Ulta Beauty's first quarter earnings results were discussed in a conference call hosted by CEO Dave Kimbell and CFO Paula Oyibo. Net sales increased 3.5% and comp sales grew 1.6%, with operating profit at 14.7% and diluted EPS at $6.47 per share. The company's Safe Harbor language was also mentioned, reminding listeners of potential risks and uncertainties.

The company expected low single digit comp growth this quarter due to a changing marketplace, but is confident in their ability to drive long-term value. They have taken actions to reinforce their leadership position and accelerate growth, and have a strong team and operating foundation. Ulta Beauty has disrupted the beauty industry for over 30 years by offering a wide range of brands and services in a fun and inclusive shopping environment, and currently operates nearly 1400 stores and a multibillion dollar digital business.

Ulta Beauty's passionate associates create emotional connections with guests and help them discover beauty on their own terms. Their loyalty program has over 43 million active members and they have expanded their assortment and partnerships with brands. While growth is moderating, Ulta Beauty's strong operating model, brand partnerships, and winning culture will help them maintain their leadership position. In the first quarter, they have seen improvements in brand awareness and brand love, with strong sales and new member acquisition from recent brand launches. They have also seen growth in both their store and digital channels.

Ulta Beauty increased marketing investments to support brand launches and events, resulting in higher traffic and member retention. The company also opened 12 new stores and improved associate retention. Operational milestones were achieved, including the completion of a digital store transition and transition to a new ERP system for all primary distribution centers.

The company has successfully migrated 30% of its stores to a new ERP system, resulting in improved digital applications, reporting, and product visibility. Despite increased competition in the beauty industry, the company has maintained its overall market share, but has faced challenges in the prestige beauty category. The company is confident in its ability to regain market share through its strong customer engagement and industry leadership.

At the October Analyst Day, the company will share long-term plans for driving share growth. Currently, they are focused on five key areas to increase conversion and accelerate top line growth: strengthening assortment, accelerating social relevance, enhancing digital experience, leveraging loyalty program, and evolving promotional levers. They plan to add 25 new brands this year, including exclusives from well-known and emerging names. They will also expand key growth brands into more stores and relaunch the Ulta Beauty collection. They will utilize marketing and social capabilities to engage with customers and stay relevant in the ever-changing beauty landscape.

Ulta Beauty plans to increase its social relevance by expanding its creator network and collaborations with brands. They will also use their platforms to showcase their unique assortment. The company is focused on optimizing the guest experience through new digital capabilities and partnerships, such as their recent launch on DoorDash Marketplace. They will also improve their loyalty program and introduce new mobile POS capabilities to engage members and drive new member acquisition. Additionally, they are testing new ways to engage with the program through gamification and social engagement.

Ulta Beauty is implementing new marketing technology and enhancing promotional events to drive revenue growth in the beauty category. The company expects the category to grow in the mid-single-digit range this year and is confident in their actions to deliver stronger revenue growth. The team responded to the dynamic operating environment with focus and financial discipline, resulting in net income and diluted EPS in line with expectations. However, they have revised their annual guidance due to ongoing pressures. Net sales for the quarter increased by 3.5%, driven by 1.6% growth in comp sales.

In the first quarter, Ulta Beauty saw an increase in revenue due to the opening of new stores and growth in credit card and royalty income. Comp transactions increased, driven by both in-store and online traffic. Fragrance and skincare categories showed strong growth, with new launches and holiday promotions driving sales. E-commerce sales increased, while sales from comp stores remained flat.

In the last quarter, the prestige business faced challenges due to increased distribution for key brands, timing shifts of product newness, and the lapping of strong social media engagement from last year. Hair care sales increased due to newness in hair tools and the inclusion of prestige hair care in a beauty event. Makeup sales decreased due to sales decreases from certain brands and increased points of distribution. The services business saw high-single-digit comp growth, driven by various services. Gross margin decreased primarily due to lower merchandise margins and higher inventory shrink, partially offset by growth in other revenue.

The company's investments in new fixtures and processes are reducing shrink in the fragrance category, but this improvement is being offset by higher shrink in other prestige categories. SG&A increased 8.8% due to disciplined expense management, with higher corporate overhead, store payroll and benefits, and store expenses contributing to the deleverage. Operating margin decreased compared to last year, while net interest income and tax rate increased. Diluted GAAP earnings per share decreased. The company ended the quarter with $524.6 million in cash and cash equivalents and total inventory increased primarily due to new stores and inventory needed for new brands in a new market fulfillment center. Capital expenditures were $91 million for the quarter.

In the first quarter, the company had higher depreciation and returned capital to shareholders through share repurchases. Their updated outlook for the full year includes net sales between $11.5 billion to $11.6 billion, with comp sales growth of 2% to 3%. Operating margin is expected to be between 13.7% and 14% of net sales, driven by SG&A deleverage and sales driving investments. SG&A growth is expected to be in the mid-to-high single digit range for the full year. Gross margin is expected to be down slightly due to lower merchandise margin and fixed cost deleverage, offset by lower supply chain costs and other revenue growth.

The company expects growth margin to decrease in the first half of the year due to lower sales and higher costs, but anticipates it will improve in the second half. They also expect diluted EPS to decline in the first half and be flat to slightly up in the second half, including the impact of an extra week in fiscal 2023. The company plans to repurchase $1 billion of stock this year and is confident in their future. The CEO is pleased with the progress they are making and is confident in their business model and team's ability to execute their priorities and create value for shareholders.

Ulta Beauty is confident in the future of their business and their position in the beauty industry. They have updated their guidance for the year, taking into account both positive and negative factors. They are confident in their revised comp outlook and see opportunities for growth in key areas of their business.

The speaker discusses their company's performance and future plans. They mention that their lap will become easier in the second half of the year and they are taking actions to drive their business even more. They also mention their loyalty program and their confidence in their comp. The speaker then hands it over to Paula to discuss their margin outlook. Paula mentions that their top line performance is important for driving fixed cost leverage and they have adjusted their operating margin expectations accordingly. They also mention investing in sales levers to strengthen their top line. The questioner wishes them luck for the rest of the year.

The speaker addresses a question about the impact of increased competition and shifting to different channels on the prestige market. They mention that the market has always been competitive due to its growth potential and margin profile, but the current situation is unique due to the increase in distribution of prestige products. The speaker expresses confidence in their ability to continue engaging consumers and mentions that nearby stores may experience a short-term hit when a competitor opens, but they are able to recover.

The current retail environment is unprecedented, with over 1000 new locations opening in a short period of time. Despite this, Ulta Beauty has been able to hold its share in the total beauty market and has seen growth in areas such as mass and prestige e-commerce, brand love, and loyalty members. The company's confidence in its model and ability to adapt to changing circumstances gives them confidence in their updated guidance and a bright future. However, they do expect lower merchandise margin for the year due to lower sales, increased promotions, and changes in category mix.

In the first quarter, the company saw a decline in merchandise margin due to increased promotional activity, adverse impacts from brand mix, and lapping price increases from the previous year. However, in 2020, the company saw a 200 basis point increase in merchandise margin compared to 2019, driven by ongoing category performance improvement efforts, category mix, and promotional efficiency. The company plans to increase its marketing spend for the year and is protecting its investment in marketing, store labor, and other aspects that drive business. The company saw an increase in unaided awareness and brand love in Q1, indicating a strong connection with guests.

The speaker discusses the success of their marketing efforts in driving both in-store and online traffic, as well as increasing app engagement and loyalty. They mention a focus on social media and partnerships with brands. Despite a 1.6% comp, they are optimistic about future improvements, but have lowered their back half outlook. The speaker also mentions recent trends in April and May, which will be discussed by another speaker.

The company's comp sales in the first half of the year were at the low end of their expected range due to various pressures and dynamics. As a result, they have adjusted their outlook for the whole year to 2% to 3% growth. The April exit rate for the quarter was positive, but moderated from March due to the timing of Easter. Comps in May are expected to be similar to the first quarter. Merchandise margin is expected to be higher in the second half of the year, but lower in the first half.

The speaker discusses the changes in the merchandise margin dynamic and the expected pressure in the first half due to promotional and brand mix factors. However, they anticipate a flat second half as they will no longer be lapping price increase benefits and will have moved past inventory markdowns. The next question is about the competitive landscape, specifically how Ulta's value proposition for brands is evolving and what gives them confidence in remaining a top distribution point. The speaker emphasizes their strong relationships with brands and unique proposition as a key factor in their continued success.

The company values the opportunity to connect with its loyalty members and drive growth through its brands. They are confident in their brand relationships and are working together to drive growth and add new brands. There are no concerns about inventory, as most of it is current and core product and they are investing in inventory to capture future demand.

In response to a question about the makeup category, David and Paula from the company discuss their confidence in the category despite some pressure on the prestige side. They mention partnerships with brands like Elf, Morphe, NYX, Juvia's Place, and about base, as well as newness from Charlotte Tilbury and expansion of their luxury business. They also address competition from Amazon and their focus on remaining competitive through innovation and personalization.

Paula discusses the company's plans to expand into more doors and launch new brands like Live Tinted, Polite Society, and Rabanne in the makeup space. They are also focused on driving growth in their makeup business and competing in both in-store and online environments. The company has clear plans to drive makeup connection and increase their share of wallet. The math for the rest of the year puts operating margin below 14%, but it is not far from their long term guide.

The speaker says that the company's ability to maintain a 14-15% margin depends on the top-line performance, and a low comp trend can make it difficult to leverage costs. They will share more about their future growth plans and financials at an upcoming Investor Day. The other speaker adds that they expected promotions to increase but remain rational, and this is mostly holding true.

The company is planning for promotional levels to increase in 2023, but not to an irrational level. They expect promotional levels to be below 2019 levels due to their CRM capabilities and efficiencies. There is a broad dynamic going on across the industry, but it is still below historical highs. The speaker also discussed the actions they are taking to drive their business, including newness and social and marketing efforts. They are also focused on member retention and promotional efficiencies to gain market share. The speaker did not mention any specific trends or brands in the industry.

Ulta Beauty has a strong lineup of tentpole events throughout the year, including their semiannual beauty event and Spring Haul event. They also have a summer event and more planned for the rest of the year. These events help to build a strong connection with their customers and are complemented by targeted promotions through their loyalty program. The current "member love" program, which highlights a different category each week, has been successful in adding value for customers. Ulta Beauty has a diverse portfolio of brands, including both established and emerging brands across all major categories and price points.

The speaker reiterates the evolving competitive environment and the importance of strong brand relationships for Ulta Beauty's growth. They express confidence in the company's future and thank their employees for their hard work. The call ends with a reminder to join the next earnings call on August 29.

This summary was generated with AI and may contain some inaccuracies.