Ulta Beauty, Inc. Q2 FY2025 earnings call

Key Strategies - Ulta Beauty Unleashed strategy continues to gain traction, with strong comp sales growth, market share gains, and loyalty member growth to 45.8 million. - Marketing efforts reimagined events and activations, strengthened cultural relevance with collaborations like Coachella and Beyonce's tour, and saw growth in unaided awareness and brand engagement. - International expansion: Acquired Space NK to enter the U.K. market, opened first store in Mexico with grand opening upcoming, and on track to open first store in the Middle East. - Wellness: Expanded in-store footprint with 370 additional stores and 50 more with enhanced fixtures coming. - Online marketplace: Launching curated invitation-only platform in third quarter to expand product offerings. - Culture: Annual culture survey exceeded industry benchmarks, with increased associate engagement.

For the second quarter of fiscal 2025, net sales increased 9.3% to $2.8 billion. Comp sales growth was 6.7%. Fragrance was the strongest performing category with robust double-digit growth, driven by successful Mother's Day and Father's Day activations, newness, and gift sets. Skin care and wellness sales increased in the high single-digit range, led by body care and wellness. Makeup delivered mid-single-digit comp growth, with positive performance in both mass and prestige. Hair care had mid-single-digit comp growth supported by professional hair care, accessories, and tools. Services had low single-digit comp, primarily from cutting color services.

• Consolidated net sales for 2025 expected between $12 billion and $12.1 billion, with comp sales growth 2.5%-3.5%. - Operating profit expected to decrease in the high single-digit range, operating margin 11.9%-12% of sales. - SG&A expected to increase 13%-14% for the year. - Diluted EPS expected between $23.85 and $24.30 per share.

• Macro-economic uncertainty and consumer spending concerns. - Competitive pressures in the beauty market. - Supply chain costs and potential impact on margins.

Q: Congratulations, Kecia, and the team, what's the sustainability of initiatives given doubled comp growth and pace of newness, and pathway to increased operating margins?

A: Kecia notes momentum from Ulta Beauty Unleashed plan, but back half has higher comps, and Chris mentions costs may deleverage, but shrink benefits will moderate and incentive comp and investments affect margin.

Q: Michael Binetti asks about comp range in back half and operating margin leverage.

A: Kecia says long-term outlook considers changes, Chris notes back half guidance reflects less uncertainty, and SG&A growth due to Space NK and over-performance.

Q: Adrienne Yih talks about promotional backdrop and wellness.

A: Kecia says promotional strategies are rational, and wellness has expanded in stores with focus on self-care, aiming for $1B business long-term.

Q: Simeon Gutman asks about operating margin philosophy.

A: Kecia says focusing on operating profit dollars and balancing investments for return.

Q: Steven Forbes asks about cannibalization recovery.

A: Kecia says competitive pressure is lower, loyalty program and personalization help recapture sales.

Q: Olivia Tong asks about mass vs prestige and newness pipeline.

A: Kecia says newness is balanced, makeup growth in both mass and prestige, and strong pipeline for next year.

Q: Susan Anderson asks about Space NK and international strategy.

A: Kecia says acquiring Space NK was strategic for international expansion, operating as standalone, and learning transfer.

Q: Chris Horvers asks about share change drivers.

A: Kecia says core strengths, newness, and marketing relevance drive share change.

Q: Kate McShane asks about Target relationship and real estate strategy.

A: Kecia says real estate strategy focuses on 50-56 new stores per year.

Q: Oliver Chen asks about marketplace and loyalty.

A: Kecia says marketplace is invitation-only, points earnable, and complements ulta.com.

Q: Mark Altschwager asks about Target impact and margin tailwinds.

A: Kecia says strategic priorities will replace lost royalties and focus on execution of strategy.