Ulta Beauty Q4 2025 Earnings Call Transcript

OperatorGood afternoon, and welcome to Ulta Beauty's Conference Call to discuss the results for the Ulta Beauty 4th-Quarter 2024 Earnings Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. We ask that you limit yourself to one question and then re-enter queue for any additional questions. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Ms Kylie Wallens, Vice-President of Investor Relations. MS. Wallans, please proceed.Kiley F. RawlinsVice President, Investor Relations at Ulta BeautyThank you, Alicia, and good afternoon, everyone. Thank you for joining us for a discussion of Ulta Beauty's 4th-quarter and fiscal '24 results. Hosting our call today are Keisha Steelman, Chief Executive Officer; and Paula Olibo, Chief Financial Officer. Before we begin, I'd like to remind you of the company's Safe-Harbor language. Many of our remarks today will contain forward-looking statements which speak only as of today, 13, 2025.We refer you to our earnings release and SEC filings, where you will find a number of factors which could cause actual results to differ materially from those forward-looking statements. Keisha will begin our call with key highlights from our fiscal '24 results and share our priorities for fiscal '25. Then Paula will review our 4th-quarter results in more detail and discuss our outlook for fiscal '25. Following our prepared remarks, we will open the call for questions.Our call will be a little longer than usual this time. And so to allow us to accommodate as many questions as possible during the hour scheduled for this call, we respectfully ask that you limit your time to one question. If you have additional questions, please requeue. And as always, the IR team will be available for any follow-up questions after the call. Before I call -- turn the call over to Kisha, I want to share that both Paula and Kisha are fighting seasonal colds and you may notice that their voices are a bit raspy this afternoon.And with that, I'll turn the call over to Kisha. Keisha?Kecia SteelmanPresident and Chief Executive Officer at Ulta BeautyThank you, Kylie, and good afternoon, everyone. I've had the pleasure of participating in these calls over the last few years as COO, and I'm excited to host my first-call as CEO today. I appreciate your continued interest in Ulta Beauty and look-forward to engaging with each of you. Today, I'll provide my perspective on the strength of our business, highlight where I focus my first 60 days as CEO and share some of our 2024 achievementsAnd discuss how I'm thinking about our long-term growth opportunities and prioritizing our actions. It all starts with our mission. Simply put, there's magic in our mission. Every day, we seek to use the power of beauty to bring to life the possibilities that lie within each of us. We have a unique Opportunity to serve beauty enthusiasts at nearly every stage of life and in so many milestone moments, from their first date to their first job interview to their wedding day and so many moments in-between. It's a mission uniquely suited for Alta Beauty. One, I feel very privileged to Stuart, and I know that no one can bring this mission to life the way we can. While I've been at Alta Beauty for more than a decade, in my first 60 days as CEO, I made it a priority to spend meaningful time with our brand partners, guest, leadership team and store associates to assess the state of our business, including where we're winning and where we have opportunities. I've made organizational changes to streamline decision-making and align our teams around guest-centric goals, and I've leaned in where we have immediate opportunities to improve our execution, all through the lens of protecting and nurturing the culture that we believe makes us so special. I step into this role with incredible optimism because it's evident to me that the foundational advantages of our business model are strong and more relevant than ever. We have an unmatched breadth of assortment. We provide convenient and engaging omnichannel accessibility. We've built meaningful brand equity and a leading loyalty program. We have a strong financial foundation with stable operating cash-flow and we have more than 58,000 talented associates who are the heart of our company and represent our brand to our guests every day. The beauty landscape has fundamentally changed, guest expectations continue to rise and the pace of change is accelerating. The competitive environment in beauty has never been more intense. For the first time, we lost market-share in the beauty category in 2024. I am aware of the challenges that we face. Some of them are external, while others we own. Our business is bigger and we've managed unprecedented category growth and is more complex as we've expanded our assortment and added new fulfillment choices like buy online, pickup in-store, ship from store and same-day delivery. These capabilities are driving guest engagement and enhanced accessibility, but have also resulted in execution challenges, particularly in-product transitions and launches as we leverage new tools and processes. As a result, our in-store presentation and guest experience today are not as strong as we would like. These are opportunities well within our control. We've identified specific gaps and we're working quickly to address, and I'm leaning in with our teams and brand partners to improve in-store presentation and inventory levels to deliver a better guest experience. It's clear to me that how we've operated must change to ensure that we capture the opportunities in front of us. We are focusing to ensure the guest is at the center of everything we do and we intend to move faster, invest strategically and optimize our business to achieve our long-term goals to drive profitable growth and market-share. I'll dive into our long-term plan to achieve these objectives shortly. But first, let's review the progress made in 2024. We're proud to have finished the year ahead of our expectations. Paulo will share more about our financial performance in a few minutes, but I want to highlight just a few of our key 2024 achievements, including enhancing our assortment through the relaunch of our Alta Beauty collection and the launch of 40 new brands, including exclusive brands like Exo, Noise, Win Beauty and guest favorites like Charlotte Tilberry, Ilia and. Expanding accessibility through the opening of 60 net-new stores, 100 new Alta Beauty at Target shop-in-shop locations and improved digital functionality. We also initiated plans to launch in Mexico and most recently-announced our expansion into the Middle-East in 2025. Relaunching and growing our loyalty program 3% to a record-high of 44.6 million members, driving significant gains in brand love and social engagement through compelling marketing and advertising efforts and completing several transformational infrastructure investments, including the upgrade of our ERP system, digital store and data ecosystem. Looking-forward, we remain optimistic about the strength and resilience of the beauty category. We are mindful that consumers are navigating a dynamic macro-environment, but we continue to expect healthy consumer engagement in beauty. While the category has normalized, we believe in the positive dynamics within the categories, including a strong and growing connection between beauty and wellness, increased digital usage, a strong innovation pipeline and consumer engagement. And we expect these dynamics will support continued category growth in the low-to mid-single-digit range over the next few years. Now, I want to share how we're prioritizing our actions as we look to deliver a stronger guest experience and value to our stakeholders. The long-term strategies and financial targets that we outlined in our October Investor Day will continue to guide our path forward. To bring further focus to our efforts, we've aligned our plan around three main priorities. First, drive core business growth; second, scale new accretive businesses. And third, realign our foundation for the future. We're calling our plan Ulta Beauty unleashed. We recognize the need to move quickly and we will be deliberate about pacing and prioritization to ensure that we can execute well and manage the short-term financial impact. Turning to our first priority, driving core business growth. We have a strong model and have identified significant opportunities to unlock further advantages. This means continuing to push for excellence in all areas of our operations and strengthening our go-to-market approach with the guests always at the center of everything we do. As I shared earlier, our teams are focused on opportunities to sharpen our execution and get back to the basics of running excellent stores that are easy to navigate, fully stocked, appropriately staffed, clean and inviting. Beyond a return to best-in-class execution, in 2025, we will focus primarily on three initiatives to drive core growth, brand-building, personalization and digital acceleration. We will enhance our assortment through further investments in brand-building with a particular focus on exclusive emerging and established brands. We've kicked-off 2025 with an exciting start with the announcement of several notable brand launches. These include fan favorite milk makeup and the innovative K Beauty skincare brand Annua, exclusive to Ulta Beauty. And we're thrilled about the upcoming retail debut of Beyonce's haircare brand Sacred, also exclusive to Ulta Beauty, which we will bring to life in unique ways through our salons. We'll continue to build this momentum throughout the year and into 2026. We will deepen guest engagement through accelerated personalization, increasing automation and real-time content across digital channels. We will accelerate our digital efforts, delivering new enhanced features on our app and website aimed at elevating the guest experience. Second, we intend to scale new and accretive businesses to capitalize on key growth opportunities and ensure that we remain resilient in a rapidly changing world. In 2025, we'll focus on four initiatives: accelerating our focus on wellness, launching a new marketplace, which will expand our e-commerce presence and allow us to offer a broader array of beauty and wellness products to our guests, build upon our international presence, and we also plan to introduce several key enhancements to our Ulta Beauty Media offering, including new product innovation that provides brands with new ways to reach consumers, along with enhanced closed-loop measurements. Finally, turning to our third objective, realigning our foundation for the future. To successfully achieve our long-term growth ambitions, reassert our leadership position and deliver value to our stakeholders. We must optimize ways of working and streamline our cost structure. It starts by focusing on the heart of our company, our teams and our culture. At our core, I believe that we have the very best talent and culture in retail, and we're taking steps to reenergize this critical competitive advantage by optimizing the ways of working and positioning our leadership team to meet the needs of our evolving business. We've made several organizational changes to accelerate decision-making, remove friction and align teams and resources around guest-centric goals. This includes taking steps to optimize our corporate and field support staff, reducing management layers and shifting resources to higher-growth driving areas. Additionally, I made several changes to our executive leadership team to better focus on our key priorities. To support a stronger guest experience in-stores, we've centralized all store functions under Amy Bayer Thomas, an Alta Beauty veteran who will serve in the newly-created role of Chief Retail Officer. With this change, Amy will add real-estate and store design to her existing scope, which includes leadership of our store teams and the loss prevention organization. To align our transformation efforts with our cost optimization initiatives, Mike Moresca, who joined our team in 2023, will add enterprise-wide responsibilities to his scope and will now serve as Chief Technology and Transformation Officer. Amy and Mike are transformational leaders who are guest and associate-centric and results-driven and they will continue to impact our organization with broader scope that results our strategic focus and vision for the future. To facilitate a stronger omnichannel assortment of all things beauty and wellness, we brought our digital and e-commerce teams together with our merchandising and planning teams under Monica Arnado, who now serves as Chief Merchandising and Digital Officer. As you may know, Monica announced her plans to retire later this spring. Monica has been a great partner to me and our vision has elevated our assortment, enhanced our brand partnerships and driven meaningful market-share growth. I look-forward to sharing an update on her successor very soon. We've also promoted Kelly Mahoney to Chief Marketing Officer to advance our brand, personalization and loyalty efforts. Kelly is uniquely qualified for this role. Her understanding of the beauty enthusiast is unmatched and in her 10 years with Alta Beauty, she has played a pivotal role in evolving and expanding the Alta Beauty Rewards loyalty program to more than 44 million members. Additionally, Jodi, our General Counsel, Chief Risk and Compliance Officer, has shared her intention to retire later this spring after more than 10 years of service to Ulta Beauty. An energetic and passionate leader, Jody has been a true business partner, and I want to thank her for her contributions. After conducting a nationwide search, I'm pleased to announce that Renee Kazaris, previously Chief Legal Officer from Academy Sports, will be joining our team next month as Chief Legal Officer. Renee and Jody will work together to ensure a seamless transition. Today, I've shared our plan to make important guest-basing investments, which are necessary to improve our competitiveness and reaccelerate long-term share growth. These investments will pressure profitability in 2025, but we believe they are critical to driving long-term sustainable growth in a competitive innovative category. However, we cannot sustain this level of annual expense growth and achieve our long-term profitability goals. Disciplined management of our cost structure is an ongoing area of focus. As we've shared at our Investor Day in October, we are targeting cost optimization of $200 million to $250 million over the next three years. Since 2019, we've delivered $550 million in cost-savings from optimization efforts across merchandising, real-estate and operational process improvements. And I am confident that we can deliver our cost feature saving targets. We're in the early stages of these efforts and we'll provide regular updates on our progress. Our Alter Beauty unleashed plan positions us to reassert our leadership position, building on our strengths by fueling growth of our core business, scaling new accretive businesses that further our differentiation and realigning our foundation for the future. While sales growth is the ultimate performance indicator, we are closely tracking a series of KPIs for each of our focus areas, including in-store conversion, member growth and retention and app engagement. Over the coming quarters, we'll provide more details of our plan and updates on our progress. In closing, I'm incredibly optimistic of the future of Ulta Beauty. 2025 will be an important year as we improve our execution and lay the groundwork to deliver on our long-term financial targets, including net revenue growth of 4% to 6%, mid-single-digit operating profit growth and low double-digit EPS growth. It will take time for us to fully see the impact of our efforts with our -- but with our exceptionally talented team leading the charge, I believe we are taking the right steps to drive profitable growth and market-share leadership in beauty and wellness over the long-term. And with that, I'll turn it over to Paula for some specific quarter results and our financial outlook before we take some questions. Paula? Thanks, Tisha, and good afternoon, everyone. Today, I will start with a discussion of our 4th-quarter and full-year financial results and then provide color on our expectations for fiscal 2025.Paula OyiboChief Financial Officer at Ulta BeautyStarting with the 4th-quarter, we delivered better-than-expected performance across the P&L, reflecting stronger revenue growth, lower inventory shrink, better merchandise margin and continued financial discipline and expense management. Net sales for the 13-week quarter decreased 1.9% to $3.5 billion compared to $3.6 billion in the 14-week period last year. During the quarter, we opened nine new stores, closed one store and remodeled five stores.Comparable net sales -- comparable sales for the 13-week period increased 1.5%, driven by a 3% increase in average ticket, partially offset by a 1.4% decrease in transactions. Other revenue declined $6 million to $71 million, primarily due to lower-income from our credit card program. Now, now looking at the cadence of sales-through the quarter, comp sales decreased in November and accelerated in December, reflecting the shift of Thanksgiving and a compressed holiday season.Growth moderated in January, primarily reflecting adverse winter weather. Sharing more detail on our holiday performance, comp sales for the combined November and December period increased in the low single-digit range, reflecting the cross-functional efforts of our teams to deliver for our guests this holiday season. Our marketing and social strategies drove strong omnichannel traffic. Our enhanced fulfillment options provided increased convenience and accessibility for guests.And our curated assortment of new and exclusive core products balanced with value-focused holiday kits drove strong engagement. With additional staffing, new tools and unique events, our store teams delivered great guest experiences and our DC teams flexed up to ensure our stores recovered quickly post-holiday. From a channel perspective, we saw growth across both store and digital channels. E-commerce sales for the quarter increased in the mid-single-digit range and comp-store sales were modestly positive, an improvement from the 3rd-quarter trend.Turning to sales performance by category. Fragrance was our strongest category, delivering double-digit comp growth, primarily driven by newness, men's fragrance and multi-branded gift sets. Comp sales in the skincare category increased in the mid-single-digit range as strong growth in body care was partially offset by decreases in prestige and mass skincare. New brands, including Sol de Janeiro, and Tacha delivered strong growth for the quarter, but this strength was partially offset by lower sales from brands, which have experienced increased distribution or lapped strong social engagement last year.Comp sales in the hair category increased in the low single-digit range, primarily due to newness and product exclusives in hair tools as well as healthy guest engagement with key promotional events. The makeup category experienced a mid-single-digit decrease, largely driven by mass makeup, reflecting softness in brands, which lapped strong newness in social engagement last year. Finally, services delivered low single-digit comp growth, driven by increases in salon and specialty services, including ear piercing and makeup services. For the quarter, gross margin increased 50 basis-points to 38.2%, primarily due to lower inventory shrink.Our investments in protective fixtures, training and labor combined with enhanced inventory management processes are delivering results. For the full-year, shrink as a percentage of sales was 20 basis-points lower than fiscal 2023. Additionally, gross margin in the quarter benefited from favorable channel mix due to lower e-commerce shipping costs and higher merchandise margin, mostly offset by higher supply-chain costs, lower other revenue and deleverage of store fixed.Moving to expenses. SG&A was $816 million, $5 million lower than last year, largely due to lower corporate overhead, partially offset by higher store payroll and benefits. Corporate overhead was lower for the quarter, driven primarily by lower consulting expense as we anniversaried implementation costs associated with key infrastructure investments. The increase in-store payroll and benefits was driven by higher healthcare costs, increased payroll hours per store to support the guest experience during holiday and higher average wage rates.As a percentage of sales, SG&A increased 30 basis-points to 23.4%. Depreciation increased 12% to $70 million for the quarter compared to $63 million Last year, primarily reflecting new-store and supply-chain investments. Operating profit was $516 million, approximately flat with last year. As a percentage of sales, operating margin increased 30 basis-points to 14.8% of sales and diluted earnings per share increased 4.7% to $8.46. I am proud of how our teams persevered in-quarter end Q4 to deliver these results, positioning us to close-out the year better-than-expected. And I want to express my sincere appreciation to all our Ulta Beauty associates for their continued commitment and focus on serving our guests while continuing to manage our business thoughtfully. To recap the full-year, net sales increased 0.8% to $11.3 billion. Comp sales increased 0.7%, driven by a 1.1% increase in average ticket and a 0.4% decrease in transactions. We opened 60 net-new stores, relocated two stores and remodeled 41 stores. Gross margin deleveraged 30 basis-points to 38.8%. SG&A expense increased 4.2% to $2.8 billion. Operating profit was 13.9% of sales compared to 15% of sales in fiscal 2023 and diluted EPS decreased 2.7% to $25.34 per share. Moving to the balance sheet and our capital allocation priorities. We ended the quarter with $703 million in cash-and-cash equivalents. Total inventory increased 13% to $2 billion, primarily reflecting additional inventory to support new brand launches, the impact of 60 net-new stores and investments to improve merchandise in-stocks post-holiday. From a category perspective, most of the inventory growth is attributable to investments made to support fragrance and body care, which are key growth categories. Turning to capital allocation. Our healthy business model generated more than $1.3 billion in cash from operations, enabling us to reinvest $374 million to support future growth and return $1 billion in capital to shareholders through our stock buyback program. Since launching our share repurchase program in 2014, we've effectively returned $6.8 billion to shareholders, while continuing to invest in strategic growth drivers. Turning now to our outlook for 2025. The operating environment continues to be dynamic. And as we navigate ongoing consumer uncertainty, we believe it is prudent to take a cautious approach to our guidance for fiscal 2025. Additionally, as we shared at our Investor Meeting in October, we are planning fiscal 2025 to be a transition year and our view has not changed. For the year, we expect net sales will be between $11.5 billion and $11.6 billion with comp sales growth in the range of flat-to-up 1%. We expect operating profit will decrease in the low double-digit range as we begin to implement our Ulta Beauty unleashed plan and continue to manage inflationary headwinds and lap onetime expense benefits in 2024. Reflecting our expectation for revenue growth, we expect operating margin will be between 11.7% and 11.8% of net sales. To share more color into the primary drivers of the expected operating margin pressure. The largest driver of the deleverage is expected inflationary pressure on wages, healthcare and transportation rates, as well as impact of investments we've made over the last few years, including greater utilization of software as a service and higher depreciation. The second-largest driver is pressure from the investments Keisha discussed earlier, including brand-building, personalization, digital acceleration, wellness and marketplace. Incentive comp will also be a headwind as we lap lower incentive compensation in 2024. We expect these pressures will be partially mitigated by lower inventory shrink, supply-chain optimization, benefits from UV Media and targeted cost-savings. First, we are confident the investments we plan to make this year are critical to strengthening our long-term market position and we are tracking our spend and returns closely to ensure we deliver expected benefits. We also recognize the operating environment will evolve and we will continue to be thoughtful about pacing and prioritization. For modeling purposes, we expect gross margin for the year will deleverage, primarily driven by store occupancy costs and supply-chain costs, partially offset by lower shrink. We expect SG&A will increase approximately 10% for the year, driven primarily by our strategic investments and advertising as we -- as well as increased store payroll and benefits. Reflecting these assumptions, we anticipate diluted EPS for the year will be between $22.50 and $22.90 per share. Finally, we plan to spend between $425 million and $500 million in capex, including approximately $250 million to $275 million for new stores, remodels and merchandise fixtures, $125 million to $165 million for supply-chain and IT and $50 million to $60 million for store maintenance and other. We expect depreciation for the year will be between $290 million and $300 million. In closing, we operate in an innovative and expanding category. We intend to continue to invest to strengthen our competitive position and drive growth while simultaneously looking for opportunities to reduce costs and increase efficiency. While we view 2025 as a transitional year, we are confident the actions we are taking will enable us to deliver our long-term financial goals and drive value-creation. And now, I'll turn the call over to our operator to moderate the Q&A session. Thank you.OperatorThank you. We will now be conducting a question-and-answer session. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tool will indicate your line is in the question queue. You may press star to if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick-up your handset before pressing the keys.One moment please while we poll for questions thank you. Our first question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed.Dana Telsey Analyst at Telsey Advisory GroupGood afternoon, everyone, and congratulations, Keisha, on your new role. With the unleashed plan that you discussed today with almost it seems like a greater sense of urgency to address and reexcite the core store base, how are you thinking about the in-store experience and guest presentation and what needs to change? And as that target of 4% to 6% sales growth that's out there on the long-term, how do you think about getting back there?Is the Investor Day targets, which is a transitional year in '25, given the unleashed plan and what you need to do, should we expect a transitional year in 2026 or how do you frame it? And Paula, is there any cadence to or shaping to '25 that we should be mindful of? Thank you.Kecia SteelmanPresident and Chief Executive Officer at Ulta BeautyWell, thank you, Dana, for the question. Yeah, we're very excited about the Ulta Beauty unleash plan. And really what we did was we took the long-term strategies from our financial targets that we outlined at our Investor Day and we developed this plan to really simplify our focus for our internal team so we can help them really prioritize and drive around the three areas of our business, driving core business growth, building new accretive businesses and realigning the foundation.It's not necessarily new information since we had our Investor Day. It's really how we're approaching it internally. What we found is when the teams clearly understand their objectives and their mission to execution level continues to raise. And then I would say the other nuance is the change that we've made with the transformation office now reporting it to Mike having full visibility end-to-end and stage gating our investments so we can see and track how the investments are performingAnd also holding our teams internally accountable give us great confidence and that we can continue to drive the execution in 2025 and continue to move the business forward. And then PaulPaula OyiboChief Financial Officer at Ulta BeautySure. Hi, Dana. What I would say is we continue to expect, as I said, 2025 to be the transition year. And so we are not anticipating anything beyond That to be considered transitional period. And regarding your questions regarding comp, so expecting comp from flat-to-up one. What I would say is we're not planning any wide variation in comp quarter-to-quarter. The environment continues to be dynamic with ongoing kind of consumer uncertainty and such. And so we've set this level at a comp level that we're confident we'll be able to achieve. We do recognize though that given Q1 and Q4 were our strongest quarters in 2024 that Q2 and Q3 likely has the greatest opportunity from a comp perspective. Hope that helps. Thank you.Dana Telsey Analyst at Telsey Advisory GroupThank you.OperatorThank you. Our next question comes from the line of Lorraine with Bank of America. Please proceed.Lorraine Hutchinson Analyst at Bank of AmericaThank. Thank you. I was just hoping for an update on how you're thinking about the fleet. I saw the 60 new openings this year. I know you have a goal for 200 over the next three. Can you talk about the locations of these stores, the sizes and then expectations for performance of those new stores that you roll-out.Kecia SteelmanPresident and Chief Executive Officer at Ulta BeautyWell, I would say that we have a very robust process around our real-estate site selections. And the rich member data that we have, we can see opportunities where there's infill opportunities and there's also opportunities and where we can continue to expand in the areas that we already have stores because there's additional market-share opportunities. We see these being a mix of formats going-forward, very balanced in our approach.We don't really see that we're leaning one-way or another on any of the formats in terms of size. So I'd say it's more of our traditional plan of new-store launches and rollouts for the future. And the additional per point to add is that we continue to see strong new-store performance in our 2024 class and so anticipating similar results with our 2025 class.Lorraine Hutchinson Analyst at Bank of AmericaThank you. Thank you.OperatorThank you. Our next question comes from the line of Michael Bigneetti with Evercore ISI. Please proceed.Michael Binetti Analyst at Evercore ISIHey guys, thanks for taking our question. So, you've been in Alta a long-time and you've developed a unique knowledge of what's made it successful in the past, but the industry dynamics that led to a lot of those successes have obviously changed. And you take-over at a point of time with a lot of cross currents in what's a very resilient category historically. Also, I guess also experienced with that period has been slower sales and perhaps some share losses that you mentioned earlier on.You've been a part of the early innings of resetting the strategy with the Analyst Day plan that you referenced and the company has reset the near-term margins lower to allow for some investment. What do you see as the most important things to rebuild your moat around the business given the competitive dynamics today? Is it through assessment -- sorry, through assortment or do you need to make meaningful changes to loyalty, serious changes to the supply-chain, what are the critical pieces to get right today that are different in the past?Kecia SteelmanPresident and Chief Executive Officer at Ulta BeautyWell, thank you, Michael, for the question. I would say that, you know, the retail environment, especially in beauty has always been competitive, but the competitive intensity is continuing to accelerate. So there's not just one area, I believe, of the business that you can lean on, you have to really be balanced in your approach, which is why we've called our Ulta Beauty Unleash plan really focusing on all the parts of the business that make us not only uniquely special at Ulta Beauty, but are also the drivers of leveraging our strengths in supercharging them.For example, brand-building, we know-how to build brands, but leaning into building brands in a different and unique way in a 360 approach in partnership with those brands. Marketplace, allowing us to have an even broader assortment in a lower-risk way to offer broader assortments to our guests. Personalization, I can go on and on because they all really matter. And so the beauty of this business is when we hit on all cylinders, it's like magic.And you're right, when I go back to my early days, we were hitting on all of those cylinders. I do truly believe that by focusing on these parts of the business along with getting back-to-basics and the everyday running of the business in an exceptional way is what's going to really take us to the next level. And I mentioned in my comments too of really keeping the guest at the center of everything we do. And that's really what this Plan is.It's about keeping the guest at the center of everything we do along with closely aligning our associates at the same time because our associates are the best representation of our brand because they're the ones that are interacting every single day with the guests that are coming in our stores.Michael Binetti Analyst at Evercore ISIThank you very much. Thank you.OperatorThank you. Our next question comes from the line of Adrienne with Barclays. Please proceed.Adrienne Yih Analyst at BarclaysGood afternoon. Congratulations, Keisha. I wanted to go to -- my one question is going to be on the new categories that you talked about kind of just for growth over the long-haul. Can you talk about where you're underpenetrated? I think when we were at the Analyst Day, you and I talked about kind of health and wellness as an emerging secular trend on-top of beauty. If you could talk about some of the opportunities you see in the near-term and then over the longer-term horizon? Thank you very much.Kecia SteelmanPresident and Chief Executive Officer at Ulta BeautyYou cut out a little bit on the beginning, but I think you were asking about wellness. Wellness is a category that's largely growing and we see consumer engagement and product innovation just continuing to expand. And today, we have dedicated space, but it's limited in our stores. It's about eight feet -- eight feet-in most of our store locations. There's new categories that we really feel like we can lean into like nutrition, mindfulness, every daycare and sleep.It's all really, really important. In 2025, where we're going to be looking at leaning into is really -- it starts with our leadership. We've created a new dedicated commercial leader and team that they're committed to just driving wellness at Alta Beauty. We're also looking at expanding our wellness assortment to at least 20 new brands in short order. And then looking at designing and implementing an expanded -- expanded in-store presentation in select stores.We were continuing to lean-in on this. We do think that there's just this mergence between beauty and wellness and we'll be able to share more in the coming months. But we've got the plan and the team and we're ready to now start moving in the right direction to bring this to life. And I appreciate the question.Adrienne Yih Analyst at BarclaysGreat. Thank you very much. Best of luck.OperatorThank you. Thank you. Our next question comes from the line of Simeon Butman with Morgan Stanley. Please proceed.Simeon Gutman Analyst at Morgan StanleyHi, Keisha. It's Simeon, how you doing. My question is back at Analyst Day, I was a little surprised that there was more focus on new-store growth as opposed to looking back at the fleet and enhancing the current fleet. So I wanted to get your take on it. What can you do with the fleet? I'm surprised there isn't more of a refresh. Do you agree with that perspective? And then can the focus of the business tilt in '25 or '26 to focus more on remodels? Thanks.Kecia SteelmanPresident and Chief Executive Officer at Ulta BeautyYeah, I'll maybe take the start of it and I'll ask Paula to wing in on some remodels. You know, what I shared earlier is that we do have such great data around where there's opportunities for us to continue to take share in the United States. And that's where we're leaning in additional new stores. We don't want to overbuild our store fleet. As we've seen that before in retail. And I don't want to be a part of that by any means at Ulta Beauty.So when we're looking at new stores, we're very confident that we can continue to take share and open those new stores in a very profitable way. In fact, one of the largest assets that we have are our stores in and of itself. I appreciate your question around, can you make the stores that you have currently in-place even more profitable? And I would say, yes, we're continuing to lean-in and look at ways in which we can continue to drive even more profitability out of our existing store fleet.Wellness is one of those areas that we're leaning into where you look at can we trade-out categories that are less productive and give this space to a new and emerging type category, also looking at assortment and are there opportunities for us to continue to refine assortment to make sure we're looking at the tail? It's something that is really, really important. And then keeping the guest experience front and center, our stores are just so important for us to be able to continue to refresh our brands and the brands that we're bringing in.The one thing that's changed even in my 10 years here at Ulta Beauty is that beauty is becoming a little bit more fashionable and in and out and you've got to be on the cutting-edge in the trend and you've got to be really flexible with the space that you have dedicated to brands in the store. And that's one of the things that we've really been leaning into with our renovations is having more universal type fixtures. So we aren't locked into bigger boutiques, etc. So it gives us a lot of flexibility to bring brands in and out. And then, Paula, did you want to add anything about renovationsPaula OyiboChief Financial Officer at Ulta Beauty? The only -- the only thing that I would add is just a reminder, we're expecting to remodel 40 to 45 stores this year. But the other thing to keep in mind is that we actually touch our fleet quite often with our merch as we are bringing in newness into our stores and launching brands and lifting certain categories. And so actually, we do a really good job of keeping our fleet up and updated and fresh. And then also as we shared at our Analyst Day, I mean, our fleet profitability is very, very-high and we watch it very closely to continue to maintain that level of profitability.Simeon Gutman Analyst at Morgan StanleyThank you. Good luck. Thank you. Thank you. Our next question comes from the line of Stephen Forbes with Guggenheim Securities. Please proceed.Steven Forbes Analyst at Guggenheim SecuritiesGood evening, Kish and Paula. I wanted to follow-up on-market share and certainly appreciate the optimism around the unleased plan. But curious if you could maybe frame or reframe how you guys are thinking about planning for some of the factors that may be out of your control, right, cannibalization and distribution point expansion? And then specific to cannibalization impacts, now that we've sort of had more time pass here.Can you maybe renew -- give us your new thoughts around how long it has -- it takes a cannibalized store to recover and return to sort of company average comp profiles?Paula OyiboChief Financial Officer at Ulta BeautyMaybe, Steve, I'll start and Tisha, there's more you add. You know, we -- as we've talked about, this has been a unprecedented period over the last several years with the increased points of distribution, particularly for prestige and prestige beauty. We expect competitive pressure will continue to impact our fleet, but we expect the impact will be lower than what we experienced in 2024. You know, at the end of 2024, more than 90% of our stores have been impacted by one or more competitive openings in recent years and then two-thirds of them impacted by multiple competitive openings.The good news is that we are seeing an improving trend in the performance of the stores that were impacted by physical points of distribution the last several years. And we believe both the lapping of the new openings and the impact of our operational efforts are contributing to the improving trend. And then layer on-top of that the actions we're taking as a part of the Ulta Beauty unleashed plan, we feel confident that it will still take some time, but things are moving in the right direction.Steven Forbes Analyst at Guggenheim SecuritiesThank you.OperatorThank you. Our next question comes from the line of Mark Altswager with Baird. Please proceed.Mark Altschwager Analyst at Robert W. BairdGood evening. Thanks for taking my question. And Akisha, congratulations. With respect to the revenue guidance up 2% to 3%, I guess, how does that compare to your underlying assumptions for the beauty category in 2025? And then Ulta did lose a bit of share in 2024. In the prepared remarks, you talked about spending more on marketing. What's baked into the margin guidance in terms of promotions and other actions to defend or recapture market-share in 2025? Thank you.Kecia SteelmanPresident and Chief Executive Officer at Ulta BeautyAll right. Well, I'll start with talking a little bit about the category trends. Yes, the consumers are navigating a dynamic macro-environment, but we continue to expect the healthy consumer engagement with beauty. While the category did slow in '24, it continued to grow in the low-to mid-single-digit range. And part of that growth was driven by the growing connection between beauty and wellness, which is where we're leaning into.There was a healthy innovation pipeline and we feel-good about our innovation pipeline also for 2025 and also just having strong overall engagement within the category. While others have commented and there's a lot going on clearly out there in the world today, January and February were impacted by a combination of some weather and fires in LA and heightened economic and geopolitical volatility. So it's -- I'd say it's too early for us to know if this is really structural or a reflection of some of the weather disruptions or some of the things that were happening because we are lapping some strong growth also from last year.And then, Paula, do you want to lean into the second part of the question?Paula OyiboChief Financial Officer at Ulta BeautySure. Specific to promotions and how we're thinking about promotions as it relates to our sales and our comp side. What I would say is that underpinning our expectation is that the promotional environment will continue to be rational. And so what we saw last year in 2024 is that the promotional environment increased. It's still in our opinion, was rational. And so we're planning 2025 to be rational as well. Now we do understand that things could change.Well, if the consumer demand deteriorates requiring or needing having others to be more leaning in more heavily with promotions, then that is something that we would contend to, but we'll continue to evolve based on the environment and consumer demands. One thing that I will say is that we continue to lean into our capabilities to optimize both the timing and execution of our promotional offers.You know, we will, of course balance discounts with value messaging and quality and leverage our member insights to really focus on executing productive targeted offers and continue to optimize our promotional effectiveness. I would just maybe add, in this environment, we're really focused on controlling what we can control.Mark Altschwager Analyst at Robert W. BairdThank you. Thank you.OperatorThank you. Thank you. Our next question comes from the line of Michael Lasser with UBS. Please proceed.Michael Lasser Analyst at UBS GroupEvening. Thank you so much for taking my question., in your remarks, you noted that the competitive intensity of the category continues to increase. So was that in reference to both online as well as offline competitors? And does that mean that the cost of doing business within the beauty category increases, which should diminish the potential that will be able to scale its margins over-time as it goes through this transition period this year? Thank you very much.Kecia SteelmanPresident and Chief Executive Officer at Ulta BeautyThank you. Well, thank you for the question, Michael. I will say, like as I mentioned earlier, it's always been a competitive category. There are more players that are continuing to lean-in. And I do believe that our Ulta Beauty unleash plan is really designed to accelerate and amplify our differentiation and what makes us unique. So we're really refocusing to ensure that the guest is at the center of all of our decisions. We intend to move faster and invest with purpose, and we're really looking to optimize our business.And it's really in those go-to-market areas. It's about brand-building, digital acceleration, personalization, marketplace and wellness. And this is what we do. A lot of players are playing in the world of beauty, but this is what Ulta Beauty does. And the fact that we have everything from mass to prestige to luxury and everything in-between and we just need to continue to focus on our strengths and lean into them, it will help us continue to build that moat. And then Paula, if you want to talk about the margin?Paula OyiboChief Financial Officer at Ulta BeautyYes, Michael, I -- as we think about some of the commentary we shared in October at Investor Day, we talked about that this continues to be a competitive category. And in order to be a market-share, have growth and be a market-share gainer in this competitive innovator category that we think it's important to continue to reinvest in the business to fuel -- the fuel growth. And that is why we shared the guidance that we gave 4% to 6% top-line growth and that we expect it from a margin perspective to be able to maintain margins around 12%. And so that reflects the current environment from our looms.Michael Lasser Analyst at UBS GroupThank you very much.OperatorThank you. Our next question comes from the line of Michael Baker with D.A. Davidson. Please proceed.Michael Baker Analyst at D.A. DavidsonThanks. I guess I'll ask about tariffs. Remind us your exposure now to Europe potentially seeing 200% tariffs and presumably they'll retaliate. So if you could sort of break-down your exposure by different parts of the world. And then there were definitely some price increases, as I recall in 2017 and '18, but the timing was a little skewed. I think you took price before you even saw the margin. So it was a -- before you saw the price increases. So it was a margin enhancer early-on.Can you remind us how that price versus cost dynamic played out last-time and what you expect this time? Thank you.Kecia SteelmanPresident and Chief Executive Officer at Ulta BeautyYeah. Thank you, Michael, for the question. What I would say like everyone, we are monitoring the ever-changing landscape as it relates to tariffs. We don't believe the exposure, while we don't know the exact exposure our brand partners have upstream . Only about 1% of our shipments over the last 12 months were direct imports. And so our exposure is relatively -- relatively limited. I would say beyond merchandise, we have some exposures with areas like fixtures and Lightning and supplies from a store perspective. And then largely from a merchandising perspective is our Ulta Beauty collection brand. But again, like I said, relatively limited and similar to how we successfully navigated in the 2018, 2019 period, our teams are staying very close to the evolving situations and we're continuing to navigate it and scenario plan both for our business as well as with our brand partners.Michael Baker Analyst at D.A. DavidsonThank you.OperatorThank you. Our next question comes from the line of Ike Boruchow with Wells Fargo. Please proceed.Ike Boruchow Analyst at Wells Fargo & CompanyHey, good afternoon. Thanks for taking the question. I think, Paula, can I have two clarifications. So first on the promo or I'll Call-IT the merch margin line for this year. You said rational similar to '24, but the merch margin trend in the first-quarter -- I'm sorry, in the first-half of last year was very different than the back-half. You were much more stable. I think you were flat-to-up, you were down decently in the first-half. So just to compare it to '24 is tough, like are you -- would you compare it to the back-half of '24?Just some clarity on how to think about merch for the year would be helpful. And then I'm sorry, just a clarification on the comp outlook, zero to one. And I think you said similar every quarter, but Q4 and Q1, I guess, the low-end of the zero to one. Just trying to make sure I understand how to think about the first-quarter comp relative to your commentary. Thanks.Kecia SteelmanPresident and Chief Executive Officer at Ulta BeautyOkay. I'm going to answer the last question around the comps. And then I might need you to give me what you're asking for on promo and merch margin if you were speaking of 2024 or 2025. On the comp for 2025, so what I shared is, yes, flat to 1% for the year and we are not planning a wide variation in comp quarter-to-quarter. And then additional color I was given is that because Q1 and Q4 were our strongest quarters in 2024, then I would expect Q2 and Q3 to have the greatest opportunity from a comp perspective.Ike Boruchow Analyst at Wells Fargo & CompanyGot it. And just to go back. Yeah, thank you. And then basically what I was asking on the merch margin for '25, you said similar rational promo pricing in '25, which is what you said you saw in '24. I was just saying your merch margins were down in the first-half and flat-to-up in the back-half. So are you saying similar to what you saw in the back-half of '24 just because it was very volatile through the year, which is a similar way to ask is just are your merchandise margins planned flat-to-up or should they decline again? Yeah. Based on --Kecia SteelmanPresident and Chief Executive Officer at Ulta BeautyNo, I appreciate the question. I'm probably not going to get into specific expectations around merch margin for the year. But the point that I was making about promotionality is that we expect promotions to be rational this year and that is assumed within our guidance. If I go back to gross margin for 2025, we expect gross margin will deleverage primarily driven by store occupancy costs and supply-chain costs, partially offset by lower shrink.And obviously, gross margin is impacted by the comp of zero to one, which is causing us to deleverage on many of our fixed costs.Ike Boruchow Analyst at Wells Fargo & CompanyGot it. Thank you.Kecia SteelmanPresident and Chief Executive Officer at Ulta BeautyI think, Alicia, we have time for one more question.OperatorYou got it. Our last question comes from the line of Ashy Helgins with Jefferies. Please proceed.Ashley Helgans Analyst at Jefferies Financial GroupHi, thanks so much for squeezing me in. Any more color you can share on the new marketplace and just how it differs from your current online platform? And then, Paula, you called out that brands -- the brands that have increased distribution have been drags. Just curious how you combat -- can -- or how you're planning to combat that headwind? Thanks.Kecia SteelmanPresident and Chief Executive Officer at Ulta BeautyThanks, Ashley, for the question. I'll start. So yes, you know what we're seeing is that our beauty guest needs, they are continuing to evolve and we want to be able to expand our offerings in a lower-risk way and this really enables us to do that with marketplace. We have thousands of brands that want to come work with us. And what we're doing is we're opening a closed marketplace. So it's invitation-only to enable like a curation site and that actually went up live today. So brands can actually start signing-up officially today.We're expecting a mix of new and established and emerging brands that are really focused around beauty and wellness. One of the other things that we're really, really focused on is that our members will be able to earn points on their marketplace purchases and that the guests will be able to return their marketplace purchases to our stores. So we're trying to make this as seamless as possible for our guests. The plan is to launch this in the back-half of '25.And we've got a dedicated team that we're building around selling and operations to operate this model. We don't expect it to be material in '25, and we're going to continue to share more details as they become available.? Sure. And hi, Ashley. On your question about what we're doing to combat potentially some specific brands on the declines. Generally, I guess I would zoom out and say really, when we think about where there's opportunity for us from a business, newness.We continue to work with our existing brands and new brands to bring newness into our assortment. And even for brands who've had expanded distribution, our merchant teams do a wonderful job with finding and launching specific and exclusive newness that's unique to Ulta. And so that helps. And then one of the key priorities within our Ulta Beauty unleash plan is brand-building, which is focused on building and growing brands and increasing the level of brands that are exclusive in our assortment.And so those are the key strategies that we have that would help with that. Thank you. Great. Thanks. I would just like to -- I would like to just thank everyone for joining us today. To wrap-up, I'd also like to thank our loyal guests, our trusted brand partners and dedicated associates for their engagement and support. I'm confident in the team's ability to reignite our momentum while making wise investments to set the business up for long-term performance.Thanks to you all for your interest in Alta Beauty, and I look-forward to meeting and connecting with you in-person in the coming months. Thank you, and have a good evening.OperatorThank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation