Ulta Beauty, Inc. (ULTA) Q2 2018 Earnings Conference Call Transcript

Ulta Beauty, Inc. (ULTA 0.13%)
Q2 2018 Earnings Conference Call
Aug. 30, 2018, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Ulta Beauty second quarter 2018 earnings results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Laurel Lefebvre; Vice President, Investor Relations. Please proceed.

Laurel Lefebvre -- Vice President, Investor Relations

Thank you. Good afternoon and thank you for joining us for Ulta Beauty's second quarter 2018 conference call. Listing our call are Mary Dillon, Chief Executive Officer, and Scott Settersten, Chief Financial Officer. Also joining us is Dave Kimbell, Chief Merchandising and Marketing Officer. 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 fact, 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. During the Q&A session, we please request that you ask one question only please to allow us to have time to respond to as many of you as possible during the hour scheduled for this call. I'll now turn the call over to Mary.

Mary Dillon -- Chief Executive Officer

Thank you, Laurel, and good afternoon everyone. The Ulta Beauty team delivered strong performance in the second quarter reflecting rapid growth in prestige boutique brands, mass cosmetics, skincare and fragrance offset by continued moderation in the growth rate of a few of our large color cosmetics brands. Our flexible business model continues to support healthy retail comp, excellent news to our productivity, and high growth for Ulta.com resulting in significant market share gains across categories.

To recap, our financial performance total sales grew 15.4%. We drove 6.5% comp says growth on top of 11.7% comps in the second quarter of 2017. With balance traffic and ticket growth overall, diluted earnings per share grew 34.4%. We continue to deliver our results by executing on our strategic imperatives. I'll give you a progress report in each one starting with their effort to drive loyalty and differentiate our brand. We grew our ultimate rewards loyalty program to 29.5 million active members at the end of the second quarter representing a 15.5% year-over-year increase. As we've seen over the past few quarters, we expect the absolute growth in members to continue to moderate but still exceed square footage growth.

Going forward, we expect to increase average sales per member to complement member growth. These gains will come from multiple sources, including the maturation of loyalty members who buy more over time, the addition of new brands, the benefits of our platinum and diamond tiers to increase share of wallet, higher penetration of our credit card program and greater personalization of our communications and offers to our guests. This combination is expected to drive continued healthy revenue growth. Our guests continue to respond to the powerful combination of our loyalty, credit card, and gift card programs.

In the second quarter, we saw continued momentum with both platinum and diamond members of our ultimate rewards loyalty program where we continue to innovate with the new tier, enhanced rewards, and increased personalization. Our ultimate rewards credit card program continues to exceed our expectations driven by great execution from our store teams and ongoing marketing efforts. Sales of gift cards grew more than 40% driven by expanding distribution in other retailers this year as well as strong growth in our stores. We're maintaining the very high level to brand awareness we obtained earlier this year through our marketing efforts around events and promotions including Mother's Day, our Gorgeous Hair event, our sale on jumbo-sized hair care products, as well as our programs targeting distinct guest segments, such as Latina, millennials, and teenagers.

We continue to grow awareness of Ulta Beauty as a beauty destination and authority in many ways: Digital partnerships, which utilize influencers, social media, and high impact display placement. And these include Pop Sugar, Refinery 29, and Fossil as well as new Hispanic media partnerships with Mafias, H-Code, Ola, and Café Media. We also continue to invest in network radio, streaming audio, with Spotify and Pandora.

We'll continue to drive awareness and further depth to differentiate the Ulta Beauty brand as we evolve our positioning in deepening the emotional connection we have with our guests beginning with an inspiring new television advertising campaign launching next week in which we'll bring to life our new brand statement, "The Possibilities are Beautiful." We'll share more of this topic at our upcoming analyst day but this new positioning which will be infused through all of our marketing communications and partnerships will unveil a new chapter for our brand celebrating the emotional and inclusive power of possibilities at Ulta Beauty.

Turning now to an overview of how we are continuing to differentiate our merchandise's orbit. We continue to gain significant market share in prestige beauty as evidenced by NPD data from February through July this year. US prestige beauty sales for the industry were up 6.4% and we grew more than 2.5 times as fast. Ulta Beauty has gained 210 basis points of share in prestige beauty so far this year and now represents almost 23% of the prestige beauty market as tracked by NPD. Our share gains year-to-date was the strongest in the makeup category up 360 basis points as Ulta Beauty grew prestige cosmetics in the mid-teens compared to the total market growth of 1%. More broadly during the second quarter, we benefited from strength in mass cosmetics, prestige skincare, fragrance, prestige boutique brands, and sun care. Each of these categories drove healthy double-digit comps with particular strength in fragrance and boutique brands. These gains were offset by continued softness across a few large brands of prestige cosmetics.

We're seeing excellent growth in the expansion of brands that are not present in all doors, such as Nars, Mac, Clinique, Lancôme, Estee Lauder, Morphe, and Chanel Beaute. And we anticipate that these rollouts will be an even bigger benefit in the second half of the year. We're also encouraged by the amount of newness in the pipeline ahead both new brands and new products from existing brands. We're delighted to announce the addition of Kiehl's Since 1851, the prestige skincare brand known for naturally derived ingredients inspired by their apothecary roots. This brand will launch in a small number of doors in the second half of the year and will be part of the Ulta Beauty express skin bar offering in these doors. The brand will then launch online in early January.

We plan to roll out Kiehl's in a more significant number of stores starting early next year. The product line up will include Kiehl's skincare, body, and men's products. On the mass cosmetics side, we're excited about the addition of Juvia's Place. This digitally native brand was founded just a couple of years ago by a Nigerian born woman inspired by the beauty of African queens. The line offers rich, vibrant, highly pigmented, and affordable collection of colorful eyeshadows as well as its makeup tools and beauty essentials.

Juvia's Place recently launched online and will set in 500 stores later this year. Headwinds like Kiehl's and Juvia's Place to name just those two, reflect Ulta Beauty's status as a partner of choice for a wide range of brands from digitally native, vertically integrated brands, to large, iconic brands. In terms of new items from existing brands much more newness is on tap for the second half of the year giving us confidence for an improved comp trend.

In many cases, these brand expansions or new product launches are exclusive to Ulta Beauty or we have an early lead on must-have products that the beauty enthusiasts want to be the first to own. The Tutti Frutti collection from Too Faced is expected to be a big hit with our guests. This is a fruit scented assortment of lip, eye, cheek, and highlighter products with mega influencer Kandee Johnson, partnering with Too Faced as the face of the collection. Launched online in mid-August and set in stores just this week, this collection is only available at Ulta Beauty and toofaced.com. Recently launched digitally native brand Morphe will be expanding to ten feet and all doors in just a few weeks as a new vault four-palette collection with influencer Jaclyn hill had a very strong launch just a couple weeks ago.

We're the only brick and mortar outlet for this brand. NYX just launched exclusively with Ulta Beauty their Can't Stop Won't Stop long wear foundation with a broad shade range. Other recent major product launches include equally anticipated items like the Norvina palette from Anastasia, the newest Nars mascara, wherein both cases Ulta Beauty had an early lead for the launch. Other new products include Clinique's Dramatically Different Hydrating Jelly, Tarte Creaseless Concealer, Urban Decay Aphrodisiac Palette, Dose of Colors limited edition collaboration with influencer iluvsarahii, Benefit Brow contra pen, and Clinique My Happy Splashes fragrances designed for layering.

Now the last thing I want to mention is some breaking news. We are thrilled to confirm our exclusive partnership with Kylie Cosmetics, which will be launching in all stores and online later this year. Kylie Jenner is a highly influential force in the beauty industry. This brand addition is yet another example of successful digitally native brands valuing a brick and mortar partnership with Ulta Beauty to extend their reach with consumers. We'll share more details about this launch at a later date.

Now moving onto our services business. Salon sales increased 8.8% and comp sales rose 1.7% due to growth in average ticket. Skin services were a top performer helped by strength in microzone services. The express skin bar continues to roll out in new stores with about 40 stores now offering this new model. These stores are already showing increases in prestige skin care sales compared to the prior model. This program offers our guests quick services on the sales floor with licensed skin care experts focused on helping guests choose a skin care regimen that addresses her concerns. Select locations will begin offering facial services from Murad, Kate Somerville, and Kiehl's in addition to Dermalogica, our long-standing skincare partner across the chain.

We're on track to roll out 180 express skin bars by year-end and 50 of these will offer multi-brand skin services. During the quarter, we completed training in California in preparation for their conversion to our new services optimization program, a model that improves and simplifies the guest and associated experiences with changes to pricing, training, and compensation. Our new stores in Hawaii opened with this program joining the essential region as well as the DC and Denver districts, which were launched in the first quarter. Early results indicate higher guest retention and our stylists have received the new program very favorably. We plan to introduce this model to additional regions in 2019.

We continue to focus on gaining awareness within the salon industry. We participated in Premiere Orlando attended by over 57,000 beauty professionals and we hosted the first-ever Ulta Beauty show at the North American Hair Stylists Awards in Las Vegas. NAHA represents the most prestigious hair industry awards in North America viewed by over 200,000 people and garnering 5 million impressions. Last quarter we mentioned that the Ulta Beauty pro hair team had received nine nominations across multiple hair categories and we're pleased to update you that one of our team members took home the award for Hair Stylist of the Year. Events like these establish Ulta Beauty as a great place to work for stylists and help us to continue to attract top-quality talent.

And now turning to real estate. We opened 19 stores in the second quarter compared to 20 last year and closed two, ending the quarter with 1,124 stores. Our growth and development team has done a great job getting stores open earlier in the year with 53 stores opened in the first half compared to 38 last year. We opened our first store in Hawaii on Maui in the second quarter and have opened another Hawaii store early in the third quarter with plans to open two more on Oahu during Q3. Our Hawaii stores are off to an excellent start. We'll also be entering Vermont later this year to reach the milestone of opening of operating stores in all 50 states. New store productivity continues to be very strong. We continue to study new store productivity and observe cannibalization to be stable and well within our expectations so we feel very comfortable with our network strategy in reaching our target of 1,400 to 1,700 stores in the US over the next several years.

And now turning to an update on Ulta.com. E-commerce sales grew 37.9% and represented 9% of total company sales. This moderation relative to the first quarter was expected as we're comping over 72% growth last year when we benefited from the Mac launch and high growth from several online-only brands. Ulta.com contributed 250 basis points of the total company comp driven by transaction growth. Total traffic rose close to 40% with mobile traffic up 50%. We continue to drive significant growth with online-only brands and online-only promotions. Our store-to-door program that allows guests to order online in our stores and have products shipped to their homes continues to exceed expectations particularly with brands that aren't available in every door, such as ColourPop, Mac, and several digitally native brands that are in high demand but in limited distribution.

Ulta.com recently launched a foundation finder we're continuing to see success from enhanced content programs like our monthly fragrance crush and we just launched a new program focusing on a key skincare trend each month called Skinfatuation. We're also testing personalization initiatives in several areas. On the chain customers now represent 10% of loyalty members and the shopping behavior of these guests continues to reinforce our view that e-commerce sales are largely incremental. The guest shopping on Ulta.com continues to shop more frequently in stores than retail only customers. This guest is our most engaged loyalty member demonstrating interest in new brands and products and a low incidence of replenishing exact items.

And finally, I'll update you on our supply chain operation. Ulta Beauty supply chain operations continued to mature in the first half of 2018 supported by investments in capabilities that support growth, deliver a great guest experience, and enable network efficiencies. Our in-stock position drop the second quarter was consistently strong, particularly for our top selling items. We effectively manage our inventory position throughout the quarter with our inventory per store well below comp growth and inventory turn slightly ahead of our goal. We've made several improvements for a logistics network over the last several months to better serve our retail and e-commerce customers. And so far the results have led to improved performance and reduced costs across both channels.

We also recently implemented an order management system that enables future Omni channel capabilities such as buy online, pick up in store. Our newest distribution center in Fresno, California went live in July serving both e-commerce and retail operations. This DC is planned to ramp quickly with a more aggressive first-year build than Greenwood and Dallas. Fresno is currently serving nearly 100 stores and about 20% of our ecom volume. In the fall, Fresno will ramp to about 170 stores and obtain a share of Ulta.com sales.

And after the holiday season, Fresno will ramp to serve you more than 200 stores and more than 20% of our e-commerce sales. Overall, we're pleased with the strong performance of our supply chain operations in stocks and decreases in inventory per door. This year, we've implemented improved processes for the large number of inventory transitions we execute as a result of our growing access to new brands and products.

At the end of the quarter, we ran a special clearance event with extra discounts and inventory resulting from the major plan where reset we executed recently. The event was designed to sell through inventory no longer on a store's planogram and clean up our back rooms setting us up for a great 21 days of beauty and strong holiday season and is proceeding on plan.

Before I turn it over to Scott, I'd like to give you a preview of our upcoming investor and analyst conference. Scheduled for November 8th near Chicago, this will be our third biannual investor conference. Similar to prior events, it's an opportunity to get to know the management team, learn about our latest thinking on our market share gain opportunities, our consumer targets, our brand positioning, an update on our loyalty program and share wallet potential, hear about the outlook for newness across our merchandise portfolio, learn more about the salon services optimization program, see how we're investing in technology and innovation to enhance the guest experience, get a refresher on our supply chain capabilities, learn more about our efficiencies for growth program, and get a current view on our capital allocation. So lot's to cover and we hope you'll join us in November. And with that, I'll hand it over to Scott to talk in more detail about our second quarter results and share outlook for the second half.

Scott Settersten -- Chief Financial Officer

Thank you, Mary. Good afternoon, everyone. Starting with the income statement. Revenue growth of 15.4% was driven by a 6.5% comp in continued strength from new store sales. The revenue recognition accounting standard implemented at the beginning of the year added 9.4 million of sales. As a reminder, this represents the impact of income from our credit card program and gift card breakage moving up to the revenue line as well as e-commerce revenue now being recognized upon shipment date instead of delivery date to the customer. These items are partly offset by the value of loyalty points earned now treated as a reduction of net sales.

Our retail comparable sales growth was not impacted by the revenue recognition change. Traffic and ticket for the total company was fairly balanced with a 3.1% increase in transactions and a 3.4% left in average ticket. The retail-only comp of 4.1% was made up of 1.1% traffic and 3% ticket growth. Ticket was driven by modest increases in both average selling price and UPT. A combined retail and salon comp was 4%, which included the salon comp of 1.7%. Turning to margins, gross profit deleverages 40 basis points. The new revenue recognition accounting standard was a benefit of about 60 basis points to the gross profit line so the underlying roughly 100 basis points of deleveraging was attributed to several primary factors.

About a third was from supply chain expense reflecting the costs of opening a new Fresno distribution center. About a third were investments in our salon operations as we roll out our salon optimization program. And a remaining third was related to ongoing pressures from the mix of e-commerce sales, prestige brand boutiques and mass cosmetics relative to higher margin categories as well as the clearance event that we ran at the end of the quarter that Mary already referenced.

This event focused on selling through inventory that was no longer being sold in certain stores where we've had a series of significant reflows and planogram resets across multiple categories this year. While we typically have smaller clearance events throughout the year, this one reflected more aggressive markdowns and more items featured overall to make sure we cleared the stores ahead of the holiday season and major launches of fall newness.

This event is ongoing and will wrap up in a few weeks. Aside from this exceptional activity, promotional levels were stable year-over-year. Finally, we did see modest leverage in rent and occupancy expenses to partially offset these factors. Turning to SGNA, we deleveraged by 70 basis points reflecting 80 basis points of deleveraging from the revenue recognition accounting standard. The 10 basis points of underlying SGNA leverage was a bright spot considering we deleveraged store labor expense primarily in support of our prestige boutique strategy and also deleveraged advertising expense slightly while expecting this line item to be flat for the full year. Offsetting this pressure was strong leverage in corporate overhead reflecting good expense management.

In early savings from our cost optimization program as well as the timing of some budgeted GNA costs that will be incurred later in the year. Operating margin was 13% of sales and was down 100 basis points as expected from last year's Q2 results the 14% with 20 basis points of the decrease coming from the revenue recognition accounting change. Diluted EPS increased 34.4% with the upside to our guidance primarily due to corporate overhead savings and timing of expenses.

Moving onto the balance sheet and cash flow. Total inventory grew 6.5% but decreased 4.3% on a per store basis, well below comparable sales growth and a strong outcome in light of the investments in inventory to start operating our new Fresno distribution center during the quarter. This excellent performance reflects the new tools and systems we invested in to manage inventory as well as the more significant clearance activity at the end of the quarter. Capital expenditures were 68 million for the quarter for new stores, investments in systems, prestige boutiques, merchandise fixtures, and supply chain activities. We ended the quarter with 386.1 million in cash in short-term investments. We repurchased 512,000 shares to our 10D51 program at a cost of 127 million during the second quarter. 402 million remained available on the 625 million authorization as of quarter end.

Turning now to guidance for the third quarter in full year. For the third quarter of 2018, we expect sales to be in the range of 1.550 billion to 1.563 billion versus 1.342 billion last year. We expect comparable sales to increase in the range of 7% to 8% versus 10.3% last year. E-commerce sales are expected to grow in the 40% range. We plan to open approximately 40 new stores in the third quarter compared to 48 in Q3 last year and remain on track to open 100 net new stores this year. The Q3 pre-opening expense is expected to be slightly lower as a rate of sales.

Diluted earnings per share are expected to be in the range of $2.11 to $2.16 versus $1.70 last year. And operating margin is planned to deleverage, including the roughly 20 basis points related to the revenue recognition accounting standard consistent with the impact we saw in the first half of the year. The tax rate for Q3 is expected to be 24%. This does not include any assumptions for the tax rate impact of shared base compensation accounting, which is difficult to forecast.

Our fully diluted share count is estimated at 60 million. For the full year, we are maintaining our outlook for the full year 2018 to reflect some of the timing we mentioned with planned expenses occurring later in the year. We plan to open 100 new stores all are 10,000 square foot standard prototype. We'll complete 15 remodel and relocation projects. We expect to grow e-commerce by approximately 40%. We anticipate top-line growth in the low teens including the impact of the 53rd week last year.

Total company comps are expected to be in the 6% to 8% range with retail comp in the mid-single digits. We expect to grow diluted earnings per share in the low 20s percentage range including the extra week in 2017. We anticipate capital expenditures of approximately 375 million. Depreciation is forecasted at approximately 290 million. We expect to repurchase shares in the 500 million ranges for the year and the annual tax rate for the remainder of the year is expected to be 24%. And with that, I'll turn it over to our conference call host for the Q&A.

Questions and Answers:

Operator

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We respectfully request that you ask one question only to allow us to have time to respond to as many of you as possible. One moment please while we pull for questions.

Our first question comes from the line of Brian Tunick from RBC Capital Markets. Please proceed with your question.

Brian Tunick -- RBC Capital Markets -- Analyst

Thanks and good afternoon. I guess the first question was a little more help maybe from Scott on the third quarter. Obviously, there are some comparisons on the hurricane issues and some SGNA initiatives. Can you maybe help us parse out how you're expecting gross margin versus SGNA to play out in the third quarter and maybe in the back half -- just the different components first?

Scott Settersten -- Chief Financial Officer

Sure, Brian. I guess on the gross margin line we would expect a bit of a pivot here, as we look ahead to the second half of the year. The third quarter I think you'll probably well remember we're gonna be anniversary over some hurricane activity last year so we had some pretty significant, what I would say, merchandise margin investments in rate last year to try to mitigate against some of the sales softness that we saw as part of the hurricane impact. So we'll be lapping that so we feel good about where we are.

So I think you would expect to see gross margin above -- show good leverage -- above the accounting change impact that we saw here, that 20 basis points in the first half of the year. So I guess that would be the first thing I would say. On the SGNA side, more deleverage than we saw in the first half of the year so I think that's where you'll find equilibrium there for the back half. So we've got some projects, again, some things we're doing for the first time. Some of these new technologies that we're implementing across the business. So some of our initial timelines were just a little bit slower off the line, I guess I would say on that. But we feel good about -- we're gonna get everything completed in the second half of the year and position ourselves well for 2019 and beyond.

Brian Tunick -- RBC Capital Markets -- Analyst

And then maybe could Mary talk a little about the larger prestige color cosmetics that you're talking about here? How big of a portion of the business is that? Has the company gone through a similar period before from either lack of newness or cadence of product introductions? Maybe just talk about what the company has seen before through this kind of period.

Mary Dillon -- Chief Executive Officer

Well, obviously, it's sort of -- it's a mix story I guess I would say. We continue to drive solid growth in prestige cosmetics overall. We continue to have great market share gain. We've seen through our boutique brands, they're growing very nicely. Many of our prestige brands are growing with strong innovation and social media presence. But a few of our bigger prestige brands are not lapping the newness; I guess I'd say.

So that's putting some pressure on the model. This is what we do all the time. Our merchants are constantly evaluating and working with our brand partners to continue to strengthen the pipeline. We feel really good about the pipeline. First of all, our overall business model I think shows a strength and flexibility at a time where you might have a segment that's not as strong but delivering strong results across many categories and we're working with culture with our brands and maybe Dave if you want to add a little about we feel good about the pipeline of newness and innovation coming up in the second half.

Dave Kimbell -- Chief Merchandising and Marketing Officer

We really do, really across the store to reiterate what Mary said. We're really happy and excited about the whole mix and the assortment in all categories: hair care, skincare, fragrance, and cosmetics. And we're seeing some nice growth in the entire store although as Mary said, some of our largest prestige brands have had some challenges but as we look forward, we're really optimistic. We've been working closely, they certainly -- the brands themselves -- are focused on driving growth. I'll give you a couple of examples of things that we're very optimistic and excited about.

Now Tarte is one of our largest brands and has been driving strong growth all year long in part because of the double duty beauty line that's exclusive to Ulta Beauty and that's been successful all year and we've seen some nice innovation and expansion of that business that will continue to drive growth through the rest of the year. Too Faced, Mary mentioned, just launched an exclusive line only at Ulta Beauty; Tutti Frutti, which is off to a strong start early but we're excited. That brand has a long history of growth and success at Ulta Beauty and we're optimistic.

In cosmetics, a brand that really grew up in many ways at Ulta Beauty has recently launched some new lines including a 48 shade concealer line, Bye Bye Undereye Concealer that also is off to a strong start. And Benefit we've had a long partnership with Benefit, including a unique brow partnership, brow bar service partnership. And they've had a steady stream of innovation and we're optimistic about what's coming including a strong holiday. So across the board, as Mary said, we see ups and downs naturally in our business but as we look forward we see a lot of good things coming.

Operator

Our next question comes from the line of Simeon Siegel from Nomura Instinet. Please proceed with your question.

Simeon Siegel -- Nomura Instinet -- Analyst

Hi, this is Julie Kim on for Simeon. Thank you for taking our questions. I was just wondering about the salon segment if you could provide any color there. I believe comps slowed down sequentially so just curious on what trends you're seeing and given the expansion of the skin bar, what your thoughts are longer term for opportunities?

Mary Dillon -- Chief Executive Officer

We are very invested in the services part of our business. It's a critical differentiator. That salon guest, any service guest, is really one of our best guests because they shop and spend much more. They spend almost three times what somebody who's not using services does. So our salon business continues to outperform the market. We have exceptional talent. We do see that -- we believe we can reinvent it and make it even better and that's why we're doing this services optimization work. Early results are very encouraging and it's really about optimizing menu, pricing, training, hiring, kind of across the board.

So we don't expect that to show fast results quickly but the early results are actually very encouraging. And also as we start to roll out the skin bar with its quicker services, that is also very strong start as well. And it's very much as being responsive to what our guests want and need from us. They care a lot about skincare. They don't have maybe as much time to have a long service but they're very happy to serve participating in these quicker services. So a lot of new brand launches. A lot of innovation there and we feel good about where it's heading.

Operator

Our next question comes from the line of Steph Wissink from Jefferies. Please proceed with your question.

Steph Wissink -- Jefferies -- Analyst

Thanks, good afternoon everyone. I'll ask the question on Kylie Cosmetics. I'm wondering if you can talk a little bit about that partnership; what the timing is of the expected rollout? Mary, I think you indicated in the back part of the year but will that be in stores for holiday? And how should we think about that in tandem with your new marketing campaign in terms of other possibilities at Ulta?

Mary Dillon -- Chief Executive Officer

It's a new possibility at Ulta. So we're not gonna -- we don't really have details to disclose today but know that it'll be all stores and online by holiday. We're really excited about it. It's gonna be, I think, a fantastic partnership for us. And I'll see if you want anything more. I'll just add, as we start our new advertising, which starts September 2nd so it's right around the corner. I'm really proud about the work and we've pre-tested the work so we feel good about how consumers are gonna react to it. It's just the next evolution of our brand and really elevating to a more emotional level in a way that's very consistent with how people want to feel to talk about beauty. So more to come on that. But I think they fit very nicely together.

Steph Wissink -- Jefferies -- Analyst

And Scott, could I just follow-up on an earlier question regarding the third quarter? I think you mentioned that the investments are largely gonna be in technology in the SGNA line? Can you maybe extrapolate a little bit more about what's left within the investment cycle that you still need to focus on here over the next six to twelve months? And how should we think about that equalizing over the course of the next several months as you pass through Q3 and into the back half and onward into '19?

Scott Settersten -- Chief Financial Officer

It's a little more clarification on that. I mean, typically, the third quarter is the toughest for us. Our margin expansion kind of quest over the long-term. You've got peak new store implementation, you got peak boutique and labor component with that implementation in the third quarter. This year on top of that you've got the Fresno DC which is at peak deleverage in the P&L there as it kind of gets off the starting line so to speak. So there's a lot of things at the core that kind of pile up in the third quarter that make it a challenge for us.

And then in addition to that, we laid out earlier in the year some of the incremental investments that we have, right, as part of the tax reform working our business. So a lot of those projects, the test and learns and other things that we have queued up are just taking a little bit longer to get implemented than we initially thought earlier in the years. So again, the majority of that falls into the third quarter. So when we're talking about shifting of expenses, that's a big piece of it as well. And then advertising or marketing is a little bit more on top of that. So with the new advertising launch here in the fall, we move some of the spending from the first half of the year and into the second.

So again, just trying to take advantage of making sure we're optimizing from all focus points. So third quarter you're gonna see more deleverage on the SGNA line than maybe we were thinking last quarter when we spoke with you. But again, as we roll it forward to the fourth quarter with sales, Fresno up and running working toward, as Mary mentioned, a quicker ramp than we've seen in the past. We expect a lot of that to moderate in the fourth quarter so again for the full year we're right on target with our 50 to 70 basis points of deleverage on the operating margin line. And then feel like we're really in a good spot setting ourselves up well for 2019 and beyond.

Operator

Our next question comes from the line of Christopher Horvers from JP Morgan. Please proceed with your question.

Christopher Horvers -- JP Morgan -- Analyst

Thanks, good evening. Can you talk a little bit about the 7% to 8% guide for the third quarter? It's been interesting -- your comps haven't really bounced on easier comparisons but clearly, you've got a lot of self-help coming here in the third quarter. I guess my question is, is the seven to eight more anticipatory of the lift that's ahead or is there something that you're seeing in the month of August that is giving you the encouragement to guide this way?

Mary Dillon -- Chief Executive Officer

Thank you for the question. I'm not gonna comment on the quarter that we're in but you know, we really try to give our best guidance. We do expect to see acceleration against some easier comps in the second half and I think we talked about a couple of times the continued rollout of some of our high growth brands, newness from existing brand partners, new advertising, 21 days of beauty, which is always a great event for us. We just believe that and see the ability for our comps to strengthen, as we get further into the year.

Christopher Horvers -- JP Morgan -- Analyst

Understood. And then, in terms of the boutique roll out. You've accelerated that over the past few years. In the past, you talked about the boutique sort of mature over a three-year timeframe. It's tough for us to lay out sort of that math but as you think about the lift from the boutique additions that you've done over the past few years and this year, is the benefit from that boutique rollout accelerating here into the back half of 2018 and into 2019?

Scott Settersten -- Chief Financial Officer

I wouldn't say there's an acceleration. I would say overall we're very happy with the performance of those boutique brands. Again, they're a big contributor to our comp performance here in the recent quarters. Again, everything's got to stay in balance, right? So very happy with the top line performance of those boutiques and our investments there. But it does create a little bit a headwind as we discussed in the past the margin rate line.

So again, trying to balance it all for an optimized result overall. So I wouldn't call it an acceleration although I would point out this year, Mary mentioned the new stores, so we did kind of sequence our field construction program a little differently this year. We've pulled ahead. I guess the new store rollouts. We're further ahead on new store week so that's a good thing getting those stores open further in advance of the holiday season.

So the store teams are more seasoned and ready to go. We think that's gonna be a benefit. And some of the new boutique installs are kind of dragging later in the year than they have the last couple years. So again, that's another comp driver that we think gives us confidence on the second half of the year.

Operator

Our next question comes from the line of Mark Altschwager from Baird. Please proceed with your question.

Mark Altschwager -- Baird -- Analyst

Good afternoon. Thanks. Just to clarify, Scott, I think if I heard you correctly, you said you do expect gross margin to be up in Q3 even before the accounting benefit. Is that accurate? And then, what is the merchandise margin expectation that's embedded in that? I think merch margin was the primary driver to the gross margin decline last year. So just trying to get a sense of a reasonable expectation in terms of recapture. Thanks.

Scott Settersten -- Chief Financial Officer

I don't think I can quantify it in basis points for you, Mark, but you've hit the nail right on the head. That's exactly what we're expecting. So that'll be the pivot point in the third quarter. Again, I don't recall exactly what we stated but it was significant basis point investment last year. Those hurricanes really hurt us last year and so we made a decision to invest in rate to drive sales through incremental promotional events and so we made the decision. We made the right decision for that point in time and now this year as we cycle that we expect to see a bounce back on that. And based on the early reach, we're feeling very confident where we're headed.

Mark Altschwager -- Baird -- Analyst

And it seems like a lot of moving pieces on the SGNA front this year. Are there a way to think as you get beyond 2018 and a lot of these kind of one-time expenses on the supply chain front, what's a normalized level of SGNA growth that's needed to sustain the strength in the business? Thanks.

Scott Settersten -- Chief Financial Officer

I don't think I can again quantify for that specific year today. Maybe that's something we can queue up for analyst day a little bit differently than maybe we've looked at it in the past. But again, this year we've got a significant reinvestment of those tax reform benefits that approved to us this year. So again, a lot of that. A lot trying to quantify what's recurring and what's one time kind of thing. We're in a very dynamic environment here in retail and there are things that we just need to do to make sure we sustain a healthy business for the long-term and that's what we intend to do. So we'll keep you updated. Again, we talked about guidance for '19 and we're feeling pretty good about right now. And when we see you in November we'll give you a view of how we're thinking about the longer term.

Operator

Our next question comes from the line of Adrienne Yih from Wolfe Research. Please proceed with your question.

Adrienne Yih -- Wolfe Research -- Analyst

Good afternoon, everyone. Mary, I was wondering if you can talk a little bit about sort of the promotional backdrop. It seems like year to date the department stores have done a little bit better and therefore maybe aren't as aggressive on the promos. And then if you can comment on -- recently, there was an article about CBS rolling out this beauty experiencing and collaboration with Glam Squad.

And then finally, Scott, as you talk about 2019, in order for margins to expand do you need the store comp to accelerate from that kind of fourish level or will the six cost break-even point come down to that level because you're gonna have some of these investments rolling off? Thank you very much.

Mary Dillon -- Chief Executive Officer

Okay, a three parter. I'll start on the promotional strategy. I would just say this; we've been consistent year-over-year in the quarter. I would say the overall environment is always competitive. We're not seeing any major shifts I would say in the promotional environment, it's stable but pretty promotional environment. I feel really good about the model that we have. We've worked hard over the last five years to really diversify our -- I'd guess I'd call the demand levers and tools. And we always have the ability to pull different levers with an increasing focus on using our loyalty program or serum program. More personalized over time. And it's allowed us to really balance the mix and invest in things like advertising and PR and social media.

I think we've got that we flex as we need but we don't see that as being necessarily very different right now I guess and it's been. Your other question; competition -- everybody is interested in the beauty business and so we're aware of, pay attention to everything that's going on. We, I think, have a real strong lead as it relates to having a differentiated model whether you're talking about competing with mass or we've got very differentiated matte assortment in the mass arena or mass arena plus services, plus our loyalty program. I love what we're doing as it relates to digitally native brands across prestige and there. And so we look at everything as game on but not doesn't keep me up at night.

Scott Settersten -- Chief Financial Officer

And then as far as the outlook for '19 and how the algorithm might work, so we would, I would say, we take a reasonable prudent view of what the top line might look like and we fill the cost infrastructure to match that. And then we hope we do better on the top line with some of the newness that we have in our sight. You use the term fixed cost and variable cost. I mean things we talked about our efficiencies for growth initiative that we kicked off earlier this year.

So that'll be a big piece of it. So we see cost efficiencies across the business. Very happy with where we are on that. The DC, again, we got Fresno this year. That'll drop off, right, so we won't have another one in '19, at least that's not planned now. So we'll get some benefit there. And then, the investments we're making. The tax reform investments that we're investing in this year we expect to get benefits out of that in '19 and beyond. So maybe that would be a way to think about it.

Operator

Our next question comes from the line of Erinn Murphy from Piper Jaffray. Please proceed with your question.

Erinn Murphy -- Piper Jaffray -- Analyst

Great, thanks, good afternoon. Mary, my question is for you. You talked about in your prepared remarks the opportunity for spend per loyal consumer to further increase. Can you just share with us what you're learning about the platinum and the diamond tiered customers whether it's frequency into the stores, spend per customer? And then I guess, secondly, just on the second quarter. Did the stores that overlap with the BonTon, can you just talked about how they performed and if your second half guidance implies any shared gains from BonTon's closure? Thanks.

Mary Dillon -- Chief Executive Officer

Loyalty -- we're careful not to break out a lot of detail about the various performance of the tiers but I will tell you is that obviously, we consider it a successful and a strong tool for us. But if you step way back, today we have just under 30 million members in our loyalty program. But they still represent only a third of the beauty enthusiasts in the US. And we only have about a third of the wallet shares. So I look at that as a continued source. We're very focused on how we're gonna grow both that the number of members as well as wallet share. And the tier -- the innovation that the team has put in place on the program are really working.

So the diamond tier, really strong move for us, credit card, increasing personalization engine and recommendation engine. As well as really strong focus by our teams in-store on driving awareness to conversion of the program. So we see that as a core asset for us and feel really good about how we're gonna continue to innovate to drive growth.

On BonTon, I would just say; we're certainly paying attention to everything that's happening competitively and we're obviously reaching out to make sure customers are looking for a place to shop for beauty in those markets, know about Ulta Beauty. When I would say our guidance assumes we're gonna continue to gain share across from several sources. We don't predict that that precisely down to an individual competitor. But we see closure in packs of stores could have kind of a plus or a minus but generally built into our expectations.

Operator

Our next question comes from the line of Rupesh Parikh from Oppenheimer & Company. Please proceed with your question.

Rupesh Parikh -- Oppenheimer & Company -- Analyst

Good afternoon. Thanks for taking my question. So on your mass cosmetics business, the performance really stands out versus your peers this quarter. So I was just curious, as you look at the reset that you've done this year to date, have there been any surprises versus the expectations?

Scott Settersten -- Chief Financial Officer

Yes. We are very happy with our mass cosmetics business in a lot of ways with our makeup business overall. But yeah, no, I think the things that we set out to do we're feeling good about accomplishing them. Some of our biggest more established brands like our Ulta Beauty collection, L'Oreal, Maybelline, are playing an important role but a lot of newness is come into really excite guests and engage her in new ways. In particular, brands that are exclusive and only found at Ulta. Morphe is one that Mary mentioned in her prepared remarks has been one that's been driving a lot of growth.

Of recent, Jaclyn Hill palette sub-launch of just a couple weeks ago was quite successful and we've had continued expansion with that brand. Makeup Revolution also exclusive in the United States to Ulta has grown quite well and plays a very important role in our overall assortment. The addition of ColourPop, one of the stronger influencer led digitally native brands has also been a nice complement to our overall portfolio and driven a lot of growth. So we're really pleased with its performance. We see a lot of growth in that space and continue to focus on all of makeup and anticipate more growth in the mass space in particular.

Operator

Our next question comes from the line of Daniel Hofkin from William Blair. Please proceed with your question.

Daniel Hofkin -- William Blair -- Analyst

Good afternoon. Just wanted to see if you could just comment briefly, I may have missed it, but are older stores in this type of an environment or your older stores still comping positive or break even kind of where does that stand at this point?

Scott Settersten -- Chief Financial Officer

No, so the fleet looks healthy overall. Again, as you would expect with a mid-single digit comp in the retail side. The older stores, five years and older are low single to mid-single digit comps. So again, we're not seeing anything unusual there. Oftentimes we might see some sales transfer cannibalization but oftentimes we do that to ourselves, right? So we're trying to make sure we've got best positions in the market being we're in it for long-term. We're in it for total dollars on the top and bottom line. So feeling good about the store productivity and our long-term target.

Daniel Hofkin -- William Blair -- Analyst

Okay great. And then, if any update on just kind of the major urban store locations that you've opened in the last year? You know, Chicago and Manhattan and kind of what you see in the early going as the potential incremental opportunities there?

Mary Dillon -- Chief Executive Officer

You know, those stores are performing really well. We're thrilled that we opened them. I think they're giving us great brand awareness and also really performing very nicely for us. So I think looking forward it'll still be a smallish part of what we do. Obviously, the cost around those businesses is a lot higher than a non-urban store but we love what we're seeing in those.

Operator

Our next question comes from the line of Matt Fassler from Goldman Sachs. Please proceed with your question.

Matt Fassler -- Goldman Sachs -- Analyst

Thanks so much and good afternoon. My first question, my primary question relates to you prestige market share numbers. You quoted some nice increases on an aggregate basis. Can you give us a sense of how that's transpiring on the same store basis and also what direction that trend has gone for you in terms of your prestige market share trajectory?

Dave Kimbell -- Chief Merchandising and Marketing Officer

I'll jump in. Our prestige market share overall has been growing significantly for several years and first a half at second quarter of this year was no exception. And I think the main drivers of that growth and that's happening certainly as we've added new stores. But for sure, within our comp stores. Even the brands that we've talked about today in that prestige space that haven't been performing to our expectations are still performing largely better at Ulta than perhaps at other places across the market.

So the drivers of that growth are really a combination of continuing to expand some of the brands that are in limited distribution that are rolling out into more stores, that's a significant contributor to our market share growth. Brands like Mac and Estee Lauder, Clinique, Lancôme, really across the board, Nars. The addition of new brands like Flesh as an example recently has been an addition adding growth.

And then some of these exclusive lines that I've talked about earlier with Tarte Double Duty beauty now Too Faced Tutti Frutti are significantly driving growth and are because they're exclusive are driving strong share growth as well. So it's a multi-tiered level and we're definitely seeing in comp stores as well as new stores and I'm excited.

The last thing I say with that though is digitally native brands are certainly having an impact on the total prestige market and total makeup market. That's why we're really focused on driving these brands; brands like Morphe, ColourPop that we've added. And now, as Mary mentioned, confirming the launch of Kylie will play an important role in continuing to make sure that we're driving shares well into the future.

Matt Fassler -- Goldman Sachs -- Analyst

Very briefly on Kylie. Obviously, a new piece of news. Your guidance is as it was. Should we consider that new brand addition to be included in the present guidance for the rest of the year?

Mary Dillon -- Chief Executive Officer

You know, Matt, I would say yes. Think about it like that, it comes quite late in the year and so we factor that into our thinking. And it's like any new brand, it's really hard to predict exactly how it'll play but we would think about it as included in the guidance, yes.

Operator

Our next question comes from the line of Michael Binetti from Credit Suisse. Please proceed with your question.

Michael Binetti -- Credit Suisse -- Analyst

Hey guys, good afternoon, thanks for taking our questions here. Could I just ask a quick question? Is the plan still to the merchandise margin to be flat this year and I guess related was the planogram change that you discussed that resulted in the clearance activity contemplated in the initial guidance for merch margins flat?

Scott Settersten -- Chief Financial Officer

I think directionally flat is the way to think about it for the full year and clearance work or the clearance event here at the end of second quarter's not gonna have any significant impact on that.

Michael Binetti -- Credit Suisse -- Analyst

Okay. And would you mind helping walk us up to how you're thinking about gross margins for the fourth quarter, which has obviously been a very promotional quarter, but there's some noise last year in the compare in the fourth quarter with the 53rd week, I think. Maybe just help us think about how you're building up to your gross margin expectation in the all-important holiday season?

Scott Settersten -- Chief Financial Officer

I think the way I described the third quarter -- the pivot point here where we expect gross margin to leverage in the third quarter. It's consistent with the fourth quarter as well. So again, to your point, some unusual activity last year. The DC ramp up here Fresno is gonna give us less headwind, I guess I would say as we look into the fourth quarter.

The efficiency, the company, the enterprise overall continues to get more efficient. You take the newness, better sales trends there coupled with the efficiencies that we're building every day. I feel like we're gonna be able to expand gross margins in the fourth quarter as well.

Michael Binetti -- Credit Suisse -- Analyst

Okay. Mary, maybe one more just a little more fun to think about. Obviously, you said the growth rate of the loyalty customer will mature just given the size of that program for you. To the earlier question, would you mind sharing any kind of numerical examples or KPIs of the wallet share metrics that you're seeing that accelerate that drive the confidence in the comments you said in your thoughts on gains from the share of wallet for the customer?

Mary Dillon -- Chief Executive Officer

I would, as I said earlier, just broadly we've got about a third of the share lot of our loyalty members overall. So we don't really break that out in anymore level of specificity but you could imagine some that are more highly engaged we have a higher share of wallet than others but on average it's a third. Our focus as we think about the future is just really -- we've got everything that beauty enthusiasts want to love and we're gonna continue to offer her everything she needs and wants.

And so, for us it's about continuing -- but she'll also -- we'll never have 100% of her wallet share because people shop in different places sometimes. But we think that between increased rules of personalization of our offers and just innovation in the program and also innovation of what we offer. We're gonna continue to focus on how we can even drive more of that wallet share growth over time. But it doesn't move overnight. It takes a while but that's a key area focus for us.

Operator

Our next question comes from the line of Oliver Chen from Cowen & Company. Please proceed with your question.

Oliver Chen -- Cowen & Company -- Analyst

Hi, thank you. Regarding the planograms; what are your thoughts about what the new planograms will do for you and how you ensure that this is a good step just in front of the all-important holiday selling season? And Mary, I would love your thoughts on what we're seeing with the bifurcation of the larger brands versus some of the newer brands? Do you expect that that will be a trend that will continue in terms of the reality of the pace of newness that you're seeing and how the industry dynamics have changed? Thank you.

Mary Dillon -- Chief Executive Officer

Well, maybe I'll start with that and then Dave you can talk about the planograms. I just think it's actually really exciting and interesting time for innovation and entrepreneurialism in this industry and the great the thing is that we can participate across all that and I'm proud about how our team is building partnerships. But you know, I'll tell you; some of the largest most iconic and well-known brands are doing really well with younger guests as well. Estee Lauder's a great example of a classic iconic brand that millennials have rediscovered.

Then of course, then there's lots of brands that are starting up as entrepreneurial direct to consumer. I think that is certainly gonna continue to be the dynamic going forward and our goal is to bring our guest really everything that she wants across the spectrums. But it doesn't mean that anyone is gonna work in the long-term I think it's a mosaic of being all those factors of the market.

Dave Kimbell -- Chief Merchandising and Marketing Officer

And as far as the planograms, of course, newness plays a really important role in our overall business so we're always updating our assortment and all that goes back to some of the things that we talked about today about our optimism about the newness that's coming and so we feel really good about the planogram.

We think we've got the stores in a good place to present this new product. We're ready for 21 days of beauty, which starts on Sunday and then going into obviously the important holiday season. So a lot of newness, stores are well prepared to accept that newness and present it in a really compelling way to our guests.

Oliver Chen -- Cowen & Company -- Analyst

And then just lastly in inventory management in the swift system and how you're thinking about the line of communication between you and vendors as well as accuracy and turns. What are your thoughts about where you are versus where you want to be in order to get the goods at the right place at the right time? That'd be great. Thank you.

Scott Settersten -- Chief Financial Officer

Yes so, just remind you that swift is just one element of a complete rebuild of the behind, the merchandising support infrastructure, I guess I'll say. So there are space-planning tools that have been built and implemented over the last couple of years. Swift is a key piece of that but there's also a lot of working going on in our distribution centers, right? The old legacy centers and the new centers with new operating models and so on. So they all work in unison.

So we're only in the early innings, I guess I would say. You've seen the last couple quarters. Our inventory, productivity improvements, we're taking excess inventory out of the system while keeping in stock levels very high so feeling good about where we are and we're on a path, right? A multi-year path that continue to see that. And inventory optimization is gonna be a significant driver of operating margin improvement in '19 and beyond.

Dave Kimbell -- Chief Merchandising and Marketing Officer

And to add to your point about the brand partners. We've worked very closely, particularly over the last couple of years, to fully integrate more with our brand partners and that's been working well. There's more opportunity there but they're overall very engaged and I think generally pleased with the success that we've had in improving the efficiencies and in-store presentation.

Operator

Our next question comes from the line of Michael Goldsmith from UBS. Please proceed with your question.

Michael Goldsmith -- UBS -- Analyst

Good evening, thanks a lot for taking my question. I wanted to speak on the performance of prestige cosmetics. Was it the same brands within prestige outside of the boutiques that were soft in 1Q that were soft again in the second quarter? And did they decelerate during the period? And then on the newness, is that coming from brands that have been growing slower and having them rebound a bit or is that coming from other brands? Thank you.

Dave Kimbell -- Chief Merchandising and Marketing Officer

I'd say generally speaking, and we're not gonna get real specific on any individual brand but generally speaking, some of the brands that were not performing to our expectations in Q1 carried through Q2 with some exceptions. But overall, there are a few brands that have hit a bit of a lull. The ones that I called out earlier; Tarte, Too Faced, Benefit, are brands that have either been performing well all year or we're excited about and seeing promising results on key innovations.

Those brands -- we're working closely with them to make sure they're getting back on track and as I said, for many of them, we're seeing some positive signals. The other brands that we're bringing in are complementing our overall assortment, our guests are responding well to them. So collectively, both existing brands and new brands we think will get that key part our prestige cosmetics part of the business back to where we'd like it to be.

Michael Goldsmith -- UBS -- Analyst

Great, and then you spoke about the growth in e-commerce and that's come from brands available only online or in limited distribution in stores. So what's the online sales mix between these products and those that are in the stores? And then, how do you expect that to evolve over time?

Dave Kimbell -- Chief Merchandising and Marketing Officer

Well, I think there is obviously there's a group of brands that we have mentioned that are online only that we haven't brought into stores yet. We use that often as a testing ground. I'll give you one example; Dose of Colors that started online so obviously 100% online and now we're rolling that into 100s of our stores and its seen nice success.

With that brand like Mac, which we launched last year because of the pace of the roll out into stores started out heavier as a percentage online but as more stores have grown, of course, that has gone to a different balance so it varies across the board and there isn't one kind of specific model. It really depends on the brand and its history and how we're rolling it out across our channels.

Operator

Ladies and Gentlemen: we have reached the end of the question and answer session. I would now like to turn the call back to Mary Dillon for closing remarks.

Mary Dillon -- Chief Executive Officer

Great. I'd like to wrap up by thanking all of the Ulta Beauty associates. They delivered another solid quarter and executed a number of complex projects to enhance a guest experience to set us up for a strong second half of the year. So I look forward to speaking with all of you soon. Thank you.

Operator

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

Duration: 65 minutes

Call participants:

Mary Dillon -- Chief Executive Officer

Scott Settersten -- Chief Financial Officer

Brian Tunick -- RBC Capital Markets -- Analyst

Dave Kimbell -- Chief Merchandising and Marketing Officer

Simeon Siegel -- Nomura Instinet -- Analyst

Steph Wissink -- Jefferies -- Analyst

Christopher Horvers -- JP Morgan -- Analyst

Mark Altschwager -- Baird -- Analyst

Adrienne Yih -- Wolfe Research -- Analyst

Erinn Murphy -- Piper Jaffray -- Analyst

Rupesh Parikh -- Oppenheimer & Company -- Analyst

Daniel Hofkin -- William Blair -- Analyst

Matt Fassler -- Goldman Sachs -- Analyst

Michael Binetti -- Credit Suisse -- Analyst

Oliver Chen -- Cowen & Company -- Analyst

Michael Goldsmith -- UBS -- Analyst

Laurel Lefebvre -- Vice President, Investor Relations

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