Great. Hopefully everybody can hear me. Good afternoon and welcome to Ulta Beauty's fireside presentation today. Thank you for joining us. My name is Christina Gatay. I'm Deutsche Bank's U.S. retail analyst. It is my pleasure to have with us the Ulta Beauty management team, including relatively recently promoted Chief Executive Officer Kecia Steelman and Chief Financial Officer Paula Oyibo. Ulta operates in a dynamic category. It has an interesting story. We continue to look very favorably upon the company's long-term prospects. We have a number of questions prepared for today's session. First, the team will provide a brief overview of the business, the strategy, and the long-term targets in the form of a brief presentation. Before Kecia begins her presentations, please review the company's safe harbor language on one of the slides that we will be putting up.
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. With that, I will hand it over to you, Kecia, so you can kick off your presentation.
Great. Thank you, Christina. We are both excited to be here today, and we appreciate Deutsche Bank for allowing us the opportunity to share a little bit of our Ulta Beauty story and our strategy. I also want to acknowledge those of you in the room. Thank you for your interest in Ulta Beauty and also on the webcast. We're thrilled to provide insight to who we are and what has led us to consistent performance and opportunities for future success. I'm going to start with a quick video.
I never want to forget how I feel right now. 'Cause hope is open, light came through. Don't know tomorrow, haven't a clue. But I never want to forget how I feel right now.
I never want to forget how I feel right now.
Don't lose it. Don't lose the feeling.
Hopefully, that gave you all a little feel for Ulta Beauty. For 35 years, Ulta Beauty has been on this journey to champion beauty for all. We started in 1990 to disrupt the industry by doing things very differently. Every day, we use that power of beauty to bring to life the possibilities that lie within each of us. Our operating model gives us a unique opportunity to serve the beauty enthusiasts at nearly every stage of their life. Today, Ulta Beauty is the largest specialty beauty retailer in the United States. For fiscal 2024, revenues were at $11.3 billion, and we generated nearly $1 billion in cash flow. We bring together all things beauty, and we currently operate about 1,450 Ulta Beauty stores, most of them with salons.
We have a differentiated and innovative omnichannel assortment of 600 brands across every major beauty category and price point that empowers the consumer choices and represents beauty's increasing connection to self-care and wellness. We also have an industry-leading rewards program. We have 45 million members who make up 95% of our sales. This is all made possible by the 58,000 associates who are able to express themselves and represent beauty to our guests every day. That emotional connection with our consumers is very powerful, and it's an attribute that we continue to leverage. Let's talk a little bit about our track record of performance. We have a powerful business model. We are very disciplined in execution, and it's all underscored by our talented team. It's generated consistent growth across key operating metrics. All right, so why do we win?
We are a clear leader in a growing and dynamic category with a very bright future. We have a proven differentiated model that will shape how we're able to move forward. We actively are investing to power our growth, and we have a competitive, talented team, and a winning culture that continuously unlocks success and emotional connection. First and foremost, we operate in a large and growing category. Customers spend about $118 billion on beauty products in the U.S., and that was through 2024. Over the past five years, the beauty category has grown 5%, and we estimate that we own about 9% of the overall market share, which tells us there's a lot more opportunity for us. We operate in a resilient category that's delivered consistent growth over time. We have strong consumer engagement and continuous innovation.
In leading up to the pandemic, the category experienced healthy growth in a low to mid-single-digit range. The pandemic brought fundamental shifts in growth rates in connection with beauty and self-care, combined with strong desires for unique expression, and they came together to really drive outsized growth. Currently, growth is normalizing to the historic low to mid-single-digit range, which is consistent with the category growth historically. I've talked a little bit about our powerful model. It continues to differentiate us in the market. It starts with a curated assortment that delivers on our promise to bring all things beauty together in one convenient shopping experience. We offer breadth and depth of brands across all categories and price points and we're the partner of choice for both established and emerging brands. Newness continues to resonate with and delight our guests.
In our omnichannel offerings, we meet guests where they are, but the stores really are at the heart of our business. Beauty enthusiasts who love to shop in person for beauty, they can touch and feel and discover in our stores. Our passionate store associates are focused on delivering these human connections for every guest who walks into our store every day. I'd like to say that we have the best team in retail. All are passionate about a winning culture, and that's rooted in care for our guest. Our mission, visions, and values continue to guide us every day, and our culture and talent are at the heart of the experience. Our leadership team is committed to keeping both our guests and our associates in the center of all we do. I'm also really proud of the diversity and the talent growth that we have.
In our leadership roles, we have 65% women and 26% people of color, and in total, we have an employment staff of about 91% female. We have accomplished some significant upgrades to our system. Notably, in 2024, we touched on five key areas of foundation for our business: our ERP system, our new digital store platform, a common POS system, an upgraded and transformed supply chain, and our data infrastructure. With these agile foundations now in place, we are focused now on our go-to-market investments, which will allow us deeper and more meaningful connections with our beauty enthusiasts. We believe our strong model and strategy positions us to deliver on our long-term targets.
We shared via earnings last week, reaffirming our 2025 fiscal year guidance of net revenue growth of 2%-3.4%, operating margin in the range of 11.7%-11.8%, and diluted earnings per share in the range of $22.65-$23.20. We believe our strong operating model and proven strategy has us poised to deliver on our long-term financial targets we presented at our investor day in October of 2024. Annual targets begin with fiscal year 2026. Our net revenue growth we are projecting to range between 4%-6%, operating profit growth in the mid-single-digit range for an operating margin of approximately 12% of net revenue, and diluted EPS in the global double-digit growth range. To further focus our efforts, we've aligned our plan around three main priorities. First, to drive core growth in our business. Second, to scale new accretive businesses.
Third, realign our foundation for the future. We're calling our plan Ulta Beauty Unleashed. To wrap up, I just want to say thank you for your time and attention and allowing me to share a little of our Ulta Beauty vision and strategy, which is an exciting story and success for our future growth. I am now going to turn it back over to Christina for the fireside chat. Thank you.
Thank you for that, Kecia. I just wanted to start a little bit higher level with some recent trends. Beauty and wellness have been an exceptionally strong category over the last several years. Now we have entered a period of beauty growth normalization. This also combines with some heightened consumer uncertainty in the United States. Yet Ulta really stands out with strong first-quarter results that you reported just last week. How would you describe the state of the consumer from your vantage point? Has anything changed over the last couple of months or even maybe the last couple of quarters?
A lot has changed over the last couple of months in the United States, that's for sure. What I would say is that beauty is still viewed as an affordable luxury. Even in spite of a lot of macroeconomic concerns, what we're hearing from our guests is that they are still committed to spending on their beauty regimens. Now, what they tell us in our proprietary data isn't always what they do. I would say that we are being pretty conservative in our outlook for the rest of the year because of all of this uncertainty. There are a few green shoots that we see out there. First and foremost, we saw average spend per member up in Q1. In Q1, we were able to take share also in Prestige and Mass.
When we look at our income cohorts, what we're seeing is a consistent spend across all cohorts in terms of what they're spending as an increase. Of course, there's variation between income levels, but the way in which they're spending has been very consistent. I think that just gives us confidence that if we continue to lean into our Ulta Beauty Unleashed plan, focus on controlling what we can control, we should set up a very successful year in front of us in light of a lot of disruption that potentially could be out there yet this year.
Okay. I wanted to transition to you stepping into your role as Chief Executive Officer about five months ago. You are not new with the company. You have been with Ulta for nearly 11 years. You fairly quickly made a number of organizational changes, this really helping you to better align with your long-term strategies. Maybe can you discuss the vision behind some of the moves that seem to be already yielding some results? I also wanted you to touch on some of the latest hires, including you have a new Chief Merchandising and Digital Officer as well as a new Chief Merchandising Officer.
Yes, thanks for the question. I think one of your biggest roles as a CEO is to make sure that you have the right people surrounding you in order to execute the company's vision. I feel like I have that today. I had three elevations of roles from existing associates. Amiee Bayer-Thomas was currently leading our stores. She's been with us for quite some time. I aligned real estate and store design under her leadership. She owns everything stores, end to end, how they look, how they feel, how they're shopped, and where we open them. That was one change that I made. The second was my Chief Technology Officer, Mike Maresca. He was leading us through our ERP upgrade, POS, the data management, data infrastructure, and governance that I was talking about. I put transformation and cost optimization under his leadership.
There's a lot of synergies that are already happening. A lot of our cost investments are happening through our IT organization. Quite frankly, he's brilliantly done a nice job of really communicating those changes, and he has a keen eye towards getting cost out of our business model. That was another change that I made. The third was the alignment between merchandising and digital. They were previously under two different leaders. Actually, digital was aligned with marketing, and merchandising was standalone. I believe that the digital consumer shopping online in our e-commerce channel and also shopping in stores from a merchandising perspective, from just a leadership and experience perspective, I was able to pull those teams together, and they're working better together than they ever have. That new leader is going to be Lauren Brindley, who started just this week, who was the previous CEO of Revolution Beauty.
Another change that I made was that we elevated the Chief Marketing Officer. Her name is Kelly Mahoney, and she was one of the key architects behind our loyalty program. And so she knows our consumer better than anyone else really in our company. To put her in charge of leading our marketing efforts of how we're communicating and engaging with our guests that are out there, it's working really well. Some of the activations we've seen are already paying off, playing in Super Bowl, supporting Beyoncé's Cowboy Carter tour, just being where our guests are in a very unique different way that only Ulta Beauty can do has been great to see. I had two retirements. My Chief General Counsel, she retired. My new Chief Legal Counsel is Renee Corsares. He comes to us from Academy .
He's very seasoned in the business and the industry. I also had Monica. Monica? Monica, yeah, Monica retired, but Lauren Brindley took her role. Of course, we've got Paula. Paula is my key partner here as the CFO, and I'm excited to have her. She's just a little over a year in position now. We've got a new team, but we're hitting on all cylinders, and it's been a lot of fun to really see the team kind of unleashed on their own too. Momentum continues to really drive progress moving forward, and the team has got a lot of momentum behind us right now.
That's great. You used the word unleashed, which is what we wanted to talk about next, which is your Ulta Beauty Unleashed plan. You have really emphasized this greater sense of urgency to grow the core business, build new alternative businesses, really realign the foundation. It seems to be gaining traction already. What do you see as some of the key areas in which Ulta has started to reassert its leadership position and is helping you achieve that stronger top-down result?
Yeah. I'll start maybe a little bit with what we've seen already in Q1 that I'm pleased with, some of these green shoots I've been talking about. The first one I touched on just a minute ago, and that's marketing. Really engaging with that consumer in a true, authentic way that's focused on the master brand of Ulta Beauty, first and foremost, putting us in the conversation, in the social relevant places, really leaning into also our personalization. The personalization dynamic that we can communicate one-on-one with consumers and seeing that really work through our AI, leveraging AI, because we've got 45 million loyalty members out there. Now that we're on our new platform, I'm rolling enhancements all the time, and we're doing real-time learning on what's really resonating with the guest to a personal level.
Our digital optimization, our e-commerce platform being on the new platform, these are all progresses that we've been making against our core drivers of our business. It is really three parts. There is the core, there is driving margin accretive businesses, and then there is our foundational focuses on our capabilities. The ones I just discussed were really around our core business, and we are seeing it really translate in that first-quarter result, which has been great to see. The execution that I am seeing in our stores, operating on the back-to-basics fundamental, I am a big believer in controlling what you can control and getting the team focused on that. There is so much noise out there right now that is wasted energy. Focus on what it is that we do and do it really well with excellence. That is how we are going to continue to drive our business with the core.
In regards to driving margin accretive businesses, it's things like international. We've shared on our call just last week that we're going to have our first three international stores open the back half of this year. It's Mexico City, it's Kuwait City, and Dubai. Our partnership with Grupo Axo and with Al Shaya, we are really excited about how we're going to continue to grow our business globally in an asset-light way that's margin accretive, and we feel like we've got the right partnerships there. Wellness, we've talked a lot about wellness. Wellness is a huge category that's continuing to grow. We're going to be leaning into wellness marketplace, which is launching the back half of this year.
Just really looking at how we can continue to just grow those businesses in an asset-light way and keep the focus still on our core business operations in the United States is really, really important to us. It is all underlined by UB Media. Our UB Media network of how we are leveraging that 45 million loyalty members and working with our brand partners in ways that we can communicate and advertise to them both on our channels and endemic-type ways is going to help us continue to add profitability to our bottom line. The last one, I talked about it a little in my prepared remarks with the video. That is the culture that we have at Ulta Beauty. The team, the culture, being able to hit on all cylinders is really, really important.
We've also got to really look at our cost optimization and how we can continue to take cost out of this model. We've committed that between now and 2027, we're focused to take between $200 million and $250 million out of our operating model, and we want to be able to use that to reinvest into the business on our go-to-market strategies. I'd say it's a little mix of what's been working already in Q1. We're seeing it, and we're continuing that momentum, but we've got a lot on our plate, and we're really excited to be able to continue to execute in the rest of this year and beyond.
Great. I just have one more question for you, Kecia, before we move on to some margin questions for Paula. We've talked about the competitive intensity of beauty continuing to increase. Maybe just if you could walk us through how you're thinking about some of it you touched on about leveraging promotions, the loyalty program, if you see any further investments that you have to make to further differentiate that to defend and recapture market share. How do you see Ulta differentiating from the competition, which has increased in recent years to include not only just specialty beauty peers, but online players like Amazon, Walmart's increasingly playing in that premium beauty market, but also authorized players?
Brand building is one of our big strategies also. We are going to target 20 key brands that we are going to continue to look at 360 ways that we can have those brands continue to be really successful and drive comp and market share at Ulta PD. Brand building is something that is very important. It is how we are leveraging our relationship between the merchandising organization, our digital organization, our marketing organization, and activating in stores. It is really that trifecta working together to really drive that overall business. I would also say that I mentioned earlier controlling what we can control and being really focused on being intentional with the guest experience that we have in our stores. 80% of our business is still coming from our stores. Our e-commerce channels drive about 20%.
Last quarter, we had positive comps in our store chain, and we shared that we had 10% comp growth in our e-commerce channels. Even though it is a competitive market out there, we do things that are a little bit different. The fact that we have stores that have services in most of the locations, we had over 20,000 events in the first quarter. Creating that beautytainment interaction with our consumers provides education and fun and excitement. Just that culture of wanting to be able to come into a store, and we offer everything from mass to luxury and everything in between. No one else really does that in the United States, along with having services in the store locations. I would say just leaning into our strengths and creating an environment that is different than others out there. Beauty is what we do.
A lot of retailers have been leaning into beauty. You mentioned off-price. This is what we do. We have the most highly curated assortment that our merchants have done a fantastic job of putting the best of the best from all price points together to make shopping really easy for our guests. That is what we are going to continue to lean into as we finish out this year and look at the business going forward.
Great. Switching gears to margins and Paula, bringing you into the conversation. Ulta has been in an investment cycle. You've most recently upgraded your ERP system, but 2025 is still seeing some elevated SG&A spending with growth of about 10%. Can you break down the primary drivers of this year's trend, and how do you view the level of flexibility you have in terms of pulling back on spending if the sales environment were to weaken in the back half of the year?
Sure. Thank you for the question. Our initial guidance, as you stated, the guidance that we gave in March, we shared or we suggested that we expected SG&A growth in the range of 10%. That really is driven by our strategic investments, many of which Kecia has already talked about, advertising, as well as some inflationary pressures we are seeing with store wages and healthcare costs. In Q1, our SG&A growth was lower than that. What I would say is from a full-year perspective, our expectation for the growth for 2025 has not meaningfully changed. It may be slightly lower than that, but much of the favorability we saw in Q1 is shifting into the later quarters. What I would share with regards to our flexibility, we manage this business really intentionally and prudently with regards to SG&A and expense
have demonstrated last year that when we need to make choices, we will make choices to manage SG&A. However, we are absolutely committed to our investment agenda because as we think about managing a business for future long-term sustainable growth in a category that is dynamic and requiring innovation, we believe that we have the right plans in place in order to really fuel growth and profitable growth over the long term. We will continuously balance that, right? We will balance where we need to pull back and make adjustments with the desire to continue to invest for over the long term.
Great. You touched on in your opening presentation, but you do have a multi-year plan that you provided at last year's analyst day in October. It calls for 2%-4% comp growth, 12% operating margin. You guided this year to 11.7%-11.8%. One, I just wanted to ask you, maybe just to bridge us, what are some of the further opportunities to get us to 12%? Do you see anything getting in the way of you returning towards this 12% level? As we think about all of the opportunities that you're working on, alternative revenues that are higher margin businesses, can in the long term, 12% really represent a floor here?
I'll start with the answer to the last part of your question, which is, what do we see that could potentially get into our way? What I first start with is we are committed and feel confident in the long-term targets that we laid out in October. You recapped them, right? 4%-6% comp, or 4%-6% growth, 3%-4% comp, operating profit growth in the mid-single-digit range, and low double-digit EPS growth. We believe we can drive this business on approximately 12% operating margins, but expect to expand that margin over time. What I would say is we've been investing over the last several years in our infrastructure, and now we're shifting into go-to-market investments.
We believe that the investments we have made over the last several years are a good jumping-off point for us to really drive the go-to-market investments and activities that we believe are necessary to fuel future growth. Again, confident in our long-term targets that we shared. The only caveat I would share is that that is obviously bearing any major economic event that could obviously put some risk to that, but feel really confident in our plans.
Okay. Switching gears now to newness, which you've touched on as a very important growth driver in beauty. Maybe if you could talk about Ulta 's brand and product pipeline outlook, the importance that Ulta brings to the brands is growth and customer acquisition as they look across the available channels that are out there. How important is an international presence that you've talked about, Kecia, that you're starting to expand upon in order to attract even more brands to your portfolio?
Yeah, thank you for the question. You know, in 2024, we brought on 40 new brands. What I will say about 2025 is I'm really pleased with the pipeline that we already have visibility to. These things can be very fluid also when you're working with brand partners and potential brand launch dates. The thing that's very different in 2025 than 2024 is we're a lot more balanced in our new brand portfolio across the entire segment of beauty itself. Newness in hair and makeup and skin and wellness and fragrance. All categories have a nice cycle of newness that I see coming throughout the rest of the year. We already launched 19 new brands in the first quarter. If that gives you any indication of what is yet to come for newness the rest of this year, it's a strong pipeline.
I'm also really pleased with the amount of exclusivities that we have in that assortment. Exclusivities are really important to us at Ulta Beauty because it continues to differentiate us. Newness, why is it so important to us? Newness, we look at newness as any SKU that was not in the assortment in the prior year in our sales calculations. That amount of business is about 20%-30% of our overall sales. That makes me really proud of what the merchant team has done. We talk a lot about getting in the kitchen with our brands and looking at white space opportunities of where we can continue to drive business and bring new items into our assortment. We are knee-deep in those conversations.
2025 is already in the books, but for 2026 and beyond, it's something that's very, very important to Ulta Beauty, and we will continue to lean into that.
Great. A bit of a tariff question. I know you're very insulated from that with your direct sourcing exposure is just low single digits, but generally, we see solid beauty SKUs go up in prices about low to mid-single digits on any given year. As we think about input cost increases or prices rise from vendors due to tariffs, if you could talk about your outlook on pricing, how do you think about unit elasticity if this environment is any different versus prior inflationary periods? Secondly, just how satisfied are you with the price value experience that you are delivering to your consumers?
Sure. It's early, right? What we've seen so far is that the price increases that are coming through from our brand partners are consistent with the historical rates that you mentioned. That can change as the dynamic and the environment changes, but based on what we've seen so far, it's consistent. One of the things that we often do is we spend time with our consumers, and we have proprietary ways of capturing consumer insights. What our consumers have told us is that beauty is a really emotional category and a connected category. For them, it is not a category that's viewed as purely discretional. They will prioritize spending in beauty and in areas or categories in beauty that they deem more essential. Think skincare and haircare, even if there is a tariff and a price increase dynamic going on.
That bodes positively for us. Another thing that we know is that obviously there are wallet pressures and consumers are being more intentional about looking for value. Again, another thing that bodes well for us because of our model, right? We carry everything from mass to prestige to luxury, everything in between. A consumer can shop however they decide to shop and have a mixed basket. We feel like we're well positioned to provide a value proposition as well.
Great. I have a question on Marketplace, which I know is coming up and you're going to be launching it soon. What are your views on its potential contribution to the overall growth and profitability, as well as what kind of an impact it can have on your brand partnerships? The second part of that is just how will Ulta's Marketplace differentiate the offering, the assortment relative to competition that is out there, thinking about Amazon, Walmart, increasingly in place?
I'll maybe take the first part of the question and I'll let Paula answer the second part. Marketplace is going to be, I think, a big contributor for us in the future, not necessarily so much in the shorter term in terms of the overall margin and creative spend. I will say that it's going to launch in the back half of this year. We already have the, it's a closed marketplace, so you have to be invited in. We have to vet you. It's going to be a 3P to start. That's what our intention is right now. The brands are very, very excited about this. Our merchants get thousands and thousands of inquiries every year to want to come into Ulta Beauty. This is a great way that we can allow a brand to come in in a less riskful way for us.
If the brand takes off and starts doing really well, we can clearly bring it into our assortment, even if it's online or in the store in the future. We look at Marketplace as part of a strategic differentiator for us because, again, it's going to be a curated assortment that our merchants are going to be heavily involved in. Right now, we've stood up a dedicated team with new buyers that are really looking at how we can continue to lean into both beauty and wellness. Wellness, we do think, is going to be a big play in Marketplace for us to continue to grow in the future to make sure that we're offering a full assortment. Maybe Paula, do you want to talk?
Sure, Christina, what was the last part of your question?
The last part was how Ulta's Marketplace will differentiate the offering, the assortment, when you think about what would be unique to you versus a growing Marketplace model across some of the online players and some of the mass players getting into the mix.
Oh, okay. So I think Kecia addressed most of that.
Yeah, I addressed it. I thought maybe you could talk a little bit about the margin and where you see that flowing.
Oh, sure. I mean, you know it's early, but from just the financial perspective, the financial profile for Marketplace will be we will collect commissions, and so it will flow through other revenue.
Okay. I also wanted to touch on your physical footprint. Now, you have over 1,400 locations in the U.S. You recently decided to re-accelerate the number of store openings. Wanted to get your thoughts on that in terms of the decision behind that as opposed to optimizing the existing fleet of stores. Do you see any need for accelerated store remodels and renovations?
Our store portfolio is highly profitable. I mean, when we think about it, Kecia mentioned this, 80% of our sales come through our stores. For us, beauty really, and beauty comes to life through the stores. We see the store channel playing a very important role in our business and our future growth. As you mentioned, we shared that we expect to open 200 new stores over the period of 2025 to 2027. From a long-term perspective, we see opportunities for unit growth up to 1,800 stores in the U.S. Again, it is one of our most highly profitable, highest returning assets that we have. What I would say is that it is not an either/or scenario with regards to how do we drive more productivity and profitability out of our existing box versus opening new stores. Kecia and I talk about this often.
We can and we will do both, right? It is not an or or or situation. The other thing that I will share is remodels, right? We shared this year that we expect to remodel between 40 and 45 stores. This is a category that, again, the human connection is so important. It is important for our guests to come in our store and feel like it is an engaging, easy-to-navigate environment that is exciting and so on and so forth. We believe that it is the cost of business to continue to reinvest in our fleet. That is how we are thinking about our remodel program.
Great. I think we're up on time, but I just wanted to quickly ask you on your digital business. You talked a little bit about the strength, but one key really stood out from an acceleration perspective. It was the strongest growth in over four years. Maybe can you touch on what do you think is enabling that strong performance as we think about the competitive backdrop and how do you think about the sustainability of that digital business going forward?
Yeah, I'll keep this brief because I know we're against time. You know, the investment that we made in the digital platform has allowed us to have a lot more agility in how we're putting offers and how we're communicating with the guests that are shopping on the channel. Value is really resonating. It's how you communicate value. It's not always discount. It's also value for the price you're paying. When you go into our app, which 60% of our e-commerce purchases now are coming through our app, we are continually updating the app and the functionality that you can have as you're shopping. We are also updating how we're communicating both on our web and on our app above the line. We have a little bit less white space. It's a lot more engaging and it's definitely resonating with the guest.
I was really proud that we had one of our better comps on our e-commerce platform of 10% positive comp in Q1. It is definitely resonating with the guest.
Great. Thank you. I wish we could continue, but that's all the time that we had for today. Thank you so much, Kecia and Paula, for joining us. Thank you everyone in the room as well. I hope you have a great rest of your afternoon.
Thank you, Christina.
Thank you, Christina.
Thank you.