The paragraph is an introduction to Ulta Beauty's third-quarter 2024 earnings conference call. It includes participants like the operator, Kiley Rawlins (VP of Investor Relations), Dave Kimbell (CEO), Paula Oyibo (CFO), and Kecia Steelman (President and COO). The call starts with a disclaimer about forward-looking statements and will have prepared remarks followed by a Q&A session. Dave Kimbell announces improved performance for the quarter, with net sales up 1.7% to $2.5 billion, comparable sales up 0.6%, and diluted EPS up 1.4% to $5.14 per share.

The paragraph discusses the company's navigation of various challenges in the beauty market, including competition and consumer dynamics. Despite these headwinds, the company has improved its prestige market share, especially in makeup and hair, and maintained consistent performance in Mass Beauty. Growth was fueled by increased transactions in stores and online, and expansion of their loyalty program to 44.4 million active members. Marketing strategies also drove significant growth in earned media value. The company is optimizing its new ERP system to enhance operations and guest experience. Fragrance emerged as the strongest category, with significant growth driven by men's and gender-neutral products, and new gift sets. The paragraph concludes by acknowledging the hard work of team associates in strengthening market position.

The growth in men's fragrance was driven by new releases from ARMANI and YSL, along with established brands like Jean Paul Gaultier and Valentino. There's rising interest in gender-neutral scents, with notable contributions from Billie Eilish and NOYZ. The women's fragrance sector grew with new brands like Kylie Jenner and Orebella, and offerings from Valentino, YSL, and NEST. Skincare saw mid-single-digit growth, led by body care brands like Sol de Janeiro and Touchland, despite a decline in prestige skincare. Mass skincare remained stable with growth from Naturium, Bubble, and La Roche-Posay. Makeup sales slightly declined due to weak mass makeup performance, though prestige makeup was stable with new brand launches and successful events like 21 Days of Beauty boosting sales. The Ulta Beauty Collection's relaunch and exclusive collaborations also contributed positively.

The hair care category experienced a slight decline in comparable sales, although new products from brands like Matrix, Divi, and Odele contributed to growth, with Redken maintaining strong guest engagement. Hair tools from Shark Beauty and Dyson also performed well. However, certain key brands showed weakness due to expanded distribution and limited new products. The services business saw low single-digit growth, supported by core services like color and styling, as well as ear piercing and makeup services. Salon backbar takeovers helped with product attachment and new guest acquisitions. The company aims to strengthen its market position and enhance performance, presenting a refreshed strategic framework to leverage existing strengths and innovate for beauty enthusiasts. Their long-term goals focus on profitable growth, market leadership, and enhancing guest engagement through omnichannel experiences and personalized loyalty programs. In the short term, they are addressing areas to reinforce competitiveness.

In the third quarter, significant progress was made in expanding and strengthening their brand assortment. New makeup and skincare brands like ILIA Beauty, DIBS Beauty, RMS Beauty, and Oak Essentials were introduced, alongside wellness brands The Honey Pot and Joylux. Upcoming launches for the fourth quarter include TATCHA, a prestige skincare brand, XO KHLOE, a fragrance by Khloe Kardashian, and the wellness brand Apothekary. Two exclusive collaborations were also launched: one with NBCUniversal Pictures for a Wicked-themed collection featuring brands like r.e.m. beauty and Beekman 1802, and another with Mini Brands, offering miniature versions of popular products. These collaborations have boosted sales, engagement, and traffic, particularly among Gen Z and millennial shoppers.

The paragraph highlights the company's focus on enhancing guest experiences through personalized and engaging events, both in-store and online. In Q3, they hosted over 13,000 in-store events, including celebrity appearances and salon workshops. They improved their digital strategies, driving significant growth in online sales, app engagement, and e-commerce sales. Their digital innovations include enhanced virtual try-on experiences, AI-driven analysis tools, and the launch of GLAMlab 2.0, along with new digital buying guides designed to boost SEO and provide educational content. Overall, the company is dedicated to creating unique and memorable experiences across all platforms.

Ulta Beauty has launched the UB Community, a digital forum designed to connect beauty enthusiasts and foster authentic connections by integrating beauty, wellness, and joy. The community has surpassed its user targets, demonstrating Ulta Beauty's significant impact. With over 44 million active members, the Ulta Beauty Rewards program provides valuable consumer insights that drive sales. In Q3, the company enhanced personalization in digital channels, improved member reactivation, and increased its platinum and diamond memberships through exclusive incentives. Ulta Beauty is focusing on social relevance and evolving marketing strategies to boost customer connection and brand advocacy, leveraging trends and growth brands to drive engagement.

The paragraph outlines Ulta Beauty's strategies to drive engagement and growth through innovative initiatives. It discusses leveraging talent from various programs and partnerships with entities like Roblox to enhance brand launches and events, which resulted in increased engagement and brand metrics. The introduction of AI non-endemic ads through a partnership with Rocket is noted, as well as the success of the Ultaverse on Roblox as a platform for beauty brands. The paragraph also highlights the company's efforts to evolve promotional strategies, such as the new hair event and the popular 21 Days of Beauty event, both of which resulted in strong sales and brand performance.

In the paragraph, the company highlights the success of its recent Fall Haul event in boosting engagement and member acquisition through attractive offers. They improved promotional effectiveness by optimizing loyalty offers and planning strategically. As they shift focus to the holiday season, they acknowledge consumer economic concerns leading to a value-driven mindset. With a wide product range and omnichannel convenience, they are well-equipped to support holiday shoppers. Their "Find Joy in the Present" campaign aims to enhance emotional engagement through integrated marketing efforts and festive in-store and online experiences. The company is focused on strengthening its competitive positioning and managing the shorter holiday selling season with real-time beauty solutions and engaging consumer experiences.

The paragraph highlights Ulta Beauty's holiday season preparations, focusing on a curated product assortment, enhanced shopping options like BOPIS and delivery services, in-store events, and digital tools to enhance customer experience. The company is optimistic about its holiday strategies and overall business trends, expecting resilience in the beauty sector and aiming for long-term growth. Monica Arnaudo, the Chief Merchandising Officer, plans to retire in spring 2025.

Since joining Ulta Beauty in 2017, Monica has played a key role in building a strong team and enhancing the product assortment, contributing to significant sales and market share growth. As she prepares to transition out of her role, she remains committed to supporting the team and the company. Paula Oyibo then discussed the financial results, highlighting a better-than-expected performance in the third quarter with a net sales increase of 1.7%. The growth was driven by new stores and a small increase in comparable sales, although partially offset by a decline in other revenue. Notably, 28 new stores were opened while two closed and 27 were remodeled. The decline in other revenue was mainly due to an increase in deferred revenue from the expanded loyalty program, despite increased income from the credit card program.

In August, comp sales slightly decreased due to the timing shift of the 21 Days of Beauty event, leading to stronger performance in September, though October trends softened. E-commerce saw mid-single-digit growth, while comp store sales improved since the second quarter but slightly decreased compared to last year. The gross margin fell by 20 basis points due to fixed cost deleverage and lower revenue, but was partially balanced by reduced shipping costs and shrink. Increased new store openings and supply chain expansion applied pressure on costs. Inventory shrink as a percentage of sales remained flat year-to-date, aided by improved inventory management and training. SG&A expenses rose by 3.2% but were better than planned; however, they increased as a percentage of sales due to lower revenue growth, higher store payroll, wage rates, and corporate overhead. Merchandise margin stayed flat despite changes in inventory reserves and brand mix.

The paragraph discusses the company's financial performance and strategic priorities. It highlights that while operational performance was below expectations, leading to lower incentive compensation, depreciation increased due to new investments. Operating profit fell by 2.7%, but diluted GAAP earnings per share rose by 1.4%. The company ended the quarter with $178 million in cash and $200 million in short-term debt, using its revolving credit facility for working capital needs and share repurchases. Inventory rose by 1.9% due to new stores, while operating cash flow year-to-date was $302 million and capital expenditures were $114 million. The company returned $267 million to shareholders through share repurchases, with $2.9 billion remaining in its repurchase program. Looking ahead, the company refined its fiscal 2024 sales and EPS guidance, projecting net sales between $11.1 billion and $11.2 billion, with flat to slightly negative comp sales growth.

The company plans to open 60 to 65 new stores and remodel or relocate 40 to 45 stores this year. They anticipate an operating margin between 12.9% and 13.1% of net sales, expecting impacts from both gross margin and SG&A. Their estimated diluted EPS for the year is between $23.20 and $23.75. For Q4, despite positive results so far, they foresee challenges due to a compressed holiday season, a dynamic environment, and uncertain consumer demand, predicting a low single-digit decline in comp sales and an operating margin of 11.6% to 12.4%. They have revised their capital expenditure for fiscal 2024 to $400-$425 million, allocating funds for new stores, remodels, supply chain, IT, and maintenance. The company remains optimistic about its strategies and investments for long-term value creation. The paragraph concludes with the operator inviting questions, starting with Simeon Siegel from BMO Capital Markets, who asks about the competitive and promotional landscape over the holiday season.

The paragraph discusses the competitive and promotional landscape faced by Ulta in the third quarter. Dave Kimbell addresses the pressure on gross margins and the need for strategic adjustments. Ulta has navigated a highly competitive market, particularly in the prestige sector, by enhancing performance through unique offerings such as its loyalty program and customer experience. The company observed continued promotional normalization post-COVID, with Q3 promotional rates lower than Q2 but higher than the previous year. Adjustments to promotional strategies, including focusing on key events and improving customer relationship management, have been effective. Holiday season is expected to be highly promotional.

In the conversation about fourth-quarter expectations, Paula Oyibo highlights that the company has raised its full-year operating margin and EPS due to Q3 performance and expense discipline. However, they anticipate ongoing gross margin deleverage into Q4 due to competitive pressures, fixed costs, and promotions, despite some relief from lower transportation costs. SG&A expenses are expected to grow in the mid-single digits for the full year, with Q4 growth in the low single digits. The dialogue transitions as Simeon Siegel interacts, and then Kelly Crago from Citi inquires about the performance of the prestige makeup line, which was flat for the quarter.

Dave Kimbell discusses the performance and innovation pipeline in the prestige makeup category. He notes that the category, an important and large one for their company, was flat in the third quarter, marking an improvement in trends. This was driven by brand launches like ILIA, successful programs like 21 Days of Beauty, and strong performance from core brands like Clinique and MAC. The company has focused on strengthening this category and is pleased with the progress. Although they experienced some share pressure, their share performance improved from the second quarter. Regarding the competitive environment, Kimbell acknowledges competitive pressures from new distribution points but mentions that they are making progress.

The paragraph discusses the impact of increased competition in the prestige beauty market, with over 1,000 new distribution points opening in recent years. Many existing stores (80%) have experienced competitive openings, and more than half have faced multiple new competitors. Despite the short-term challenges, the speaker is confident in their ability to adapt, drawing from past experiences of turning stores into positive contributors after initial declines. Improvements were noted in Q3 compared to Q2, but the speaker acknowledges ongoing challenges. The focus remains on leveraging strengths in physical and online stores to drive business growth into 2025. The conversation then transitions to the next speaker, with holiday well-wishes exchanged.

In the paragraph, Dave Kimbell discusses the attractiveness of the beauty category and how it is being emphasized by both mass and prestige retailers. The mass beauty market is performing well, showing mid-single-digit growth, despite some deceleration in specific areas like mass makeup. However, there is continued strength in mass skincare, which is vital for their business. They are committed to offering a diverse and appealing product assortment across all price points to engage consumers effectively in the mass beauty segment.

The paragraph is a discussion led by Dave Kimbell, responding to a question about what factors contributed to the improved performance of a business in the third quarter. Dave Kimbell emphasizes that no single factor was responsible for the improvement, highlighting the importance of a variety of elements. Key drivers included an improved assortment with new brands such as ILIA, successful collaborations that generated excitement, and more effective promotions. Lessons learned from the second quarter led to better promotional strategies, with a focus on core events like 21 Days of Beauty and targeted, personalized promotions. These efforts collectively drove stronger performance.

The paragraph discusses the efforts of an organization to improve both in-store and online customer experiences, highlighting a collective effort across various teams like store associates, supply chain, IT, and digital teams. They acknowledge improvements made despite earlier disruptions from system changes and express satisfaction with recent progress but emphasize the need for continued improvement, especially through the holiday period and into 2025. They also mention broader strategic plans discussed at their Investor Day. Following this, there is an interaction with analysts, with Anthony Chukumba thanking them and Christopher Horvers asking about the impact of fewer business days on their performance and gift card sales, and how recent accomplishments influence their long-term goals. Paula Oyibo responds by indicating they won't share specific details on sales performance within the quarter.

In the article paragraph, the speaker discusses the early success of the holiday season and notes that their teams are performing well. They predict a small decline in Q4 comparable sales due to a dynamic operating environment, including factors like fewer shopping days. Despite this, they aim to end the fiscal year strong. The speaker indicates that detailed guidance for 2025 will be provided in March, but emphasizes that 2024 and 2025 are seen as transitional years focused on investments for long-term growth, ensuring an operating margin above 11%. The paragraph concludes with a question from Emily Ghosh regarding the impact of UB Media on competitive positioning and long-term operating margin, which Dave Kimbell acknowledges.

The paragraph discusses UB Media's optimistic role in enhancing business opportunities due to its unmatched scale, data, and understanding of beauty engagement across various demographics. The company has worked on delivering valuable experiences to brand partners, resulting in strong ROI and business growth. There are continued investments in capabilities, such as roadblocks, to further support brand opportunities. Paula Oyibo explains that UB Media positively contributes to the company's gross margin and helps offset merchandise margin pressures. Emily Ghosh and Oliver Chen raise questions about financial impacts and future business outlooks, with Chen seeking insights on category opportunities and a potential dip in performance in October.

The paragraph discusses a company's strategy for achieving long-term growth and positive comparable sales. Dave Kimbell emphasizes focusing on core strengths and innovating within the company's ecosystem, highlighting four key pillars: assortment, experience, access, and loyalty. These areas are seen as crucial for driving performance, both in-store and online. The emphasis is on strengthening these foundations to improve overall business outcomes. Paula Oyibo addresses a question regarding expectations for October, noting the importance of timing and major events in their strategy.

The paragraph discusses a company's performance and market share strategy. It highlights the engagement and growth of their loyalty program, particularly among their Platinum and Diamond members, who are the most valuable customers. The loyalty program saw a 5% increase in the quarter, driven by attracting new members. The company believes there is still significant growth potential in its loyalty program and continues to focus on expanding its customer base. Additionally, as competitive pressures decrease, they are optimistic about maintaining or improving market share in the future.

The paragraph discusses Ulta's strategies and performance in the competitive beauty retail market. The company has successfully reactivated lapsed members through a focused customer relationship management (CRM) program and maintains strong customer retention despite intense competition. Ulta is experiencing strength across various customer demographics and regions. While new store openings have shown potential for recovery and success, the company recognizes the current market disruption as significant. Although they saw improvement in Q3, they cautiously acknowledge that they have not entirely overcome these challenges. The focus remains on learning from evolving market dynamics and continuing progress into 2025.

The paragraph is a closing message thanking the over 55,000 Ulta Beauty associates for their hard work and commitment to providing exceptional guest experiences. It wishes everyone a happy and healthy holiday season, encourages shopping at Ulta Beauty, and mentions that the company will report its fiscal 2024 results on March 13. The teleconference is then concluded.

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