Ulta Beauty, Inc. Price & Performance (ULTA)

For a discussion of Ulta Beauty's fourth quarter and fiscal twenty twenty four results. Hosting our call today are Keisha Steelman, Chief Executive Officer and Paula Oluvo, Chief Financial Officer. Before we begin, I'd like to remind you of the company's Safe Harbor language. Many of our remarks today will contain forward looking statements. Which speak only as of today, 03/13/2025. We refer you to our earnings release and SEC filings where you will find a number of factors, which could cause actual results to differ materially from those forward looking statements. Keisha will begin our call with key highlights from our fiscal twenty twenty four Ulta. And share our priorities for fiscal 'twenty five. Then Paula will review our fourth quarter results in more detail and discuss our outlook fiscal twenty twenty five. Following our prepared remarks, we will open the call for questions. Our call will be a little longer than usual this time, And so 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 additional questions, please re queue. And as always, the IR team will will be available for any follow-up questions after the call.

Before I call turn the call over to Keisha, I want to share that both Paula and Keisha are fighting seasonal colds. And you may notice that their voices are a bit raspy this afternoon. And with that, I'll turn the call over to Keisha. Keisha?

Thank you, Kylie, and good afternoon, everyone. I've had the pleasure of participating in these calls over the last few years as COO, and I'm excited to host my first call as CEO today. I appreciate your continued interest in Ulta Beauty and look forward to engaging with each of you. Today, I'll provide my perspective on the strength of our business, highlight where I focused my first sixty days as CEO, and share some of our twenty twenty four achievements and discuss how I'm thinking about our long term growth opportunities and prioritizing our actions.

It all starts with our mission. Simply put, there's magic in our mission.

Every day, we seek to use the power of beauty to bring to life the possibilities lie within each of us We have a unique opportunity to serve beauty enthusiasts at nearly every stage of life and in so many milestone moments. From their first date, to their first job interview, to their wedding day and so many moments in between. It's a mission uniquely suited for Ulta Beauty. One I feel very privileged to steward. And I know that no one can bring this mission to life the way we can. While I've been at Ulta Beauty for more than a decade, [indiscernible] my first sixty days as CEO, I made it a priority to spend meaningful time with our brand partners, guest, leadership team and store associates to assess the state of our business including where we're winning and where we have opportunities.

I've made organizational changes to streamline decision making, and align our teams around guest centric goals.

And I've leaned in where we have immediate opportunities to improve our execution. All through the lens of protecting and nurturing the culture that we believe makes us so special. I stepped into this role with incredible optimism because it's evident to me that the foundational advantages of our business model are strong and more relevant than ever.

We have an unmatched breadth of assortment, We provide convenient and engaging omni channel accessibility. We built meaningful brand equity and a leading loyalty program. We have a strong financial foundation with stable operating cash flow and we have more than 58,000 talented associates who are the heart of our company represent our brand to our guests every day. The beauty landscape has fundamentally changed.

Guest expectations continue to rise and the pace of change is accelerating. The competitive environment in beauty has never been more intense. For the first time, we lost market share in the beauty category 2024. I am aware of the challenges that we face.

Some of them are external, while others we own. Our business is bigger and we've managed unprecedented category growth. And it is more complex. As we've expanded our assortment and added new fulfillment choices like buy online, pickup in store, ship from store and same day delivery.

These capabilities are driving guest engagement and enhanced accessibility, but have also resulted in execution challenges particularly in product transitions and launches as we leverage new tools and processes. As a result, our insert presentation and guest experience today not as strong as we would like. These are opportunities well within our control. We've identified specific gaps and we're working quickly to address and I'm leaning in with our teams and brand partners to improve in store presentation and inventory levels to deliver a better guest experience. It's clear to me that how we've operated must change to ensure that we capture the opportunities in front of us We are focusing to ensure the guest is at the center of everything we do and we intend to move faster, invest strategically and optimize our business to achieve our long term goals to drive profitable growth and market share. I'll dive into our long term plan to achieve these objectives shortly. But first, let's review the progress made in 2024. We're proud to have finished the year ahead of our expectations Paolo will share more about our financial performance in a few minutes, but I want to highlight just a few of our key 2024 achievements.

Including enhancing our assortment, through the relaunch of our 40 new brands including exclusive brands like Ekso Chloe, Noise, Wynn Beauty and guest favorites like Charlotte Tilbury, ILLIA and Tatcha, Expanding accessibility through the opening of 60 net new stores 100 new Ulta Beauty at Target shop in shop locations and improved digital functionality. We also initiated plans to launch in Mexico and most recently announced our expansion into The Middle East in 2025. Re launching and growing our loyalty program 3% to a record high of 44,600,000 members driving significant gains in brand love and social engagement through compelling marketing and advertising efforts, digital store and data ecosystem.

Looking forward, we remain optimistic about the strength and resilience of the beauty category. We are mindful that consumers are now but we continue to expect healthy consumer engagement in beauty. While the category has normalized, we believe in the positive dynamics within the category. Including a strong and growing connection between beauty and wellness. Increased digital usage, a strong innovation pipeline and consumer engagement. We expect these dynamics will support continued category growth in the low to mid single digit range over the next few years. Now, I want to share how we're prioritizing our actions as we look to deliver a stronger guest experience and value to our stakeholders. The long term strategies and financial targets that we outlined in our October Investor Day will continue to guide our path forward. To bring further focus to our efforts, we've aligned our plan around three main priorities. First, drive core business growth. Second, scale new accretive businesses and third, realign our foundation for the future. We're calling our plan Ulta Beauty Unleashed. We recognize the need to move quickly and we will be deliberate about pacing and prioritization ensure that we can execute well in Turning to our first priority, driving core business growth.

We have a strong model have identified significant opportunities to unlock further advantages. This means continuing to push for excellence in all areas of our operations strengthening our go to market approach. With the guest always at the center of everything we do. As I shared earlier, our teams are focused on opportunities to sharpen our execution and get back to the basics of running excellent stores that are easy to navigate fully stocked, appropriately staffed, clean and inviting.

Beyond a return to best in class execution, in 2025, we will focus primarily on three initiatives, to drive core growth. Brand building, personalization and digital acceleration. We will enhance our assortment through further investments in brand building, a particular focus on exclusive emerging and established brands. We've kicked off 2025 with an exciting start with the announcement of several notable brand launches. These include fan favorite Note Makeup, and the innovative K Beauty skincare brand, Anua, exclusive to Ulta Beauty. And we're thrilled about the upcoming retail debut of Beyonce's hair care brand Sacred. Also exclusive Ulta Ulta Beauty, which we will bring to life in unique ways through our salons. We'll continue to build this momentum throughout the year and into 2026. We will deepen guest engagement through accelerated personalization increasing automation and real time content across digital channels. We will accelerate our digital efforts delivering new enhanced features on our app, and website aimed at elevating the guest experience. Second, we intend to scale new and accretive businesses to capitalize on key growth opportunities and ensure that we remain resilient in a rapidly changing world. In 2025, we'll focus on four initiatives. Accelerating our focus on wellness, accelerating our focus on wellness, launching a new marketplace which will expand our e commerce presence and allow us to offer a broader array of beauty and wellness products to our guests build upon our international presence and we also plan to introduce several key enhancements to our Ulta Beauty Media offering.

Including new product innovation that provides brands with new ways to reach consumers. Along with enhanced closed loop measurements. Finally, turning to our third objective, realigning our foundation for the future. To successfully achieve our long term growth ambitions, reassert our leadership position and deliver value to our stakeholders, we must optimize ways of working and streamline our cost structure. It starts by focusing on the heart of our company, our teams and our culture. [indiscernible] At our core, I believe that we have the very best talent and culture in retail we're taking steps to reenergize this critical competitive advantage by optimizing the ways of working and positioning our leadership team to meet the needs of our evolving business We've made several organizational changes to accelerate decision making, remove friction and align teams and resources around guest centric goals. This includes taking steps to optimize our corporate and field support staff, reducing management layers, and shifting resources to higher growth driving areas. Additionally, I have made several changes to our executive leadership team better focus on our key priorities. To support a stronger guest experience in stores, we've centralized all store functions under Amy Bayer Thomas, an Ulta Beauty veteran, who will serve in the newly created role of Chief Retail Officer.

With this change, Amy will add real estate and store design to our existing scope, which includes leadership of our store teams and the loss prevention organization. To align our transformation efforts with our cost optimization initiatives, Mike Moreska, who joined our team in 2023, will add enterprise wide responsibilities to his scope and will now serve as Chief Technology and Transformation Officer. Amy and Mike are transformational leaders, and results driven and they will continue to impact our organization with broader scope that Ulta our strategic focus and vision for the future.

To facilitate a stronger Ulta channel assortment of all things beauty and wellness, we've brought our digital and e commerce teams together with our merchandising and planning teams under Monica Renato, who now serves as Chief Merchandising and Digital Officer. As you may know, Monica announced her plans to retire later this spring. Monica has been a great partner to me and her vision has elevated our assortment enhanced our brand partnerships [indiscernible] driven meaningful market share growth.

I look forward to sharing an update on her successor very soon. We've also promoted Kelly Mahoney to Chief Marketing Officer to advance our brand, personalization and loyalty efforts. Kelly is uniquely qualified for this role. Her understanding of the beauty enthusiasts is unmatched. And in her ten years with Ulta Beauty, she has played a pivotal role in evolving and expanding the Ulta Beauty rewards loyalty program to more than 44,000,000 members. Additionally, Jody Caro, our General Counsel, Chief Risk and Compliance Officer has shared her intention to retire later this spring, after more than ten years of service Ulta Alta Beauty. An energetic and passionate leader Jodi has been a true business partner I want to thank her for her contributions. After conducting a nationwide search, I'm pleased to announce that Renee Kazares, who previously Chief Legal Officer from Academy Sports, be joining our team next month as Chief Legal Officer. Renee and Jody will work together to ensure a seamless transition. Today, I've shared our plan to make important guest facing investments which are necessary to improve our competitiveness and reaccelerate long term share growth. These investments will pressure profitability in 2025. But we believe they are critical to driving long term sustainable growth in a competitive, innovative category.

However, we cannot sustain this level of annual expense growth and achieve our long term profitability goals Disciplined management of our cost structure an ongoing area of focus. As we've shared at our Investor Day in October, we are targeting cost optimization of $2 to $250,000,000 over the next three years. Since 2019, we've delivered $550,000,000 in cost savings from optimization efforts across merchandising, real estate and operational process improvements. And I am confident that we can deliver our cost future savings target. We're in the early stages of these efforts will provide regular updates on our progress. Our Ulta Beauty Unleashed plan positions us to reassert our leadership position. Building on our strengths by fueling growth of our core business scaling new accretive businesses that further our differentiation and realigning our foundation for the future. While sales growth is the ultimate performance indicator, we are closely tracking Asterias of KPIs for each of our focus areas, including in store conversion, member growth and retention, and app engagement. Over the coming quarters, we'll provide more details of our plan and updates on our progress. In closing, I'm incredibly optimistic of the future of Ulta Beauty. 2025 will be an important year as we improve our execution and lay the groundwork to deliver on our long term financial targets.

Including net revenue growth of 4% to 6%, mid single digit operating [indiscernible] and low double digit EPS growth. It will take time for us to fully see the impact of our efforts, but with our exceptionally talented team leading the charge I believe we are taking the right steps to drive profitable growth and market share leadership in beauty and wellness over the long term. And with that, I'll turn it over to Paula for some specific quarter results and our financial outlook before we take some questions.

Paula? Thanks, Tisha, and good afternoon, everyone. Today, I will start with a discussion of our fourth quarter and full year financial Ulta, and then provide color on our expectations for fiscal twenty twenty five. Starting with the fourth quarter, we delivered better than expected performance across the P and L reflecting stronger revenue growth, lower inventory shrink, better merchandise margin, and continued financial discipline and expense management. Net sales for the thirteen week quarter decreased 1.9% to $3,500,000,000 compared to $3,600,000,000 in the fourteen week period last year. During the quarter, we opened nine new stores, closed one store and remodeled five stores. Comparable net sales comparable sales for the thirteen week period increased 1.5% driven by a 3% increase in average ticket partially offset by a 1.4% decrease in transactions. Other revenue declined $6,000,000 to $71,000,000 primarily due to lower income from our credit card program. Now looking at the cadence of sales through the quarter, comp sales decreased in November and accelerated in December, reflecting the shift of Thanksgiving and a compressed holiday season. Growth moderated in January, primarily reflecting adverse winter weather. Sharing more detail on our holiday performance, comp sales for the combined November and December period increased in the low single digit range.

Reflecting the cross functional efforts of our team to deliver for our guests this holiday season. Our marketing and social strategies drove strong omni channel traffic, our enhanced fulfillment and our curated assortment of new and exclusive core products balanced with value focused holiday kits drove strong engagement. With additional staffing, new tools and unique events, our store teams delivered great guest experiences, and our DC teams flexed up to ensure our stores recovered quickly post holiday. From a channel perspective, we saw growth across both store and digital channels. E commerce sales for the quarter increased in the mid single digit range and comp store sales were modestly positive, an improvement from the third quarter trend. Turning to sales performance by category. Fragrance was our strongest category.

Delivering double digit comp growth, primarily driven by newness, men's fragrance and multi branded gift sets. Comp sales in the skincare category increased in the mid single digit range. As strong growth in body care, was partially offset by decreases in prestige and mass skin care. New brands including Sol de Janeiro, Naturium, and Tatcha delivered strong growth for the quarter. But this strength was partially offset by lower sales from brands, which have experienced increased distribution or lapped strong social engagement last year. Comp sales in the hair category increased in the low single digit range, primarily due to newness and product exclusives in hair tools, as well as healthy engagement with key promotional events. The makeup category experienced a mid single digit decrease largely driven by mass makeup, reflecting softness in brands which lapped strong newness in social engagement last year. Finally, services delivered low single digit comp growth driven by increases in salon and specialty services including ear piercing and makeup services. For the quarter, gross margin increased 50 basis points to 38.2%, primarily due to lower inventory shrink. Our investments in protective fixtures, training and labor combined with enhanced inventory management processes are delivering results For the full year, shrink as a percentage of sales was 20 basis points lower than fiscal twenty twenty three.

Additionally, gross margin in the quarter benefited from favorable channel mix due to lower e commerce shipping costs, and higher merchandise margin, mostly offset by higher supply chain costs lower other revenue and deleverage of store fixed. Moving to expenses, SG and A was $816,000,000 $5,000,000 lower than last year, largely due to lower corporate overhead, partially offset by higher store payroll and benefits. Corporate overhead was lower for the quarter driven primarily by lower consulting expense as we anniversaried implementation costs associated with Keith's infrastructure investments. The increase in store payroll and benefits was driven by higher healthcare costs increased payroll hours per store to support the guest experience during holiday and higher average wage rate. As a percentage of sales, SG and A increased 30 basis points to 23.4%. Depreciation increased 12% to $70,000,000 for the quarter compared to $63,000,000 last year. Primarily reflecting new store and supply chain investments. Operating profit was $516,000,000 approximately flat with last year.

As a percentage of sales, operating margin increased 30 basis points to four per share increased 4.7% to $8.46 I am proud of how our teams persevered in quarter and Q4 to deliver these Ulta, positioning us to close out the year better than expected. And I want to express my sincere appreciation to all our Ulta Beauty associates for their continued commitment and focus on serving our guests. While continuing to manage our business thoughtfully. To recap the full year, net sales increased 0.8% to $11,300,000,000 Comp sales increased 0.7% driven by a 1.1% increase in average ticket and a 0.4% decrease in transactions. We opened 60 net new stores, relocated two stores and remodeled 41 stores. Gross margin deleveraged 30 basis points to 38.8% SG and A expense increased 4.2% to 2,800,000,000.0 Operating profit was 13.9% of sales compared to 15% of sales in fiscal twenty twenty three. And diluted EPS decreased 2.7% to $25.34 per share. Moving to the balance sheet. And our capital allocation priorities. We ended the quarter with $7.00 $3,000,000 in cash and cash equivalents.

Equivalents.

Total inventory increased 13% to $2,000,000,000 primarily reflecting additional inventory to support new brand launches, the impact of 60 net new stores and investments to improve merchandise [indiscernible] post holiday. From a category perspective, most of the inventory to investments made to support fragrance and body care. Which are key growth categories. Turning to capital allocation. Our healthy business model generated more than $1,300,000,000 in cash from operations, enabling us to reinvest $374,000,000 to support future growth and return $1,000,000,000 in capital to shareholders through our stock buyback program. Since launching our share repurchase program in 2014, we've effectively returned $6,800,000,000 to shareholders, while continuing to invest in strategic growth drivers.

Turning now to our outlook for 2025. The operating environment continues to be dynamic. And as we navigate ongoing consumer uncertainty, we believe it is prudent to take a cautious approach to our guidance for fiscal twenty twenty five.

Additionally, as we shared at our investor meeting in October, we are planning fiscal twenty twenty five to be a transition year and our view has not changed. For the year, we expect net sales will be between $11,500,000,000 and $11,600,000,000 with comp sales growth in the range of flat to up 1%. We expect operating profit will decrease in the low double digit range as we begin to implement Ulta Beauty Unleashed plan and continue to manage inflationary headwinds and lap one time expense benefits in 2024. Reflecting our expectation for revenue growth, we expect operating margin will be between 11.711.8% of net sales. To share more color into the primary drivers of the expected operating margin pressure. The largest driver of the deleverage is expected inflationary pressure on wages, healthcare, and transportation rates.

As well as impact of investments we've made over the last few years, including greater The second largest driver is pressure from the investments Keisha discussed earlier. Including brand building, personalization, digital acceleration, wellness and marketplace. Incentive comp will also be a headwind as we lap lower incentive compensation in 2024. We expect these pressures will be partially mitigated by lower inventory shrink, supply chain optimization, benefits from UB Media and targeted cost savings. We are confident the investments we plan to make this year are critical to strengthening our long term market position and we are tracking our spend and returns closely to ensure we deliver expected benefits. We also recognize the operating environment will evolve and we will continue to be thoughtful about pacing and prioritization. For modeling purposes, we expect gross margin for the year will deleverage, primarily driven by store occupancy costs and supply chain costs, partially offset by lower shrink. We expect SG and A will increase approximately 10% for the year, driven primarily by our strategic investments and advertising as we as well as increased store payroll and benefits. Reflecting these will be between $22.5 and $22.9 per share. Finally, we plan to spend between $425,000,000 and $500,000,000 in CapEx, including approximately $250,000,000 to $275,000,000 for new stores, remodels and merchandise fixtures, dollars 125,000,000 and $50,000,000 to $60,000,000 for store maintenance and other.

We expect depreciation for the year will be between $290,000,000 and $300,000,000 In closing, we operate in an innovative and expanding category. We intend to continue to invest to strengthen our competitive position and drive growth while simultaneously looking for opportunities to reduce costs and increase efficiency. While we view 2025 as a transitional year, we are confident the actions we are taking will enable us to deliver our long term financial goals and drive value creation. And now, I'll turn the call over to our operator to moderate the Q and A session.

Comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed.

Good afternoon, everyone. Congratulations, Keisha, on your new role.

With the Unleash plan that you discussed today, almost it seems like a greater sense of urgency to address and re excite the core store base.

How are you thinking about the in store experience in guest presentation and what needs to change? And as that target of 4% to 6% sales growth that's out there on the long term, how do you think about getting back there? Is the Investor Day targets which is a transitional year in 2025, given the Unleash Plan and what you need to do, should we expect a transitional year in 2020? How do you frame it? And Paula, is there any cadence to or shaping to 2025 that we should be mindful of? Thank you. Well, thank you, Dana, for the question.

Yes, we're very excited about the Ulta Beauty Unleashed plan. And really what we did was we took the long term strategies from our financial targets that we outlined at our Investor Day and we developed this plan to really simplify our focus for our [indiscernible] and drive around the three areas of our business. Driving core business growth, building new accretive businesses and realigning the foundation. It's not necessarily new information since we had our Investor Day. It's really how we're approaching it internally. What we found is when the teams clearly understand their objectives and their mission, to execution level continues to raise. And then I would say the other nuance is the change that we've made with the transformation office now reporting into Mike Morska. Having full visibility end to end in stage gating our investments so we can see and track how the investments are performing and also holding our teams internally accountable give us great confidence and that we can continue to drive the the execution in 2025 and continue to move the business forward. And then Paula?

Sure. Hi, Diana. What I would say is, we continue to expect, as I said, 2025 to be the transition year. And so we are not anticipating anything beyond that to be considered a transitional period. And regarding your questions regarding comp, so expecting comp from flat to up 1%. What I would say is we're not planning any wide variation in comp quarter to quarter. The environment continues to be dynamic with ongoing kind of uncertainty and such. And so, we we've set this level at a comp level that we're confident we'll be able to achieve. We do recognize though that given Q1 and Q4 were our strongest quarters in 2024 that Q2 and Q3 likely has the greatest opportunity from a comp perspective. Hope that helps.

Thank you.

Thank you. Our next question comes from the line of Laurene Hutchinson with Bank of America. Please proceed.

Thank you. I was just hoping for an update on how you're thinking about the fleet. I saw the 60 new openings this year. I know you have a goal for 200 over the next three. Can you talk about the locations of these stores, the sizes and then expectations Well, I would say that we have a very robust process around our real estate site selections. And the rich member data that we have we can see opportunities where there is infill opportunities and there is also opportunities in where we can continue to expand in the areas that we already have stores because there's additional market share opportunities We see these being a mix of formats going forward. Very balanced in our approach. We don't really see that we're leaning one way or another on any of the formats in terms of size. So I'd say it's more of our traditional plan of new store launches and rollouts for the future.

And the additional point to add is that we continue to see strong new store performance. In our 2024 class and so anticipating similar results with our 2025 class.

Thank you. Thank you. Our next question comes from the line of Michael Binetti with Evercore ISI. Please proceed.

Hey guys, thanks for taking our question. So you've been in Alto a long time and developed a unique knowledge of what's made it successful in the past with the industry dynamics. That led to a lot of those successes have obviously changed you think over the point of time with a lot of crosscurrents in what's a very [indiscernible] period of slower sales and perhaps some share losses that you mentioned earlier on. You've been a part of the early innings of resetting the strategy with the Analyst Day Plan that you referenced and the company is reset the near term margins lower to allow for some investment. What do you see as the most important things to rebuild your moat around the business given the competitive dynamics today? Is it through assessment or sorry, through assortment? Or do you need to make meaningful changes to loyalty, serious changes to the to the supply chain? What are the critical pieces to get right today that are different in the past?

Well, thank you, Michael, for the question. I would say that the retail environment, especially in beauty, has always been competitive, but the competitive intensity is continuing to accelerate. So there's not just one area, I believe, of the business you can lean on. You have to really be balanced in your approach. Which is why we've called our Ulta Beauty Unleashed plan really focusing on all of the parts of the business that make us not only uniquely special at Ulta Beauty, but are also the drivers of leveraging our strengths in supercharging them. For example, brand building. We know how to build brands, but leaning into building brands in a different and unique way in a three sixty approach in partnership with those brands. Marketplace, allowing us to have an even broader assortment in a lower risk way to offer broader assortments to our guests. Personalization, I can go on and on because they all really matter. And the beauty of this business is when we hit on all cylinders, it's like magic. And you're right. When I go back to my early days, we were hitting on all of those cylinders. I do truly believe that by focusing on these parts of the business along with getting back to basics, and the everyday running of the the business in exceptional way is what's going to really take us to the next level.

And I mentioned in my comments too, a really keeping the guest at the center of everything we do.

And that's really what this Ulta Beauty and Lease plan is. It's about keeping the guest at the center of everything we do, along with closely aligning our associates at the same time because our associates are the best representation of our brands because they're the ones that are interacting every single day with the guests that are coming in our stores.

Thank you very much.

Thank you. Our next question comes from the line of Adrian Yee with Barclays. Please proceed. Good afternoon. Congratulations, Keisha.

I wanted to go to my one question is going to be on the new categories that talked about kind of just for growth over the long haul. Can you talk about where you're underpenetrated When we were at the Analyst Day, you and I talked about kind of health and wellness. As an emerging secular trend on top of beauty. You could talk about some of the opportunities you see in the near term and then over the longer term horizon? Thank you very much.

You cut out a little bit on the beginning, but I think you were asking about wellness Wellness is a category that largely growing and we see consumer engagement and product innovation just continuing to expand. Today, we have dedicated space but it's limited in our stores. It's about a eight feet in most of our store locations. There's new categories that we really feel like we can lean into. Like nutrition, mindfulness, everyday care and sleep. It's all really, really important. In 2025, where we're going to be looking at leaning into is really, it starts with our leadership. We've created a new dedicated commercial leader and team that they're committed to just driving wellness at Ulta Beauty. We're also looking at expanding our wellness assortment to at least 20 new brands in short order. And then looking at designing and implementing an expanded in store presentation in select stores. We're continuing to lean in on this We do think that there's just this emergence between beauty and wellness and we'll be able to share more in the coming months. But we've got the plan and the team and we're ready to now start moving in the right direction to bring this to life.

And I appreciate the question.

Thank you. Next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed.

Hi, Keisha. It's Simeon. How are you doing? My question is, back at Analyst Day, I was a little surprised that there was more focus on new store growth as opposed to looking back at the fleet? And enhancing the current fleet I wanted to get your take on it. What can you do with the fleet? I'm surprised there isn't more of a refresh. Do you agree with that perspective? And then can the focus of the business tilt in 2025 or 2026 to focus more on remodels? Thanks.

Yes. I'll maybe take the start of it and I'll ask Paula to weigh in on SubRe models. What I shared earlier is that we do have such great data around where there's opportunities for us to continue to take share in The United States. And that's where we're leaning in additional new stores. We don't want to overbuild our store fleet. We've seen that before in retail. And I don't want to be a part of that site any means at Ulta Beauty. So when we're looking at new stores, we're very confident that we can continue to take share and open those new stores in a very profitable way. In fact, one of the largest assets that we have are stores in and of itself. I appreciate your currently in place even more profitable? And I would say yes. We're continuing to lean in and look at ways in which we can continue to drive even more profitability out of our existing store fleet Wellness is one of those areas that we're leaning into. Where you look at, can we trade out categories that are less productive and give this space to a new and emerging type category Also looking at assortment and are there opportunities for us to continue to refine assortment to make sure we're looking at the tail It's something that is really, really important.

And then then keeping the guest experience front and center, our stores are just so important for us to be able to continue to refresh our brand and the brands that we're bringing in. The one thing that's changed even in my ten years here at Ulta Beauty is that beauty is becoming a little bit more fashionable Ulta in and out You've got to be on the cutting edge and the trend. And you've got to be really flexible with the space that you have dedicated to to brands in the store. And that's one of the things that we've really been leaning into with our renovations is having more universal type fixtures. So we aren't locked into bigger boutiques, etcetera. So it gives us a lot of flexibility to bring brands in and out. And then Paolo, did you want to add anything about renovations?

The only thing that I would add is just a reminder, we're expecting the remodel 40 to 45 stores this year. But the other thing to to keep in mind is that we actually touch our fleet quite often with our merch as we are bringing in newness [indiscernible] and launching brands and lifting certain categories And so actually we do a really good job of keeping our fleet up and updated and fresh. And then also as as we shared at our Analyst Day, I mean our fleet profitability is very, very high and we watch it very closely to continue to maintain that level of profitability.

Thank you. Good luck.

Thank you. Our next question comes from the line of Stephen Forbes with Guggenheim Securities. Please proceed.

Good evening, Keisha Pollop.

I wanted to follow-up on market share and certainly appreciate the optimism around the unleased plan. Curious if you could maybe frame or reframe how you guys are thinking about planning for some of the factors that may be out of your control, right? Cannibalization and distribution point expansion, And then specific to cannibalization impacts, now that we've sort of had more time pass here, can you maybe renew give us your renewed thoughts around how long it has takes a cannibalized store to recover and return to sort of company average comp profiles?

Maybe Steve, I'll start and Leticia if there's more to add. As we've talked about, this has been unprecedented period over the last several years with the increased points of distribution, particularly for Prestige. Beauty. We expect competitive pressure will continue to impact our fleet, but we expect the impact will be lower than what we experienced in twenty twenty four. At the end of twenty twenty four, more than 90% of our stores have been impacted by one or more competitive openings. In recent years and then two thirds of them impacted by multiple performance of the stores that were impacted by physical points of distribution. The last several years. And we believe both the lack [indiscernible] and the impact of our operational efforts are contributing to the improving trend. And then layer on top of that, the actions we're taking as a part of the Ulta Beauty Unleashed plan, We feel confident that it will still take some time, but things are moving in the in the right direction. Thank you.

Thank you.

Our next question comes from the line of Mark Altzwager with Baird. Please proceed.

Good evening. Thanks for taking my question and Akisha congratulations.

With respect to the revenue guidance up 2% to 3%, how does that compare to your underlying assumptions for the Beauty category in 2025? And then Ulta did lose a bit of share in 2024. In the prepared remarks, you talked about spending more on marketing. What's baked into the margin guidance in terms of promotions and other actions to defend or recapture market share in 2025? Thank you.

All right. Well, I'll start with talking a little bit about the category trends. Yes, the consumers are navigating a dynamic macro environment but we continue to expect the healthy consumer engagement with beauty. While the category did slow in '24, it continued to grow in the low to mid single digit range. Part of that growth was driven by the growing connected connection between beauty and wellness, which is where we're leaning into. There was a healthy innovation pipeline and we feel good about our innovation pipeline also for 2025 and also just having strong overall engagement within the category. While others have commented and there's a lot going on clearly out there in the world today, January and February were impacted by a combination of some weather and fires in LA and heightened economic and geopolitical volatility. So I'd say it's too early for us to know if this is really structural or a reflection of some of the weather disruptions or some of the things that were happening because we're lapping some strong growth also from last year. And then Paula, do you want to lean into the second part of the question? Sure.

Specific to promotions and how we're thinking about promotions as it relates to our sales and our comp side, what I would say is that underpinning our expectation is that the promotional environment will continue to be rational. And so what we saw last year in 2024 is that the promotional environment increased. It's still in our opinion was rational. And so we're planning 2025, to be rational as well. Now we do understand that things could change. Well, if the consumer demand deteriorates, requiring or needing having others to be more leaning and more heavily with promotions. Then that is something that we would consent to. But we'll continue to evolve based on the environment and consumer demands. One thing that I will say is that we continue to lean into our capabilities to optimize both the timing and [indiscernible] balance discounts with value messaging and quality. And leverage our member insights to really focus on X executing productive targeted offers, and continue to optimize our promotional effectiveness.

I would just maybe add in this environment, we're really focused on controlling what we can control.

Thank you.

Thank you. Our next question comes from the line of Michael Lasser with UBS. Please proceed.

Good evening. Thank you so much for taking my question.

Isha, in your remarks, you noted that competitive intensity of the category continues to increase.

So was that in reference to both online as well as offline competitors? And does that mean that the cost of doing business within the beauty category increases which should diminish the potential, say, Otter will be able to scale its margins over time as it goes through this transition period this year? Thank you very much.

Well, thank you for the question, Michael. I will say as I mentioned earlier, it's always been a competitive category.

There are more players that are continuing to lean in. And I do believe that our Ulta Beauty Unleashed plan is really designed to accelerate and amplify our differentiation and what makes us unique. So we're really refocusing to ensure that the guest is at the center of all of our decisions. We intend to move faster and invest with purpose, and we're really looking to optimize our business. And it's really in those go to market areas. It's about brand building, digital acceleration, personalization, marketplace and wellness. And this is what we do. A lot of players are playing in the world of beauty, but this is what Ulta Beauty does. And the fact that we have everything from masks to prestige to luxury and everything in between, And we just need to continue to focus on our strengths and lean into them. It will help us continue to build that moat. And then, Paula, if you want to talk about the margin Yes, Michael, as we think about some of the commentary we shared in our competitive category. And in order to be a market shift to have growth and be a market share gainer in this competitive and innovative category, that we think it's important to continue to reinvest in the business to fuel the fuel growth.

And that is why we shared the guidance that we gave 4% to 6% top line growth and and that we expected from a margin perspective to be able to maintain margins around 12%. And so that reflects the current environment from our lens.

Thank you very much.

Thank you. Our next question comes from the line of Michael Baker with D. A. Davidson. Please proceed.

Thanks. I guess I'll ask about tariffs. Remind us your exposure now to Europe potentially seeing 200% tariffs and presumably that they'll retaliate So if you could sort of break down your exposure by different parts of the world. And then there were definitely some price increases as I recall in 2017 and 2018, but the timing was a little skewed. I think you took price before you even saw the margin. So it was a before you saw the price increase so it was a margin enhancer early on. Can you remind us how that price versus cost dynamic played out last time and what you expect this time? Thank you.

Thank you, Michael, for the question. What I would say in light everyone, we are monitoring the ever changing landscape as it relates to to tariffs. We don't believe the exposure while we don't know the exact exposure our brand partners have upstream, Only about 1% of our shipments over the last twelve months were direct imports. And so our exposure is relatively limited. I would say beyond merchandise, we have some exposures with areas like fixtures and lighting and supplies from a store store perspective. And then largely from a merchandising perspective is our Ulta Beauty collection brand. But again, like I said, relatively limited and similar to how we successfully navigated in the twenty eighteen-twenty nineteen period, our teams are staying very close to the wall of being situations and we're continuing to navigate it in scenario plan, both for our business as well as with our brand partners.

Thank you.

Thank you. Our next question comes from the line of Ike Boruchow with Wells Fargo. Please proceed.

Hey, good afternoon. Thanks for taking the question.

I think, Paula, can I have two clarifications? So first on the on the promo or I'll call it the merch margin line for this year. You said rational similar to '24 the merch margin trend in the first quarter sorry, in the first half of last year was very different than the back half. You were much more stable. I think you were flat up.

You were down decently in the first half. So just to compare it to '24 is tough, like, are you would you compare it to the back half of 2024?

Just some clarity on how to think about merch for the year.

Would be helpful. And then I'm sorry, just a clarification on the comp. Outlook, zero to one I think you said similar every quarter.

But Q4 and Q1, I guess the low end of the zero to one just trying to make sure I understand how to think about the first quarter comp relative to your commentary. Thanks.

Okay. I'm going to answer the last question around the comps and then I might need you to give me what you're asking for on promo and merch margin if you're speaking of 2024 or 2025. On the comp for 2025, so what I shared is, yes, flat to one for the year. And we are not planning a wide variation in comp quarter to quarter. And then additional color I was given is that the because Q1 and Q4 were our strongest quarters, then I would expect Q2 and Q3 to have the greatest opportunity from a comp perspective.

Got it. And then just to go back yes, thank you. And then basically I was asking on the merch margin for 25%, you said similar rational promo pricing in twenty twenty five percent, which is what you said you saw in twenty twenty four. I was just saying your merch margins were down in the first half and flat to up in the back half. So are you saying similar to what you saw in the back half of 'twenty four just because it was very volatile to the year, which is a similar way to ask is just are your merchandise margins planned flat to up or should they decline again? [indiscernible] No, I appreciate the question. I probably going to get into specific expectations around merch margin for the year, but the point that I was making about promotionality is that we expect promotions to be rational this year. And that is assumed within our guidance. If I I go back to gross margin for 2025, we expect gross margin will deleverage primarily driven by store occupancy costs and supply chain costs, partially offset by lower shrink. And obviously, gross margin is impacted by the comp of zero to one, which is causing us to deleverage on many of our fixed costs.

Got it. Thank you.

I think Alicia, we have time for one more question.

You got it. Our last question comes from the line of Ashleigh Helgans with Jefferies. Please proceed.

Hi. Thanks so much for squeezing me in. Any more color you can share on the new marketplace and just how it differs from your current online platform? [indiscernible] increased distribution have been drags. Just curious how you can back can how you're planning to combat that headwind? Thanks.

Thanks, Ashley, for the question. I'll start. So yes, what we're seeing is that our beauty guest needs they are continuing to evolve and we want to be able to expand our offerings. In a lower risk way and this really enables us to do that with marketplace. We have thousands of brands that want to come work with us And what we're doing is we're opening a closed marketplace. So it's imitation only to enable like a curation site That actually went up live today. So brands can actually start signing up officially today. We're expecting a mix of new and established and emerging brands that are really focused around beauty and wellness. One of the other things that we're really focused on is that our members will be able to earn points on their marketplace purchases. And that the guests will be able to return their marketplace to our stores. So we're trying to make this as seamless as possible for our guests The plan is to launch this in the back half of twenty twenty five.

And we've got a dedicated team that we're building around selling and operations to operate this model. We don't expect it to be material in 2025 and we're going to continue share more details as they become available. Paula?

Sure. Hi, Ashley. On your question about what we're doing combat potentially some specific brands, declines. Generally, I guess that I would I would zoom out and say really, when we think about where there's opportunity for us from a business, newness, we continue to to work with our existing brands and new brands to bring newness into our assortment. And even for brands who've had expanded distribution, our merchant teams do a wonderful job with finding and launching specific and exclusive newness that's unique to Ulta. And so that helps. And then one of the key priorities within our Ulta Beauty Unleashed plan is brand building, which is focused on building and growing brand and increasing the level of brands that are exclusive in our assortment. And so those are the key strategies that we have that would help with that.

Great.

Thanks.

I would just like to I would like to thank everyone for joining us today.

Wrap up, I'd also like to thank our loyal guests, our trusted brand partners and dedicated associates for their engagement and support. I'm confident in the team's ability to reignite our momentum while making wise investments to set the business up for long term performance. Thanks to you all for your interest in Ulta Beauty. And I look forward to meeting and connecting with you in person in the coming months.

You may disconnect your lines at this time. Thank you for your participation. [indiscernible]