Oyibo: Our marketing and social strategies drove strong Omni-channel traffic, our enhanced fulfillment options provided increased convenience and accessibility for guests.
Paula Oyibo: In our curated assortment of new and exclusive core products, balanced with value-focused holiday kits, drove strong engagement
Paula Oyibo: With additional staffing, new tools and unique events, our store teams delivered great guest experiences and our DC teams flexed up to ensure our stores recovered quickly post-toliday.
Paula Oyibo: From a channel perspective, we saw growth across both, store and digital channels. E-commerce sales for the quarter increased in the mid single digit range, and comp store sales were modestly positive and improvement from the third quarter trend. [inaudible]
Paula Oyibo: Turning to Sales Performance by Category. Fragrance was our strongest category. Delivering double-digit cop growth, primarily driven by newness, men's fragrance and multi-branded gift sets.
Paula Oyibo: Cop sales in a skincare category increased in a mid-single-digit range as strong growth in body care was partially offset by decreases in prestige and mass skin care.
Paula Oyibo: New Brands, including Soldage and Arrow, Naturium, and Tacha, delivered strong growth for the quarter, but this strength was partially offset by lower sales from brands which have experienced increased distribution or lacked strong social engagement last year.
Paula Oyibo: Comp sails in a hair category, increased in a low single-digit range, primarily due to newness and product exclusives and hair tools, as well as healthy guest engagement with key promotional events.
Paula Oyibo: The makeup category experienced a mid-single-digit decrease largely driven by mass makeup, reflecting softness and brands which lacked strong newness and social engagement last year.
Paula Oyibo: Finally, services delivered low single-digit comp growth, driven by increases in salon and specialty services, including ear piercing and makeup services
Paula Oyibo: For the quarter, Gross Margin increased 50 basis points to 38.2%, primarily due to lower inventory shrink. Our investments in protective fixture, training and labor combined with enhanced inventory management processes are delivering results. [inaudible]
Paula Oyibo: For the full year, shrink as a percentage of sales was 20 basis points lower than fiscal 2023 in 2023.
Paula Oyibo: Additionally, Gross Margin and the quarter benefited from favorable channel mix due to lower e-commerce shipping costs and higher merchandise margin, mostly offset by higher supply chain costs, lower other revenue, and the leverage of store-fixed
Paula Oyibo: Moving to expenses, S-GNA was 816 million, 5 million lower than last year, largely due to lower corporate overhead, partially offset by higher store payroll and benefits.
Paula Oyibo: Corporate overhead was lower for the quarter driven primarily by lower consulting expense as we anniversary implementation costs associated with key infrastructure investments.
Paula Oyibo: The increase in store payroll and benefits was driven by higher healthcare costs, increased payroll hours per store to support the guest experience during holiday and higher average wage rates.
Paula Oyibo: As a percentage of sales, Ashia Knight increased 30 basis points to 23.4%
Paula Oyibo: The appreciation increased 12% to $70 million for the quarter compared to $63 million last year, primarily reflecting new store and supply chain investment.
Operating Profit with 516 million, approximately flat with last year
Paula Oyibo: As a percentage of sales, operating margin increased 30 basis points to 14.8% of sales, and diluted earnings per share increased 4.7% to $8.46 to $8.46.
Paula Oyibo: I am proud of how our teams persevered in quarter and Q4.
to deliver these results. [inaudible]
Paula Oyibo: positioning us to close out the year better than expected. And I want to express my sincere appreciation to all our Ulta Beauty Associates for their continued commitment and focus on serving our guests while continuing to manage our business thoughtfully.
to recap the full year.
Paula Oyibo: Net sales increased 0.8% to 11.3 billion. Comp sales increased 0.7% driven by a 1.1% increase in average ticket and a 0.4% decrease in transactions. We opened 60 net new stores, relocated two stores, and remodeled 41 stores.
Paula Oyibo: Gross Margin, Delavers 30 basis points to 38.8%, S-GNA expense increased 4.2% to 2.8 billion.
Paula Oyibo: Operating profit was 13.9% of sales compared to 15% of sales in fiscal 2023, and the Looted ETS decreased to $2.7% to $25.34 cents per share.
Paula Oyibo: Moving to the balance sheet and our capital allocation priorities, we ended the quarter with 703 million in cash and cash equivalents.
Paula Oyibo: Total inventory increased 13% to $2 billion. Primarily reflecting additional inventory to support new brand launches, the impact of 60 net new stores, and investments to improve merchandise in stocks, post-holiday
Paula Oyibo: From a category perspective, most of the inventory growth is attributable to investments made to support fragrance and body care, which are key growth categories.
Turning the Capitol Allocation
Paula Oyibo: Our Healthy Business Model generated more than $1.3 billion in cash from operations, enabling us to reinvest $374 million to support future growth and return $1 billion in capital to shareholders through our Stock Buyback program.
Paula Oyibo: Since launching our share repurchase program in 2014, we've effectively returned $6.8 billion to share holders, while continuing to invest in strategic growth drivers
Paula Oyibo: Turning now to our outlook for 2025, the operating environment continues to be dynamic, and as we navigate ongoing consumer uncertainty, we believe it is prudent to take a cautious approach to our guidance for fiscal 2025.
Paula Oyibo: Additionally, as we shared at our investor meeting in October , we are planning fiscal 2025 to be a transition year and our view has not changed.
Paula Oyibo: For the year, we expect net sales will be between 11.5 and 11.6 billion, with copped sales growth in a range of flat to up 1%.
Paula Oyibo: We expect operating profit will decrease in the low double-digit range, as we begin to implement our Ulta Beauty Unleashed Plan and continue to manage conflationary headwinds and lap one time expense benefits in 2024.
Paula Oyibo: Reflecting our expectations for revenue growth, we expect operating margin will be between 11.7 and 11.8% of net sales.
Paula Oyibo: To share more color into the primary drivers of the expected operating margin pressure.
Paula Oyibo: The largest driver of the delivery is expected inflationary pressure on wages, healthcare and transportation rates.
Paula Oyibo: As well as impact of investments we've made over the last few years, including greater utilization of software as a service and higher depreciation
Keisha Seelman: The second-largest driver is pressure from the investments Kecia discussed earlier, including brand-building, personalization, digital acceleration, wellness, and marketplace The second-largest driver is pressure from the investments Kecia Steelman,
Keisha Seelman: Incensive comp will also be a headwind as we lap lower incentive compensation in 2024.
Keisha Seelman: We expect these pressures will be partially mitigated by lower inventory shrink, supply chain optimization, benefits from UV media and targeted cost savings.
Keisha Seelman: We are confident the investments we plan to make this year are critical to strengthening our long-term market position and we are tracking our spin and returns closely to ensure we deliver expected benefits. We also recognize the operating environment will evolve and we will continue to be thoughtful about chasing and prioritization. Thank you.
Keisha Seelman: For modeling purposes, we expect growth margins for the year will be leveraged primarily driven by store occupancy costs and supply chain costs.
Keisha Seelman: Partially offset by lower shrink. We expect S-GNA will increase approximately 10% for the year. Do you remember I merely by our strategic investments and advertising as we add well as increased store payroll and benefits? Yes.
Keisha Seelman: Reflecting these assumptions, we anticipate the looted EPS for the year will be between $22.50 and $22.90 per share.
Keisha Seelman: Finally, we plan to spend between 425 and 500 million in CapEx, including approximately 250 to 275 million for new stores, remodels and merchandise fixtures
Keisha Seelman: 125 to 165 million per supply chain in IT, and 50 to 60 million per store maintenance and other.
Keisha Seelman: We expect appreciation for the year, will be between $290,000 and $300,000.
Keisha Seelman: In closing, we operate in an innovative and expanding category. We intend to continue to invest to strengthen our competitive position and drive growth while simultaneously looking for opportunities to reduce costs and increase efficiency. [inaudible]
Keisha Seelman: While we view 2025 as a transitional year, we are confident that actions we are taking will enable us to deliver our long term financial goals and drive value creation.
Speaker Change: And now, I'll turn the call over to our operator to moderate the Q&A session.
Speaker Change: Thank you. We will now be conducting this question and answer session.
Speaker Change: As a reminder, if you would like to ask a question, please press star one on your telephone keypad, e-conformation till we 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 may be necessary to pick up your Hamza before pressing the star keys You may press star two if you would like to press star two if you would like to press star two if you would like to press star
One moment please, all you pull for questions.
Linus Dana-Telsey: Thank you. Our first question comes in line as Dana Telfi with Telfi Advisory Group.
Rupes, please proceed.
Speaker Change: Good afternoon, everyone, and congratulations, Kecia on your new role. Would the unleashed plan that you discussed today, with almost it seems like a greater sense of urgency to address and re-excite the core store base?
Speaker Change: How are you thinking about the in-store experience and guest presentation what needs to change? And as that target of 4% to 6% sales growth?
Speaker Change: That's out there on the long term. How do you think about getting back there? Is the investor-day targets? [inaudible]
Speaker Change: which is a transitional year in 25 given the unleashed plan on what you need to do should we expect a transitional year in 2026 or how do you frame it and Paula is there any cadence to or shaping to 25 that we should be mindful of. Thank you. Thank you.
Speaker Change: Well, thank you, Dana, for the question. Yeah, we're very excited about the Ulta Beauty Unleashed Plan and really what we did was we took the long term strategies from our financial targets that we outlined at our investor day.
Speaker Change: and we developed this plan to really simplify our focus for our internal teams so we can help them really prioritize and drive around the three areas of our business, driving core business growth, building new accreted businesses and re-aligning the foundation. And we'll see you in the next video.
Speaker Change: It's not necessarily new information since we had our investor day. [inaudible]
Speaker Change: It's really how we're approaching it internally. What we found is when the teams clearly understand their objectives and their mission to execution level continues to raise. And then I would say the other nuance is the change that we've made with the Transformation Office, now reporting into Mike Moraska. Yeah.
Speaker Change: Having full visibility end-to-end and stagegating our investments so we can see and track how the investments are performing and also holding our teams internally accountable, give us great confidence and that we can continue to drive the execution in 2025 and continue to move the business forward. Thank you very much.
Speaker Change: and Paula. Sure, hi, Dana. What I would say is we continue to expect, as I said, 2025 to be the transition year, and so we are not anticipating anything beyond that to be considered transitional period. And regarding your questions, regarding COMP. So, expecting COMP from, you know, flat to up one, what I would say is, you know, we're not planning any wide variation in COMP quarter to quarter, you know, the environment continues [inaudible]
Speaker Change: to be dynamic with ongoing kind of consumer uncertainty and such. And so we set this level at a comp level that we're confident we'll be able to achieve. We do recognize, though, that given Q1 and Q4 were our strongest quarters in 2024, that Q2 and Q3 likely has the greatest opportunity from a comp perspective. Thank you very much.
Hope that helps.
and Scott Settersten.
Thank you.
Speaker Change: Thank you. Our next question comes from a line of Lorraine Hutchinson with Bank of America. Please proceed.
Lorraine Hutchinson: Thank you. I was just hoping for an update on how you're thinking about the fleet. I saw the 60 new openings this year. I know you have a goal for 200 over the next three. Can you talk about the locations of these stores, the sizes, and then expectations for performance of those new stores that you roll out?
Lorraine Hutchinson: Well, I would say that we have a very robust process around our real estate site selections. And, you know, the rich member data that we have we can see opportunities where there's infill opportunities and there's also opportunities and where we can continue to expand in the areas that we already have stores because there's additional market share opportunities. Thank you.
Lorraine Hutchinson: We see these being a mix of formats going forward. Very balanced in our approach. We don't really see that we're leaning one way or another on any of the formats in terms of size. So I'd say it's more of our traditional plan of new store launches and rollouts for the future. Thank you very much.
Lorraine Hutchinson: The additional point to add is that we continue to see strong news door performance in our 2024 class and so anticipating a similar result with our 2025 class.
Thank you.
Thank you.
Speaker Change: Thank you. Our next question comes from a line of Michael Binetti with Evercore ISI. Please proceed.
Speaker Change: that led to a lot of those successes and obviously changed. And you take over to point at time with a lot of cross-currents in what's a very resilient category historically. Ulta, I guess Ulta's experience through that period has been slower sales and perhaps some share losses that you mentioned earlier on. [inaudible]
Speaker Change: He's been a part of the early earnings resetting strategy with the analyst-a-plan of your reference and the company is reset the near-term margins, lower to allow for some investment. What do you see as the most important things to rebuild your moat? [inaudible]
Speaker Change: on the business, given the competitive dynamics today. If through assessment or through assortment, or do you need to make meaningful changes to loyalty, serious changes to the supply chain, what are the critical pieces to get right today that are different in the past?
Speaker Change: Well, thank you Michael for the question. I would say that... [inaudible]
Speaker Change: You know, the retail environment, especially in beauty has always been competitive, but the competitive intensity is continuing to accelerate the rate.
Speaker Change: So there's not just one area I believe the business that you can lean on, you have to really be balanced in your approach [inaudible]
Speaker Change: which is why we've called our Alta Beauty Unleashed Plan really focusing on all of the parts of the business that make us not only uniquely special at Alta Beauty, but are also the drivers of leveraging our strengths and supercharging them. For example, brand building. We know how to build brands, but leaning into building brands in a different and unique way in its 360 approach. So let's see what we can do.
in partnership with those brands.
Speaker Change: Marketplace, allowing us to have an even broader assortment in a lower risk way to offer broader assortments to our guests.
Speaker Change: Personalization, I can go out and on because they all really matter. And the beauty of this business is when we hit on all cylinders.
Speaker Change: It's like magic, and you're right, when I go back to my early days, we were hitting on all those cylinders. I do truly believe that by focusing on these parts of the business along with getting back to basics. [inaudible]
Speaker Change: and the everyday running of the business in an exceptional way is what's going to really...
Take us to the next level.
Speaker Change: and I mentioned in my comments too of really keeping the guest.
Speaker Change: at the center of everything we do. And that's really what this Ulta Beauty and Lich Plan is. It's about keeping the guest at the center of everything we do along with closely aligning our associate at the same time because our associates are the best representation of our brand because they're the ones that are interacting every single day with the guests that are coming in our stores. Thank you very much.
Thank you.
Thank you very much [inaudible]
Speaker Change: Thank you. Our next question comes from the line of Adrienne Yih with Barclays, please proceed.
Good afternoon, congratulations, Keisha.
Thank you.
Speaker Change: I wanted to go to my one question is going to be on the new categories that you talked about kind of to spur growth over the long haul. Can you talk about where you're under penetrated? I think when we were at the analyst, say you and I talked about kind of health and wellness as an emerging secular trend on top of beauty. If you can talk about some of the opportunities you see in the near term and then over the longer term horizon. Thank you very much. Thank you very much.
Speaker Change: You cut out a little bit on the beginning, but I think you were asking about wellness. Wellness is a category that's largely growing and we see consumer engagement and product innovation just continuing to expand.
Speaker Change: Today, we have dedicated space, but it's limited in our stores. It's about eight feet in most of our store locations. Thank you very much.
Speaker Change: There's new categories that we really feel like we can lean into. Thank you.
Speaker Change: Like nutrition, mindfulness, everyday care, and sleep. It's all really, really important. [inaudible]
Speaker Change: in 2025, where we're going to be looking at leaning into. [inaudible]
Speaker Change: It really, it starts with our leadership. We've created a new dedicated commercial leader and team that they're committed to just driving wellness. [inaudible]
Speaker Change: Adalta Beauty, we're also looking at expanding our wellness assortment
to at least 20 new brands in short order. [inaudible]
and then looking at designing and implementing an extended- extended-
Expanded In-Store Presentation In-Select Stories.
Speaker Change: You know, we're continuing to lean in on this. We do think that there's just this emergence between beauty and wellness and we'll be able to share more in the coming months, but we've got it the plan and the team and we're ready to now start moving in the right direction to bring this to life. And I appreciate the question.
Great. Thank you very much. That's a look. Thank you very much.
Speaker Change: Thank you. Our next question comes to the line of Simeon Gutman with Morgan Stanley . Please proceed.
Hi Kusia, it's Simeon, how are you doing? [inaudible]
Speaker Change: My question is, back at Analyst Day, I was a little surprised. Bye.
that there was more focus on news store growth. [inaudible]
Speaker Change: as opposed to looking back at the fleet and enhancing the current fleet. So I wanted to get your take on it.
Speaker Change: You know, what can you do with the fleet? I'm surprised there isn't more of a refresh .
Speaker Change: You agree with that perspective, and then can the focus of the business tilt in 25 or 26 to focus more on remodel? Thanks.
Speaker Change: Yeah, let me take the start of it and I'll ask Paula to weigh in on some remandals. You know, what I shared earlier is that we do have such great data around where there's opportunities for us to continue to take share in the United States. Thank you very much.
and that's where we're leaning in and seeing additional news stories. We don't want to overbuild our store fleet. I've...
Speaker Change: We've seen that before in retail, and I don't want to be a part of that side. It means that Ulta Beauty, so when we're looking at new stores, we're very confident that we can continue to take share and open those new stores.
Speaker Change: in a very profitable way. In fact, one of the largest assets that we have are stores in and of itself.
Speaker Change: I appreciate your question around, can you make the stories that you have currently in place, even more profitable? And I would say yes, we're continuing to lean in and look at ways.
and which we can continue to drive.
even more profitability out of our existing store fleet. [inaudible]
Wellness is one of those areas that we're leaning into. [inaudible]
Speaker Change: where you look at, can we trade out categories that are less productive and give this space to a new and emerging type category? Also looking at assortment. Are there opportunities for us to continue to refine assortment to make sure we're looking at the tail? All right.
Speaker Change: It's something that is really, really important. And then, you know, keeping the guest experience.
Fountain Center, Harris,
Speaker Change: Our stores are just so important for us to be able to continue to refresh our brands and the brands that we're bringing in. The one thing that's changed even in my 10 years here at Ulta Beauty is that beauty is becoming a little bit more fashionable and in and out. And you've got to be on the cutting edge and the trend. And you've got to be really flexible with the space that you have dedicated to brands in the store. And that's one of the things that we've really been leading into with our renovations is having more universal tight fit
did have questions.
Speaker Change: The only thing that I would add is the reminder, we're expecting the remodel 40 to 45 stores this year, but the other thing to keep in mind is that we actually touch our fleet quite often with our merch as we are bringing a newness into our stores and launching brands and lifting certain categories. And so actually we do a really good job of keeping our fleet up and updated and fresh. And then also add...
Speaker Change: As we shared in our analyst day, our fleet profitability is very, very high and we watch it very closely to continue to maintain that level of profitability.
Thank you. Good luck.
Speaker Change: Thank you. Our next question comes from a line of Steven Forbes with Guggenheim Secured
Louise, Keith Proceed,
Good evening, Kecia Paula. [inaudible]
Speaker Change: I wanted to follow up on a market share and certainly appreciate the optimism around the unleashed plan. But curious if you can maybe frame or reframe how you guys are thinking about planning for some of the factors that may be out of your control, right?
Speaker Change: And in specific to cannibalization impacts, now that we've sort of had more time pass here, can you maybe you renew, give us your renewed thoughts around how long it has, you know, takes a cannibalized door to recover and return just sort of company average comp profiles. Thank you very much.
Speaker Change: Maybe Steve Alts, I'll start in a piece if there's more you add. As we've talked about, this has been unprecedented period over the last several years with the increased points of distribution, particularly for prestige. [inaudible]
Speaker Change: Prestige Beauty. We expect competitive pressure, we'll continue to impact our fleet, but we expect the impact will be lower than what we experienced in 2024. Thank you for your time.
Speaker Change: At the end of 2024, more than 90% of our stores have been impacted by one or more competitive openings in recent years and then two thirds of them impacted by multiple competitive openings. The good news is that we are seeing an improving trend in the performance of the stores that were impacted by physical points of distribution the last several years. And we believe both the lapping of the new openings and the impact of our operational efforts.
Speaker Change: are contributing to the improving trend, and then layer on top of that the actions we're taking as a part of the Ulta Beauty Unleashed Plan. We feel confident that it will still take some time, but everything's moving in the right direction.
Thank you [inaudible]
Speaker Change: Thank you. Our next question comes to the line of Mark Altschwager with Beard, please proceed.
Good evening, thanks for taking my question and Kecia, congratulations Congratulations.
Mark Altswager: With respect to the revenue guidance up to three percent, how does that compare to your underlying assumptions for the beauty category in 2025?
Speaker Change: Then Ulta did lose a bit of share in 2024. In the prepared remarks he talked about, spending more on marketing. What's baked into the margin guidance in terms of promotions and other actions to defend or recapture market share in 2025? Thank you
Speaker Change: All right, well, I'll start with talking a little bit about the category trends. Yes, the consumers are navigating a dynamic macro environment, but we continue to expect the
Speaker Change: Healthy Consumer Engagement with Beauty. While the category did slow in 24, it continued to grow in the load amid single-digit range. The category did slow in the load amid single-digit range.
You know, part of that growth was driven by...
Speaker Change: The growing connection between beauty and wellness, which is where we're leaning into. Thank you.
Speaker Change: There was a healthy innovation pipeline, and we feel good about our innovation pipeline also for 2025.
Speaker Change: and also just having strong overall engagement within the category. You know what, others have commented. [inaudible]
Speaker Change: and there's a lot going on clearly out there in the world today.
Speaker Change: You know, we're laughing some strong growth also from last year and then...
Speaker Change: Paula, do you want to win in the second part of the question? Sure. Specific to promotions and how we're thinking about promotions as it relates to our sales and our cost. What I would say is that underpinning our expectation is that the promotional environment will continue to be rational. Thank you very much.
Speaker Change: and so what we saw last year in 2024 is that the promotional environment increased.
Speaker Change: It's still in our opinion was rational. And so we're planning 2025 to be rational as well. Now we do understand that things could change. Well, you know, if the consumer demand deteriorates requiring or needing, having others to be more leaning and more heavenly with promotions, then that is something that we would consent to but we'll continue to evolve based on the environment and the consumer demands. One thing that I will say is that
Speaker Change: We continue to lean into our capabilities to optimize both the timing and execution of our promotional offers, you know, we will of course balance [inaudible]
Speaker Change: Discounts with value messaging and quality and leverage our member insights to really focus on executing productive targeted offers and continue to optimize our promotional effectiveness. Thank you very much.
Speaker Change: I would just maybe add in this environment we're really focused on controlling what we can control. Well,
Thank you [inaudible]
Speaker Change: Thank you. Our next question comes to the line of Michael Lasser with UBS. Please proceed.
Michael Lasser: Revy, thank you so much for taking my question. In your remarks, you noted that the competitive intensity of the category continues to increase.
Michael Lasser: So, was that in reference to both online as well as offline competitors? Yes, that's right, that's right.
Michael Lasser: And is that mean that the cost of doing business was in the beauty category increases which should diminish the potential that
Michael Lasser: Ulta will be able to scale its margins over time as it goes through this transition period this year. Thank you very much.
Michael Lasser: Well, thank you for the question, Michael. I will say, as I mentioned earlier, it's always been a competitive category. There are more players that are continuing to lean in, and I do believe that our Ultimatum Leesh Plan is really designed to accelerate and amplify our differentiation and what makes us unique.
Michael Lasser: So we're really refocusing to ensure that the guest is at the center of all of our decisions. We intend to move faster and invest with purpose [inaudible]
and we're really looking to optimize our business.
Michael Lasser: and it's really in those go-to-market areas. It's about brand-building, digital acceleration, personalization, marketplace and wellness. And this is what we do. A lot of players are playing in the world of beauty, but this is what Altschwager does. And the fact that we have everything from masks [inaudible]
Michael Lasser: to Prestige, to Luxury, and everything in between. And we just need to continue to focus on our strengths and lean into them. It will help us continue to build that mode.
Paula Oyibo: and then Paula is going to talk about the margin. Yes, Michael, you know, I, as we think about some of the, the commentary we shared in October with the investor day, we talked about that this continues to be a competitive category and in order to be a market share, have growth and be a market share gainer and this competitive and innovative category that we think it's important to continue to reinvest in the business to fuel the fuel world. And that is why we shared the guidance that we
Paula Oyibo: We gave four to six percent top line growth and that we expected from a margin perspective to be able to maintain margins around 12 percent. And so that reflects the current environment from our lens.
Thank you very much [inaudible]
Speaker Change: Thank you, our next question comes to the line of Michael.
Peekers.
Elizabeth D. Davidson, please proceed.
and Scott Settersten.
Thanks, I guess I'll ask about Paris. [inaudible]
Remind us your exposure now to Europe potentially.
200% tariffs and presumably that they'll retaliate.
Speaker Change: So if you could sort of break down your exposure by different parts of the world and then...
There were definitely some price increases as I recall.
Speaker Change: in 2017-18, but the timing was a little skewed, I think you...
Took price before you even saw the margin so...
Speaker Change: It was a, before you saw the price increases, so it was a margin enhancer really on, after you remind us how that price versus cost dynamic played out last time and what do you expect this time thank you.
Speaker Change: Beyond merchandise, we have some exposures with areas like fixtures and lightning and supplies from a store perspective. And then largely from a merchandising perspective is our Ulta Beauty collection brand. But again, like I said, relatively limited and similar to how we successfully navigated in the 2018-2019 period. Our teams are staying very close to the evolving situations and we're continuing to navigate it. And.
Speaker Change: Scenario Plan, both for our business as well as with our brand partners.
Thank you [inaudible]
Speaker Change: Thank you. Our next question comes in line of bike for a child with Wells Fargo. Please proceed.
Ike Boruchow: Hey, good afternoon. Thanks for taking the question. Paula, can I have two clarifications? So first on the promo, or I'll call it the Merch Margin line for this year.
Ike Boruchow: You said rational, similar to 24, but the Merch Margin trend in the first half of last year was very different than the back half. You were much more stable, I think you were flat to up, you were down decently in the first half. So just to compare it to 24 is tough, would you compare it to the back half? [inaudible]
Ike Boruchow: of 24, just some clarity on how to think about merch for the year would be helpful and then I'm sorry just a clarification on the comp. Thank you very much.
Ike Boruchow: Outlook, zero to one. And I think you said similar every quarter, but Q4 and Q1, I guess the low end of the zero to one. Just want to make sure I understand how to think about the first quarter comp relative to your commentary. Thanks.
For more information visit www.FEMA.gov
Ike Boruchow: Okay, I'm going to answer the last question around the cops, and then I might need you to give me what you're asking for on promo and merch margin if you were speaking of 2020.
2024 or 2025.
Ike Boruchow: on the cop for 2025. So what I shared is yes, flat to one for the year.
Ike Boruchow: and we are not planning a wide variation in quarter to quarter. And the additional color I was given is that because Q1 and Q4 were our strongest quarters in 2024,
Ike Boruchow: then I would expect Q2 and Q3 to have the greatest opportunities from a comp perspective. [inaudible]
Got it, I'm just gonna go back. [inaudible]
Ike Boruchow: Yeah, thank you. And then the basically what I was asking on the Merch margins for 25, you said similar rational promo pricing in 25, which is what you said you saw in 24, I was just saying your Merch margins were down in the first half and flat up in the back half.
So are you saying similar? [inaudible]
Ike Boruchow: to what you saw in the back half of 24, just because it was very volatile to the year, which is a similar way to ask is just are you merchandise margins planned flat to up, or should they decline again? Yeah, based on, based on what I was saying.
Ike Boruchow: Now, I appreciate the question. I'm probably not going to get into a specific expectations around March margin for for the year, but the point that I was making about promotionality is that we expect promotions to be rational this year, and that is assumed within within our guidance. You know, if I go back to gross margin for 2025, we expect gross margin will be leveraged primarily driven by store occupancy cost and supply chain [inaudible]
Ike Boruchow: Cox, Parsley Offset by Lower Shrink, and obviously Gross Margin is impacted by the comp of zero to one, which is causing us to deliver it on many of our fixed costs.
Thank you.
I think Alicia, we have time for one more question. Thank you very much.
Speaker Change: You got it. Our last question comes from the line of Ashley Helgans with Jeffrey. Please proceed.
Ashley Helgens: Hi, thanks so much for squeezing me in. Any more color you can share on the new marketplace and just how it differs from your current online platform. And then Paula, you called out the brands, the brands that have increased distribution have been drags. Just curious how you can bat, how you're planning to combat that headwind. Thanks.
Speaker Change: Thanks, Ashley for the question, I'll start So yes, you know what we're seeing is that our beauty guest needs they are continued to evolve and we want to be able to expand our offerings in a lower risk way and this really enables us to do that with marketplace in place.
Speaker Change: We have thousands of brands that want to come work with us and what we're doing is we're opening a closed marketplace so it's invitation only to enable like a curation site and that actually went up live today so brands can actually start signing up officially today. Bye.
Speaker Change: We're expecting a mix of new and established and emerging brands that are really focused around beauty and wellness [inaudible]
Speaker Change: One of the other things that we're really focused on is that our members will be able to earn points on their marketplace purchases.
Speaker Change: and that the guests will be able to return their marketplace purchases to our stores. So we're trying to make this as seamless as possible for our guests. The plan is to launch this in the back half of 25.
Speaker Change: and we've got a dedicated team that we're building around selling and operations to operate this model. We don't expect it to be material in 25 and we're going to continue to share more details as they become available. Thank you very much.
Paula Oyibo: Paula? Sure, and hi Ashley, on your question about what we're doing to combat potentially some specific brands.
Paula Oyibo: The Clines. Generally, I guess I would zoom out and say, really, when we think about where there's opportunity for us from a business, you know, newness. We continue to work with our existing brands and new brands to bring newness into our assortment. And even for brands who've had expanded distribution, our merchant teams do a wonderful job with finding and launching specific and exclusive newness that's unique to Ulta.
Paula Oyibo: and so that helps. And then one of the key priorities within our Ulta Beauty Unleashed Plan is brand building, which is focused on building and growing brands and increasing the level of brands that are exclusive in our sortment. And so those are the key strategies that we have that would help with that. And so those are the key priorities within our Ulta Beauty Unleashed Plan. And so those are the key priorities within our Ulta Beauty Unleashed Plan.
Great, thanks. I would just like to... [inaudible]
I would like to thank everyone for joining us today. Thank you for joining us today.
Paula Oyibo: To wrap up, I'd also like to thank our loyal guests, our trusted brand partners and dedicated associates for their engagement and support. I'm confident in the team's ability to reignite our momentum while making wise investments to set the business up for long-term performance.
Paula Oyibo: Thanks to you all for your interest in Alts' beauty and I look forward to meeting a connecting with you in person in the coming months. Thank you and have a good evening. Thank you.
Paula Oyibo: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Thank you for your participation.