Ulta Beauty Inc (NASDAQ: ULTA)Q1 2019 Earnings CallMay 30, 2019, 5:00 p.m. ET

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Operator

Greetings, and welcome to the Ulta Beauty First Quarter 2019 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Laurel Lefebvre, Vice President, Investor Relations. Please proceed.

Laurel Lefebvre — Vice President, Investor Relations.

Thank you. Good afternoon, and thank you for joining us for Ulta Beauty's first quarter conference call.

Hosting our call are Mary Dillon, Chief Executive Officer; and Scott Settersten, Chief Financial Officer. Also, joining us is Dave Kimbell, President and Chief Merchandising and Marketing Officer.

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 make references during this call to non-GAAP earnings growth, adjusted for the impact of income tax rates due to accounting for equity compensation.

During the Q&A session, please ask one question only to allow us to accommodate as many of you as possible during the hour scheduled for this call.

I'll now turn the call over to Mary.

Mary Dillon — Chief Executive Officer

Thank you, Laurel, and good afternoon, everyone.

2019 is off to a strong start with solid first quarter financial performance. Total sales increased 12.9%, and we achieved a 7% comp on top of an 8.1% comp in the first quarter of 2018. These top line results reflect a healthy balance of traffic and ticket growth, as well as continued double-digit comp across growth in mass categories, skin care and fragrance, tempered by mixed performance in prestige cosmetics. We're driving stellar growth with expansion brands like Clinique, MAC, Lancome, Estee Lauder, and NARS. But this isn't yet sufficient to offset the continuing softness in several large established prestige cosmetics brands.

Gross profit leverage was a highlight during the quarter, benefiting from progress with our efficiencies for growth initiatives and stable promotions year-over-year, which helped to offset ongoing channel, category and brand mix headwinds.

Continued progress on our strategic imperatives drove our performance during the quarter. And I'll give a brief update on each one. Beginning with our strategies to increase loyalty and evolve our brand. Our Ultamate Rewards loyalty program grew to 32.6 million active members representing member growth of 14% on a rolling 12-month basis. Our store associates continue to do a fantastic job converting new guests to the program. We're also seeing healthy increases in diamond and platinum members.

Credit card comp growth was above plan, and we are maintaining the nearly 50% increase in incremental spend from guests once they become card holders. Gift card sales increased 32% in the first quarter, continuing to benefit from the expansion of our third-party distribution partnership. Brand awareness continues to reach new highs at 56% for unaided awareness compared to 53% last year, and 92% for aided awareness compared to 90% a year ago, reflecting the ongoing success of our Possibilities are Beautiful campaign, and more broadly, our strategies to make a more emotional connection with our guests. We're making good progress driving awareness across age groups and ethnicities, and we are maintaining a position of strength, relative to competition.

Our marketing activities during the quarter focused on our spring trend promotion, our signature 21 Days of Beauty event, the launch of our exclusive Tarte Sugar Rush brand, which is targeted to GenZ beauty enthusiasts and Mother's Day. This year, we enhanced our Mother's Day efforts with the launch of the new in-store program in partnership with Save the Children. We invited our guests to donate to the Ulta Beauty Charitable Foundation at point-of-sale in support of Save the Children's early childhood programming and disaster relief efforts in the U.S., raising more than $1.1 million. We continue to advance our brand purpose with our Girls United partnership with ESSENCE supporting and powering young black women through mentorship.

Moving on to the strategic imperative to delay our guests with the merchandise assortment for innovation, differentiation, exclusivity, relevancy and speed to market our key. Our merchant team is focused on curating a highly differentiated set of offerings across all categories. We continue to gain share across all major categories in both mass and prestige, with Ulta Beauty again driving all the growth in the prestige beauty industry year-to-date based on NPD data.

We're very pleased with the performance of fragrance, mass cosmetics, prestige iconic brands, prestige skincare, pro-hair, suncare and PCA. However, prestige cosmetics is still quite a bit softer than the rest of the portfolio with spring newness generally underperforming our expectations. However, late in the quarter, we set several promising new collections including highly anticipated launches such as Urban Decay's Game of Thrones collection at Disney Aladdin limited of addition collection by MAC aligned with NARS limited edition blushes and lip products, and Tarte's Big Ego Mascara. Also, we're encouraged by the pipeline we see for the rest of the year.

Kylie Cosmetics continues to drive traffic and incremental sales with new products, including eyeshadow palettes, and the Kris Jenner momager palette. We plan to add blushes, highlighters, bronzers, and birthday palette which will be flow into stores in a few weeks.

In April, we launched UOMA Beauty, a new makeup line inspired by African Beauty, which is exclusive to us. UOMA is an innovative ball product line, with a focus on diversity and unity, and offers vivid color and inclusive shades for all women. The centerpiece of the brand is a line of foundations with six custom formulas, including skincare benefits offered in many shades.

We continue to rollout Clinique, Lancome Benefit and MAC in additional stores adding a total of 50 new doors during the quarter. Performance was strong across the board with MAC leading the pack. We plan to add several hundred expressions of these four brands this year in various formats, including boutiques, gondola runs and wall presentation. The majority of the rollout throughout the remainder of the year will be in presentations without dedicated payroll.

Mass cosmetics continue to perform very well, following a significant reset earlier in the year. This reflow further differentiated our mass cosmetics assortment with additional space dedicated to exclusive or limited distribution brands that are preferred by younger consumers including Morphe, Revolution Beauty, BH Cosmetics, e.l.f and cover path.

We plan to continue to invest in fixtures and labor execute more reflow to keep our vibrant unique assortment fresh and compelling for our guests.

Firstly, Skincare delivered double-digit comps, helped by the success of our new and large curated assortment highlighting guest favorite brands. Kiehl's has dozen of their top sellers and all Ulta Beauty doors in this section and the brand will be in more than 100 doors with a broader assortment by year-end.

We're bringing our focus on wellness to the forefront and our prestige skin care assortment with clean ingredient brands like Tula, Kopari, Little Barn Apothecary, Trilogy and the better skin company. While new brands with the key driver of our performance in skin care, we also drove impressive growth in a legacy brand like Philosophy are running a special event which highlighted the brand in our services business.

Fragrance, despite tough comparisons from last year was the best performing major category during the quarter, delivering a high teens comp and significant market share gains. New fragrances from Ariana Grande and Versace led the growth in this category. Haircare delivered strong high-single digit comp growth aided by a reflow that improved the assortment and shopping experience for color and texture. These categories significantly improve their comp trends following the reflow.

Smaller categories were also very robust with accessories and suncare, delivering double-digit comps. Personal Care appliances were bolstered by strong demand for Dyson hair dryers and the Revlon one-step volumizer hair dryer.

In the Bath category, we're responding to consumer's growing interest and wellness in clean beauty, and are launching a new wellness assortment of 350 stores, this will expand to 700 doors later this year and features eight brand. Many of the 80 items in the assortment are exclusive to Ulta Beauty, including the Ulta Beauty essential oils collection.

Our emerging brands team launched eight brands in the first quarter across multiple categories including CANNUKA skincare with CBD, Black Moon Cosmetics, CHC skincare that brings together Japanese innovation of botanical ingredients. Grande Cosmetics, Sara Happ lip products, Nurse Jamie skincare products and tools, and Erborian skincare that combines sophisticated Korean technologies with high quality ingredients derived from herbs found the traditional Korean medicine. More than 20 additional brands are planned to launch in the second quarter, including many online-only brand.

So next, an update on our services business. Our services team drove strong performance across all major categories, color, cut and style, blowouts and skin treatments. After launching the ability to redeem loyalty points on services, we saw a meaningful increase in loyalty members using the salon for the first time, as well as an increase in overall active members using the salon.

We also drove new guest acquisition through events like our Galentine's promotion offering $30 blowouts, when guest book with a friend and received a gift with service. We are now rolling out our services optimization program to the full chain. As a reminder, the components of the program are compensation designed to attract and retain top talent, industry-leading internal training and education, simplified menus, transparent pricing and an updated field team focused on business and technical training in each district.

We trained district managers and general managers on the new programs during the spring, and end market training is taking place across the country with all regions planned to be rolled out by the end of June. We're seeing significant improvement in stylists retention in regions that were converted to the new program last year. And this is an important metric since tenure of our salon associate has the highest correlation to our best performing salon.

The program is also driving a significant increase in product sales in the high margin professional hair care category. Ulta Beauty's pro and design teams had a big presence at America's Beauty Show in Chicago, hosting demos during this key industry event, which welcomed over 65,000 salon service professionals. 100s of attendees were excited to submit applications on site to join the Ulta Beauty's salon team. Through events like this one, we continue to focus on hiring and retaining great talent, and elevating Ulta Beauty's profile in the salon industry.

And now turning to store growth. We opened 22 new stores in the first quarter compared to 34 net new stores last year, ending the quarter with 1,196 stores. New store productivity remains very strong with first year sales trending ahead of plan as well as IRR sales hurdles. We are on track to open 80 stores this year, the majority in suburban strip centers and power centers.

And now I would like to share some exciting news about our growth plan. While we have years of attractive domestic growth ahead of us, we've been evaluating the potential for growth beyond U.S. borders for some time. Today we're announcing our decision to expand internationally and established Ulta Beauty as a global brand with our first market entry in Canada.

International expansion represents an attractive and incremental long-term growth platform, which extends our core capabilities and leverages our value propositions. Over the past few years, we have extensively studied the market opportunity in multiple countries and evaluated various operational model. We believe that the Ulta Beauty value proposition is very relevant and differentiated in multiple geographies around the globe.

And Canada is an attractive and logical place to start. We're planning to launch stores and e-commerce in Canada, but we won't be sharing a lot of details yet for competitive reasons. We can't say that we are planning to start small, but are prepared to scale quickly as we learn and see success. The start-up investment to support the Canada launch is expected to put modest pressure on the P&L this year, while we still expect to deliver financial results within our guidance range.

Our Canadian business is not expected to be material to sales or income for the next two years as we thoughtfully build a foundation to become a global beauty retailer over the long term.

Now moving on to an update on our progress in our digital experience and innovation. We continue to invest in omni-channel capabilities to enhance the guest experience, and support our buy anywhere sell anywhere strategy. Our save the sale program called store-to-door, where store associates assist guests with ordering products online when they aren't available in store is performing well.

It's improving guest satisfaction, particularly as we expand our assortment of emerging and digitally native brands, that are frequently offered in limited doors. Store-to-door demand increased about 20% versus last year during the first quarter. We're also seeing growth in awareness and usage of buy online pickup in store currently operating in 47 stores. We've redesigned the find in-store functionality on our website to support the upcoming full chain rollout of buy online pickup in store to improve and simplify the guest experience.

We've also rolled out enhancements to the mobile app including an improved order history view to make reordering or replenishing more efficient, and improved usability of our Glam Lab, live try-on function, driven by our recently acquired Glam Street subsidiary. We're launching live try-on for Android next month after launching the iPhone version back in January.

Augmented reality innovation includes testing an in-store Ulta Digital stylist in six pilot stores. This tool intended for our associates in the salon or Brow Bars to show possibilities to guests in the store offers virtual try-on for hair color, makeup and eyebrow shaping

From an AI innovation perspective, we launched the skincare virtual beauty advisor on ulta.com enabling guest explore a skincare assortment by concern or by product. The virtual beauty advisor asked a series of dynamically generated questions, and presents a set of personalized recommendations that can be further reviewed and then purchased. This user friendly interactive experience is another great example of how last year's strategic acquisitions are adding value.

Our e-commerce team recently partnered with guest services and IT to deliver our first production chat bot experience and our customer

conversative platform. These initial experiences automate our communication with guests in response to frequently asked questions about loyalty points or birthday emails.

And lastly, I'll recap our supply chain performance. We delivered excellent in stock levels in the first quarter with a rapid recovery following better than expected Q4 sales and post holiday out of stocks. With good control of overall inventory levels, inventory turns improved that came out — came in ahead of our goal. Our transportation team continues to focus on service level enhancements and costs and improved on time store delivery by about 40 basis points in the first quarter. We're also collaborating closely with our brand partners to measure and improve performance and compliance with our supply chain requirements.

Since implementing the program in the fall of last year, we've seen a 200 basis point improvement in fill rate. As part of our omni-channel strategy, buy online pickup in store will be deployed chain wide this summer, and will begin testing ship from store capabilities in five stores this fall.

Our Fresno distribution center continues to ramp up and is now serving 245 stores and fulfilling 22% of e-commerce orders. The conversion of our Romeoville distribution center into an e-commerce fast fulfillment center is under way and on track to open this summer. The second FFC is planned to open in the summer 2020 in Jacksonville, Florida. FFC serve e-commerce orders only and designed to fill up to 30,000 orders per day during peak time. These facilities are part of the infrastructure plan we're executing to attain our goal of two-day e-commerce shipping by 2021.

Now before I turn over to Scott, I want to share with you that this will be Laurel's last earnings call. She decided to retire after seven years in Ulta Beauty, and a long and successful career at Investor Relations. She has been a value partner resource to me, our leadership team and our Board of Directors, and we are grateful for her many contributions to the company. So while we're very sad to say farewell to Laurel, we are delighted to welcome Kiley Rawlins who has joined us to succeed Laurel and lead our Investor Relations function. Many of you already know Kiley who has more than 25 years of experience building and leading Investor Relations for retail Fortune 500 companies.

She has served in Investor Relations, Communications leadership positions at Michael, Family Dollar Stores and Dollar General demonstrating her ability to proactively manage Investor Relation programs and engage with internal and external stakeholders to serve as an effective spokesperson to the investment community. Kiley holds a bachelor degree in commerce in the University of Virginia, and is a CFA. You can anticipate a seamless transition of Kiley joins Patrick Flaherty, our Senior Manager of Investor Relations to support our mission to provide high quality service to analysts and shareholders. I know you'll be joining me to congratulate Laurel on her well deserved retirement and welcoming Kylie to the Ulta Beauty team.

And with that, I'll turn it over to Scott to discuss in more detail the drivers of our first quarter financials and outlook for the rest of the year.

Scott Settersten — Chief Financial Officer, Treasurer and Assistant Secretary

Thanks, Mary. Good afternoon, everyone.

Starting with the income statement, our top line growth of 12.9% was driven by a 7% comp and strong new store productivity. Traffic was healthy with transaction growth of 4.3% and ticket growth of 2.7%. While we are no longer breaking out e-commerce growth specifically, I can share that ulta.com growth was in line with our expectations of 20% to 30% growth driven by traffic. The retail comp was balanced between transaction and ticket growth.

On the gross profit line, margin of 37% improved 70 basis points year-over-year from 36.3% driven by strong merchandise margin and leverage of rent and occupancy expense offset by investments in supply chain and our services business. Merchandise margin benefited from early gains from our efficiencies for growth program.

SG&A rate of 23.1% deleveraged by 70 basis points compared to the prior year's rate of 22.4% reflecting planned deleveraging corporate overhead related to investments in growth initiatives, including store labor, offset by leverage and marketing and variable store expenses. Operating margin was flat year-over-year at 13.6% of sales. Diluted GAAP earnings per share of $3.26, grew 20.7% compared to $2.70 reported for last year's first quarter. Adjusted for the $0.18 of benefit from a lower tax rate associated with equity compensation accounting, the underlying earnings per share of $3.08 were up 14%. EPS rose 17% on a like-for-like basis, adjusting for the tax rate benefit in both years, which includes a $0.07 benefit in Q1 of 2018.

Turning to the balance sheet and cash flow. Total inventory grew 10% and was up 1.8% on a per store basis, well below comparable sales, as we continue to gain efficiencies from improved systems and processes.

Capital expenditures were $69 million for the quarter, driven by our new store opening program, supply chain, systems and merchandise fixtures.

I'd like to touch on the new lease accounting standard and how it impacts Ulta Beauty's financial statements. We adopted a new accounting standard on February 3, 2019, using the modified retrospective approach. The adoption of this standard resulted in the recording of operating lease assets of $1.46 billion and lease liabilities of $1.84 billion as of the beginning of the year. There is no impact on our income statement or cash flows. Our Form 10-Q, which was filed this afternoon includes comprehensive disclosures related to our adoption of the new lease accounting.

We ended the quarter with $521.8 million in cash and short-term investments. We repurchased 318,000 shares at a cost of $107.4 million through our 10b5-1 program. $788.2 million remained available on our $875 million authorization as of quarter end. We continue to expect to repurchase approximately $700 million of shares in fiscal 2019. But as always, have the flexibility to modify the cadence of repurchases in response to market conditions.

Turning now to guidance. We are maintaining our previous view for the remainder of the year and are flowing through the $0.18 of earnings per share benefit related to the lower tax rate in the first quarter. We are on track to open approximately 80 new stores, all our traditional 10,000 square foot prototype. We plan to remodel 12 stores and relocate eight stores and execute 270 store refreshes or many remodels to enable the addition of new brands and improvements to overall fixturing.

We anticipate driving top-line growth in the low-double digits with total Company comparable sales planned in the 6% to 7% range. We expect the e-commerce to grow in the 20% to 30% range contributing approximately 200 basis points to comparable sales.

We expect to deliver earnings per share in the range of $12.83 to $13.03 with approximately 10 to 20 basis points of operating margin expansion.

We expect to improve gross profit rate driven by merchandise margin expansion, rent and occupancy expense leverage and the benefits of our credit card program. These benefits will be offset by deleverage in SG&A due to store labor and investments in growth initiatives and innovation. Areas such as digital innovation, our salon services strategy, expanding our omnichannel capabilities, IT security and infrastructure, personalization efforts, our strategy to pursue emerging brands and initiatives to enhance the guest experience. And now, our investments ahead of launching operations in Canada are the factors driving corporate overhead deleverage.

We reiterate our previous comments on the cadence of earnings per share throughout the year, excluding the tax rate benefits from the first quarter, with EPS growth slightly weighted to the back half, with more of the benefits of our efficiency for growth cost optimization program occurring later in the year. Excluding the Q1 tax rate benefits, we expect low-teens EPS growth and modest operating margin deleverage in the first half of the year and high-teens EPS growth and modest operating margin leverage in the second half of the year. We plan to spend between $380 million and $400 million in CapEx. This includes CapEx of approximately $190 million for new stores, remodels and merchandise fixtures, $140 million for supply chain and IT, including new fast fulfillment centers and about $60 million for store maintenance and other.

Depreciation and amortization expense is planned to be approximately $315 million. We expect our tax rate for the remainder of the year to be 24%, which does not include any estimate for the impact of share-based compensation. The fully diluted share count for the year is expected to be approximately $58 million. Our plan assumes share repurchases in 2019 in the $700 million range, contributing about 4 points of earnings-per-share growth.

And with that, I'll turn it over to our conference call host for Q&A.

Questions and Answers:

Operator

At this time, we will be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Rupesh Parikh with Oppenheimer. Please proceed with your question.

Rupesh Parikh — Oppenheimer & Co. Inc — Analyst

Good afternoon and thanks for taking my questions. So, first, congrats to Laurel on your retirement and also welcome Kiley. So, I guess, one of the questions I had is just going back to, Mary, your comment on the mixed prestige cosmetics backdrop. So it seems like we've continued to have challenges in some of those larger established cosmetic brands. So I just wanted to get a sense of what you think it actually weighing on those brands and any sense in terms of how long this can continue?

Mary Dillon — Chief Executive Officer

Well, it's — I mean, the good news is, with our model that we offer a lot of different brands and categories, et cetera. So we have discussed this before, prestige cosmetics category has struggled in 2018 and some of the brands continue to struggle in terms of comping over some strong growth in previous years. We've continued to gain share in all the track channels, which is great. We also — not all the data that you see is measured in all the — or the marketplace not all captured in tracking reports. So, a lot of growth happening from digitally native brands and we are obviously participating in that well. So we continue to see the categories healthy overall, we're going to continue to add new brands and work with our brand partners to continue to drive innovation pipelines and balance, I guess, the risk of that with the other great newness that we bring in to the box.

Rupesh Parikh — Oppenheimer & Co. Inc — Analyst

Okay, great. Thank you.

Operator

Our next question comes from the line of Oliver Chen with Cowen and Company. Please proceed with your question.

Oliver Chen — Cowen and Company — Analyst

Thank you very much. And Laurel best regards. We're going to miss you a lot. Regarding the Canada opportunity, which sounds really promising. What are your thoughts on the size of the box? And also, as you think about the assortment architecture and pricing, just considerations there and if you could brief us on why it makes sense now and how your competitive set may or may not be different? Thank you.

Mary Dillon — Chief Executive Officer

Sure. Thank you, Oliver. As you can imagine, I'm want to stay very high-level on this in terms of we're not want — we don't want to disclose a lot to folks about what we're doing exactly. Okay? But we do — we are very excited about the opportunity. I mean, we've got years of domestic growth ahead, but we do see this as a next step in our long-term growth journey. I would say, we've done a lot of diligence in the last couple of years, understanding consumer category, competitive dynamics just like you're asking, not just in Canada, but in other key geographies, studying success and failure precedence and learning and bottom line is that, we do believe white space opportunities does exist for the Ulta Beauty proposition because it's differentiated, right, in terms of experiences in store and online, breadth and depth of offerings in what is an important and growing category. So, it's incremental growth for us.

I guess, back to your question, I would think about it more leveraging our core competencies but also being open to some modifications and local adaptations is needed. So how that plays out relative to offerings, you can imagine that, or real estate model. But overall, we plan to stay true with Ulta Beauty business model. We know it's working and what we have studied and believe is the opportunity is something that's pretty close to that.

Oliver Chen — Cowen and Company — Analyst

Okay. Thanks, Mary. And just related to that as a quick follow-up. How well the consumer awareness build in Canada in your thoughts in terms of like how the awareness is in that market now versus your leverage, the marketing programs to build your unaided awareness in the market?

Mary Dillon — Chief Executive Officer

Yeah. Lots of more details to come but you can imagine, I think that we feel good about our ability to create the Ulta Beauty brand and that's obviously behind our list of important priorities in the start. So, that's all I'd say now.

Oliver Chen — Cowen and Company — Analyst

Best regards. Thank you.

Mary Dillon — Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question.

Ike Boruchow — Wells Fargo Securities LLC — Analyst

Hi, good afternoon, everyone. And I will bid Laurel a farewell. We will miss you. Congratulations on the retirement, I guess, my question — two questions, actually, really real quick to Scott. Scott, I don't mean to nitpick, but I'm going to have to do it anyway. I think you said on the first half, the EPS ex the tax benefit low-teens. I think they would imply like a low-double-digit EPS growth for Q2. I'm trying to make sure we're thinking about that the right way?

Scott Settersten — Chief Financial Officer, Treasurer and Assistant Secretary

No, you got the message that that was the signal we were — we intended to send for folks without being too literal about things. There are still fair amount of investment that's embedded. I guess, I would just back up and say that the gross margin leverage you saw in the first quarter, I think, directionally is what you can think — how you can think about it for the rest of the year, but there is a fair amount of investments that's in the plan. All the things we started last year around innovation and personalization, that we accelerated last year, we won't start lapping that to the back half of 2019. And then we have some incremental things that we kicked off this year, most notably the Canada thing that we just announced here recently. So there is a fair amount of corporate overhead deleverage that's coming in the second and third quarter.

Ike Boruchow — Wells Fargo Securities LLC — Analyst

Got it. And then just a quick follow-up for Mary. Just on the prestige business. I understand the softness is kind of persists and it sounds like you're confident in the pipeline. I just feel like we've heard confidence in the pipeline for a while and the business has been great but that prestige business hasn't really — doesn't seem like it's really picked up any real momentum. Do you have visibility in that category for yourself or is this just kind of your best guess at the moment? Just try to understand what kind of visibility you have?

Mary Dillon — Chief Executive Officer

Yeah. I'll make a couple of comments. I'll let Steve to add more to this because he, obviously, is quite expert in this arena as well. But, I would say, this is not a factor for all brands in prestige, right? So it's really like a few large prestige brands that are having a tough time comping over some amazing growth we've had for a couple of years. We have many prestige brands are doing quite well. So, we do our best level best as direct and transparent. We can about how we feel about the pipeline, but of course, it's in partnership with our brand partners. And like I said, the fact that we have an array of choices that we can make in the marketplace work to our advantage, given our box.

So David, can you please add on the prestige?

David Kimbell — President & Chief Merchandising and Marketing Officer

I'll just say, as we look at the total prestige makeup business, many of the things that Mary talked about are critical to us compensating for some continued struggles that bigger brands that have been in our store for a while are going through. So continuing to focus on digitally native brands and driving exclusivity with both new brands and existing brands such as Tarte Double Duty Beauty and Too Faced with Tutti Frutti and other elements like that.

On the existing brands, yeah, we — they are going through — many of them, as Mary said, not all of them, but many of them, including some of the biggest brands that have been driving growth over some time are continuing to struggle. There is a transformation in the makeup business right now. The category remains healthy, but there is a shift in consumer preference on brands. What we know about these brands, though, is there a equities in all of our studies and understanding remained strong and healthy that we're confident in the teams that are driving these businesses, they're focused on driving innovation and adjusting to evolving market conditions. We do have visibility to their innovation throughout the rest of this year and even into the first part of next year and then we see some positive things, but time will tell on some of these. So we're not — and as we look forward in our business, we're not anticipating these — some of the big brands that have been a dream, turning around immediately, but we're confident over time that these brands will regain their fit in — footing and get back to growth.

Ike Boruchow — Wells Fargo Securities LLC — Analyst

Got it. Thank you.

Operator

Our next question comes from the line of Christopher Horvers with J.P. Morgan. Please proceed with your question.

Christopher Horvers — J.P. Morgan — Analyst

Thanks. Good evening, everybody, Laurel, it's been such a pleasure working with you all these years, going back to your time in Framingham and certainly a top-notch job all the time and best of luck in the next phase of your career. Kiley welcome. Clearly, some similarities to Laurel as well, given both you made a great trade, a calmly transition in your recruiting coming to Ulta.

Mary Dillon — Chief Executive Officer

So, I love it. I wish you could see their faces, yeah, it's good. And thank you.

Christopher Horvers — J.P. Morgan — Analyst

I'm sure you've talked about that. So, can you talk about — a couple of questions, I'll put it all in one. Can you remind us what caused the deceleration in last year's second quarter comp relative to the first? And then in the gross margin, how did that come in relative to your internal plan, was the investment expense versus the merch margins, how do that shake out? And then the last one, of course, Scott, is your tariff, what are your comments there? Thank you.

Scott Settersten — Chief Financial Officer, Treasurer and Assistant Secretary

Yeah. I can take a swing at last year's second quarter. It's just — it's a — it's part of the cycle of the business, I would say. Second quarter has just been a little bit tougher for us the last few years. The 21 days of beauty phenomenon, I guess, is probably what's driving the first quarter and then we do it again in the fall and that's really a great event for us that drives healthy business in a lot of — in a variety of ways. So it's probably really just the impact of that.

And as far as margins and business overall results versus the forecast, we're very happy with gross margin leverage that we had in the first quarter. I mean, I would say, we're right on target coming through the first quarter, we had a similar conversation with the Board earlier this week, we're rate on plan kind of rate where we thought we would be, the leverage on the gross margin line is where we thought we would be and the investment cycle here. So, again, heavier maybe than what some of you were modeling, we're expecting but kind of rate in line where we thought we'd be at this point in the year.

Mary Dillon — Chief Executive Officer

And I'll add lastly on that tariff question. So — and we've said this before, we're certainly less exposed than other retailers, most cosmetics, fragrance, hair care liquids remained North America and Europe. We have some Ulta Beauty collections some things that are made in China, but we're — it's small, we're managing it through supplier relations and pricing, if needed. So we consider that a pretty small impact for us.

Christopher Horvers — J.P. Morgan — Analyst

Understood. Best of luck.

Operator

Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.

Xian Siew — Morgan Stanley — Analyst

Hi, guys. This is Xian Siew for Simeon. We want to ask about D&A. It looks like guidance of $315 million was reiterated, but the Q1 run rate is a little bit light of that. Is there anything around timing there?

Scott Settersten — Chief Financial Officer, Treasurer and Assistant Secretary

Yeah. I would attribute that primarily to the investment notion that we've been talking about Canada kind of plays heavily into that. So there's a lot of things coming around systems, upgrades and things like that and a lot of that is expense related. I'm not sure if you're familiar with the way some of the new pricing is working with SaaS solutions and things like that. So it's more of an immediate hit and there's more of that back half weighted.

Xian Siew — Morgan Stanley — Analyst

Got it. So back half weighted D&A?

Scott Settersten — Chief Financial Officer, Treasurer and Assistant Secretary

Correct.

Xian Siew — Morgan Stanley — Analyst

Okay. Thank you.

Operator

Our next question comes from the line of Erinn Murphy with Piper Jaffray. Please proceed with your question.

Erinn Murphy — Piper Jaffray — Analyst

Great. Thanks. Good afternoon, and congrats to Laurel on your retirement. It's very well deserved. Look forward to working with Kiley as well. I guess, my question is either for Mary or Dave, you guys have brought in a lot of new units over the last year and I think last quarter you talked about it driving 400 basis points of contribution to the comp. Could you just share with us what that benefit was in Q1? And then, Mary, you talked about a lot of initiatives within wellness in particular, I'd love to just hear you talk about what the opportunity is in that category as you start to really play that up in the future? Thanks.

Mary Dillon — Chief Executive Officer

Probably we will tag team. I'll take the newness one and then I'll give Dave the other question, which is great. I would just say, yeah, newness is really — obviously continues to be really important to our business, to our guests. In this quarter, we saw strong contribution from some categories like prestige skincare, and (inaudible) and Tula, mass cosmetics to reflow I talked about, those are the exclusives. We saw strong contribution there. I'd say, somewhat less on prestige cosmetics. There are some tough comps versus year ago on some of that. So, overall, I'd say, not as significant in terms — relative to Q4, we had some pretty high-profile launches, but still obviously very important key strategy and we continue to feel good about the continued cadence of newness that's coming.

David Kimbell — President & Chief Merchandising and Marketing Officer

And on wellness or the — yeah, the broad idea of wellness or clean, we're seeing the positive effect of that really across the entire store, most categories are benefiting from a elevated engagement from consumers elevated awareness. So we're seeing brands, organic, natural, gluten-free, vegan, cruelty-free, ethically traded, all across the board. A number of brands that either have had those attributes for a long time or our newly created brands that are focused on clean or natural wellness beauty is — are driving a lot of growth. I mean, some of the brands that we see benefiting from that chart, certainly has been a leader in that, they have launched new brands, much of which are new sub-lines, many of which are exclusive to Ulta, that's been driving the growth, there are minerals, Origins, Juice Beauty, Peter Thomas Roth, and a number of new brands. We launched an endcap in a few hundred doors in Q1, a vegan impact — endcap that featured a number of brands that are 100% vegan, 100% cruelty-free. And we plan to expand that to more doors throughout the year based on the success.

We have a wellness section in the bath category, that's in about 350 doors, and we'll plan to roll-out to more doors throughout the year, Mary highlighted some of the brands that are part of that. And in our broader communication to our guests through all vehicles, our magazines, our social media digital efforts, our app highlighting wellness and clean brands and some of the efforts that we're bringing into that space and it's been received very well. So, definitely a strong trend across all categories and one that we see driving growth for some time to come.

Erinn Murphy — Piper Jaffray — Analyst

Great. Thank you, guys

Operator

Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.

Michael Goldsmith — UBS — Analyst

Good afternoon. Thanks for taking my question. Congratulations, Laurel. The new store productivity, as we calculated, it looks like it was a bit lower than what we were accustomed to. First, is that right? And if so, was there anything unique from a timing perspective for the markets that you entered during the quarter? And should we think about this in the 70% range going forward instead of maybe the 80% we've seen in the past couple of years? Thanks.

Scott Settersten — Chief Financial Officer, Treasurer and Assistant Secretary

Yeah. I don't know that we could say anything specific on the 70% to 80% range modification, but we didn't really see anything in new store productivity. I mean, it may be a function of a fewer less stores, right, opened in the first quarter of this year. I think it was 22 versus 34 last year. We look at the comp waterfall, we look at historical basis of the whole fleet every quarter in detail, something we keep a close eye on, we didn't really see anything — any material changes overall in the business. New stores, I think Mary pointed out in her remarks, we're happy with productivity there and how they've come out of the gate so far this year. And so, we're still very confident in our 1,500 to 1,700 range in new stores in the US over the long term.

Michael Goldsmith — UBS — Analyst

Great. Thank you.

Operator

Our next question comes from the line of Adrienne Yih with Wolfe Research. Please proceed with your question.

Adrienne Yih — Wolfe Research — Analyst

Good afternoon. Nice quarter and congrats, Laurel. My first question is for Mary, can you talk about the promo environment? It seems to have abated somewhat, and we haven't seen a lot of these sort of vendor-based promos. So, what's the opportunity as the year goes on to continue to pull back on those promos?

And then Scott, a housekeeping question on the legacy distribution center that's going offline. Can you remind us which quarter that occurs? And if there's any notable margin impact from that? Thank you very much.

Mary Dillon — Chief Executive Officer

Sure. I'll start with the promotional question, Adrienne. I would say that, certainly, the beauty market remains competitive and offering a strong value proposition is always going to be important for us. So, we haven't seen, I guess, I'd say, material increases in competitive promotions. But it's as intense as ever, I guess, I'd say. And it's evolving, we're going to continue to evolve. Our promotion level for the quarter was pretty consistent year-over-year. So, obviously, we always look for opportunities to sort of optimize how we think about using promotional levers. And that's not going to change.

So, we prioritize our loyalty and our CRM platform and getting more and more able to be more personalize the offers, obviously, that's a kind of a Holy Grail. We continue to test and learn, behind the scenes, there's a lot happening that is hard to track, but testing different circs and values and reminders and duration, so all those within the spirit of optimizing return on that investment. So, I think we've got the right track, the tools to drive traffic and sales and deploy them in a balanced way and we'll continue to, as we do all the time, keep a very close eye on the competitive environment as well.

Scott Settersten — Chief Financial Officer, Treasurer and Assistant Secretary

And then specifically on the question, so that was our Phoenix DC and that's behind us now. That was completed early part of the first quarter of 2019. And it just gives you a little color. So we're not quite lapping Fresno opened last year, right, so there's a moderate deleverage in the first quarter for Fresno that, kind of moderates here once we lap that in the second quarter. And so, second and third quarter pretty flat, I guess, I would say, overall in supply chain and in fourth quarter a bit of deleverage with — as we stand up the FFC for Romeoville here and then our deeper into the planning stages for Jacksonville, which is coming early part of next year.

Adrienne Yih — Wolfe Research — Analyst

Thank you very much and best of luck.

Mary Dillon — Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Steve Forbes with Guggenheim Securities. Please proceed with your question.

Steven Forbes — Guggenheim Securities — Analyst

Good afternoon. I wanted to focus on the refresh program. So maybe if you can, just how many did you complete in the first quarter? And then, bigger picture, can you sort of give us some color and expand on what expressions maybe you're most excited about, right, as you head into the back half of the year here, given some of the commentary about prestige cosmetic trends and just the industry in general?

Scott Settersten — Chief Financial Officer, Treasurer and Assistant Secretary

Yeah. So I can start on that one. So the refresh, I think they'll go on throughout the course of the year, it's really just kind of getting off the mark in the first quarter, Steve. So, percentage-wise, I'd say, somewhere in the 10%, 20% range of the total 270 that we have planned for the year, was complete in the early part of the year. So the best is yet to come, so to speak on impacts from that. And then overall, the assortment in the store. So, again, it's more of those, I guess, we call them growth brands in the script today, but have historically referred to them as the iconic brands, right. So again, those will go in stores. Those will be the biggest newness as part of the refresh program. And again, those will go in a variety of presentations, right, not the historical square footage allocation that you're familiar with, but in a number of endcaps and in line runs and things like that across those 270 stores.

Steven Forbes — Guggenheim Securities — Analyst

Thank you.

Operator

Our next question comes from the line of Steph Wissink with Jefferies. Please proceed with your question.

Stephanie Wissink — Jefferies — Analyst

Thanks. Good afternoon, everyone. And thanks a lot Laurel for all your help over the years. This question is actually for Dave. I'm just curious, Dave, as you look at your CRM and maybe some of the business analytics or insights that you're able to glean from that, with respect to the decline in prestige cosmetics, are you finding that some of your core customers in that category may be navigating over into prestige skincare and pairing it with some of the initiatives you've had in mass cosmetics, is there a bullet share kind of shifting across the store?

David Kimbell — President & Chief Merchandising and Marketing Officer

We — well, I'll answer them in a few ways. One, we are definitely seeing strong growth across skincare, our mass cosmetics business is healthy, and even with — though, but even with the struggles that we've had on some of the brands in prestige cosmetics, we're still growing in prestige cosmetics. That business is still positive, comping even though some big brands have been a challenge for us. So we're still attracting new consumers in that, in some cases through big existing brands that we've launched, exclusive lines, such as in Tarte and Too Faced, new brands that are coming in, attracting new guests, brands like Beauty Bakery, Kylie, and others. So we're definitely still seeing a healthy consumer engagement in prestige. It just isn't growing at the level but we've had seen in the past and then we think it can grow in the future.

But having said that, there's a — we're really pleased with the overall consumer engagements. One of our best opportunity is to continue to gain wallet share to gain spend per member is to get our guests to shop in multiple categories across the store. It's a big focus for us. And you mentioned our analytic and CRM capabilities, as we advance our personalization and AI efforts, a big focus for us will be to help our guests migrate into different categories, still keep them engaged in, say, prestige cosmetics, but if they're not shopping in skin, or in hair or in bath or fragrance to help them see other parts of the store. That has been working, we're having a lot of success with that. And that'll be a focus for us going forward.

Stephanie Wissink — Jefferies — Analyst

Thank you.

Operator

Our next question comes from the line of Simeon Siegel with Nomura Instinet. Please proceed with your question.

Simeon Siegel — Nomura Instinet — Analyst

Thanks. Hey, guys, good afternoon and congrats, Laurel. Wish you only the best in the next chapter and welcome Kiley. Mary or Dave, as the gift cards and Kylie grow, are you seeing any notable shopping differences in the customers that are brought in from them versus the others? And then, can you talk to your expectations for the trajectory of just channel and product mix from here with kind of thought underlying impacts to gross margin with those shifts? Thank you.

David Kimbell — President & Chief Merchandising and Marketing Officer

On Kylie, as we've discussed, I think, last quarter with the launch work, we're again, really pleased with that partnership. Kylie and her team have just been great partners with us from the time — moment we launched it. And we did see early on and it sustained of strong engagement from our existing guests, but also new guests coming in and particular, younger guests and more diverse guests. And so, we're really pleased with that. And we would anticipate that continuing.

As we've seen with other new digitally native brands across the store, it's helping us attract new guests and contributing to the new guest growth that we've experienced in Q1. So, we'll drive — we'll continue to drive that part of the business and we see that success coming.

On the margin piece, Scott.

Scott Settersten — Chief Financial Officer, Treasurer and Assistant Secretary

Yeah. So, a lot of the headwinds or crosswinds that we talked about with channel in category and brand mixes, I mean, those are in the first quarter. We've talked about that historically, that we expect those, we anticipated that, and that we were still planning through and again, EFG this quarter, to be able to mitigate much of that, and just running our business smarter. So that's what you see in the gross profit leverage in the first quarter. And we feel good about where we are and plan to see more of that as we move into the future.

Simeon Siegel — Nomura Instinet — Analyst

Great. Thanks a lot guys. Best luck for the year.

Operator

Our next question comes from the line of Michael Binetti with Credit Suisse. Please proceed with your question.

Michael Binetti — Credit Suisse — Analyst

Hey, guys. Let me add my congrats to Laurel and welcome Kiley and congrats on the nice quarter. I just wanted to ask you one nitpicky question as well. On the gross margins, I think when we talked last quarter, you were thinking first quarter would be the weakest gross margin quarter of the year. It came in above how we were thinking this quarter. It sounded like, though, in your earlier comments that it was closer to — actually being in line with your plan. So I'm wondering if you sounded directionally, like you didn't think it was going to be above that the rest of year. I'm just wondering if anything has changed on rest of year outlook for gross margin to flag it all.

Scott Settersten — Chief Financial Officer, Treasurer and Assistant Secretary

Yeah. So, I guess, we'd kind of walk in a bit of a tightrope here, we'll try not to get too specific on guidance by quarter, right, for the rest of the year, we're trying to move away from that a little bit. I would say, we got better traction on the reflow. So, again, we're pointing to EFG and being smarter about the reflows that we rolled out here in the first quarter, they just — they took off faster, right, than maybe we would have anticipated. So that's great news. And again, directionally as you're thinking about the rest of the year, I mean, gross margin leverage directionally should be consistent with what you saw in the first quarter. And actually, we might get a little — a bit stronger in the second half of the year, as more of the EFG initiatives are scaled up across the business.

Michael Binetti — Credit Suisse — Analyst

Okay. Let me back up and just ask a bigger picture. Mary, you made some comments, it sounds like maybe there's a bit of a pivot in the prestige boutiques format to some formats without a dedicated payroll. Anything you would want to call out there? Is that — I don't know if that's just something to be able to push these further into some of the lower volume stores or something like that?

Mary Dillon — Chief Executive Officer

So we talked about this last quarter as well. So it's an evolution, I guess, is the way I think about it. There are brands that have a service component, like Benefit, Browse (ph) , and MAC makeup artistry, we'll continue to have dedicated labor in most stores, other brands, Clinique and Lancome is rolling them into all of our stores with various expressions, that makes sense to the store from — it could be a full (ph) boutique as we know it today with labor, it could be a gondola run, a wall presentation. So we're working with our brand partners to really optimize the best way to do that for both us and for them.

Michael Binetti — Credit Suisse — Analyst

Okay. Let me — if I can sneak one more and you've seen with Canada, I know, you don't…

Mary Dillon — Chief Executive Officer

Only on three.

Michael Binetti — Credit Suisse — Analyst

We are, just not that in there. A couple of US retailers have gone up to Canada. I think the results have been fairly mixed. But one thing that's been a tougher thing to figure out is, how much they can lean on US infrastructure versus building discrete assets to service Canada. I know, you don't want to get into the competitive aspects here. But on the back end, do you think there's an opportunity to leverage your US assets? Or do you need to put discrete assets in Canada? And maybe any of the case studies that you've looked at, as you think about that market and obvious similarities that you can emulate or some clear misses from strategies you've seen from (multiple speakers)?

Mary Dillon — Chief Executive Officer

Yeah. And today is not the day I'm going to get into details on this. But I can assure you that we have studied this intensely for a long period of time deeply. And that includes case studies around success and failure. So I think we're fully aware and trying to take into consideration everything that we know and have heard and take it, like I said in the script, sort of start small but be prepared to scale aggressively if we see success. So, I appreciate the comment. Understand that fully, all those things are things we'll talk more about as we get further down the pike.

Michael Binetti — Credit Suisse — Analyst

All right. Thanks a lot.

Mary Dillon — Chief Executive Officer

Sure.

Operator

Our next question comes from the line of Mark Altschwager with Robert W. Baird. Please proceed with your question.

Mark Altschwager — Robert W. Baird — Analyst

Thank you and congratulations, Laurel. Scott, I was hoping you could elaborate a bit more on the progress with efficiency initiatives, I guess, what are the primary areas where you're seeing savings this year? Any updated thoughts on how you see those savings building over the planning horizon? And of the bigger buckets you outlined at the Analyst Day, I think from CPI and direct procurement and others, just any big themes that are emerging this year as you've been ramping up those initiatives? Thank you.

Scott Settersten — Chief Financial Officer, Treasurer and Assistant Secretary

Yeah. No, I mean, we're kind of right on track with where we thought we would be overall, again, kind of rolling back to Analyst Day and we talked about the various buckets, the major pieces being procurement and real estate and around our core merchandising, inventory management practices. So, really, it's the core processes, again, probably not that the easiest, or the sexiest to talk about and describe to people. But what we saw in the first quarter. So, again, EFG takes many forms and shapes as we think about it across the business. But in the first quarter, and one that we're really counting on is making smarter merchandising decisions.

So, it's executing, first of all, determining what brands, what the space allocation is, what the profit profiles are on those brand and making sure we're driving good economic outcomes for the business overall, making sure that it's balanced, right, with other challenges and opportunities we have across the assortment, and then executing that. So we call — talk about transitions, making sure we got the teams ready, we got the right labor, we got the right products and marketing and all the other things that go along with that at the right place at the right time. And just making sure we're taking out as many inefficiencies out of that process as we can. So, I mean, that was the big driver in the first quarter. And all of that kind of activity is something that's a long term driver for the business, because we do a lot of this day in and day out in our business.

Mark Altschwager — Robert W. Baird — Analyst

Okay. Thank you.

Operator

Our next question comes from the line of Mike Baker with Deutsche Bank. Please proceed with your question.

Michael Baker — Deutsche Bank — Analyst

Hi, Scott, maybe this gets too close to that quarterly guidance that we're trying to get away from. And if so, let me now, but should the same-store sales follow that same trajectory of the earnings, i.e., a little bit less growth in the second quarter. And maybe a second way to ask that, as you said that the second quarter has been tough for you for the reasons that you outlined with the 21 days of beauty, is that sort of an expectation that we should think about for this year, second quarter as well?

Scott Settersten — Chief Financial Officer, Treasurer and Assistant Secretary

I think that's fair observation overall. Again, we try to give you a little bit of color on the ins and the outs and the deleverage points as we go through the year, maybe I can just give a little more color on that, right. So on the gross margin line, besides the great positive outcomes on merchandise margin, we also, last year, started doing some clearance activity, you'll remember that, it started late in the first quarter and ran pretty heavy through the second and third quarters. And again, we're not expecting to repeat that this year. So that'll be helpful. Fixed or cost leverage, I think was stronger in the first quarter this year than it was a year ago. And again, the store sequencing, right, the cadence this year is a little bit different. So just keep that in mind, as you're looking at the rest of the year. It's helpful in the first half of the year, less so in the back half of the year, as we put more stores in line in the third quarter this year. Salon is kind of a headwind all year, heavier in the first part of the year as we roll-out services optimization, but then we expect to get traction, and we're going to drive sales and productivity in the stores in the second half.

And I think I already described supply chain and how we see that kind of playing out through the rest of the year. So, again, I would just maybe clarify for folks, we're really happy with the gross margin leverage. But a lot of that's driven by investments in the SG&A line, right. So there's people, there's process, there is tools, there is D&A that goes along with that, to help drive productivity improvement in our stores. But again, over the long-term, we expect that to pay for itself, right, and that SG&A deleverage will moderate over time.

Michael Baker — Deutsche Bank — Analyst

Makes sense. And my part here by saying congratulations also to Kiley and Laurel.

Scott Settersten — Chief Financial Officer, Treasurer and Assistant Secretary

Thank you.

Operator

Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.

Dana Telsey — Telsey Advisory Group — Analyst

Good evening and congratulations on the results. Laurel, bravo. What a great career and wonderful success on your next chapter. I'm sure whatever it'll be, you'll be terrific at it. And Kiley, look forward to working with you and welcome to the Ulta team. Mary, Dave, and Scott, as you think about the opportunities on AR and AI, and what you're learning there, it seems like there is an increased emphasis on what it's doing to drive sales. What should we be looking at through the year? And how do you see that rolling out? Thank you.

Mary Dillon — Chief Executive Officer

I'll start at a high level. I'll open it up to Dave, if he wants to add more. But yeah, Dana, thank you. I mean, this is one of those things that I would say, it's not going to be like a flick of a switch, where all of a sudden, you'll be able to sort of feel this dramatic impact, it's going to build over time, I'm really excited that we have got a strong start. And that the acquisitions that we made last year, the team is integrated exceptionally well, with our team, digital innovation to drive our top line and other efficiencies will be a key theme really, for us, I guess, forever. I don't think that ever changes. So, I use a few examples in the script that are already live now. And I think a great example is our Glam Lab, which is live trial functionality, it works really well and that's a big improvement to what it was before with a static photo, many examples. So, I guess, we know — behind the scenes, we're constantly measuring, testing and measuring and seeing impacts. And we're confident that this is going to continue to drive growth for us.

Is there any other color you want to add to this, Dave?

David Kimbell — President & Chief Merchandising and Marketing Officer

I'll just add one more example of the type of impact that our advancements in this area can have on the business, and that's around our new member on boarding and we're actively testing and experimenting with different programs to take the millions of new guests that we've been acquiring every year, and making sure they stay engaged with us. We have a high retention rate to begin with, but we think it could be higher. So it's a good example by exploring a lot of different communication techniques, programs, offers to new guests, and then leveraging our AI capabilities. We're already seeing a positive response in doing that. And we think over time, it will take a little time, but we'll just get smarter and smarter and smarter through the capabilities that we have. So, as Mary said, it will take time, but it's exciting frontier for us for sure.

Dana Telsey — Telsey Advisory Group — Analyst

Thank you.

Operator

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to Mary Dillon for closing remarks.

Mary Dillon — Chief Executive Officer

I'd just like to close by thanking all of the Ulta Beauty associates for a strong start to the year and delivering solid financial results and operational excellence across the enterprise, while everybody's been working very hard to also lay the foundation to realize our many future growth opportunities. So we look forward to speaking with all of you again soon. Thank you.

Operator

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

Duration: 62 minutes

Call participants:

Laurel Lefebvre — Vice President, Investor Relations.

Mary Dillon — Chief Executive Officer

Scott Settersten — Chief Financial Officer, Treasurer and Assistant Secretary

David Kimbell — President & Chief Merchandising and Marketing Officer

Rupesh Parikh — Oppenheimer & Co. Inc — Analyst

Oliver Chen — Cowen and Company — Analyst

Ike Boruchow — Wells Fargo Securities LLC — Analyst

Christopher Horvers — J.P. Morgan — Analyst

Xian Siew — Morgan Stanley — Analyst

Erinn Murphy — Piper Jaffray — Analyst

Michael Goldsmith — UBS — Analyst

Adrienne Yih — Wolfe Research — Analyst

Steven Forbes — Guggenheim Securities — Analyst

Stephanie Wissink — Jefferies — Analyst

Simeon Siegel — Nomura Instinet — Analyst

Michael Binetti — Credit Suisse — Analyst

Mark Altschwager — Robert W. Baird — Analyst

Michael Baker — Deutsche Bank — Analyst

Dana Telsey — Telsey Advisory Group — Analyst

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