Greetings and welcome to the Ulta Beauty Fiscal Fourth Quarter and 2012 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Laurel Lefebvre, Vice President, Investor Relations. Thank you. You may now begin.

Thank you. Good afternoon, and thank you for joining us for Ulta's Fourth Quarter 2012 Conference Call. Hosting our call are Dennis Eck, interim Chief Executive Officer; and Scott Settersten, Chief Financial Officer. Also joining us are: Alex Lelli, Senior Vice President, Growth and Development; Janet Taake, Senior Vice President, Merchandising; and Jeff Severts, Senior Vice President, 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 reference during the 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 Dennis.

Thank you, Laurel. Good afternoon, everyone. I'm very pleased to have several members of our senior management here. Ulta has a strong and tenured leadership team. Scott, Alex, Janet and Jeff are among the key leaders driving Ulta's business forward. We will take you through the fourth quarter numbers. Ulta drove terrific results in the fourth quarter, wrapping up another year of sales and earnings growth. We will share our expectations for continued excellent performance in 2013. For those of you who are not familiar with my background, I have been the Non-Executive Chairman of the Board of Ulta for the past 10 years. I've worked closely with the management team over the last decade. I'm honored to take on the role of interim CEO. Our primary focus is to maintain a high-quality business at Ulta. I will be working with other members of the Board to find the right CEO to lead Ulta in the years ahead. The search is underway. We are working with Herbert Mines and Associates, a top executive search firm, to identify the best possible candidate to lead this company. You saw our announcement about Scott Settersten's appointment to the CFO role today. I'd like to congratulate him on his well-deserved promotion. With that, I'll turn it over to Scott.

Thank you, Dennis. As you've seen in the results we announced this afternoon, the Ulta team delivered another very strong quarter and year. Ulta remains a compelling growth story, which continues to build upon our successful 5-point growth strategy. To recap, the Q4 headlines. We grew the top line 30%, including the benefit of an extra week in the quarter. Comparable-store sales were 8% on top of 11.5% in Q4 of 2011. We were pleased with our sales in January, which benefited from our planned inventory investment. This allowed us to reduce stockouts and to come out of the holiday season in a healthy and stocked position, while ending the year with inventory levels more in line with the rest of the year. We increased operating margin 110 basis points from 12.6% in Q4 of last year to 13.7% this year. Earnings grew at 37% to $1 per share. These excellent results wrapped up a strong year in which we grew sales 25%, drove an 8.8% comp and delivered 41% earnings-per-share growth for the full year. I'll go through the financial statements in more detail and talk to you about our plans for this year in a moment. But first, I'd like to ask the team to provide some updates on our progress with Ulta's 5-point multiyear growth strategy. One, accelerating store growth. Two, introducing new products, services and brands. Three, enhancing our loyalty program. Four, broadening our marketing reach. And five, increasing our digital focus, including ulta.com. First, I'd like to introduce Alex Lelli, our Senior Vice President of Growth and Development, to talk about our store growth. Alex has more than 30 years' experience in real estate development for big-box retail, and has been with Ulta since 2005. His team is responsible for real estate analytics, site selection and all the elements of getting leases signed and fixtures, stores, fixture and open. Over the course of the last 8 years, Alex and his team have quadrupled our store count, and the quality of the real estate and the new store productivity speak for themselves. Alex?

Thanks, Scott. Good afternoon, everyone. Ulta is a compelling store expansion story. And my team has the expertise, creativity and proven track record to deliver 15% to 20% annual square footage growth as we build out our 1,200-store plan. 2012 was an outstanding year for us, and here's why. We increased square footage by 23%, opened 102 new stores, relocated 3 and remodeled 21 stores. That is a significant increase in activity compared to 2011. Focusing just on the fourth quarter, we opened 13 new stores and ended the year with 550 stores in 45 states. We continue to be very pleased with new store productivity, driven by high-quality sites, a growing awareness of the Ulta brand and strong grand opening promotions. Let's look ahead to 2013. We are in very good shape to execute our 125-store plan. The vast majority of the leases are already signed. The mix of stores in 2013 will look pretty similar to last year, with about 75% in existing shopping centers and the balance in new developments. About 1/3 of the new stores will be in new markets, and the rest will fill in existing markets, again, similar to last year. We expect to open approximately 23 stores in the first quarter, 32 in the second quarter, 55 stores in the third quarter and 15 stores in the fourth quarter of 2013. We plan to remodel 7 stores, as our primary focus is on executing our accelerated new store rollout. The portfolio is in great shape. 90% of the chain is in our newest formats. Looking ahead to the next several years, we continue to see a high-quality pipeline of potential real estate sites. The dealmakers on my team all have at least 25 years of experience in retail real estate. Ulta is benefiting…

Thanks, Alex. Merchandising is the heart of the growth for Ulta. Introducing newness is a powerful tool to continually surprise and delight our guests. Our business continues to grow faster than the beauty market overall, as we strengthen our assortment with new brands, new products and new services. We continue to curate the offering with trend right products to make the guest experience compelling. With over 20,000 SKUs and 500 brands, we have unmatched breadth of assortment which continues to evolve almost daily. In the fourth quarter, we gained share across all categories, with particular strength in prestige cosmetics and skin care. We see strong trends in nail, foundation, both women's and men's skincare, and high-tech tools like Clarisonic. Celebrity tie-ins with hair care brands are boosting the growth of brands like Living Proof with spokesperson Jennifer Aniston, and Alterna, with brand ambassador Katie Holmes. They will be both be very prominent in our marketing. Looking ahead, the merchandising team continues to build a strong pipeline of new brands and new products to add to our assortment. Starting with some great news, just this week, Ulta became the only retailer approved to sell OPI nail polish online, and we launched the full OPI assortment on ulta.com, including the new Euro Centrale collection of spring colors. Nail continues to be an important trend, with personalization at the forefront, supported by nail art tools and seasonal color trends. And now, let me touch on a few new prestige brands we're introducing. St. Tropez luxury bronzing products, Lipstick Queen, a line of lipsticks with a cult following, and Deborah Lippmann prestige nail lacquer, which we will be rolling out to 200 stores in Q1. In the skin care category, we are delighted to launch Perricone MD, a prestige brand known for its antiaging…

Thank you, Janet. I've really enjoyed my first few months here. This company has a vibrant business model, with so much natural strength. And as a marketer, I see tremendous potential. The good news is that we are already doing the hardest part of marketing really well. We have over 11 million active loyalty program members who are shopping more frequently and spending more money with us. But the untapped opportunity is penetration. Tens of millions of women in our treating areas have yet to discover the Ulta brand. We know what it takes to win customer loyalty, and we'll continue to leverage our proven methods. But now, benefiting from our increasing scale, we can begin to invest in marketing in a way that will allow us to reach those millions of potential customers. We expect those efforts to be mostly digital, and we look forward to providing you updates on our progress in the quarters ahead. Now, let me take a step back to recap our efforts on 3 initiatives during the fourth quarter, and also give you a preview of our activities in Q1. In Q4, we continue to broaden our reach beyond our traditional strength in direct mail marketing. For the holiday season, we opened many of our stores at midnight on Black Friday, and built excitement with great deals and an integrated marketing campaign. Leading up to Christmas, we offered 11 days of daily holiday Hot Buys, driving excitement and strong sales with great offers on prestige brands. We also continue to evolve our social media strategy, with increased communication through Facebook, Pinterest and Twitter. In January, we refreshed our popular skin care event, rebranded Love Your Skin, this 3-week promotion offered daily in-store events and gifts-with-purchase to encourage customers to reassess their skincare regimens. Turning…

Thanks, everyone, for the update on our 5-point growth program and a reminder of the significant runway that remains in each leg of our strategy. Turning back to the detailed P&L, net sales were $758.8 million, an increase of 30.3% compared to sales of $582.5 million achieved in the fourth quarter of 2011. This included an extra week of sales which came in a bit stronger than our previous estimate of $35 million. Our 8% comp was fairly balanced between traffic and ticket during the quarter. On a 2-year basis, the comp was more consistent with our typical trend, with traffic being the primary driver. Gross profit margin increased 10 basis points to 34.2% from 34.1% in Q4 of last year. We continue to see leverage and fixed store costs on our strong comp and increasing leverage in our supply chain on efficiency improvements from our new Chambersburg distribution center. These gains were offset by weaker merchandise margins, which were primarily driven by our guests' stronger focus on value, meaning they are taking greater advantage of our promotions and coupons. SG&A expense as a percentage of sales decreased 100 basis points to 20.3%, compared to 21.3% in the fourth quarter last year, driven primarily by corporate overhead and marketing leverage. Preopening expense for the quarter was $1.9 million compared to $1 million in Q4 of 2011, due to adding 13 new stores compared to 7 stores last year. Operating margin rate increased 110 basis points to 13.7% compared to 12.6% a year ago, with operating income up 41.7% to $103.8 million. The tax rate was 37.8% compared to 36.7% in Q4 of last year. The difference in rate is due to timing with the year-over-year rate relatively flat. Net income per diluted share rose 37% to $1, compared to $0.73…

Thank you, Scott. I am very comfortable with our outlook for 2013. The Board of Directors and I work closely with the entire Ulta team to review and approve the plans for 2013. There have been no changes to the budget as presented to the board at the end of last year. We expect -- continue to derive market share gains and robust earnings growth. This is balanced with the need to invest in the long-term growth of this company. I am very proud of Ulta's 2012 performance and in each of our 16,000 associates for a compelling experience for our guests. We are managing our business for the long term, and we are making the right investments to support our vibrant growth story over many years to come. With that, operator, please open up the call for questions.

[Operator Instructions] Our first question comes from Daniel Hofkin from William Blair & Company.

Just a couple questions first on the selling environment. You, obviously, finished up the fourth quarter a bit on an upswing. I'm just curious, I know you're not a monthly reporter, but baked into your guidance, have you seen any choppiness recently, similar to what some other retailers have talked about the last month or so? And how much is that informed your guidance? That's my first question.

Dan, yes. Again, back to our prepared remarks. The choppiness we saw in the fourth quarter and the increasing take on our promotions and coupons, we've seen that continue into the early stages of the first quarter. So again, when we put our guidance estimates together, we consider all the elements of the current environment that we're experiencing. So you can rest assured that all of that is baked into our current thoughts.

Okay, is there anything baked in, for -- in terms of your full year view for the potential comp benefit from the accelerated pace of store growth that really kicked in around the middle of 2012?

Yes. Again, we take a very disciplined, detailed look at the way those new stores are stacked up. Again, we discussed that in the past with many of you. So we are very clear and understand what the impact is, and that again, that's baked into our full year view.

I mean, to some degree, does that imply some -- you're expecting some further deceleration, excluding that?

Further deceleration in the comp?

In the comp. Because to some degree, wouldn't that benefit only show up in the second half of the year, the benefit from the accelerated store growth?

Well, we look at the comp for the -- for any particular quarter for the full year. We're baking in a lot of different elements, not just the new store ramp or the, how the model stacks up in future periods. So we have to take into effect or into account what the customer's feeling, and how we're seeing them react to our ads and our promotions and take the total picture into account. And obviously, that impacts the older stores as well. Everything's that in the comp base, not just the new stores rolling into it.

Okay, where have you seen the most in to -- and is it more response to gift-with-purchase on prestige offers? Is it in some of the mass brands, in terms of greater offtake of sharply price promoted product? Where are you -- is that a -- some color on that?

We really -- we haven't seen any trade down in the customer. Again, for the comp during the fourth quarter was evenly split between traffic and average ticket. That's a little bit unusual compared to our normal trend, which is primarily traffic driven to the stores, driving the comp. We see the customer, just -- there's just a greater take. They're really capitalizing on the promotions when they're out there. They're taking great advantage of that. More so than they had in the fourth quarters or holiday seasons over the last couple of years.

And competitively, is there anything that you've seen change in that regard, either e-commerce or other brick-and-mortar wise?

We haven't noticed. We keep an eye on our competitors across-the-board. There's a lot of them out there, in a lot of different categories. We haven't noticed any major changes in their competitive environment.

Our next question comes from Neely Tamminga from Piper Jaffray.

I had some clarification questions for Janet, if I may. Janet, I think it's a huge deal what's going on here with you guys getting exclusive for OPI on dot com. I'd love to hear from your perspective, what -- how OPI approached that with you, and what it is about the nature of your relationship that you think allowed you to get that exclusivity. And then, just some clarification on the number of doors. How many doors are you planning for Perricone for this year? And then, I don't think we actually heard the official door count for the new Clinique doors in 2013. That would be helpful. And one final follow-up, just on the merchandising side here, would be pricing on salon. You're rolling out a new menu. Is your pricing on salon actually going to go higher?

Neely, thank you for the questions. OPI, we've had a very long relationship and a very solid relationship with OPI. It goes back from the very beginning of Ulta, and we were very pleased that we were able to launch exclusively and approved to the OPI online, and that was done with great partnership with George Saber [ph], the principal of -- the starter and owner of Ulta, or excuse me, OPI prior to Cody [ph] owning it. That's -- we're very, very pleased and excited to have it online. Perricone is rolling to all doors, and that will be in the next several weeks. You will see it in all of our doors. We're very excited about that as well. And Clinique, we did not mention how many doors we're expanding to in 2013. We are still finalizing that with Clinique. And we're very, very pleased to continue the expansion, and we will have more information on that later on this year. But we have opened 6 already this quarter. So we're expanding as we speak.

And in terms of salon pricing, Janet?

The salon pricing. It's really just trends. What we're introducing right now is really more trend and color, but the pricing has not changed. Color and cut are really the heartbeat of the salon business.

Our next question comes from Brian Tunick from JP Morgan.

Yes, two questions. I guess maybe for Scott, just as you give your comp view for 2013, and as you just ended the year, anything you can share in regards to maybe comps by class of store for 2012. Just curious what's happening to the more mature stores and if that's having any influence on what people will view as a conservative comp guide? And then maybe Dennis could share his thoughts on the CEO search. Obviously, you have a lot of projects going on in 2013. So what's your thoughts on timing, how long it might take to have a CEO? And maybe what the ideal candidate, in your view, would bring to the table?

Brian, I'll take the comp item first. Again, looking back at Q4 and 2012 as a whole, we reported an 8 comp for the fourth quarter and 8 8 for the full year. So when you go back and look at the individual classes, they're all contributing in a solid, positive manner. I mean the new stores are doing very well, at or above targets, and some of the older stores are still contributing in a very solid level. Looking forward to Q1, again, based on what the consumer environment we fill and the choppiness we've seen, Q4 into Q1, we just feel it's best to take a conservative view of what the future holds for us.

Okay, then I'll take on the CEO question. You saw in the announcement that we announced that we had a selected a search firm. We have a spec that we're working against. There will be a step where they come in and have a conversation with SVPs of the business just to get an understanding of the strength of the team that we have here. And as I've become more involved with the day-to-day, we've indicated earlier that we had a great sense of confidence in the Ulta management and their ability to execute the plans as they've laid them out. And that's increased as I've been here. So we would like to move as quickly as possible, but that said, we're incredibly focused on getting the right person to commit to Ulta because we have so many good things going. We have plans that we're driving forward. We're really looking for someone who could come in and as seamlessly as possible just lead us to the next iteration, the next generation of Ulta, and that's our goal.

Our next question comes from Matt Fassler from Goldman Sachs.

A couple of questions about growth. I guess, first of all, to sum it up, what's the hurry, in terms of accelerating to 22% unit growth? I know this decision was made recently. It seems like it's straining the financial model to some degree. You don't have a direct competitor essentially chasing you. And then, this is really directed, Dennis, to you, and to the board as well as to the management team, because I know it's a group decision. So given that the P&L or at least its -- the trajectory of the P&L is feeling a bit of stress related to this growth at least relative to recent earnings growth rates, why the need to go above 20% from a unit perspective?

I think is the board looks at the ways that we can deploy the cash that we're generating from the business. We look at the ability to open new stores with a really high degree of certainty that they're going to perform, because we've -- our real estate group and our operations group have delivered that. So we see this as really a chance for us to continue to use our strong balance sheet to move quickly, and Alex might want to make a comment about the fact that there are a lot of opportunities that are coming forward. And we want to make sure that we're taking those opportunities so we get the right locations for the future.

That's true, Dennis. So we are finding that with the repositionings that's taking place with other retailers, in terms of their downsizing and closing and some vacancies that have occurred over the course of the last couple of years, that this is an opportunity to get into top-notch real estate locations that are successful on a traditional basis. And it's an opportunity to get in after the fact, so to speak, and get to play into game that has existed on some of these intersections for several years. So it's an opportunity to move quickly right now, when we have no particular competition of great note for the space that we're interested in.

Do you think you will have more competition? And do you worry about cotenants who risk as you make these moves?

We couldn't hear you very well, Matt. Can you repeat that?

Sure, sorry. Are you concerned about having more competition for this space a year or two out? And are you concerned at all about cotenancy, given some of the retail store closures that we've seen from some of your peers and other sub-sectors?

Well, there is downsizing taking place amongst some other bigger boxes that will provide some competition for the same size box that we're interested in. But our preferential treatment, so to speak, based on the attractiveness of our offering, is giving us primary attention from the landlord. So there could be competition in the future, but I think at this point in time, we're eliminating that by moving quickly into the space as it becomes available.

Got it. That's very helpful, and just a quick follow-up. On the rhetoric of the investments, as you itemized, the allocation of investment dollars, differ. Items like payroll and some of the prestige buildouts, all of which I think are sort of part of the ongoing plan of our end of the business day-to-day. So if you could just clarify on what way these are really extraordinary investments, as opposed to sort of a cost of doing business on an ongoing basis?

Well, I guess to your point, Matt, your perspective on whether it's a normal cost of business or not, what we want to make sure that's clear to folks, is that it's an incremental spend over what you -- what was reflected in our P&L last year. So in the case of the store payroll and trying to improve the guest experience, the $0.02 that we mentioned there or the 10 basis points deleverage we'll see in the P&L is incremental to last year, and there's a good reason for it. It's trying to improve the in-store experience. E-commerce, we got a functional site today that we're able to transact business on. But we're a long way from best-in-class type of environment out there. So we need to go back in, we feel we -- this is the point in time we need to redesign the site and get some of the other functionality things really resolved.

Our next question comes from Erika Maschmeyer from Robert W. Baird.

Could you talk a bit about what you're looking for with the ULTAmate Rewards program before rolling it out further? Is this a margin hit, what you're [indiscernible] came out the most, and is it possible you could tweak the program before expanding it? I guess sort of any color there would be helpful.

Erika, this is Jeff. So as you know, we have the luxury of having 2 great programs with the old Beauty Club in half the country and ULTAmate Rewards in the central region. So we have the luxury of taking our time and getting this decision right, and that's why we're talking about getting a full annual cycle of customer behavioral data before we determine the shape and the timing of the conversions. The other practical reason for getting that full annual cycle of data is that it will better allow us to forecast our business when make that conversion. Because the shape of the customer's engagement in the program is a bit different. The old program pushes all the redemption into a couple of weeks within the quarter. The new program tends to spread that redemption out across the total quarter. So having more time to watch how she engages with this program, we think is going to let us make smarter decisions for the launch and help us better forecast our business.

That's helpful. And then for Janet, kind of a follow-up to Neely's question. I mean, one of the fears that's out there, that the management turnover could stall the expansion of adding prestige brands. How would you respond to that? And then, could you walk us through the various relationship points that Ulta has with new brands, existing brands? And can you talk about where the relationship lie?

Well, I will just tell you that our relationships with all of our vendors are very, very strong, and we continue to improve every day on looking at brands we want to bring in and reaching out to those vendors. So our relationships are very solid. My merchant team and I continue to work on that. I think that the vendor community is very appreciative of our ethics and our straightforward partnership that we have in the marketplace. And that we're a growth retailer and we continue to introduce newness to our stores and to our guests, most importantly, and they want to be a part of that. But we have very, very strong vendor relationships.

Okay great, and Scott, could you quickly clarify the -- on the past, you guys have provided some additional color on the breakout, basis-point-wise between a past fixed store leverage, fixed store comps leverage on the supply chain and merchandise margins?

For what period are you referring to?

For Q4. And then if you could talk about how you expect that to play out, that would be helpful as well.

Yes, well, at Q4 2012, the margin improvement was merely driven by fixed store cost leverage. Again, I think I mentioned in our prepared remarks that merchandise margin was weaker during fourth quarter. That kind of held us back from where we expected to be for the quarter. As we look to next year, again Q1 kind of prevents a type of perfect storm, as far as merchandise margin is concerned. So again, we are facing some challenges there. We do expect that the drivers in Q1 will have largely abate or will become more moderate as we go into Qs 2 through 4. So we do expect merchandise margin, we do expect leverage there in the back half of the year.

Our next question comes from Gary Balter from Crédit Suisse.

This is Simeon Gutman for Gary. Scott, first following up on gross margins on Q4. It was still a little below trend. I think you mentioned the merchandise came in a little light. If you can share a little more color on that. And then, the second part, Scott, just to paraphrase what you said, if the investment spend, the incremental investment spending is spread evenly across next year, then it's just really a gross margin issue in the first quarter, and that gross margin issue technically goes away and therefore, that's what the acceleration in the EBIT and EPS growth is explained by?

Now let me take the first one on Q4. Again, just to refresh everyone's memory, Q4 historically has been our most challenging quarter to try to expand gross profit margin. Again and, we compete with all other retailers out there for the gift giving space, the promotional environment's a lot more aggressive during Q4 than it is the rest of the year. And what we saw in 2012 during the holiday was just a bit more of a challenge than it has been in recent years. That's what drove some of the weakness in merchandise margin. As far as looking at 2013, yes, again, I'd reiterate the investments deuce, kind of rolled smoothly throughout the course of the year, and we do expect to see merchandise margin expansion after we get past Q1. We've generated positive operating margin expansion in 2012 and then we expect to do that again in 2013.

This is Gary. Let me just, as a follow-up. Because we've seen now a few companies, not just you guys, but others that have said we're increasing our investment spend, and that's going to have an impact on earnings. And how do we think about that over the longer term? Because obviously, you're always investing for the future. So why is this investment spend something that wasn't spent last year? And what does it imply for future years? Like how should we build that into the model?

Let say, if I look at the laundry list, Gary, in new stores, the $0.05 -- $0.05 or $0.06 in total there that we're talking about, again, is something yet to be determined. We're not -- we haven't decided on what the 2014 new store plan looks like. As far as e-comm is concerned, I would say that our 2013 investment represents a fairly large portion of what we think we would need to put into that element of the business here over the medium term. When it comes to supply chain, I would characterize that as sort of a down payment. The $0.03 we're talking about this year, really relates to kind of the investigation process and trying to figure out exactly what it is we want to build. So there'll be more pets [ph], primarily expense this year. The capital will follow on top of that, the back half of 2013 into '14. So we'll give you more color on that when we get closer to figuring out what that looks like.

And just one more back to gross margin, this is Simeon again. Some of the Q1 headwinds, you mentioned the product mix with purchase, I mean the mix -- gift-with-purchase, that we can get and can go away. The large number of an immature stores, I mean, last year you had a big step up versus the prior year and I guess this year, we're only going to see more. So why does that abate? And then, to rewards program impact, I take it that means you're not going to be putting more regions on the rewards program as the year progresses?

Fixed store cost, deleverage, you're correct, that, that's going to be a headwind for the majority of the year. It's a fairly large bucket in first quarter. We want to just remind folks of that. The loyalty program, I will say the customers love the program;, we love the program. The cost is not necessarily going to be an inhibitor on whether we move forward with that or not. To Jeff's point, we just want to make sure we understand how the guest is going to react to this over a full cycle so that we can predict with certainty what the future's going to hold there.

Okay, and then one final question for Janet, if I can sneak it in. If you look, and you've done -- the company's done a great job adding and winning these brands, and if you look at, collectively, all the brands that you carry, how much of the prestige market do you think those represent? And that's not asking what Ulta's share is, but just more of, of all the brands that you represent, how much of the market are you looking at? And then much more is, obviously, left to go?

That's a very broad market and if you're speaking just the prestige color, is that what you're referring to?

Yes.

It's very -- there's more to come. We have grown the portfolio considerably over the last several years, but there are many brands that we would still love to have in our home. So as I said before, we continue to evaluate the productivity and look for new brands and have conversations on an ongoing basis, but there's a large space still.

Our next question comes from Evren Kopelman from Wells Fargo.

Scott, I think I heard you say in the fourth quarter the comp, the ticket traffic was more balanced. If that's right, the ticket maybe contributed four points. I was a little surprised to hear that because of the higher uptake on coupons you mentioned and the promotional environment in Q4. Can you give us a little more color, what drove that ticket?

Yes. You're right, that is what I've said, that the comp was driven equally by traffic and by ticket. In the fourth quarter, we saw average selling place was up a little bit. Units were flat, so really, that's what was driving the ticket side of it. Again, we've seen this vary quarter-to-quarter over the long term, Evren. Over the long term, we expect traffic to be the major driver of the comp, and it does vary quarter-to-quarter, depending exactly on what we're promoting in our circulars and magalogs.

Okay. That's helpful. And then on the store maturation, I guess model that you had shared, the 5-year, how the stores mature, do you -- would you expect any of that to change in now that you're opening a lot more stores?

I'm thinking back through the store model here. I'm just putting it through my imagination here. I don't foresee any major changes in how those stores stack up. I mean, they're still -- the model that we've posted is still the model that we're following. The stores again, the new stores are still performing very well. First year sales are at or above our targets. There's some minor variance in some of the CapEx numbers that we have in the model, but it doesn't have any material effect on what the overall payback is on a cash on cash basis over the model term.

So there's the sales growth rates in a year 2 or 3, those will remain within the, I guess numbers that you've shared in the past, you think, then?

We're still -- again, based on what we've seen through fiscal 2012, those numbers still hold up.

Okay, and then lastly, I wanted to ask on brands, big brands like the Lancome and Clinique, in the stores that you have them, I mean, what kind of impact should we expect on the traffic or the comp from the introduction of such a large brands and kind of the boutiques in these stores? If you can give us any help in picturing what kind of lift that has, that would be great.

Evren, where we're still, really in the early stages of implementing or rolling out the Clinique boutiques. So while we feel comfortable and confident that it's going to help the total box, it's going help the comp over the long term, it's really not a significant impact at this point in time. Again, as we look at 2013, Janet mentioned that the advancement of that is going to be split between new stores and comp stores, fairly evenly. So again, there won't be as large an impact on the comps. Some of that's going to be in the non-comp or new store bucket.

Our next question comes from Irwin Boruchow from Sterne Agee.

I actually have 2 quick questions. So we've heard a lot of questions about how the new stores are kind of hitting the maturity curve profile and things like that. I'm actually curious more about the more mature stores, the stores that are 6, 7, 8 years old. Are you seeing any change there, are those stores comp-ing? I think you'd mentioned over the last 12 months they were still comp-ing, low to mid- single digits. Just curious, any change with the more mature store footprint you have? And then, the second question is, I think you stated that you expect similar impact on the SG&A line from investments throughout the year in each quarter? But you're guiding a 4% to 6% comp and 50 bps of leverage in Q1, and also a 4% to 6% comp for the year, but implying deleverage for the remaining 3 quarters. So just -- can you kind of walk us through why the leverage had turned to deleverage on similar top line, Q2 through Q4, versus Q1?

As far as the comp lead is concerned, again, through the end of 2012, we haven't seen any change in the way those old stores are maturing or producing. Again, still low single digits overall for some of the oldest stores. As far as the deleverage points go in 2013, again, I think it's more of a timing thing, on what we see when some of those -- how those investments play against some of the other things we're doing in the business.

Our next question comes from Joe Altobello from Oppenheimer & Co.

Two quick points of clarification. I guess, Scott, first in terms of gross margin, you mentioned obviously down pretty significantly in the first quarter, and then up for the year. Are you guys assuming that the customer focus on value dissipates throughout the year, or the other drivers you're talking about really going to offset that?

Yes, it's -- we're not assuming any change in consumer behavior. It's some of the other things that I mentioned, the mix item in the first quarter, just some other smaller things. Again, when you add up a bunch of small numbers, they kind of turn into something, but we don't want to get into all the details of it. So again, it's merchandise margin, deleverage in the first quarter, but course correcting as we get deeper into the year.

Okay and then secondly, in terms of the investments you're making this year, is it fair to characterize some of those as catch-up investments, or it's just that, the fact that, that because of the timing of them, that they tend to be somewhat lumpy?

Each one has a slightly different story, Joe. The supply chain, when you look at that one specifically, for example, why we opened up Chambersburg, D.C. earlier this year, we're very happy with the productivity there. That decision was made 2-plus years ago. So since that point in time, a lot of things have changed. We've accelerated the store program, the dot com business, we're kind of breaking out at the seams here in Romeoville. So it seemed like the proper time to a little bit more whiteboarding and kind of figure out what the long-term answer is there. So that's kind of what's driving that one. As far as e-commerce is concerned, we've been making investments there, to earlier points here. What we're looking at this year is a significant step up in that.

Okay. Just one last one, and I apologize, this is a bit unfair for you guys, but you talked about the potential uses of cash, my screen, you're stocks at a bit of $75.10. Any thoughts to repurchases?

Well, we ended the year with roughly $320 million of cash on the balance sheet. Not all of that is excess cash, right? We need some here to run the businesses by way of working capital. Management and the board continuously assesses the best use of excess cash. Always with an eye on what provides the best return for shareholders. So, rest assured that, that we're watching out to see what the best use is.

We've had that conversation on an ongoing basis between the board and the management.

Our next question comes from David Wu from Telsey Advisory Group.

In terms of the retail expansion, obviously, you continue to open up many of your stores and power centers and was wondering if you're starting to shift perhaps more of your openings toward mall-based locations? And what you think the opportunity there is? And if the profitability dynamics are different from the power centers?

We have already several mall stores in our portfolio and we expect to continue to add additional in-mall locations when it makes strategic and financial sense. We'll look at quality malls with high occupancies, solvent anchor tenants and good population density. Our preference however, still remains with big-box power centers, best of the breed co-tenants. The performance of our mall stores to date have been very good, and we continue to be very strategic and scrutinize those locations carefully to continue to maintain that excellent performance.

And would you say the 4-wall profitability are pretty similar as the power centers?

Yes. In fact, in some cases, we're seeing an improved profitability, and I think a lot of that has to do with our heavy scrutiny of the site selection process when we do go into malls.

Great. And in terms of marketing, can you perhaps talk about your ad spending plans for the year? And if you're planning to allocate the marketing mix differently from last year. I mean, it looks like you're doing a little bit more TV with the partnership with The Face, and want to know whether you've seen some good sales traction with some of these new initiatives?

This is Jeff. In terms of marketing, we're looking to build on what's been so successful for us, which at the heart, is our direct mail marketing capability and our loyalty programs. And, but as I mentioned in my prepared remarks, the real opportunity is around penetration. So we're looking to add on top of what we do so well, marketing efforts oriented at reaching some of these customers who just aren't terribly familiar with the brand or in some cases, have never heard of us. So that doesn't mean more spending per se. That opportunity is afforded us by the increased scale that we're enjoying here as we grow. So we keep what we've got, we refine it, but now we're able to layer on this group of efforts against trying to get new customers into this tremendous loyalty machine we have.

And then just lastly, just for clarification on the promotions, is -- would you say sort of the gross margin impact, how much of it is tied to sort of the increase in the level or number of promotions and coupons versus last year, versus sort of consumers just choosing to buy a more discounted product. Is there a sort the way to parse that out?

We didn't add any promotions in the quarter, but it would be that they're really enjoying the advantage of coupons and taking advantage of the promotions of the store. But we did not add any additional promotions on top of last year's calendar.

And in term -- in coupons as well?

Yes. Coupons is part of our mailers and our tabs, yes.

Our last question is coming from Jason Gere from RBC Capital Markets.

This is Jack Kindregan on for Jason. I was just wondering if you could clarify the -- in terms of your expansion, the leases you've already signed, you have focused more on, more urban versus suburban markets there?

Our focus is more oriented towards suburban markets. And 75% of our sites are located in existing markets.

I'll now turn the floor back over to Scott Settersten for our closing comments.

I'd like to say thank you all for your interest in Ulta, and we look forward to speaking with you all soon.

This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.