Ulta Beauty, Inc.

Good afternoon and welcome to Ulta Beauty's conference call to discuss results for the fourth quarter of fiscal year 2021. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. We ask that you please limit yourself to one question and then re-enter the queue for any additional questions. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Ms. Kylie Rollins, Vice President of Investor Relations. Ms. Rollins, please proceed.

Thank you, Hector. And good afternoon, everyone, and thank you for joining us today. Hosting our call today are Dave Kimball, Chief Executive Officer, and Scott Setterson, Chief Financial Officer. Keisha Steelman, Chief Operating Officer, will join us for the Q&A session. This afternoon, we announced our financial results for the fourth quarter and full year of fiscal 2021. A copy of the press release is available in the investor relations section of our website. Before we begin, I'd like to remind you of the company's safe harbor language. The statements contained in this conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those projected in such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC. We caution you not to place undue reliance on these forward-looking statements, which speak only as of today, March 10, 2022. We have no obligation to update or revise our forward-looking statements, except as required by law, and you should not expect us to do so. In today's comments, we'll discuss certain non-GAAP financial measures, including adjusted operating income and adjusted diluted EPS for the fourth quarter of fiscal 2020. A reconciliation of these measures to the corresponding GAAP measures can be found in our press release. We'll begin with some prepared remarks from Dave and Scott. And following our comments, we'll open up the call for questions. Today our remarks will be a little longer than usual. To accommodate as many questions as possible during the hour scheduled for this call, we'd ask that you please limit your time to one question. If you have a follow-up question, please re-queue. And as always, the IR team will be available for any follow-up questions after the call. Now I'd like to turn the call over to Dave. Dave?

Thank you, Kylie. And good afternoon, everyone. Before discussing our results, I want to share how proud I am of our associates' performance throughout 2021. While consistently providing care and service to our guests and to each other, they successfully navigated pandemic-related challenges and delivered exceptional results for all of our stakeholders. In fiscal 2021, the beauty category recovered earlier and faster than we expected, and our teams adjusted quickly in many ways, including working with our brand partners to accelerate receipts and manage in-stocks, creating highly relevant content that reflected the rapidly evolving mindset of our guests, adjusting staffing levels across the organization to meet growing demand, and protecting and strengthening our culture, leading with their hearts and working together to create new ways to delight and excite guests, all while continuing to execute against our strategic priorities and drive our business forward. Now moving to our results for the quarter. The Ulta Beauty team delivered record fourth quarter financial results despite COVID and winter weather disruptions. Net sales increased 24.1% to $2.7 billion. Operating profit increased to 13.8% of sales and diluted EPS increased to $5.41 per share for the quarter. The decisions our teams made and the plans they executed with excellence around assortment strategies, inventory flow, marketing, and staffing levels positioned us to take advantage of a positive consumer environment this holiday season and deliver strong results. I want to express my sincere appreciation to all Ulta Beauty associates, particularly in our stores and distribution centers, who show up every day positive and optimistic, ready to serve our guests while facing personal challenges posed by the ongoing pandemic. Their dedication enabled us to deliver these outstanding results, and I am grateful for their flexibility as circumstances shifted. We kicked off the holiday season in early November with our multi-channel Celebrate More campaign. Our audience-tailored, creative, and contextually relevant storytelling, connected with consumers in fresh and bold ways across platforms, and we continued to expand live streaming and social selling experiences. We enhanced our member love events, rewarding members with new loyalty offers to drive engagement, reactivation, and retention, and we leveraged our CRM capabilities to further enhance the productivity of our promotions. We also enhanced our gift card program, including more innovative and inclusive designs and new multi-pack options, which helped deliver strong double-digit growth in gift card sales across stores and third-party channels. Our decision to proactively manage inventory flow resulted in strong sell-through of holiday merchandise and core product, and our teams transitioned quickly after Christmas to support our strategic Jumbo Love and Love Your Skin events, as well as significant brand launches. In January, we executed four exciting new brand launches at Ulta Beauty, Olaplex, Numero Un de Chanel, Supergoop, and Billie Eilish. As the number one prestige hair care brand in the market, Olaplex offers patented bond-building products and is changing how consumers engage with the hair care category. While our initial assortment included only seven SKUs, it was one of the strongest brand launches in Ulta Beauty history. With the unique ability to offer guests the professional service in our salons and the retail products to take home, we are delighted to expand our partnership with Olaplex. In makeup, we are excited to partner with Chanel Beauté as the exclusive U.S. retailer for the historic launch of Numéro 1 de Chanel. Offering luxury to younger generations, this new line is sustainably sourced with clean ingredients and sustainable packaging. With an assortment spanning skincare, makeup, and fragrance, Numero 1 de Chanel is currently available in 250 Ulta Beauty stores and on Ulta.com. This launch is a key element of our luxury beauty strategy, and we're very pleased with the initial results. In skincare, we launched Supergoop, known for its sunscreen expertise. Supergoop is made with clean, reef-friendly ingredients, is cruelty-free, and leverages sustainable packaging. And in fragrance, we launched a new offering exclusive to Ulta Beauty from acclaimed recording artist Billie Eilish. Taking a closer look at sales trends in the quarter, guests were excited to return to in-store holiday shopping. Even as stores delivered robust double-digit comp growth, e-commerce sales exceeded our expectations. increasing slightly on top of last year's 70% growth. This reinforces to us that e-commerce is complementary and incremental to the physical shopping experience. Guests continue to increase their utilization of buy online, pick up in store, while also engaging with our new same-day delivery option. During the quarter, Bopas sales increased 20% to account for 17% of e-commerce sales compared to 15% in the fourth quarter last year. While only available in about 200 stores, we are pleased with the performance of our new same-day delivery options. From a category perspective, all major categories delivered double-digit comp growth compared to the fourth quarter of fiscal 2020, driven by cycling last year's disruption from COVID, strong execution of our holiday plans, and product newness. Compared to the fourth quarter of 2019, fragrance, bath, hair care, and skin care all continued to deliver strong double-digit growth. Makeup was more challenged this quarter, with trends decelerating from the third quarter across both prestige and mass makeup, although sales of mass makeup continued to be positive compared to 2019. Over the last year, as the beauty category has recovered, the performance of makeup has been more volatile and lagged other categories, in part reflecting higher sensitivity to COVID fluctuations. We remain confident that makeup will return to growth as consumer optimism and comfort with out-of-home activities increases, but we recognize the timing and rate of recovery will continue to be impacted by changes in the COVID environment. Looking specifically at the fourth quarter trends in makeup, face, lip, and eye continue to deliver strong growth driven by blush, tinted moisturizer, lip balm, and lashes. Newness from Elf, Kiss, and Ardell continued to excite and engage guests, while prestige brands like MAC, Clinique, and Lancome also delivered positive growth. In addition, this quarter we expanded Chanel Beauté into 50 additional stores and launched the full assortment on Ulta.com. Haircare delivered double-digit growth, increasing to 20% of net sales. Consumer focus on hair health drove strong growth in treatments, shampoo and conditioner, and tools like the Dyson Airwrap were hot holiday gifts this year. New brands like Olaplex, Kristen Ess, and Briogeo, as well as guest favorites like Redken and Living Proof, delivered nice growth during the quarter. The fragrance and bath category was again the best performing major category during the quarter, delivering robust double digit comp growth and increasing to 18% of net sales. Compelling newness from luxury brands like Gucci, Dior, and Carolina Herrera, as well as exclusive newness from Ariana Grande and Billie Eilish, contributed to the strong growth. In addition, our holiday fragrance programs and our monthly fragrance crush program performed very well. Finally, skincare delivered another quarter of double-digit sales growth. Beauty enthusiasts are maintaining their skincare regimens as they continue to focus on self-care. Category growth in the quarter was primarily driven by moisturizers, cleansers, and sun care. Newness continued to appeal to guests as new brands including Drunk Elephant, Good Molecules, Fresh, and Black Girl Sunscreen, as well as new products from Tula, drove strong growth during the quarter. In addition, dermatology-based brands like Cerve and La Roche-Posay continued to resonate with guests. The performance of our services business accelerated in the quarter, increasing more than 30% over last year, driven primarily by growth in transactions. During the quarter, we expanded salon capacity to 100% in all Ulta Beauty salons and benefit brow bars, except we're limited by state or local mandates. And we relaunched skin services in 130 stores. In addition, our recently launched salon services, Express Color and Olaplex Repair and Protect, continue to bring in new members to our salons, an encouraging trend as we know members who use our services are some of our most valuable and engaged guests. Reflecting this momentum, during the quarter, we hired approximately 1,000 new associates to support our expanding services business. Now, turning to our results for the full year. The Ulta Beauty team delivered record sales of $8.6 billion, recorded operating margin of 15% of sales, and record diluted EPS of $17.98 per share. Comparable sales increased 37.9% compared to fiscal 2020 and 12.6% compared to fiscal 2019. We expanded our market share in Prestige Beauty based on dollar sales for the 52 weeks ended January 29, 2022, compared to the same period last year based on point-of-sale data from the MPD group. We continued to fuel guests' desires for newness with relevant brand launches such as Drunk Elephant, Bobby Brown, Olaplex, Kristen Ess, and VIRB. We expanded our Conscious Beauty platform to 270 certified brands. launched SKU-level certification for the clean ingredients and vegan pillars, and expanded our Made Without list. We doubled the number of Black-owned brands in our assortment, welcoming Black Girl Sunscreen, Camille Rose, Homebody, and Black Opal, among others, to the Ulta Beauty family, and introduced dedicated space for IPOC-founded brands in 260 stores. We launched the Wellness Shop, a cross-category platform that offers guests self-care for the mind, body, and spirit on Ulta.com and in more than 450 stores. We opened 44 net new stores, relocated seven stores, remodeled nine stores, and negotiated more than 150 lease renewals. We continued to drive higher purpose utilization with new guest incentives, increased marketing to drive awareness and operational improvements, and to the guest and associate experience. As a result, Bopas sales increased to 18% of e-commerce sales, compared to 14% in fiscal 2020. Between Bopas and our ship-from-store capabilities, about 28% of our digital orders this year were fulfilled by stores. We launched our exciting new partnership with Target Corporation and opened 100 Ulta Beauty at Target locations. I'll share more on this later. We drove member growth through new acquisition, member re-engagement, and targeted retention efforts, increasing the number of Ultimate Rewards members to a record 37 million members. We grew aided awareness to 94% and maintained unaided awareness at 48%. Importantly, we significantly increased Ulta Beauty consideration with Gen Z, Hispanic, and Black beauty enthusiasts. and created deeper, more emotional connections with consumers. We successfully navigated macro headwinds, including supply chain challenges and tight labor markets. We proactively invested in our teams with appreciation bonus for our store and DC associates. We doubled our renewable energy credits, invested in energy management system retrofits, diverted nearly 15 tons of waste from landfills through our recycling efforts, and joined other leading retailers in the consortium to reinvent the retail bag. And we made meaningful progress against our DE&I commitments, including launching the Muse platform, signing the 15% pledge, investing in in-store guest experience training, reimagining our diverse leaders development program, and integrating DE&I across our internal talent lifecycle. Now, as we turn to fiscal 2022, Consumers in the operating environment are changing faster than ever. Consumers are becoming increasingly resilient to COVID surges, but macro headwinds, global uncertainty, and potential pandemic setbacks will likely continue to impact consumers. The beauty category is healthy and growing, and our proprietary consumer insights give us confidence that the recovery which began last year will continue in 2022 as consumers maintain their self-care routines and engage in more social activities. And as consumers increase their consumption of services and experiences, our assortment and service offerings position us to benefit from these shifts. We know there will be challenges, but I am more excited than ever about the opportunity for Ulta Beauty to grow and continue to lead the beauty category. Last fall, we introduced a new strategic framework which will shape our future and enable us to deliver against our long-term financial targets. Let me share our fiscal 2022 priorities through the lens of each of our strategic pillars. Starting with our first pillar, we will drive breakthrough and disruptive growth through an expanded definition of all things beauty. Our differentiated assortment is core to our success, and in fiscal 2022, we intend to enhance and expand our conscious beauty platform, further increase our assortment of black-owned, black-founded, and black-led brands in support of our 15% pledge, and build the infrastructure to support these brands, expand the wellness shop to an additional 300 stores, and continue to evolve and expand our offering across core categories to engage and excite the beauty enthusiast. To drive growth and capture market share, we will continue to add relevant brands to our assortment. In recent weeks, we've executed one of our most anticipated brand launches ever, Fenty Beauty. Partnering with Rihanna and Fenty Beauty, We announced the news on February 17th through social channels, achieving higher mention volume and reach than any other Ulta Beauty brand launch announcement. The initial guest response was incredibly positive, trending as the number one topic on Twitter the day of the announcement. Turning now to our second pillar, to evolve the guest experience through our personalized and connected omni-channel ecosystem, all in your world. Beauty enthusiasts are increasingly leveraging both physical and digital channels, and we have the power to connect and engage with them across the beauty journey and meet them wherever they are. In fiscal 2022, we intend to leverage our real estate pipeline to pilot a new in-store experience with a layout and flow that reflects our key merchandising strategies and consolidates guest services in a central location. Test a small store format with an optimized assortment and service offering in a handful of small markets. Enhance our buy anywhere, fill anywhere efforts by expanding our same-day delivery option. Continue to create leading digital experiences through the ongoing refresh of our digital store to provide guests with an experience that seamlessly merges content with commerce. the expansion of our virtual try-on capabilities, and new capabilities resulting from our digital fund investments. We'll provide guests with more convenience through the launch of Afterpay as a payment option in stores, and we'll expand the Ulta Beauty at Target shop in more than 250 new Target locations. As part of our efforts to expand our omnichannel ecosystem, last year we joined forces with with the Target Corporation to create a new way for guests to discover prestige beauty. In just nine short months, the Ulta Beauty and Target teams worked together to design a space that feels authentic to both brands. We connected two independent loyalty programs. We made it easy for guests to link their accounts. And we onboarded more than 50 prestige and emerging brands. I am pleased to share that in our Ulta Beauty and Target location, Customer awareness remains very strong. Guests are shopping across categories and more than a million members have linked their ultimate rewards and target circle accounts. Building on this foundation, this year our focus is on accelerating new member acquisition, optimizing the guest experience, and continuing to amplify marketing as we scale. Moving now to our third pillar, expand and deepen our presence across the guest beauty journey. firmly placing Ulta Beauty at the heart of the beauty community. In fiscal 2022, we intend to further build upon our brand purpose and elevate our marketing efforts to include more action-based programming that address the needs of key audiences, expand live streaming and social selling, drive member growth and leverage data and analytics to increase the personalization of our communications, deepen engagement, and shift share of Wallet, and launch our retail media network, UB Media. Our fourth pillar is to drive operational excellence and optimization. We are investing in multiple significant cross-functional projects that require capital and resources, but position us to capture additional market share, fund enhancements to the guest experience, and deliver future profitable growth. In fiscal 2022, we plan to execute the first phase of Project SOAR, our multi-year effort to upgrade our enterprise resource planning platform, migrate to Google Cloud as our data and analytics platform to facilitate data accessibility, enhanced reporting, and faster decision-making, begin a two-year effort to refresh our store POS systems, and leverage our continuous improvement capability to identify, prioritize, activate, and measure meaningful cross-functional process optimization opportunities. In support of our supply chain optimization efforts, this year we plan to begin an upgrade and retrofit of our Greenwood Distribution Center, begin construction of our first Market Fulfillment Center, and implement new transportation tools to provide better visibility to loads in transit. Our winning culture is a key driver of Ulta Beauty's success, and our fifth strategic pillar is to protect and cultivate our world-class culture and talent. We strive to make Ulta Beauty a great place to work by leading with our hearts, caring for each other in everything we do, and demonstrating integrity, authenticity, and inclusivity daily. To reinforce our position as an employer of choice and enable us to continue to successfully navigate anticipated tight labor markets, this year, we intend to increase investments in training and development programs to enhance the guest experience, improve personal performance, and help associates manage their career, continue leveraging our diverse slate recruitment efforts, further enhance and optimize our talent acquisition processes, increase investment and development programs to help associates plan and develop their careers, and continue to navigate the pandemic with safety at the forefront for all of our associates. Finally, our sixth strategic pillar is to expand our environmental and social impact. As the largest U.S. beauty retailer, we have the power to shape how the world sees beauty and a responsibility to inspire positive change. Building on the progress we made in 2021, this year we plan to continue to amplify underrepresented voices through media investments with multicultural platforms, the expansion of our Muse platform, and increase brand marketing support for black-owned, black-founded, and black-led brands within our assortment. Build an ecosystem to support the pipeline of BIPOC brands, including the creation of an accelerator program focused on early-stage BIPOC beauty brands to educate, inspire, and support brand participants to prepare for retail readiness, and an investment in New Voices, a venture capital firm that partners with and invests in entrepreneurs and entrepreneurs of color to drive scalable, sustainable businesses. Continue to invest in trainings and internal programming to ensure our guests, associates, and communities feel connected to and reflected at Ulta Beauty. And, as we look to reduce our carbon footprint, we plan to expand our LED lighting retrofit program, double our investment in renewable energy credits, and explore opportunities to collaborate with our brand partners to identify opportunities to reduce Scope 3 emissions together. We recently published our 2021 ESG report, which includes information about our strong corporate governance practices and commitment to operating an ethical business. In addition, it includes disclosures aligned with the SASB index and TCFD, as well as updated EEO1 information. In closing, I am incredibly proud of what the Ulta Beauty team has accomplished and excited about the opportunities ahead. We operate in a healthy, culturally relevant, and growing category. We have a strong, proven business model, and we have a winning culture and simply outstanding associates. We have ambitious plans, and I am confident we have the right team to execute our strategies and deliver for our guests, associates, and shareholders. And now, I will turn the call over to Scott for a discussion of the financial results. Scott?