ULTA Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) Q3 2017 Earnings Conference Call Transcript

Nov 30, 2017 • 05:00 pm ET

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ULTA Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) Q3 2017 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Greetings and welcome to the Ulta Beauty Third Quarter 2017 Earnings Results Conference Call. At this time, all participants are in a listen-only-mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Laurel Lefebvre, VP, IR. Please proceed.

Executive
Laurel Lefebvre

Thank you. Good afternoon and thank you for joining us for Ulta Beauty's third quarter 2017 conference call. Hosting our call are Mary Dillon, CEO; and Scott Settersten, CFO. Also joining us is Dave Kimbell, Chief Merchandising and Marketing Officer.

(Forward-Looking Cautionary Statements).

During the Q&A session, we respectfully request that you ask one question only please to allow us to have time to respond to as many of you as possible during the hour scheduled for this call.

I'll now turn it over to Mary.

Executive
Mary Dillon

Thank you, Laurel. Good afternoon, everyone. Our third quarter results clearly demonstrate the strength and distinct advantages of the Ulta Beauty business model. We delivered a double-digit comp in spite of a moderation in the growth rate of our largest category makeup and meaningful disruption from hurricanes. We flexed our merchandising and marketing plans, leveraged our consumer insights and CRM platform, and worked with our brand partners to create compelling offers for our guests. We also benefited from the unmatched breadth of beauty categories and products that we offer. These levers allowed us to drive significant share gains, continue to rapidly grow our base of loyalty members, and thrive in spite of shifting category trends within the beauty industry and disruption in some of our largest markets.

Before I share our results, including the financial impact of the hurricanes, I would like to take a moment to mention the fantastic job our teams did to prepare for the storms, support our field associates who were personally impacted and get our stores back up and running following an incredibly challenging time for these regions. It was truly inspiring to see the collaboration and caring from all corners of our organization to manage through this period.

To recap our third quarter financial performance, we grew the top-line 18.6% and delivered healthy 10.3% comps on top of 16.7% comps in the third quarter of 2016, an acceleration on a two-year stack compared to the second quarter. The disruption from the hurricanes of Florida and Texas negatively impacted our results by a little more than a point of comp. Comp sales were driven by balanced traffic and ticket growth and continued strength in e-commerce.

In terms of category trends, our highest sales growth was in skincare and fragrance, while hair care also strengthened. Makeup, while still producing very healthy growth by any standard, was softer compared to last year when it drove a disproportionate amount of our comp growth. GAAP diluted earnings per share of $1.70 grew 21.4%. We delivered better-than-expected EPS growth despite gross margins contracting a bit more than initially planned. Some of this margin pressure was expected, driven by