ULTA - NASDAQ

Good afternoon, and welcome to Ulta's Beauty's Conference Call to discuss results for the Ulta Beauty Second Quarter 2024 Earnings Results. 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 you to Ms. Kiley Rawlins, Vice President of Investor Relations. Ms. Rawlins, please proceed.

Thanks, Alicia. Good afternoon, everyone, and thank you for joining us for a discussion of Ulta Beauty's results for the second quarter of fiscal 2024. Hosting our call today are Dave Kimbell, Chief Executive Officer; and Paul Oyibo, Chief Financial Officer; Kecia Steelman, President and Chief Operating Officer will join us for the Q&A session. . Before we begin, I'd like to remind you of the company's safe harbor language. The statements contained in this conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those projected in such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC. We caution you not to place undue reliance on these forward-looking statements, which speak only as of today, August 29, 2024. We have no obligation to update or revise our forward-looking statements, except as required by law, and you should not expect us to do so. We'll begin this afternoon with prepared remarks from Dave and Paula. Following our prepared comments, we'll open up the call for questions. [Operator Instructions] As always, the IR team will be available for any follow-up questions after the call. And now, I'd like to turn the call over to Dave. Dave?

Thank you, Kylie, and good afternoon, everyone. We appreciate your interest in Ulta Beauty. For the quarter, net sales increased 0.9% to $2.6 billion and comparable sales decreased 1.2%. Operating profit was 12.9% of sales and diluted EPS was $5.30 per share. Although, we anticipated the headwinds experienced in the first quarter would continue, our results were short of our expectations, driven by a decrease in comp store sales, specifically comp store transactions. E-commerce sales increased as expected. We do not believe these results reflect the strong engagement with our brand, the strength of our operating model, or the performance I know we can deliver over the longer term. Importantly, we are clear about the factors that adversely impacted our store transaction growth in the second quarter, and we have actions underway to address the trends. We attribute the decline in comp store transactions to four factors. First, while the beauty category remains resilient, growth is normalizing after three years of unprecedented gains. Additionally, consumer behavior is starting to shift as consumers increasingly focus on value and become more cautious with their spending. Based on data from Circana, U.S. beauty growth slowed to approximately 3% through the first half of 2024, with prestige beauty experiencing high-single digit growth and mass beauty maintaining low-single digit growth. Second, competitive intensity in the beauty category remains high. As we have shared previously, the strength of the beauty category, combined with an attractive margin profile, has drawn substantial and diverse competition to the category. Today, there are significantly more places to buy beauty, especially prestige beauty, with more than 1,000 new points of distribution opened in the last three years. As a result, our market share continues to be challenged, particularly within prestige beauty. Based on Circana data for the 13 weeks ended August 3, 2024, we maintained our share in Mass Beauty, but lost share in the beauty -- prestige beauty, particularly driven by makeup and hair categories. We know beauty enthusiasts love to shop for beauty, and they love Ulta Beauty and the unique experiences we offer. But they also love engaging in new beauty offerings. As a result, we often see a short-term impact of new distribution points on an existing nearby store, whether it's a competitor opening or a new Ulta Beauty store. What is unique about the current environment is the scale and pace of change. More than 80% of our stores have been impacted by one or more competitive opening in recent years, with more than half impacted by multiple competitive openings. This significant portion of our store fleet is experiencing a prolonged sales impact. Notably, the positive signals we see in our broader business reinforce the appeal of our differentiated model and our confidence that we will mitigate these near-term competitive pressures. Our brand awareness and brand love continue to increase with strong gains across multiple demographics, demonstrating the broad appeal of our unique, All Things Beauty, All In One Place offering. We continue to attract new and lapsed members to our loyalty program, while maintaining strong retention of our existing members. At the end of the second quarter, we had 43.9 million active Ulta Beauty Rewards members, 5% more than last year. Importantly, we continue to experience healthy growth in our platinum and diamond members. Newness continues to resonate with guests and drive growth. Newer brands, including Sol de Janeiro, Charlotte Tilbury, and OLEHENRIKSEN are driving sales, new member acquisition and member reengagement while newness from a variety of existing brands, including Clinique, Way and PEACH & LILY are driving healthy comp growth. Guests continue to engage with our unique in-store services offering, which delivered mid-single digit growth in the quarter. And new stores continue to perform well. During the quarter, we opened 17 stores, including our 1,400 store and their performance was in line with our expectations. Now we've disrupted the beauty category for more than 30 years and we understand how to successfully manage competitive forces. To reinforce our competitive position and drive stronger performance, we are aggressively taking actions across five areas: strengthening our assortment, expanding our social relevance, enhancing our digital experience, leveraging our powerful loyalty program, and evolving our promotional levers. I will discuss each of these areas in detail shortly. Now in addition to these external factors, we experienced unanticipated operational disruption during the quarter, resulting from the completion of our ERP transformation. In March, we began updating key store systems through a thoughtful and controlled implementation plan. And in July, we finished the migration of all of our stores to our new ERP platform. We are pleased to have successfully completed this important phase, but we have experienced some unexpected operational challenges as our teams have adjusted to new capabilities, new processes, and new ways of working associated with the new systems. Specifically, through the transition, our teams were managing portions of our fleet on both the old and new systems, which led to some store inventory allocation disruption. With all of our stores and DCs now operating on the same core systems, we are shifting from implementation to system optimization and are working quickly to help our teams navigate these new ways of working in order to balance inventories across the network and deliver an optimized guest experience. To minimize future disruption, we have identified key legacy processes that are creating friction and implemented proactive monitoring as well as dedicated support to quickly address issues when they arise. I am confident that our new capabilities will support better, more agile decision-making in the future. And I'm grateful for our collective team's hard work and dedication to manage through this critical transformation. The fourth factor impacting our performance this quarter was the effect of incremental promotions, which did not deliver the expected sales lift. As the top line trends softened in late June and July, we executed incremental promotions to drive revenue. These offers drove strong sales and traffic across our digital platforms, but did not deliver the expected incrementality in stores. The increased frequency of offers, combined with the introduction of new offer structures, put pressure on average selling price without activating incremental purchases in stores. We understand why the incremental promotions did not deliver as expected and will apply these learnings as we manage promotional activity in the second half. Turning now to performance by category. Fragrance delivered double-digit growth, driven by strong guest engagement with Mother's Day and exciting newness. Newness from existing brands, including Valentino, YSL, and Burberry as well as new brands, NOY

Thanks, Dave, and good afternoon, everyone. I'll begin with a discussion of our second quarter financial results and then provide more color on our updated outlook. We faced greater-than-expected challenges in the second quarter, resulting in overall financial performance that were below our expectations. Sales growth from comp stores was softer than expected and gross margin was pressured by incremental promotional offers. However, our teams exercised financial discipline, and we took swift actions to mitigate impacts of the top line trend. Net sales for the quarter increased 0.9%, solid new store performance from 49 net new stores and a 12% increase in other revenue, primarily due to an increase in credit card income and growth in royalty income from our target partnership was partially offset by a 1.2% decline in comparable sales. During the quarter, we opened 17 new stores, closed one store, remodeled nine stores and relocated one store. The comp sales decline was driven by a 1.8% decline in transactions, which was partially offset by a 0.6% increase in average ticket. The increase in average ticket reflects growth in average selling price per item, offset by lower average unit per transaction. Looking at the cadence of sales. Net sales trends decelerated as we moved through the quarter, with July being our most challenged period. Comp store sales climbed in the low-single digit rate, primarily driven by a decrease in store transactions. Average ticket also decreased. Our digital channel performance was stronger with e-commerce sales increasing in the low-single digit range. Across digital channels, the sales trends accelerated as we moved through the quarter, with incremental promotional activity driving stronger guest engagement particularly in July. For the quarter, gross margin decreased 100 basis points to 38.3% compared to 39.3% last year. The decline was primarily due to lower merchandise margin and deleverage of store fixed costs, which were partially offset by growth in other revenues and lower shrink. Merchandise margin declined primarily due to increased promotional activity, adverse impact from brand mix and the continued lapping of benefits from price increases last year. While the impact of promotional activity was higher than planned, it was well below 2019 levels. Store fixed costs also delevered driven by lower top line growth and more net new store openings. As a percentage of sales, inventory shrink was lower in the quarter. We completed the rollout of our new fragrance fixtures to all stores and introduced an additional fixture to protect our assortment of popular smaller rollerball fragrances. These investments are having a meaningful impact on fragrance test, and we expect the additional fixtures will support a continuation of the trend. In addition, we continue to increase our ORC focus and have deployed new tools, capabilities and training to our store and field loss prevention teams. Year-to-date, shrink as a percentage of sales is flat with last year, and we continue to expect shrink will be roughly flat for the full year. Moving to expenses. SG&A increased 7.3% to $645 million. Overall, SG&A spend was better than planned again this quarter, primarily due to focused expense management. As a percentage of sales, SG&A increased 160 basis points to 25.3% compared to 23.7% last year. Reflecting lower top line growth, most expenses deleveraged this quarter. In addition, we preserved sales driving expenses, including store labor and marketing, and completed key elements of our transformational agenda this quarter. These pressures were partially offset by lower incentive compensation, reflecting operational performance that was below our internal target. Operating margin was 12.9% of sales compared to 15.5% of sales last year. And diluted GAAP earnings per share was $5.30 compared to $6.02 last year. Moving to the balance sheet and capital allocation priorities. We ended the quarter with $414 million in cash and cash equivalents. Total inventory increased 10.1% to $2 billion compared to $1.8 billion last year. In addition to the impact of 49 net new stores, the increase was primarily due to inventory to support new brands and the opening of our new market fulfillment center in Greer, South Carolina, which opened in the third quarter last year. Year-to-date, through the second quarter, we generated $359 million in operating cash flow. Capital expenditures were $95 million for the quarter, primarily reflecting investments in new and existing stores, IT investments, and merchandise fixtures. Depreciated was $65 million compared to $62 million last year, primarily due to higher depreciation related to new stores and IT investments. In the second quarter, we returned $212 million of capital to our shareholders through the repurchase of 550,000 shares. At the end of the quarter, we had $1.6 billion remaining under our current $2 billion repurchase authorization. Now turning to our outlook. We have taken a more cautious view for the year. We now expect net sales for the year will be between $11 billion and $11.2 billion, with comp sales in the range of down 2% to flat. In addition to reflecting our first half performance, our updated outlook for sales assumes it will take more time for our actions to change the top line trajectory, and that stores impacted by multiple competitive openings will continue to be pressured more than the rest of the fleet. The operating environment remains dynamic, and the low end of our range implies incremental pressure on consumer spending. For the year, we expect operating margin will be between 12.7% and 13% of net sales. Most of the reduction in our expectation for operating margin compared to our previous view is due to the lower top line. But we have also included flexibility to respond to the evolving promotional environment. For the year, we expect gross margin will deleverage 70 basis points to 90 basis points as lower merchandise margin and deleverage of store fixed costs are partially offset by other revenue growth and lower transportation costs. For the year, we expect SG&A expense will increase in the mid-single digit range. We expect many of the trends we experienced in the first half will continue in the second half, with SG&A driving most of the operating margin deleverage. Reflecting these assumptions, we now anticipate diluted EPS will be in the range of $22.60 to $23.50 per share. We continue to expect to generate strong operating cash flow for the year, which will support our planned CapEx investments of $400 million to $450 million and share repurchases of $1 billion. In closing, we are focused on improving performance in the second half, and we believe our newness and go-to-market strategies, along with continued operational and financial discipline will enable us to navigate the dynamic environment and drive improved sales and profit momentum over time. And now, I'll turn the call over to our operator to moderate the Q&A section. Operator?

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Steven Forbes with Guggenheim Securities. Please proceed with your question.

Good evening, Dave, Paula. Dave, I was hoping you could expand on the competitive pressures you noted in the prepared remarks. Any way to help us contextualize the size of this headwind such as year one cannibalization rates, and any early insights on the recovery path? Meaning, what does the recovery for those stores impacted look like? And maybe you can give us an example of some of those earlier stores that were impacted, any time frame to sort of get back to those prior levels pre cannibalization? Thank you.

Great. Thanks for the question, Steve. And yeah, let me just start with saying, we -- of course, we're no strangers to competition. We know how to compete effectively. And this is, as I said in the remarks, a very attractive category that continues to increase in the competitive environment. As it relates to increased points of pressure, what we've shared before is that we have historically seen a short-term impact on new distribution points on our existing store when a competitor opens near one of our stores. What's unique about this time in this environment is the scale and the pace of change, which is it made it difficult for us to fully forecast the cumulative impact. 88% (ph) of our stores have been impacted by one -- at least one store. And as I said in the remarks, more than half of our stores have been impacted by multiple competitive openings, which to give you context of what that means is, if you take a single Ulta Beauty store, two or more competitive stores have opened within that store's trade area, which is unusual for us historically and something that we're navigating through. What we saw during this quarter is that stores that have had multiple competitive openings, which again could happen over the -- at different times over the three years that we've been navigating, as those stores with multiple competitive openings are underperforming those stores with no or limited competitive impact. Stores that have -- the segment of stores that have not had a direct in-market trade area competitive impact delivered positive comps for the quarter, which is another reason that we feel confident in our model, in our business, in our guest engagement. Stores that have just one competitive opening that occurred early in the expansion cycle are performing in line with historical trends, another data point that gives us confidence as we look forward. But we know we're still in the midst of this. Stores have opened aggressively over the last couple of years. These competitive pressures will likely continue into the near term. But the positive signals I highlighted in our broader business, the guest engagement, the impact of newness, the impact of our new stores, the success of our salon business, the loyalty growth, all of those factors suggest to us and give us a lot of confidence that our business continues to have underlying strength in health and we're navigating through this short term. We know it will take time, but we are not sitting still and we're aggressively taking actions across all the things that I highlighted in the prepared remarks.

Thank you. Our next question comes from the line of Mark Altschwager with Baird. Please proceed with your question.

Hi. Good afternoon. This is Amy Teske on for Mark. With the demand backdrop continuing to be pressured, can you talk more about the actions you were taking within SG&A to limit the amount of deleverage you're seeing in the model? Thank you.

Sure. Thank you. Thank you, Amy. As I mentioned in our prepared remarks, we did deliver better than planned SG&A due to focused and disciplined cost management as we navigated our top line pressures. As we think about the second half, we've planned SG&A expenses to increase in the mid-single digit range for the year, reflecting a more moderated growth in the second half. We continue to exercise financial discipline as we navigate these near-term pressures, while still making sure that we're investing and ensure we're well positioned for success over the long term. But as we look ahead, we're expecting that moderation in SG&A growth because we are completing our transformation, many of our transformational investments are completing. And we will continue to, like I said, exercise financial discipline as we navigate.

Thank you. Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.

Good evening. Thank you so much for taking my question. Given the competitive overlap with all these new points of distribution is not going to go away anytime soon, how long do you expect that it will take to restore the business to positive comps? And since it seems that hitting the promotional lever is not having the intended impact, what is the backup plan or what is the alternative if the actions you are taking don't work to restore positive comps? Thank you.

Thanks, Michael. Yes, it is, as we've discussed, a dynamic and competitive environment that we're navigating through, and I gave you some of those dynamics in my prepared remarks. We are -- and as I said, we remain confident and bullish in the long-term outlook for this business because of all the positives that I've highlighted. We're executing across a number of efforts to drive our business. Here's what I know about our business right now. We are seeing many positive signals that are gaining traction, and we're addressing areas that maybe are not working as well as we had hoped. Assortment is always key. So when we look at key levers, assortment is critical. Newness is working and resonating with our guests, brands like So de Janeiro, Charlotte, OLEHENRIKSEN are driving sales. Our new -- our exclusive brands are playing an important role, and we continue to add brands, Naturium in Q2. And tomorrow, we launch ILIA, an important makeup brand that we're excited to add to our assortment. So continued innovation is a key lever for us that's working, and we'll continue to drive that. I talked about the importance of marketing and social relevance and connecting, deepening brand love. We're pleased with the progress, all-time high of brand love and brand awareness. And we'll continue to drive that because we know that drives connection and awareness and reinforces the role that we play in our guests' lives. Our digital business is critical. And I shared that our digital sales were on expectation, and we're focused on delivering across all of the experiences, you know that we've invested heavily in our digital capabilities over the last couple of years. Earlier this year, we completed our new digital store platform, and that's giving us new ways to delight our guests. And that's working, and we'll be focused on driving that. Loyalty is core to our long-term success. We're pleased with the 5% year-over-year growth, high level of retention, high level of engagement from a best guest, our platinum and diamond guests and a critical part of that business going forward. Services and experience is also driving positive. Promo is an important piece of our business, and I'm glad you highlighted it. As I mentioned in the prepared remarks, some of the incremental offers that we added as our performance decelerated in the second half of the quarter did not have the intended effect in -- particularly in our store channel. Promos, generally though, our tent pole events, I mentioned our big summer Beauty sale. Tomorrow, we launch 21 Days of Beauty. Our big promotional events are working, are attracting new guests, are demonstrating the behaviors. And we continue to amplify and elevate those, and you'll see that come to market with our next one, again, starting tomorrow with 21 Days of Beauty. But we'll take our learnings and promotional impact that we had in the second quarter as we navigate this challenging competitive environment through the second half of the year and continue to focus on the highest return, highest impact promos. So promos are working but we did have some experiences that -- and last thing, I'd just say, if you just step back, Michael, and just think about our business, we feel very confident that we're well positioned to recover. We've got a differentiated business model. And while some elements have been pressured, our model continues to be connected to our guests. And the experiences we offer are unique, enduring. Nobody does what Ulta Beauty does, our guest value, the assortment, the loyalty, the unique services offer, our omnichannel offerings. And I'd say most importantly, the unique experience we deliver to our guests in our stores and online. We allow our guests to discover beauty on their own terms, and we continue to deliver that every day in our stores, and I'm very proud of what our teams are doing. So we're sharpening our differentiated model. We're focused on leaning in on what's working, addressing the dynamics that -- where we have opportunity. And while, as I said, it's going to take a little time to turn back to our custom position of being a share gainer, we are confident we'll get there and our actions are designed to do just that.

Thank you. Our next question comes from the line of Rupesh Parikh with Oppenheimer. Please proceed with your question.

Good afternoon. Thanks for taking my question. So just going back to unit growth and also target rollout. Just given the more difficult environment right now, like any thoughts on salon unit growth? And as you look at Target, I believe that continues to roll out. Just curious how that's playing out in the current backdrop.

Yes. We -- as far as our own stores, we're pleased with our new store openings. As I mentioned in my prepared remarks, our new stores, despite some of the other dynamics going on, continue to perform well. And we are -- we have opportunities across the country in a variety of different types of markets to continue to fill in, to reach new markets, to reach new consumers. I've shared before in previous calls, the work we're doing with our small format store, that's performing well. So we're going to lean in more there. And so we're confident that again, we will work through these competitive pressures, and we want to make sure we're reaching as many beauty enthusiast in all parts of the country as possible with our new stores. And then our Target partnership is working. I'll let Kecia give a little bit of color, but we're pleased with that partnership, the strategic role that it plays in our member engagement program is still very strong. And we're positive and optimistic about that path.

Yes. In the last quarter, we opened four Ulta Beauty at Target stores. We have 541 total locations through the quarter. We're still on track to hit our 800 stores through our commitment. It's about deepening that guest engagement. It's about driving growth of the new member and the conversion and the reengagement of lapsed members, and we're seeing that. And then I think it's also really key that nearly 4 million guests have linked their Ulta Beauty and their Target circle loyalty programs together. We do see this as another way to just continue to connect with that guest and engage them back into the Ulta Beauty home store.

Thank you. Our next question comes from the line of Kelly Crago with Citi. Please proceed with your question.

Hi. Thanks for taking our question. I just wanted to follow up on the promotional levels that you're kind of assuming this year. What gives you the confidence that promo levels can sustain at this lower rate relative to pre-COVID just given the category slowing, the consumers seeking value? And there's been a big step up in the competitive environment. And then just secondly, just curious your thoughts on just the makeup of the product assortment. Any rethinking of how maybe big you are in some of these brands that are distributed -- not over distributed, but have seen the distribution points increase quite a bit, some of these more established brands. Just any thoughts on how you see the brand assortment evolving over the next couple of years. Thanks.

Thanks, Kelly. Yes. On the promotional levers, when we look out over the -- well, when we look through this year and what's ahead of us, promotional activity has increased, as I highlighted. And that does reflect both the normalization of the category and increased competition. And as I shared, we were more promotional in the first half of the year. As we turn to the second half, promotion will play an important role. The second half, driven by holiday is always a more promotional period. Holiday is a different dynamic and is intensely promotional to begin with, has been for years, regardless of the competitive environment. As we're competing not just in beauty, but we're competing for gifting occasions across consumers' baskets. And so we're prepared for that. And we'll -- we continue to take our learnings. As we look back pre-COVID, we continue to believe that the environment, while intense, will remain rational. Our guidance assumes that while higher than last year, we will be below 2019 levels for the year, driven by smart execution, CRM capabilities that we have built aggressively over the years, driving efficiency, leaning into our tent pole events and maximizing those. And so while promotional has played a bigger role, we feel we've got it rightsized as we look into the second half of the year, knowing it's a higher promotional period. As far as assortment and what's ahead, Ulta Beauty has a very unique assortment. All price points across mass and prestige, strength in makeup, haircare, skincare, fragrance, bath, wellness services as well, and we're really proud of that. It's one of the things our guests continue to tell us that they really love about us. And the fact that we deliver that in an omnichannel way, in-store and online. So to your specific question around legacy brands, they play an important role. We're really pleased and proud of our partnership with some of the biggest brands in the world. And we're focused on driving growth with those brands. We have a very unique experience in store with many of these brands that brings education, entertainment, events to our guests. We drive exclusivity with our guests through some of these brands. An example is Black Honey with Clinique that we've launched that's in market right now. And so we'll continue to partner with these brands to bring in new experiences. These brands play an important role because of the trust and engagement that they have, the opportunity to bring new guests in and delight our existing guests. But at the same time, we are focused on finding what's new. It's one of the greatest things about this category is the level of entrepreneurship, newness, innovation, and we will continue to drive that. I've highlighted a few already, a few in the fragrance category, as an example, Orebella, Kylie, NOY

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

Hey, good afternoon. Thanks for taking the question. I'd like to hear a little bit more about the operational disruption you referenced with the ERP transition. Can you provide a little bit more color on what exactly happened, how the business was impacted? And what gives you confidence that the issue is cleared out going forward? Thank you.

Yes, Korinne. As Dave mentioned in his earlier comments that we executed by far the most complex element of our multiyear ERP implementation during this quarter, and that was the rollout to our stores. Our teams had to manage dual systems as we phase through the 1,400-plus stores that we have. So that just really added a lot of complexity. It created challenges to our purchasing, our store allocation and our planning processes and systems. And we do see this as a short-term headwind. The great news is that we've completed this challenging phase, so we're through it now. And what I would say what we're doing is that we're really fine-tuning and optimizing the system. And while there's still some investments for continued optimization, we've really built that already into an ERP budget plan, and it's reflected in the current guidance. A change of this magnitude when you're going through DCs and stores, it's really not easy. And adapting takes some time. But we're really grateful to our teams for embracing these transformative changes. And we feel like we're really making progress. And we're confident that we're positioned and ready to have a great holiday season.

Thank you. Our next question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question.

Hi. Thank you for taking my question. This is Juliana on for Ike. As we head into your Analyst Day in a few weeks, I was just wondering if there's any preliminary update on the long-term algo or the long-term margin target that you can give us? Thank you.

Hi, Juliana. Thank you for the question. And I certainly understand and appreciate the reason for the question, but we are not providing an update on our long-term expectations on the call today. But as you mentioned, we do plan to do so at our Investor Day in October. And at that time, we are very much looking forward to sharing how we're thinking about our future growth, including kind of the growth opportunities ahead in the category, opportunities specifically for us, what investments, if any, it will take to support those. And how that translates into our long-term financial expectations. And so looking forward to that in just about a month or so.

Thank you very much.

Thank you. Our next question comes from the line of Michael Baker with D.A. Davidson. Please proceed with your question.

Okay. Hi. Thanks. I wanted to ask about the pace of the share losses in prestige. So your business seems to have gotten worse based on your comps, but some industry data and competitive data are also seeing a deceleration. So I wonder if you can give us any color on the gap between what you're seeing in your own business and competitors. Are you seeing the share losses actually get worse here, I guess, is the question. Thanks.

Yeah, Michael. Thanks for the question. As you said, yes, the category has, as I highlighted, moderated, really is anticipated through the year after multi-years of growth. As far as our performance, as I said, we maintained mass -- share in mass, but continue to be pressured in prestige. And that's driven in particular by hair and makeup, which are the categories that I've talked about in the past. No, we wouldn't say that it's getting any worse. The dynamics are as they've been for much of the year as it relates to share, it's a reflection of both the monitoring category, continued competitive pressures and then some of the other dynamics that we've highlighted and discussed here today are what contributed to the performance we delivered in the second quarter.

Thank you. Our next question comes from the line of Ashley Helgans with Jefferies. Please proceed with your question.

Hey. Thanks for taking the question. So a question around kind of the increasing competitive environment. Has that changed the ability to get new brands at all? And then when you're adding new brands like ILIA, do you factor in where they're currently distributed? Thanks.

Yeah. No. Great question, Ashley, and thanks for sharing. I'd say big picture, no. I mean, our brand partners are so key to our success and something that I have been so proud of how our team manages our relationships and works as true partners to building our brands. Brands continue to see Ulta Beauty as a leading destination to expand their business, whether they're an existing brand like ILIA or a new brand that's just been created that's looking to reach $44 million of the best beauty enthusiasts across the country. And we're demonstrating that right now. Our brands continue to lean into us. So I've highlighted a few things, rolling established brands through innovation, exclusives on those brands, expansion of those brands and finding new ways. I mentioned expanding Kiehl's, a brand that we've had for a while and finding new ways to reach our guests, expanding that into stores. Brands are excited about that because they see growth. Launching big established brands like ILIA and discovering new and exclusive brands. So we are focused every day on creating an environment that our brands see value with us, and they do. 44 million members, 1,400 stores, a strong and dynamic digital environment and an experience that's unique. Despite the competitive environment nobody does what Ulta Beauty does. And our brands, probably understand that better than others. And that's why we've had such success creating deep relationships and continuing to attract both existing and brand-new to the world brands. And that's something that I see will continue to drive our business going forward.

Thank you. Our next question comes from the line of Olivia Tong with Raymond James. Please proceed with your question.

Great. Thank you. A few questions left. First, how much of the miss relative to your expectations this quarter do you think was a function of the category decelerating versus your own share loss? And then second, why do you think the promos that you did this quarter didn't quite work? And then as you think about the rest of the year, is it you have to deploy more promo or different promo because it looks like from your full year outlook revision that you expect comps to potentially fall another 100 basis points in the second half versus Q2. And just lastly, if you could talk about what you saw towards the end of the quarter into this quarter that influences your guidance. Thank you.

Great. Thanks, Olivia. Let's see. First, on the mix of the drivers. We highlighted four primary elements that we believe impacted our business in the second quarter. And we think each played a role in our sales performance with the competitive pressures continuing to be the largest driver. So as we've talked about here today, continue to focus on the competitive pressure, recognizing the category, while still healthy, has moderated some. So it requires us to continue to elevate our efforts and then addressing some of the internal dynamics around our operational efforts as well as promotional. So all contributed, and we're focused on driving them. For promo specifically, we -- as I've mentioned, what has not -- maybe what did not work as much was not our tent pole events, our core strategic elements, our loyalty events, the key connections that we have. But as I said, we -- our sales moderated throughout the quarter. And as we saw that, call it, in mid-June and into July, on top of some of the efforts we already had, like our big summer Beauty sale and other programs, we layered in incremental promotions. And historically, we've done some of that, and it's worked in different ways. But this time, what we saw was that layering helped in the e-com business, as we highlighted, and did drive traffic and sales on e-com. But added some complexity in store in how that came to life and did not resonate as well. And so when we saw our consumers engaging with them, we created an environment that was not as clear and crisp as we needed it to be. And so we're addressing that going forward. As far as our outlook into the rest of the year and the role of promo as well as other things, we have assessed the impact of the new and existing challenges that we've been talking about here today, and we evaluated a number of scenarios that anticipate a variety of macro consumer changes, competitive category performance, holiday shifts, and a more promotional environment. We've taken all that into account, and that's reflected in our outlook. But I'd say last thing I'd say to all that is, I hope it's clear, we're not standing still. I've highlighted many of the things that we're doing. We're taking action. We're building off successes with newness and other efforts that we have across the business. We do not anticipate having to lean only on promo. That's never what we've had to do. And all of the actions across loyalty, innovation, newness, services, guest experience, digital will come together to drive us and give us confidence in our comp guidance for the second half of the year.

Operator, I think we have time for one more question.

All right. Great. Our last question comes from the line of Susan Anderson with Canaccord Genuity. Please proceed with your question.

Hi. Good evening. Thanks for fitting me in here. I guess, I was curious, it sounds like most of the competitive pressure is on the prestige side, and it did sound like you maintained that mass share. But are you also seeing any increased competition on the mass side maybe being some of the mass retailers getting more competitive from a promotional standpoint? And then also just really quick on the hair care, was that decline or change there primarily driven by prestige or did you see anything else on the mass side as well? Thanks.

Great. Yes. This is a very competitive category. And so while we're pleased that we maintained share of mass, we know there's competition happening both on the mass and the prestige side. But we haven't seen -- what we haven't seen in mass is the dramatic increase in points of distribution or expanded presence both with physical stores and online. And that's allowed us to continue to drive our experience. And an important aspect is while we talk about our business in mass and prestige, our guest really looks at the whole thing and comes in for both together and buy both together in the same basic from entry-level mass up through masstige, prestige, and luxury. And so we need all things to be clicking to driving traffic and engagement and basket. And so when there's pressure on one part of the business, it impacts our whole store. But our mass business is performing well, and we're confident in our outlook there. As far as the hair dynamics, I mentioned in the remarks, the primary driver. We're pleased with our hair business. It's a critical part of our business. I mentioned our salon is performing well. The hair business primary driver of the performance there was a shift in one of our strategic tent pole events in hair from the second quarter into the first quarter. And that was the primary driver of the lower results in that. But our hair business is important, and we continue to find ways to drive that business going forward.

Great. Thanks so much.

Yeah. Thank you. Thank you, Susan, and thank you all again for joining us today. We very much appreciate your interest in Ulta Beauty. And I wanted to take this last moment to thank our more than 55,000 Ulta Beauty associates for their continued focus and commitment to serving our guests. Our teams have managed through significant change over these last three years, and I so appreciate how quickly they've embraced new technology, new processes, new ways of working, always while keeping our guests and each other at the center of everything that we do. So we look forward to speaking to you all again a little sooner than normal after one of our quarterly calls and at our investor event in October. I hope to see you there, and I hope you all have a good evening, and thanks again for joining.