Ulta Beauty, Inc. (ULTA) Earnings

Management highlights

- **Core Business Growth**: US operations drove overall performance through omnichannel execution. Added 13 net new stores and held more than 40,000 in-store events. E-commerce momentum continued for the sixth consecutive quarter of double-digit growth, fueled by personalized promotions and 'buy-anywhere' capabilities. - **Digital & Social Innovation**: The Ulta app now accounts for over 60% of online sales. TikTok Shop gained traction with over 100 million impressions since launch, featuring celebrity collaborations like Ice Spice. Over 50% of e-commerce orders were fulfilled from store locations. - **Merchandising & Brand Building**: Strong focus on Fragrance with exclusive launches (e.g., Drake, Khloe Kardashian) driving market share gains. K-Beauty maintained double-digit growth, with nearly half of sales coming from exclusive brands. Launched 15 new brands including Bath & Body Works and Frenchie. - **International Expansion**: SpaceNK (UK/Ireland) celebrated its one-year anniversary with robust sales growth. Expanded Mexico footprint to 12 stores. Middle East franchise partner Alshaya is planning new openings amidst geopolitical navigation. - **Strategic Pillars**: Marketplace initiative grew to over 450 brands and 12,000 SKUs, attracting new loyalty members. UB Media saw double-digit growth. Wellness business expanded into four pillars: nutrition/supplements, intimate care, rest/relax, and essential routines. - **AI & Supply Chain**: Leveraged AI for sourcing, inventory optimization, and customer discovery (ChatGPT, Google Gemini partnerships). Supply chain investments improved speed and efficiency, helping offset rising fuel costs.

Guidance

- Raised full-year fiscal 2026 net sales growth guidance to 6.7%–7.2% (previously lower). - Raised full-year comparable sales growth expectation to 3.2%–3.7%. - Raised operating profit growth expectation to 8.3%–9.3%. - Raised diluted EPS guidance to $28.70–$29.00 (representing 11.9%–13.1% growth), up from previous expectations of 10.6%–12.3%. - For the second half of the year, expect net sales growth of 4%–5% and comp sales growth of 2%–3%. - Expect operating profit growth of 6%–8% in the second half. - Expect diluted EPS growth of 9%–12% in the second half. - Increased stock buyback target to $1.8 billion for fiscal 2026, leveraging revolver capacity.

Segment performance

Net sales increased 8.9% to $3 billion, with comparable (comp) sales growing 3.8%, driven by average ticket increases as transactions remained flat. E-commerce delivered high-teen comp growth, while stores saw modest comp growth. Key category performance included Fragrance (high teen comp growth), Hair Care (high single-digit comp growth), Services (mid-single-digit comp growth), and Wellness (double-digit growth). Makeup comps were approximately flat, with Prestige Makeup showing low single-digit growth offset by a low single-digit decline in Mass Makeup. Skincare and Wellness comps declined modestly overall due to lower Body Care sales, despite strong performance in Prestige and Mass Skincare.

Risks & headwinds

- **Macroeconomic Uncertainty**: Consumers are navigating higher everyday expenses and elevated fuel costs, leading to choiceful spending habits. - **Perceived Value Pressure**: Guests are increasingly sensitive to value, influencing purchase decisions and promotional sensitivity. - **Competitive Intensity**: The beauty category remains highly competitive, with rivals intensifying efforts in both mass and prestige segments. - **Geopolitical Environment**: Ongoing geopolitical issues impact expansion plans in the Middle East, requiring careful partnership management with local franchisees.

Analyst Q&A

• Q: Rupesh Parikh asked about the makeup category's flat comp performance and whether green shoots exist for the back half.

  A: CEO Kecia Steelman explained that mass makeup lacked newness compared to last year but noted encouraging trends like heavier makeup usage and expressive eyes. She expressed optimism for the back half due to upcoming newness in both mass and prestige segments.

• Q: Lorraine Hutchinson asked about the promotional environment and how it impacts the outlook.

  A: Steelman stated that while promotions ticked up slightly due to economic uncertainty, Ulta was strategic, using promos to protect share (e.g., Prime Day) and drive holistic metrics like AOV and engagement. They remain flexible in the back half to respond dynamically to the market.

• Q: Christopher Horvers asked if Q2 sales acceleration implied unique one-time factors or sustained strength for H2.

  A: CFO Chris DelOrefice clarified that the raised guidance reflects genuine confidence in share growth and operational execution, not just a one-time Q2 spike. He noted that H2 comps will be lower primarily due to a harder comparison against stronger H2 2025 performance, not a lack of conviction.

• Q: Sydney Wagner asked about closing the profitability gap between digital and store sales as store fulfillment rises.

  A: DelOrefice highlighted that store fixed cost leverage and supply chain productivity help manage the delta between transportation costs. Treating the business as omni-channel allows them to balance channel mix pressures and maintain gross margin stability through operational efficiencies.

• Q: Adrienne Yee asked about long-term growth opportunities in wellness and services.

  A: Steelman defined wellness around four pillars: nutrition/supplements, intimate care, rest/relax, and essential routines, viewing it as a future major growth pillar. Regarding services, she confirmed no major strategic expansions beyond hair care are planned at this time, though the salon business continues to perform well.