Ulta Beauty, Inc. (ULTA) Earnings Call Transcript & Summary

Thank you, Bob. First, I want to thank you for all of your support over the years. Your insight and expertise have been truly invaluable to me, and you've been a tireless champion for our store teams. I wish you the absolute best for the future. Lorna, as a seasoned retail executive, you've been a great asset to the Ulta Beauty Board, and I look forward to working with you more closely in your new role as Lead Independent Director. It has truly been an honor to serve as CEO of Ulta Beauty. I'm extremely proud of what we've accomplished over the last 8 years and the amazing team and culture that we've built. I want to thank my leadership team for their collaboration, agility and commitment to our associates and guests, and I want to thank all of our shareholders for your interest and support. Although this change is somewhat bitter sweet for me personally, I am extremely confident about the future of Ulta Beauty. I believe the time is right for me and for our company to make this change. And I'm excited about the opportunity ahead. We have a differentiated business model that has proven its strength over and over again throughout our 31-year history, and position Ulta Beauty as a leader in the beauty industry. We've developed and sustained a world-class guest-centric, values-based, high-performance culture. We've emerged in the 2020 pandemic with a strong foundation and good operational momentum. And we have a talented, diverse and experienced team of leaders to drive our next phase of growth. I'm excited about my new role as Executive Chair, and I look forward to supporting Dave, Kecia and the rest of the Ulta Beauty leadership team as they build on what we've accomplished together. And continue to lead and disrupt the beauty category for many, many years to come. And now it's my pleasure to turn it over to our new Chief Executive Officer and fellow Director, Dave Kimbell. Congratulations, Dave.

Thank you, Mary. Mary, we've worked together for a long time, and I'm grateful for the opportunity I've had to learn from you and to lead with you. Under your leadership, Ulta Beauty has established a winning engaging culture, become the largest U.S. beauty retailer, joined the Fortune 500 and tripled its market cap. And we have solidified the company as the preferred destination for beauty enthusiast, created an inclusive well-regarded workplace and become a recognized leader in the business and retail community. I want to thank you, Mary, for your leadership and mentorship, and I look forward to your ongoing support and counsel as I transition into my new role. Over the last several years, I've worked closely with Mary and the entire executive team to build our culture, strengthen our guest engagement and develop our strategic plan. I am excited and humbled to become the next CEO of Ulta Beauty, and I will work hard to ensure a seamless transition as we plan and execute the next chapter of our growth. Now let's review our performance and accomplishments in 2020. Looking back on the year, it's clear that pandemic had far-reaching implications on all facets of our business. Still, I am incredibly proud of how our team kept the safety of our associates and guests at the center of every decision we made. From a financial perspective, total sales for fiscal 2020 were $6.2 billion. Comp store sales decreased 17.9%, and diluted EPS was $3.11 per share compared to $12.15 per share in 2019. While fiscal 2020 was not the year we originally planned, I am proud of how our teams adjusted and responded to the unprecedented challenges, and I want to express my sincere appreciation to all our Ulta Beauty associates for their flexibility, agility and unwavering commitment to our guests and to each other. Based in a very dynamic operating environment early in 2020, we moved quickly to align on a number of strategic priorities intended to expand our market share and extend our competitive advantages. We believe that the successful retailers of the future will bring together the physical, digital and emotional components of the shopping experience. To that end, our teams continue to deliver great omnichannel experiences for our guests. After temporarily closing all of our stores in March 2020 in response to the spread of the virus, we began welcoming back guests and associates to stores in May with our new Shop Safe Standards in all stores, and enhanced digital shopping capabilities to keep our guests and associates safe. While store traffic remained challenged, sales through our digital channels doubled in fiscal 2020. To meet this increased demand, we expanded our e-commerce fulfillment capabilities, including the opening of our Jacksonville fast fulfillment center, expansion of our ship-from-store capabilities and introduction of curbside pickup. In late 2020, we announced an exclusive partnership with Target Corporation that will disrupt the beauty category and change how guests experience beauty. Later this year, we will introduce Ulta Beauty at Target. A shop-in-shop experience online and in about 100 Target locations, with plans to scale to hundreds more over time. As another pillar in our omnichannel strategy, we are excited to engage new guests through this new distribution point and drive even greater member loyalty and engagement in the Ulta Beauty brand. We have very strong support from our brand partners and are confident that our assortment, which is an exciting mix of large established favorites and vibrant often exclusive emerging brands will delight guests when we launch. Based on our consumer insights research, we know that beauty enthusiasts love to physically discover and try beauty products. But we also know the impact of COVID-19 required the experience to change. Given an increased focus on health and safety, we restricted the use of testers in stores and accelerated our virtual try on capabilities. We expanded GLAMlab, our virtual try on to beyond cosmetics to include hair color, false lashes and the benefit brow bar. We expanded our shade library to include more than 11,000 shades, and we introduced QR codes to guests to virtually try on shades while in store. We also introduced a digital skin analysis tool to assess guest skin care needs and offer personalized product and regimen recommendations. Last year, more than 11 million guests engaged with these tools, trying on more than 100 million shades through the app at ulta.com. At the core of Ulta Beauty's differentiation strategy, is a unique and diverse beauty assortment across all major categories and price points. With more than 25,000 SKUs from more than 600 brand partners, the depth and breadth of our assortment is unrivaled, providing guests the ability to curate their assortment based on their own preferences. In a year that saw the contraction of the U.S. prestige beauty market, Ulta Beauty gained dollar share specifically in key categories, such as makeup, skin care and fragrance, based on the NPD group's point-of-sale data for the 52 weeks ended January 30, 2021. We expanded our assortment in key growth categories like skin care, hair care and wellness to provide guests with engaging newness and innovation. And we launched Conscious Beauty at Ulta Beauty, an initiative intended to help guide guests to brands and products that reflect their personal values. Through this initiative, we certify brands across 4 key pillars: clean ingredients, cruelty free, vegan and sustainable packaging. We also highlight brands whose philanthropic efforts are critical to their DNA through the positive impact pillar. By the end of 2020, more than 230 brands were certified in the Conscious Beauty program with more than 150 brands certified in more than 1 pillar. In conjunction with this launch, we established sustainable packaging goals with a pledge to ensure 50% of all packaging sold will be made from recycled or bio source materials or will be recyclable or refillable by 2025. The makeup category was challenged in 2020 given shifts in consumer behavior related to the pandemic and delays in planned newness and innovation. However, we are confident that cosmetics will return to growth given the strong emotional connections consumers have with the category, particularly as a form of self-expression and as the return of social occasions drive more makeup consumption. One of Ulta Beauty's strongest asset is our world-class loyalty program, which accounted for more than 94% of our sales in fiscal 2020 and allows us to drive targeted communication to our members. Last year, we drove innovation in our Ultimate Rewards loyalty program, launching new member appreciation events, implementing new reactivation campaigns and reinforcing the value of the program across all communication channels. Behind the scenes, we expanded our customer relationship management capabilities, leveraging new propensity modeling applications to optimize the return on print investment and reengage with lapsed and at-risk members in our marketing outreach. The pandemic required us to evolve our thinking about how we operate our business. During 2020, we took several steps to reshape our organization and become more efficient and effective. We delivered meaningful reduction in occupancy costs through aggressive negotiations and effective portfolio management, and we permanently closed 19 stores to further strengthen our store portfolio. We also took steps to reset our cost structure in both our store management and corporate team. All of these actions will position Ulta Beauty for continued short and long-term success. Given the events that unfolded throughout 2020, addressing racial and social injustice has become more important than ever. Diversity and inclusion are at the heart of what Ulta Beauty stands for. At the end of fiscal 2020, 91% of our associates were women and 46% of our associates were people of color. Of our leadership team, 64% was female and 18% were people of color. During 2020, we proudly unveiled our D&I commitments with a focus on brand amplification and support assortment growth, associate development and equitable welcoming guest experiences. In addition, we published our first ESG report sharing our efforts and commitments in 4 key pillars: people, product, community and the environment. And I am very proud of the progress we have made in these areas. Fiscal 2020 was a difficult year, but our teams met the challenges with agility, creativity and an unwavering focus on serving our guests. As a result, we are emerging from 2020 as a leader. We see this in our sales trends, market share gains, consumer sentiment, brand strength and most importantly, in our culture. I believe this is a testament to the choices we made throughout 2020 and also to the strength of our 31-year history as a vibrant company and successful category disruptor. We recently reported our first quarter results, and I am delighted to share that fiscal 2021 is off to a fantastic start with sales and earnings for the first quarter exceeding both fiscal 2020 and fiscal 2019 levels. For the quarter, net sales increased 65% to $1.9 billion, operating margin was 15.8% of sales and diluted EPS was $4.10 per share. This outstanding performance was broad-based with above planned performance across channels, categories and geographic markets. While we believe stimulus payments contributed to the quarter's strength, we also believe the relaxation of restrictions, increasing consumer confidence and a desire for newness are positively impacting consumer spending in the beauty category. Our differentiated model, combined with our efforts to create meaningful guest connections and experiences, position us well to attract more guests and lead the category recovery. I would like to close by thanking you for your continued support of Ulta Beauty. I'd also like to thank our guests, our more than 37,000 dedicated and passionate associates across the country, our brand partners and our Board of Directors. And especially, our retiring Chair, Bob DiRomualdo; our new Executive Chair, Mary Dillon; and our new Lead Independent Director, Lorna Nagler, for everything they do to support our company's continued success. And now I'd like to turn it back to Jodi to kick off our question-and-answer session. Jodi?

Thanks, Dave, and congratulations again. Now I'd like to invite Ulta Beauty's Vice President of Investor Relations, Kiley Rawlins, to join me to moderate today's question-and-answer session. Welcome, Kiley. Do we have any questions?

Thank you, Jodi. We do not have any questions in -- submitted in the queue. So I just want to remind everyone on the call that stockholders can submit questions now on the web portal for this meeting. Out of consideration for others, please limit your questions to 1. We will attempt to answer as many questions as time allows, but only questions that are germane to the meeting and to our business will be addressed. Any questions that we do not get to and that are applicable to our business will be addressed on the Investor Relations section of our website. We also want to remind you of the company's safe harbor language. The statements made today, 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's filings with the SEC. At this time, we have no questions in the queue. So I will turn it over to Dave to close our meeting.

Great. Well, thank you all for joining us for today's annual shareholder meeting. I want to thank Bob DiRomualdo, Mary Dillon and the rest of our Board of Directors as well as my leadership team who have joined us by phone for this meeting. We hope you share our optimism for the path ahead, and that you and your families continue to stay safe and healthy. Thank you very much.

Thank you. The Ulta Beauty 2021 Annual Stockholder Meeting has officially concluded. Thank you for attending. You may now disconnect.