On Tuesday, Ulta Beauty (NASDAQ:ULTA) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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The full earnings call is available at https://q1-2026-ulta-beauty-earnings-conference-call.open-exchange.net/registration
Summary
Ulta Beauty Inc reported a strong first quarter with net sales growth of 11.1%, comparable sales growth of 5.3%, and a 15.5% increase in diluted EPS.
The company is focusing on strategic initiatives such as expanding its e-commerce capabilities, launching exclusive brands, and international expansion to drive long-term growth.
Ulta Beauty is maintaining its sales guidance for fiscal 2026, expecting net sales to increase between 6% and 7%, while also increasing its EPS guidance due to strong Q1 performance and share buybacks.
Operational highlights include the successful execution of in-store events and promotions, the launch of a TikTok shop, and advancements in AI for personalization and operational efficiency.
Management expressed confidence in continuing to capture market share and drive profitable growth despite a competitive and uncertain macroeconomic environment.
Full Transcript
Layla (Operator)
Good afternoon everyone. My name is Layla and I will be your conference operator today. At this time I would like to welcome you to Ulta Beauty’s first quarter and fiscal 2026 earnings call. This conference is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker’s prepared remarks, there will be a question and answer session. At this time I would like to turn the call over to Ms. Kylie Rollins, Senior Vice President of Investor Relations. Ms. Rollins, please proceed.
Kylie Rollins (Senior Vice President of Investor Relations)
Thank you, Layla Good afternoon everyone and thank you for joining us for a discussion of Ulta Beauty’s results for the first quarter of fiscal 2026. Hosting our call today are Keisha Steelman, Chief Executive Officer and Chris Delorafis, Chief Financial Officer. During today’s webcast, a presentation is being shared live and has also been posted to our [email protected] investor as a reminder, today’s earnings release and the comments made by management during this call include forward looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, factors identified in the earnings release and in our most recent 10k. The company undertakes no obligation to revise any forward looking statements to allow us to accommodate as many questions as possible. During the hour scheduled for this call, we respectively ask that you limit your time to one question and no more than one follow up question. As always, the IR team will be available for any questions after the call. And now I’ll turn the call over to Keisha Keisha thank you Kylie and good afternoon everyone. After meeting our ambitious goals in fiscal 2025, we entered fiscal 2026 with a keen focus on continuing our progress while optimizing our model with financial discipline to deliver profitable growth. Before I dive into the details of our first quarter performance and priorities for the year ahead, I want to share my perspectives on the business first, our core US Business is fundamentally strong and delivering healthy sales growth. Second, the strategic initiatives we are driving to scale new businesses are gaining traction, are contributing to our results and position us well for long term growth and value creation. Third, we are exercising financial discipline and working thoughtfully to optimize our cost and investments to position our business to deliver consistent double digit earnings growth. Next, growth in the beauty category remains healthy even as consumers are increasingly value focused and Ulta Beauty’s diverse assortment, omnichannel convenience and compelling loyalty rewards program uniquely positions us to meet our guest evolving needs. And finally, we are staying focused on capitalizing on the strengths of our model and executing our Ulta Beauty Unleashed strategy to deliver long term profitable growth and value. And while we are continuing to monitor how the macro landscape could evolve, we remain execution focused and are confident we will deliver our fiscal 2026 expectations, which Chris will cover further later in the call. Turning now to our first quarter performance and the progress being made on our Ulta Beauty unleashed pillars, the strength of our business continued as we delivered first quarter net sales growth of 11.1%, comparable sales growth of 5.3% and 15.5% diluted EPS growth performance was broad based with all channels and major categories contributing positively to our strong results. From a market share perspective, we gained share in Prestige Beauty and we were roughly flat in Mass beauty beginning with our driving the core business growth pillar. Overall company performance continues to be fueled by the strength of our core US business, reflecting a relentless focus on delighting guests with every interaction and building on our new go to market approach, marketing leadership and compelling merchandising innovation. Our stores delivered another solid sales performance supported by the successful execution of key promotional and marketing events including 21 plus days of beauty and Spring Hall. As we begin the new fiscal year, our store team is focused on driving engagement and education and excitement during the quarter. Together with our brands, we executed more than 40,000 in store events including key activations to highlight newness from brands like Coach, Sacred, Live, Tinted and held several workshops to support education for brands like Redken, Rare Beauty and Lancome. As we look to Q2, we will stay focused on the fundamentals to ensure we are delivering great guest experiences, driving conversion and fueling sales growth. E Commerce momentum continued with the team delivering another quarter of robust sales performance. The sustained strength of our E Commerce channel is powered by the investments we’ve made over the last several years to elevate our infrastructure and the ongoing enhancements we’re continuing to roll out like expanded same day delivery options through Uber Eats and new Buy Now Pay later options through Klarna to improve functionality and expand convenience and improve the guest experience. The convenience of Buy anywhere fill anywhere capabilities including Buy Online pickup in store have been a key driver of our E Commerce growth and of our strong guest satisfaction metrics. This quarter marked the exciting launch of our TikTok shop with a strategic focus on our only at Ulta exclusive brands. We hosted our first ever TikTok shoppable live stream at our Ulta Beauty World event garnering more than 5 million impressions and strong GMV rivaling top affiliate livestream performances this initiative is driving a lot of excitement with guests and the creator community which is showing high interest in collaborating with us. In addition, a number of brand partners have expressed interest in offering their products as part of our curated TikTok assortment and bundles. This new channel positions Ulta Beauty at the center of a critical discovery point and will enable us to spotlight our exclusive brands, build influence and fuel our marketing efforts, particularly with younger consumers. Turning to brand building, we are making meaningful progress on our ambition to build multiple $100 million plus exclusive brands over time to compete and win in beauty and wellness. We are driving the innovation pipeline, co investing in marketing with strategic and exclusive brand partners and creating exciting activations in stores and online. We have several exciting success stories on this front and today I’d like to highlight an exclusive fragrance brand Noise, an approachable vegan and cruelty free fragrance brand inspired by relatable real life feelings and self expression. During Q1, Noise launched its innovative Milk De perfumes. Part fragrance, part hydrating skin care, milks are perfect for layering and are creating a new subcategory that has excited our guests and is helping drive the brand’s continued growth. Ulta Beauty collaborated with noise on a 360 degree go to market activation strategy that helped catapult the brand into our top 20 in the category for the quarter and Noise continues to fuel social buzz into Q2 with the recent debate debut of Be Her, a fragrance collaboration with award winning singer songwriter Ella Langley. From a broader newness perspective, our balanced approach is driving consumer excitement across categories and fueling positive performance. During the quarter we launched more than 20 new brands including our record breaking launch of Rare Beauty and Makeup Bauman, an exclusive early lead brand in fragrance, Bloom Effects in Skin, Hair Story in hair Care and Gruens and Wellness. These launches are in addition to exciting newness from our existing brand partners like Estee Lauder Tatcha and exclusive brand Seiko. In marketing, we focused on engaging storytelling to capture core moments in beauty and further Ulta Beauty’s authority and high impact shopping moments. The team drove outstanding activations around key marketing and promotional events including Valentine’s Day, 21 Days of Beauty and Spring Hall. In April, we hosted our flagship consumer event Ulta Beauty World in Orlando. Approximately 3,000 Ulta Beauty fans attended the event to engage with nearly 240 of our brand partners and discover newness through immersive high touch experiences with masterclass education offered as a separate experience. Building on last year’s inaugural event, Ulta Beauty World drove strong engagement across PR and social and expanded into new platforms like TikTok Shop Live, more than doubling earned media value year over year. During the quarter, we expanded our Ulta Beauty Rewards loyalty program to to nearly 47 million members, up 4% year over year. We are leveraging our vast first party data and recent tech improvements to enhance our leadership and personalization. Our teams are building around key customer journeys and actions to maximize incremental sales driving opportunities. This includes utilizing our loyalty data to understand behaviors, predict replenishment purchases and drive cart conversion. Moving to our second pillar, scaling new businesses beyond the U.S. we opened a handful of new stores across our international markets. Space nk, which operates stores in the UK and Ireland, continues to deliver healthy, well balanced growth, expand its loyal customer base and gain market share. In Mexico, we opened two new stores including the grand opening of our Madero Store, a unique two story building that blends modern beauty retail with historic architecture and charm in the heart of Mexico City. In addition, our franchise partner Al Shaya opened our third store in the Middle east at the Dubai Mall, one of the largest and most visited shopping destinations in the world. While the situation in the Middle east remains fluid, we continue to be excited about the potential of this flagship location and for the expansion opportunity in the region over the long term. Our marketplace continues to gain traction with the addition of exciting new brands and items. We closed the quarter offering more than 325 brands and over 8,000 SKUs across our seven marketplace assortment focus areas. During the quarter, we successfully integrated Marketplace brands into our 21 plus days of beauty promotion, contributing to strong ongoing guest engagement. I’m incredibly proud of the way our team continues to execute this important initiative and the strong guest satisfaction we are seeing for those who purchase products from our marketplace. In wellness, we’re helping guests find their feel good with expanded assortments across key wellness focus areas, nutrition and supplements, intimate care, rest and reset and essential routines. During the quarter we launched several new brands including nutritional gummies brand Gruins and intimate skincare brand Medicine Mama. We drove awareness and guest acquisition through our wellness focused events and integrated wellness offerings into key tentpole events. We also enhanced our digital navigation and storytelling performance. Continues to build driven by assortment and space expansion as well as guest engagement in key pillars including nutrition and supplements and rest and reset in UB Media. We’re on a journey of scaling this incremental margin driver, rolling out enhanced capabilities, features and products to support our brands. We recently launched a YouTube enhanced measurement product which provides deeper insights and benefits to our brand. Clinique leveraged this new capability for a recent campaign that was executed with fresh talent and best in class practices. It was not only able to measure brand level sales, but they also saw meaningful higher returns on the ad spend and conversion compared to other video channels. And finally, our third strategic pillar Aligning our Foundation for the Future as part of our supply chain optimization efforts, we advanced plans to expand our distribution network with the commitment to open a new regional distribution center in Salt Lake City, Utah. This new facility will leverage the latest in automation technology to improve speed, increase efficiency and simplify product flow. In addition, we continue to leverage AI to optimize our business from a guest facing perspective. We introduced an online shopping agent, Alta AI to enhance discovery, personalization and shopping experiences. Initial results have been promising and we are excited about the potential of this new feature. In addition, we are integrating with leading AI platforms like Google’s Gemini to enable agentic commerce. We are still in the early days and are focused on leveraging the strengths of our partners to maximize the AI opportunity. Finally, turning to our efforts to cultivate one of our most important competitive advantages, our culture. Last month we brought together more than 1500 general managers along with corporate and DC leaders and brand partners in our annual Field Leadership Conference. The strength of our model was on full display. Everything about the time we spent together was aimed at growing our business, building enthusiasm and pushing ourselves to an even higher standard. The most exciting part was the alignment and the collaboration and the camaraderie across the entire business. Importantly, there was also a unified focus on execution in stores and providing our guests with consistently great experiences. The energy I experienced coupled with our current business performance reinforces my confidence in the direction we are heading and my optimism that the business will continue to deliver on our revenue, income and shareholder value creation goals. Turning to the operating environment, As I shared in the beginning of my remarks, the beauty and wellness categories remain healthy and engagement is strong. At the same time, consumers continue to face macroeconomic uncertainty and inflationary measures and pressures from rising fuel prices, making value increasingly important. As a consideration, we are operating from a position of strength in this environment and have multiple levers to satisfy guests value needs, including a diverse mass to luxury assortment that provides our guests with choices for every budget omnichannel accessibility that allows our guests to browse, buy and fulfill purchases in the way that best fits their lifestyle and a compelling loyalty program and targeted promotional capabilities that enable guests to maximize value while strengthening engagement with our brand. We will continue to thoughtfully navigate the operating environment and respond with agility to deliver for our guests, drive sales and expand share over the long term Looking to the future, we’re focused on expanding our US Business by strengthening our assortment and investing in stores and digital experiences and deepening customer engagement through personalization, AI and social commerce including our new TikTok shop partnership. In addition, we expect to drive incremental accretive growth as we continue to scale our new businesses including international expansion, wellness and marketplace offerings and enhanced UV media capabilities. We will continue to execute our plans to support long term growth and efficiency through investments in supply chain automation, merchandising systems and AI powered tools to enhance operational performance, guest experience and profitable growth. And finally, I’m excited to share that we are beginning work on a new highly experiential Ulta Beauty location in Times Square, New York. Expected to open in late 2027, this flagship store will be a vibrant, dynamic destination where technology, entertainment, convenience and our differentiated assortment come together to deliver immersive guest experiences and brand activations. This store will showcase next level brand building and storytelling capabilities, unlock high impact marketing through digital billboards and drive greater awareness and loyalty with guests from all over the United States and the world. In closing, our Ulta Beauty Unleash plan is delivering results and we remain confident in the strength of the Ulta Beauty model, the resilience of our category and the passion of our guests and associates. We are investing with discipline in the areas that matter the most, a differentiated seamless assortment, a seamless omnichannel experience and deeper guest loyalty, all while staying agile in a dynamic environment. As always, we will stay focused on what we can control, keeping our guests and associates at the center of all we do to drive our business forward and create value. With that, I’m going to turn it over to Chris to cover the financials.
Chris Delorafis (Chief Financial Officer)
Great. Thanks Kesha and good afternoon everyone. I’ll begin with a discussion of our first quarter results and then share our updated expectations for the year. Starting with the quarter, the Ulta Beauty team delivered profitable growth reflecting benefits from strong revenue growth and gross margin expansion driven by improvements in shrink and merchandise margin. I want to express my sincere appreciation to our teams for staying disciplined and working together to deliver this strong performance. Net sales for the quarter increased 11.1% to $3.2 billion compared to $2.8 billion last year. Total sales growth, excluding the impact of Space NK was in the high single digit range. During the quarter we opened 16 net new Ulta Beauty stores and one new Space NK store. Other revenue increased $6 million to $62 million primarily due to higher income from our credit card program and commissions from UB Marketplace. This growth was partially offset by lower royalty income from our partnership with Target Corporation. Comparable sales for the period increased 5.3%, driven by a 3.7% increase in average ticket and a 1.6% increase in transactions. Looking at the cadence of sales through the quarter, the period played out largely as we expected. February delivered low double digit comp growth as we lapped our weakest comp performance in fiscal 2025. Comp growth for both March and April was in the low single digit range. From a channel perspective, both store and digital channels contributed to comp growth with E Commerce delivering mid teen sales growth and comp stores delivering sales growth in the low single digit range. Turning now to sales by category, fragrance was our strongest category again this quarter delivering high teen comp growth and increasing from 11% to 12% of total revenue. We continue to execute well and advance towards our goal of being the number one destination for fragrance. We are playing to win and to support this ambition we are investing in newness, enhancing our in store experience, improving core in stocks and leaning into key events like Valentine’s Day and Mother’s Day. For the quarter, growth was primarily driven by newness from core luxury brands including ysl, Carolina Herrera, Valentino and an early lead of new brand Balmain as well as innovation including the new milk scent format from exclusive brand Noise. The hair care category delivered high single digit comp growth this quarter driven primarily by strong performance in prestige hair care. New brands Amica and Moroccan Oil drove healthy growth and exclusive brand Sacred continue to resonate with guests, driving robust results with core hero SKUs as well as exciting innovation. Hair treatments including repair focused products and scalp regimens outperformed while hair tools declined as the impact of lapping prior year launches and softness in traditional tools more than offset growth from innovative and accessible brands. Shark and T3 comp sales in the makeup category increased in the low single digit range with growth driven primarily by prestige makeup. Strong guest engagement with new brand Rare Beauty as well as newness from existing brands including Mac, Kylie Cosmetics and Estee Lauder helped deliver growth for prestige makeup. Mask makeup was relatively flat with compelling innovation from brands like Morphe and L’ Oreal, Offsetting Ltd. Innovation from other mass brands. The skincare and wellness category delivered low single digit comp growth this quarter. Prestige skincare continued to perform well as newer brands including Medicube and Dermatology and newness from existing brands including Tatcha and exclusive brand Peach and Lily drove healthy guest engagement. Mass skin care delivered solid growth supported by in store expansion for anua, sustained virality for Bioma and exclusivity from Cocokind in Wellness. Continued strength in supplements including Lemmy and Mary Ruse as well as self care brands including Therabody, Not Pod and Sage delivered strong growth. This growth was partially offset by pressure in body care as we lapped meaningful expansion of key brands last year. Finally, services delivered mid single digit comp growth driven by strong member engagement in salon and specialty services including ear piercing and makeup services. Gross margin for the quarter increased 100 basis points to 40.1% of sales primarily due to lower inventory shrink and higher merchandise margin. Our team’s relentless focus on reducing inventory shrink continues to deliver meaningful benefits to profitability. In addition to our continued focus on process improvements and associate training across all stores, we’ve applied data insights to take deliberate targeted actions to improve performance in high risk locations. As a result of these combined efforts, we saw shrink reductions across every category and every region this quarter. Merchandise margin increased this quarter primarily due to improving inventory turns and the impact of favorable category mix from Space nk. Although elevated fuel prices resulted in higher than planned transportation costs, productivity and efficiency unlocks from our supply chain optimization investments enabled our teams to mitigate this pressure in the quarter. Moving to expenses SG&A increased 14.6% to $850 million as planned, driven primarily by the impact of Space NK and investments made to support our Ulta Beauty unleashed strategy, including investments made in second half of fiscal 2025 which have not yet anniversaried. Operating profit grew faster than net sales, increasing 11.6% to $448 million or 14.2% of sales. Interest income was $0.7 million inclusive of the impact from our increased share buybacks. The effective tax rate decreased 70 basis points to 23.9% primarily due to the purchase of transferable federal tax credits resulting in a one time income tax benefit recorded during the quarter. Wrapping up the P and L net income increased 11.6% to $340 million and diluted earnings per share for the quarter increased 15.5% to $7.74 per share. Moving to the balance sheet and our capital deployment strategies, our focus on cash management, including a disciplined approach to capital expenditures is driving greater cash efficiency. We ended the quarter with 221 million in cash and short term investments and $145 million in short term debt. Total inventory increased 12.5% to $2.4 billion, primarily reflecting additional inventory to support new brands. The acquisition of Space NK and the impact of 70 net new Ulta Beauty stores. On a per store basis, inventory increased 1.4%. Capital expenditures were 58 million for the quarter, mostly driven by investments in new and existing stores. We executed against our increased share buyback plan and deployed cash and leveraged our Revolver to support $555 million of stock repurchases during the quarter. Turning now to our updated outlook, we remain focused on expanding market share and delivering profitable growth in fiscal 2026. The first quarter positioned U.S. well against these goals with strong execution throughout the P and L. At the same time, we believe it is prudent to take a measured approach to our guidance given the uncertain macro landscape. For the year, we are maintaining our guidance for sales and continue to expect net sales will increase between 6 to 7%. We expect net sales growth will be stronger in the first half reflecting our strong Q1 performance and the benefit from the acquisition of Space NK. Given our strong Q1 performance, we are maintaining our comp sales growth commitment and continue to expect comp growth for the full year will be between 2.5 and 3.5%. Based on this, we expect our two year stack to comp will be in the high single digit range and relatively consistent across the balance of the quarters, including Q2 which was our highest comp performance last year. Reflecting the strong performance execution in the first quarter, we have enhanced our expectations and now expect operating profit will increase between 6 and a half and 9% for the year. For modeling purposes, we continue to expect gross margin will be roughly flat for the year driven by higher inventory productivity, continued momentum in supply chain productivity and a modest improvement in inventory shrink which is expected to offset pressure from higher fuel costs and help balance targeted investments to bring competitive offerings across our unique mass to luxury assortment to our value focused guests. We delivered SG and a growth in the first quarter consistent with our expectations and we have not changed our full year targets. We continue to plan SG and a growth in line to slightly below net sales growth and intend to invest in a disciplined way that supports and maximizes profitable growth. We continue to expect to generate strong operating cash flow which will enable reinvestment to support future future growth and also support our intent to return capital to shareholders through our stock repurchase program. We see deploying capital towards increased share buybacks in the current environment as a compelling value creation opportunity and in the first quarter we announced an increase in our fiscal 2026 stock buyback target from 1 billion to $1.5 billion. Reflecting the impact of these assumptions, we have increased Our EPS estimates. We now expect diluted EPS will be between $28.36 and $28.80 per share. Our new guidance represents growth between 10.6% and 12.3% respectively compared to previous growth expectations of 9.4% to 11.4%. Note. Our updated estimates assume a weighted average share count of approximately 43 million shares and and a tax rate of approximately 24.5%. In closing, Ulta Beauty is well positioned to deliver compelling value to our shareholders. This is evidenced by our first quarter results where our focused execution delivered strong performance consistent with our expectations. As we continue to navigate near term uncertainty, we are focused on executing with excellence against our plans, maintaining financial discipline, including focused investments to increase market share and deliver strong profitable growth for our shareholders. And now I’ll turn the call over to our operator to moderate the Q and A session.
Layla (Operator)
We will now begin Q and A to join the queue. To ask a question, please press Star five on your telephone. Again, that’s Star five on your telephone. To ask a question, please limit to one question before jumping back in the queue. Thank you. We will now pause a moment to assemble the queue. Our first question will come from Adrienne Yee with Barclays. Your line is now open. Please go ahead. Great. Thank you very much. And let me add my congratulations or let me state my congratulations for a fantastic start to the year. Kesha, along those lines, I wanted to just talk about sort of like the categories year to date that you’re seeing sort of the greatest return on the investments that you’re making in the, in the marketing and you know, some of the heavy up s T A that you’ve been doing. And then kind of along those same lines, Chris, can you talk about you raised the lower end of kind of the profit expectations and then the higher end of the eps, certainly due to probably the buyback, but the top line remained the same. So within the, you know, the SGA leverage, where are you seeing kind of the most visibility for the back half? Thank you so much.
Adrienne Yee (Equity Analyst at Barclays)
I’ll start. Adrienne, thank you for the question. Where we’re seeing the investments really paying off is one of the strongest categories that we’re seeing results in is really fragrance. When you look at Mother’s Day, the Mother’s Day promotion, how we’ve, you know, risen the fixtures up and been able to add assortment into our stores and then the marketing that we’ve done along with it, that’s the definitely come into play. We’ve also been investing in our ignite brands and looking at ways that we can continue to lean into our brand building plans that are a 360 approach that are around the exclusive brands that we have here at Ulta Beauty. And we love what we’re seeing there. You know, we’re focused on being very balanced in our portfolio and continuing to look at how we can continue to drive sales across, across the store and not just being focused in one area of the business. You know, 21 days of beauty we were pleased with the results there. We do think that the guest is continuing to look at value and then we’re also leveraging our tool of UB Media to really capture that guest to get them because we know where they’re shopping and they’re. We know where they’re at and we can take those brand dollars to get them engaged into our store and online. So those are the places where we’ve been really seeing a nice return for the investment that we’ve been spending. And again we’re going to be continuing to focus that in Q2. Chris?
Keisha Steelman (Chief Executive Officer)
Yeah, thanks. Thanks for the question. I mean one, it was, you know, pleased with the strong execution through the P and L in Q1 which gives us confidence to deliver against our full year goals, increase our operating profit commitments at the low end and the midpoint and certainly as you noted, raising EPS both due to the operating profit increase and share buybacks. I’ll go back to the principles. Our goal is to maximize value creation through driving increases in operating profit. As we start the year we’ll have opportunities both on the leverage side and both on the invest to grow slide while maintaining discipline on margin and ensuring that based on the guidance we provided our operating margin will not go backwards year over year and there’s opportunities for leverage within that. So as I think of the balance to of the year, you know, I’ll point to where we’re seeing some strength, right? We’re seeing some strength in supply chain. You saw shrink play out positively in the quarter. The supply chain team continues to do a great job in supply chain optimization. I think you also saw very strong discipline and consistent performance on sgna. So I would say there, there’s some opportunities in there but the balance of the year is going to be this. How do we thread the needle of trying to optimize growth while capitalizing on where those leverage opportunities and balancing those two to keep trying to deliver against and where we can drive operating profit up.
Chris Delorafis (Chief Financial Officer)
Fantastic. Very helpful. Best of luck. Thank you.
Layla (Operator)
Your next question will come from Simeon Gutman with Morgan Stanley. Your Line is now open. Please go ahead.
Simeon Gutman (Equity Analyst at Morgan Stanley)
Hi everyone. Thanks for the question. So two parts. First, the exit rate comp or what you did, I think in. Was it April, I guess. Is that as good as it gets given the compare step up or was there something unique, timing wise, end of the quarter that pushed it down? Maybe temporarily. And then Chris, just following up to what you said, some of the language you use, you know, trying to optimize or managing both. Is it, is it in the plan for SGA to step down? And, and that’s, that’s a given or it’s not a given. And it’s going to take some maneuvering as you work through the back half of the year. Thank you.
Chris Delorafis (Chief Financial Officer)
Yeah, so maybe I’ll take SGA first. We’re highly confident in the SGA execution. The year’s playing out as expected. Remember we said we expect expected double digit growth in the first half. That was largely attributable to Space NK and the anniversary of Ulta Beauty Unleashed investments we made in the back half of 2025 that included wellness and Marketplace as an example. We simply stepped down into low single digit growth in the second half of the year because we’re going to anniversary over those items. We are investing in the second half of the year. And we also have cost optimization that’s helping actually, you know, further get ROI and benefit and put more back in the business. So you’re going to see SG and A consistently play out. What I was articulating is each year as we have opportunities to either further accelerate top line, that balance of top line versus leverage while maintaining discipline in margin and constantly adjusting those two levers to capitalize on opportunities to drive operating profit up would be the goal as we progress through the year. And you saw us do that in Q1. Obviously there’s the macro environment and some uncertainty there. We think this is a prudent guidance with strong double digit EPS growth. And our goal at the end of the day is to be a consistent compounder of EPS at double digits. And this guide provides that. And I think you should feel positive about the strong execution in Q1 and
Keisha Steelman (Chief Executive Officer)
then I’ll take the comp trends. So, you know, Q1 played out largely as we expected. February was in the low double digits as we left our weakest comp from fiscal year 2025 and then comp growth in March and April was in the low single digit range. You know, as Chris shared, we continue to expect our comp sales growth for the year to be between two and a half to three and a half percent. And just as a quick reminder, second quarter 26 is our toughest comp comparison on a one year basis. Over the results, strong results that we had in 2025, the guide implies high single digit comp growth on a two year stack basis. We’re very confident in our ability to grow sales and to deliver our guidance and we have great plans in place to fuel our performance. And I do think that this is where our unique model plays into that. You know, we can have a consistent track record of delivering sales growth in many different kinds of economic timeframes that are out there. So hopefully that answers your question, Simeon.
Simeon Gutman (Equity Analyst at Morgan Stanley)
It does. Yep. Thank you. Good luck. Appreciate it.
Dana Telsey (Equity Analyst at Telsey Group)
Your next question will come from Dana Telsey with Telsey Group. Hi, good afternoon everyone. As you think about the sales growth, Kesha, which is very impressive with transactions and with traffic as you exited the quarter, how’s the exit rate looking forward? And just like you had Ulta Beauty World, what are the next events and how do they break out by quarter going forward? And then Chris, as you think about the margin comparisons going forward, either on SGA or gross margin, whether merch margin or others, anything we should be mindful of. And how do you think of the investment spend going into the margin profile through the shaping of the year? Thank you.
Keisha Steelman (Chief Executive Officer)
I’ll start and then I’ll turn it over to Chris. Thanks for the question, Dana. You know, average ticket was up 3.7% in Q1. It was largely driven by product mix. Our Transactions were up 1.6% and that was in a challenging macro environment. But we are really focused on how we can continue to drive traffic. We’re very confident in our marketing and our merchandising plans to really support and, and to drive our business. And our teams are doubling down, particularly in stores to really drive traffic. And the guest conversion through our guest service events, which we did a lot of events in those last quarter, we’re going to continue that trend. Loyalty and personalized marketing efforts. You asked a little bit about Ulta Beauty World. You know, we are really focused on creating excitement and energy both in our online platforms and in store. And we, we build great plans around, you know, what activities we had last year and how do we continue to improve them even more for this next year. I’m pleased with what I see in the Q2 and the back half plans for, you know, taking our learnings and continuing to improve. Always the teams from a marketing, merchandising store, operations and digital perspective are all working very, very Closely together. And I feel great that the go to market team has good plans in place for Q Q2 and the rest of the year.
Chris Delorafis (Chief Financial Officer)
Yeah, as you think of the margin and call it the profit profile as we progress through the year. So one we actually have a very balanced first half second half operating profit growth profile which is positive first half is modestly above the second half. Two primary factors there obviously slightly higher sales and then as you think of gross margin, higher benefits of shrink in the first half of the year is the big difference. And we had articulated that right. We started getting shrink benefits more through the back end of last year. We’ll start cycling through success as you move from first half to second half. First half we’ll have stronger gross margin performance. Remember SGA is going to have the increased cost because of space NK and the anniversary of prior year investments we made. When you move to the second half of the year you have a slight flip where you see the gross margin moderate a bit as planned and then you start seeing the benefits of SG and a driving some margin improvement in the second half of the year with low single digit growth. So it’s playing out exactly as planned. Remember we’re we made investments in 2025 that we’re going to continue to benefit from marketplace wellness, just to name a couple. But in 26 we’re also making investments. We have agentic AI as a core strategy. We continue to invest there ongoing brand building investments that we talked about in the prepared remarks and the personalization initiatives to maximize incremental sales opportunity. So we feel good about both the investment profile and the actions we’re taking to deliver a strong profitable growth profile for the year and ultimately deliver double digit earnings growth.
Layla (Operator)
Thank you. Your next question will come from Michael Benetti with Evercore. Your line is now open. Please go ahead.
Michael Benetti (Equity Analyst at Evercore)
Oh hey guys, thanks for taking our question. Sorry to ask again about the near term stuff. I think the stocks have been a little sensitive to it with the macro that you guys have commented on here. But I think a high single digit stack would put second quarter in the maybe 1 1/2 to 2 1/2 range. I think you expected the category last time we talked to grow 2 to 4% this year. Is there any change to that assumption? We should think about rest of your or your ability to maintain share and then on the gross margin I guess it’s implied to be down about 30 basis points after the first quarter being up 100. Curious. You know what, maybe a little bit more on the merch. What caused the Merch margin to expand. Why, why we don’t flow that through the rest of the year or why some of those shrink tailwinds from first quarter can’t continue even though you know, you anniversary a little bit in the second half.
Keisha Steelman (Chief Executive Officer)
Thanks for the question, Michael. I’ll start and then I’ll kick it over to you. Chris. In regards to the industry, what we’re seeing is that last year growth in beauty grew stronger each quarter as the year went. So we’re going against stronger growth in the back half and we expect that growth to really normalize as a whole. So that’s really what we’re seeing in the industry. We’re still committed to share growth at Ulta Beauty and we feel like that’s implied in our guidance and our numbers that we’ve put in front of you guys today. The category is still competitive and we know others are going to be continuing to level up the business battle for share which just means that we’re going to have to be even better as we execute through the remainder of the year and we are confident in our plans, you know, brand building, exclusivity and wellness. And then just as a reminder, like you know, if you look at our total sales, I mean we came in at 11.1%. That’s, that’s really strong when you’re looking at the, the total market growth and where our growth came, I, that’s nothing to be shy of. I’m pretty really pleased with the little one. So you know, again I, I would guess I just would close out by saying, you know, we’re staying really close to the customer needs and we’re continuing to sharpen our operational focus. We’re making the targeted investments that Chris and I both talked about to really strengthen our long term competitive advantage. And we are, you know, playing our game and continuing to lean into the places where we can really continue to differentiate ourselves. Chris?
Chris Delorafis (Chief Financial Officer)
Yeah, so one, I would just add one thing on sales. Obviously our total guidance is 6 to 7% which of course includes the one time benefit from, from space NK but even taking that out, the total growth XPACE NK strong mid single digits well within our long term algorithm and to Kesha’s point, competitive from a share standpoint. So we’re going to continue to execute this. I think this is more us cycling through success from the prior year and you have a strong two year double stack in high single digits through the balance of the year. So feel good about that. Look, as you think of gross margin, it’s about flat for the year. So I think we’re managing gross margin nicely to your point. We and this was planned, we expected larger shrink benefits early in the year. That was a conscious effort. We started realizing that benefit towards the back end of the year and we’re going to cycle through that success. So that’s one of the drivers obviously with some moderating growth. There’s a little bit of deleverage in there in gross margin but it’s not substantive. Supply chain continues to drive strong optimization. Right. And they’ve been absorbing the fuel impact with something that wasn’t fully planned. It’s not significant for total Ulta but it’s actions that they’re taking to own own that. So feel good about gross margin being flat for the year. And we’re going to continue to execute against the the P and L be disciplined on SG and a focus on that balance of finding leverage opportunities or investing to grow to not to deliver against our operating profit commitment. Thanks for all the clarification, guys.
Layla (Operator)
Your next question will come from Mike Baker with D.A. davidson. Your line is open. Please go ahead.
Mike Baker (Equity Analyst at D.A. Davidson)
Great, thanks. I wanted to ask about TikTok shop. Our tracking suggests that it’s growing nicely, maybe even doubling its daily sales versus when it started, I don’t know, about six weeks ago or so. When is this big enough to show up materially in the comps? And I remember last quarter you were sort of still debating whether it’s going to be included in the traffic numbers. I’m just wondering if it is in these traffic numbers.
Keisha Steelman (Chief Executive Officer)
Thanks for the question, Mike. I will just start and maybe Chris can add. Well, you know what we’ve done to date is we’ve really anchored in only at Ulta exclusives. We’ve got 17 brand and 30 exclusive bundles. We do see that this it’s not just an econ play. We also do see a halo impact for stores. You know, our next focus area on this because we’re still in the early phases is that we’re looking at exclusive increased exclusive bundles that are launching both single brand and multi brand. And also what I call first moments with the brand partners which is like early access launches and select exclusives. That creates a lot of excitement. We don’t expect this to be cannibalization. No cannibalization with our overall business. We think it’s complimentary of our E Comm business and we do think it can bring a new guest in. There’s two things that we are really looking at. The first one is that we think this is a way that we can Expand guest acquisition. A younger consumer is engaging with TikTok. So it’s about new member acquisition. The members, when they come through. Of course that counts into our loyalty program and the second is when they’re already shopping in this platform. And why would we not want to participate in this activity with Gen Z, Millennials, Gen Xers? While there’s some inherent sales opportunity to us, we really think it’s more about acquisition and marketing and, you know, getting that guest into our overall ecosystem. So it’s not the, the main focus is not necessarily to drive the e commerce revenue. It’s really to get a new guest into our database and to, you know, be friends of mind and center where the guests are already shopping today. Which is one of the new places on TikTok.
Layla (Operator)
Yeah, I mean. Oh, sorry. No, go ahead.
Mike Baker (Equity Analyst at D.A. Davidson)
I was going to ask just as a follow up, I was going to, I guess a follow up, but ask about somewhere you’re, you’re, you know, there’s something better in your operating profit dollars. You’ve maintained the sales and comps, you maintain the gross margin. You seem to have maintained the sga. I know it’s small, but at the lower end you did increase the operating income growth. So is that more. I suppose it must be on the SGA line, still up less than sales, but maybe up less than previously thought. Or where does that increase at the low end of the operating profit dollars come?
Chris Delorafis (Chief Financial Officer)
Yeah, it’s so the way I would, the way I would frame it is when you look at how we executed Q1, we saw strong execution both in gross margin and SGA and that does create opportunities for us to drive operating profit. With that said, again, if you go back to the principle of maximizing value creation, what we want to do is make sure that where we have incremental growth opportunities as well, we’re always balancing those trade offs. So I think it’s about seeing how the year plays out to continue to not only execute against what we just updated in terms of increased operating profit guidance at the low end and the midpoint, but balancing that to capitalize on opportunities as they come while maintaining discipline in our operating margin profile. We will not go backwards in operating margin and so we remain committed to that goal.
Keisha Steelman (Chief Executive Officer)
I would just maybe add what we focused on last year and what we said we were going to do was drive top line growth and take share. And we were committed to doing that all throughout the year. And this year we said, all right, now it’s time to take a step back and to drive profitable sales Which Chris was just talking about. It’s applying good disciplines within the organization to maximize the value out of the investments that we’ve made to continue to return value to our shareholders and drive profitability for our business. That’s the methodology that we’re taking as a leadership team. And I’m really proud of what the team delivered in Q1. And that’s what we’re committed to looking at for the rest of the the year. Fair enough. Appreciate the time. Thank you.
Layla (Operator)
Your next question will come from Ike Boruchow with Wells Fargo. Your line is now open. Please go ahead.
Ike Boruchow (Equity Analyst at Wells Fargo)
Hey guys, how you doing? A question on the margin. Sorry Pete, sorry if you mentioned this on the prepared call. Prepared remarks. The margin guide was flat to up 20 basis points. I didn’t hear you reiterate that you went with profit growth. I guess I’m just confirming that it is still flat to 20 basis points. And then the follow up to that, Kesha, is you do have from the analyst day, and I know you weren’t the CEO, but you have the 12% target that’s still out there. Is that still something we should use or do you believe the business should scale from here? I’m just trying to think about how you think about market share gains and profit growth versus a margin rate. Thanks.
Chris Delorafis (Chief Financial Officer)
Yeah, thanks for clarifying. Yes, in, in our prepared remarks we, we did confirm that there’s no change to the operating margin guidance weeks, but flat to up 20 basis points. And we’re committed to that. In Q1. We, we executed against the. Exactly against our plan regarding the 12%. Right. The, the long term target for, for margin. Was that the question? Just to clarify. Sorry.
Ike Boruchow (Equity Analyst at Wells Fargo)
Yeah. Just because you’re, you’re, you’re above it and you’re calling for scale already. So I’m just kind of curious. Are, should we not think about the 12As, as a target anymore? Are you or, or is there still potential reinvestment due to competition down the road that you want to like give yourself little room on? I’m just kind of curious.
Chris Delorafis (Chief Financial Officer)
Yeah, I mean we haven’t changed our long term term guidance. I mean I would say this year obviously we’re already ahead of 12% and we’ve committed to flat to some leverage of up 20 basis points. So I think that that’s a strong signal. The goal is going to be to continue to deliver against our long term value creation algorithm, which is mid single digit top line growth, strong mid single digit operating profit. You hear us talking about driving operating profit faster than sales and compounding double digit earnings growth. So I think that’s the framework that we’re committed to. And so I think you see that discipline executing and what we said we would do in 2026 and how we’ve progressed this year. Okay, thanks, Chris.
Layla (Operator)
Your next question will come from Sydney Wagner with Jefferies. Your line is now open. Please go ahead. Hi, thanks for taking our question. Can you just talk about what you view as the primary driver of loyalty within the Ulta ecosystem and how does that differentiate you versus other beauty retailers? And then can you discuss what you guys can do to drive higher frequency of visits within the category or within your consumers? Understand there’s some value sensitivity there, but what’s driving, you know, the higher traffic or that consumer coming back more frequently? Thank you.
Sydney Wagner (Equity Analyst at Jefferies)
Thanks, Sydney, for the question. What I would say around the loyalty program is that it’s an easy to understand program that, you know, the engagement is really high, especially on the app. So we have a great relationship with our guests and they do understand what this, what their, the return is for investment and a little bit of information from them. You know, when you look at where we think that we can really gain value out of, of the loyalty program, it’s really through personalization. When you look at all of the tools and then you layer in AI capabilities into such a, you know, a 47 million rich first party data set, that we can really maximize how we’re communicating with that guest and offering them. You know, some guests like a gwp, somewhat increased value, some want percentage, some want price point discounts. You name it. I could list, you know, go on and on with the list and the different ways that you can communicate with them. That’s really where the power of this mechanism comes. And a lot of times it’s not even about discount. It’s about education, it’s about product recommendations. It’s, it’s how you can continue to help them build the basket and then be predictive on what it is that they might need to be purchasing in the future. So when you look at what the value is of our loyalty program, why they want to stay with us, it’s because we have that deep rooted relationship with them and they do see the value that they get by participating in the program in and of itself. I think, Layla, I think we have time for one more question.
Keisha Steelman (Chief Executive Officer)
Our next question will come from. Yes, your next question will come from Michael Lasser with ubs.
Layla (Operator)
Good evening. Thank you so much for taking my question. So there’s been a lot of comments and points made on the call. And it’s really feeding into this idea that the beauty category is increasingly becoming more competitive both from some traditional players like mass merchants as well as the online channel. And now you got into what seems like a low single digit comp for the rest of the year coupled with gross margin degradation is further suggesting that you need more firepower in order to maintain your market share. So a, is that a fair interpretation of all this? And B, have you increased your promotional activity or your expected promotional activity in response to what you have seen seen lately? And then I have a quick follow up. Thank you.
Michael Lasser (Equity Analyst at UBS)
Yeah, thanks Michael for the question. You know, when you look at the two year stack on what we’re looking at for the business for the rest of the year, we’re in high single digit range. So you know, this is, this is not a layup and and I would also say that we’re focused on continuing to take share and we did that this last quarter and that’s what this plan continues to look at us being able to do is to be a market share gainer. Beauty’s always been a competitive category and you know, I think a lot of people want to play in it because it’s attractive, it’s got attractive, attractive profit margins, you know. But I will say this is what we do inside and out beauty and wellness and we’re a trusted beauty category expertise. We’ve got a broad based assortment with a wide range of prices. No one really does exactly what it is that we do. You know, newness and discovery drive a lot of the spend. And even when I’m looking at this year we’ve got an increased focus on exclusivity. Exclusivity I think is what can continue to differentiate us. And it’s not just exclusivity with big brands because a lot of the big brands we already have, there’s really nothing out there that’s really what I would call overly meaningful that we don’t really have in our assortment today. So it’s really about exclusivity within existing brands or it’s about this brand building which I talked about in the prepared comments of how do we find and curate and build a brand that could be serving a white space opportunity because again no one has the insights that we do because we have everything from mass to luxury and everything in between. So you know, our plan that we’ve put in place or that we’ve, we’ve shared in regards to our guidance is assuming that we are going to continue to be a share gainer and the category. And again, you know, you look at our two year stack, we’re in the high single digit range which I think is still very compelling for growth here at Ulta Beauty.
Keisha Steelman (Chief Executive Officer)
Thank you very much for that. In my follow up is can you help calibrate the market’s expectations should we expect traffic to be down over the next few quarters in light of everything you’re seeing? And would you think that that’s the case for the overall category, that it’s just going to be driven by a rise in ticket more than anything else?
Chris Delorafis (Chief Financial Officer)
Yes. Yeah. Just to clarify, again, we’re committed to strong profit growth as noted in our guidance way. We actually increased the operating profit growth on the bottom end and by definition the midpoint of the guide. It’s balanced first half, second half. So it’s actually pretty evenly spread. We’re making adequate investments to do what Keisha just talked about, which is drive compelling growth and make sure that we’re focused on share gains. The two year stacks again at high single digits for the balance of the remaining quarters is strong and so we feel really good from a profit standpoint. And you saw that in our updated guidance. Right? Having the conviction to raise the bottom end and obviously we’re going to continue to put our cash to work. Right. So we increased EPS as well on the back of increased share buybacks by half a billion dollars for the year from 1 billion to 1.5 billion and have a very nice EPS growth profile of, you know, double digit growth at about 11 and a half percent at the midpoint.
Keisha Steelman (Chief Executive Officer)
Thanks again, Michael. I would just say thank you everyone for joining us today. To wrap up, I’d like to thank our guests, our trusted brand partners and dedicated associates for their engagement and support. I remain confident that we are on the right path to drive sustainable long term growth and value creation for all of our stakeholders. We look forward to updating you on our progress on our next earnings call on August 27th. Thank you and everyone have a great evening.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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