Chief Executive Officer at Ulta Beauty
Thank you, Kiley, and good afternoon, everyone. We appreciate your interest in Ulta Beauty. The Ulta Beauty team delivered outstanding performance this quarter with strong revenue growth, driving operating margin expansion and double-digit earnings growth. We accomplished these results because the Ulta Beauty teams continued to execute at a high level. And I want to thank all of our associates for their commitment to delivering great guest experiences, ensuring operational excellence, strengthening our culture, and working together as one team to move our business forward as the leader in beauty.
For the third quarter, net sales increased 17.2% to $2.3 billion, and comp sales increased 14.6%. Operating margin increased to 15.5% of sales and diluted EPS increased 35.5% to $5.34 per share. Reflecting these results and our updated fourth quarter expectations, we have increased our outlook for the full year. Scott will share more details about our expectations later in the call.
Our third quarter results are a testament to the resilience of the beauty category and our team's ability to drive strong guest engagement that fueled broad-based growth across our business. All major categories exceeded our expectations and we increased our market share in prestige beauty versus the fiscal third quarter last year based on dollar sales according to point-of-sale data from the NPD Group. We delivered growth across our store and digital channels and achieved record loyalty membership of 39 million members. Additionally, we continue to see growth in spend per member across all income demographics. Our strategic framework, anchored by the power of our differentiated model continues to drive our ambitions and successes as we work to expand our market leadership and drive profitable growth. This afternoon, I will share an update on our progress against several of our strategic pillars.
Starting with our efforts to drive disruptive growth through an expanded definition of all things beauty, our strategy to engage into light beauty enthusiasts with a thoughtfully curated assortment focused on inclusivity and leading trends is delivering results. Our double-digit comp this quarter was the result of growth from our core assortment, price increases executed this year, and compelling newness. Although pricing contributed more to our comp than last year than last quarter, the majority of our third quarter comp was fueled by growth from our core assortment and newness. Historically, sales of new products have averaged 20% to 30% of our sales and the overall mix of newness this year has been in line with our historical experience.
Turning to performance by category, skincare, fragrance, and bath, haircare and makeup all delivered double-digit comp growth against the third quarter last year. From a segment perspective, we saw double-digit sales growth across both prestige and mass with mass generally outperforming prestige. While it's hard to know with certainty if we're starting to see consumers trade down, as the only beauty retailer that offers a wide variety of price points from entry-level mass to high-end luxury and everything in between, Ulta Beauty is uniquely positioned to capture any consumer shifts within price points in the beauty category.
Turning to the performance of our core categories, starting with our fastest-growing category, skincare. Beauty enthusiasts are maintaining their skincare routines with a focus on science backed and dermatologist recommended products. Guests are engaging with newer brands like Drunk Elephant, Supergoop!, and Good Molecules. While new products from established brands like The Ordinary, Hero Cosmetics, and La Roche-Posay also contributed to sales growth. To drive discovery and support guest education, this quarter, we introduced our "Skincare We Love" wall in all stores. This curated presentation highlights exciting brands and best-selling items across key categories.
The fragrance and bath category delivered another impressive quarter as Gen Z guests engage with the category leveraging multiple fragrances to express themselves. Recently launched Ulta Beauty exclusive Billie Eilish as well as new scents from Burberry, Gucci, and Viktor & Rolf drove meaningful sales growth while our monthly Fragrance Crush program drove engagement with established brands including Versace and Jimmy Choo. In addition, the category benefited from strong guest engagement with our Holiday Fragrance gift sets, which were available earlier this year.
Haircare, our second-largest category, delivered solid growth, primarily driven by newness and innovation. Key category trends include hair health, damage repair, and targeted treatments. Prestige brands including Way and Briogeo saw strength in treatments and core assortments while Masstige brands including Eva NYC, Batiste, and KRISTIN ESS, and professional brands such as Pureology, Redken, and Kenra continued to resonate with guests. Within the category, strong hair product growth was offset by softer performance in hair tools as we lapped strong performance last year.
Diamond, our largest category, makeup delivered double-digit comp growth driven by newness and the strength of our key events including 21 Days of Beauty and Fall Haul. Growth in foundation, concealers, blush, and lip continued to lead the category. New brands like FENTY, r.e.m. beauty, and N 1 DE CHANEL drove sales during the quarter while new products from a wide range of brands including Clinique, e.l.f., and NYX also contributed to growth. In addition, the expansion of MAC, CHANEL beauty and BOBBI BROWN into more stores have continued to drive prestige sales.
Now, let me give you an update on our key cross-category platforms: Conscious Beauty, Black-owned and BIPOC brands in wellness. With 290 certified brands, Conscious Beauty continues to resonate strongly with beauty enthusiasts, reflecting growing interest in products that are good for the world. This quarter, we certified 15 new brands including IT Cosmetics, Morphe, and DIME Beauty and introduced the Conscious Beauty Essentials Kit featuring minis for more than 15 brands such as Dermalogica, COOLA, and our own Ulta Beauty collection.
During the quarter, we expanded our BIPOC brand assortment with four new BIPOC brands: Pebble, Bread Beauty Supply, Sugardoh, and Undefined Beauty. As another way we look to create foundational industry change, we proudly launched our MUSE Accelerator Program to support early-stage BIPOC brands as they prepare for retail readiness. Our inaugural class included eight BIPOC founders with innovative brands across skincare, makeup, fragrance, haircare, and wellness. In addition to financial support, each MUSE Accelerator participant took part in an intensive 10-week training program, learning from Ulta Beauty leaders, industry subject matter experts, and leading BIPOC brand owners. We are honored and excited to be a part of their journey as they build their business and expand their reach.
Finally, we continue to increase our presence in wellness. During the quarter, we further enhanced our assortment to reflect our guest evolving needs. And in September, we expanded our offering to include intimate wellness as the sixth online-only pillar of the wellness shop. While wellness represents a small part of our overall business today, we believe it is a significant longer-term growth opportunity given the incrementality of the purchase and the strong emotional connection consumers have with self-care.
Turning now to our efforts to evolve the omnichannel experience through a connected physical and digital ecosystem all in your world. Store traffic trends accelerated this quarter and exceeded pre-pandemic levels for the first time, representing an important milestone in our COVID recovery. In addition to strong sales growth from stores, we continued to deliver growth in e-commerce, further reinforcing the incrementality of this important channel. The convenience of BOPIS for e-commerce orders continues to resonate with guests. During the quarter, BOPIS increased 18%, to 23% of e-commerce sales, compared to 20% last year. Our services business accelerated and delivered another quarter of double-digit comp growth, primarily due to higher stylist retention, increased stylist productivity, and increased capacity in our salons as we lapped capacity constraints due to the pandemic. Our targeted CRM efforts to drive awareness, trial, and frequency are working, delivering increases in salon appointments from both existing and new members. Additionally, our in-store back-bar events continue to drive product attachment and new guest acquisition for participating brands.
As industry leaders, we're always working to enhance guest experiences across all of our platforms. During the quarter, we introduced a new layout in about a dozen stores to showcase our categories better improve navigation, enhance the services experience, and create more opportunities for discovery. The most noticeable changes include the repositioning of skincare and important growth category to the front of the store, all products group by category with delineated fixtures and visuals, and the flow from prestige to Masstige to mass. Elevated gondolas that showcase key iconic and service brands, new beauty bars that offer our brow and makeup services as well as supporting in-store events, dedicated space in the front of the store to feature brand and product launches across categories, and a relocated checkout closer to the salon. We're excited to introduce this new store layout to guests. And as we've done in the past, we intend to introduce this new experience in new stores, remodels, and relocations. At this time, we have no plans to retrofit existing stores.
Stores are a critical part of our ecosystem. And while most Ulta Beauty's transactions occur in stores, we know the guest journey often begins online. To assist guests along their journey, we offer a suite of virtual digital tools, including GLAMlab, skin advisor and our hairstyle tool among others. The latest addition is a fragrance finder are designed to help guest explore fragrances by favorite brand or ingredient, launched just in time for the holiday season.
Finally, we continue to be excited about the long-term opportunity with our strategic Target partnership. This touch point enables us to connect and reconnect with members. And while the partnership isn't material yet to our overall member growth, it has contributed positively. Importantly, we are seeing members bounce back to Ulta Beauty after becoming an active member while at the Ulta Beauty Target shop.
Now, let me give you an update on some of the steps we're taking to drive love, loyalty, and emotional connection with Ulta Beauty. Recognizing that beauty is personal, we are on a multi-year journey to create stronger more emotional connections with our guests and bring our brand purpose to life. Launched in September, our latest brand-building campaign, Beauty&, is rooted in insights from cultural leaders and beauty enthusiasts. The creative content on owned and paid channels has driven broad improvement in top-of-mind awareness and is resonating with our guests, particularly, black and Latinx beauty enthusiasts.
Turning to our loyalty program, our efforts to nurture loyalty in personalized ways is driving member growth and delivering incremental value. We ended the quarter with 39 million active members, 9% higher than the third quarter last year. Overall spend per member increased, driven by increased frequency and higher average ticket. While price increases are having an impact, we're encouraged to see unit growth per member. Our loyalty program is a strategic asset and an important driver of our long-term growth. We prioritize member engagement, loyalty and retention across every Ulta Beauty touch point. The growth and strength of our loyalty program starts with ensuring that our existing guests stay engaged. Nurturing our existing members through our Member Love events and life-cycle marketing strategies has enabled us to maintain healthy retention rates, which have contributed to member growth and higher spend per member. Member reactivation remains a priority and we are leveraging CRM tools to personalize offers and re-engage members in more targeted ways. And of course, conversion of new members also contributes to overall member growth. And we continue to acquire new members in our stores, digital platforms, and through our partnership with Target.
Shifting now to our plans and expectations for holiday. The holiday season is in full flow, and our teams are executing well. While predicting holiday shopping patterns this year is challenging, I'm optimistic about the opportunity for Ulta Beauty this holiday season. Our engaging holiday messaging one-of-a-kind assortment with exceptional seasonal options and diverse touch points, all paired with our team's unrelenting passion for delivering great guest experiences, position us well to deliver another successful holiday season. Rounded and robust consumer insights, our holiday marketing strategy positions Ulta Beauty as the place for gifting, glamming, and self-care this season. Our intent is to empower guests to celebrate the season however they want. And our integrated media plan for the holiday aims to build broad awareness of Ulta Beauty as a holiday destination, spark connection with key audiences, leverage our beauty expertise, and drive consideration and purchase.
Our merchandising team has built an outstanding holiday gifting assortment. Whether guests want to get others or treat themselves, we have thoughtfully curated options across every category and budget with a balanced approach to the mix of seasonal holiday items and core items that make great guests. We enter the holiday season with well-staffed stores and DCs and our teams are excited, engaged, and ready. For the first time since 2019, our store teams gathered in-person to review our holiday strategies. And I know their excitement and enthusiasm for our plans will be felt in every guest interaction. And our corporate and DC teams have worked cross-functionally to ensure Ulta Beauty is positioned to deliver for our store teams and our guests.
In closing, I'm incredibly proud of our year-to-date results and I'm excited about our holiday plans. Even as consumers continue to navigate economic headwinds, we believe the beauty category will remain resilient. And we are confident that our differentiated model and growth strategy, combined with our outstanding associates, will continue to position Ulta Beauty as the preferred beauty destination.
And now, I will turn the call over to Scott for a discussion of the financial results. Scott?