Ulta Beauty, Inc. (NASDAQ:ULTA) Q3 2022 Earnings Call Transcript

Adrienne Yih: Great. Thank you very much. Scott, I was wondering if you can talk about — you had mentioned sort of the vendor contribution that was offsetting some of the lower marketing spend. So does that mean that they want to present their brands more aggressively, and therefore, are taking more space either on the 21 days of beauty, or if we purchase that type of thing. And then I also wanted to know, Dave, at the beginning of the pandemic, you pulled out of the international Canada opening. Now that the domestic business seems to be on pretty good footing, how are you thinking about kind of reentry into that market?

Scott Settersten: Yes. So I’ll start. So the first part of your question, yes, it’s an accounting recognition of how the debits and credits flow through the P&L, Adrienne. So there’s really nothing related to the vendor choices or how we work or execute any of those kinds of things. It’s just accounting convention. Matching up expense with income when it’s incremental expenses related to these marketing activities and then the rest of it kind of rolls through the gross margin through our inventory accounting.

Dave Kimbell: And on your question about Canada and international, as you stated, we obviously stopped that early in the pandemic. Right now, we have no plans, consistent with what we shared at our Analyst Day. No plans to expand internationally at this time, although — and we are always looking for opportunities to find new growth potential. And so in our future at some point, that’s possible, but nothing in our immediate plans for sure.

Operator: Our next question comes from the line of Korinne Wolfmeyer with Piper Sandler. Please proceed with your question.

Korinne Wolfmeyer: So I’d like to expand a little bit on what you’re seeing within the specific product categories. I mean, you did know pretty strong growth for all categories. But as we head into the early parts here of Q4 and the holiday season, can you talk about kind of specific trends you’re seeing for cosmetics, skincare, fragrance? What categories are maybe requiring a little bit heavier promotional activity for holiday? Just any color you can provide there would be helpful.

Dave Kimbell:

–: And so we’re excited and encouraged to see strength across double-digit growth across all key categories. Each one has unique stories, make up driven by this increased engagement in social activities, plus strong product trends that are highlighted through social media and new product growth that a spectrum of newness that’s really working. So, a collection of activity that’s coming together, both product newness, marketing newness and engagement opportunities. Skincare, continued strength by both science-backed, clinically proven dermatologists recommended solutions. So that engagement that many people elevated through the pandemic has sustained. It’s actually our fastest-growing category in the third quarter. Haircare, you know we’ve been driving that growth as a leader in hair care and strong trends, a healthy portfolio of newness that continues to drive great engagement.

And then really all year, pleased with fragrance and bath. As I look and the innovation and engagement, I mentioned Gen Z being a a part of that, and really the whole portfolio working quite well across that important category. As we look in the fourth quarter, again, not getting in, we won’t get into any specifics right now. We’re in the middle of holiday. And so there’s a lot to cover. I wouldn’t say there’s anything jumping out uniquely for any category from a promotional standpoint. And we come in really with a focus in the fourth quarter of what we call gifting and glamming. And the gifting component is a mix of holiday-specific, but core items that serve all year long, and the team has done a nice job with a balance there. So we feel great about our assortment.

It’s — again, we’re encouraged by what we’re seeing at this point in the holiday and confident that we’ll be able to deliver a strong holiday across all of our categories.