Thank you, everyone, for being here. My name is Dylan Cardin. I'm the Specialty Retail Analyst here at William Blair. We're pleased today to have David Kimbell, CEO, and Paula Oyibo, CFO of Ulta Beauty. So thank you. And we're just gonna kind of kick it off here, and we spoke to this, but I guess there are a lot of headwinds in your business that you've called out. You've got the sort of just the general beauty cyclicality, you've got a fuzzy macro outlook, you've got competition, and you've got your own success over the last two years, right? You've kind of had outsized growth relative to your model. A lot of people are focused on the competitive aspect of it, but can you kind of bucket and even just sort of rank kind of those pressures on your business as you see them today? Yeah. Well, first, thanks for having us. Thanks for your interest in Ulta Beauty, and thanks for holding this in our hometown of Chicago. We were started here 34 years ago, so it's nice to be here in our home city. Yeah, when we look at our business right now, there are a lot of factors going on. And overall, we feel very confident and optimistic about the future of our company and how we're performing today, despite some of the pressures and the challenges. So to take some of the things you highlighted, if I look more broadly about the consumer landscape, the macro environment, I think you all are watching it as closely as we are, and it is an uncertain environment right now. There's a lot of anxiety with consumers, and that's true across all categories that influences all categories. Consumer confidence is pressured, despite there's, you know, some obvious positives in the economic environment, but there's other concerns and challenges that are putting pressure on consumers. And then we're seeing that show up and just them being more thoughtful, more aware of how they're making choices and spending money. And then you layer in, you know, the election environment and other dynamics going on in our culture and society. The consumer is in a, I guess I'd say, an uncertain place, and so that certainly influences all of consumer behavior. When I look at the beauty category, specifically within that context, beauty category is healthy and has been for a long time. Has been historically, it's performed very well, a very consistent growth category because of the importance it plays in consumers' lives. Beauty is emotionally connected to consumers. It's so important in how they take care of themselves, how they show up in the world, how they think about self-care and wellness, and self-expression. So historically, beauty has been a strong growth category, and coming out of the pandemic, it's been exceptionally strong. Double-digit growth, really, in 2021, 2022, 2023. The category in really, you know, stronger than really anybody expected coming out. It is still healthy this year, but moderated, as we expected and anticipated. So, you know, going from, you know, very strong growth to you know, moving down more towards historical levels of growth, still a little bit ahead of that. So, a bit of a headwind in the sense that, it's not growing as fast as it was last year, but still, still healthy overall. And then the other thing I guess that I'd highlight is, we're also, because of the strength of the category, and the overall attractiveness of beauty, its growth history, its margin profile. It's always been competitive, and the competitive intensity right now is more than... I've been with the company 10 years. First started working in beauty in the nineties at Procter & Gamble many years ago. It's an intensely competitive environment right now because of the attractiveness and the opportunity that so many see. And so we can talk more about what that means, but that's certainly environment. Having said all that, as we look at our business right now, while our growth has moderated, you know, we see so many positive signs. You know, you know, good growth overall. Our members up 6%. Our brand, brand love, reached all-time high. Our brand awareness, very, you know, reached all-time high. Good, good growth in stores, strong growth in e-com. We're seeing, so many factors across our business. We held share in total beauty. We gained share in e-com prestige. And so when we look across our business, a lot of positives that give us confidence, and then we're navigating some of the pressures in the short term. Thank you. We'll touch on all of that hopefully today. I mean, maybe start from a competitive standpoint. It's been sort of a newer phenomenon, maybe fourth quarter, but sort of first quarter as far as sort of your comments around that you might be losing share in some parts of your business. I guess, where are you losing share? But I'm also curious sort of how your competitors are taking share- Mm-hmm. and maybe how you think you sort of counteract that- Yeah ... further into the year. Yeah. So, for the first quarter, and it was true, into last year, for the fiscal year 2023, we held share in total beauty. So if you think of beauty across all categories: hair care, skin care, fragrance, makeup, and then all price points, you know, as you probably know, beauty historically segmented in from mass products to prestige products, luxury products, we play in all of them. We're really the only, scaled beauty, player that has, presence across all price points. So when you look at total beauty, held share. You know, historically, we've gained a lot of shares, so we're, we're accustomed to gaining share, but, held share in, in Q1 and for 2023. We, we gained share in prestige e-com, as I mentioned, so our e-com, business, gaining share. Where we were pressured is prestige overall, driven by, you know, pressure on the store side, the brick-and-mortar part of our business, and highly in particular, our makeup and hair care. So you go total beauty, holding share, when you get down to makeup, hair care, prestige in our brick-and-mortar business, that's where we're feeling the most pressure. What's going on in the category is there are over 1,000 new points of physical distribution in the last two years. Really unprecedented in beauty. I've been trying to figure out if it's happened in retail at all, that you have a direct competitor open up, you know, 1,000 new points, and we have 1,400. You know, it's a meaningful change in the category. It is by no means, you know, in any way, a long-term kind of dynamic that we feel like we won't be able to manage through to gain share, to drive our business forward. We're already you know, we've seen historically when stores, competitive stores open up to ours, we're able to you know, absorb a short-term dynamic, but then be able to grow in that location over time, and we're confident we'll do that, but we're facing that right now. So, again, feel good in the sense that we're holding on to our total share, despite the elevated competitive pressures, and clear about where you know, we're facing some challenges, and we're taking actions across our business to protect and drive share for the long term. Can we talk about that? So is it simply just then a cannibalizing impact when a new store opens up in close proximity? You mentioned that you've kind of seen that video before, how that plays out over time. Mm-hmm. And then, yeah, just sort of how you claw back some of that share in the physical channel. Well, I mean, yeah, there's definitely that dynamic. I don't want to say, you know, there aren't, there's other factors going on, as there always are in this industry. I mean, it has always been a very competitive industry because it's been attractive. So, I've, again, I've been here 10 years. We're used to kind of multiple fronts of competitive, both opportunity and challenge and threat, and we react, and, and, and we've been able to gain. We have gained meaningful share. Since the pandemic, you know, we are up over our, our total connection with our guests is, you know, over, 200 basis points in, in share in our business. And so we feel very confident in our ability over the long term to continue to grow, grow share. What is really unique, and yes, when I say we've got experience with stores opening up near our stores, in any given year, that might be 20, 30, maybe 50, not, you know- Okay ... 1,000 over two years. And so that's unprecedented. Again, we, as we look at it, we're the fact that we're continuing to grow, hold share, has all the positives I said about brand love and brand connection and traffic, you know, to us, signals our guests are very confident in our business. They love what we're doing. We're navigating this, and over the long term, you know, we're confident we'll be gaining share as we've done for a long, long time. Well, engagement and, you know, one stat I find interesting about you guys is you've actually... The growth in your loyalty program has doubled that of your store expansion. Mm-hmm. It's sort of an efficient way, right? Mm-hmm. It would seem to me that there's an embedded sort of competitive advantage in the loyalty program. I'm just wondering if you can touch on engagement, particularly in the online channel. Mm-hmm. That's part of the initiative this year, right? Mm-hmm. Sort of more relevant engagement in online. Yep. How do you think about fostering that asset, particularly as it relates to the dynamic competitive landscape? Yeah. Our loyalty program is one of our greatest assets. We've got over 43, nearing 44 million members in our loyalty program, the largest beauty-focused loyalty program in the country to have, again, nearly 44 million beauty enthusiasts connected to our business, active members, which we define that means they've shopped with us at least once in the last 12 months. So 44 million people. It gives us such great connection to both understand beauty trends and what's important to them, to be able to connect and communicate. Over 95% of our sales go through our loyalty program, so almost every individual item that we sell, we can track back to an individual to understand behaviors and then provide more value and relevance. We've been on a journey for a long time to increase our personalization, to understand, you know, Paula's unique ways to engage with the category, communicate directly to her, add more value through the experience that we deliver, and we've been doing that, and that's what's been driving the loyalty and connection. When I tie it back to share, I'd, I'd like to kind of make the point, the importance of our loyalty program to our long-term share is, is critical because of the connection and the relationship that we've built. And when I look at, at share growth opportunity, a big focus for us is, one, continuing to gain, grow total members for sure, and we are up 6%, as we reported in the first quarter, and we'll continue to... and we see a runway to continue to grow that, but also increase share of wallet and the opportunity within that. And so that is less focused on any one individual competitor, but us providing experiences that delight our guests in a way that they concentrate more and more of their spend at Ulta Beauty. So almost everything we do is designed to add value to our loyalty. So if we get a store guest that's shopping only in store, if we get them to start shopping us online, they increase 2.5 times. If they get our credit card, they're increased significantly. If they move from our base program to our platinum or diamond program in our loyalty program, their spend, engagement, and share of wallet increases. If they use our services, if they try us at Target, if they download our app, all the things that we do, if they are a makeup shopper, and we can get them to start shopping hair care, you know, all these things are designed to get share of wallet, which translates to share of market. Yeah. And Yeah. And related to that, or I'm curious about the sort of term you used in sort of addressing your strategic initiatives this year, relevance online. Mm-hmm. You know, how-- it's sort of, I think, related to this: how do you view your relevance, and I think relevance of the online space? You've kind of stopped giving the online sales number, but- How do you see... It was actually a bright spot in the quarter. Mm-hmm. as far as growth and market share is concerned. Mm-hmm. So how do you see the online channel from a penetration standpoint, from a growth standpoint, progress from here, and how does that sort of factor into your own business? Yeah, what I would, I would say, Dylan, is we were really happy with the performance of our, our online and our digital e-commerce business. In Q1, we had high single-digit comp growth and really strong traffic across all of our digital touch points, our app, as well as our website. It represents about 20% of our, our total sales at, at this point, and we expect continued growth. Growth at a level that will outpace our store growth. But as we take a step back, we really think about our business through an omni-channel lens, and we think both our digital as well as our brick-and-mortar business has a really important role in working together in driving growth. We see that when a guest engages with us across multiple touch points, whether it is in our stores or online, in our app or on our site, as well as at Ulta Beauty at Target, they engage more, they're more loyal, and they spend more. And so what we have seen is that an omnichannel guest, they spend 2.5 to three times more than our brick-and-mortar-only guest. And so again, we see a lot of growth still to come from an e-commerce perspective, but really think about how those two channels play well together. Well, 'cause the category lends itself more from a sort of a symbiotic relationship or harmonious relationship between the two channels, right? Yes. I mean, it's still very much a try-on- Mm-hmm -influence, right? So I would think that... Would you expect this to be a category that would over-penetrate online in any sort of point in the future, or is it something that you would expect to kind of remain at a relatively stable level? Well, Dave can add on here, but what we know is that trial is really important for this category. And so, guests, they enjoy newness, they enjoy having the opportunity to come in our stores and play and trial. The digital channel also plays an important role with product discovery. And so oftentimes, we could see a guest come into our store, and they may be looking on our app to look and discover, and then shop in stores. And so I think those two really, really play well together. Excellent. It somewhat merges into the question around: by the end of this year, you'll be kind of within spitting distance of your lower bound of your long-term store target, call it about 1,500 stores. You know, how do you think about retail expansion or growth from there if the online channel takes up, you know, more of the lift? You know, how to prepare people for kind of arriving, so to speak? Yeah, you know, you mentioned we had previously shared our confidence in having store growth in a range of 1,500-1,700 freestanding Ulta Beauty- Right -locations. We're still confident in our ability to see that at the top end of the range. What I would say is we also see a lot of opportunity. We had shared that we started to open small format stores, and we've been pleased with the results that we've seen with that, and we see that that creates an additional opportunity, potential opportunity for us from a growth, store growth perspective above that range. We also, you know, we are expecting 800 Ulta Beauty at Target locations, which is another point of presence for us. And then, as you know, we announced our entry into Mexico, and so we are excited about the opportunity that Ulta Beauty in Mexico will provide for us with additional store growth. Let's talk about all those. As you approach 1,700- Mm-hmm. Call it the stores that you're opening up now versus the stores you're opening up pre-pandemic, any sort of comparison that you can make between those? For the newer, larger format, the core Ulta stores, as far as performance, ramp, profitability. Yes. What I would say is we're really pleased with the performance of our fleet. I mean, our store productivity is one of the most productive parts of our business, and it is more productive now than it was pre-pandemic. Small format, where are those? Are those tertiary markets? Is that Des Moines, or is that, you know, something that was an infill opportunity, where maybe there's more unique neighborhood aspect to it? What do those look like? Yeah, those. It's not Des Moines, because Des Moines, that's a great market for us. It's a little, but it does have, I like- We're talking about smaller communities with fewer households than a city like Des Moines. Del Rio, Texas, I don't know if you vacation there or spend much time—but it's a really cool town in Texas, and Texas, of course, is growth, but it's a small, it's. And it's, I think it's at least 30 miles or maybe 50 miles from the closest- Yeah Ulta. It's an isolated, smaller number of households than we've traditionally gone into, and it's performing very well. The cool thing about this category and the power of social media is, you can live anywhere and be- Yeah as connected, as in tuned, as excited about everything that's going on in beauty, and you want access to it. And in these markets, there is no, there really is not, any other place, particularly on the prestige side, to get it. So we're excited about those opportunities. We've opened many of them across the country and will continue to penetrate those markets. Is there a population range that you've given as far as how to think about that opportunity, if you want to? I don't think we've talked specifically about, you know, number, like, you know, we- The Del Rio, Texas. Yeah, yes, yeah. If you want to check it out, that's a good, good market. Yeah, we're doing that really across the country. We've got them spread out across the country. And we don't talk about Target a lot. I mean, can you kind of remind us the strategy there, how that partnership's evolving, who that customer is, and sort of the success you've seen in transforming them maybe into a core customer? Or maybe you don't need to transfer them into a core customer. Well, that is the focus, to try to get them connected to the total Ulta Beauty ecosystem. I mentioned earlier about this strategy that we have of surrounding our guests with touchpoints. And again, the more they get engaged and try new experiences from us, the more they love us and the more share of wallet we get, and Target is a big part of that. So the strategy behind Target is to give an incremental experience to our guests and to provide another touchpoint or opportunity to reach new guests. 30 million people walk through a Target every week. Wow! Many of them are Ulta guests, a lot are not. And so they might discover Ulta or start shopping with Ulta for the first time there, then we want to get them connected to the total experience. What's different about Target is it's not. If you've had an opportunity to see it, you'll notice pretty quickly, it is not a full Ulta experience. A full Ulta experience comes to life in a physical way, in 10,000 sq ft, about 600 brands, 25,000 SKUs, you know, several people working, salon experience. Target was very purposefully designed in that environment. It's about 1,000 sq ft, 60 prestige-only brands that we bring to life. So it is a taste of Ulta that complements what Target does in other parts of beauty, and it is designed to, again, reach new guests, delight our existing guests, grow our loyalty program, and provide another touch point that we're pleased with. We've been at it for a few years now. Paula mentioned we're opening, you know, together with Target, about 100 new locations this year, and we're excited about the long-term potential of it. The fact that you're opening up 100, I mean, the read then would be that you are seeing success in that transformation. Yeah ... in taking at Target. The brand carries when they sort of discover you in that channel. Yeah. Yep, yep. It's great, it's great for Target because it's an incremental experience. It's great for our brands. You know, and if you go in there, you'll see brands like Clinique and MAC and Fenty and many others, because it gives them in a specialized way an opportunity to grow their business, reach new guests. We curate, say, Clinique, to have the best of Clinique, but then we also by getting loyalty, that's a key part of this, our loyalty programs, if you buy that there, you get benefits both through Target Circle and Ulta Beauty Rewards. and then by getting into our loyalty program, we know if you shop there, you bought Clinique, maybe for the first time, we can communicate: "You want the full Clinique experience, you can get it at the closest Ulta Beauty- Yeah - or get it online." And so it's a cycle that we think is working, and our guests. One of the coolest things of it, the moment we announced it, guests just loved the idea even before they even saw it. Ulta, Target together, it's like, I can get my Starbucks, I can get Target, and I can shop for Ulta all in one place. Like, everything comes together, and it's pretty cool. Yeah. The concentric circles of that customer. Yeah. And international, I mean, you had thought about Mex- sorry, Canada at one point. Now we're in Mexico. You're in Mexico. You know, how can the international landscape evolve Europe? You know, what are the other sort of parts of the map that might make sense here? Yeah, yeah. Who's there, I guess? Who are you kind of up against in Mexico? Who are you going to come up against in Canada? Yeah, yeah. Is it an easy get, I guess, is the question? Well, yeah, I mean, nothing's easy, I guess. You got to work hard for everything in this, in this category, in this world, I guess. Yeah, Canada, we're moving. I guess I'd call that a maybe a COVID casualty. We were well down the path, and then COVID hit, and we made the strategic choice, which was the right choice to make, to stop that effort. Just opening up stores in that environment was... So Canada is a potential, long term, but, you know, nothing immediate, in our plans. We are very excited about Mexico, and the reason we chose Mexico, is it's a very strong growth, a beauty growth category. The economy is performing well, largely driven by there's a lot of, I guess, nearshoring, manufacturing being built. The economy is doing well. Mexicans over index, you know, Latinx consumers, Hispanic consumers in general, way over index in beauty. So it's a very healthy, strong beauty market. We start in Mexico with good brand awareness. I mean, we don't have any stores there, but because of, you know, the traffic back and forth from Mexico into the U.S., our border stores along Mexico are some of our strongest stores. So we enter into that market with good awareness of Ulta Beauty to begin with. Many Mexicans have already shopped there when they visit the U.S. or certainly heard about us. So good brand awareness, strong category, and we saw a clear opportunity to bring our unique all things beauty, mass to prestige, to luxury, makeup, skincare, haircare. Our unique model does not exist in Mexico. We've got great competitors there that, you know, from department stores to other beauty specialty to mass and drug, so there's an environment there, but we're confident, and we're excited to roll out our-- open up our first stores next year. Beyond that, you know, nothing specific that we've announced other than to say, you know, you know, we do see long-term potential. It's not everywhere. We're not gonna go, you know, just ran-- you know, open up stores 'cause every market's a little different- Yeah ... the competitive environment, the cost of doing business, the dynamics. So we're being very thoughtful, but Mexico is our first step, and we're very excited to do it. ... and then maybe people are gonna be mad that we're not gonna give this topic as much time, but there's a breakout margin. You know, the guide for the year assumes a little bit of deleverage on sort of a decelerating top line. Some anxiety about, you know, how margins trend over the next couple of years. I guess, you know, how do you think about the guide on margins, particularly back half-weighted aspect to it, and so the line of sight there, but also you've got the ERP and project sort of kind of rolling out now in its last phase. How does that support sort of the efficiency of the model leverage point, you know, and give you more confidence in being able to sort of guide like that? Yeah. So particularly what I would say on gross margin, because I think that is the question that was on a lot of people's mind, we guided gross margin to be flat to modestly, modestly down, and really that is driven by lower merchandise margin, which, you know, lower merchandise margin, some fixed cost leverage, deleverage, and then that is being offset by growth in other revenue and lower transportation costs from our supply chain efforts. As you mentioned, we in the second half, we're expecting a bit of an inflection point from first half with regards to gross margin. That's primarily due to better merchandise margin. We see that in the second half, we'll largely be past the price increase benefit that we had in 2023 and of the first half once we get into the second half. So that'll help improve merchandise margin. We also will see the ramp of the transportation, lower transportation costs, which will serve to offset the higher promos and the pressure that we are seeing from a fixed cost, a store fixed cost, leverage perspective. When I think about, if you think about from a SG&A perspective, you are right. We are expecting growth in SG&A to moderate in the second half from, you know, low double-digit growth in the first half to low to mid-single digit growth in the second half. A large part of that is due to the fact that we are nearing completion of some of our big transformational efforts. Digital Store of the Future or digital transformation will be largely done in the first half, as well as our store ERP transformation will be nearing completion as well. So that gives us a bit more comfort in kind of the margin profile for the second half because we're largely past some of those big drivers. Two questions emerge on that. For one, on the promotion side of it and sort of the gross margin, with this sort of increase in 1,000 points of distribution, are you seeing irrational behavior from a promotional standpoint to sort of capture? We came into 2024, knowing that the promotional environment would be more higher than 2023, but still rational. So we afforded for increased promotion in our guide. I mean, as we think about it, we think that, you know, there's a role that that promotions play in this category. As we've talked about strengthening our top line, we will use promotions as one of many levers in order to strengthen our top line. But we don't see the us or the environment, you know, getting back to 2019 levels per se, but we do expect higher promotions in the category. But not irrational as it relates to sort of specifically the- No. Okay. No. Criminal competition. And then on the ERP re-platforming some of these systems, is that a benefit to margin simply that you're not spending to stand them up? Or is it more that you're sort of gaining efficiencies from? I think it will be a bit of both in the near term. It is that we will no longer be spending on those, and then over time, we'll see the benefits of those investments come into the P&L. Got it. And then we got sort of a final minute here. You guys are holding Analyst Day, October? Mm-hmm. Right? Yep. That's always sort of an interesting part in the company's history. You guys don't hold them a lot, but, you know, just... I'm not obviously gonna ask you to sort of highlight anything or steal the headline, but just the context that you find the company in, in sort of preparing for that. Yeah. Maybe you just sort of set that up for people. I know it's far away, but- Right. Well, yeah, here, here's the-- yeah, as we look at the context, it's certainly, you know, communicating, clarifying what's, you know, updated dynamics in the, in the category. Consumer, starting with the consumer, where we see consumer going. One of the greatest things about this category is the level of engagement that consumers have with beauty. I touched on it earlier. What's cool about it, we didn't get into it, but it's just every generation of consumers, you know, from, you know, millennials, older millennials, younger Millennials, Gen Z, now Gen A, they each has been progressively more engaged in the category, which is great for the future of the category. So we'll lay out what we see in the category, how we think about the consumer opportunity, obviously, talk about the competitive environment, but spend most of our time laying out what we see over the next three years as the opportunity for us to continue to lead the category. We started two founders here in Chicago 34 years ago, set out with a vision to disrupt the beauty category, to change how consumers engage in, in this category, to give them an environment where they can engage with beauty on their own terms, discover all the wonderful aspects, bring what we say, "Bring their own possibilities to life." We'll share what we're thinking about, what comes ahead as we continue to evolve, disrupt, and grow our business for the long term. Excellent. Thank you. Great. Thank you. Thank you. Thanks, everyone. There's a breakout in Adler on the second floor.