Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net sales increased by 0.9% to $2.6 billion.
- E-commerce sales increased as expected.
- Ulta Beauty Rewards program saw a 5% increase in active members, reaching 43.9 million.
- Fragrance category delivered double-digit growth.
- New stores performed well, with 17 new openings including the 1,400th store.
Negative Points
- Comparable sales decreased by 1.2%, driven by a decline in comp store transactions.
- Operating profit was below expectations at 12.9% of sales.
- Incremental promotions did not deliver the expected incrementality in stores.
- The company faced unanticipated operational disruptions due to ERP transformation.
- Competitive intensity remains high, with more than 80% of stores impacted by new competitive openings.
Q & A Highlights
Q: Can you expand on the competitive pressures noted in the prepared remarks? Any insights on the recovery path for stores impacted by new distribution points?
A: David Kimbell, CEO: We are no strangers to competition and know how to compete effectively. The current environment is unique due to the scale and pace of change, with 80% of our stores impacted by at least one new competitor. Stores with multiple competitive openings are underperforming, but those with no or limited impact delivered positive comps. We are confident in our model and are taking aggressive actions to address these pressures.
Q: With demand continuing to be pressured, what actions are you taking with SG&A to limit deleverage?
A: Paula Oyibo, CFO: We delivered better-than-planned SG&A due to focused cost management. For the second half, we plan SG&A expenses to increase in the mid-single-digit range, reflecting moderated growth. We will continue to exercise financial discipline while ensuring we invest for long-term success.
Q: Given the competitive overlap with new distribution points, how long do you expect it will take to restore positive comps? What is the backup plan if promotional levers do not work?
A: David Kimbell, CEO: We remain confident in our long-term outlook. We are seeing positive signals in newness, marketing, digital engagement, and loyalty programs. While some incremental promotions did not deliver as expected, our core promotional events are working. We are focused on a differentiated model and believe we will return to being a share gainer.
Q: Any thoughts on unit growth and the Target rollout given the current environment?
A: David Kimbell, CEO: Our new stores continue to perform well, and we see opportunities across various markets. Our small format stores are also performing well. The Target partnership is strong, with 541 locations and on track to hit 800 stores. This partnership drives growth and member engagement.
Q: Can you provide more color on the operational disruptions from the ERP transition?
A: Paula Oyibo, CFO: The ERP implementation added complexity, impacting purchasing, store allocation, and planning processes. We have completed this phase and are now optimizing the system. While there are still some investments needed, we are confident in our readiness for the holiday season.
Q: How do you view the promotional environment and product assortment going forward?
A: David Kimbell, CEO: Promotional activity has increased but remains rational. We expect promotions to play a significant role in the second half, especially during the holiday season. Our assortment strategy includes both legacy and new brands, with a focus on innovation and exclusivity.
Q: How is the competitive environment affecting your ability to attract new brands?
A: David Kimbell, CEO: Our brand partners see Ulta Beauty as a leading destination. We continue to attract both existing and new brands, leveraging our 44 million members and unique in-store and digital experiences. Our partnerships remain strong, and we are confident in our ability to drive growth.
Q: What factors contributed to the miss relative to expectations this quarter?
A: David Kimbell, CEO: The primary factors were competitive pressures, category moderation, operational disruptions, and promotional activities. Incremental promotions did not deliver as expected, particularly in stores. We have assessed these impacts and adjusted our outlook accordingly.
Q: Are you seeing increased competition on the mass side, and what drove the decline in hair care?
A: David Kimbell, CEO: While the mass side is competitive, we have not seen the same dramatic increase in distribution points as in prestige. The decline in hair care was primarily due to a strategic shift in promotional events. Our hair business remains important, and we continue to find ways to drive growth.
Q: Any preliminary update on long-term margin expectations?
A: David Kimbell, CEO: We are not providing an update on long-term expectations today but plan to discuss this at our Investor Day in October. We will share our future growth strategy and how it translates into long-term financial expectations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
