Greetings, and welcome to the Ulta Beauty Third Quarter 2015 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Laurel Lefebvre. You may begin.

Thank you. Good afternoon, and thank you for joining us for Ulta Beauty's third quarter 2015 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. The statements contained in this conference call which are not historical facts may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those projected in such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC. We may make references during this call to the metric free cash flow, a non-GAAP financial measure defined as cash provided by operating activities minus purchases of property and equipment. [Operator Instructions] I'll now turn it over to Mary.

Thank you, Laurel. Good afternoon, everyone. Ulta Beauty delivered excellent results in the third quarter. Strong traffic and healthy new store productivity drove the top line, leading to better-than-expected earnings growth. Sales rose 22.1%, and we achieved a 12.8% total company comp on top of a 9.5% comp in the third quarter of 2014. This was our best retail comp since 2011 and the best total company comp in our history as a public company. We gained market share across all of our categories with both prestige and mass color cosmetics achieving outstanding growth. Earnings per share increased 22% to $1.11 compared to $0.91 in the third quarter of last year. Scott will take you through details of our third quarter financials in a few minutes. But first, I'll provide a business update through the lens of our 6 strategic imperatives, which is our template for long-term shareholder value creation. The first imperative is to acquire new guests and deepen loyalty with existing guests. Our ULTAmate Rewards loyalty program continues to be a significant contributor to our business results. We now have 17 million active members, up almost 20% versus a year ago, a significant acceleration compared to the 15% growth we achieved last year. Our store associates are doing a fantastic job converting new customers to the program, and we've improved all the loyalty program communication touch points in conjunction with our brand relaunch last quarter, including loyalty cards, brochures and web content. All key loyalty program metrics, including retention rate, sales per member, frequency of purchase and average member ticket, are trending well above last year's numbers. We also saw a big jump in reactivation of members who haven't shopped to Ulta Beauty recently, about 56% higher year-over-year likely helped by our increased digital marketing and national advertising. We believe our efforts to increase brand awareness through advertising are also contributing to the acceleration in new loyalty member acquisition. As a reminder, Ulta Beauty's brand awareness, while still lower than our peers, has increased over the past year and we still have an opportunity to improve both the aided and unaided awareness of our brand. On September 7, we debuted television and radio ads on national cable and broadcast networks and also aired these commercials during new fall episodes of several prime time shows. One of the ads focused on our 21 Days of Beauty event, during which we saw double-digit traffic increases, and the other ads were focused on Ulta Beauty's unique All Things Beauty, All in One Place positioning. We're currently running another flight of TV and radio during the holiday season with new creative, both a new brand ad and one focused on Ulta Beauty as a great gift-giving destination. We also use social media and public relation activities to grow awareness about our support of the Breast Cancer Research Foundation, an important cause that we've been closely involved with for many years. This year, we introduced new elements to deepen the emotional connection for our guests to the cause, which included sharing the story of a breast cancer survivor in a new video called Tracy's First Haircut that was watched over 3.8 million times. And we launched a fund-raising challenge on social media, #UltaPinkOver in partnership with actress Tiffani Thiessen. We also returned as the official partner to The Ellen DeGeneres Show for her Breast Cancer Awareness Month activities, which put BCRF and Ulta Beauty on the national stage for millions of viewers each week to raise awareness and funds. Through all this activity, we expanded our reach in educating and raising funds for the important work of BCRF. The second strategic imperative is to differentiate by delivering a distinctive and personalized guest experience across all channels. Our CRM and consumer insight capabilities continue to grow, leading to more effective, personalized and targeted communication. Our CRM platform enables more targeted offers so that we can continue to reduce our reliance on coupons and discounts to drive sales. Our data shows that more targeted e-mail offers lead to higher open rates and significant increases in online sales per e-mail sent. We also continue to use both our CRM platform and our website as important components of our multifaceted sampling program. In addition to our popular beauty breaks and monthly sample beauty bags, we're also working with our brand partners to deliver product samples based on customers' past purchase history and propensity to buy certain products. We can track subsequent purchases, get guest feedback and share data with our brand partners. We're on track to distribute more than 4 million personalized samples this year, primarily through targeted e-mails, but also through targeted point-of-sale messages and direct mail. Now turning to the in-store experience. Over the past few quarters, we've implemented several initiatives to enhance service levels. Our payroll optimization tests are ongoing as we experiment with allocating incremental staffing hours to support higher sales goals. In the current quarter, we're deploying insights from previous tests to invest in customer-facing hours to deliver a great guest experience during the holiday season for when there's increased traffic in our stores. We continue to see benefits from recently rolled out programs that increase productivity, including our task management tool, a new store walk tool to help district managers and other field leaders consistently measure and reinforce store operations and service and Kronos mobility, which improves store management's ability to appropriately staff the stores while increasing guest-facing time. We also continue to reinforce product knowledge and guest service training through our learning management system. And finally, we continue to elevate our guest experience through improved execution of our in-store event strategy for both brand partner and store-generated events. The third strategic imperative is to offer relevant, innovative and often exclusive products that excite our guests. The beauty business is driven by news and innovation, and our merchants are doing a terrific job curating an assortment that's clearly resonating with our guests. We gained share across the board with color cosmetics growing well above the house on both the mass and prestige side of the portfolio. In the prestige cosmetics category, brands like Urban Decay, IT Cosmetics, Tarte and Too Faced are leading our growth with plenty of newness. Urban Decay's Naked Smoky Palette was the biggest sales item of the quarter. Too Faced was a standout with the successful launch of Born This Way foundation. Ongoing interest in contouring and strobing is driving strength in palettes from Anastasia, LORAC, BECCA and many others. Exclusive to Ulta eyeshadow palettes like Too Faced Vegas Nay Stardust palette and the LORAC Mega PRO Palette were big hits on social media and with our guests. We also continue to roll out Clinique and Lancôme boutiques as well as Benefit Brow Bars. All 3 brands contributed significantly to our comp growth. After introducing an assortment of 5 Lancôme mascara SKUs to all stores during the quarter, we're excited to add another great prestige cosmetics brand in a large number of doors just this week. Two of Dior's iconic Diorshow mascaras were introduced in nearly 600 stores. On the mass side of the assortment, we added the popular Soap & Glory luxury bath line during the quarter, which is off to a great start. NYX, owned by L'Oreal, is simply on fire, and we offer a dominant assortment of more than 900 NYX SKUs. Their suede lip launch was a big hit in the third quarter. Masks are also a trending category, and we've added a great assortment of masks from Korean brands like TONYMOLY and Leaders. And lastly, the Ulta Beauty collection continues to perform very well, benefiting from the team's work to offer higher-quality, on-trend products as well as the updated in-store presentation we rolled out at the end of the second quarter in more than 300 stores. Our professional haircare department exceeded expectations as well driven by newness and continued benefits from the extensive work we completed during the second quarter to improve the assortment, signage and overall presentation of the category. Innovation from Redken, Living Proof, Pureology and DevaCurl drove double-digit comps in those key brands. We also saw great results following the rebranding of our gorgeous hair event in October with enhanced content, how-tos, sampling and events in the salon. The fragrance category strengthened in the third quarter as well with new launches including Gucci Bamboo, Jimmy Choo Illicit, Kate Spade Walk On Air, Marc Jacobs Decadence and Estée Lauder's Modern Muse Le Rouge, contributing to renewed interest in fragrance. We also added Christian Dior fragrances to ulta.com during the quarter as we continue to enhance our online offering. Looking ahead to the fourth quarter, we are excited about our assortment and growing number of exclusive product offerings. bareMinerals Enchanted Beauty, Tarte's Tartelette In Bloom, Benefit's Party Hoppin' kit and NYX holiday kit, Clarisonic limited edition holiday sets, these are just a few of the holiday kits that are exclusive to Ulta Beauty. In our minds, though, the exclusivity of our assortment is really twofold. On the product side, we have a great private-label offering with our Ulta Beauty collection, exclusive brands like IT Cosmetics and IT Brushes for Ulta, the broadest assortment around from limited distribution brands like NYX and Urban Decay and an array of kits sold only at Ulta across many of our brand partners. Equally important, Ulta Beauty is the only retailer that brings this broad portfolio of brands, categories and price points together in one place to delight the beauty enthusiasts, combining it with a compelling loyalty program and our high-quality services. So how we bring it all together is what sets us apart and what's driving our consistent market share gain. Next is our fourth strategic imperative, which is to deliver exceptional services in 3 core areas: hair, skin health and brows. Our salon business comped 10.9%, an acceleration compared to the first half of the year. This momentum was driven by a balance of traffic and ticket increases. Transaction growth reflected strong new guest acquisition, complementing solid growth from existing guests. Online booking generated 22,000 appointments per month with about 2/3 of these coming from new guests. The increase in average ticket was due to more targeted discount and growth in add-on services like conditioning and hair treatment. We recently rebranded all of our salons, including in-store signage, training material and direct mail and digital content, in concert with our overall rebranding of Ulta Beauty, which we rolled out in the fall. The focus on trend in combining hair and makeup looks has been very well received by salon designers and our guests. The strongest category during the quarter were hair color, blowouts, hair treatments and makeup services, which reflect the increased integration of hair and makeup looks in our training and marketing materials. In the third quarter, our artistic team trained all of our 5,000-plus salon designers on the latest haircuts and styles, hair color and makeup trends in our integrated fall/winter trend collection with a focus on building average ticket. Our annual Cut-A-Thon to raise funds for the Breast Cancer Research Foundation was a big success this year. We provided 26,000 haircuts and 6,400 MicroZone skin services free with a donation to BCRF, significantly more than the prior year. This event was made possible by an incredible passion and engagement of our salon associates who generously donated their time, raising more than $500,000 for BCRF in a single day. We continue to see excellent growth in our brow services performed by Benefit arch experts. We now have 710 Benefit boutiques, and we'll add another 12 this quarter. Turning to our fifth strategic imperative, to grow stores in e-commerce to reach and serve more guests. We opened 45 stores, closed 2, remodeled 2 and relocated 2 stores during the quarter, ending with 860 stores. New store productivity continued to be very strong this year with a class of 2015 stores opening well above plan even excluding the record-breaking grand openings of our 3 stores in Alaska. We believe these results are driven by great site selection and also because of our growing brand awareness, continuous improvement in our merchandise assortment, stronger grand opening marketing tactics and strong store teams with more tenured managers now often opening new stores. We've invested payroll hours to support training and on-boarding for new store associates. We're building a strong bench of field leaders through an improved succession planning process to support our growth, and we're dedicating resources to make sure new stores get off to a strong start. We're on track to open 100 net new stores to end 2015 with 874 stores. In addition, the real estate pipeline continues to look very healthy. We've already opened almost all the -- we've already approved almost all the sites for 2016 and we continue to have access to high-quality sites as our unit growth and ability to drive traffic to centers gives us an excellent standing with landlords. Approximately 25% of these will be in new markets and 75% will be in existing markets. About half the stores will be in new or redeveloped shopping centers and about half in existing centers. Now turning to e-commerce. ulta.com achieved very strong growth of 56%, contributing 190 basis points to our total company comp and composed of 54% transaction growth and 2% ticket growth. Traffic to the site was very strong, benefiting from continued digital marketing channel growth, including e-mail, paid search, affiliate, display retargeting and paid social media including Facebook, Twitter and YouTube. Integrated marketing campaigns for Ulta Beauty's 25th birthday, our signature 21 Days of Beauty prestige event, BCRF, our redesigned mobile app and holiday gift guide, all contributed to growing interest in our e-commerce offering. We also saw a significant increase in customer retention in e-commerce, a reflection of our more compelling assortment and offers, improved site shopping experience and fulfillment capabilities. More of our ULTAmate Rewards customers are shopping both online and in stores. Currently, 6% of our loyalty members are shopping both channels versus 5% a year ago. Omnichannel guests spend about 2.5x as much as retail-only guests. We continue to see great interest in our CRM campaigns online, our sample bag with purchase offers and limited time beauty breaks on ulta.com. So as a result, we view e-commerce purchases as largely incremental in providing a path to trial and discovery versus primarily replenishment. We've yet to see e-commerce shifting any volume away from bricks and mortar. Finally, our sixth strategic imperative, to invest in infrastructure to support our guest experience and growth and capture scale efficiencies. Our new DC in Greenwood, Indiana continues to perform very well. We successfully ramped the building as planned to fulfill orders for 126 stores and 25,000 e-commerce orders per day, and we'll maintain these levels through the holiday season before adding more stores and ulta.com orders next year. Greenwood will handle about half of our e-commerce volume at peak during this holiday selling season. We launched the first phase of our demand forecasting and inventory optimization tool in early November. We call this system Swift, for Store and Warehouse Inventory Forecasting Tool, and the tool is now piloting in the mass haircare category with expectations that we'll roll it out to all categories next year. With Swift, we can provide more accurate forecast for both stores and e-commerce, resulting in a better inventory position and reducing lost sales from out of stocks. Swift takes replenishment from a manual process to an automated one and helps us be much more accurate about anticipating future demand and building inventory to support seasonal sales based on holiday or other promotional periods. Early results from both the new DC and Swift are encouraging, but we still have a lot of work ahead of us to optimize our supply chain and improve inventory efficiencies. So that concludes our business update, and now I'll turn it over to Scott.

Thanks, Mary. Good afternoon, everyone. Third quarter sales were $911 million compared to $746 million last year, an increase of 22.1%. Comparable sales increased 12.8%. Both the retail comp and the salon-only comp were 10.9% and e-commerce growth was 56.3%. The total company comp this quarter was mostly traffic driven, with transaction growth of 10.6% and ticket growth of 2.2%. Retail-only comparable transactions were very strong, up 9.5%, the highest growth so far this year. Retail-only ticket growth of 1.4% was evenly split between units per transaction and average selling price. E-commerce growth was driven almost entirely by traffic, with average ticket increasing in the low single digits. Gross profit dollars were up 19.1% to $335.6 million, but gross profit margin deleveraged 90 basis points to 36.9% from 37.8% last year. This decline was primarily driven by planned supply chain investments, including the distribution center in Greenwood, Indiana that we opened in early August. Product and channel mix also weighed on gross profit in the quarter as we saw very strong growth in areas like mass cosmetics and e-commerce, which carry lower margins. SG&A expense increased 20.8% to $218.8 million, down 30 basis points as a percentage of sales to 24% versus 24.3% last year. This improvement was driven by lower variable compensation expense and modest leverage on store labor and other store expenses. These gains were somewhat offset by planned investments in marketing. Note that we are on track to keep marketing as a percentage of sales flat for the full year with marketing deleveraged in the back half of the year, balancing the leverage we saw in the first half. The higher marketing spend in the second half is related to investments to grow our brand awareness through national advertising campaign Mary mentioned, which includes television and radio. Preopening expense was $6.1 million compared to $6.6 million last year due to 45 stores opened during the quarter compared to 50 new stores opened in Q3 2014. Operating income increased 17.7% to $110.8 million. Operating margin was 12.2%, down 40 basis points versus last year. Our tax rate was 36% versus 37.3% last year primarily due to changes in state income taxes. Net income increased 20.2% to $71.1 million or $1.11 per diluted share versus $59.1 million or $0.91 per diluted share last year. Turning now to the balance sheet and cash flow. Inventories were $884.4 million at the end of the quarter compared to $709.7 million at the end of Q3 2014, up 10.9% on a per-store basis, below our comp rate. In addition to the inventory in the new DC, we continue to invest in inventory to improve in-stock levels for our fastest turning items to support our rapid sales growth as well as investing in new brands and the continued rollout of Clinique and Lancôme boutiques. Capital expenditures were $94.7 million for the quarter driven by our new store opening program, supply chain and system investments and merchandise fixtures. We are on track to spend about $300 million in CapEx this year. Depreciation and amortization for the third quarter were $42 million and are expected to be about $165 million for the full year. We ended Q3 with $360 million of cash and short-term investments. The company repurchased approximately 288,000 shares at a cost of $48 million during the quarter under our 10b5-1 plan. As of the end of the quarter, $239 million remained available under our $400 million share repurchase authorization. Since we began our current buyback program in October of last year, we have repurchased more than 1 million shares for $161 million. The reduction in our diluted share count versus last year added just under $0.01 of earnings per share to the third quarter. Turning now to guidance for the fourth quarter. We anticipate sales to be in the range of $1.212 billion to $1.233 billion compared to $1.048 billion last year. We expect comparable sales to increase in the range of 8% to 10% versus 11.1% last year, our toughest comparison of the year. We have planned for our online sales growth to moderate this quarter. We have purposely smoothed out some of the e-commerce promotional activity during the early part of the holiday season to better match demand with our fulfillment capacity to deliver improved guest experience. We expect to open about 14 stores in the fourth quarter. This compares to 10 stores opened in Q4 last year. So preopening expense is expected to be up slightly. Earnings per share are expected to be in the range of $1.48 to $1.53 versus $1.35 for Q4 of 2014, which included a $0.02 benefit of nonrecurring tax. We anticipated tax rate of 37% and a fully diluted share count of approximately 64 million. As a result of our better-than-expected performance in the third quarter and continued momentum in the early stages of the fourth quarter, we are raising our sales and earnings expectations for the full year. We now expect to deliver earnings per share growth in the low 20s percentage range compared to the $3.96 of adjusted EPS we delivered in 2014. We expect to deliver double-digit comparable sales in the 10% to 11% range for the full year and top line growth in the low 20s percentage range. I'll now turn the call over to the conference call host to begin the Q&A session. Operator?

[Operator Instructions] Your first question comes from Chris Horvers with JPMorgan.

Can you talk about the promotional environment and what you're seeing from a department store channel in the beauty space and whether that had any impacts on merch margins during the quarter? And in a similar vein, as you think about the outlook for the fourth quarter, is there any anticipation of promotional pressure coming from that channel?

Well, thank you, Chris. Let me just start by saying I guess there's always promotion in retail in this time of the year in particular. We're -- if you step back and look at our business and our business results, we feel that we're kind of operating in a different way than most other retailers right now and we're pretty proud of that. So our trends are kind of transcending some of the dynamics like weather and mall traffic or other things. And certainly, from a promotional perspective, we've been actually able to drive healthy comp sales growth with actually pulling back in terms of broad discounting. Now having said that, we're really focused on using our loyalty program, our CRM capabilities, the whole toolkit of products and in-store experience to drive this great guest experience. So I'm not diminishing the fact that we're certainly in a promotional environment. We understand that. But we feel that our business is really well set up to perform really well at holiday because we're positioning ourselves as a great gift-giving destination and the formula is working well for us.

Understood. And just as one quick follow-up. Scott, was -- do you think -- was there any component in the gross margin that you would consider as a one-time expense related to the new distribution center?

Yes, well, we've been clearly stating throughout the year that third quarter was going to be probably the most significant headwind with respect to the supply chain investments, specifically around the distribution center there in Greenwood, Indiana. So that's the biggest one-time -- I guess, one-time, that's a tough term to use, but that was the biggest single factor as far as the deleverage was concerned in the third quarter. And again, that would -- we expect that to moderate now as we march into the fourth quarter. So I think the biggest challenge for the year in the gross profit line is kind of behind us.

Our next question comes from Matthew Fassler with Goldman Sachs.

I'll ask kind of a two-parter here, tangentially related. First of all, Mary, your initial insights on the economics of the marketing spend, I know this was a very big quarter for your marketing campaign and some of the broadcast advertising you did, some of your initial thoughts on the responses. And then, I guess, tangentially related, the mass business, it sounds like, gained share within the mix. That's something we haven't heard a lot about before. How do you relate that to marketing efforts, potentially, capturing new customers or to other things that are transpiring in the marketplace?

Okay. I love the way everybody's getting 2 questions in. That's pretty tricky. We'll try to get to as many as we can. Just kidding, Matt. Anyway, I guess I'll say a couple of things and maybe I'll ask Dave to add more to it as well. But initial feeling about our marketing mix evolution, I'm thrilled to death, frankly. I mean, this has been a journey that I think we've been on, as you know, for the past couple of years and say how can we evolve our demand creation smartly in a way that's going to just drive healthy, long-term growth in the business. And I couldn't be more pleased. I think every -- the team is just fantastic. We've done a lot of experimentation, been very careful about it to not swing the pendulum too dramatically. But now we're in a position to have this really full kind of marketing mix and we're just really getting started, I guess. And so that's a key part of, we think, one of the key growth levers for us going forward in terms of our ability to continue to get new guests and drive more market share gains with existing guests. And then on the mass side of the house, again, I'd ask [ph] Dave to add more, but I'm thrilled about that too because the whole brand promise of Ulta is, I don't mean to sound commercial here, but All Things Beauty, All in One Place is a very meaningful idea to our guests to be able to get categories and price points and brands. And we're really looking at that as something that's differentiated and ownable for the long term and as a result, all the categories have to be important to us and have to perform and they are. And maybe you could add some more about that, Dave.

Yes, yes, absolutely. On the marketing spend, we just started TV advertising in September, so it's probably a little early for us to fully judge the impact of the return on it. But we are really encouraged. We've seen, as both Mary and Scott talked about, increasing traffic. We're seeing a healthy increase in the key metric for us, which is membership sign-ups, and that was up 20% for the quarter as well. And so we'll continue to watch it, but so far, we're feeling very good about it. And as I think we've talked before, currently we have another cycle of television currently on air supporting our holiday efforts. So it's a tactic that we'll continue to drive, but it's also part of a much broader marketing mix. We think about TV, radio, but heavy digital, really digital in many ways being the center of our marketing efforts in really connecting and driving awareness and engagement with our guests. So we'll really dial that up as well, more PR, social media, those kind of things. So that will be a big part of our ongoing marketing campaigns. And briefly on the mass side, as Mary said, we'll continue to drive growth. Really, that growth has come at the same time we've been growing the prestige side as equally as well. So the growth is happening in all parts of our box, and we want that to continue.

Our next question comes from Daniel Hofkin with William Blair.

Obviously, terrific results. Before I ask my question, Scott, I have seen that you had been named top large company CFO by FEI, Financial Executives International, recently. So I offer my congrats on that.

That's nice to raise that...

I appreciate that. Thank you.

You get 2 questions.

It will be a one question, two-part. Just -- it's really actually just a little clarification on what's been asked already and then one thing about small store performance. You talked about impact of ads, obviously early to assess. But are there a couple things, either in terms of your online business or particular categories, that you think may have seen an outsized benefit from the ads so far? And then as it relates to margin, you indicated that mix was a factor on top of the supply chain stuff. But if you were to look at it on a same mix basis kind of within categories, could you just -- were merchandise margins, would they have been up, flat or down kind of within kind of on a same mix basis? And then my last question is just a quick update on smaller store performance.

Yes, just briefly on the advertising, really we're seeing healthy performance across all aspects. Scott and Mary talked about e-commerce, salon and of course, our core retail business categories are strong. So we really see that as supporting our total store, not any individual part of it and so far, that is definitely working for us.

And as far as the margin question is concerned, again, the distribution center drag was the biggest driver that deleveraged year-over-year. And as we mentioned in the prepared remarks, I mean, the mass -- the spike up in the mass comp kind of surprised us a bit. So net-net, year-over-year, merch margins were better, I mean, by and large, the reduced promotional cadence that we had this year versus last year. But the mass comp surprised us a little bit versus our forecast, I guess I would say. So again, a great thing overall for the business, and we're willing to take that part of the business to the bottom line as well, even if it is a little bit lower margin range.

And on small store, we're really pleased with the performance of the 2 stores that we're operating. And really what we're doing is learning about 2 kind of things at once, right, which is one is about operating alternate footprint and then continuing to learn about the smaller market opportunity. Both of those look promising to us, I guess is the way I would say it. So we already have several successful 10,000 square-foot stores in small markets. So a small market is not that new to us. But we see that as continuing to be a future opportunity, and I guess you can just continue to see us experiment with different footprint sizes that will give us more growth opportunities. So whether it's a small -- smaller store in urban or suburban streetscape, we're looking at all of those things. But those 2 stores in and of themselves are performing fine and give us some good insights.

Our next question comes from Aram Rubinson with Wolfe Research.

Question, I guess, I'll leave it to one, just to focus on the distribution center, I suppose, in Greenwood. When you guys think about -- before you opened it, you probably were worried about certain factors, whether it's the cost to build it, operate it, timeliness, et cetera. Just give us a sense as to what you learned so far and whether or not you'll be folding in those kinds of learnings to other DC nodes and how it's maybe changed your future thoughts of what that network is going to look like.

Thank you, Aram, and I guess I can answer that at a pretty high level. The first thing I would just say is actually we are really proud of our entire supply chain and DC team members right now because they work really hard, doing a lot of things at once, right? So the new distribution center, we're pleased with how that's going so far. All our DCs are busy with holiday and e-commerce fulfillment and really improving that year-over-year, so really great. And I guess the main thing I would say is that as we -- we're absolutely planning to take all learnings. It's in the process right now, and we're taking -- getting Greenwood up and running to apply it to the next distribution center. And we've got, in fact, the team from the future distribution center working at Greenwood over holiday right now to both help as well as to help gain insights in terms of how we can apply all the learnings, everything from across the board. So at a high level, I would say we're pleased with how it's going, still improvements to be made for sure, but we're very focused on making sure that we make it even easier, I guess, the next time.

Yes, and I guess I would just add. Again, we have a 5-year road map, right, for our supply chain and merch systems kind of rebuild and we've got a couple existing centers out there, right? So there's -- we're keeping at the back of our mind how the guest experience, how it's going to evolve over the long time and we're going to toggle back and forth to make the best decisions over the long term.

Our next question comes from Simeon Siegel with Nomura Securities.

So I don't know if this is redundant, I guess, Mary, to your -- to the point you were just making. Can you talk about how those learnings at Greenwood will help with Dallas? I mean, it presumably goes quicker and maybe less expensive. So any color on the right way to think about related expenses there, Scott. And then just given the other initiatives, can you give any help with total SG&A dollar growth for the fourth quarter and next year.

Yes, I guess, as far as Greenwood is concerned, again, just to echo what Mary's already said here a couple, we are tickled pink with how the team has executed down there, got the building opened. We're off the ground. We're servicing stores. We're hitting our e-commerce throughput targets there on a daily basis now, which just gives us a lot more confidence on what we're going to be undertaking in Dallas next year. Again, the learnings that we're generating every day there, the ability to apply that quicker. So I mean, to your point, we're working through our 2016 plan as we speak and thinking about how quickly we can ramp up Greenwood now, right, to add more capacity there to make -- to gain more efficiencies and cost savings and then how can we get out of the gate quicker in Dallas next year. So all that's kind of a work in process, and we'll be able to share more details with you on that in March when we give guidance for next year.

And then Scott, do you just know what percent of your SG&A is variable versus fixed offhand?

No, we don't get into that level of detail, Simeon. I'm sorry. When I look at kind of the aggregate for the fourth quarter, I think by and large, everyone's in the right zip code, I guess, when I look at margin, SG&A, kind of split. I think most people maybe are a little too conservative on the margin line. I think margins for the fourth quarter, the gross profit margin will be closer to flattish compared to last year. Certainly, you can work the math there with the offset on the SG&A line.

Our next question comes from Simeon Gutman with Morgan Stanley.

So 2 parts in 1 question. Can you just comment on the transaction growth? I think you said it in certain parts of the business, whether it's the same customer, or just tell us maybe the split between the growth coming from new customer versus the same. And second question, unrelated. Thinking about the services in your store, in particular, the salon capacity utilization, I'm assuming it's not 100. I'm sure the industry is not 100 either in that business. But what's -- what is the industry norm? Where are you relative to it? Any context around that?

Yes, I'll start with the transaction growth. We're really, again, pleased with what we're seeing and it's coming, I think, really from a variety of places. Certainly, as our member base grows, we're growing members and they're coming more frequently over time. So that's a very strong source of growth for us and will continue to be a focus for us. Our ability to connect with our members through our loyalty program, access to her in traditional vehicles that we've used like print, but also e-mail and digital and social, has increased her connection with us and that's definitely getting her in the store more often. We've also -- Mary mentioned that we've had an increasing success and ability in attracting or reengaging guests that have fallen off of our active member list, and we define active members as somebody that shopped with us in the last 12 months. So going back in time in members that haven't been as active, and we've been successful through our efforts to bring them back into the store. So that's helping with traffic as well, and then we're also really proud of the fact that we're adding new members at an increasing growth rate. So it's coming across the board, and we think that will be -- that's a really strong part of the success that we've had.

And on the services question, I can't tell you exact answer to the capacity question. I can tell you that we see this a great opportunity for our business going forward. That's why it's one of the strategic imperatives, and we're actively and I think aggressively growing the business. We know that when somebody is using, for example, our salon, any of our services, they're going to be coming more often, spending more, they're great guests. Today, only under 7% of our loyalty members are using the salon, for example. So we know there's plenty of upside there across all 3 of services that we provide and we'll continue to be looking at how high is up with that.

Our next question comes from Rupesh Parikh with Oppenheimer.

This is Erica Eiler on for Rupesh. So I wanted to switch gears here to the holiday selling season. It sounds like you have some exciting exclusive kits going on. I guess I'm just curious, how do you feel you're positioned this holiday season versus prior years? And then maybe you can talk a little bit about Black Friday, how that performed versus your expectations. Were there any significant differences versus last year? And then maybe just color on what you saw online versus in-store, that will be helpful.

So let me take the Black Friday part to the extent that I can comment on, and then Dave maybe you can take the part for how we're set up for the holiday, okay? So obviously, I can't comment on specific trends in the quarter. The guidance that we've provided incorporates what we've seen to date, here's what I will say though that I'm really pleased with the execution that we're seeing, in-stock levels, staffing in stores, the offers themselves. Probably one of the most significant things is our e-commerce service level, strong improvement. We've really focused on that year-over-year to improve our fulfillment capabilities and delivery speeds. And just for a moment, I actually do just want to call out, this is a really good example of what I think is kind of, I guess, every CEO will say this, but I think pretty unique at Ulta, which is people working together in truly collective ways against a broader kind of purpose. So even just improving e-commerce fulfillment takes a big cross-functional effort, and we're very focused on how our teams continue to improve and collaborate and communicate and get better every day. So -- and that all sets us up well for the future.

Yes, and as far as overall kind of holiday execution, we're obviously right in the middle of it and are really feeling great about our preparation and the way we try to bring our brand to market so far this holiday and feel a lot of confidence throughout the rest of this holiday. We have a totally new approach towards our marketing efforts. I mentioned earlier, that includes mass media really for the first time. Our stores, we think, look better than ever. Floor really integrated. We think very strong holiday look that then has been infused in all of our marketing tactics, online and social, digital, magazines. All -- every touch point has a really consistent, coherent look that we're really excited about. Our products, we think, are stronger than ever across all categories. Certainly, prestige cosmetics has some very strong items -- holiday items. Mary mentioned a few of those from key brands like Benefit and IT and Tarte. Just this week, we launched our Gwen Stefani palette with Urban Decay. So there's a lot of newness coming out. NYX, in the mass side, has some great new holiday offers that are, we think, really exciting. And the Ulta brand itself, as always, has very strong holiday, and we think those are better than ever. And haircare is strong for us as well. And finally, our fragrance business is -- this is the biggest time of the year for fragrance, and we have a lot of newness across a variety of brands. Offers such as our robe are some of the biggest things we do throughout the year in that category. So across-the-board, we're feeling really good about our execution, and we'll be watching our results carefully.

Our next question comes from Mark Altschwager with Robert Baird.

I know you don't want to talk about 2016 guidance, but maybe bigger picture in the context of the multiyear plan. That plan calls for annual comps in the 5% to 7% range. Obviously, you've well exceeded that this year so far and comparisons get tougher. But now that you're a year in and you've seen the results of some of these marketing and merchandise initiatives, does that maybe change your thinking at all regarding what the base level comp is that this business is capable of over the planning horizon?

Well, I guess I'll take a shot at this. We're still -- we got to close out 2015, right? We're still a long way from being complete, I guess I would say, to get through the holiday season here. We're feeling great about the business. The underlying trends are very strong. We feel like we have a lot of levers. We're in control of those, right? A lot of new merchandise newness coming through the business, the loyalty programs doing better than what we expected. We've got some of these brand awareness things out that are really kicking in, but we're -- we still have to see the results in some of that, right? We're still in the very early stages. So the long-term guidance we gave last year was 5% to 7%, higher in the earlier years, a little bit more moderate in the out years. We're going to kind of stay consistent with our practice. We're going to give guidance on 2016 next March, early next March and we'll be able to share more details with you on how we see 2016 rolling out and maybe a little bit more about the longer term at that point.

Our next question comes from Brian Tunick with Royal Bank of Canada.

This is Bilun Boyner on for Brian. First, I guess, we wanted to ask if there were any particular differences in prestige and mass trends in Q3. And then from a higher level, I guess, newness or pricing perspective, do you see any differences in industry trends between the 2? I guess then my very quick second question is on uses of cash. Looks like the cash balance is building nicely. So could you maybe remind us how you're thinking about uses of cash?

I didn't -- the first part, the difference between prestige and mass...

In terms [ph] of trends...

Trends in the industry, have we seen any differences in trends and what's going on in our pricing, I guess...

Yes, pricing and trends in the industry. I mean, certainly, yes, in the broader industry we watch and as it has been for a little while, prestige has been growing in the industry. And in total, as we look at probably the same reports that you do, that's been growing faster than mass. But again, what we're really focused on is driving that total All Things Beauty, All in One Place. What, as Mary has mentioned, what's really working well for us right now is driving greater awareness, getting her into our store more frequently, but then getting her to experience the whole store and that's all categories. And she -- once she gets in, she might come in for mass, she might come in for prestige or hair or fragrance. But then we work hard through our CRM capabilities to get her introduced and engaged in all categories. So again, we're seeing growth across the entire store, and that's something that we'll continue to drive and that's what really what we're focused on despite what's happening outside of the store.

And as far as capital allocation is concerned, I guess, I would say we're very, very excited to be able to invest the way we are in our business and still be able to return significant cash to shareholders, most recently through repurchases. But over the course of the last 3 years, we returned roughly $260 million to shareholders through special dividends and share repurchases. So again, I think that demonstrates management and the board's focus on making sure we do what's right for shareholders over the long term and again, we'll right size that or change tactics as facts and circumstances change.

Our next question comes from Ike Boruchow with Wells Fargo.

I guess, Mary, when you look at the prestige portion of your business, it seems like the fragrance side of the industry has been a little weaker over the last 12 months. I guess I would think that I'm -- fragrance will be a larger piece of your business during the holiday given it's more of a giftable item. So I guess, how has that been trending for you? And how do you think about the prestige fragrance part of your business for holiday within your plan?

Yes, I mean, it is definitely a bigger part of the business at holiday. We do a lot with our Gifts with Purchase and our guests love that. Our fragrance trends were strong in the last quarter. As you know, it's a bit of a up and down category, I guess I'd say in terms of it's a little bit more trend driven. We think the prestige side is obviously a really strong part of the category that tends to be a little more consistent, I guess, is what I would say. But important category for us. Again, it's part of the overall brand promise. We're just trying to pick our spots to make sure that we got the right portfolio for our guests and for our business.

Our next question comes from Oliver Chen with Cowen and Company.

We just had a question regarding out of stocks. It sounds like there's a lot of nice opportunity ahead. Which parts of the store would you say have the best low-hanging fruit in terms of improving the out of stock levels? And then just taking a step back, your traffic has been so impressive. Is there any way for you to prioritize the various aspects that have really been helping you buck the trend and gain share?

Yes, let me take the out of stock question here, first of all. Again, all the supply chain things we're doing and the merchandising systems that we're making significant investments in today are going to help us with our in-stock position over the long term, both making sure we have the right product in the right store on the right shelf across the chain and just make us more efficient throughout the network, from the vendor dock all the way to the shelf in the store. So there are many different elements, I guess I would say, levers along the way. Part of it is the Swift tool that Mary described earlier today. The distribution centers play a big part in that, but there's also space planning tools and other master data things that we're doing. So it's like a continuum. It's a large broad section of things that we're putting in place to help with in-stocks overall. There's no -- I wouldn't say there's any one specific category or brand or anything like that, that we're focused on. It's just the store overall. So the easiest thing I would point to is A and B items, right? So the fastest, most high velocity SKUs were today we can't really work up accurate forecast to share with our vendors, that would be one thing that we're going to improve in the future that's going to help us stay better in stock. So there's no -- I wouldn't point to any one item. There's a number of items that we're going to implement to help us with that and it's going to help across the network.

On the traffic question. First of all, I would say we're proud that our traffic trends are transcending what's really happening at retail, and we're successfully driving a lot of healthy traffic to the stores. It's really not -- there's not exact science to this, I will tell you, and that's probably not [ph] what you want to hear. But the good news is it does feel like -- it looks like a lot of things coming together. So more relevant product portfolio, loyalty program, this broader marketing mix that includes things that can help drive -- are helping to drive awareness and new guests acquisition, CRM, online and in-store experience. So it's kind of like all of them together is really what we think is the magic that's working for us. And we think -- we're confident we'll be able to continue some of those levers, and we think many of them have multiyear runways.

Our next question comes from Joe Altobello with Raymond James.

Just 2 quick ones. I guess, first on the traffic. Obviously, it sticks out, as you guys alluded to, relative to other retailers this season. And the national TV advertising, I think you said started September 7. Did you guys see a pickup in traffic post that advertising launch? Or was it really pretty stable and steady throughout the quarter? Number 1. And number 2, quick one for you, Scott. The tax rate, you said, 37% for the fourth quarter. Is that a good rate to use next year because the difference between 37% and 38% is about $0.10, so it matters.

Yes, on the specifics around the TV and the traffic, again, one thing I'd start with is really TV is a big kind of visible one, but it's very much is a holistic integrated marketing campaign across multiple vehicles. But I will say the TV was timed to launch with our 21 Days of Beauty event in September, and we did see very strong traffic and a very nice, healthy increase in traffic during that event and as we -- but it wasn't just that event as evidenced by the traffic throughout the quarter. We feel like -- we feel really positive about how that traffic sustained throughout the quarter. So yes, strong when we came on, but continued strength.

And as far as the tax rate is concerned, I guess I'd split the baby, so to speak. I'd use 37.50% for next year as kind of a best estimate at this stage.

We have time for one more question. Our final question comes from Jason Gere with KeyBanc Capital Markets.

I guess a question more on shipping. And I was just wondering from the e-commerce -- and I understand that Indiana is just up and running right now. But can you talk about how competitive your shipping is versus maybe some of the other competition out there? And on that note, do you have in all your stores the option for in-store pickup? So I was just wondering if people don't want to wait 3 days or if it's 1 to 2 days, have you seen in-store pickup that might actually contribute to the comp that you saw here that once people come in to pick up then they start browsing and doing a little bit more shopping. So really the question kind of around shipping and how that kind of plays out.

Yes, first of all, just no, we do not currently offer in-store pickup, buy online, pick up in the store. We are in the midst of long-term omnichannel road map that -- and that's something that we'll consider, but that's not currently something that's offered today. As it relates to our shipping in total, yes, Greenwood is an important part of it. Improvements we've made in our existing DCs have led to what we think is a very competitive shipping window and time frame. We did -- as we've talked before, we weren't as pleased with some of the customer service that we had last holiday, and so we've worked very hard, including opening a DC but working with our supply chain partners, IT partners to make sure that our service level -- so we feel it's very competitive, and we know it's an ever evolving landscape and we'll continue to make improvements. But we're happy with how we're going to be servicing our guests this holiday season.

I would now like to turn the call back over to Mary Dillon for closing remarks.

Thank you. I'd like to first thank our associates for achieving these great results. They continue to make great progress on our strategic imperatives and taking care of our guests, especially during this very busy holiday season. I want to thank all of you for your interest in Ulta Beauty. We look forward to speaking again with you soon. Thank you.

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