$ULTA Ulta Beauty Q2 2024 Earnings Conference Call

good afternoon and welcome to Ulta's Beauty conference call to discuss results for the Ulta beauty second quarter 2024 earnings results at this time all participants are in a listen only mode every question and answer session will follow the formal presentation we ask that you please limit yourself to one question and then reenter the queue for any additional questions if anyone should require operator assistance during the conference please press star zero on your telep phone keypad as a reminder this conference is being recorded it is now my pleasure to introduce you to miss kylin wallwin vice president of investor relations Miss wallwin please proceed thanks luia good afternoon everyone and thank you for joining us for a discussion of ult bees results for the second quarter of fiscal 2024 hosting our call today are Dave Kimble chief executive officer and Paul oo Chief Financial Officer Kesha Steelman president and chief operating officer will join us for the Q&A session before we begin I'd like to remind you of the company State Harbor language the statements contained in this conference call which are not historical facts may be deemed to constitute forward-looking statements within the meaning of the private Securities litigation Reform Act of 1995 actual future results May differ materially from those projected in such statements due to a number of risks and uncertainties all of which are described in the company filings with the SEC we caution you not to place undue Reliance on these forward-looking statements which speak only as of today August 29th 2024 we have no obligation to update or revise our forward-looking statements except as required by law and you should not expect us to do so we'll begin this afternoon with prepared remarks from Dave and Paula following our prepared comments will'll open up the call for questions to allow us to accommodate as many questions as possible during the hour scheduled for this call we respectfully ask that you limit your time to one question if you have an additional question please recue as always the IRT will be available for any follow-up questions after the call and now I'd like to turn the call over to Dave Dave thank you Kylie and good afternoon everyone we appreciate your interest in ALA Beauty for the quarter net sales increased .9% to $2.6 billion and comparable sales decreased 1.2% operating profit was 12.9% of sales and deluded EPS was $530 per share although we anticipated the headwinds experienced in the first quarter would continue our results were short of our expectations driven by a decrease in comp store sales specifically comp store transactions e-commerce sales increased as expected we do not believe these results reflect the strong engagement with our brand the strength of our operating model or the performance I know we can deliver over the longer term importantly we are clear about the factors that adversely impacted our store transaction growth in the second quarter and we have actions underway to address the trends we attribute the decline in comp store transactions to four factors first while the beauty category remains resilient growth is normalizing after three years of unprecedented gains additionally consumer behavior is starting to shift as consumers increase ly focus on value and become more cautious with their spending Based on data from cir us Beauty growth slowed to approximately 3% through the first half of 2024 with Prestige Beauty experiencing High singled digigit growth and mass Beauty maintaining low single budget growth second competitive intensity in the beauty category remains high as we have shared previously the strength of the beauty category combined with an attractive margin profile has drawn substantial and diverse competition to the category today there are significantly more places to buy beauty especially Prestige Beauty with more than 1,000 new points of distribution opened in the last three years as a result our market share continues to be challenged particularly within Prestige Beauty Based on cirana data for the 13 weeks ended August 3rd 2024 we maintained our share in Mass Beauty but lost share in the beauty Prestige Beauty particularly driven by makeup and hair categories we know Beauty enthusiasts love to shop for beauty and they love Ulta Beauty and the unique experiences we offer but they also love engaging in new Beauty offerings as a result we often see a short-term impact of new distribution points on an existing nearby store whether it's a competitor opening or a new Ulta beauty store what is unique about the current environment is the scale and pace of change more than 80% of our stores have been impacted by one or more competitive opening in recent years with more than half impacted by multiple competitive openings this significant portion of our store Fleet is experiencing a prolonged sales impact now notably the positive signals we see in our broader business reinforce the appeal of our differentiative model and our confidence that we will mitigate these near-term competitive pressures our brand awareness and brand love continue to increase with strong gains across multiple demographics demonstrating the broad appeal of our unique all things beauty Allin one place offering we continue to attract new and L members to our loyalty program while maintaining strong retention of our existing members at the end of the second quarter we had 43.9 million active Ulta beauty rewards members 5% more than last year importantly we continue to experience Healthy Growth in our platinum and Diamond members nness continues to resonate with guest and drive growth newer Brands including so de Janeiro Charlotte Tilbury and Ole Hendrickson are driving sales new member acquisition and member re-engagement while nness from a variety of existing Brands including Clinique whey and Peach and Lily are driving healthy comp growth guests continue to engage with our unique inore Services offering which delivered mid single digigit growth in the quarter and new stores can continue to perform well during the quarter we opened 17 stores including our 1400th store and their performance was in line with our expectations now we've disrupted the beauty category for more than 30 years and we understand how to successfully manage competitive forces to reinforce our competitive position and drive stronger performance we are aggressively taking actions across five areas strengthening our assortment expanding our social relevance enhancing our digital experience leveraging our powerful loyalty program and evolving our promotional lever I will discuss each of these areas in detail shortly now in addition to these external factors we experienced unanticipated operational disruption during the quarter resulting from the completion of our Erp transformation in March we began updating key store systems through a thoughtful and controlled implementation plan and in July we finished the migration of all of our stores to our new Erp platform we are pleased to have successfully completed this important phase but we have experienced some unexpected operational challenges as our teams have adjusted to new capabilities new processes and new ways of working associated with the new systems specifically through the transition our teams were managing portions of our Fleet on both the Old and New systems which led to some store inventory allocation disruption with all of our stores and DCS now operating on the same core systems we are shifting from implementation to system optimization and are working quickly to help our teams navigate these new ways of working in order to balance inventories across the network and deliver an optimized guest experience to minimize future disruption we have identified key Legacy processes that are creating friction and implemented proactive monitoring as well as dedic ated support to quickly address issues when they arise I am confident that our new capabilities will support better more agile decision making in the future and I'm grateful for our Collective team's hard work and dedication to manage through this critical transformation the fourth Factor impacting our performance this quarter was the effect of incremental promotions which did not deliver the expected sales lift as the Topline Trend softened in late June and July July we executed incremental promotions to drive Revenue these offers drove strong sales and traffic across our digital platforms but did not deliver the expected incrementality in stores The increased frequency of offers combined with the introduction of new offer structures put pressure on average selling price without activating incremental purchases in stores we understand why the incremental promotions did not deliver as expected and will apply these learnings as we manage promotional activity in the second half turning now to performance by category fragrance delivered double- digit growth driven by strong guest engagement with Mother's Day and exciting Nunes Nunes from existing Brands including palatino YSL and Burberry as well as new brands noise orella and Kylie Jenner all of which are exclusive to Ulta contributed to the category's growth our exciting Mother's Day gift with purchase offers and gift sets fueled strong guest engagement and our unique assortment of gift sets for Father's Day and back to school also delivered growth for the category the skincare category delivered mid singled digigit comp growth this quarter driven by strong growth in body care so de Janeiro continues to excite guests and this quarter we introduced an exclusive body mist which is resonating well reflecting the appeal of dermatologist recommended brands fan favorite L Ro POS and new brands patol and vanac cream delivered strong growth and relevant Mass Brands including bubble and bioma continued to engage guest overall Prestige skin care was pressured as engaging newness from Peach and Lily and Oly Hendrickson was offset by softness from certain brands impacted by increased distribution or the lapping of strong social media engagement last year Tom sales in the makeup category decreased in mid single digit range while new brands Charlotte Tilbury poite society and wind Beauty as well as exclusive newness from Clinique delivered strong growth this growth was more than offset by sales decreases from existing brands that had newness that did not meet expectations or have experienced increased points of distribution in the market in Mass makica eelf about face and Milani delivered strong growth but this growth was mitigated by planned softness in Ulta beauty collection as we prepared for the brand relaunch comp sales for the Hair Care category decreased in the high single digit range driven primarily by planned promotional shift as we shared previously we incorporated Prestige Hair Care offers in our first quarter semiannual Beauty sale and eliminated our Gorgeous Hair event which took place in May of last year in addition the impact of exciting newness from wey divy and Odell and strong engagement with Redken was offset by pressure from Key Brands lapping strong newness last year as I mentioned at the outset we are focused on five key areas to reinforce our competitive position we are pleased with the progress we've made in many areas and I've and have identified further opportunities to shift our momentum starting with our efforts to strengthen our assortment during the quarter we continued to enhance our brand portfolio with new engaging Brands including orabella naturium and naked Sundays while also launching several emerging exclusive Brands through our spark program including door a clean French beauty inspired skincare Brand Magic molecule a skincare healing brand and noise a premium gender neutral fragrance we also expanded key growth driving Brands like s Janeiro Mac and Keels into additional stores looking ahead we have an exciting pipeline brand launches planned for the balance of the year including the recently announced Ilia Beauty a Clean Skin Centric Prestige makeup brand and dibs Beauty a multi-purpose easy to ous makeup brand in addition to enhancing our assortment with compelling newness we are focused on building Greater awareness and engagement with key exclusive Brands including Peach and Lily polite Society wind Beauty and Lola while also collaborating closely with strategic Legacy Brands to drive stronger growth and profitability I'm excited to share that we have relaunched Ulta beauty collection to inspire Beauty Discovery celebrate self-express expression and create a deeper emotional connection with guests with simplified and good for you formulas the new collection includes refes refreshed fan favorites as well as new innovations that reflect modern Trends across skin care body care bath sun care and cosmetics certified with clean ingredients and cruelty-free products across the entire assortment The reimagined Collection is positioned at a masstige price point and is designed to make Beauty discover Bey Discovery purposeful and accessible for beauty enthusiasts of all ages while the new assortment has only been available for a few weeks and is still ramping up as we roll out additional SKS we are pleased with our early results social relevance Powers customer connection and loyalty to accelerate our social relevance and enhance our brand awareness we have scaled our creator and influencer networks and we are expanding our culture forward activations to ensure we are at the heart of the social and cultural conversation for beauty as a result this quarter we delivered meaningful growth and earned media value and social sentiment and drove more than 250 million social Impressions during the quarter we doubled the size of our influencer Network to include a double a diverse range of influencers across key audience segments to reflect our inclusive audience targeting strategy we also launched Ulta Beauties our new associate ambassador program to harness the superpowers of our team and highlight the expertise and passion of our talented Associates as a group these talented creators developed compelling content in support of our big summer Beauty sale back to school and the joy project which increased our EMV by more than 10% this quarter additionally we launched a new affiliate program UV creates to drive traffic and conversion last year we launched the joy project a multi-year initiative to make Beauty and the world a more joyful place in celebration of national day of joy we kicked off the second chapter of our joy project with a launch of a social movement to spark positivity in the beauty space partnering with Brands celebrities and creators as well as our own UB Collective and UB Beauties our viral complement change re reached more than 260 million people and generated meaningful growth in EMV to continue to expand our social relevance we plan to deploy amplification and content strategies in the second half leaning into Trend and cultural moments leveraging our expanded Creator Network and enhancing brand partner activations leveraging new capabilities we are enhancing our digital experiences to drive traffic and sales during the quarter we enhanced search and filtering functionality to make it easier for guests to find what they want quickly and we streamlined the path to purchase with a new quick add to bag feature making it more convenient for guests to add products to their cart and to facilitate greater basket building we introduced new personalized product recommendations and additional upsale placements along the guest purchasing Journey importantly we continueed to drive increased app adoption through associate engagement targeted Communications and app only offers in the second quarter member engagement with our app increased 16% and now our app accounts for about 2third of our e-commerce sales 600 basis points higher than last year while the app is a vital tool to drive e-commerce sales the majority of our spend for map users actually incurs in store making the app another key engagement tool to drive sales per member as we look forward we will continue to create and apply new digital features and functionality to give our guests new and more convenient ways to discover transact and engage with Ulta Beauty with more than 44 million active members our loyalty program is a strategic asset that provides us with unique insights across categories price points and channels and enables us to drive traffic and spend per member to drive deeper connection and greater awareness we are amplifying the value of our Rewards program through member only events social engagement and marketing activations in may we launched member love a member only event of enticing category Focus points offers which deliver healthy member engagement at higher spend per member and in July we launched our first member tiered offer to drive traffic new member acquisition and member reactivations in addition to targeted events and Communications we have integrated our Rewards program into our digital experience mags and temp Poole events to drive engagement and reinforce the value of the program looking ahead we are focused on attracting customer segments to drive new member growth driving differentiated engagement earlier in the life cycle to enhance retention and leveraging our extensive member data to accelerate traffic finally we continue to evolve our promotional strategies to drive traffic and sales supported by a robust media strategy inore amplification and engaging social content we enhanced our big summer Beauty sale event with compelling offers across categories and price points in addition to driving strong sales the event delivered growth in new members and member reactivation as well as increased penetration of existing members and always a fan favorite we're excited to kick off 21 days of Beauty with a new look new Beauty Steals and unique events for our best members as a competitive and promotional environment involves we will apply the learnings I mentioned earlier and leverage Our member insights to execute productive targeted offers while eliminating less effective promotions and applying new capabilities to create engaging events for our guest in closing Ulta beauty remains a key Beauty destination with strong consumer awareness and brand love and our exceptional teams are committed to offering guests unique inclusive Beauty experiences across all of our touch points we are confident we have identified the factors that impacted our performance in the second quarter and are focused on the right actions to deliver stronger performance as we turn to the second half of the Year our teams are focused on driving stronger sales in traffic executing with Excellence for our guest exercising Financial discipline as we adapt to a more challenging operating environment and protecting and cultivating our unique culture driven by our talented and passionate Associates while it will take time to shift the Topline Trend I remain extremely confident in our model and in our ability to execute and win in an increasingly competitive category and now I will turn the call over to Paula for a discussion of the financial results and Outlook Paula thanks Dave and good afternoon everyone I'll begin with a discussion of our second quarter Financial results and then provide more color on our updated Outlook we Face greater than expected challenges in the second quarter resulting in overall financial performance that were below our expectations sales growth from comp stores was softer than expected and grow margin was pressured by incremental promotional offers however our teams exercised Financial discipline and we took Swift actions to mitigate impacts of the Topline Trend net sales for the quarter increased 0.9% solid new store performance from 49 net new stores and a 12% increase in other Revenue primarily due to an increase in credit card income and grow in royalty income from our Target partnership was partially offset by a 1.2% decline and compared able sales during the quarter we opened 17 new stores closed one store remodeled nine stores and relocated one store the comp sales decline was driven by a 1.8% decline in transactions which was partially offset by a 6% increase in average ticket the increase in average ticket reflects growth in average selling price per item offset by lower average units per transaction looking at the Cadence of sales net sales Trends decelerated as we move through the quarter with July being our most challenged period comp store sales declined in a low single digigit rate primarily driven by a decrease in store transactions average ticket also decreased our digital channel performance was stronger with e-commerce sales increasing in the low single digigit range across digital channels the sales Trends accelerated as moved through the quarter with incremental promotional activity driving stronger guest engagement particularly in July for the quarter gross margin decreased 100 basis points to 38.3% compared to 39.3% last year the decline was primarily due to lower merchandise margin and deleverage of store fixed costs which were partially offset by growth and other Revenue in lower shrink merchandise margin declined primarily due to increased promotional activity adverse impact from Brand mix and the continued lapping of benefits from price increases last year while the impact of promotional activity was higher than planned it was well below 2019 Lev levels store fixed costs also deleverage driven by lower Topline growth and more net new store openings as a percentage of Sales Inventory shrink was lower in the quarter we completed the roll out of our new fragrance fixtures to all stores and introduced an additional fixture to protect our assortment of popular smaller roller ball fragrances these Investments are having a meaningful impact on fragrance St and we expect the additional fixtures will support a continuation of the trend in addition we continue to increase our orc focus and have deployed new tools capabilities and training to our store and field loss prevention teams year to date shrink as a percentage of sales is flat with last year and we continue to expect shrink will be roughly flat for the full year moving to expenses sgna increased 7.3% to $645 million overall sgna spend was better than planned again this quarter primarily due to focused expense management as a percentage of sales sgna increased 160 basis points to 25.3% compared to 23.7% last year reflecting lower Topline growth most expenses deleveraged this quarter in addition we preserved sales driving expenses including store labor and marketing and completed key elements of our transformational agenda this quarter these pressures were partially offset by lower incentive compensation reflecting operational performance that was below our internal targets operating margin was 12.9% of sales compared to 15.5% of sales last year and diluted Gap earnings per share was $530 compared to $62 last year moving to the balance sheet and capital allocation priorities we ended the quarter with $414 million in cash and cash equivalents total inventory increased 10.1% to $2 billion compared to $1.8 billion last year in addition to the impact of 49 net new stores the increase was primarily due to inventory to support new brands and the opening of our new market fulfillment center in Greer South Carolina which opened in the third quarter last year year to date through the second quarter we generated $359 million in operating cash flow Capital expenditures were $995 million million dollar for the quarter primarily reflecting investments in new and existing stores it Investments and merchandise fixtures depreciation was $65 million compared to 62 million dollar last year primarily due to higher depreciation related to new stores and it investments in the second quarter we returned $212 million of capital to our shareholders through the repurchase of 550,000 shares at the end of the quarter we had $1.6 billion remaining under our current $2 billion repurchase authorization now turning to our Outlook we have taken a more cautious View for the year we now expect next sales for the year will be between 11 and 11.2 billion with comp sales in the range of down 2% to Flat in addition addition to reflecting our first half performance our updated outlook for sales assumes it will take more time for our actions to change the Top Line trajectory and that stores impacted by multiple competitive openings will continue to be pressured more than the rest of the fet the operating environment remains Dynamic and the low end of our range implies incremental pressure on consumer spending for the year we expect operating margin will be between 12.7 and 133% of net sales most of the reduction in our expectation for operating margin compared to our previous View is due to the lower Top Line but we have also included flexibility to respond to the evolving promotional environment for the year we expect gross margin will be leverage 70 to 90 basis points as lower merchandise margin and D leverage of store fixed costs are partially offset by other Revenue growth and lower Transportation costs for the year we expect sgna expense will increase in the mid- single digigit range we expect many of the trends we experienced in the first half will continue in the second half with sgna driving most of the operating margin be leverag reflecting these assumptions we now anticipate the looted EPS will be in the range of $22.60 to $23.50 per share we continue to expect to generate strong operating cash flow for the year which will support our plan cap X Investments of 400 to $450 million and share repurchases of $1 billion in closing we are focused on improving performance in the second task and we believe our newness and goto Market strategies along with continued operational and financial discipline will enable us to n navigate the Dynam DC environment and drive improved sales and profit momentum over time and now I'll turn the call over to our operator to moderate the Q&A section operator thank you we will now be conducting a question and answer session if you would like to ask a question please press star one on your telephone keypad a confirmation toone will indicate your line is in the question Q you may press there two if you would like to remove your question from the queue for participants speaker equipment it may be necessary to pick up your handset before pressing the star Keys one moment please while we pull for questions thank you our first question comes from the line is Steven forbs with Guggenheim Securities please proceed with your question good evening Dave Paula da Dave I was hoping you could expand on the competitive pressures you noted in the prepared remarks and any way to help us contextualize the size of this headwind such as year one cannibalization rates and any early insights on the recovery path meaning you know what does the recovery for those stores impacted looked like you maybe you can give us an example of some of those earlier stores that were impacted any time frame to sort of get back to those you know prior levels pre cannibalization thank you great thanks for the question Steve um and uh yeah let me just start with saying you know we of course are no strangers to competition we know how to compete effectively uh and this is as I said in the remarks a very attractive category that continues uh to increase in the competitive environment as it relates to uh you increased points of pressure what we've shared before is that we uh have historically seen a short-term impact on you know new distribution points on our existing store when a competitor opens near one of our stores what's unique about this time and this environment uh is the scale and the pace of change which is made it difficult for us to fully uh forecast the cumulative impact um 80% of our stores have been impacted uh at you know by one at least one store and as I said in the remarks more than half of our stores have been impacted by multiple competitive openings which to give you context of what that means is if you take a single Ulta beauty store uh two or more competitive stores have opened within that store's trade area which is unusual for us historically uh and and something that we're navigating through what we saw during this quarter is that stores that have had multiple competitive openings which again could happen uh o o over the at different times over the three years that we've been uh navigating this those stores with multiple competitive openings are underperforming those stores with no or limited competitive impact stores that have the segment of stores that have not had a direct inm Market trade area competitive impact deliver positive comps for the quarter which is another uh you know reason that we feel confident in in our model and our business and our guest engagement stores that had just one competitive opening uh that occurred early in the expansion cycle are performing in line with historical Trends another data point that gives us confidence as uh as we look look forward um but we know we're still in the midst of this uh stores have opened uh aggressively uh over the last uh couple of years uh these competitive pressures will likely continue into the near term but the positive signals I highlighted uh in in in our broader business the guest engagement the impact of newness the impact of our news stores the success of Our Salon business the Loyalty growth all of those factors uh suggest to us and give us a lot of confidence that our business continues to have underlying strength and health and we're navigating through this short term we know it'll take time but we are not sitting still and we're aggressively taking actions across all the things that I highlighted in in the prepared remarks thank you our next question comes from the line of Mark Al Swagger with beard please proceed with your question hi good afternoon this is Amy tusky on for Mark with the demand backdrop continuing to be pressured can you talk more about the actions you are taking within sgna to limit the amount of due leverage you're seeing in the model thank you thank you thank you Amy um you know as I as I mentioned in our prepared remarks we did deliver better than planned sgna due to focused and disciplined cost management as we navigated our Topline pressures um as we think about the second half we we've planned uh sgna expenses to increase in the mid single digit range for the year reflecting a more moderated growth in the second half you know we'll we continue to exercise Financial discipline as we navigate these near-term pressures um while still making sure that we're investing and sure we're well positioned for Success over the long term um but as we as we look ahead um we are we're we're expecting that moderation in snfa growth because we are completing our transformation many of our transformational investments um are are completing and we will continue to like I said exercise Financial discipline as we as we navigate thank you our next question comes from the line of Michael Lasser with UBS please proceed with your question good evening thank you so much for taking my question given the competitive overlap with all these new points of distribution it's not going to go away anytime soon how long do you expect that it will take to restore the business to positive comps and since it seems that hitting the promotional lever is not having the intended impact what is the backup plan or what is the alternative if the actions you are taking don't work to restore positive comps thank you thanks Michael um yeah it is as we've discussed uh a dynamic and competitive environment um that we're navigating through and I gave you you know some of those U Dynamics in in my prepared Mark remarks we are and as I said we remain competent and bullish in the long-term outlook for this this business because of all the positives that I've highlighted uh you know we're executing across a number of efforts uh to drive our business you know here's here's here's what I know about our business right now we are seeing many positive signals that are gaining tractions uh and and we're addressing areas that uh maybe are are not working as well as as we had hoped assortment is always key so when we look at Key levers uh assortment is is critical newness is working and resonating with our guests Brands like so day Janeiro Charlotte Ola Hendrickson are driving sales uh our new our exclusive brands are playing an important role and we continue to add Brands nuum and Q2 and tomorrow we launched Ilia uh an important uh makeup brand that we're excited to add to our assortment so continued Innovation is a key lever for us that's working and we'll continue to drive that I talked about the importance of marketing and social relevance and connecting deepening brand love we're pleased with the progress all time high of of uh brand love and and brand awareness and we'll continue to drive that because we know that drives connection and awareness and and reinforces the role that we play In Our Guest lives uh our digital business is critical and I and I shared that uh our digital sales were on expectation and we're focused on delivering uh across all of the experiences you know that we've invested uh heavily in our digital capabilities over the last uh couple of years earlier this year we completed our our new digital store platform and that's giving us uh new ways to Delight our guest and uh and that's working and we'll be focused on driving that loyalty is poe to our long-term success we're pleased with the 5% year-over-year growth high level of retention high level of Engagement from our best guests our platinum and Diamond uh guest and and a critical part of that uh business going forward services experien is also driving positive promo is an important piece of our business and I'm glad you highlighted it uh as I mentioned in the prepared remarks some of the incremental offers that we added as uh our our performance decelerated in the second half of the quarter uh did not uh have the intended effect in particularly in our store uh Channel promos generally though uh are tent pole events uh I mentioned our big summer Beauty sale tomorrow we launch 21 days of beauty our big promotional events are working are attracting new guests are demonstrating the behaviors uh and we continue to amplify and Elevate those and you'll see that come to Market with our next one again starting tomorrow with 21 days of beauty but we'll take our learnings and and the promotional impact that we had uh in uh in the in the second quarter as we navigate this challenging uh competitive environment through the second half of the year uh and continue to focus on the highest return highest impact promos so promos are working uh but we did have some experiences that and last thing I'd just say if you just step back uh Michael and just think about our business we feel very confident that we're well positioned to recover we've got a differentiated business model uh and and while some elements have been pressured uh uh our model continues to be connected to our guest and and the experiences we offer are unique enduring no does what Ulta beauty does their guest value the assortment the Loyalty The the unique services offer our Omni Channel offerings and and I'd say most importantly the unique experience we deliver to our guests uh in our stores and online we allow our guests to discover Beauty on their own terms and and and we continue to deliver that every day in our stores and I'm very proud of what our teams are doing so we're sharpening our differentiated model we're focused on leaning in on what's working addressing that the you know the Dynamics that where we have opportunity and uh while as I said it's going to take a little time to turn back to our custom position of being uh a share Gainer uh we are confident we'll get there and uh and our our actions are designed to do just that thank you our next question comes from the line of rupes Pari with Oppenheimer please proceed with your question good afternoon thanks for taking my question so just going back to unic roads and also a Target roll out just given the more difficult environment right now like any thoughts of s unit growth and then as you look at Target I believe that continues to roll out just just cous how that's um playing out uh in this in the current backdrop yeah we um as far as uh our own Stores um we're pleased with uh our our new store openings as I mentioned on in my prepared remarks our new stores uh uh You know despite some of the other Dynamics going on continue to perform well uh and uh we are we can we have uh opportunities across the country in a variety of different types of market to continue to to fill in to reach new markets to reach new consumers I've shared before uh in previous calls the work we're doing with our small format store that's performing well so we're going to lean in more there and uh so we're confident uh that uh again we will work through these competitive pressures and uh and we want to make sure we're reaching as many Beauty enthusiasts in all parts of the country as possible with uh with our new stores and then our Target partnership is working I'll let Kesha give a little bit of color but uh we're pleased with that partnership the Strategic role that it plays uh in in in our in our member engagement program uh is is still very strong and uh and we're uh positive and optimistic about that path but yeah in the last quarter we opened for cedia Target stores we have 541 total locations through the quarter um we're still on track to uh you know hit our 800 stores through our commitment you know it's about deepening that guest engagement it's about driving growth of the new member and the conversion and the re-engagement of labs members and we're seeing that and then I think it's also really key that nearly four million guests have linked their Ulta beauty and their target Circle ability programs together we do see this as another way to just continue to connect with that guest and engage them back into the alter Bey um home store thank you our next question comes from the line of Kelly cago with City please proceed with your question hi thanks for taking our question um I just wanted to follow up on the promotional uh levels that you're kind of assuming this year it's what gives you the confidence that um promo levels can can sustain at this lower rate relative to pre-co just given you know the categor flowing the consumer seeking value and uh there's been a big step up in the competitive environment and then just secondly just curious your thoughts on just the makeup of the product assortment any any uh rethinking of how maybe uh big you are in some of these uh brands that are you know distributed um not over distributed but have have seen the distribution points increase quite bit some of these more established Brands just any any thoughts on how um you see the brand assortment evolving over the next couple years thanks thanks Kelly yeah on the on the promotional levers uh you know we look out uh over the well when we look through this year and what's what's ahead of us promotional activity has increased uh as as I highlighted uh that does reflect both the kind of the normalization of the of the category and you know increased uh competition U and and as I shared we were more proom promotional in the in the in the first half of the year as we turn to the second half promotion will play an important role the second half driven by holiday is always a more promotional period holiday is uh you know different Dynamic and uh and and is and is intensely promotional to the to begin with has been for for years regardless of the competitive environment as uh we're competing not just in Beauty but we're competing for gifting occasions across uh across consumers uh you know baskets and uh and so we we're prepared for that uh and we'll you know we continue to take our learnings as we look back preo we we continue to believe that uh the environment uh while intense uh will remain rational our our guidance assumes that uh while higher than last year year we will be below 2019 levels for the year driven by uh you know smart execution CRM capabilities that uh we have built uh aggressively over the years uh driving efficiency leaning into our T pole events and maximizing those uh and so while promotional has played a bigger role uh we feel uh we've got it uh right sized as we look into the second half of the Year knowing it's a higher promotional period as far as assortment and what's ahead um and Ulta Beauty has a very unique assortment um uh all price points across mass and Prestige strength and makeup Hair Care skin care fragrance bath Wellness uh Services as well and uh and we're really proud of that it's one of the things our guests continue to tell us that they like uh that they really love about us and the fact that we deliver that in an omni Channel way in store and online so to your specific question around Legacy Brands they play an important role we're really pleased and proud of our partnership with some of the biggest brands in the world and we're focused on driving growth with those Brands we have uh a very unique experience in store with many of these Brands uh that brings education entertainment events to our guests uh we drive exclusivity with uh uh with our with our guest uh through some of these Brands an example is uh is black honey with Clinique that we've launched uh that's in market right now and so we'll continue to partner with these brands to bring new experiences these Brands play an important role because of the trust and engagement that they have the opportunity to bring new guests in and Delight our existing guests but at the same time we are focused on finding what's new it's one of the greatest things about this categories the level of Entrepreneurship newness in Innovation and uh and we will continue to drive that I've highlighted a few already a few in the in the fragrance category as an example orella Kylie noise all new all exclusive all exciting all performing well brands in makeup like uh win and polite Society both new both exclusive and we have many others so we'll lean into the broad mix for us it's all things beauty and to do that we need to be winning and leading across all types of of Brands uh and U that's what we're focused on going into the future thank you our next question comes from the line of Kore wolf Meer with Piper Sandler please proceed with your question hey good afternoon thanks for taking the question I'd like to hear a little bit more about the um the operational disruption you you referenced with the Erp transition could you provide a little bit more color on what exactly happened how the business was impacted and what gives you confidence that um the issue is cleared up going forward thank you yes Karine as da mentioned in his earlier comments that we executed by far the most complex element of our multi-year Erp implementation during this quarter and that was the roll out to our stores our teams had to manage dual systems as we phased through the 1400 Plus stores that we have so that just really added a lot of complexity it created challenges to our purchasing our store allocation and our planning processes and systems and we do see this as a short-term headwind the great news is we've completed this challenging phase so we're we're through it now um and what I would say what we're doing is that we're really fine-tuning and optimizing the system and while there's still some Investments for continued optim optimization we've really built that already into the Erp budget plan and it's reflected in the current guidance uh you know a change of this magnitude when when you're going through DCS and stores it's really not easy and adapting takes some time but we're really grateful to our teams for embracing these uh transformative changes and we feel like we're really making progress and we're confident that we're positioned and uh ready to have a great holiday season thank you our next question comes in the line of ik borow with reals Fargo please proceed with your question hi thank you for taking my question this is Juliana on for Ike as we head into your analyst day in a few weeks I was just wondering if there's any preliminary update on the long-term algo or the long-term margin targets that you can give us thank you I Juliana thank you for for the question and I certainly understand and appreciate the reason for for the question but we are not providing an update on our long-term expectations on the call today but as you mentioned we do plan to do so at our investor day in October and at that time we are very much looking forward to sharing how we're thinking about our future growth including kind of the growth opportunities ahead in the category um opportunities specifically for us what investments if any um it will it will take to support those and how that translates into our long-term Financial expectations and so um uh looking forward looking forward to to that in just um about a a month or so thank you very much thank you our next question comes from the line of Michael Baker who da Davidson please proceed with your question okay hi thanks uh I wanted to ask you about the pace of the sheer losses in Prestige so your business seems to have you know gotten worse based on your comps but uh some industry data and and competitive data are also seeing a deceleration so I wonder if you can give us any color on the gap between what you're seeing in your own business and competitors uh are you seeing the share losses actually get worse here I guess is the question thanks yeah Michael thanks for the question as you said that yeah the category has as I highlighted moderated uh really is anticipated through the year after multi- years of of growth as far as our performance as I as I said uh you know we maintained Mass share in Mass um but continue to be pressured in in Prestige uh and that's driven uh in particular by uh hair and makeup which are the categories that I've talked about in the past uh no we wouldn't say that it's uh uh getting any any worse the Dynamics are are as they've been for much of the years it relates to share so reflection of both you know moderating category continued competitive pressures and then some of the other dynamics that uh that we've highlighted and discussed here today uh are what you know contributed to the performance we delivered in the second quarter thank you our next question comes from the line of Ashley Helens with Jeff please proceed with your question hey thanks for taking our question um a question around kind of think increasing competitive environment has that changed the ability to get new brands at all and then when you're adding new brands like Ilia do you factor in where distributed thanks yeah no great uh great question Ashley thanks for sharing um i' I'd say big picture no I mean our brand partners are so Key to Our Success and something that uh you know I have been so proud of of how our team manages our relationships and works as true Partners to building Our Brands uh Brands continue to see Ulta beauty as a leading destination to expand their business whether they're an existing uh brand like Ilia or a new brand that's just been created that's uh looking to reach 44 million of the best beauty enthusiasts across the country uh and we're demonstrating that right now Our Brands continue to lean into US I've highlighted a few things growing established Brands through Innovation exclusives on those Brands uh expansion of those Brands uh uh and finding new ways I mentioned expanding ke is a brand that we've had for a while and finding new ways to reach our guests expanding that into stores brands are excited about that because they see growth launching big established Brands like Ilia and discovering new and exclusive Brands so uh you know we are focused every day on creating an environment that uh Our Brands see value with us and they do 44 million members 1,400 stores a strong and dynamic digital environment uh and a in an experience That's Unique despite the competitive environment nobody does what ult beauty BR does and Our Brands probably understand that better than other and that's why we've had such success creating deep relationships and continuing to attract both existing and brand new to the World brands and that's something that I see uh will continue to drive our business going forward thank you our next question comes from the line of Olivia Tong with Raymond James please proceed with your question great thank you um a few few questions left um first how much of the um Miss relative to your expectations this quarter do you think was a function of the category decelerating versus your own share loss and then second why do you think the promos that you did um this quarter didn't quite work and then as you think about um you know the rest of the year is it you have to deploy more promo or or or different promo because it looks like from your F year outlook revision that you're you expect comps to to potentially fall another 100 basis points Rel uh in second half versus Q2 and um just lastly if you could talk about what you saw towards the end of the quarter into this quarter uh that influences your um your guidance thank you great uh thanks Olivia um let's see um first on on the the the mix of the drivers we highlighted four primary elements that uh that we believe impacted our business in the in the second quarter and we think each played a role in our sales performance with the competitive pressures uh continuing to be uh the largest uh largest driver so we're could as as we've talked about here today continue to focus on the competitive pressure recognizing uh the category while still healthy has moderated some so uh requires us to continue to elevate our efforts and then addressing uh some of the internal Dynamics around our operational uh e efforts as well as promotional so all contributed uh and were focused on on driving them for promo specifically um you know we uh as I mentioned that what has not um maybe uh what did not work as much was not our our tenle events our core strategic elements our loyalty events the key connections that we have but as I said we our our sales moderated um uh throughout the quarter um and as we saw that call it in mid June and end of July um with on top of some of the efforts we already had like our big summer Beauty sale and other programs uh we layered in incremental promotions and historically we've done some of that and it's worked in different ways but uh this this time what we saw was that layering helped in the Ecom business as I as we highlighted and and did Drive uh you know traffic and and sales on Ecom but added uh some complexity in store and how that came to life and did not resonate as well and and uh and so when we saw our consumers engaging with them uh we created an environment that was not uh as clear and crisp as we needed it to be and so we're addressing that uh going forward you know as as far as our our Outlook um into the the rest of the year and the role of promo as well as other things we've assessed the impact of the new and existing challenges that we've been talking about here today and we evaluated a number of scenarios that you know uh that anticipate a variety of macro consumer changes competitive category performance holiday shifts and a more promotional environment we've taken all that into uh into account and that's reflected in in in our in our Outlook uh but I'd say the last thing I'd say to all that is you know I hope it's clear we're not standing still I've highlighted many of the things that we're doing we're taking action we're building off success uh with nness and other efforts that we have across the business uh we do not uh anticipate having to lean only on promo that's never what we've had to do and uh and all of the actions across loyalty Innovation newness Services guest experience digital will come together uh to drive us and give us confidence in our comp guidance for uh the second half of the Year operator I think we have time for one more question all right great our last question comes from the line of Susan Anderson with Canon cor genuity please proceed with your question hi good evening thanks for fitting me in here I guess I was curious it sounds like most of the competitive pressure is on the prestige side and it did sound like you maintain that MTH share but are you also seeing any increased competition on the math side maybe being you know some of the math retailers getting more competitive from a promotional standpoint and then also just really quick on the hair care was that decline or change there primarily driven by Prestige or did you see anything else on the map side as well thanks great yeah that um yeah this is a very competitive category and so while we're we're pleased that we maintain share of of mass we know there's competition happening both on the mass and the prestige side uh but uh we haven't seen what we haven't seen in mass is the uh you know dramatic increase in points of distribution or expanded presence both uh with physical stores and online and that's allowed us to continue to drive our experience and and an important aspect is while we talk about our business and mass and Prestige Our Guest really looks at the whole thing and comes in for both together and buy both together in the same bassic from entry level Mass up through MTI Prestige and luxury and so we need all things to be quick into driving traffic and engagement and basket and uh so when there's pressure on one part of the business it it impacts our whole our whole store but our Mass business uh is uh is performing well and and uh you know we're confident in our Outlook there um you know as far as the hair hair uh um Dynamics I I mentioned in the remarks the primary driver we're pleased with our hair business it's a critical part of our business I mentioned Our Salon is performing well the hair business primary driver of the performance there was a shift in one of our strategic tent pole events in hair from the second quarter into the first quarter uh uh and uh and that was that was the primary driver of the of the lower uh lower results than that but our hair business is important and uh and we continue to find ways to drive that business going forward great thanks much yep thank you thank you Susan and thank you all uh again for joining us today I uh we very much appreciate your interest in Ulta in Ulta beauty and I wanted to take this last moment to thank our more than 5,000 ult Beauty Associates for their continued focus and commitment to serving our guest you our teams have managed through significant change over these last three years and I so appreciate how quickly they've embraced new technology new processes new ways of working all always while keeping our guests and each other at the center of everything that we do so we look forward to speaking to you all again a little sooner than normal after one of our quarterly calls in uh at uh at our investor event in October hope to see you there and I hope you all have a a good evening and thanks again for joining thank you this concludes today's teleconference you may disconnect your lines at this time thank you for your participation