Good morning, everyone. Thank you for attending Oppenheimer's 24th Annual Consumer Conference. My name is Rupesh Parikh, and I'm the senior food, grocery, and consumer products analyst here at Oppenheimer. I'm excited to introduce our next presenting company, Ulta Beauty. We're excited to have joining us today COO Kecia Steelman, and for the first time, CFO Paula Oyibo. We're very excited to have the Ulta management team again at the conference. Although the past quarter is a bit more challenging in a more difficult competitive backdrop, we continue to look favorably upon the company's longer-term prospects. Over the years, management has navigated various macro obstacles to drive strong earnings growth and industry-leading shareholder returns in the U.S. retail space. The format of today's session will be a fireside chat, going through a number of questions I've prepared. Let's get started. Kecia and Paula, thank you so much for being here today. We're going to kick it off with a few macro and consumer questions. Maybe to begin, I would love to hear your overall thoughts on the health of the beauty consumer right now. Yes, thanks, Rupesh, and thanks, Oppenheimer, for hosting Ulta Beauty and Paula and I today. You know, the macro environment is dynamic, and consumer confidence is clearly under pressure. Inflation is a real issue out there. There's a focus on value, prioritizing essentials. The good news is that people are viewing beauty as an essential that they can't live without. The commitment to beauty is really demonstrated by the solid category growth. Even though it's moderating, it's still showing positive growth, and it's still healthy. And you know, what we're tracking internally also is, are we seeing any changes within, income cohorts that are shopping with us? And there's, there's not a lot of variation there, so that's, that's really a fantastic thing for us to see. The strength of our model here at Ulta Beauty and our ability to really connect with consumers that are looking to, whether they're gonna try to spend a little bit less from mass all the way to luxury and anything in between, along with cross-categories that are around beauty and wellness space for us, we feel like we're really well positioned to continue to weather whatever storm is gonna be coming our way. Because beauty is really viewed as an essential for the consumer today. Great. That's a good segue into my next question. I just want to touch on category growth. So some of the players have called out weaker category growth, especially in mass makeup. So I'd just love to hear what your team is currently seeing in the beauty category more broadly. Yeah. Well, we've seen the category growth, you know, it's moderated to the mid-single digits, lapping several years of what we would say is unprecedented double-digit growth. So we did see that. We knew that that was gonna start to moderate at some point in time, but we saw it moderate both within mass and prestige. You know, the data that we're seeing for the industry as a whole is that prestige has moderated to high single digits, but that's down from double digits the previous quarter. Mass is in the low single digits from the mid-single digits the previous quarter. But despite that moderation, you know, beauty still remains healthy and growing. The guest is still really engaged. As I mentioned earlier, the guest is engaged. We're in innovation. We're really pleasantly surprised to see innovation continuing to grow. We see innovation this year. We see it in the following years out, too. And then I would say that something else that's continued to evolve is this crossover between beauty and wellness. So the beauty consumer is seeing that it's not just about the products, but it's about wellness and beauty and wellness collectively coming together as a category. We see that continuing to propel the growth in the future for us. We've got solid plans in place here at Ulta Beauty to strengthen our top line and to capture and regain our fair share of this growth here in the future. Great, and then switching to another area we get a lot of questions, just competition. So in recent quarters, we've seen a clear step-up in beauty distribution points between Kohl's, Sephora, Ulta, Target, Bluemercury, and now Amazon also carrying some brands from L'Oréal and Estée Lauder. So how do you feel about Ulta's competitive position today in the face of a shifting brick-and-mortar backdrop and omni-channel landscape? So we'll start there. Yeah, sure. Good morning, Rupesh. We are a key destination for beauty, and we have positive signals with regards to our competitive positioning in our business. Our traffic is up. Our consumer awareness and brand love is continuing to increase. Our loyalty program is expanding. We shared in our earnings call a couple of weeks ago that our program grew by 6% to nearly 44 million members. Member retention is up. And so those are signals for us that despite the current pressure that we have shared and with the expanding distribution points for prestige beauty, our business is strong and well-positioned to continue to grow. I mean, beauty has always been a competitive environment, a competitive category. But what we know is that we've disrupted this category over the past 30 years by bringing mass, prestige, and luxury services, all of that together, to really meet the consumer and the guest needs from a beauty and wellness perspective. And so we know that our model works, and when you combine that plus the power of our loyalty program, it's a powerful formula for growth, and we're confident in our ability to grow forward and compete in this environment. That's great. And then, Paula, you touched on this briefly on the last month's conference call, but what leverage do you have to pull within your guidance to defend share? ... Right, and so we shared a couple of things, right? We said that we're taking several actions across many dimensions. We have newness, right? We talked about the newness pipeline, and we're really confident about go forward. We talked about improving our social relevancy. We've talked about digital. We've talked about the strength in our membership program. And promo, we also mentioned. And so in our guidance, we have assumed that we will protect sales-driving levers, and that's a combination of promotions as well as advertising and store labor. And so we believe that's important for us to continue to drive traffic and in-store experience in our store to help strengthen the top line. Okay, great. Then switching gears to a few category-specific questions. Makeup was down mid-single digits in your latest quarter. What do you believe needs to happen for Ulta to get back to positive makeup growth over time? Is the biggest piece simply lapping competitive dynamics? Yeah, well, what I would say, Rupesh, about this is that, you know, prestige makeup is growing in total in the market, and we're implementing strategies to really protect our share. In reality, our market share position is very significant, so we're taking actions to really defend it overall. We're excited about the newness in the pipeline, and Dave shared on the last earnings call, we've got 25 new brands in this back half of the year, which give us confidence to continue to, you know, fuel the business going forward and to unlock our strength in our core categories, too. Sometimes when you get a guest coming in with that newness, they're also re-engaging back into core categories. So we're doubling down and leaning into brands that are still really exclusive to us, like Polite Society and WYN Beauty, which we recently launched, exclusive brands that you can only get at Ulta Beauty. But we're also really focused on our core assortment and continuing to drive that business overall. Okay, great. And then switching gears to skincare. So skincare has been a bright spot for several quarters now. What are the key efforts on the skincare side of the house that we should be thinking about, and how are you thinking about Ulta's ability to sustain momentum in skincare going forward? Yeah. We're, we're really lapping some very strong performance last year. You think about socially relevant moments, like with Drunk Elephant, D- Bronzi, so a lot of newness was happening last year. But, you know, we're continuing to lean in on things that are working right now. Derm brands are really hot, so Dermalogica, dermatologist-recommended brands like La Roche-Posay, Dermalogica are resonating really, really well with the consumer. And then mass brands like Bubble, Kinship, Byoma, Good Molecules, those brands are also generating a new guest coming into us, too. So we think that it is an opportunity for growth. We're focusing on the right assortment, and we're gonna continue to lean into the growth opportunities for us in the future in skin. Skin's a very important category for us. Okay, great. And within the box, has Ulta allocated more or less space to skincare, or has it been fairly consistent? It's been very consistent. Skincare has, from a space perspective, been pretty consistent overall. One thing that we are leaning in on is, skincare can be a tough category to shop sometimes because it can be overwhelming to the consumer. So we've taken efforts to really, what I would call, demystify skin through training and education of our associates, and making sure that our associates can really help, demystify the skin shopping experience and help you find the right products that are a good fit for you and a good regimen, for you, whatever your skincare needs may be. Great. So I'm gonna switch to haircare. So haircare turned positive in Q1. Overall, what are you seeing in the category, and are we finally turning the corner in hair tools? Well, the category was up low single digits in Q1, as you mentioned, and newness in hair tools, along with prestige haircare, helped us. We, we had an event called our Semi-Annual Beauty Event, of which haircare was a highly engaged category in this year. And mass haircare also was pretty successful because we had a really great, successful event with our Spring Haul Event. Some areas that we're seeing the consumer really lean in on is around hair and scalp health. That's really resonating, and there's strong engagement with brands that are like our legacy brands, like Redken, all the way to newer brands that we've introduced, like LolaVie. Hair care or hair tools that you mentioned earlier, too, we finally have lapped over that strong Dyson surge that we had in the overall business, that started really in early 2022. So now we've lapped that strength and that performance, and we've had some great successes with Dyson, had a limited edition pink Mother's Day activation that resonated really well with the guest. And then Shark Beauty was introduced in Q3 of 2023. That's still continuing to remain a strong driver for us in the category overall. So I'd say that we've lapped the tough comps that we had. Some newness is still coming into the category. Haircare is an important category to us as an overall business, and we look forward to the business continuing to remain very strong overall. Okay, great. And then I want to touch on fragrances next. So last year at the conference, we talked about the booming fragrance category. And Kecia, you gave us some insight into your impressive collection. What types of legs do you think the fragrance boom still has? And then what opportunities do you see in fragrances for Ulta from here? ... Yes. Well, thanks for remembering. I do get my-- I have a pretty impressive fragrance collection, and it's continuing to grow, is what I would say. You know, beauty enthusiasts are still really engaged with this category, and one of the changes that we've seen is that a younger consumer is even engaging earlier on. Brands like Sol de Janeiro that offer a body mist, that's really resonating very well with the Gen Alpha consumer. And it also is a, an item that you can have your mist on and then layer a fragrance on top of it, and you can get a unique scent along the way. We talked last conference about layering, and it used to be that someone had their signature scent, that was the scent that they had. But that's not really the way it works anymore. It's more about scents by occasion. It's about layering and adding on. Some new launches that we've recently had that are pretty exciting is Cosmic by Kylie Jenner and Orebella by Bella Hadid, both of which I've added to my collection, my ever-growing collection. But you know, we see fragrance as a continual growing category for us. It's very strong. And we're gonna continue to lean in on that because it's resonating against all consumer segments. Then just going back to innovation, so you've had some nice brand additions so far this year, including Sol de Janeiro and Charlotte Tilbury. On your call last month, Dave highlighted the pipeline, more than 25 new brands for the year that you guys discussed earlier. How have the recent brand additions and other innovation to date performed versus expectations? Yeah, we're really pleased with the newness and how the brands have been resonating with our guests. These are brands that our guests were asking for, especially you called out Charlotte Tilbury and Sol de Janeiro. The guests wanted those in Ulta Beauty, and they've been responding really, really well. You know, we've also had some great launches. I mentioned Kylie and Orebella earlier with their fragrances, and then WYN Beauty by Serena Williams. It's great to see this new category, that the set is beautiful in store. It's resonating with the new guests that we're getting into our door. So, you know, the newness is really important to us in the pipeline. As you mentioned, I talked about it earlier, the 25 new brands coming in, we're very, very excited about that. Gives us a lot of confidence in the back half of this year for continuing to drive the business. But we're still really focused on our core assortment, too. Our core assortment is very important. We want to make sure that as we're getting a new guest that's coming in, that we're engaging with them as they're coming through that threshold in our store. And then leaning into brands like Polite Society and Live Tinted and LolaVie, that are exclusive to Ulta Beauty. Those are brands that are really important to us also. And then I'm very, very excited about our relaunch of our Ulta Beauty Collection that's happening later this summer. It's new packaging. It's hitting all of our core clean and conscious beauty elements. I can't wait for the guests to come in and engage with this category. There's no better brand for us to really lean in and double down on than our own private brand. As you look at the beauty categories, so clearly Ulta has a lot of newness in stores right now, and it sounds like a lot more is coming. What are some of the hotter trends or products you're seeing out there currently, just from an industry perspective? Yeah. Well, what we're seeing, some trends that are hot right now is, like, makeup. Right now, we're just wrapping up our Golden Hour Glow campaign, so it's all about the glowy and the dewy looks, summer shimmery. For skincare, it's really about health and hydration. Especially going into the summer months, it's all about that hydration and taking care of your skin. Sol de Janeiro is right in that sweet spot for us. Haircare, it's about hair and scalp health, as I mentioned earlier. Retro, softer looks for hairstyles are really coming in, so more the beachy, not as maybe as finished. We're seeing that trend happen right now. And then in fragrance, body mist, so layering, that's still continuing to hold true. So, you know, those are just some of the top trends that I would call out that we're seeing at Ulta Beauty right now. Okay, that's helpful. And a few other areas I was hoping to cover, so first, the Target partnership. So I'd love to hear about how the Target partnership is trending versus expectations, including on the cannibalization front. And then, has anything surprised your team to date? Yeah. Well, we've opened up 27 stores in the last quarter, and we're just right now at about 540 stores, so just under 540 locations. You know, it's really about deepening guest engagement. That's one of the sweet spots that we thought we would get with this partnership. Our guest was telling us that they really... You know, they're shopping other locations, but Target is a great partner for us. So it's really focused around new member conversion and re-engaging lapsed members. We love what we're seeing when a lapsed member has re-engaged through Ulta Beauty at Target. We're seeing them come back into Ulta Beauty and actually outperform their previous spend that they were having before. So that's great. This loyalty linkage with Target relaunching their Target Circle campaign, we're seeing a really nice linkage, and it's very important for us because when they're buying products at Ulta Beauty at Target, we only are able to see that purchasing pattern when they link their transactions. So we're really focused on that linkage. And then ultimately, it's all about bounce back. It's about getting that guest engaged to come back into our locations. Some things that we've learned along the way I would share are, it's really important to have joint marketing campaigns that really are resonating at the peak promotional activity with Target and hitting on their promotional cadence. So we just recently, in the quarter, had a Target Circle promotion that we participated in, in the full shop with their offer, and it resonated really well with the guests. We're gonna be leaning in at the back-to-school, back-to-college time, because at Target, that's really essentially almost a Christmas, a secondary Christmas holiday season for them. So we're leaning in on these key moments in time. That's something that we've really learned along the way. And then assortment is really important. So continuing to evolve this assortment, what the guest is wanting. They love this Fenty Snackz, so it's a, it's a way that, we've kind of created this third space. You can only buy Fenty Snackz at Ulta Beauty at Target. It's gift sets. It's trial size. We like that because it gets, our products in Target's guests' hands at a reasonable price point. They like what they're experiencing, and they-- it bounces them back into Ulta Beauty location to get the full-size assortment. So we're learning a lot along the way. The collaboration is great, and I'm really looking forward to our continued successful partnership in the future. Okay, so it sounds like it's going really well so far, and there could be upside, essentially. Yep, absolutely. As you guys look forward. Okay. And then on UB Media, if you could remind us where Ulta is on the journey with UB Media, how is it progressing versus expectations, and then what are the bigger opportunities remaining from here? Sure. So UB Media is a really exciting, very strategic investment for us. And really what it is, is it is us utilizing the power of our membership data, and so taking our first-party data and driving growth for our brands and for ourselves, and really that's through driving digital campaigns that are very focused and targeted to specific audiences that we and the brands collectively will see as a huge opportunity. The results have been great. We're still in the early days. We launched the business in 2022. We're continuing to scale the business, but we're making great progress. I mean, every, you know, every day, we're advancing our capabilities. We're introducing new products on site, which means, you know, we're creating more opportunities for brands and for us with our brands to advertise, that whether it is on our own personal owned sites, our website, our email, our app. We have introduced a more robust measurement capabilities because that's really important for our brands, right? We're driving. We need to clearly identify that they're getting a return on their ad spend, and the measurement capability is helping them to see that, so that that continues to grow. We're ramping our team. As we think about it, you know, we expect the UB Media business to be margin accretive over time. And so, like I said, we're in our early days, but the way to think about it from a financial standpoint is that it will continue to... It will help in the gross profit space. Okay, great. And then switching to the loyalty program. Mm-hmm. When it comes to the loyalty program, what type of things are you exploring to enhance member benefits from here? And I'm curious if there are things you're doing with the loyalty program to further differentiate the Ulta Beauty experience, given what we're seeing on the competitive front with more prestige brands moving on, onto Amazon? Yeah. You know, our loyalty program is a powerful, powerful asset of ours. It's continuing to grow. It's nearly 44 million members at the end of 2022. 2022, at the end of Q1. Our teams are... We continue to focus on bringing exciting and innovative ideas to our members. Kecia mentioned this earlier. We relaunched our loyalty program and rebranded it, and we saw a ton of excitement and engagement around that. We enhanced our birthday experience for our members, which was really about giving them choice, help letting them choose what they want their reward to be, that we saw as really engaging. We're doing new looks and new activations in our stores. We've invested from a technology perspective, so when a member comes into the store, we can drive more acquisition. We can help them navigate whether they have offers in their app that we have specifically delivered to them. We have Member Love events, which our guests love, love that, whether it's like, you come shop, and you get 5x points or 3x points on a category that you love. We also are doing some really cool things with testing gamification and even more enhanced personalization. So when I think about our program, it's a bit of a secret, not-so-secret sauce, ours, but it's a key differentiator, and we continue to innovate it. It's something that our competitors just... It's unmatched. Our competitors don't have that. Great. I think I'm a platinum member for almost 10 years now at Ulta, so- We love that! So on the tween craze, there's been a lot of media attention on the younger generation that's going wild over skincare. So how's Ulta benefiting from this phenomenon? ... I would say that the tween craze is real. It's out there, and I think it's here to stay. We are proud to be a destination where the guests of all ages feel like they can explore and shop here at Ulta Beauty. Doesn't matter, you know, any age that you are or any stage of life, that you wanna come and shop with us is great. This social media relevance, though, is here to stay, and it's really resonating with younger consumers. In fact, one of the things that's been very interesting is that we're starting to see more and more that these younger consumers, ages eight, nine, 10, are actually educating their parents on what's new and what's hot, and what they should be using. We have a compelling assortment that appeals to all age levels, and we have knowledgeable associates that are really helping guide the right products for this younger generation's skincare. Brands that we are carrying right now are, like, Bubble and Byoma, and Kinship, and Good Molecules, La Roche-Posay, and CeraVe, just to name a few. So we're covering various price points, but, you know, we're really leaning into making sure that we're supporting this tween craze, but we wanna make sure that our knowledgeable associates in our stores are recommending products that are really good for this younger skin that's out there. So I think that we have a responsibility to do that. As we look at Ulta's efforts on the social media side, can you dive a little bit deeper for us in terms of what you're doing on the social media influencer front to drive growth at Ulta? Yeah, we're really leaning into the social media, side really, really strongly. Because as you think about advertising and marketing, it's changed a lot in the last few years. If you're not on social media, and you don't have a social media network creator group, you're not really participating. The virality of, what is picking up and what sells, that has totally changed the game today versus the traditional media efforts. So we've surpassed 1 million in TikTok followers on social media, which was a good milestone for us. TikTok's a leader in the beauty space. We're really focused on EMV, so our earned media value, to continue to grow scale. We've got a couple ways that we're doing that. We've got the Ulta Beauty Collective. We've got the squad of social media influencers that are out there, that are supporting Ulta Beauty itself. We've just launched our first-ever Associate Ambassador Program. Who better to talk about what's working than people who work in the beauty industry themselves? So we've started with 25 associate ambassadors right now. We're giving them the skill set and the training to really be an influencer out there in the space. And then we have this Ulta Creates segmentation, which is our influencer affiliate program. So social media has changed the game of marketing and how you're engaging. I do think it's very important that we still remain very authentic, because what we see that relates to the consumer is when it's really authentic moments, where people really are believing in the products that they're talking about on social media. And that's really what's, I think, the consumer is really wanting, too. They don't want somebody that's being, you know, overly influenced. They want somebody that they can believe in, and that's really what's working and translating to the guest. And then from a merchandising perspective, how quickly can you react to some of the trends that you're seeing out there? Yeah, well, we have great relationships with our brands, so I would say that as soon as we see something, and we have social media tracking on all the time, we're immediately reaching out to the brand partners to try to capture that moment together and try to continue to build the business. Okay, great. So switching gears to a few financial questions. So guidance implies an acceleration on the top line in the back half of the year. Can you remind us of the drivers here, and what gives you confidence in this back, back half acceleration? Right. So from a first half, so, you know, we guided full year at 2-3, with first half comp growth in the low single-digit range. And then what we shared is that second half will accelerate in the 2-4 range, and really is driven by three factors. One, and Kecia touched on this, our exciting newness pipeline. So as we look forward for the year, we're confident that the newness that we have coming will help to drive the acceleration in comp, as well as some of the sales-driving initiatives that we spoke about on our call, and then that I shared earlier today. The other consideration is that we will have—we will be lapping, or we have decelerated growth in 2023. And so if we think about how the comp cadence in 2023, when it was high single-digit growth in the first half and low single-digit growth in the second half, and so that decelerating comp, lapping or comparison, makes it a bit easier in the second half for us. And so those are the things that give us confidence in the acceleration that we guided to. Okay, great. And then the other area we get a lot of questions is just on gross margins. So you expect gross margins to be flat to up modestly in the second half, versus down in the first half of the year. Can you remind us the key drivers behind this cadence, and what are your latest expectations on shrink? Sure. So we continue to expect gross margin to be down modestly for the year. And while we expect promotional activity to be a bit higher than we initially planned, and we expect more deleverage from store fixed costs on the lower sales, we now expect supply chain costs to improve. And so we're expecting savings from our transportation costs that is helping to offset some of that. So when you think about the cadence, we are expecting in the second half for merchandise margin to be a bit better, right? And that is largely driven by lapping. You know, we would be largely past the price increases of last year, and we're lapping the benefit of that in the first half, which is pressuring merchandise margin. Second half will be largely through that. We also, Kecia mentioned earlier, we're relaunching our UBC brand, and so some of the costs and the markdowns associated with that we're seeing in the first half will be largely through that. And so merchandise margin gets a bit better. And then that transportation and supply chain cost improvement, that really starts to ramp up, and we see that in the second half. And so, that gives us confidence in kind of the cadence of growth margin. From a shrink perspective, we saw higher shrink in Q1. We saw some pressure. Really, most of that was contained in certain parts of the country. We continue to expect shrink to be largely flattish for the year. Switching gears to SG&A. You expect SG&A to deleverage this year with low double-digit growth in the first half of the year, moderating to low to mid-single-digit range in the second half of the year. Can you remind us the key puts and takes driving that expectation? Is there anything else we should be thinking about on the SG&A front? Yeah. I would say there's a few factors at play from an SG&A perspective. First, we are in the midst of completing a multi-year transformation agenda, which is building a foundation for us for future growth. The increase in SG&A reflects the ongoing investments for the transformation, as well as the cost of operationalizing some of the investments we made last year into the P&L. And then also importantly, the investments that we're making in our sales and traffic drivers that I spoke about earlier. And then we also see wage growth, right? And so, those are the things broadly that's kind of affecting kind of the SG&A growth. We do expect SG&A growth to moderate in the second half, and really, that's a combination of we will be completing much of the transformation or portfolio, which helps that. And then also, you know, one thing that you asked about, what should we keep in mind? What I would say is that we will continue to be prudent with SG&A, right? And so we demonstrated this in the first quarter, where our SG&A spend was lower than our expectation, and it's because our teams were thoughtful and prudent in adjusting our spend in context of how our top line was performing. Great. That's, that's really helpful. And I'm gonna wrap it up with one final question just on the luxury opportunity. So last year, your team launched luxury in 200 stores and online. Can you remind us what you're seeing on the, out of the offering? And then based on what you've seen to date, how you think about the luxury opportunity from here? Yeah. We feel like luxury is, it's really important in our category as a whole. It was a place where we were, we're really not playing previously, but we are now. We're seeing luxury resonate with the younger consumer, so I think there's this misinterpretation that it's only for the more mature consumer, but it really resonates through a younger consumer lens also, really important to our category. We feel like it's important to be able to offer all things beauty in one location, and that's what Ulta Beauty's super strength is, and now we can do that with having luxury. We've introduced it into 200 stores with the introduction of Charlotte Tilbury in about 600-ish stores right now. We're gonna continue to lean in where it makes sense with the right brands that are gonna be fantastic partners for us. So I would say stay tuned, and you'll continue to see us grow in this category also. Great. Thank you. So I'd like to thank Kecia and Paula for joining us today. Thank you, Rupesh. Thank you, Rupesh.