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

Good afternoon, everybody. We'd like to welcome everyone to the room to the Ulta fireside chat and also those who are on the webcast. We'll do Q&A at the end. Given the webcast, if you can make sure you grab the microphone and ask the question into the microphone so the audience can hear. I'm very pleasured and happy to have with us the Ulta management team to my left is Dave Kimbell, the CEO; and to his left is Scott Settersten, the Chief Financial Officer. I'm going to ask questions, but then I'm going to pass it over to you. And please feel free to engage and ask questions. We'd appreciate that.

So maybe to set the table, the proverbial table. Can you talk about 2022 a little bit, right? And obviously, things came in much better than your -- even your original conservative plan. What were the drivers? How much -- how would you disaggregate that between share of wallet, price, newness, execution, whatever bucket you want to break it into?

Great. Well, first, thanks for having us, and thanks for joining this session. Appreciate your interest in Ulta Beauty, and looking forward to a great conversation. Yes, 2022, we're really proud of what we delivered and certainly was well ahead of our expectations going into the year. And I'd say there are a few things, and you mentioned some of them, but I'd start with the overall strength of the category. The category came out of the pandemic stronger than we anticipated. And a few things are contributing to that. Certainly, there's an element of the world opening back up. And we knew that going into the year. We certainly anticipated some of that, but -- and that -- and that helped as people were going out, particularly in the makeup category, more events, more activities and that increased and elevated throughout the year. But I'd say much more impactful and much more important to it was an elevated connection that beauty enthusiasts have between beauty and wellness and self-care. 2/3 of beauty enthusiasts now see an elevated role in the importance of beauty as part of their self-care routine. And so what that means is they see beauty as more than just the superficial like how I show up, like what I look like today, to how I feel about how I'm taking care of myself, and ultimately, how I'm expressing myself to the world? And so that -- what that has led to is -- that's contributed to is strength across all major elements of the category, makeup, skincare, haircare fragrance. So the category itself is healthy. With that, coupled with strong innovation, strong level of engagement, strong social media engagement, strong category health. And then at Ulta, we've been able to leverage that, to take advantage of that and in many ways, lead it. We gained share in 2022, and the drivers of that were broad-based. We had strength really across every aspect of our business. Each category had double-digit growth. We had strength across all consumer segments from ages to ethnicities, geographies. We had strength in channels. Our stores were very strong and our e-com business grew as did our salon. We advanced and accelerated our partnership with Target. And ultimately, that led to growth with our consumer base. Our loyalty program reached an all-time high at 40.2 million members. Spend per member increased, and our connection with our consumer continues to elevate because of the unique nature of our proposition. So we feel like we executed with excellence. I'm proud of what the team did operationally to enable all of that and the consumer responded to our offering in a strong beauty market, and that led to what were really record set in results last year.

So as we bridge into 2023, how do you think about -- what are the drivers of the industry? You talked about industry growth at the higher end of the 2% to 5% range. 2% feels more like a recessionary kind of, or a downturn kind of environment, but the higher end of that range more towards the back half of the year, how are thinking about: one, do you think share of wallet in return to leisure activities will continue to be a driver? How are you thinking about the price component? And then also, how are you thinking about the newness component in 2023?

Well, I'll preface it by saying there's clearly uncertainty in the world ahead of us as we see how the economic environment outside of beauty, just that our consumer is living in. And so that's -- I guess that's always there, but it's definitely there right now that is kind of a halo over the category. When we look specifically through beauty, a few of the positive drivers, this underlying wellness connection that I talked about, we see it. We know that momentum coming out of last year is important. It is connected. It's not a short-term trend. It's a long-term contributor to the health and success of the category over time. Innovation is strong. We saw that throughout 2022, after COVID-related innovation pipeline disruptions that varied by segment to the category, really all segments came in. We see strong innovation, particularly in health and wellness, but other aspects as well. But in skincare, there's a lot of innovation around skin health and skin diagnosis and treatment that's driving greater connection certainly in hair, there's scalp health that's important trend at the same time, textured hair. And in makeup, we're seeing an interest in. There's an overarching sense of combination of skin and makeup that's driving a lot of connection and innovation in the pipeline, but also some great trends. Beauty enthusiast mixing big, bright, bold looks, reminiscent even of some areas of the of the '80s and '90s, but at the same consumer might be a different day looking for a softer, more muted, dewy look. And so there's a lot of innovation that's driving. So we think that's healthy and just overall engagement. On pricing, last year was an extraordinary year for pricing perhaps in every category. But certainly in beauty. We saw it in beauty. I mean there's -- so you would anticipate kind of an always on normalized level of pricing that's kind of a regular state of the business. Well, last year was well ahead of that. So as we lap that this year, the contribution from pricing was up to 400 or 500 basis points of comp contribution last year. So we'll be lapping that this year. We do not anticipate to be at that level of price increase this year. There's no indication that we see yet that, that would repeat itself. So that we get some benefit from that from a comp standpoint, more benefit from that from a comp standpoint in the first half of the year. We start lapping the bulk of the price increases as we move throughout the year. So that will be a bit of a headwind. So a lot of positives as we look out, and we're optimistic as we go into this year.

And so in January, you talked about an acceleration from a comp perspective, clearly, lapping Omicron last year, it was much nicer weather in January on a year-over-year basis. But our sense is that the underlying business actually accelerated despite some of the easy compare math. Is that a fair characterization? And did you see it across the box? Was it more 1 category? Was it prestige versus mass or skincare versus cosmetics?

We saw strength across our business, really, frankly, throughout the year, throughout the fourth quarter. And as we reported January was strong, some of the reasons that you identified. But yes, it was the really an elevation of the broad-based strength. Each category continuing to contribute, which, for us, is a great sign that there is this broad-based connection to beauty. It -- our success last year and the category's success wasn't confined to 1 segment or 1 subcategory. It was broad-based, which, again, is -- reinforces this connection between beauty and wellness that it is affecting all aspects. So when we look at January, all categories -- all channels, our stores are leading the way as they have been all year, but e-com continues to contribute very well. And so that was a big part of it, all geographies. So broad-based strength that was really fueled by many of those factors that I've been describing and gives us confidence as we go into this year, for sure.

Dovetailing back to the newness question. I do wish there's this wall of worry in the back half of last year around lapping some very big product launches, Fenty, OLAPLEX, and you've had the ability to see some of that. You mentioned positivity around the newness that you see ahead in the category. So I guess, is it fair to say that the lap of Fenty and OLAPLEX was sort of an overly raw concern amongst the investment community?

Well, it's -- I mean it's -- these were major launches. And what was a bit unique about the combination last year of Drunk Elephant, OLAPLEX and Fenty all launching within a few months of each other. They're all big brands in their respective categories, skincare, haircare and makeup. And so yes, for sure, we were anticipating the lap of that. And as we always do, trying to make sure we're finding avenues of growth. The lap of Fenty actually happened -- happened here in the first quarter, so we'll be sharing specifics about the first quarter, obviously, at our call. But when we think about lapping any major launch or any activity, it's a combination of elements that come together. There's always additional newness. I mean, this quarter, we've -- one of the -- a couple of examples of launches that we've announced this quarter that you've probably seen is the expansion of our luxury portfolio, the launch of Dior, Natasha Danone, among others, that are elevating our luxury position, really supporting the Chanel part of our business that we've had. And then just recently, Beautycounter is an exclusive launch, exclusive retail partner launch of an influential skincare and makeup brand. So we have a lot in the pipeline. So I don't -- it is important. It is something we watch, and it's something that we try to make sure we have enough elements in our plan to drive growth whatever we're going over.

So just a bit a fine point on that. I think you've historically said 20%, 30% of growth each year is driven by newness. Was that true in '22? And is that how you're planning '23?

Yes. Yes. It was true and it has been true over time. And it's one of the great things about this category is -- there is a steady pipeline of newness, both big new brands that we haven't carried, Dior in makeup and skin care is an example of that, but also new brands that are just getting started that really create new connections with consumers. And so the collection of brands is how we think about innovation, even when we have a big lap of something like Fenty.

So you mentioned earlier the macro uncertainty. And obviously, we just went through another crazy March, March is just a terrible month apparently in history, and the banking shock, layoff announcements. How has your business performed historically in shocks, in any of the business? I think you've always said it's a resilient business, but it's not a recession-proof. It was down in '08, right, but it wasn't down like other discretionary categories. So how does your business historically react around shock scenarios?

So we've seen a lot of different things over a long period of time, Dave, 9 years plus and me 18 years, I guess. So we've seen a lot of cycles. There hasn't been any correlation really with things like spike in gas prices, let's say, or even during the worst of the Great Recession, we didn't see anything with savings rates or delinquencies on credit cards or anything like that. So there seems to be a little special sauce with the beauty category. Again, it's been, over time, proven to be a very resilient category. So again, when people are thinking about the trade-offs they need to make in their personal spending habits, this seems to be a category that holds up pretty well, maybe one of the last ones, right, to get squeezed if circumstances warrant. So we did see -- again, when things -- big things happen, shocks to the system, like all retailers, we see impacts on our business. But fortunate for us, they're usually pretty short-lived, and we usually see the demand kind of bounce back, and we recapture whatever lost sales we might see during that period of time within a reasonable period.

Great. I want to talk about the unit growth opportunity. Your sales have nearly doubled in a very short period of time. Your store target really hasn't changed all that much. You've added, obviously, a lot of omnichannel capabilities, but still very much an in-store shopping environment. You've added Target, but Target is -- seems more like a customer acquisition vehicle. So given how much productivity now is in the existing boxes, why isn't there more of an opportunity to even infill even more in markets, cannibalize a little bit, but raise the overall productivity of the market?

Yes. So our store target, consistent with what we've communicated over the course of the last couple of years, so still 1,500 to 1,700, full-size 10,000-foot Ulta prototype stores in the United States here over the next few years. During our Analyst Day back in late '21, we said the sequence or the pace was going to be about 50 new stores per year. For 2023, we have scaled that back a little bit to 25 to 30 stores here this next year. And that's based on some supply chain disruptions we're seeing with like HVAC units and things like that, that we have to source from overseas. So there's more of a challenge landing those things. And then the landlord population of just being a little bit more careful about signing leases and make sure they've got all their co-tenancy requirements met before we officially sign off on that. So again, a little -- a few less stores this year, but we're confident we're going to get those back in 2024. So it's primarily just a shift in timing, I would say. So again, store fleet is operating, delivering super strong results. Again, we see this with consumers, the brick-and-mortar environment, the experiential nature of what we offer is still a very important component to our overall proposition. I would say we're staying focused though because it's not just a brick-and-mortar versus a digital. It's them working together in a cohesive manner. So continuing to invest in our digital assets, like our Digital Store of the Future platform and our app and other things that we're doing to engage with guests, and just making sure that we deliver an excellent omnichannel offering, which is what we're focused on.

We've always made the argument that given essentially almost a duopoly, we'll eventually become a duopoly in the prestige side of the -- of makeup, that your share should exceed what's a typical threshold for any retailer. Even Walmart may have 23% share in grocery, like Home Depot narrowly find this 30%, Best Buy is about 30%. How do you think about your share opportunity given you have a unique assortment, you have a competitors who are donating share. And then you have your largest competitor doesn't have the assortment advantage that you do. How do you think about your long-term share in the cosmetics, the beauty category? And where do you see the biggest opportunity from here in terms of share growth?

Well, we're proud that we've been able to gain share for a while now, and we did so in 2022 despite some of the competitive activities and other dynamics going on. And so we're confident that we've got a runway to continue to gain share. When we talk about gaining share, I should clarify that we are -- that's through the lens of our prestige side of the business. That's what we report publicly when we're commenting on earnings call and in other places about share growth, that's through NPD and prestige. We also recognize we have opportunity, and we track in the mass side of the business, and we believe we're gaining share and have opportunity to gain share in that space. So our assortment, while on the prestige, the competitive dynamic is a little different, we have broad range of competitors across all price points and all different styles and types. And so for us, what we look at is that gives us confidence in our growth, the ability that we can exceed the category growth rate over time is the uniqueness of our proposition. We're the only ones that do what Ulta Beauty does, the assortment, the breadth of the assortment, the power of our loyalty program, the unique nature of our experience, all these factors come together in ways that we've been able to evolve and adapt and excite guests over time. And so our entire strategy, and probably, for those of you that have been close to our business, you heard us talk about the strategy that we laid out at our Analyst Day, this consumer strategy of All Things Beauty, All In Your World at the heart of the beauty community is our guest-facing strategy. All Things Beauty with our assortment, All In Your World is touch points that engage and make it easy, whether it's our stores or our app or our e-com or our salon or our Target business, all the other ways to engage. And then the heart of the beauty community is all about the emotional connection. And we think we do that arguably -- we believe we do that better than anybody. And so our focus is to continue to do that, supported by great operational excellence. We keep doing that. We're confident we can gain share, absolutely.

Pivoting to the -- more the margin topic. You've laid out a 15% roughly margin target for this year. You sort of gave a mini update for next year on -- of 14% to 15% operating margin. Can you talk about the -- as you -- you haven't readdressed, even rebuilt your long-term targets, right? You've sort of stayed within the existing time frame that you've talked about. How do you think about the big puts and takes over the long term relative to this 14% to 15%?

Yes. So first, let me say how happy we are and proud of what our teams have been able to deliver here over the last couple of years, especially as we've navigated through the chaotic time of the pandemic and then coming back and the big rebound we've seen here over the last couple of years. So our team has been very flexible, agile, if you will, in addressing that, and making sure we take advantage of opportunities that were presented to us. So as you said, we have updated our operating margin piece of our long-term algorithm. Again, we're using the time period of '22 through '24, which is the time period we were talking to back in October of 2021. So as we think about the business Ulta Beauty, you probably heard me say this before, I mean, we feel like we're in a much healthier, stronger position today than we were back prior to the pandemic. So again, there's a lot of elements at work here. Over the last year or 2, we've delivered extraordinary operating margins, again, 16%, I guess, last count here in 2022. A lot of that was driven by significant overperformance in the sales line, right? So it's a combination of good things that we've been doing as part of our EFG efforts across the business. So again, when we talk about occupancy cost leverage, some of that's coming from us, from us taking cost out of and optimizing our store fleet. Again, when you layer overperformance on sales on top of that, you kind of get supersized results from that, right? So occupancy cost leverage is a big driver. Merchandise margins, again, it's kind of a -- there's a multiple variables at play here. Some of it is with us and all the good work that our merchant team has been doing over the last few years on better disciplines around negotiations, about what we're adding to the assortment, kind of taking a more balanced approach there, things we're doing on the inventory side to optimize what we buy, where we put it, how we exit brands over time to be more efficient. Part of it is a natural tailwind that we've got from a pullback in the promotional environment over the last couple of years. Again, this wasn't just a beauty or an Ulta thing, right? All of retail is kind of benefited from that. So there's multiple variables that play there as well. So there's a lot of other self-help things we've done. We've done -- added BOPIS capabilities, ship-from-store capabilities. We've captured efficiencies in our distribution centers over time. So again, all of this is part and parcel of our EFG efforts that now lead us into efficiencies, I'll call 2.0, through our continuous improvement initiatives that we have queued up for the next couple of years. So I think there's a nice mix of things going on here, things that we've implemented over the last couple of years, coupled with things like UB Media, which is we're in the midst of scaling up here. Our investments around Project SOAR and our Digital Store of the Future, our major platform upgrades along with our supply chain refreshes in all our major buildings. So again, we feel like there's a lot of things in play here that give us a lot of confidence that we'll be able to sustain improved operating margins even from where we guided back in 2021 on a much more moderate comp level of 3% to 5%. So feel good about where we're headed.

And so as you think about the incremental margins of the business and you're baking into this year promotional normalization. So as we look further out, this year, in this current cycle, sort of at the peak expense dollar investment of this cycle. As that bakes off, doesn't -- and the lower comp shouldn't deleverage the -- if we're starting from the base of promotional normalization, peak investment dollars, if the business continues to comp, what would hold back margin expansion -- operating margin expansion?

Yes. So we're definitely at a significantly elevated kind of investment level at this point in time. So again, during the course of COVID, we kind of -- like most people kind of pulled back the reins, right, to make sure we took a prudent approach to how we were viewing the financial performance of the business. And so some of that sequence has come back along with major transformational type investments. So once a generation kind of thing with supply chain, building investments, Project SOAR, Digital Store of the Future. So we're at -- and I'll call it an elevated level, right? So we had roughly $70 million of P&L investment last year, and we're expecting another $60 million to $70 million incremental in 2023. So again, as we look to '24 and beyond, we would expect some of those things to moderate some. So against SOAR will come off the schedule as well Digital Store of the Future, and so we would expect the P&L headwinds coming from that, that will moderate as we look to the years ahead.

Excellent. So with that, I'll open up for the -- open up the mics for questions. If you have a question, please grab the mic and ask your questions. Everyone can hear over here in the corner.

Can you give some more insight on the luxury opportunity and where that mix can grow or what you're targeting? And have you quantified the potential comp lift or basket increase opportunity?

We're excited about luxury. We've had a partnership -- we've been in the luxury space for a while. We've had a long-term partnership with Chanel and fragrance, and then more recently, in their Beauté line, which has performed well, and we're excited about that. But we saw an opportunity to expand that presence. And that's what we rolled out this quarter with a new fixture in about 200 stores and online that brings to life Dior, Natasha Denona, Hourglass as part of that anchored by Chanel. There's -- and a couple of other elements from some key brands that bring to life the luxury experience in a -- we think, a really unique and special way and it's a great opportunity for us to extend further into that space. It's a great opportunity for these brands. Dior came to Ulta Beauty because they felt like they could reach a new consumer in a really compelling environment and a modern current way that they're excited about. So we're encouraged by what we're seeing. We'll certainly, as we report first quarter, give some more details. We haven't broken out exactly any targets or goals or expectations other than we're expecting that it will be additive to our business as a new way to engage in Ulta Beauty. One of the unique -- the key differentiating factor of Ulta is the assortment that we have across price points. We're the only retailer in the country where you can buy entry-level mass and high-end luxury in the same trip, in the same experience, and our guests do that. Even guests that can afford to buy the more expensive products still shop in across all price points. And so that behavior is true in -- across all different parts of our business, and we're excited about the luxury opportunity because it further rounds out the portfolio of offerings that were given in the key segments that's growing in the category.

Could you talk about the -- can you hear me? Can you talk about the target partnership sort of have you -- the learnings after, I guess, a couple of years now in that partnership whether it be differences needed in that assortment and then also the success in expanding Ulta, Target customers overall sort of spend at Ulta Beauty, and/or bringing customers into Ulta Beauty through that partnership?

Yes. So yes, we -- it's been about 1.5 years now since we opened our first location that's been rolling out. We're about -- or at about 350 Ulta Beauty at Target locations, and we'll be adding more this year. And our relationship is strong. We're very pleased with the partnership. They've been great partners, and most importantly, the consumer response has been very positive really from day 1, from the moment we announced it. The strategic reason for this partnership was to give us an opportunity to extend our presence to find a new -- a convenient way for our guests -- an additive incremental way for our guests to engage in Ulta Beauty. And we found in so many other ways historically that if we make it easy, we find a new way to engage in Ulta Beauty, they reward us with their loyalty. We have higher retention, higher share of wallet, higher overall spend, and that was a strategic rationale with Target. What I'd say about the performance right now is we're really encouraged by what we're seeing. It's still in the grand scheme of our business, 40 million members. The growth that we saw in the fourth quarter in our members, it's a small part of that. It's by no means is the majority of our growth, but it is. We see a couple of things that you called out. We do see the opportunity to attract and acquire new members. And what we're encouraged by is these new members end up looking and behaving like members that we attract in our core stores. So we're encouraged by that, meaning that they come in, they come back to our store. They spend at healthy levels. And so while it's not a material driver of our new member growth, we are encouraged by what we see, and we think there's an opportunity there to do it more. It's 30 million people that walk through a target every week. And so as we expand the presence and get more experience with this, we think there's opportunity there. And then for our existing guests, we -- they get -- as a reminder, they get Ulta Beauty points when they shop at Target, and they can redeem those points at our core Ulta Beauty, our stores or online. And so what we see within that is, again, our intention here is to give an easy -- an additional convenient touch point. And what we're seeing is encouraging about their overall engagement with us. This isn't just a trade-off. This is, ultimately, we believe, will drive incrementality to our business, and we're encouraged by what we're seeing so far.

A couple of quick questions. You mentioned earlier the 1,500 to 1,700 stores, I think you were talking about full 10,000-square-foot stores. I know you have experimented at times with smaller boxes. What's the status on those? And just the Target -- Target partnership at all inhibit your ability to do smaller boxes in some regions? And then I had a follow-up question.

All right. So yes, thanks for asking that, Scott. So we do have a handful of smaller 5000-square-foot stores, which are in what I'd call lighter demographic markets for us, less population, a place where we wouldn't or nearly consider putting an Ulta store. So again, a handful of those. We're happy with the performance so far. So that's an incremental opportunity above and beyond the 1,500 to 1,700 stores that I referenced. So we're happy, happy with the performance and optimistic about what the future could look like there. On the Target piece of it, yes, so when the 1,500 to 1,700 includes an estimate on the impact of the 800 roughly Target stores that we've talked about here historically. So there's been nothing that we've seen again when we went into that eyes wide opened about potential sales transfer, cannibalization impacts on our nearby located stores haven't seen anything different than what we expected that would change our opinion on how that opportunity shapes up for the long term.

Yes. The Target store, just to be clear, I probably just said it -- we really like that experience. It is designed in a way -- it's custom designed to be the right experience for that environment. It is not the complete Ulta Beauty experience. It has 50 to 60 brands. Our stores have over 600 brands. It's about, what, 1,000 square feet, I think, or 10,000 square feet. Our stores have salons, have multiple highly trained staff. So it is designed to be a complement, not a replacement. And that's what we see even in locations that are close to our existing stores. While we anticipate some cannibalization, particularly early as they open, over time, we'd expect that it complements it just provides another touch point for -- to get a part of the Ulta Beauty experience, but then drive them back to get the whole Ulta Beauty experience at our complete touch points, either in-store or online.

And then just the other question. I know several years ago, you guys had done some initial groundwork around potentially opening stores in Canada. I know those are canceled or on hold, or indefinite hiatus or whatever. Any thought to revisiting that? Or have you learned enough then to decide this so it's not a great use of your capital?

Yes. It's -- yes, so as a reminder, we were moving down the path. We were pretty far down the path of opening a handful of stores in Canada. And we're -- and then in 2020, with COVID, we stopped that effort as we wanted to focus on our U.S. business, and we're uncertain in that environment, of that investment, and it was the right decision at that time. As we look forward to, we have no immediate plans to launch into Canada or anywhere else outside of the U.S. Having said that, it -- as we think conceptually and long term on our business, international is certainly a potential area, an avenue of growth. We know the challenges of that, but we also know that it's a global industry, and there's probably opportunity at some point in some locations for our model. But nothing as we shared our long-term plan that does not anticipate or include any international expansion at this time.

The next investment cycle.

The next investment cycle.

Just a quick question follow-up on the Target. Have you changed the planogram aside from the newness evolution, have you thought -- has there been a rethink of who that customer is, and what they're buying such that you had -- you went in, you like, well, we thought we would have more masstige or opening price point prestige, sort of gateway brands or products. Have you rethought the planogram in any significant way?

Since we launched it?

Yes.

Not. No, not in a transformative way. The idea from the beginning and still largely true is to be a prestige destiny -- prestige experience does have a few masstige brands, but it's predominantly a prestige. It is -- and within those, it's a curated assortment of those brands. So think of brands like MAC and Clinique. It's the best of the best kind of environment. There's been some tweaks. We've added some brands. We've -- like we always do, optimized assortment. One of the opportunities is there's more brands that want to be in it than if any had questions at the beginning, and like, "That's a pretty good idea. And we want to be in it." So we think about how to manage space, but there hasn't been a big shift. The 1 -- maybe 1 opportunity that we're thinking about is, we did not start with much of a fragrance presence. We had a couple, and that's an area where we see some opportunity maybe over time. But no radical shifts to it, and we think that initial strategy is right, then we'll continue to optimize it going forward.

You talked a bit about the promotional intensity now versus 2019. And if there's been any structural trends industry-wide, which would mean that would be lower going forward than it might have been pre-COVID?

Yes. Versus 2019, Ulta and really the whole beauty industry has less promotional intensity. And 2019 was an elevated year largely due to the challenges in the makeup segment. And so again, for those who have been tracking for a while, you probably remember after years of just extraordinary growth, 2014, '15, '16 into '17, the makeup category hit a rough spot. The other categories we're doing fine, makeup hit a rough spot. Prestige makeup, some in mass too, but particularly on the prestige side, hit a rough spot in 2018 into 2019, and that led to some scrambling by [ Bare ] brands and retailers and elevated promotional. And then COVID came, changed the dynamic for every part of beauty and probably know more so than makeup and promotional intensity has gone down. What we've been able to do is -- and we were on this journey before COVID, but COVID did give us the opportunity to accelerate it to try to reduce as many of the broad-based offers, coupons that I would describe as -- historically have been important, but they weren't terribly strategic. They were volume drivers, but they were strategic, reduce those, use those at the right times of the year like holiday when the environment is different. But -- and shift our value-driving efforts to our loyalty program, to more targeted strategic programs, programs like 21 Days of Beauty, which we're in the last week. So get to your local store before the weekend, this weekend, to take advantage of 21 Days of Beauty. It's -- the reason it's strategic is it introduces our guests through 1 day only 50% off the best items in prestige. It introduced -- and we have years of history and tons of data, introduces them to that brand, that item, sometimes to prestige overall. And we see them buy more over time. Their spend with us goes up. We have, through our loyalty program, a whole range of activities that are more targeted so we see a greater ROI because the response is there, and it's more incremental. So that's the focus for us. We'll continue to be competitive. We'll watch closely the landscape. We're not going to lead broad scale discounting. But if things change, the economy changes, competitive environment changes, we've got the tools, but our focus is to continue to be very strategic and add value in our overall offering.

No, you have to use that. you have to use that.

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Yes, we're really excited about UB Media. I can't size -- answer your questions directly. We're not giving that level of detail on it. But what I will say is, and you touched on it did you say golden data set, I like that term. We really -- it is -- our data is one of our greatest strategic assets. The fact that we've got 40 million members, 95% of our sales, so we can track almost every single item we sell back to an individual. Our assortment is the broadest in beauty from entry-level mass, masstige, prestige, luxury, haircare, skincare, fragrance, bath, wellness, we've got in-store, online, salons. So we have arguably the most robust understanding of transaction level data in all of beauty. And so that is the reason that brands in beauty are attracted to our program. And so we had been, I guess, dabbling in retail media for a couple of years. And then we really announced at the Analyst Day about 1.5 years ago and invested last year getting the team, getting the resources, the technology to accelerate and we made a lot of progress last year. There's a high level of demand, and we're investing more this year to take full advantage of it. So while, to your point, it's not -- we've said it's not a material driver today, and we're investing, we're doing it because we see opportunity. We think we're uniquely positioned, and we want to lead this space for beauty, and I think we've got every right to do that.

Just looking at spend per customer, it's like 20% above pre-COVID levels, which is really impressive. Can you talk about the opportunities that you see to drive spend higher, but also at the same time, the blocks that got us here, like bigger baskets, more items, more frequency and also inflation? And the opportunities that you see go forward to drive maybe higher frequency or bigger basket?

Well, I'd say on the go forward, so much of what we do is designed to try to get a greater share of wallet. So as successful as we've been, and as connected as we are to our guests on average, we have about 1/3 of our -- of our members' share of wallet, which gives us a lot of opportunity. And it's a bit of the blessing and the curse of a beauty enthusiast is -- the blessing is that they are highly engaged in the category, the curse is that it's -- if they're around beauty, they're likely to go walk down that aisle if they're in the mall or in a mass store or whatever, they -- it's an always on activity. And so our opportunity is to find new ways to engage and to reinforce. And there's so many that we look at. We have opportunities to get our existing guests to expand the number of categories they use. We have guests that only buy makeup with us, as an example, get them to buy -- we know they wash their hair, we know they use skincare, get them to go into other categories. We certainly have a large number of guests that shop with us only in store. If we get them to shop online, their spend with us goes up 2.5x. We have guests that don't use our salon. If they shop -- start using our salon, their spend goes up 3x. If we get them to download our app, their spend goes up. If they take our credit card, if they shop in multiple Ulta Beauty physical stores rather than just one, they spend more per member. So you go -- you tick down the list of all the different aspects of our overall proposition. And each one ultimately contributes to our efforts to drive greater share of wallet. And that comes across all the factors getting more -- driving more traffic, more reasons to engage, driving greater conversion both in-store and online and greater baskets or AOV in our online business, all those things contribute. And our focus is, when we think about big picture, if you zoom all the way out, how do we grow our business? We get new members. We grow our 40 million and we get them to spend more with us, and we've got a full court press on both. And we think there's opportunity on both going forward.

Over there.

Maybe could you touch on the investments you're making in the supply chain, the new facilities and DCs you're opening. What level of donation you're kind of including was this, how different they are with your kind of current basis? And what kind of level of efficiency and productivity you expect to extract?

Sure. So it's I guess kind of a multipronged initiative underway. So partly, it's a refit retrofit of our existing large buildings, I guess, roughly 670,000 square feet. So these are large properties. So again, unfortunately -- well, we've been putting on new buildings. I guess we started this back in 2014, kind of rolling them out successively over the years. The hard truth is usually by the time you stay in one of these buildings up, it's already kind of a little bit out of date. And so you're constantly kind of chasing the next wave, I guess, of innovation and how you operate those buildings. So again, we've got a good road map in place. We're going to go back and retrofit each of our larger buildings. And then we're also underway with kind of backfilling with our MFCs, so smaller buildings that are closer to our end markets and key places around the United States to get closer to our customer and optimize our overall network. So I guess, level of automation there, we've seen some interesting things with robots roaming around the floors in some of these buildings too, it's not going to go all the way to bright. It's not going to be a fully AI automated kind of environment, but it's going to move us significantly ahead of where we've been historically. And again, there's plenty of benefits worked into our long-term plan here to capture those efficiencies as we think about the future.

A question over here.

Yes, I just wanted to ask on the luxury brand. So I remember a long, long time ago, like Estee Lauder said they wouldn't go into Ulta, and now they're in every Ulta store. You guys got Chanel, and now you have Dior. I guess my question is really on the department store side of things. Are there any brands or categories that just structurally cannot come to Ulta? Or is it like, in 10 years, it's just going to be a direct one-for-one comparison, you can get everything in Nordstrom at Ulta?

I'd say there's nothing that I'm aware of, certainly nothing structurally that would say there's any brand in beauty that shouldn't be at Ulta. And I'd say most -- almost every brand that's out there, we've had discussions with. If they're not with us today, they probably are thinking about when it might be the right time. I think if there's 1 limiter to it, it's -- we're making choices, and there's just -- we're not trying to be anybody else. We're not trying to be a department store. We're not trying to be -- certainly not trying to be solely prestige or luxury. We're not -- by the expansion into luxury is not a signal that we're trying to be a luxury-only destination. That's not who Ulta Beauty is. You should -- we want you to be able to buy e.l.f. and Chanel in the same basket. -- and that's what our guests love about us. So it will always be a balance. We'll always be bringing in new brands and new opportunities. And there's -- as much progress as we've made, there's more out there and more to come. And -- but the core idea of All Things Beauty, all price points, all categories will continue to guide us for as long as I can see ahead of us. And that's our focus. So we'll keep adding brands. But I wouldn't -- you won't walk into an Ulta 5 years from now and think, "Oh, I'm in a department store." That's not our intent.

So with that, our time is actually up. So we thank your participation at our conference. And thank you, everyone, for joining us. Have a great day.

Thank you.