管理層發言
Good afternoon, everyone. My name is Leila, and I will be your conference operator today. At this time, I would like to welcome you to Ulta Beauty's First Quarter and Fiscal 2026 Earnings Call. This conference is being recorded. At this time, I would like to turn the call over to Ms. Kiley Rawlins, Senior Vice President of Investor Relations. Ms. Rawlins, please proceed.
Thank you, Leila. Good afternoon, everyone, and thank you for joining us for a discussion of Ulta Beauty's results for the first quarter of fiscal 2026. Hosting our call today are Kecia Steelman, Chief Executive Officer; and Chris DelOrefice, Chief Financial Officer. During today's webcast, a presentation is being shared live and has also been posted to our website at ulta.com/investor. As a reminder, today's earnings release and the comments made by management during this call include forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, factors identified in the earnings release and in our most recent 10-K. The company undertakes no obligation to revise any forward-looking statements. To allow us to accommodate as many questions as possible during the hour scheduled for this call, we respectfully ask that you limit your time to one question and no more than one follow-up question. As always, the Investor Relations team will be available for any questions after the call. And now I'll turn the call over to Kecia.
Thank you, Kiley, and good afternoon, everyone. After meeting our ambitious goals in fiscal 2025, we entered fiscal 2026 with a keen focus on continuing our progress while optimizing our model with financial discipline to deliver profitable growth. Before I dive into the details of our first quarter performance and priorities for the year ahead, I want to share my perspectives on the business. First, our core U.S. business is fundamentally strong and delivering healthy sales growth. Second, the strategic initiatives we are driving to scale new businesses are gaining traction, are contributing to our results and position us well for long-term growth and value creation. Third, we are exercising financial discipline and working thoughtfully to optimize our costs and investments to position our business to deliver consistent double-digit earnings growth. Next, growth in the beauty category remains healthy, even as consumers are increasingly value focused.
Ulta Beauty's diverse assortment, omnichannel convenience and compelling loyalty rewards program uniquely position us to meet our guests' evolving needs. And finally, we are staying focused on capitalizing on the strengths of our model and executing our Ulta Beauty Unleashed strategy to deliver long-term profitable growth and value. While we are continuing to monitor how the macro landscape could evolve, we remain execution-focused and are confident we will deliver our fiscal 2026 expectations, which Chris will cover further later in the call. Turning now to our first quarter performance and the progress being made on our Ulta Beauty Unleashed pillars. The strength of our business continued as we delivered first quarter net sales growth of 11.1%, comparable sales growth of 5.3% and 15.5% diluted EPS growth. Performance was broad-based with all channels and major categories contributing positively to our strong results.
From a market share perspective, we gained share in prestige beauty, and we were roughly flat in mass beauty. Beginning with our driving the core business growth pillar. Overall company performance continues to be fueled by the strength of our core U.S. business, reflecting a relentless focus on delighting guests with every interaction and building on our new go-to-market approach, marketing leadership and compelling merchandising innovation. Our stores delivered another solid sales performance, supported by the successful execution of key promotional and marketing events, including 21+ Days of Beauty and spring haul. As we begin the new fiscal year, our store team is focused on driving engagement, education and excitement. During the quarter, together with our brands, we executed more than 40,000 in-store events, including key activations to highlight newness from brands like Coach, Cecred, Live Tinted and held several workshops to support education for brands Redken, Rare Beauty and Lancôme.
As we look to Q2, we will stay focused on the fundamentals to ensure we are delivering great guest experiences, driving conversion and fueling sales growth. E-commerce momentum continued with the team delivering another quarter of robust sales performance. The sustained strength of our e-commerce channel is powered by the investments we've made over the last several years to elevate our infrastructure and the ongoing enhancements we're continuing to roll out, like expanded same-day delivery options through Uber Eats and new Buy Now, Pay Later options through Klarna to improve functionality, expand convenience and improve the guest experience. The convenience of buy anywhere, fill anywhere capabilities including Buy Online Pickup In Store have been a key driver of our e-commerce growth and of our strong guest satisfaction metrics. This quarter marked the exciting launch of our TikTok Shop with a strategic focus on our Only at Ulta exclusive brands.
We hosted our first ever TikTok shoppable live stream at our Ulta Beauty World event garnering more than 5 million impressions and strong GMV, rivaling top affiliate live stream performances. This initiative is driving a lot of excitement with guests and the creator community, which is showing high interest in collaborating with us. In addition, a number of brand partners have expressed interest in offering their products as part of our curated TikTok assortment and bundles. This new channel positions Ulta Beauty at the center of a critical discovery point and will enable us to spotlight our exclusive brands, build influence and fuel our marketing efforts, particularly with younger consumers. Turning to brand building. We are making meaningful progress on our ambition to build multiple $100 million-plus exclusive brands over time. To compete and win in beauty and wellness, we are driving the innovation pipeline, co-investing in marketing with strategic and exclusive brand partners and creating exciting activations in stores and online.
We have several exciting success stories on this front. Today, I'd like to highlight an exclusive fragrance brand, NOYZ, an approachable vegan and cruelty-free fragrance brand inspired by relatable real-life feelings and self-expression. During Q1, NOYZ launched its innovative Mylk de Parfum, part fragrance, part hydrating skincare. Mylks are perfect for layering and are creating a new subcategory that has excited our guests and is helping drive the brand's continued growth. Ulta Beauty collaborated with NOYZ on a 360-degree go-to-market activation strategy that helped catapult the brand into our top 20 in the category for the quarter. NOYZ continues to fuel social buzz into Q2 with the recent debut of Be Her, our fragrance collaboration with award-winning singer-songwriter Ella Langley. From a broader newness perspective, our balanced approach is driving consumer excitement across categories and fueling positive performance.
During the quarter, we launched more than 20 new brands including our record-breaking launch of Rare Beauty in makeup, Balmain as an exclusive early lead brand in fragrance, Bloomeffects in skin, Hairstory in hair care and Gruns in wellness. These launches are in addition to exciting newness from our existing brand partners like Estée Lauder, Tatcha and exclusive brand Sake. In marketing, we focus on engaging storytelling to capture core moments in beauty and further Ulta Beauty's authority and high-impact shopping moments. The team drove outstanding activations around key marketing and promotional events including Valentine's Day, 21+ Days of Beauty and spring haul. In April, we hosted our flagship consumer event Ulta Beauty World in Orlando. Approximately 3,000 Ulta Beauty fans attended the event to engage with nearly 240 of our brand partners and discover newness through immersive high-touch experiences with master class education offered as a separate experience.
Building on last year's inaugural event, Ulta Beauty World drove strong engagement across PR and social and expanded into new platforms like TikTok Shop Live, more than doubling earned media value year-over-year. During the quarter, we expanded our Ulta Beauty Rewards loyalty program to nearly 47 million members, up 4% year-over-year. We are leveraging our vast first-party data and recent tech improvements to enhance our leadership in personalization. Our teams are building around key customer journeys and actions to maximize incremental sales-driving opportunities. This includes utilizing our loyalty data to understand behaviors, predict replenishment purchases and drive cart conversion. Moving to our second pillar, scaling new businesses. Beyond the U.S., we opened a handful of new stores across our international markets. Space NK, which operates stores in the U.K. and Ireland, continues to deliver healthy, well-balanced growth, expand its loyal customer base and gain market share.
In Mexico, we opened two new stores, including the grand opening of our Madero store, a unique two-story building that blends modern beauty retail with historic architecture and charm in the heart of Mexico City. In addition, our franchise partner, Alshaya, opened our third store in the Middle East at The Dubai Mall, one of the largest and most visited shopping destinations in the world. While the situation in the Middle East remains fluid, we continue to be excited about the potential of this flagship location and the expansion opportunity in the region over the long term. Our marketplace continues to gain traction with the addition of exciting new brands and items. We closed the quarter offering more than 325 brands and over 8,000 SKUs across our seven marketplace assortment focus areas. During the quarter, we successfully integrated marketplace brands into our 21+ Days of Beauty promotion contributing to strong ongoing guest engagement.
I'm incredibly proud of the way our team continues to execute this important initiative and the strong guest satisfaction we are seeing for those who purchase products from marketplace. In wellness, we're helping guests find their feel good with expanded assortments across key wellness focus areas, nutrition and supplements, intimate care, rest and reset and essential routines. During the quarter, we launched several new brands, including nutritional gummies brand Gruns and intimate skincare brand Medicine Mama. We drove awareness and guest acquisition through our wellness-focused events and integrated wellness offerings into key tentpole events. We also enhanced our digital navigation and storytelling. Performance continues to build, driven by assortment and space expansion as well as guest engagement in key pillars, including nutrition and supplements and rest and reset. In UB Media, we are on a journey of scaling this incremental margin driver, rolling out enhanced capabilities, features and products to support our brands.
We recently launched a YouTube enhanced measurement product, which provides deeper insights and benefits to our brand partners. Clinique leveraged this new capability for a recent campaign that was executed with fresh talent and best-in-class practices. It was not only able to measure brand-level sales, but they also saw meaningfully higher returns on ad spend and conversion compared to other video channels. And finally, our third strategic pillar, aligning our foundation for the future. As part of our supply optimization efforts, we advanced plans to expand our distribution network with the commitment to open a new regional distribution center in Salt Lake City, Utah. This new facility will leverage the latest in automation technology to improve speed, increase efficiency and simplify product flow. In addition, we continue to leverage AI to optimize our business. From a guest-facing perspective, we introduced an online shopping agent, Ulta AI, to enhance discovery, personalization and shopping experiences.
Initial results have been promising, and we are excited about the potential of this new feature. In addition, we are integrating with leading AI platforms like Google's Gemini to enable agentic commerce. We are still in the early days and are focused on leveraging the strengths of our partners to maximize the AI opportunity. Finally, turning to our efforts to cultivate one of our most important competitive advantages, our culture. Last month, we brought together more than 1,500 general managers, along with corporate and distribution center leaders and brand partners in our annual field leadership conference. The strength of our model was on full display. Everything about the time we spent together was aimed at growing our business, building enthusiasm and pushing ourselves to an even higher standard. The most exciting part was the alignment in the collaboration and the camaraderie across the entire business.
Importantly, there was also a unified focus on execution in stores and providing our guests with consistently great experiences. The energy I experienced, coupled with our current business performance reinforces my confidence in the direction we are heading and my optimism that the business will continue to deliver on our revenue, income and shareholder value creation goals. Turning to the operating environment. As I shared in the beginning of my remarks, the beauty and wellness categories remain healthy and engagement is strong. At the same time, consumers continue to face macroeconomic uncertainty and inflationary pressures from rising fuel prices, making value increasingly important as a consideration. We are operating from a position of strength in this environment and have multiple levers to satisfy guest value needs, including a diverse mass to luxury assortment that provides our guests with choices for every budget, omnichannel accessibility that allows our guests to browse, buy and fulfill purchases in the way that best fits their lifestyle, and a compelling loyalty program and targeted promotional capabilities that enable guests to maximize value while strengthening engagement with our brand.
We will continue to thoughtfully navigate the operating environment and respond with agility to deliver for our guests, drive sales and expand share over the long term. Looking to the future, we're focused on expanding our U.S. business by strengthening our assortment and investing in stores and digital experiences and deepening customer engagement through personalization, AI and social commerce, including our new TikTok Shop partnership. In addition, we expect to drive incremental accretive growth as we continue to scale our new businesses, including international expansion, wellness and marketplace offerings and enhanced UB Media capabilities. We will continue to execute our plans to support long-term growth and efficiency through investments in supply chain automation, merchandising systems and AI-powered tools to enhance operational performance, guest experience and profitable growth.
And finally, I'm excited to share that we are beginning work on a new highly experiential Ulta Beauty location in Times Square, New York. Expected to open in late 2027, this flagship store will be a vibrant, dynamic destination where technology, entertainment, convenience and our differentiated assortment come together to deliver immersive guest experiences and brand activations. This store will showcase next-level brand building and storytelling capabilities, unlock high-impact marketing through digital billboards and drive greater awareness and loyalty with guests from all over the United States and the world. In closing, our Ulta Beauty Unleashed plan is delivering results, and we remain confident in the strength of the Ulta Beauty model, the resilience of our category and the passion of our guests and associates. We are investing with discipline in the areas that matter the most: a differentiated seamless assortment, a seamless omnichannel experience and deeper guest loyalty, all while staying agile in a dynamic environment.
As always, we will stay focused on what we can control, keeping our guests and associates at the center of all we do to drive our business forward and create value. With that, I'm going to turn it over to Chris to cover the financials.
Great. Thanks, Kecia, and good afternoon, everyone. I'll begin with a discussion of our first quarter results and then share our updated expectations for the year. Starting with the quarter, the Ulta Beauty team delivered profitable growth, reflecting benefits from strong revenue growth and gross margin expansion, driven by improvements in shrink and merchandise margin. I want to express my sincere appreciation to our teams for staying disciplined and working together to deliver this strong performance. Net sales for the quarter increased 11.1% to $3.2 billion compared to $2.8 billion last year. Total sales growth, excluding the impact of Space NK, was in the high single-digit range. During the quarter, we opened 16 net new Ulta Beauty stores and one new Space NK store. Other revenue increased $6 million to $62 million, primarily due to higher income from our credit card program and commissions from UB Marketplace.
This growth was partially offset by lower royalty income from our partnership with Target Corporation. Comparable sales for the period increased 5.3%, driven by a 3.7% increase in average ticket and a 1.6% increase in transactions. Looking at the cadence of sales through the quarter, the period played out largely as we expected. February delivered low double-digit comp growth as we lapped our weakest comp performance in fiscal 2025. Comp growth for both March and April was in the low single-digit range. From a channel perspective, both store and digital channels contributed to comp growth with e-commerce delivering mid-teen sales growth and comp stores delivering sales growth in the low single-digit range. Turning now to sales by category. Fragrance was our strongest category again this quarter, delivering high-teen comp growth and increasing from 11% to 12% of total revenue. We continue to execute well and advance towards our goal of being the number one destination for fragrance.
We are playing to win and to support this ambition, investing in newness, enhancing our in-store experience, improving core in-stocks and leaning into key events like Valentine's Day and Mother's Day. For the quarter, growth was primarily driven by newness from core luxury brands, including YSL, Carolina Herrera, Valentino and an early lead from new brand Balmain, as well as innovation, including the new milk scent format from exclusive brand NOYZ. The haircare category delivered high single-digit comp growth this quarter, driven primarily by strong performance in prestige haircare. New brands Amika and Moroccanoil drove healthy growth, and exclusive brand Cecred continued to resonate with guests, driving robust results with core Hero SKUs as well as exciting innovation. Hair treatments, including repair-focused products and scalp regimens outperformed, while hair tools declined as the impact of lapping prior year launches and softness in traditional tools more than offset growth from innovative and accessible brands Shark and T3.
Comp sales in the makeup category increased in the low single-digit range with growth driven primarily by prestige makeup. Strong guest engagement with new brand Rare Beauty, as well as newness from existing brands including MAC, Kylie Cosmetics and Estée Lauder helped deliver growth for prestige makeup. Mass makeup was relatively flat with compelling innovation from brands like Morphe and L'Oréal offsetting limited innovation from other mass brands. The skin care and wellness category delivered low single-digit comp growth this quarter. Prestige skincare continued to perform well as newer brands including Medicube and Dermatology and newness from existing brands including Tatcha and exclusive brand Peach & Lily drove healthy guest engagement. Mass skincare delivered solid growth, supported by in-store expansion for Anua, sustained vitality for Byoma and exclusivity from Côcokind. In wellness, continued strength in supplements, including Lemme and MaryRuth's, as well as self-care brands including Therabody, Nodpod and Saje delivered strong growth.
This growth was partially offset by pressure in body care as we lap meaningful expansion of key brands last year. Finally, services delivered mid-single-digit comp growth driven by strong member engagement in salon and specialty services, including ear piercing and makeup services. Gross margin for the quarter increased 100 basis points to 40.1% of sales, primarily due to lower inventory shrink and higher merchandise margin. Our team's relentless focus on reducing inventory shrink continues to deliver meaningful benefits to profitability. In addition to our continued focus on process improvements and associate training across all stores, we have applied data insights to take deliberate targeted actions to improve performance in high-risk locations. As a result of these combined efforts, we saw shrink reductions across every category and every region this quarter. Merchandise margin increased this quarter, primarily due to improving inventory turns and the impact of favorable category mix from Space NK.
Although elevated fuel prices resulted in higher-than-planned transportation costs, productivity and efficiency unlocks from our supply chain optimization investments enabled our teams to mitigate this pressure in the quarter. Moving to expenses. SG&A increased 14.6% to $815 million as planned, driven primarily by the impact of Space NK and investments made to support our Ulta Beauty Unleashed strategy including investments made in the second half of fiscal 2025, which have not yet anniversaried. Operating profit grew faster than net sales, increasing 11.6% to $448 million or 14.2% of sales. Interest income was $0.7 million, inclusive of the impact from our increased share buybacks. The effective tax rate decreased 70 basis points to 23.9%, primarily due to the purchase of transferable federal tax credits, resulting in a one-time income tax benefit recorded during the quarter. Wrapping up the P&L. Net income increased 10.8% to $340 million and diluted earnings per share for the quarter increased 15.5% to $7.74 per share.
Moving to the balance sheet and our capital deployment strategies, our focus on cash management, including a disciplined approach to capital expenditures is driving greater cash efficiency. We ended the quarter with $221 million in cash and short-term investments and $145 million in short-term debt. Total inventory increased 12.5% to $2.4 billion, primarily reflecting additional inventory to support new brands, the acquisition of Space NK and the impact of 70 net new Ulta Beauty stores. On a per-store basis, inventory increased 1.4%. Capital expenditures were $58 million for the quarter, mostly driven by investments in new and existing stores. We executed against our increased share buyback plan and deployed cash and leveraged our revolver to support $555 million of stock repurchases during the quarter. Turning now to our updated outlook. We remain focused on expanding market share and delivering profitable growth in fiscal 2026.
The first quarter positioned us well against these goals with strong execution throughout the P&L. At the same time, we believe it is prudent to take a measured approach to our guidance given the uncertain macro landscape. For the year, we are maintaining our guidance for sales and continue to expect net sales will increase between 6% to 7%. We expect net sales growth will be stronger in the first half, reflecting our strong Q1 performance and the benefit from the acquisition of Space NK. Given our strong Q1 performance, we are maintaining our comp sales growth commitment and continue to expect comp growth for the full year will be between 2.5% and 3.5%. Based on this, we expect our two-year stacked comp will be in the high single-digit range and relatively consistent across the balance of the quarters, including Q2, which was our highest comp performance last year. Reflecting the strong performance execution in the first quarter, we have enhanced our expectations and now expect operating profit will increase between 6.5% and 9% for the year.
For modeling purposes, we continue to expect gross margin will be roughly flat for the year, driven by higher inventory productivity, continued momentum in supply chain productivity and a modest improvement in inventory shrink, which is expected to offset pressure from higher fuel costs and help balance targeted investments to bring competitive offerings across our unique mass to luxury assortment to our value-focused guest. We delivered SG&A growth in the first quarter, consistent with our expectations and we have not changed our full year targets. We continue to plan SG&A growth in line to slightly below net sales growth and intend to invest in a disciplined way that supports and maximizes profitable growth. We continue to expect to generate strong operating cash flow, which will enable reinvestment to support future growth and also support our intent to return capital to shareholders through our stock repurchase program.
We see deploying capital towards increased share buybacks in the current environment as a compelling value creation opportunity. In the first quarter, we announced an increase in our fiscal 2026 stock buyback target from $1 billion to $1.5 billion. Reflecting the impact of these assumptions, we have increased our EPS estimates. We now expect diluted EPS will be between $28.36 and $28.80 per share. Our new guidance represents growth between 10.6% and 12.3%, respectively, compared to previous growth expectations of 9.4% to 11.4%. Note, our updated estimates assume a weighted average share count of approximately 43 million shares and a tax rate of approximately 24.5%. In closing, Ulta Beauty is well positioned to deliver compelling value to our shareholders. This is evidenced by our first quarter results, where our focused execution delivered strong performance consistent with our expectations.
As we continue to navigate near-term uncertainty, we are focused on executing with excellence against our plans, maintaining financial discipline, including focused investments to increase market share and deliver strong, profitable growth for our shareholders. And now I'll turn the call over to our operator to moderate the Q&A session.
分析師問答
Our first question will come from Adrienne Yih with Barclays.
Great. And let me state my congratulations for a fantastic start to the year. Kecia, along those lines, I wanted to just talk about the categories year-to-date that you're seeing the greatest return on the investments that you're making in the marketing and some of the heavy SG&A that you've been doing? And then kind of along those same lines, Chris, can you talk about — you raised the lower end of the profit expectations and then the higher end of the EPS, certainly due to probably the buyback. But the top line remained the same. So within the SG&A leverage, where are you seeing the most visibility for the back half?
I'll start, Adrienne, thank you for the question. Where we are seeing the investments really paying off is — one of the strongest categories that we're seeing results in is really fragrance. When you look at Mother's Day, the Mother's Day promotion, how we've raised the fixtures up and been able to add assortment into our stores and then the marketing that we've done along with it, that's definitely come into play. We've also been investing in our Ignite brands and looking at ways that we can continue to lean into our brand building plans that are a 360-approach around the exclusive brands that we have here at Ulta Beauty, and we love what we're seeing there. We're focused on being very balanced in our portfolio and continuing to look at how we can continue to drive sales across the store and not just being focused on one area of the business. 21 Days of Beauty, we were pleased with the results there.
We do think that the guest is continuing to look at value. And then we're also leveraging our tool of UB Media to really capture that guest to get them because we know where they're shopping in there. We know where they're at, and we can take those brand dollars to get them engaged into our store and online. So those are the places where we've been really seeing a nice return for the investment that we've been spending. And again, we're going to be continuing to focus on that in Q2.
Yes. Thanks for the question. I was pleased with the strong execution through the P&L in Q1, which gives us confidence to deliver against our full year goals, increase our operating profit commitments at the low end and the midpoint. And certainly, as you noted, raising EPS, both due to the operating profit increase and share buybacks. I'll go back to the principles. Our goal is to maximize value creation through driving increases in operating profit. As we start the year, we'll have opportunities both on the leverage side and on the invest-to-grow side, while maintaining discipline on margin and ensuring that based on the guidance we provided, our operating margin will not go backwards year-over-year and there are opportunities for leverage within that. So as I think of the balance of the year, I'll point to where we're seeing some strength. We're seeing some strength in supply chain. You saw shrink play out positively in the quarter.
The supply chain team continues to do a great job in supply chain optimization. I think you also saw very strong discipline and consistent performance on SG&A. So I would say there's some opportunities in there. But the balance of the year is going to be this: how do we thread the needle of trying to optimize growth while capitalizing on where those leverage opportunities exist and balancing those two to keep trying to deliver against and where we can drive operating profit up.
Your next question will come from Simeon Gutman with Morgan Stanley.
So two parts. First, the exit rate comp or what you did, I think, was it April, is that as good as it gets, given the compares step-up? Or was there something unique timing-wise end of the quarter that pushed it down maybe temporarily? And then, Chris, just following up to what you said, some of the language you used about trying to optimize or managing both. Is it in the plan for SG&A to step down and that's a given or it's not a given, and it's going to take some maneuvering as you work through the back half of the year?
Yes. Maybe I'll take SG&A first. We're highly confident in the SG&A execution. The year is playing out as expected. Remember, we said we expected double-digit growth in the first half. That was largely attributable to Space NK and the anniversarying of Ulta Beauty Unleashed investments we made in the back half of 2025. That included wellness and marketplace as an example. We simply stepped down into low single-digit growth in the second half of the year because we're going to anniversary over those items. We are investing in the second half of the year. And we also have cost optimization that's helping actually further get ROI and benefit and put more back in the business. So you're going to see SG&A consistently play out. What I was articulating is, each year as we have opportunities to either further accelerate top line, that balance of top line versus leverage while maintaining discipline in margin and constantly adjusting those two levers to capitalize on opportunities to drive operating profit up would be the goal as we progress through the year.
And you saw us do that in Q1. Obviously, there's the macro environment and some uncertainty there. We think this is a prudent guidance with strong double-digit EPS growth. And our goal at the end of the day is to be a consistent compounder of EPS at double digits, and this guide provides that. I think you should feel positive about the strong execution in Q1.
And then I'll take the comp trends. Q1 played out largely as we expected. February was in the low double digits as we lapped our weakest comp from fiscal year 2025. Comp growth in March and April was in the low single-digit range. As Chris shared, we continue to expect our comp sales growth for the year to be between 2.5% to 3.5%. And just as a quick reminder, second quarter 2026 is our toughest comp comparison on a one-year basis over the strong results that we had in 2025. The guide implies high single-digit comp growth on a two-year stack basis. We're very confident in our ability to grow sales and to deliver our guidance, and we have great plans in place to fuel our performance. Our unique model plays into that; we can have a consistent track record of delivering sales growth in many different kinds of economic time frames. Hopefully that answers your question, Simeon.
Your next question will come from Dana Telsey with Telsey Group.
As you think about the sales growth, Kecia, which is very impressive with transactions and with traffic, as you exited the quarter, how is the exit rate looking forward? And just like you had Ulta Beauty World, what are the next events? And how do they break out by quarter going forward? And then, Chris, as you think about the margin comparisons going forward, either on SG&A or gross margin, whether merchandise margin or others, anything we should be mindful of? And how do you think of the investment spend going into the margin profile through the shaping of the year?
I'll start, and then I'll turn it over to Chris. Our ticket was up 3.7% in Q1. It was largely driven by product mix. Transactions were up 1.6% in a challenging macro environment, but we are really focused on how we can continue to drive traffic. We're very confident in our marketing and merchandising plans to really support and drive our business. Our teams are doubling down, particularly in stores, to drive traffic and guest conversion through our guest service, eventing — which we did a lot of events in the last quarter — loyalty and personalized marketing efforts. You asked a little bit about Ulta Beauty World. We are really focused on creating excitement and energy, both in our online platforms and in-store. We build great plans around what activities we had last year and how we continue to improve them even more for this next year. I'm pleased with what I see in the Q2 and the back half plans. The teams from marketing, merchandising, store operations and digital are all working very closely together. I feel great that the go-to-market team has good plans in place for Q2 and the rest of the year.
As you think of the margin and the profit profile as we progress through the year: one, we actually have a very balanced first half, second half operating profit growth profile, which is positive. The first half is modestly above the second half. Two primary factors there are slightly higher sales and higher benefits of shrink in the first half of the year. We started getting shrink benefits towards the back end of last year and will begin cycling through that success. As you move from first half to second half, the first half will have stronger gross margin performance. Remember, SG&A will have the increased cost because of Space NK and the anniversarying of prior year investments we made. When you move to the second half of the year, you have a slight flip where you see gross margin moderate a bit as planned, and then you start seeing benefits of SG&A driving some margin improvement in the second half of the year with low single-digit growth.
So it's playing out exactly as planned. Remember, we made investments in 2025 that we're going to continue to benefit from, marketplace, wellness, just to name a couple. In 2026, we're also making investments. We have agentic AI as a core strategy. We continue to invest there, ongoing brand building investments, and personalization initiatives to maximize incremental sales opportunity. We feel good about both the investment profile and the actions we're taking to deliver a strong, profitable growth profile for the year and ultimately deliver double-digit earnings growth.
Your next question will come from Michael Binetti with Evercore.
Sorry to ask again about the near-term stuff. I think the stock has been a little sensitive to it with the macro that you guys have commented on here. I think it's a high single-digit stack with second quarter in the maybe 1.5% to 2.5% range. I think you expected the category last time we talked to grow 2% to 4% this year. Is there any change to that assumption we should think about for the rest of year or your ability to maintain share? And then on the gross margin, I guess it's implied to be down about 30 basis points after the first quarter being up 100. I'm curious what caused the merchandise margin to expand and why we don't flow that through the rest of the year? Or why some of those shrink tailwinds from first quarter can't continue even though you anniversary a little bit in the second half?
Thanks for the question, Michael. In regards to the industry, what we're seeing is that last year, growth in beauty grew stronger each quarter as the year progressed. So we're going against stronger growth in the back half, and we expect that growth to normalize. We're still committed to share growth at Ulta Beauty, and we feel like that's implied in our guidance and our numbers that we've put in front of you today. The category is still competitive, and we know others will continue to level up the battle for share, which means we will have to be even better as we execute through the remainder of the year. We are confident in our plans: brand building, exclusivity and wellness. As a reminder, our total sales came in at 11.1% for the quarter, which is a very strong result. We're staying close to customer needs, sharpening our operational focus, and making targeted investments to strengthen our long-term competitive advantage. We're focused on playing our game and leaning into the places where we can differentiate ourselves.
I'll add one thing on sales. Our total guidance is 6% to 7%, which includes the one-time benefit from Space NK. Even taking that out, the total growth ex Space NK is strong mid-single digits, well within our long-term algorithm and competitive from a share standpoint. We're going to continue to execute this. This is more of us cycling through success from the prior year, and you have a strong two-year double stack at high single digits through the balance of the year. Regarding gross margin, it's about flat for the year. We expected larger shrink benefits early in the year; that was a conscious effort. We started realizing that benefit towards the back end of last year, and we're going to cycle through that success. That's one of the drivers. Supply chain continues to drive strong optimization and has been absorbing the fuel impact, which wasn't fully planned but not significant for total Ulta. We feel good about gross margin being flat for the year, and we're going to continue to execute against the P&L, be disciplined on SG&A, and focus on the balance of finding leverage opportunities or investing to grow to deliver against our operating profit commitment.
Your next question will come from Mike Baker with D.A. Davidson.
I wanted to ask about TikTok Shop. Our tracking suggests that it's growing nicely, maybe even doubling its daily sales versus when it started about six weeks ago or so. When is this big enough to show up materially in the comps? And I remember last quarter, you were still debating whether it's going to be included in the traffic numbers. I'm just wondering if it is in these traffic numbers?
Thanks for the question, Mike. To date, we've anchored on Only at Ulta exclusives. We have 17 brands and 30 exclusive bundles. We see that this is not just an e-commerce play; there's also a halo impact for stores. Our next focus is increasing exclusive bundles that are launching both single-brand and multi-brand, and creating first-moment access with brand partners, like early access launches and select exclusives that create excitement. We don't expect cannibalization of our overall business; we think it's complementary to our e-commerce business and can bring new guests in. The two things we are really focused on: first, this is a way to expand guest acquisition since younger consumers engage on TikTok. Second, when they're already shopping on that platform, why wouldn't we participate? It's about acquisition and marketing, getting that guest into our overall ecosystem and our loyalty program. The main focus is not necessarily to drive e-commerce revenue but to acquire new guests and be front of mind where the guests are already shopping today.
As a follow-up, I guess there's something better in your operating profit dollars. You've maintained the sales and comps, maintained gross margin and SG&A. At the lower end, you did increase the operating income growth. Is that more on the SG&A line, still up less than sales, but maybe up less than previously thought? Where does that increase at the low end of operating profit come from?
The way I would frame it is when you look at how we executed Q1, we saw strong execution in both gross margin and SG&A. That creates opportunities for us to drive operating profit. With that said, again, if you go back to the principle of maximizing value creation, we want to make sure that where we have incremental growth opportunities, we're balancing those trade-offs. So it's about seeing how the year plays out to continue to execute against what we just updated in terms of increased operating profit guidance at the low end and midpoint, but balancing that to capitalize on opportunities as they come while maintaining discipline in our operating margin profile. We will not go backwards in operating margin. We remain committed to that goal.
I would add that last year we focused on driving top-line growth and taking share throughout the year. This year, we're focused on driving profitable sales. We're applying good discipline within the organization to maximize the value out of the investments we've made, to return value to our shareholders and drive profitability for our business. That's the methodology we're taking as a leadership team, and I'm proud of what the team delivered in Q1.
Your next question will come from Ike Boruchow with Wells Fargo.
A question on the margin. The margin guide was flat to up 20 basis points. I didn't hear you reiterate that. You went with profit growth. I guess I'm just confirming that it is still flat to up 20 basis points. And then the follow-up: Kecia, you do have from the Analyst Day the 12% target that's still out there. Is that still something we should use? Or do you believe the business should scale from here? I'm trying to think about how you think about market share gains and profit growth versus a margin rate.
Thanks for clarifying. In our prepared remarks, we did confirm that there's no change to the operating margin guidance. We expect flat to up 20 basis points, and we're committed to that. Regarding the long-term target for margin, we haven't changed our long-term guidance. This year, obviously, we're already above 12%, and we've committed to flat to some leverage of up 20 basis points. I think that's a strong signal. Our long-term framework remains: mid-single-digit top-line growth, strong mid-single-digit operating profit, and compounding double-digit earnings growth. That's the framework we're committed to, and you can see that discipline in how we're executing in 2026.
Got it. I was just clarifying whether the 12% is still the right target to think about long term given current performance and possible reinvestment due to competition.
Yes. We haven't changed our long-term target. This year we're executing ahead of 12% and committing to flat to up 20 basis points for operating margin. The goal remains to continue delivering against our long-term value creation algorithm and to be disciplined in how we balance investments and margin.
Your next question will come from Sydney Wagner with Jefferies.
Can you just talk about what you view as the primary driver of loyalty within the Ulta ecosystem? And how does that differentiate you versus other beauty retailers? And then can you discuss what you guys can do to drive higher frequency of visits within the category or with your consumers? I understand there's some value sensitivity there, but what's driving the higher traffic or that consumer coming back more frequently?
Thanks, Sydney. Our loyalty program is easy to understand and engagement is very high, especially on the app. We have a great relationship with our guests and they understand the return for their participation. Where we see opportunity to gain value from the loyalty program is through personalization. When you layer AI capabilities on top of a nearly 47 million member, rich first-party data set, we can maximize how we communicate with guests and tailor offers: some guests respond to gifts-with-purchase, some want increased value, some want a percentage off, others want price point discounts. It isn't always about discount; it's also about education and product recommendations. We can be predictive about replenishment and other purchases. The power of our loyalty program is our deep-rooted relationship and the value guests receive by participating.
I think, Leila, we have time for one more question.
Your next question will come from Michael Lasser with UBS.
So there's been a lot of comments and points made on the call, and it's really feeding into this idea that the beauty category is increasingly becoming more competitive, both from some traditional players like mass merchants as well as the online channel. Now you're guiding to what seems like a low single-digit comp for the rest of the year, coupled with gross margin degradation further suggesting that you need more firepower in order to maintain your market share. So a, is that a fair interpretation of all this? And b, have you increased your promotional activity or your expected promotional activity in response to what you have seen lately? And then a quick follow-up.
Thanks, Michael. When you look at the two-year stack for the remainder of the year, we're in the high single-digit range, which is compelling. We are focused on continuing to take share, and we did that in the last quarter; that's what this plan is designed to do. Beauty has always been a competitive category. We offer a trusted beauty expertise across mass to luxury and have a broad-based assortment. Newness and discovery drive much of the spend. This year we have an increased focus on exclusivity and brand building. It's not just exclusivity with big brands—many of the big brands are already in our assortment—it's about finding and curating brands that serve white space opportunities. We have unique insights because of our assortment breadth, and our plan assumes continued share gain in the category. The two-year stack in the high single digits is still very compelling for Ulta Beauty.
And my follow-up is, can you help calibrate the market's expectations? Should we expect traffic to be down over the next few quarters in light of everything you're seeing? And would you think that that's the case for the overall category, driven more by a rise in ticket than anything else?
To clarify, we remain committed to strong profit growth. As noted in our guidance, we actually increased the operating profit growth at the low end and at the midpoint. The profile is balanced first half and second half and we've increased share buybacks to $1.5 billion from $1 billion, which supports EPS. The two-year stacks at high single digits for the remaining quarters are strong. We feel good about the profit standpoint and the updated guidance. From a traffic perspective, we are focused on marketing, merchandising and personalization to drive engagement. We expect ticket to be a driver, but we are also focused on ways to increase frequency and acquisition through loyalty, events and channels like TikTok Shop that reach younger guests.
Thanks, again, Michael. To wrap up, I'd like to thank our guests, our trusted brand partners and dedicated associates for their engagement and support. I remain confident that we are on the right path to drive sustainable long-term growth and value creation for all of our stakeholders. We look forward to updating you on our progress on our next earnings call on August 27. Thank you, and everyone, have a great evening.
Thank you for joining. This concludes today's call. You may now disconnect.