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

[Presentation] Please welcome Ulta Beauty's Vice President of Investor Relations, Kiley Rawlins.

Good morning, and thank you for joining us today. Since the pandemic began, our priority has been to protect the health of our associates and guests. We had hoped to host this event in person, but in the interest of safety for all, we've transitioned to a virtual event. We look forward to hosting in-person events in the future. Before we begin, I'd like to remind you of the company's safe harbor language. The statements made during today's event, 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. We caution you not to place undue reliance on these forward-looking statements, which speak only as of today, October 19, 2021. 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. Today, you'll hear from our senior executives as we share how we're thinking about the opportunities for Ulta Beauty to grow and thrive in a post-pandemic environment. After the formal presentations, we'll host a Q&A session with our entire senior leadership team. [Operator Instructions] Note the live Q&A session will not be available until 11:15 a.m. Central Time. And one more housekeeping note. Today's presentations will be posted to the Investor Relations website after the event. And now I'd like to introduce our Chief Executive Officer, Dave Kimbell. Dave?

Thank you, Kiley, and good morning, and thank you all for joining us today. I am Dave Kimbell, and I am proud to be the Chief Executive Officer of Ulta Beauty. It's been 3 years since we hosted an event like this, and I am excited to update you on the progress we've made since our last Analyst Day in 2018 and to share how we are shaping the future of beauty retail. As the CEO of Ulta Beauty, I am as optimistic and energized as I have ever been about the power of beauty and the strength and passion of this team. Throughout our session today, we will share with you how Ulta Beauty will further establish itself as the undisputed leader in beauty. Today, you will hear several key themes, including how we will continue to lead the beauty category, how we will win as an omnichannel leader across both physical and digital, how we will continue to expand our market share and increase customer loyalty, how we plan to further use our influence and leadership to make the world a better place and importantly, how all of that comes together to position Ulta Beauty for sustainable, profitable growth over the long term. But before we look forward, I think it's important for us to recognize our past and understand that we are building on a more than 30-year history of disruption, creativity and sustained success. I see that we have 4 unique chapters of evolution throughout our history. First, we started right here in Chicago in 1990 with a simple vision: to change the way consumers shop and engage in beauty. Our first decade was focused on building our foundation and establishing our differentiated business model as a beauty retailer. In the 2000s, with our opportunity very clear, we drove expansion by further establishing the unique elements of the Ulta Beauty experience. We accelerated store growth. We've broken to prestige in a big way, and we launched e-commerce. We were well on our way. In the 2010s, we arrived as a true leader in beauty. We were putting the customer first. We were expanding our assortment in both mass and prestige and integrating omnichannel while rapidly expanding both our digital capabilities and our store footprint. At the same time, we elevated the role of culture in our business, which has been key to our success. Importantly, throughout our more than 30-year history, while we've adapted to changes in the operating environment, we remain true to the core ideas established by our founders: to create a human experience for our guests that truly reflects the way they want to engage in the dynamic beauty category. So what's next? Well, that's our focus with all of you today. We see a clear opportunity right now to accelerate our efforts across our core business while continuing our long history of disruption and innovation, and all of this purposely built to engage and excite the beauty enthusiast, while staying true to our mission, vision and values. So with that context in mind, we are incredibly proud of the industry-leading performance we have delivered, including an exponential growth in sales to an expected $8.1 billion to $8.3 billion in 2021, a 10x increase in earnings per share since 2010 to this year's expectation, a tripling of our store count to over 1,300 by the end of this year, and we have gained 18 points of prestige market share since 2013. But as we look forward, we must acknowledge that we are operating in a time of unprecedented change. 2020 was an incredibly disruptive year globally. Of course, the global pandemic has affected us all, creating a degree of uncertainty, impacts on lifestyle and permanent shifts in behavior. The social justice movement has pushed consumers to reflect on what matters to them, and they are making choices that align with causes and companies that are driving positive change. We are seeing increased economic disparities within our country, and there have been significant lifestyle impacts such as working from home, virtual education, telemedicine and more, which will all have lasting effects on how we live and work. Climate crisises and weather events continue and we're facing a dynamic political environment. So it's important to acknowledge how each of these has impacted our world, and for us at Ulta to build our plans with this context in mind. Now when looking at the beauty category, beauty showed remarkable resilience through the pandemic. After years of strong and consistent growth, including a 3% CAGR from 2015 to 2019, the beauty market only declined by about 3% in 2020, which reinforced to us that despite the disruption in the world around us, engagement with beauty remains strong. So with all of that context, we've done the work to understand what the future of beauty is. And through our ongoing research, we see that there are several forces shaping beauty retail going forward. First, there is an expanded definition of beauty. Beauty and wellness are increasingly associated as consumers focus on self-care, leading to deeper emotional connection. Digital, of course, continues to accelerate both in direct commerce and as a key part of the entire beauty journey. The role of physical stores continues to evolve as consumers signal their desire to shop in physical stores for beauty but have an elevated expectation about the experience delivered. We see a continued democratization of beauty as barriers to entry are reduced and consumer choice increases. And finally, expectations for personalization have risen exponentially, and loyalty is continuing to evolve, which will manifest through assortment, products and experiences. So we believe that now is the time for Ulta Beauty. I believe we are uniquely positioned to thrive due to the combination of 3 key elements. First, we are in an attractive and growing category, a category that is healthy, dynamic, innovative, creative, culturally relevant with very high consumer engagement and positive demographics. And most importantly, beauty is deeply, emotionally connected to consumers, which elevates the importance of the category in people's lives. Second, we have a strong proven business model. It is differentiated, relevant, adaptable, and as you will hear today, has a very long runway to drive growth. And third, and I'd say most important, we have a winning culture and an outstanding team. We have an experienced leadership and a committed, passionate culture that is focused on our values while caring for our guests and caring for each other. These 3 elements: attractive category, proven business model, powerful culture, combined with our well-defined strategy for growth, give us tremendous confidence that the future is very bright for Ulta Beauty. So let me take you through each of these 3 elements in a bit more detail, and we'll start with the beauty category. Human connection is at the center of the beauty category. Beauty is an incredibly emotional category and plays a very important role in our guests' lives. Beauty is not about the superficial. It is fundamentally about self-expression. It is about how each individual chooses to express themselves to the world, to bring what makes them unique and special to life in only ways that they can. It is a category that has the power to brighten someone's day, make someone feel confident and to simply have fun in bringing to life the possibilities that lie within all of us. Now this is a critically important point. The category participants, both retailers and brands, that can move beyond a transactional relationship to an emotional human connection with consumers will elevate dramatically in the importance they play in people's lives. And this is the mission of Ulta Beauty. And importantly, engagement in beauty is higher than ever. We continue to see high passion and high usage in the category, and the ways in which consumers engage with beauty continues to evolve. Today, 65% of consumers believe that the beauty category is significantly connected to overall wellness. We believe this is suggestive of long-term engagement in the category and a strengthening of the belief that how you express yourself to the world is deeply connected to self-care, and every bit is important to overall well-being as any other action you may take on your wellness journey. And this consumer engagement is translating to beauty market growth. After years of consistent growth coupled with a strong recovery in 2021 back to 2019 levels, we expect the beauty category to return to growth in the 2% to 4% annual range going forward. And importantly, our outlook is strong across all of our key categories. In cosmetics, we're expecting to return to growth as we've seen strong resurgence with increasingly positive sentiment. We expect skin care growth will be sustained as routines and frequency will continue and consumers invest in self-care. We expect the hair care segment will accelerate as consumers focus on hair health, and subsegments such as textured hair will add incrementality to the category, and we anticipate continued growth in fragrance and bath with the rise of self-care and wellness. Now Monica will share more detail about all of these important trends later this morning. Next, we have a strong proven business model. Our unique and enduring value proposition continues to drive our success. First, we offer a one-of-a-kind assortment. Ulta Beauty is a destination for mass and prestige with over 25,000 products for more than 600 brands across a variety of beauty categories. Our broad profitable store footprint of more than 1,300 stores are concentrated in off-mall locations with an iconic store format. Our leading digital experiences have delivered outpaced growth with a doubling of e-commerce sales in 2020. Our unique combination of distinctive physical and immersive digital experiences is a key competitive advantage, enabling us to meet guests wherever they are. Our best-in-class Ultamate Rewards loyalty program, now with 34.6 million members, enables share of wallet growth and provides us with deeper insights about what our consumers want. And finally, we cultivate human connection with a warm and welcoming guest experience across all of our channels. Our approachable store associates and our full suite of services drive competitive advantage. And our ongoing efforts to create relevant, compelling content has helped us build stronger connections with guests. Now you all know that newness is an important part of the beauty category and has continued to drive growth for us. We have added brands across categories and price points, along with several conscious beauty, wellness-focused and BIPOC brands since 2018. In addition, existing brands continue to innovate in meaningful ways across all segments of our business, and Ulta Beauty is seen as a preferred destination to launch and expand new brands and products. Now let's spend a moment on digital. Ulta Beauty has established itself as a leader in overall digital experience and engagement. We developed a digital footprint that is personal, fun and designed to delight and engage our guests across every touch point. Our digital efforts drive commerce, both in-store and online, and they deepen loyalty to Ulta Beauty. Our digital commerce presence has tremendous scale and is purposefully built to be intuitive, engaging and seamless across channels. We continue to elevate our experiences, finding new ways to engage our guests and make it easy for them to participate in all that Ulta Beauty offers. We drive influence and engagement through our leading social media efforts with best-in-class presence on all platforms, including TikTok, Snapchat, Instagram and YouTube. And we are continuously innovating our virtual tools like skin analysis and GLAMlab virtual try-on, both of which are purposely built to educate and engage our guests both in and out of store. And we are leaning into live streaming and other guided selling tools to evolve how guests discover beauty. Our holistic digital approach has led to strong external recognition of our leadership position. We were ranked #2 in Gartner's 2020 Digital IQ rating of 61 specialty retailers. We are ranked #1 in social media engagement in beauty retail and #1 as the most used beauty retail app, and our app delivers an outstanding 4.9 star rating. Now while we are very proud of our leading digital experience today, we are firmly aware that our future success is rooted in finding new compelling ways to engage our guests across the entire digital journey, and you'll hear about these ideas today. So with that understanding of the importance and strength of our core model, now the events of the last 18 months have driven us to adapt in meaningful ways. During the pandemic, we made swift moves to refocus our efforts. We suspended our Canada launch to focus on our core U.S. business. We restructured corporate and field management teams. We implemented numerous health and safety measures in stores to take care of our teams and our guests, and we strengthened our real estate portfolio. At the same time, we saw this disruption as an important opportunity, so we accelerated key priorities to position Ulta Beauty to lead the recovery. We rolled out new omnichannel methods swiftly to meet increasing consumer demand. We enhanced our digital and CRM capabilities while optimizing promotional activity. We launched the transformational Ulta Beauty at Target partnership. And we supercharged our internal and external diversity, equity and inclusion efforts. And I'm pleased to report that this agility has translated to strong financial recovery and results. Our net sales for the first half of 2021 on a compound annual basis were 7% higher than the same period in 2019, which further increases our confidence that our model is working and we are well positioned to drive growth going forward. Importantly, we are seeing growth against 2019 in key member metrics. Our member count achieved a new record, driven by both new and reengaged members. Member spend is also steadily increasing, up 2% since Q2 2019. Our percent of omnichannel members has increased significantly to 18% in Q2 2021. And over this time, we have continued to see gains in prestige market share. Okay. Now to our third topic. As I mentioned, core to our success has been our associate-centric values-based and high-performance culture. Our mission, vision and values continue to inspire and guide us every day. These tenets remain core to how we lead and how we engage with our guests and partners and how we make decisions. Our mission is simple: every day, we use the power of beauty to bring to life the possibilities that lie within each of us, inspiring every guest and enabling each associate to build a fulfilling career. Our vision is to be the most loved beauty destination of our guests and the most admired retailer of our associates, communities, partners and investors. And we have long been guided by our values in all that we do to deliver our mission and vision. Importantly, the way we show up every day defines our unique culture and fuels our success. And for us, it starts with leading with our heart, caring for each other in everything that we do, demonstrating integrity, authenticity and inclusivity in our daily actions across the business. Our approach is rooted in teamwork. We bring world-class functional expertise while always operating as one Ulta Beauty, unified for our care for each -- for our guests and for each other while deeply committed to delivering on our business aspirations. And our mindset expresses how we show up in the world. We are not complacent. We have a 30-plus year history of disrupting the beauty category and are firmly focused on driving creative, bold new ways to delight and excite our guests while exceeding their expectations. I am pleased and honored that we are consistently recognized for our strong culture and our commitment to our associates. We've received recent external recognition for our culture, including from Forbes, as Best Employers for Women, Best Employers for Diversity and Best Large Employers. And internally, I and the rest of our executive team are personally committed to listening and learning from our associates. We regularly survey our team to measure engagement, and we are very proud that this year's engagement score was well above the retail benchmark despite the disruption in the world around us. Now as it relates to the impact Ulta Beauty can have in the world around us, we believe in beauty for all and are committed to making the world a better place. Importantly, we believe Ulta Beauty is uniquely positioned to help lead the beauty industry in our efforts to drive positive impact. In January, we issued our first ESG report, highlighting 4 key pillars: people, product, community and environment, showcasing the work we have been doing for years and sharing our commitments in these important areas. For people, we want all associates to feel that they belong at Ulta Beauty, can be their true authentic selves and are given the opportunity to thrive. For product, we empower our guests to make informed choices about the products we offer, including clean beauty, vegan, cruelty-free and sustainable packaging through our unique and very well-received Conscious Beauty at Ulta Beauty program. For community, we improve the lives of women and families in our communities through support of both national and hometown partners. Notably, we've raised $37 million for the Breast Cancer Research Foundation since 2009, and we're actually in the middle of our 2021 campaign as we speak. And for environment, we are working hard to minimize our impact on the world around us with a focus on reducing waste across the entire product life cycle and on bringing down energy consumption as we work towards a greenhouse gas emissions reduction target. Our ESG focus has long been part of our approach and is embedded in all aspects of our overall long-term strategic plan. Now within our ESG efforts, I want to share more details on DEI commitments. We have a long tradition of being a diversity-forward company, and this is an important time for us to accelerate our efforts in this space. We have made several important commitments. We are investing $25 million to amplify underrepresented voices. This comes through the launch of our MUSE campaign and the recent announcement of MUSE 100. We are highlighting 100 powerful and inspiring Black voices that are driving change. We will double the number of Black-owned brands in our assortment by the end of 2021 and have joined the 15% pledge. We are investing each quarter in, in-store training to cultivate inclusive experiences and to ensure that every single guest feels welcome and encouraged to discover beauty on their own terms. For our associates, we are doubling DEI trainings across the enterprise, and we have launched inclusive recruiting efforts and established a diverse leaders program. And I personally lead our DEI executive leadership efforts with support from external advisers who bring valuable insights and encouragement to our team. Now as you would expect, everything I've talked about this morning is enabled by our outstanding leadership team. We have a talented, experienced and tenured executive team who are absolute experts in their fields and outstanding collaborative leaders. Collectively, we have over 140 years of retail experience and close to 70 years of experience at Ulta Beauty. You'll have a chance to meet the entire team today as several of them will be sharing key aspects of our strategic plan, and all of them will be participating in our Q&A session at the end of the day. This team is world-class and ready to go. They are focused on our future and ready to drive us forward as the undisputed leader in beauty. Okay. Now with all of that background, I'll share more about our future vision and our aspirations for growth. A rally cry that I've been using across the company in our field, DCs and corporate office is bigger, better together. Bigger means building on our strong core with a disruptive and innovative mindset using breakthrough and creative thinking to drive sustainable growth. Better simply means it's driving more operational excellence and efficiency because we know the more efficiency we create, the more we can grow. And together, we are one Ulta Beauty focused on our culture and values to drive results. Everything we do, we do together. This mindset: bigger, better together shapes our focus and drives clarity on what is most important. Now Shelley will share more details on this later this morning. But as we shape up our strategic focus, we've evolved our thinking on what we are delivering to our guests from All Things Beauty, All in One Place to a more emotionally connected and culturally relevant framework of All Things Beauty, All In Your World at the Heart of the Beauty Community. This is an important change that will shape our strategic focus over the years to come. Now reflecting on our understanding about how the consumer and category are changing, we have refreshed our strategic framework. This is how we will achieve our long-term vision and shape the future of Ulta Beauty. We are laser-focused on 6 key pillars: one, drive breakthrough and disruptive growth through an expanded definition of All Things Beauty, offering a differentiated assortment of compelling products and services; two, evolve the omnichannel experience through connected physical and digital ecosystems, All In Your World, driving breakthrough engagement across physical and digital touch points; third, expand and deepen our presence across the beauty journey as the Heart of the Beauty Community, which will ultimately create a more emotional human connection with our guests; fourth, we will power this vision through a steadfast focus on operational excellence and optimization to drive profitability. We will accomplish all of this with a focus on continuing to build and strengthen our world-class team and culture. And we will focus on expanding our environmental and social impact through our focus on people, product, community and the environment. Now you will hear more throughout the day from all of our leaders on how these strategies come to life in order to drive our business forward. And with these strategies in place, we now are ready to issue our long-term targets for 2022 to 2024. Over the next 3 years, we are targeting net sales growth between 5% and 7% on a compound annual basis, operating profit of 13% to 14% of sales and low double-digit compound annual growth in diluted earnings per share. This strategic framework and the resulting financial outlook positions Ulta Beauty as a leader, driving innovation in the dynamic beauty category in ways that deliver strong, sustained financial results. We look forward to sharing more about all of this throughout the day. So let's talk about the rest of the day. Today on the agenda, first, you will hear Shelley Haus, our Chief Marketing Officer, who will discuss our consumer and evolving brand vision. Next, you will hear Monica Arnaudo, our Chief Merchandising Officer, who'll present our merchandising strategy and share how we are expanding the definition of All Things Beauty. Then Kecia Steelman, our Chief Operating Officer; and Prama Bhatt, our Chief Digital Officer, will present our omnichannel strategy and how we are meeting guests All In Your World. After that, Shelley will be back to share how we are becoming the Heart of the Beauty Community through our evolved brand strategy, loyalty plans and new and innovative points of guest engagement. Then Kecia will share more about our operational excellence and optimization initiatives. After Kecia, you will hear from Scott Settersten, our CFO, on our long-term growth algorithm and financial targets. And finally, I will close out the day to recap our efforts to position Ulta Beauty as the winner in beauty going forward. And after our presentations, we will host a Q&A session with our entire leadership team. So again, thank you for joining us today, and thank you for your interest in Ulta Beauty. We are excited and optimistic about our path ahead and grateful for this opportunity to share more detail about our plans. So with that, let's get started. And Shelley, over to you.

Thanks, Dave. That was such a fantastic setup, and thank you for your leadership. I'm so excited to be here today. Thank you all for joining us. as Dave said, this category is special. It's like no other, and let me tell you more about why. It really starts with the consumer. Our deep consumer understanding fuels our competitive advantage and our mission for the future. We have built insights powerhouse that puts consumers at the heart of all we do from longer-term shifts to consumer values, perceptions and behaviors to of-the-moment insights. We are understanding the cultural shifts that are shaping beauty through our proprietary CULTURE STUDIO, a forward-looking insights engine powered by AI and anthropology that investigates emerging intersections between beauty and culture. We've gone deep into the influence and expectations of the next generation through our Gen Z Matters work. Through our customer experience intelligence work, we have a very clear understanding of the experiences that drive retailer choice and brand love as well as the evolving expectations and needs in the changing landscape. And with our Beauty Board, we uncover of-the-moment insights through ongoing weekly conversations with almost 10,000 beauty enthusiasts. We have also studied beauty consumers through a psychographic segmentation view, looking at the relationship that people have with beauty and the role it plays in their lives. Through that lens, our focus is the beauty enthusiast. Despite 2020 disruption, they remain a strong majority of the population who continue to spend. When we look at female beauty buyers, 60% are beauty enthusiasts. And if we size that, that's 70 million women, and that doesn't even account for beauty enthusiasts who are men, which is on the rise as well. But staying with women who are the core beauty enthusiast population today, this 60% accounts for 75% of total beauty spend. And it's clear that this is a highly engaged, meaningful target for us. And with only 1/3 of their spend with Ulta Beauty today, there is more room to grow share of wallet. We all know that Gen Z is important. They are driving change in the world and in the marketplace. They are also really important to beauty. 78% of Gen Z-ers are beauty enthusiasts, 18 percentage points higher than general female beauty buyers. Additionally, those beauty enthusiasts are super spenders, spending nearly 90% of the beauty dollars. We know they love us today, but with only 1/5 of their share of wallet, we still have room to grow. There are 3 key demographics of beauty enthusiasts on whom we're focused. They are important to us because beauty is important to them. And with each of them, we have penetration and share of wallet opportunity. As I just mentioned, Gen Z skews more beauty enthusiasts than any other cohort, and they're shaping the future of beauty. They're increasing their beauty spend overall and in key categories, especially as more join the workforce and have money to spend. And they're more passionate about every key beauty category than any other generation. They're engaging with beauty about 2 years earlier than any other generation before them. And with almost 50% of Gen Z-ers being non-white, they are the most racially diverse generation, which is influencing what beauty experiences and beauty purchasing look like. Our focus on Gen Z has created an amazing foundation with this audience. In fact, Ulta Beauty is their preferred beauty destination by more than 2x versus other beauty retailers. We have done a fantastic job also connecting with the Hispanic beauty enthusiasts. This is a very large and growing group with almost 75% being beauty enthusiasts. They also spend the most on beauty per person versus any other cohort. And Hispanic beauty enthusiasts have the highest penetration with Ulta Beauty, and nearly 1/3 of Hispanic women are shopping with us today. Amongst those who shop at Ulta Beauty, they shop with us more often than any other ethnic cohort and drive more transactions per member. We have a strong leadership foundation with them, but we still have a lot of runway to win more with this beauty-loving group. We also have a great opportunity with Black beauty enthusiasts. 91% are passionate about beauty. But 1 in 3 feels left out by the beauty industry. This is an important insight as we connect with this group. They are shaping beauty and looking for change. They are choosing carefully when it comes to brands and retailers. Already, Black beauty enthusiasts spend more at Ulta Beauty than any other specialty beauty retailer, but we know we have a lot of opportunity to be even more meaningful and relevant to win their hearts and loyalty. Let's get to know the beauty enthusiasts. You may be one. And if you're not, you probably know one or many. Think about those people in your lives. Beauty enthusiasts live beauty. They love the constant exploration and experimentation. They have drawers filled with favorite moisturizers, closets stacked with eyeshadow palettes and handfuls -- handbags with handfuls of lip glosses and lipsticks. Beauty isn't just a thing to do or routine to get through, it's a way of investing for yourself. Beauty starts from within, and it's an important part of who they are. And for them, beauty is not frivolous or superficial; it's meaningful. It's self-care and self-expression. And more and more, it's a part of total wellness, just like nutrition and exercise. They find joy here. And because they are always changing and beauty is always changing, finding something new is a big part of the fun. It's a spark to be found and a joy to be shared. In fact, one of the most important insights from our CULTURE STUDIO work is that beauty enthusiasts see beauty as having superpowers. Here it is in both words and art. [ Lynley ] told us about how it changes the way she feels. [ Michael ] said beauty is about showing the world who you want to be. And a 16-year-old beauty enthusiast explained that it is less about looking good and more about feeling comfortable in your own skin. And this drawing on the right is from our CULTURE STUDIO work as well. We ask consumers to draw how beauty makes them feel. And not just one, but many women and men actually drew super people. And this pandemic time has not dampened the superpowers of beauty. It has amplified them. Listen to 3 other beauty enthusiasts, [ Abby ], [ Nicki ] and [ Sylvia ] talk about the meaning of beauty throughout the pandemic, and now as we start to look forward to the future. [Presentation]

A whole new outlook on self care. Setting boundaries and caring for ourselves. The need to feel brand new. The feeling of self-worth and self-investment, now more than ever. And as we look forward, the world is forever changed, and so is beauty and retail. Let me give you 3 key themes to take away. We are now forward bound with lives changed and optimism growing, with an expectation for a hybrid world and the passion for beauty being unleashed. The pandemic is leaving consumers with new perspectives. This year exposed deep feelings of gratefulness and pushed consumers out of their routines and into new freedoms. They are rethinking what's important. The pandemic gave consumers the chance to reevaluate to determine what was right for them personally and professionally. Success is no longer about the quantity of dates on a calendar, but about the quality of time spent. And there is a strong intent to never return to the way it was before. They're living with optimism. 2 in 3 consumers now are feeling optimistic. It's not that people are no longer feeling cautious. They are. They have just decided to stop waiting to live. They are figuring out how to live in a COVID world, and they're buying with purpose. Even only a few months into the pandemic, we saw trust and transparency grow as a driver of store choice by 6 points. Consumers are expecting companies and brands to take the lead and to leverage their size for good. In fact, 80% of consumers expect brands and businesses to have a positive impact on society and the environment. And they are aligning their loyalty and purchasing accordingly. This hybrid world is here to stay. Consumers want to keep the behaviors that made them feel safe, plus the new conveniences that made life easier and they want to get back to all the fun after more than a year of missing out. Inspiration and entertainment are now always on. There is more social engagement than ever. And with the rise of TikTok, constant inspiration is the norm. This channel has set a new bar that everything, even education, even shopping needs to be fun and entertaining to capture attention and engage people. The physical and digital lines are blurred. 40% of beauty enthusiasts intend to buy beauty in a hybrid way, merging their in-store and online visits. And consumers are telling us that seamless and enjoyable experiences are key. The store though, is still where it all comes together. As much as ease from home has become the norm, the store experience is key. In fact, 95% of our guests say they miss the store terribly. The play and human connection of the store is the marquee experience to engage in shop for beauty. Consumers are looking for all of it: a seamless ecosystem of experiences for whatever they need, whatever time they need it. Adaptation has become expectation. The disruption of the pandemic has created even more excitement. The role of beauty is forever changed. Beauty has become a verb. The active beauty is expressing who you are and discovering who you want to be. It's a way to connect with others, more important as so much human connection has been taken away. And beauty has emerged as an even bigger shaper of culture. Beauty is wellness. The connection here has become even stronger as people have sought ways to take care of themselves,in the midst of stress and uncertainty and have created new routines. Beauty is now a way to create everyday wellbeing. Beauty bolsters our mental health, transforms our mood and brings out our energy and vibrancy. The engagement with beauty never left, but the passion for the purchase is back. It's true that last year's -- last year, consumers dipped into their beauty stashes at home, but as the world has opened up, the desire to purchase and have fun with exploring and shopping is clearly back. And the excitement for newness is back to stay. In fact, 52% of beauty enthusiasts plan to buy more new products versus just replenish their stash. And 55% are more excited about beauty today than they were before the pandemic began. In fact, passion for skin care, makeup, hair care have all increased versus pre-pandemic. Consumers have a renewed view of the fun and the joy that beauty brings, critical as people try to feel normal and rebuild toward a better life. The power of beauty is being unleashed. This is why we feel so confident in beauty and the way we are positioned to win. These rich consumer insights and foresight give us a powerful platform to shape the evolution of our brand vision and to set a true north. We have been on a journey to evolve the Ulta Beauty brand from functional and transactional to emotional and purposeful, creating even more meaningful, differentiated and enduring relationships. In 2018, built from a clear understanding of who we are today and who we aspire to be and based on not only consumer insight I talked about but also deep insight from our associates, we established our brand purpose. We use the power of beauty to bring to life the possibilities in each of us. This became our mission and guides our way. We believe we can unleash beauty superpowers to make the world a better place. Based on the insight I shared earlier, we are building our brand focused on 4 key superpowers: self expression; self care; togetherness; and being a cultural force, breaking paradigms and pushing society's standards, especially as they relate to race, gender and body image. We have been and will continue to bring these to life with products, with communications, with experiences and very importantly, with our teams. In fact, in 2020, this was our guide to creating the hyper relevance throughout the year that strengthened our brand connection with our guests during a very tumultuous time. And we know that continuing to build our purpose-driven, diversity-forward, culturally relevant brand will drive true emotional connection and continue to be a competitive advantage. We will also continue to evolve and expand the vision of what we do. Our business model of All Things Beauty, All in One Place, has served us tremendously well within our growth story that Dave took you through. and it has framed what we do. All Things, meaning the broadest assortment, meaning key categories like hair, skin and makeup, and All in One Place, having a traditional retail meaning of all in one store. Based on our learnings, there are a couple of big shifts that have really changed the game and have pushed our thinking. Products and experiences matter. Beauty is more meaningful than ever. Beauty is intersecting with culture and wellness, and the place where beauty lives is really not a place at all. It's within each person and within each community. We are reframing our business to create the future of beauty and retail. All Things will now mean for us full immersive experiences. Beauty will mean an expanded view of beauty, and we will not live All in One Place. We will live All In Your World, with you wherever you are. I'll give you a little more context for each of these 3 pieces. The consumer interaction with beauty used to be fairly linear, and there was a part of the journey that was about researching, shopping and purchasing products. That's where Ulta Beauty lived. However, the beauty with relationship -- the relationship with beauty is no longer linear. It's always on. It's always shopping. It's immersive, highly engaged, personal, emotional, connection, conversation, entertainment. And we will be at the heart of that beauty immersion, threaded into our beauty enthusiasts' lives every day. And as we expand our view of beauty, this means both the breadth of what we do, extending products of current brands, bringing in new brands, extending into new segments and wellness adjacencies, and it means the depth of what we do, being deep into the relationship, the advocacy, the content, the conversation, the curation. We are shifting from the idea of All in One Place to All In Your World, with you wherever you are. We will be people-centric, not Ulta Beauty-centric, not about the location or the channel. And the central point of entry will be the phone in their hand, the door to the world of beauty and to Ulta Beauty. We will be more than a retailer. We will be at the heart of the beauty community, owning the immersive world of beauty, the amazing world of products and the amazing world of emotion, conversation and connection, expanding what beauty means and engaging beauty levers in all new ways, truly unlocking beauty superpowers of self care, self expression, togetherness and shaping the world as a cultural force for good. We will be All Things Beauty, All In Your World at the Heart of the Beauty Community. The possibilities of that are truly beautiful. And this sets the stage for our discussion of our first 3 strategies, which Monica, Kecia, Prama and I will take you through next. And I'll hand it over to Monica.

Thanks so much, Shelley. That was awesome. Thank you. All right. Good morning. I'm very happy to share our assortment and merchandising strategies with all of you today. First, I'll spend a few minutes on the beauty landscape, how Ulta Beauty stacks up within the market and the opportunities ahead. Let's start by looking at Euromonitor's total beauty and personal care market, inclusive of both mass and prestige. While we are the largest U.S. specialty beauty retailer, our market share is only in the high single digits. In 2020, Ulta Beauty had 7% share of the total U.S. beauty and personal care market. And with continued strength, we believe we have much opportunity ahead to capture more market share. And that is what we are doing. Switching from total beauty and personal care to the prestige beauty market, let's look at NPD prestige beauty from 2019 through second half 2021. Not only have we recovered from 2020, we've also driven the growth and are well exceeding our 2019 performance. The left chart depicts Ulta Beauty's growth in the prestige market, up 3% CAGR over the last 3 years versus remaining market down 4% CAGR. From a category perspective, within NPD, prestige beauty, we are seeing market share gains across most major categories. And in total, we have driven almost 3 points of share gain from 2018 to 2021. Taking a look at our category penetration, you can see we've created a more balanced category portfolio in the past few years and especially making great strides in skin care. And we continue to drive growth and gain share. As we continue to drive growth and gain share, we have significant headroom in skin and hair. And we'll continue to work to strike the right balance, reducing reliance on any one category. In addition, we're very encouraged by the opportunities to maximize beauty baskets. With our extensive offering across price points and categories, we can introduce guests to new categories and increase purchases across price points. Our multi-category, multi-price point guests are our most valuable and most engaged. And if you look at the chart on the left, guests who shop all categories spend 10x more than guests who shop only one. Currently, less than 10% of our guests shop all categories. So talk about opportunity. Similarly, as we look at basket size across price points, guests with mass and prestige in their basket spend 4x more than guests who buy only mass or only prestige. These are areas we will continue to tap into to grow our business across the portfolio. Now with an understanding of the beauty landscape, let's dive into the Ulta Beauty merchandising strategic pillars. Our merchandising vision is to engage and continuously delight beauty enthusiasts with a curated, differentiated assortment focused on inclusivity and leading trends. To achieve this, we have 4 distinct strategic pillars that aim to drive comp growth, maximize our portfolio and capture share. Everything starts with our core, and that's why our first pillar focuses on maximizing growth from our core categories. Our second pillar is driving high-growth cross-category strategic platforms and adjacencies. And the third is differentiating through exclusive brands, products and our private label business. And finally, we will continue to drive profitability with a focused approach on assortment, inventory and promotional optimization. So let's add a bit more detail to each of the 4 strategic pillars, starting with maximizing growth from our core categories. After years of strong growth and momentum, the overall makeup market began to decelerate in late 2017. We also experienced a down trend, although not as severely. Makeup was further challenged by the pandemic and while Ulta Beauty consistently outperformed the market and continue to do so, we felt the impact as makeup declined 26% in 2020. However, makeup has bounced back, and discretionary spend drivers work in parallel with retail recovery and seasonality and in 2021, we have seen 51% year-to-date growth. Compared to 2019, makeup is the only category down ever so slightly at minus 2%, with mass up double-digit comp and prestige gaining momentum as the year progresses. This growth is driven by our strong assortment across mass to masstige and prestige. And we wanted to highlight some of the new makeup brands we've launched since 2019. While this list is not exhaustive, we've had numerous launches that brought reengaged consumers and excitement to the category, including brands such as KVD Vegan Beauty, BOBBI BROWN, Jaclyn Hill, Laura Mercier, HOURGLASS, Mented and many more. Now let's look more holistically at what is fueling the makeup category recovery. We are seeing overall positive consumer sentiment and outlook igniting pent-up demand to return to makeup. There is a resurgence of usage as consumers participate in more normal activities. Moreover, a desire for self-expression and engaging platforms like TikTok have reignited the category engagement through generational belonging, new beauty influencers and new content forms, all with the ability to generate high viral activity. We're excited about leading makeup trends driving the category. Skinification of cosmetics, more skin benefits and cosmetics with savvy consumers understanding the power of ingredients. New product forms that offer easy and sensorial application. You see this in the successes of bombs, sticks, creams more so than what had been true for us in the past. Inclusivity and diversity are center stage, and this is certainly true in makeup, and evolved looks are playing a key role in the recovery with the new natural and expressive revival, a revolution that allows for bolder individual expression and takes inspiration from the '90s and 2000s. Looking forward, our priorities for makeup are fourfold. As we move into stores in 2022 and look at our existing store footprint, we will evolve the space to maximize our assortment and drive productivity. Meeting our guests' desire for additional and exciting brands, we will continue to fuel our assortment with relevant new brand launches, key innovation and trend-forward newness from existing brands. Three, we'll win with key events and strategic promotions. Our 21 Days Of Beauty event is our largest, and we know these shoppers spend 50% more than those that don't participate in the event. And over 70% of people shopping 21 Days Of Beauty try a new brand. From a member perspective, we will fuel growth by bringing in new members to the category. We will target the retained guests who are not following expected frequency patterns with relevant offers to drive trips, and we will deepen engagement within the category across members to increase buy rate. All right, shifting now to skin. For our guests, the definition of beauty always involves skin, and we know skincare has become the proactive method of self-care. At Ulta Beauty, skin care delivered strong double-digit increases in 2018 and 2019. And even with the pandemic, the category was stable in 2020. In 2021, with our high focus on skincare, the growth is very strong at plus 66% year-to-date driving further market share gains. And in the first half, we are plus 46% to 2019 in total skincare with strength across all price segments. We have also launched some amazing high-volume and trending brands in skincare, including fresh, Sunday Riley, The Ordinary, Black Girl Sunscreen, GLAMGLOW, Keys Soulcare, and Drunk Elephant, which we just launched. Consumer sentiment remains highest with skincare. Consumers are highly passionate and engaged and will continue to skinvest in skin. The immersion into skincare and self-care was accelerated by the pandemic and created lasting routines, which are here to stay. We know all generations value skincare, and younger consumers are engaging much earlier than prior generations, which drives growth and creates ongoing opportunities. TikTok influencers have positively impacted skincare engagement and significantly influenced brand and product preferences. And Ulta Beauty took it to the next level with #UltaSkinTok generating over 9 billion views to date. And now let's talk about the hottest skincare category trends. Products infused with hero ingredients, such as retinol serums, enzyme exfoliants, peptide moisturizers and ceramide serums reign supreme. The acne segment and derm brands remain on the rise, considering maskne and the Gen Z demand for a gentle approach to ingredients and formulations. Single-ingredient cocktailing is growing in popularity in tandem with all-in-one. And finally, proactive protection from external environments is a growing trend that's creating a greater need for skin protection. We have 4 priorities in skin care. As I mentioned, we have launched several new brands within skincare, and we will continue to drive the category, adding high-growth brands to our portfolio as well as driving innovation, newness and key segments. Drunk Elephant, our newest addition, will be followed by Supergoop!, a category-creating skincare and SPF brand launching in January of 2022. Increasing our credibility and authority and skincare through engaging editorial content, digital exposure, increased associate training and our skin adviser app is an important aspect of our strategy. Love Your Skin event is a great example of driving guest engagement as 70% of our Love Your Skin beauty steal purchases were new to brand. Next, we will increase exposure online and in-store through platforms such as our always-on Skinfatuation focus. This platform demystifies skin through focused product themes and educational content. And we're also dedicating more space in stores to showcase skincare. And next year, I'm so excited to say we will bring all of skincare together to the front of the store within our new and remodeled stores. And finally, leveraging our skin services as a key point of differentiation. We will reenter skincare services in select stores, and this model will have new enhanced offerings. All right. Moving on to hair. We've had consistent growth in this category and experienced moderate declines during the pandemic as consumers stocked up on essentials, turn to DIY color at home and discovered hair care as self-care. Despite being down 11% in 2020, the hair category has really bounced back and is plus 67% year-to-date and plus 21% over 2019. In summer of 2020, we started pulling back on the promotional activity that has been a core lever for this category, which has resulted in increased profitability. Simultaneously, we have increased our storytelling, elevated our education and focused on key segments to engage our guests. And speaking of key segments, our team has done a fabulous job launching new brands that support the trends in hair, such as Briogeo, Melanin Haircare, Kreyòl Essence and CAMILLE ROSE. Moreover, we've added high-growth brands like OUAI, IGK and KRISTIN ESS to our hair portfolio. In this category, consumer sentiments center on embracing one's natural hair and texture, proving it's not a moment but a movement. Hair care as self-care, reflecting new rituals adopted during the pandemic with hair masks, scalp massages and more and building confidence to bridge the skill gap to care for and style their hair. And high engagement with product innovation disruptors such as Dyson and OLAPLEX have fundamentally changed the engagement consumers have with the hair category and have migrated many to trade up. Hair care is our most profitable category, and there is opportunity to increase our share. And now to hair category trends. Skinification of hair as consumers see their scalp as an extension of their skin and treating it as such. Bond-building products and damage repair have seen explosive growth, thanks to true innovation. Inclusivity and diversity is more important than ever for the hair category and vegan, clean, cruelty-free. Google searches were up nearly 50% for vegan hair products. And today, clean, vegan and cruelty-free are table stakes for new brands launching. Now our vision is to be the destination for hair, and we have 4 strategic focuses. First, we'll grow key segments from prestige to curl, color, masstige and deliver meaningful innovation. The opportunities to lean in and invest in hair are so exciting across segments and subcategories like textured hair and bonding as we see newness and trends continuing to grow. We will continue to bring in exciting new brands in these segments. Second, drive member acquisition by targeting non-hair category shoppers with high spend and propensity to shop hair with a more intentional always-on approach. And then third, leverage our assortment and salon expertise to focus on education. We will inspire, educate and empower through service experiences, expert voices and educational content. And guests can expect to keep finding brands and products showcase within the salon environment through our back bar takeover program. Finally, we'll optimize promotional events and increase storytelling and education. Now we've already made huge strides, and we'll continue to refine and evolve our events to be more about storytelling, education and showcasing newness and innovation. And finally, the fragrance and bath category, which fared quite well during the pandemic and continues its strong growth trajectory, reaching incredible scale in 2021 at 129% year-to-date and plus 87% over 2019 as our guests continue to pamper with scent, both for themselves and their living environments. We've launched a number of new brands in the space, designer fragrances from TOM FORD, Valentino and Tiffany & Co., celebrity fragrances, including Ariana Grande and JLo. In fragrance, bath and body, consumers are highly engaged in scent for self and home, and the category offers accessible luxury. Our growth is fueled by luxury and celebrity fragrances, along with a wellness focus. Luxury and designer excitement is driven by exclusives, early leads and strong engagement. This is seen in our Fragrance Crush program, a 360 omni approach to drive guest recruitment. And we are on our way to becoming the #1 retailer with many key designer and luxury brands, which is reflected in the assortment with an increased brand investments. We will leverage opportunities to drive share gains and member acquisition at key holiday moments with relevant gifting products and messaging. And there is an exciting opportunity to integrate bath and body into head-to-toe skincare solutions and extend into our wellness pillar. Beyond the core, we are growing our cross-category strategic platforms. These platforms bring in new customers, expand baskets and fuel growth across categories. The 3 that I'm really excited to discuss today are Conscious Beauty, Black-owned BIPOC brands and wellness. So first, Conscious Beauty at Ulta Beauty. This platform launched in October of 2020 to bring a very holistic approach to market across 5 key pillars. And one year in, we know that 75% of Conscious Beauty shoppers are extremely or very satisfied with the platform. And among those who have purchased clean beauty products in the past 6 months and intend to buy again in the next 12 months, Ulta Beauty leads all competitors in unaided awareness of clean beauty products. Our focus in 2021 has been on scaling the platform, and now we have more than 270 brands certified in at least 1 pillar and many in all pillars. We will continue to thread Conscious Beauty throughout key marketing moments to drive awareness and to drive our strategic partnerships such as Credo Beauty. Within the sustainable packaging pillar, we set a goal to ensure at least 50% of all packaging sold will be sustainable by 2025. And our work is well underway to influence the environmental impacts of the beauty industry. We're proud to have joined Beyond the Bag as the exclusive beauty sector lead partner. We're working alongside leading retailers to identify, test and implement viable design solutions that more sustainably serve the purpose of the single-use plastic retail bag. Now looking forward, we plan to expand our capabilities to support improved guest navigation not only at a brand level, but at a SKU level. And throughout our journey, we will continue to engage our advisory council of experts in this space to help shape the platform for the future. Now on to our second cross-category strategic platform: Black-owned and BIPOC brands. This year, we will double the number of Black-owned brands in our assortment. We already have fabulous Black-owned, Black-led and Black-founded brands in our portfolio, including Juvia's Place, Pattern by Tracee Ellis Ross, Briogeo, and more recently, Black Girl Sunscreen. And early this summer, we signed the 15 Percent Pledge, and we are excited to work with the 15 Percent team, our internal team and our brand partners to build an ecosystem in support of this important pillar. And finally, our wellness platform, which offers self-care for the mind, body and spirit. We know that 65% of beauty enthusiasts feel there is an overlap between beauty and wellness. And as leaders, we're excited to expand our offerings through product curation and solution-oriented storytelling with The Wellness Shop. We launched this in May online and in select stores, and our Wellness Shop has 5 key segments: everyday care, supplements and ingestibles, relax and renew, down there care and spa at home. The assortment is cross category with a focus on hero brands such as love wellness and strategic newness, including brands like Homebody, Goli and Bloom. Our focus is to bring a cohesive, meaningful platform across all channels to life that delivers on wellness needs in an impactful and accessible and approachable way. Looking forward, we will drive awareness, leverage insights to refine our assortment and potentially expand into trending and right to win adjacencies. All right. Getting back to our key pillars. So our third strategic pillar is to differentiate through exclusive brands, products and our private label business. Exclusives continue to be a key part of our merchandising strategy to differentiate and win. And we think of exclusives in 4 buckets. We have our Ulta Beauty first early access exclusives like Too Faced Plumping Station and MAC Magic Extension Mascara. Next, we have brand exclusives like Morphe, PEACH & LILY and ColourPop. Third, we've got permanent and co-created exclusives like Tarte's Double Duty Beauty franchise, which includes Shape Tape Concealer and Maneater Mascara and IT brushes. And of course, our own private label brand, Ulta Beauty Collection. We know exclusive launches drive traffic, engagement and sales, creating unique experiences for our guests. Ulta Beauty Collection continues to be at the heart of our exclusive offering, and our product assortment boasts a robust core offering with strategic collaborations like Harry Potter and great gifting options year-round. UBC is all about high-quality products across key categories at accessible prices. And these products speak to beauty enthusiasts and especially resonate with our Gen Z guests. UBC is a model for our Conscious Beauty platform, hitting on pillars from clean ingredients to cruelty-free and vegan formulations. And while UBC continues to be a shining star in our stores and on ulta.com, we recently became a wholesale brand through our Ulta Beauty at Target launch, expanding the presence and accessibility of this critical brand. And last but certainly not least, our fourth strategic pillar is to drive profitability and productivity. There are 3 main areas of focus to drive profitability improvements. One is category management. Now this is a critical aspect of our merchandising team: optimizing and evolving our assortments and working closely with our brand partners to always improve productivity and profit. Longer term, we're investing in assortment management, automated contract reconciliation and an integrated joint business planning. The #2 one is all about inventory optimization and SKU rationalization, and we have made great strides by reducing the longer tail of low-productivity SKUs and focused our inventory investment on high-velocity products. Now these efforts support our broader enterprise efforts on one touch product flow, which you will hear about from Kecia later today. The third is promo optimization, which is a very important aspect, and we have made great progress to streamline our promotions to be more profitable. By the end of 2022, we will have increased capabilities with the launch of a new promo optimization tool. And to give you just a little bit more context on promo optimization, we have 2 main areas of focus, marketing and merchandising promotions. On our marketing promotions, Shelley will share a little bit more about that later today. On merchandising promotions, which are focused on key events, categories, segments and brands, our teams have done a phenomenal job dissecting our merchandising promotions to reduce the noise of too many offers and focus on the most productive. I hope you walk away with the following 4 takeaways about merchandising at Ulta Beauty. We are dedicated to engaging and continuously delighting beauty enthusiasts with a curated, differentiated assortment focused on leading trends and inclusivity. We will maximize growth from our core categories while driving conscious beauty, wellness and BIPOC strategic platforms to continue to gain market share. We will drive growth in our own brand portfolio and exclusives, and we will continue to drive profitability improvements through brand partner relationships and an increased focus on optimization. And that wraps it up for All Things Beauty. Now I'm very excited to turn it over to Kecia Steelman and Prama Bhatt to cover All In Your World.

Thanks, Monica. It's very clear that you and the merchant team have been hard at work building a great plan for our future success.

Thank you, Kecia.

I'm Kecia Steelman, Ulta Beauty's Chief Operating Officer, and I am so excited to be here to share more with you today.

And I am Prama Bhatt, Chief Digital Officer. Kecia and I are excited to share more about how Ulta Beauty is evolving our omnichannel strategy to meet our guests where they are as part of our strategic pillar, All In Your World.

The guest journey is increasingly blurring across physical and digital channels. This journey often starts in one channel and finishes in another. It's no longer linear or binary. Rather, it's fluid, and it sees the guest really shifting effortlessly between channels to meet their individual needs. As a retail leader, we aim to deliver one cohesive omnichannel strategy to serve our guests. With interconnected seamless touch points, we offer guests an omnichannel ecosystem designed to meet them wherever they are. The Ulta Beauty stores create tangible, distinctive experiences. They drive discovery and human connections with our services and our passionate associates. They exist to be the physical epicenter of beauty. Our digital channels enable always-on connection for shopping and discovery. Now this includes our app, our website, BOPIS, curbside pickup, social platforms and so much more. Digitally, we work to deliver personal and immersive and convenient experiences. The newest addition to the ecosystem is Ulta Beauty at Target. This transformative partnership allows us to really supercharge that guest acquisition by introducing target guests to the Ulta Beauty assortment and experience.

Our omnichannel members, those who experience Ulta Beauty in-store and online are some of our most valuable, and for a few reasons. They typically spend more than single-channel guests, spending 3x more per member than online-only members, and they shop with us more frequently. Omnichannel guests make 4x more purchases per year, 8 in total compared to 2 purchases for online-only members and 3 purchases for in-store-only members. Our omnichannel members continue to grow. As of last quarter, our percentage of omnichannel members increased significantly to 18% compared to 12% at the end of 2019. The pandemic drove a shift in behavior with many flocking to online channels, given store closures and safety concerns. While the recovery is still early, we are encouraged to see many new omnichannel members continuing to engage across channels. There are an infinite number of omnichannel customer journeys. Let's walk through an example that brings to life the interconnectedness of our consumer touch points. Our guest [ Maria ] starts her journey by browsing videos on TikTok where she discovers trending #UltaSkinTok videos. Maria sees 2 skin products she needs, and her excitement for Ulta Beauty takes her to our mobile app.

Maria opens the app, adds 2 products to her cart and then uses the skin analysis tool to get personalized recommendations. This experience inspires her to add one more product to her cart. And she's so excited to try this new product that she tries to buy online and pick up in store at our local Ulta Beauty to get it ASAP.

At the store, Maria is immediately drawn to the new Drunk Elephant product display at the front of the store. An associate welcomes her and sets her at ease with her expertise. Our associate then introduces Maria to a perfect foundation for her dry skin.

Later when Maria goes to her weekly Target run, she's excited to see something new: Ulta Beauty at Target. She picks up an Ulta Beauty Collection eyeshadow to replenish and she spots the Benefit brand, which reminds her that she needs to get a brow service. She books her appointment on her Ulta Beauty app before she forgets. She then checks out at Target, earning Ultamate Reward points that she could use towards something special for herself, only at Ulta Beauty.

Later, Maria arrived for her brow service. During the service, she chats with the brow specialist about her favorite products. The brow specialist shares her holy grail for flawless skin, Benefit POREfessional Pore Minimizing Primer. Maria checks the reviews on her app, and with more than 5,000 reviews, she's convinced. While on the app, she plays around with GLAMlab for a fun virtual try-on experience. She finds the perfect shade of red lipstick and purchases 2 new products. Each touch point in the ecosystem can naturally spur the next. To us, a purchase is not the close of a journey, but instead a springboard to the next.

We hope this example illustrated how each touch point really deepens our guests' love for Ulta Beauty. Through this, you can see that the inspiration can be sparked in many ways. Our strong presence on social channels engages guests, drives traffic to our own digital platforms. Our digital tools enable personalized discovery and product recommendations. Our stores have the power to turn any mission into a discovery journey, and our superpowered associates create irreplaceable human connections. Now as leaders, we're shaping the future of omnichannel experiences. First, our store physical footprint with more than 1,300 stores across the U.S. This is a strategic advantage. Secondly, we are leading the industry with personal, immersive digital experiences. And third, our partnership with Target breaks through to drive frequency with an additional touch point for new member acquisition. And let's dive a little deeper into our physical stores. Stores are a critical element of the Ulta Beauty shopping experience, having a haven for exploration, engagement, loyalty and fun. Human connection is more important now than ever, and our stores deliver on that with discovery, consultation and services. Our more than 1,300 stores are accessible to guests wherever they are. 75% of our guests live within 7 miles of one of our stores, and we know 88% of beauty enthusiasts are interested in shopping in store. Over the last decade, we've more than tripled our store footprint. In 2010, we had 389 stores. We expanded across the nation to give more guests greater access to prestige and mass beauty and beauty services. At the end of 2021, we expect to have more than 1,300 stores open. Even with this impressive growth, our rigorous site selection and disciplined operations have created a healthy, strong fleet with the vast majority of our stores expected to be profitable in 2021. Our pipeline of new stores is strong, and we plan to open 50 net new stores annually through 2024. Balanced with anticipated digital growth and expanded Ulta Beauty at Target shops, we continue to believe we can operate 1,500 to 1,700 stores within the U.S. Our growth is based on a very strategic targeted approach to identify, prioritize our expansion opportunities. Our market designations guide store development and portfolio management. We know that there's significant expansion opportunities in markets where we can win and maintain high profitability, and we're confident that we can move forward. We can continue to deliver on our integrated retail strategy. We actively maximize the productivity of our existing fleet to allow for continued growth. Now at the height of the pandemic, as vacancy rates increased, we work to reduce occupancy costs through leveraging our strong landlord partnerships and effective portfolio management. We see the opportunity to reduce occupancy costs and renegotiate leases for roughly 500 stores or nearly 40% of our fleet over the next few years. We're continually improving sites, strategic locations and selected experiential upgrades. And lastly, we are maximizing our energy efficiency through LED and energy management systems in our stores, keeping the impact on the planet always top of mind. Operating as a 1,300-plus mini distribution points, our stores are an integral part to the omnichannel experience, which is why we invested to strengthen our buy anywhere, fill anywhere capabilities.

This journey began in 2017 when we launched order in store or endless aisle for easy ship-to-home ordering when in our stores. Just a year later, we launched our new order management system. That investment laid the foundation for omnichannel order orchestration and store-level inventory availability. That system enabled the rollout of buy online, pick up in stores to all stores in 2019. In 2020, we quickly leveraged that capability to launch curbside pickup, which was especially critical when our stores were closed. As we launch -- and we launched ship from store to support e-commerce demand and improve speed to guests, leveraging store labor and inventory.

Building on these efforts, we are excited to announce 2 new guest benefits coming to life in the second half of 2021. First, we're launching Beauty to Go. Our promise that BOPIS orders will be picked up and ready to go within 2 hours or less, giving our guests fast convenient access to the beauty that they want most.

We are also launching a same-day delivery pilot in select markets just in time for the holiday season.

Now we're always thinking about how we can expand our reach while enhancing the guest experiences. We're testing several elements in stores. First, next year, we will test small-market formats in a handful of stores. Our vision is to create a 5,000-square foot Ulta Beauty store that can serve as a beauty discovery destination in smaller markets with tailored assortments and services. Our learnings from these pilots will inform how we scale these experiences beyond 2022. We also are exploring new ways in which we can enhance our services offering. Beauty services are one of our key differentiators. Services guests are incredibly engaged and valuable to Ulta Beauty, spending 3x more than nonservices guests and making 5 additional trips per year on average. And 50% of these guests are purchasing retail products the same day as their service. Now despite this capacity constraints, our services business has experienced strong momentum in 2021 as the recovery has evolved. Importantly, through this pandemic, we improved profitability, enhanced our talent and raised our profile as the employer of choice for stylists. Building on our strong foundation, our vision is to establish Ulta Beauty as the beauty destination for expertise, human connection and fun. To bring this to life, we are building a services hub in new stores. We will test the services and technology to bring the latest innovation to our guests. We're also expanding our brand partnerships to enhance our services offerings, including express hair services, OLAPLEX Repair & Protect as exclusive salon services. Our stores are digitally enabled to ensure connectivity within our ecosystem of the channels and drive benefits for our guests and our associates.

We plan to supercharge our already knowledgeable associates with even deeper product knowledge and expertise to offer guests personalized experiences. And as we dive into our digital experiences, we'll share how interactive in-store digital overlays on your personal mobile device will create more dynamic ways to shop in our stores. Digital experiences intersect every part of the Ulta Beauty customer journey. We've been building our industry-leading e-commerce and omnichannel business for some time with digital experiences that drive discovery, exploration and fun, connecting to consumers wherever they are. We bet on digital innovation and create competitive advantage with proprietary personalization and augmented reality capabilities, and we are unwavering in our work to create personal interactive experiences, blending content and commerce, to engage and delight our guests. We gained share, incremental sales and drove explosive e-commerce growth. Prepandemic, e-commerce sales grew at a 41% compound annual growth rate. Including the rapid growth in 2020, the CAGR between 2016 and 2020 was 55%. More importantly, in 2021, we are seeing sticky online behaviors and expect e-commerce revenue to hold on to most of the gains from 2020 as many guests continue to shop in-store and online. We've been successfully building and delivering on our digital vision, mobile first, omnichannel-guided selling and personalized experiences have fueled our growth and positioned us to adapt quickly to changing consumer needs. As Dave highlighted, we're so proud of our mobile app with its 4.9 star rating and 1 million reviews in the App Store. Our loyal app users love personalized recommendation and rewards at their fingertips. They are highly engaged and over-indexed with salon services, pick up in store, credit and are primarily Diamond and Platinum members. App users are significantly younger within our member base and more likely to shop across all product categories. We see incremental spend in both channels once the app is downloaded. Let's take a quick look at some of our unique app experiences. [Presentation]

From GLAMlab virtual try-on to your own skin routine through skin analysis, our app is the perfect personalized assistant to guide your beauty journey, and it's just so much fun. As you can see, we have been focused on growing the online channel, driving loyalty through personalization and delivering on omnichannel experiences. And in parallel, we've been working diligently on our digital store of the future. We're excited about a new fresh look and feel for our new digital store, an experience that's easy to navigate. The new digital store will also have an advanced personalized search engine. More importantly, a modern technology and architecture that is more flexible and enables a faster speed to market. We've already started to roll out some of these experiences and we can't wait for our guests to explore and engage as we continue to roll out more in the coming year. The new digital store is where we seamlessly merge content with commerce, easily help guests find what they are looking for and introduce them to products and services they didn't know they needed. We will have an unmatched source of personalized beauty information and use each opportunity to anticipate their beauty needs. It will make shopping and exploring for beauty online even more fun and functional. And with our new design system, we can create culturally relevant and inspiring content and experiences at the speed of beauty. Beyond the new digital store, we are doubling down on our innovation to fuel our guest experience and future growth with guests and brand partners alike. We have built competitive advantage with Quazi, our personalization platform and GLAMlab, our virtual try-on platform, and we'll continue to invest in these core innovative territories. In addition, we believe the future will be even more personal, more immersive and all in your world, at home, in our stores through interactive video and livestreams. And while early stage product customization at scale could be a powerful approach to discovery trial health and sampling. Later in the agenda, Shelley will share more about our personalization journey and excitement about livestream and social shopping. We are equally excited about how digital is going to bring our stores to life. Connecting across all of these innovation territories, our mobile app of the future will augment the in-store experience with educational and relevant digital experiences. Using computer vision and AI, shoppers can discover product information and try it on physically or virtually or discover brands, AI-powered reviews or brand content related to our strategic platforms. The mobile app can blend online experiences with wayfinding and drive engagement in store with in-store events and services. We invested in and accelerated our digital innovation ecosystem through our partnership with Iterate.ai and our acquisitions of GlamST for augmented reality capabilities and QM Scientific for artificial intelligence capabilities. Recently, we made a strategic investment and created a co-development partnership with Adeptmind, a leading AI retail technology company, creating advanced digital discovery solutions. Adeptmind, in combination with Quazi, will power our new personalized search engine for our new digital store of the future. And with our leadership position in virtual try-on, we're excited to launch our GLAMlab virtual try-on effects for lipstick and eyeshadow within Google Search and YouTube platforms. Earlier this year, Ulta Beauty was recognized as the sixth most innovative retail company by Fast Company. To strengthen our partner ecosystem and further establish Ulta Beauty as a leader in innovation, we are excited to announce our new Digital Innovation Fund. We'll start with a $20 million fund dedicated to transforming the future of beauty, retail and commerce. We will partner with innovative entrepreneurs, early-stage investors and other agents of change to drive innovation and codevelop differentiated and disruptive experiences. The team has been doing fantastic. Exciting times are ahead as we continue to build on our success, accelerate our momentum and transform how digital experiences show up across the beauty journey.

I'm excited about all the digital innovation ahead. And I'm equally excited about how we're driving the omnichannel innovation with Ulta Beauty at Target. Target and Ulta Beauty, 2 powerhouse brands operating from positions of strength, joined forces to disrupt the status quo and lead the future of beauty. Partnering together, Ulta Beauty at Target delivers elevated beauty experiences to guests, creates more market share and member growth, provides emerging prestige brands, beauty brands with a new platform for growth and launched in mid-August, we now have 88 stores that are open and on track to have 100 shops opened by year-end. This partnership expands our operational ecosystem to include more touch points and increases access for guests, providing them with more ways to shop Ulta Beauty. For us, this partnership reinforces and expands our leadership, especially in prestige beauty. It importantly creates an opportunity to engage new guests, drive traffic back into Ulta Beauty stores and nurture greater loyalty and engagement, ultimately leading to greater spend per member. We know our members are already shopping Target for their everyday needs. The majority of our members shop Target today with high frequency, so we can deepen that loyalty with them here. We also have an opportunity to introduce Ulta Beauty to new guests. Guests have the benefit of 2 strong loyalty programs, linking Target Circle and Ultamate Rewards. Importantly, Ultamate Rewards points are only redeemable at Ulta Beauty stores in our app and on ulta.com. Together, we've designed something that is unique and different for beauty. This isn't an Ulta Beauty store in Target. It's not Target's existing presentation. It is something that is truly unique and a unique beauty shopping experience. The Ulta Beauty at Target is 1,000 square feet prominently located next to Target's core beauty section with 54 prestige brands, including the hottest new items and limited edition collaborations and a curation of best-selling must-haves. Guests are finding an amazing experience and assortment in-store and online at target.com. These new beauty destinations are staffed open to close to provide an elevated experience with Ulta Beauty-trained Target team members who are beauty experts. Let's take a quick look in a tour of an Ulta Beauty at Target. [Presentation]

As you can see, we've created something special, a unique experience that adds value to the beauty landscape and the feedback from our guests and members has been enthusiastic and incredibly positive. This is just a little sampling of what our members have been saying. And as you can see from the excitement and the buzz, it's been just incredible out there in social media. For consumers, this is the premier pairing. Ulta Beauty at Target is a great experience for our members, our brand partners and our partner Target and Ulta Beauty, it's really a win-win, win-win opportunity. Members gain access to prestige beauty at convenient new touch points. Brand partners, especially prestige, gain a channel to drive growth and engage new guests in an elevated presentation. The partnership provides Target with beauty expertise and access to established and emerging prestige beauty brands. And for Ulta Beauty, it reinforces and expands our category leadership, providing us the opportunity to expand our reach, attract new members and drive greater engagement with existing members. In the long term, we anticipate continued growth at Ulta Beauty at Target with our winning proposition.

We are evolving our omnichannel experiences with a connected physical and digital ecosystem to meet guests where they are all in their world.

Our highly profitable store fleet is a differentiator and a strategic advantage with tangible expansion opportunities.

As a digital leader, we are innovating further to delight and engage our guests through fun and personalized beauty experiences.

Ulta Beauty at Target works to expand our leadership with a new touch point, benefiting guests, brand partners and Ulta Beauty.

As we continue to evolve, we will always keep the consumer at the heart and ensure experiences work together seamlessly and in true Ulta Beauty fashion with excitement and discovery at every turn.

Now we're going to take a 10-minute break. But first, we want to take a moment to celebrate the Ulta Beauty associates who make our guests feel special every day. [Presentation] [Break] [Presentation]

Hi, everyone. Welcome back. I'm excited to talk about expanding and we [indiscernible] our prices across the year as the heart of Ulta Beauty. We're proud of the progress we've made of creating in-store magic. We now have 93% brand awareness, up from 83% 5 years ago. We've increased top-of-mind awareness by 10 points over the past 5 years, including significant increases with all ages and ethnicities. We've fully transformed our marketing mix and increased marketing ROI by over 60% over the past 6 years. And we've hit an all-time high number of active Ultamate Rewards members. And we've continued to drive momentum and brand sentiment with an increase of 10% in positive social conversation in just the last year alone. This progress creates great momentum. As we build the future, we will expand and deepen our presence across the beauty journey as the heart of the beauty community to elevate consumer connection, supercharge acquisition and to drive guest love, loyalty and share of wallet. Our plans focus on 6 things. One, we'll evolve and amplify our brand purpose platform. Two, we'll build the new creator and content ecosystem to be at the center of beautytainment. Three, we'll accelerate livestreaming and social selling. Four, we'll elevate and deepen our connection with key consumer targets. Five, we'll drive innovation in our loyalty program. And six, we'll unleash our data, the competitive advantage that powers our personalization road map and will give our brand partners new ways to grow with us. Last year, at the height of the pandemic, we launched a new campaign called, Where Dreams Begin, which you saw as we opened the day. We created it to bring our brand purpose to life in the most relevant way for the most unusual of times, celebrating the powers of beauty that we needed more than ever before and being the light in the dark with a tone of optimism and hope. This is our manifesto. And with over 600 million impressions to date, the reaction from beauty enthusiasts as well as from our associates has been fantastic. We've continued to leverage the campaign this year, and we'll live and tell the story of our brand purpose in new and relevant ways over the coming years. As we enhance our consumer connection, we'll do that in many different ways because as I touched on earlier, the world continues to change really quickly. And with it, so has the evolution of beauty's influence. Consumers have watched over 50,000 years of beauty product reviews and have viewed TikTok shopping post 88 billion times. The Beauty Room on Clubhouse, a live audio-only community, has over 93,000 members joining beauty conversations daily. And the beauty communities of Reddit and #beauty or Twitter have changed the way we look at influence. All of this now is about abundance, it's about access and it's the democratization of beauty influence. And more and more, beauty lovers want to hear from and interact with people just like them. [Presentation]

Ulta Beauty will become the destination for beauty entertainment, both on our own channels and within other channels that are important to beauty enthusiasts, creating a best-in-class, frictionless content and commerce experience, driving connection, relevance, top of mind and purchases. To be the destination for beauty entertainment, we'll focus on 3 areas: first, we will amplify our Ulta Beauty creator ecosystem. Our creator community will live at the heart of the interactions between beauty enthusiasts and our brand. One example in this space is our continued build-out of the UB Collective, a team of 25 creators and influencers that drive our content, social connection and community. So far this year, the collective has driven 45 million impressions with a combined audience engagement that is 22% higher than our normal benchmark. Second, we will continue the build-out of our content publishing company approach. To break through in an increasingly cluttered environment, we will create even more editorial-centric content across our touch points to bring products and services to life in even more compelling ways. To do this, we will build out our editorial team and internal content supply chain, including scaling up Ulta Beauty-created video. And we will evolve the way we distribute and amplify our own editorial content. Third, we will accelerate livestreaming and social selling. The hyper relevance of live selling is an entertainment meets shopping, meets community formula that speaks directly to our Gen Z audience. We will build livestream commerce in multiple ways, such as Beauty School Live, our virtual master class platform. Launched in Q4 of 2020, we broadcast 23 shows, and the platform has continued to gain traction. Viewership has increased 34% since launch and episode viewing time has doubled. We are also exploring partnerships like Supergreat, a beauty and community-based live commerce platform. Beauty levers are spending an average of 35 minutes watching an Ulta Beauty live show on the Supergreat app, and over 1/3 of participants have added products to their wish list during the shows. These are not just nice to haves, these are cornerstones of our brand differentiation, inspiring product discovery and attachment to Ulta Beauty because we know that when consumers feel connected to a brand, almost 60% will increase their spending with that brand. As I mentioned earlier, we have a tremendous momentum with key consumer targets and also great opportunities to continue to drive that further. And we know that one of our biggest opportunities still lives with Black beauty enthusiasts. Given their passion for an influence in the beauty space, we have to double down on our work to engage and connect with them. I also mentioned that 1/3 feel left out by the beauty industry. You can see that brought to life in the letter on this page. This is a summary of what we heard from many Black women in our 2021 culture studio. This is a real problem for all of us in the beauty industry. We have made many commitments this year to diversity, equity and inclusion and many specifically to uplift voices in the Black community, including the launch of MUSE. Launched in February of this year, MUSE is both a proclamation and an acronym, which stands for magnify, uplift, support and empower. It's our action-backed platform to create tangible impact with and for the Black community. The MUSE video, which you saw during the break is our ode to Black beauty and features some of Ulta Beauty's phenomenal Black brand founders and beauty industry icons. We are so proud of this work. But most importantly, we're proud of the response from consumers, from associates, from industry leaders and media alike. Here's a look at MUSE in more depth. [Presentation]

And the work won't stop there. On September 22, we announced our next phase, the MUSE 100, a celebration of 100 inspirational Black voices in and around beauty, the visionaries, the leaders, the change makers. Each honoree was awarded $10,000 to accelerate their continued impact, totaling a $1 million commitment from Ulta Beauty. MUSE is a key platform that we intend to build upon over the coming years. And as we turn toward Ulta Beauty guests, A key strategic differentiator for us is our world-class Ultamate Rewards program. We love this program and our guests do too. I couldn't agree with at Moody Girl more on the upper left, that Ultamate Reward system is dugout for real when it comes to beauty. Sorry, Tom. Sorry, LeBron. These are just 3 of the tens of thousands of quotes in social media from our members, expressing their love for points, for the Diamond and Platinum tiers and for the program that is truly where beauty loves them back. We have spent the last decade innovating to keep the program fresh, exciting and growing. In 2010, we brought together multiple smaller programs to establish Ultamate Rewards. In 2016, we launched the Ultamate Rewards credit card, the first in beauty with our partner Alliance Data. Since then, we've been Alliance Data's fastest-growing program and with 4.5 million cardholders, we are one of their top programs in sales and volume. Credit card members earn double Ultamate Rewards points, so they are highly engaged and they spend 44% more than noncardholders. In 2018, we introduced the Diamond tier to give extra rewards to our highest beauty spenders. And in 2019, we released a loyalty-focused mobile app refresh, which became the hub of Ultamate Rewards for our members. And even in a year like 2020, we continue to innovate, creating the Member Love platform to engage members and welcome them back to Ulta Beauty. And in September of this year, as Kecia mentioned, with the launch of Ulta Beauty at Target, we created the seamless connection of Ultamate Rewards and Target Circle, giving guests the opportunity to earn points in both programs with every purchase, but redeem only at Ulta Beauty. And this continued innovation has fueled our growth with a 14% member increase from 2016 to 2019 and an amazing recovery from 2020. With so much disrupted, one thing certainly remains, our guests love beauty and Ultamate Rewards. To continue to inspire, excite and engage, we will innovate and write the next chapter for Ultamate Rewards with a focus in 3 areas: amplifying points plus, we deliver unparalleled flexibility and value with our points, and we'll lean into that strength by adding even more ways to earn and to redeem. Unlocking meaningful experiences and access. We are moving in a direction where membership unlocks access to the immersive world of Ulta Beauty that we are creating. With more ways to play, more ways to connect and more ways to explore and discover. Inspiring Gen Z, keeping our eye on the future means creating for the generation shaping beauty. This group has different attitudes and perceptions when it comes to beauty programs and loyalty programs. And we will develop ways to connect and engage with them uniquely. And Ultamate Rewards is the key to data. So let's talk about how we'll leverage data to drive competitive advantage. Our member sales account for 95% of total company sales. So we have data on almost every Ulta Beauty purchase. And this includes purchases across all beauty categories, high and low price points and services, too. And with insights about almost 35 million members and growing, our data set is one of a kind. We understand what our members are buying, how frequently they are buying and in which channels they're buying. We understand preferences, some self-reported, and others are gleaned through purchases or experiences. For instance, in their interactions with GLAMlab or skin quizzes. We understand our members' channel preferences, what resonates and where it resonates. We recognize digital signals in between purchases that let us learn even more about our members. This is the center of giving our guests more meaningful communications and experiences and giving our brand partners more ways to reach beauty enthusiasts and grow. Let's start with our guests and more meaningful communications and experiences. We have been on a multiyear journey to bring to life the power of personalization. In 2018 and 2019, we focused on the foundation. We stood up our single source of truth in the cloud. We integrated Quazi, the proprietary AI that powers our personalization, and we built our two-way conversation platform. In 2020, we expanded our capabilities. We integrated recommendations across our channels. We implemented the offer engine to enable us to strategically target promotions and transitioned to a best-in-class CRM solution. And now in 2021, we are scaling, leveraging algorithms for data-led go-to-market activation, expanding across channels, and adopting new agile ways of working to enable faster iteration and speed to market. As we road map 2022 and beyond, we are poised to maximize through amplifying real-time and predictive decisioning, expanding the guest signals we use, maximizing the power of content to be even more dynamic and personalized and infusing CX -- infusing personalization into CX experiences that we're creating. Let me give you a few tangible examples of how we're using the power of personalization right now at scale. Life cycle marketing is the lifeblood of engagement, and we are scaling the power of personalization to get smarter at every single step. For instance, fine-tuning our acquisition efforts to target high-value look-alike beauty enthusiasts, more effectively onboarding new members with the most relevant message to encourage the next purchase. Driving greater engagement by serving up the next best category introduction to drive category penetration. Triggering offers based on browsing behavior on ulta.com or serving up an offer to download the app to drive greater adoption and engagement. We're also scaling personalization to convert from inspiration to purchase. We've expanded recommendation formulas amplifying the use of them across channels. Our guests love recommendations because they find highly relevant new brands and products to explore. And for us, it drives incremental sales. Our replenishment models are now built to prompt guests with convenient reminders in e-mail and push notifications and more as a helpful and predictive way to make sure they don't forget any of the items they buy with regularity making sure that purchase stays with Ulta Beauty. And our interactive quizzes and augmented reality inspire product discovery and purchase while also giving us the opportunity to glean more understanding of our members each time they engage to make that next interaction even more relevant and compelling. The power of personalization is not just for digital channels. We are also scaling to drive decisioning in other media. For instance, we are applying advanced analytics to deliver direct-to-home print, specifically, our monthly Ulta Beauty magazine. We've optimized audience selection and the offers for selection for each guest to maximize for response and return. With these changes, we've been able to pull back significantly on print investment and reinvest those marketing dollars into digital channels. And just as we set our sights on being at the heart of the beauty community with our guests, we will also be the heart of the beauty community with our brand partners. Building on our exceptional reputation and relationships, we will build and scale our ecosystem, working even more closely with our brands to jointly drive our businesses. One important focus will be scaling up our retail media network. Today, we are excited to announce UB Media. A business model that will unleash the power of our data in service of our customers and our brand partners as well as unlock a new revenue stream for Ulta Beauty, one that is highly incremental and margin accretive. Ulta Beauty's role with UB Media is not as a marketer or an advertiser, but rather as a media platform, where our brand partners are able to place media to reach unique audiences across many advertising channels including our own channels like our site and our app and external channels like Facebook and Instagram. And we will provide closed-loop reporting and insights on their return on investment, which is not something most media solutions can provide. UB Media drives joint growth with our partners because the advertising campaigns drive consumers to ulta.com and Ulta Beauty stores to convert to purchase. UB Media builds from our success with our existing digital marketing partner program or what we call DMPP, where we give brands the opportunity to place digital campaigns, many in digital display and paid social media to reach target audiences and understand the results more effectively and efficiently. We have seen tremendous growth in our DMPP program and increasing requests from our brands to do even more. We currently have 100 brands across categories actively participating in this program, which is almost double versus last year alone. UB Media, launching in spring of 2022, represents a sharp focus and accelerated scale-up from the fantastic foundation we've built. And as we close out our strategies to expand and deepen our presence at the heart of the beauty community, I'll leave you with 4 key takeaways. We will drive our brand purpose and create the destination for beautytainment. We will deepen our connection with key consumer targets in meaningful ways. We will maximize the power of personalization to deliver innovation and Ultamate Rewards program to drive guest love and loyalty. And we will launch UB Media to give our brand partners new ways to invest while creating a new revenue stream for Ulta Beauty. And now Kecia is joining us to talk about how we will empower all of these great strategies with a focus on operational excellence. Over to you, Kecia.

Thanks, Shelley. No better time than now than to be a part of Ulta Beauty.

Absolutely. Take it away.

One of our values is to improve always. And as my role as COO, one of my key priorities is to continuously strive to help us be a better organization. Since 2018's Analyst Day, we have made significant strides on our journey of improvement, optimizing across the enterprise. Looking forward, we are focused on driving additional improvement in 3 main areas: elevating our optimization approach from functional to enterprise-wide, embedding a profitability-focused mindset throughout the organization and building a continuous improvement center of excellence; investing in our infrastructure to support future growth and enhance capabilities with Project SOAR; and undertaking efforts to build a guest-centric supply chain that really fuels our growth. Three years ago, we introduced our efficiencies for growth, or EFG program focused on 4 key work streams: category performance improvement, indirect procurement cost, end-to-end operational efficiencies and real estate costs. We identified a target of $150 million to $200 million in savings through 2021. And I am pleased to share that we've delivered strong savings despite the COVID headwinds. We exceeded our goal and delivered $250 million in savings, including the organizational restructuring that we implemented in early 2021. Despite the significant progress that we've made, we know opportunities remain to continue these efforts. Our initial EFG efforts were largely function focused. Now we are broadening our approach to focus on cross-functional opportunities to drive efficiencies across the enterprise. To support these efforts, we recently created a continuous improvement center of excellence to identify and activate meaningful cross-functional process improvements and opportunities. The new capability will support our efforts to deliver an additional $150 million to $200 million in savings by 2024 to benefit operating margin. To deliver our savings goal, we are focusing on profitability improvements across 4 key work streams. As Monica mentioned, we will expand merchandising margin while curating the assortment. This enables our category teams to remain a profitability-focused mindset, work with brand partners to drive the productivity. We will continue to expand our promo optimization efforts, maintaining our focus on improving profitability while delivering relevant promotions to our guests through both technology and process improvements. SKU rationalization will reduce complexity, making our stores more shoppable and driving increased profitability. Now our goal is to curate the assortment to improve overall productivity by managing SKU growth and eliminating unproductive SKUs. Finally, our one-touch product flow efforts will deliver cost savings and process optimization in the future. Using world-class process improvement techniques, we intend to optimize the end-to-end product flow, cost and working capital while maintaining our assortment commitments. For example, we're evaluating end-to-end order frequency with brand partners internally with the DCs to stores to reduce cost and complexity throughout the Ulta Beauty network. In addition to focusing on cross-functional process improvement, we're also improving operational efficiencies with upgraded infrastructure, technology and processes. We will continue to evolve our infrastructure and core capabilities over the next 3 to 4 years, setting the foundation for the future and enabling us to be more agile and efficient. We're pursuing a multiyear business-led transformation called Project SOAR, which will upgrade our enterprise resource planning platform and support our vision to strengthen, optimize, accelerate and renew our core operations. This new platform will provide a flexible, scalable operating environment and set the stage for faster, more efficient growth and innovation, including better, faster visibility and access to information and insights, driving real-time decision-making. Accelerated processes across core operations, allowing for greater business efficiency. Simplification of our IT landscape, reducing the total cost of ownership. Taking a multiyear phased approach, we expect to invest $160 million to $180 million over the next 3 years. We've already begun the work and expect to start seeing benefits in 2023. Over the past decade, we've created a supply chain network, which laid the operational foundation to support store and e-commerce growth. Of course, the last 18 months, we've experienced a rapid acceleration of e-commerce and omnichannel growth, coupled with adverse macroeconomic trends such as transportation constraints and the competitive labor market. Although our supply chain was designed with these trends in mind, the speed in which the change advanced our business was by several years in a matter of a few months. In the midst of this change, we saw an opportunity to really assess our supply chain and identify how our network, technology and capabilities could continue to evolve to further support our strategic priorities. Our future state vision is to build and operate a dynamic agile, multi-echelon supply chain network that allows us to increase the speed to guest and stores while fueling organizational growth in a cost-effective way. To bring this vision to life, our comprehensive effort is underpinned by 3 key pillars: our network, innovation and technology and capabilities and processes. The network pillar focuses on getting the right product in the right place at the right time for the right cost. The innovation and technology pillar focuses on evolving technology and systems to enable new capabilities, deliver cost efficiencies and improve service and quality to stores and guests. The capabilities and processes pillar focuses on advancing capabilities and optimizing processes to drive operational excellence. Let's start with the supply chain network. Our future network will have 4 key types of fulfillment centers to service our stores and e-commerce guests. Regional distribution centers will continue to serve as the foundation of our network, performing the core functions of direct-to-store replenishment and guest order fulfillment. These facilities carry the full assortment and can provide broad coverage to stores and guests across the country. In the future, regional distribution centers will take on a new role as replenishment hubs for other types of fulfillment centers. Fast fulfillment centers build on the foundation established by regional distribution centers to supplement network e-commerce capacity and enhance speed in specific markets. These buildings carry a limited assortment, focusing inventory investments on the most productive SKUs. To further supplement the network speed in local areas and support e-commerce demand, we use over 100 ship-from-store locations, which leveraged our associates, assets and inventory to better service our e-commerce guests. As we look ahead, we will introduce a fourth type of facility, a market fulfillment center. Now similar to the fast fulfillment center, market fulfillment centers will focus on the most productive products. But in addition to fulfilling e-commerce orders, these facilities will also serve stores, enabling us to improve service and responsiveness to stores and guests especially in markets with high store density and high population density. Together, these fulfillment centers will create an agile, service-focused footprint that properly positions inventory and balances the transportation portfolio. Building on the network, the changes that we're introducing, we're also implementing a new technology and automation to evolve our ways of working and modernize our supply chain in a way that offers financial service and operational benefits. A few examples of innovation and technology that are planned over the next 2 years include a warehouse execution system that will serve as the foundation for automation and advancements, automated foot walls, autonomous mobile robots and automated storage and retrieval systems. This technology is focused on maximizing asset productivity while delivering on-the-ground efficiencies like reduced cycle times and simplicity for our associates while enabling enterprise priorities such as business growth. These objectives drive a variety of benefits, including improved service to stores and guests, better utilization of our DC assets and cost efficiencies. To unlock the full potential of the network enhancements and technology improvements, we are also applying the improve always lens to look at opportunities to advance capabilities and operational processes. A few examples of enhanced capabilities include establishing end-to-end supply chain control tower to enable real-time visibility, decision-making and proactive responses to disruption and partnering with our brand partners on initiatives that drive mutual value and enable a seamless product flow from vendor to guests. Our objectives are to streamline processes to deliver operational excellence and to advance the maturity of our capabilities. These capabilities and process enhancements will help us further realize the value of our fulfillment network and technology improvements to deliver on guest expectations and drive increased efficiency. In closing, we're adopting an enterprise-wide approach to optimization and believe we can deliver $150 million to $200 million in cost savings by 2024 to benefit operating margin. Guided by our continuous improvement team, we will identify and act on new enterprise initiatives to drive margin improvement. Through STORE, we're upgrading our infrastructure and capabilities to support future growth. And we're building an enhanced guest-centric supply chain that will allow us to be more flexible as the business environment changes and consumer behaviors evolve. These key aspects of our better agenda directly reflect on the value to improve always. It's been my pleasure to share the vision of what operational excellence is with all of you. And now I'm going to turn it over to our CFO, Scott Settersten, to share our financial outlook.

Thanks, Kecia. That's a great setup for how operational excellence and cost optimization is going to help us continue to deliver strong financial performance. Good morning, everyone. I'm Scott Settersten, Ulta Beauty's Chief Financial Officer. Now that you've heard more about how we are thinking about opportunities to grow the business and expand our market share, I would like to spend some time walking through how these plans translate into our longer-term financial expectations. As you know, we entered the pandemic with a strong history of industry-leading execution. When unprecedented disruption struck, our solid financial foundation and healthy balance sheet gave us the flexibility to effectively manage store closures and business challenges, supporting our associates and brand partners along the way. Now we are emerging a healthier business, well positioned to capture the growth opportunities the team has outlined today, and they continue to deliver strong shareholder returns. Let me start with a brief recap of our recent financial performance. Prior to the pandemic, our average compound growth in net sales was 12%. Like other specialty retailers, we experienced challenges in 2020, but the proactive steps we took to stabilize, strengthen and reposition the business enabled us to navigate the dynamic environment and position Ulta Beauty for an accelerated recovery in 2021. As we shared on our earnings call in August, we expect 2021 sales to be between $8.1 billion and $8.3 billion, well ahead of 2019 levels, demonstrating the strength of our business model and the resilience of our teams who continue to respond with great agility to delight our guests in new channels and new ways. This accelerated recovery is reflected in our comparable sales results, which are expected to increase 30% to 32% compared to 2020 or in the high single-digit range compared to 2019. We have a long history of delivering profitable growth. Pre-pandemic, our compound average growth and diluted earnings per share was 16%. A reduction in net sales, combined with channel shifts, the challenge of leveraging fixed costs, asset impairments and restructuring-related costs resulted in lower EPS in 2020. However, a faster-than-expected recovery combined with the impact of the steps we took to optimize the business have contributed to a strong recovery in performance. We are confident in our momentum, but we expect continued pressure from macro headwinds, including significant cost pressures in wage, freight and product, paired with ongoing change and disruption across consumer behavior, supply chain and government regulation. Taking all of these factors into consideration, over the next 3 years, we expect to deliver net sales growth between 5% and 7% on a compound annual growth basis, operating profit between 13% and 14% of sales, low double-digit diluted earnings per share growth on a CAGR basis while maintaining CapEx reinvestment in the business between 4% and 5% of sales. Given the significant impact of COVID on 2020 and 2021 results, these targets assume a base year of 2019. We expect to grow net sales by 5% to 7% on a CAGR basis, reaching approximately $10 billion by 2024. In terms of the drivers of net sales growth, we plan to open 50 net new stores per year for the next 3 years. We are targeting annual comparable sales growth of between 3% and 5%, driven by continued market share growth, moderate growth in e-commerce penetration as well as continued loyalty member growth and higher average spend per member. In addition, we expect the top line to benefit from new business additions, including the Ulta Beauty at Target and the UB Media platform, Shelley described earlier. Turning now to operating margins. Prior to the pandemic, our operating margin was under pressure. Makeup was decelerating. And while gross margin was improving, pressure from labor and other fixed costs were driving greater SG&A deleverage. We've taken action to address these challenges. And our business is healthier today than it was in 2019. We've improved category margins with stronger analytics and disciplines around assortment choices and economic outcomes. E-commerce is much larger, but also more profitable with the implementation of new capabilities like BOPIS, ship from store and improved pick, pack and ship efficiencies in our distribution centers. Our real estate portfolio is healthy with improving economics as we leverage our brand strength and optimize our footprint. We've expanded our analytical and CRM capabilities to improve our ability to engage with our guests and reduce promotional levels. And we've rightsized our cost structure by resetting our corporate overhead and pausing our international aspiration in the near term. These actions paired with our assessment of margin headwinds and tailwinds and gives us confidence that we can maintain operating margins between 13% and 14%. Collectively, these actions demonstrate the significance of our efforts as we expect to return to peak margins on more moderate top line expectations. And we remain committed to investing in SG&A to drive gross margin improvement. While we have made much progress over the last 18 months, we have additional opportunity to drive optimization throughout the business by continuing to leverage our efficiencies for growth levers. As Kecia mentioned, over the next 3 years, leases for approximately 500 stores will be up for renewal. Strong financial performance and high brand awareness make Ulta Beauty a tenant of choice, and we will continue to work with our landlord partners to optimize our store footprint and improve financial outcomes. Continued refinement of our promotion strategies as we lean into our improving CRM capabilities to drive more personalization, merchant-driven initiatives that Monica described earlier, including category management, inventory productivity and promo optimization, increasing buy online, pickup in store penetration, which eliminates shipping costs for e-commerce orders and facilitates greater leverage of store assets. And by taking our cost optimization efforts to the next level by implementing new continuous improvement capabilities that Kecia described earlier with skilled and focused resources, driving process optimization across the enterprise. These benefits will help mitigate expected margin headwinds from IT and supply chain investments, increasing wage rates and supply chain costs, and investments in select experiential upgrades to our store fleet. The blurring of the line between brick-and-mortar and digital has accelerated over the last several years. the implementation of guest-centric capabilities like store-to-door, BOPIS, ship from store as well as changes in marketing tactics, raised the complexity in determining which channel get the benefit of a specific sale along with the related direct and indirect costs. Simply put, we are focused on delivering the best beauty shopping experience to our guests regardless of how they choose to engage with us, be it in-store, online via our website or the Ulta Beauty app or other new revenue-generating channels we touched on today. Going forward, we will be speaking to total results and will not be discussing specific channel financial metrics. We have summarized the significant puts and takes to operating margin over the next few years and provided a little color on relative impact to each channel. Each factor impacts brick-and-mortar and e-commerce channels in different ways. Renewals and lease optimization benefit store profitability with minimal impact on e-commerce. Improving promotional optimization benefits both channels, but benefits e-commerce more given the digital focus and higher penetration rates. Category management efforts benefits both channels. Increasing buy online, pick up in store penetration benefits both channels, eliminating shipping costs and leveraging existing store assets. Continuous improvement benefits the entire enterprise cost structure. IT and supply chain investments pressure the P&L in the short term, but will deliver long-term operational benefits. Increasing supply chain costs adversely impacts both channels. Increasing wage rates adversely impact both stores and e-commerce, but is more heavily weighted to stores where we employ a much larger part-time workforce and select fleet experiential upgrades impact stores more directly. Turning to earnings per share. We expect diluted EPS to grow at a low double-digit rate on a compound annual growth basis between 2022 and 2024, with share repurchase contributing approximately 3 to 4 points of EPS growth annually. This is based on the targets we've communicated today and assumes minimal impact from interest and importantly, does not assume any change in the federal tax rate or the minimum wage rate. Shifting to our capital allocation philosophy. Our priorities for capital allocation remain unchanged. Our first priority for cash use is to reinvest in the business to drive growth. We anticipate our strategic investments in the business will take the form of new store growth, digital innovation, supply chain automation and optimization and our IT capabilities, including a major business transformation initiative with Project SOAR that Kecia mentioned earlier. And where it makes sense, we may explore capability, building acquisitions, investments and partnerships. After these considerations, we would continue to look to return excess cash to our shareholders. We expect capital expenditures to be between 4% and 5% of sales for 2022 through 2024. This translates to roughly $1.1 billion to $1.4 billion in spend over the 3-year period with more than 1/3 earmarked for fleet reinvestment, 1/4 towards IT and digital experience investment and the remaining approximately 40% allocated to new store growth and supply chain investment. Our business has consistently generated strong operating cash flow. Our efforts to grow the business and rightsize our operating model continue to translate into greater operating cash flow generation. Our stock repurchases are projected to reach $850 million this year, more than double the levels we saw 5 years ago. In closing, we are recovering faster from the pandemic than anticipated and continue to effectively manage anticipated headwinds. Our efforts to address margins are working, and we are emerging a healthier and more profitable business. We have the right structure and strategies in place and are investing for future growth. And our strong financial foundation will support our ability to continue to deliver long-term profitable growth and strong shareholder returns. And with that, I'll turn it over to Dave, who will wrap us up and take us to Q&A.

Thanks, Scott, and thank you all so much for joining us today. On behalf of our entire leadership team, we appreciate the opportunity to share with you how we are positioning Ulta Beauty for an incredibly bright future. Today, you heard about our continued growth journey at Ulta Beauty, how we will continue to lead the beauty category through innovation, disruption and a deep understanding of evolving consumer behaviors; how we will win as an omnichannel leader across physical and digital, further meeting our guest needs wherever and whenever they engage in beauty; how we will continue to expand our market share and increase customer loyalty across all aspects of our business; how we will continue to use our influence and leadership to make the world a better place through our strong focus on diversity and inclusion, sustainability and giving back to the communities in which we live and work; and finally, how we will continue to position Ulta Beauty for sustainable, profitable growth and further establish our position as the leader in the beauty industry. Now I shared with you that Ulta Beauty is uniquely positioned to create the future of beauty through the intersection of 3 unique elements. We are in a great category that is growing and emotionally connected to consumers. We have a strong proven business model with a long, long runway of growth ahead of us. And we have a powerful culture and team focused on taking care of our guests and taking care of each other. And as we've discussed throughout the day today, we have a well-defined strategy that will enable us to expand our market leadership and drive continued long-term profitable growth. This is the framework that will guide our efforts going forward and lead us to the financial targets we have laid out for you today. Today, we shared how we will drive all elements of our core business in new and innovative ways that leverage our strength in the marketplace. Our assortment is core and is differentiated and central to our success, and we will continue to innovate, evolve and expand our offering in ways that excite the beauty enthusiast. We remain very confident in the central role of our stores and what role they play in our experience, and we will strategically open new stores while investing in our existing fleet. We are a leader in digital experiences and are focused on innovation that will further integrate our digital footprint with our physical stores in ways only Ulta Beauty can deliver. Our world-class loyalty program will continue to attract new members while leveraging enhanced personalization to deepen engagement and spend. And we will strengthen our emotional connection with our guests through immersive human experiences that are central to our success. I'm very optimistic about the growth potential of our core business, and we are focused on accelerating across all aspects of the experience we've shared with you today. But at the same time, we are innovating and driving new initiatives to support our growth and financial performance. We are launching new businesses that leverage our strength and capabilities while extending us into new areas, including our UB Media business. We are establishing new breakthrough partnerships and a digital innovation fund that will enable us to further accelerate disruptive go-to-market efforts. We are building new capabilities that will fuel our growth through critical initiatives, including SOAR and Digital Store of the Future. And we are scaling our personalization capabilities, leveraging the power of our unparalleled data to deepen member engagement and loyalty. And we are aggressively driving optimization through our supply chain network expansion, and our focus on continuous improvement. So to wrap up, Ulta Beauty is poised to create the future of beauty. We will build on our 30-year foundation as a leader in the beauty industry, continuing to drive disruption, creativity and a focus on our guests. As a growth company, we will continue to innovate and evolve to meet the opportunities and challenges ahead. We are focused on enabling this path through building next-level capabilities, processes and operations. And I am confident in this vision, knowing that our people and our culture will always be fundamental to our success. So thank you again for joining us today. I hope you found our time together today productive and that you share our optimism and confidence about the very bright future of Ulta Beauty. Now we're just going to take a 5-minute break to get set up for Q&A, and we'll be back to take your questions. [Break]

Okay. Welcome back. Now I'd like to welcome our executive team here with me on stage for our Q&A session. You've met most of the executive team today, but not all of them. So I'd like to ask Jodi, Amiee and Jeff to introduce themselves. And Jodi, why don't you start?

Sure. Thanks, Dave. Good morning. My name is Jodi Caro, and I'm Ulta Beauty's Chief Risk and Compliance Officer, in addition to being our General Counsel. And I also lead our ESG initiatives. So I'm thrilled you had a chance to hear about how they're part of our business strategy earlier today.

All right. Great. Good morning, everyone. I'm Amiee Thomas. I am our Chief Supply Chain Officer, and I lead our Enterprise Continuous Improvement Team.

And Jeff?

Hello. My name is Jeff Childs, and I'm the Chief Human Resource Officer. And I hope it came out loud and clear how important our talent and our culture is to our strategy.

Great. Thank you. Okay. Let's jump in. Kiley, do you want to get us going?

Great. Thanks, Dave. [Operator Instructions]. So we're going to start with a question from an investor submitted via the web. The first question is, you expect the industry to grow at 2% to 4%, but you expect Ulta Beauty to grow at 5% to 7%. What's driving this upside versus the industry?

Well, first of all, I hope you picked up today that we are very optimistic and confident on our growth potential. The strength of our core model with the addition of some of the new innovation and creative bold moves we're taking we think, give us a lot of confidence. We see the category itself has been quite healthy for a long time. I talked about earlier today, growing in the 3% range over the last several years. And we see that continuing, returning to growth as we emerge out of the pandemic. But Ulta Beauty has long led the category. And we think the combination of a differentiated world-class assortment, a world-class loyalty program, physical human experiences that happens in our 1,300-plus stores added to a digital experience that only Ulta Beauty delivers, services, all the other aspects that we bring to life give us a lot of confidence that while the category is healthy, we can continue to lead the category and drive greater growth than the category. Having said that, we know it's a disruptive time, and there's still a lot of uncertainty in the path ahead of us, particularly, I'd say, over the next 12 to 18 months as we continue to navigate the disruption that we've been in. So we've appropriately included that in our outlook. But as always, Ulta Beauty will do everything we can to find new ways to grow, to innovate, to lean into the things we talked about today, continue to adapt and adjust to the consumer environment to make sure we are gaining share, delighting our guests and leading the beauty category from a growth perspective, and we're confident we'll be able to continue to do that.

Great. Thanks, Dave. So next, we'll take a question from the live queue. Operator, can you provide instructions and queue the first question, please?

[Operator Instructions]. Our first question comes from the line of Simeon Gutman.

Kiley, I'm going to ask 1 question in 2 parts, but small parts. So the question on the first part is, it does look like you -- Ulta should exceed its '21 guidance. Curious how investors should extrapolate the upside to the plan because if you take that upside for '21, you could end up seeing CAGRs obviously, that are much lower for '22 to '24. Should we interpret that as conservatism? Or it's real investment coming off of SOAR? And then part two, this is around the beauty enthusiast. You mentioned, I think I heard today 30% share of wallet with the beauty enthusiast. I believe that's the number we've heard at actually the last 2 Ulta investor meetings. Can you talk about how you expect to drive a greater share of that wallet. And is your outlook predicated on growing that share with the enthusiast or driving new customers?

Great. Well, thanks, Simeon, for the question. Both really important questions and one that we have touched on today. We're very optimistic in our ability to drive share of wallet. And actually, why don't we start with that question, I'm going to ask Shelley to give some context of how we think of that. And then, Scott, maybe you can touch on the first part of that question.

Yes, absolutely. Share of wallet when it comes to beauty enthusiasts, you're right, Simeon, we mentioned 1/3, a little bit disrupted by last year, but we feel really good about the share of wallet we've driven this year, above and beyond 2019 levels. So we're encouraged by that. We know that there's a lot of runway, not only with beauty enthusiasts, but with the 3 key demographics that I mentioned. With Gen Z, where we have a very strong foothold, but we know we have more room to grow share of wallet with them. With our Hispanic beauty enthusiasts, we know we have a share of wallet opportunity there and with our black beauty enthusiasts. And we feel really encouraged because of what we're doing from a brand perspective, with our brand purpose, connecting with key cohorts, but also from a personalization standpoint. So for us to really engage each of them in very unique ways using our personalization capabilities to be able to connect, introduce them to new products, new categories, makes us feel very confident that we can continue to drive that share of wallet moving forward.

Yes. And I would say, respective of the long-term financial outlook. So again, very happy with the faster-than-expected recovery in 2021. And the teams have done a great job delivering both operationally and financially very strong results. Having said that, 2021 is extraordinary in a lot of different respects. So sales, again, way beyond anything we would have expected as we started the year, I think to the tune of about $1 billion, I guess, the last time we communicated with investors. Conversely, the investment part and the expense that goes with that as part of the business equation is much lower than what we would expect in a more normalized environment. And so we think it's best when you look -- you should look at 2020 and 2021 collectively, right? And that's why we're talking to growth CAGRs based on 2019. We think that's the best place to get started. So we're very confident in Ulta Beauty's positioning. We're confident in the beauty category continuing to grow and being able to deliver against those financial targets that we laid out today.

Thank you, Scott. So our next question comes from the web. It's from an investor. How is Ulta Beauty implementing equity and diversity internally? How is Ulta Beauty changing systematically in this area?

Well, a great question, really important question and a key focus for us. And I shared with you some of the broad commitments that we've made across the enterprise, both internally and externally to make sure that we're really driving change in this. But specifically internally, I'd like to ask Jeff to give some comments about how we -- how we're moving ahead in that space.

Thank you, Dave. As Dave said, diversity and inclusion is critically important to our success in our talent and in our culture. So 2 areas that I guess I would stress to give you further insight internally of some of the things that we are doing. First, on the diversity front. One, we're a very diverse organization today, but we recognize the need for improvement in our management ranks to have the breadth of diversity that we think will make us the most success. So therefore, we're doing a couple of things: one, identifying people of color within the organization, understanding who they are, what their talents are, what their aspirations are. Dave mentioned earlier, our Diverse Leaders Program is an example of identification of individuals and then investing in their development so that we can fuel our internal pipeline as it relates to diversity. But in addition, we recognize that we will need to do external hiring as well. And so our recruiting teams are expanding our pools of candidates to ensure that we have diverse slates every time that we're looking to hire from the outside. And as a result, we will increase the diversity of the organization. The other part of that equation is around inclusion. It's critically important for our culture to be able to thrive not only in take -- bringing out the best of our people. But as Shelley talked about, Kecia talked about, the importance of the guest experience and the importance of diversity as we think through the guest lens. So we're doing a lot of education, a lot of open dialogue and commitment from this entire leadership team, including Dave, to be a part of those conversations. I hope that answers your question.

Thank you, Jeff. Operator, can we have the next question in the queue?

Our next phone question comes from the line of Michael Lasser.

If you achieve a 14% operating margin this year, would your margin be down from here in the next few years? And as part of that question, a lot of retail categories have seen expanded profitability this year as there's been a lack of promoting and discounting, is the beauty category different, and there's actually been a reset in the promotional landscape that would push this moving forward?

I think I got that question. It's a little hard to hear. I think we'll start with the promotional, and then Scott, I'll ask you to ask -- add on this year's performance and how it ties into next year. I think your -- I'm sorry, you were breaking up just a little bit, but I think your question around the promotionality is, is beauty different. And what's our outlook as it relates to the promotional environment. And that -- we've been talking about this for a while. We are actually talking about our efforts in reducing and optimizing promotional intensity before 2020 and have been making progress, but have accelerated those efforts over the last 18 months. Our focus, for sure, is to ensure that we're driving great value for our guests but doing that through strategic brand building, value-added efforts in some of our most important programs, things like 21 Days of Beauty and our major hair events throughout the year are good examples. We're also leaning into our personalization efforts that Shelley talked about today that give us a much more targeted specific way to ensure that we're getting the right promotion to the right customer at the right time to drive behavior but not flooding the market with unnecessary or nonstrategic promotional activity. So we'll continue to do that. And so that -- and largely, the category has been a little less promotional this year, and we're happy that we've been able to leave that. We're obviously, though, watching it closely as we always do. Our focus is on continuing to drive share. So we'll stay competitive, but we're going to also stay true to our strategic focus on promotionality and look for ways to continue to optimize as we move forward. Scott, do you want to talk?

Yes. So again, back to 2021. Very happy with the performance overall. Again, it's an extraordinary environment. So using 2021 as a base, when you're looking forward to EPS growth or margin maintenance, it's just not realistic, I would say, in this environment. So again, sales way overperformed this year, which provides a lot of natural leverage in the P&L. We didn't plan -- our initial plan for this year did include investment, right, at the same cadence that you would normally expect with, let's say, $1 billion in excess sales during the year. So as we're thinking about 2022 and the setup there, we remain very confident that we can maintain operating margins in that 13% to 14% range. But when it comes down to EPS growth, we think that could be more of a challenge as we cycle 2021. So again, EPS growth in absolute terms next year will be more challenging because we're going to be cycling the stimulus payments, we're going to be cycling reopening of the economy. Again, everyone has a little different perspective on that. But it's pantry refreshing and people engaging again and getting out with family and friends at different stages during the year. So we don't expect sales growth to be at the same rate that it was in 2021. And then link in the other side of the equation with we would expect to get back on a more normal cadence with our investments and of course, people costs and other overheads that come along with those kinds of things. So again, operating margins absolutely stay in that range for next year. EPS growth would be a little bit more challenged, and that's why we're looking at it on a CAGR basis over a little longer period of time. So over the 5-year period off a 2019 base, we feel very confident we can deliver low double-digit EPS growth.

Great. Thank you. Our next question comes from Rupesh at Oppenheimer & Co. In the 3% to 5% comp growth CAGR, how should we think about cannibalization with the Target-Ulta partnership? How has cannibalization played out to date?

Well, let me just start, and I'll ask Kecia because Kecia is leading this initiative. I'll just start with how excited we are about the partnership. What great partners Target has been as we've built this program and how optimistic we are and what a key part this will play in our total omnichannel efforts. But Kecia, do you want to share some insights on how we're thinking about that?

Yes, absolutely. It's still early to share too much. But what I will share is that -- this is really an engagement to deepen the loyalty with our existing guests and also introduce Ulta Beauty to potential new guests that shop in Target today. So it's really about how we can continue to drive that loyalty engagement and greater spend per member. And it's a highly curated assortment that's in the Ulta Beauty at Target. So the thought is to really introduce a guest into Ulta Beauty at Target and bounce them right back to leverage their ultimate rewards points to redeem at Ulta Beauty and also try our services and experience the whole Ulta Beauty store itself. So we're excited about the partnership. We're off to a strong start, and we look forward to sharing more results here real soon.

Great. Thank you, Kecia. Operator, can we have the next question in the queue?

Our next phone question comes from the line of Oliver Chen.

Regarding small format, you've looked at this in the past. I guess what's different going forward and would love some context on UB Media. UB Media and Target will contribute to your total revenue growth. So if there's a sense of the magnitude, they both seem like great long-term opportunities and strategically important for customer acquisition as well as leverage of data. And then a second question on diversity and inclusion. You did a really great job highlighting underrepresented voices in the beauty industry and actions you're taking. What do you see is the linkage between underrepresented voices in the category and/or channel opportunities? And how do you think about diversity in terms of your Board as well as senior management opportunities?

Okay. Great. Thanks, Oliver. I think we got your questions here. I'm going to start with how we think about diversity and inclusion across the company and you asked specifically about our Board and senior management. And then I'm going to ask Shelley to talk both about the work we're doing on UB Media and how excited we think of that? And then -- and maybe, Shelley, you can also talk about the role that our diverse guests play in our outlook and our opportunity ahead. But as Jeff talked about, we are really focused on driving diversity throughout all levels of our team. And I'm proud to say we have a very diverse board, 60% women, 40% people of color. So we feel very confident in our efforts. But we're also continuing to drive that in every aspect of our business. We are doing programs at every level of management to build and grow diverse careers and I'm confident we're on that path, and we're going to continue to focus on that. But Shelley, do you want to talk about those 2 topics?

Yes, I'll start with diversity since you started there. The ability for our brand to be diversity forward and culturally relevant is really critical to bringing new guests into Ulta Beauty as well as cementing ourselves with current guests, back to the share of wallet question, to really get their love and loyalty. When we think about the Black beauty enthusiasts, that's really probably where our biggest opportunity to move the needle is. And I mentioned some of the big platforms like our Muse platform. We have a commitment overall to spend $20 million to $25 million in diversity of advertising and connection. From a category standpoint, Monica touched on the thought that in our hair category, there is a big opportunity to serve underrepresented guests. And we're really focused on that, especially when it comes to the management of natural hair and the wanting to be yourself and express yourself the way you are. So lots of opportunity and lots of categories to connect with diverse audiences and I would say, especially in here. So we're excited about really connecting even more with those key consumers. From a UB Media standpoint, we were really excited to share the news of UB Media today. We're excited about this new revenue stream. But as I mentioned, it's really about joint growth with our brand partners as well because we drive the advertising campaigns to Ulta Beauty. And we're able to provide a lot of closed-loop reporting, both short- and long-term insights to really help drive our joint growth. We want to be the place where our brand partners come to grow, and they do that now, and we want that to be long term. But leveraging our data in this week, we think -- in this way, we think is a fantastic incremental opportunity. We're really excited about building from our DMPP strength. It's really our proof of concept over the last 3 years that brands want this, and it matters to our guests. From a revenue standpoint, we do have some revenue in the plan. We're not splitting that out as a separate business, but we'll share more when it's appropriate to do that. But incremental opportunity, margin accretive and we'll let you know how it goes, but we believe it's going to be a big opportunity for us.

Thank you, Shelley. We've gotten a couple of questions about international expansion and when we might consider opening stores in Canada again. Dave, do you want to address that?

Yes, absolutely. So as I mentioned, and of course, I think you all know, we suspended our efforts in Canada in 2020, and that was really so we could focus our efforts on the U.S. business. And I'm glad that we did. And I think it's showing up in our results as we both are delivering 2021 and preparing for all of the things that we've described today. So international, specifically is not included in the outlook that we've shared with you today. But we're always looking. We know this is a global category. We know that international represents future potential for Ulta Beauty. So we're keeping a close eye on it. We'll continue to explore options. But there's nothing specific that we're either sharing today or have built into the financial outlook that we've shared.

Thank you, Dave. Operator, can we have the next question from the queue?

Next phone question comes from the line of Michael Binetti.

Scott, one on the guidance, could you help us think a little bit about how you built up the comp plan around the input for mature stores? Is it reasonable to assume you expect those stores to comp in line with the category at 2% to 4%. I assume digital will grow faster than stores within the 3% to 5% guidance. And then -- and I know you said you don't want to get into channel-by-channel detail, but you did mention it a few times through the material today, on margins on the e-commerce side, it seems like for a while, we've heard from you that BOPIS and having the consumer pick up in store is a pretty meaningful swing factor there. I know you probably don't want to get into numbers there, but maybe you can just help us think about how that affects the profitability guidance that you've given us going forward here to think about if we keep hearing from you at the BOPIS percent of consumers that you're able to get, coming by the store and pick up keeps increasing over the next few years?

Well, thanks for the question, Michael. Yes. So as we described, I mean, the store fleet continues to be a critical component of our overall omnichannel model. And so I think I mentioned in my remarks, we're going to try to stay away from talking about 4-wall productivity and those kinds of things. I mean, the fact of the matter is the investment profile, whether it's standing up BOPIS capabilities in the stores or ship from store or some of the other things we're doing on the EFG side of the business. So we talked about consolidating the service manager position and some of the other assortment and EFG things, improvements we've made in our stores, of course, they improve store productivity. But when we look at it, it's not a stores or an e-commerce equation. I mean, it's a collective model here. And as we look at what we can do, we're looking at ways we can improve the total outcomes here. So some -- in some circumstances, it's going to take the form of fleet refreshes, right, to make sure the stores continue to be an inviting, experiential places for our guests to come in and experience what we have to offer. And then you saw it today presented by Prama about the digital space, and Shelley talking about everything is through the phone. So the digital and the physical are just linked together so closely, it's just difficult to break them out into pieces. So again, we're going to be focused on the omnichannel model. We're going to be talking to delivering the best overall results and focused on delivering the best guest experience that we can in the beauty space.

Thank you, Scott. So we've had a couple of questions around the small store format that we discussed earlier. This question is from Mark at Robert W. Baird. Beauty enthusiasts -- sorry, that's the wrong question. The company tested small format stores a few years ago and ultimately decided to stick with the 10,000 square foot prototype. What's changed? And how do you think about the opportunity for the small format store could be longer term?

Kecia?

Yes, I'll take that one. What we've seen is that 5 years ago, we tested a small market format strategy. And the world has continued to evolve and change. We do believe that there are communities and guest that we can serve that are not -- we're not relating to or connecting with right now outside of our 10,000 square foot store or even our Ulta Beauty at Target partnership. This format would be very different than even what you're seeing as the curated assortment at Ulta Beauty at Target. It's something that's new, it's different. It's looking at tailored services along with the best curation of the data and analytics that we've had to build the best merchandising assortment in these locations. So we do think it's really key, and it's a white space that we can continue to drive, not only new store growth, but also this engagement with additional consumers that we're not reaching today.

Great. Thank you. Operator, can we have the next question from the queue?

Our next phone question comes from the line of Erinn Murphy.

I had a question around the current environment or the availability for procuring labor in your retail stores as well as in your DC? And then what is implied in wage inflation in your longer-term outlook? And then just secondly for Shelley, could you just remind us what percent of your overall business is Gen Z today as you think about that opportunity?

Okay. Jeff, do you want to take the first part of that question?

Sure. There's no question that the labor market is tumultuous, and we all read about the challenges in today's environment. One of the things that Ulta Beauty has done and done very effectively thus far is to be aggressive in the marketplace. We think we're competitive as it relates to our wages, but even more importantly, the quality of the work, the quality of the job, the fun experience that it's like to be at Ulta Beauty is an extremely powerful attraction mechanism for us. In addition, we grow careers. We provide opportunities for those that join the Ulta Beauty family to expand their careers, and we have many stories to share about that. So it's a great question, very ripe right now. We feel really confident in our ability and our current performance in staffing within our DCs, getting ready for holiday, and our staffing for our stores. We started early to make sure that we could staff effectively. We've offered creative solutions in the marketplaces that we serve. And so we feel good right now. But certainly, as Scott talked about earlier, there is wage pressure that we recognize. And I'll turn to you, Scott, to maybe address that portion.

Yes, I would just reiterate that as best we can measure it or anticipate it, it's built in. It's built into our 2021 forecast and it's built into our long-term outlook.

I think the second was addressed to me, but I didn't catch the whole...

No. I didn't either. Did you get that?

How much of your business is Gen Z?

How much of our business is Gen Z? Okay. Well, that is a little bit hard to split out because a lot of Gen Z-ers are hiding in their parent's member accounts. But we know that our percentage of Gen Z-ers is growing. And I'll just point back to the -- back to that, recent studies have shown that we are the preferred beauty destination by 2x versus any other beauty retailer. So we're excited about the base and the foundation that we have there. And we're going to be innovating like I mentioned, in the Ultimate Rewards program to make sure we meet their needs specifically. And obviously, a lot of what we do in digital innovation and our omnichannel experience is specifically geared towards them and engaging them. And so while I'm not splitting that out specifically, it is a very important target for us. And like I mentioned, we have only 1/5 of their share of wallet. So we have a tremendous foundation, but room to go with that beauty-loving generation for sure.

And I am so excited about the Gen Z cohort and the opportunity. The fact that we're a leader, it's because of the great store experience, our team just delivers a great experience every day, the marketing that we deliver, the digital tools and engagement, the new tools that we brought to life. The fact that we are so strong with Gen Z really is so far ahead of our competition is something we're really proud of. And something we think is another reason to be very optimistic in the future of Ulta.

Great.Thank you. Our next question is about the category and expected category growth, and it comes from Chris at JPMorgan. 2% to 4% category growth is below historical levels. Why would growth only be in line with GDP at the low end? And how are you -- how do you bifurcate by category and by mass and prestige?

Okay. Let me start at a macro level and then Monica, I might have you talk about some of the dynamics between categories in mass and prestige. But -- so our data suggests that, as I shared today that the category, beauty and personal care has been growing at a healthy clip, at about 3%. I talked about this earlier in our Q&A session. And the fact that we see an outlook to grow substantially higher than that, I think, is a reflection of our confidence in the business. And while we do see uncertainty in exactly how things will play out, one thing we are confident is that we will lead the category and grow faster than the category. So if the category does better, and of course, we're doing everything we can to make the category to do even better than its historical 3%. And we've given that 2% to 4% range of outlooks that we see in the years ahead. So if the category does better, yes, we're confident that Ulta will do better, and that's our effort. Our focus always is to lead the category, to drive share growth, and to make sure we're engaging our guests at every touch point through the innovation and many of the programs that we've talked about. But Monica, maybe you could share a bit of detail across some of the categories.

Yes, absolutely. I mean, as you heard me talk about earlier today, we're seeing such great excitement across all of our categories. We've been trending really well in skin care. And last year, over the pandemic, the change in taking care of self created these lasting routines that we believe are here to stay. And so skin care will continue to grow, and our team has done such a good job continuing to evolve the assortment and bring in new and exciting brands. Equally, hair care also saw some great traction during the pandemic. And again, kind of leaning into self-care, taking care of the scalp, all of the great innovation that we're seeing in damaged hair repair through bonding and innovation in our hair styling tools. So we are very optimistic about hair as well. And then as you heard, I talked about what had transpired with makeup. And make up certainly with soft coming into the pandemic, and then it was a little bit more challenged during the pandemic as we wore masks. But you can see, as I shared, with makeup on the strong trajectory at plus 51% year-to-date growth, makeup is back, and we are very optimistic about the trends that we're seeing in makeup and the consumer really, really leaning in and also being quite engaged through what they're seeing on TikTok. So from a mass to masstige to prestige standpoint, we did see earlier on in the year, we definitely saw more traction with mass. It was definitely more -- we saw an increased trend in mass faster than prestige. But as the year has continued to progress, we are seeing a lot more traction on the prestige side of our business, really, really importantly in makeup and each month has gotten stronger for us. So overall, we are optimistic. We see growth and strength across all of our categories, which is really, really amazing to see, and we're confident in that continued growth across our categories as well as across our price points.

Thank you, Monica. Operator, can we have the next question in the queue, please?

Our next phone question comes from the line of Steven Forbes.

I wanted to focus on the outlook for consumer engagement. So Dave, I believe the team mentioned that only 10% of members shop all categories. So I guess, first, can you expand on this fact? Are these members mainly from older customer cohorts? And is there sort of a natural evolution or maturation of engagement among the categories? Or were there historical limitations that sort of prevented broader category engagement that the team is sort of focused on improving right or addressing as we look forward over the next couple of years?

Great question. We do see category engagement being a key opportunity, and you highlighted some of the data that we see. I don't -- and I think you'd asked in your question about demographics are there some different demographic trends. We haven't seen that. What we see as our opportunity is just continuing to educate and inform our guests that we're a great destination. We have a lot of guests that really do shop across the whole store, but many of them might come in just for 1 category. They see -- they hear from a friend that we're a great place for makeup, and yet they're not yet shopping us for skin care or hair care, even though they are using those categories. Or they may come in there and try our salon and start engaging in our haircare business because that's kind of where they entered, but they're still shopping for makeup somewhere else. And so as much as we're excited about the passion and enthusiasm that our very best guests have for all things that Ulta Beauty offers, the fact that we have millions of guests that are only really just starting their journey with Ulta Beauty, only touching into key parts of our category opportunities, represents big growth potential for us. Shelley shared some of the personalization initiatives that we've been working on and all the investments that we've been making over the years to ensure that we are taking full advantage of the depth of knowledge we have about our consumer and the tools that we have to drive engagement. And so one of those key opportunities through our personalization efforts and all touch points is to find those guests that are maybe shopping only 1 or 2 categories and engage them in other ways and find the best ways to do it, whether it's through education, maybe a very targeted pinpoint and promotional, a new brand launch. And that will vary by customer and by instance. And so the sharper we get a personalization, the better we'll be able to drive total category usage among more of our guests. And so we think that's one of the key drivers of our growth going forward, and it's one that we're very focused on.

Thanks, Dave. So our next question comes from Dana at Telsey Advisory Group. How do you envision promos differently by category going forward? Will future promos be as frequent or deliver higher margin than in the past?

Well, I talked about our promotional activity a little bit earlier. And I said, this is a journey that we've been on for a while, really trying to optimize our promotion and to focus our promotional activity on brand-building activities that really add value to Ulta Beauty, add value to our guests appropriately and make sense for our brand partners. And I'm glad that in many ways that the last 18 months has given us an opportunity to accelerate those efforts, to be sharper in our focus, to eliminate less strategic broad-based coupons and other offers and to be more focused on what we call our tentpole events, those programs, like 21 Days of Beauty, that are very strategic. 21 Days of Beauty is a great example. Its whole purpose is to drive what we call mass migration, to get guests that are only shopping in mass to discover prestige for the first time or discover new brands in prestige for the first time. And we have a lot of history and a lot of data that proves that this is a very strategic program that works really well in expanding consumption. They continue to buy mass, but then they engage in prestige, and that's obviously good for Ulta and it's good for our brand partners, both on the mass and the prestige side. So we'll lean into programs like that. We'll also continue to strengthen our efforts on personalization. The more we can be pinpointed and targeted, the more efficient we'll be in both leveraging our spend, but also more efficient in actually driving positive consumer reaction. When we're broad-based, the reaction and the engagement is lower. When we're personalized and pinpointed and targeted, we have very high levels of engagement, and that also both drive sales and positive impact from our guests. So we're confident in our journey, and it's a focus area for us to continue to drive going forward.

Thank you. Operator, can we have the next question from the queue, please?

Our next phone question comes from the line of Mike Baker.

Okay. And Kiley, sorry, I logged on a minute late when you were doing your introduction. So maybe you said something about this, and I missed it. But no comment at all on the current quarter or update on guidance, which I get because we're focused on the long term here. But how do we think about not updating the guidance, especially because you did it 3 years ago at your Fall Analyst Day? Does that just mean that you're in line? Or do we more interpret it that it's just not really the focus of this meeting and didn't want to touch on it?

Well, I think, Mike, you answered your own question, but I'll let Scott -- you have to chime in...

Yes, Scott, why don't you, yes...

Well, you're right on point there with -- we're happy with the performance in 2021, again proud of the teams, what they've been able to deliver. But we're staying focused today on the long-term opportunity for Ulta Beauty, and there's plenty of them. So again, we're not going to get into 2021 or any updates today. And that's basically a change in our guidance tactics here. Again, back in 2018, we were providing quarterly updates and quarterly guidance. And so we're no longer doing that. And so we just kind of changed our rhythm here this year. So nobody should interpret that in any one way, right? Again, we're very happy with the performance of the business overall.

Okay. The next question is also for you, Scott. It's from Anthony at Loop Capital. Can you clarify, will any portion of the $150 million to $200 million of targeted cost savings be reinvested? Or will it all drop to the operating profit line?

That's a great question. So I would start with we are very happy with the good work our teams have done to reposition the business, to really optimize and provide us a platform to deliver stronger operating margins as we look to the future. So especially proud of the $250 million of EFG savings we've been able to drive over the last 3 years and equally excited about the $150 million to $200 million of benefits we expect to generate over the next 3 years. So again, those will be a mix of our EFG levers. We'll continue to manipulate those. So things around leases, things around category performance improvement, end-to-end and direct procurement in our business, that will link then. There will be a combination. So EFG will drive nearer-term benefits. And then the CI initiatives and -- that is going to be led by Amiee, we think will, again, allow us with additional skills and more talent, to get to some of those harder-to-capture benefits, I would say, especially around the end-to-end processes. So I would also add that Project SOAR will be a contributor to that over the long term. So again, that's a once-in-a-generation opportunity for us to kind of whiteboard, I call, the backbone of the business and give us a chance to look for optimization, provide more flexibility for us and really lower our total cost of ownership. So EFG, continue to drive in the near term; CI and SOAR, driving benefits over the longer term. And I would say as far as where and how, again, those -- the benefits are going to help support required investments in the business to help us remain competitive. And so we always take a very pragmatic approach on the level of reinvestment and keeping in mind all of our stakeholders and making sure we sustain a very healthy business over the long term.

Thank you, Scott. Operator, can we have the next question from the queue, please?

Our next phone question comes from the line of Stephanie Wissink.

My question is for Kecia and maybe Scott as well. So Kecia, you talked a little bit about some of the organizational investments as well as the fulfillment network investments. And I apologize, I didn't catch the totality of those 2 big investment chunks. Can you just talk a little bit about the timing and sequencing of some of those investments? That would be helpful. And then, Scott, I think you also intimated that you had deferred some of your investments from 2021 and 2020. Can you just help us think through which of those are catch-up versus what are really structural investments for the next 5 to 10 years?

Yes, I'll start, but I'm going to give Amiee the opportunity since she leads our supply chain network. That -- the investments are over the next 3 years, and really, it's about balancing the strategic portfolio to make sure that we're continuing to support what it's going to take to continue to drive, not only our store comp, but also our e-commerce business. Amiee, do you want to take this opportunity to share a little more?

Sure. Absolutely. Well, thank you for the question and for inquiring. We are very excited about the path forward and the initiatives that we have in flight for supply chain. The work has already actually started this year. The team has been very diligent and proactive. We have been very strategic and purposeful with our road map. And as Kecia mentioned, we're having a very aggressive time line over the next 3 years. But the early years will be the investment years. And we see 2024 being when we will start to really fully realize all of the benefits of the transformation as we think about both the network expansion, in addition to the investment in technology and automation, and then, of course, unlocking all of those advanced capabilities and processes that will help continue to support both the growth and to help fuel the growth of the enterprise. So Scott?

Yes. So again, 2020 seems like a long time ago now, but it really wasn't. And we were -- remember, March and April of that year, it was crisis mode, right? So we pretty much shut down all investment across the business, whether it be in technology, store updates or people kinds of investments. And then as things stabilized and we got more comfortable in 2021, we went back and again, key investments around some digital capabilities that we knew we didn't want to get too far behind on and other sprinklings, I guess, across the business in very critical areas. So again, we laid out the long-term outlook today of 4% to 5% of sales, which again is elevated from the last couple of years, but somewhat lower than what we've seen historically when we were in high-growth mode with the store fleet. So again, SOAR is probably the largest, I would say, incremental piece of CapEx over the next few years. Similar to the supply chain things that Amiee just described here, there's going to be more headwinds with SOAR and some of the supply chain things, again, as we invest and we get people and tools kind of up and off the ground, and then they will provide operating benefits to us over the longer term. And again, we're going to go back in a bigger way around our digital capabilities. Again, we need to stay competitive there. And then I mentioned as well the store fleet and the experiential nature of guest engagement in the stores, which again is a very critical component of our overall omnichannel capability. So we think it's the right pace. We think it's the right amount over the long term. And I think we believe it positions us well to remain competitive and be a leader in the beauty space for the long term.

Thank you, Scott. So let's stay with the sales team. So today, we outlined targets of 5% to 7% CAGR between now and 2024 and expectations for 3% to 5% comps. This question is for Kate at Goldman. Why isn't the sales outlook more robust? You're lapping a declining makeup cycle pre-pandemic, and you have a lot of drivers of growth of market share that you shared today, Ulta Beauty at Target and Ulta Beauty Media. Why is 7% the high end? Could there be some conservatism when it comes to the top line?

Well, Kate, I -- yes, as I've talked about in some of the questions that we've had today, we feel really confident in the outlook, and we feel like it's the right prudent direction to have for our business. To be able to emerge out of the disruption we've had and lead the category by a substantial margin, we think, is the right direction for our business. But as I've said, and I think our track record shows, we're always looking for ways to accelerate. If the category is stronger through the emotional connection that I've talked about or strength in any of the categories or all of the categories, makeup and skincare and haircare and fragrance, coming in even stronger, strengthened some of the demographic groups that Shelley has talked about, and we see even further acceleration with Gen Z or the Latinx consumer, we will be there to lead it. So we're focused on driving our business. I talked about this idea of bigger, better together, and it starts with bigger. We are a growth company. Our focus is on leading the category, continuing to gain share in every category across all price points, to continue to add new value to our business, to lead in services. So we're confident that we'll lead the category. As we look at it right now, we see a category outlook that's consistent with pre-pandemic trends that had been for a while, a healthy dynamic category, growing in that roughly 3% range. We see that roughly, the outlook going forward, 2% to 4%, and we're going to lead it. So strength across any of those dimensions that I talked about will allow us to grow even faster. But we also know there's uncertainty. What exactly the next 12 months leads for us as we continue to navigate, that's still difficult to predict with certainty. But you can be confident that this Ulta Beauty team is focused on driving growth, and we'll find -- take advantage of every opportunity to do even better than we've outlined where possible. But again, we feel like this makes sense as we look at the path ahead of us and what the next 3 years look like.

Okay. Thank you. Operator, can we have the next question from the queue, please?

Our next phone question comes from the line of Olivia Tong.

Great. Appreciate it. My first question is on product assortment. Because I think part of what's really differentiated Ulta in the past is its ability to -- consumers' ability to discover new brands and also your ability to highlight indie brands that the consumer probably wouldn't have found without you. So does the addition or the -- does the addition of UB Media potentially put bigger brands in an advantage versus smaller brands? And then can you just talk about which categories you think will be the biggest drivers of growth over the next couple of years? And then just one question on margins. First, Scott, where do you think the 13% to 14% stand versus your long-term potential? Because it does sound like there are a lot of investment desires and opportunities for growth still after the 13% to 14% over the last -- next couple of years. But will you be able to leverage some of that spend in a more meaningful way over time? Or is there more spend to come?

Great. 2 parts to the question. Monica, I think this question about bigger brands, smaller brands, the outlook of newness, importance, why don't you take that? And then, Scott, if you can take the margin question?

Okay. Perfect. Well, as you heard us talk about earlier today, newness is a very important piece of driving engagement and driving traffic into our stores. And so our merchant teams are always very, very focused on ensuring that we're evolving our assortment to meet the needs of our guests. And so that can range from, what we call, our young emerging brands. Many of those fall within those 3 strategic pillars that I was talking about, that are cross-category. So we're seeing a lot of great new emerging brands that hit upon Conscious Beauty, that fall within our BIPOC and black-owned brands and that are part of wellness. And those are smaller brands, and our intention is to bring them in and bring them into the great Ulta Beauty ecosystem, with the support of Kecia and the stores and Shelley and Prama, to really wrap our arms around those brands and grow them. And so that's a really important piece. Equally important is that we continue to bring in some of the bigger brands that we know are driving growth within a specific category or for the overall industry. Drunk Elephant is a really good example of a brand that we knew that our guests were highly interested in and excited that we were able to bring that brand into Ulta Beauty. So again, both are really, really important. And for us, it's to continue to focus on a balanced assortment to really drive guest engagement. And I guess, I'll turn it over to you, Scott.

Yes. Great. Thanks, Monica. Yes, so I think most reasonable investors understand that investment is a continual cycle in a business, right, that you want to maintain a healthy, healthy balance, make sure you remain competitive and that whatever, you deliver a great proposition to the guest. So historically, we've talked about supply chain and new buildings and new tools to help our merchants work with our vendors in a more efficient kind of way. Now we're talking about different investments around digital space and again, continuing to refresh our store fleet and other parts around the business. Again, it's not a question of investment. It's are you making the right investments, right, for the long term, to make sure you maintain a very vital and competitive operation. So that's what we're focused on. I think, again, in light of the very disruptive environment we've been in over the course of the last 2 years, again, with the operating margin this year expected maybe to be a little bit north of our long-term outlook end point, it's just we're not in a healthy situation. The business is a lot healthier now. We're positioned to deliver stronger operating margins than we have historically. But in absolute terms this year, the sales growth is outstripping our level to support that at this point in time. That's not a good place to be. So we think a more realistic place to be is somewhere in that 13% to 14% range, again depending on what specific year you're looking at to make sure that we've got the right balance of revenue-driving initiatives with the infrastructure and support that it takes to make sure we deliver a great guest experience and we can support growth to maintain a healthy business for the long term.

Thank you. Our next question comes from the web. So we talked a lot today about digital innovation and you driving the omnichannel business. How are you increasing your focus on converting store-only customers to omnichannel customers and getting online customers to visit your stores?

Prama, do you want to take that?

Sure. We're really excited about all of the omnichannel experiences that we have in place, driving loyalty, personalization and connecting the dots between our physical and digital experiences. Some of those you heard about earlier. We're really enthusiastic about buy online, pick up in-store and continuing to drive that behavior. We have a real partnership with our store teams. And the app is this great connector between the digital space and the human connection that you see in stores. And we immediately see significant lift when we have in-store members or online-only members start engaging with the app, and we start to see that cross-channel shopping happen, really driving the growth in omnichannel members. As mentioned earlier, we talked about our omnichannel member base growing this year to 18% at the end of quarter 2 relative to 10% in 2019. And so we think we are driving that behavior with the experiences that we have, with the continued focus on our digital experiences that are very personalized. We had -- we talked about bringing on same-day delivery. We're just piloting that this year as an expansion of our omnichannel capabilities. And we think all of these experiences kind of connect both channels and continue to drive the omnichannel member base growth that we're looking forward to in the future.

Thank you, Prama. Operator, can we have the next question from the queue, please?

Our next phone question comes from the line of Omar Saad.

A couple of quick follow-ups from earlier questions. Number one, the UB Media, I assume this is a similar revenue model to kind of the Amazon advertising services business. But also curious what kind of brands are signing up for this service, is it the bigger brands, small up-and-coming brands? Also curious, the big focus on BOPIS and omnichannel, does the 2-hour pick up, is that a big needle-mover for clients and customers, getting it that quickly? And then lastly, I think you mentioned something about a hair texturization new product line or sorry, subcategory. I would be curious to hear more about that.

Okay. A few questions in there. So we'll take them to you. Shelley, you want to start with UB Media?

Yes. Absolutely. UB Media is a retail media network. So if you're familiar with retail media networks, it is going to be set up similarly, although we have a unique one-of-a-kind data, so that is going to be our big advantage, our competitive advantage with our UB Media. I mentioned before, 95% of our sales run through our member base. So we've got data on almost every single transaction that comes through our stores, our app, online. And that's across categories, across price points, high and low services, all of the information at our fingertips. So we're really excited about that. As for the question about which brands, it's all of the above. Right now, we have over 100 brands that participate in our DMPP program, which the UB Media program itself is a sharp acceleration in investment, to scale that even further and faster. In our DMPP program, we have brands from big to small and across all categories. So it's really ubiquitous. I mean all brands are looking for new channels to not only reach consumers in a targeted way and grow, but also really understand the results and be able to action on and optimize on those results. So we think there's opportunity across our portfolio of brands, and we're looking forward to capturing that.

Then Prama, maybe you could just touch on some of the new capabilities related to BOPIS and curbside?

Yes. I mean we know our guests and our members enjoy the convenience of pick up in-store. And our store teams are doing a fantastic job, with over 97% of orders being picked within 2 hours. And we think -- and we know from their response that, that improved speed really gets the products in their hands at the speed of beauty, and we think that's going to be an important differentiator as we go forward.

Great. Great. And then textured hair, we've mentioned a couple of times, is a real focus. Monica?

Yes. So textured hair, this is a segment that we talk about within the hair category. And what that really is, is that is hair that is curly and coily or heavily textured, and it requires some care. And it's also something that Shelley touched on. This is an important part of the hair category to really reach our diverse guests. And so we've been seeing a lot of traction in the space because women are really embracing their textured and their natural -- their curly and coily hair, and so you've got to have the right products for that. And so our team has done a really good job in bringing in new brands or working with our existing brands to create products to support textured and curly and coily hair.

I would also add that we've launched nationwide training in our salons for all of our stylists to be trained on how to take care of natural hair too, which is an important component to the education piece when you're also selling the product.

Thank you, Kecia. So our next question comes from the web. It's from David at Morningstar. How do you -- why do you still think 1,500 to 1,700 stores are the right target, especially given the addition of the Target locations?

Yes. Well, we're really confident in that outlook. Kecia shared the little overview of the analytics that go into our decision-making. And we have a very strong track record in our store fleet. They're profitable and they're meeting our guest needs. And we see a clear opportunity through all of the analytical work, both financial and consumer, that shows us, confirms for us that the path that we're on, opening 50 stores a year, reaching 1,500 to 1,700 stores, gives us opportunity to meet many, many more beauty enthusiasts that are either we're not fully meeting their needs from a convenience standpoint or we're not even reaching at all. And so while we have -- we're really proud of the 1,300 stores, we see more opportunity. And I'll just say, on the Target piece, we're excited about that opportunity. Kecia shared with you our enthusiasm and the role that, that plays. And as excited as we are though, we know that isn't and it never was intended to be the full Ulta Beauty experience. It plays a very purposeful, specifically designed experience that's different than what you get in a full-blown Ulta Beauty store. And so we see them as working complementary. We see them as driving incrementality to the category and meeting our guests in new and exciting ways. And so while we'll be watching carefully about how our stores work as we get more experience with the target experience and how those things connect, we still feel confident that we can continue to open stores and delight and service our guests, ultimately gaining a greater share of wallet and greater loyalty across multiple touch points.

Okay. Thank you. Operator, we'll take one more question from the queue, please.

And our next phone question comes from the line of Chris Horvers.

So I just wanted to hopefully clean up a couple of different questions and answers that we've heard so far. So Scott, can you clarify the comment on 2021 operating margin? Did you say that it would be above the high end of the long-term guide? And then as we look out over the next 3 years, it sounds like you have more investment pressures earlier, but a lot of the benefits accrue to the gross margin line. So can you provide some color on the potential cadence of gross margin and SG&A going forward?

Yes. Thanks, Chris. So thank you for that, clarifying just the perception of that. I think the marketplace is expecting operating margins to be north of the high end of our long-term outlook. So clarify for that. And again, the investment, yes, directionally, you're right. So SOAR and some of the things we're doing with supply chain will be a drag, a headwind to margins in the nearer term, but will provide longer-term benefits to the company. So again, there's a lot of great things going on with the company initiatives, many initiatives across many different elements of our operations. So again, to Dave's point, we're always focused on how can we do better, how can we go faster, how can we deliver more in a more efficient fashion. So we're very optimistic about the future and focused on trying to do better than what our stated objectives are here for the longer term.

Thank you, Scott. And just to add to that, so we are not providing a business up-to-date. We're not providing an update to guidance. We will provide our third quarter results in early December, and we'll provide certainly an update to how we're thinking about the rest of the year at that point. So moving on, our last question is from the web, and it's from an investor. How do you think about the changing competitive landscape as the beauty market gets more saturated? Where does Ulta stand out most versus competitors? And where is there further opportunity to improve the moat?

Well, first, nobody does what Ulta Beauty does. I mean we are so proud of the experience, and it's very unique, it's very differentiated. And that's really why we're leading the beauty category. If you weren't familiar -- as familiar with Ulta Beauty, hopefully, when we started our session today, hopefully, you really understand the dynamics, the unique assortment, the powerful loyalty, the really important human connection that we deliver, the personalized connection that we have with our guests. The role of services, the impact of our digital environment, all brought together with a powerful culture that is most exemplified in our stores every day, our wonderful store teams that are delivering a great experience and caring for our guests, bringing to life our mission, vision and values every single day. And so nobody does what Ulta Beauty does. And yes, the competitive environment is continuing to evolve. It has always been a competitive category. Beauty is attractive for the reasons that I talked about. It's a strong, healthy, growing category that's emotionally connected. So we understand that we have many competitors, and they're all trying to grow. But our focus has been and will continue to be let's play offense, let's focus on our strengths, let's lean into the things that have always differentiated us from the day we were founded 31 years ago. And if we continue to do that and add in new capabilities and experiences, like so many that you heard about today, we think we'll continue to drive this business for a long, long time to come. I talked about this idea that we've had 3 distinct chapters of growth, roughly 3 decades. And now, we're entering in our fourth decade. And yes, the environment looks different. Yes, our competitive framework is different. But in each of those chapters, we've responded, we've reacted, and we've grown and led the category. And I believe that the plans that we've shared today, the strategic initiatives that we have and most importantly, the 40,000 Ulta Beauty associates that are committed to our guests, committed to each other and committed to delivering with excellence, will allow us to continue to drive well into the future, to write the next big chapter of growth and to continue to establish Ulta Beauty as a leader for a long, long time to come.

So I think if you want to take us out?

Okay. Great. Hey, well, thank you again for joining us today. And seriously, thank you for your interest in Ulta Beauty. As I was just saying, the future is very, very bright for Ulta Beauty. We are so excited. All of us are excited to have this opportunity to lead this great company and to write this next chapter of success. Before I conclude our event, I do want to thank all of our associates across our company, in our stores, in our distribution centers and in our corporate team, who are working so hard to evolve our business, to take care of our guests and to take care of each other every single day. We have the absolute best team in retail, and I think it shows up in our results. And before I close though, I do want to highlight 2 of our 40,000 associates. First, Kristin Wolf, who leads our strategy team, has done so much work throughout this year to get the strategy, to shepherd this group and get our strategy together that we shared with you today. And all of you know Kiley Rawlins, who is just outstanding at what she does, the very best at what she does. And I'm so appreciative for everything you've done to organize us today and get us ready for sharing this with you. So thank you, Kristin and Kiley. And thank you, all of you, for joining us today, and I look forward to having the opportunity to connect with all of you in the near future. Thanks again, and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.