Thank you everybody for being here. I'm Olivia Tong. I cover beauty, personal care, and household products for Raymond James, and it's my pleasure to welcome Ulta Beauty, and Kecia Steelman, President and COO. Ulta just reported a strong quarter and raised the full-year outlook, with the holiday season off to a strong start. So thank you, Kecia, for joining us. Really appreciate it. Absolutely. Thank you so much for having myself and Ulta Beauty here with you today. Thank you. Thank you. So let's start off first with holiday, as we're in a crucial period right now, and Black Friday was strong. So can you bring us up to date on the in-store activity since Black Friday? Any surprises one way or the other, cadence of promotions, and then while I know we shouldn't read too much into one, the first weekend of the holiday, but just, you know, a little bit of update and how you think about the season. Thanks. Yeah, absolutely. At our last week's earnings call, Dave shared with everyone that we were off to a good start, and I couldn't be any prouder of our teams, 'cause we're executing at a very high level across the entire organization. You know, this year is really gonna be an interesting holiday, 'cause there's 31 days between Thanksgiving to Christmas, and then there's a full weekend going into Christmas, because Christmas falls on a Monday this year. So there's plenty of room for the procrastinators out there to come in late into the season. You know, we do think that what we're hearing from our insights is that beauty is still at the top of a lot of people's lists, so we're excited about that. We feel like we're positioned very well from an inventory perspective, a great array of assortment of goods. The fact that we are in a category that has mass, to prestige, to luxury, positions us really well. A couple things that we have in our tool belt this year that we did not have last year are, you know, we've got our new POS system across the entire fleet. So what that enables us to do is be able to have mobile POS in all locations, so it'll help us line bust, also be able to, if somebody wants to come in and buy a gift card, they're not gonna have to stand in line. We can take care of them. We're really focused on gift cards in the month of December, too, 'cause it's the gift that keeps on giving in January for sure. It also will enable us to provide store-to-door at all of our fixed registers. So what that means is, if a guest is coming in, and they couldn't find an item in store that's on their Christmas shopping list, we will be able to, very quickly place the order right at the registers, charge them right then, if it's in the DCs, and ship it to their home free of charge. That's a tool that we did not have last year, for us, during the holiday season. A couple other things that I'd just call out, we've got 400 ship-from-store locations this year, versus 115 last year, and then we also, have same-day delivery. So if you're still wanting to do an e-com shopping experience, but you know, you kind of ran the clock out a little longer, you'll still be able to purchase at Ulta Beauty and have it delivered same day. We have that across the fleet this year in all stores. So we feel great about the holiday season. We're positioned, and it's gonna be unpredictable, but I guess that's the world of retail that we're in, and we're ready to go. Well, the stores look great, so- Oh, thank you. We're looking forward to seeing more. Obviously, this brings us to margins, right? Which has been a big focus for investors, and you've been very clear on your expectations of returning to the 14%-15% operating margin long term. Obviously, lots of investments in 2023 that are continuing into 2024. You mentioned several of them. Where do you think you stand after that, and, you know, the main drivers of margin from there? Are they related to promotional levels, or are there other larger investment projects that you think you need to potentially tap into? Yeah. We're very confident in what we've shared with the street, that we can deliver between a 3%-5% comp and a 14%-15% operating margin. You know, that's really... Those numbers are reflected due to the maturation and the optimization within our business model that we're being able to see sustained. Right now, we're in a very heavy investment cycle around our foundational systems. We're gonna be cycling through that in mid 2024. So if you think about, we've totally invested in our ERP platform, we're investing in our supply chain, we've invested in our digital store of the future, so our guest-facing and our back-facing architecture on our e-com site, and our POS that I just mentioned, that investment is now wrapped up. So we feel that, as we're, you know, finalizing those investments, and we can start to pivot more on the investment cycle to more growth-facing and growth initiatives in the future, and still remain in that 4%-5% of sales investment in CapEx, that we'll be able to deliver that 14%-15% operating margin, while still driving capabilities, increasing our market share, and driving long-term, profitable growth for the organization. So we're very confident in the 14%-15%. Great. It, you guys also, last week, sounded quite confident in achieving that long-term algo, and it applies to fiscal 2024, which is great to hear. So what's your overall view on the health of the consumer right now, the beauty consumer, specifically? Our sense is they remain very connected to the category but are feeling a little bit more stretched. So do you have to bring more value to the consumer? And if so, what impact do you think that that might have on margins? Mm-hmm. Well, what's great about, the business that we're in, of beauty, is that the consumer, while they're maybe being very thoughtful with their wallet and where they're spending, they're still spending it on themselves. So that, that's great for us to see. You know, we feel like the overall health of the consumer, again, really being focused on, you know, spending on themselves and taking care of themselves, we see that sticking. You know, we have 42.2 million loyalty members in our platform, and we are able to leverage and have you know, see exactly what they are purchasing on a consistent, basis. We also, every single month, survey about 10,000 beauty enthusiasts to get real-time data that help provide us insights and information that we need to leverage in our CRM capabilities. So that enables us to, in real time, adjust to the market conditions and the needs to continue to drive share for Ulta Beauty. The other thing that we're really focused on is just continuing to look at and have our merchant team really look at what's the trend and what's selling, and really leaning into those trends. I would say, you know, that the partnership that we have between the merchant organization and the stores, and the marketing teams with these CRM capabilities, we're really able to very quickly respond to what the guest is requesting and what's really driving the business. So we feel overall pretty good about the health of the beauty consumer in today's environment. Great. So beauty obviously has been going through a rapid period of growth in recent years. There was higher demand and a lot of newness post-COVID. Social media has obviously contributed as well. But now we're seeing some slowing in the pace of growth. So how much of the moderation would you attribute to the beauty category versus the macros or any other external factors, and what do you think about the next, you know, 12-24 months with respect to the category? Well, beauty has shown in that it's pretty resilient, and it has a long-term history of growth. So if you just take a quick step back before the pandemic, so pre-pandemic, the fifteen years from 2005- 2019, the beauty category consistently had between 2%-5% growth, with the exception of a couple outlying years. So 2008 and 2009, it was negative, low single digits, and then in 2020, it was -6%. And then you bring yourselves to 2021 and 2022, just unprecedented growth, double-digit growth in beauty as a whole. So the question is, you know, what of those drivers in those strong years are sustainable and those that have staying power, and there's a difference. So there's three that we saw that we felt had maybe more of that short-term increase during that timeframe. One was inflation, so the amount of price changes that we saw was definitely driving some of the growth. The other was really the focus on regimens and, you know, the people spending a lot more time on themselves and really taking time while they were working from home, you know, to really build new processes in place. And then the third is, you know, people were leaving their home. Finally, they were getting masks off, and you could see that, you know, people were going out to activities, so the makeup category was really starting to accelerate at that time. We think that's normalized. People have kept their masks off, and we don't see that necessarily having staying power. But the beauty regimens and the focus on wellness and healthcare, we definitely seeing that continuing to stick, and it has staying power. We also would say that this social media, you mentioned earlier, social media playing into it, the trends that we're seeing and the, you know, everybody's got to go after the newest, hottest, greatest thing, we see that continuing to stay in play, for us, for our future growth drivers. And then the last category, I would say, is this new demographic that's coming in. So we talk a lot about Gen Alpha. You know, younger and younger, people are wanting to get into the world of beauty and makeup and skincare, and, what's great for Ulta Beauty is we're really well-positioned because we have focused on clean and conscious beauty, and we like getting... the individual coming in, shopping with us at a younger age. But brands like Bubble, that are clean, they're-- it's fun. It's categories that we see that continuing to have some, some legs. So now you pivot to, like, where we are today. So if you look at our fiscal year today, our prestige cosmetics is running up double digits, mass is up mid-single digits. So the category is still really, really strong, and that plays very well for us again, because we, we participate across all categories. If you switch just a little bit to what does that mean from an operating model? You know, we've said our traffic still remains really high, so traffic is coming through really consistently, but the average ticket is down, and if you look at it, it's more normalized to where our levels were in 2019. So that, to me, you know, is a sign that I think there was a lot of trip consolidation that was happening in 2021 and 2022, but we're staying really close to that on the UPTs. So I would say, as a whole, we feel very confident that that we can continue to drive the business, and that there's a lot of levers that have that staying power that will continue to provide us future growth in many more years to come. That's great. Do you think ticket and UPT have now stabilized, more or less? Yeah, I do think that... like I said, UPT is more in line to what we saw in 2019. But, you know, the great news is that the traffic is still really strong, so people are still coming through that threshold and coming into Ulta Beauty to spend their dollars. That's great. Sounds like it's one gift for whomever and then one gift for yourself as well, right? Absolutely. We're all about that, for sure. ... Hopefully, that means a good holiday. Actually, one question about holiday. Typically, when it's—do you see a lot of variation as the period progresses? I know this year, in particular, we have the longest period between Thanksgiving and Christmas, and obviously, that last weekend is very material. Do you typically see if it starts off well, that it stays the course, or can you sometimes see quite a valley in the middle, and then it sort of normalizes after that? Well, that's the billion-dollar question. If I had the crystal ball, I would be able to share that with you, but I would say that holiday is always unpredictable. But what we are well positioned for is that we've got, we're operating very well, we've got great in stocks, and we've got a wide range of product and price lines to take care of the guests' needs. So, I think, I think it's gonna be completely unpredictable, but I would say I've been in retail 30 years, and every holiday has been unpredictable, so. Got it. You touched on this just briefly, but you continue to gain share in all categories in mass. But prestige has been more limited to just skincare and fragrance of late. Makeup and hair have been a little bit more choppy. Right now, you're lapping some tough comps with a couple of brands in prestige. But do you expect market share to grow in all of prestige once you lap that? And how would you characterize your competition in dealing with the same issues with respect to a couple of brands that were really hot last year that you're having to lap? Yeah. Well, I think as you look at share, especially in the short term, there can be share variations, and there's a few drivers for that. One of them is the promotional cadence. If you've got a retailer out there that's specifically being heavily heavy on their promotions, they can take share during that period of time. You mentioned brand launches. Brand launches definitely impact the ability for someone to take share. You know, we've been on the winning side of that, and we've had the opportunity side of that, too, at the same time. And then the third is really points of distribution, and if you look at prestige as a whole, there are many more points of distribution in the thousands this year than there have been in years prior. Specifically looking at, skincare and fragrance, those are categories that we've continued to take market share on more recently, and part of that is because we've under-indexed in those categories as a whole. So we've got the opportunity to continue to drive share. If you look at, you know, makeup and hair care, which you called out, we already own a tremendous amount of share in that space today, and we are overlapping some very large launches. Even though we had newness this year, it wasn't enough to really offset the previous launches that we had with Fenty and with Olaplex. So, you know, that's something that we continually look at. We are about continuing to drive profitable growth in market share for Ulta Beauty. We will not ever just step back and concede. Some of the things that we've put in place are, we have the ability with improved CRM capabilities to target market. So we're not just gonna go blast discounts across the board to drive the guest into our store. We're gonna be very thoughtful in our marketing dollars and making sure that we're being really prescriptive in leveraging that personalized experience to get them into the store. So I feel very confident that we can continue to drive long-term profitable growth and driving share at the same time in the future for Ulta Beauty. Great. In terms of some of the investments, I wanna touch on that a little bit, because gross margin obviously benefited materially in recent years with the promotion at a lull, fixed cost leverage. Operating margins are now normalizing a bit. So as you think about the next couple of years, what gains do you think you've made that can be held versus those that were a little bit more of a temporary benefit that are now expected to return towards normal? Well, I think it's almost best for me to just take a quick step back and look at 2019- 2022, and during that period of time, we were able to improve our operating margin by about 400 basis points. Now, there's a piece of that was, that was on top line sales and leveraging SG&A, but the majority of that really was coming through gross margin. We had about 340 basis point improvement during that timeframe in our gross margin. So, you know, if you look at the improvements on fixed cost leverage, so our top-line sales really helped. Our, our EFG efforts were starting to come to play. Our real estate portfolio was being leveraged. We had-- We were cycling up against a lot of lease renewals. 10 years... We're on a 10-year lease renewal, so 10 years ago versus, you know, closer to the period of time today, we're in a much better position to renegotiate, better terms and rates. So those were all really good guys. And then you start looking at, the overall merchandising margin, and so merchandising margin, really two components there were low promotional environment was a benefit, and then also in the funding margin piece, so the merchants... If you look at funding margins, our merchants, a lot of times, will look for opportunities to get a brand into our, our store, and we'll take a little bit less margin on that front side to help them build their business. And then, as we help build the business together, the merchants, this is part of their job and part of their DNA, is they'll go back, and they will work on renegotiating better terms. The teams did a fantastic job with that. Some other good guys, during that period of time were, the credit card, the profit sharing of the credit card, the Ulta Beauty at Target was hitting us in 2022, the royalty, and then our loyalty point conversion. Some of the headwinds that we had were really more around, shrink, that was really impacting us, and then our channel mix. So from 2019- 2022, our e-commerce business doubled in size. So when you look at that overall mix, that was putting a little bit of pressure, offset by some of the good guys. Okay, so what makes us think that we can hit the 3%-5% and the 14%-15% operating margins in the future after all of that being said? It's really about scale, the size of our organization, our investments. We used to call it EFG, we're calling it continuous improvement. We have continuous improvement teams built in into our store teams, or not just store teams, but the corporate teams, too. So we're always looking for efficiencies coming out of the model. There also is the opportunity to look at other forms of revenue. So, you know, UB Media is gonna be coming through, it's gonna continue to grow. Our Ulta Beauty at Target partnership is continuing to grow. You know, all of that together, along with us cycling over this heavy, heavy investment period of 2024, gives us the belief that we will be able to then heed some of the headwinds that could be around, a little bit more normalized promotional environment, along with, an increase in wages and some wage pressure. All of that said, we feel very confident that within that 14%-15% operating margin and all the inputs and outputs that I just kind of walked you through, that we can still drive capabilities within our organization, take long-term share growth within, within beauty, and continue to provide shareholder return. Great. We have to talk a little bit about shrink. It did stabilize in Q3 versus the first half, which is great to see, but could you talk a little bit about some of the actions that you're taking in store, and how you find the right balance between obviously preserving the in-store experience and the guest experience, with also security? Yeah, it's, you know, it's an ongoing problem, and it's unfortunate that we even have to talk about this, to be perfectly honest. But it is a real issue out there, and some of the actions that we've taken are locking up one of the highest shrink categories, and that was fragrances. We've locked up fragrances in about 70% of our stores right now, so that's gonna be better for us this holiday season, 'cause that last year in fourth quarter is when it just really started to spike. So I feel like we're in a better position there. You know, we don't wanna lock up the whole store. I think part of the essence of Ulta Beauty and shopping at Ulta Beauty is to be able to experience, and trial, and play, and, you know, you can go to other retailers today, and it's very distracting. So, when we've put the locked cases in our stores in fragrance, we've also increased our labor, because we wanna make sure we're continuing to have great experiences for our guests. But there are other tools that we've got in place. We've got great partnerships with the local authorities in many of our markets, because they wanna take these bad guys off the streets as much as we do. You'll see there's security tags on a lot of the prestige category items. It's just about awareness and making sure that we're providing great service to our guests as they're coming into the store. So a lot of times, if you have good staffing, it deters because the bad guys wanna come into places where they can just come in and get out really easily, and not, you know, create too much of a distraction to the retailer. So I feel like we're in a really good spot. We're not gonna lock everything up. I don't think that's the right thing to do, but it is a full court press, and we're continuing to lean into the areas that we feel like we can continue to make progress. Social media. So, influencers, TikTok, social media overall, obviously growing in importance in the beauty industry. So could you talk about how you manage your in-assortment differently as their influence grows, and how do you improve your capabilities to ensure that the product is aligned with what consumers want if it shifts this frequently nowadays? Well, social media has always influenced beauty, pun intended. It's always been a key part, I think, of our ecosystem. So it started with YouTube, and I call them the OG, and that was, you know, where individuals really started to show their ability to have their skills of makeup trends and talk about products, and that's evolved now to Instagram, and getting a lot of followers, and having more influencers out there in the industry. And then now it's TikTok, and TikTok has totally democratized that anyone in this room or anyone out there can be an influencer on their own. What that's done is, it's created some unexpected spikes in some businesses, and when I say unexpected, it's because it needs to be authentic. When we see authentic, viral takeoffs, that's really where the magic happens. It's not when it's overly curated. There are some brands that we see that are doing a fantastic job of really leveraging their social media. I'll call out just a few. You've got COSRX, e.l.f. out there, IGK, just to name a few, where they really understand the power and the influence of these social media influencers that are out there. What we do is, when we see that happening, our merchants are immediately reaching out to the brand partners when we see something, upticking, that's gonna be hot, and partnering to try to get as many of the goods as we can. We want more than our fair share, is what I would say. And then we quickly get it through our supply chain system and into our stores. We also have a communication that's coming from our marketing team, because I think it's important for our stores across the United States to really understand what's hot and why it's hot. So we're also taking advantage of, you know, we've got a tool in stores called WorkJam, where we can do a quick video that's just a few seconds long, that goes out to all of our associates, that talks about why this trend is really hot right now. We're doing that on a continuous basis. So it's really about reacting very quickly, getting the product in stock, and making sure that our associates are educated to make sure that that trend is seen all the way through. ... The loyalty program has been fantastic and continues to grow quite nicely, which is great. And 95% of your customers are in that program. So how do you leverage that force more, you know, more—even more? You know, can you discuss how you capitalize on trends a little bit faster than your competition, how you can leverage the loyalty program even that much more? Yeah, well, I'm very proud of our loyalty program at 42.2 million loyalty members, and we had an 8% increase in that loyalty base this last quarter. I mean, that's a huge growth on some big numbers. Why we feel like we can continue to grow that is that the majority of our new member acquisition is coming through our stores because our associates really believe in the program. It's very easy to understand. They're like: "Why not be in this program as you're checking out if you're not currently in our loyalty program?" The Ulta Beauty at Target partnership is also helping us get, you know, the ability to get new members into our our ecosystem, where we've got the opportunity to get in front of a new guest. We also see great results with reactivation of lapsed members, coming through Ulta Beauty at Target. Our new digital platform, with our digital e-com site, we're starting to see increased application flow into the loyalty program coming there, too. But what I would say is, while we've got 42.2 million loyalty members, there's 70 million beauty enthusiasts out there. So we don't have them all yet, but we're working really hard to, to get them. And the power of that first-party data is incredible. The fact that we, you know, can real-time understand their purchasing patterns, what they're buying, what promos resonate with them, that is a great competitive asset that we have as an organization that we're gonna continue to invest in. Running close to time, but I wanted to ask you about Target, and you're now at about 500 stores. The target for Target is 800 stores. What about after that? Is 800 stores still the right number? Is there more that can be done there? How does the Target partnership also help you in terms of thinking about beyond Target? Yeah. Well, we've publicly stated 800 stores. We haven't discussed anything beyond the 800 stores. This last quarter, they opened up 90 locations. They're at 510 right now. You know, we do believe that it's important to our ecosystem, the partnership is. What we're learning in this partnership is that brands like Fenty Snackz, so it's Fenty, but it's in smaller sizes that are more price accessible for that guest, are really what's resonating. They love trial and we love that because it will bounce them back into Ulta Beauty for the full-sized assortment. So that's really how we see this working. You know, it gives them access to prestige, but it gives us access to a new guest coming back into Ulta Beauty for their products and also their services, since we have services in all of our locations. So, we do believe that's a great partnership. We look forward to the continued success with them, and, but we're staying, you know, on that 800 stores number for right now. And then just with 2 minutes left, where do you expect more of the growth to come from in the future? Is it more efficiency in stores, some of the small format stores that you guys have discussed in some of the rural areas, UB Media, expansion into the other categories, perhaps geographies? Just talk us through, you know, sort of a longer term in terms of where the growth comes from as time progresses. Yeah. Well, we believe in the framework that we've shared, which is all things beauty, all in your world, at the heart of the beauty community. So all things beauty, first and foremost, it's about having the products that the guests want. We're gonna continue to lean into wellness and luxury, and the products and the brands that we don't currently carry. Our merchants are hot and heavy on that consistently. All in your world, you mentioned already we've got a 5,000 sq ft prototype that we're testing, you know, out there, and it's more in rural America. Think Wilson, North Carolina, or Paris, Texas. And then I would also say we do believe that Ulta Beauty could be a global brand in the future, not in the short term or near term, but we do believe that there's the ability for us to, to continue to grow and expand globally in the future. And then at the heart of the beauty community, and I'll just wrap it up, that it is all about this emotional connection that we can create. We just launched our Joy Project, which is resonating very well with our guests, and it's also about having this emotional connection that they think about Ulta Beauty for all of their beauty needs and really increasing that aided and unaided awareness and being top of mind for the guest, as they're thinking about where to spend their beauty dollars. I'd say all of those combined together give us great confidence that we will have continued growth in the future. Great. Well, with that, thank you, Kecia. Thank you, Kylie. Thank you, Mary Kate, as well, and thank you all for joining us with Ulta.