Ulta Beauty Inc (NASDAQ:ULTA) Q3 2019 Earnings Conference Call - Final Transcript

Dec 05, 2019 • 05:00 pm ET

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Ulta Beauty Inc (NASDAQ:ULTA) Q3 2019 Earnings Conference Call - Final Transcript

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Executive
Mary Dillon

techniques and looks like contouring, highlighting and brow styling, and new products such as pallets, minis, and travel sizes. The rise of social media influencers, video tutorials and selfies also contributed to strong growth in the category. After several years of robust growth, the category began to decelerate in 2017 and turn negative in late 2018, resulting from a lack of engaging newness and incremental innovation. This negative trend has continued through 2019 with further deceleration in the most recent quarter.

Now makeup looks and trends are constantly evolving, driven by industry innovation, fashion and pop culture, and while we've seen sales decline in the US makeup category this year, consumers are still buying and wearing makeup. For example, we're seeing interest in a more natural look, which is different than bare face and actually requires multiple products to create a neutral and glowy look.

Alternatively, some popular culture influencers are leaning into bold, unconventional applications of color and adornment like sequins and pearls. And at the spring 2020 fashion shows this fall, we saw a variety of looks ranging from natural and glowy to embellished brows, glitter and sequin eyeshadows and graphic eyeliner. We know it will take time to bring newness and innovation to the category, but we're confident that the makeup category will emerge from this down cycle and return to growth.

Longer-term growth drivers such as demographic trends remain favorable. For example, Latinos are one of the fastest growing population segments in the US and they over-index in makeup usage. And Gen Z consumers, who already highly engaged in beauty, are expected to increase their usage of makeup as they age and enter the workforce as we saw with millennial consumers. In addition, our proprietary research confirms that beauty enthusiasts are still passionate about makeup, use makeup as a tool for self-expression and enjoy expressing themselves with multiple looks.

In the near term, we're collaborating with our brand partners to identify at trends and white spaces in the category and we're actively working on these efforts to drive incremental category innovation to reignite growth. While it's difficult to predict the exact timing, we're confident that these efforts, combined with favorable demographic trend, will result in a return to growth for the US makeup category.

In the meantime, we're leaning into categories that are experiencing stronger growth. For example, the skincare category is seeing nice growth in both the prestige and the mass segments. The category has experienced meaningful newness and brands innovation in terms of new brands, new products and new routines and we're seeing that the Gen Z demographic is more engaged in skincare than other cohorts were at the same age, which bodes well for longer-term growth of the category.

We're taking a number of actions to ensure we fully capture the opportunity of the skincare trends. For example, this year, we've added more than 30 new skincare brands to our assortment, increasing our offering across mass and prestige and we're increasing the focus