Ulta Beauty, Inc. Q3 FY2025 earnings call

• Core US business strengthening: Focused on fundamentals, elevating go-to-market approach through operational excellence, marketing leadership, and merchandising innovation. Enhanced collaboration between teams, improved in-stocks, well-staffed stores, friendly service, and engaging events in stores. Drove solid in-store traffic and sales growth with successful execution of key moments and events.
• Low-to-luxury assortment strengthening: Intensely focused on strengthening and modernizing full low-to-luxury assortment, launched over 35 new brands in the quarter, many exclusive. Focused on leveraging unique advantages to be retail partner of choice for brand launch, build, scale, and globalize.
• Marketing elevation: Debuted new brand equity campaign 'beauty happens here' on social and traditional/connected media. Leveraged integrated marketing efforts to support events and strategies, including high impact merchandising campaigns.
• Digital platforms investment: Investments to accelerate digital engagement and personalization delivering results. App engagement accounted for 65% of online member sales in Q3 up from 63% in Q2. Added new features like replenish and save, wish list, and Venmo.
• International expansion: Opened seven stores in Mexico through joint venture partnership and first store in The Middle East in Kuwait through franchise partnership. Space NK continues to perform well.
• Supply chain and IT: Successfully completed retrofit of Dallas distribution center with advanced automation and robotics, upgraded warehouse management and execution systems.

For the third quarter, net sales increased 12.9% to $2.9 billion. Operating profit was 10.8% of sales and diluted EPS was $5.14 per share. Comparable sales growth was 6.3%. Fragrance was the strongest growing category with double-digit comp sales growth in Q3. Skincare was the second fastest growing category, delivering solid high single-digit comp growth. Makeup delivered mid-single-digit comparable sales growth. Hair care category delivered mid-single digits comps. Services delivered mid-single-digit comp growth in Q3. Consolidated net sales for the quarter increased 12.9% to $2.9 billion. Comparable sales increased 6.3% driven by a 3.8% increase in average ticket and a 2.4% increase in transactions. E-commerce sales increased in the mid-teen range and comp stores delivered mid-single-digit growth.

• Fiscal 2025: Now expect net sales will be approximately $12.3 billion with comp sales growth between 4.4% and 4.7%. Operating margin will be between 12.3% and 12.4% of net sales. Diluted EPS for the year will be between $25.20 and $25.50.
• Fourth quarter: Expect Q4 comp growth will be between 2.5% and 3.5%. Operating margin will be between 12% and 12.3%. EPS for the quarter will be between $7.61 and $7.90.

• Consumer confidence softening in Q3 could impact sales. Tariff-related price increases put pressure on personal styling tools sales. Dynamic macroeconomic and operating environment may affect consumer spending, impacting holiday season performance.

Q: Can you talk about what you're hearing from brands about pricing? The 3.8% ticket comp was very impressive. Do you think this might build in the coming quarters?

A: Kecia Steelman said pricing increases are common, and Chris Lialios added they are seeing more market-wide price increases come through, with brand partners being thoughtful about tariff mitigation and price increases.

Q: You mentioned app engagement and also app online sales penetration. So I was curious if you can maybe just give us more color around what you're seeing from a consumer standpoint and whether consumers are actually migrating to purchasing across channels as you think about the mix of customers that are maybe dual channel purchasers versus single channel purchasers?

A: Kecia Steelman said 80% of business is still from stores, app engagement grew, and new capabilities in e-commerce like split cart, replenish and save, etc., are fueling performance, driving both channels up.

Q: I look at your comp performance on a two-year stack basis. This is the second quarter where the comp accelerated onto your stack basis. And I guess, and I know it's probably hard to parse this out super finitely, but was just wondering much of that do you think is the product newness versus the better execution in store versus the better promotions?

A: Kecia Steelman said it's a mix of merchandising, digital capabilities, marketing, and operations working together, with newness, digital enhancements, marketing campaigns, and operational excellence contributing to the momentum.

Q: Good afternoon, Kecia, Chris. Kecia, you mentioned app engagement and also app online sales penetration. So I was curious if you can maybe just give us more color around what you're seeing from a consumer standpoint and whether consumers are actually migrating to purchasing across channels as you think about the mix of customers that are maybe dual channel purchasers versus single channel purchasers?

A: Kecia Steelman said 80% of business is still from stores, app engagement grew, and new capabilities in e-commerce like split cart, replenish and save, etc., are fueling performance, driving both channels up.

Q: Just on the brand or I guess the innovation pipeline, exclusive brands, know last year, team was very upbeat in terms of innovation for this year. So just curious, based on your current visibility into next year, just how do you feel about the pipeline out there?

A: Kecia Steelman said merchants have been hard at work developing plans for fiscal 2026, have an exciting pipeline of newness, balanced across the portfolio, and feel great about the 2026 pipeline.

Q: you said there's been some debate around the start of the holiday season, Ulta's carried a lot of momentum over the last six months. Are you finding that some of the momentum is starting to fade where consumers are shopping more around events and in between those periods, got a little quieter? And does that give you pause about the need to continue to make investments in order to drive the business?

A: Kecia Steelman said comp growth was consistent across all periods, pleased with Black Friday and Cyber Monday, and confident in plans and execution, not seeing momentum changing anytime soon.

Q: Hey, good afternoon. Just I want to ask about the shrink benefits that you guys have seen all year. Any chance you could quantify it for the third quarter? Are you expecting benefits into the fourth quarter? And then I guess, that is there more tailwind to that? Or is this was this a big kind of catch-up year for you guys?

A: Chris Lialios said there was modest improvement in shrink in Q3, expect shrink reduction in Q4, and teams are working hard with initiatives to further reduce shrink.

Q: Could you discuss the competitive situation Amazon Premium Beauty still seems to be growing a lot. I think Sephora at Kohl's actually comped negative, yet LVMH's selective retail was positive. A lot of different moving parts from your competitors. How do you see the competitive situation today versus three months ago or earlier in the year?

A: Kecia Steelman said beauty is competitive, but Ulta Beauty is uniquely positioned with 46.3 million loyalty members, unique low-to-lux assortment, experiential shopping, and e-commerce strength, confident in continuing to win and take share.

Q: as you think of top line and you think of the categories, and prestige and mass, what are you seeing on prestige and mass? Is there a difference? And as you go forward through this holiday season, is the newness at all different this holiday season than it was last year or any way you're triangulating it? And lastly, you mentioned on SpaceNK. Bringing things here. What are you bringing? Has it been tested? How is it reacting? How do you see that moving forward?

A: Kecia Steelman said gained market share in prestige and mass beauty, momentum in plans working, SpaceNK is early innings with learnings to be shared between parties while protecting SpaceNK's uniqueness.

Q: Guys. Liam, my congrats. Great quarter. I'm you know, I'm still trying to get my head around the SG&A and how we got from 13% to 14% growth for the year on the last call. To 23% in the third quarter. And I think it grosses are flat back into 15% to 16% growth for the year now, I know you called out a couple of items within the 23% growth in third quarter, but I'm I don't understand if those were included in the 13% to 14% for the year previously. Or not?

A: Chris Lialios said space and k does not become comp until Q3 of next year, and for FY '25, gross margin will be roughly flat driven by lower shrink and higher merchandise margin offset by other factors, with Q4 GM deleverage also driven by certain factors.

Q: Great. You very much. On the end, my congratulations to stores look fantastic. Just in one this afternoon. Keisha, can you talk about the target 100 number of stores at the Analyst Day. It was a couple 100 more from the October 24 kind of anchor. And your top line is two times the sale, the rate of category growth. Next year, we're going to shed over 600 of the target x, Alta I'm just wondering, is there how do feel about the pace And has anything changed there? And then for Chris, a question just on kind of the modeling of the the kind of pricing with the price benefit that you had. And the tariff inventory hitting the income statement, should we expect more of a parity, a matching effect on the pricing actions versus the tariff impact actions starting in maybe 1Q or 2Q?

A: Kecia Steelman said confident in the 1,800 store count goal, and Chris Lialios said on pricing impact, will talk more in March, and price increases and tariff impacts have a certain timing and flushing through the income statement.

Q: Great. You very much. On the end, my congratulations to stores look fantastic. Just in one this afternoon. Keisha, can you talk about the target 100 number of stores at the Analyst Day. It was a couple 100 more from the October 24 kind of anchor. And your top line is two times the sale, the rate of category growth. Next year, we're going to shed over 600 of the target x, Alta I'm just wondering, is there how do feel about the pace And has anything changed there? And then for Chris, a question just on kind of the modeling of the the kind of pricing with the price benefit that you had. And the tariff inventory hitting the income statement, should we expect more of a parity, a matching effect on the pricing actions versus the tariff impact actions starting in maybe 1Q or 2Q?

A: Kecia Steelman said confident in the 1,800 store count goal, and Chris Lialios said on pricing impact, will talk more in March, and price increases and tariff impacts have a certain timing and flushing through the income statement.

Q: Hi, everyone. Hi, Keisha. Can I take your temperature on Newness I think it's been a theme for twenty five? What are you seeing as it wraps into next year? And if you're able to, to separate, this year has been a lot of improvement. Some of it's newness. Some of it's marketing. And then you've talked a lot about early innings of some things sound like basic things that you brought, like the payment thing. So can you talk about how much internal improvements you would chalk this year up to and how much you know, more is to go in the in the future?

A: Kecia Steelman said it's a mix of heavy investment in foundation in previous years and shift to go-to-market strategies this year, with next year being more prioritized and expecting benefits from investments to marinate, still in early innings of seeing full benefits.

Q: Your early read from Black Friday through Cyber Monday sounded promising. So wondering if you could unpack the expectations for deceleration to 2.5% to three point comp? Was there any impact from the government shutdown? Any change in consumer habits with pricing? And if you could, what quarter to date looked like? Then just thinking about the initiatives going forward, you're going into next year with a ton of momentum it seems. But curious how you think about some of these initiatives for next year to some pretty amazing top line growth this year? You already talked about the newness. But what about next twelve months versus last twelve months in international wellness marketplace, other new initiatives, the ability to continue to build those so that the contribution continues to get bigger as you comp these numbers.

A: Kecia Steelman said pleased with Black Friday and Cyber Monday performance, Q4 comp expectation is prudent due to macro and operating environment, and next year will have momentum with continued focus on newness and other initiatives like international expansion, wellness, marketplace to build on growth