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Ulta Salon, Cosmetics & Fragrance (ULTA)
Q2 2013 Earnings Call
September 12, 2013 5:00 pm ET
Laurel Lefebvre - Vice President of Investor Relations
Mary N. Dillon - Chief Executive Officer and Director
Janet Taake - Senior Vice President of Merchandising
Jeffrey Severts - Senior Vice President of Marketing
Scott M. Settersten - Chief Financial Officer, Principal Accounting Officer and Assistant Secretary
Gary Balter - Crédit Suisse AG, Research Division
Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division
Daniel Hofkin - William Blair & Company L.L.C., Research Division
Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division
Neely J.N. Tamminga - Piper Jaffray Companies, Research Division
Oliver Chen - Citigroup Inc, Research Division
Brian J. Tunick - JP Morgan Chase & Co, Research Division
Matthew J. Fassler - Goldman Sachs Group Inc., Research Division
David Wu - Telsey Advisory Group LLC
Jill R. Caruthers - Johnson Rice & Company, L.L.C., Research Division
Mark R. Altschwager - Robert W. Baird & Co. Incorporated, Research Division
Previous Statements by ULTA
» Ulta Salon, Cosmetics & Fragrance, Inc. Discusses Q2 2013 Results (Webcast)
» Ulta Salon, Cosmetics & Fragrance Management Discusses Q1 2013 Results - Earnings Call Transcript
» Ulta Salon, Cosmetics & Fragrance Management Discusses Q4 2012 Results - Earnings Call Transcript
Thank you. Good afternoon, and thank you for joining us for Ulta Beauty's Second Quarter 2013 Conference Call. Hosting our call are Mary Dillon, Chief Executive Officer; and Scott Settersten, Chief Financial Officer. Also joining us today are Janet Taake, Senior Vice President of Merchandising; and Jeff Severts, Senior Vice President of Marketing.
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 may make references during this call to the metric free cash flow, a non-GAAP financial measure defined as cash provided by operating activities minus purchases of property and equipment.
With that, I'll turn the call over to Mary.
Mary N. Dillon
Thank you, Laurel. Good afternoon, everyone. I'm delighted to be hosting my first earnings conference call as the CEO of Ulta Beauty. The team delivered an excellent second quarter with strong sales and margin performance.
Our second quarter performance highlights many of the reasons I decided to join Ulta. We operate in an industry that's growing and important to our guests. Ulta has a differentiated format that resonates with customers. We have a solid long-term growth strategy and a strong team that's executing that strategy very well.
Leading that team for much of the second quarter was our interim CEO, Dennis Eck, and I would like to thank Dennis for his leadership and dedication to the success of Ulta Beauty over the past few months, and the other board members for their support as well.
Now to recap the Q2 headlines. We grew the top line 24.8%. Comparable store sales increased 8.4%, including the impact of our e-commerce business, which continued its rapid growth with a 72% top line increase. Operating income increased 26.8% and operating margin improved 20 basis points to 12.1%. Earnings per share increased 29.6% to $0.70 per share. The team will provide more details on the results and the drivers for the quarter.
Before that, I'd like to make a couple of comments on my perspective on the business after my first 2 months on the job. Ulta has enjoyed tremendous success for the past several years, executing a well-defined strategy. And that includes accelerating store growth, introducing new products, services and brands, enhancing our loyalty program, broadening our marketing reach and increasing our digital focus, including ulta.com.
I don't plan to make any radical changes to this strategy, but rather I plan to expand and build upon this solid foundation. In my first couple of months, I've been in our stores getting to know the business and our people. I'm incredibly excited about our potential. The beauty category is expected to continue to grow 3% to 4% over the long term, and I believe Ulta can continue to capture market share.
I expect that share gains will come through new store growth, healthy same-store sales growth, driven by new customer acquisition and more frequent visits of existing customers who are attracted by newness in our offering and the strength of our marketing and loyalty programs.
We'll continue our focus in introducing new products and services that drive traffic on continuously improving our loyalty program with increased simplicity and benefits for the customer; on delivering value to the customer through our gift-with-purchase programs, discounts and special offers; and improving our CRM program to better target and refine our offerings.
In addition, I see great opportunity to test and activate new strategies to further drive growth and profitability. These include: driving greater awareness of Ulta as a brand and a retail concept in creating a stronger emotional connection to our brand; deepening our insights about our current and prospective guests, continuing to identify opportunities to best meet her beauty needs; further driving digital discovery and e-commerce; continuing to provide great value while reducing reliance on price promotion and, finally, exploring new ways to continue to create excitement for our guests.
Now with that as a backdrop, I'd like to share with you my key priorities for my first 100 days at Ulta Beauty. First and foremost, I plan to work with the team to deliver the 2013 financial performance that we've planned. Another top priority is supporting our store growth plans. At the same time, I'll be focused on addressing business needs in the area of supply chain and our digital omni-channel approach.
I'll also be assessing the organization's talent, capabilities and culture needs as we continue to aggressively grow the business. I'll also spend time getting to know key vendor partners, and of course, analysts and investors.