Ulta Salon Cosmetics & Fragrances Earnings Call NUGGETS: Ulta.com Dynamics, Clinique Changes

On Thursday, Ulta Salon Cosmetics & Fragrances, Inc. (NASDAQ:ULTA) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Ulta.com Dynamics

Neely Tamminga – Piper Jaffray: My question is one at a very high level on Clinique. Then I do want to ask a little bit more about Ulta.com, if I may, first on Clinique, you guys have had the privilege of testing this for a little while within your organization and you said you have 13 stores, just wondering as you look forward to 30, 35 boutiques, will there be some meaningful changes to the size, scope and skew, density of where you’ve been on the test and where you’re headed, some contextualization around that would be really helpful. Then on Ulta.com, I was just wondering Chuck if you could talk a little bit about maybe the dynamics of Dotcom business and beauty, how big can this be if you’re willing to talk about that or just give us some sense of how big it is now and where you think you can guys can take that particular growth initiative? That would be helpful.

A Closer Look: Ultra Salon Earnings Cheat Sheet>>

Chuck Rubin – President and CEO: I’ll talk about Clinique first. We’re pleased with our business that we’ve seen with them. We’re pleased with the addition of these stores. In terms of the size and the scope, I don’t want to go into too much detail on that because we are still in the process of getting these things put into our stores, but I would expect that they’re going to look and feel similar to what we’ve done thus far. We highlight boutiques through the store as a whole, we’ve got other brands that are highlighted as well and we think that our guests really appreciates the ability to find some of those key brands in easy to shop kind of environment. So, expect it to look similar to what we’ve done thus far. As far as Ulta.com, we’re not going to go into a lot more detail in terms of its current size, what we have said is it’s small, it’s too small. The way we think about this is along the digital front, I’ve talked about this in a number of forms before. Digital has two parts of its — two responsibilities, if you will. One is clearly to conduct more commerce and that’s where Ulta.com can deliver through e-commerce. But the second that digital has to do is support the brand as a whole and whether that’s through allowing commerce to be conducted or whether that’s communicating something about our products, or our services, or our locations of stores, the guests today as you know, wants to interact with the retailer in the way that she wants to interact, whether it’s going into a store or going online. So, we need to have our digital assets continue to expand and in that will manifest itself in significantly higher Ulta.com sales, but it’ll continue to support the brick-and-mortar as well. The advantage that we have in our business, as you know, is this is an experiential business. We have that unique advantage of product and services and service in an environment that really is unique in the retail marketplace. So, we think brick-and-mortar, we’re big believers in brick-and-mortar unlike some other types of retail, but we know digital is a key component that will only grow in importance for us to reinforce Ulta as a whole.

Clinique Changes

Daniel Hofkin – William Blair & Company: I will echo Neely’s comments across the board, just a great quarter and Gregg terrific to work with you all this time and Bruce looking forward to working with you going forward. Just regarding a little follow-up on Clinique if you could be if you can at this point share with us a little bit about kind of the genesis of how, you kind of got over to the next level with them, if you can describe that all. Any learnings in the first year from Lancome that you think might be brought to bear and then I have a follow-up question?

Chuck Rubin – President and CEO: Let me get to the follow-up pretty quickly. Because we are not going to get into details about each step of our relationship with Clinique. What I can tell you is that it is a same thing that I have said before. Our relationship with Clinique as our relationship with all of our brands and we carry close to 500 brands throughout the store, is really good we’re fast-growing retailer. We have a great relationship with our guests our brands know that the thing that we are executing validation what our strategy and that’s true of Clinique as well as Lancome as well as every other brand that we do business with. So we are very pleased to be adding Clinique in these additional stores. We have gone out and specified the number of stores just so you all don’t get carried away to start to see these things showing up in stores in as a set in my prepared comments we think that Clinique and Lancome and Bare Escentuals and Benefit cosmetics in Urban Decay and Tarte. They blend together to really create a very powerful offering in the market and when you throw in our services and then our service in the store as a whole that is the core of what our business model is all about and that’s why we feel so bullish about the long-term growth potential for this company. So, really happy to be adding the stores with Clinique, but it’s just one part of the equation.

Daniel Hofkin – William Blair & Company: Then I guess my follow-up on the gross margin in the quarter were there any aspects that were different then you thought going in obviously the sales coming in higher than you expected would tend to benefit the margin. Were there any things within the components that you described that were different one way or other?

Gregg R. Bodnar – CFO: No nothing significant Dan. I mean we we’re very pleased to be able to add 80 basis points of gross profit improvement, 180 basis points of operating margin expansion particularly when you know this time last year what we were stepping over. We added over 300 basis points of operating margin expansion in the second quarter of last year about half of that coming from gross profit and half of that coming from SG&A. Now, overall very pleased with the performance.

Daniel Hofkin – William Blair & Company: Well, terrific job again Gregg, not a bad way to signoff.

Gregg R. Bodnar – CFO: Thanks Dan.

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