Ulta Beauty Aktie

My name is Dylan Carden. I'm the analyst here at Blair that covers Ulta. Very pleased today to have Kecia Steelman, Chris DelOrefice, CEO and CFO of Ulta respectively. I'm required to tell you that there's disclosures on our website.

And let's get into it. So I want to start just sort of broadly your background, let's say, you've been with the company now 12 years, 11 years, you've worn different hats. Kind of as you're easing into the leadership role, what your past experience with the company even before then sort of brings to the table and kind of how you see the position of the company currently?

Well, I want to start off by saying thank you, Dylan, for having us in William Blair. Just to give a little background on what Ulta Beauty is. Ulta Beauty is the largest specialty beauty retailer in the United States. And now we are an international beauty retailer. We have everything from beauty to wellness and we cover all price categories from mass to luxury and everything in between along with services.

Yes, I've been at Ulta Beauty now for almost 12 years. Time has gone really fast. My background was, I started as an hourly associate at Target Corporation in the early '90s, grew my career there into management positions and then went to Home Depot and was a VP GM for specialty retail Expo Design Centers there. And then went to the Dollar store segment, where I was responsible for real estate and then went into operations, and I ran 2,000 Family Dollar stores, tough job.

And then when Ulta Beauty called, I wanted to see what this store was about because I'd never even walked into a store. And when I walked in, I was like, wow, this is one of the best kept secrets out there in retail. When I joined the company in 2014, we had about 600 stores. And I was leading the store operations side of the business as an SVP. We now have 1,500. So I've seen over 900 stores kind of come to life. And before I took over the CEO position, I was the COO for about 3 years.

And what I would say is that this is a fantastic model, all centered around the experiential piece of beauty. Our passionate 60,000 associates really bring our brands to life, and it's a true asset that we have. I do think that my experience of over 30 years in retail and being in almost every single position gives me a unique perspective as a CEO and an understanding for the role that everyone has to play in the organization and the value of how hard it is to really make this machine work. And again, I'm truly, truly blessed to now, the last 18 months have been into the role of CEO. And it's been a long journey to get here, but it's been a lot of fun and well worth the journey to have arrive now as the CEO here at Ulta Beauty. It's been a lot of fun.

Absolutely. Chris, same question to you. Quite the opposite set up. You're relatively newer, find yourself in a very important role as it relates to messaging. Kind of your background and just sort of your philosophical approach to the CFO role, how you address the Street, deal with the Street and sort of what you find here as far as sort of that skill set?

Yes. I appreciate it. Yes. Thanks, everyone, for being here and taking the time. One, it's been great to be at Ulta. It's about 6 months now. So my role prior to this, I was the CFO, Becton Dickinson, large med tech player. There, I led strategy, corporate development, technology transformation and then all the traditional CFO functions. Prior to that, I had about 20-plus years with Johnson & Johnson. I did spend about 8 years leading various roles in the consumer business there, including global CFO and CFO of their North America business. So familiar with the beauty market. I had the great opportunity to be presented with this opportunity.

Kecia is an outstanding leader, brought together a really great team. And I was really excited about the Ulta Beauty Unleashed strategy. One, it's just a great resilient market, which I think is very relevant for the discussion today. But on top of that, as you think of Ulta Beauty Unleashed, I really see opportunity with new growth vectors that will both support top line growth and profit growth on the bottom line. And they're all in very early innings. So I'm excited about the journey that we're on, the opportunity ahead of us.

And look, as I think of my role as CFO, it's how do we scale those opportunities in a thoughtful way, focus on discipline, focus on profitable growth, kind of orchestrating the plan that paces in the right way, fix the right priorities and unlocks and maximizes value creation. At the end of the day, my lens should be maximizing value creation. And I think you see that reflected in our plan this year and look forward to talking more about that.

Yes, absolutely. Let's start near term, and we can kind of blow it out. A lot of debate kind of coming out of the first quarter, which you reported the other night. Why not flow through more of the EPS beat in the quarter? You beat gross margin, you grew gross margin 100 basis points, you're kind of guiding flat on the year. The questions we're getting, is there conservatism in there? Are you seeing something currently that gives you some pause? And maybe just some points of upside and downside as you kind of look to the balance of the year.

Yes. It's a good question. If you step back, last year was a year where the goal was to drive share, we did that. We fully executed. We did what we said. This year, we wanted to take that to the next level, still focused on strong top line, driving share gains, but driving profitable growth. At the end of the day, we want to deliver guidance that delivers against our long-term algo. We view that as a compelling value creation algorithm. We want to deliver double-digit EPS growth at the end of the day. And you saw that reflected in our initial guide at the start of the year. There was really nice strong top line, 6% to 7%, strong flow-through on the bottom line, double-digit earnings at the midpoint. Really pleased with how we executed through the quarter. There was consistent execution throughout from sales down to EPS, positions us well for the back end of the year.

So coming out of the quarter, we did enhance our guidance, right? The way we think of it is on the strength of the quarter, we wanted to hold top line. Again, remember, our top line growth is 6% to 7%. That includes the benefits we're getting from an acquisition we did, Space NK. If you take that out, we're still nicely positioned with our long-term top line sales growth algorithm goal of 4% to 6%. And we have nice flow-through in terms of discipline on profit. The original operating profit growth was 6% to 9%, and then we had strong double-digit EPS growth. With the strength in the quarter, we increased the bottom end of our operating profit growth to 6.5% to 9%. I think that reflects the strength in the P&L and what you saw in some of the margins.

With that said, I would frame it as we wanted to be prudent in kind of an uncertain backdrop, right? We came out with the quarter with strong performance. As we move through the back end of the year, we still have strong 2-year double stack growth rates in the high single digits, and you have nice balance in terms of earnings growth. I think what we've cared for is if you think about other things we've done, right, you have increased fuel costs, which we cared for. We had talked about that. That's reflected in there, and we think we've built in the flexibility to be responsive in a competitive marketplace.

So the way I look at it is strong Q1 performance. The original guide was strong. It positions us nicely to execute through the balance of the year. We increased the profitability goal. We also doubled down in share buybacks given what you're seeing in terms of the stock price and what we see in terms of the compelling value proposition given the intrinsic value. So we increased our share buybacks in April from $1 billion to $1.5 billion. You saw us execute about over $550 million in the quarter and just feel nicely positioned as we enter the year and feel like we have the flexibility built into our guide to deliver and execute through the balance of the year.

And then forward-looking longer term, you're kind of guiding 12%, 12.5% on op margin. This has been sort of the focal point in the model over the last year plus. Is that the right level sort of that 12-ish percent looking forward where you can take share and kind of continue to invest? And even broader than that, those investments and sort of what are allowing you to take share, maybe we can move on.

That's a great question. So when we set out our -- the investor and long-term algo, we had talked about a floor of 12%. Last year, we actually delivered -- this is on operating margin. Last year, we delivered 12.4% in the peak of our investment year. And we've been very clear. We're not going backwards. So the 12% is no longer relevant. I would take that off of the table. The goal every year, really the positioning we want to do is how can we maximize profit growth. We're going to be disciplined on margin and 2026 is very illustrative of how you could see us execute our guidance profile. So we exited 2025 with 12.4% margin. You see in our 2026 guidance, profit growing faster than sales. We've talked about operating margin being anywhere from flat to up 20 basis points.

As we execute through the year, what we want to do is continue to try and not only deliver against operating profit, but look for opportunities to continue to accelerate operating profit. That's what we did in this updated guidance by increasing the low end of our guidance range on operating profit growth from 6.5% to 9%. The way we think about that in any given year is if I have opportunities to reinvest back in the business as we deliver on our top line, and I can fuel top line, I can drive flow-through to profit, which ultimately flows through EPS and continue to grow it that way. If I don't see prudent investments to capitalize in the marketplace, the leverage opportunities are there, and I can drive leverage.

We want to get to sustainable operating profit growth at the end of the day. And so you're going to see us be disciplined. There's a floor that's already nicely above the 12%. Again, the 12% is off the table. This year, we're going to drive profitable growth, and there's opportunities to continue to expand margin. It is a competitive category. I think it's important to have that flexibility. And it's not just about running profit up too fast. You want to be investing back in the business, growing share and driving operating profit growth as fast as we can go. So again, when you look at Ulta, we can compound earnings at double digits. We have strong cash flow. I think the financial discipline with the strength of our go-to-market model, driving strong top line, growing share is a nice formula of value creation.

The only thing I would just add is that we said last year, we were going to grow top line revenue and take share, and we did that. This year, we said we're going to do that with better financial discipline, of which we showed that we could do it in the first quarter, and you should expect that from us the rest of this year.

Excellent. And just to be clear there, operating margin growth as far as margin or dollar, when you say sort of...

Operating profit dollar growth.

Dollar growth. And then...

But again, to be clear, I don't want people to leave to think, it's not at the expense of margin. You have to do both, right? It's going to be discipline on margin. Think of our guide this year. We're going to maximize operating profit dollar growth while being disciplined in margin. There will always be a floor in the guide and opportunity for leverage. And then it's just a question of what's the best way to maximize operating profit dollar growth? Is it a leverage opportunity, or can I reinvest and drive it through the top line, but not going backwards.

So state of the union then. I think last year was supposed to be sort of a reset year for the industry. It wasn't. There's a lot of different sort of pieces of the category that are growing fragrance, wellness sort of away from sort of your traditional makeup. I'd love to know kind of where you see yourself positioned there. And then you speak to these investments to sort of drive top line. What are those? Let's unpack those as we sort of talk through it.

Yes. Well, we made quite a few investments last year in our go-to-market. If you just take a quick step back, when I was the COO before stepping into the CEO role, we were very invested in our foundational investments. We were a little bit behind. We had to upgrade our ERP system. We had multiple POS systems. So now we're on one common POS system. Our data governance, we needed to make sure was really clean as we were going through this ERP upgrade, which I'm very excited about because if you can leverage your data and you have clean data with AI, you can really unlock a lot of future potential opportunities for us.

And then we were investing in the supply chain. So it was taking up a lot of CapEx, OpEx and also talent resources within the organization because we had to do some catching up. In 2025, then we started to really reinvest into our go-to-market strategy. And what I was pleased about is in 2025, not only were we investing in go-to-market, but our top line revenue really started to respond very, very quickly.

A couple of things that we did in '25 that I feel have positioned us even greater for '26 is, number one, we did make some management changes in our team, and I realigned the way that the teams were working internally. The benefit of being here for a longer period of time is I saw where we maybe have some opportunities to do things a little bit more efficiently and better in the future. So we made some talent changes out to position us for the next generation of growth, and they're all performing...

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Yes, sure. So we -- previously, we had somebody that was leading marketing, and they also had digital. It didn't make sense to me that digital was not aligned with merchandising. Digital to me and stores are the consumer interaction. So I moved to digital out from underneath marketing, and we promoted somebody internally that had really deep -- in fact, she helped build the loyalty program for us. So she really understood the data behind our members and how to really grow the members.

And when you think about marketing today, it's not just about your traditional print marketing, that's all gone. It's really about how do you leverage the data insights to really drive the consumer behavior. So she is very well positioned from a marketing perspective. And you can see some of the great things that we've done on a social perspective and also behind the scenes with leveraging AI. So that's one big change aligning that.

And then we brought in a great leader for -- that was the previous CEO actually for brand, Lauren Brindley into our merchandising team, and she's the leader there. And then I had a Chief Store Operations Officer, who's been with us for a while, Aimee Thomas, that we elevated her position and made her Chief Retail Officer. So all things that touch stores from store planning and design to real estate to stores, all aligned under her.

When we now go to market with our brands, it's the 3 of them and a lot of the bigger meetings I'm sitting in there, too, whether it's Estee Lauder or L'Oreal or it's a brand that we're trying to get into our ecosystem. The fact that we can now move with speed and alignment, and we've got the decision-makers sitting at the table has really quickly elevated our ability to execute and bring new product and newness into the assortment. That was part of the change that we saw really happening live and in action in 2025, and it's continued into 2026.

And then our investments that we made in our digital platforms for e-commerce. So we were a little bit playing behind some of the traditional e-commerce sites that you see out there that are selling beauty, and we really closed that gap. The leverage that we have that makes Ulta Beauty a little bit more unique on that is that we have a store within 20 minutes of the beauty enthusiasts in the United States now with having 1,500 locations. The fact that we not only can sell online, but one of the fastest growth online is buy online, pick up in store. So the fact that I have that convenience play of stores, and I also unleashed in this last year, ship-from-store capabilities. So my time to consumer has shortened and the cost to ship to consumer has shortened too because of the miles to get there. And also the labor in stores is less than the labor in the distribution center. So there are those things that we were investing in that we're seeing the returns on those investments this next year, and that's been great to be able to see and witness.

I want to get to online, as you know. But so when you're saying, if you see the opportunity for investment, profitable investment, is that then after you put in place these systems, it sounds like it's sort of a harmonious relationship between marketing, brands, store experience. Is that kind of the investments that are out there that you're seeing? Is that the right way to think about it? Is it sort of more of a harvesting period now that you put these systems in place where you can grow more profitably?

Yes. I mean the systems that we had to have in place were kind of table stakes that we couldn't unlock some of the capabilities that we wanted to do until we had the systems in place. We've invested a lot in the systems in place in 2025. There's still a little bit of work to do from our ERP because we did a little bit of some MVPs like just had to get some stuff done. And then we've got to make a few more investments, but nothing to the scale of a full ERP system platform. So there is some general investment that needs to happen.

But really, when we're looking at where do we invest the dollars, it's like where can we get the return on that investment right now. And we're looking at that cohesively as a team. We have an Analyst Day that's going to be coming up in 2027, very, very quickly. This year I know it's going to go really fast. And we'll be able to share more at that time of exactly what it is that we're going to be looking at doing in terms of investments to really continue to drive our business forward for the next generation of growth.

And you touched on this. So my -- we've been in conversation about this. One thing that I've worried about just in the category is that it's depending on whose number you want to use, 25%, 30% online, right? If you look at other categories, historically, that has been an inflection after which it becomes much more cannibalistic to retail, right, which is sort of beyond a retailor's control in that the risk is your every dollar that moves online, it cannibalizes more directly in physical retail.

I look at a quarter like the one you just put up where you're holding it feels like retail margins even with that massive growth in online. And so it feels like your business is positioned in a way perhaps more uniquely whereby you can manage through some of that disruption. The ship from store, leveraging sort of the fixed costs through that. You talked about sort of exclusive brands and events through the retail channel.

Can you sort of unpack how you're seeing that threat to the extent that it is one and how you manage sort of the fixed cost deleverage in the retail channel through that?

Yes. I'll start, and then, Chris, maybe you can talk about the -- how it's flowing through the P&L. So what I would say is that this sector is a little bit unique because the consumer likes to come in store to touch and feel and play with the products. And when we just announced over the last quarter, we had 40,000 events that happened in store. So giving the guest a reason to get off the couch, get in the car and come to your store location is really important. We also see that the younger consumer, so the digitally native consumer likes to shop in store. They actually prefer to shop in store. And I think part of that is they're getting off their devices and they want to come in and touch and feel and play and they want to do with the friends. So you'll see us continuing to lean into that.

I just announced on the call on Tuesday that we're opening a new store in Times Square. It's going to be very experiential. You'll see us looking at elements of that, that we can put into our other stores that are out there. And then buy online, pick up in-store is a huge growth driver in our e-commerce, and that actually flows through like a store sale because it's actually kind of getting picked up by our store associates, the guest is coming there. We don't have the shipping cost, et cetera. So we like that we're seeing that, that's a lever that's being really responsive to the guests.

But Chris, maybe I'll let you share how it's flowing through the P&L.

I mean the premise makes sense, right? It's cannibalistic. It doesn't matter which channel is more profitable. It just -- it comes down to deleverage on the labor, the rent and all [indiscernible].

Yes. Well just one other thing too is what's unique about our model is 80% of our sales -- sales are still flowing through the stores. And even though the e-commerce channel is growing, our store channel is growing also. 90% of the guests are shopping in our stores still today. So there's this concern like is that guest going to just go purely to an online play. I don't think that's going to happen. I think our very best guests shop both channels.

And you're stimulating that. I guess that's embedded in the question is sort of how are you doing that? How are you making sure that the 2 channels are cohesive in that regard?

Yes. And I think that's where you have to have the reason for being -- to get them to come into the store, you're leveraging your app to bounce people back into the store, the more that you can create gamification of even shopping through a store, leveraging your mobile devices, et cetera. That's all like, I think, table stakes going forward.

Yes. I mean it's worth doubling down on -- Kecia noted the percent of sales. But when you think of our loyalty membership and how they activate, 95% of our member base is operating in both channels with a significant portion of it still in-store, 75%, the balance being kind of omni across, right? This is not an ecosystem where they're discrete channels. They're going to constantly interplay off of each other. And that's the way we manage it from a profitability. We're thinking of kind of like an omnichannel P&L. We both look at the pieces to make sure that we're trying to optimize costs individually and then collectively, where do you take advantage of scale.

So as I think of the P&L, you have to kind of manage the pieces, but also look at holistically, how are you getting scale in your business. Distribution is a good example, right? As we continue to grow and we're growing in both channels, right, we're getting scale, we're getting good supply chain optimization leverage with what we're doing from a cost optimization standpoint out of our distribution centers and building kind of capabilities on transportation as well, right? So you're creating these leverage points and efficiency opportunities, some of them cut across omnichannel, and then you're also looking for opportunities to optimize within the respective channels as well.

I mean e-commerce alone, too, right, it's -- you're going to naturally get leverage and scale there as well that helps the total profit picture. I think on the retail side, we're super disciplined around how we're going to market and you think of store footprint and optimizing those assets as you think of new store, different footprint, smaller store footprint. There's still plenty of opportunity for us to get leverage points, how are we managing shrink in store and DCs.

So it's a constant thing. Every year, you have to have this balance of being very disciplined on leverage, kind of a zero-based mindset of investments and what are you investing in that's new to fuel growth. What are you doing from a cost optimization and having a strong funnel there. We're doing a nice job there that both helps get the profitability we need and reinvest back in the business. I mean, at the end of the day, if our growth rate consistent with our long-term algorithms in that mid-single-digit growth, we're going to find opportunities to get leverage throughout the ecosystem.

And I'm no concern around how to drive that with what's happening in the marketplace. I would view it the opposite actually, that I think our unique go-to-model with a really strong e-commerce capability and our store footprint is actually a competitive advantage. And you're even seeing that play out from a complementary standpoint, both from a cost and a revenue standpoint with like buy online, pick up in stores, right? That's a way to engage with the guest 2x, right, if you think about that, and it does improve the cost picture so.

And to be fair, I mean, a lot of other industries didn't have that capability back in 2015, like in apparel, when it was really sort of laying ways to that space. You mentioned kind of the data sort of the reorg in some of those positions. UB Media, how you're using data and some of the initiatives online for the efficiencies of marketing. I'd be curious sort of how you use data to your advantage.

Yes. Well, I will just say that the fact that we have 47 million loyalty members, and those are active loyalty members that had to shop in the last rolling 12 months for us to count you into the ecosystem is a very powerful tool that we have. I'll start first with our marketing. Some of the things that we've changed within our marketing is you've got to be in the cultural moments where the guests are today. And you've seen us maybe change in 2025 being a little bit more engaged with festivals.

And even we just did this unique thing with Beyonce on her Cowboy Carter Tour, where there was this authentic connection with her brand and our brand and getting our brand in front of her loyal following and us traveling around through the cities and creating unique looks. That -- the old days of just putting products out in front of people, that's kind of over. You've got to be immersive in all of their thought processes and where they are in their communities. So that's one great example.

You'll see us at festivals like Coachella and Lollapalooza. We just were at BottleRock. So we're looking at different ways that we can be front and center, so we're top of mind. And then our Ulta Beauty world, which we just recently had where the lucky 3,000 of the 3 million people that wanted to go, we're able to see 240 brands that are really being brought to life and then leveraging that social content because everyday consumer was taking video content and sending it out, that's all part of marketing, believe it or not. So there's unique things that we've done that are really making Ulta Beauty top of mind to that consumer.

And then UB Media, there's a huge unlock there because it's not just about taking in that revenue dollars, which we're happy about. I know Chris and I both really like that it flows nicely through the overall P&L. But it's generally also about letting -- giving the brand a way to leverage their dollars and get a good return on their dollars of investing in advertising to generate sales. That's a win for them. That's a win for us. So we're really pleased with how UB Media is really coming to life. It's continuing to grow.

And we think that we've got the right support behind it because one of the opportunities that we had is giving the brands the good clean reporting that they wanted, like are these dollars really working on driving the sales? Yes, you can look at the overall top line and the category is growing or not. But for us, we give more specific data to them. We're getting more closed-loop type reporting.

I just announced on the last call that through YouTube, now we have an enterprise view where if a guest clicked on YouTube and they ended up purchasing through us, we can now link those to actually show back to the brand this was the return rate on that. Pinterest is coming now in Q2. So we're seeing more and more of these social platforms leaning into this in partnership with the retailer on giving this information to the brand. So it's not just about taking that revenue in, which I'm happy about, but it's about driving the top line revenue at the same time.

We're going to run out of time here in a bit, but what I kind of hear you guys saying today is just spent the last 2 years making some sort of foundational investments that were perhaps unsexy but necessary. Now this year and beyond, you've kind of got a baseline of growth, right? You sort of speak to mid- to high, while keeping 12.5% plus and looking for opportunities to kind of accelerate in a market that's dynamic, but you're learning kind of ways to improve your -- particularly your sort of online muscle, right, which I think some people kind of discounted you before TikTok in particular, I think at your Analyst Day, you even have the TikTok box, right, checked. And so I don't know if you'd want to add to that or sort of leave with a different message, but I'll kind of leave it open to both of you to close it out here.

Why don't you start and I'll finish, Chris.

Yes. I think we're committed to that compounding earnings growth at double digits, and we have multiple ways to do it. I think maybe that's what's unappreciated. We're in a great category that's resilient in terms of core beauty. You heard us hit some examples of other things that can create both halo on sales growth, but also drive profitable growth like UB Media.

The other one I would point to that gets right at the heart of your retail store question is wellness, right? We're very early innings there. You think of 4-wall revenue, there's still opportunity to grow that and expand that in store. It's going to leverage our asset base. So it's quite the opposite dynamic, right, where that should flow through at stronger operating profit growth and margin. So there's some exciting opportunities of things that are still very much in their early innings, but we're still also competing and driving our core beauty business. And I think that lends itself to a really nice value proposition.

Yes. And I'll just wrap up by saying, this is what we do. Beauty is a competitive environment. Everybody wants to be in it because of the strong margins that come along with it. But this is what Ulta Beauty does, and this is what we do well, is beauty and wellness. This is the reason for us being. And we have invested in these core systems to enable us to really unlock even future value and be very agile at the same time.

You're right, TikTok wasn't even on the radar before, and we very quickly because they've got such great talent in this organization now, we were able to activate and bring it to life very, very quickly. So I believe that we're in a great category. It's not necessarily recession proof, but it's recession-resistant. The consumer is going to continue to prioritize this category as they're looking at their spend. And we are here to be able to take care of any guest regardless of the price that they can spend because we cover everything from mass to luxury, everything in between along with services.

So I look forward to what we're going to be able to continue to deliver at Ulta Beauty, and I believe the best is still yet to come.

Thank you, everyone.

Good afternoon, everyone. My name is Leila, and I will be your conference operator today. At this time, I would like to welcome you to Ulta Beauty's First Quarter and Fiscal 2026 Earnings Call. This conference is being recorded. [Operator Instructions]

At this time, I would like to turn the call over to Ms. Kiley Rawlins, Senior Vice President of Investor Relations. Ms. Rawlins, please proceed.

Thank you, Leila. Good afternoon, everyone, and thank you for joining us for a discussion of Ulta Beauty's results for the first quarter of fiscal 2026. Hosting our call today are Kecia Steelman, Chief Executive Officer; and Chris DelOrefice, Chief Financial Officer. During today's webcast, a presentation is being shared live and has also been posted to our website at ulta.com/investor.

As a reminder, today's earnings release and the comments made by management during this call include forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, factors identified in the earnings release and in our most recent 10-K. The company undertakes no obligation to revise any forward-looking statements.

To allow us to accommodate as many questions as possible during the hour scheduled for this call, we respectively ask that you limit your time to one question and no more than one follow-up question. As always, the IR team will be available for any questions after the call.

And now I'll turn the call over to Kecia. Kecia?

Thank you, Kiley, and good afternoon, everyone. After meeting our ambitious goals in fiscal 2025, we entered fiscal 2026 with a keen focus on continuing our progress while optimizing our model with financial discipline to deliver profitable growth.

Before I dive into the details of our first quarter performance and priorities for the year ahead, I want to share my perspectives on the business. First, our core U.S. business is fundamentally strong and delivering healthy sales growth. Second, the strategic initiatives we are driving to scale new businesses are gaining traction, are contributing to our results and position us well for long-term growth and value creation. Third, we are exercising financial discipline and working thoughtfully to optimize our costs and investments to position our business to deliver consistent double-digit earnings growth.

Next, growth in the beauty category remains healthy, even as consumers are increasingly value focused. And Ulta Beauty's diverse assortment omnichannel convenience and compelling loyalty rewards program uniquely positions us to meet our guests' evolving needs. And finally, we are staying focused on capitalizing on the strengths of our model and executing our Ulta Beauty Unleashed strategy to deliver long-term profitable growth and value. And while we are continuing to monitor how the macro landscape could evolve, we remain execution-focused and are confident we will deliver our fiscal 2026 expectations, which Chris will cover further during the call.

Turning now to our first quarter performance and the progress being made on our Ulta Beauty Unleashed pillars. The strength of our business continued as we delivered first quarter net sales growth of 11.1%, comparable sales growth of 5.3% and 15.5% diluted EPS growth. Performance was broad-based with all channels and major categories contributing positively to our strong results. From a market share perspective, we gained share in prestige beauty, and we were roughly flat in mass beauty.

Beginning with our driving the core business growth pillar. Overall company performance continues to be fueled by the strength of our core U.S. business, reflecting a relentless focus on delighting guests with every interaction and building on our new go-to-market approach, marketing leadership and compelling merchandising innovation. Our stores delivered another solid sales performance, supported by the successful execution of key promotional and marketing events, including 21-plus Days of Beauty in Spring Haul. As we begin the new fiscal year, our store team is focused on driving engagement, education and excitement.

During the quarter, together with our brands, we executed more than 40,000 in-store events, including key activations to highlight newness from brands like Coach, Cecred, Live Tinted and held several workshops to support education for brands Redken, Rare Beauty and Lancome. As we look to Q2, we will stay focused on the fundamentals to ensure we are delivering great guest experiences, driving conversion and fueling sales growth. E-commerce momentum continued with the team delivering another quarter of robust sales performance. The sustained strength of our e-commerce channel is powered by the investments we've made over the last several years to elevate our infrastructure and the ongoing enhancements we're continuing to roll out, like expanded same-day delivery options through Uber Eats and new buy now, pay later options through Klarna to improve functionality, expand convenience and improve the guest experience.

The convenience of buy anywhere, fill anywhere capabilities including buy online, pick up in store, have been a key driver of our e-commerce growth and of our strong guest satisfaction metrics. This quarter marked the exciting launch of our TikTok Shop with a strategic focus on our Only at Ulta exclusive brands. We hosted our first ever TikTok shoppable live stream at our Ulta Beauty World event garnering more than 5 million impressions and strong GMV, rivaling top affiliate live stream performances. This initiative is driving a lot of excitement with guests and the creator community, which is showing high interest in collaborating with us. In addition, a number of brand partners have expressed interest in offering their products as part of our curated TikTok assortment and bundles. This new channel positions Ulta Beauty at the center of a critical discovery point and will enable us to spotlight our exclusive brands, build influence and fuel our marketing efforts, particularly with younger consumers.

Turning to brand building. We are making meaningful progress on our -- and to build multiple $100 million-plus exclusive brands over time. To compete and win in beauty and wellness, we are driving the innovation pipeline, co-investing in marketing with strategic and exclusive brand partners and creating exciting activations in stores and online. We have several exciting success stories on this front. And today, I'd like to highlight an exclusive fragrance brand, NOYZ, an approachable vegan and cruelty-free fragrance brand inspired by relatable real-life feelings and self-expression.

During Q1, NOYZ launched its innovative Mylk de Parfum, part fragrance, part hydrating skin care. Milks are perfect for layering and are creating a new subcategory that has excited our guests and is helping drive the brand's continued growth. Ulta Beauty collaborated with NOYZ on a 360-degree go-to-market activation strategy that helps catapult the brand into our top 20 in the category for the quarter. And NOYZ continues to fuel social buzz into Q2 with the recent debut of Be Her, our fragrance collaboration with award-winning singer-songwriter Ella Langley. From a broader newness perspective, our balanced approach is driving consumer excitement across categories and fueling positive performance.

During the quarter, we launched more than 20 new brands including our record-breaking launch of Rare Beauty in makeup, Balmain, an exclusive early lead brand in fragrance, Bloomeffects in skin, Hairstory in hair care and Gruns in wellness. These launches are in addition to exciting newness from our existing brand partners like Estee Lauder, TATCHA and exclusive brand, Cecred. In marketing, we focus on engaging storytelling to capture core moments in beauty and further Ulta Beauty's authority and high-impact shopping moments. The team drove outstanding activations around key marketing and promotional events including Valentine's Day, 21-plus Days of Beauty in Spring Haul.

In April, we hosted our flagship consumer event Ulta Beauty World in Orlando. Approximately 3,000 Ulta Beauty fans attended the event to engage with nearly 240 of our brand partners and discover newness through immersive high-touch experiences with master class education offered as a separate experience. Building on last year's inaugural event, Ulta Beauty World drove strong engagement across PR and social and expanded into new platforms like TikTok Shop Live, more than doubling earned media value year-over-year.

During the quarter, we expanded our Ulta Beauty Rewards loyalty program to nearly 47 million members, up 4% year-over-year. We are leveraging our vast first-party data and recent tech improvements to enhance our leadership in personalization. Our teams are building around key customer journeys and actions to maximize incremental sales driving opportunities. This includes utilizing our loyalty data to understand behaviors, predictors and purchases and drive card conversion.

Moving to our second pillar, scaling new businesses. Beyond the U.S., we opened a handful of new stores across our international markets. Space NK, which operates stores in the U.K. and Ireland, continues to deliver healthy, well-balanced growth, expand its loyal customer base and gain market share. In Mexico, we opened 2 new stores, including the grand opening of our Madero store, a unique 2-store building that blends modern beauty retail with historic architecture and charm in the heart of Mexico City. In addition, our franchise partner, Alshaya, opened our third store in the Middle East at the Dubai Mall, one of the largest and most visited shopping destinations in the world.

While the situation in the Middle East remains fluid, we continue to be excited about the potential of this flagship location and for the expansion opportunity in the region over the long term. Our marketplace continues to gain traction with the addition of exciting new brands and items. We closed the quarter offering more than 325 brands and over 8,000 SKUs across our 7 marketplace assortment focus areas. During the quarter, we successfully integrated marketplace brands into our 21-plus Days of Beauty promotion contributing to strong ongoing guest engagement. I'm incredibly proud of the way our team continues to execute this important initiative and the strong guest satisfaction we are seeing for those who purchase products from marketplace.

In wellness, we're helping guests find their feel good with expanded assortments across key wellness focus areas, nutrition and supplements, intimate care, rest and reset and essential routines. During the quarter, we launched several new brands, including nutritional gummies brand, Gruns, and intimate skin care brand, Medicine Mama. We drove awareness and guest acquisition through our wellness-focused events and integrated wellness offerings into key tentpole events. We also enhanced our digital navigation and storytelling. Performance continues to build, driven by assortment and space expansion as well as guest engagement in key pillars, including nutrition and supplements and rest and reset.

In UB Media, we are on a journey of scaling this incremental margin driver, rolling out enhanced capabilities, features and products to support our brands. We recently launched a YouTube enhanced measurement product, which provides deeper insights and benefits to our brand. Clinique leveraged this new capability for a recent campaign that was executed with fresh talent and best-in-class practices. It was not only able to measure brand level sales, but they also saw meaningful higher returns on the ad spend and conversion compared to other video channels. And finally, our third strategic pillar, aligning our foundation for the future. As part of our supply optimization efforts, we advanced plans to expand our distribution network with the commitment to open a new regional distribution center in Salt Lake City, Utah. This new facility will leverage the latest in automation technology to improve speed, increase efficiency and simplify product flow.

In addition, we continue to leverage AI to optimize our business. From a guest-facing perspective, we introduced an online shopping agent, Ulta AI, to enhance discovery, personalization and shopping experiences. Initial results have been promising, and we are excited about the potential of this new feature. In addition, we are integrating with leading AI platforms like Google's Gemini to enable agentic commerce. We are still in the early days and are focused on leveraging the strengths of our partners to maximize the AI opportunity.

Finally, turning to our efforts to cultivate one of our most important competitive advantages, our culture. Last month, we brought together more than 1,500 general managers, along with corporate and DC leaders and brand partners in our annual field leadership conference. The strength of our model was on full display. Everything about the time we've spent together was aimed at growing our business, building enthusiasm and pushing ourselves to an even higher standard. The most exciting part was the alignment in the collaboration and the camaraderie across the entire business.

Importantly, there was also a unified focus on execution in stores and providing our guests with consistently great experiences. The energy I experienced, coupled with our current business performance reinforces my confidence in the direction we are heading and my optimism that the business will continue to deliver on our revenue, income and shareholder value creation goals.

Turning to the operating environment. As I shared in the beginning of my remarks, the beauty and wellness categories remain healthy and engagement is strong. At the same time, consumers continue to face macroeconomic uncertainty and inflationary measures and pressures from rising fuel prices, making value increasingly important as a consideration. We are operating from a position of strength in this environment and have multiple levers to satisfy guest value needs, including a diverse mass to luxury assortment that provides our guests with choices for every budget, omnichannel accessibility that allows our guests to browse, buy and fulfill purchases in the way that best compelling loyalty program and targeted promotional capabilities that enable guests to maximize value while strengthening engagement with our brand. We will continue to thoughtfully navigate the operating environment and respond with agility to deliver for our guests, drive sales and expand share over the long term.

Looking to the future, we're focused on expanding our U.S. business by strengthening our assortment and investing in stores and digital experiences and deepening customer engagement through personalization, AI and social commerce, including our new TikTok Shop partnership. In addition, we expect to drive incremental accretive growth as we continue to scale our new businesses, including international expansion, wellness and marketplace offerings and enhanced UB Media capabilities. We will continue to execute our plans to support long-term growth and efficiency through investments in supply chain automation, merchandising systems and AI-powered tools to enhance operational performance, guest experience and profitable growth.

And finally, I'm excited to share that we are beginning work on a new highly experiential Ulta Beauty location in Times Square, New York. Expected to open in late 2027, this flagship store will be a vibrant, dynamic destination where technology, entertainment, convenience and our differentiated assortment come together to deliver immersive guest experiences and brand activations. This store will showcase next level brand building and storytelling capabilities, unlock high-impact marketing through digital billboards and drive greater awareness and loyalty with guests from all over the United States and the world.

In closing, our Ulta Beauty Unleashed plan is delivering results, and we remain confident in the strength of the Ulta Beauty model, the resilience of our category and the passion of our guests and associates. We are investing with discipline in the areas that matter the most, a differentiated seamless assortment, a seamless omnichannel experience and deeper guest loyalty, all while staying agile in a dynamic environment. As always, we will stay focused on what we can control, keeping our guests and associates at the center of all we do to drive our business forward and create value.

With that, I'm going to turn it over to Chris to cover the financials.

Great. Thanks, Kecia, and good afternoon, everyone. I'll begin with a discussion of our first quarter results and then share our updated expectations for the year. Starting with the quarter, the Ulta Beauty team delivered profitable growth, reflecting benefits from strong revenue growth and gross margin expansion, driven by improvements in shrink and merchandise margin. I will express my sincere appreciation to our teams for staying disciplined and working together to deliver this strong performance.

Net sales for the quarter increased 11.1% to $3.2 billion compared to $2.8 billion last year. Total sales growth, excluding the impact of Space NK, was in the high single-digit range. During the quarter, we opened 16 net new Ulta Beauty stores and 1 new Space NK store. Other revenue increased $6 million to $62 million, primarily due to higher income from our credit card program and commissions from UB Marketplace. This growth was partially offset by lower royalty income from our partnership with Target Corporation.

Comparable sales for the period increased 5.3%, driven by a 3.7% increase in average ticket and a 1.6% increase in transactions. Looking at the cadence of sales through the quarter, the period played out largely as we expected. February delivered low double-digit comp growth as we lapped our weakest comp performance in fiscal 2025. Comp growth for both March and April was in the low single-digit range. From a channel perspective, both store and digital channels contributed to comp growth with e-commerce delivering mid-teen sales growth in comp stores delivering sales growth in the low single-digit range.

Turning now to sales by category. Fragrance was our strongest category again this quarter, delivering high-teen comp growth, an increase from 11% to 12% of total revenue. We continue to execute well and advance towards our goal of being the #1 destination for fragrance. We are playing to win and to support this ambition. We are investing in newness, enhancing our in-store experience, improving core in-stocks and leaning into key events like Valentine's Day and Mother's Day. For the quarter, growth was primarily driven by newness from core luxury brands, including YSL, Carolina Herrera, Valentino and an early lead of new brand, Balmain, as well as innovation, including the new milk scent format from exclusive brand, NOYZ.

The hair care category delivered high single-digit comp growth this quarter, driven primarily by strong performance in prestige hair care. New brands, Amika and Moroccanoil drove healthy growth, and exclusive brand, Cecred, continue to resonate with guests, driving robust results with core hero SKUs as well as exciting innovation. Hair treatments, including repair focused products and scalp regimens outperformed, while hair tools declined as the impact of lapping prior year launches and softness in traditional tools more than offset growth from innovative and accessible brands, Shark and T3.

Comp sales in the makeup category increased in the low single-digit range with growth driven primarily by prestige makeup, strong guest engagement with new brand, Rare Beauty as well as newness from existing brands, including MAC, Kylie Cosmetics and Estee Lauder helped deliver growth for prestige makeup. Mass makeup was relatively flat with compelling innovation from brands like Morphe and L'Oreal, offsetting limited innovation from other mass brands.

The skin care and wellness category delivered low single-digit comp growth this quarter. Prestige skin care continued to perform well as newer brands, including Medicube and Dermalogica, and newness from existing brands, including TATCHA, an exclusive brand, PEACH & LILLY, drove healthy guest engagement. Mass skin care delivered solid growth, supported by in-store expansion for ANUA, sustained virality for BYOMA and exclusivity from cocokind. In wellness, continued strength in supplements, including Lemme and MaryRuth, as well as self-care brands, including Therabody, Nodpod and Saje delivered strong growth. This growth was partially offset by pressure in body care as we lap meaningful expansion of key brands last year. Finally, services delivered mid-single-digit comp growth driven by strong member engagement in salon and specialty services, including ear piercing and makeup services.

Gross margin for the quarter increased 100 basis points to 40.1% of sales, primarily due to lower inventory shrink and higher merchandise margin. Our team's relentless focus on reducing inventory shrink continues to deliver meaningful benefits to profitability. In addition to our continued focus on process improvements and associate training across all stores, we have applied data insights to take deliberate targeted actions to improve performance in high-risk locations. As a result of these combined efforts, we saw shrink reductions across every category and every region this quarter. Merchandise margin increased this quarter, primarily due to improving inventory turns and the impact of favorable category mix from Space NK. Although elevated fuel prices resulted in higher-than-planned transportation costs, productivity and efficiency unlocks from our supply chain optimization investments enabled our teams to mitigate this pressure in the quarter.

Moving to expenses. SG&A increased 14.6% and to $815 million as planned, driven primarily by the impact of Space NK and investments made to support our Ulta Beauty Unleashed strategy including investments made in the second half of fiscal 2025, which have not yet anniversaried. Operating profit grew faster than net sales, increasing 11.6% and to $448 million or 14.2% of sales. Interest income was $0.7 million, inclusive of the impact from our increased share buybacks. The effective tax rate decreased 70 basis points to 23.9%, primarily due to the purchase of transferable federal tax credits, resulting in a onetime income tax benefit recorded during the quarter. Wrapping up the P&L. Net income increased 11.6% to $340 million and diluted earnings per share for the quarter increased 15.5% to $7.74 per share.

Moving to the balance sheet and our capital deployment strategies, our focus on cash management, including a disciplined approach to capital expenditures is driving greater cash efficiency. We ended the quarter with $221 million in cash and short-term investments and $145 million in short-term debt. Total inventory increased 12.5% to $2.4 billion, primarily reflecting additional inventory to support new brands, the acquisition of Space NK and the impact of 70 net new Ulta Beauty stores. On a per-store basis, inventory increased 1.4%. Capital expenditures were $58 million for the quarter, mostly driven by investments in new and existing stores. We executed against our increased share buyback plan and deployed cash and leveraged our revolver to support $555 million of stock repurchases during the quarter.

Turning now to our updated outlook. We remain focused on expanding market share and delivering profitable growth in fiscal 2026. The first quarter positioned us well against these goals with strong execution through our P&L. At the same time, we believe it is prudent to take a measured approach to our guidance given the uncertain macro landscape. For the year, we are maintaining our guidance for sales and continue to expect net sales will increase between 6% to 7%. We expect net sales growth will be stronger in the first half, reflecting our strong Q1 performance and the benefit from the acquisition of Space NK. Given our strong Q1 performance, we are maintaining our comp sales growth commitment and continue to expect comp growth for the full year will be between 2.5% and 3.5%. Based on this, we expect our 2-year stacked comp will be in the high single-digit range and relatively consistent across the balance of the quarters, including Q2, which was our highest comp performance last year.

Reflecting the strong performance execution in the first quarter, we have enhanced our expectations and now expect operating profit will increase between 6.5% and 9% for the year. For modeling purposes, we continue to expect gross margin will be roughly flat for the year, driven by higher inventory productivity, continued momentum in supply chain productivity and a modest improvement in inventory shrink, which is expected to offset pressure from higher fuel costs and help balance targeted investments to bring competitive offerings across our unique mass to luxury assortment to our value-focused guest. We delivered SG&A growth in the first quarter, consistent with our expectations and we have not changed our full year targets. We continue to plan SG&A growth in line to slightly below net sales growth and intend to invest in a disciplined way that supports and maximizes profitable growth. We continue to expect to generate strong operating cash flow, which will enable reinvestment to support future growth and also support our intent to return capital to shareholders through our stock repurchase program.

We see deploying capital towards increased share buybacks in the current environment as a compelling value creation opportunity. And in the first quarter, we announced an increase in our fiscal 2026 stock buyback target from $1 billion to $1.5 billion. Reflecting the impact of these assumptions, we have increased our EPS estimates. We now expect diluted EPS will be between $28.36 and $28.80 per share. Our new guidance represents growth between 10.6% and 12.3%, respectively, compared to previous growth expectations of 9.4% to 11.4%. Note, our updated estimates assume a weighted average share count of approximately 43 million shares and a tax rate of approximately 24.5%.

In closing, Ulta Beauty is well positioned to deliver compelling value to our shareholders. This is evidenced by our first quarter results, where our focused execution delivered strong performance consistent with our expectations. As we continue to navigate near-term uncertainty, we are focused on executing with excellence against our plans, maintaining financial discipline, including focused investments to increase market share and deliver strong, profitable growth for our shareholders.

And now I'll turn the call over to our operator to moderate the Q&A session.

[Operator Instructions] Our first question will come from Adrienne Yih with Barclays.

Great. And let me add my -- let me state my congratulations for a fantastic start to the year. Along those lines, I wanted to just talk about sort of like the categories year-to-date that you're seeing sort of the greatest return on the investments that you're making in the marketing and some of the heavy SG&A that you've been doing? And then kind of along those same lines, Chris, can you talk about -- you raised the lower end of kind of the profit expectations and then the higher end certainly due to probably the buyback. But the top line remained the same. So within the SG&A leverage, where are you seeing kind of the most visibility for the back half?

I'll start, Adrienne, thank you for the question. Where we are seeing the investments really paying off is -- one of the strongest categories that we're seeing results in is really fragrance. When you look at Mother's Day, the Mother's Day promotion, how we've risen the fixtures up and been able to add assortment into our stores and then the marketing that we've done along with it, that's definitely come into play. We've also been investing in our Ignite brands and looking at ways that we can continue to lean into our brand building plans that are a 360 approach that are exclusive brands that we have here at Ulta Beauty, and we love what we're seeing there. We're focused on being very balanced in our portfolio and continuing to look at how we can continue to drive sales across the store and not just being focused in 1 area of the business.

21 Days of Beauty, we were pleased with the results there. We do think that the guest is continuing to look at value. And then we're also leveraging our tool of UB Media to really capture that guest to get them because we know where they're shopping in there. We know where they're at, and we can take those brand dollars to get them engaged into our store and online. So those are the places where we've been really seeing a nice return for the investment that we've been spending. And again, we're going to be continuing to focus on that in Q2. Chris?

Yes. Thanks for the question. I mean, one, it was pleased with the strong execution through the P&L in Q1, which gives us confidence to deliver against our full year goals, increase our operating profit commitments at the low end and the midpoint. And certainly, as you noted, raising EPS, both due to the operating profit increase and share buybacks.

I'll go back to the principles. Our goal is to maximize value creation through driving increases in operating profit. As we start the year, we'll have opportunities both on the leverage side and both on the invest-to-grow side, while maintaining discipline on margin and ensuring that based on the guidance we provided, our operating margin will not go backwards year-over-year and there's opportunities for leverage within that. So as I think of the balance of the year, I'll point to where we're seeing some strength, right? We're seeing some strength in supply chain. You saw shrink play out positively in the quarter. The supply chain team continues to do a great job in supply chain optimization.

I think you also saw very strong discipline and consistent performance on SG&A. So I would say there's some opportunities in there. But the balance of the year is going to be this, how do we thread the needle of trying to optimize growth while capitalizing on where those leverage opportunities and balancing those 2 to keep trying to deliver against and where we can drive operating profit up.

Your next question will come from Simeon Gutman with Morgan Stanley.

So 2 parts. First, the exit rate comp or what you did, I think, was it April, I guess, is that as good as it gets, given the compares step-up? Or was there something unique timing-wise end of the quarter that pushed it down maybe temporarily? And then, Chris, just following up to what you said, some of the language you used trying to optimize or managing both. Is it in the plan for SG&A to step down and that's a given or it's not a given, and it's going to take some maneuvering as you work through the back half of the year?

Yes. So maybe I'll take SG&A first. We're highly confident in the SG&A execution. The year is playing out as expected. Remember, we said we expected double-digit growth in the first half. That was largely attributable to Space NK and the anniversarying of Ulta Beauty Unleashed investments we made in the back half of 2025. That included wellness and marketplace as an example. We simply stepped down into low single-digit growth in the second half of the year because we're going to anniversary over those items. We are investing in the second half of the year. And we also have cost optimization that's helping actually further get ROI and benefit and put more back in the business. So you're going to see SG&A consistently play out.

What I was articulating is, each year as we have opportunities to either further accelerate top line, that balance of top line versus leverage while maintaining discipline in margin and constantly adjusting those 2 levers to capitalize on opportunities to drive operating profit up would be the goal as we progress through the year. And you saw us do that in Q1. Obviously, there's the macro environment and some uncertainty there. We think this is a prudent guidance with strong double-digit EPS growth. And our goal at the end of the day is to be a consistent compounder of EPS at double digits, and this guide provides that. And I think you should feel positive about the strong execution in Q1.

And then I'll take the comp trends. So Q1 played out largely as we expected. February was in the low double digits as we lapped our weakest comp from fiscal year 2025. And then comp growth in March and April was in the low single-digit range. As Chris shared, we continue to expect our comp sales growth for the year to be between 2.5% to 3.5%. And just as a quick reminder, second quarter '26 is our toughest comp comparison on a 1-year basis over the strong results that we had in 2025. The guide implies high single-digit comp growth on a 2-year stack basis. We're very confident in our ability to grow sales and to deliver our guidance, and we have great plans in place to fuel our performance. And I do think that this is where our unique model plays into that. We can have a consistent track record of delivering sales growth in many different kinds of economic time frames that are out there. So hopefully, that answers your question, Simeon.

Your next question will come from Dana Telsey with Telsey Group.

As you think about the sales growth, Kecia, which is very impressive with transactions and with traffic, as you exited the quarter, how is the exit rate looking forward? And just like Ulta Beauty World, what are the next events? And how do they break out by quarter going forward? And then, Chris, as you think about the margin comparisons going forward, either on SG&A or gross margin, whether merch margin or others, anything we should be mindful of? And how do you think of the investment spend going into the margin profile through the shaping of the year?

I'll start, and then I'll turn it over to Chris. Thanks for the question, Dana. Our ticket was up 3.7% in Q1. It was largely driven by product mix. Our transactions were up 1.6% and that was in a challenging macro environment, but we are really focused on how we can continue to drive traffic. We're very confident in our marketing and our merchandising plans to really support and to drive our business. And our teams are doubling down, particularly in stores to really drive traffic and the guest conversion through our guest service, eventing, which we did a lot of events in those last quarter, we're going to continue that trend, loyalty and personalized marketing efforts.

You asked a little bit about Ulta Beauty World. We are really focused on creating excitement and energy, both in our online platforms and in-store. And we build great plans around what activities we had last year and how do we continue to improve them even more for this next year. I'm pleased with what I see in the Q2 and the back half plans for taking our learnings and continuing to improve always. The teams from a marketing, merchandising, store operations and digital perspective are all working very, very closely together. And I feel great that the go-to-market team has good plans in place for Q2 and the rest of the year.

Yes. As you think of the margin and call it, the profit profile as we progress through the year. So one, we actually have a very balanced first half, second half operating profit growth profile, which is positive. First half is modestly above the second half. Two primary factors there. Obviously, slightly higher sales. And then as you think of gross margin, higher benefits of shrink in the first half of the year is the big difference. And we had articulated that, right? We started getting shrink benefits more through the back end of last year. We'll start cycling through success.

As you move from first half to second half, first half, we'll have stronger gross margin performance. Remember, SG&A is going to have the increased cost because of Space NK and the anniversarying of prior year investments we made. When you move to the second half of the year, you have a slight flip where you see the gross margin moderate a bit as planned. And then you start seeing benefits of SG&A driving some margin improvement in the second half of the year with low single-digit growth. So it's playing out exactly as planned.

Remember, we made investments in 2025 that we're going to continue to benefit from marketplace, wellness, just to name a couple. But in '26, we're also making investments. We have agentic AI as a core strategy. We continue to invest there, ongoing brand building investments that we talked about in the prepared remarks, in the personalization initiatives to maximize incremental sales opportunity. So we feel good about both the investment profile, the actions we're taking to deliver a strong, profitable growth profile for the year and ultimately deliver double-digit earnings growth.

Your next question will come from Michael Binetti with Evercore.

Sorry to ask again about the near-term stuff. I think the stocks have been a little sensitive to it with the macro that you guys have commented on here. But I think it's a high single-digit stack with second quarter in the maybe 1.5% to 2.5% range. I think you expected the category last time we talked to grow 2% to 4% this year. Is there any change to that assumption we should think about rest of year or your ability to maintain share? And then on the gross margin, I guess it's implied to be down about 30 basis points after the first quarter being up 100. I'm curious what -- maybe a little bit more on what caused the merch margin to expand, why we don't flow that through the rest of the year? Or why some of those shrink tailwinds from first quarter can't continue even though you anniversary a little bit in the second half?

Thanks for the question, Michael. I'll start, and then I'll kick it over to you, Chris. In regards to the industry, what we're seeing is that last year, growth in beauty grew stronger each quarter as the year went. So we're going against stronger growth in the back half, and we expect that growth to really normalize as a whole. So that's really what we're seeing in the industry. We're still committed to share growth at Ulta Beauty, and we feel like that's implied in our guidance and our numbers that we've put in front of you guys today. The category is still competitive, and we know others are going to be continuing to level up the battle for share, which just means that we're going to have to be even better as we execute through the remainder of the year.

And we are confident in our plans, brand building exclusivity and wellness. And then just as a reminder, like if you look at our total sales, I mean, we came in at 11.1%. That's really strong when you're looking at the total market growth and where our growth came. That's nothing to be shy of. I'm really pleased with the low. So again, I would guess -- I just would close out by saying we're staying really close to the customer needs, and we're continuing to sharpen our operational focus. We're making the targeted investments that Chris and I both talked about to really strengthen our long-term competitive advantage. And we are playing our game and continuing to lean into the places where we can really continue to differentiate ourselves. Chris?

Yes. So one, I would just add one thing on sales. Obviously, our total guidance is 6% to 7%, which, of course, includes the onetime benefit from Space NK. But even taking that out, the total growth ex Space NK, strong mid-single digits, well within our long-term algorithm and to Kecia's point, competitive from a share standpoint. So we're going to continue to execute this. I think this is more of us cycling through success from the prior year and you have a strong 2-year double stack at high single digits through the balance of the year. So feel good about that.

Look, as you think of gross margin, it's about flat for the year. So I think we're managing gross margin nicely. To your point, we -- and this was planned. We expected larger shrink benefits early in the year. That was a conscious effort. We started realizing that benefit towards the back end of the year, and we're going to cycle through that success. So that's one of the drivers.

Obviously, with some moderating growth. There's a little bit of deleverage in there in gross margin, but it's not substantive. Supply chain continues to drive strong optimization, right? And they've been absorbing the fuel impact. That was something that wasn't fully planned. It's not significant for total Ulta, but it's actions that they're taking to own that. So we feel good about gross margin being flat for the year, and we're going to continue to execute against the P&L, be disciplined on SG&A, focus on that balance of finding leverage opportunities or investing to grow to deliver against our operating profit commitment.

Your next question will come from Mike Baker with D.A. Davidson.

I wanted to ask about TikTok Shop. Our tracking suggests that it's growing nicely, maybe even doubling its daily sales versus when it started, I don't know, about 6 weeks ago or so. When is this big enough to show up materially in the comps? And I remember last quarter, you were sort of still debating whether it's going to be included in the traffic numbers. I'm just wondering if it is in these traffic numbers?

Thanks for the question, Mike. I will just start and then maybe Chris can add. What we've done to date is we've really anchored in Only at Ulta exclusive. We've got 17 brands and 30 exclusive bundles. We do see that this -- it's not just an e-comm play. We also do see a halo impact for stores. Our next focus area on this because we're still in the early phases is that we're looking at increased exclusive bundles that are launching both single brand and multi-brand and also what I call first moments with the brand partners, which is like early access launches and select exclusives that creates a lot of excitement. We don't expect this to be cannibalization -- no cannibalization with our overall business. We think it's complementary of our e-comm business. And we do think it can bring a new guest in.

There's 2 things that we are really looking at. The first one is that we think this is a way that we can expand guest acquisition. A younger consumer is engaging with TikTok. So it's about new member acquisition. The members when they come through, of course, that comes into our loyalty program. And the second is when they're already shopping in this platform. And why would we not want to participate in this activity with Gen Z, millennials, Gen Xers. While there is some inherent sales opportunity to us, we really think it's more about acquisition and marketing getting that guest into our overall ecosystem.

So it's not -- the main focus is not necessarily to drive the e-commerce revenue. It's really to getting new guests into our database and to be front of mind and center where the guests are already shopping today, which is one of the new places on TikTok.

I was going to ask just as a follow-up, I was going to -- I guess, a follow-up, but ask about somewhere, you're -- there's something better in your operating profit dollars. You've maintained the sales and comps, you maintained the gross margin. You seem to have maintained the SG&A. I know it's small, but at the lower end, you did increase the operating income growth. So is that more -- I suppose it must be on the SG&A line, still up less than sales, but maybe up less than previously thought? Or where does that increase at the low end of the operating profit dollars come?

Yes. It's -- so the way I would frame it is when you look at how we executed Q1, we saw strong execution both in gross margin and SG&A. And that does create opportunities for us to drive operating profit. With that said, again, if you go back to the principle of maximizing value creation, what we want to do is make sure that where we have incremental growth opportunities, we're always balancing those trade-offs. So I think it's about seeing how the year plays out to continue to not only execute against what we just updated in terms of increased operating profit guidance at the low end and the midpoint but balancing that to capitalize on opportunities as they come while maintaining discipline in our operating margin profile. We will not go backwards in operating margin. And so we remain committed to that goal.

I would just maybe add like what we focused on last year and what we said we were going to do was drive top line growth and take share and we were committed to doing that all throughout the year. And this year, we said, all right, now it's time to take a step back and to drive profitable sales, which Chris was just talking about. It's applying good disciplines within the organization to maximize the value out of the investments that we've made to continue to return value to our shareholders and drive profitability for our business. That's the methodology that we're taking as a leadership team, and I'm really proud of what the team delivered in Q1, and that's what we're committed to looking at for the rest of the year.

Your next question will come from Ike Boruchow with Wells Fargo.

A question on the margin. Sorry if you mentioned this on the prepared call -- prepared remarks. The margin guide was flat to up 20 basis points. I didn't hear you reiterate that. You went with profit growth. I guess on the confirming that it is still flat to 20 basis points. And then the follow-up to that, Kecia, is you do have from the Analyst Day, and I know you weren't the CEO, but you have the 12% target that's still out there. Is that still something we should use? Or do you believe the business should scale from here? I'm just trying to think about how you think about market share gains and profit growth versus a margin rate.

Yes. Thanks for clarifying. Yes, in our prepared remarks, we did confirm that there's no change to the operating margin guidance. We expect flat to up 20 basis points, and we're committed to that. In Q1, we executed against -- exactly against our plan. Regarding the 12%, right, the long-term target for margin, was that the question? Just to clarify, sorry.

Yes, just because you're above it and you're calling for scale already. So I'm just kind of curious, should we not think about the 12% as a target anymore? Are you -- or is there still potential reinvestment due to competition down the road that you want to like give yourself little room on? I'm just kind of curious.

Yes. I mean, we haven't changed our long-term guidance. I mean, I would say this year, obviously, we're already ahead of 12%, and we've committed to flat to some leverage of up 20 basis points. So I think that's a strong signal. The goal is going to be to continue to deliver against our long-term value creation algorithm, which is mid-single-digit top line growth, strong mid-single-digit operating profit. You hear us talking about driving operating profit faster than sales and compounding double-digit earnings growth. So I think that's the framework that we're committed to. And so I think you see that discipline executing and what we said we would do in 2026 and how we've progressed this year.

Your next question will come from Sydney Wagner with Jefferies.

Can you just talk about what you view as the primary driver of loyalty within the Ulta ecosystem? And how does that differentiate you versus other beauty retailers? And then can you discuss what you guys can do to drive higher frequency of visits within the category or within your consumers? I understand there's some value sensitivity there, but what's driving the higher traffic or that consumer coming back more frequently?

Thanks, Sydney, for the question. What I would say around the loyalty program is that it's an easy-to-understand program that the engagement is really high, especially on the app. So we have a great relationship with our guests and they do understand what this -- what the return is for investment and a little bit of information from them. When you look at where we think that we can really gain value out of the loyalty program, it's really through personalization. When you look at all the tools and then you layer in AI capabilities into such a 47 million rich first-party data set that we can really maximize how we're communicating with that guest and offering them some guests like a GWP, somewhat increased value, somewhat percentage, somewhat price point discounts. You name it. I could list -- go on and on with the list in the different ways that you can communicate with them.

That's really where the power of this mechanism comes. And a lot of times, it's not even about discount, it's about education, it's about product recommendations. It's how you can continue to help them build the basket and then be predictive on what it is that they might need to be purchasing in the future. So when you look at what the value is of our loyalty program and why they want to stay with us, it's because we have that deep-rooted relationship with them, and they do see the value that they get by participating in the program in and of itself.

I think, Leila, I think we have time for one more question.

So our next question will come from -- yes, your next question will come from Michael Lasser with UBS.

So there's been a lot of comments and points made on the call, and it's really feeding into this idea that the beauty category is increasingly becoming more competitive, both from some traditional players like mass merchants as well as the online channel. And now you're guiding to what seems like a low single-digit comp for the rest of the year, coupled with gross margin degradation is further suggesting that you need more firepower in order to maintain your market share. So a, is that a fair interpretation of all this? And b, have you increased your promotional activity or your expected promotional activity in response to what you have seen lately? And then I have a quick follow-up.

Yes. Thanks, Michael, for the question. When you look at the 2-year stack on what we're looking at for the business for the rest of the year, we're in high single-digit range. So this is not a layup. And I would also say that we're focused on continuing to take share. And we did that this last quarter, and that's what this plan continues to look at us being able to do is to be a market share gainer. Beauty has always been a competitive category. And I think a lot of people want to play in it because it's attractive. It's got attractive profit margins. But I will say this is what we do, inside and out, beauty and wellness. And we're a trusted beauty category expertise. We've got a broad-based assortment with a wide range of prices. No one really does exactly what it is that we do. Newness and discovery drive a lot of the spend in even when I'm looking at this year, we've got an increased focus on exclusivity.

Exclusivity, I think, is what can continue to differentiate us. And it's not just exclusivity with big brands because a lot of the big brands we already have, there's really nothing out there that's really what I would call overly meaningful that we don't really have in our assortment today. So it's really about exclusivity with an existing brand or it's about this brand building, which I talked about in the prepared comments. So how do we find and curate and build a brand that could be serving a white space opportunity because, again, no one has the insights that we do because we have everything from mass to luxury and everything in between. So our plan that we've put in place or that we've shared in regards to our guidance, is assuming that we are going to continue to be a share gainer in the category. And again, you look at our 2-year stack, we're in the high single-digit range, which I think is still very compelling for growth here at Ulta Beauty.

And my follow-up is, can you help calibrate the market's expectations? Should we expect traffic to be down over the next few quarters in light of everything you're seeing? And would you think that, that's the case for the overall category that is just going to be driven by a rise in ticket more than anything else?

Yes. Yes. Just to clarify, again, we're committed to strong profit growth. As noted in our guidance way, we actually increased the operating profit growth on the bottom end and by definition, the midpoint of the guide. It's balanced first half, second half. So it's actually pretty evenly spread. We're making adequate investments to do what Kecia just talked about, which is drive compelling growth and make sure that we're focused on share gains. The 2-year stacks, again at high single digits for the balance of the remaining quarters is strong. And so we feel really good from a profit standpoint. And you saw that in our updated guidance, right, having the conviction to raise the bottom end. And obviously, we're going to continue to put our cash to work, right? So we increased EPS as well on the back of increased share buybacks by $0.5 billion for the year from $1 billion to $1.5 billion and have a very nice EPS growth profile of double-digit growth at about 11.5% at the midpoint.

Thanks, again, Michael. I would just say thank you, everyone, for joining us today. To wrap up, I'd like to thank our guests, our trusted brand partners and dedicated associates for their engagement and support. I remain confident that we are on the right path to drive sustainable long-term growth and value creation for all of our stakeholders. We look forward to updating you on our progress on our next earnings call on August 27. Thank you, and everyone, have a great evening. Thank you.

Thank you for joining. This concludes today's call. You may now disconnect.

Well, good morning, everyone, once again, and welcome to JPMorgan's 12th Annual Retail Round Up at JPMorgan's new global headquarters. It is our distinct pleasure to welcome the Ulta management team, including CEO, Kecia Steelman, and recently joined CFO, Chris DelOrefice. Like other fireside situations, I will have a list of questions. I'm going to go through. And then towards the end, we will open it up for investor Q&A.

For those of you in the room, please use the microphone if you decide to ask a question. So everyone in the room can hear it. So Kecia, you're 16 months into your leadership here at Ulta. Top line execution has turned strongly since you took over. I think last year, at this time, almost to the day was the start of the turn where the business really started to inflect -- and over that past year, share performance has improved. You acquired Space NK in the U.K.

You launched Rare Beauty, you launched Ulta Beauty on TikTok shop and you launched the marketplace. Just a few things in that 16-month time frame. So it's certainly been busy. And what's most impressive is that the broader industry's growth was pretty similar in '24 and '25. So it's really a share inflection story, which is all wonderful.

So I guess the big picture, very open-ended question is -- what do you think has been most instrumental in changing the momentum in the business? Do you think the prior leadership maybe which the senior leadership was maybe didn't focus on the details and focus on conversion, didn't focus on the stores and driving the culture. I know you're a store person and very big on culture. So open end, what's the top things that you -- that come to your mind in terms of what changed the momentum in the business?

Well, first off, thank you, Chris, for having both Chris and I here today at JPMorgan. We're excited for our conversation. But what I would say is it's not just one thing, it's many things. The first thing that I really focused on when stepping into the role as CEO was around the clarity of the strategy. I'm a big believer in that everyone in the organization from the associate in the back room of the store to the boardroom needs to really clearly understand what the strategy is and what it's about and the role that they play.

The second was around getting my leadership team in place. What got us at Ulta Beauty for the first successful 35, 36 years wasn't going to be what we needed to get us to the next phase of growth. And so I doubled down on my efforts to get the right talent in position like Chris here, who's joining me on the stage today. Those two things in combination, I think, really helped us improve our execution collectively together. Also, we really took the strategy of the Ulta Beauty Unleashed plan, which had three components, and I'm a big believer in simple language that everyone understands from driving our core business to driving margin-accretive business to realigning our foundation for the future.

There were some key unlocks within each of those that I really feel helped elevate us in 2025. Around driving our core business, it was around brand building and making sure that we had the right brands in our assortment. We had 100 new brands launched in 2025. Really being part of the cultural marketing relevance and being top of mind, we -- our Carter tour, we were at Lollapalooza, and Coachella. We were engaged in social aspects, and that was really big. And then really investing in our digital channels.

We added a lot of functionality to our e-com, which made that shopping much easier. Then around margin-accretive businesses, there were four key areas that we were really looking at. International, we started the year only as a U.S.-based company. Now we're in five countries. Across the world, we acquired Space NK, as you mentioned, Wellness, we were focused on Marketplace, UB Media. These are ways that all collectively together, they are continuing to drive the profitability of the business. And then the third is around realigning our foundation for the future.

When you look at our go-to-market team, the new leaders I put in place, the way that we are going to meet with brands, the way we bring our brands to life in our stores, I saw in my seat before as CEO -- COO, where there was opportunity to collectively move at much quicker speed and alignment within the organization. Time is money. And time and execution really does matter. And just those go-to-market leaders working collectively together with our brands really brought brands to life much better and much quicker in our stores. You combine all of that together, having the right team, the right plan, the right strategy in place, I feel that's what really contributed to our success in 2025.

Excellent. As you look ahead, into the second full year of your leadership, where do you see the biggest opportunities to enhance that momentum, whether it's the merchandising side, store execution, customer engagement. You said another way, what strategies are you really most excited for in 2026?

Yes, that's like asking me who are my favorite children. What I would say is -- well, what I'd say is that for me as a leader sitting in the CEO role and Chris here as the CFO, our commitment to the shareholders is this last year, what we said we were going to do was drive top line revenue growth and recover share erosion from 2024, and we did that.

In 2026, we want to continue that momentum, but we want to also react and respond to more profitable sales in the end. So things like getting our SG&A back in line, more moderated CapEx investment this next year. We've been investing a lot in the business over the last few years. We need to start harvesting some of those investments. And that's what we're committed to, and that's what we've given in our guidance to our plan.

So we need to do both. We need to drive top line revenue growth, take share and also drive increased profitability for our shareholders. So that is my guiding principle for 2026. How we're going to do that is continuing to lean into the Ulta Beauty Unleashed plan. Our core business is the main focus of what Chris and I are looking at, how we continue to drive the business along with the executive team, how we improve our 4-wall productivity in our stores.

Our stores are our largest asset that we have today. So how can we continue to drive increased volume, profitable volume and improved turns out of our existing site locations. Newness and brand building, really important to us -- it's really important to this entire category. So really doubling down on that. And then leveraging our investments around personalization, our digital acceleration and personalization in communicating one-to-one with that rich 46.7 million loyalty member base that we have today is really important.

And then doubling down on our growth from an international perspective, we are in the top growing beauty markets right now with the acquisition of Space NK in the U.K. and we want to continue to grow Space NK. In Mexico, we've got nine stores open. We're going to continue to open more this next year. And then our launch in the Middle East, we now have three stores that are open, and we've got really great aggressive plans to continue to grow there.

Wellness, we're doubling down on wellness. Marketplace, we've continued to launch more brands. I'm very pleased with how the Marketplace is working with our ecosystem. And we're just going to continue to lean into our UB Media and how we can continue to leverage that loyalty member base with the dollars that we're able to take in front of brands and really drive the business collectively together.

And then in regards to realigning our growth for the future, it's around AI. How are we going to continue to leverage AI. We've seen some great successes in our guest services platforms and how we can really improve our efficiencies there. But also in supply chain, there's been some great wins. Agentic AI, we're very excited about what Agentic could really do to enhance our business.

And then just continuing to look for ways to take cost out and be efficient within our business as a whole. Those are the strategies that we're really working on. So I'd say it's focusing on what we did in 2025 and just taking that to the next level, I feel positions us for great successful 2026.

Excellent. If you look over the long arc of time, Ulta over the past 40 years has turned into sort of this balanced -- somewhat balanced prestige mass retailer. At the same -- as you've gained access to more and more prestige brands and have been able to take the customer to even the highest luxury price points in many stores. At the same time, it's become a much more hit-driven business because of social media and TikTok and the spikes are fast and maybe recede faster.

So as we think about the strategy to continue to get not only access to brands, but to get hit brands faster. So the question is, how have you partnered with your Chief Merchant to engage with the big brands, but also the developing brands to make sure that when they think about going national in the United States and now in the U.K. that Ulta is a partner that they want to get there faster versus maybe on a bit of a delay in the past.

Yes. One of the things that's kind of fundamentally changed is there used to be a long list of big brands that we wanted to bring into Ulta Beauty. And one of the strategic fundamentals that Lauren and I have discussed is that we want to look for [ white ] space opportunities, opportunities to bring brands in that complement our already existing assortment, not cannibalize the existing assortment that we have today.

There are not that many big brands that we don't have that we're going after, to be fully transparent. So there's really four ways that we're looking at how do we create newness and brand-building capabilities within Ulta Beauty. Number one, of course, is the big brands. There's a few out there that we still want to get. The second is these smaller, more independent brands. So think like brands like Cécred, which we launched and we were -- it was the largest specialty hair care launch in the company's history.

So how do we find more Cécred's out there? Polite Society is another one, where we've launched Polite Society. So those kind of brands we're continuing to look for. The third are more around emerging brands. So think like K-beauty brands. K-beauty to me is an emerging brand that we're continuing to go after. Lauren and I just recently were in Korea on the ground together, just meeting with the manufacturers, with the brands that are there.

That is an exciting growth opportunity, I think, for us at Ulta Beauty. And the fourth one is really around the strategics. We met with a group of strategics more recently in New York. We're going to have a similar meeting in California, where in the past, Ulta Beauty might have been looked at as the place that you would scale. We wouldn't be looked at as the place where you build, you scale, you launch and you globalize within Ulta Beauty.

And I really do believe that we no longer want to be viewed as the secondary place that you go. You need to be starting to think about us as the primary because with the different store prototypes, the different guests that we can bring into your brand and with the caliber of talent that we've been adding into our merchandising team, we're positioned better now than we ever have been before. We've been viewed as a very good partner with legacy brands, the brands that have had a shift in their momentum, we have proven that we will stay with you, and we'll get in the kitchen with you because we know this consumer better than anybody else out there.

So I think having that credibility within the marketplace, we want to be a place that you look to go to launch and build and grow with us for the long term. We want to be in a win-win relationship with our brands, whether it's an incubator brand that's just starting or if it's a legacy brand that wants to continue to grow.

Do you think those conversations was it not purposeful before? Was it not -- was it not -- you would think that this would have been a strategy to have that conversation with the merchants, whether it's a strategic brand that you're going to try to grow or a brand that's trying to go national. So is there a change in terms of how you approach these brands? Like what was different versus how it existed prior?

I think it's been a shift in where the priority and the time was spent because there were enough big brands that we felt like we still needed to get into our ecosystem. That was maybe where the top priority was at that time. That has now shifted because there are just not that many big brands that I necessarily feel that we are missing that we need to be bringing into our assortment that doesn't cannibalize our already existing assortment.

So I think that's a little bit of shift of the environment of where we are today from where we were in the past. But I also think it's just the maturity and the level of sophistication that we've got within our company right now today, where we're primed, positioned and ready to go to be able to offer this to our brands that maybe we weren't as strong with in the future -- in the past. So we're ready to go, and I look forward to being able to bring some of these brands to life in Ulta Beauty.

Awesome. And so as you wanted to go back to Space NK, 83 units, prestige luxury beauty retailer based in the U.K. What have you learned since the acquisition in July in terms of the growth potential of the business? And what are the sort of synergies with the existing business? And do you see this as an opportunity to scale in Europe?

Well, I would start with saying that I'm very pleased with the acquisition of Space NK. We've had it now for the holiday season, and I'm really pleased that we made this decision to bring them into the Ulta Beauty family. Two reasons. Number one, the U.K. is a fast and growing market. It made a lot of sense for us to be able to acquire versus trying to grow organically or have some kind of a partnership.

This was a great opportunity for us. The second is that the culture and the team is fantastic, and we were able to retain that team and bring them into the Ulta Beauty family also. What I would say that I've seen is it's one of those situations that it's a 1 plus 1 equals 3. We have scale. We have the buying power.

We have the operational efficiencies. We understand what it's like to grow and to scale and to operationalize. We bring that to Space NK. What they do really, really well is the storytelling inside their stores. They are fantastic at brand curation, especially in the prestige to luxury side of the business. They have brands that we currently don't have within our assortment.

We can learn a lot about those brands and would those brands work in Ulta Beauty. And then I just feel that there's this ability for them to be really successful in high street locations that are smaller footprints, and we had not quite cracked that code here in the United States. So we're learning from them. We're learning just as much from them as they are us, which I think is fantastic.

One of the things, the fundamental focuses that I shared with my leadership team is I've seen a lot of companies acquire other companies and then they try to force their fundamentals and their -- the ways of doing business that works for the larger company on to the smaller company. I want to really protect what makes Space NK really unique because they are very unique and they're very special, and I want to keep them authentically who they are.

But I think we can learn some of those aspects and bring them into the larger ecosystem of Ulta Beauty. So we've committed to that. It's been a great journey. I'm very pleased with the asset. I do think that it can continue to grow. There's still plenty of growth opportunity in the U.K. And I would say that, that's what our primary focus is right now is continuing to grow them in the U.K.

Do you find any appeal in having high street Space NK stores in the United States?

Yes. I think that there's an opportunity where because we're different enough, that we complement each other enough that there potentially could be a world in the future where they both coexist, but that's not what my top priority is right now today.

Understood. And then it's always helpful, particularly for me to talk about trends within the business. Obviously, there's been a lot of questions on prestige makeup, durability of growth in fragrance, K-beauty, skin care. So can you jump into what's going on from a trend perspective? And any sort of variance that you're seeing versus maybe what happened 6, 12 months ago?

Well, you hit on a couple of them in your question here. What I would say is that I'll start with K-beauty. K-beauty has been an emerging brand. We're the largest U.S. brick-and-mortar K-beauty retailer with some of the key brands that we -- and the merchants have done a fantastic job. They brought into the United States, brands like ANUA and medicube just have been home runs.

So it's been great to see these brands come to life. We're really focused on quality of brands because I think that that's also some noise that's out there and especially in the space as it can be viewed as a very fashion in and out. Our merchants do a fantastic job of making sure that these are really great products for the value and that they have longevity with them because if you're investing in bringing a brand into a store, it can get really expensive if you just continue to turn it. So K-beauty is a trend that I see staying with us. GLP-1s, I've been talking a lot about this recently.

GLP-1s, both from a skin elasticity and rapid weight loss can impact how your skin looks, which then impacts how your makeup looks. So moisture back into skin is a trend that I see really continuing to grow. Along with hair, hair loss is also something that is part of the GLP-1 phenomenon. So us leaning into hair and skin with GLP-1, I think, is here to stay. Also heavier makeup use GLAM or GLAM makeup, it was kind of this clean [ girl ] aesthetic look. It's getting back to a little bit more heavier makeup look, which is really good for us, yes, especially heavier eye, heavier lip, a little bit more back into the contouring again.

So we like what we're seeing with that. Those are just some of the trends that we're seeing that we're going to continue to lean into. And something that Lauren and I have talked a lot about is with us having such a great visibility with the 46.7 million loyalty members in our database, we also have the ability to set the trends. So instead of waiting for the trend to happen, Ulta Beauty working a little bit more proactively with some of our brands on, we seek how things are kind of going, but we should be also have a responsibility to create some of these trends that are out there in the environment. And I think you're going to see us starting to play a little bit more in that realm here in the future.

Contouring, that's 2015, 2016.

Absolutely. And actually, some of the looks are actually more in 1980s, 1990s, which back to my era of heavier makeup usage. So it's great to see.

Any concerns on fragrance? .

Yes. I'm glad you asked about fragrance. Fragrance has been an ongoing trend. What we're seeing in fragrance that is very unique is that it's a younger consumer in the -- that's male that's really coming into this category. That's a new member that's coming into our ecosystem, which is great. And it's like in the past, you used to buy your fragrance and then it would be your signature scent. Now we're seeing multiple scents worn throughout the day. Fragrance layering is continuing to grow. We've publicly gone out there and said that we want to be the #1 fragrance destination in the U.S. and we've got a good plan in place to be able to achieve that here in the near future.

So one of the questions that we're asking in all these meetings is obviously about the consumer. There's a lot of dynamics. Obviously, great news in the market today with oil prices pulling back. But it is an uncertain backdrop. In the past, we've seen when gas prices surge granted, we're at 4 and change, we're not 5 like we saw in 2022, where you saw a more distinct impact to the consumer and the consumer has got tax stimulus, which should be helping them right now.

So an open-ended question of what are you seeing from the consumer? Is there -- is the uncertainty of the war and energy prices having -- causing any concern or having an impact on your business? And to what extent do you think stimulus is helpful?

Well, we talk often that this category is a self-care category and that the consumer does tend to prioritize taking care of themselves front and center, whether you're talking about beauty or wellness. So I feel like we're well positioned, especially with having everything from mass to luxury and everything in between with all categories within our portfolio. So I do feel that we can weather any storm that could potentially come our way.

And it's totally unpredictable. I mean from one day to the next, I really encouraged my team to focus on controlling what we can control, make sure that we're getting great guest experiences. I did share on our earnings call that in February, we hadn't really seen the consumer impacts yet. We're not prepared to share any intercompany or inter-quarter data yet. We'll be sharing in June like what we've seen in the first quarter. But this is a great category to be in, again, because it's prioritized.

What we've heard from our community is because we have a very rich dialogue with our consumer base. Is that what they say is that they're going to continue to prioritize the regimens. They're not going to trade down in their regimens because it's something that's important to them. Now what they say they're going to do and what they do aren't always the same, but all of the insights that we have is that we should be able to continue to weather whatever is going to come our way. This is going to be a category that they're going to continue to prioritize, and we'll just continue to stay close to it.

I think Walmart has said in the past that the consumer, when you ask them, they're like, "Oh, we're like worried and we're not going to spend and then -- but the reality is like give them a little stimulus and they're happy to continue to spend."

Well, I feel like I've been saying it's an unpredictable environment since I've stepped into the role as CEO. And actually, even when I was in the COO role, it's been unpredictable for many years for many different reasons, whether you're talking tariffs or wars or that's -- I think that's part of being in retail. After being in retail for over 30 years, good retailers figure out how to navigate any type of storm. I feel like we're well positioned to be able to do that here at Ulta Beauty.

Excellent. I guess the one question that I do have as a follow-up there is, you did assume some moderation in the category backdrop. I mean I think from our side, [ Kylie ] and I and [ Mary Kate ] talk about this all the time. It looked like the category grew close to 5 -- pretty close to 5% last year. You're assuming a slower -- you are assuming a slower growth rate. So I guess to what extent was that just taking a prudent outlook?

The category growth for 2026 has been communicated it's between 2% to 4%. Our guidance at 2.5% to 3% or 3.5%, the midrange of that is 3%. What I've said is that we want to continue to grow our top line revenue, and we want to continue to take share. So that's what my goal and objective is to be a share gainer, not a share donator. And that we've got plans in place that I feel that will enable us to continue to do that in 2026.

Fantastic. So Chris, I don't want to leave you alone too long over there. So you joined Ulta in December. I would love to hear your high-level thoughts of how you think about financial stewardship, whether it's a greater focus on disciplines around return on invested capital or perhaps creating a funding mechanism where the future investments because this is a category that you continue to invest in, become self-funded.

Yes. No, I appreciate the question. Thanks for having me. One, it's super exciting to be part of Ulta. Obviously, I think it's a strategic positioning, the category it plays in. There's a great financial -- the strength of the financial core is there and just the people-focused culture is amazing and working with Kecia. So super exciting.

When I think coming in new, I'd point to maybe two things that go hand in hand that I'm focused on as you think of my time, one in Kecia's setup, obviously, we're focused on core beauty, right? But there's all these other opportunities that are complementary and are very early innings, right? And we've kind of set the table and set the foundation of new growth vectors that we can unlock that can contribute to sustained growth profile and momentum in the future.

So think of that as kind of we've got this great foundation and an opportunity pipeline. And I want to make sure that we unlock that in a thoughtful way and helping the team stay focused on the core, but at the same time, unlock the new growth. I think where I'm spending a lot of my time is, okay, how do you do that? And the financial discipline of a strong growth profile, but a more maturing growth profile, right?

A lot of the history here has been sort of stacking as you expand. And now you have to be much more disciplined in that approach. So there's principles that I bring to the team of one zero-based budgeting and really, you have to sort of rebid for the investments that you had last year. And so it starts with that. The second thing is everyone understanding how do we get more leverage out of what's already been put in place from an investment profile.

What are those natural leverage points in your portfolio? And third, a productivity agenda. And so it's almost like a balance sheet, right? I've got the invest side. I've got the growth side of the equation and pulling that together, to your point, in like a truly integrated planning process that optimizes profit growth at the end of the day. And so I've been super focused on that. I know 2025 was a year of investing in some key capabilities.

To your point, we're won in the marketplace, driving market share, had nice top line growth. We did what we said. When you look at our guidance in 2026, it sets up very nicely against our long-term value creation algorithm and being able to compound earnings at double-digit growth. So spending a lot of my time bringing that to life within the guide that you see that I think sets up nicely for Ulta.

So it was interesting to look back. So in 2012, you had $2 billion of sales and SG&A was 22.0% of sales. And in 2025, you had $12 billion of sales, and it was 26.6%. That's sort of not the way us that live in the Excel world think about how businesses should scale.

So -- how much of the -- and I remember when Mary Dillon joined, there was a lot of investment that the company had that CRM and loyalty and supply chain and technology and so forth. So how much of that was just catch-up in investment? And then as you sit here today and think about potential for big projects in the future, is there any further catch-up that you see out there?

Yes. I mean, look, we've had multiple years of kind of investment, to your point. I think heading up into 2024, there was a few years of core foundational investments, in particular, tech enablement, whether it be our ERP systems, point-of-sale systems, digital data, that set a great foundation that sets us up in the future.

Following that, since we've been so focused on the foundation, it was, okay, go-to-market, what are we doing from digital capabilities, setting up some of these new growth vectors such as marketplace, wellness, a lot across omnichannel to make sure that we have a very competitive omnichannel experience, which I think is actually an advantage of Ulta. So we just cycled through that in 2025.

The way you should think of investment going forward is more normalized investment. We're going to continue to invest in this business. I'm all about consistency and making choices within a given year. You saw in our guide, we're going to invest SG&A while at moderated levels in terms of growth from last year. We're basically setting up in line with sales growth to slightly below. So there's some leverage in plan.

You're getting nice profitable growth. I think the key is to make choices. An organization can only digest so much, and you want to make sure you're maximizing that potential. I think one of the other things that I bring is making sure we're not just investing, activating something in market, but are we holding ourselves accountable to get utility out of it over the time frame. And then you have your next phase of investment of new things that you want to do. And so that consistency of investing, driving profitable growth, either in line to just ahead of top line is the rhythm that you can expect and is what's set up in our guidance.

Yes. What we've committed to is getting SG&A back in line with revenue growth. And when we do this, that will be the first time since 2017 that we've been able to do that. So we are committed to building that muscle here within the organization because, again, when you've got heavy growth rates, that's what you're focused on. We've got to bring that financial discipline within Ulta Beauty, and we're committed to doing that.

So trying to think about the other side of that, it is such a dynamic category. And I was talking in the last session, a different industry where it's just -- it seems like the structural expense rate is just higher because there's more advertising in this category. There's more change from a trend perspective. There's more changes that need to happen in the store. There's more conversion needs. You need help in that store. And so how do you think about what then is the right leverage point? Like most retailers who don't grow and grant you guys do have growth, leverage, start leveraging at 2-ish kind of comp, you have a little bit of growth and it is a more dynamic category. So is there a way to think about the leverage point being sort of 3% to 4%.

Yes, it's a great question. I mean so again, if you look at the guide that we gave in '26, right, the midpoint of our comp growth is 3%. If you look at our plan, there is leverage in our plan, and it's even actually a little bit more in the core, right? Keep in mind, we're still digesting Space NK, right? So when you look at, again, growing SG&A in line with sales to slightly below, it translates to margin flat to up 20 basis points. But if you look at that organically, there's even some leverage at the bottom end of that, right?

The flat goes up. So we are getting -- we are getting leverage at around that 3%. I think importantly, just one thing to think of it, and I know there's been a lot of focus on SG&A and how much SG&A has been growing. But I think that's because you haven't seen necessarily the profitable growth come with it. SG&A growth in and of itself is not bad as long as it's not at the expense of margin. So when you think of the guide we set up for this year, we all win if we can maximize profit growth at the end of the day, right? And so once we start a year, if I see upside opportunity, if I see an opportunity to reinvest back in the business, drive top line growth that fuels kind of future momentum as well, increases operating profit, not at the expense of margin, and I'm still within my margin guide. That's a win for everyone, and that's how we'll approach the year. So we think we set up the year nicely with some leverage. And then we'll see what we can do to continue to maximize operating profit is the principle we'll drive in a disciplined way.

And so a bit more tactical on the SG&A front because you do have -- there's just a lot of noise in there with Space NK and some incentive and investment timing as you look at what happened over the course of '25 and how it influences 2026. So in our model, we have SG&A dollars up 16% in the first quarter, going down to sort of high single digits in the second quarter and then 2-ish in the back half in light of investments in NK and incentives. So is that the right -- I know you didn't comment specifically. You talked about double digit in the first half of the year, but the numbers are a bit all over the place in the consensus. So is that the right path.

Yes, I appreciate the question. I think directionally, let me give some color here. So to your point on earnings, we said double-digit first half. It implies low single digit in the second half. I think it's important for everyone to understand, there's no heroics needed to sort of drive and get to that leverage.

This is very much natural based on certain things and a natural rhythm that happens through the year. So in the first half, you do have absorbing Space NK. You also have the full annualization of the investments that largely started more in the second half of 2025. So you get that annualization impact in the front half, plus Q1 in and of itself actually has the lowest investment comp going back to 2025.

So you actually get a double impact in Q1. That will translate, if I think of Q1, you're going to be kind of in the mid-teens level, which is basically exactly what you said. From there, it will step down. Again, it will still be about double digits in the first half, the back half, low single digits. And you will see investment in every single quarter, including Q4. So we are investing behind the business. I'd also say, as you think of investment, -- as we get to leverage, my goal is also to optimize the productivity of the investment, right?

So I want to get more utility out of every dollar because we do need to be competitive in the category. So hopefully, that helps give you the color you need as you think of kind of how this plays out throughout the year.

Got it. Understood. So to reiterate, we said sort of 16 -- mid-teens, 15%, 16% right in the first quarter, stays still double digit, but steps down in 2Q and...

The first half is actually still double digits. So the second quarter would step down to, call it, high single digits.

Nice [indiscernible] model is right. So with that, I have a few more questions I definitely want to cover, but I wanted to open it up to the audience for questions. If you have a question, please grab the microphone, raise your hand and ask your question. I'm doing such a great job that no one wants to ask any questions.

Maybe just staying on the topic of SG&A. I guess the question would be, is it the right time to bring down SG&A growth given competition in the space, given Amazon obviously growing nicely in beauty, given one of our partners, Target is now to probably become a competitor. You got Walmart also talking about beauty. Like is this the right time to actually step down SG&A growth?

Yes, it's a good question. So again, we're investing in the business. This is not starving the business by any chance. Some of these investments that we made pre -2025 and certainly in 2025, all have carryover effect. And we said we would harvest those. And so a lot of those were in early innings. They were launched in the back half of the year.

So you certainly get carryover benefit from them. Again, there is an underlying productivity agenda, and we're just being much more disciplined around what our leverage points are versus stacking investments. So I think our plan has much higher ROI as you think of how we're going to market with those investments. So we feel we're nicely positioned when you look at how we're competing. We're prioritizing key areas to make sure that we're capitalizing on where the guest is, right, objected commerce.

You see -- you saw us launch in TikTok. We continue to drive merchandise transformation and focus. Kecia talked about our newness pipeline. So we're hitting the key areas to enable growth. We do need to continue to drive healthy growth to kind of have this all pull through, right, in terms of a flywheel. And so we feel good about the plans that we have. And actually, I would argue that focus makes you sharper and allows you to execute well. So.

Yes. We've been in a heavy investment cycle for many years. And letting things settle in the summer actually could be very good for our organization, too, to really maximize those investments that we've made to get the real true value out of it. Focusing on the basic fundamentals of running the business, also, you get a benefit from that, too. So I think the organization is primed that this is the right time to -- we've made the right investments. Part of it was we were so focused on foundational investments that we had a lot of catch-up to do in 2025 still too because we were so focused on foundational that we fell a little bit behind in go-to-market. We fixed that. We took share. We drove the business top line revenue. Now is the time to continue to, as Chris mentioned, harvest those investments and get back to some basic fundamentals in 2026.

I wanted to ask you about the strategy on TikTok. I think you guys have previously talked about moving away from the idea of being on TikTok. And now obviously, the landscape has changed. Users are going on TikTok like never before. And so just curious how you think about the strategy of the loyalty app with your 46.7 million members and TikTok. How do you view the strategy as complementary? How do you think about opportunities to grow spend per customer, and make sure that customer is loyal and grow that e-commerce strategy that has.

Yes. I'm very excited about TikTok Shop. We announced that on March 12 -- or 17 that we were launching on TikTok Shop. And to me, this is about as much of being front and center and top of mind from a guest acquisition perspective. You want to be where the consumer is shopping and where they're engaging with the brands.

And I think the timing is perfect for us as the first specialty beauty retailer to join TikTok Shop. And I'm very excited by what we're already seeing. A couple of things that -- the way that I'm looking at this business as a whole is that it's not just about guest acquisition. It's about creating that excitement of buying in real time and having that energy and that excitement of what's happening in the moment.

You think about the old QVC, HSN, where you'd watch TV and you'd buy immediately. It's that instant gratification that you can see brought to life in that experience. Other things that we're looking at is when things would go viral on TikTok Shop, it wasn't just hitting social media channels and e-commerce channels, we would sell out in our stores. So the more that we can be engaged in a 360 perspective, and we can maybe even help create some of those viral moments is really important. TikTok Shop, especially in beauty when it was very first launched was all about discounting. You saw heavy, heavy discounts. You see the ones that are doing it really well, and I call this brand ANUA. It's a K-beauty brand, has done it very, very well, and we've learned a lot from them. They really have gone at it with bundles and with having like a value in the bundle. So it helps your AOV, your average transaction as being much higher without doing as much discounting.

We will be one of the first retailers that could be able to have cross-branded bundles. That's how the beauty consumer is shopping today. So that is really, really exciting to me. What we've heard early on, we like what we're seeing with the algorithms, first and foremost. And secondly, the creators are coming out in drugs, thousands and thousands of creators have been reaching out to us because they want to come and represent Ulta Beauty.

The more you can get your brand out there in the conversation, that's a huge win for us at Ulta Beauty. And the second is that more and more brands, traditional brands even are coming to us saying that they want to participate now in TikTok shop because we're not coming at it from a discounting perspective, we're coming at it from a unique bundling perspective. So like I said, while it's still early innings on this, we're excited by what we see. We just think it's another tool that we can add to our ecosystem that will continue to differentiate us from others that are out there.

You got a very interesting industry and the pricing of skin care is going up in many cases, dramatically. But I'd like to hear your feeling on that, whether it's Suntan lotion. I mean, I can buy a tiny tube for $40. It used to be $3 or there's other in skin care, some of cosmetic companies for getting rid of your wrinkles. I mean I see my wife bill to be $1,000. This is unbelievable.

Well, we need to make sure your wife is in our loyalty program, number one. The second, platinum. But what I would say is that what's beautiful about our business is that we do have something for everyone. We have fantastic products for skin care that are at entry-level price points also, but we do go all the way to the higher dollar regimens within our assortment. So we want to be able to offer something for everyone across all generations, too. That's also something that's very important to me is that I want to be a place, especially in skin, a younger consumer is coming into this category more and more. And we have the right and the authority and the responsibility to have something that is good for that consumer to be able to use on their skin, and we have those products in our assortment. So I love the fact that we can offer something for everyone today.

So part of the increase in the volume is obviously then due to the price points that you carry and the raising point.

It's a blend of both. It's a blend of both. It's not just one or the other.

So I have a question, jumping back to margins. So you achieved a 12.4% operating margin last year. You have this roughly 12% out there from the last Analyst Day, but you also see this transitioning of how you think about financial guidance and focused on operating profit dollar growth. So the question is, -- is that right? Or should we start to think about the algorithm, yes, low double-digit earnings growth, but focus on growing operating profit dollars such that we should just all delete that 12% number?

Yes. It's a great question. I kind of shared this a little bit earlier. First of all, I think the beauty of Ulta being able to compound earnings growth double digits, right? And there's multiple components of that. It starts with investing and competing in the top line, driving share, et cetera. So we do need to have healthy investment in the business.

And with that said, we're going to be disciplined about profitable growth, all the mechanisms that I shared before, right? We'll start a plan year with -- just take '26 as an example. We're going to grow SG&A to invest in the business either at sales or slightly below. That implies some leverage.

So there will be leverage opportunity. And then as the year advances and as we deliver against our plan, the goal is to just drive operating profit as high as we can go, but not at the expense of margin, right? So it requires discipline, but that may mean that we do increase SG&A, but that would go up proportionately with sales.

We get higher operating profit. We don't dilute margin. So it's a very disciplined approach, and I think we should try and move away from SG&A growth is bad as long as it's disciplined. I think importantly, when you think of kind of our capital allocation and our cash, right, we have really strong ROIC. We have strong cash flow.

You heard me talk about being very focused on driving inventory optimization. You saw us leverage CapEx this year when you think of sales growth keeping CapEx in line. So our capital priorities are unchanged. We want to continue to invest in growth through CapEx in a competitive way. The balance we want to drop to help drive that double-digit EPS compounding.

This year, our initial guide, we had $1 billion of share buybacks to drive that. We're actually in a position now when we sit here and we think of kind of where the market is and comparing that to what we view as our intrinsic value and seeing a gap there. We're actually going to increase our share buybacks by almost 50% to about $1.5 billion this year.

So we see that as a nice value creation opportunity. And again, this principle of compounding earnings growth at double digits is pretty powerful consistently. And I also think that cash power helps kind of ride some of these economic cycles as well and still return strong value to shareholders.

I honestly think Kylie and I were talking about the cash flow -- the cash generative nature of Ulta is really incredible, like people focus on these auto parts retailers for a decade, they bought back 5%, 6%, 7% of their shares per year. I mean that sort of -- that's what's going on inside your algorithm. And so you can grow and you can invest, but still return a lot of capital to shareholder.

Absolutely.

Awesome. Well, with that, I think that's a great endpoint. We really appreciate your time. Thank you for coming again this year. Chris thanks for joining.

Yes. Thank you. Appreciate it.

Looking forward to the future.

Thank you.

Thank you.

Good afternoon, everyone. My name is Leila, and I will be your conference operator today. At this time, I would like to welcome you to Ulta Beauty's Fourth Quarter and Fiscal 2025 Earnings Call. This conference is being recorded. [Operator Instructions]

At this time, I would like to turn the call over to Ms. Kiley Rawlins, Senior Vice President of Investor Relations. Ms. Rawlins, please proceed.

Good afternoon, everyone, and thank you for joining us for a discussion of Ulta Beauty's results for the fourth quarter and fiscal 2025. Hosting our call today are Kecia Steelman, Chief Executive Officer; and Chris DelOrefice, Chief Financial Officer. During today's webcast, a presentation is being displayed live and will be posted to our website at ulta.com/investor shortly after the webcast concludes.

As a reminder, today's earnings release and the comments made by management during this call include forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, factors identified in the earnings release and in our most recent 10-K and 10-Q filings. The company undertakes no obligation to revise any forward-looking statements.

To allow us to accommodate as many questions as possible during the hour scheduled for this call, we respectfully ask that you limit your time to one question with no more than one follow-up question. And as always, the IR team will be available for any follow-up questions after the call.

Now I'll turn the call over to Kecia. Kecia?

Thank you, Kiley, and good afternoon, everyone. I'm excited today to be joined by Ulta Beauty's new CFO, Chris DelOrefice. Welcome, Chris. We're so thrilled to have you as a part of the team.

As I reflect on the past 12 months, I'm incredibly proud of the Ulta Beauty team and all we have accomplished. We closed the year strong, delivering full year financial performance ahead of our plans while making important guest-facing investments to position our business for future growth. For the year, we grew net sales by nearly 10% to $12.4 billion. delivered operating income of $1.5 billion or 12.4% of sales and EPS of $25.64.

Today, I will start by briefly highlighting our fourth quarter and holiday performance and then discuss our full year performance and the progress we made against our Ulta Beauty Unleashed strategy before sharing more details on our plans and priorities for fiscal 2026. Our team stayed focused on executing and caring for our guests, delivering stronger-than-expected fourth quarter sales and continued market share gains in mass and prestige beauty. Successful events fueled our performance, including Black Friday and Cyber Monday, along with key post-holiday events like our fan favorite Love Your Skin and Jumbo Love promotions. Holiday served as a culmination of our efforts to advance the business throughout 2025. We developed a thoughtful cross-functional holiday strategy supported by outstanding in-store and digital execution, bold and relevant marketing campaigns and activations and compelling holiday assortment and gift sets.

Guest engagement was high and many guests leaned into convenience of our omnichannel buy anywhere, fill anywhere capabilities during the busy holiday season. Our store and digital teams executed with excellence, delivering record-breaking holiday performance. We introduced a fun holiday marketing campaign focused on the 12 Days of Giftmas featuring celebrity brand founders, which drove meaningful gains in awareness and brand love scores. We drove comp growth across all categories and made gifting easy with a curated and powerful holiday assortment, impactful newness and leading fragrance offering. Our relentless commitment to operational excellence had store teams quickly restocking after high-volume holidays to serve guests and maximize selling opportunities, while our supply chain teams leveraged recent distribution center upgrades to increase our delivery speed to guests.

Turning to our full year performance. Fiscal 2025 was a year of strategic investment and deliberate transformative change for Ulta Beauty, change that challenged us to sharpen our focus, strengthen our capabilities and position our business for sustainable, profitable growth in the rapidly evolving beauty market. We began the year with a clear vision on how we intend to unleash the power of our model, build on our foundational advantages and reassert our leadership position in beauty through the execution of our Ulta Beauty Unleashed strategy with a clear focus on three priorities: driving core business growth, scaling new businesses and realigning our foundation for the future. Paired with the collective commitment and agility of our teams, we turned vision into reality and made exceptional progress across each pillar of our strategy, reigniting our growth, strengthening our core and delivering better-than-planned financial performance.

Let me briefly highlight the advancements we made during the quarter. We elevated our execution and more consistently delivered a differentiated omnichannel guest experience, further solidifying Ulta Beauty as the unmatched beauty destination for all guests. This came to life through a recommitment to the best-in-class execution and stronger merchandise in stock, incremental investments in payroll hours to support the guest experience, more than 100,000 in-store events, which included brand launches, brand education and celebrity appearances, and highlighted our differentiated in-store experience.

Ongoing digital upgrades, which added guest-friendly features like replenish and save and wish list and expanded convenience through features like split cart and increased personalization through the power of AI and our automated marketing engine that delivered relevant, dynamic and timely content across the customer journey.

We strengthened and modernized our assortment and merchandising strategy, accelerating pipeline momentum and delivering a powerful wave of newness that included more than 100 new brands this year, including Moroccanoil, amika, medicube, isima, Drake's Better World Fragrance and TIRTIR among many more. Key elements that supported our merchandising evolution included thoughtful, purposeful collaboration with our brand partners to fuel the innovation pipeline with new products like Fenty's Diamond collection and Morphe eyeshadow palettes, a new elevated go-to-market approach that established tighter collaboration between our merchandising, marketing and store teams and helped drive operational excellence, marketing leadership and compelling merchandising innovation.

A bold new marketing strategy with reimagined events like our Only at Ulta event, which highlighted our differentiated exclusive assortment and powerful cultural activations like our sponsorship of the Cowboy Carter Tour in conjunction with Beyonce's Cecred haircare launch and elevating our brand-building capabilities, enabling us to build stronger portfolios of exclusive brands and products that drive meaningful differentiation and new member acquisition. Noteworthy successes in 2025 include Cecred, which became our largest prestige hair care launch in history, prestige skincare K-Beauty brand, Peach & Lily, influencer-founded makeup brand DIBS, and Gen Z's most loved fragrance brand, NOYZ.

We built and expanded into new growth channels through our international expansion beyond the U.S. with nearly 100 stores in five countries. This included our acquisition of Space NK, a luxury beauty retailer operating more than 80 stores in the U.K. and Ireland, the opening of nine stores in Mexico via our joint venture partner, Grupo Axo, and the opening of two stores in the Middle East through our franchise partner, Alshaya. Our newly launched Marketplace, a curated online assortment that allows guests to explore a complementary array of beauty, wellness and lifestyle products on ulta.com and our app. The assortment includes more than 200 established and emerging brands and 5,000 SKUs.

Our wellness initiative, which included the addition of nearly 30 new brands in our core wellness assortment and nearly 40 new brands in our marketplace assortment, along with an expanded store presence in more than 400 stores and new UB Media capabilities like the addition of connected TV and streaming audio products that drove engagement and incremental ad revenue.

We made notable progress aligning our foundation to support future growth through important leadership changes to ensure our team was positioned to meet the needs of our evolving business and ongoing cost optimization efforts, including investment in AI and automation, like the testing a new conversational AI capabilities for our guest services team, which streamlined and increased resolution efficiency and quality as well as the implementation of an AI-powered order management system to optimize fulfillment across our network, enabling our expansion of ship from store and reducing out of stocks and markdown rest.

Finally, and perhaps most importantly, we reignited our culture and reinvigorated our brand, and our guests, associates and brand partners took notice. We did this through decisive organizational changes that accelerated decision-making and aligned teams and resources around guest-centric goals. Adopting a winning mindset as we stacked key successes and build momentum throughout the year, we steadily reignited our collective spirit or as I like to say, we got our swagger back. And a new marketing brand equity campaign, Beauty happens here in bold and fresh marketing activations, which placed Ulta Beauty at the center of exciting cultural moments like Lollapalooza and Coachella and a renewed enthusiasm for the magic of our mission to bring the power of beauty to life for all ages and all life stages.

By nearly all measures of success, our team delivered against our plans. During fiscal 2025, we drove 5.4% comparable sales growth and positive comp growth across all categories. We strengthened conversion in stores, increased transactions and drove improving NPS scores. We grew our loyalty program by 5% to a record 46.7 million active members, driven by strong growth in reactivated members and strong retention of existing members. We gained market share in both mass and prestige beauty. We delivered greater app engagement with approximately 60% of online sales made through the app and drove active app users up 15% year-over-year. And we drove significant EMV and reached record levels of unaided awareness.

While the guest-facing investments we made this year pressured profitability, the steady progress and results driven in fiscal 2025 reinforce our expectations that these investments position us to return sustainable profitable growth and to deliver against our long-term financial targets in fiscal 2026 and beyond.

Before I turn to our plans and priorities for 2026, let me first touch on our view of the consumer, the current beauty landscape and our expectations going forward. Throughout 2025, we closely monitored consumer behavior and observed continued resilience, a strong focus on value and affordability and increasing discernment in spending decisions. At the same time, engagement with the beauty category remained healthy and the landscape remained competitive. We expect these themes to continue into fiscal 2026, though we are increasingly mindful of rising global conflicts that could impact economic conditions. Absent increased broader macro disruption for the year, our expectation for the beauty category growth is in line with the average historical growth rate with expected growth in the 2% to 4% range. As we turn to fiscal 2026, our Ulta Beauty Unleashed strategy will continue to guide our priorities as we build on the successes of fiscal 2025.

Chris will highlight our financial outlook, but let me touch on our priorities and plans for 2026. First, our core business in the U.S., which now includes more than 1,500 stores and robust digital offering is our top priority, and we continue to see significant opportunity to unlock further growth. In 2026, we will continue to enhance our brand-building efforts to further elevate and differentiate our assortment and strengthen our position as the retailer of choice to launch, build, scale and globalize across the full low- to luxury portfolio.

We will continue to strengthen our appeal to meet guests' evolving beauty needs with innovative and relevant newness, like the record-breaking launch of Rare Beauty by Selena Gomez and the exclusive launch of Balmain's new scent, Destin De Balmain. We will continue to invest in the heart of our experience, our stores to extend our competitive advantage and capture key growth opportunities. We will build on our progress across our digital platforms with new capabilities and stronger guest engagement through personalization as we leverage greater automation and real-time content to tailor the guest experience and provide even more value to our loyal members.

And we are pleased to announce today an expanded strategic integration with TikTok. Next week, we will launch Ulta Beauty on TikTok Shop, where guests can purchase immediately as they engage with content from Ulta Beauty and our brands on the platform. We are excited about the opportunities both social and AI-enhanced commerce platforms are providing us to bring our undeniably Ulta Beauty experience and assortment to life. We will initially launch with a thoughtfully curated assortment of only at Ulta brands, which will add another exciting tool to our brand-building playbook.

Next, in order to maximize key incremental growth opportunities and remain resilient in a rapidly changing world, we will work to scale our new businesses. We intend to continue our international expansion in the U.K., in Mexico and the Middle East through our existing partners. We will thoughtfully expand our wellness and marketplace assortment to drive new member acquisition and spend per member and add new UB Media capabilities to collectively fuel incremental profit growth.

Finally, turning to our third area of focus, aligning our foundation for the future by optimizing our ways of working and streamlining our cost structure. In 2026, we plan to continue our supply chain transformation efforts with the rollout of increased automation in existing facilities and started construction of a new regional distribution center in the Northwest later this year that will expand network capacity and increase fulfillment speed. We plan to invest in systems and processes to drive sales and inventory productivity through new merchandising transformation efforts. And we will continue to further our mission to support human possibility by expanding our AI capabilities to support the guest experience, drive associate productivity, empower smarter decision-making.

Beauty is deeply personal, and we believe leveraging new AI capabilities will enable us to deliver relevance, inspiration and expertise seamlessly across the guest beauty journey. Powered by our loyalty ecosystem, rich first-party data and convenient omnichannel footprint, we are engaging with industry leaders to explore how we can further leverage AI to amplify what makes Ulta Beauty distinct. All of these efforts will support our ongoing cost optimization efforts to fuel investment and support profitable growth.

As we close out a strong fourth quarter and a transformative year, I want to thank our associates, guests, brand partners and shareholders for their continued trust and partnership. As I reflect on my first year as CEO, I am proud of the progress that we made to deliver on our commitments, strengthen our strategic position and invest in capabilities that will drive our next phase of growth. We are optimistic about the opportunities ahead while remaining mindful and cautious as we navigate an environment with ongoing global uncertainty and potential economic volatility. Looking forward, we will control what we can control, put our prior strategic investments to work as we focus on strong execution, innovation that creates real value for our guests and disciplined results return-driven capital allocation.

I'm excited about what the future holds for Ulta Beauty. We have ambitious plans, and I'm confident that we have the right team, the right model, the right strategy and the swagger to continue to win in the beauty category and create value for our shareholders.

And with that, I'll turn it over to Chris to cover some of the specific financial results and our 2026 outlook. Chris?

Thanks, Kecia, and good afternoon, everyone. Before I discuss our recent financial results and our outlook for fiscal 2026, let me first say how excited I am to join Ulta Beauty. Over the last three months, I've enjoyed getting to know the Ulta Beauty team and gaining a deeper appreciation for the company's strategic positioning, financial strengths and its strong people-focused culture.

Ulta Beauty is a beloved brand operating in an attractive and resilient category. Our Ulta Beauty Unleashed strategy is fueling market share growth, driving guest engagement and furthering our differentiation in a competitive category. We have more than 60,000 talented associates who bring our brand to life and serve our guests with passion and commitment every day. We have strengthened our foundation, invested in key capabilities and maintained a solid financial foundation with strong operating cash flow that enables value creation and also provides us with financial flexibility to pursue growth opportunities and weather dynamic macro environments.

I'm excited and optimistic about the future of Ulta Beauty, and I am energized to serve as a strategic partner to Kecia and the rest of the executive team to ensure we build on our momentum with a strong focus on driving long-term sustainable growth and maximizing value creation.

So, with that, let's get into our results. Starting with the quarter, net sales for the quarter increased 11.8% to $3.9 billion compared to $3.5 billion last year. During the quarter, we opened five new and remodeled 18 Ulta Beauty stores. We also opened two new and relocated one Space NK store. For the year, we opened a total of 63 net new stores, relocated 6 stores and remodeled 42 stores, in line with our previously provided guidance. We ended the year with 1,505 Ulta Beauty stores and 86 Space NK stores.

Comparable sales for the period increased 5.8%, driven by a 4.2% increase in average ticket and a 1.6% increase in transactions. Looking at the cadence of sales through the quarter, comp sales were fairly consistent, reflecting both the strong holiday season and the lapping of softness in January last year. I would note that we did see some impact from the weather at the end of January this year. From a channel perspective, both store and digital channels contributed to comp growth with e-commerce sales delivering mid-teen growth and comp stores increasing sales in the low single-digit range.

Turning now to sales by category. The skin care and wellness category increased to 24% of sales, and the makeup category decreased to 35% of sales, primarily reflecting the impact of Space NK, which has a higher mix of skin care sales than our Ulta Beauty business. Fragrance was the strongest performing category again this quarter, delivering double-digit comp growth fueled by newness from established brands, including YSL and Prada as well as exclusive brands such as NOYZ, Snif, and Summer Mink by Drake, coupled with strong performance of holiday gift sets. New co-branded TV campaigns, expanded space in stores and better in-stocks successfully positioned Ulta Beauty as the fragrance destination this holiday season. The hair care category delivered its best comp performance this year with comp growth for the quarter in the high single-digit range, primarily driven by strong performance from new brands, including amika and Moroccanoil and exclusive Cecred, which continued to build sales momentum after a fantastic launch in April. The skin care and Wellness category delivered mid-single-digit comp growth driven by prestige, skin care and wellness. K-Beauty brands, medicube, ANUA, and Peach & Lily, and new brands, DRMTLGY and Personal Day drove strong guest engagement, while highly giftable launches from Therabody, Nodpod and Saje, which is exclusive to Ulta Beauty, delivered strong growth in wellness. We took market share in the makeup category with low single-digit growth in total, supported by positive comps in both mass and prestige makeup. Mass makeup growth was driven by compelling newness from brands like L'Oreal, Morphe and Ulta Beauty Collection, while Prestige Beauty benefited from newness from Kylie Cosmetics and MAC. Finally, services delivered mid-single-digit comp growth, driven by increases in salon and specialty services, including ear piercing and makeup services.

Gross margin for the quarter decreased 10 basis points to 38.1% of sales. The decrease was primarily due to channel mix and deleverage of store fixed costs and other revenue. These headwinds were mostly offset by lower inventory shrink and leverage of supply chain fixed costs, reflecting efficiencies from our supply chain optimization efforts. Our team's relentless focus on reducing inventory shrink has delivered meaningful benefits every quarter this year. Our investments in fixtures and process improvements, targeted efforts in high-risk markets and focused associate training have resulted in shrink reductions across every category.

Moving to expenses. SG&A increased 23% to $1 billion. SG&A growth was primarily driven by higher incentive compensation, including rewarding our frontline and field associates, reflecting strong financial performance versus our targets this year compared to lower incentive comp in fiscal 2024. The impact of Space NK and investments we made to support our Ulta Beauty Unleash strategy also contributed to SG&A growth. Excluding the impact of incentive compensation and Space NK, SG&A growth for the quarter was about 17%. As a percentage of sales, SG&A increased 230 basis points to 25.7%. Consistent with our investment strategy, expenses deleveraged across most components of SG&A with the exception of store payroll and benefits, which were approximately flat as a percentage of sales. Operating profit was $477 million or 12.2% of sales and diluted earnings per share for the quarter was $8.01 per share.

Now to recap fiscal 2025 on a full year basis, net sales increased 9.7% or $1.1 billion to $12.4 billion. Comp sales increased 5.4%, driven by a 3.3% increase in average ticket and a 2% increase in transactions. Gross margin increased 30 basis points to 39.1% of sales. The increase was primarily due to lower inventory shrink and higher merchandise margin, which were partially offset by channel mix and the deleverage of other revenue. SG&A expense increased 17.4% to $3.3 billion. The growth was primarily driven by higher incentive compensation, the impact of Space NK and investments we made to support our Ulta Beauty Unleashed strategy. Excluding the impact of incentive compensation and Space NK, SG&A growth for the year was about 13%. Operating profit was $1.5 billion or 12.4% of sales, and diluted EPS increased 1.2% to $25.64 per share, above our previously provided guidance.

Moving to the balance sheet and our capital deployment strategies. We ended the year with $494 million in cash and short-term investments and $62 million in short-term debt, primarily related to Space NK. Total inventory increased 10.8% to $2.2 billion, primarily reflecting additional inventory to support new brands, the acquisition of Space NK and the impact of 60 net new Ulta Beauty stores. The increase also reflects inventory investments in key categories to improve in-stock levels and support strategic growth opportunities. Our business generated more than $1.5 billion in cash from operations for the year, which supported reinvestment of $435 million in capital expenditures and $890 million in share repurchases.

To summarize our fiscal 2025 performance, the strategic investments and actions taken as part of the Ulta Beauty Unleashed strategy enabled us to accelerate top line growth, capture market share faster than expected and ultimately exceed the commitments we made at the start of the year. I want to express my sincere gratitude to our teams for delivering this outperformance and positioning us well as we enter fiscal 2026.

As we look to fiscal 2026, we are focused on expanding our market share, driving returns from the investments we've made over the last few years and importantly, returning to profitable growth. Our 2026 plan is aligned to our long-term targets and reflects several key financial goals anchored in our value creation principles, including disciplined cost management, which helps fuel investment to support a strong growth profile. For the year, we anticipate net sales will increase between 6% to 7% with comp sales growth between 2.5% and 3.5%. We are planning on operating profit to grow in line or faster than net sales, and we expect diluted EPS will increase more than operating profit. For modeling purposes, we expect net sales will be between $13.1 billion and $13.2 billion, primarily driven by comp sales growth and the impact of 50 to 60 net new company-operated stores. Overall, we are planning stronger sales growth in the first half of the year as we benefit from the acquisition of Space NK and lap easier comp growth comparisons in the first quarter.

We expect gross margin will be approximately flat as benefits from higher merchandise margin, driven primarily by greater inventory productivity will likely be offset by deleverage of store fixed costs and other revenue. We will continue to invest in growth opportunities, but we are planning SG&A growth to be in line with to slightly below net sales growth and significantly lower than fiscal 2025, enabled by productivity programs and disciplined investment prioritization. Keep in mind, we expect to realize double-digit SG&A growth in the first half of fiscal 2026 as we won't lap the acquisition of Space NK and the annualization of investments until the second half of fiscal 2026.

We expect operating profit will increase between 6% and 9%, resulting in operating margin being flat to up 20 basis points, primarily reflecting the anticipated pace of SG&A growth, we expect operating profit growth will be stronger in the second half of the year. We expect these plans, combined with the ongoing efforts to enhance inventory productivity, will continue to generate strong operating cash flow, which will enable reinvestment to support future growth and also support our intent to return approximately $1 billion of capital to shareholders through our stock repurchase program.

We expect capital expenditures for the year will be between $400 million and $450 million, primarily to expand and refresh our store portfolio as well as investments in digital and information technology capabilities and supply chain optimization to support the guest experience and drive further operational productivity. Reflecting these assumptions, we anticipate diluted EPS will be between $28.05 and $28.55 per share, representing growth between 9.4% and 11.4%, respectively, including the impact of share repurchases and an assumed tax rate between 24.2% and 24.4%.

In closing, the execution of our Ulta Beauty Unleash strategy in 2025 enabled us to accelerate top line growth and deliver stronger performance than planned. Building on this foundation, we have developed a plan for fiscal 2026 that delivers against our long-term financial targets, including market share expansion, profitable growth and strong cash generation, which support attractive EPS growth and compelling value creation.

And now I'll turn the call over to our operator to moderate the Q&A session.

[Operator Instructions] Your first question will come from Krisztina Katai with Deutsche Bank.

I wanted to start by asking on the composition of the comp. Can you talk about pricing and what you're seeing from the brands? Because the 4.2% ticket was very strong. But on the other hand, transactions decelerated, especially when looking on a two-year stack. Maybe can you touch on the dynamics there and just how you're thinking about it in 2026 as it unfolds?

Krisztina, thanks for the question. We see pricing increases every year. They typically impact about 10% to 15% of the overall assortment. And we're really planning for normalized pricing environment in fiscal 2026. We'll continue to work with our brand partners and navigate potential pricing increases, but we're not seeing or hearing anything that's outside of the normal territory.

Okay. And then just a question on SG&A, which came in a little bit higher. Can you maybe touch on how much of that was incremental marketing and how you're thinking about the wraparound effect of that in '26? And then as we think about the -- if you could touch on the promotional backdrop in beauty across the industry, just what are you seeing with the cost of customer acquisition? Would love to get your thoughts there.

Chris, why don't you start?

Yes. So regarding SG&A, obviously, we were pleased with the performance in Q4 and the ability to overdeliver both sales and EPS above the high end of our guidance. We also delivered our operating margin at the high end of our guidance. So if you think about it, we overdelivered sales above the high end of our guidance by about $85 million, and we had flow-through of EPS upside similar to our margin rate. So we did make some investments in SG&A in between there.

A few things I would point to. One, we had to absorb higher incentive comp on the overperformance. The second thing to note is, of course, there are some variable costs that are attributed to the increased sales, for example, increased tasking in stores. In addition to that, we did make some investments to support the outperformance in growth, most notably marketing, some media investments that not only helped 2025, but positions us nicely as we look into 2026. So we're definitely pleased with how we finished 2025, and we think that positions us nicely as we move into 2026, as you can see from the guidance we provided.

Yes. And then just a little bit on promotionality. We don't have any plans to accelerate promotion, but we recognize that the environment is competitive, it's dynamic, and there is an increased focus right now out there on value. But it's one of the levers that we can pull into. And with us having such a strong loyalty base, our investments that we've made in personalization, along with other ways that we've invested to really be relevant and top of mind for that guest, we currently don't have any elevated promotionality built into the current plan or in the guidance.

Your next question will come from Chris Horvers with JPMorgan.

So I just want to jump back on your comments earlier about the backdrop, Kecia, 2.5% to 2% to 4% industry growth, is that a deceleration versus 2025? And then to what extent are you baking in the geopolitical backdrop? Obviously, a lot has changed in the past two weeks. Did you take that into account when you were thinking about the sales outlook for the year, including your own share gains?

Yes. Let me. Thanks, Chris, for the question. It's very close to 2025. We -- the comp guidance really reflects a normalization and the fact that we're going to be increasingly having some challenging comps as we move through the year. We've adjusted for dynamic operating environment. We're staying really focused on controlling what we can control.

Just a little color on how we looked at when we were building the 2.5% to 3.5%. There were really 4 areas that we looked at. The first was really on consumer demand. We're cautious about how the consumer demand could evolve given the macro pressures and rising conflicts. But beauty has been a resilient category. to these macro pressures. So we see that the beauty engagement is going to continue to be healthy in 2026.

The second, I touched on this just earlier about the promotional environment. There's no plans for us to accelerate promotion, but it's going to be competitive out there. And I want to be continuing to focus on driving share and growth, and we're going to stay close to it, but we always want to look at market share and top line healthy growth is a measure to our success.

And then pricing, I touched on that. We don't see anything that's going to be out of the ordinary within pricing. And then the growth of the category is between that 2% to 4%. But just as a quick reminder, we're going against some easier comps in the first half versus the second half of this year. And we're just continuing to focus on controlling what we can control and making sure that we have a plan that gives us the ability to continue to take share. and to build a strategy around numbers that we feel like regardless of the economic environment that we can continue to hit.

Got it. And then I guess you launched Rare Beauty to start the year. And so can you talk about what the early response is to Rare Beauty? How should we size it in terms of an analog? Is this something like Kylie? Is this something like when you launched Fenty, typically, you talked about 25% to 30% of sales growth is newness. How should we think about Rare relative to that number and relative to other analogs when you launch some significant brands?

Absolutely. So just to maybe start with your last point. When you look at 2025, you're right, 20% to 30% of our growth is coming from newness. We were a little on that higher end of the scale in 2025. So we're closer to that 30%. Rare, while it came out of the gates very strong, and we're thrilled because makeup having this halo impact in makeup is fantastic for us. It's one brand, and we carry 600 brands in the assortment.

What we are -- what I can share about quarter-to-date trends so far is that we were pleased with February. We're still early in the quarter. And we do have easier compares, as I mentioned earlier in Q&A that we're going against easier numbers in the first half comp. But we have this embedded already in our guidance of the 2.5% to 3%. But yes, we were thrilled with what we saw with Rare coming out of the gate strong. Lauren and team had done a great job with newness and the cadence of newness in 2025. We like what we see with the cadence of newness in 2026. But one brand doesn't change the entire course of our business at the same time. Hopefully, that answered your question.

Your next question will come from Sydney Wagner with Jefferies.

Can you just give us a little bit more of an update on what you're seeing in terms of the competitive environment? We've seen some pushing from mass retailers into prestige. So I'm just curious what you think about are the most important elements of the business to maintain your competitive moat in the category? And what helps you continue to win new brands?

Thanks for the question, Sydney. Beauty has always been a competitive category, but I would say that this is what we do. This is what Ulta Beauty is about. We cover everything from low to lux and everything in between. And when you add wellness into this mix, we're a trusted location with expertise that's broad in a curated assortment with our leading loyalty program with this omnichannel activation that we're continuing to invest in.

We just announced today about our TikTok, which I think is going to be another quiver for us to continue to engage with new guests. We just are leaning into what makes us different, which, again, I do believe it's that low to luxe with services and wellness all captured into it. We've been talking a little bit more about leaning into our brand-building capabilities. We're bringing an elevated focus on how do we continue to engage with newness and exclusivity, which continues to separate us from everyone else.

But again, a lot of people want to get into beauty because it's an attractive category because of the margins, et cetera. But this is what we do, and we're just going to double down on the strength and the power of this model. The Ulta Beauty Unleashed plan, I could not be more pleased with how we were performing against the plan in 2025. We're just going to continue to double down and really start to reap the reward of the investments that we made in 2025 and harvest that in 2026.

And I would just say, stay tuned. We are pleased with the progress we've made, and I feel like we are focused on the right strategies for us to continue to be a share gainer in the future.

Your next question will come from Oliver Chen with TD Cowen.

As we think about makeup in next year, what do you see happening relative to mass and prestige? And is the comp going to be pretty modest in the makeup and outperform in fragrance that related product question is K-Beauty and Wellness. I know you have a lot of really good talent in wellness and you're thinking about that category more dramatically. Does that -- when you put that space in, how does it interplay with the categories that currently exist? And K-Beauty might be a massive megatrend. So would love your take.

And Chris, a follow-up. On the comp store sales guidance, what do you need to leverage your fixed costs? Historically, it's been higher than mid-single digits. But what should we know in terms of deleverage on the 2% to 5% to 3% to 5%?

And on your promotional question on guidance, were you saying promos this year ahead will be flat to last year? Are you giving yourself some breathing room to have higher promos than last year? Although I know you're working on many efficiencies around simplified better promotions.

All right. Well, thanks, Oliver. I'll start. Yes, we're focused on everything from low to lux and everything in between. I think it gives us a strategic advantage that we do carry across all price points, especially if there could be potential pressures on the consumer's wallet in the future.

In regards to K-Beauty and Wellness, one of the things that I'm very pleased with is that Lauren and team are working on SKU rationalization and making sure that unproductive SKUs that we are really leveraging and bringing in both wellness and K-Beauty. One of the things that we're really focused on is this authenticity and quality of the brands. You see a lot of K-Beauty in and out, and it's almost like fashion that you see. We're really leaning into at Ulta Beauty, the efficacy of the products and making sure that the products really give the results. We want to do all of the research for the guests. So when they come in, they buy K-Beauty products that -- they're known and trusted that they actually work, and that's been working really well for us.

And I would say that same philosophy is true for Wellness. One of the things that I'm very excited about is in regards to our marketplace. And if you think about marketplace, you think about it as a mezzanine into our existing store. So it's a complementary assortment that doesn't take away from what you could buy in store today, but it's another item that you could add to your basket. So we're taking that approach really from end-to-end with K-Beauty, with wellness, with marketplace and everything from low to lux and everything in between.

Maybe Chris?

Yes. On the store fixed cost and the deleverage, maybe what I would share is, one, as you heard, we're planning gross margin flat year-over-year. So we have multiple levers that we do to try and manage that. So we see opportunity in merch margin. We're continuing to drive supply chain optimization as well. And we'll still continue to benefit from shrink.

I think the other thing I'd point to is the new stores is obviously still an important component to driving growth. And what we're also doing is we're rolling out new store formats, a smaller format this past year, about 25% of our stores with that new format. 2026, we expect more like 15% to be the small store format. So it's not just about driving top line. It's also about how we execute, putting new stores in market, and we think that will be an opportunity that helps us. The deleverage there is really modest and manageable, and we'll manage things holistically across gross margin.

Your next question will come from Susan Anderson with Canaccord Genuity.

I was wondering maybe if you could talk about the timing of the new DC in the Northwest. And I guess, how should we think about the cost there? And then I don't know if I missed this or not, but maybe if you could talk about just the drivers of the op margin being better in the back half. Is that just when the efficiencies start to roll in, I guess? And then are you guys assuming like gross margins pretty flattish throughout the quarters?

Yes. Thanks for the question, Susan. I'll start and then I'll kick it over to Chris. When we talked about the new DC, it won't be up and functioning until 2027, but these things take a while to, of course, get out of the ground, especially when you're building from ground level up. We have that -- those dollars are built into our CapEx plan. So they are both in the long-term algorithm and we are expected to spend is already in this year's guidance, too, with the cost to get that building started.

And then, Chris, I'll turn it over to you.

Yes. So on the progression of operating margin, the primary driver is really SG&A. There's two key factors. First of all, in the first half of the year all the way up until Q3, right, we're absorbing Space NK. So you have that impact. The second one is the annualization of the investments we made in the back half of 2025. So then as you move into the second half, you cycle over those. And in addition, especially with Space NK, right, in the holiday season, it tends to be higher sales and you get the leverage from the SG&A there. So those are the key drivers.

Our productivity was active in 2025 and will progress throughout the year. I would more point to those 2 factors as the big factors that impact the timing of operating margin first half versus second half.

Our next question will come from Kate McShane with Goldman Sachs.

So our question is centered around SG&A as well. Totally understand the different lapse that we are encountering here in 2026. But if we were just to focus on how you are spending around marketing, I know that was part of the unleashed plan to spend more on marketing. Could you maybe just talk a little bit more about plans for that, just how the dollars look maybe versus what you spent in 2025 and what that could look like going forward?

Yes. So we wouldn't share that level of detail. But what I could share is a couple of things. One is our SG&A growth profile, right, that we outlined was either in line with sales to slightly below sales. Again, that does include us absorbing Space NK and the annualization of investments. We have been very targeted with our investment priorities. And so one of the top areas that we've continued to prioritize is personalization, which will certainly be a core part of our marketing investment. So we're still investing to grow within that plan in addition to having the carryover investment that we put into place in 2025.

I'll also point to, you heard me say in Q4, we did invest on the upside sales performance. That did include some marketing and media that we expected to have some benefit as we rolled into the first half of 2026. So we feel really good that we actually have a very disciplined approach on SG&A. We're prioritizing growth investments in key areas and making intentional choices of where not to invest. And certainly, marketing and personalization remains our high priority.

Your next question will come from Mark Altschwager with Baird.

First, just following up on the comp guide, the 2.5% to 3.5%. That is a touch below the long-term framework. So I was hoping you could just give us a little bit more detail on the factors driving that, just conservatism to begin of the year or just anything you're seeing in the environment that's leading you to take a more cautious approach to that today?

Well, I will say that our initial plan is -- and I shared this in the comments, Mark, that we want to be a market share gainer. So we are looking at that as we -- our plan -- we built this plan is that we do not want to see market share. So I think that this plan, we feel is a thoughtful plan that is one that we can continue to build the expense portfolio around. If there's potential upside, I'm going to love that. We've had -- this last year, we had a strategy that was working. It was laid out well. We outperformed our initial guidance that we shared in 2025, and we beat and raise throughout the year, and we exceeded on all metrics.

I'm confident that we've got a plan for 2026 that allows us to hit our targets and continue to invest in the business. It will allow us to continue to be a share gainer. And b, I'd say, fiscally responsible in our investments. Some of the numbers that Chris shared, we're getting some of our expense rates in line. We've been in this heavy, heavy investment cycle for many years. And it's time for us to start to reap some of the rewards of those investments, and that's what this plan is allowing us to do.

That makes a lot of sense. And then Kecia, just a follow-up. Wondering if you could share any more learnings you've had so far on Space and K. And any update to how you're thinking about unit growth there and geographic expansion to new markets.

Yes. Thanks, Mark. Well, what I will say is that we're pleased with the performance. They have a nice growth in sales. We feel great about the growth strategy. I don't want to give -- I'm not going to give specifics on where we see the growth, but we view this asset as additive to our core business. We see opportunities to really leverage each other's strengths, access to new brands, clienteling strategies, loyalty programs, and there is the ability for us to continue to grow in a nice market of the U.K. for us.

So it's still a little early to say like how we feel like we can totally unlock the entire -- all the value in Space NK, but we like what we're seeing so far, and we're really pleased with the acquisition.

Your next question will come from Olivia Tong with Raymond James.

You've talked in the past about leveraging investments. So can you talk about the level of investment spend for 2026, the initiatives that you have planned this year versus last year, where that leverage is coming from? And then as you look at the margin improvement, what do you think is the right level longer term now that the business is on a better track? What is the right investment level to get back to sort of a steady-state comp growth more in line with the long-term algo? That's my first question.

And then the second one is just around the consumer environment being as challenging -- new challenges to the consumer environment that we perhaps didn't have a couple of weeks ago. And can you talk about your flexibility and the flexibility in the model to make potential pivots adjustments if necessary. You've obviously done a lot to improve promotional cadence, but it seems like the state of the consumer is evolving. Just wanted to get a little bit more detail on that.

So maybe I'll start with the second part of your first question on how we think of margin. Look, what I would share is the way we think of this is we're looking to deliver consistent profitable growth. To maximize value creation, what we want to do is maximize profit growth. Margin is a part of that, of course, but I can do that driving incremental top line or through margin leverage. So every year, and this is what's reflected in our current guide, we'll have a plan that has a strong productivity goal that's going to fuel targeted and high ROI investments in a disciplined way. So it won't be at the expense of margin.

If I see investment opportunities throughout the year, as Kecia said, if we have upside and can increase our operating profit in the current year while continuing to also support future growth momentum, you get a double benefit and can do that preserving margin. That's what I'll do. And that will support kind of consistency of growth and then a flywheel of value creation.

With that said, again, every year, we'll have an element of leverage that we're building into our plan. And we can -- as we move throughout the year, figure out how to best optimize profit growth within that while maintaining discipline on margin. So that's what you see embedded in our plan this year. I did talk about -- you asked about how much investment. It's hard to answer because we have -- we said we would grow SG&A in line with sales to slightly below. But the productivity of the investments in there is actually more than that because we do have productivity initiatives.

Supply chain optimization, in particular, has been positive for us. We're focused on inventory productivity, among other things. So -- we feel really good about the areas that we're investing in this year and the guide that we set up within that framework that is in line with our long-term value creation algorithm and basically being a compounder of double-digit earnings growth.

I would just add that we have the leadership and the team in place that can and will pivot as needed. The fact that we do carry low to lux, it gives us the ability to also flex as the consumer flexes with us. And we have better insights into this category and can leverage AI to make really good strategic business decisions to help us drive this business. While it's a competitive environment, we're playing to win and to continue to take share.

Great. If I could follow up on some of the newer categories, health and wellness, marketplace, international. How do you think about further expansion in year two on those and adjustments that you need to make in year two and the level of investment in those initiatives going forward?

Well, on international expansion, we are planning on continuing to open stores in our partnership with Grupo Axo and with Alshaya. Right now, we are looking at -- this is more of an asset-light approach on how we can continue to grow globally. And it's an important category for us because we do want to be a global beauty retailer.

We are making smart decisions on investment categories like wellness -- and there is the opportunity for us to continue to leverage SKU rationalization to have more productive items that are in our store. Four-wall productivity is something that Chris and I are really leaning into. We want to make sure that we're leveraging that fixed cost base of our 1,500 stores out there to continue to drive profit through the stores and through our P&L. So we're making good business decisions with a strategic lens that have both short-term and long-term implications on how we can really optimize this model.

All right. Well, with that, I think that, that would be the last question that we had. I just want to thank everyone for joining us today. And I want to thank our associates once again for delivering against our ambitious plans for 2025 and for their dedication in representing the Ulta Beauty brand to our guests each and every day.

We're confident in our strategy. We're focused on operational excellence and committed to delivering sustainable growth even in this dynamic environment. We look forward to updating you on our progress on the next earnings call on June 2. And I want to thank you all, and have a great evening. Thank you.

Thank you for joining. This concludes today's call. You may now disconnect.

Good afternoon, everyone. My name is Leila, and I will be your conference operator today. At this time, I would like to welcome you to Ulta Beauty's Third Quarter 2025 Earnings Call. This conference is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Ms. Kiley Rawlins, Senior Vice President, Investor Relations. Ms. Rawlins, please proceed.

Thank you, Leila. Good afternoon, everyone, and thank you for joining us for a discussion of Ulta Beauty's results for the third quarter of fiscal 2025. Hosting our call today are Kecia Steelman, President and Chief Executive Officer; and Chris Lialios, Interim Chief Financial Officer. As a reminder, today's earnings release and the comments made by management during this call include forward-looking statements.

These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, factors identified in the earnings release and in our most recent 10-K's and 10-Q filings. The company undertakes no obligation to revise any forward-looking statements. And as always, the IR team will be available for any follow-up questions after the call.

Now I'll turn the call over to Kecia. Kecia?

Thank you, Kiley, and good afternoon, everyone. The Ulta Beauty team delivered another quarter that exceeded our expectations. For the third quarter, net sales increased 12.9% to $2.9 billion. Operating profit was 10.8% of sales and diluted EPS was $5.14 per share. These results highlight the expanding relevance of the Ulta Beauty brand for our guests, the favorable impact of investments that we're making to support our long-term strategy and the continued commitment of our teams.

Today, I'll take a few minutes to outline the key drivers that fueled our outperformance, update you on our progress against the Ulta Beauty Unleashed Strategy and discuss our outlook for the upcoming holiday. As I reflect over the past 11 months in my role as CEO, I'm incredibly proud of the steps our teams have taken to accelerate our top line growth and increase our market share and how these actions continue to resonate with our guests and drive our results.

The third quarter highlights are a clear result of these actions and include comparable sales growth of 6.3%, positive comps across all categories and channels with notable double-digit strength in our e-commerce results. Continued market share gains in Mass and Prestige Beauty, including Prestige market share gains in both brick-and-mortar and digital channels.

Loyalty member growth of 4% year-over-year to a record 46.3 million members and ongoing improvement across several key performance indicators, including brand engagement, earned media value and app engagement. The investments to support our Ulta Beauty Unleash Strategy are fueling our strong top line results. At the same time, we know we have opportunities to tighten SG&A spend and optimize resources to drive long-term profitable growth, which will be a key area of focus as we turn to fiscal 2026.

Before I dive into the drivers of our performance, let me touch on the beauty landscape more broadly. Despite a softening in overall consumer confidence in Q3, beauty engagement remained healthy. During the third quarter, both Mass and Prestige Beauty markets delivered mid-single-digit growth according to Circana. Turning now to the key drivers of our performance, which center around our 3 strategic priorities: strengthening our core U.S. business, scaling new businesses, including expanding internationally to capitalize on key growth opportunities and realigning our foundation for the future by streamlining our cost structure, optimizing our ways of working and reenergizing our culture.

Let me begin with our actions to strengthen our core U.S. business, which continues to power our overall results. We have been focused on the fundamentals and elevating our go-to-market approach through operational excellence, marketing leadership and compelling merchandising innovation. Our enhanced go-to-market collaboration between our merchandising, marketing and store teams has been a key unlock to improving our performance, and we're leveraging this new approach to accelerate our brand building, digital and personalization efforts.

In stores, our team's dedication to disciplined execution continues to underpin our performance. Stores are elevating and energizing the guest experience with improved in-stocks, well-staffed stores, friendly service and engaging events, all translating into improving guest satisfaction results for the quarter. We drove solid in-store traffic and sales growth with successful execution of key moments and events, including Back-to-School, 21 Days of Beauty and Fall Haul.

In addition, we hosted nearly 33,000 in-store events across our fleet during the quarter. These unique activations included celebrity appearances, brand launches, brand education and highlighted our differentiated in-store experience, which truly makes Ulta Beauty an unmatched beauty destination for our guests.

From a category perspective, all major categories exceeded our expectations and delivered positive comp growth against the third quarter last year. Fragrance sustained its position as our strongest growing category, delivering double-digit comp sales growth in Q3. Newness from luxury brands like Valentino and Dolce & Gabbana alongside compelling new-to-market brand launches from Miu Miu and Prestige and Squishmallows in mass resonated with the guest.

This quarter demonstrated the power of our unique low- to luxury brand assortment. In October, we also rolled out incremental shelf space for fragrance in more than 60% of our U.S. stores, which we believe positions us to capture holiday demand and beyond for this important and growing category. Skincare, our second fastest-growing category, delivered solid high single-digit comp growth, driven primarily by the strength of Prestige skincare and solid growth of Mass skincare.

Our unmatched K-beauty assortment continues to resonate and drive skincare sales. In addition, Prestige skincare also benefited from the highly successful launch of Fenty Skin Body exclusive to Ulta Beauty and strengths in brands like Tatcha and Dermalogica. Mass skincare benefited from newness and social media virality in key brands like BIOMA and Starface. In addition, our newly expanded wellness assortment also contributed positively to skincare performance.

Makeup delivered another quarter of mid-single-digit comparable sales growth, supported by growth in both Mass and Prestige makeup. Mass makeup growth was driven by compelling newness from brands like NYX, Morphe and L'Oreal as well as the benefit from market-wide price increases from select brands. Prestige makeup growth in the quarter was supported by a highly successful 21 Days of Beauty event with notable brand standouts being Estée Lauder and MAC within the event.

Across the quarter, we also delivered strong growth across a number of our Prestige brands, including HOURGLASS and NARS and in our only at Ulta brand portfolio with newness and DIBS. Our new K-beauty assortment in makeup is also driving strong growth. The haircare category delivered mid-single-digit comps, fueled primarily by strong performance in prestige hair. Mass hair, hair color and accessories also contributed positively.

This growth was partially offset by sales declines in personal styling tools, which continues to navigate pressures from tariff-related price increases. From a brand perspective, major new prestige launches from Moroccanoil and Nutrafol along with guest favorites, Redken and Matrix resonated with guests and delivered strong growth. Our exclusive brand Cécred continued to drive guests into the haircare category and performed ahead of expectations.

Finally, services delivered mid-single-digit comp growth in Q3, driven by strength in cut and color services, expanded brow services and ongoing improvement in stylist productivity. During the quarter, we began offering benefit brow services in our salon, expanding capacity and convenience for our guests. Execution of our salon workshop strategy featuring events like Back-to-School Blowout drove sales and member trial.

Moving to our long-term strategy to enhance our assortment and brand-building capabilities. Overall, we are intensely focused on strengthening and modernizing our full low- to luxury assortment. And during the quarter, we launched more than 35 new brands, many of which were exclusive. Our new brands are thoughtfully selected to drive incrementality and complement our balanced portfolio of the best brands across all categories, all life stages and all price points.

Strengthening our brand-building capability is key to this strategy, and we are focused on leveraging our unique advantages to be the retail partner of choice to launch, build, scale and globalize brands. Our enhanced focus and capabilities are already delivering with Beyonce's haircare line Cécred only available at Ulta being a great example of how we can uniquely unlock the power of 46 million loyalty members to launch and scale a new retail to brand successfully in just a few months.

Based on its first 6 months of performance, Cécred is the most successful Prestige haircare launch in Ulta Beauty's history. Our K-beauty assortment is another example of our holistic brand building strategy. With an already established stronghold in K-beauty skincare with long-standing exclusive brands like Peach and Lily, we saw space for growing K-beauty trends in both skincare and makeup.

We moved with agility to build a complementary and largely exclusive pipeline, including a portfolio of new and many exclusive brands throughout 2025, like ANUA, medicube, TIRTIR, fwee and Unleashia. We have leveraged all of the Ulta Beauty go-to-market levers to drive excitement and awareness of these new brands, attracting the next generation of beauty guests.

Our core assortment is now being complemented with the recent launch of UB Marketplace, which I will give you more details on in a moment. Shifting to marketing. We are elevating our marketing efforts to spark excitement and awareness, drive engagement and attract and retain loyalty members. During the third quarter, we debuted our new brand equity campaign, Beauty Happens Here on social and across traditional and connected TV.

The new campaign aims to inspire and reinforce that Ulta Beauty is where beauty lives and is the destination for all ages in all life stages. The campaign is already driving significant awareness gains broadly and with key cohorts and is also driving strong brand health gains. In addition, we continue to leverage our integrated marketing efforts to support key events and strategies, including high-impact merchandising campaigns like 21 Days of Beauty and Fall Haul designed to drive engagement and conversion against priority categories.

Our exclusive only at Ulta brand launches and category plans, reinforcing our leadership in a differentiated way and culturally relevant activations like hosting Ulta Beauty's first-ever multi-market experiential activation, the College Glow Up Tour in collaboration with her campus. The tour delivered product sampling and education for various exclusive brands like Polite Society, isima and Snif.

Moving to our digital platforms. Our investments to accelerate digital engagement and personalization are delivering results, and we continue to add capabilities that drive app engagement, enhance the guest shopping experience and remove friction. From new features like Replenish & Save and Wishlist to new payment choices like Venmo to doubling ship-from-store locations to more than 1,000 stores. We are steadily improving the guest experience and fueling our momentum.

Our app engagement continues to grow and accounted for 65% of our online member sales in Q3, up from 63% in Q2. In addition, strong buy online, pickup in store contribution highlights how guests value the powerful combination of our digital shop experience and the convenience of our stores. Next, turning to our second strategic priority, scale new businesses to capitalize on key growth opportunities and ensure that we remain relevant in a rapidly changing world.

Our international expansion efforts are building momentum, and we are steadily growing our international presence. During the third quarter, we opened 7 stores in Mexico through our joint venture partnership with Grupo Axo. I had the privilege of attending the unforgettable grand opening of our first store in Mexico City. The energy was palpable, and we had many key brand founders on site, including isima founder and Grammy-winning musician, Shakira to celebrate this important milestone for our business.

In addition, the first Ulta Beauty store opened in the Middle East in Kuwait last month through our franchise partnership with Alshaya. Similar to Mexico, the guest response to our arrival in the Middle East has been very positive, and our grand opening celebration, which featured Ôrebella Founder, Bella Hadid, was an exciting way to introduce Ulta Beauty to this new market.

We are excited about the uniquely Ulta Beauty experiences and curated assortments that we are bringing to these markets, which feature a mix of local brand favorites, exciting new-to-market brands and only at Ulta exclusives. We are encouraged by the strong positive guest responses that we're seeing and excited to expand our presence over time.

Finally, in the U.K., Space NK continues to perform well, and our teams are making important progress in integrating Space NK with the rest of our business. I had the pleasure of spending time visiting stores in the U.K. with the incredibly talented Space NK leadership team during the quarter. I remain excited about the opportunity to transfer learnings across markets to elevate our business globally and capture even greater growth opportunities in the future.

Turning to marketplace. We reached a key milestone with the successful launch of UB Marketplace in the third quarter. Through our marketplace initiative, we are expanding our assortment for our guests, offering a broader and complementary array of beauty, wellness and lifestyle products from both established and emerging brands on ulta.com with minimal inventory risk to our business.

We launched the platform in late Q3, curating the addition of more than 120 brands and over 3,500 SKUs to our online assortment. We are pleased with the initial performance and optimistic about how this new capability can help us strengthen our existing category authority, attract new guests and capitalize on incremental growth opportunities in new subcategories like luxury, professional and wellness.

In wellness, we're focused on leveraging our position as a trusted guide to expand more meaningfully into the vast and growing wellness category. We believe we are uniquely positioned to meet guests' wellness needs in approachable, welcoming ways that celebrate a guest individual journey. In the third quarter, we continued to add new brands to our assortment like Therabody, Bird&Be and Hatch sleep products and continued our in-store expansion efforts with the introduction of elevated fixtures in about 50 stores.

These investments will enable us to learn more about guest engagement and help us tailor the assortment as we continue to build upon our approach to maximize this key growth initiative. Turning to our third strategic priority, realigning our foundation for the future. During the third quarter, our supply chain and IT teams successfully completed the retrofit of our Dallas distribution center, introducing advanced automation and robotics, an upgraded warehouse management system and a new warehouse execution system.

We incorporated key learnings from prior retrofits and executed this upgrade flawlessly. We expect these upgrades to strengthen our foundation, further enhancing inventory flow and increasing capacity. As I've shared previously, one of my top priorities has to make sure that I have the right leadership team in place to drive our future growth. And I couldn't be more pleased than to welcome Chris DelOrefice to Ulta Beauty as he assumes the role of Chief Financial Officer tomorrow.

He joins us from Becton Dickinson, where he serves as CFO for the last 4 years and brings more than 30 years of diverse corporate finance experience. I want to express my gratitude to Chris Lialios, our Interim CFO, for his partnership and leadership during this important time of our business. And thankfully, he's not going anywhere. He will continue his role as SVP and Corporate Controller and help ensure that we have a smooth transition.

In addition to shaping our leadership team, I've been keenly focused on reenergizing our culture. Over the past several months, I've had the opportunity to spend time across our broader organization from store visits in key regions to walking the floor of our distribution centers and engaging with our international teams and partners. I've been truly inspired by the energy, pride and purpose that our teams bring to their work.

These visits strengthen my belief that our success is built on people, their commitment to our values, their relentless focus on the customer and their ability to adapt. Finally, to our plans and expectations for the upcoming holiday. Our teams have been hard at work to ensure that we're well positioned to deliver a strong 2025 holiday season, hiring and onboarding seasonal associates, developing compelling holiday assortments and merchandising strategies, creating bold celebrity glam-filled marketing plans, all offered in festive, fun and easy-to-shop stores and digital channels and our supply chain is ready and ready to deliver with speed.

The holiday season is in full flight, and we're pleased with our Black Friday and Cyber Monday performance. At the same time, we know the biggest selling weeks are still ahead of us, and we are mindful of the challenging macro backdrop. Our insights suggest beauty consumers' budgets are tight and they are focused on value. Despite this, beauty enthusiasts tell us that they intend to spend on beauty for seasonal needs, affordable splurges and gifts for loved ones.

They are focused on replenishing their essentials and strategically making smart purchases around strong value, holiday limited editions and deals and early gift set drops. We will leverage these key insights to ensure that we're staying relevant and delivering for our guests during this important holiday season. We are confident in our plans and the improvements that we've made, and our teams are ready to go and make holiday happen here at Ulta Beauty, driving excitement and delivering for our guests and their loved ones.

I want to close by expressing my gratitude to our teams and partners across the globe. Their efforts are driving meaningful progress and positioning us well for the long-term value creation. And with that, I'll turn it over to Chris to cover the financial results for the third quarter and our updated financial outlook before we take your questions. Chris?

Thanks, Kecia, and good afternoon, everyone. I'll begin with a discussion of our consolidated third quarter results and then share our expectations for the fourth quarter and full year. As a reminder, our results for the third quarter of fiscal 2025 include financial results for Space NK, which was acquired in July and is not material to our consolidated financial statements.

The Ulta Beauty team delivered strong performance again this quarter, reflecting better-than-expected growth from comparable sales, favorable shrink results and stronger merchandise margin. Consolidated net sales for the quarter increased 12.9% to $2.9 billion compared to $2.5 billion last year. During the quarter, we opened 28 new Ulta Beauty stores, remodeled 15 stores and closed 1 store.

We also opened 2 new Space NK stores, relocated 1 store and closed 1 store. We ended the period with 1,500 Ulta Beauty stores and 84 Space NK stores. Comparable sales increased 6.3%, driven by a 3.8% increase in average ticket and a 2.4% increase in transactions. Other revenue increased approximately $8 million versus the third quarter last year. Looking at the cadence of comp sales through the quarter, growth was fairly consistent across all periods. From a channel perspective, both store and digital channels contributed to comp growth with e-commerce sales increasing in the mid-teen range and comp stores delivering mid-single-digit growth.

Consolidated gross margin for the quarter increased 70 basis points to 40.4% of sales compared to 39.7% last year. The increase was primarily due to lower inventory shrink and higher merchandise margin, which was partially offset by adverse channel mix, reflecting strong growth from our digital platforms. Our team's focus on reducing inventory shrink while also delivering great guest experiences continues to produce meaningful results.

Our investments in fixtures and process improvements as well as focused associate training and store-specific action plans have delivered shrink reductions across every category in almost every region. Merchandise margin increased this quarter, primarily due to the timing of market-wide price actions from select brands and more effective promotion strategies. These benefits were partially offset by unfavorable category mix.

While many of our brand partners continue to be cautious about passing through tariff-related price changes, we saw more brand-driven price increases in Q3 as compared to Q2. Reflecting on our average cost inventory valuation methodology, we often see a short-term benefit to cost of goods as we move through the lower cost inventory after the retail price changes executed. Merchandise margin in the quarter also benefited from greater promotional effectiveness.

We delivered strong performance from key events, including 21 Days of Beauty and Fall Haul and eliminated unproductive offers. As a result, the impact to merchandise margin from promotional activity was lower than last year. Moving to expenses. Consolidated SG&A increased 23.3% to $841 million. SG&A growth was elevated this quarter, primarily reflecting higher incentive compensation, the impact of Space NK and the timing of investments we're making to support our Ulta Beauty Unleash Strategy.

Excluding the impact of incentive compensation in Space NK, SG&A growth for the quarter was about 14%. As a percentage of sales, SG&A increased 240 basis points to 29.4% compared to 27% last year, largely due to higher incentive compensation, reflecting our better-than-planned performance as well as the lapping of a benefit from lower incentive compensation in the third quarter last year.

Higher store payroll and benefit expense, store expenses and amortization of cloud-based software investments also deleveraged as a percent of sales. Store payroll and benefit expenses increased primarily due to additional selling hours to support the guest experience and higher healthcare costs. The deleverage of store expenses largely reflects higher supplies to support key merchandising initiatives and inflationary pressures.

The growth of cloud investment amortization reflects the impact of technology investments we are making to support our long-term growth. Over the last several years, we've upgraded key elements of our technology infrastructure, including our ERP system, digital store platform, POS systems, data infrastructure and critical supply chain systems.

With this foundation in place, this year, we've invested in new go-to-market capabilities, including marketplace, personalization and other digital enhancements to support the guest and associate experience. Many of these investments are cloud-based arrangements. And as we launch and operationalize these capabilities, we are experiencing higher operating expense.

While these investments are driving near-term expense pressure, we expect they will support long-term revenue and market share growth. Operating profit was $309 million compared to $319 million last year. As a percent of sales, operating margin was 10.8% of sales compared to 12.6% last year. Wrapping up the P&L, diluted earnings per share was $5.14 per share or flat to last year.

Moving to highlights from the balance sheet and cash flow statement. We ended the quarter with $205 million in cash and cash equivalents and $552 million in short-term debt. Similar to the third quarter in past years, we leveraged our revolving credit facility during the quarter to support working capital needs and ongoing capital allocation priorities, including share repurchases and capital expenditures.

As a reminder, we funded the Space NK acquisition in Q2 with cash on hand and borrowings under our existing credit facility. Total inventory increased 16% to $2.7 billion compared to $2.4 billion last year, primarily reflecting additional inventory to support new brand launches, Space NK and the impact of 63 net new Ulta Beauty stores.

Capital expenditures were $87 million for the quarter, mostly driven by investments in new and existing stores and IT systems. Depreciation increased 13% to $76 million compared to $67 million last year, largely reflecting store investments. In the quarter, we repurchased 427,000 shares, bringing the year-to-date total for our share buyback program to 1.7 million shares or $693 million.

At the end of the quarter, we had $2 billion remaining under our current $3 billion repurchase authorization. Turning now to our updated outlook for the year. We have increased our fiscal 2025 guidance to reflect our third quarter results as well as our updated expectations for the fourth quarter. For the year, we now expect net sales will be approximately $12.3 billion with comp sales growth between 4.4% and 4.7%.

We now expect operating margin will be between 12.3% and 12.4% of net sales, with the deleverage driven primarily by SG&A. We expect gross margin will be roughly flat for the year. Reflecting these assumptions, we expect diluted EPS for the year will be between $25.20 and $25.50. With 1 quarter left in the year, I want to share how we are thinking about Q4.

We have increased our outlook for revenue growth, but believe it is prudent to continue to take a cautious view of consumer spending this holiday season, given the dynamic macroeconomic and operating environment. Reflecting our performance through Cyber Monday, we now expect Q4 comp growth will be between 2.5% and 3.5%. For Q4 modeling purposes, we expect operating margin will be between 12% and 12.3%, driven by gross margin and SG&A deleverage. And we expect EPS for the quarter will be between $7.61 and $7.90.

And now I'll turn the call over to our operator to moderate the Q&A session.

[Operator Instructions] Our first question will come from Lorraine Hutchinson with Bank of America.

Can you talk about what you're hearing from brands about pricing? The 3.8% ticket comp was very impressive. Do you think this might build in the coming quarters?

Lorraine, thanks for the question. I would say that we generally have pricing increases quarter-to-quarter as brands come through. And we had -- there were plenty of publicly traded companies that announced that they were taking price increases, e.l.f., Coty and Helen of Troy, just to name a few, that we were seeing some price increases with this quarter.

Chris, maybe I'll let you give a little bit more color around what the pricing increases look like for the quarter. But pricing increases are not new in this part of the business, and I don't think that we saw anything that was like extraordinary by any means. Chris?

Yes. Lorraine, thank you for the question. As we mentioned, we are starting to see more market-wide price increases come through with select brands versus Q2. But we continue to work with our brand partners to understand how they're thinking about tariff mitigation going forward and price increases.

And they are being very thoughtful considering the consumer wallet pressures and making sure that we continue to provide value to our guests. As far as how the price increases flow through the P&L, as I had mentioned, there is a short-term benefit to cost of goods as we sell through the product. But eventually, that catches up as we sell through the older product and we replenish with newer product.

Your next question will come from Steve Forbes with Guggenheim Securities.

Kecia, you mentioned solid app engagement and also app online sales penetration. So I was curious if you can maybe just give us more color around what you're seeing from the consumer standpoint and whether consumers are actually migrating to purchasing across channels as you think about the mix of customers that are maybe dual channel purchasers versus single-channel purchasers.

And the reason I ask, right, as you think about that 15% or mid-teens e-commerce growth profile, it's sort of indicative of really strong wallet share and market share performance. So just trying to gain conviction around what's driving that.

Well, thanks, Steve, for the question. What I would like to highlight first is that we've had strength in both categories because stores are continuing to grow, too. And if you look at the percentage of our business, 80% of our business is still coming from stores. Our app engagement, we're really pleased with what we're seeing. It grew 65% from 63% last quarter.

And we are building on our momentum in e-com. We've had 3 consecutive quarters of double-digit comp. I think that there's a couple of things that are playing into that. We've introduced new capabilities in 2025 that are really helping us strengthen our momentum in e-com. In Q1, we had Split Card launching, which made you could pick it up in the store, you could have something you sent to your home. That was a new technology that we didn't previously have.

In Q2, we launched Replenish & Save. Q3 Wishlist and Venmo just in time for the holiday season. And then as I mentioned in the prepared remarks, we've added -- we have 1,000 stores now for ship from stores. So speed is really important. As our investments are continuing to elevate our digital experience and this whole acceleration around personalization is fueling our performance, it's really driving both channels up.

And we're really pleased with what we're seeing across both stores and e-com. What I will say is I'll just finish by saying that there's no finish line in our technology and our advancements and the investments that we're making. And it's just great to see that our Ulta Beauty unleash plans and what we're investing in is really starting to come through and show on the top line sales.

Your next question will come from Anthony Chukumba with Loop Capital.

Congrats on a really strong quarter. I guess my first question is, I look at your comp performance on a 2-year stack basis. This is the second quarter where the comp accelerated on a 2-year stack basis. And I guess -- and I know it's probably hard to parse this out super finitely, but I was just wondering how much of that do you think is the product newness versus the better execution in store versus the better promotions? Maybe it's a mix of all of that. And it does sound like the industry is continuing to grow. So how do you just sort of think about that?

Well, I think it's all -- thanks, Anthony, for the question. I'll start by saying that, but I would say it's all of that really playing in together. And what I'm seeing is that the company is really hitting on all cylinders. We have a very clear plan, and everyone is working on the Ulta Beauty Unleashed plan and understands the role that they play. I couldn't be more pleased with what I'm seeing also from our frontline associates all the way to the senior executive team and really raising to the occasion and really driving the business.

I'd say that there's 4 areas that we're really leaning into. It's merchandising, especially this time of year, we're really focused on gifting. Fragrance, we called out was really strong. We've got a lot of holiday exclusives and newness that's driving the business. In digital, our capabilities, which I just shared in the last question, they're really driving that e-commerce channel. Marketing, we're amplifying the ways that we're communicating. We've launched our new brand equity campaign.

And then it's all underpinned by operations and just delivering on a great guest experience from in-stocks to guest satisfaction and the speed in which we're delivering products to our stores. So it's the game plan working together collectively along with the team supporting it that I think is where you're seeing the momentum come. And we're going against the Super Bowl of the season here in fourth quarter, and we're just going to continue to lean into our operational excellence and continuing to deliver the best results that we can have for the rest of this year.

Your next question will come from Anna Andreeva with Piper Sandler.

Great. Let me add my congrats. Great quarter. We had a follow-up on SG&A. How much of that growth was the incremental brand campaign that you guys did during the quarter? And you've talked about '25 being more of a catch-up year in terms of investments. Can you talk about if we should expect '26 SG&A to be managed closer to sales? What areas are you guys still investing in? And not sure if you can comment how we should think about Space NK contribution to sales and as we think about SG&A for next year?

Thank you for the question, Anna. I'll start off with the SG&A increase. As you know, we deleveraged about 240 basis points primarily due to higher incentive comp, store payroll and benefit expense and store expenses and the amortization of cloud-based software. As far as breaking out the advertising piece, we leveraged our advertising as a result of the higher top line revenue. And as far as the growth of store payroll expense, we -- again, it's primarily due to additional selling hours to support the guest experience.

And then we're going to share more about our SG&A plans in March when we're going to talk about our 2026 plans. But we understand and I shared in the comments, this is an investment year, and we knew that. And this was what the plan was, and we look like we're going to be hitting what our forecast has been that we've shared earlier. But we'll be able to share more about what the plans around SG&A in March.

Your next question will come from Rupesh Parikh with Oppenheimer.

Also congrats on a really nice quarter. So Kecia, just on the brand -- or I guess, the innovation pipeline, the exclusive brands. I know last year your team was very upbeat in terms of innovation for this year. So just curious, based on your current visibility into next year, just how do you feel about the pipeline out there?

Yes. Thanks for the question, Rupesh. Our merchandising vision is to really curate and inspire guests with the best beauty and wellness assortment for all life stages. And Lauren has come in and really brought some great thought leadership and is really helping us refine the merchandising vision and brand building strategy.

What I will say is that our merchants have been hard at work in developing their plans for fiscal 2026. We have an exciting pipeline of newness, and I'm pleased with what I see right now. And it's balanced across the portfolio, very similar to how this year was. So while we're in the midst of our planning, and I'll share more specifics in March, the team has done a really nice job, and they have really prioritized newness and innovation because we know how important it is to really drive this business overall. So I feel bottom line, really great about what I'm seeing for 2026.

Your next question will come from Kelly Crago with Citi.

Congrats on the great quarter. Kecia, I was hoping you will elaborate on your philosophy around your EBIT margin, long-term EBIT margin of 12%. You're running ahead of that this year despite significant SG&A deleverage. Should we still anchor to the 12% as we think about F '26? And with that, you talked about SG&A maybe finding some efficiencies, is SG&A a source of leverage as we look forward? Or will you still sort of try to drive the gross margin and maybe invest against that?

Yes. Thanks, Kelly, for the question. I will say this is a great position to be in because we're outperforming what the original plan was. And while our guidance for '25 now is between 12.3% and 12.4%. As we're looking at 2026, we're focused on building a plan that really positions us to deliver against our long-term targets.

We're still in the planning process, and we need to see where 2025 lands because we still have the rest of this quarter to go. But reflecting on our commitment that 2026 will not be another big heavy investment year. We would not expect EBIT margin next year to deteriorate from 2025 levels. Now you asked also about the long-term plan. While our performance is better than what we had planned, it's still premature to change our long-term growth targets at this time.

We're confident that we can deliver our targets over time, but there are so much nuances that can happen from year-to-year. My focus as a leader is to make sure that we're building a plan that we can continue to invest in this business, remain relevant and take share. And as you know, we have a brand-new CFO starting tomorrow.

And as he gets into the operations, I'm sure he's going to have a perspective, too. He and I are going to work together along with the Board to make sure that we have a long-term plan that really supports our business and taking market share and being a profitable business over time. So bottom line, I would say that you should not look for EBIT margins to deteriorate from fiscal year 2025 levels.

Your next question will come from Michael Lasser with UBS.

Kecia, there's been some debate around the start of the holiday season. Ulta has carried a lot of momentum over the last 6 months. Are you finding that some of the momentum is starting to fade where consumers are shopping more around events and in between those periods, they're a little quieter. And does that give you pause about the need to continue to make investments in order to drive the business?

Thanks, Michael, for the question. What I would say is that comp growth during the quarter was really consistent across all periods. And as I shared, we were pleased with Black Friday and Cyber Monday. Beauty is still a very important category for the consumer in their lives and also for shopping for their holiday needs. And Ulta Beauty is also very important to them.

I'm confident in our plans and staying really focused on execution. And we're having a lot of fun. We're working really hard on this plan. The team is having a good time doing it. We've got momentum on our side. I like what I'm seeing in the newness pipeline. I just -- I think we're going to continue to play our game and continue to stay focused at keeping the consumer at the center of everything that we're doing. And I just don't necessarily see that momentum changing anytime soon.

Your next question will come from Ike Boruchow with Wells Fargo.

Just I wanted to ask about the shrink benefits that you guys have seen all year. Any chance you could quantify it for the third quarter? Are you expecting benefits into the fourth quarter? And then I guess, is that -- is there more tailwind to that? Or is this -- was this a big kind of catch-up year for you guys? I know 2 years ago, there were some issues, you've clearly worked through. So just kind of looking for more clarity there.

Thanks for the question, Ike. We are pleased with the progress, obviously, as we stated in our prepared remarks that we've made to reduce shrink. In Q3, there was a modest improvement. And in Q4, we expect another modest improvement in shrink. And we do expect for the full year '25 that shrink will be lower than '24. We believe there's still some opportunity to reduce shrink further, but the teams are working very hard, and we're very pleased with all the initiatives that we've put in place.

Your next question will come from Mike Baker with D.A. Davidson.

Could you discuss the competitive situation? Amazon Premium Beauty still seems to be grown a lot. I think Sephora at Kohl's actually comped negative, yet LVMH's selective retail was positive. A lot of different moving parts from your competitors. How do you see the competitive situation today versus 3 months ago or earlier in the year?

Thank you for the question, Mike. Beauty has always been a competitive category. And there's been consistent growth, and it's been combined with attractive profit margins, there is a -- it's attracted a variety of players into the category. But that's what our Ulta Beauty Unleashed plan is designed to do is to really accelerate and amplify our differentiation and what makes us unique.

I will just say that we're doubling down on the drivers that we know with us having 46.3 million loyalty members, we know what our consumers are purchasing, how they're purchasing. We have, like I said, the pipeline of newness. Our merchants are doing a fantastic job of listening to the consumer and what it is that they're looking for. We are the only one that really offers everything from low to lux and everything in between, underpinned with the services and activations and the investments that we're making in our eventing.

So the experiential shopping makes us different. When you look at our e-commerce business, and you see like one of the big drivers in e-com is BOPIS. It further substantiates that our e-com business strength is there, but they still like coming into the store. So I do think that while, yes, it's a very competitive environment, we are uniquely positioned to continue to win and take share in the industry. So like I said, I feel really great about our plans. The plans are working. We're still in the early phases of them, and they're just going to continue to -- the momentum is going to continue to be on our side.

Your next question will come from Dana Telsey with Telsey Group.

Congratulations on the nice results. Kecia, as you think of top line and you think of the categories and prestige and mass, what are you seeing on prestige and mass? Is there a difference? And as you go forward through this holiday season, is the newness at all different this holiday season than it was last year or any way you're triangulating it? And lastly, you mentioned on Space NK bringing things here. What are you bringing? Has it been tested? How is it reacting? How do you see that moving forward?

Thank you, Dana. I think that might have been a 3-part question. I'll try to make sure I cover all of the points. But in regard to market share, prestige beauty, the industry grew in mid-single digits, and we gained share primarily driven by our strength in skin and fragrance, but makeup also increased. We're seeing steady improvements in prestige haircare in our trends.

And what's great about prestige is that we gained share in both brick-and-mortar and digital channels with elevated competition even out there. And then in mass, mass grew as an industry mid-single digits in Q3, and we gained share primarily driven by strength in mass makeup. So what I'd say is that I'm really encouraged to see that our plans are working to improve our performance and really drive market share. And we're -- our efforts are gaining traction. We're confident in our go-forward plans.

And market share is a battle, but we're staying focused on building on our successes to continue to drive sustained market share improvements over the long haul. You asked a little bit about Space NK. And what I would say is that with Space NK, it's still early. We're in the early innings. But one of the things that was really attractive to us is the nuance of their ability to really have clienteling and really have close relationships with their consumer, be really agile.

They've just now launched their app themselves. It's just -- like I said, I think this is a situation where 1 plus 1 can equal 3. They've figured out how to do High Street really well in smaller box locations and be really efficient with their space. I think what we can bring to them is back-office operations and how do you continue to leverage the size and the scale and the operational efficiencies that we have.

So it's really early, still in the innings is what I would say. But we have the ability to really learn a lot from each other. I want to protect what makes Space NK unique. I do not want to turn Space NK into a mini Ulta Beauty. I think that's what's made Space NK so special. But I think like I said, there's learnings that we can share from them and to us and us and to them that will help us both be better in the long run.

Your next question will come from Michael Binetti with Evercore.

Let me add my congrats. Great quarter. I'm still trying to get my head around the SG&A and how we got from 13% to 14% growth for the year on the last call to 23% in the third quarter. And I think if grosses are flat, backs into 15% to 16% growth for the year now. I know you called out a couple of items within the 23% growth in the third quarter, but I don't understand if those were included in the 13% to 14% for the year previously or not.

Just maybe help us understand the bridge there. And then I know you have talked a lot about SG&A a lot and the 12% margin, EBITDA margin. But the gross margin flat for the year on a 4% to 5% comp, I was trying to think through that a little bit and think what the comp leverage point is that you guys are comfortable with there. I think the last publicly available documents, we saw Space NK had a gross margin profile closer to 43% for a couple of years in a row, pretty stable, so 3 or 4 points higher than where you're at. Does that kind of a comp in the model lever SG&A in a normalized environment once we get past some of the Space NK impact?

Thanks for the question, Michael. It seems like there was one question there. So we'll try to tackle them here. As far as Space NK, so Space NK does not become comp until Q3 of next year. So you will have some Space NK impact year-over-year in the first half of 2026. As far as the deleverage, FY '25, we expect gross margin will be roughly flat, again, driven by lower shrink and higher merchandise margin, offset by the deleverage of other revenue and store occupancy costs as well as the adverse channel mix that we talked about.

For the fourth quarter, we expect GM deleverage driven primarily by store fixed and other revenue as well, largely reflecting our fourth quarter comp expectation and the adverse channel mix, again, still plays into effect there in Q4, offset by -- we will see some leverage in our supply chain costs.

Your next question will come from Adrienne Yih with Barclays.

Let me add my congratulations. The stores look fantastic, I have seen one this afternoon. Kecia, can you talk about the Target 1,800 number of stores. At the Analyst Day, it was a couple of hundred more from the October 24 kind of anchor. And your top line is 2x the sale, the rate of category growth.

Next year, we're going to shed over 600 of the Target ex Ulta. So I'm just wondering, is there -- how do you feel about the pace? And has anything changed there? And then for Chris, a question just on kind of the modeling of the kind of pricing with the price benefit that you had and the tariff inventory hitting the income statement, should we expect more of a parity, a matching effect on the pricing actions versus the tariff impact actions starting in maybe 1Q or 2Q?

Thanks, Adrienne, for the question. And I'm happy that you are in our stores and hopefully, you're shopping. I would say that we -- our long-term algorithm of what we've shared for new stores is we've said 1,800, and we're still confident with that 1,800 store count going forward. And then, Chris, I'll kick it over to you.

So on the pricing impact, obviously, we'll talk more about the impact of price increases in Q1 and Q2 next year in March. But as far as the price increase in Q4, we do expect to see price increases, modest price increases like we've seen in other years.

And the tariff, the inventory will not yet fully be expressed with the pressure. Is that correct? So it's similar to the third quarter in terms of a net benefit?

Yes. As you know, it's based on our inventory valuation method, the average cost. So it's going to take a while for it to reach the new cost level. But most likely, it takes about 1 or 2 quarters for it to flush through.

Your next question will come from Simeon Gutman with Morgan Stanley.

Can I take your temperature on newness? I think it's been a theme for '25. What are you seeing as it wraps into next year? And if you're able to separate this year has been a lot of improvement. Some of it's newness, some of it's marketing. And then you've talked a lot about early innings of some things sound like basic things that you brought like the payment thing. So can you talk about how much internal improvement you would chalk this year up to and how much more is to go in the future?

Yes. Thanks, Simeon, for the question. I feel really good about the newness pipeline that I'm seeing for 2026. The merchants have been hard at work developing plans, and that's one of the rigors that Lauren has really brought, I think, into the company is taking a look at the current year and building a plan like how we're going to combat newness that's going to be flowing next year and being really balanced across the portfolio.

So in regard to newness, I feel good about what next year looks like. The second part of your question was, I mentioned early innings and that there's some things that I think can continue to come play. What I mean by that is this has been a heavy, heavy investment year in a lot of our technology, investments in our teams. And there's benefits to letting things marinate a bit. And we've been coming off of 2, what I call really high -- or a few high years of investment in our foundation.

So for the last 3 years before this last year, we were investing in our ERP, our POS, supply chain, back-end operations, digital, I mean, all -- pretty much all aspects of the business. And then we had fallen behind in our go-to-market. So that's what happened this year as we shifted more into the go-to-market type strategies. And so we've been -- it's been a heavy up investment year in more guest-facing, sales driving, market-driving initiatives.

There is going to be benefit to being, I would say, hyper prioritized next year. We always are going to want to invest in the business, but we're going to be more prioritized next year. There's going to be less investments next year, very thoughtfully done. And we need to see the benefits from some of these investments that we've made over the last few years, really kind of settle in, marinate and get the benefit from them. So that's why I'm saying that I feel like we're still in the early innings is that there's major opportunity for us to continue to see these things come to play.

I think we have time for one more question.

Your final question will come from Olivia Tong with Raymond James.

Congrats on the quarter. Your early read from Black Friday through Cyber Monday sounded promising. So just wondering if you could unpack the expectations for a deceleration to 2.5% to 3.5% comp. Was there any impact from the government shutdown? Any change in consumer habits with pricing? And if you could, what quarter-to-date looked like?

And then just thinking about the initiatives going forward, you're going into next year with a ton of momentum, it seems. But curious how you think about some of these initiatives for next year to come some pretty amazing top line growth this year. You already talked about the newness. But what about next 12 months versus last 12 months in international wellness marketplace, other new initiatives and the ability to continue to build those so that the contribution continues to get bigger as you comp these numbers?

Yes. As I mentioned -- thanks, Olivia, for the question. As I mentioned, Black Friday and Cyber Monday performance, we were really pleased with. And what I'm excited about is that we came out of a really strong business with even stronger in-stocks than we've seen ever coming into out of a holiday -- peak holiday weekend. While this is a challenging, this is also a very fun time, but these next 9 weeks are big weeks.

And there's just so much volatility that can happen. You can have bad weather that happens on a key critical weekend. Who knows what could happen between now and the end of the quarter. So I think we're just being very prudent in our guidance and making sure that I kind of like the plan of not missing a quarter as a new CFO, first year in position. So I'm wanting to put something out there that I feel like is an achievable plan and one that the team can continue to work towards.

In regard to your question around long term and how confident am I in that we can continue to sustain momentum. I believe that we are a company that can continue to grow share, and that's what our plan that we've built is built to do. I look forward to sharing more with you in March after we finish the year, and we can share what our plans are for next year. But the team has been working really hard along with myself to build a good game plan for what 2026 looks like. Like I said, we're in the early phases of that. We're looking forward to being able to share that with you all.

But we've got good fundamentals in place. I grew up through operations. I understand the levers that it takes to really drive a profitable retail business, and I'm committed to doing that. All right. Well, thank you all for joining us today and discussing our third quarter results.

We're excited about the progress we're making against our Ulta Beauty Unleashed Strategy and focus on closing out the year strong. We appreciate your continued interest in Ulta Beauty and hope you all have a safe and happy holiday season. We look forward to speaking to you all again in March when we report our fourth quarter and full year results. Have a great evening, everyone.

Thank you for joining. This concludes today's call, and you may now disconnect.

Okay. So next up, we have Ulta. I'm very excited from management to have Amiee Bayer-Thomas. Amiee is a Chief Retail Officer at Ulta, has been with Ulta for almost 10 years, got promoted to Chief Retail Officer just this January. So congratulations. And in this role, Amiee oversees all aspects of Ulta Beauty store and services operations, and that includes more than 1,400 stores across the country as well as the Ulta with Target.

Great to have you. Thank you so much for making it to the conference. I wanted to kick this off. You've been with Ulta for almost a decade, a lot of changes in the business during that time. Talk about your journey with Ulta.

Yes. No. Thank you, Anna, for having me, and thank you all for your interest in Ulta Beauty. I'm thrilled to be here today. I've been doing this a long time. I'm a 30-plus year retail veteran. So I've led large strategy and transformation work. I've garnered expertise across business functions, from merchandising, operations, supply chain stores, services. And the last almost decade at Ulta Beauty has definitely been a highlight of my journey.

I started at Ulta Beauty almost 10 years ago in the field as a Regional Vice President and then was quickly promoted into the Senior Vice President role leading the West division, which was roughly about 60% to 65% of our stores 60-plus percent of the volume. And then during that time in that role, I took on some additional scope taking over corporate store operations and services operations.

And then in early 2020, I was asked to lead our COVID response team, a large cross-functional team. As we all know, what happened in March of 2020. So worked cross-functionally with a lot of partners to drive our COVID response efforts.

Summer of 2020, I was promoted into the Chief Supply Chain Officer role, where I led the team through our first peak during the pandemic and simultaneously stood up a 5-year large transformation strategy for the supply chain of which I led the supply chain through for the first 3.5 years of that transformation, taking on additional scope during that time, leading loss prevention and corporate enterprise continuous improvement.

Last year, I was transitioned over into the Chief Store Operations Officer role, where I led store's loss prevention, continuous improvement in the Ulta Beauty target partnership. And then, as Anna mentioned, 8 months ago in January stepped into the newly created Chief Retail Officer role, where I maintained everything I had in the Chief Store Operations Officer role but then took on the responsibilities of real estate growth and development, store design, visual merchandising, brand education for retail and services as well as the broader larger guest experience work that happens collectively through the omnichannel efforts for the enterprise. So it's been a wild ride. I love what I do. I love the people I get to work with and I love that I get to do it at Ulta Beauty.

That's quite a journey and quite a wealth of experience in those not even 10 years. So thank you so much for that. As you think about the learning so far from the Ulta unleashed plan that Ulta unveiled last fall, this past quarter, the business saw a nice inflection. In fact, the best comp Ulta has seen in, I think, two years. Can you talk about what elements of the plan are working maybe ahead of expectations as you expected? Some of them seems like working faster as well. And then conversely, some of the areas still of opportunity as you look out for the business.

Sure. Well, let me -- I'll start with. At a high level, our Ulta Beauty Unleashed strategy really is designed to: one, drive our core business growth, which is execution across the enterprise, personalization, brand building and digital acceleration. The second pillar of our Unleashed strategy is really around building and scaling new accretive businesses. This includes our marketplace as well as our Ulta Beauty UB Media, international and wellness. And then the third component of the strategy is around realigning the organization for future growth. And this is driven by cost optimization, improved ways of working as well as cost optimization, ways of working. And our culture, reigniting our culture, which is so critical and really a key secret sauce, I guess, I would say, of Ulta Beauty.

We're very pleased with the progress that we've made on the strategy. I will share that while the initiatives that support the strategy are not different from what we shared last October during our Analyst Day. What is different is the clear vision, the clear strategy as we're outlining it, really simplifying the message for our teams. It's translating from leadership all the way permeating throughout the organization. We have a higher level of collaboration that's happening. We have a higher level and faster decisioning that's happening, and we're seeing us take faster action as well. we have alignment at all levels of the organization. We know what we need to do, and we know how we're going to do it.

When I think about what within those three pillars that we are focused on and what's working and where would we have some opportunity. Within the driving growth we have seen us launch and you all I hope have seen, we've launched new brands, several new brands, 43 new brands, many of which are exclusive brands to Ulta Beauty. Our in-stock levels are better than they have ever been, and that has really been driven by process changes upstream and collaboration that's happening within our corporate teams within merchandising, marketing and retail operations, which we refer to as our go-to-market team as well as process changes that are happening within our stores around unified workflow. We've launched and we executed 30,000 events in our stores this last quarter and are tracking to do over 70,000 events this year, which is 40% more than we executed against last year. And our guests are telling us they're noticing. Our NPS scores are growing year-over-year, and our guests are taking notice and loving what we're doing.

Within the accretive business category, we launched an expanded wellness and there was 370 doors, expanding our linear square footage from 30 feet to 45 feet and we soft opened our first Mexico store and acquired Space NK from an international expansion component. And then from a realignment around our structure and our organization, we completed our culture survey in June of this year. And we had record high participation. We have now reached 60,000 associates across our stores, and we are seeing it resonate what we're doing with our associates because engagement is really at an all-time high.

When I look ahead to what's coming, we are launching our marketplace this quarter. We will be opening 10 locations in Mexico by the end of the year, one to two locations in the Middle East, and we are expanding wellness in another 50 doors with specialized fixtures. Sales is really the ultimate KPI here, but I would say we're also seeing lift in conversion in our loyalty member growth as well as our NPS scores. So we are doubling down on our Ulta Beauty Unleashed program because we know that, coupled with our unique model, it is going to deliver success and growth for not just this year in 2026 but for years to come.

Yes. No, really exciting times for the business, and thank you so much for taking all of this up for us. It sounds like the diminishing kind of a headwind from the additional distribution that got added to this industry for the last couple of years is now becoming a factor, right, in your improving top line trends, but it's just one factor. Again, everything that you've discussed so far, obviously, the fundamental changes of the business. That's where you're seeing the inflection. But can you talk about what are you seeing also at the stores that were affected the most by this additional distribution? It sounds like red overall, there's still some impact from this, but it's diminishing pretty significantly.

Yes. Well, competition -- the beauty category is a highly sought-after category, and it is definitely a competitive category. And there is no shortage of people trying to get into the category for sure. What we are focused on through the Ulta Beauty Unleashed program is what differentiates Ulta Beauty from the competition. And so we're really leaning into what we do in stores, how are we looking from a clarity of offer, guest experience perspective, in-stocks, as I talked about, and really leaning into what makes us special and unique through that human connection that only we can bring through that omnichannel experience.

When you look at the competitive landscape and as you mentioned, Anna, that, yes, we saw in the last couple of years, quite a bit of competition come into -- surged into the market. And we have started to see that slow. But when we look at our stores, we are seeing consistent and solid performance across our entire fleet. 90% of our stores experienced a point of competitive distribution. One or more show up in close proximity to them in the last two years. That means 10% did not. So when we look at the 90% versus the 10%, we are seeing a equal amount of strength in the performance of that 10% as we are to the 90%, which tells us that the Ulta Beauty Unleashed strategy and all of the things that we're doing are working.

That's great. No, that's really great to hear. You mentioned go-to-market a couple of times and that's a pretty significant needle mover in terms of what Ulta is doing differently now. I think for investors, there's still questions, what does that mean exactly? There is a big event that you're running currently, the 21 Days of Beauty. So I think it would be really helpful to understand how you've changed the process and what are you doing differently now versus historically.

Sure. So when we refer to go-to-market, as I mentioned earlier, part of the third pillar of our strategy is around realigning the organization for future growth and success. And that -- my role is a perfect example of that in creating the Chief Retail Officer role, where all things retail are now underneath one umbrella, which has really enabled us when you think about from where we choose to build a store to what we put into that store to how we execute against the experience in that store all the way through to how we connect the omnichannel experience to that all falls underneath my area of responsibility. So it's enabled us to remove friction, drive synergy, be more nimble, make decisions quicker and move faster, learn fast and then apply our learnings really quickly and keep moving.

From a go-to-market perspective, my role, coupled with the Chief Merchandising and Digital Officer and the Chief Marketing Officer, we would like to refer to ourselves as the trifecta. We are the go-to-market team and different in how we're operating is we are operating collaboratively and collectively together versus operating singularly within our functions. And what that means is we come together weekly, our teams come together. It starts at leadership, and it trickles down through the team. We have processes in place now where the -- those three functions are three parts of the business. And those are pretty significant parts of the business. We have processes where we connect on a weekly basis, biweekly basis, on a quarterly basis, we are planning much further out, and we're applying and taking learnings as we go and applying them as we go, I would say.

An example would be our 21 Days of Beauty. So as we -- it's a great example of one large tent pole event of ours where the collective team of the go-to-market team came together and we looked at one, what did we do last year, what worked, what did it work, what resonated with the guest when we go back to hear from the guests, what from them, the feedback from them. And then we also applied those to our Spring 21 Days of Beauty, which we have reported out again, so I can say it was wildly successful. And then from our Spring 21 Days of Beauty, we applied our learnings to all 21 Days of Beauty, which we're in right now. And so some of the things differently that showed up in our 21 Days of Beauty that had -- did not show up even in the spring or years past are things like how we are marketing the event.

So from a social perspective, from an online perspective, how are we marketing the event, how are we messaging it to the guests, how are we becoming more relevant in getting that message out there. From the deals and the brands that we work with on a daily basis, what makes the most sense. The three of us meet with the brand. So rather than a Chief Merchandising and Digital Officer going on their own to meet with the brand, the three of us go together. We meet with the brand. We talk about how we can bring a holistic view to the brand to an event, and we approach it with the 360-degree view on it. So we look at not just the assortment, not just the offer but how are we bringing it to life in store through eventing.

So previously, we didn't do eventing around 21 Days of Beauty. You saw yesterday, some of you were in our store yesterday. We had DIBS in the store, we have Live Tinted, two of our exclusive brands. We had a founder in yesterday. They're supporting 21 Days of Beauty through eventing in our store. We have -- we released the [ seals ] early to our guests so they could get excited about it. They could start to plan the days that they want to come in. We as well have a flyer in store. Our visual merchandising and marketing component has changed and became a little bit more robust, a little bit more obvious as we thread it throughout the store. Those are some of the, I would say, things that we have done to really bring to life our events in a much more meaningful way.

The other thing I would just add is we're also looking at where we're not productive. So we're looking at what can we eliminate. More is not always more. So we're really thinking about how do we streamline, how do we simplify, how do we clarify, how do we drive more effective promotionality, how do we drive more effective eventing and how do we do that from a place of strength because we have that position, we are positioned from a place of strength in the market.

Yes. It's -- Thank you for that. Eventizing, let's go with that.

I like that. I think I'm going to take that.

Sure. Take it. Is an area that we're really excited and I think it just makes so much sense to highlight the 1,400 brick-and-mortar stores that Ulta has, which makes the business so unique. As you look out to the back half and the fourth quarter, especially, you did have a nice holiday result last year. So you do have slightly more difficult comparisons coming up. But a lot of changes to the business, obviously, resonating really nicely. Can you talk about how you view the 4Q opportunity? What are you doing differently this holiday season versus last year? And consumer, we always get a ton of questions about consumer. I think resilient beauty category is how I would categorize it, but the consumer still does feel pressured. So your thoughts on that would be great.

Sure. Well, holiday is our Super Bowl in retail, and it certainly is our Super Bowl at Ulta Beauty. And we plan all year long for holiday. When holiday ends, we start immediately taking our learnings and applying it and planning for the next one. So we've been planning for this particular holiday season for quite some time and we're excited about what we have teed up for holiday this year.

I'll start and pull back just a little bit at a higher level and share that, one, we believe the category is going to continue to grow. So we do believe we will continue to see in the back half of the year, the beauty category continues to grow. We also know that while the consumer is still -- is feeling maybe a little pressured or maybe they're feeling a little pinched or they're a little uncertain about what the back half is going to hold. We also know the beauty enthusiast is spending money on beauty. They are very excited about beauty, and they are ensuring that they are continuing to get their beauty buys. So we believe, right, that the beauty resiliency that you're talking about will show up in the back half of the year.

As I mentioned, we've been planning all year long for holiday. So as we think about what we have, we have a very exciting lineup of newness coming. So I cannot say anything other than that, as I'm sure you can appreciate. But we are excited about the newness that we have continuing to come in the pipeline. We are thrilled with what we have teed up from an eventing perspective. 80% of our volume comes through our stores. And when you couple that with what we do from a fulfillment perspective in our stores, 51% of our e-comm orders were fulfilled through stores in Q2. That is a record high. That means we have traffic being driven in with buy online, pick up and store. We've got same-day delivery and ship from store happening in our store.

So there's a lot happening in our brick-and-mortar stores. So when we talk about always on activation, the eventizing that you just coined today isn't always on component for us. And you're going to see us show up in really big and bold ways in the fourth quarter connected to holiday. And then, of course, with holiday, we always have really the great uniqueness, the exclusives that we have that you can only find at Ulta Beauty.

So we're preparing. We've been preparing and we feel very confident that although the consumers might feel a little uncertain, we're doubling down on the areas that make us different. And we're the place to shop from low deluxe, and we have that because of our model, we're going to be able to take care of any guest and whatever it is that they need and the pressures that they're feeling from a gifting or self-care perspective, they can come to us because that's what we do. We are low to lux and we can flex with the wallet of our consumer.

I like the low to lux as well. That's a good one. I wanted to follow up. What are you hearing from the brands with so many changes, right, in the organization? I mean, it sounds like brands are even more excited to partner with Ulta. I mean you said you brought in more brands, I think, so far year-to-date that the entire 2024, the entire year. And within that, I would love to also talk about the exclusive. You just did an exclusive at Ulta event for the first time, I believe, in the second quarter. That just seems like a huge opportunity for the business.

Yes, definitely. So I mean our brand relationships are vital, and we love our brands. And so I think Ulta Beauty is historically known for having -- for being a great partner to our brands. And our brands are very engaged with what we're doing. And as I mentioned with the go-to-market team, the three of us joining forces and going out to our brands. We're really being -- we're really able because we are unified and we have so much synergy, and we're looking at the business holistically, we are able to serve up to our brands, opportunities and options to continue to help build their brands and tell their stories in partnership with the Ulta Beauty story.

And so our brands are excited. They are incredible. They show up for us every single day. We saw yesterday, as I mentioned, DIBS and Live Tinted were in. We get a tremendous amount of support with the eventing strategy from our brands and their field teams. And so we'll see that continue. I confidently say we will see that continue.

As you mentioned, we launched 43 new brands, 43 brands this year compared to 29 last year and you'll continue to see us fuel that innovation. We're excited about getting in the kitchen with our brands. And whether it's our iconic brands, with Clinique, MAC, Lancome. We're excited about getting in the kitchen with them and helping them drive new product innovation and our teams are doing that. And then, of course, with new and emerging brands as well. Live Tinted and DIBS being great ones that are exclusive and emerging brands that we're working with to not only help build their brand because brand building is so important, but also as we think about helping them continue to innovate. So the brands have been very supportive and a lot of engagement from the brands in that way.

Great. No, that's great. And just within the exclusive portfolio, I know it's exclusive with existing brands, right? That's one way to think about it, but also with new brands. Just maybe remind us what's the exclusive penetration currently? And how do you think about that longer term?

So right now, our new brands, our exclusive brands penetrated about 8% of the business. And it's a combination, as you mentioned, Anna, it is a combination of working with the existing iconic brands on newness. A great example would be MAC, which is an iconic brand, artistry brand. We just launched nude lips, right? The lift-and-face category are really strong right now. And so we've seen a lot of newness happening in some of those iconic brands. Nyx on the mass side, just -- we launched Smushy lip balm from Nyx as well.

Great name.

It is, right? It's fun. And Nyx is a fun brand. So you're going to see us work with iconic brands on exclusives and you will see us continue to pursue overall exclusive brands because it is an important part of the brand building function.

Great. Just in the last minute, I wanted to touch upon stores. You mentioned, I think you're not seeing drastically different results as the kind of a competitive threat moderates. But you are tweaking the number of new door openings, right, for this year. which I think is prudent. But can you talk about just the thought process behind that?

Sure. Well, we -- first, I'll start by saying we still see an 1,800-plus store opportunity for Ulta Beauty in the United States. And so I want to start with that. And we have a very robust real estate approach to our real estate as we think about how we will continue to diversify our real estate. Our decision to go from opening 60 to 70 stores, which is the direction we gave last October to 50 to 60 stores really is a combination of, one, the cost to build stores, prices, right, are going up. And so we want to be prudent in how we're thinking about that expansion, how we're timing that expansion coupled with all of the other investments that we're making. So really balancing the portfolio and ensuring that we're continuing to be disciplined and we're continuing to be prudent in how we're thinking about investments.

The second is the prime real estate vacancy in a lot of the prime real estate locations, it's dropping. So we're not just going to open a store to open a store, we're going to be -- vast majority of our stores are profitable. We have a high hurdle rate that we require and so we're not just going to open a store to open a store because space is available. We want those premium locations. And so with the vacancy level varying out there in some of those prime real estate locations, we're going to make sure that we do our due diligence and do that in due process, coupled with the investments that we're making.

Okay. All right. Terrific. Well, on this, this is a great place to end. Thank you, again, Amiee, and thank you, everyone.

Thank you, Anna. Appreciate it.

Okay. Good morning, everyone. It's my pleasure to introduce Ulta Beauty and to moderate this fireside chat. Today, we have with us Kecia Steelman, President and Chief Executive Officer of Ulta. She's been in the role since January 2025 and previously served in a number of leadership roles since joining the company in July 2014. And we also have with us Chris Lialios, Interim Chief Financial Officer of Ulta as of June '25, previously serving as Senior Vice President and Controller since 2018. Thank you for joining us today.

Yes, thank you, Kate, for having us.

It's -- both of you guys are first timers to the conference. So we're very excited to have you. Kecia, if we can maybe start with you. You've been in the CEO seat for about 8 months now. You've done a lot of work. What have been some of the bigger challenges you faced in that time? And what have been some of the bigger accomplishments so far?

Yes. Thank you so much for the question. I will say it's been a fun 8 months, that's for sure. And it's been fast and furious. I'd say my biggest focus has been really reaccelerating our performance overall and really leaning into our competitive opportunities for us to continue to drive our business.

A couple of things I would just highlight that I've really been focused on initially out of the gate. First and foremost, you have to have the right C-suite around you and the right leaders to take the business not only for today, but also for the future. So I made that a top priority is to make sure that I have the right leadership team in place.

And then I also took this opportunity with me being here for over a decade, I saw that there were some opportunities where I could really streamline decision-making, make the company a little bit more agile, ways of working, especially in this highly competitive environment of retail. So I made some organizational alignment changes initially. So that's really where I focused on my efforts with the foundation.

The second piece was really around our core business model. And execution is everything and executing not only flawlessly in our stores, but also on our online channels has been a top priority for me. And then I really emphasize on our go-to-market strategy. So it's not just the go-to-market strategy itself, but the way that we're actually bringing our brands to life and how our teams are working internally.

And then the last piece is, we've done a lot in 8 months. When you're looking at margin accretive business and ways that we think that we can add profitability to our model, there's really been 4 areas that I've been leaning into. UB Media, which has been started over the last few years, how do we continue to accelerate that. Marketplace, which is going to be going live here in the third quarter. Wellness, which we're just well underway with expanding that in about 370 stores with additional square footage. And then another 50 stores with an elevated fixture and even a little bit more space, we're learning and leaning into that.

And then the last but not least is our international expansion. We've been growing internationally. So it's been a fun 8 months, busy 8 months, but we've accomplished a lot, and I'm really excited about the future.

That's great to hear. And a great place to kind of launch the rest of our questions on. The category itself, beauty has remained very healthy. And we've heard and seen that beauty enthusiasts are often willing to make trade-off for their beauty versus the other discretionary areas. But the consumer does remain cautious. And so could we have an update on what you are seeing from your consumer and what you expect in the next few months?

Yes. We haven't really seen much change with the consumer and how they're responding. I feel like beauty isn't recession proof, but I would say it's recession resistant. It's -- the consumer is still prioritizing beauty and their wellness and their self-care. And we're seeing that in our portfolio.

One of the advantages that we have at Ulta Beauty is that we do have everything from mass to luxury and everything in between. So if we do see behavioral shifts of trade down, et cetera, we will be able to still keep that consumer in our ecosystem. But thus far, we really haven't seen much changing thus far.

Okay. You recently raised your guidance to same-store sales of 2.5% to 3.5% for the full year. Could you maybe talk about what macro trends are assumed at the high end and the low end of this updated guidance?

Yes. We're off to a strong start in the first half of 2025. But there's a lot of -- we're probably being very cautionary because we don't know what's going to happen in the back half of this year. And in our most recent guidance that we announced last week, we are saying that we'll be flat to up low single-digit comps in the back half of the year.

We're cycling against stronger comps last year. There's a lot of unknowns. But we're leaning into controlling what we can control and listening to our guests and staying very close to them. So while some people have said that we're being cautious, I think that's being prudent in this current environment that we're in today. But we're confident in that we're going to finish out the year strong. And I feel like we've put numbers out there that we feel we can achieve.

I think the question that we've been getting is, is there something you're seeing in the quarter-to-date trends? Or is it really just -- you being conservative and cautious?

Well, what I will share is that August, we were pleased with how August was performing. But I think in this environment, I don't know that there's any benefit from shooting for the moon at this point in time, and it's really smart for us to be really reasonable and proactive and prudent in our guidance, this back half.

Market share has been, I think, a big thing that you've been trying to tackle. You've been able to gain market share in mass, I think, pretty consistently, but Prestige has been a tougher category until very recently. What are the key drivers behind some of the recent market share gains? And how much do you think is due to just those physical points of distribution that kind of came on fast and furious the last couple of years, the fact that, that's slowing down?

Yes. Well, I would start with that. We're very, very proud of the fact that we have gained market share in those mass and Prestige this last quarter. And I don't think that there's necessarily one attribute. I think it's many things that are at play, and we're hitting on a lot of different cylinders.

I'd start with our Ulta Beauty Unleashed plan first, that the team is really getting behind it. The guest is responding well. We see green shoots of goodness that are coming because of the investments that we've made. And I think that, that's paying off. So that's first and foremost. I think what's driving our ability to take share.

The second piece of that is really newness. Newness really plays a big factor in creating this halo effect of the new consumer potentially coming into the store. And when you come into the store, it's harder to walk away with one thing. So I think that newness has been important. And the balance of newness across the portfolio is not just in one category that we're seeing newness. It's spread pretty evenly throughout the entire business.

And then the third is, we've had over the last 3 years, so many points of new distribution, especially in Prestige. So over 1,000 points of new distributions with some of these partnerships. And the fact that we held in there over a few years. And now we're cycling through that, is definitely playing a little bit into what we're seeing with the comp, but it's not 100% what's driving the comp. And the reason I can say that is we had about 90% of our stores were impacted by at least one new point of presence with Prestige opening.

But you take that remaining 10% of stores that didn't have any competitors that were opening, we're seeing them comping like the other stores, too. So that's not what the Holy Grail is that's really driving the overall comp. I think it's really everything pulled together and that we're hitting on all of our cylinders. And that we're really giving a better shopping experience in our stores and online because of the investments that we're making. So it's really all of the things pulled together.

When it does come to innovation because I know that is across most retail categories, really what spurs a lot of demand. How much are you in control of that versus what's being dictated by the vendors?

I think it's a partnership. I mean, one of the things in the industry, we talk a lot about getting in a kitchen with our brands. So our buyers, this is what they love to do. It's not just about new brands coming into the Ulta Beauty ecosystem. It's also working with our existing brands, and we've identified numerous times white space to some of our existing brands like a MAC or a Clinique or NYX or an HOURGLASS or even a Redken, an established brand where we say, our guests are asking for something that's a little bit unique where our buyers will get in the kitchen and work with these brands. They have pretty good R&D, and they want to lean into this too because the likelihood of success definitely grows.

So innovation is really critical and key to how we're continuing to drive our business forward. And we're doing more and more of that. It's not just like I said, about bringing new brands into Ulta Beauty. It's about looking for opportunities within our existing brands to create an increased exclusivity that's at Ulta Beauty only, and the 2 of those combined together is what's really helping us kind of create some unique opportunities for our guests and also for our brand partners.

I think historically, newness has been about 20% to 30% of your sales. Is that still something -- is that still kind of the range in which we should think about newness at Ulta in terms of percentage?

Yes, I'll take a quick step back and just share that newness is very important. And this year alone, so in the first half, we've had 43 new brands or new exclusives that have come into Ulta Beauty. And that's against 29 from last year. So newness is definitely accelerating. And we see that happening also in the back half where there's a nice study flow of some new brands that are coming in.

We just launched a new one just this last week with Moroccanoil, which is one of the top haircare brands in the industry. So newness is important. I mentioned earlier, having newness balanced across the portfolio. So it's not just in one sector of our business is really healthy, too because it's like it's bringing all ships are rising with the business when the guest is coming to the store.

So it's something that our new Chief Merchandising and Digital Officer is very focused on with her buying team is looking at new products that make a lot of sense. Korean beauty happens to be one. I don't know if you've been watching on social media, but there's this huge craze of people wanting to get this perfect glass skin. And we're bringing in some brands from Korea that are exclusive really to Ulta Beauty. And it's fascinating and it's fun and it's great to just see the energy and the excitement and the carryforward that that's happening. So those percentages are about where we've been and what we're focused on going forward.

If we can move down the P&L, one question, I think we got post your Q2 call from last week was your increased SG&A growth guidance to plus 13% to 14%, which was up from 10% prior. Could you maybe walk us through the drivers of that acceleration and how you see SG&A expense in the back half? And then just what it could look like as we go into '26?

Yes, I'll let Chris answer that.

Sure. For SG&A growth in the back half of the year, the primary drivers are coming from 3 areas. It's the fully loaded SG&A expense for Space NK, as you guys recall, we only had 3 weeks' worth of the results in Q2.

The second driver is of SG&A is the incentive comp. That's -- we're lapping a lower number last year, actually a benefit from last year with a better performance this year. That's a headwind. And the last thing is our timing of our investments. If you recall on the call last week, there is a shift from timing between investments in the first half that are now shifting in the second half, primarily around advertising and some of the go-to-market strategic initiatives that we've been talking about.

Could you maybe drill down on the timing a little bit more? Is it the fact that you're pushing more of those dollars into the back half? Do you see more dollars being put towards occasions? What is the thinking behind the timing of the advertising?

So it's kind of like what we talked about a lot at Ulta, our appetite is bigger than our stomach, so in the beginning, in the first half, we thought we could get off the gates much faster. So getting the right resources and making sure we were fully staffed to kick off these initiatives took a little bit longer, which is causing some of the shift into the second half.

And then it's just -- we really are being thoughtful on making sure that these investments in the second half are truly ready to go light. So we have marketplace coming up, we're expanding wellness. We did some expansion of wellness here in the second quarter, but we do still have some more that's going to be happening in the second half.

And then lastly, our international expansion. We've got Mexico and the Middle East coming on board in the second half. So we're all very excited. And lastly, what I'll say, if you take Space NK out of the equation, our SG&A growth is about 11%, which is pretty close to what we originally had in our outlook.

Yes. And we're going against the back half of last year, our sales were starting to moderate, too. And so we only had SG&A growth of 1% last year in the back half. So we're going against not a lot of investment from last year, and we're in an investment cycle this year. So I think those things combined, we're very thoughtful of where we're investing our OpEx and our CapEx. And we believe it's the right thing to do not only just to drive short-term business but also for our long-term algorithm at the same time.

Just because it's come up in the explanation around international, I thought we would maybe ask a little bit about Space NK which you just acquired in July. Could you maybe walk us through the thought process behind that acquisition and what you hope to achieve by acquiring it?

Yes. Well, the U.K. is one of the largest and growing markets for beauty in the world. And it's not a market that I would view that we would want to organically grow a presence in and of ourself on our own. So the only way that we'd be able to go into that market is either to have a joint venture or to acquire or have some kind of a licensed partnership.

And the opportunity came available for us to acquire Space NK. Space NK is a leading prestige beauty retailer in the U.K. It's a beloved brand. It's got a great leadership team. There's a lot of synergies that I see with their business. And it's one of these situations where I believe it's 1 plus 1 can equal 3 for us in the big picture.

There are things that we can learn from Space NK to bring into the U.S. business. They do a great job with high street locations. They're a smaller box. They've got a lot of prestige brands. They've got brands that we would be interested in. They also really understand that clienteling, that personal touch and that interaction and engagement.

And then on the flip side, we're really great at our supply chain efficiencies and IT investments, and we can really potentially help them become even more efficient in their business. And I just think that if we were going to ever want to be in this market, this was the perfect company to purchase and for us to really grow at scale in a relatively short period of time. With that acquisition we were able to get 83 locations in stores in Scotland and Ireland. And I think the future is going to be really bright. I'm going to give us some space, let the dust settle. We're going to run them as a stand-alone business and more to come on what we're going to end up, how that asset is going to continue to grow and what does it look like in the future.

But we're really excited about the partnership. Andy Lightfoot is a fantastic CEO. They've got a great leadership team, and there's a lot of synergies and we're looking forward to continuing to grow the businesses together.

You mentioned real estate there, the fact that Space NK has some of that high street exposure. We were wondering if you could maybe discuss how you view your remaining unit growth opportunity? You are changing your relationship with Target, which I think changes a little bit, just how much distribution is out there for the Ulta Beauty brand. Does that come into play at all when you think about your real estate strategy? And just how are you thinking about opening in existing markets versus new markets?

Yes, a lot of questions on that. Let me make sure I hit them all. So let me just take a step back and let's talk about our basic real estate strategy. We view that the beauty industry, there's still opportunity for us to continue to grow in the United States. There's multiple ways that we can grow with prototypes. So we've got our small store format, which is about 5,000 square feet. I've shared that we've got about 20% of our stores, our new stores this year will be in that type of a prototype.

There's outlet centers which is kind of a newer foray for us that we're liking what we see in these outlet centers and how our stores are performing there. We're putting traditional stores in the outlet centers. It's not like we're doing a reduction in price in these locations, but the guest is really responding well. And then there's our everyday prototype that's a 10,000 square foot store.

On our most recent earnings call, I did share that we think the number going forward is closer to that 50 to 60 store per year range. So we're coming down a little bit from the 200. But what the driver is of that is purely that we're being very thoughtful of our CapEx and our OpEx expense and our investment. And a lot of the prime real estate locations, the vacancy rates have come down from the landlord. So hence, your 10-year lock in could be potentially higher. So we want to be really thoughtful when we're putting in a new store and we're signing on these longer lease type terms.

Also the fixtures and your CapEx cost of building these locations has also run up. So we're just being really thoughtful for our shareholders of where we're investing the money. We want to make sure that we continue to maintain a strong financial portfolio of new stores. So that was a decision on coming down just slightly.

In regards to the partnership with Target, what I've shared is that the decision to not move forward with our partnership, to me, doesn't -- people are like, why wouldn't you add more stores? Well, that doesn't take much sense because 2 things: number one, it's not like that we had a full store in the Target locations. It was 1,000 square feet highly curated assortment. It was more of that infill shopping experience, and when you look at the halo impact of like where we have stores that are located within Target, I've got plenty of stores where I can pick up that volume in existing store format. So there is not that need to, like all of a sudden be more aggressive in open stores because we're moving away from the partnership with Target. I think -- did I hit all your...

Yes. And then just new markets versus existing markets, just how you balance that with the 50 to 60 a year.

Yes. So new markets, so one of the strongest assets that we have is our loyalty program. The 45.8 million loyalty members, we can see where they're shopping across the United States, where we have green space -- white space or green where we can make more money, where there's the opportunity for us to build locations. And it's not just even about getting the in-store experience and getting that in-store volume.

We also do have a lot of research around the halo impact that you get of your e-com business. So we have such robust insights and information that we're still confident that we can open up new stores at a rate where it's going to be accretive and it's going to be new market or new share of getting guests into our portfolio versus overly cannibalizing existing stores.

There's huge opportunity still for us in the United States. We'll just be really thoughtful of it in pacing it right now. Just because it's a lot more expensive to open up the store. So we want to make sure that we're pacing and sequencing things right for our growth going forward.

I wanted to ask about the long-term algorithm that you put out last fall. Just as a level set, it was 4% to 6% net sales growth based on the 3% to 4% comp. And you also guided mid-single-digit operating profit growth with operating margins around 12%, noting that the 12% could maybe expand over time. Could you remind us how to think about the long-term algo and what assumptions are included in achieving these targets?

Yes. Well, when we had our Analyst Day in October, we shared all the numbers that you just covered. And we do believe, like -- and we're building the plans around that 12% operating margin percent, a mid-single-digit profit margin dollar growth. So it's mid-single-digit growth on the dollars. And we've said diluted EPS would be in the low double-digit growth. So it's important to kind of keep that framework as we're going forward. I'm getting a lot of questions because we've come out of gates pretty strong in 2025.

But 6 months doesn't necessarily mean that that's how things are going to continue to flow. And I believe as the CEO and Chris as the partner as a CFO, we need to make sure that we're positioning ourselves to continue to be a growth driver for business and to be able to take market share. And also have great returns for our shareholders in the end. And we have to have some of that flexibility in a highly competitive market because beauty is a very competitive market.

And we believe that by having that 12% operating margin gives me the flexibility to invest in our business, to be able to still maintain that competitive nature and be relevant. When you're hearing about brands that are struggling, even in the beauty space, it's because they're tired. You can't let yourself become irrelevant and get tired and get your stores outdated. So I've got to be able to continue to invest. And we believe we can do that with the 12%.

Now could that potentially change in the long term? Absolutely. I'm totally focused on how we can make sure that we're providing great returns for our shareholders. But I want to do it in the right way, while I'm still protecting the growth algorithms that I can still grow this business in the right way moving forward.

And I know you haven't given guidance for '26, but again, a question that we get is with 2025 being the investment year, what gives you confidence that 2026 won't be a transitional investment year as well?

I think that's one of my jobs as CEO is to make sure that I'm looking at the pacing and that we're not starting too many projects late in the year that has too much carryover into next year. I don't have the crystal ball, so I don't know exactly what's going to happen in 2026. But I'm a big believer in controlling what I can control, and that we're really doubling down and looking at the bigger picture. We have been in some very heavy investment cycles over the last 4 years.

The first phase of that investment cycle was really around our foundational systems. We were becoming end of life with many of our systems. And when you start touching one, you have to impact them all. I would have liked to have not had to have touched everything that we did at once, but I'm now glad that we did because we've got good, clean foundational systems, which is really going to help us as we're able to leverage AI, et cetera, in the future.

We then positioned and shifted from foundation to go-to-market. And we were a little bit behind the go-to-market investments because we've had so much heavy investment in our foundational systems. So now we had to do some catch-up, and that's what I'd ask for, give me some relief this year so we can really heavily invest in a go-to-market. We need to, in 2026, in my opinion, let some things simmer and take place and just continue to focus on letting my new leadership team settle in and really execute with excellence and let our investments that we've made kind of come to fruition and really prioritize -- hyper prioritize where it is that we want to continue to invest. But not have it be at the investment levels that we've been in the past. I think that's how we're going to be able to manage 2026 and not have it be like this -- another like, oh, this is going to be a huge investment year for us.

Okay. That's very helpful. Just in our last couple of minutes. We ask 5 questions to every company that sits with us on stage. That's kind of meant to be like lightning round.

Okay. So I'll be quick.

So the health of the consumer, we already kind of talked about a little bit, but your expectations for the consumer in the second half of the year versus what you saw in the first half, same, better or worse?

Well, if I had a crystal ball, I'd be able to answer that question for you. I think it's difficult to say. I think what we -- we've given guidance that's been viewed as cautious. I think it's too early to say and there's a lot of unknowns. So I'm going to defer to say I'm not going to answer the question because I don't know.

That's been an answer by a lot of people. Pricing. We didn't really talk too much about pricing, you're not being impacted by tariffs quite as much as maybe some others in retail. But have you taken any price? And have you seen any kind of elasticity impact as a result?

No. You know what we've seen pricing activity very similar to 2024. So we haven't seen it impacting but that still could happen in the back half. But what we're hearing from our brands is that those that are experiencing some tariff type pricing, they're working really hard internally to not try to pass that on to the consumer because they don't want to try to price themselves out of the consumer selecting their brands. So we'll see, but we haven't really seen anything that's changed from 2024.

Okay. The third question is around inventory. Just what are your expectations for inventory growth in the second half?

We see inventory and Q3 will start to pick up a little bit. We just shared that our inventory growth was a little higher at 20%, but it's been driven by Space NK coming into our ecosystem, new brands and new stores. Q3, we always see an uptick because we're bringing in inventory goods for holiday. But by the end of Q4, we will be more normalized and we see ourselves in low double-digit growth -- inventory growth, and that includes Space NK.

Okay. With regards to margins that are not tariff-related drivers like freight, wages, materials, into '26, do you think that will be the better, same or worse?

What I would share is that we are committed towards 12% operating margin. So we've calculated that in.

And then the last question is about just the competitive landscape and consolidation. Do you think market share consolidation will speed up, slow down or be the same in '26?

I think beauty is a very competitive environment, and I'm playing to win, and I'm focused on controlling what we can control, and I'm always going to be focused on taking market share.

Great. Well, thank you.

Yes. Absolutely.

Thanks for joining us today.

Thank you.

Good afternoon, everyone. My name is Leila, and I will be your conference operator today. At this time, I would like to welcome you to Ulta Beauty's Second Quarter 2025 Earnings Call. This conference is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Ms. Kiley Rawlins, Senior Vice President of Investor Relations. Ms. Rawlins, please proceed.

Thank you, Leila. Good afternoon, everyone, and thank you for joining us for a discussion of Ulta Beauty's results for the second quarter of fiscal 2025.

Hosting our call today are Kecia Steelman, Chief Executive Officer; and Chris Lialios, Interim Chief Financial Officer.

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. We refer you to our earnings release and our SEC filings where you will find several factors which could cause actual results to differ materially from these forward-looking statements. We caution you not to place undue reliance on these forward-looking statements, which speak only as of today, August 28, 2025. 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.

Following our prepared comments, we'll open the call for questions. To allow us to accommodate as many questions as possible during the hour scheduled for this call. [Operator Instructions] As always, the IR team will be available for any follow-up questions after the call.

And now I'll turn the call over to Kecia. Kecia?

Thank you, Kylie, and good afternoon, everyone. I'd like to start by welcoming Chris Lialios to our call. As you know from our announcement in June, Chris is a 25-year veteran of Ulta Beauty and is serving as our interim CFO in addition to his responsibilities as the company's Controller. He is a trusted leader across our organization, and I want to express my gratitude to Chris for his partnership and leadership during the support and time for our business while our CFO search is in progress.

Today, I'd like to spend a few minutes highlighting what drove our strong performance, the progress we're making against our Ulta Beauty Unleash strategy and where we're headed. The Ulta Beauty team delivered significantly better than planned sales performance and continue to successfully execute our strategic priorities. For the quarter, net sales increased 9.3% to $2.8 billion. Operating profit was 12.4% of sales and diluted earnings per share was [indiscernible] Our Ulta Beauty unleash strategy continues to gain traction, and we're building on our momentum. I am pleased with how our team has incorporated key learnings to strengthen our performance as we lap the impact of the operational disruption and promotional effectiveness challenges we experienced in the second quarter of 2024. Customers are responding favorably to the actions that we've taken to sharpen our business and our teams have made solid progress in advancing our long-term initiatives.

Highlights from our quarterly results include comp sales growth of 6.7% and positive comp growth in both channels and all major categories, continued market share gains during a highly competitive quarter. loyalty member growth of 4% year-over-year to a record 45.8 million members and ongoing improvement across several key performance indicators, including brand engagement, brand media value, in-store conversion and app engagement.

We're encouraged by the visible progress underway and see continued opportunities to strengthen our operating model to ensure that Ulta Beauty delivers sustainable, positive performance and attractive shareholder returns. Before I dive into the key drivers of our performance, I want to touch on what we're seeing across the beauty and consumer landscape.

Engagement with beauty and wellness remains healthy. The growth of the U.S. beauty category has been fairly stable with low single-digit growth in mass and mid-single-digit growth in prestige beauty during the second quarter, according to [indiscernible] Our insights suggest consumers continue to prudently manage their day-to-day spending and are watchful of pricing trends in response to tariffs. At the same time, beauty enthusiasts tell us that they're prioritizing their beauty regimens and remain strongly engaged within the category.

While we continue to manage the business thoughtfully amid ongoing macroeconomic uncertainty, we believe beauty and wellness offer a unique sense of comfort and escape which we expect will continue to support the beauty category resilience.

Turning to the key drivers of our performance. Let me begin with our efforts to drive core business growth. Performance in the second quarter was fueled by the strength of our core business, reflecting our commitment to getting back to the basics, improved in-store execution and elevating our go-to-market approach through operational excellence, marketing leadership and compelling merchandising innovation, tighter collaboration and planful coordination across our field, marketing and merchandising teams is having a tangible impact. We continue to make progress in advancing our brand building and digital and personalization efforts.

In stores, our team has built on our successes in Q1, maintaining our focus on elevating the store experience and delighting our guests with every interaction. Our thoughtful go-to-market planning paired with strong execution in stores, delivered comp growth across all categories and supported strong execution of key events and holidays, like Mother's Day and Father's Day are newly created only at Ulta event and our Big summer Beauty sales. I am incredibly proud of our store and field teams who have passionately embraced our Ulta Beauty unleash strategy and are enhancing the in-store experience for our guests.

In addition to sales growth, these collective efforts drove improved in-store conversion and guest satisfaction. From a category perspective, our comp growth in the quarter reflected balanced contribution from in-demand newness and core assortment growth. Fragrance continues to lead the way as our strongest performing category, delivering robust double-digit growth in the second quarter.

Performance was fueled by successful Mother's Day and Father's Day activation, compelling newness and continued strength in gift sets and men's fragrances, new and exclusive brands, including the launch of our first men's exclusive fragrance, Drakes, Simermisk as well as newness from YSL, Gucci, Chanel and exclusive brand Smith and Noise supported strong category performance.

Sales in the skin care and wellness category increased in the high single-digit range led by strong growth in body care and wellness. Our trends in mass and prestige skin care grew and improved with both segments delivering low single-digit growth for the quarter. New brands, including Taca and Saltair as well as trend-related brand males resonated with guests while product expansions of Sol de Janeiro, Milan Gabon and Touchland also contributed to category growth.

In addition, our robust and expanded K-Beauty assortment continues to contribute with new brand Enea and exclusive brand Peach & Lily leading the way. Wellness performance benefited from the launch of new brands like Honeypot and [indiscernible] along with newness from supplements and ingestibles favorite [indiscernible] The category delivered mid-single-digit comp growth driven by positive performance in both mass and prestige makeup, compelling newness from existing brands, including our glass, MAC and NX drove excitement and category performance. MAC makeup grew in the high single-digit range, reflecting the strength of trend across eye, phase and lip and the benefit from lapping the sell-down of our Ulta Beauty Collection in association with our Q3 relaunch last year.

Prestige makeup increased in a low single-digit range, supported by newness and key brand expansions. Comp sales in the hair care category increased in the mid-single-digit range supported by growth in professional hair care, accessories and hair tools. Performance also reflected the benefit of the timing shift of a key promotional event. [indiscernible] and our exclusive brand, Cécred, continued their momentum, contributing to comp performance for the quarter while the brand new lounges, including exclusive brand, Ismo by Shakira built engagement and contributed to sales growth. performance benefited from strong innovation from Shark and Conair.

Finally, services delivered a low single-digit comp, driven primarily by the strength of cutting color services. We continue to bring beauty to life in our stores through our events, salon workshops and Salon brand features. During the quarter, we hosted more than 30,000 events across our fleet and guests and brands love our new digital tools that enable guests to see and sign up for these fun and educational opportunities.

We also hosted 3 unique salon experiences, including our Father's Day Daddy and Daughter Day out workshop, which educated guests and drove trial and salon sales. Our eventing and workshop strategies are a powerful way in which we're supporting our go-to-market strategy and successfully activating key events, brand launches and promotions. Moving to marketing. We are elevating our marketing efforts to spark excitement and awareness, drive engagement and attract and retain loyal timbers.

During the second quarter, we reimagined our events and activations to be more relevant and differentiated for our guests. This includes kicking off summer with our here go sun event, which replaced last year's member love event and launching a new only at Ulta event to highlight and support our exclusive brands. In addition, we applied lessons learned last year to our big beauty sale and back-to-school events, including shifting timing to better align with consumer shopping behavior. And we are driving connection with the beauty enthusiast by strengthening Ulta Beauty's cultural relevance with unique activations at Catella and lalapluzab and serving as the official beauty retail partner of the Kelway Carter tour, a powerful collaboration featuring curated beauty looks exclusive product assortments and worse brand experiences across beyond Phase 2 markets in the U.S.

As beauty continues to move at the speed of culture, we're keeping pace with strong social media engagement and trend-forward content that is engaging and relevant to our consumers, resulting in meaningful growth in unaided awareness brand engagement and earned media value. At Ulta Beauty, we celebrate the transformative power of beauty and wellness inspiring self-expression, empowerment, well-being and connection. We believe that beauty goes beyond the surface. It's really what radiates from within. This belief fuels our purpose to unlock the possibilities within each of us through beauty and wellness. We have been on a journey to bring this purpose to life, creating emotional connections, building trust and shaping a brand that truly champions and celebrates every guest, all ages and life stages.

This fall, we will take the next full step with our multiyear brand platform. Beauty Happens Here celebrated by the debut of our new brand campaign. It begins with a powerful declaration, we are beautiful, an inspiring way to share that Ulta Beauty is where beauty lives, and when we inspire our guests and connect with our guests, beauty spreads to others, making the world a more beautiful place. Stay tuned for more in the coming weeks.

Turning to our long-term strategy to enhance our assortment and brand building capabilities. We're focused on launching, building, scaling and globalizing brands to strengthen our position as the partner of choice for B and wellness brands. We continue to make exciting progress in enhancing our assortment and merchandising approach. During the quarter, we launched 24 new brands, many of which are exclusive to Ulta Beauty newly launched brands like [indiscernible] Beauty are driving excitement for our guests. At the same time, our exclusive brands, including Cécred, SNF, Half Magic, Live Tinted, DIBS are all driving growth and market share. And there is more to come.

Our merchants are hard at work to ensure that we complement the strength of our existing core assortment with the hottest new brands and innovation in beauty and wellness. This includes the introduction of Moroccan Oil, a fan favorite was launched in stores and online this week. We continue to lead the market in body care, and we are excited for Tracy Elis Ross's entry antibody care with Pattern Body launching first at Ulta Beauty and for the debut of new skin line, Venti Skin Buddy, which will launch exclusively at Ulta Beauty in a few short weeks.

Our brand-building efforts are driving guest engagement and results, and we're optimistic about the new brand launches and activations planned for the rest of the year. Moving to digital and personalization. We are accelerating capabilities to deepen guest connection and drive performance. During the second quarter, we continued to expand automation in real-time delivery content enabling us to deliver a more personalized customer experience across key digital channels.

New features like Split Cart and recently launched Replenish and Save combined with personalized recommendations are removing friction, increasing reliance and driving measurable results. Taken together, these enhancements contributed to strong measurable results in e-commerce. We're leveraging our power as an Omnical retailer to deliver speed to guests and provide more choices in the way they shop.

During Q2, half of e-commerce orders were fulfilled by the stores the highest rate we've ever recorded. Moving to our second strategic priority, the team made steady progress to scale new businesses to capitalize on key growth opportunities and ensure that we remain relevant in a rapidly changing world, beginning with our international expansion.

We reached a major milestone in our national journey with our entry into the U.K. market. As one of the largest beauty markets in the world, the U.K. represents an attractive market with a healthy growing beauty landscape. Our acquisition of the U.K. specialty beauty retailer, SpaceNK was a unique and strategically compelling opportunity to enter the growing U.K. market with an established and successful player, a top destination for beauty levers based on K operates 83 U.K. and Ireland stores and a vibrant online platform.

SpaceNK will continue to operate as a stand-alone subsidiary with CEO, Andy Lightfoot and his team staying at the helm leading operations from the U.K. We see opportunities to leverage each other's strength, talent and expertise. And over the long term, we will focus on sharing best practices and transferring learnings between markets particularly around assortment, guest experience and scaling growth. Chris will share more about the financial details of the acquisition shortly.

In addition to our expansion in the U.K., we just celebrated the soft opening of our first Ulta Beauty store in Mexico with the grand opening to come in a few weeks and we remain on track to open our first store in the Middle East later this year. In wellness, we're focused on leveraging our position as a trusted leader to expand more meaningfully into wellness. Our goal is to establish ourselves as a one-stop shop for relevant products to support living a well-balanced lifestyle through improvements to the mine, body and spirit. During the second quarter, we launched several new wellness brands and expanded the in-store footprint of the wellness shop in about 370 stores.

In the third quarter, we will introduce a larger enhanced guest experience with elevated fixtures in 50 additional stores. Moving to our online marketplace initiative. Our merchandising vision is to create and inspire guests with the best beauty and wellness for all life stages. The Ulta Beauty marketplace, which we'll launch in the third quarter is a curated invitation-only online platform that allows guests to explore a broader and complementary array of beauty, wellness and lifestyle products on ulta.com from both established and emerging brands. This new platform will enable us to not only strengthen our existing category authority that go after new subcategories and trends to build incremental growth for our business.

Finally, moving to our third strategic priority to realign our foundation for the future. Our culture is truly a differentiator for our business and we are on a journey to reenergize this critical competitive advantage. We know that stronger employee engagement leads to better customer experiences. We recently completed our annual culture survey, and I'm proud to share that our participation leads and results exceeded industry benchmarks. Associate engagement has increased across the enterprise, reflecting decisive steps that we've taken to streamline decision-making and power creativity and align our teams around guest-centric goals.

While we always have work to do, we are proud of this progress and intend to build upon it. associates are the heart of our business, and I am proud of how our teams have embraced our Ulta Beauty unleash strategy and new ways of working and are leading through our values, all while keeping our guests at the center of all in do.

Finally, earlier this month, we announced our mutual decision with Target not to extend our shop-in-shop partnership, which will conclude in August of 2026. The -- we've achieved a lot together, and we remain committed to supporting the shopping experience for guests through the end of the partnership as well as continuing to support our teams and partners during the transition.

Looking forward, we believe the successful execution of our Ulta Beauty unleash strategy will maximize key growth opportunities in beauty and wellness and enable us to bring to life the Ulta Beauty experience in new ways and define the next chapter of growth for our brand. For perspective, the royalty revenue from our target partnership in fiscal 2024 was well below 1% of net sales.

To recap, we are proud of the steady progress we're making against our Ulta Beauty unleash strategy to accelerate our performance and lay the groundwork for sustained long-term growth. As we look to the future, we remain focused on controlling what we can control, executing our plans with excellence and building on our momentum to drive future growth.

While we are pleased with our year-to-date performance and the level of engagement we've seen with beauty enthusiasts, we remain cautious in our approach to planning our business, given the rapidly evolving macro landscape and ongoing wallet pressures.

I want to again thank our incredible associates for their hard work in delivering these results. Our results reaffirm my confidence in our team, strategy and business model and in our ability to deliver for our guests and create enduring profitable growth for our shareholders. I'll now turn it over to Chris to cover the financial results for the second quarter in our updated financial outlook before we take your questions. Chris?

Thanks, Kecia, and good afternoon, everyone. I'm honored to serve as interim CFO and and I'm grateful to Kecia and the Board for their trust and confidence. I'll begin my comments with a discussion of our second quarter results and then share how we are thinking about the rest of the year. Before we discuss the results, I want to remind you that we acquired SpaceNK on July 10.

Our second quarter results include financial results for SpaceNK for the week since the transaction closed and preliminary estimates of the purchase consideration in fair value of SpaceNK's net assets. The acquisition was funded with cash on hand and borrowings under our existing credit facility and is not material to our consolidated financial statements.

Turning now to the second quarter financial results. The Ulta Beauty team delivered strong performance this quarter, reflecting better-than-expected growth from comparable sales, favorable shrink results and merchandise margin expansion. Consolidated net sales for the quarter increased 9.3% to $2.8 billion compared to $2.6 billion last year.

During the quarter, we opened 24 new stores, relocated 2 stores remodeled 5 stores and closed 2 stores. Comparable sales increased 6.7%, driven by a 3.7% increase in transactions and a 2.9% increase in average ticket. Other revenue was approximately flat versus the second quarter last year.

Looking at the cadence of comp sales through the quarter. Growth was strongest in May and July primarily reflecting shifts in the timing of key promotional events. From a channel perspective, both store and digital channels contributed to control with e-commerce sales increasing in the low double-digit range, and comp sales delivering mid-single-digit growth.

For the quarter, consolidated gross margin increased 90 basis points to 39.2% of sales compared to 38.3% last year. The increase was largely due to lower inventory shrink and higher merchandise margin, which was partially offset by the deleverage of supply chain fixed costs and other revenue. Our team's collective focus on reducing inventory shrink while also improving merchandise in-stock levels continues to deliver results fixture investments, process improvements associate training and specific store level actions are driving improved trends.

And I'm pleased to share that we've experienced shrink reductions across every category and every region. Merchandise margin increased primarily due to the impact of more effective promotional strategies. Similar to Q1, we continue to strengthen our go-to-market strategies. We optimized key events and offers to align with relevant shopping moments and provide guests with value.

We eliminated unproductive and overlapping offers to drive increased clarity, and we implemented new functionality such as replenish and save to drive greater engagement. As a result, the gross margin impact from promotional activity was lower than last year. Supply chain fixed costs increased, reflecting higher wage rates and higher depreciation and implementation costs associated with our ongoing supply chain optimization efforts.

Moving to expenses. Consolidated SG&A increased 15% to [indiscernible] million, including approximately $7 million of onetime transaction expenses related to the acquisition of Space NK. As a percentage of sales, SG&A increased 130 basis points to 26.6% compared to 25.3% last year, driven in large part by higher incentive compensation, store payroll and benefits and corporate overhead. Incentive compensation deleverage for the quarter, reflecting our better-than-planned second quarter performance as well as the lapping of a benefit from lower incentive compensation last year.

Store payroll and benefit expense increased primarily due to higher health care costs and additional selling hours to support the guest experience. And the growth of corporate overhead largely reflects investments to support our Ulta Beauty unleash strategy.

Operating profit increased 4.8% to $345 million compared to $329 million last year. As a percent of sales, operating margin decreased 50 basis points to 12.4% of sales compared to 12.9% last year. Wrapping up the P&L, diluted earnings per share increased 9.1% to $5.78 per share, including $0.03 of benefit due to income tax accounting for stock-based compensation.

Moving to highlights from the balance sheet and cash flow statement. We ended the quarter with $243 million in cash and cash equivalents and $289 million in short-term debt. During the quarter, we drew on our revolving credit facility, primarily to support the acquisition of Total inventory increased to $2.4 billion compared to $2 billion last year primarily reflecting additional inventory to support new brand launches, the impact of 62 net new stores and the acquisition of Space NK.

Capital expenditures were $77 million for the quarter, mostly driven by investments in new existing stores. Depreciation increased 9% to $71 million compared to $65 million last year, largely reflecting supply chain and store investments. In the quarter, we repurchased 245,000 shares, bringing the year-to-date total for our share buyback program to 1.2 million shares or $468 million.

At the end of the quarter, we had $2.2 billion remaining under our current $3 billion repurchase authorization. Turning now to our updated outlook for 2025. We have increased guidance for the year to reflect our strong first half performance and the impact of Space NK, which was not contemplated in our previous forecast, reflecting the momentum we saw in the first half, we have increased our sales expectation for the second half, but we continue to believe it is prudent to take a cautious approach given continued uncertainty around consumer spending. We now expect consolidated net sales for the year will be between $12 billion and $12.1 billion, with comp sales growth in the range of 2.5% to 3.5%. This outlook reflects our expectation that comp sales will be in the range of flat to up low single digits in the second half.

We now expect operating profit for the year will decrease in the high single-digit range and operating margin will be between 11.9% and 12% of sales reflecting our updated sales expectations, higher incentive comp and how we are forecasting the flow of investment spend, we expect operating margin will be between 10.7% and 10.9% of sales for the second half of the year.

For modeling purposes, we continue to expect gross margin for the year will deleverage primarily driven by store occupancy and supply chain costs partially offset by lower shrink. We've updated our expectations for SG&A growth and now expect SG&A will increase between 13% and 14% for the year driven largely by higher incentive compensation, our strategic investments, including increased advertising and the addition of Space NK. We expect SG&A growth will be elevated in the second half reflecting both the shift of investment spending initially planned for the first half as well as the lapping of last year's expense trend.

As a reminder, SG&A grew 1% in the second half of fiscal 2024 as we proactively reduced planned spend in response to lower-than-expected revenue growth. Reflecting these assumptions, we now anticipate diluted EPS for the year will be between $23.85 and $24.30 per share. These EPS estimates include the impact of share repurchases and assume a tax rate of approximately 24%.

In closing, we remain focused on executing our Ulta Beauty Unleashed strategy and committed to investing in our operating model to position sustainable growth. We are encouraged by our first half performance but we remain cautious about how consumer demand may evolve in the second half of the year. As we look to the rest of fiscal 2025, we intend to invest to strengthen our competitive position to deliver long-term profitable growth while also continuing to be thoughtful about pacing and prioritization as the environment evolves.

And now I'll turn the call over to our operator to moderate the Q&A session.

[Operator Instructions] Your first question will come from Dana Telsey with Telsey Advisory Group.

Congratulations, Kecia, and the team, what a stellar quarter and the outlook certainly seems very doable. As you think about the initiatives that you've put in place, Kecia, with the beauty unleashed plan, what's the sustainability given you doubled the comp growth that you did last quarter, this quarter was a 6.7% and the pace of newness that you suggested -- is there a difference between third quarter and fourth quarter, given the guidance you gave out? And on the technical side in terms of less shrink, your shrink going down. It just seems like everything is coming together what is the pathway going forward to the opportunity to have increased operating margins on a go-forward basis?

So thank you, Dana, for the question. And I'll start and then I'll let Chris answer the operating margin question. Yes, I'm very pleased with how the team is responding to Ulta Beauty unleash plan. And I think it's very clear, everyone understands the role that they play, and we're getting synergies and momentum is definitely happening. We're going against some higher comps in the back half of the year.

So that's -- the starting point is a little different than the first half was. And our guidance is reflecting the uncertainty that still is out there that remains with the consumer and the macroeconomic conditions. We're being prudent in our guidance and how we're looking at the business. But I'm very pleased with how the company is really rallying around our Ulta Beauty unleash plan.

And I do feel like the momentum is going to continue this year. And as we continue to play things forward, it should be continuing to look at that. And then we're looking at our long-term operating margin is something that we're continuing to keep in our wheelhouse of what we're wanting to be focused on is the growth of that in the future.

Reflecting on our comp growth expectations for the back half of the year, low single digits, you will see that many costs will likely deleverage inflationary pressures, primarily around health care cost increased costs associated with our infrastructure investments. In addition to that, the shrink benefit in the second half or the back half of the year will start to moderate based on having meaningful shrink benefits from the prior year.

Additionally, we expect operating margin will be pressured with the timing of some of our go-to-market investments. As you know, we started off a little bit slower in the first half, and they're moving more into the second half as well as higher incentive comp, right, as I called out earlier, reflecting our better-than-planned performance this year, we're lapping a low incentive comp from 2024.

Next question will come from Michael Binetti with Evercore.

Let me have my congrats on a great quarter. Nice to see it. Maybe, I guess, just to look at the revenues first, can you help us understand some of the assumptions at the high end and the low end of the comp range flat to positive low singles in the back half, a little hard to understand with the momentum in the business today.

And then as we think about the comps in the back half and the excise scenarios in dream a little bit, you're now approaching the margin that you said you would achieve for 2026 and beyond at the Analyst Day. Can you just help us understand, is there a break point in the model where there's more leverage than you expected at the Analyst Day you start to get into 2026. Is there -- and as we think about, I guess, 2Q, delevering on supply chain, delevering on corporate overhead, is there a comp rate that levers those line items in the back half, if they were deleverage components on 6.7% in the second quarter?

I think you asked like 5 questions. I'm going to start -- thank you for the question and multiple questions. It was in the question. And well, I'll start with the long term, maybe the long-term outlook, and then I'll let Chris kind of rate up a little bit more on the margin, is that looking at our long-term algorithm, if you look at our performance in 2025, we've come out of the gate much stronger than what we planned. We've had a lot that's happened in 2025 that was not originally in the plan.

You look at the acquisition of Space NK the mutual decision not to move forward with Target. So there's a lot of nuances that weren't baked into that long-term work. And while our comp performance through the first half of the year has been stronger -- the operating environment continues to be really dynamic, and we think it's a little premature to change our long-term goals at this time. We've just started planning for 2026 and we'll share our expectations in March as we normally do.

But right now, we're just seeing really laser-focused on executing our strategy, making the necessary investments to improve our competitiveness and reaccelerate our long-term share growth. As I said earlier, we're very encouraged by the progress that we're making, and we're confident in our investment position that's going to give us the ability to be able to deliver long-term profitable growth in the future?

On the comp sales question, Michael, while we continue to be cautious about the second half, we have modestly increased our expectations for the second half reflecting less uncertainty around the macro environment compared to where we were in May. So on that, we feel confident with our back half guidance.

On SG&A growth, second quarter was modestly higher than we planned, driven primarily by the $7 million onetime transaction expenses related to the Space NK acquisition as well as higher incentive comp due to the overperformance in the second quarter.

Your next question will come from Adrienne Yih with Barclays.

And let me add my congratulations. Kecia, I was wondering if you can talk about the promotional backdrop in beauty. It feels like the entire sector sort of is now in that sort of more normalized mid-single-digit growth after normalizing for a couple of years. And it also seems like you had some promotional restraint throughout the quarter. So if you can speak to that.

And then secondarily, if you can talk to the health and wellness category, this is a new noncomp category that obviously has significant kind of growth potential. Where are you now? And with all of the different opportunities and ways to play that strategy, how are you deciding on what is the best and highest use of your assets and your time.

Well, thank you, Adrienne, for the question. I'll start with that. In 2025, the second quarter, the impact to gross margin from promotional offers was lower than second quarter of '24. We eliminated less productive events and overlapping offers. And we optimize the timing of some key offers in some promotional events like the big summer Beauty sale and our back-to-school timing.

We're going to continue to evolve our promotional strategies to really drive profitable growth, but we're taking a very thoughtful approach to our promotional calendar with what I would call purposeful considerations around holidays, temple events and brand launches. And you shouldn't be surprised if you see some promotional strategy shifts, the changes as we're continuing to respond to our business. Going forward, barring any economic event, we do expect the promotional environment to stay rational at this time.

You asked a little bit about wellness. I would say that we had wellness in all of our stores in an position for a period of time. And we've just expanded into an additional 370 stores in the footprint in store now with an additional 50 that are coming with an even larger assortment. We're still working through that curation of self-care and focused around everyday care, supplements ingestibles, relax and renew, down their care and intimate wellness.

We have about 150 brands and 700 SKUs with this focus on self-care. But we do recognize this wellness market is large and growing, and it's really driven by engagement and product innovation. The market itself is about a $410 billion market that was in 2024. And it's growing faster than beauty right now. But it's complex and it's personal. We believe this is an opportunity for us to really leverage our brand credibility and scale growth drivers in this wellness category. So we do believe in the long term that wellness can be a $1 billion business over time.

So in the quarter, we launched 7 new brands in line. And like I had, we've expanded in 370 stores, but we're going to continue to look at the 4-wall productivity and how we can continue to make sure that we're bringing an assortment in that not only what our guests are winning and that they're asking for, but it's also accretive to our overall top line sales and our profitability.

Your next question will come from Simeon Gutman with Morgan Stanley.

So congratulations on the comp in the quarter. So you've been asked a few different ways about the operating margin of the business. I know it's too early to talk about long term. But you've been at the company a while, you've seen the margin low teens, even the mid-teens now that the business is getting reinvigorated and you're reinvesting to do it do you have a philosophy or a feeling on whether the margin of this business should be higher or no, you should keep it at a certain level so that you can continue the type of top line momentum Again, I'm not asking for 12 versus 15, but philosophically about reinvestment and maintaining a higher level of comp growth.

Well, thank you, Simeon, for the question. I will say that what will really leaning into is focused around operating profit dollars and really making sure that when we're doing these investments that we're getting the payback in the overall business, we're still in the early phases, and I could not be more proud of where we are in the first 2 quarters of this year, we still have a ways to go. .

And we've got quite a few investments that we're continuing to look at to make -- to drive this business forward. And 1 of the commitments that I have as the CEO and Chris as interim CFO, is that we're really looking at value creation and how we're investing our capital and our operating expense that we're getting a return on those investments. So pacing them at the appropriate rate and also making sure that we're giving it some time for the returns, it's a balancing act. But we're really focusing on operating profit dollars.

And then just as a reminder, you're right, I have been in this category for a while. This is a highly competitive category that gets more competitive every single day. We are going to continue to focus in investing in this business, so we can continue to grow our business going forward.

Your next question will come from Steven Forbes with Guggenheim Securities.

Kecia, I was sort of curious to hear your thoughts here, right? We're sort of 12 months behind some of the cannibalization pressure and competitive pressures that you guys experienced last year. I would imagine you guys are sort of actively looking at the recovery and the productivity of those stores that were cannibalized. I would just love to hear you frame up how those stores are recovering. And in essence, how much of that is sort of just natural? And if you can expand on sort of the company-specific initiatives that you were leaning into to make sure that to recapture sales sort of stick with you and create sustainable growth opportunities.

Yes. Well, thank you, Steve, for the question. The competitive distribution expansion has started to slow, and we are starting to see some recovery we saw a steady improvement in comp trends that were impacted in the first quarter and also in the second quarter.

But we also -- as a whole company, we saw increases across all stores across the United States. So we still expect there to be some competitive pressures and impact for our fleet, but we expect that impact is going to be lower than what we experienced in 2024. And then in regards to the recapture, I mean that's where I think that our loyalty program is one of our largest assets.

We understand the consumer, the shopper, where they're shopping, and we're going to be leveraging our investments in personalization and engaging with those guests to keep them into the ecosystem or get them even back into our ecosystem to come back and shop with us as we've started to lap some of these competitive openings. And then also, as you know, we continue to cycle through at the end of 2026 when we now are not going to be in target anymore.

I think there's going to be a huge upside potential opportunity for us to really recapture those guests back into the Ulta Beauty ecosystem and keep them hold here.

Your next question will come from Olivia Tong with Raymond James.

Congrats on the quarter. In terms of the Q2 results, could you kind of break it down a little bit in terms of the outperformance in mass versus prestige, MAC, obviously, bit more economically sensitive, seeing a lot of new focus from retail competition. So can you talk about your initiatives to differentiate, capture the consumer there, which obviously is working?

And then on prestige, interesting to hear about the next tranche of exclusive, you mentioned Rihana. Can you give us some broad insights to how the pipeline is looking for next year? It seems like has been very, very solid. We launched a number of new brands this year. Where are you now versus perhaps where you were at this point last year and what your view is for the go forward?

Thanks, Olivia, for the question. I'll start with the second question first. And that is our launch of newness, I feel great about for the rest of this year, and we're actively already working on really great launches next year. One of the things that I think makes it very unique and different this year is it's not just in 1 category, it's really balanced across the entire portfolio. So it keeps that engagement in the store on all parts of the store very active. So really like what we're seeing there.

In regards to the business of the blend of mass plus prestige we're pleased with how we are performing in all categories really going forward. The one thing that's been unique is that makeup lead growth in both in this quarter and it's been a while since that's happened. So we like what we're seeing. I think newness is getting a new guests coming into our store, and we're seeing the halo impact of that.

Some of what -- and just as a reminder, some of what was impacting us in that mass makeup category was last year, we're cycling over us getting out of the old Ulta Beauty Collection. So we've got some benefits on that this year, but we're really pleased to see makeup as a category in both mass and prestige that were up in those and it's been a while.

Your next question will come from Susan Anderson with Canaccord Genuity.

Congrats on the quarter again. I guess maybe if you could -- I don't know if you could talk about Space NK and just the thought process around adding another retailer to expand internationally versus using your own Ulta stores? And then also I'm not sure if you could give some color just on the differences between pack and Ulta in terms of productivity or sales per store or any metrics that you can provide?

Yes. Thank you, Susan, for the question. So international expansion is an integral part of our Ulta Beauty unleash strategy to drive long-term growth. And acquiring Space NK was a unique opportunity that really enabled us to enter 1 of the largest beauty markets that's with a successful and growing brand and to provide less capital-intensive approaches because we would not have ever gone into that market and just build it from ground level up they're going to operate as a stand-alone subsidiary and led by their existing management team.

I could not be more pleased with what we're seeing with their business. It does provide us a way that we can continue to grow Ulta Beauty in a way that we can be more global as a support to our brand partners. What I would just say is that our U.S. business does remain our top priority. I have a small team that's really focused on building our international business. But we're really excited.

And one of the things that I also think that was unique about this opportunity, it does show the market that there's 3 ways that we are looking at how we could expand Ulta Beauty brand outside of the U.S., whether it's through a licensed or franchise partnership, it's through a joint venture or it's through an acquisition we're willing to do any one of those that really fits within our model that's in a margin-accretive way that helps us continue to grow our footprint in a way that's not overly disruptive to our Ulta Beauty core business drug in the United States.

Space NK is also a little bit unique in that they're smaller footprint stores that are predominantly on high street locations. And I think that there's this huge benefit that we're going to be able to get from them. And there's some great learnings that we can have in regards to how to operate in high street but they're predominantly prestige. They've got really good high consumer touch. And like as we move even further into this partnership, that's one of the things that was really intriguing to me is it's not just about taking that asset and trying to Ulta Beauty it. It's keeping the asset special and unique the way it is and taking those learnings and bringing them back in the United States that can maybe even make us even stronger in the future. So I'm very excited about it. I can't wait to see what we can continue to do with this asset and it's a great market to be in. We're looking forward to continuing to grow.

Your next question will come from Chris Horvers with JPMorgan.

So my first question has to do with what you think is driving the share change that you're seeing on the -- really across the business with MAC and prestige. How much do you attribute to the fact that you've seen the competitive encroachment Sephora come flat versus what you're doing from a self-help and from a newness perspective.

Well, I'd like to believe that -- thanks, Chris, for the question. But I'd like to believe that it a lot of what we're doing and we're focused on that we do best. No one does beauty the way that we do here at Ulta Beauty and also carries across all price ranges including the service component and us just really operating better and leaning into our core strengths and putting that guest front and center, no matter what price point they're shopping, I think is definitely making a difference.

We've seen a difference in our in-store conversion, our NPS, everything is moving in the right direction. So it's really kind of getting back to those basic fundamentals that I think is helping both the mass and the prestige businesses continues to drive forward. The other thing is the newness that we have been able to bring in is, again, it's like I shared earlier, it's across all different categories. And that's bringing a new consumer into our stores or on our online presence.

And then as get it to our marketing team, being part of the social relevance in our conversation that's out there. it's a change set for us. We're talking to the guests in a very different way that's kind of fun and exciting, and we're working really hard to have all to be -- having a high cool factor back again. And it's really renting with our guests in all ages. So we're just going to continue to lean into what we're seeing. And I think it's going to continue to help us raise both sides of the business, both prestige and the mass.

Your next question will come from Kate McShane with Goldman Sachs.

We wondered what the announcement of the Target relationship means for the stand-alone Ulta real estate strategy going forward.

Well, thanks, Kate, for the question. What I will say is that our real estate strategy is important because new stores consistently attract new members and encourage multi-store channel shopping, which drives greater spend per member. So you get that halo impact. Our plan is 53 net new stores this year, and that includes our Space NK stores. But one of the things that we are seeing is we're seeing some higher cost pressures with rent, insurance and CAM and some lower vacancy rates in our higher quality centers. And we want to make sure that we're going into the right locations for us.

So I'm going to answer the question. It doesn't have anything necessarily to do with Ulta Beauty at Target partnership but it does have to do with how we're looking at our new stores and new store growth. We are now targeting 50 to 56 new stores a year over the next 2 to 3 years. So coming down that previously communicated $200 million to be more that 150 to 160 range. But again, it doesn't have to do with the Target question.

You asked about in-stores, so I want to make sure I'm answering that. It has to do with making sure that we're thinking very thoughtfully of investing our capital and expense dollars in the right way for our return and making sure that we're making really good business actions on our new store opening growth. We feel very comfortable with the 50% to 56% range per year going forward.

Your next question will come from Oliver Chen with TD Cowen.

The marketplace sounds exciting. There's always a balance between curation and trust relative to the speed of growth. How do you envision that working within your loyalty ecosystem? And as you think about these evolving landscape affiliates, tick talk, Amazon, those are important factors, too. Would love your thoughts there.

Yes. Thanks, Oliver, for your question. Our marketplace is going to be a closed marketplace. It's invitation only, so it allows us to be able to curate the very best assortment for our guests. We have thousands of brands that want to be in with this, but it doesn't mean that we're going to put them all in.

So we want to make sure that we're being very thoughtful. Have you expect a mix of new and established brands and emerging brands across beauty and wellness members can earn their points on the marketplace purchases, and we're also making sure that the -- the ease of return one thing that you hear often in the marketplace is, they're going to be able to return their products through stores through our happy return process, which we already do -- we have a relationship with having returns right now.

We think this is going to enable us to really expand our assortment and drive margin accretion and growth in both city and wellness in a low-risk way. In regards to other marketplaces that you can sell your products on. We're continuing to lean in. We're keeping a close eye on TikTok, et cetera, we've done some activity with them. I think you want to be where the guest is and make sure that we're putting products in relevant spaces and engaging with a guest in the way that they want. So I'd say stay tuned.

We're going to -- going to be excited to share more about Marketplace in our Q3 call. But -- we're very excited about this and our -- and brands are very excited about joining this also. We're getting out of the gate that we're starting it off on the right foot versus having the course correct. And I just feel like it's going to be a great complement to our already fantastic ulta.com presence.

Leila, I think we have time for 1 more question, please.

Your final question will come from Mark Altschwager with Baird.

Congrats on the results here. I wanted to follow up on Target. I know you called out that it's well less than 1% of sales last year, but that is royalty revenue with a high flow-through to EBIT margin, at least is my understanding. So I guess the question is, should we think that there's enough margin tailwinds from the core strength throughout to unleash some of these new investments, franchise partnerships, marketplace. Is there enough -- there from a good guy perspective to neutralize target going away in 2026, anything you can share there would be helpful.

Yes. Well, Mark, thank you for the question. I would say the flow through, think about it as about a 60% to 65% flow-through to start. We believe that our strategic priorities and our initiatives outlined in the Ulta Beauty and lease strategy position us to really maximize our growth opportunities and replace any lost royalties -- the partnership conclusion doesn't change how we're looking at our long-term financial targets.

And we're really confident that this transition is going to actually position us to focus more fully on the successful execution of our strategy and to advance the initiatives that maximize growth opportunities in beauty and wellness for us. We, again, we look to the future, we're focused on maximizing our growth opportunities and bringing to life the uniquely Ulta Beauty guest experience in ways that we define the next chapter of growth for our brand. All right. I think that was the last question.

Yes, of course. Thank you all for joining us today. I want to wrap up again by thanking the entire Ulta Beauty team for their passionate commitment to delivering on our mission, vision and values every day. Our performance is the direct result of the collective effort of our dedicated store DC and court associates to deliver for our guests and drive our business forward.

Before we end the call, I want to share that we are celebrating our 35th anniversary this year. In 1990, we opened the first store in Lombard, Illinois, and today, we operate more than 1,550 stores across 4 countries. I am proud of what our team has achieved I'm confident the changes that we are setting in motion today position us to bring to life the beautiful possibilities in many more years to come. We look forward to sharing more about our progress when we report results for the third quarter in early December and have a good evening, everyone. Thank you.

Thank you for joining. This concludes today's call. You may now disconnect.

Hopefully, everybody can hear me. Good afternoon, and welcome to Ulta Beauty's fireside presentation today. Thank you for joining us. My name is Krisztina Katai. 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.

So Ulta operates in a dynamic category. It has an interesting story. We continue to look very favorably upon the company's long-term prospects. So we have a number of questions prepared for today's session. But first, the team will provide a brief overview of the business, the strategy, the long-term targets in the form of a brief presentation.

But before Kecia begins her presentation, 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.

So with that, I will hand it over to you, Kecia, so you can prepare -- kick off your presentation.

Great. Thank you, Krisztina. 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.

[Presentation]

Hopefully, that gave you 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. And 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 in nearly every stage of their life.

Today, Ulta Beauty is the largest specialty retailer -- 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 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, and has 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 unlock 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 5 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. But 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. And our omnichannel offerings 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, and they can touch and feel and discover in our stores. And again, 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 guests. 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 5 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% to 3.4%, operating margin in the range of 11.7% to 11.8% and diluted earnings per share in the range of $22.65 to $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% to 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 low double-digit growth range.

And to further focus our efforts, we've aligned our plan around 3 main priorities: first, to drive core growth in our business; second, to scale new accretive businesses; and 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'm now going to turn it back over to Krisztina for the fireside chat. Thank you.

Thank you for that, Kecia.

So 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. But now we've entered a period of beauty growth normalization is also combined with some heightened consumer uncertainty in the United States. Yet, Ulta Beauty stands out with strong first quarter results that you reported just last week.

So how would you describe the state of the consumer from your vantage point? And has anything changed over the last couple of months or even maybe the last couple of quarters?

Well, 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. And 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. So I would say that we are being pretty conservative in our outlook for the rest of the year because of all of this uncertainty.

But 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.

And 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, that 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. And I wanted to transition to you stepping into your role as Chief Executive Officer about 5 months ago, but you're not new with the company. You've been with Ulta for nearly 11 years. But you fairly quickly made a number of organizational changes that's really helping you to better align with your long-term strategies.

So maybe can you discuss the vision behind some of the moves that seem to be already yielding some results? And then 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 the CEO is to make sure that you have the right people surrounding you in order to execute the company's vision, and I feel like I have that today. I had 3 elevations of roles from existing associates. So 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. So 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. And 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. And 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 2 different leaders. Actually, digital was aligned with marketing and merchandising was stand-alone. 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. So 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. And 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.

And then I had 2 retirements. My Chief General Counsel, she retired. So my new Chief Legal Counsel is Rene Cásares. He comes to us from Academy. He's very seasoned in the business and the industry. And then I also had Monica -- no, Monica was -- yes, Monica retired, but Lauren Brindley took her role. And then, 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.

So 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. And you used the word unleashed, which is what we wanted to talk about next, which is your Ulta Beauty Unleashed plan. So you've really emphasized this greater sense of urgency to grow the core business, build new alternative businesses, really realign the foundation. And it seems to be gaining traction already. So 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 line results?

Yes. 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 the 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.

So 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. And 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 guests to a personal level. And then our digital optimization, so 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.

So it's really 3 parts. There's the core, there's driving margin-accretive businesses and then there's our foundational focuses on our capabilities. So the ones I just discussed were really around our core business, and we're seeing it really translate in that first quarter result, which has been great to see.

The execution that I'm seeing in our stores, operating on a back-to-basics fundamental, I'm a big believer in controlling what you can control and getting the team focused on that. There's so much noise out there right now that's wasted energy. So focus on what it is that we do and do it really well with excellence, that's how we're 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 3 international stores open in the back half of this year. It's Mexico City, it's Kuwait City and Dubai. So our partnership with Grupo Axo and with Alshaya, 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. So we're going to be leaning into wellness; Marketplace, which is launching in the back half of this year; and then 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.

And then it's all underlined by UB Media. So our UB Media network of how we're 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.

And then the last one, I talked about it a little in my prepared remarks with the video, and 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 strategy.

So I'd say it's a little mix of like 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. And I just have one more question for you, Kecia, before we move on to some margin questions for Paula. But 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.

And then 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 is increasingly playing in that premium beauty market, but also off-price players?

Well, I would just say that brand building is one of our big strategies also, and we're going to target 20 key brands that we're 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 Beauty. So brand building is something that's very important. It's how we're leveraging our relationship between the merchandising organization, our digital organization, our marketing organization and activating in stores. It's 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%. And last quarter, we had positive comps in our store chain, and we shared that we had 10% comp growth in our e-commerce channel.

So even though it's 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. So creating that beautytainment interaction with our consumers that provide education and fun and excitement and 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.

So I would say just leaning into our strengths and creating an environment that is different than others out there. And beauty is what we do. Beauty -- 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. And that's what we're going to continue to lean into as we finish out this year and look at the business going forward.

Great. So switching gears to margins and, Paula, bringing you into the conversation. So 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%. So can you break down the primary drivers of this year's spend? 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. So our initial guidance, as you stated, so the guidance that we gave in March, we shared or we suggested that we expected SG&A growth in the range of 10%, and that really is driven by our strategic investments, many of which Kecia has already talked about, advertising as well as some inflationary pressures we're seeing with store wages and health care costs.

In Q1, our SG&A growth was lower than that. But what I would say is from a full year perspective, our expectation for the growth for 2025 hasn't 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. We've demonstrated last year that when we need to make choices, we'll 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 of innovation, we believe that we have the right plans in place in order to really fuel growth and profitable growth over the long term. And so we will continuously balance that, right? And so we'll balance where we need to pull back and make adjustments with the desire to continue to invest over the long term.

Great. And you touched on in your opening presentation, but you do have a multiyear plan that you provided at last year's Analyst Day in October. It calls for 3% to 4% comp growth, 12% operating margin. You guided this year to 11.7% to 11.8%.

So 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? And 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?

So 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'll first start with is we are committed and feel confident in the long-term targets that we laid out in October. And you recapped them, right, 4% to 6% comp -- 4% to 6% growth, 3% to 4% comp, operating profit growth in the mid-single-digit range and low double-digit EPS growth. And we believe we can drive this business on approximately 12% operating margins, but expect to expand that margin over time.

We -- 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. And we believe that the investments we've 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.

And so again, confident in our long-term targets that we shared. And the only caveat I would share is that, that is obviously barring 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 touched on is 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' growth and customer acquisition as they look across the available channels that are out there. And 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?

Yes. Thank you for the question. In 2024, we brought on 40 new brands. And 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. But the thing that's very different in 2025 than 2024 is we're a lot more balanced in our brand portfolio -- new brand portfolio across the entire segment of beauty itself.

So newness in hair, in makeup, in skin and wellness, in fragrance, it's 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. So 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.

And then 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. So that amount of business is about 20% to 30% of our overall sales. So 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. And 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. And 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 Sally Beauty SKUs go up in prices about low- to mid-single digits on any given year. But 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? And then secondly, just how satisfied are you with the price value experience that you are delivering to your consumers?

Sure. From a -- it's early, right? And 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. Now that can change as the dynamic in 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. And what our consumers have told us is that in this -- that beauty is a really emotional category and a connected category. And for them, it is not a category that's viewed as purely discretional. And so they will prioritize spending in beauty and areas of categories in beauty that they deem more essential. So think skincare and haircare, even if there is a tariff and a price increase dynamic going on, and so 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. And a consumer can shop however they decide to shop and have a mixed basket. And so we feel like we're well positioned to provide a value proposition as well.

Great. And I have a question on Marketplace, which I know is coming up and you're going to be launching it soon. So 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?

And then 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 the mix ]?

I'll maybe take the first part of the question, and I'll let Paula answer the second part. So 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 accretive [ aspect ]. But I will say that it's going to launch in the back half of this year. We already have -- 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.

And 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. And 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.

So 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 in to 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.

And then maybe, Paula, do you want to talk about...

Sure. Krisztina, what was the last part of your question?

So the last part was how Ulta's Marketplace will differentiate the offering, the assortment when you think about what will 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.

Okay. So I think, Kecia, you -- Kecia -- I think Kecia addressed most of that.

Yes, 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 it's early, but from just a 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 reaccelerate the number of store openings. So I wanted to get your thoughts on that in terms of the decision behind that as opposed to optimizing the existing fleet of stores. And do you see any need for accelerated store remodels and renovations?

So our store portfolio is highly profitable. I mean when we think about 80 -- Kecia mentioned this, 80% of our sales come through our stores. For us, beauty really and beauty comes to life through the stores. And so 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. And from a long-term perspective, we see opportunities for unit growth up to 1,800 stores in the U.S. And again, it's one of our most highly profitable, highest-returning assets that we have. But what I would say is that it's 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? And so it's not an or situation.

And then the other thing that I will share is remodels, right? We shared this year that we expect to remodel between 40 and 45 stores. And this is a category that, again, the human connection is so important. And it's important for our guests to come in our store and feel like it's an engaging, easy-to-navigate environment that is exciting and so on and so forth. And so we believe that it is the cost of business to continue to reinvest in our fleet. And so that's how we're thinking about our remodel program.

Great. And 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 1Q really stood out from an acceleration perspective. It was the strongest growth in over 4 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?

Yes, I'll keep this brief because I know we're against time. 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. And 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.

So 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. And we're 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 guests. And I was really proud that we had one of our better comps on our e-commerce platform of 10% positive comp in Q1. So it's definitely resonating with the guests.

Great. Well, thank you. I wish we could continue, but that's all the time that we had for today. So thank you so much, Kecia and Paula, for joining us. And thank you, everyone, in the room as well. I hope you have a great rest of your afternoon.

Thank you. Thank you, Krisztina.

Thank you.

Thank you.