Ulta Beauty, Inc. Q4 FY2024 earnings call

• Kecia highlighted the strength of Ulta's business model, including unmatched assortment, omnichannel accessibility, brand equity, and talented associates. 2024 achievements included enhancing assortment, expanding accessibility, relaunching loyalty program, and infrastructure investments. Priorities for 2025 include driving core business growth (brand building, personalization, digital acceleration), scaling new accretive businesses (wellness, marketplace, international presence, Ulta Beauty Media enhancements), and realigning foundation (optimizing ways of working, cost structure). Organizational changes include centralizing store functions, restructuring leadership roles for transformation and merchandising/digital.

For the fourth quarter, fragrance was the strongest category with double-digit comp growth, primarily driven by newness, men's fragrance, and multi-branded gift sets. Skincare comp sales increased in the mid-single-digit range, with strong growth in body care partially offset by decreases in prestige and mass skincare. Hair comp sales increased in the low single-digit range due to newness in exclusives and hair tools. Makeup experienced a mid-single-digit decrease largely driven by mass makeup. Services delivered low single-digit comp growth, driven by increases in salon and specialty services.

For fiscal 2025, net sales are expected to be between $11.5 billion and $11.6 billion with comp sales growth flat to up 1%. Operating profit is expected to decrease in the low double-digit range. Operating margin is projected to be between 11.7% and 11.8% of net sales. Diluted EPS is anticipated to be between $22.50 and $22.90 per share. CapEx spend is expected to be between $425 million and $500 million, including spending on new stores, supply chain, and IT.

Competitive intensity in the beauty category continues to increase, leading to potential execution challenges in product transitions and launches. External macro factors and cannibalization from competitive openings pose risks. Also, inflationary pressure on wages, healthcare, and transportation rates, as well as the impact of investments made over the years, could affect margins.

Q: How are you thinking about the in-store experience and guest presentation needs to change and getting back to 4-6% sales growth?

A: Kecia mentioned the Ulta Beauty Unleashed plan focuses on core business growth, brand building, personalization, and digital acceleration, with a focus on keeping guests at the center and aligning teams. Paula noted 2025 is a transition year with comp expected flat to up 1% Q: Update on fleet locations, sizes, and new store performance?

A: Kecia said real estate site selections are robust with member data, new stores are a mix of formats, and 2024 new stores performed strongly with similar expected for 2025 Q: What are the most important things to rebuild the moat around the business given competitive dynamics?

A: Kecia said a balanced approach is needed, focusing on brand building, marketplace, personalization, and keeping guests at the center, with the Ulta Beauty Unleashed plan to leverage strengths Q: Opportunities in near term and longer-term horizon for wellness?

A: Kecia said wellness is a growing category, with plans to create a dedicated team, expand assortment by 20 new brands, and design expanded in-store presentation in select stores Q: Thoughts on fleet refresh and remodels?

A: Kecia said new stores are focused on taking share profitably, and Paula mentioned 40-45 stores remodeled this year with ongoing efforts to refresh fleet Q: How to plan for factors out of control like cannibalization and distribution point expansion?

A: Paula said competitive pressure continues but impact expected lower than 2024, with improving trend in impacted stores' performance due to lapping new openings and operational efforts Q: How does revenue guidance compare to beauty category and promotions?

A: Kecia noted beauty category expected low to mid-single-digit growth, Paula said promotions are expected to be rational in 2025 with focus on optimizing offers Q: Competitive intensity and margin impact?

A: Kecia said Ulta Beauty Unleashed plan is to accelerate differentiation, Paula said reinvestment is needed to fuel growth despite competitive intensity Q: Exposure to tariffs and previous price vs cost dynamic?

A: Paula said limited exposure to tariffs, with teams monitoring and navigating similar to 2018-2019 period Q: Clarification on merch margin and comp outlook?

A: Paula said promotions expected rational, with gross margin expected to deleverage due to store occupancy and supply chain costs, partially offset by lower shrink; comp expected flat to up 1% with Q2 and Q3 having greater opportunity Q: Color on new marketplace and combating brand headwinds?

A: Kecia said new marketplace is a closed platform launching in back half of 2025 for beauty and wellness, with members earning points and returns to stores; Paula said working with brands for newness and focusing on brand building in Ulta Beauty Unleashed plan to combat brand declines