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

Great. Good morning. Again, welcome to Day 2 of the JPMorgan 11th Annual Retail Roundup Conference. It's my great pleasure to have the Ulta management team including recently promoted CEO, Kecia Steelman; and then CFO, Paula Oyibo, who was promoted last year right ahead of this conference. So we appreciate you coming back again, and we appreciate your time. As with the other one at about 15 minutes ago, I'll go to audience questions. So please don't be bashful. The last ones were a little bit quiet because I don't know maybe the market opens or something. But Ulta is a very dynamic category and a very dynamic story. There are plenty of questions. So please join in.

So I'll kick it off. Kecia, it's been about 3 months since you stepped up from President and CEO into the CEO role. While you've been at more than Ulta for 10 years, I'd love to hear about your view of the organization and now that you have more of a direct sort of thumbprint on the organization, where do you want to take it?

Well, I want to start off by saying thank you, Chris and JPMorgan for hosting Paula and I and Ulta Beauty here today. We're looking forward to our conversation. But yes, I'm actually going to be at 11 years with Ulta Beauty here in a couple of months, and I've been over 30 years in retail. And what I can say is time has gone by really, really fast. But I could not be more excited to be at the helm of Ulta Beauty as the CEO right now today. And as you mentioned, the business environments are tough, but I'm ready for it. I could not be more excited about our future. One of the big reasons is that we have such a strong foundational advantage, I believe, in the beauty and retail sector from our assortment, to our world-class loyalty program, to our strong omnichannel offering, to the ability that we have at Ulta Beauty to generate a lot of cash. We have a very strong financial foundation. And it's all underpinned by the 58,000 Ulta Beauty loving associates that we have out there, bringing our brand to life every single day. The landscape, while it's continued to change, there are still some fundamentals that are true still today. The first is that beauty is a highly engaging category. Even if the consumer is looking at where they're spending with their wallet, they're still really engaged in beauty. The second is that this is a human connection business. And while there's a lot of talk about e-commerce and more products going online, 80% of Ulta Beauty sales come from our stores. So this is an environment in a category that human connection and coming into stores is really important. And that's great for us with having over 1,400 stores across the United States. And then also in the category of itself, it's about newness and innovation and having the ability to have the consumer want to engage and coming in to try things. And the brands are really invested in that, and we see really good pipelines for 2025 and beyond. But what gets me the most optimistic is about the Ulta Beauty Unleashed plan that we shared on our earnings call. And it's really about driving our core. It's about doubling down our margin-accretive businesses for us to continue to drive our profitability forward and also realigning our foundation for the future. And to me, it's about having the right people in the right place at the right time with the right plan, and we are just having that momentum going in the right direction. So your question was, what have I seen in the first 90 days? And what I've seen is exactly that. When people understand the role they play and they understand what the mission is that Ulta Beauty is about, they're on board. And the momentum is palatable within the organization. So that's what really excites me about the future at Ulta Beauty.

Well, you've made some very decisive changes in the management structure and realigning responsibilities in some people. Can you talk to the audience about what you did and why you did it?

Yes. Well, I'm a big believer in that one of my craft jobs as a leader is to make sure that I have the right people in the right places and the right level of talent. What's gotten us to the growth at Ulta Beauty today isn't going to be what necessarily gets us to growth in the future. I'll just take a step back and say that 2 of the leadership changes I had were because of retirements. So it's not like I came in and cleaned house with the team. Two of them were retiring after long careers here. I'll start with our General Counsel. She gave her retirement announcement, and I have a new GC that's starting actually on Monday. So I'm going to have a nice overlap in timing, so we shouldn't miss a beat there. Our Chief Merchandising Officer gave her notice to retire, and I've been on the hunt for Chief Merchandising and Digital Officer because that's one of the changes that I did make is that I pulled digital and e-commerce from marketing and I put it with merchandising. And the reason for that was there was some friction in the ways of working, and I really want to keep the consumer at the center of all of our decisions. But that has to be the driver for our decisions and streamlining that thought process and combining those roles in one and what I believe it's going to take Ulta Beauty to the next level. I'll be able to announce relatively soon who's coming. I wish soon, relatively soon, who's going to be in that role, but I feel like we've got an exceptional candidate that's going to be stepping in. And then you look at that's left, the marketing organization. It's a little bit smaller in scale, but we have an internal person who actually started with Ulta Beauty many years ago, building our credit card business. And she also has been very intimately involved with the loyalty program. She knows the consumer better than anybody at Ulta Beauty. And understanding your consumer, especially in this hyper-personalized environment is going to be what it takes to really drive the business forward for us. So we had an internal promotion there, which is fantastic. I love seeing internal people grow. So then you position to, I had elevated, I didn't factor myself. And so that gave me the opportunity to really streamline within my own management team and elevate a couple of roles. The first one I want to talk about is our Chief Store Operations Officer. We elevated her title to a Chief Retail Officer. She owns everything all stores in loss prevention and services, but we put real estate and store design under her leadership purview. And it just has all these stores are now under one leader, which really can simplify and create speed of decision-making and how we're really impacting our store fleet in the hands of one leader. And then also our Chief Technology Officer. He's done just a fantastic job of so much transition over the last couple of years. And I put transformation under him because we've got a lot on our agenda and a lot on our plate. And I'm very confident that under his leadership that all of the investments that we're making that Paula and I are staying really close to that he is bringing it all together in a way that we can really understand our CapEx and our OpEx spend and making sure that we're getting our ROI and getting the value realized out of these investments. And so to me, it was really not about creating a lot of change. It was more about alignment and clarifying ways of working. And I call it internally putting our Aces in their places for the next phase of growth for Ulta Beauty. And I feel that's exactly what we've got going on right now, and we've got the right people in the place to really carry us on to the next phase of growth here at Ulta Beauty.

I think we're already starting to get a sense of this, but I'd love to ask a question. How would those in the organization that have been around a long time describe your leadership style and maybe how that's different versus the way the organization was run prior?

Yes. Maybe you should ask Paula that question. I don't know. Well...

I'm going to ask Paula later.

Okay. You can definitely [indiscernible]. Chris, what's so interesting, I think, and unique about me specifically is I grew up in retail. I started in an hourly position at a Target store. And I have worked every level of position you can imagine in a retail environment in many retail environments out there. And I think that gives me a couple of advantages in the CEO spot today. First of all, that if I did it, anybody else can do it, too. So I think I'm a good role model for creating a lot of dreams that are out there because the American dream is definitely possible. The second is that I have a total appreciation for the role that everyone plays in making a company at retail a success. And not only do I have an appreciation, but I also have the credibility within the organization that they're like, she does get it. She's walked a mile on my footsteps. So there aren't that many CEOs, I don't believe out there in retail specifically that have had that kind of a journey. So it's a little bit unique in and of itself. The second thing I would say is about my leadership style and approach is that I'm decisive. I'm strategic. I'm execution-oriented. I'm competitive and I like to win, but I like to win with the team. I'm a big believer in surrounding yourself with a team that excels at what they do, but they play really well together. I use a lot of sports analogies with my team. It's like I want a team that will pass the ball to each other and leverage each other's strengths. I've been called the staff at times, but I'm staffed with intention. And I say oftentimes inside the organization, spinning is my least favorite move because if you can't make a decision, you can't start moving in a direction, you're just spinning in place. And that's not good for any organization and also for the culture within the organization in and of itself. So we're decisive. We're moving in a direction. And I'm a big believer if we're going down the wrong path, we can change the course. But not going down a path at all is 10x worse in my opinion. So I'm optimistic about the future. This is the best job I've ever had. I'm very excited about what the future looks like at Ulta Beauty and it's been a lot of fun.

That's a great segue. So the new strategy was launched in October at the Analyst Day. Obviously, given your President and COO title, you had a lot of influence on that strategy. the pacing of that strategy, the direction of that strategy. But as in any team environment, everyone has a boat and you didn't have the biggest boat. So how do you think about -- as you reflect on that strategy, how do you think it evolves? And what might be edited versus what was laid out in October?

Well, I was a key architect of the strategy, and I do believe in what we shared at the October Analyst Day. And we're still committed to our financial targets that we shared along with the strategy. But some of the nuances and changes that I've made since stepping into the role is I'm a big one on simplification and making sure that the organization really understands what it is that we're trying to deliver. So let's just take a step back. I talked a little bit about driving the core. So driving the core to me is about being best-in-class at execution, and that's table stakes to me. So it's getting back to the basics is step number one. That's the cost of entry really to me in retail. But it's also things like brand building and digital acceleration and personalization. It's how do we take the businesses that we're currently doing today and taking them to level up and invest in ways that are going to continue to drive a greater moat between us and the competitors. So instead of just talking about everything separately, I've combined it together because that's really about driving the core. And then when you look at driving margin-accretive businesses, to me, that's wellness. It's a new business that we can continue to lean into and really grow its marketplace, which we announced on our earnings call. That's going to continue to help us have the best of the assortment in a highly curated way for our guests and the consumer. It's around UB Media and leaning into UB Media as a way that our brands can continue to communicate with the consumer and also drive accretive businesses for us and profit for us within the organization. And the fourth is around international. So that international expansion. So instead of talking about everything separately, we're talking about it collectively as a whole. The organization understands that a little bit more. It's easier to talk through and get people aligned behind it and say, "Oh, I understand that and I've got that." And then the last one is really important, too, and that is realigning for the future of our foundation. And to me, it's in 2 parts. It's the ways of working, which I've talked about a couple of times here. It's making sure that everyone understands the role they play in the greater good of the organization and how what they do day in and day out makes the difference. When people understand what it is and why they're doing it, they can get behind it a lot quicker. And I'm seeing that come to life. That's really, really exciting to me. And the other part of that is driving cost out of this model. It's like how do we continue to look for efficiencies and drive cost out. And we've got everybody all in. I'm very confident we shared $200 to $250 of cost out of the model, and I feel like we've got a really good line of sight to that. So it wasn't necessarily changing things, a little bit of the pacing I've adjusted, Paula and I together along with the executive team because we've got some change within the leadership team. We want to make sure I got to get that new merchandising and digital officer in the role because I want them to be a part of this overall strategy. So the pacing has changed a little bit, but our objectives are still the same. It's the way we've communicated them. We've simplified them, and we put really good plans in place to have good decision-making around our investments in our OpEx and our CapEx and accountability. Maybe that's one thing that we've continued to lean in is making sure that we have really good visibility and ROI and adjusting as we need to, just because this is the plan we have today. I'm a big believer, Chris, that if it's not working, we're going to pivot because at the end of the day, we've got to make sure that we're returning long-term responses to our shareholders and creating shareholder value.

Coming from the store side, did you think that the pace was a problem? Was it a digestion issue that the stores couldn't handle it? Or to what degree was there's a lot of people in different roles and there's a new person coming in that affected maybe a more moderate pace of change.

I would say it's the clarity of the expectation and making sure you're right, that you aren't trying to do more than -- you're not overprescribed for what you can deliver. One of the key strengths that I believe I have is focusing on execution. I want to make sure that we're executing with excellence. This is what we need to do I believe in all of these strategies. These are the strategies we need to really lean into in 2025 to continue to emerge and take growth in '26 and beyond. Like I said, we're going to stay close to it, and we're going to be agile. And if we need to adjust accordingly, we will. But I'm overall very confident in the plan that we've got in place and the sequencing, we've got a massive hand chart. We've gone through a lot of change in this organization, just all of the foundational improvements that we've made, and we've shown that we can do it. This is actually when the fun starts to happen because now we're focused a little bit more on the go-to-market side of the business. So the team internally at the corporate office is very excited and the stores are, too. They're ready to get behind this and execute with excellence and bring this vision to life.

I want to touch on sort of the investment cycle a little bit because I think it's part and parcel. You came in after Mary. I think it was -- also went into an investment cycle for a number of reasons as [indiscernible] build stores, we've got to become more efficient as an organization and digital and CRM and supply chain automation. And that program emerged in 2014 and it's now 2025. And you did the ERP recently as well. So it's been a high rate of spend. I think investors interpreted it as there was a catch-up, and we needed to catch up. I think the one question right now is sort of 2 part is, is the spend sort of growth for the sake of growth without a focus on returns? And then the other piece of it is, to what extent has the spend maybe lasted longer than investors expected because the industry has changed and become more dynamic?

Well, I think the industry has continued to evolve and change, but we've had to evolve and change with it. The last 3 years, we've been in a heavy investment cycle on our foundational systems. I mean when you just look at what we've had to tackle as an organization, it was our ERP upgrade, which is now behind us. Our digital store platform, which was a monolithic platform that we're now on a more robust system that we can introduce changes and enhancements in a much more unique and individual bespoke way. Our POS was outdated. So we had to get our POS updated. Our data systems were a little antiquated, and we didn't have really good data governance around all of our data, which is a huge unlock if you can have clean data sources that leverage AI, generative AI in the future. We've got all that work behind us. We had to do that in order to be able to now start to shift to work on our go-to-market type strategies. So all of the things that we're talking about now. In this competitive environment, you've got to continue to invest in your business or you're going to become irrelevant, I think, very quickly. And while, yes, we've been in a heavy investment cycle because the market is highly competitive, but it's still really growing at the same pace. And I believe we are focused on the right things that are going to continue to grow the business for the long-term growth of the future. Paula, anything you'd like to add?

Yes. And the thing that I would add is that we can assure investors that we are not just investing for the sake of investing and we are focused very much on return on the investment. We do recognize with what we shared a 3% growth this year on Granite 2025 was at an extraordinarily low level because we quickly adjusted in order to navigate the more challenged top line, a 10% growth over the long term is not what we're targeting. And our absolute goal is to ensure that we're managing SG&A growth at a slower pace than our top line from a long-term perspective, which you know we've shared we expect that to be between 4% and 6%.

And as you get beyond '25, even you have a multiyear plan out there, is the expectation that you'll start to see leverage in SG&A if we got back to normalized growth rate from a top line perspective?

Well, what I would say is what we're focused on, and we've shared this, we're focused on driving the top line 4% to 6% on the 3% to 4% comp. And we're really focused on driving mid-single-digit operating profit growth. And we think that, that is the key thing to focus on in an industry, a category that is as dynamic as the beauty category. We want to allow ourselves the flexibility to invest in ways that we think is the most relevant at that particular time. And so some years, we may decide to invest more from a gross margin perspective. Some years, we may decide to invest more from an SG&A perspective in service of making sure we are delivering that mid-single-digit operating profit growth. We are confident and we shared this, that we will be able to maintain a margin rate of 12%, but absolutely expect that we will expand that margin over time.

I guess as long as we're on the expense side before we talk about the brands and the consumer a little bit, can you talk about the buckets? 10% is a big number after big numbers for a while. So if you're going to pocket that 10% growth, what's driving it?

Yes. What I would say is a big component of that is what I would consider wage and inflationary pressures, right? And so when we think about store wage pressures, we know what's going on from a macro perspective. We have a big fleet. And so wages is one component. Health care cost is another component. And so I would put those under the inflationary pressure perspective. Another component would be as we have invested over the last several years, and Kecia talked about this, in our core infrastructure, we are now realizing the impact of that from a depreciation and a cloud and SaaS perspective. And so that's pushing some pressure from an SG&A growth perspective. And then as we look to invest and support some of the core elements of the Ulta Beauty Unleashed plan, that in this year is driving the strategic investments are driving some of our SG&A growth.

I guess back to the brand side, you mentioned you're on the cusp of announcing a new Chief Merchant and Digital Officer. The relationship with the brands is so important. And I do think investors underappreciate how important Ulta is to the brands in terms of driving their business. What were you looking for? I mean Digital and Chief Merchant, one is sort of I got relationship with brands and I know how to speak with brands, but then there's this digital aspect. So what were you looking for in this person that we were -- it sounds like we're going to soon find out about.

Well, clearly, someone who has gone through many cycles in retail, I think, is very important. Someone who really understands what it takes to build an exceptional team for the future. So a great cultural fit. Somebody that has experience in mass to luxury and everything in between because I do think that there's unique differences and you have to have an appreciation for that. Global experience, while not necessary, I thought it would be something if we found it, it would be important. And someone who just likes to win. I mean I want somebody that wants to be a part of this team that wants to win, that wants to drive the business forward in a cohesive way. I shared that the team, the go-to-market team, it's not just about the merchandising piece. It's about the merchandising and digital office are working very closely with the Marketing Officer, working really closely with the Chief Retail Officer. The power of that trifecta, it's going to be just -- I'm very excited about what the future is going to bring when I see the 3 of them working really cohesively together. So I think that's what it's going to take for us to continue to take Ulta Beauty into the next stage of growth. Those are the traits that I was looking for.

The brands, can you talk to investors about the importance of Ulta to the brands? And are brands appropriately channel managing as they think about good, better, best, as they think about how they launch newness in terms of thinking about Ulta versus an Amazon versus a Sephora in terms of customer acquisition and growth.

Yes. Well, one of the very first things that I've done as I stepped into the role as CEO is I spent a lot of time in conversations face-to-face and in teams calls with our brands, spending time in L.A., in New York, in many places in between and creating an environment where we can have open and honest conversations. What do I need from them? What do they need from us? And we do call them our partners because if we win and they don't, no one is successful. If they win and we're not, we are such a big part of their brand, they can't win, simple transparency. So we've had some really good dialogues of things that I feel like we can -- with having a fresh set of eyes that we can lean into and really help them continue to drive their business forward. And I have expectations from them of what I'd like to see how they show up with Ulta Beauty, things like if you're in a lot of distribution points, we need to have some exclusivities that are unique to Ulta Beauty that's driving that consumer into our ecosystem because in other places, no one does what we do. We are the only place where we can take a consumer from mass to luxury and have conversion both ways. So you want to try to get a new consumer into your product line, you probably need to be either launching your newness with us or having exclusives with us, and that's how we're going to help you grow your overall business. And when you're ready to roll it into some other place, then we need to have something on the back end of that. We call it getting in the kitchen with the brands, and we're leaning in on that. So getting in the kitchen and coming up with -- bringing our best thoughts together with their best experience and coming up with ideas that are unique to our consumer, there's a lot of openness to that, which I'm very excited about, and I think that's going to continue to help differentiate us in the future. But yes, we're very important to the brands. And that -- we've had very clear and candid conversations about expectations, I believe, going forward.

As you think about -- 2 sides to it. So put yourself in your own bull/bear case around Amazon. So what don't the bears appreciate about the category and the beauty enthusiasts? And what scares you about Amazon?

Well, let me start with no one does what we do. No one does what we do. And as I shared earlier, 80% of our revenue is still coming from stores. And part of that is the experience of human connection. We've got services in our stores. The human connection in beauty is really, really important. The fact that we've got a world-class assortment that is really targeted to the beauty enthusiasts and the beauty consumer versus just having a lot of products out there. Our buyers do a fantastic job. Our merchants are doing a fantastic job day in and day out making sure that we're putting the best items in front of the consumer versus just having everything in front of the consumer. And we've created that reputation, I believe, out there in the industry and with the consumer base that they know they can trust Ulta Beauty. We're going to just continue to lean into our areas like marketplace and our digital acceleration. There are things that we still haven't offered on our e-commerce platform that are coming very soon, like subscribe and save. So for that replenishment piece, which is still a relatively smaller part of what drives the spend, it's really newness and innovation that's driving the spend. And newness and innovation, you've got to experience it in store. So I'd say that's what we are continuing to lean into and what makes us unique from Amazon as the perspective. We've seen just recently that Estee Lauder or some of the brands that have gone on to Amazon. The product was actually being sold on Amazon before. It was just in a gray market way. So oftentimes, we don't see a huge disruption. It's just that when you're buying it off of Amazon, you're actually buying it now through Estee Lauder versus through a third party, which who knows where it came from and 9 times out of 10, it could be stolen product even from us. So that's not good for us either as a company. So we're continuing to keep an eye on it by leaning into our super strengths and what makes us different and what makes us unique. And I believe by doing that, I'm very optimistic that we will continue to grow our business in the future in beauty and in wellness.

Great. Sephora's North American CEO at a mid-March fireside called the consumer very, very overwhelmed [indiscernible]. And there's a lot of consternation amongst all of us around what you did something after a really nice holiday like what happened. So [indiscernible] announced in January, and they talked about the deceleration in environment. How are you thinking about the consumer? What's going on? And how do you think the category reacts in a tougher environment, if it's going to a tougher environment?

Well, I'll start by saying that beauty is still a highly engaged category and the consumer is still making a decision on where they're investing their dollars. And beauty is a category where they can feel good about themselves and how they can express themselves in a cost-effective way. So we still see good engagement in beauty. We haven't seen a shift in the consumer shopping patterns from our last report that we've had that we've publicly shared. We've not seen adjustments in how the consumer is spending. I would just say that what makes us unique from the competitor that you mentioned in your question, that makes us different is that we have everything from mass to luxury. So we're not just relying upon higher-end price points, and we've got everything in between. So if the beauty consumer is wanting to still engage in beauty, but maybe in a less high dollar way, they can still come to us and be engaged with us, whether it's online or in-store. So I would say that we're not seeing whatever was being referred to before, and we're pleased with how the beauty consumer is continuing to engage with Ulta Beauty today.

And then just as a follow-up to explore that one level down. In the past, if you went back to the GFC, I think apparel was down 7% and beauty was down 3%, right? So it is a relatively defensive category. But one of the early warning signs that you've talked about in the past is trade down. How did the consumer behave in 2024? And has there been any signs that you're seeing that are concerning?

Yes. I mentioned that just in the previous question that we've not seen any changes necessarily in the consumer behavior. We are just continuing to lean into what it is that we do well and controlling what we can control. 2025, I mean, even the tariffs that came out today, like it's a totally unpredictable environment that we're in. But I believe Ulta Beauty focusing on controlling what we can control, keeping the guest the center of all the decisions that we're making and really being focused on our Ulta Beauty Unleashed plan is going to be all the right things that we need to continue to lean into to help propel us through 2025 and beyond.

Awesome. So with that, I'd love to open it up to the audience for questions. I left one very big topic that did not bring up [indiscernible] ask in the audience.

Can imagine that.

Starts with a T. Tariffs, that's what they're all thinking. That is what they're all thinking. Can you talk about -- obviously, I didn't bring the big board. I was going to ask you about [indiscernible] 46%. But can you talk about tariff risk? I know it's very hard. You have a lot of brands, but how do you think about tariff risk? Have you seen any impact from some companies that have China exposure have already seen some impact in their categories and in fact, already taking some price. So just broadly talk about tariff risk.

Yes. Thank you, Chris, for the question that I know is on a lot of minds. So what I would say is we're watching the tariff evolution as closely as everyone else. And it will take us a minute to kind of process all what that implications of all that has been shared over the last day or so. But broadly speaking, what I would say is for Ulta Beauty, our tariff risk is relatively low. And the reason why we say that is because in 2024, only about 1% of our receipts were direct imports, which would mean they were subjected to tariffs. So again, relatively low. Our Ulta Beauty collection is a large portion of that. When we think about our brands, right, I mean, being a house of brands and having 600 brands, it's difficult to really -- and it takes time for the brands and then also us to go through and assess for them what are the impacts on that -- on their business. We work in close partnership with our brands to try to mitigate some of the impacts that, that would have on the end consumer. But similar to like how we navigated in 2018 and 2019 when there was a big kind of tariff implication, we'll continue to do that. We'll stay close with our brands and we'll flex. Beyond merchandise products, I would say we do have some exposure, again, very limited in things like our store fixtures, our store lighting, IT equipment and other store supplies. And we'll continue to monitor that to the best of our ability to offset or mitigate some of those implications.

So the follow-up question to that is pricing. I think in 2018, it was a bit of a different environment where there was -- it was pre all this inflation in the consumer wallet, particularly around needs. Historically, can you talk about how you approach pricing around inflation? And is it potentially different -- in partnership with brands -- is it potentially different this time given how much the consumer has taken on the inflation side?

I would say it's all -- we will work with our brands to adjust for this evolving and dynamic environment. What I would remind us is that half of our business is on the Prestige side of the house, which is in our SRP. The other side is mass, which we have a little bit more flexibility from a pricing perspective. But yes, I think we will leverage a lot of -- we'll go back to our toolbox that we used prior, and then we will flex it and adjust it given the evolving consumer dynamic. And to your point, as consumers are even more value sensitive.

Audience questions?

[indiscernible] get more of that. I'm assuming that some of the hard work [indiscernible] the customer finds that [indiscernible]. I assume you want to get benefit of that [indiscernible].

Yes. We're deploying that technology here very, very soon into our system. But we also -- you earn your points, which is very important to our Ulta Beauty consumers where points matter versus going somewhere else for your replenishment. And then in addition, our ability to communicate through our personalization efforts with that consumer, we already had the algorithm that was there. It's just that we're going to make it a lot easier so they can automatically set up for it. So we were doing a lot of that already behind the scenes with our personalization efforts. But now it's just going to become automatic and you'll be able to sign up for it. So that's kind of low-hanging fruit for us, but it's coming relatively shortly here.

[indiscernible] that you have higher operating margin [indiscernible] incremental sales, the same product marketing and product [indiscernible].

Well, what I would say is, obviously, when you think about the subscriber and say, there's an implication because we're offering a bit of a discount to get that repetitive purchase. But even if we take a step back and think about the beauty enthusiast, the thing that's driving the beauty enthusiast, which is this context and they are not -- a true beauty enthusiast is not buying the exact same product or replenishing the exact same product every month because newness is so important to them. They may try a serum one month and want to try a different serum the next month. And so while there are some consumers that are very focused and repetitive, for the large majority of the beauty enthusiasts, they are going to be looking to try different products and different brands.

[indiscernible].

Yes. So we opened 101 stores last year. We are right around 610 stores open. And in joint partnership with Target, we've made the decision to really lean into the 600-plus stores that are open this next year and really look at how do we continue to drive efficiencies and leverage the learnings that we've had to really unlock value for both of us collectively together. So we've taken a little bit of a pause in opening more stores, but that is really to just make sure that we're working on all the things that we've learned over the last 3 years collectively together and bring 2 great companies, minds together to really make us even a greater value for both of our organizations.

[indiscernible].

We haven't announced what we're going to do past 2025. But right now, this year, we're really focused on improving and leveraging the learnings that we've had already in the 610 stores that we have open right now.

[indiscernible] what are you doing in the channel and [indiscernible].

Yes. So the question is on TikTok. And what we've done is just in our more recent 21 Days of Beauty, we actually were participating on TikTok that you could click the link and it would take you to our site. We really want the consumer to still be purchasing through our Ulta Beauty channel today. But you'll see from a lot of the brands that are selling on TikTok, the majority of them are at a discounted rate. I don't know how long the brands can continue to do that because it's expensive to be on TikTok. And if you're doing it at a discount, it's not necessarily what I would view as a long-term play. It might be a way for you to get some energy and excitement into your brand, but you're not going to stay on there forever. I just don't see that working. So I think that you'd see it to spike some activity within your brand, but then you're going to want to back off of it. I don't think it's going to be where brands are going to be selling every day all the time.

[indiscernible].

Let me start just a little bit about the category, and then I'm going to kick it over to you, Paula. So one of the things that was unique over the last few years is points of distribution, specifically around Prestige Cosmetics. There's been over 1,600 new points of distribution added in the last few years, and that has been extremely disruptive to the industry as a whole. The fact that we were able to really go through that cycle where we had 90% of our store chain was impacted by one or more competitors opening. We've never seen anything really like that. So the fact that we were able to hold in there -- in 2024, we said it was the first time that we actually lost a little bit of share. But we've been in this fight for a while. We're cycling through that now. So I do think that there's some good upside potential for us here in the future. Paula, anything you'd like to add?

The thing that I would add is broadly our perspective on the category is that, Kecia talked about this earlier, that is strong, it's resilient. It is a growing category, and our expectation is that it continues to grow, moderating, but still growing at the historical rates of the 2% to 4%. And so we're confident about the growth of the category, know that we would participate and be driving that growth over the long term.

In the last 3 years, beauty itself has grown $20 billion in sales. And the wellness category is -- the size is $400 billion, and it's actually outpacing the growth of beauty. We're leaning into beauty and wellness. So when you think about what the future looks like for this category specifically itself, I think there's huge upside potential here in the future.

[indiscernible] where do you think [indiscernible] over the next few years?

I would say where we're confident we will end up is in continuing to be a leader in this category and a market share gainer. There's disruption that's happening, that's happened over the past several years. It's an attractive category, a great category with margins. It has always been a competitive category. And so we expect the competition to continue and for new entrants to come and go, but Ulta Beauty will be the lasting one, and we will be the leader in the category and a share gainer.

And this is what we do. That's the other thing. You're talking about all these other department store discounters, et cetera. This is what we do. This is who we are to our core. So others can want to participate in it because there's attractive margins that are out there. But this is what Ulta Beauty is all about. And this is what we've been about since day 1.

[indiscernible].

Sorry, go ahead.

Can you just talk a little bit more about wellness? I get conceptually, especially coming out of COVID, how that's something people are focused. I'm not sure I understand what that actually means from a merchandising standpoint. What categories does that mean? How much of the store do you guys want to dedicate this because it seems like it's a big part of the OpEx investment that you guys are making this year.

Yes. So currently, we have wellness in about 8 feet in all of our stores. So we've had some initial key learnings of what wellness can drive within the category. What we really like about wellness is it's not a trade-off for investing in your beauty, it's actually an add-on in addition to. Some categories that I could just share today that we're thinking about is sleep. Sleep is really important. How much sleep you get actually reflects on your face and on your body. Those eye patches don't always cure not having enough sleep at night. Sexual wellness and changes in life, life stages, especially for the female consumer. So going from engaging from someone having their first period as a young teenager all the way through menopause, it's a very personal thing to have to ask about. And we've done a lot of research that says that we have the credibility in the industry and the confidence of the consumer that they feel like they talk to Ulta Beauty for these questions and these needs. I think the fact that our associate base is very -- they're approachable. They're not judgmental. The confidence that the consumer has with us, it just leads to that this is an area of the business that we need to continue to lean into sexual wellness, this younger generation that's really important to them also. So it's not just about ingestibles, which I think is really important. We have them in store today, but it's beyond that. It's these categories that kind of surround how you feel about yourself and how you can be the best version of yourself going forward. Paula, are you going to add?

I would say, yes, and how you take care of yourself. It's a really important category, an evolving category. Right now, it's disparate. There's no one clear owner in this category. And we know that given the trust that the consumer has for Ulta Beauty, we have a real right to win in-store and digitally. And we think that our announcement about marketplace wellness will play a key role in bringing -- marketplace will play a key role in bringing wellness to life in a differentiated way as well.

I want to clean up with a question on points and promotions. I think a lot of investors don't appreciate the importance of points, as you mentioned, to the consumer. And how you've evolved the promotional strategy a bit over the past 2 years in terms of leveraging points. So a bit of an open mind for you there.

Yes. Yes, I'll start and maybe Paula, you can add, is that points are really important to the consumer. What we like about points is a lot of times the brands are participating in funding those points. And it's a way that the brands can engage in offering the consumer a greater value without discounting their prices, especially in Prestige and luxury, they don't really like to play that price game often because of the way that you engage a consumer that is a competitive advantage that we have. Over the last couple of years since I've been here, even the evolution of the personalized marketing campaigns that we can do that are really tailored. We used to do a lot more broad-based marketing to the consumer. We don't really do much of that anymore. If you're getting a unique coupon to you, it's different than your neighbor is going to be because your shopping patterns are different, what works for you is different. Maybe we want to get you back in the store a little bit sooner. So that's a super power that we've been able to unlock. And again, the fact that we have our foundational systems really top-notch, world-class leading right now enables us to continue to lean in on that. Paula, anything you can add?

I would say, I guess, tell us they love our points. I mean, it's clear, it's simple. You spend $1, you get a point throughout the year. We offer really compelling point multipliers. And so 2x, 3x, 4x, they love it. It's unique. And in an environment where consumers are looking for value, points become even increasingly important. And we believe that it's a key draw for us and our consumers love the program that we have.

Awesome. That's a great spot to cut off. We thank you for your time. So much.

Thank you, Chris.

Thank you.