Greetings, and welcome to the ULTA Beauty 2016 Second Quarter Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Ms. Laurel Lefebvre, Vice President of Investor Relations. Thank you. You may begin.

Thank you. Good afternoon and thank you for joining us for ULTA Beauty's Second Quarter 2016 Conference Call. Hosting our call are Mary Dillon, Chief Executive Officer; and Scott Settersten, Chief Financial Officer. Also joining us is Dave Kimbell, Chief Merchandising and Marketing Officer. Before we begin, I'd like to remind you of the company's safe harbor language. 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. [Operator Instructions] I'll now turn it over to Mary.

Thank you, Laurel. Good afternoon. Our team achieved another quarter of excellent top and bottom line performance while making significant progress in many elements of our growth strategy. Highlights of the quarter include the continued impact of a strong pipeline of newness and innovation in merchandising, progress in growing our brand awareness, reaching major milestones related to our loyalty program, continued rapid growth in our e-commerce business and successful execution of our supply chain investments. To summarize our second quarter financial performance. Total company sales grew 21.9%, and comp sales rose 14.4% on top of 10.1% comps in the second quarter of 2015, driven by healthy gains in both transaction count and average ticket. Strength in cosmetics, both mass and prestige, continues to be the biggest driver of our growth, while our other major categories are contributing as well. E-commerce performance was very strong, and The Salon business achieved solid top line growth. We deliver earnings per share growth of 24.3% despite significant investments in the business, including the opening of our new distribution center in Dallas, implementing core merchandising systems and rolling out a large number of prestige brand boutiques and related store remodels. Let me cover some of the highlights driving our performance in the second quarter. Starting with our efforts to acquire new customers, our loyalty program surpassed the 20 million member mark and now boasts 20.6 million active members, growing more than 27% year-over-year on a rolling 12-month basis. We believe our evolving marketing strategy with a growing focus on multimedia advertising and digital marketing is working to raise our profile in consumer awareness and to better define our brands. Once people discover Ulta Beauty, our store associates continue to do a fantastic job signing them up for ULTAmate Rewards loyalty program. Retention rate, sales per…

Thanks, Mary. Good afternoon, everyone. I'll start with the income statement. Net sales for the second quarter increased 21.9% to $1.07 billion. And once again, our top line was driven by a very healthy 14.4% comp and strong new store productivity. The total company comp was composed of 9.7% transaction growth and 4.7% average ticket growth. The retail comp of 12.9% was made up of 8.9% traffic and 4% ticket. The Salon business comped 8%, with all of the increase, driven by ticket growth similar to trends earlier in the year. E-commerce growth of 54.9% was driven almost entirely by increased traffic with ticket growth up low-single digits. Gross profit increased 110 basis points. The improvement was driven by a leverage of store rent and occupancy expenses as well as by healthy product margin expansion, partially offset by planned supply chain investments in our new distribution centers. E-commerce margins also improved with strength in the high-margin professional hair care segment. Moving on to SG&A expense. We deleveraged by 110 basis points, driven by additional headcount to support our growth initiatives as well as an unexpected charge related to a store closure. We recently closed our multilevel State Street store in Chicago. The store was temporarily closed back in May due to disruption from a construction in an adjacent building. The extensive damages to the store and the extraordinary amount of time and expense required to reopen the store resulted in our decision to permanently close the location, necessitating a significant impairment charge. This charge represented about 1/3 of the SG&A deleverage in the quarter. We reassigned our impacted associates to nearby alternate stores and have assisted guests to minimize any disruption in their shopping experience. We are currently evaluating nearby relocation opportunities and expect to get a replacement store up…

[Operator Instructions] Our first question comes from Simeon Gutman from Morgan Stanley.

It's Joshua Siber on for Simeon. I'm curious where are you guys in the investment cycle relative to where you thought you'd be when you laid out your 5-year guidance 2 years ago?

I'd say we're right on track with that. I mean, we described that this year -- last year and this year would be kind of the key years of investment relative to the new distribution centers in Greenwood and Dallas, all on track; investing in new systems and capabilities, all on track. So we're pretty much right on track with what we described.

Okay. And with respect to your consumer, how are you seeing the average age trend? Are you skewing younger with more social media mix of advertising?

Sure. This is Dave Kimbell. Yes, we see strength really across all ages and demographics. We don't look specifically. I mean, we certainly look at the demographics, but we're actually more focused on psychographic around these beauty enthusiasts, and we see that growth on all ages. Having said that, we're excited about strength with the millennials and teenagers, a lot of growth there, and the strong performance of our brand awareness growing there. And we see continued growth in that space. So really growth across all ages and demographics right now.

Our next question is from Oliver Chen from Cowen and Company.

We just had a general question regarding Amazon and your competitive advantages online in terms of what you're offering versus Amazon. And also as brands go direct-to-consumer, it would be great to get briefed there. And what -- on the long-term for online, what are your thoughts on margins in the context of just the changing customer expectations as online continues to evolve?

Thank you, Oliver. I'll start and I'll ask if Scott and Dave want to jump in, so please do. On the -- I guess I would just step back and say we compete, as you know, with a lot of players, both bricks and mortar as well as online, but really nobody brings together everything that we do at one place. And so I don't think so much about head-to-head competition at any one place even though we certainly look very closely at the competitive environment. So our online offerings now represent everything we have in the store and more, pretty much everything we have in store plus more. We're starting to expand that. Our guests enjoy the online experience. We're improving the shipping time frame every day. And certainly, as she participates in buying products online at Ulta Beauty, she gets points, and that's the whole loyalty program she loves, because the more she buys from us, the more she gets points that then she can redeem anywhere in the store. So certainly, we compete with Amazon in some ways in beauty. I would say we offer a great selection that our guests love. But of course, as you know, we also have exceptional bricks-and-mortar physical experience that our guests love. And really, the beauty enthusiasts that Dave described love to go in person and buy beauty and experience beauty and, of course, get our services. So I look at them as part of the mosaic of competition and I think our proposition for our guests is really superior in total. In terms of margin on e-commerce, that's getting stronger. I mean, a big reason behind the investments that we've done in our distribution centers is to really improve the efficiency and effectiveness of that part of our business, and that's happening. I'd say the guest is happier with the speed of delivery, and certainly, the margins are improving.

Our next question comes from Steph Wissink from Piper Jaffray.

Just a follow-up question, Mary, on your comments around the prestige brand boutiques. I'm wondering if you can give us a sense of once you roll out those boutiques in store what the mix between prestige and mass will look like. And then, Dave, just as a follow-up to that, how you're thinking about marketing the localization of some of those boutique rollouts and drawing on your customer traffic in those local markets.

Thank you, Steph. We don't really break out the exact mix. In total, part of the really compelling aspects of our proposition to our guests will always be the case of this assortment of categories and price points. And so while the shift to prestige has been happening over several years, and we're thrilled with the array of prestige brands that we have that we're rolling out, I don't anticipate that mix to change dramatically and relative to mass in the future. What's happening is we just have a great assortment of prestige brands to choose from, and that's a great, and we love those brand partners. But again for our guest, it's very important that she always feels that she can come in and have that combination of categories and price points that she loves about Ulta Beauty.

Yes. And as far as the targeting localization, I'd say a couple of things. First of all, with the boutique brands, in particular, Clinique and Lancôme, Benefit, Bare, those we're building boutiques at a fast pace, but we're also expanding those brands, Clinique and Lancôme, into every store, to a presence of some SKUs in every store. And that allows us to market the brand at a total company level, national level, because every store will have some SKUs, both of those -- really, all of those boutique brands. But we also tailor and target and localize our communication through our CRM activities. Email is a big part of that. Our magazines will also customize based on location. And those that are close to a specific store with a boutique, we will customize that communication. At the same time, our national advertising marketing is really talking about the total Ulta Beauty, all things beauty, all in one place messaging.

Our next question is from Kelly Halsor from Buckingham Research.

Just was wondering if we could dig in a little bit more into the back half guidance. Should we look at the magnitude of the gross margin deleverage related to supply chain investments to be similar to what you saw in 3Q last year when you opened up the Greenwood facility, or are you kind of implying that maybe it's a little bit more, considering you have Greenwood and Dallas both open now? And then, just secondly, on the SG&A cadence, how should we think about SG&A in the back half of the year now that you will start to be lapping the advertising investments that you made in the back half of last year?

Yes. So the deleverage in the supply chain is significant. Again, I don't want to be reconciling basis points quarter-to-quarter, but it's kind of in the general ZIP code, I would say, to what you saw in third quarter last year. Net-net, I think, for the third quarter, gross profit is kind of flattish year-over-year when you add up all the puts and takes because we are still going to get a sizable fixed store cost leverage benefit in the quarter, we're going to continue to expand merchandise margins like we have earlier in the year, and so that will kind of cover up some of the hurt, I guess, I would say, from the deleverage from supply chain. What I don't think most of the models include now is the SG&A deleverage in the third quarter. It's much more significant than what most people are thinking. It's really a combination of the boutiques, the high watermark on the boutiques and the remodel programs and all the other things we have in process to drive growth for the business. So again, it's just a matter sequencing the quarters, right? A lot of it ends up in the third quarter this year. We've got some consulting timing that we've moved from earlier in the year to the back half to help us plan for the future as well, to help us frame out growth drivers that will help us next year and beyond. And then, there's another store impairment charge coming in the third quarter. That was just a fairly recent development as part of the heavy flooding down in Louisiana. So that's another roughly a $0.02 charge that was unexpected that we have to record in the third quarter. So that's really the combination of things. When I think about the rest of the year then, moving on to the fourth quarter, again, supply chain, we start get some benefits there, so we expect to get leverage overall on some of those supply chain investments. SG&A then, we get back into our normal cadence. The heavier sales volume in the fourth quarter. The upfront cost from some of those boutiques are behind us now, and we get leveraged SG&A in the fourth quarter. So that's kind of how we end up full year then, with slight leverage coming from gross profit and slight deleverage on the SG&A line that gives us an all-in slight leverage for the year in operating margin.

Okay. Great. And if I could just squeeze in one more. Very excited to see that you're introducing Estée, it's considered a pretty premier brand, cosmetics brand. Any opportunity there in terms of boutique opportunities similar to what you're doing now with Clinique and Lancôme.

Yes. We're excited to be launching -- introducing Estée Lauder, that launched online within the last week or so, and then, we'll be rolling that out into 30 stores next month. So at that point, you'll kind of be able to see the presentation will be different than the way we've done some other brands, we're really excited about it, and we're particularly excited about it, it's really focused on the strongest, most iconic elements of that line, parts like Advanced Night Repair, Double Wear makeup, complementing it with things, Perfectionist Serum, Extreme Lash. And we've had a strong fragrance, Estée Lauder fragrance business, for a while, so this will complement that very well. So we're going to watch it closely. It's one of the largest prestige brands in the world, and so we're happy to have it in the store, and we'll learn and look to continue to expand that over time.

Our next question comes from David Schick from Consumer Edge Research.

With the continued success you've seen in this country, how does that factor into thinking about the way you might attack other markets?

Well, first, I would start with the fact that we've got a lot of great opportunity here in the U.S. We're going to continue to be able to drive growth, we think, for many years. And as we start to think about international, we're starting to frame and look at possibilities. There's nothing to announce. But certainly, we're looking at where might it make sense from a consumer environment, a competitive environment, overall business environment, and we'll make some decisions if we move forward, we would do that in a way that would be let's learn about it first and then decide if we would go further. So in the analysis phase, I guess, is the best way to think about it right now.

Our next question comes from Dana Telsey from Telsey Advisory Group.

As you think about the new brands that you're adding to the mix, what's being taken out of the mix? And as you look towards next year, what categories are you thinking about that you'd like to add to the mix? And given The Salon business and, obviously, now some men's opportunity there, how do you see the growth of The Salon business and the margin implications?

I'm going to tag team this with David. Maybe I'll just start with The Salon piece. I'm glad you noticed that. Yes, BroLiage [ph] is our [indiscernible] I want to see people line up for that appointment on this call, but it just was the creativity of our artistic team, they've really invented that idea, exfoliage [ph] for guys. Anyway -- but I'm really -- our salon and overall services business are a really critical part of our strategic imperatives going forward, right? So we've got hair services, skin services and brow services. And still, in many ways quite small, but performing really well. I mean, an industry in hair that's flattish, we're gaining market share and we're growing. So we see that as an area that we think we're working on just on how do you think about continuing to drive that as a growth lever, a traffic driver, bringing in a new guest. I'm sure you know that when a guest becomes a salon guest, she or he becomes one of our best guests because they come frequently and they spend 2.5x the amount of non-salon users. So more to come on that. And we think it's going to provide not only growth but also the ability to really position us as the beauty authority for many years to come. On categories, David?

Yes, as far as assortment and managing that and looking at new brands, certainly, as we add many of the great new brands that we've talked about and that Mary mentioned, that does mean in many cases that we have to make room for that. And it's really a focused approach on looking at sales and gross margin per square foot, inventory turn, a bunch of metrics that really look for the most profitable usage of our space, but also focused on elements that are really delivering against our core proposition of All Things Beauty, All in One Place. And so when we look at adding new brands, makeup is the fastest-growing part of the beauty business, and certainly, it is within our portfolio, so you'll continue to see makeup brands for sure. But we want to make sure that we're really focused on understanding how her needs are evolving, and we're bringing innovation across all elements, both mass and prestige. We've had a lot of innovation, great, exciting innovation in fragrance. We've got Sarah Jessica Parker's fragrance coming out on Sunday. I think it's good to be great. So a lot of innovation continued in fragrance. Skin care is an area that has had its ups and downs, but we see growth and potential within that. And then, certainly, haircare and connected to our salon, it's a big and very important part of our business, the styling part, liquids, shampoos, conditioners, tools, our professional tools area -- personal tools areas, so we'll continue to innovate across all parts of the store and optimize our assortment as we go forward.

Our next question comes from Mark Altschwager from Robert W. Baird.

Can you talk a little bit more about your partnership with Alliance Data and the private label credit program? Just first, how should we be thinking about any revenue sharing or P&L implications over time? And then, you've already had a lot of success with your loyalty program, obviously, and the CRM initiatives, but how do you see that evolving as you start to leverage the ADS capabilities on that front?

Great. Thanks for asking about that. I just want to give a little plug. I'm really proud about our team having really worked this for over a year, and it's a very cross-functional effort, as you can imagine, to prepare an organization to launch something like this. And we're off to a strong start. And the good news is we based it first and foremost on guest insight, which is that our guests are very interested in this program because it gives them the opportunity to just get more points at ULTA Beauty. But also for us, obviously, it's creating more loyalty, more -- increasing her share of wallet going to us. So that's all great, and we're not going to get into parsing apart all the details of the deal. ADS is a great partner. I will say they manage the program for us and take the credit risk, so that's great. And more to come. So our CRM team is really the folks who really own this project, and you can imagine, they've got a lot of ideas about how to leverage this going forward to drive growth. So more to come on that, and we feel good about where we are.

Our next question comes from Ike Boruchow from Wells Fargo.

Just a quick one. I guess, Mary, you talked about your replenishment business being fairly small today. I'm just kind of curious how big is it, if you can say, and kind of how do you view that part of the business longer term? Is it a key focus for you, or is it just -- are you focused on other parts of the business in terms of incremental growth from here?

Thank you, Ike. Well, the good news is that everything we sell -- almost everything we sell is highly replenishable, but the great news is that our guest and beauty enthusiast is really not interested in just the same product every time. There's categories that she'll need to replenish when she's out. There might be a couple of items that she's quite attached to, but I'll tell you, for the most part, our guests are really coming in and loving to try new products. She loves trends, she loves newness, she loves great, new products that are launched by our brand partners. So what we're finding is that very little of the business is one-for-one replenishment. And as that becomes bigger perhaps in the future, we're always looking at that to see if there's a way we can make it even easier for her. But what she seems to be responding to is the breadth of innovation and newness. And if you look at, for example, our e-commerce guests, the guests who shop online and in-store, again, some of our best guests, they spend significantly more than someone who's not buying online. And what she's tending to buy is in response to things that we're bringing to her attention via email, so it's usually new products or exclusives or new trends. Again, I don't have anything against replenishment, but I love the fact that we're replenishing our products a lot, but the one-for-one piece is something that is not a big part of the business.

Our next question comes from Jason Gere from KeyBanc Capital Markets.

I guess, 2 questions. The first one, did you say what your loyalty card membership growth was in the quarter? And I was just wondering, as this continues to rise, like how do you think about what the potential penetration can be? And on that point, what was the transaction size for loyalty card members versus non-loyalty card in the quarter?

Yes. We -- so our loyalty program did exceed the $20 million -- 20 million member mark to 20.6 million active members. That's a 27% growth rate. So we're really pleased with that. That's very strong. We've had very strong growth with that, and that will, we think, continue. And we're really happy with our new members. It's actually been a strong kind of flood of new members that are coming in and getting engaged with our program, understanding the benefits of the program. We'll also be able to then talk to them about new elements like the credit card. So clearly, a big driver for us going forward. The second part of your question was around...

The baskets for the loyalty guest. It basically represents what we quoted in our prepared remarks, Jason. So, I mean, again the loyalty program is more than 80% of our total sales. And so when we're looking at those kind of metrics, that's basically what it represents.

Okay. Fair enough. And then, I guess, the other question was just given where the stock price is right now, how do you guys internally think about maybe splitting your stock at this point? The only reason I say that is a big part of your story is kind of reaching out to that retail customer. And if a stock was, let's just say, under $100, maybe you'll get more of your retail customers actually become your shareholders as well.

Yes, that's something that we've kicked around from time to time with our Board of Directors. Again, thinking about all options, right, on being as shareholder-friendly as we can be, whether it's capital allocations or things like stock split. So surprisingly, I've only gotten this question maybe 2 times in the 3-plus years I've been here, and it's been at the annual shareholder meeting, right? So it's usually a local retail holder, right, that would ask that kind of question. So generally speaking, most of our shares are held by big, large investment funds and houses and most of those folks aren't that interested based on our Q&A with them about entertaining a stock split. So it's nothing that's on the front burner, but of course, it's something we'll always be ready to consider.

Our next question comes from Mark Astrachan from Stifel.

I wanted to ask about thoughts on the sustainability of cosmetics growth, given the contribution to comp, and how do you weigh newer, smallish brands versus those from larger companies like Estée that you talked about and L'Oreal who are likely increasingly eager to work with you considering trends in other channels like department stores?

Let me start by saying, as a category, beauty has been growing for multiple years. It's a strong -- it's up last quarter, was up 5%. Prestige was up higher than mass, but all growing. As you said makeup growing, the lead in terms of growth, skincare, every category we saw growth last quarter. So the good news is we're in a category that's growing. As we look at consumer trends going forward, and Dave touched on this, but younger women, millennials, Hispanic women, fastest-growing segment of our population, there's a propensity, we think, for the beauty category for all those folks to continue to play a very important role in her overall spend of her money and how she spends her time. So that's all good. And the great thing is that innovation comes from companies large and small, it's probably the most exciting consumer category, I think, that exists because innovation comes from many different sources, and we positioned ourselves to hopefully be a great partner for brands to do business with and we offer this variety of products, categories and price points. So I think that also helps to sort of insulate us as the subcategories go up and down, and Dave talked a little bit about those categories. We're trying to look out multiple years and say, okay, where do we place our bets, but knowing that, it really -- innovation is coming from all -- many sources, and we think the foundation of growth is there for us.

Got it. Great. And just one follow-up. In the next quarter from a guidance standpoint, it looks like the 2-year CAGR, and even for the balance of the year, back half, gets a little bit stronger relative to 2Q trends, is there anything in the timing, Scott, that influenced the rate of growth in comps in second quarter versus third quarter or fourth quarter?

I know it gets a little -- if you look at quarters and you try to stack them together, we look at the single, the double, the triple stack, every which way you can look at the comp. There's nothing extraordinary that sticks out in any one. I mean, each quarter has kind of a unique set of opportunities and challenges. I would say, generally speaking, the back half of the year, we just feel really great about the boutiques, right? The tailwind we're going to get from that, finally, all being installed, there's a great pipeline of newness coming, and we believe we've got a great set ready to go for holiday, both on the assortment and the way we we've our stores set up and our gift card program. So we're very bullish on the back half of the year.

Our next question is from Brian Tunick from World Bank of Canada (sic) [Royal Bank of Canada].

I guess, on the boutiques first, just thinking about the free cash flow going forward. I think, you're earmarking $80 million this year for the boutiques on the CapEx side. Should we be viewing that as a one-time number or maybe that's a peak number? And then, the second question is on your stated store targets, and I know you'll update us at the Analyst Day, but I guess, if there's more department store closings coming or you guys think your e-comm penetration can get to a certain level, how does that inform ultimately what you think the right size of the North America store base can be?

Okay. Well, I'll start with the store piece first. Certainly, this will be something we'll talk more about in October. I think the dynamics that have been happening for some period of time in terms of how people shop for beauty. So that's not new to us. It's encouraging to us. As we look at how our stores are performing today, the store class is getting stronger, even after this many years of being in business, that's really encouraging. And we think that everything that surrounds how we're doing business, driving awareness, getting the great products and services are all enhancing that. So I feel good about that. We had a -- we think that our 10,000 square foot store has plenty of growth ahead. We're also looking at smaller markets, urban or suburban downtown-type formats. So all those things, we feel, given frankly the fact that we only have a 5% share of this really enthusiastic beauty shopper provides us plenty of runway for growth. So we'll talk more about this. We certainly have done a lot of work and analysis and feel confident that we can drive market share growth, frankly, both through comp store growth as well as new stores.

And as far as the CapEx related to boutiques, again, I just want to remind folks that the boutiques were always in the plan back in 2014 when we rolled out the 5-year financial targets. There was an assumption in there for boutiques, all right, over those 5 years. We've just accelerated that, so we kind of pulled it forward -- '16, a big step up, roughly $80 million, as you mentioned. That will repeat next year into 2017, so we're kind of viewing it as a 2-year kind of cycle, and at that point, we'll have, again, those 2 great brands in the majority of our comp stores, and then it will be just about new store buildup from that point on.

Our next question is from Joseph Altobello with Raymond James.

This is Krystyna on for Joe. I was just wondering if you could talk about the rollout of Honest Beauty this past quarter?

Sure. We're really pleased with it, it's a great brand, of course, from Jessica Alba's company, and it's off to a great start. I mean, it's part of Honest, The Honest Company, it's been a leader in a broader trend around natural and it's great to bring that to the beauty segment. There's other brands that have been in that space for a while with us, and we're seeing a lot of growth across the area, but really pleased with that and think it will be continuing to drive nice growth for us going forward.

Our next question is from Chris Horvers JPMorgan.

Mary gave us a little taste of what you plan to talk about at the Analyst Day, and so I wanted to follow-up on one of your comments. You mentioned getting to the mid-teens operating margin by 2019. And of course, we'd like to parse words, and that buy stands out to us. So does this imply that your original mid-teens forecast could be reached prior to 2019? Because clearly, the comps have exceeded expectations, or does perhaps that long-term target -- long-term operating margin target see some upside?

Yes, talk about parsing, I like that. We're not going to get into details on that today, except to say we feel confident about reaching the target that we set out back a couple of years ago, and frankly, at a much bigger scale of business today, right, with a lot more complexity, so I stand by that description.

Okay. We're Lip-Happy here so we like to parse [ph].

Okay. #That'sHowILip, I like that. Thank you.

So then, since I didn't get that one, can you talk about your in-stock rates, how they're improving at the store level, how they're improving online and contributing to comp growth? You mentioned that the 2 DCs are about 70% -- 2 new DCs are about 70% of the volume. Is the rest from the vendor? And does that percentage go up over time?

No. So with the e-commerce, just to be clear, so we service e-commerce out of 4 buildings today, so Chambersburg out east, Romeoville here locally in Chicago, and then the 2 new, Greenwood and Dallas, and so, again, nothing's coming direct from the vendor, so we're doing all that. The new buildings are just much more efficient, right? They're designed to actually do e-commerce, pick-and-fill-and-ship processes unlike the older buildings, which were retrofitted and not quite as efficient. So we're happy to see that and we're showing the benefits show up in the P&Ls as currently and as we think about the future, so we're very excited about that. As far as in-stock rates overall, that's something that we've -- that's kind of priority #1 when we think about the guest experience in our stores. And again, that's part and parcel of all the investments that we've been talking about for the last couple of years, whether it's distribution center to help the throughput there, capacity and capability overall, but also, we're doing a lot other work behind the scenes with merchandise planning, tools, SWIFT we've talked about, master data, managing that better, floor planning and space planning kind of tools that are going online as well to help with in-stocks overall. And then, our team internally here, there's a lot of individual projects and look-sees going on around how we can do a better job, just making sure we go extra heavy on A and B SKUs so we just don't disappoint folks, and how can we be more effective with some of the C, D, E and F SKUs, right, in the stores and how we better align ourselves on that. So all oars are in the water when it comes to in-stocks and inventory productivity across the enterprise.

Our next question comes from Rupesh Parikh from Oppenheimer.

It's actually Erica Eiler on for Rupesh. So clearly, another strong quarter from your team, and your results continue to stand out, but we are seeing a mixed consumer backdrop out there, is there anything that you're seeing from a consumer or even a geographical perspective that concerns you at all?

Well, we're not complacent about our results, so I'll say that. But I will tell you that as we look at -- our results have been pretty consistent, I would say, across regions, core up period to period, pretty consistent. So -- and you just saw the kind of comps we've delivered. So we're seeing that -- a strong consumer sentiment, right? And I think, it's because we continue to benefit from the fact that we're in the category that's important to our guests. And I mentioned this earlier, it's replenishable, it's affordable indulgence, and beauty is popular right now in many ways in terms of culture and social media. And so you combine that with being in a range of categories and price points, so even if somebody is a little bit more pinched, you can also get great products at a lower price from us. And at partnership with our brand partners, we're continuing -- continuing to excite her with newness. So I feel like our results would say that there's certain pockets of consumer spending that are quite strong, and obviously, we see that macro for the category of beauty as well. We'll just continue to watch it closely.

Our next question comes from Omar Saad from Evercore ISI.

I actually wanted to follow up on one of the earlier questions about the potential for category expansions in the future and maybe ask more specifically about bath and home and those types of related products, scents and soaps, if those are categories that you would look to going into? I think, it would have a very nice overlap with the customer base and with All Things Beauty as well.

Yes. I'd start by saying we're always looking across every element of the beauty space to find growth, and we are listening to our guests and finding opportunities. Our focus is on continuing to drive a lot of innovation in those most important biggest categories that we have, makeup, hair, skin care, fragrance, nail is important, but we are looking -- we are seeing some nice growth in additional categories, one of which you mentioned, bath and body space is one that is a nice category, obviously not anywhere near as big for us as something like makeup, but we do see growth potential. We've added some new brands into that space, Fizz & Bubble, Soap & Glory among others, and we've got some great business. The exclusive distribution of the Body Shop outside of their own shops is an example, and so it's not huge for that total bath and body space isn't enormous for us, but it's an example of what you're talking about. We do see potential growth to continue to add to that and make sure that we're delivering against what our guest is looking for. So we'll look across all different avenues in addition to the big ones that we're driving growth on today.

And then, while we're on the topic of the product offering, I've heard you mentioned a couple of times now in the last few quarters, prestige and mass, the areas of strength, almost a bit of a barbell, high, low. Are you evolving? Do you see yourself evolving the offering and kind of the density of the price points around the high, low strategy, or could this be a little bit more of a transitory effect?

Well, make sure I understand your question, but the mass and prestige has been part of our business and is part of the original insight that the company is founded on and certainly is a critical part, key part, of our strategy today. We've grown our prestige business pretty quickly over the last several years as we've added a number of brands, but we've also been focused on growing mass, so a key part what our guest really responds to us is this idea of mass and prestige because that's where she shops, that's how when you look at products that she has at home, most women don't have either prestige or either mass only, they have both. So providing both to her is a key part of our strategy. We will never kind of shift away from that, we want to see growth on both sides because that's what our guest wants. And so we're investing heavily in the experience as well as bringing in new brands and innovation across both sides, the range of price points that we think is what our customers really want.

Our next question comes from Simeon Siegel from Nomura.

Any way to quantify what portion of the transaction growth came from new customers versus greater frequency of visits? And then, just sorry if I should already know this, but when you open up new prestige boutiques, do you have general rules or preferences regarding geographically clustering those brands or just starting them out? And if they are clustered, any color on how the existing boutiques have done after the new openings?

On the customers, I don't think we've kind of broken out that level of detail. What I would say is there's kind of a few key elements that are driving our total customer growth. Retention is strong and healthy. And as we look across, as we understand just loyalty programs, not necessarily just in beauty, but loyalty programs, we think we have a very healthy, probably it's a leading level of retention. So that's key and strong and will continue to be. Reactivation, we've talked about in the past and that also was strong in the second quarter, which is essentially those that had not shopped -- that had been members of our program but had not shopped with us in the last year through some elements, our expanded marketing, advertising, new store openings perhaps, we'll get them in and driving that. But new -- totally new guest, is absolutely still a big growth driver getting that guest attracting new guests across the country, both obviously new stores but existing stores bringing her in as a key part to our growth. So those 3 things are what's driving that growth today. And then, boutiques was -- I don't know if I fully understood the question about...

The location.

Where we're locating. It's really across the country. So across the country. We're looking at really stores -- as we continue to add these 500 boutiques, we're seeing success in big market, small markets, all different regions of the country, we'll continue to expand. As Scott said, by next year, we'll be in a large percentage of our total chain, so thereby being in most stores across the country.

I would now like to turn the floor over to Ms. Dillon for any closing comments.

Thank you. I just want to thank everybody for your interest in Ulta Beauty, and we look forward to seeing you in a few weeks at our Analyst Day. Importantly, I'd also like to thank all of the Ulta Beauty associates for delivering yet another terrific quarter. Take care.

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