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

Okay. We will get going one minute early. Hi, everyone. I'm Simeon Gutman, Morgan Stanley's hardline, broadline and food retail analyst. My pleasure to welcome Ulta Beauty, represented by Dave Kimbell, CEO; and Scott Settersten, CFO. I'm going to read a quick disclosure. Have a seat, and Dave is going to read a quick disclosure, too. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. And by the way, welcome to Ulta first time at our event. Thankfully, the calendar worked out in our favor for us. So thank you for both being here.

Great. Well, thanks for having us, Simeon, really excited to be here and have enjoyed our day and looking forward to a great session. Before we dive in, we just wanted to acknowledge that Scott and I, we may make some forward-looking statements throughout our discussion today. Our actual future results may be different than what we expect due to various risks and uncertainty, all of which are described in our SEC filings. So I think we got that out of the way.

Thank you. Okay. We're going to start with a softball. So you've been CEO for 18 months. We thought you were stepping in at a tough comparison time right when you took over, and you've taken the business to new heights. So now you have a very tough, double tough comparison. So keep it simple, what are -- so what are some of the opportunities and what are some of the challenges that you face from here?

Yes. Well, first, I'd just say how much I love this company and what we've been on collectively on a journey. I mean we're 32 years old, and we're continuing to lead the beauty industry to drive a great experience, to connect with our guests, to find new ways, to excite them about beauty. And yes, the last 18 months, the last couple of years have been very disrupted, but we're really proud of what we're delivering. And I think the aspects that give me the confidence in our path ahead are really 3 things that stand out, the category itself is healthy, it's important. And I think coming out of the pandemic, it's even more important to consumers' lives than it's ever been. It's more connected to overall wellness and how consumers think about self care and taking care of themselves. Our model is working and proven, and we've been at this, as I said, for 32 years, but we're continuing to find ways to innovate to evolve the experience, the assortment, the elements that we surround our guests with and that's really working well for us. And nobody does what Ulta Beauty does, and we're going to continue to find that. And then the last thing, the thing that gives me the most pride, I've worked at Ulta now for almost 9 years in February. And Scott's got me almost by double, I guess, 7 days. So some tenure in the company. And what I -- one of the aspects that's really important to what we do and our experience at Ulta is driven by the culture and the power of our team. We've worked hard to create an environment that everyone feels valued, everyone is committed to delivering against our mission and vision. And that's really, I think, the secret to our success. So as we look forward, certainly, we've got to continue to find ways to innovate, to evolve our business, to drive new guest engagement, to expand our presence. But we've got multiple initiatives lined up. I'm confident about our outlook. Every year that I've been here is looked different than the year before, but as we look out, we feel like we're on a good trajectory and confident in our long-term potential.

The business is clearly a lot more profitable post pandemic, actually the most profitable it's ever been. Why isn't the industry more profitable broadly? And why doesn't it stay that way? The structure is changing. There are fewer bigger players. You have a unique competitive advantage in prestige brands, which somewhat map or MSRP-priced. So why shouldn't we see a healthier, stronger industry going forward that could support stronger margins into the future?

Yes. Well, I'm not sure I can speak to the entire industry dynamic here, Simeon. But I would say for Ulta Beauty, our business is at a much healthier position than it was pre-pandemic. So very proud of what the team has been able to accomplish, really changing the operating margin profile of our business while being able to navigate through a very dynamic environment here over the last couple of years. So a lot of that is due to the choices that we've made, working on our promo optimization initiatives, costs we've taken out of our rent stream here through our store footprint optimization work, doubling down on our CRM and our leaning into our loyalty program and the good hard work that our team has done, adding new capabilities like BOPIS and ship from store and same-day delivery kinds of things. So there's really some sustainable, healthy changes we've made in our business that will help drive better margins over the long term. But we've also had the benefit of some really high sales performance here over the last couple of years. Again, we can debate how much of that is rebound versus how much is newness versus core and so on. But that has delivered some extraordinary operating margin benefits by way of fixed cost leverage and has also served to mitigate some of the inflationary cost pressures that we're seeing in our business right now. So as we think about next year, and again, I know that's top of investors' minds, again, we think comps, again, healthy mid-teen comps right now. We do think that's going to moderate some and fall back within our long-term outlook in the 3% to 5% range. And we think we can still deliver very healthy margins, operating margins. And our long-term algo is the 13% to 14 percentage range. And just as a reminder, that's significantly better than what we saw pre-pandemic. So again, the work we've done to improve that is good and it's sustaining over the long term. And I guess I would just close out by Ulta Beauty is in a very unique position. So we're in a great category that's growing. We've got a very resilient model that delivers very healthy operating margins. And so we're optimistic about the future of the business and future beauty, in general.

The 2023 guidance, we'll get when we get. I know it's very topical, and you mentioned some of the puts and the takes. Sales should be at a structurally higher level, and we're going to grow from there. I guess you mentioned a few of the takes, if those are the negative side of it. Can we just talk about those again because some of the good guys don't really go away and you're investing in some things that should further improve the business? So I guess what are the key things to watch or the key puts and the takes, I guess if you've already covered, we don't have to repeat, but any other puts and takes into that equation?

Yes. So like potential headwinds or being able to cycle over what the spectacular sales performances we've delivered over the course of the last 2 years. So again, they're embedded and there is price increases, right, that we've passed along to consumers that's been wider and deeper than we've ever seen. We're kind of in uncharted territory in many ways here. So pricing promotion levels have been at historic lows over the last couple of years. Again, that's not a Ulta or a beauty phenomena alone that's gone across all the retail sector, right? So the question on those is, when will the pendulum kind of swing back? When might that moderate more? And so we've been waiting for that to happen, and we've seen some signs of that on the promotional element here in the third quarter investments. Again, when we gave long-term guidance roughly a year ago now, we had a sequence of events kind of a road map to the future, if you would, on our supply chain investments, on our Project SOAR, which is our ERP rebuild for the business in other miscellaneous kind of digital investments that we need to make to make sure we've got a nice, healthy, vibrant business for the long term. So again, some of that's going to -- is planned to step up next year, right? And so with those investments up and a more moderated kind of top line, the operating margin profile might look differently. And I'd add to that, also some of the wage pressure and some of the other just broad-based inflationary upward pressure we see across the business now. We'll be more visible, more apparent when the top line growth rates a little bit more moderated from what we're seeing right now. Again, business is in a great position overall, very healthy, very optimistic about the future. But we do think it's wise, right, to -- as we look to plan prudently for the future.

Makes sense. Dave, do you think you will have stores outside of the U.S. under your tenure? I think we -- when we thought about Canada, maybe 10% is the rule of thumb. Is that something that you're in such a good financial position you can pursue?

Our -- yes, it's a great question. Our focus right now is on our U.S. business, both our core business, Scott talked about a lot of the opportunities we have to continue to find ways to expand our business to add on to that through programs like UB Media or expansion with Target, the Ulta Beauty at Target that were in -- and we've got a lot of opportunity, and we're continuing to chase after that and make -- ensure that we're the leader here in the U.S. The international expansion is on our radar, I guess, I'd say, it's certainly something that we're aware of. And as you know, we were moving down the path to launch into Canada before the pandemic, the pandemic disrupted those plans. And so we've back burnered that. We have no immediate plans to go international. So I guess, to your question, I guess, it kind of depends how long my tenure is as CEO because it's on our radar at some point, but no immediate plans.

And as an inference, that's not one of the pluses or minuses to your 23% or 20% near-term margin outlook?

No.

Just to clear the air, right?

No, there's no, right. No.

Okay. Let's talk about your customer and market share. And correct me if some of these statistics are wrong, but I think these are Investor Day statistics. You have about 1/3 of beauty enthusiast shopping with you and about 30% of those beauty enthusiast wallet share. So first, is that right? And second of all, where is more of this growth going to come in the future? It seems like you can add more of the enthusiast, but also having 30% wallet share. Again, if that's right, that would seem like an industry-leading number that would be hard to grow from. So how do you think about those 2?

Yes. Well, first, on the -- essentially, what you're getting at is the 2, if you boil everything down with our business, 95% of our sales go through our loyalty program. So it's the number of loyalty members that we have and how much they spend with us is kind of comes together. And so on the number of loyalty program members that we have, we have 39 million at the end of Q3, that's up 9% from a year ago, another record high. And we're really proud of that. We have an always-on activity to find ways to drive more growth. And we do see more opportunity. There are tens of millions of beauty enthusiasts that are not part of that 39 million, and we think we can go after them. To quickly and simplistically, I'd look at it in 3 things, 3 segments of that. First is retention. We work hard to retain as many of those 39 million. And so from a definitional standpoint, that means to be considered an active member, you have to shop with us at least once in any touch point in 12 months. And so we work hard and we have really good retention, but we're always working to retain that to engage our guests and make sure we're keeping them, because that's the base of which we're building. But it's not 100% retention. So we do have those that fall out. So we have a separate program around what we call reactivation those that slipped out of our program. Most of the time, it's not because they had a bad experience or don't like Ulta anymore. It's just we didn't do a good enough job to remind them that they should be coming to Ulta. And so a real focus there on reactivation through our CRM capabilities, through our marketing programs, through our partnership with Target to find ways to engage. And then third, attracting just new to Ulta and there, as I said, many of them, and we do that through opening new stores through our marketing, through our partnership with Target through establishing ourselves as the leader with our brands and other elements. And so we think we can continue to grow. The second part of that is spend per member share, which ultimately gets translated into share wallet. And you're right, it's roughly 1/3 of our members spend. But to us, that says there's 2/3 that we can go after. And the way we do that is just find, there are -- like anything, there's a spectrum of our guests that some are more in guests are platinum and diamonds, which is what levels of our highest, most engaged guests. But we see opportunity to increase the spend per member, the engagement they have by just engaging them in more touch points. And there are plenty of touch points for any individual guests to come after. So some examples. If you're a store-only shopper try to get them to shop online. We see when they do that, they spend 2.5x more with us. If they're a store-only shopper, they start using our salon. Our salon guest spends 3x more than a store-only guests. If they shop in one Ulta Beauty store and we open another store, they just start using a second store, their spend goes up with us. If they download our app, we get more spend with us. If they start to use Ulta Beauty at Target, we're early in that relationship, but we see more opportunities. So we just look at getting them involved in more categories, more touch points, more engagement with us and those other things that have been driving spend per member, but there's more to go. I mean we see -- I mean, yes, unlikely, I guess we'll get to 100%. But we see a lot of opportunity, and we're making progress against that. And it's an always-on activity.

You mentioned the loyalty program. I think in '19, when the makeup category was going through its tough lapse, there might have been like a stabilization in that loyalty number, and you can correct me if I'm wrong. During the pandemic, once we had reopening, it looks like loyalty took a step change, and it's not stopped since it continues to grow. Is that right? What do you attribute that to? And does that help give you line of sight into your sales outlook?

Well, in 2019, we were growing loyalty every -- I mean we've grown loyalty every quarter. I think since we've had the program, but certainly over the last, call it, 5 or 10 years, with the exception of some of 2020 when our stores were closed. So when we closed all our stores, we had a number of guests that kind of fell out. They were no longer active members. The step up, I guess, in growth came as some of those that, again, they didn't have that experience. Their store was just closed for 3 or 4 months, so they didn't shop and so they came back. But our growth in '19 and our members had moderated somewhat, but it's kind of the law of large numbers in a way. We were at, I think, 34 million members at the end of 2019, and we've been growing consistently, COVID disrupted it, and now we're up to 39 million, though post COVID. So the growth has been strong. And I think the growth that we saw in the third quarter is reflective of our model is working. And we are -- I really am proud of the team hitting on all cylinders to continue to attract the guest and we see more opportunity ahead.

Transitioning to product trend innovation, more of a fun question. Can you talk about what's sort of moving up in the mix? What's moving down? What's on the come? There was maybe a lull of innovation. People weren't getting out and then maybe we're going to see the other side of that. So what does it look like?

Well, goes back to this idea of broad-based strength in our business right now. One of the things that gives us a lot of encouragement is every category is performing well. Every major category, haircare, skincare, bath, fragrance, make up double-digit comp growth in the third quarter, and we've seen that strength pretty much all year long. And that's not always the case. Historically, there's been moments where one category will be driving a disproportionate amount and another might be struggling. We're seeing broad-based strength. And we think that's a reflection of a broad -- this broad trend in beauty of the connection between beauty and self-care and wellness and that's affecting and raising all of them. But then within each category, there's a little bit of a different story going on. Makeup is our largest category. It represents about 45% of our sales. And that you know well, Simeon, has had some ups and downs, very strong in 2015, 2016, struggling in '18 and '19, pandemic hit it. Right now, what we're seeing is nice, healthy double-digit growth driven by more getting out. So that was the category you got hit the most by we're not going out in the world as much. That's happening. That's part of it. But more sustainable, I guess, are the underlying trends. There are some consumer-oriented trends, a couple of them that are really driving our movement right now towards big, bold, bright colors, sometimes we refer to as the euphoria look that is reminiscent of some of the things we saw in 2016. At the same time, there's a more natural do we look that is very popular. TikTok is driving every category. It's certainly driving makeup. We're seeing innovation in brows and in eyes, in lip. So there's kind of broad-based strength from a consumer standpoint, a marketing standpoint, a product standpoint that we think will drive. And then our other major categories, pretty consistent theme around health and wellness, science-backed skin care driving it, hair health, hair texture, hair bonding in the hair category, fragrance as it connects to self-care, but then a layering component, particularly among Gen Z that's exciting right now. So it's pretty cool that there's some trends within each category and then this macro beauty connection that we think lifting all boats.

If you think about the AURs, there's been some natural inflation and there's been trend inflation. Your merchants are probably -- or your vendors also are trying to introduce higher price points through innovation. Is that a worry? Or the industry has always come a way -- figure out a way to do that to bring innovation to drive price points like even the hair dryer category, right? At a very high average it could be moving up. But how do you think about that? Is it a concern?

Yes. So it's I mean our business, we -- there's price increases every year that kind of gets sprinkled across the assortment, I guess, I would say. We are in a bit of uncharted waters here right now with the breadth and the depth of the price increases we've seen over the course of the last year, primarily 2022 and thinking about how that plays forward with the consumer as we're thinking about '23 and beyond. When we think about the business and the comp increased make up over a period of time, we always try to think about it in a very balanced way. So yes, price increases have been a bit of a tailwind this year. But as we're thinking about the future, it's really about traffic and make sure we have a nice blend and a balanced blend between driving healthy traffic to our stores and digital channels and then being able to manage the price increases as well for consumer.

In terms of brands, Ulta has a history of winning new brands at a time, early on, you could argue that you needed the brands more and now and maybe the roles are reversed. Are there other brands newness? Should we just look at innovation or line extension from existing brands is that it becomes the newness? Or are there still some big elephants to bring into your store?

Yes. Their newness is such an important part of the category. We think while we know that every year, it contributes about 20% to 30% of our growth and our sales. And so -- and it's a great thing about the category. Beauty enthusiasts really love discovering what's new. And you don't talk to a beauty enthusiast that says, "I got it all figured out, and I'm never going to try a new product." There is always on engagement in the beauty category with beauty enthusiasts. And so newness will continue to drive. And it has historically been a balance of great line extensions, our existing brands finding new ways to grow, bringing out a new long wear lipstick or a new mascara or some innovation within skin care, as examples. I mean there's -- that's an important part has been and will be. We -- but we also continue to add brands. I mean this year, we added Drunk Elephant. We added Fenty, OLAPLEX and -- but those are some big ones, but there were a bunch of other ones that maybe aren't as commonly known across our business. Urban Hydration in the skincare space, Maelys and haircare, a lot of brands across all different touch points that we will continue to drive. So when we look forward and get to specifically on your question, we see a continued combination of great innovation. We have good insight right now into the first half of the of innovation pipeline with our brands. Our merchants are working very closely. We're encouraged by what we're seeing across all categories and price points. We have a -- we do have a portfolio of new brands that we'll be bringing in. And what -- and we're encouraged and excited about that. And one of the things that has been true in this category is there is this continued opportunity for smaller brands to become the big elephants, one recent success story is with us as a brand Tula that came in, smallish brands, became one of the largest brands in skincare, prestige skin care with us within a very short period of time. And so you never know exactly where an elephant is going to grow and what's going to grow into one of those saying that's part of this category. And so we don't see that slowing down, and we see a lot of opportunity ahead.

Quick question on the salon business. Is steady, growing, contributor? Or is it a supplement? How do you think about it?

Yes, absolutely, steady, growing, contributor. Again, salon, if you just looked at the numbers, you might -- a finance person might not like the math per se, the productivity per square foot metric, but it's a super key strategic part of the overall Ulta Beauty model. I mean being able to walk into a beauty store and to see beauty services kind of being delivered, it's like beauty coming alive right in front of your eyes. So it's a very important critical part of our overall experiential environment and shopping experience that we deliver to our guests.

I want to ask maybe going backwards to the macro for a minute, recession playbook, what has been the experience in terms of categories and in terms of ones that get stronger or weaker? And what could happen to the margin mix in a recession or maybe prestige versus mass, is a better way to ask it?

Yes. So it's hard to draw really any clear comparisons back to the last major economic downturn, right, the Great Recession. So our business, we were a totally different business, right? The size and scale of what Ulta did versus what we're able to do today. So I would say, generally speaking, I mean, again, beauty is a great space and where beauty sits in the importance of consumers today versus years past, it's a totally different ballgame, I guess, I would say. And so when we think about what we would do, again, having just navigated our way through having stores closed for 3 to 4 months, right, and the disruption we're seeing in our supply chain today and all the other health scares that we've navigated our way through here, we feel like we're in a good position. Again, the world is full of uncertainties. We don't know a potential recession like when it would occur and the severity and those kinds of things. But the team is well prepared, right? We're ready for anything now, I guess, I would say. And so when we think about what we would do, what levers would we pull, I mean it would really be leaning back into our core strengths, right? So when we think about delivering for the consumer in an omnichannel kind of way. So back to making sure the stores are looking great and feeling great, and we're delivering a great experience when people walk through the front door continue to invest in our digital experience, whether it's in the app or augmented reality try-on capabilities or delivering it on our website, right, making sure people when they do decide to spend money that is with us. And they feel good about giving their dollars to us, leaning into our assortment, continue to evolve, right, and add new brands to the mix overall. Again, one of the great strengths of our model is the mass to prestige and luxury brands and everything in between. So when they come to spend with us, they've got optionality, right? And so if they're the pocket books a little tight this time around, right, they can choose maybe a lower-priced product while they're with us. Leaning in on our CRM capabilities, right, and the loyalty program, again, we're much more sophisticated and evolved now really than we've ever been before. So being able to direct more personalized offers to our guests and making sure we understand what motivates them to shop for beauty and making sure we're on point with that. So again, all those things in totality, give us confidence that regardless of what the economic conditions are, we'll be able to compete and continue to win.

So we're under about 8.5 minutes. If you'd like to ask a question, just wave. I'm going to ask a couple more, and we'll get to you in a few minutes. But if you have, please get ready to team up. Target, pretty transformative. Market looked at it as potential risk. It seems like it's been a resounding success. Are you getting the new customers that you expected to? And is it even disputable that it won't be a success at this stage?

Yes. So our target partnership is really a strategic long-term play to engage with new guests and to strengthen our relationship with existing guests, right? A lot of -- I think they say about 30 million people a week walk through a Target store, right? So it's a great opportunity for us to improve our engagement with loyalty members and bring them back to the Ulta platform, right, and expand share of wallet over the longer term, I would say. When it comes to cannibalization, yes, cannibalization is a natural part of this activity. And so we plan for that. We modeled that ahead of time. I would say we've not seen anything in our actual results that's any different than what we expected to see. So happy with how things have performed, both partners are happy with the performance of Ulta Beauty and Target. As Dave mentioned here earlier, again, it comes back to the omnichannel and taking friction out of the shopping experience for the consumer. So every time we've looked at it closely, multiple store shoppers, a store plus e-comm, store plus services, store plus credit card. I mean in every instance, we've seen demonstrated over a long period of time that we can expand share of wallet with our beauty enthusiast by, again, engaging more and taking friction out of the transactional process. And so we're optimistic that the Ulta Beauty at target investment will play out the same way over the long term.

We're going to go to e-commerce and then UB Media, unless there's a question. So e-commerce, can you set the table where the business is today as a percentage of the mix? Long time ago, I think we talked about how there was an inferior margin that eventually could converge to where the stores are. I don't know if we talk about those disparate sleeves, but it seems like your category should lend itself to getting those margins neutralized, and then all of the fulfillment modes that you've invested in should narrow the gap. So can you frame that picture for us? And whether it's a good guy or a bad guy at the P&L?

Yes. So that's been kind of a bit of a long winding road with our e-commerce business. So again, if I pivot back to pre-pandemic times, right, we were, I'd say, struggling a little bit with margin profile overall channel mix being a big driver of that. So the penetration rates of our e-commerce business were accelerating. And we were trying to build capabilities to try to address some of that, right? So again, the promotional environment kind of plays into the digital space, a little heavier than it does in brick-and-mortar. And then the last mile delivery cost, right, continuing to escalate. So we've been able to build capabilities, the BOPIS capability in our stores, the ship-from-store capability, now same-day delivery; and so we're at a -- again, the business is in a totally different place today than it was back in 2019. Roughly 25% to 30% of all our digital sales or orders are serviced by our store fleet now. So that changes the margin profile of those sales. Again, we're not trying to push people into one sales channel versus the other. We're building omnichannel capabilities and making sure we're ready to service the customer in any way they choose to transact with us. So e-commerce, we've kind of turned the page on the margin rate profile overall there. I would say a funny thing happened. So again, there was a bit of a worry back in early 2020 when we were forced to become a kind of a digital-only business overnight in effect, right? So thank goodness, we had made some deleveraging investments back in '18, '19, right, to make sure we had capacity and the tools to address that when it happened to us. And we've navigated our way through that. And now since the pandemic has kind of eased, restrictions have eased a bit, we've seen traffic trends back to the stores very, very strong, right? Brick-and-mortar is not dead. People still like to shop in stores, especially if it's engaging, right, if it's a nice bright and friendly kind of environment where they're going to get services or they're going to get assistant with their purchasing actions. So we've seen, and again, that's been -- the primary driver of our overperformance here in the last couple of years is strong traffic trends back to the stores. So we've seen the pendulum kind of swing back now where e-commerce because it's kind of peel back the penetration here a bit, that it's actually a margin benefit in 2022. Again, e-commerce, we doubled that business over the course of the pandemic, and the growth has been a bit more moderate here recently as we kind of come back into equilibrium. But we expect that business to get it back on a growth path in 2023. So the margin, the put and take there, it will change around the edges, but it's not going to be as big of a headwind as it was back prior to the pandemic, I would say.

And to clarify, it's the flow through the P&L is less onerous in 2022? Or are you saying the margin structure has become a good guy to the P&L?

It's less onerous to the P&L. It's hard to imagine. We get that question occasionally. But the size and scale of the store fleet and you're shipping pallets of things to stores, right, where people drive and pick it up themselves, self-directed is still a better margin.

And one thing I'd add is though that was reinforced by all that Scott said, our e-commerce business doubled in -- through the pandemic in 2020. And now as stores have come back the fact that we're still able to grow, we grew e-comm in the third quarter, even as our stores were -- came roaring back is further reinforcement that this is an incremental channel. I mean that's why I said so early, we get a store shopper to start shopping online. It's not a trade-off. They're not like, well, I'm not going to the stores anymore. They spend 2.5x more with us over that. So it's -- it is an incremental part of our business. And then with all the integration, and Scott talked about the buy online, pickup in store [indiscernible] just that seamless connection is really working well for us.

UB Media, engagement tool or alternative profit pool, how to think about what it does for the business over time?

Well, it's kind of both. By engagement tool, you mean an opportunity for us to expand our presence and our reach through advertising and marketing. So the way this program works is we leverage the power of our data. We've got the broadest both, I would argue, the best transactional level data in all of beauty because of our scale, 39 million, the breadth of products from mass to prestige across all geographies. So we understand consumer transaction behavior and beauty, I'd say, better than ever, and that's attractive to our brand, so they can advertise through us. A lot of times that advertising then comes back and benefits us. It's incremental presence in the marketplace. Even if it isn't necessarily say, hey, buy at Ulta, the fact that some of our biggest, most important brands, which we have the biggest share in our advertising more using our guest insights benefits us. And then yes, it flows through. We -- because we're adding value to our brand partners, we get a margin with that. We're able to essentially charge them for that, and they still get a great ROI because we can demonstrate through our data that this is working for them in ways that nobody else can, because nobody else has the transactional level than us. So it's multifaceted, and we're really pleased. We're -- we've been doing a kind of entry-level version of that for a couple of years, trying to piece it together to get some experience. And then this year was the year where we really put a full court press, invested, put a leadership team against it, have built into capabilities. The demand is high, and we see opportunity to continue to do more of expanded even further in 2023.

Well, you brought us to the finish line. Squeezed out the last mile. I'm done.

All right.

Thank you very much for being here. Congratulations on achieving the best margin you've ever had this. Thank you. Appreciate it.

Thank you. Thanks, Simeon.

Thank you.