goldman sachs 23 annual global retailing...
TRANSCRIPT
September 7, 2016
Goldman Sachs 23rd Annual Global Retailing Conference Mary Dillon Chief Executive Officer
Scott Settersten Chief Financial Officer
This presentation contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 (as amended), and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “plans,” “estimates,” “targets,” “strategies” or other comparable words. Any forward-looking statements contained in this presentation are based upon our historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties, which include, without limitation: the impact of weakness in the economy; changes in the overall level of consumer spending; the possibility that we may be unable to compete effectively in our highly competitive markets; the possibility that cybersecurity breaches and other disruptions could compromise our information or result in the unauthorized disclosure of confidential information; the possibility that the capacity of our distribution and order fulfillment infrastructure and the performance of our newly opened and to be opened distribution centers may not be adequate to support our recent growth and expected future growth plans; our ability to gauge beauty trends and react to changing consumer preferences in a timely manner; our ability to attract and retain key executive personnel; customer acceptance of our rewards program and technological and marketing initiatives; our ability to sustain our growth plans and successfully implement our long-range
strategic and financial plan; the possibility that our continued opening of new stores could strain our resources and have a material adverse effect on our business and financial performance; the possibility of material disruptions to our information systems; changes in the wholesale cost of our products; the possibility that new store openings and existing locations may be impacted by developer or co-tenant issues; weather conditions that could negatively impact sales; our ability to successfully execute our common stock repurchase program or implement future common stock repurchase programs; and other risk factors detailed in our public filings with the SEC. You are urged to carefully review the disclosures we make concerning the risks, uncertainties and assumptions that may affect our business and operating results, including, but not limited to, the risks, uncertainties and assumptions set forth in our most recent Annual Report on Form 10-K under the captions “Risk Factors,” “Business,” “Legal Proceedings” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and any of those made in our other reports filed with the SEC. Please consider our forward-looking statements in light of those risks, uncertainties and assumptions as you evaluate this presentation. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of the relevant document. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We undertake no obligation to update any forward-looking statements after the date of this presentation, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws and regulations.
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SAFE HARBOR STATEMENT
CORE INSIGHTS THAT DIFFERENTIATE ULTA BEAUTY
907 convenient locations in 48 states,
90% off-mall
20,000+ SKUs, 500+ brands: All Things Beauty All In One Place
Full service salon with hair, skin and brow
services in every store TM
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3% SHARE OF AN ATTRACTIVE, GROWING MARKET
$74 billion beauty products market
$53 billion salon services market
11% Skincare
10% Cosmetics
5% Fragrance
23% Other
41% Haircare Services,
Skincare Services
and Nail Salons
10% Haircare
$127 BILLION US MARKET
Source: July 2015 Euromonitor and November 2015 IBIS World Reports. *Other includes: bath and shower, deodorants, depilatories, men’s grooming, oral care and sun care products.
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TARGETING A HIGHLY ENGAGED CONSUMER SEGMENT
EXECUTING AGAINST SIX STRATEGIC IMPERATIVES
1 2 3 4 5 6
Acquire new guests and
deepen loyalty with
existing guests
Differentiate by delivering a
distinctive and personalized
guest experience across all channels
Offer relevant, innovative, and often exclusive
products that excite our
guests
Deliver exceptional services in three core areas: hair, skin health, and brows
Grow stores and
e-commerce to reach and serve more
guests
Invest in infrastructure to
support our guest experience and
growth, and capture scale efficiencies
TALENT THAT DRIVES A WINNING CULTURE: GUEST-CENTRIC, VALUES-BASED, HIGH PERFORMANCE
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2011 2012 2013 2014 2015 2016
Active Membership
ULTAMATE REWARDS LOYALTY PROGRAM IS A HIGHLY VALUABLE ASSET
Member transactions account for >80% of store sales.
20.6 million
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ULTAMATE REWARDS CREDIT CARD ENHANCES MEMBER ENGAGEMENT
GROWING BRAND AWARENESS SUPPORTED BY EVOLUTION IN MARKETING MIX
• Focus on strengthening targeted offers and loyalty program and reducing reliance on broad discounting
• 360 integrated marketing campaign including national TV, radio, digital, social media, PR
• Aided awareness improved to 84% vs. 77% in 2015
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BENEFITTING FROM A BALANCED AND PROFITABLE PORTFOLIO
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SIGNIFICANT NEW BRAND PARTNERS ADDED IN 2015
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INCREASING ACCESS TO NEW BRANDS
2016 LAUNCHES
NEWNESS Drives our Business
BOUTIQUES ENHANCE OUR BEAUTY AUTHORITY AND PRODUCTIVITY
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ACCELERATING THE ROLL OUT OF PRESTIGE BRAND BOUTIQUES IN 2016
HEIGHTENED FOCUS ON EXCLUSIVITY
• Ulta Beauty Collection and exclusive brands represent ~6% of sales
• Enhanced presentation of Ulta Beauty Collection in ~600 stores by year end 2016
• Continued focus on developing “new and only at Ulta Beauty” products with our brand partners
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SERVICES ARE A KEY DIFFERENTIATOR AND OPPORTUNITY
SALON CUSTOMERS ARE OUR BEST CUSTOMERS: • Spend 2.5 times more than non-salon customers
• Shop twice as frequently as non-salon customers
• Represent less than 7% of loyalty program members
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NEWNESS Drives our Business
A HIGHLY PRODUCTIVE STORE MODEL
NET COST TO OPEN A NEW 10,000 SQ FT STORE: $1.2 MILLION
LEASEHOLD AND FIXTURES
INVENTORY PRE-OPENING
EXPENSE TOTAL
INVESTMENT
• $1.2M gross • $0.8M gross • $0.1M • $2.1M gross
• -$0.6M in landlord allowances
• - $0.3M for accounts payable
• -$0.9M
• $0.6M net
• $0.5M net
• $0.1M net
• $1.2M net
PAYBACK PERIOD = TWO YEARS
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COMPELLING NEW STORE ECONOMICS
Average Store Maturation Cycle
Year 1 Year 2 Year 3 Year 4 Year 5
($ in millions)
$2.8 $3.2
$3.5 $3.7
$4.0
Store Level Cash Flow
Sales
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ON TRACK TO OPEN 100 NEW STORES PER YEAR
Projecting 974 Ulta Beauty Stores EOY 2016
Assortment at parity with retail stores after adding professional haircare, Clinique, and Lancôme in 2015
5.6% of total sales in FY2015, targeting 10% penetration
>60% of site traffic via mobile
Dramatic improvement in fulfillment capabilities
DRIVING RAPID GROWTH IN E-COMMERCE
ULTA BEAUTY’S E-COMMERCE SALES ($ IN MILLIONS)
$41.3 $55.1
$95.8
$149.9
$221.1
2011 2012 2013 2014 2015
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SIGNIFICANT PROGRESS IN SUPPLY CHAIN AND SYSTEMS CAPABILITIES
Opened Greenwood, Indiana Distribution Center in August 2015
Opened Dallas Distribution Center in July 2016
Implementing core merchandising systems to drive efficiencies in forecasting, replenishment, space planning, assortment optimization
Sales grew 22.8% to $2.1 billion
Comparable sales rose 14.8%
E-Commerce sales increased 46.0%
Earnings per share grew 32.0%
Square footage increased 11%
1H 2016 FINANCIAL PERFORMANCE
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GUIDANCE PROVIDED AUGUST 25, 2016
• Deliver annual comparable sales growth between 11% and 13%
• Open approximately 100 stores and remodel twelve stores (11% square footage growth)
• Grow E-Commerce ~40%
• Deliver earnings per share growth in the low to mid twenties percent range, including supply chain and systems investments, accelerated rollout of prestige brand boutiques, and share repurchase programs
FY 2016 FINANCIAL OUTLOOK
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CAPITAL ALLOCATION STRATEGY
$390
$97 $129
$189 $226 $249
$299
2010 2011 2012 2013 2014 2015 2016E
• Planning capital expenditures of ~$390 million in 2016, including ~$80 million for accelerated rollout of prestige brand boutiques and enhancements to the Ulta Beauty Collection and fragrance fixtures
• Pristine balance sheet with no debt
• Share repurchase program:
Repurchased ~1 million shares for $167 million in FY2015
YTD 2016, including ASR and 10b5-1 plan, repurchased ~1.3 million shares at an average per share price of $198.69
$193 million remaining authorization at the end of Q2 2016
CAPEX ($ in millions)
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WHY INVEST IN ULTA BEAUTY?
High growth retailer targeting 1,200+ stores in the US
Differentiated retail concept taking share in a fragmented market
Attractive beauty industry and favorable demographic shifts
Improved merchandise assortment across categories
Well-defined strategic imperatives supporting long term financial performance
Experienced team in place to deliver strategy
Strong operating cash flow enabling self-funded growth and free cash flow generation
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