Ulta Beauty, Inc.

Good afternoon and welcome to Ulta Beauty's conference call to discuss results for the Ulta Beauty third quarter 2024 earnings results. 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 you 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, you may proceed.

Thank you, Julian. Good afternoon, everyone, and thank you for joining us for a discussion of Ulta Beauty's results for the third quarter of fiscal 2024. Hosting our call today are Dave Kimball, Chief Executive Officer, and Paula Olivo, Chief Financial Officer. Keisha Steelman, President and 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. Many of our remarks today will contain forward-looking statements, which speak only as of today, December 5, 2024. We refer you to our earnings release and SEC filings, where you will find a number of factors which could cause actual results to differ materially from these forward-looking statements. We'll begin this afternoon with prepared remarks from Dave and Paula. Following our prepared comments, we'll open the call for questions. 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. Our team delivered improved performance for this quarter with better than expected sales and profitability. For the quarter, net sales increased 1.7% to $2.5 billion, and comparable sales increased 0.6%. Diluted EPS increased 1.4% to $5.14 per share. As we shared on our last call, we are navigating a number of headwinds, including the normalization of the U.S. beauty category, a dynamic consumer environment, and elevated competition, particularly in prestige beauty. we are starting to see benefit from actions we are taking to reinforce our market position and improve our performance. And while the headwinds have not abated, we are making progress. In the third quarter, our prestige market share trends improved, resulting in flat market share this quarter based on Circana data for the 13 weeks into November 2nd, 2024. The trend was driven primarily by improvements in makeup and hair, and we continue to see strength in fragrance and skincare. Our share performance in mass beauty was consistent with the second quarter. Comp growth improved from the second quarter trend, driven by stronger transaction trends across both stores and e-commerce channels. We continue to expand our loyalty program, ending the quarter with 44.4 million active members, 5% more than last year. We continued to convert new members, we reactivated more lapsed members, and we improved existing member retention. Our marketing strategies to support our tentpole events and drive relevance and buzz delivered double-digit growth in earned media value and stronger sentiment. And we made progress to optimize our new ERP system and help our teams adapt to new processes, balance inventories across the network, and deliver a better guest experience. Our teams are working hard to strengthen our market position, and I want to thank all of our associates for continuing to deliver great guest experiences while working collaboratively to drive improved performance in a dynamic operating environment. Turning to performance by category, fragrance was our strongest category, delivering high single-digit comp growth driven by men's fragrance, gender-neutral fragrances, and new products, including new fall and holiday gift sets. The growth of men's fragrance was fueled primarily by newness from Armani and YSL and the appeal of established franchises from Jean-Paul Gaultier and Volatino. Consumer interest in gender-neutral scents is increasing, and our assortment, including Billie Eilish and Noise, an exclusive fragrance launched this summer, is driving guest engagement. New women's brands, Kylie Jenner and Oribella, both exclusive to Ulta Beauty, and new women's fragrances from Valentino, YSL, and Nest also contributed to overall category growth. The skincare category delivered mid-single-digit comp growth this quarter as strong growth in body care was partially offset by a decline in prestige skincare. Mass skincare was flat. The strong performance of body care was driven in large part by newer brand Sol de Janeiro, which continues to engage guests with exciting innovation and exclusivity, and Touchland, which introduced compelling newness. In prestige skincare, newness from brands Ole Hendrickson, Chasseux, Dime Beauty, and others resonated with guests, while engagement from Naturium, Bubble, and La Roche-Posay delivered growth in the mass skincare category. Comp sales in the makeup category decreased in the low single-digit range, driven primarily by softness and mass makeup. Strong growth from recently relaunched Ulta Beauty Collection was offset by certain brands lapping space expansion, strong innovation, or social media engagement last year. Prestige makeup was flat. New prestige brands Charlotte Tilbury, Ilia Beauty, and Dibs Beauty resonated with guests in compelling product newness Combined with in-store investments delivered growth for established brands, MAC and Clinique. Promotional events during the quarter, including 21 Days of Beauty and Fall Haul performed well, driving growth for several makeup brands, while our engaging Wicked collaboration was well received, highlighted by exclusive brand REM Beauty. Comp sales for the hair care category also decreased in the low single digit range. Exciting newness from Matrix, Way, Divi, and Odell delivered growth for the category, while Redken continued to drive healthy guest engagement with their hero product lines. In hair tools, new products from Shark Beauty and Dyson resonated with guests. This growth was offset by softness in key brands with expanded distribution and limited newness this year. Our services business delivered low single-digit comp growth, primarily driven by engagement in core services, including color, styling, and hair treatments. Ear piercing and makeup services also performed well. And our salon back bar takeovers, which get stylists an opportunity to introduce brands to guests, continued to drive product attachment and new guest acquisition for participating brands. We are seeing improvements in our business and we are focused on strengthening our market position and performance further. In October, we shared our refreshed strategic framework designed to lean into our existing strengths while also driving innovation to meet the evolving needs of beauty enthusiasts. As the beauty destination of a lifetime, we intend to drive profitable growth and market share leadership in beauty and wellness over the longer term through curating the best of all things beauty and wellness for all beauty enthusiasts, fostering authentic, empowering human connections that inspire, delight, and engage at every touchpoint, engaging our guests wherever they want to shop by expanding our reach through seamless and immersive omnichannel experiences, and building lifelong loyalty and brand love through member growth and personalization. We are confident our focus on these foundational areas will drive stronger revenue and earnings growth over the long term. In the near term, we are addressing key areas to reinforce our competitive position. Let me share some highlights of the progress made this quarter, starting with our efforts to strengthen our assortment. We are enhancing our brand portfolio to drive category growth. During the third quarter, we launched new makeup brands, Ilia Beauty, Dibs Beauty, and RMS Beauty, as well as emerging skincare brand, Oak Essentials. Additionally, we expanded our wellness offerings with emerging brands, The Honey Pot and Joy Locks. Looking ahead, we have an exciting pipeline of brand launches planned for the fourth quarter, including the recently announced prestige skincare brand, Tatcha, celebrated for balancing timeless Japanese botanicals with proven clinical ingredients. XO Chloe, an exclusive fragrance brand created by Khloe Kardashian, and Apothecary, an emerging wellness brand. In addition to new brands, we launched two exciting exclusive collaborations this quarter. First, as the exclusive beauty retail partner with NBC Universal Pictures for the movie Wicked, we worked with key brands to develop a limited edition collection of products across multiple price points and categories. The Wicked-inspired collection features products from leading brands including REM Beauty by Ariana Grande and Beekman 1802, both of which are exclusive to Ulta Beauty, as well as OPI and Skunchy, among others. With immersive in-store experiences and engaging displays, Wicked came to life in Ulta Beauty stores, through our digital channels, and through Ulta Beauty at Target. Second, we launched an exclusive and a disruptive beauty offering of the beloved Mini Brands, which offers miniature versions of popular consumer brands. This first-ever beauty mini-brands collection includes 68 tiny replicas of best-selling products from 13 brands, including e.l.f., NYX, Drybar, and Supergroup. Both of these unique collaborations are driving strong sales, awareness, traffic, and engagement, especially with Gen Z and millennial members. As we discussed at our recent Investor Day, engaging guest experiences drive differentiation, loyalty, and meaningful business value, and we are focused on creating authentic, personalized experiences across all our channels. In Q3, we hosted more than 13,000 in-store events, including unique celebrity and brand founder events, multi-branded events, and skincare-focused events. We also expanded our salon event, the workshop, to more stores and invited guests to learn how to create salon-worthy blowouts while receiving customized coaching and personalized recommendations from our talented in-store stylists. We are enhancing our digital experiences to drive traffic and sales. During the quarter, key online activations drove guest engagement, and our expanded sampling program delivered double-digit sales growth. Our digital merchandising strategies, including enhanced search, guided navigation, and enriched product pages drove conversion, and our site optimization efforts are improving the guest experience and delivering stronger conversion trends. Importantly, we continued to drive increased app adoption. In the third quarter, we saw double-digit growth in member engagement with the app, which accounted for about two-thirds of our e-commerce sales in Q3. up about 600 basis points from last year. We continue to introduce new digital experiences and resources to drive discovery and trial. This quarter we enhanced our suite of virtual try-on and AI enabled skin and hair analysis experiences with the launch of Glam Lab 2.0, which includes a new 3D engine to enhance precision and stability, shoppable makeup looks, and a new user interface that includes sharing capabilities. We also launched new digital buying guides that amplify search engine optimization while providing guests with educational content, beauty tips, and product recommendations. To deepen the meaningful connection we have with beauty enthusiasts, we launched UB Community, a welcoming, inclusive digital forum for guests to connect, learn, empower, and engage in the immersive world of beauty to foster authentic connections. Launched in October, our community amplifies the intersection of beauty, wellness, and joy, and our user count is already three times our initial target, confirming the meaningful role Ulta Beauty plays in our members' lives. With more than 44 million active members, Ulta Beauty Rewards is an unmatched strategic asset that provides us with unique consumer insights to drive sales. In Q3, we expanded personalization across digital channels with enhanced product recommendations, replenisher reminders, site experiences, and retargeted in social channels. Leaning into targeted lifecycle campaigns in both owned and paid channels, we reactivated members with greater efficiency. Additionally, we grew our Platinum and Diamond member base, leveraging unique incentives like exclusive and early access to key events and brand launches, gifting, and personalized offers that drive engagement. Platinum and Diamond members shop more frequently and spend more each visit and continue to retain at best-in-class rates. Increasingly, social relevance drives authentic customer connection and brand advocacy, especially in beauty, and we're evolving to position social at the center of our marketing strategies to accelerate browse and earned media value growth. During the third quarter, We leveraged our marketing and social capabilities to lean into emerging trends, amplify key growth brands, and activate new trend-focused events. We also engaged talent from our UB Collective, our affiliate program, and Ulta Beauties, our new associate ambassador program, as well as key brand founders to support key brand launches, exclusive collaborations, and tentpole events nationwide. in new and innovative ways across social channels to drive guest buzz and engagement. These efforts delivered accelerated EMV growth, increased impression, and expanded key brand health metrics. We continue to enhance our product capabilities to grow our retail media network, UV Media. We recently partnered with e-commerce tech company, Rocket, to introduce AI non-endemic ads for products and services outside the beauty category. And we are partnering with Roblox, the ultimate virtual universe, to create innovative advertising opportunities for our partners. Over the years, our Ultaverse has grown into one of the largest beauty games on Roblox, attracting over 11 million visits. With growing interest from beauty brands to participate in our Ultaverse, we're unlocking new possibilities at the intersection of gaming, innovation, and media, to bring those brands to life in exciting new ways through our UB media capabilities. Now leveraging lessons in the second quarter, we continue to evolve and tailor our promotional strategies to reiterate our value offering and drive sales and traffic. We began the quarter with a new hair event showcasing the glossy hair trend, replacing last year's Fall Gorgeous Hair Event, this event featured a strong promo offer, new and exclusive items from Dyson, and a spotlight on gloss and shine products. Especially strong in stores, the new event exceeded our expectations and drove strong results for participating brands. At the end of August, we brought back our beloved 21 Days of Beauty event. New beauty deals, member-only events, and bonus offers combined with robust marketing and social support 21 Days of Beauty delivered strong growth versus last year's event. We wrapped up the quarter with a successful Fall Haul event, which drove mass engagement and new member acquisition with compelling offers that surprised and delighted guests. In addition to strengthening and evolving our merchandising tentpole events, we optimized our loyalty offers, proactively planning the timing, type, and target audience of these offers. As a result, our promotional effectiveness improved from the first half trend. Shifting now to our plans and expectations for holiday. The formal holiday season is in full flight, and while we're encouraged by our performance through Cyber Monday, we have several significant holiday sales weeks still ahead. While consumers continue to spend, our insights suggest that economic concerns are driving a greater focus on value. With our diverse assortment of products and price points, compelling offers, and convenient Omden Channel touch points, we are well positioned to support our guests as they celebrate the season, and our teams are excited, engaged, and ready to help them deliver a joyful holiday. Our holiday campaign this year is Find Joy in the Present, a reminder of the joy that comes not only from gifts of beauty, but from the big and small moments that drive authentic emotional connections. With the goal of driving deeper emotional engagement, our campaign is supported with robust integrated activation across media, member marketing, PR, and social channels, as well as festive experiences in stores and on our digital platforms. We have strategies in place to fortify our competitive positioning and manage through the compressed holiday selling season. We are transforming our channels into a concierge for all things holidays. providing greater value to consumers with real-time beauty solutions, gift guides, and tips tailored to our guests' needs, and creating fun experiences that drive awareness and make Ulta Beauty the go-to destination for the holidays. Our merchandising team has created an exciting holiday assortment with a strong focus on newness and exclusives, balanced with value-driven holiday kits and core items that make great gifts. Whether guests want to gift others or treat themselves, we have thoughtfully curated options across every category and budget. Our corporate and supply chain teams have been working hard all year to ensure Ulta Beauty is ready to bring our guests joy this holiday season. And our store teams are ready to bring the holiday to life for our guests with new in-store events and demonstrations to build guest connection and drive sales and traffic. And with BOPUS, same-day delivery options, and new for this holiday, our participation in DoorDash and soon-to-be-launched Instacart marketplaces, it's never been easier or more convenient to shop at Ulta Beauty. With our engaging holiday messaging, incredible holiday assortment, knowledgeable associates ready to provide guidance and recommendations, new innovative digital tools, and multiple ways to shop, I am confident we are well positioned to deliver another successful holiday season. In summary, I am encouraged by the improving trends we are seeing in the business and optimistic about our holiday plans. We believe the beauty category will remain resilient, and we are confident the actions we are taking to deliver stronger performance, combined with our outstanding associates who are committed to offering guests authentic, inclusive experiences across all of our touchpoints, will enable us to reinforce our market position and drive long-term profitable growth. Now, before Paula discusses our financial results, I want to share that Monica Arnotto, Chief Merchandising Officer, has announced her plan to retire from Ulta Beauty in the spring of 2025. Since joining Ulta Beauty in 2017, Monica has built an outstanding team and elevated our assortment in ways that have helped us deliver remarkable sales and market share growth while furthering our mission to be our guest's most loved beauty destination. I want to thank Monica for everything she has contributed as a member of our executive team and for the impact she has had on our organization. While we work to identify Monica's successor, she is fully committed to supporting her team and Ulta Beauty with a successful transition. And now I will turn the call over to Paula for a discussion of the financial results. Paula?