Dave Kimbell
Chief Executive Officer at Ulta Beauty
Thank you, Kiley, and good afternoon, everyone. We appreciate your interest in Ulta Beauty. Our fourth quarter was a strong end to a record-setting year. For the first time in our 33 year history, our annual revenues surpassed $10 billion, and our annual net income exceeded $1 billion. In addition, we expanded our loyalty program to more than 40 million members. Achieving such meaningful milestones reflect healthy consumer engagement with the beauty category, the power of Ulta Beauty's highly differentiated model, and the impact of our winning culture and outstanding teams.
The Ulta Beauty team continues to execute with excellence and inspire me daily with their passion and leadership. I want to thank all of our associates for their commitment to delivering great guest experiences and for working together as one team to move our business forward. I am honored to lead such a great company of talented associates who bring our mission, vision and values to life for all of our stakeholders.
Now to the results. Starting with the fourth quarter, net sales increased 18.2% to $3.2 billion. Operating profit increased to 13.9% of sales and diluted EPS increased 23.5% to $6.68 per share. Sales of all major categories exceeded our expectations, and we saw solid sales momentum across both our store and digital channels.
Additionally, we continue to see healthy growth in spend per member across all income demographics. This broad-based strength reflects successful execution of our key fourth quarter events, including Holiday, Jumbo Love and Love Your Skin. Our Holiday marketing plan, which included new television advertising, engaging storytelling and robust digital and social support delivered strong guest engagement and drove significant increases in top-of-mind awareness.
Our Holiday gifting assortment which was thoughtfully curated across every category and budget resonated with guest, and our innovative and inclusive gift card program delivered strong double digit growth across Ulta Beauty owned and third-party channels.
Turning to performance by category, all major categories delivered double digit growth again this quarter, and we increased our market share in Prestige Beauty versus the fourth quarter last year, based on data from the NPD Group.
Skincare delivered the strongest growth this quarter with double digit growth in both prestige and mass. Growth in the quarter was primarily driven by serums, moisturizers acne treatment, and holiday gift sets. Guests engaged with newness from brands like Drunk Elephant, The Ordinary and Hero Cosmetics. While dermatology based brands like, La Roche-Posay and CeraVe also resonated strongly with guests.
Our successful Love Your Skin event also contributed to the category's strong growth. In addition to converting members to the skincare category with prestige skincare offers, we also introduced guests to our wellness assortment with new beauty deals from a variety of brands, including Truly, Love Wellness and Sugarbear.
The fragrance and bath category delivered another quarter of double digit growth on top of strong double digit growth last year. Compelling newness from luxury brands like Burberry, YSL and Dior, as well as exclusive newness from Billie Eilish and. Ariana Grande, including her latest fragrance MOD, contributed to the positive growth. In addition, the category benefited from strong engagement with our exclusive holiday fragrance gift sets and monthly fragrance crush programs.
Growth of the makeup category accelerated from the third quarter, with double digit growth in both prestige and mass makeup. Top sub categories were face and lip driven by newness and foundation, concealers and lip balms and glasses. New brands like Fenty Beauty R.E.M. Beauty and recently launched Dior contributed to growth during the quarter, while new products from a wide range of brands including Tarte, e.l.f., Mixed and Clinique also continued to engage guests.
Finally, haircare delivered double digit growth, driven by newness and innovation, focused on hair health. Newer brands like Olaplex, Mielle and recently launched DONNA'S RECIPE contributed to the quarter's growth. Our Jumbo Love Event drove healthy growth for key professional brands, like Pureology, Redken and Biolage, as well as masstige brands, KRISTIN ESS and Batiste.
Hair tools continue to experience broad softness as we lapped strong newness last year. Our services business also delivered strong double digit growth again this quarter, driven by an increase in transactions. Leveraging our CRM capabilities, we continue to welcome new members to services, while increasing frequency with members who already engaged in our service offering. And the salon back bar takeovers which give our stylist a unique opportunity to introduce new brands and products to guests, help drive growth and new member acquisition for Wahl and Bumble and bumble.
Now, turning to the full year, strong consumer demand and outstanding execution by our teams fueled broad based strength across our business. Net sales for the year increased 18.3% to $10.2 billion. Operating profit increased to 16.1% of sales, and diluted EPS increased 33.5% to a record $24.01 per share.
In 2021, we introduced a new strategic framework, designed to guide our priorities and enable Ulta Beauty to expand our market leadership and drive profitable growth. Let me share a few highlights of the progress we made against this framework in fiscal 2022. Our first strategic pillar is to drive growth through an expanded definition of All Things Beauty and this year, we continued to enhance our offerings to engage and excite beauty enthusiasts.
All our major categories delivered double digit comp growth and we increased our market share in Prestige Beauty versus fiscal 2021 based on data from the NPD Group. We strengthened our assortment with the addition of leading brands in every major category including Fenty Beauty, Dior, BYOMA and Mielle and expanded MAC and Chanel Beaute into more doors.
We also introduced guests to exciting emerging brands, including about FACE, Divi, sk p and Vacation through our Sparked platform. We enhanced Conscious Beauty at Ulta Beauty, ending the year with 300 brands certified in at least one Conscious Beauty pillar and made it easier for guests to identify brands and products that reflect their values in this important space.
We added 12 black owned and founded brands to our assortment and launched our MUSE Accelerator program, to help early-stage BIPOC brands prepare for retail readiness, and we expanded the wellness shop to an additional 330 stores and enhanced our online offering to include intimate wellness.
Turning now to our second strategic pillar, All in Your World, we're focused on evolving guest experiences through a personalized connected omnichannel ecosystem. In fiscal 2022, we continue to enhance the guest experience across all our touch points. We expanded our physical footprint, opening 47 new stores and renovating or relocating two stores. We relaunched makeup services and introduced new salon services including curl specific treatments and extensions.
These enhancements combined with record-setting stylists productivity and increased transactions, resulted in strong double digit growth for our services business. Reflecting our efforts to enhance our buy anywhere, fill anywhere capabilities, we expanded our same-day delivery offering to six new markets and delivered significant improvement in guest satisfaction with the BOPUS experience. Between BOPUS, same-day delivery and ship-from-store capabilities, 31% of our digital orders this year were fulfilled by stores, up from 28% last year.
We also created new digital experiences through the phased refresh of our digital store and the expansion of Virtual Try-On capabilities, including Glam Lab, Skin Advisor 2.0 and the hairstyle try-on.
Finally, our successful partnership with Target continued to grow with the opening of 254 additional Ulta Beauty target shop-in-shop locations. We also created a dedicated field team to help unlock greater opportunity with the partnership and through engaging store visits and communications, this team had a positive impact on staffing, training and loyalty.
Moving to our third strategic pillar, expanding and deepening our engagement with guests by ensuring Ulta Beauty operates at the heart of the beauty community.
During the year, we continued to drive guests love, loyalty and share of wallet and our efforts created stronger, more emotional connections with our guests. Overall, unaided awareness grew significantly with meaningful gains among key audiences including Gen Z, Hispanic and Black Beauty consumers.
Importantly, we increased the number of active members in our loyalty program by more than 3 million members, ending fiscal 2022 with a record-breaking 40.2 million ultimate reward members who shopped more frequently and spent more with us on average. And we launched our retail media network, UB Media with a dedicated sales team and supported by new processes and tools.
Our fourth strategic pillar is to drive operational excellence and optimization to enable us to capture additional market share on guest experience enhancements and deliver future profitable growth.
In fiscal 2022, we made progress on a number of initiatives that will enable us to scale more easily, including successfully executing Phase 1 of Project SOAR, our three year effort to upgrade our enterprise resource planning platform on time and on budget. In addition to successfully navigating inflationary pressures in wages and fuel, we initiated a multiyear supply chain optimization effort, breaking ground on our first market fulfillment center and beginning the planned retrofit of our Greenwood distribution center. Both facilities are on track to be fully operational in fiscal 2023.
Our winning culture is key to driving our success. So our fifth strategic pillar is focused on protecting and cultivating our world-class culture and talent. Our vision is to create a highly aligned, engaged workforce and an inclusive workplace that creates opportunities for our people and our business, and I am proud of the progress we made last year.
With strong participation rates in our annual companywide engagement survey, our overall engagement remains high and continued to exceed retail benchmarks. And our investments in our team and culture enabled us to promote more than 11,000 associates into new roles and improve associate retention across the enterprise.
Finally, our sixth strategic pillar is to expand our environmental and social impact. As the largest U.S. beauty retailer, we can influence how the world sees beauty while driving positive impact. In fiscal 2022, we delivered on our DEI commitments by investing $50 million across our major areas of focus, including multicultural media to amplify underrepresented voices, dedicated support for BIPOC brands, and associate training to reinforce inclusivity and address unconscious bias.
On the environmental side, we continue to reduce our energy usage through the expansion of our LED lighting retrofit program to an additional 100 stores and our Chambersburg DC, as well as additional energy efficiency project in select stores. We also enhanced our ESG disclosures in our second ESG report and submitted emissions targets to the science-based target initiative, a globally recognized organization that validates these targets.
Fiscal 2022 was an outstanding year, and I am incredibly proud of our associates' dedication to delivering value for all stakeholders, while building the foundation for the future.
As we move into fiscal 2023, we remain optimistic about the strength and resiliency of the beauty category and the opportunities for Ulta Beauty. Over the last two years, the U.S. Beauty category experienced unprecedented growth, reflecting various factors, such as product innovation, expanding regimens, new social media platforms, return to work and resume social activities and the elevated connection between beauty and overall self-care.
In addition to these consumer drivers, an elevated level of price increases also contributed to growth for the category. While some are unique to the post-pandemic recovery, we believe other factors will continue driving growth for the category. Importantly, consumer engagement with beauty is stronger than ever and is more connected with wellness. These factors give us confidence that the growth of the U.S. beauty category will remain healthy but moderate to the higher end of the category's historical annual growth rate of between 2% and 5%, barring a major economic event.
Building on the progress made in fiscal 2022, we intend to continue executing against our strategic framework to further expand our market leadership, drive profitable growth and transform our business for the future in fiscal 2023. Starting with our consumer centric strategic pillars, we will continue to innovate, evolve and expand All Things Beauty to excite and engage the beauty enthusiasts. Today, Ulta Beauty is the preferred destination for mass and prestige beauty. To maintain this leadership and capture additional market share, we will continue to add relevant brands to our assortment across categories and price points.
Additionally, building on customer insights and strong engagement with our current portfolio of luxury brands, we see luxury beauty as an emerging opportunity.
In fiscal 2023, we will expand our luxury beauty offering with an engaging experience in select stores and an elevated presence on ulta.com. In addition to strengthening our core assortment, we will continue to expand, evolve and amplify our cross-category platforms, including Conscious Beauty, our BIPOC founded brands, the wellness shop and Sparked, our emerging brands platform.
As we meet beauty enthusiasts, wherever they are in their beauty journey All in Your World, we will continue to invest in our omnichannel experiences. Our physical footprint is a strategic advantage and we plan to open 25 to 30 net new stores and remodel or relocate 20 to 30 stores throughout the year. As we expand our physical footprint, we will also accelerate growth across digital platforms, supported by the completed transition of our digital store to a modern technology and architecture, as well as the expansion of our buy anywhere fill anywhere capabilities.
Our partnership with Target will continue to expand as we support additional Ulta Beauty at Target shops, evolve the assortment and leverage our dedicated field team to deliver elevated guest experiences. This newest touch point is introducing new guests to Ulta Beauty, and we intend to leverage our customer insights and CRM capabilities to continue driving additional member acquisition and bounce back to Ulta Beauty.
To operate at the heart of the beauty community, we will continue to create and nurture authentic meaningful connections with our guests to drive stronger relevance and brand consideration, especially with key constituents. We plan to expand the power of our loyalty program by enhancing our media mix to acquire new members and elevate the loyalty program throughout our digital shopping experience.
We plan to leverage our analytics and data insights further to reactivate lapsed guests, increased retention and shift share of wallet. And we intend to leverage our digital and physical assets to drive greater omnichannel member penetration.
Finally, we plan to accelerate UB Media to capture greater demand from our brand partners. Building on the foundation established in 2022, we will offer new opportunities on Ulta-owned properties and enhanced existing products with advanced reporting and optimized audience selection.
Turning now to our operational excellence and optimization efforts, in fiscal 2023, we plan to implement the next phase of Project SOAR, transitioning key supply chain and merchandising processes to the new platform. We will continue our supply chain optimization efforts as we complete the retrofit of our Greenwood DC and the opening of our first market fulfillment center.
In addition, we will begin the retrofit of our Dallas DC and construction of our second market fulfillment center here in Bolingbrook, Illinois. This new facility will replace our existing Romeoville facility and transition our experienced team to a new state-of-the-art facility.
In addition to these transformation initiatives, we will leverage our established continuous improvement capabilities to drive additional cost efficiencies.
Our success is enabled by our world-class culture, values-based and anchored and caring for each other, the Ulta Beauty culture attracts and retains top talent who deliver great guest experiences across multiple channels every day. To protect and cultivate our culture and enable future business performance, we will invest purposefully in our associates and teams. This year, we plan to modernize our talent strategy and planning practices, enrich our learning and development offerings and enable a leading DEI ecosystem.
Finally, in 2023, we will stay focused on our environmental and social impact. Being good stewards of resources, taking care of each other and creating a positive impact on the world is part of our DNA and our ESG priorities are integrated into our guest-facing, operational excellence and culture strategies. Building on progress made to date, we expect the science-based targets initiative to take action on our submission in the first quarter and based on their feedback, we plan to develop a road map to achieve our emission reduction targets.
We also plan to launch packaging, recycling and reusable bag pilots, as we explore ways to support a more sustainable beauty industry. We will continue working to expand our DEI efforts to amplify underrepresented voices, support black entrepreneurs in the business industry, ensure inclusivity remains a top priority in every guest engagement, and foster an inclusive bias-free and equitable workplace for all associates. And we will continue to strengthen our corporate governance practices.
Over the last several years, our Board has updated our governance guidelines, to better express our commitment to diversity, implemented an age limit for directors to encourage Board refreshment, and updated committee charters to address oversight of ESG risks. This year, our Board will propose for stockholder approval, changes to our certificate of incorporation and bylaws, which, among other things, will declassify the Board and provide for the annual election of each director for one year terms. If approved, the Board will be fully declassified by our 2025 annual stockholder meeting.
These proactive measures reflect our commitment to operating with best-in-class governance practices. More detail about these proposed changes will be provided in our 2023 proxy statements.
In closing, the Ulta Beauty team delivered an outstanding performance in fiscal 2022 on top of a very strong performance in fiscal '21. As we look to 2023, I am optimistic about our opportunities to expand our market leadership and drive profitable growth. We are leaders in a culturally relevant growing category with a strong proven business model and a winning culture with outstanding associates who are passionate about caring for our guests and each other.
I remain confident we will continue to lead the category and move beauty forward in ways that have a positive impact on our guests, our associates and the communities we serve.
And now, I will turn the call over to Scott for a discussion of the financial results. Scott?
