Ulta Beauty Inc (NASDAQ:ULTA) Q3 2019 Earnings Conference Call - Final Transcript
Dec 05, 2019 • 05:00 pm ET
Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Michael Binetti with Credit Suisse. Please proceed with your question.
Hey, guys, good evening. Mary and Scott, thanks for all the details. Congrats on a nice quarter. I want to ask about, I guess, on the gross margin. You mentioned third quarter were -- was lower, the promotions were a little lower on the clearance, but a little above your expectations. I'd love any help you could offer us on how to connect that to the fourth quarter. Do you still think the fourth quarter gross margin will be positive? I think the fourth quarter embeds EPS growth of about 1.5% to 4%. So maybe a little bit below the mid-single digits you were talking about previously. I'm just trying to see if you could help us on whether that's a little bit more conservatism on the gross margin or on the SG&A line?
Sure, Michael. So looking back at the third quarter, I would say overall we're happy with the results. I would -- as we said in our prepared remarks, we were lapping that large clearance event last year. So we got some natural leverage their year-over-year and we were slightly more promotional in the end than we had anticipated back in August when we last spoke to you. And as we look out here towards the fourth quarter, we are guiding now to gross margin overall being flattish versus what we said back in late August, which we thought we could be a little better than flat, we've been at the low end of the guidance. And really the biggest change there is just looking at the overall retail universe, so to speak.
I mean, we expected it to be more promotional than the beauty space and I think we communicated that to a lot of folks. We've talked to you over the last few months. But what we've seen with the ratcheting up really in the overall retail environment right now with the kind of the compressed shopping season, we're starting earlier, we've got deeper discounts across the board, and it just remind everyone that in the holiday season, unlike in the rest of the three quarters of the year, we compete with everyone in retail for wallet share, right, in the gift giving period.
So this is a critical time for us. We're driving a lot of new guests to our stores and we got roughly 80 new stores versus last year and a much larger e-commerce business with engagement there. So it's critical for us to make sure we keep healthy traffic driven to both -- through both of those channels and we're not going to be deterred on that. We'll spend some margin rate there if we need to and we're being prudent, I would say, with our outlook here based on all the facts and circumstances here as we're seeing today. So again,