Greetings, ladies and gentlemen, and welcome to the Ulta Beauty Fourth Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Laurel Lefebvre. Thank you, Laurel, you may begin.

Thanks, good afternoon, and thank you for joining us for Ulta Beauty's Fourth Quarter 2014 Conference Call. Hosting our call are Mary Dillon, Chief Executive Officer; and Scott Settersten, Chief Financial Officer. Also joining us are Janet Taake, Chief Merchandising Officer; and Dave Kimbell, Chief 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 facts, 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. We make references during this call to the metric free cash flow, a non-GAAP financial measure defined as cash provided by operating activities, minus purchases of property and equipment. I'll now turn the call over to Mary.

Thank you, Laurel. Good afternoon, everyone. Ulta wrapped up a very strong year of sales and profit growth, excellent performance in the fourth quarter. The whole Ulta team and I are very proud to celebrate that this is our first $1 billion sales quarter. To review the numbers. Sales grew 20.7%, and we delivered an 11.1% total company comp on top of the 9.2% comp in the fourth quarter of 2013. Our best comp of the year was driven by our strongest traffic growth of the year, while average ticket also contributed nicely to the overall results. The key drivers of our performance were continued strength in prestige and mass color cosmetics, a successful holiday selling season, execution of more effective marketing and CRM strategies, double-digit comps in our salon business and 55% comp sales growth in e-commerce. Earnings per share were up 24% to $1.35 compared to $1.09 last year. Scott will cover the details of our financial results for the fourth quarter, as well as our guidance for fiscal 2015 in the current quarter in just a few moments. But first, I'd like to provide an update on our 6 strategic imperatives. This is the long-term strategic framework we developed last year designed to deliver continued market share gains and strong, sustainable sales and earnings growth. The first imperative is to acquire new guests and deepen loyalty with existing guests. Our loyalty program in growing CRM capabilities continue to be highly effective tools to increase loyalty and grow our share of wallet with our members. As of the end of the fourth quarter, our ULTAmate Rewards program has grown to reach 15 million active members. Having all of our guests at a single platform for almost all of 2014 delivered significant benefits to us. Customer reaction has been…

Thanks, Mary. Good afternoon, everyone. Fourth quarter sales were $1.048 billion compared to $868 million last year, an increase of 20.7%. Comparable sales increased 11.1%. The retail comp, including salon, was 8.8%. The total company comp was driven by a healthy combination of transaction and ticket, with transactions up 7.7% and ticket up 3.4%. The ticket increase was driven by increases in average selling price, driven by strong sales of Prestige categories and less discounting overall. Retail-only comparable transactions were very strong, up 5.7%. Gross profit dollars were up 19.1% to $349.7 million, and gross profit margin decreased 40 basis points to 33.4% from 33.8% last year. There were 2 primary drivers of this decline: increased cost associated with the ULTAmate Rewards loyalty program and the impact of e-commerce margin. We have previously discussed with you all of the great benefits associated with our loyalty program, and importantly, since early 2014, having all of our guests on the same loyalty platform. But as expected, while it drives more sales and gross margin dollars, it is a bit more expensive on a rate basis, since guests are much more engaged in the program and take advantage of the benefits to a higher degree than the previous certificate program. We have now anniversary-ed the loyalty program conversion that took place in February of 2014, so we don't expect to experience this level of rate pressure going forward. On the e-commerce side. The deleverage comes from ulta.com's lower margins due to product mix, less efficient supply chain capabilities and shipping costs. Offsetting this mix impact were improved retail product margins, reflecting reduced reliance on price discounting and modest leverage on rent expense. SG&A expense increased 18.6% to $210.7 million, down 40 basis points as a percentage of sales to 20.1% versus 20.5% last…

[Operator Instructions] Our first question comes from the line of Oliver Chen with Cowen and Company.

Regarding your comments in the opportunities ahead on the supply chain front, could you characterize to us where you are in terms of where you see the longer-term going? And specifically, I was also curious about fulfillment, planning and allocation. And also, related to your comment on e-commerce and supply chain capabilities, do you see the margin kind of improving as your capabilities improve in this discipline? I also had a question about awareness.

Okay, Oliver, thank you, and let me just start with a kind of broad stroke on the supply chain. As you know, it's a multi-year project. And I guess I would just say it really touches several aspects of the business. The overall goals are going to be building infrastructure to support the growth that we have planned, also, to enhance capabilities that we know we need to be a really relevant omni-channel retailer our customers want to shop and then, of course, also drive efficiencies over time. So really, this multi-year plan has several benefits that we were excited about. Examples, increasing delivery frequency to help improve in-stock conditions, having the cartons arrive at the stores in an "easier to stock to shelf" kind of format. We call that store-ready. Even looking to see if we can be more efficient with our footprint and leverage inventory across our footprint to fulfill omni-channel orders. Forecasting replenishment, yes, that's certainly part of it. Down the road, as we have more store format, like the small stores, ensuring that, that's easier to scale and to operate, that's also part of it. And also, that we continue to improve the processing time on our e-commerce business. So all of those are aspects and benefits that are expected and built into the 5-year plan relative to the supply chain investment. E-commerce, yes, we do expect that, that margin will improve as we get more efficient. The 2 new distribution centers are really being built from the start with that in mind, to really fulfill e-commerce as well as store orders as efficiently as possible. So -- as well as we continue to improve some of the mix of what we sell in e-com.

And also, on the awareness frontier. This has been a nice theme for your strategic plan. Where do you -- where would you contextualize customers is coming from as you make these nice leaps? And as you post-game holiday, it was a really great execution. But if you had to think about it from a post-game perspective, were -- are there any things that you would do slightly differently as you think about next year?

Okay. Well, we are constantly in a mode of continuous improvement, seriously. So I think we're always looking at what worked well, what we could've done better. And honestly, we're very pleased with how the quarter turned out. But there's always areas that we can continue to improve. The -- your question about where the customers are coming from. We're-- we know that we have opportunity gap in our awareness relative to some of our competition. And that's opportunity for us. And that's why we've been working to balance the mix of how we do our marketing to drive, to have awareness-generating tactics, and that's proving to work for us. If you step way back, we have, as you know, about just under 3% share of the beauty market in the U.S. So our guest is -- loves us and she's loyal and coming more often. But there's 2 sources. One is beauty enthusiast who perhaps have not been in an Ulta ever or not been in an Ulta for a long time or current guests that are maybe spending money across different retailers, hardly they spend everything all on 1 place or any 1 category. But as she's increasing, giving us more of her share of wallet. And our loyalty program is a key part of that. It really provides a great incentive to spend your beauty dollar at Ulta. Because the points are valuable and the more you spend, the more valuable they get for our guests. So it's really current guest spending more with us as well as new guest spending with us instead of other places.

Our next question comes from the line of Simeon Gutman with Morgan Stanley.

I have one question for you, Mary. And then I don't know if Janet is there. But if she's not, I'll ask it of you as well.

She is here. Yes, she is here.

Okay, great. So first, on the momentum in the business, very strong. And I'm guessing it's a combination of a lot of things. More curious about the marketing side, how effective you're getting at customer targeting. Are you able to sort of attract the pulse of people responding to your offers and seeing a higher response rate and able to track it on a real time basis?

Yes. And you know what, maybe David -- David and Janet are both here. So perhaps we can tag team a little, but I'd say the momentum on the business that we're seeing, it really cuts across a lot of dimensions, which is great, and our job is to keep those levers all working. But really, if you think about it, new product launches and new product news was a big part of the fourth quarter. So Bare Escentuals, Urban Decay, IT, Benefit, Clinique, Lancôme, are all good examples. Our loyalty program, all -- everybody on one program. Actually, even improving our in-store sign-up. And then yes, this notion of our improved marketing strategies and tactics, it's kind of this combination of using different types of pieces of the mix as well as really positioning ourselves, I guess, as more of a beauty authority. So all of those combined, and I mentioned in the script gift cards as well. So clearly, a lot of different things are working for us in the quarter. Do you want to say anything to that, Dave?

Yes, I mean, I think we made -- we continue to do a lot of the things that have worked for us historically behind many of the print vehicles, our magazines worked well in reaching our existing guests. We've also introduced and improved several of the tactics that we go to market with. Mary mentioned in the script, for the first time, bringing in radio into the mix, which we think was a really strong addition to our promotional activity over that key holiday season. We also, to your question specifically about improving the effectiveness, there's a lot that we can read around our guests' responsiveness to our activities. And one area in particular that I highlight is the impact we're having with our e-mail. So as we get better information around our guests, we are able to more personalize the communication, the offers, the type of information, the frequency of the information that we're delivering to her. And so we saw a dramatic increase in the effectiveness, which is measured by, essentially, sales per e-mail in the fourth quarter. So we feel like we're expanding as well as getting sharper in the types of things that we're doing.

Okay, and then for Janet, congratulations on your retirement. I just wanted -- you have this unique 6-year or so perspective at Ulta in dealing with brands. And so I wanted to actually try something all-encompassing of sort of what's changed in brand perception of Ulta then versus now? How they look at online versus -- you mentioned you won Lancôme. Is that inevitable for Prestige brands to allow Ulta to sell it? Or do you think their own online ambitions will get in the way? And then also, do you think there's much an appetite for them to look outside of Ulta to other specialty retailers to sell the Prestige product to?

That is more than one question.

They're all for you.

Well, thank you so much. First of all, I think that what I would say about vendors, my team has great relationships with the vendors in the marketplace across all categories we do business with. And we have had for some time. And I think that continues to grow. Our vendor partners really enjoy our straightforward approach to how we run our business and also, that it truly is a win-win for them. We hold our vendors accountable to our comp and we look at our business that way every single day. Yes, we're a fast-growth retailer. But I really think they appreciate that we want to win at a comp level, which is so important to us. So we really partner with them to try to make that guest experience the best possible experience it can be. And with that, I think that there are a lot of vendors that are interested in Ulta based on the respect that we have in the marketplace, which I'm quite proud of. As far as online, we've made a significant progress, as Mary had mentioned, this past year. The largest gap, just to refresh your memory, was really in professional hair care. And we added 12 brands in 2014 and then 3 at the beginning of this year. So we we've closed the significant gap there. And we're very, very excited about Lancôme coming online. We're truly closing the gap down -- there is few that are not available online at this particular point in time. But I'm always hopeful that we'll get it to 0, for sure.

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

Just wanted to delve a little bit, if possible, into the gross margin. In terms of buckets, it sounds like -- is it fair to say that basically, in terms of the directional changes and even maybe the magnitude, that most of the aspects, the puts and takes, were as good or better than expected despite some of the mix shift and the impact of loyalty and e-commerce?

Yes. I'd say that's right on target, Dan. I mean, it's -- there's always a few bright unplanned surprises that you managed against during the course of any quarter or year. In the fourth quarter, like Mary mentioned, we had a few challenges in our e-commerce fulfillment side of the business because again, as always, the demand always seems to exceed our expectations. And so we had a few more, I'd say, inefficiencies, labor inefficiencies there that we had to deal with, and some additional freight expense to make sure we try to meet guest expectations as best we could so we reacted to that. But really, I'd say that was probably the one, I'd say, on the negative side, a ledger. On the positive side, I mean, everything seemed to work spectacularly in the stores. Execution was good, in-stocks were fantastic. And so we are very pleased with the overall performance on the retail side of the business.

And it sounded like you've said that the less discounting and certainly, Prestige being among the strongest general categories. So is it fair to kind of infer that the general underlying product or merchandise margin trend is -- continues to be kind of a key component area, it sounds like. Is that fair to say?

Yes. Yes, let me repeat that. The core retail product margins, so 90% plus of the business, they were better year-over-year and quarter-over-quarter, all right? So the core of the business is very healthy, and we're just managing along in our e-commerce side of the business, and the loyalty thing is kind of a one-time hit, I would say. And now that we're anniversary-ed, again, we wouldn't expect to see that kind of pressure on margin rate going forward.

Okay. And then in terms of the brands you have, can you just provide a quick update on where we are at this point with Lancôme and Clinique? I know you said you're planning to add some of each, and if there's any color you can shed on that here at the beginning of the year, that will be great.

Yes, as I mentioned in the script, Dan, we are planning to expand our boutiques for both of those brands. I'm not going to get into specifics. But we're excited. We've got great partnerships, great momentum on the brands, and we'll be rolling out to more stores.

Our next question comes from the line of Aram Rubinson with Wolfe Research.

I wanted to ask you a question about online. It looks like you had, by our math, about a $55 million increase in e-commerce sales in '14 over '15, so like the equivalent of about 13 stores. So I'm just kind of wondering, a, where that e-commerce shopper is coming from? Can you give us something about geography, demographics? And maybe does opening fewer stores kind of almost feed that business in a way because you're getting to satisfy that customer without putting up the bricks?

Yes, go ahead, Dave.

Yes, this is Dave. No, I don't think it's associated with our store growth. Obviously, we opened 100 stores last year. And where that growth is coming from, where our best customer is coming from, is we really get an incremental transactions from her. What we see is our -- those guests, which is the majority of our online business, are coming in and buying both in-store and online. So we get actually, close to -- actually, a little bit more than double the number of transactions from a guest that is actively buying online and in-store versus a guest who's just buying in-store. So our -- really, it's fundamental and a key part of our overall omni-channel efforts is to be -- have the experience where and when she wants it. And what we find is there's times where it's easier for her to buy what she's looking for. She's attracted to something online and she is at home and she wants to get it. But we also know a big need for us is to get her into store. And she's doing both. So we see that as really an incremental purchase and an incremental opportunity for us to drive growth and not relate it to the store growth piece of it.

And if you had to just kind of pick a number, or guess, what kind of -- what comps are coming from existing customers versus new, just a ballpark?

Do you mean in the online space? Or are you talking...

No, I was thinking more in the stores. Just curious how many more new customers you seem to be bringing new into the tent.

Well, we said that -- I mean we said we're projecting millions of new customers every year. Retention remains really high. So we have good, strong retention. But we continue to attract new customers. I will say, one of our opportunities going forward, the reason we're trying to build awareness, is to bring even more new guests going in. But we've high retention. We've high percentage of sales that come from our guests. And that's a key driver of our business, continuing to delight them and drive strong performance with that group.

All right. And the last thing, just a little bit of housekeeping. In Q1, in the guidance, what kind of investments does that include? And then I'll hang up.

It includes a litany of things. And many of those things, Mary described in her prepared remarks. So there's new investments going in, in stores, with test management system, we've got new mobile technology, app systems going in stores with iPads to allow us to be more engaging with our guests in the stores. Of course, the biggest investment is the Midwest DC, which is going to ramp up. It's ready to open summer of 2015. So there's a fair amount of gross margin deleverage. That's where most of that expense flows through the P&L, and it will ramp up. I mean, it's there in the first quarter, but the heaviest -- it's mostly back-end-loaded in 2015. Third and fourth quarters is the heaviest expense.

Our next question comes from the line of Chris Horvers with JPMorgan Chase.

So I wanted to follow up on the e-mail personalization opportunity. Can you talk about where you are from a segmentation process? How finely can you group your customer base in the different types of buckets that you're using? Can you get down to, say, I know these 10,000 people are bareMinerals customers and so I'm going to send them an e-mail, and perhaps, other buckets that you're using and how personal will you be a year from now?

So Chris, I'll tell you what. That is part of the secret sauce in some ways that I want to be careful about how much we say because it's really an important lever for us. And I've got to tell you, I think our team is -- I know they're all over this, and we're very deep in our knowledge, our precision, our ability to target and use this to various effects. But I wouldn't want to say more than that because it's really an important tool for us. But we're excited about it. I think it's just going to continue to be a great lever for us.

So I guess maybe you could characterize it in terms of the classic baseball innings, like, where do you think you are versus, let's say, best-in-class in retail, not versus, let's say, online retailers but best-in-class in retail?

Yes. I think we're probably still in the early innings, right? I mean, I think our capabilities that -- we've had the loyalty program for a long time. But it's really like now that we're at this 1 platform-everybody, that just simplifies our life. It makes it more powerful. And the team is really actively experimenting with lots of ways to leverage that. But -- so I think we're really in the early stages.

Okay. And then as a follow-up, you raised the share buyback program by $100 million and, let's say, we assume the stock's at $1.60 tomorrow, that's about 2.3 million, 2.4 million shares open to buy. Can you talk about how many shares you need to be repurchased this year to offset share dilution? And is the idea of raising the authorization so early? Is that to allow increased flexibility, to be more opportunistic?

Yes, we wanted to maintain maximum flexibility. So again, the plan, the stated plan, our 10b5-1 plan, the focus is on offsetting dilution, which we said I don't know if I have the number of shares that it takes. But it's roughly 500,000, I think, was our early model, 500,000 shares a year roughly, which equates to about 1%, as we've said, of earnings growth.

Our next question comes from the line of Evren Kopelman with Wells Fargo.

My question is for Scott on the guidance. The first quarter comp guidance is -- the 7% to 9%, it's very strong, of course, nothing to complain about, but it's significantly below the 11% you just delivered. Is that just conservatism built in to guidance? Or have you seen the business slowed down in Q1 so far?

Yes. We don't -- as you know, we don't talk about current quarter performance. But we had weather just like everyone else did in February, right? So we take everything into account that the current conditions reflect. So we feel very confident, strong momentum coming out of fourth quarter. We mentioned gift cards. There's carryover from that post January. There's good newness in the pipeline coming online. There's good tailwinds coming from the new store classes that are starting to roll into the comp base. So again, we try to look at all the facts and all the levers at our disposal and try to come up with the most prudent guidance that we can.

And then 2 housekeeping. One is the quarterly store opening cadence. Is that going to be similar to 2014? And then in your EPS growth guidance for the year, does that assume that 64.4 million that you guided for Q1? Or does it assume more buybacks to lower the share count?

Yes. I think the store program, by and large, pretty much mirrors 2014.

We said 20, 20, 45 and 15.

Right, right. Which I think is roughly about what we did last year. So like-for-like, more or less. And on the shares again, I think for the full year, 64.4 -- you're going to build in roughly 400,000 to 500,000 shares, right, of buybacks, which would equate to the dilution effect that we described.

Our next question comes from the line of Jason Gere with KeyBanc.

Just a couple of questions. I guess the first, more clarification on the gross margin, I guess, deleverage this year. Is that primarily because of the new DC in the second half of the year? Because I know you talked about the loyalty card anniversary-ing. So just wondering if there's anything else in there that we should be taking into consideration.

No, Jason. That's primarily it, kind of what we described as part of our long-term guidance, that we expected to continue to deliver very strong earnings growth going forward, adjusted for the investment, primarily for the DC. But there are other related investments around core systems, around merchandising and other store things that we described in our remarks that we feel we need to support strong, healthy earnings growth in the future.

Okay. And then longer term, I know just back in the fall, you gave the long-term EPS guidance. I think it's low 20%. And obviously, that would imply -- start to see a pickup in margins. In this year, I think you're implying really flat margins even though comps will be pretty nice. So I'm just wondering how you think about the long-term margin opportunity. Who out there in specialty retail really you benchmarked yourself to? Because certainly, a 12% kind of operating margins, it seems to be you're under-earning on that end and recognizing that there are investments now that will probably go on for another year or so. But really, where do you kind of benchmark yourself to? And what could be kind of that longer-term opportunity? I'm not asking you to quantify but just kind of how you look at it.

We still feel very confident with the guidance that we provided last fall, which we think is very realistic to get to a mid-teens operating margin over the long term, over the 5-year period. Again, in '15 and '16, operating margins are going to be flattish because of some of the supply chain, DC and other core system investments that we'll be making. But once we get past that, we expect it to be making significant progress towards that target, the mid-teens operating margin target in '17 and beyond. So lots of goodness coming out of these investments. That's what we expect. Unfortunately, we have to make the investments upfront, and you start seeing the benefits more in the outer years.

Our next question comes from the line of Ike Boruchow with Sterne Agee.

I guess, Scott, thanks for the help on the variability on how to use your play-out. Can you help us when you talk about Q2 and Q3 being tougher? Is that more so on the gross profit and SG&A lines and on margins? Or should we assume that it also -- because you mentioned some tough product launch compares, should we also assume that, that's also an impact on the comps?

It's a mix of both. I mean, Q2, if you line them up, the stacked year-over-year, you'll see last year was, what, a 30% EPS growth year-over-year. So when you just start doing the math, you can see that it's a tougher comparison. Part of it is being derived from the comp, the tough comp compares with some of these product launches, which were very strong last year, and some of it is just to build on the deleverage in gross in supply chain costs that are going to affect the P&L. So it's really a combination of the 2.

Right, I mean, I asked because the strongest comp of the year was in Q4 this year, and so you're saying Q2 and Q3 are the toughest compares. That's what I was trying to clear up, if it's just margin or if it's also comp.

No, it's a combination of the 2. I mean, margin -- I'd say the margin piece is more of a Q3, Q4, and sales is more of a Q2, Q3 kind of thing.

Our next question comes from the line of Joe Altobello with Raymond James.

Just a couple of questions on some of the tests you guys did this quarter. It sounds like the advertising test went fairly well with the comps above the control group. Was that the same for the increased staffing in the 60 stores you tested this quarter?

Yes. The payroll testing model, we're really pleased with the learning. Kecia Steelman, who's our head of store operations, has really dug deep and been all over this. It's actually a little bit less of a clean test than an advertising test in some ways, right? The inputs are little bit different because it's about store by store, managing that payroll, hiring, getting the right people there and managing that to an outcome that you want. So what we saw and that's why we feel confident that there are stores that we're going to go after this and we're going to increase labor hours because we believe it's going to pay for itself in terms of increased sales, frankly, by having more guest-facing time and more conversion. So it's -- but it's also something that because it's subtle, it's a little trickier to manage. We're going to walk before we run. So it's not -- what we know is that over time, as we continue to play out the supply chain investment for our associates in the stores, it will get easier to have more guest-facing time. And that's exciting. In the meantime, we want to see if we can accelerate that. But we're going to kind of take it step-by-step.

Okay. So any learnings early on from that test at all?

Just said it, particularly, when we executed really well, where we held the General Manager accountable to a new sales target with those new increased hours and where that store was able to hire the right person quickly and get the right people trained and in position, it did -- it was efficacious for us. That's why we are confident to add more labor hours in a certain subset of stores because we think, managed right, it's going to be a good investment for us. And it's really about that overall guest experience as well. And when our -- a guest wants to interact with our associates, our associates want to be there to help them. And so that really is a flywheel that helps the business and we like where it's going.

Got it. Okay. And just moving on to the smaller format store test. It sound like you guys are going slow there. If it's successful, how many locations do you think you could have in terms of that smaller format over time?

So what we've talked about, up to about a couple of hundred stores incremental to the 1,200 stores that we've already mapped out for our large format. And yes, I mean, we love how they're performing. They are great stores, great team, and the guests love them. And it's really, I believe, in pacing. Again, walk before you run. So it's a little tricky to operate as a completely different store format, which it is, but we're really pleased with where it's going.

Our next question comes from the line of Mark Altschwager with Robert W. Baird.

Just a quick follow-up on the small stores. I know it's early, but any metrics you can share on just the productivity you're seeing there or average gross margins versus your typical store? And then separately, what pieces need to be in place from a distribution standpoint in order to enable the scalability of that concept?

Yes. I'm not going to share a lot of the details on this because it's really early and I want to protect some of that insight. But I will just tell you that we've set certain sales and productivity targets and we're exceeding them. So -- and they'd be the normal kind of targets that we've set for any store. So we feel good about that. It's really about forecasting replenishment models that I think are going to be the key to getting us to a position to more easily run those store formats. So it's not that far off. I mean, it's not like we're going to wait a super long time to do this because we're excited about the prospects. And I'll tell you what, the guests in these small towns were very excited that we showed up, so it's a great opportunity for us.

Great. And then just one more quick one. I think you're 2 quarters in with this new POS system. Have you seen any benefits from that? Any metrics you can share on that front?

We don't really have any metrics we can share.

No.

I would tell you that the rollout went very smooth. I mean, this was 1 that was pretty high risk and we accelerated it to make sure we could get it in before holidays. So things went very smooth, all things considered. We did get some step-up in the technology as far as cyber protection as part of that system, so we are very happy that we were able to accelerate the implementation of that.

Our next question comes from the line of Matthew Fassler with Goldman Sachs.

I want to start by talking about the loyalty program. You spoke about the loyalty program having a diminishing impact on margins as you've now cycled the moved to a single platform. Can you talk about the typical sales maturation curve that you've seen from customers after they've ramped on to that platform? Is it a multiyear curve? Is the big sales kick in year 1? Just how we should think about the impact on sales of cycling that as well?

Matt, historically, what we -- as you well know, we've been experimenting with this model for quite some time. So historically, as we rolled it out to new markets, we saw a sales hit in year 1 as people kind of get comfortable with the program. And we saw that kind of moderate over the course of the year. So the going-in assumption was like a 1-year kind of cycle time to get back to it, what I'd call an equilibrium with the guests. This rollout, the conversion that we did with 50% of the country in 2014, we didn't see that. We saw sales actually accelerate from our expectations. And of course, right, that equated to more points being earned and more of a margin headwind because of that. Because people are more engaged, it's easier to understand. So...

And if you think about what your Q has typically looked like and whether you think it will be any different for this round?

Yes. We haven't really seen that. Again, it's a different scale now. We got the whole country on this program. I can just tell you from the inside, we are very excited about what this program provides for the company and the opportunities that we're going to have to drive more engagement, more focused offers to our guests by using our CRM tool. And again, we're in the very early stages of this.

And then one other question. You've dealt with this, I think, a number of different ways so far this afternoon. If you think about the acceleration that you saw in the online business, in a quarter where you have the highest volumes, that acceleration, is that much more meaningful? Would you tie that in directly to CRM efforts and customer acquisition? And I guess, are you seeing customer acquisition disproportionately commence online? Or is it evenly distributed or proportionately distributed across channels?

Yes, a couple of things. First, we are seeing an over-index of new customer acquisition online, although it's still a minority of our customer -- new customer acquisition. The things that are driving our growth from the e-commerce is absolutely a combination of a number of key factors. It is a great portfolio of products, first and foremost. They're really attracted -- the same things they're attracted to in store, they're attracted to online. And we had great success behind many of the launches and the products that Mary touched on. We also, as Janet described, added several new products throughout the course of the fourth quarter and even into this year. We've been successful at driving traffic to our site. So our customer acquisition and traffic-driving activity has really been exceeding our expectation and then, once they get there, some of the changes we've made within the site experience to convert them had been working. And then, I'd say, the other activities within loyalty, to your point around e-mail and other communication, even our magazines and really every touch point that we have, encourages or reminds her to come online just as much as it does remind her to come in store. So all that seems to be working.

Ladies and gentlemen, we have time for one more question. Steph Wissink with Piper Jaffray.

All the best wishes to you, Janet, really a remarkable finish to your Ulta career. My question is actually for you. Specifically, just to give us a status update on the percentage of SKUs in the mix now that cross over between stores and e-commerce. And then a big follow-up question to the panel, just if you think about the influence of content and I think, Mary, you mentioned this in your prepared remarks, whether it's your own content or content that's created by your vendors, how important is that, do you think, to building your competitive advantage in the marketplace?

Yes. I'll start with the content. And well, absolutely, I mean we're very focused on that. And this is a category industry that is so driven by trend and content, new discoveries. So yes, we're building content, we're working with our vendor partners to acquire more content. And you'll see more of that to come from us for sure.

As far as online SKUs, basically, now, with the additions that we made in professional hair care in Lancôme, we're well within a very high range of what we have in store. We have over 20,000 SKUs in store. So it will be comparable online. As I mentioned before, it's a very -- it's a handful of brands that are in-store that are truly not online for sale today. So we have made significant progress in 2014.

Okay. So in closing, I'd like to thank our 22,000 dedicated associates for a really terrific 2014 and their tireless efforts to differentiate Ulta Beauty and to continue our strong momentum into 2015 and beyond. And thanks to all of you for your interest in our company. I look forward to speaking with you all again soon. Thank you.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.