Greetings, and welcome to the Ulta Beauty Second Quarter 2019 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Ms. Kiley Rawlins, Vice President, Investor Relations. Please proceed.

Thanks, Ben. Good afternoon, everyone, and thank you for joining us today for Ulta Beauty's second quarter earnings conference call. Hosting today's call are Mary Dillon, Chief Executive Officer; and Scott Settersten, Chief Financial Officer. Dave Kimbell, President and Chief Merchandising and Marketing Officer, is also with us today. This afternoon, we released our financial results for the second quarter of fiscal 2019. A copy of the press release is available in the Investor Relations section of our website at www.ulta.com. 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 caution you not to place undue reliance on these forward-looking statements, which speak only as of today, August 29, 2019. We have no obligation to update or revise our forward-looking statements, except as required by law, and you should not expect us to do so. Please note that in our comments today, we will reference non-GAAP earnings growth, adjusted for the impact of income tax benefits in the second quarter of 2019 and to the second quarter of fiscal 2018. We'll begin this morning with -- or this afternoon with prepared remarks from Mary and Scott. Following our prepared comments, we will open the call for questions. To allow us to accommodate as many of you as possible during the hour scheduled for this call, we ask that you ask one question only during the Q&A session. Now I'll turn the call over to Mary. Mary?

Thank you, Kiley, and good afternoon, everyone. The Ulta Beauty team delivered another quarter of solid top line performance, gross margin expansion and double-digit earnings growth. To recap our financial performance for the quarter, total sales grew 12%; comp store sales increased 6.2% on top of 6.5% growth in the second quarter of last year; gross margin expanded by 40 basis points; and diluted earnings per share, excluding the tax benefits, increased 11.5%. Looking forward, however, we've adjusted our expectations for the second half of 2019 to reflect the headwinds and volatility we're currently seeing in the U.S. cosmetics market, and we'll share more with you how we're thinking about the current sales environment. But let me reiterate, our differentiated model is winning in the marketplace, and we continue to invest in building the long-term capabilities that will further expand our leadership position in the dynamic beauty industry. Year-to-date, we've continued to expand our market share across most categories, increased our brand awareness, delivered double-digit growth in active loyalty members, increased traffic and delivered double-digit growth in almost every key merchandise category. I will also add that our salon business is showing real comp strength as we're executing on our optimization strategies. That said, the cosmetics category at Ulta, which is roughly 50% of our business and one of our highest margin categories, has only delivered in the low single-digit growth year-to-date, well outperforming the market, but below our expectations. So let me explain more. Ulta Beauty continues to drive meaningful market share growth in makeup across mass and prestige, but it's clear that cosmetics in the overall U.S. market is challenged. After several years of very strong performance, growth in the makeup category has been decelerating over the last 2 years, but recently turned negative. Based on the latest track data, the cosmetics category in the total U.S. market has experienced mid-single-digit declines through the first 6 months of 2019 and has been more volatile in recent weeks. Notably, when we look at sales growth by brand, we see that most of the top brands across both mass and prestige are negative year-to-date. We'd expected this trend to stabilize and improve as we move through 2019, but we now believe that the softness we've seen so far in 2019 will continue through the remainder of the year. We believe that the main issue driving this softer cycle in cosmetics is that the newness and innovation that have been the focus of most brands this year has just not driven the kind of incremental growth we've enjoyed for some period of time. Over the past several years, we've seen strong growth in cosmetics, driven by new rituals and application techniques, like contouring and brow styling, and innovative new product formats like liquid lip, palettes and minis. This innovation resulted in new makeup routines requiring new products which drove strong incremental growth. The most recent cycle of innovation has just not driven those behaviors, resulting in a soft cycle for the cosmetics category in the U.S. as innovation and newness brought to the market has not driven the expected growth. By contrast, as I mentioned earlier, we're seeing very strong growth in every other category. In the case of skincare, category and brand innovation is driving new rituals and incremental purchases, thus driving strong comps. And we're continuing to drive market share gains in the category, but of course, skin care is a smaller part of the business. We believe the industry-wide challenges in the makeup category will continue in the near term, and as a result, we've adjusted our outlook for the rest of 2019 to reflect ongoing volatility in the category. Leveraging our guest insights, we are working very closely with all of our brand partners to ensure that the innovation pipeline pivots to more exciting incremental innovation. We are optimistic the cosmetic category in the U.S. market will move back to growth, but we need more time to move through this innovation cycle. In the meantime, our team is laser focused on the exceptional execution and guest experience that we know our team delivers in-store and online. We'll continue to build on our momentum in non-makeup categories while we work to stabilize growth in makeup categories. To that end, we have a number of exciting new and exclusive product launches planned for the second half which I'll discuss in more detail in a little bit. Despite the near-term headwinds, we remain confident that our differentiated and diverse business model, our commitment to our strategic investment, and our highly engaged associates will continue to drive market share gains and deliver strong returns for our shareholders. Let me give you now an update on the progress we've made this year on our strategic imperatives. Our first strategic imperative is to drive growth across beauty enthusiast segments, and we're making good progress. Reflecting data for the February through July period, Ulta Beauty now represents 24.5% of the prestige beauty market, as tracked by NPD, an increase of 210 basis points from a year ago. We continue to expand our brick-and-mortar footprint. In the second quarter, we opened 17 net new stores, relocated 4 stores and remodeled 8 stores compared to 19 net new stores, 1 relocation and 7 remodels in the second quarter of last year, ending the quarter with 1,213 stores. New store productivity remains strong, with first year sales trending ahead of plan, and we remain on track to open 80 stores this year. Now turning to our second imperative, to deepen love and loyalty for the Ulta Beauty brand, our brand awareness continues to grow, and our "Possibilities are Beautiful" campaign and inclusive positioning have been very well received and very effective as measured by our marketing analytics tools. Unaided awareness grew by 5 points to 56% compared to the same period a year ago, and our aided awareness increased to 91% from 90%. Importantly, we continue to strengthen our connection with consumers across the spectrum, including the increasingly influential Gen Z segment, where we've been recognized as a leader among beauty retailers. Guests also continue to respond well to the compelling combination of our loyalty, credit card and gift card programs, resulting in double-digit growth in all 3 programs for the second quarter. Our Ultamate Rewards loyalty program has grown to 33.2 million active members, an increase of about 13% since the second quarter of last year. We continue to see nice growth in the number of guests who achieve platinum and diamond status, our most engaged guests as well as growth in overall sales per member. Our loyalty members account for more than 95% of sales, and we're using insights about preferences to create more personalized recommendations, replenishment reminders and unique offers, all to drive deeper engagement and increase spend per member. We're making nice progress on this effort as the number of guests receiving these personalized recommendations and replenishment reminders continues to grow. We've also begun to use artificial intelligence in our effort to drive promotional effectiveness. By leveraging data, we're identifying guest responsiveness to different types of offers and using these insights to help us determine the best offer to present to each guest with the goal of building a larger basket and driving incremental sales. Our marketing events in the second quarter were anchored by omnichannel campaigns, including our Gorgeous Hair event, our new Summer Splash campaign and our semiannual Jumbo Love event. We augmented these multiweek events with a number of new smaller events, including Mascara Bonanza and National Lipstick Day. Now turning to our imperative to deliver a world-class beauty assortment. Our merchant team is doing a great job curating a highly differentiated omnichannel offering across all of our categories. Newness drove about 20% of our total comp this quarter, driven primarily by new items in skincare and cosmetics. From a category standpoint, we saw strong sales growth this quarter in skincare, hair care and personal care appliances. Skincare continues to be one of our strongest growth categories, with prestige, mask and sun care all delivering double-digit comps this quarter. As I mentioned earlier, this category strength is being driven by strong innovation, supported by new ingredients like moisturizers with SPF and sunless tanners and new skincare rituals like serums and masks. Mask skincare delivered strong comps driven by growth from both new and core brands. We implemented our mask skincare reset in July and added several new brands for assortment such as ACURE, a clean skincare line; and a brand called Naturally Good For You, which includes both skincare and supplements in the regime. We also launched The Ordinary, a skincare collection founded to offer results-driven products at an affordable price point. We initially launched The Ordinary on ulta.com and recently expanded the brand to 400 stores. Sales in suncare were also robust driven by an expanded selection of self-tanning products and sun protection options. In prestige skincare, newer brands like Kiehl's and Tula Life drove strong guest engagement, while more established brands like Dermalogica benefited from strong product newness. In addition, new exclusive emerging brands, including Awake, Fountain of Truth and Cannuka all contributed to the strong growth in the second quarter. And earlier this month, we launched a favorite indie brand Sunday Riley in all stores, and later this quarter, we'll extend our exclusive partnership with Kylie Cosmetics with the introduction of our full line of Kylie Skin also in all doors. Haircare delivered another quarter of strong high single-digit comp growth, reflecting the success of our Gorgeous Hair and Jumbo Love events and supported by the reflow we completed in the first quarter. Fragrance delivered solid mid-single-digit growth this quarter, driven primarily by Ulta Beauty exclusive as well as newness from luxury brands YSL and Versace. We have some exciting new exclusives coming in fragrance this quarter, including Thank U, Next, a fragrance from Ariana Grande. Personal care appliances delivered strong double-digit growth driven by strong demand for Dyson products and the Revlon One-Step Volumizer Hair Dryer as well as new one-step products from Bed Head and Hot Tools. Now as we discussed earlier, the cosmetics category overall at Ulta delivered low single-digit comp for the quarter, reflecting double-digit growth in mass cosmetics and low single-digit growth in prestige cosmetics, including ICONIC brand. This performance was in spite of weak category trends in the U.S. market, as I mentioned before, especially in prestige. Due to the strength of our business model and ability to secure some important exclusives, we continue to drive significant market share gains in the category. Mass cosmetics continued to benefit from the reflow we completed earlier this year which allocated additional space for exclusive or limited distribution brands. In addition, newness continues to drive strong growth in traffic, especially with our exclusive brick-and-mortar brands such as Morphe and Juvia's Place. In addition, we continued to deliver newness and innovation through the Ulta Beauty Collection. In the second quarter, we partnered with Frida Kahlo Corporation to launch an exclusive makeup line within the Ulta Beauty Collection, and guest response to the collection has exceeded our expectation. And earlier this month, we debuted the exclusive Girls United collection, created by 6 talented African-American young women through a special mentoring initiative with ESSENCE magazine. Prestige cosmetics was mixed. We continue to see strong growth from our iconic prestige brands driven primarily by the expansion of Clinique and Lancôme to additional stores. In addition, prestige cosmetics sales benefited from strong growth from new brands such as Kylie Cosmetics, and newness, including the introduction of Tarte's Big Ego Mascara, which launched [ versatile ] to Beauty, and the expansion of a collection of vegan and cruelty-free lashes for multiple brands, including Tarte and Velour. These gains were offset by soft performance in a number of other established brands in the portfolio. Looking forward to the second half of the year, we have a number of new exclusive product and brand launches planned, which we believe will have a strong appeal for our guests. In prestige, we have an exciting new exclusive brand launch planned this quarter. KKW Beauty by Kim Kardashian West is coming to Ulta Beauty. With more than 146 million Instagram followers, Kim is one of the strongest forces in pop culture, and we are very excited to extend our partnership with her. The new collection will launch with 67 SKUs and include products that are most iconic to Kim, including contour and highlight kits, new lip and versatile eye looks. And for holiday, we'll offer our guests 2 exclusive holiday kits available only at Ulta Beauty. We also have some exciting news to share in mass cosmetics. We just unveiled the launch of Florence by Mills, a collection created by Millie Bobby Brown, star of a Stranger Things. Millie is an influential voice within her generation, and has more than 27 million followers on Instagram. Exclusive to Ulta Beauty, Florence by Mills offers a fresh, fun approach to clean beauty with a universal range of both skincare and makeup products that will appeal to all guests, especially Gen Z. In addition, we have a number of new Morphe collaborations with key influencers in the pipeline for the second half. The first collaboration launched just this week with Jeffree Star, one of the most prominent social media influencers in beauty today, and offers guests a collection of makeup and accessories. As we've discussed on previous calls, emerging brands and digitally native brands are driving new growth within the beauty channel. At Ulta Beauty, we have a strong track record of successfully working with digitally native and emerging beauty brands. And our footprint of more than 1,200 stores and more than 30 million loyalty members positions us very well to be a great partner to these brands as they evolve and expand their reach. To support this effort, last year, we created a new dedicated team within our merchandising organization to focus on identifying smaller or emerging brands across all beauty categories and working with them closely to ensure they're successful in a retail environment. Year-to-date, this team has launched more than 30 unique new brands. To showcase these brands and give guests the opportunity to discover, explore and play with new emerging brands, we debuted Sparked at Ulta Beauty at Beautycon earlier this month. Sparked at Ulta Beauty is a new platform designed to feature a curated, ever-evolving selection of emerging brands across all categories in select stores and on ulta.com. While we're optimistic that these exciting makeup initiatives will enable us to continue to gain market share throughout the remainder of the year, we believe the U.S. cosmetics category will continue to be soft in the second half, driving further declines in several leading brands and pressuring total makeup results at Ulta. Now moving on to our imperative to transform the in-store and beauty services experience, we've completed our services optimization program at all stores, and we are very encouraged by the improving trends we're seeing across the board, in staff recruitment and retention, average ticket and guest engagement. As a reminder, this effort is both associate and guest-facing. To attract and retain top talent, we've implemented a more compelling compensation structure and a newly formed field-based leadership team to support industry-leading training and education programs. For the guests, we've simplified our service menu, introduced new services and made our pricing easier to understand. We continue to leverage our highly influential Pro Hair team, which is made up of industry-leading educators and platform artists, which helps us attract top talent. This talented and award-winning team is creating excitement and raising awareness of Ulta Beauty's brand within the beauty industry through participation in national and local events that highlight the artistry and opportunity that exist at Ulta Beauty. In addition to optimizing the services business, we're also integrating our services business with more of our marketing campaigns and larger merchandising strategies. In conjunction with our Gorgeous Hair event, we launched a new blowout program, introducing 5 new looks created by the award-winning Ulta Beauty Pro team. And we continue to leverage back bar takeovers to introduce new brands like Living Proof and ELEMIS to guests and to drive add-on purchases. Now I'll turn to our fifth strategic imperative, to reinvent beauty digital engagement. During the second quarter, we successfully completed the rollout of buy online, pick-up in store to all stores. While it's still early, guest response to this convenient omnichannel experience has exceeded our initial expectations. We know our omnichannel guests are our best guests, and we believe this capability will make it even easier for guests to seamlessly shop between our online store and our physical stores. In conjunction with the launch of BOPIS, we also enhanced our mobile site and app with an improved product detail page that has a cleaner look and feel, including better visibility to in-store inventory availability. We continue to leverage augmented reality and artificial intelligence to create compelling beauty experiences for our guests. During the second quarter, we updated GLAM LAB, our virtual try and experience, to include live try on for Android devices. We also began testing our skincare virtual beauty adviser online, which is powered by AI and AR, and provides guests easy ways to get skincare advice. Lastly, I'd like to announce 2 partnerships in the digital space. First, we recently announced a new exclusive partnership with Samsung and Revieve to provide beauty enthusiasts with access to personalized skincare diagnostic information, targeted product recommendations and the ability to quickly purchase products from ulta.com directly through Samsung's virtual assistant, Bixby Vision. And second, later this year, we'll offer our guests the ability to use Afterpay on ulta.com. We know that some guests, particularly younger ones, are sensitive to accumulating personal debt. Afterpay allow shoppers to receive products immediately and pay for them in 4 installments without taking out a traditional loan or paying upfront fees or interests. Afterpay's "buy now, pay later" option will offer guests more freedom and flexibility without the wait. Underpinning and fueling our strategic imperatives are our ongoing efforts to deliver operational excellence and drive greater efficiencies. We continue to enhance our supply chain investments, including a recent end-to-end optimization of our store shipment categories, which both improve DC processing efficiency and reduce sorting time for products in stores. In addition, our store on-time delivery trend continued to improve this quarter delivering 80 basis points of improvement over last year. And finally, we continue to make progress toward our goal of 2-day e-commerce shipping by 2021, with the successful conversion of our Romeoville distribution center to an e-commerce fast fulfillment center. The team completed the transition seamlessly and was able to leverage much of the existing infrastructure for the new operation. The facility began fulfilling guest orders in early August and is currently fulfilling about 10% of our total e-commerce volume. With that, I'll turn it over to Scott to discuss our second quarter financials and our updated outlook for the rest of the year in more detail.

Thank you, Mary, and good afternoon, everyone. I'll start with the income statement. Sales growth of 12% was driven by a 6.2% comp and strong new store productivity. Increased traffic drove the majority of our comp for the quarter, with transaction growth of 5.4% and ticket growth of 0.8%. Although we no longer break out e-commerce growth specifically, I can share that ultra.com growth was towards the high end of our expectations of 20% to 30% growth, driven by traffic. Looking at trends through the quarter. We began to see more volatility in our sales trends in July and pulled a number of levers to drive traffic and deliver healthy top line growth. On the gross profit line, margin of 36.4% improved 40 basis points year-over-year from 36%, driven by leverage of rent and occupancy expense and stronger merchandise margin, partially offset by investments in our services business. Our supply chain operations were roughly flat as a percent of sales as leveraging our DC operations was offset by growth in e-commerce. To provide more color on our merchandise margin, we continued to benefit from efforts related to our efficiencies for growth, or EFG program. This goodness was offset by increased promotional activity to drive traffic as well as ongoing mix headwinds. SG&A rate of 23.6% deleveraged by 90 basis points compared to the prior year's rate of 22.7%, reflecting planned deleverage and corporate overhead related to investments in growth initiatives, including our efforts around digital innovation, including omnichannel and personalization, and our recently announced Canadian expansion. We also saw deleverage in store labor versus last year, primarily due to continued investments to support the guest experience. Operating margin of 12.5% of sales was down 50 basis points. Given our investment agenda, we had planned for operating margin deleverage for the quarter. The effective tax rate for the quarter decreased to 23.1% compared to 23.9% in the second quarter last year primarily due to an increase in federal income tax credits. Diluted GAAP earnings per share grew 12.2% to $2.76 compared to $2.46 reported for last year's second quarter. Adjusting for the $0.04 of tax benefit this year and the $0.02 tax benefit last year, EPS increased 11.5%. Turning to the balance sheet and cash flow. Total inventory grew 7.9% and was flat on a per-store basis. We continue to manage our inventory effectively, investing in key growth areas while reducing unproductive inventory to hold average inventory per store flat to last year while delivering a 6.2% comp increase. Our in-stock position also remained strong through Q2 as we focused on investing inventory in our top sellers, new brand and product launches and key promotional events. Capital expenditures were $79.3 million for the quarter, driven by our new store opening program, investments in IT systems, and store remodels and relocations. We ended the quarter with $327.4 million in cash and short-term investments. We repurchased 791,000 shares at a cost of $270.9 million through our stock repurchase program. $517.3 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, we have the flexibility to modify the cadence of repurchases in response to market conditions. Turning now to guidance. As Mary indicated, we have updated our outlook for the remainder of the year to reflect our expectations for ongoing challenges in the makeup category. Before I get into specifics, I'd like to spend a moment giving you a little color on the bridge between our initial 2019 guidance and our updated view. As we put together our fiscal 2019 plan, we assumed a strong mid-single-digit comp based on an expectation that we would see strong performance for makeup overall and an improving trend in prestige makeup, which would contribute to both sales and margin improvement, with an acceleration in the second half of the year. These gains would be partially offset by necessary strategic investments to support healthy long-term growth. Based on second quarter results and more recent trends in the U.S. cosmetics market, it has become apparent to us that we will not see the improvement we had expected in prestige makeup and that we will likely also see moderation in the mass makeup sales trend. As a result, we have lowered our sales and gross margin expectations for the second half of the year. We are adjusting controllable expenses where appropriate but will continue to invest in initiatives that drive long-term growth, such as digital innovation, our salon services strategy, expanding our omnichannel capabilities, IT security and infrastructure, and initiatives to enhance the guest experience. Specifically, for fiscal 2019, we continue to expect to open approximately 80 new stores. All are traditional 10,000-square-foot prototypes. We plan to remodel 12 stores and relocate 8 stores and execute 270 store refreshes or mini-remodels to enable the addition of new brands and improvements to overall fixturing. We anticipate driving top line growth between 9% and 12%, with total company comparable sales planned in the 4% to 6% range compared to previous guidance range of 6% to 7%. We continue to expect e-commerce to grow in the 20 to 30 percentage range, contributing approximately 200 basis points to comparable sales. Although we are no longer providing precise quarterly guidance, we expect comparable store sales growth in Q4 will be stronger than Q3 as we benefit from holiday newness within the assortment. We expect to deliver earnings per share in the range of $11.86 to $12.06, with approximately 60 to 70 basis points of operating margin deleverage. This compares to previous guidance of $12.83 to $13.03 and approximately 10 to 20 basis points of operating leverage. We continue to expect to deliver gross profit improvement for the year driven by merchandise margin expansion, rent and occupancy expense cost leverage, and the benefits of our credit card program, albeit lower than our previous expectations. These benefits will be offset by more SG&A deleverage than initially planned due to the lower sales expectation, which will increase deleverage of store labor and investments in growth initiatives and innovation. Thinking about the flow of earnings in the second half, we are planning for EPS in the third quarter to be flat to lower as compared to the third quarter last year. While we continue to expect gross margin expansion in Q3, our lower comp expectations will result in more SG&A deleverage in the quarter. For Q4, we are planning for EPS growth in the mid-single-digit range, reflecting our higher expectations for Q4 sales. We plan to spend between $340 million to $350 million in CapEx compared to previous guidance of $380 million to $400 million. This includes CapEx of approximately $170 million for new stores remodels and merchandise fixtures; $130 million for supply chain and IT, including new fast fulfillment centers; and about $50 million for store maintenance and other. Depreciation and amortization expense is planned to be approximately $300 million compared to previous guidance of $315 million. We expect our tax rate for the year to be 23%, 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, and our plan assumes share repurchases in 2019 in the $700 million range. And with that, I'll turn it back over to Mary.

Thank you, Scott. Before we begin the Q&A session, I'd just like to take a step back to recap our perspective on the quarter, our current challenges and the strength of our differentiated business model. While the second quarter results were solid, as Scott said, we've updated our guidance to reflect our best assessment of second half performance based on our expectations for the U.S. makeup category. We are doing our level best to both set realistic short-term expectations and ensure that we work with our brand partners to stabilize and then grow the important color cosmetics category. I am confident we can do that. Our unique business model, representing all of the major categories of beauty, a range of price points and access to many exclusive and digitally native brands, is enabling us to drive growth and market share gains in spite of headwinds in our largest category. We've expanded our gross profit margin, increased our brand awareness, driven traffic growth, expanded our loyalty program and exceeded new store performance targets. We are relevant to a large and diverse set of beauty enthusiasts, and we're focused on attracting growing demographic groups like teens, millennials, Latinas who all over-index in beauty. We have a powerful and increasingly personalized loyalty program with strong guest engagement. We're also driving strong momentum in our salon business based on our actions to optimize the experience. And I'm proud that we have a team that continues to deliver operational excellence and exceptional guest experiences every day. That said, we are not immune to macro cycles like what we're currently seeing in the makeup category, but I am optimistic and committed to ensure that we'll move through these near term headwinds. And I believe we have the right strategy, the right business model and the right team to continue to grow and win over the long term. And now I'll turn it over to our conference call host to moderate the Q&A session.

[Operator Instructions] The first question comes from Steph Wissink who's with Jefferies.

Mary, I'll ask you this one first and I have a related question for Dave. So if you could help us think about the comp guidance for the back half, what component is category versus your relative outperformance to the category? So asked another way, how much of that is purely macro or backdrop? And do you expect to kind of retain share and follow the backdrop? Or do you expect to see some of that share advantage released? And my question for Dave is on the comments that you made on mass versus prestige. I think you indicated mass cosmetics up double digits, prestige up low single digits. Anything in your data that would suggest the consumer is trading down from prestige into mass?

Hey, Steph, thank you. At the risk of reiterating, I will just say that I think your question's spot on. We're very confident that our business model is working, and it's going to continue to work. We are outperforming the rest of the market. We believe we're going to continue to do so because of the many assets that we have from a brand that's known and loved, our loyalty program, our omnichannel capabilities, digital capabilities, a lot of the exclusives that we have in our assortment. And the fact that we've got the ability to work across all categories really works for our advantage, right? Because we've had very strong growth at all the categories right now, except for makeup. But yes, the makeup category is challenged. We're winning. I'd say we've hit -- the category has hit a bit of a speed bump, and we're working with our brand partners, big and small, really to pivot this. And so to us, as we look at the second half, it's really about -- we've talked about this for several quarters, that after years of very strong growth -- cosmetics has been growing but at a somewhat slower rate than it had been. But really, I'd say trends deteriorated further late in the second quarter and even more recently into this quarter. And so we would say as we look at this, we figure, okay, it's going to stay for a while until get through this cycle. But I'm confident that our ability to drive share gains will continue. I don't see anything in our business model that makes me feel otherwise. And Dave, do you want to comment about the other question?

Right. On mass cosmetics, so as both Mary and Scott said, our mass business did perform somewhat better than our prestige business. In both categories, we gained share and we think we outperformed the total industry significantly, which allowed us to continue to grow our business. In the mass side of the business, we probably had a bit more advancement in shifting our assortment away from brands -- broad brands into brands that are a bit more limited and exclusive distribution at Ulta Beauty. So our business has been stronger, but we believe in what we see in the marketplace that the mass total U.S. makeup -- mass makeup category is equally as challenged relative to prestige. So we don't believe there's a shift between prestige and mass as much as an overall malaise driven by the innovation trends that Mary pointed out. We're confident that the innovation that we're bringing in both mass and prestige will allow us to continue to gain share, but the softness in the total cosmetic, both mass and prestige category, will provide these headwinds that we've described.

Next question comes from Erinn Murphy who's with Piper Jaffray.

I guess just to follow up to that question, as we think about the comp cadence of 4% to 6% now for the year, and you're 1 year into your Analyst Day, which was 5% to 7% long-term guide, I guess what gives you the confidence? Or do you believe that you should be reaccelerating to 5% to 7% beyond this year, I guess if the slowdown in cosmetics from what you can see just temporarily to the back of this year? And then I guess, Mary, you commented -- or I guess, Scott, both of you commented on a little bit more promotional activity in the back half of the quarter. What are you expecting for the holiday season from a promotional perspective?

Okay. So I'd step back and say -- and I want to be really clear, we're really no less confident about the attractiveness of our business model, our growth potential. We do see the current dynamics as a speed bump. Certainly, it's a speedy speed bump up, right? But we're confident cosmetics category will return -- will continue to return to growth. The timing is a little unpredictable. But there's been in the past, cycles that affect different categories, and makeup was very strong for many years, and it's going through a tough cycle. But as we look at demographic trends, as we look at engagement in makeup, as we look at the white space that we believe exists, and I know our brand partners' commitment to getting this back to growth, we feel that we still stand by that guidance. I'd say we're not -- today, we're not talking about a long-term outlook. Now it's prudent for us to plan in the near term for this potentially lower growth environment, and we're thinking about that. But we have not changed our optimistic views of the future. On the promotional end, I mean holiday is always a promote -- a highly coveted time for everybody to get traffic into their stores. So Scott talked about promotion. I'd say, the good news is we have a lot of levers that we have, and we use those levers at different times. As everybody, I think, understands we've gone to much more targeted types of promotions over the years versus more broad-based. And with our loyalty program being kind of the core of what we do, it's going to be, I think, a competitive second half because everybody who's in beauty would be facing these same headwinds. So we feel we are well set up for holiday. Obviously, that's a key focus area for us. But we're going to continue to I guess, I'd say, drive traffic, make sure that we capture guests into our loyalty program and not cede that to competitors at a time that will be competitive. But at the same token, I think again we're pretty smart about how we use the levers, and we have more efficient levers than ever.

The next question comes from Steven Forbes who's with Guggenheim Securities.

Mary, maybe a follow-up on that previous question, right, given that the comp revision is based really on the [ stool ] of a comp, right, versus the e-commerce growth, given you reiterated that -- the 20% to 30%. Can you discuss sort of the mature store comp outlook for the back half, and whether the recent performance impacts -- whether it's the saturation targets or unit growth outlook through 2021 that was provided during last year's Analyst Day?

We're happy overall with new store performance. I think we mentioned that in our prepared remarks. So we haven't seen anything in there that would give us any concern on the longer-term target of 1,500 to 1,700 stores. The recent, over I would call, the rolling 12-month period, we saw new stores performing well in the low to mid-single digit kind of range, again, vis-à-vis what we saw high-single digits in the years where we were delivering double-digit comps. So they have moderated somewhat. As we looked at Q2 in absolute terms, the comps in the older cohorts were lower. They were in the low -- very low single-digit range, as you would expect when you do the math on the overall comp makeup. Again, when we look at cosmetics, color cosmetics overall, and what were -- the dynamics we're seeing in the industry, they effect all stores equally. There's nothing special that stands out with the new stores compared to some of the older stores in the fleet. So again, very happy overall, doesn't change our outlook on the long-term store build-out here in the U.S.

And I think I would just add that I think you might have inferred in your question about did it affect channels differently, and I'd say no. Obviously, e-commerce is growing faster than stores. It has been for a while, but that channel is equally affected by the headwind.

Your next question comes from Simeon Gutman who's with Morgan Stanley.

A little bit of a follow-up, right? You have this medium- to long-term outlook out there, mid- to high-teens EPS growth. Obviously, the operating deleverage in the back half would stand as a disconnect to that. I guess if you look at 2020, which I realize we're not talking about yet, is the deleverage that you could see, let's say if you do a 3% to 4% comp, is it going to look -- it could look similar to what we're seeing in the back half of this year? Or is there more flexibility on the margin side such that, that could get you back to your outlook? And just within that, I know you talked about the makeup market being soft and you need some time to cycle through it. What is your going assumption on this? Like, Mary, I don't know if there's conversations you're having with executives who sell this product as well, but when do you think this -- we cycle it in the market to get soft in the early part of last year, even though you were outperforming it. So do we cycle it beginning of the early part of 2020?

Yes. Do you want me to start with that one, Simeon? Yes, I don't exactly have a crystal ball on this because there's a lot of moving parts in different brands that participate. I can tell you everybody is focused on this. North America, makeup market's important for everybody, and it needs to improve. I'd say it's going to take some time because part of the -- what we think is driving it is the innovation, while good and exciting innovation -- good innovation hasn't really driven incrementality. I mentioned this in the script, some previous forms of innovation that would be like, oh, I'm going to contour. I need 3 products for that, right? I'm going to do my brows now with 2 products. So what we're focused on is pivoting to white space that will drive incremental and exciting-type innovation, and that doesn't happen overnight. And frankly I'd say, it takes a while to assess incrementality. So it wasn't obvious probably until recently that some of that innovation, you have to go through a trial repeat cycle to see if they're going to be incremental. So categories pivot in certain ways. We're very focused on that with our brand partners. And I don't have exactly a time frame, but I think it's going to take some time to work through it. But I feel that by second half 2020, at least, we should be in a better place. But again, I'm not holding to that. I hope it's sooner, but I think it does take some time to cycle through.

And those who know us well understand makeup, right? It's a huge part of our business and it's very high margin for us. So when there's disruption there, it creates a lot of ripple effects across the business. So we believe over the long term, there's still opportunity to expand operating margin, Simeon, through -- primarily through EFG initiatives that we've talked about before and the 4 work streams, along with scale over the long term. It's just, we think it's too early to reconsider modifying our long-term guidance outlook in any significant way here. We need a little time to let things shake out a little bit, and of course, we're looking to manage our investments and expenses and everything here really closely, and assuming -- we're thinking about this actively. Assuming we're going to be in a lower growth environment here in the near term and adjust our priorities accordingly.

The next question comes from Rupesh Parikh who's with Oppenheimer & Co.

So first on the tariff side, we've seen some more mass companies talk about taking price. I was just curious just given some of the noise out there, I want to get your thoughts on what you thought the consumer acceptance of the price increases are. And then second, Scott, you mentioned that you expect Q3 comps to be lower than Q4. I would have expected potentially stronger comps in Q3 just given the easier compares in Q3 versus Q4. So just want to get your thoughts on that.

Yes, so maybe we'll start with the tariff question. So again, at this point for us, we've talked about this over the last few quarters, it's kind of difficult to predict what the impact is going to be in beauty products overall. Again, we're not seeing any significant step up in pricing, negotiations or issues with any of our vendors. We expect to be able to manage our way through that and navigate that as best we can. And so yes, we're managing that as best we can through supplier relationships today, and we would expect to continue overall. As far as the comp stack year-over-year, I know we can look at 2 or 3 years in trends and what you would expect. That's not the environment we're in right now. I mean the disruption we're seeing in the prestige and color makeup overall is a step-change in the normal flow of the business year-to-year. And that's really what's driving our outlook.

The next question comes from Beth Kite who's with Citi.

We have a question about your skincare exposure. And given the pressure in color cosmetics, especially prestige, if you've considered a bigger move into skin, more brands, more shelf space, more space in-store, if you will? Have you entertained those conversations to shift the skincare exposure in a greater way, more quickly?

Yes. Well, we are already experiencing strong growth in skincare, both on the mass and prestige side of the business. And we've made moves to continue to emphasize that part of the business through both the brands that we've been bringing in and partnering with, with strong innovation that Mary described earlier, and further amplification within our -- both our store and our e-commerce and app business. So for sure, we've been emphasizing and driving that part of the business as well as the other categories that have been driving growth, hair and fragrance, our personal care appliances. So absolutely emphasizing that. Having said that -- and we are always on the move -- on the effort to continue to try to optimize our assortment and look to lean into areas that are demonstrating the most growth. Having said that, even though makeup is going through this tougher cycle, we still are confident in the long-term growth prospects of this category. So we're not anticipating a dramatic shift away long term from makeup. We'll continue to try to continue the strong share growth gains that we've had, bring new brands in, partner with our key brand partners to get those brands back on track because the demographic trends in makeup are still strong. Everything we're seeing around millennials and Gen Zs, Latinas, all the growth drivers, we're confident in. We're working through this innovation cycle that Mary has described, but we believe we'll come out of that. And so we'll continue to maintain a strong makeup business, but absolutely emphasizing the growth categories like skin and others across our store.

In the volatility in July through now, was that primarily color? Or did that impact your other categories?

Yes. It was primarily color that we're seeing this -- that as we've talked, there's been a disruption in the makeup category, a slowdown in the makeup category for a little while now. But in many measures and our tracking and view of the category, there was more disruption more recently over the last several weeks.

The next question comes from Christopher Horvers who's with JPMorgan.

So a couple of follow-ups. First, in terms of the comps that you're implying for the third quarter, are you basically assuming the current trend that you've seen sustained? Or are you expecting 21 Days Of Beauty in September to improve the trend? And following up on the fourth quarter, you're lapping James Charles, you're lapping Carli. So are you sizing the newness factor bigger this year? Or is there something else on the common terms of newness that hasn't been announced? Or are you assuming investment in merch margin to try to drive the comp overall?

Yes, I'll start, and then I'll see if Dave wants to add anything. We're not going to get that granular in the quarter right now. Obviously, I'm just -- we're trying to do our best to sort of call it like we see it. And I'd say it is a combination of our view of category trends, and as we size newness and also all the things that we have in the fourth quarter just in terms of holiday promotion. So it's our best call right now with a range around that. Okay?

The next question comes from Michael Binetti who's with Credit Suisse.

I was wondering maybe if you could just give us a little more color on the magnitude of the issues in July and into August. The magnitude of the guidance cut is quite heavy, and it seems like it's based on a fairly short period in time. And obviously, you still have big thing -- you've described 2Q as less informative seasonally about the underlying trend in your business. You've still got big things like 21 Days Of Beauty, Mary. And the [indiscernible] was very clear all over the commentary. You expect cosmetics to improve. I'm just trying to figure out why cosmetics will improve. You said the incrementality hasn't worked. What's driving the comp improvement in 4Q versus third quarter based on those comments, especially [ while having ], obviously, the bigger compare?

Yes. I mean I'd say the first part of your question is just that it has been the category data that we have access to sounds like more recent than what you would see has shown more recent deceleration, I guess. So that's sort of part of why the shift and more dramatic change. Again, we just try to call -- kind of we take multiple views of how we build up our volume forecast. And so our Q4 is a combination of all the things, thinking about category trends not necessarily dramatically improving, but thinking about what we have coming and giving our best shot at both Q3, Q4 cadence of promotional events and launches.

So I guess to follow that, I think you started first calling out slowing prestige cosmetic trends in mid-2017. You've done a really nice job of gliding your business slower for almost 2 years now. I feel like -- I just want to ask you like what do you think is happening in the industry? I feel like I'm missing something on why was that change lower so suddenly here recently?

Well, if I had the answer to that, I would have fixed it already. I mean honestly, I think it's a combination of factors. And you're right. I mean I'd say our business model, we're proud about the fact that we can flex across categories in order to drive market share growth and carry a lot of fantastic exclusive brands. But as we look at it, it's a combination, we think, of just innovation not really -- the cycle of innovation that we're in right now doesn't compare to what we've seen a few years ago. And it's easy to say that now. It's hard to know it prospectively that, that's going to be the case, right? So we think it's a combination of what are -- we bet on and what our brand partners have bet on just wasn't driving that kind of incrementality that we've seen in the past. So that's at the highest level, probably the biggest factor.

Our next question comes from Mark Altschwager who's with Baird.

Could you walk us through just a little bit further the puts and takes on the updated EBIT margin guidance for the back half of the year? How much of the change in expectations is on merchandise margin versus greater fixed-cost deleverage? Just any help on the gross margin versus the SG&A cadence over the next couple of quarters would be great.

Yes, I guess we can talk directionally for the back half of the year. I'm not going to -- we're not going to get into specifics quarter-by-quarter. We're trying to move away from that, Mark. I appreciate question. So look, I think we stated in our comments that we still -- merchandise margin, right, we still expect to expand that. So that's the good news. Our EFG efforts are working. We're making progress on that. Unfortunately, it's going to be masked a little bit by the downward pressure we have in prestige, right, and the mix overall of the business. So we're happy with margin expansion overall. Blended up for the back half of the year is what we expect to see. SG&A is heavier. I mean again, we pointed to these -- these are necessary long-term investments for the health of the business that we're not going to back away from right now with some knee-jerk reaction. So again, SG&A deleverage is going to be heavier in the second half of the year than what we expected. I guess I would say there, it's probably a little heavier weighted to third quarter than it is fourth quarter because fourth quarter, we're kind of shut down and we're all on all-hands-on-deck for holiday. So also, I would say third quarter maybe you're kind of at peak with fixed cost. While it's leveraging year-over-year, there's less of that in the third quarter because we're getting a fuller load of new store openings and things like that weighted towards the back half of the year this year. So that's probably about as much color as I want to give on specifically the quarters themselves.

The next question comes from Michael Goldsmith who's with UBS.

What are you assuming about the company's level of market outperformance in the cosmetic category in the back of the year? And does that represent a change from what we've seen in the last couple of quarters? And given the market share gains achieved over the years, does that make it more difficult to pick up share in the category going forward?

Yes, I'd say that we are expecting continued similar share gains for the rest of the year, is probably the easiest way to put it.

And then going forward?

I wouldn't comment on that yet today. But still -- we still see plenty of share for us to gain that is out there in other channels, that we've been successfully with our business model attracting new guests and share. So we see that playing out for a while.

The next question comes from Ike Boruchow who's with Wells Fargo.

Mary, I understand there's a lot going on right now, and I do apologize to go back to Simeon's question. But less than a year ago, there was a multiyear plan that was laid out, and it did call for 5% to 7% comps, and it specifically called out for margin expansion in 2020. I understand that there's no crystal ball right now, but I guess what I'd ask is given what's taking -- or given it sounds like this is going to take some time to work through and looking at the comps and deleverage you're guiding to in the back half, should we consider that plan stale at this point?

I think it's really too soon to say that. I mean part of what we need to do is sort of work through this cycle. We've not put our plan for 2020 together yet. We still feel very confident about the business model, and we can make choices about ceasing of what we spend in terms of investment. We've been pretty aggressive, this goes back for a lot of investments this year, that are multiyear, important long-term investments for us. And so as prudent planners, we would say, okay, if we want to plan for maybe a different comp cycle for part of the year, how do we then think about -- how do we stage the investments and deliver the appropriate return? So I think it is -- I mean I think Scott said it well. This is not a time to have a knee-jerk reaction about the long-term prospects of the business. I don't believe that. But we're also being prudent in how we think about how we do this kind of planning and stage investments.

The next question comes from Dana Telsey with Telsey Advisory Group.

As you think about the go-forward, how do you think of what type of comps that you need to leverage expenses given the new trajectory of sales growth and category growth? And also, as you think about mass and prestige, has there been a difference in the cadence of mass and prestige in terms of how they're performing most recently?

Yes. So the first part of the question I guess I would say to Mary's point she just made, the business has been very healthy for a long period of time. And we've been riding a wave, so to speak, on makeup, makeup in general, right, across both mass and prestige, which has allowed us the flexibility to be more aggressive on the investment front, right? So there was a time before that phenomena where [indiscernible] operated very effectively and very well, performed -- produced some really great financial results on much lower comps. So we're no stranger to operating in a tougher, lower-growth kind of environment, and that's just the kinds of things that we're pivoting towards right now. So again, we don't have all the answers as we sit here today, but you can bet that we're actively managing with that thought in mind.

And on your second question about mass and prestige, just to reiterate, we are seeing in the total U.S. market weakness, softness in both mass and prestige. At Ulta Beauty, specifically we are gaining share in both categories due to the strategies and the brands that we've brought in and the focus we've had in that category. But as I've mentioned earlier, mass has performed better than prestige in the recent quarters as that business has been a bit stronger for us.

This concludes time allocated for questions on today's call. I would now like to turn the call back over to Mary Dillon for any closing comments.

Yes, I would just like to close by thanking our very hard-working more-than-44,000 associates for delivering another quarter of solid financial results and great guest experience every day. And we look forward to speaking with all of you again soon.

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