Ulta Beauty, Inc.

Good afternoon and welcome to Ulta Beauty's conference call to discuss results for the first quarter of fiscal 2023. 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 your host, Ms. Kylie Rawlins, Vice President of Investor Relations. Ms. Rawlins, please proceed.

Thank you. Good afternoon, everyone, and thank you for joining us for a discussion of Ulta Beauty's financial and operational results for the first quarter of fiscal 2023. Hosting our call today are Dave Kimball, Chief Executive Officer, and Scott Setterson, Chief Financial Officer. Keisha Steelman, our Chief Operating Officer, will join us for the Q&A session. 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, May 25, 2023. 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. We'll begin this afternoon with prepared remarks from Dave and Scott. Following our prepared comments, we'll open up the call for questions. To allow us to accommodate as many questions as possible during the hours scheduled for this call, we respectfully ask that you limit your time to one question. If you have additional questions, please re-queue. 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. We appreciate your interest in Ulta Beauty. Fiscal 2023 is off to a good start. For the first quarter, we delivered net sales operating margin and diluted EPS that were consistent with our internal expectations. Net sales increased 12.3% to $2.6 billion, and comparable sales increased 9.3%. Operating margin was 16.8% of sales, and diluted EPS increased 9.2% to $6.88 per share. Our store traffic remained healthy, and member growth continued to be strong. We delivered growth across key categories, and we strengthened engagement with the Ulta Beauty brand. I want to thank our Ulta Beauty associates for their focus on creating great guest experiences while continuing to adapt to a dynamic environment and executing our transformational agenda. The operating environment continues to evolve, and consumers are exploring how best to navigate the economic uncertainties. Inflation concerns remain high and consumers are spending more selectively while also showing a continued willingness to splurge and treat themselves. Engagement with beauty remains strong, reflecting the prioritization of self-care. Category growth is healthy but moderating as we lap two years of unprecedented growth. And as category growth normalizes, promotional activity is increasing. While we do not intend to lead promotional intensity, we will respond as appropriate to protect and expand our share using a variety of tools we have developed and invested in over the last several years. Using the consumer lens of how guests experience Ulta Beauty through our multiple touch points, to include our physical stores, our e-commerce business, and Ulta Beauty at Target, the Ulta Beauty experience is resonating with our guests and gaining share. As we have seen in previous quarters, Sales in our mass category grew faster than prestige categories. It is difficult to know with certainty if the robust growth of mass products is due to strong engagement with innovative mass brands, such as Elf and La Roche-Posay, or due to increased consumer price sensitivity. Importantly, Ulta Beauty is the only beauty retailer that offers a wide variety of price points, from entry-level mass to luxury and everything in between. And as such, we are uniquely positioned to capture any consumer shifts within price points in the beauty category. Skincare was our best performing category again this quarter, with both prestige and mass delivering double-digit comp growth. Driven primarily by newness, engaging social media content, and strong performance through 21 Days of Beauty and Spring Haul. Newness from innovative brands like The Ordinary, Drunk Elephant, and Hero Cosmetics, as well as new brands, including Bubble, Beauty Counter, and Bioma, contributed to growth during the quarter. In addition, social media platforms continued driving content category engagement, resulting in robust growth for dermatologist-recommended brands like La Roche-Posay and trend-forward brands like CauseRx. The fragrance and bath categories delivered low double-digit percent growth this quarter, lapping two consecutive years of strong double-digit growth. Newness for Mariana Grande, Carolina Herrera, and Valentino contributed meaningfully, and our monthly Fragrance Crush program fueled strong engagement with newer brand Billie Eilish as well as established brands Lancome and Dior. In addition, Valentine's Day gift-giving was healthy across both men's and women's fragrances. Makeup delivered high single-digit growth for the quarter, driven by newness and guest engagement with 21 Days of Beauty and Spring Home. Soft bronzing, glossy lips, and expressive eyes and nails are trends driving growth for the category. New brands like Dior, About Face, and Natasha Denona drove sales during the quarter, while new products from a wide range of brands including e.l.f., Fenty, and NYX also contributed to growth. In addition, the expansion of MAC into more stores, combined with compelling newness, continued to drive sales. Finally, The hair category was flat for the quarter, with growth in hair care products and color offset by lower demand for tools as we lapped strong newness last year. Products focused on hair health, including bonding, scalp treatments, and hydration, as well as those focused on styling, are resonating strongly. Newer brands, like Donna's Recipe, Odell, and Divi, as well as new products from Mastige Brands, EBA NYC, Batiste, and Andrew Fitzsimmons, were notable drivers for the category. Trend-relevant products from Way, Redken, and Kenra resonated with guests, while engaging social media content drove healthy growth for Myel and IGK. Our services business delivered double-digit comp growth again this quarter, driven by growth in cut and style, blowout, and makeup services. As we have expanded our service offerings and enhanced our stylist talent, More members are using services. And our salon back bar takeovers, which give our stylists a unique opportunity to introduce new brands and products to guests, drove sales growth and new member acquisition for participating brands. Now, similar to what other retailers have shared, we continue to see pressure from inventory shrink this quarter, and we have updated our full-year guidance to reflect the persistence of this trend. While shrink is the result of various factors, theft, specifically organized retail crime or ORC, is an increasingly concerning challenge, especially as we've seen a rise in violence and aggression during these incidents. Our first priority is the safety and well-being of our associates and our guests. We are committed to ensuring a safe work environment and are investing in fixtures, training, support structures, and increase staffing and security to aggressively address this concerning trend. ORC impacts all of our stakeholders, guests, associates, brand partners, investors, and communities, and it will not be solved by retailers alone. Given the complexity, it will take collaboration across retail, manufacturing, law enforcement, and legislative levels to solve these problems. Now, working together, I am optimistic we can create meaningful impact and bring forward creative, sustainable solutions to restore safe shopping experiences for everyone. As we have previously discussed, beauty is not immune to macroeconomic challenges, but has historically been more resilient compared to other discretionary categories due to its deep emotional connection with consumers. We believe this connection is even greater today today given the importance of beauty as a form of self-care and wellness. As we navigate this dynamic operating environment, our strategic framework guides our priorities and positions us to build on our market leadership and drive long-term profitable growth. Let me give you an update on the progress we've made against this framework in the first quarter. Starting with our efforts to drive growth with an expanded definition of all things beauty, Our strategy is to delight beauty enthusiasts with our thoughtfully curated assortment focused on inclusivity and leading trends. During the first quarter, we further enhanced our assortment with the launch of several exciting brands, including Natasha Denona, a luxury artistry brand known for high-quality makeup palettes across eye, face, and cheek, Beauty Counter, a clean beauty pioneer offering high-performing skincare and makeup with unmatched ingredient safety standards, and Odell, a hair care brand focused on clean, accessible products for the whole family. To drive engagement and capture additional market share this quarter, we launched Luxury at Ulta Beauty in 200 stores and on Ulta.com. Driven by social platforms and strong Gen Z interest, luxury brands are fueling beauty category growth. Our vision for luxury at Ulta Beauty is to provide guests with a uniquely modern luxury beauty experience, strategically curated to reflect what guests are engaging most in, including iconic luxury with brands like Dior and Lancôme Absolue, clean luxury with brands like Hourglass and Chanel Numéro 1, and luxe artistry brands like Natasha Denona. In addition to strengthening our core assortment, we continue to expand, evolve, and amplify our cross-category platforms. Let me share some first quarter highlights. We ended the quarter with 306 brands certified in at least one conscious beauty pillar, including newly certified brands Nutritious by Estee Lauder, Winky Lux, and Mayo. In celebration of Earth Day, to promote sustainability and to drive discovery, we launched a collectible Ulta Beauty reusable tote and a Conscious Beauty Essentials Sample Kit with hero products from 14 certified brands, including Boucher, Beekman 1802, and Acure. We continue to support black-owned and founded brands with the launch of new brands, Hanahana Beauty and Gold. We created a black-owned and founded brands discovery kit featuring 11 brands, and 100% of the purchase price of this kit was donated to Big Brothers Big Sisters of America. In recognition of Black History Month, we celebrated and supported the black community through rich Ode to Black Beauty storytelling and used our digital and social platforms to highlight innovative brands like New Sugar, Beauty Bakery, and Sunday to Sunday. As we meet beauty enthusiasts wherever they are on their beauty journey, all in your world, we are investing to enhance guest experiences across all of our touchpoints. This quarter, we completed the two-year phased rollout of the guest-facing elements of our digital store, delivering a fresh, innovative, front-end guest experience across both Ulta.com and our app. Today, guests enjoy more seamless navigation and checkout experiences, can discover and browse new experiences, including Buy More, Save More, Luxury at Ulta Beauty, and our new Foundation Finder, and also benefit from enhanced search and recommendation capabilities. Later this year, we will finish the transition by converting our back-end infrastructure to support enhanced checkout, order, and inventory management and pricing and promotion capabilities. The completion of the front-end of our digital store is a major milestone in our journey to enhance our omnichannel experiences, and it is worth noting our teams executed these changes while maintaining an active digital platform and delivering our e-commerce growth goals. While we experienced a minor disruption during the transition, I am proud of how our digital, IT, and guest services teams have worked together while minimizing the guest impact. To support omnichannel guest experiences, we continued to expand our buy anywhere, fill anywhere capabilities. This quarter, we introduced same-day delivery in six new markets, bringing the number of stores with this convenient option to 540 stores across 18 markets. In addition, we're making it easier for store associates to assist guests in ordering products online when not available in-store through our upgraded POS system. We have refreshed store POS systems in 1,100 stores and are on track to complete this transition before holiday. Turning to our partnership with Target, we opened four Ulta Beauty shops in the quarter, ending with 359 locations. This touch point introduces new guests to Ulta Beauty and enables re-engagement of last guest. And we are leveraging our CRM capabilities to ensure bounce back to Ulta Beauty. Our dedicated field team continues to support this important partnership with training and field engagement, and we are working together with our target partners to deliver an outstanding guest experience. Beauty is a personal, emotionally connected category. To increase consideration, loyalty, and engagement, we are creating authentic connections with our guests with work that sits at the heart of the beauty community. In the first quarter, we executed impactful activations around key cultural moments, including Black History Month, Prom, and Earth Day, and delivered improved brand health metrics with significant increases in awareness across Gen Z, Black, and Hispanic consumers. These trends confirm that the Ulta Beauty brand is continually becoming stronger, more relevant, and more meaningful to guests. We ended the first quarter with 41 million active members, 9% higher than the first quarter last year, driven by new member acquisition, lapsed member reactivation, and healthy retention rates. Spend per member also increased, driven primarily by trip frequency and growth of elite members. Increased visibility, personalized reminders, and incentives are driving growth of Diamond and Platinum members. At the end of the first quarter, the number of members in these higher tiers increased more than 30% compared to the same period last year, which is a strong indicator of high loyalty and elevated engagement in all that Ulta Beauty has to offer. Our multifaceted go-to-market plan to drive member growth and nurture the member life cycle is delivering results. To drive new member acquisition and reactivate lapsed members, we refreshed store associate training and created new tools to help associates communicate the program's benefits. We enhanced the integration of our loyalty program across our refreshed digital experiences and introduced guest-facing signage in stores to drive awareness. And we executed targeted reactivation campaigns and tested new personalized digital communications to improve retention and contactability. Turning to UB Media, our retail media network, we are harnessing the power of our exclusive first-party data to transform the way our brands connect with beauty enthusiasts. With dedicated resources and new tools in place, this quarter we engaged with more brands, managed more digital campaigns, and expanded our product portfolio to include advertising opportunities on Ulta-owned digital properties. As UB Media continues to scale, we are confident it will add meaningful value to our company over time. Reflecting our priority to drive operational excellence and optimization, we are executing an ambitious multi-year roadmap of transformation initiatives, which will unlock new capabilities and operating efficiencies to fuel our future growth. We are upgrading our enterprise resource planning platform, expanding and optimizing our supply chain with new facilities, systems, and processes, transitioning our digital store to modern technology and architecture while upgrading our order management system, expanding our data management systems to enable further analytical capabilities, and upgrading POS systems in all stores. We have made good progress against our roadmap and expect to deliver major milestones over the next several months. While change of this magnitude can be disruptive, our teams have consistently moved quickly and collaboratively to limit impact to guests and associates. Our success is enabled by our people, and we are investing purposefully in our teams to protect and cultivate our world-class culture and talent. In the first quarter, we launched a refreshed and modernized Ulta Beauty competency model across the enterprise to drive further consistency in talent management processes, Establish clear measures of success and enhance culture with common language. We also launched a new service award recognition program to elevate the associate experience and reward associates in meaningful ways. And we hosted our annual field leadership meeting, bringing together our general managers, district managers, field support teams, and brand partners for several days of recognition, leadership development, and product education. I walked away from this event inspired by our talented associates and their passion for serving our guests and driving Ulta Beauty's growth. Finally, we continue to expand our environmental and social impact. This quarter, we partnered with Pact Collective to test a packaging recycling program in select locations with the goal of collecting the beauty industry's hard to recycle packaging so that it is diverted from landfills and put to its highest and best use. We also published our 2022 ESG report, which describes our approach to priorities in these areas and provides key updates on our ESG initiatives, their connectedness to our business, and the positive impact of beauty as a force for good. In closing, fiscal 2023 is off to a good start. Our teams are executing well against an ambitious transformational agenda while navigating a dynamic environment. While we expect the operating environment will continue to evolve, we are confident the resilience of the category combined with the power of our proven business model and world-class team position Ulta Beauty for continued profitable growth. And now, I will turn the call over to Scott for a discussion of the financial results. Scott?