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Ulta Magnificence (ULTA) Q3 2024 Earnings Name Transcript


ULTA earnings name for the interval ending September 30, 2024.

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Ulta Magnificence (ULTA -1.74%)
Q3 2024 Earnings Name
Dec 05, 2024, 4:30 p.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Members

Ready Remarks:

Operator

Good afternoon, and welcome to Ulta Magnificence’s convention name to debate outcomes for the Ulta Magnificence third quarter 2024 earnings outcomes. Presently, all individuals are in a listen-only mode. A quick question-and-answer session will observe the formal presentation. We ask that you just please restrict your self to 1 query after which reenter the queue for any further questions.

[Operator instructions] As a reminder, this convention is being recorded. It’s now my pleasure to introduce Ms. Kiley Rawlins, vice chairman of investor relations. Ms.

Rawlins, you might proceed.

Kiley F. RawlinsVice President, Investor Relations

Thanks, Julian. Good afternoon, everybody, and thanks for becoming a member of us for a dialogue of Ulta Magnificence’s outcomes for the third quarter of fiscal 2024. Internet hosting our name as we speak are Dave Kimbell, chief government officer; and Paula Oyibo, chief monetary officer. Kecia Steelman, president and chief working officer, will be a part of us for the Q&A session.

Earlier than we start, I might wish to remind you of the corporate’s protected harbor language. A lot of our remarks as we speak will include forward-looking statements, which communicate solely as of as we speak, December 5, 2024. We refer you to our earnings launch and SEC filings, the place you can see numerous elements which may trigger precise outcomes to vary materially from these forward-looking statements. We’ll start this afternoon with ready remarks from Dave and Paula.

Following our ready feedback, we’ll open the decision for questions. As all the time, the IR group can be obtainable for any follow-up questions after the decision. Now, I might like to show the decision over to Dave. Dave?

David C. KimbellChief Government Officer

Thanks, Kiley, and good afternoon, everybody. We admire your curiosity in Ulta Magnificence. Our group delivered improved efficiency for this quarter with better-than-expected gross sales and profitability. For the quarter, web gross sales elevated 1.7% to $2.5 billion and comparable gross sales elevated 0.6%.

Diluted EPS elevated 1.4% to $5.14 per share. As we shared on our final name, we’re navigating numerous headwinds, together with the normalization of the U.S. magnificence class a dynamic shopper atmosphere, and elevated competitors, notably in status magnificence. We’re beginning to see profit from actions we’re taking to bolster our market place and enhance our efficiency.

And whereas the headwinds haven’t abated, we’re making progress. Within the third quarter, our status market share tendencies improved, leading to flat market share this quarter based mostly on Circana knowledge for the 13 weeks ended November 2, 2024. The pattern was pushed primarily by enhancements in make-up and hair, and we proceed to see energy in perfume and skincare. Our share efficiency in mass magnificence was in line with the second quarter.

Comp development improved from the second quarter pattern pushed by stronger transaction tendencies throughout each shops and e-commerce channels. We proceed to increase our loyalty program, ending the quarter with 44.4 million energetic members, 5% greater than final yr. We continued to transform new members. We reactivated extra lapsed members, and we improved current member retention.

Our advertising and marketing methods to help our tentpole occasions and drive relevance and buzz delivered double-digit development in earned media worth and stronger sentiment. And we made progress to optimize our new ERP system and assist our groups adapt to new processes, stability inventories throughout the community, and ship a greater visitor expertise. Our groups are working onerous to strengthen our market place, and I wish to thank all of our associates for persevering with to ship nice visitor experiences whereas working collaboratively to drive improved efficiency in a dynamic working atmosphere. Turning to efficiency by class.

Perfume was our strongest class, delivering excessive single-digit comp development, pushed by males’s perfume, gender-neutral fragrances, and new merchandise, together with new fall and vacation reward units. The expansion of males’s perfume was fueled primarily by newness from Armani and YSL and the enchantment of established franchises from Jean Paul Gaultier and Valentino. Client curiosity in gender-neutral sense is rising, and our assortment, together with Billie Eilish and NOYZ, an unique perfume, launched this summer season is driving visitor engagement. New girls’s manufacturers, Kylie Jenner and Orebella, each unique to Ulta Magnificence, and new girls’s fragrances from Valentino, YSL, and NEST additionally contributed to total class development.

The skincare class delivered mid-single-digit comp development this quarter as robust development in physique care was partially offset by a decline in status skincare. Mass skincare was flat. The robust efficiency of physique care was pushed largely by newer model Sol de Janeiro, which continues to interact visitors with thrilling innovation and exclusivity; and Touchland, which launched compelling newness. In status skincare, newness from manufacturers OLEHENRIKSEN, SACHEU, DIME Magnificence, and others resonated with visitors whereas engagement from Naturium, Bubble, and La Roche-Posay ship development within the mass skincare class.

Comp gross sales within the make-up class decreased within the low single-digit vary, pushed primarily by softness in mass make-up. Sturdy development from not too long ago relaunched Ulta Magnificence Assortment was offset by sure manufacturers lapping area enlargement, robust innovation, or social media engagement final yr. Status make-up was flat. New status manufacturers, Charlotte Tilbury, Eliot Magnificence, and DIBS Magnificence resonated with visitors, and compelling product newness, mixed with in-store investments, delivered development for established manufacturers, MAC and Clinique.

Promotional occasions throughout the quarter, together with 21 Days of Magnificence and Fall Haul carried out effectively, driving development for a number of make-up manufacturers, whereas our participating Depraved collaboration was effectively acquired highlighted by unique model, r.e.m. magnificence. Comp gross sales for the hair care class additionally decreased within the low single-digit vary. Thrilling newness from Matrix, OUAI, Divi, and Odele delivered development for the class, whereas Redken continued to drive wholesome visitor engagement with their Hero product strains.

In hair instruments, new merchandise from Shark Magnificence and Dyson resonated with visitors. This development was offset by softness in key manufacturers with expanded distribution and restricted newness this yr. Our Companies enterprise delivered low single-digit comp development, primarily pushed by engagement in core providers, together with colour, styling, and hair therapies. Ear piercing and make-up providers additionally carried out effectively, and our salon back-bar takeovers, which get stylists a chance to introduce manufacturers to visitors proceed to drive product attachment and new visitor acquisition for collaborating manufacturers.

We’re seeing enhancements in our enterprise, and we’re centered on strengthening our market place and efficiency additional. In October, we shared our refreshed strategic framework designed to lean into our current strengths whereas additionally driving innovation to fulfill the evolving wants of magnificence fans. As the sweetness vacation spot of a lifetime, we intend to drive worthwhile development and market share management in magnificence and wellness over the long run via curating the very best of All Issues Magnificence and Wellness for all magnificence fans fostering genuine empowering human connections that encourage, delight and interact at each contact level, participating our visitors wherever they wish to store by increasing our attain via seamless and immersive omnichannel experiences and constructing lifelong loyalty and model love via member development and personalization. We’re assured our concentrate on these foundational areas will drive stronger income and earnings development over the long run.

And within the close to time period, we’re addressing key areas to bolster our aggressive place. Let me share some highlights of the progress made this quarter, beginning with our efforts to strengthen our assortment. We’re enhancing our model portfolio to drive class development. Through the third quarter, we launched new make-up manufacturers, Eliot Magnificence, DIBS Magnificence, and RMS Magnificence, in addition to rising skincare model, Oak Necessities.

Moreover, we expanded our wellness choices with rising manufacturers, The Honey Pot and Joylux. Wanting forward, now we have an thrilling pipeline of brand name launches deliberate for the fourth quarter, together with the not too long ago introduced status skincare model, TATCHA, celebrated for balancing timeless Japanese botanicals with confirmed scientific components; XO KHLOE, an unique perfume model created by Khloe Kardashian; and Apothekary, an rising wellness model. Along with new manufacturers, we launched two thrilling unique collaborations this quarter. First, because the unique magnificence retail accomplice with NBCUniversal’s Footage for the film Depraved, we labored with the important thing model — with key manufacturers to develop a limited-edition assortment of merchandise throughout a number of worth factors and classes.

The Depraved-inspired assortment options merchandise from main manufacturers, together with r.e.m. magnificence by Ariana Grande and Beekman 1802, each of that are unique to Ulta Magnificence in addition to OPI and Scunci, amongst others. With immersive in-store experiences and fascinating shows, Depraved got here to life in Ulta Magnificence shops via our digital channels and thru Ulta Magnificence at Goal. Second, we launched an unique and a disruptive magnificence providing of the beloved Mini Manufacturers, which presents miniature variations of well-liked shopper manufacturers.

This primary-ever magnificence Mini Manufacturers assortment consists of 68 tiny replicas of best-selling merchandise from 13 manufacturers, together with e.l.f., NYX, Drybar, and Supergoop!. Each of those distinctive collaborations are driving robust gross sales consciousness, visitors, and engagement, particularly with Gen Z and millennial members. As we mentioned at our latest Investor Day, participating visitor experiences drive differentiation, loyalty, and significant enterprise worth, and we’re centered on creating genuine, personalised experiences throughout all our channels. In Q3, we hosted greater than 13,000 in-store occasions, together with distinctive movie star and model founder occasions, multi-branded occasions, and pores and skin care-focused occasions.

We additionally expanded our salon occasion, the workshop to extra shops and invited visitors to learn to create salon-worthy blowouts whereas receiving custom-made teaching and personalised suggestions from our proficient in-store stylists. We’re enhancing our digital experiences to drive visitors and gross sales. Through the quarter, key on-line activations drove visitor engagement and our expanded sampling program delivered double-digit gross sales development. Our digital merchandising methods, together with enhanced search, guided navigation, and enriched product pages drove conversion and our website optimization efforts are enhancing the visitor expertise and delivering stronger conversion tendencies.

Importantly, we proceed to drive elevated app adoption. Within the third quarter, we noticed double-digit development in member engagement with the app, which accounted for about two-thirds of our e-commerce gross sales in Q3, up about 600 foundation factors from final yr. We proceed to introduce new digital experiences and sources to drive discovery and trial. This quarter, we enhanced our suite of Digital Attempt-On and AI-enabled pores and skin and hair evaluation experiences with the launch of GLAMlab 2.0, which features a new 3D engine to reinforce precision and stability, shoppable make-up appears to be like, and a brand new person interface that features sharing capabilities.

We additionally launched new digital shopping for guides that amplify SEO, whereas offering visitors with instructional content material, magnificence ideas, and product suggestions. To deepen the significant connection now we have with magnificence fans, we launched UB Neighborhood, a welcoming inclusive digital kind for visitors to attach, study, empower, and interact within the immersive world of magnificence to foster genuine connections. Launched in October, our neighborhood amplifies the intersection of magnificence, wellness, and pleasure, and our person depend is already 3 times our preliminary goal, confirming the significant function Ulta Magnificence performs in our members’ lives. With greater than 44 million energetic members, Ulta Magnificence Rewards is an unmatched strategic asset that gives us with distinctive shopper insights to drive gross sales.

In Q3, we expanded personalization throughout digital channels with enhanced product suggestions, replenish reminders, website experiences, and retargeted and social channels. Leaning into focused life cycle campaigns in each owned and paid channels, we reactivated members with better effectivity. Moreover, we grew our platinum and diamond member base, leveraging distinctive incentives like unique and early entry to key occasions and model launches, gifting, and personalised presents that drive engagement. Platinum and diamond members store extra regularly and spend extra every go to and proceed to retain at best-in-class charges.

More and more, social relevance drives genuine buyer connection and model advocacy, particularly in magnificence, and we’re evolving to place social on the heart of our advertising and marketing methods to speed up browse and earned media worth development. Through the third quarter, we leveraged our advertising and marketing and social capabilities to lean into rising tendencies, amplify key development manufacturers, and activate new trend-focused occasions. We additionally interact expertise from our UB Collective, our associates program, and Ulta Beauties, our new affiliate ambassador program in addition to key model founders to help key model launches, unique collaborations, and tentpole occasions in new and revolutionary methods throughout social channels to drive visitor buzz and engagement. These efforts delivered accelerated EMV development, elevated impression, and expanded key model well being metrics.

We proceed to reinforce our product capabilities to develop our retail media community, UB Media. We not too long ago partnered with e-commerce tech firm, Rokt, to introduce AI non-endemic advertisements for services exterior the sweetness class, and we’re partnering with Roblox, the last word digital universe to create revolutionary promoting alternatives for our companions. Through the years, our Ultaverse has grown into one of many largest magnificence video games on Roblox, attracting over 11 million visits. With rising curiosity from magnificence manufacturers to take part in our Ultraverse, we’re unlocking new prospects on the intersection of gaming, innovation, and media to convey these manufacturers to life in thrilling new methods via our UB Media capabilities.

Now, leveraging classes within the second quarter, we proceed to evolve and tailor our promotional methods to reiterate our price providing and drive gross sales and visitors. We started the quarter with a brand new hair occasion showcasing the shiny hair pattern, changing final yr’s fall Attractive Hair Occasion, this occasion featured a powerful promo provide, new and unique objects from Dyson, and a highlight on Gloss & Shine merchandise. particularly robust in shops, the brand new occasion exceeded our expectations and drove robust outcomes for collaborating manufacturers. On the finish of August, we introduced again our beloved 21 Days of Magnificence occasion, new magnificence offers, member-only occasions, and bonus presents, mixed with strong advertising and marketing and social help, 21 Days of Magnificence delivered robust development versus final yr’s occasion.

We wrapped up the quarter with a profitable Fall Haul occasion, which drove mass engagement and new member acquisition with compelling presents that shocked and delighted visitors. Along with strengthening and evolving our merchandising tentpole occasions, we optimized our loyalty presents, proactively pending the timing kind and audience of those presents. Because of this, our promotional effectiveness improved from the primary half pattern. Shifting now to our plans and expectations for vacation.

The formal vacation season is in full flight. And whereas we’re inspired by our efficiency via Cyber Monday, now we have a number of vital vacation gross sales weeks nonetheless forward. Whereas shoppers proceed to spend, our insights recommend that financial issues are driving a better concentrate on worth. With our various assortment of merchandise and worth factors, compelling presents, and handy omnichannel touchpoints, we’re well-positioned to help our visitors as they have a good time the season and our groups are excited, engaged, and able to assist them ship a joyful vacation.

Our vacation marketing campaign this yr is Discover Pleasure within the Current. A reminder of the enjoyment that comes not solely from presents of magnificence however from the large and small moments that drive genuine emotional connection. With the aim of driving deeper emotional engagement, our marketing campaign is supported with strong and built-in activation throughout media, member advertising and marketing, PR, and social channels in addition to festive experiences in shops and on our digital platforms. We now have methods in place to fortify our aggressive positioning and handle via the compressed vacation promoting season.

We’re reworking our channels right into a concierge for all issues vacation offering better worth to shoppers with real-time magnificence options, reward guides, and ideas tailor-made to our visitors’ wants and creating enjoyable experiences that drive consciousness and make Ulta Magnificence the go-to vacation spot for the vacations. Our merchandising group has created an thrilling vacation assortment, with a powerful concentrate on newness and exclusives balanced with value-driven vacation kits and core objects that make nice presents. Whether or not visitors wish to reward others or deal with themselves, now we have thoughtfully curated choices throughout each class and funds. Our company and provide chain groups have been working onerous all yr to make sure Ulta Magnificence is able to convey our visitors pleasure this vacation season.

And our retailer groups are able to convey the vacation to life for our visitors, with new in-store occasions and demonstrations to construct visitor connection and drive gross sales and visitors. And with BOPIS, same-day supply choices, and new for this vacation, our participation in DoorDash and soon-to-be-launched Instacart marketplaces, it is by no means been simpler or extra handy to buy at Ulta Magnificence. With our participating vacation messaging, unimaginable vacation assortment, educated associates prepared to supply steerage and proposals, new revolutionary digital instruments, and a number of methods to buy. I’m assured we’re well-positioned to ship one other profitable vacation season.

In abstract, I’m inspired by the enhancing tendencies we’re seeing within the enterprise and optimistic about our vacation plans. We consider the sweetness class will stay resilient, and we’re assured the actions we’re taking to ship stronger efficiency mixed with our excellent associates who’re dedicated to providing visitors genuine inclusive experiences throughout all of our contact factors will allow us to bolster our market place and drive long-term worthwhile development. Now, earlier than Paula discusses our monetary outcomes, I wish to share that Monica Arnaudo, chief merchandising officer, has introduced her plan to retire from Ulta Magnificence within the spring of 2025. Since becoming a member of Ulta Magnificence in 2017, Monica has constructed an excellent group and elevated our assortment in ways in which have helped us ship outstanding gross sales and market share development whereas furthering our mission to be our visitors most cherished magnificence vacation spot.

I wish to thank Monica for every part she has contributed as a member of our government group and for the influence she has had on our group. Whereas we work to establish Monica’s successor, she is absolutely dedicated to supporting her group and Ulta Magnificence with a profitable transition. And now, I’ll flip the decision over to Paula for a dialogue of the monetary outcomes. Paula?

Paula OyiboSenior Vice President, Finance

Thanks, Dave, and good afternoon, everybody. I wish to echo Dave’s sentiments and congratulate Monica. Monica has been a trusted chief and steadfast ambassador of our manufacturers, and we’re so grateful for all of our contributions. Now, turning to our financials.

I will start with a dialogue of our third-quarter monetary outcomes after which present extra colour on our fourth-quarter and full-year expectations. For the third quarter, we delivered better-than-expected efficiency throughout the P&L, reflecting stronger top-line development, continued monetary self-discipline and expense administration, and favorable shrink tendencies. Internet gross sales for the quarter elevated 1.7%, gross sales contribution from new shops, and a 0.6% enhance in comp gross sales was partially offset by decrease different income. Through the quarter, we opened 28 new shops, closed two shops, and reworked 27 shops.

The comp gross sales enhance was pushed by a 0.5% enhance in transactions and a 0.1% enhance in common ticket. Different income declined $5 million to $48 million, primarily as a consequence of a rise in deferred income associated to our loyalty program, pushed by the enlargement of our member engagement efforts, which have been partially offset a rise in earnings from our bank card program. Wanting on the cadence of gross sales all through the quarter. Comp gross sales in August decreased barely primarily as a consequence of a shift in timing of our semiannual 21 Days of Magnificence occasion, which resulted in stronger comp efficiency in September.

October tendencies have been constructive however softened in comparison with the earlier interval. From a channel perspective, our e-commerce channel delivered mid-single-digit gross sales development. The gross sales pattern in comp shops improved from the second quarter, lowering modestly in comparison with final yr. For the quarter, gross margin decreased 20 foundation factors to 39.7% in comparison with 39.9% final yr.

The decline was primarily as a consequence of deleverage of fastened prices and decrease different income, which was partially offset by favorable channel combine as a consequence of decrease e-commerce delivery prices and decrease shrink. Decrease income development resulted in deleverage of retailer and provide chain fastened prices. Moreover, extra new retailer openings and the enlargement of our provide chain community pressured these areas. As a proportion of gross sales, stock shrink was decrease than final yr.

Our investments in safe perfume fixtures mixed with new stock administration processes and enhanced coaching for our subject groups are serving to us management stock shrink. 12 months thus far, shrink as a proportion of gross sales is roughly flat with final yr, and we proceed to count on shrink can be flat for the total yr. Merchandise margin was flat with decrease stock reserves primarily associated to the relaunch of Ulta Magnificence Assortment, offset by unfavorable model combine. Shifting to bills.

SG&A elevated 3.2% to $682 million. Total, SG&A spend was higher than deliberate once more this quarter, primarily as a consequence of centered expense administration. As a proportion of gross sales, SG&A elevated 40 foundation factors to 27% in comparison with 26.6% final yr, reflecting decrease top-line development, most bills deleveraged this quarter. As well as, SG&A deleverage, primarily as a consequence of larger retailer payroll and advantages, primarily as a consequence of larger common wage charges, and better company overhead, primarily as a consequence of strategic investments.

These pressures have been partially offset by decrease incentive compensation, reflecting operational efficiency that was under our inner targets. Depreciation was $67 million for the quarter in comparison with $61 million final yr primarily as a consequence of new retailer and provide chain investments. Working revenue decreased 2.7% to $318.5 million. As a proportion of gross sales, working margin was 12.6% of gross sales in comparison with 13.1% of gross sales final yr, and diluted GAAP earnings per share elevated 1.4% to $5.14 in comparison with $5.07 final yr.

Shifting to the stability sheet and our capital allocation priorities. We ended the quarter with $178 million in money and money equivalents and $200 million in short-term debt. Just like third quarter final yr, we drew on our revolving credit score facility throughout the quarter to help working capital wants and ongoing capital allocation priorities, together with share repurchases and capital expenditures. Complete stock elevated 1.9% to $2.4 billion in comparison with $2.3 billion final yr.

The rise was primarily because of the influence of 63 web new shops. 12 months thus far, via the third quarter, we generated $302 million in working money circulation. Capital expenditures have been $114 million for the quarter, primarily reflecting investments in new and current shops, IT investments, and merchandise fixtures. Within the third quarter, we returned $267 million of capital to our shareholders via the repurchase of 731,000 shares.

On the finish of the quarter, we had $2.9 billion remaining below our $3 billion share repurchase program we introduced at our investor assembly in October. Now, turning to our outlook. We now have refined our gross sales and EPS steerage for the fiscal — for fiscal 2024 to replicate our third quarter outcomes whereas persevering with to take a cautious view of the patron and working atmosphere. We count on web gross sales for the yr can be between $11.1 billion and $11.2 billion, with comp gross sales development between damaging 1% and flat.

For the yr, we proceed to plan to open roughly 60 to 65 web new shops and rework or relocate 40 to 45 shops. We count on working margin can be between 12.9% and 13.1% of web gross sales, with deleverage to come back from each gross margin and SG&A, reflecting our top-line expectations. Reflecting these assumptions, we now count on diluted EPS for the yr can be between $23.20 and $23.75. With one quarter left within the yr, I wish to share how we’re eager about This fall.

Whereas we’re inspired by our third quarter outcomes and our efficiency quarter thus far, we additionally acknowledge that the fourth quarter will probably be impacted by a compressed vacation season, a dynamic working atmosphere, and continued uncertainty round underlying shopper demand. For This fall modeling functions, we count on comp gross sales will decline within the low single-digit vary and working margin can be between 11.6% and 12.4%. One last replace. We now have up to date our capital expenditure expectations for the total yr and now count on to spend between $400 million and $425 million in capex in fiscal 2024, together with roughly $230 million for brand new shops, remodels, and merchandise fixtures; $130 million for provide chain and IT; and about $50 million for retailer upkeep and others.

In closing, we all know it would take time to see the total advantages from our efforts, however we stay assured that our go-to-market methods and investments together with continued operational and monetary self-discipline will allow us to drive stronger gross sales and worth creation over the long run. And now, I will flip the decision again over to our operator to reasonable the Q&A session.

Questions & Solutions:

Operator

Thanks. We’ll now be conducting a question-and-answer session. [Operator instructions] As a reminder, we ask that you just please restrict your self to 1 query after which reenter the queue for any further questions. One second whereas we ballot for questions.

Our first query comes from Simeon Siegel from BMO Capital Markets.

Simeon SiegelAnalyst

Thanks. Hey, everybody. Good job. Dave, any additional colour you possibly can share on the way you’re eager about the broader aggressive and promotional panorama over vacation? After which simply Paula, may you quantify any of these gross margin strain factors this quarter, the way you’re eager about the subsequent quarter and past? After which simply as any of as we speak’s progress within the full-year guide-lift influence your preliminary margin views you had given us in October? Thanks.

David C. KimbellChief Government Officer

Nice. Thanks, Simeon, and pleased holidays to you as effectively. I will begin with simply the broader aggressive and promotional panorama, and Paula, you possibly can choose up on among the margin-specific areas. So, for the third quarter, what — as we — as I discussed within the remarks, we proceed to see this as an intensely aggressive timeframe.

And we have been managing and discussing that all year long. We really feel like our actions, the changes we made within the third quarter helped us enhance our efficiency, strengthen our efficiency, however we additionally acknowledge now we have extra work forward of us. The dynamics within the market proceed, notably within the status area, however we’re seeing progress. And our distinctive proposition, the features that solely Ulta delivers via our assortment, our loyalty program, our factors of presence, the expertise we ship have all the time been key to our enterprise and proceed to be core drivers.

Promotionally, what we skilled within the third quarter was continued normalization after some decreased promotion coming proper out of COVID. So, we anticipated that coming into Q3 — coming into this yr, we noticed that in Q3. Our promotional charges in Q3 have been decrease than Q2 however nonetheless considerably larger than final yr. However as I discussed within the remarks, our efforts to regulate our promotional technique to lean in and amplify our tentpole occasions, made our total efforts more practical leveraging our CRM program and our personalization efforts are driving the enterprise.

As we glance into the vacation, it’s clearly a really promotional timeframe, essentially the most promotional timeframe. That is actually true this yr. And as we navigate via and share our fourth quarter outcomes, we’ll have reflections on the general dynamics, however we’re anticipating continued promotional depth, however not considerably exterior of what we’d count on to date this vacation. Paula, do you wish to speak about that?

Paula OyiboSenior Vice President, Finance

Certain. Hello. Good afternoon, Simeon. Yeah, so we raised our full-year working margin and EPS, reflecting Q3 efficiency and likewise ongoing expense self-discipline.

What I’d say as we take into consideration form of This fall, usually for the total yr, we proceed to count on gross margin deleverage, and after we take into consideration This fall, reflecting the highest line expectations in a aggressive atmosphere, gross margin will proceed to delever. And actually, the tendencies we have seen all yr will proceed. So, headwinds are the deleverage we count on to see from a hard and fast value perspective, merchandise margin strain will proceed given promotions and class combine. After which our tailwinds, decrease transportation prices, which we have been talking about all yr, we’ll proceed to supply some offsets to that.

I’d say from an SG&A perspective, we’re anticipating development from a full yr within the mid-single-digit vary. However This fall, anticipating that to be within the low single-digit development vary. We nonetheless count on or most of our bills to deleverage on the decrease gross sales. However we’ll proceed to keep up monetary self-discipline as now we have in Q3.

And I believe the second —

Simeon SiegelAnalyst

Nice. Thanks.

Paula OyiboSenior Vice President, Finance

Oh, yeah. OK.

Simeon SiegelAnalyst

No, sorry, I did not imply to chop you off.

Paula OyiboSenior Vice President, Finance

No, all good. Thanks, Simeon.

Simeon SiegelAnalyst

Thanks, guys.

Operator

Thanks. Our subsequent query comes from Kelly Crago, Citi.

Kelly CragoAnalyst

Hello. Thanks for taking my query. I simply needed to see in the event you may present somewhat bit extra context on the status make-up, I consider it was flat within the quarter. How was it for the business total? And in the event you may simply speak concerning the innovation pipeline in status — I am sorry if I stated status magnificence earlier than I am speaking about status make-up.

When you may speak concerning the innovation pipeline there. After which simply secondly, any approach to form of quantify the drag you’ve got seen from the aggressive pressures particularly with these new factors of distribution, and type of the place we’re at within the timeline for whenever you count on these headwinds to abate additional? Thanks.

David C. KimbellChief Government Officer

Nice. Properly, thanks, Kelly. Yeah, let’s examine, beginning with status make-up, clearly, an vital class, our largest class. And I might begin with saying, total, we’re happy within the third quarter that status make-up was flat for the quarter for us, which was enchancment from among the tendencies.

The drivers behind which are our innovation that we proceed to launch manufacturers like ILIA coming into our portfolio, robust execution throughout our key applications like 21 Days of Magnificence, which is targeted on status and make-up, after all, is a spotlight of that and actual emphasis on a few of our core manufacturers just like the Clinique and MAC and different robust performing manufacturers that we have been working carefully with to make sure we’re delivering for our visitors and our visitors reply effectively to them. And so, we’re actually — we have been centered on this class for a very long time to strengthen its efficiency and we’re actually happy that it was in a position — that we have been in a position to do this. Total, within the class, we noticed the class, the overall status make-up class up a bit greater than us in low single digits. So, we noticed strain in share, though our share efficiency, whereas nonetheless pressured improved from the second quarter.

So, we’re making headway, and we’re happy with that. Total, on the aggressive atmosphere, you requested about aggressive openings. As we have been speaking about all year long, that is actually a significant dynamic as there’s been greater than 1,000 new factors of distribution in status magnificence over the past couple of years. And that has been a strain, I shared in earlier discussions that 80% of our shops have been skilled at the very least one aggressive opening and greater than half have had a number of aggressive openings, and that continues to be a dynamic that is happening within the market.

Having stated that, we’re assured within the actions that we’re taking. We all know we have seen traditionally new retailer openings. We’re capable of take in the shorter-term hit however then flip our shops again into constructive contributors to our enterprise over the long run. This can be a totally different dynamic given the size, simply the sheer variety of new shops opening in a brief time period.

However we’re assured in our capacity to do this. We did see enhancements in Q3 that contributed to the stronger efficiency we had in Q3 in whole versus Q2. So, we really feel like we noticed some headway in that. However we’re not — however it’s — we’re nonetheless within the midst of it.

And so, certainly not are we claiming that we’re via it. We have extra work to do. We’re working via the dynamics. And our focus there’s proceed to do what we do finest, lean into our strengths in our shops and on-line, and all of our experiences that exercise, these issues that I highlighted on earlier are what helped us make progress this quarter and different issues which are going to drive us into 2025 as we proceed to strengthen our enterprise.

Kelly CragoAnalyst

Thanks. Better of luck, and pleased holidays.

David C. KimbellChief Government Officer

Blissful holidays.

Operator

Thanks. Our subsequent query comes from Korinne Wolfmeyer, Piper Sandler.

Korinne WolfmeyerAnalyst

Hey, good afternoon. Thanks for taking the query, and congrats on the quarter. I might like to the touch somewhat bit on the competitiveness on the mass piece of the enterprise. I really feel like we speak so much about status, however I do wish to perceive mass.

Loads of the broader mass — bigger mass retailers have been speaking somewhat bit extra positively about magnificence. You’ve got acquired greenback shops increasing extra in magnificence, so how is that this impacting the aggressive panorama would you say for that piece of the enterprise? And the way are you eager about the mass piece going ahead and heading into 2025? Thanks.

David C. KimbellChief Government Officer

Properly, sure. Thanks, Korinne. I will begin with saying that magnificence is a really enticing class. And so, we have talked many instances about the truth that anyone in magnificence, whether or not within the mass aspect, status aspect, luxurious, is emphasizing the class, investing within the class and that is been happening throughout all of our rivals.

Within the mass-specific enterprise, sure, that — the overall mass enterprise continues to carry out in that mid-single-digit vary for the quarter in whole mass. And it is an vital class for us. As you recognize, one of many key differentiators of our enterprise is energy in mass and masstige and status and luxurious. And so, we proceed to be centered on our mass enterprise and the vital function it performs in order that we’re effectively conscious of the dynamics.

We now have seen mass make-up as a class, throughout the class decelerate. Definitely, there’s manufacturers which are stronger, however the whole class has been extra pressured, however we’re seeing energy — continued energy in mass pores and skin, which is a vital enterprise for us. So, we’re centered on persevering with to drive our mass enterprise and ensure we’re delivering the assortment that we all know our visitors love, the flexibility to interact with us throughout all worth factors, and proceed to be assured in our capacity to excite them and interact them in our mass enterprise.

Korinne WolfmeyerAnalyst

OK. Thanks.

Operator

And our subsequent query comes from Anthony Chukumba, Loop Capital Market.

Anthony ChukumbaAnalyst

Thanks a lot for taking my query. Hopefully, you possibly can hear me OK. And I will simply hold it to 1 query. Clearly, you had a really spectacular sequential enchancment in your efficiency.

And you’ve got touched on a couple of various things, however in the event you needed to type of virtually like form of stack-rank what you thought drove the higher efficiency, would it not be the more practical promotions? Wouldn’t it be among the merchandising adjustments? Wouldn’t it be among the partnerships you talked about, like with Depraved and, I suppose, the Mini Manufacturers or no matter? Sure, in the event you may simply give us — assist us to know what, from a sequential perspective, led to the advance in efficiency. Thanks.

David C. KimbellChief Government Officer

Nice. Thanks, Anthony. Yeah. I imply, I would not level to 1 factor.

There was not one factor that ever actually drives our enterprise. And we talked about popping out of the second quarter. Whereas we’re happy with some features of our enterprise, we have been clear on areas that we would have liked to deal with, and we leaned into a number of of the important thing elements. Assortment is all the time vital.

Bringing in newness, among the manufacturers I highlighted like ILIA into the quarter performed an vital function. The collaborations that you just talked about additionally drove pleasure and enthusiasm, assortment is all the time a key driver and definitely was within the third quarter. Our promotional effectiveness, we had some learnings within the second quarter as we have been confronted with extra strain gross sales, how we tailored our promotional atmosphere. We had learnings there that we constructed from into the third quarter.

Leaning in, strengthening our core tentpole occasions that our visitors worth from Ulta Magnificence, 21 Days of Magnificence, our hair occasion, and Fall Haul in addition to sensible, purposeful focused, and efficient complementary promotions all through the quarter in a really personalised. So, that drove a powerful effectiveness. We labored onerous all through the quarter. Our groups throughout the group, retailer groups, for certain provide chain, our IT groups, our digital groups to ensure we have been delivering an incredible expertise to enhance conversion, and we’re happy that we have been in a position to do this each in-store and robust efficiency on-line.

And that took a holistic effort with ensuring now we have robust insights, robust engagement from our retailer associates, and robust execution on-line. And we additionally — the very last thing I might point out is we highlighted within the second quarter, some disruption from some system adjustments, and we made enhancements in that area to ensure our merchandise have been the place they wanted to be. So, a number of components contributed. It was a extremely holistic effort throughout the group, and we’re happy.

Having stated that, we all know we have got extra work to do. Whereas we’re happy with the sequential enchancment we’re centered on stronger enchancment over time as we transfer each via the vacation interval and into 2025 and past. So, we’ll proceed to lean into all of these issues and the broader methods that we went via in a number of element at our Investor Day in October.

Anthony ChukumbaAnalyst

Very useful. Thanks.

Operator

Thanks. Our subsequent query comes from Christopher Horvers, JPMorgan Chase and Firm.

Christopher HorversAnalyst

Thanks. Good night. So, I will throw a fast two-parter in there as effectively. So, the primary half is, are you constructive quarter thus far? You talked about encouraging, and the way are you eager about the stability between the 5 fewer days however on the identical time, a really substantial reward card enterprise and 5 fewer days would recommend a powerful January follow-through.

After which following up on an earlier query, any additional ideas on how you consider ’25? You talked a few flooring of 11% long-term 12% plus, how did this quarter change that perspective, if in any respect? Thanks.

Paula OyiboSenior Vice President, Finance

Hello, Chris. Thanks for the query. What I’d say is, we can’t essentially get into the main points of particularly comp quarter thus far. However what I’ll say is that our vacation season is off to a stable begin and our groups are executing effectively.

We’re inspired by what we’re seeing, however we additionally acknowledge that now we have a number of vital weeks forward of us within the vacation season even an working atmosphere is dynamic. And so, that’s the reason we shared that we’re anticipating This fall comp gross sales to say no within the low single-digit vary. So, that is what we’re pondering from 1 / 4 perspective. And I’d say, sure, there’s a part of the dynamic atmosphere that’s associated to how shoppers spend, the less procuring days, and issues of that kind that we’re clearly considering as we take into consideration our expectations for This fall.

As we take into consideration 2025, once more, nonetheless a number of vital weeks left forward of us, and we’re centered on closing — attending to a vacation robust and shutting out the fiscal yr robust. And we are going to present further colour on 2025 after we present our steerage in March, in line with what we usually do. Now, that being stated, I’d say the directional colour that we supplied at our Investor Day stays the identical. We count on 2024 and 2025 to be transitional interval as we make investments to reaccelerate our development, and we proceed to count on to make investments in 2025 that may place us for a stronger long run, however we are going to make choices to allow — to make sure that we’re delivering working margin at the very least above 11%.

Christopher HorversAnalyst

That is nice. Thanks very a lot.

Operator

Thanks. Our subsequent query comes from Kate McShane, Goldman Sachs.

Emily GhoshAnalyst

Hello. That is Emily Ghosh on for Kate. We have been questioning on UB Media, how large of a aggressive moat do you assume it could possibly be, particularly contemplating what it does to assist your relationship with vendor companions? And the way a lot is UB Media contributing to the long-term working margin outlook that you just supplied on the Investor Day?

David C. KimbellChief Government Officer

Nice. Thanks, Emily. Yeah, the — we predict we’re very optimistic and excited concerning the function that UB Media is and can play on our enterprise going ahead. As you recommend, now we have an actual aggressive alternative due to the size and the breadth of our enterprise, knowledge that now we have, the understanding of magnificence engagement and transactions throughout actually all magnificence fans of all ages and all geographies is basically unmatched.

And so, we have labored onerous to ship an expertise for our model companions that provides worth and most significantly, provides robust ROI of their media investments and the expansion that we have seen in that enterprise reinforces that we’re in a position to do this. As we did speak about at our Investor Day, continued funding and capabilities. I highlighted a few these capabilities on the decision earlier as we speak associated to roadblocks and different ways in which we will additional give our manufacturers alternatives. However due to the model relationships that now we have and the function that we play within the class, we’re assured that our alternative to develop this enterprise — proceed to develop this enterprise over time can be a constructive influence on the enterprise.

Paula, do you wish to speak concerning the monetary influence?

Paula OyiboSenior Vice President, Finance

Certain. What I’d say is UB Media, Emily, is contributing positively to gross margin in a method to consider it over time is that it performs an vital function for us, and it’ll assist offset among the merchandise margin strain. We presently really feel, now we have shared as we make sure investments in model constructing and different issues in 2025 and past that may serve to assist offset a few of these pressures.

Operator

Thanks. And our subsequent query comes from Oliver Chen, TD Cowen.

Oliver ChenAnalyst

Hello. Thanks. David and Kecia, pondering long run, what is going to it take constructive comp by way of what classes maybe you see as the largest alternatives? And was the commentary on October being a bit softer? Was that shocking to you? It feels like you might proceed to count on to see a good bit of volatility. And Kecia, on the comp-store gross sales, is it a mid-single-digit leverage occupancy? Something we should always learn about that by way of attaining fastened value leverage based mostly on the comp? Thanks.

David C. KimbellChief Government Officer

Hello, Oliver. Let’s examine. So, first, on long-term development, what is going on to ship constructive comps? I suppose I’d return to what we talked about intimately at our Investor Day. We actually see a mixture of leaning in and reinforcing our established strengths in addition to innovating throughout our complete ecosystem as key contributors to our efficiency.

We talked about 4 key pillars or platforms assortment, having the very best assortment throughout magnificence and wellness expertise, delighting our visitors in each contact level that now we have entry, persevering with to increase our availability, each with shops, accelerated new retailer openings in addition to robust on-line expressions after which, after all, loyalty and constructing model love. We’re actually centered on driving innovation throughout every of these and ensuring that we’re prepared to do this. And what we — what I talked about in an earlier query, that contributed to the third quarter enchancment versus the second quarter. It is the inspiration.

It is the basics. It is the core factor, Oliver, you recognize about our enterprise having tracked us for a very long time. When assortment is stronger and expertise is correct and our loyalty is working and our contact factors are driving each in-store and on-line, these are the issues that may come collectively. So, a lot — actually all of it, we simply shared a few months in the past, these are the features that may drive our enterprise going ahead.

Paula OyiboSenior Vice President, Finance

Sure. And Oliver, that is Paula. Given you requested a query about October and whether or not or not we have been shocked. What I’d say is, no, and we — as we thought with — Dave talked about and we talked concerning the timing and a few of our tentpole occasions.

And so, that had a job to play in form of the by-period efficiency in Q3. After which I believe you had a query about leverage factors, and we do not particularly disclose a selected level, and we have shared prior to now a method to consider issues from a hire perspective, expense is round 4%. And so, as you consider comp and whole development, possibly give it some thought in that perspective.

Oliver ChenAnalyst

Blissful holidays. Thanks.

Operator

And our subsequent query comes from Krisztina Katai, Deutsche Financial institution.

Krisztina KataiAnalyst

Hello. Good afternoon. Congrats on a pleasant quarter. So, I simply needed to observe up in your early learnings out of your market share reinforcing technique.

It clearly enabled you to keep up flat market share within the third quarter, at the very least in status. The place are you seeing among the largest positive aspects in member engagement? I believe, Dave, you talked about each platinum and diamond members are up in this system yr over yr. After which simply because the aggressive opening pressures abate, is it honest to say that possibly the worst is behind us? And is there a timeline for whenever you assume possibly you might return to market share positive aspects? Thanks.

David C. KimbellChief Government Officer

Properly, let’s examine. So, on the — the place we have seen engagement, sure, you highlighted an vital a part of our enterprise, which is what we name our Elite Visitor, our Platinum, and our diamond members. And we’re happy that we proceed to see robust efficiency from them, excessive engagement, excessive spend. They’re clearly our greatest visitors, however we’re seeing that throughout the board, and it is one thing we have been centered on to proceed to develop our enterprise.

Our loyalty program in whole was up 5% for the quarter, and that was a mixture of attracting new members as one of many issues we talked about in October was though we have had a number of development in that — in our loyalty program over time, we nonetheless see a number of alternative forward, and we’re persevering with to draw new members and convey them into our enterprise. And that, after all, is vital gasoline for future development. We additionally had success reactivating lapsed members, a lapsed member is any individual that has a — is a part of this system however hasn’t bought with us for at the very least as soon as within the final 12 months. And now we have a really centered CRM personalised program going after that group, and we proceed to see success with that.

After which our retention is robust. There may be an intense aggressive atmosphere, however our visitors proceed to show that they like what Ulta is providing. And so, retention stays wholesome. And so, these issues come collectively.

We’re seeing it throughout all ages, all geographies, energy throughout all sorts of magnificence fans, which is a vital a part of our enterprise. Competitively, you requested concerning the dynamics there. And I proceed to say one thing that we have shared prior to now is, it is tough for us to precisely predict or lay out after we would see us fully transferring via this as a result of we have by no means skilled the size of this in such a concentrated time period. Having stated that, I will reiterate one thing I discussed earlier which is, now we have confidence.

We have seen it within the knowledge earlier than new retailer openings. Our shops are capable of recuperate and return to robust contributors. The information that we see now, shops that had not been impacted by aggressive opening proceed to carry out higher and positively, and we noticed improved efficiency in Q3. However I’d not take that absolutely as a, OK, we’re via, 100% via it, and it’s very behind us.

This can be a significant disruption within the class. We’re studying each interval. What — how the dynamics are evolving, however we did make progress in Q3, and it is our focus to proceed to do this as we transfer into 2025. All proper.

So, with that, thanks all. I’ll wrap up. Thanks for becoming a member of us as we speak. So, I wish to shut out by thanking our greater than 55,000 Ulta Magnificence associates working collectively in our shops, in our distribution facilities, and throughout our complete company group.

I sincerely admire their continued focus and dedication to delivering distinctive and memorable visitor experiences throughout all our channels. So, as we shut, I wish to want you all a contented and wholesome vacation season. There’s nonetheless time to get out and store at Ulta Magnificence, so ensure you put that into your vacation procuring plans, and we stay up for chatting with you once more after we report outcomes for fiscal 2024 on March 13. Have an incredible night.

Thanks all.

Operator

Thanks. That does conclude as we speak’s teleconference. [Operator signoff]

Length: 0 minutes

Name individuals:

Kiley F. RawlinsVice President, Investor Relations

David C. KimbellChief Government Officer

Paula OyiboSenior Vice President, Finance

Simeon SiegelAnalyst

Dave KimbellChief Government Officer

Kelly CragoAnalyst

Korinne WolfmeyerAnalyst

Anthony ChukumbaAnalyst

Christopher HorversAnalyst

Emily GhoshAnalyst

Oliver ChenAnalyst

Krisztina KataiAnalyst

Extra ULTA evaluation

All earnings name transcripts

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