2023-12-05 15:43:03 ET
Ulta Beauty, Inc. (ULTA)
Morgan Stanley Global Consumer & Retail Conference
December 05, 2023 11:00 AM ET
Company Participants
David Kimbell - CEO
Scott Settersten - CFO
Conference Call Participants
Simeon Gutman - Morgan Stanley
Presentation
Simeon Gutman
Okay. We're at time. Hi, everyone. I'm Simeon Gutman, Morgan Stanley's hardline, broadline and food retail analyst. It is our pleasure to welcome Ulta management to this conference for a return presentation, represented by Dave Kimbell, CEO; and Scott Settersten, CFO, Treasurer and Assistant Secretary. I don't have my disclosure sheet, but I think I remember it, please see www. morganstanley.com/disclosures, for important disclosures. Make a quick intro, sit down. I'm going to turn it to Dave for a minute.
Everyone knows we're talking about reversion in retail, tough consumer of this business and his management team is largely bucked all these trends by staying prudent, by staying conservative and making good investments in the business. We're coming off an investment period, which should buoy this margin structure as we look forward. And this category has not been one of over consumption. It looks like it's been steady consumption started a little bit later in the cycle, but a steady build throughout.
With that, I'm going to take a seat, turn it over to Dave, and then we'll get going with the Q&A.
David Kimbell
All right. Thanks, Simeon. Thanks for having us. I just wanted to take one minute to talk about Scott. So we announced on our last earnings that Scott is retiring effective April 1 and many of you that have followed -- certainly Simeon and many of you that have followed Ulta for a while, have had the pleasure getting to know Scott over his decade as CFO and his 20 years with our company. And I just wanted to take this moment because I won't get too many more chances like this next to Scott in a setting like this to thank Scott for his contributions. I think if you look at his decade as CFO and his track record, I think it would stand up among pretty much any CFO in Fortune 500.
So thank you, Scott, for your contributions.
Scott Settersten
Thank you.
David Kimbell
And if you haven't met Paula Oyibo sitting here in the second row, she -- we are excited that we have such a talented internal successor been with us for several years and then broad experience before coming to Ulta that will be stepping in as our CFO effective April 1. So an important transition and I'm really grateful for Scott's contributions and for Paula's impact going forward.
Simeon Gutman
Thanks, Scott. Thanks for the steady hand and for convincing Dave to come to the conference.
Scott Settersten
Right. My pleasure.
Question-and-Answer Session
Q - Simeon Gutman
Yeah. I appreciate it. So first of all, we will take questions as the session rolls on. So just wave your hands later on. So thanks for being here and being a regular at the event. We sat here a year ago, we talked about reversion, maybe a weaker consumer, none of those themes, not much of that has impacted you. What surprised you? What's gone better, what's gone worse?
David Kimbell
Yeah. I think overall, we feel, generally speaking, the year has gone, I'd say, pretty consistent with how we thought coming into the year. It is absolutely a dynamic, dynamic time, and I don't need to tell any of you all the influences that are going on in consumers' minds and the economy and the global environment and the political environment, a ton of pressures and a ton of impact and anxiety.
But when I look through the lens of beauty, we expected it to be healthy but moderating the total category, and that is what we're seeing and you see that in our business as still very healthy comp 4.5% comp growth in the third quarter, which we are proud of, but of course, moderating. We were well into the double-digits last year. So we anticipated that. We shared that as we went into this year, our expectation that we would see moderating growth throughout the course of the year, and that's largely.
The consumer is still very engaged in the beauty category. That strength that we, again, anticipated moderation but healthy engagement has largely held up. We see it across all parts of the business across all price points, across consumer demographics and across key categories, and we're really pleased with that. And we think, again, with some moderation, we remain confident in the overall category.
The other thing that I'm really pleased with within our company is we set out this year on a very ambitious transformation agenda, really touching many parts of our core infrastructure, our Project SOAR, our ERP upgrade, our digital store, supply chain investments, POS upgrade, the many core systems and we've made progress pretty consistent with what we had set out to do through the course of the year. So while it's been a wild year in many ways, overarching, beauty category has continued to be strong. Our business has responded well to what's going on in consumers' lives. And we've made progress on many of the core initiatives that we set out to do.
Simeon Gutman
We're in the holiday season, we heard from you last week. As we look forward through the holiday season and into '24, you touched on health of the consumer, how do you think the consumer continues on their path.
David Kimbell
We're confident. I -- you all are watching and tracking everything going on in the world. And so we're well aware of that, and I touched on some of that, the impact of inflation. We see unemployment being at a really good place. But you layer in global conflicts, layer in the political environment, the stress and anxiety that consumers feel even as indicators in the economy are positive.
So it's difficult to exactly predict where consumers in general, more broadly are going to go. But what we do remain confident in is Beauty. Every indicator we see is that the engagement in beauty, the desire to discover new products, the desire that they're going to talk and discuss and learn about new beauty ideas is -- it remains. And so as we look into both the remainder of this holiday and into next year.
The growth that we experienced coming out of the pandemic was not sustainable double-digit growth. So we have -- as we've been saying for a while, it will moderate. Historically, the beauty category has grown in the 2% to 5% range very consistently over a long period of time. We expect the category to moderate into that more normalized growth rate. But that's a very healthy place to be. And so as we look forward, we're really confident in engagement and our ability to continue to be an important player in the category.
Simeon Gutman
Multipart question. Some of your vendors, they've had some ups and downs with their businesses. How does that impact you? Can you talk about the relationship with them. You're still pushing into multiple categories. You're the everything store in the category. So how does that flow through to you? And then how do you kind of diverge from them in terms of that?
David Kimbell
Well, we -- one of the things that we take a lot of pride in and we work very hard to live up to every day is the relationship and the partnership we have with our brands. We very clearly, very purposely think of them as partners in our success, not as vendors or tools to get to our success. And so that comes to life through the relationships that we build, the realization that we win when they win and they win when we win, and we've got a shared interest in driving growth and really tapping into the excitement and engagement that exist in the consumer segment and the portion of the category.
So what that looks like is, I've been here for 10 years. Scott has been here for 20 years. We see -- I mean, of course, in any year, there's some brands that are doing better, others maybe are struggling. Other -- there's a constant ebb and flow. We have 600 brands in our store. And so what we do is work very closely. We certainly lean into those brands that are thriving. You just had one of our partners, one of our important partners up on the stage [indiscernible], you know their track record. We're pleased to be a key partner with them and we lean in and partner with them in marketing and the innovation and bring them to life. And that's true across all of them.
For a brand that's maybe a bit more challenged in the marketplace, maybe innovation is working. We again take a partnership mentality to adjust and adapt to their plans. Over time, if a brand isn't meeting our productivity needs and what we have, then we make choices, we have to. But we've got long-term relationships. We -- I've seen the ebbs and flows of brands over time. And it's our job to work with them to kind of find ways to excite our guests. And fortunately, our brands see us as a main driver of growth, and that's a way we're going to continue to do it going forward.
Simeon Gutman
On the most recent call, you introduced the topic, I think you called it channel expansion and some prestige. How do you think of that strategically? Is that a short-term someone dipping their toe and that comes back or no once it's in the -- it's proliferated. It's out there and you just get used to the competition.
David Kimbell
Yeah. I mean this has been a competitive category forever and there have been -- you go over the years, said there's been multiple iterations of competitive changes, just like we've evolved and we've added a lot of stores and a lot of presence over years. And so what we're experiencing right now in a concentrated period of time is, say, it is an expansion of prestige points of presence, hundreds of new locations to -- physical locations for prestige products.
And what we have seen historically, this is not the first time that we've had stores, competitors open close to us or in proximity or near to our existing stores. What we've seen historically and recently is there could be a short-term impact on that store. But over time, through our model, we're the only ones that do what we do. We're the only ones that deliver this holistic experience of beauty across all price points with the power of our loyalty program, the strength of our brand, strength of our brand partnerships.
We've been able to prove that, yes, even when there's a short-term impact, we're able to return to growth and drive long term share impact. So we're confident, but it means like we've been having to do, we need to be on the top of our game to make sure we're delivering. Our strategy is around share growth and leading the category. We've been doing it for a long time, and we're confident in our ability to do it over the long term.
Simeon Gutman
Skin care, fragrance, haircare. Over the past few years, you've seen good growth in these categories. Don’t know, if I'd call them wellness-oriented categories, but all three have done well. What's driven the growth in the categories, how are they faring in this backdrop? And are they more or less discretionary than perceived?
David Kimbell
Yeah. we have definitely seen -- I mean we've seen strong growth and strong engagements across all aspects of beauty. And there is an increased connection that consumers have between beauty and wellness, this realization that beauty and how I take care of myself and how I show up to the world, actually, how I present myself to the world is very much part of my overall wellness routine just as much as nutrition or exercise or anything else, mindfulness, anything else you might do in your wellness journey.
Beauty plays an important role and consumers kind of knew that, generally speaking, before the pandemic, but that was boom, it kind of locked in and reforced during the pandemic as a lot of people evaluated, how am I taking care of myself and this realization of beauty. So the categories of skin care, fragrance and haircare all have -- but even makeup has a wellness component. But those three -- and they're each a little bit different.
Skincare and hair care have very specific -- some very specific wellness-oriented products, whether obviously, how you take care of your skin, how you protect yourself against -- sun protection, how you take care of your scalp, scalp health, hair health, there's a growing element of that, but even just broadly about how I'm just engaging in those categories.
Fragrance is interesting because what the realization there is this idea that I'm not wearing fragrance for others, I'm wearing it for myself, and I feel better when I'm wearing a fragrance even if I'm sitting there by myself, which is a shift in how that category was maybe thought of. And so the wellness there becomes more of an inner health idea. And I think it's a good example of where the category is going. So wellness plays a bigger part in every aspect of the category and we're investing heavily to make sure that we're making that connection for our guests and we're destination for our guests as broader wellness.
Simeon Gutman
On category mix, there's been some changes over the last, call it, decade. Where do you think it goes? Do you care where it goes, it goes where the industry goes or is there a more favorable mix in terms of optimal profit for you?
David Kimbell
Yeah. Generally speaking, we want to kind of lead the category but partner with -- or understand where the consumer is going. We're not trying to -- there is not an optimal mix for us. We want to be the destination and we have continued to evolve. What I like about our mix right now is we're a bit more balanced -- makeup is our biggest category. It's about 45%. It had been higher in years past, above half of our assortment and so we like the mix, what I think in a perfect world, I'd love to see growth across all of it.
From a margin standpoint, our -- we're able to balance all of it, and we're confident in our ability to manage margin. Some are a little bit higher than others, but we're not trying to like drive our assortment solely through the lens of margin. We want to be leading with guests and then we'll make sure the margin delivers.
Simeon Gutman
As input costs or prices from suppliers or partners moderate, what's your philosophy on price? And are you satisfied with the price value equation that you're delivering to the customer.
Scott Settersten
Yeah. So when we think about price and people normally use the word ticket, I guess, when they're referring to that. So just a quick reminder. So our Prestige business, which is about half of our assortment is really sold at MSRP. So as vendors adjust pricing, we follow close behind them. On the mass side of our business, again, that's a little bit more flexible and the competitive set there is much different for us.
And so we're never intended to be a price leader on mass, but always a close follower and make sure we stay very competitive. I'd say we saw some extraordinary pricing action, especially in 2022. So kind of coming out of the pandemic, some in '21, but really an extraordinary step-up in '22. Good news is we've seen that moderate here, and we expect that to continue as we get into 2024.
When we look at the ticket overall, we don't really plan or forecast to a ticket metric per se. It's really an outcome of a lot of other choices that we make across our business, so assortment choices, new brand choices, promotion choices, newness, things that come into the mix and the halo effect that goes along with those things as well as the pricing activity we've seen here in the last couple of years.
So overall, I feel like we're in good shape there. Traffic is something that we pay more close attention to. So again, I think most would agree that healthy traffic trends are really the core of a good retail business. We are happy to see what we call about a 6% transaction increase in the third quarter on top of very healthy growth the last couple of years. So doing a good job lapping strong performance the last couple of years.
I would say the value piece of the question that you asked, Simeon. So the consumer has a very sophisticated way of thinking about value. And I'd say Ulta Beauty in general value as part of our core, our core engagement with a guest. So when they shop with us, they expect, again, a large percentage of our customers expect to get a good deal. So that will be part and parcel of our go-to-market tactics forever. And I'd say, we just speak to a better job of managing that through our CRM capabilities and other levers that we've developed over the course of time, just to better manage that.
Simeon Gutman
And the pressure on ticket, I think you've been clear the units per transaction have been coming under some pressure. Is that partly because of prices going up and the consumers buying fewer items. And then is the consumer also gravitating towards just lower-priced items even with the fewer number of items in the basket.
Scott Settersten
Yeah. So we -- again, great benefit that we have with our loyalty program is we have a lot of detailed transaction data to look at. And we've been monitoring that very closely here over the last couple of years coming out of the pandemic. And to this point, we haven't seen what we would call a trade down phenomena occurring with cohorts in our loyalty program. Again, our assortment is very unique. So we see shifts in shopping patterns. So Elf (ph) would be a great example of that, right? It's a great value product base with a lot of great innovation and a lot of great social media traction right now. And so you can see people shifting into those brands, but it's not because it's a price point necessarily that's driving that.
I'd say one of the other things affecting that is kind of the lapping effect of some of the great phenomena we've seen here, especially last year with the Dyson phenomena, right, price point and units. We had the introduction of FENTY, Olaplex and Drunk Elephant to our assortment last year. And so you see there's a natural halo effect that comes from some of those new brand launches that I'd say we're kind of cycling over right now that is causing some of the overall financial result that we're seeing with some of those metrics.
Simeon Gutman
You mentioned social media, thinking about social media activation. Remember, when we went through the makeup momentum probably 17 or 18. I don't know where social media was in terms of being able to monetize that customer directly. It's probably in better shape today where that business, if someone sees something online, and could purchase it away from, let's say, your native app. How do you think about that? Is that an issue or no, is the business still just flowing upstream to you?
David Kimbell
Yeah. It is another example. We talked about the competitive environment, another example of the continued evolution of this category. Social buying has been emerging and evolving for years. What I'd say stepping back, social engagement is sky high, has been for a long time. You talked about it as kind of really in that 2015, 2016, 2017 as YouTube and Instagram and the role of influencers there was taking off. And there were opportunities then through the technology to buy directly, but our business thrived over that time. TikTok is -- those two are still really big. TikTok is in the lead, though, and really making an influence in there. They're doing some interesting things.
What we've seen and what we believe and what we're driving as one, we need to lean into it. We've got a great effort in all aspects of social, I'll give you an example of that, that we talked about in October in the month of October, TikTok did its first ever Beauty month and Ulta was their partner in that around the joy of beauty and bringing that to life. So an exclusive partnership with TikTok because we recognize and understand the power of that vehicle to educate and engage beauty enthusiasts across the board on what's new and what's exciting.
It is one of the best things about this category. The level of dialogue and discussion is sky high. Beauty is one of the biggest genres of any social platform, whether it's TikTok or Instagram or YouTube. Music, and it's gaming and beauty is like it's one of the top three to five genres of -- the amount of volume -- the volume of dialogue is extraordinary and we need to be participating in it.
As sell-in kind of evolves, some of that will come and go what we've seen generally speaking, whether it's DTC brands, online selling, the strength of what we offer, the desire for guests to like not just buy individual items or brands, but to be able to get loyalty to be able to curate a collective assortment of products to mix and match what they need across the full assortment is a preferred way of shopping. And so that's largely been true, but we know the world is continuing to change and we're staying close to all that.
Simeon Gutman
Target, they're going to be here tomorrow. We'll ask them the same question. Can you talk about the partnership? Are you seeing new customers? The risk to you would have been that your core customer shows up to there for them, it seems like it's straight home run. It seems like it's been a home run for you as well. So can you talk about the dynamic, customer overlap and where the relationship goes.
David Kimbell
Yeah. Well, I'd say it's a great partnership. We're really pleased with how we've evolved that, how we brought it to life, the experience, ultimately, the experience that we're delivering to our guests. The reason that we did this partnership is all about the guest experience. And what we set out to do, and we believe that we're doing it and we'll continue to elevate and evolve this as the partnership grows. We set out to make sure that the -- we were meeting the needs of our guests and attracting new guests.
So meeting the needs of our guests. What I mean by that is what we've seen in our the more touch points we can deliver for our guests, the more opportunities we have to intersect in their lives and to add value to their lives in ways that engage them deeper into all that Ulta has to offer. So shopping in store, shopping salon, using our app, getting our credit card, using our buy online, pick up in store, getting salon services, doing your browse.
And now shop in the Target, every -- pretty much every one of those experiences add incremental value and increase spend and love and loyalty of Ulta. And so we set out to make it easier, another touch point to make it easier, not to replace, not to set aside our existing stores, but to make another incremental touch point for our existing guests and that's -- that we are proud of what we brought to light.
And we feel like it's an opportunity to grow, contribute to the growth of our loyalty program. Our loyalty program grew 8% in the third quarter at 42.2 million members. It wasn't the biggest driver by any means, but it was a contributor to that because there's opportunity to, again, intersect guests, both reactivate those that maybe have fallen out of the program for whatever reason by giving them a touch point, yes, I do love Ulta, I'm going to shop in here.
And then there's 30 million people that walk through a Target every week, I mean, more in holiday, but on average and many of them are not Ulta loyalty members. And so we've had some success attracting them. So we see it as a way to delight our guests, to grow our member profile and deliver a great experience. We believe we're doing that, and there's more to come in that journey together, and they've been a great partner on that.
Simeon Gutman
All things shrink. Do you think -- first, where is it, if we've quantified it, do you think '23 is the peak pain year? What are you doing to mitigate it? And the fact that you are working to mitigate it, shouldn't it be the peak pain year.
Scott Settersten
Yeah. So whatever. It's no secret, and it's not just Ulta, it's not just beauty, right? A lot of retailers have been talking about ORC pressures on the business and driving a step increase in [indiscernible] across the spectrum. So what's Ulta beauty doing, fixtures, fragrance fixtures in our stores, these help us mitigate impacts from people coming in and cleaning shelves off and things like that. So roughly 75% of the fleet is covered right now at the end of the quarter with the new fragrance fixtures.
We expect that to be 100% early 2024. We've seen it. We know that, that works. That helps us mitigate shrink in our stores. We also have staffing and training of our personnel, so store associates. So where we put those fragrance in line, we also add incremental labor to the stores to make sure that the guest experience is not impacted in a negative way and that guests can still get access to the products that they're looking for. Training, make sure people are ready.
So again, we're not going to stop or see things happening in our stores. But we want our people to be prepared to react to that. Again, guest and associate safety is at the top of the list when these situations occur, and then making sure we get back in stock quickly. So when the guest comes back, that we're in stock and ready to sell self-help. Self-help, so internal process improvement. So again, kind of an all-hands call across the enterprise to make sure that we're doing everything we can to eliminate or minimize shrink in all the other different forms that it takes across our business from the vendor dock to the front door of our store, right?
Again, it manifests itself in many different ways. And there's things we can do to help ourselves on that front, and we're making good progress there. And then lastly, bigger picture, Dave and others in our organization are working with RELA and NRF, with local and federal legislatures to help change some of the rules and the laws to help mitigate some of the bigger picture pressures out there and try to de-incentivize some of the behavior that we're seeing in our stores.
So the good news is, third quarter, we mentioned last week that we seem to be gaining on it a little bit. Again, we've kind of mitigated some of the deleverage points that are coming from shrink across our business Again, there's still a long way to go there. So we're optimistic that over the long term, we can claw back some of the shrink, give back here over the last couple of years, but there's still a lot of work for us to do.
Simeon Gutman
I'm going to talk about the promotional environment. We're about 12 minutes. So if you have questions, start thinking and raise your hand. So first, can we talk about the promotional environment around the holiday. A year ago, we talked about you were prudent to say, look, we think promotions will come back. We debated whether oligopoly was setting in such that you don't have to see the same environment that we used to, but it seems like we're slowly getting there. what else can insulate the business from higher levels of promotions over time and besides talking about the current environment?
Scott Settersten
Yeah. So fourth quarter, the holiday season specifically, it's always been promotional right? In Ulta Beauty, we participate in that, like most of the retail does, right? We're all fighting for gift-giving dollars. So it's a different period of time for us than the rest of the year when we're up against fashion and electronics and sporting goods and everybody across the retail universe. So we compete -- we compete in an aggressive manner there to make sure we get our fair share.
So the fourth quarter, as a stand-alone measurement period, I would say, last year, it was not more promotional than it had been. Again, when you look at the full year '22 was at a historic low promotional level. The fourth quarter was a step up from where it was, right, the first 3 quarters of the year. So as we're going to 2023, we're not expecting it to be materially different.
Yes, we've seen the material environment kind of -- or the promotional environment tick up a bit as we've gotten deeper into the year. As we've communicated to investors, that's what we expected to happen in 2023 as people got back to more normal and our competitive set, got back to a more normal kind of operating environment. So I'd say, overall, we're on track with kind of where we thought we would be in '23.
What can we do? Things that we've been working on for many years, and we've seen continue to mature in the scale over time, all things related to our loyalty platform and our CRM capabilities. So adding new tools, new people and capabilities, usually think of the word data scientists, right? So giving us more insight into the data and helping us develop more personalized approaches to market to our guests and kind of moving away from some of the old, I'd call more broad scale kind of blunt instrument kind of discounting tactics.
And just be able to use more of our digital relationship with our guests and to drive more one-to-one kind of promotional offers, which we think are more impactful and build a deeper sense of loyalty with our guests over a period of time. So again, promotion, it's always going to be part of our business. That's part of our DNA. People expect to get a good deal when they shop with Ulta Beauty. And now it's our job. And we've gotten better at this over time as just being able to navigate our way through that with better overall margin rate impacts to the business.
Simeon Gutman
The big investment bucket, supply chain, UB Media SOAR. Can you talk about the phasing where we are with these investments. And I can tell based on the last call, everyone's yearning for the payoff, when does the payoff? What does it look like?
Scott Settersten
Yeah. So this has all been sequenced. Again, many of you have probably heard bits and pieces of this over the last couple of years. So we are in the midst, Dave mentioned earlier, in the midst of an ambitious transformational agenda across our business. And that's really a function of some was, I call it deferred maintenance, maybe a bit because of the disruption from the pandemic. So again, we were being careful and not conservative. We were being prudent.
And part of it is replacing outdated end-of-life kind of systems, and part of it is continuing to build for the future to support growth. So I'll start with the quickest payback to the longest tail. So POS across our store fleet in 2023, hardware and software enables new capabilities, takes friction out of the shopping experience for our guests, done. UB Media out of the starting gate in 2022, ramping up in 2023, delivering benefits to the business now will continue to scale and deliver more over '24 and beyond.
Digital Store of the Future, major replatforming front and back end of our digital business, all right? Again, age and wear and tear and getting prepared for the next $1 billion of revenue in that channel of our business, largely complete, will be finished up in the first half of 2024, gets us out of double expense.
We're maintaining two platforms right now until we get it over the finish line in the first half of '24. Project SOAR, rebuild of our ERP system. Again, this was one age and amping out of that one. So that was Y2K technology we were forced to do it now. We've made a lot of great progress over the last two years. We expect to finish that off in the second half of 2024.
And then lastly would be our supply chain transformation. Again, thinking about cost pressures that are on the horizon around labor and last mile delivery and things like that. So going back and looking at our existing fleet, and putting automation in there to help with some of those things and then implementing what we call MFCs, which are shared inventory, closer -- smaller buildings, but closer to some of our key end markets, to take some cost out of the system there.
So overall, when we think about benefits, so POS now, UB Media now and growing. Digital Store of the Future starts in 2024, store '25 and beyond and then supply chain kind of a longer tail. So again, there's going to be some bumps along the road, not everything goes perfectly, but we're very happy with our accomplishments so far and feel like we're well positioned for the long term.
Simeon Gutman
You teed it up for Paula's future.
David Kimbell
That's right. Yes.
Simeon Gutman
Two more for me. Again, if you have questions, feel free. Oh, we have one in the back. Feel free. Thank you.
Unidentified Participant
Thank you. Can you just elaborate on [indiscernible] in particular, how can you seize the opportunity? And how -- when you talk about kind of '24 and beyond, as it grows over the time, how do we think about [Technical Difficulty].
David Kimbell
Yeah. I'll just say generally, in UB Media, we're really -- it's an important growth opportunity for us, and we're excited about the progress. The core idea is leveraging the power of our 42.2 million members, the strength of the data we have across our assortment. We're the only ones that have transaction level insights and data across all price points, across makeup and skin care and hair care and fragrance with services, physical stores, digital, big digital presence, app usage. I mean you go down the list. So we've got arguably the best level transactional level data in beauty because of the breadth and the scale of our offering.
And so it gives us a platform that adds value to our brands, our brand partners who want to optimize and elevate the ROI of their marketing spend. And they increasingly see the opportunity to do that through more personalized, tailored spend with the power of our data. And that's a very important part of the overall marketing mix. So we believe that there's opportunity and we add uniquely. You want to talk about how that then flows through.
Scott Settersten
Yeah. So again, 2022 we communicated initially kind of planted the flag, I guess, I would say. '23 we're scaling up a team. This is a whole new way of doing business for us. So it's taken some incremental, I call, foundation investments around tools and ways of doing business for our internal teams. And so now we're poised to really begin scaling that next year. And when we think I'm sure you'll work one in here on margin before we're all done, Simeon. But this is something we're counting on to help us be a tailwind when we think about margin expansion over the longer term.
Simeon Gutman
So good transition. Yes. And so if you think about all the big box retailers, the last couple of years, a lot of them had margin targets, expectations that we hold where we were. I think you're one of the few, if not of any, that got the margin progression correct. Got to a certain level, it's retrenched a little bit, but it's been within the guidepost. So that means what you say about forward margin is probably gospel. So what is the right margin for this business?
Scott Settersten
All right. Paula, I'll take care of you on this one, okay. Yeah. So we've been -- again, we reiterated last week that the 3.5% comp should get us 14% to 15% operating margins in -- for the foreseeable future, I guess. The next couple of years in accordance with the financial algorithm we provided at our last Analyst Day. So we -- so again, for folks not following as closely. So the question always is 2019 versus 2022, right?
And so 2019, I'd say, was the toughest point in a cycle. So we were under a lot of pressure. The promotion lever was pulled back hard in 2019 because of the disruption we saw in our prestige color cosmetics business during the course of the year and then the channel mix challenge we were having back in 2019 and then juxtaposition in 2022, where you're at all-time historic lows on the promotional side of things.
And again, Ulta participated as all of retail did in that phenomenon. And then the channel mix kind of went the other way, right? As the store base kind of came out of it very strongly out of the pandemic, e-commerce, why we doubled the size of that business on a rate basis, it's moderated, right? So the headwinds weren't as significant.
And there was a lot of other things we did during the course of those 3 or 4 years to make our business healthier, put ourselves in a better position. So new capabilities like BOPIS, right? Buy online, pick up in store didn't exist in 2019 in any meaningful way, ship-from-store capabilities to help us mitigate some of the last mile cost, same-day delivery now capability in our stores.
There's things we did under our EFG umbrella, our cost optimization objectives that across our business, the merchants having better data capabilities to prepare them for negotiating with our vendors and making sure our assortment choices are more disciplined now than maybe they were pre-pandemic time line. The work we've done on our store fleet to optimize our footprint and to make sure we've got the best-in-class economics on our new store leases as we're renewing across the portfolio.
Couple that with the UB Target thing that we're doing now, a nice royalty UB Media added to the mix. And then, of course, over time, we expect these strategic initiatives, the stores, the digital stores, the other things we have in the queue of the big projects to deliver benefits to the business. So again, we feel like we're in a good position, and we're confident that we can deliver within our long-term guidance.
Simeon Gutman
I'd like to paraphrase by saying there should be upward pressure to that range, but you wouldn't commit to that, correct?
Scott Settersten
Well, there's -- I guess, I probably skipped over. There's headwinds, too, right? I mean, there's wage pressures. There's last-mile delivery pressures. There's lots of things across the business. And then year-to-year, we make choices on the assortment, right? In some years, we're willing to give up a little rate for the halo that comes with some of those new brands. So again, we take it in a very pragmatic fashion and just try to make smart choices to optimize.
Simeon Gutman
Thank you. Thanks for being here. Good luck in the fourth quarter and '24. Congratulations to everybody.
Scott Settersten
Great. Thank you.
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Ulta Beauty, Inc. (ULTA) Morgan Stanley Global Consumer & Retail Conference (Transcript)