Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA) F2Q 2012 Earnings Call September 6, 2012 5:00 pm ET Executives Laurel Lefebvre – Vice President, Investor Relations Chuck Rubin – President and Chief Executive Officer Gregg R. Bodnar – Chief Financial Officer Analysts Neely Tamminga – Piper Jaffray, Inc. Daniel Hofkin – William Blair & Co. LLC Matthew Fassler – Goldman Sachs & Co. Brian Tunick –JPMorgan Securities LLC Erika Maschmeyer – Robert W. Baird & Co., Inc. Joseph Altobello – Oppenheimer & Co. Jill Caruthers – Johnson Rice & Company LLC Evren Kopelman – Wells Fargo Advisors LLC Jason Gere – RBC Capital Markets Presentation Operator
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With that, I’ll turn it over to Chuck.Chuck Rubin Thanks, Laurel. Good afternoon, everyone. I’m pleased to announce that we delivered better than expected results for the second quarter. To recap the numbers, strong momentum continued on the top line with 22% sales growth. Same-store sales increased 9.3% on top of double digit comps in Q2 in both 2011 and in 2010. We expanded gross margin and leveraged SG&A, resulting in 180 basis points of operating margin improvement and earnings grew 42% to $0.54 per share. We delivered these numbers by continuing to focus on the five components of our multiyear growth strategy, accelerating store growth, introducing new products, services, and brands, enhancing our loyalty program, broadening our marketing reach, and increasing our digital focus with Ulta.com. As done in the past number of quarters successful execution of these strategies in Q2 allowed us to once again gain market share in the beauty industry across all of our categories. I’d like to update you in each of the five elements of the strategy in terms of what we accomplished in the second quarter and what’s on deck for Q3. First, store growth, our plans to add approximately 100 new stores in gross square footage 22% this year are on track with 22 new stores opened in the second quarter. We ended Q2 with 489 stores in 45 states. Our new stores continue to perform very well and we’ve been very happy with our new store productivity. New stores are contributing sales above plan partly because we are seeing good efficiencies in our construction process allowing stores to open slightly earlier than anticipated, but mostly because sales out of the gate are better than planned and better than previous years’ new stores. While we’ve ramped up new store openings this year, we also completed nine remodels during the second quarter and are very pleased with their performance as well. We also completed work in about 400 stores to update and reflow our planograms in the prestige cosmetics and skincare areas of the store to improve the shopping experience and make room for the expansion of high-performing existing prestige brands along with the future addition of new prestige brands.
Looking ahead, Q3 is a very active quarter on the real estate front with 52 new store openings, 11 remodels and all the work that we’re doing to set the stores for the prestige boutique expansions, which I will detail in a moment. This compares to 28 new stores in the third quarter of 2011.As we shared with you last quarter, our updated analysis for the U.S. store build out potential for our current format increased from 1,000 to 1,200 stores and we’re very pleased with our pipeline of high quality sites for next year’s real estate program. Our second key growth strategy is adding new products, services and brands. As I’ve discussed before, newness is a key driver to our sales growth and we have done a terrific job capitalizing on trends in introducing new brands and new product lines within existing brands into our portfolio. Let me give you a quick sense. In the second quarter, we saw strong trends in anti-aging, mascara, lipstick and foundations. BB Creams remained very strong with a steady stream of new introductions from multiple lenders from mass to prestige. We featured multiple branded BB Creams on one of our trend in CAPS, which bolstered customer interest in trial in this new product. Mascara was a big trend with strong sales from bestsellers like They’re real! from Benefit Cosmetics. We also saw continued growth in the do-it-yourself at-home tools category. Clarisonic, Tanda and Remington and GO SMiLE have all introduced innovative items in the high-tech beauty and grooming arena, which address skincare, acne treatment, hair removal and teeth whitening. Men’s skincare and grooming continue to be a big trend in the beauty industry and our men’s shop that we launched a year ago performed very well. Read the rest of this transcript for free on seekingalpha.com