Ulta Beauty, Inc. (ULTA) Earnings

Management highlights

### Core Business Execution & Growth - Core U.S. business remains fundamentally strong, with broad-based growth across all channels and categories; gained market share in Prestige Beauty and maintained share in Mass Beauty in Q1. - Stores delivered solid performance supported by over 40,000 in-store events, promotional activations including 21 Days of Beauty and Spring Haul, and ongoing focus on guest engagement and education. - E-commerce maintained strong momentum, with expanded same-day delivery, new buy-now-pay-later options, and robust omnichannel buy anywhere, fulfill anywhere capabilities driving growth. - Successfully launched TikTok Shop focused on Ulta-exclusive brands; the launch shoppable live stream earned over 5 million impressions, with strong performance and high interest from consumers, creators and brand partners, positioning Ulta to reach younger consumers. - Expanded the Ulta Beauty Rewards loyalty program to nearly 47 million members (up 4% YoY), leveraging first-party data and improved technology to enhance personalized marketing and drive incremental sales. ### New Business Scaling - International expansion continued with new store openings in Mexico and the Middle East; SpaceNK in the UK and Ireland continues to gain market share and grow its customer base. - Marketplace gained traction with increased brand and SKU count, strong guest satisfaction, and successful integration into key promotional events. - Wellness category grew via expanded assortments across key focus areas (nutrition/supplements, intimate care, rest/reset), new brand launches, and improved digital navigation. - UB Media, an incremental margin driver, launched new YouTube enhanced measurement that delivered higher return on ad spend and conversion for brand partner campaigns. ### Strategic Foundation Investments - Committed to opening a new automated regional distribution center in Salt Lake City, Utah to improve distribution speed and efficiency. - Rolled out AI tools including the Alta AI online shopping agent to enhance personalization and guest discovery, and integrated Google Gemini for agentic commerce; initial results are promising. - Announced plans for a new experiential flagship Ulta Beauty location in New York Times Square, expected to open in late 2027 to showcase brand building capabilities and drive global awareness. - Maintained financial discipline, with targeted cost optimization and deliberate investments aligned with the Ulta Beauty Unleashed strategy to deliver consistent double-digit earnings growth. ### Category & Macro Positioning - The overall beauty category remains healthy, though consumers are increasingly value-focused amid ongoing macroeconomic uncertainty and inflationary pressures. - Ulta's diverse mass-to-luxury assortment, omnichannel convenience, and strong loyalty program position the company well to meet evolving consumer needs and maintain growth.

Guidance

- Maintained full fiscal 2026 net sales growth guidance at 6% to 7% YoY, with stronger growth expected in the first half driven by Q1 performance and the SpaceNK acquisition. - Maintained full fiscal 2026 comparable sales growth guidance at 2.5% to 3.5% YoY, implying a high single-digit two-year stacked comp that is expected to remain consistent across all remaining quarters of the year. - Raised operating profit growth guidance from the prior range to 6.5% to 9% YoY, reflecting stronger than expected Q1 execution; gross margin is expected to be roughly flat for the full year, with shrink improvements and supply chain productivity offsetting higher fuel costs. - SG&A growth is expected to be in line to slightly below net sales growth; high single-digit SG&A growth in the first half (driven by SpaceNK and 2025 second half strategic investments) will step down to low single-digit growth in the second half as these investments anniversary. - Raised diluted EPS guidance to $28.36 to $28.80 per share, representing 10.6% to 12.3% YoY growth (up from the prior 9.4% to 11.4% expected growth), driven by higher operating profit and increased share repurchases. - Increased the fiscal 2026 stock buyback target from $1 billion to $1.5 billion, as management views repurchases in the current environment as a compelling value creation opportunity.

Segment performance

Total first quarter net sales grew 11.1% year-over-year to $3.2 billion, with 5.3% comparable sales growth, 15.5% diluted EPS growth to $7.74 per share, and 11.6% operating profit growth to $448 million (14.2% of sales). By product category: - Fragrance: Delivered high teen comparable sales growth, increased revenue contribution from 11% to 12% of total revenue, driven by new product innovation and new/upgraded brand assortments. - Hair Care: Delivered high single-digit comparable sales growth, led by strong performance in prestige hair care; growth from new brands and existing exclusive SKUs was partially offset by declines in hair tools. - Makeup: Delivered low single-digit comparable sales growth, driven by prestige makeup growth from new brands and new product releases; mass makeup was flat. - Skincare & Wellness: Delivered low single-digit comparable sales growth, with healthy performance from prestige skincare brands and strong growth in wellness supplements and self-care products, partially offset by pressure in body care. - Services: Delivered mid-single-digit comparable sales growth, driven by strong member engagement for salon and specialty services (ear piercing, makeup services). By channel: - Stores: Delivered low single-digit comparable sales growth. - E-commerce: Delivered mid-teen sales growth, supported by omnichannel fulfillment capabilities and new platform launches. New businesses: - International: SpaceNK (UK/Ireland) delivered healthy balanced growth; 2 new Mexico stores and 1 new Middle East franchise store opened in the quarter. - Marketplace: Ended the quarter with over 325 brands and 8,000 SKUs, with strong guest engagement after integration into key promotional events.

Risks & headwinds

- Ongoing macroeconomic uncertainty, inflationary pressures, and rising fuel costs increase consumer value sensitivity and create near-term operating cost headwinds. - The beauty category is increasingly competitive, with traditional and online players competing for market share, requiring ongoing targeted investment to maintain share position. - The geopolitical situation in the Middle East remains fluid, creating near-term uncertainty for the newly opened flagship store and long-term expansion plans in the region.

Analyst Q&A

• Q: Which categories are seeing the strongest return on marketing and investment, and where can SG&A leverage come from in the back half of the year?

  A: Fragrance and exclusive 360° brand building investments are delivering the strongest returns, driven by expanded in-store assortment, marketing, and key promotional events. UB Media investments are also driving strong guest engagement. Management noted strong Q1 execution gave confidence to raise guidance, with supply chain optimization and ongoing shrink reduction creating leverage opportunities. The priority is balancing top-line growth investment and margin discipline to increase operating profit.

• Q: Is low single-digit April comp growth as good as it gets, and is SG&A step down in the back half planned or requires maneuvering?

  A: Q1 comp trends played out exactly as expected, with low double-digit growth in February lapping a weak 2025 comp, and low single-digit growth in March/April. Management remains confident in hitting full-year 2.5-3.5% comp guidance, with a high single-digit two-year stacked comp that reflects strong underlying growth. SG&A step down to low single-digit growth in the second half is fully planned, as it reflects anniversary of 2025 strategic investments, with ongoing cost optimization adding further benefit.

• Q: Is there any change to industry growth assumptions that would impact share gain plans, and why won't Q1 gross margin tailwinds continue through the full year?

  A: Beauty industry growth is expected to normalize in the back half after accelerating quarter-over-quarter in 2025, but Ulta remains committed to gaining share, with its 11.1% Q1 total sales growth outpacing overall market growth. The larger shrink-driven gross margin benefit in Q1 was planned, as shrink improvement benefits began to accrue in late 2025, so the first half cycles these gains leading to stronger gross margin performance H1 that moderates slightly in H2 as planned, with full-year gross margin expected to be flat overall.

• Q: Is TikTok Shop growing fast enough to move the needle on comps, and is it complementary to existing business?

  A: TikTok Shop launched with a focus exclusively on Ulta-exclusive brands and bundles, and is still in early phases. Management expects no cannibalization of existing business; it is primarily a guest acquisition and marketing tool to reach younger consumers who are active on TikTok, bringing new members into the Ulta loyalty ecosystem. It also creates new collaboration opportunities with brands, with any direct sales upside as a secondary benefit.