Greetings, and welcome to the Ulta Beauty Third Quarter 2016 Earnings Results 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. Ms. Lefebvre, you may begin.

Thank you. Good afternoon, and thank you for joining us for Ulta Beauty Third Quarter 2016 Conference Call. Hosting 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 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. [Operator Instructions] I'll now turn it over to Mary.

Thank you, Laurel. Good afternoon. Ulta Beauty's top line momentum accelerated in the third quarter, driving record sales and earnings performance. The team continues to execute exceptionally well against our key strategies. Highlights of the quarter include success in acquiring new brands, strength in overall newness, increases in awareness of the Ulta Beauty brand, continued excellent results from our loyalty program, improving performance of our supply chain and systems and robust growth in our e-commerce business. In the third quarter, we grew the top line 24.2% and delivered 16.7% comp sales on top of the 12.8% comp in the third quarter of last year. This is the best comp performance on both a 1- and 2-year basis in our history as a public company, driven by healthy traffic and ticket growth. We achieved the strongest quarterly comps of the year in all 3 channels. E-commerce growth was well above plan, and the retail and salon businesses also delivered their best top line growth of the year. In terms of categories. Cosmetics, both mass and prestige, continued to lead our growth, with new brands and new items from existing brands contributing to better-than-expected performance. Strength on the top line was broad-based as we gained market share across all major categories. Earnings per share rose to $1.40, representing 26% growth, significantly better performance than what we anticipated going into the quarter when our initial outlook called for 13% to 17% earnings per share growth. This upside in EPS was due to better-than-expected top line growth and our continued success with loyalty and CRM efforts. I'd now like to highlight some of the key drivers of our third quarter performance in the context of our strategic imperatives, starting with our loyalty program. We grew rolling 12-month active membership by 28% to reach 21.7…

Thanks, Mary. Good afternoon, everyone. I'll start with the income statement. Net sales for the quarter increased 24.2% to $1.13 billion, driven by 16.7% comparable sales and continued strong performance of new stores. The total company comp was composed of 11.1% transaction growth and 5.6% average ticket growth. The retail comp of 14.6% was comprised of 9.6% traffic and 5% ticket. Ticket growth was driven about 1/3 by units per transaction and about 2/3 by average selling price. The Salon business comped 10.3% and, similar to the recent trend, was driven by ticket growth. The combined retail comp and salon comp yielded a total store comp of 14.3%. Gross profit increased 90 basis points. The improvement was the result of product margin expansion and leverage of store rent and occupancy expenses on strong comps, offset by planned supply chain investments. Turning to SG&A expense. We deleveraged by 80 basis points, driven by investments in growth initiatives, including store payroll to support our boutique strategy and a differentiated guest experience; and deleverage of corporate overhead cost, in part due to an impairment charge related to the closure of a store in Louisiana due to the August flooding. This was partially offset by modest leverage in marketing. The tax rate was 37.4%, consistent with the first half of the year. Last year's Q3 tax rate of 36% reflected the benefit of some tax true-ups. Moving to the balance sheet. Inventories increased 16.5% on a per-store basis, which is slightly below the comp rate. Similar to the recent trend, we continue to invest in inventory to support sales growth, gain access to new brands and expand the presence of prestige boutiques in our stores. Also, our new distribution centers in Greenwood and Dallas are ramping and performing well but are still far from…

[Operator Instructions] Our first question comes from Matt Fassler of Goldman Sachs.

Any way you look at it, you saw a meaningful acceleration. Mary, you spoke about the 2-year comp. If you look at the typical seasonality of the business, you really broke out. What would you say, among the different drivers of the business, really changed the most? I mean, you talked about the credit card as being new and being successful. Would you say that, that was decisive? Would you say it was the convergence of brand adds? Would you say it was anything on the online side? How would you -- what would you identify as the primary catalyst to drive that kind of step change in sales momentum?

Thank you, Matt. Honestly, it's -- I would say it's a convergence of multiple factors, some of which you just said. So we've been on a path for a while to drive increased brand awareness that obviously starts with that. People need to know who we are. I would say that, certainly, the assortment of products, of brands, the acceleration of new brands and the, frankly, the great performance of newness of new brands and the newness within existing brands has been a key factor. And I would also say that our sort of demand-creation engine just gets more fine-tuned. The team's done a great job through loyalty -- evolving the way that we promote to becoming more personalized. Our CRM platform working extremely well. As you mentioned, the launch of the credit cards has been another layer of a way for us to drive relevancy and drive share of beauty wallet with our shoppers. So it's really a combination of all of those things coming together plus, I would say, fantastic execution. So in store, the experience we think just gets better. Our associates have done a fantastic job of converting guests into our loyalty program. And obviously, our loyalty members are driving the majority of our sales. And of course, our in stocks are just getting better all the time. The supply chain and systems and teams behind those are working to just make sure that guests have what they want. So I hate to throw the laundry list at you, but it really is a combination of all of those factors working in concert.

Can I ask a quick follow-up without breaking your rule?

Matt, you just broke the rule. But go ahead.

So to the extent that loyalty has typically generated a majority of your sales, as we look at the growth in loyalty members per store, is that a pretty good representative of your -- representation of your view of the growth in customers who are new to the chain on a same-store basis?

Yes, I'm not sure if I could do exactly the equation you're doing, but you know that the majority of our sales are -- vast majority are driven by our loyalty members. And so that's where the growth is coming from, and we know that we're getting new -- I mean, we just really keep accelerating the growth of the number of people in the loyalty program, having 21.7 at the end of last quarter. So yes, I would say that those things go together. And awareness is part of what's driving them in, but it's also the relevancy of our offers and everything else that we're doing.

Our next question comes from Simeon Siegel of Nomura.

This is Dan Stroller on for Simeon. With regards to the online booking, is there any way to quantify how much that contributed to performance? How should we think about the benefits this might provide to the brow bar and then other ways you can leverage this tool?

We're really excited to have it, particularly on the brow bar. No we wouldn't -- we're still monitoring and tracking it. It's relatively new on the brow bar. So there's no real specific data that we're ready to share about direct impact, but we think it's really important for us across all services to make it as easy as possible for our guests to make appointments and engage with us. And so we'll continue to evolve the technology. And we know that it'll improve the guest experience, and we're excited about that going forward.

Our next question comes from Adrienne Yih of Wolfe Research.

Mary, I was out in the stores over Black Friday and Black Friday weekend, and it was tremendous conversion. I was wondering, could you give us some metrics on kind of some of your Black Friday traffic stats and also kind of what you did differently this year over last year and how -- what the results ended up being?

Sure. Thank you, Adrienne. Yes, can't get specific about the quarter that we're in. I'll just give you a little bit of color on it. We're pleased with how the holiday is starting, very pleased. And I think you saw that in action. I would say there's kind of a few things. One is that really, it's about what we sell, what we offer. So I mentioned some of this already, but we've really got great new brands, existing brands with great newness. And then I would say we just keep raising our game as it relates to whether it's partnering with our brand partners on exclusives and great holiday kits or really raising our own game like on our Ulta Beauty Collection blockbusters and products. So that, I would say, is a continuation of just improving. It's not new, but it's what we do but doing it better. Even our gift with purchase, stronger than year ago, and then really pull together in a really fantastic 360-degree marketing plan. So more to come in the holiday. I'm pleased with how it's starting both in-store and online frankly and, again, I said our store teams and our supply chain working together to make sure that the experience is great for the guest.

And I'll just add that The Salon was incredibly busy during that weekend, so good job there.

Thank you.

Our next question comes from Mike Baker of Deutsche Bank.

This question is for Scott. I believe you said that SG&A was leveraged in the fourth quarter, slight leverage, I think you said. And if that's right, this will be the first time in 4 quarters when you leveraged SG&A. So is that a sign that we're now fully through all the supply chain and systems investments? And then should we, therefore, think that we should be able to leverage these really strong comps going forward?

Yes. I would say as we look at 2016, the third quarter kind of represented the high watermark, I guess, I would say, as far as the deleverage is concerned. Again, a lot of factors come together at that particular point in a year whether it's boutiques ramping up, new stores, right, 42 new stores there is kind of the high bar. The supply chain, we're just getting out of the gate with our Dallas C [ph] there. So it takes a while for those things to scale up. So fourth quarter, as we go in with the heavier sales lift in the fourth quarter, we expect to see operating margin expansion and SG&A leverage as well. As I look to '17 and beyond, I would just be a little careful there. Again, we've given some long-term financial framework there, right, where we expect operating margin to expand. And I think we said generally, heavier on the gross profit line, a little bit less so on the SG&A line, but they both are expected to leverage in '17 and beyond.

Our next question comes from Joe Altobello of Raymond James.

First question, I guess, for Scott. Obviously, the upside to the gross margin in the quarter much better than what we were looking for. And I think you guys have talked about that being flattish last quarter. And Scott, you mentioned product margin helped there as well as fixed cost leverage. Could you kind of give us a little more color on what happened on the product margin side that led to that upside? And then secondly, if I could, for Mary, as you look at the introduction of new bands going forward, do you feel like there's more of an opportunity on the department store brand side or more from upstarts?

Yes. So as far as the product margins are concerned, Joe, it's really just a continuation of all the things we've been doing over the course of the last couple 2 to 3 years, right? So just being smart about our marketing, our merchandise mix, how we're optimizing the business for both in short and the long term. So we mentioned pulling back on broader kind of promotional efforts and kind of redeploying some of that into more targeted things with our loyalty and CRM tools. I mean, that just continues to work really well. So we're a pragmatic crew here. One of the fortunate things we have in this model is being able to toggle while we're in the quarter, right, and watching sales trends. So we mentioned the credit card got off to a spectacular start as we got into the quarter. We weren't expecting it to be quite so strong. So again, Mary mentioned there was a -- there's a nice offer there, right, 20% off your entire purchase when you sign up initially. So as we saw that kind of take off, we are able to pull back on the postcard that we typically do later in the quarter. So again, just looking at all the different elements and levers that we have to pull and try to optimize total results each quarter.

And Joe, I'll have Dave take your second question. Dave?

Yes. So about new brands and where we see opportunity, I'll start with just saying we see opportunity across all parts of the store. That's one of the real secrets to our success is this all things beauty, all in one place. So we're looking for growth in prestige brands, mass brands, hair, skincare, fragrance. And we've been -- and that's part of the reason we've been having success is we've been bringing in new brands or expanding with existing brands in all parts of the store. And specifically, you asked about department stores brands or big established brands versus upstarts. And frankly, I think we're looking for both. We talked about expansion in some of the biggest established prestige brands. You know we've been continuing to expand our partnership with Clinique and Lancôme. We're just getting started with Estée Lauder and NARS, and -- but then upstarts has been a big part of our success over time, and we feel really privileged to be partnering with smaller brands that are innovating in new and creative ways. Makeup Revolution in the mass cosmetic space is one example of that, that has demonstrated some nice growth. So we'll look -- we will look for those opportunities as well, and both of those areas will continue to drive our growth.

Our next question comes from Rupesh Parikh of Oppenheimer.

So my one question is around your advertising efforts. So again, the past few months, you guys have again run the TV campaigns. It sounds like they're still meeting your expectations even as you lap some of the prior year efforts. I just wanted to get a sense of what's helping to drive still strong performance on some of those advertising campaigns.

Yes. So yes, we're really -- feel really good about where we are from our overall marketing campaign. We did -- this third quarter was the lap of our first national TV campaign in the fall of 2015. And as Mary said, we repeated that again, really supporting our 21 Days Of Beauty effort in the middle of the quarter, and the results were quite strong. We track that. We measure it very closely. We see strong and growing ROI across that probably most visible vehicle in TV. But other elements of our marketing plan, really all elements of our marketing plan are coming together to continue to drive awareness and growth. Radio is a strong contributor to that, but we've been investing much more heavily in the digital space, in awareness, in social media, influencer, really across our entire digital footprint to connect with our guest where she wants to be connected. Mary mentioned in her remarks, our Ulta Beauty Mix is an example of that on our own website, of creating our own content as a big push, also partnering with influencers to drive that. So TV is a big part of it. We're pleased with the results. We're continuing that as we speak over the holiday period. We're back on air, and we see that as a part of our mix. But we'll also continue to innovate in all parts of it to make sure we're really taking advantage of the awareness opportunity that we see ahead of us.

Our next question comes from Brian Tunick of Royal Bank of Canada.

I guess, my first question is ticket versus traffic. Just curious, I know you don't probably manage the business to it. But just curious as you think about -- when you head into 2017 or beyond, what do you think is the makeup of that comp performance you've laid out between ticket and traffic and what might be the drivers? And then, just a second quick one, is online profitability versus the store four-walls, like what kind of sales volume perhaps does the online business need to be to reach parity?

Yes. I would say on the traffic versus ticket, to me, the ideal is just to be balanced, and we've been doing that, I think, pretty effectively. Last quarter, I think we were about 2/3 traffic, 1/3 ticket, and retail online was mostly transact -- traffic, which is great. But that balance is important because it's the ability to just continue to grow the business and not be reliant on just sort of a set number of people and visits. So a balance I think we'd expect to hope -- it's never going to be exactly that every quarter, but that's the overall goal. In terms of e-comm profitability, I mean, I guess that's a constant area of focus. First of all, our e-commerce business has gotten more profitable in the last couple of years as we've expanded the assortment, certainly the investments in supply chain, being able to get those orders together in more effective and efficient way. It will probably always be a somewhat lower profit margin than in the bricks-and-mortar part of the business just because of the shipping costs, but we're happy with it. I mean, the online business, as you can tell as we talked at Analyst Day, is -- looks to be quite incremental to our guests in terms of how she uses the channel. And so as we continue to close the gap on profit margin, it's a great part of business.

Our next question comes from Ike Boruchow of Wells Fargo.

I guess, my question, I'm not sure -- Scott, I think this is for you. I'm not sure if I'm looking at this right, but I think you said supply chain pressure should be the most pronounced in Q2 and Q3. And your gross margins were up really nice in Q2, Q3 about 100 basis points each of those quarters. And looks like if you're assuming expense leverage in Q4 that the gross margin expansion should be much more moderate in Q4. I guess, my question is, is there a call out there? Is this just holiday being a more competitive quarter for you? Or is this just general conservatism, if I'm thinking about this right?

Yes. I mean, directionally, we're on the same -- when I say it's the high watermark for supply chain deleverage, we're not expecting a lot of improvement, I guess I would say, in the fourth quarter. It's in -- it's directionally about roughly the same kind of deleverage level. But again, it takes -- these are, I would say, we -- inside joke here, we're kind of the belt and suspenders crew when we think of some of these behind the curtain, complex new systems and processes that we're implementing. So better to be prudent and careful and make sure that we can execute to make sure we keep our guests happy and the performance in both those buildings is outstanding. They're doing much better than original targets and expectations, so we're very happy with the performance.

Got it. But is there a specific reason why the gross margin gains you've been seeing, which had been pretty massive the last 12 months, why those would taper down significantly in Q4 and going forward maybe?

Yes. I would just say, overall, the guidance is prudent, right? I mean, holiday is wild and woolly. A lot of things can happen, weather, other kinds of things. So we just want to make sure that we're prudent with our outlook and make sure that we provide financial targets that we feel comfortable that we can hit.

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

I wanted to follow up on the boutiques, big investment, been ramping up throughout the year here. Can you just give us a better sense of maybe how that's impacting the basket size and ticket expansion within those stores? Is it a trade-up versus an incremental purchase? And have you found the lift from these recent additions to be consistent with what you've experienced in the past? And perhaps to -- difficult to view these things in a vacuum, but just interested in any other learnings you have from the recent rollout.

Yes. Overall, I'd say we continue to be really pleased with the addition of these boutiques. We haven't shared specific incrementality, although we'd say this is incremental to our business and the new boutique are behave -- or performing as well or better than the -- at this stage in their life as the previous boutiques that we've launched. So we wouldn't have any reason to believe that they wouldn't continue to add in the way they have been adding. Having said that, of course, they are just a portion of our new brand additions. So while they're important, a lot of other things have been driving our overall comp growth in new brand additions. So we're pleased with it, and we see growth come in as we look into 2017.

Our next question comes from Mark Astrachan of Stifel.

I wanted to ask about what's driving comp growth by category, if you could give a bit more granularity there, makeup, skincare, et cetera. And then just sort of a broader question and elaborating on one that was previously asked. I appreciate the kitchen-sink answer to the question of sort of what is driving comp growth. But what has surprised you most since March, given the original plan was 8% to 10%, now you're expecting 13% to 15%? Just sort of any granularity there would be helpful.

Yes. I'll start with that, which is that I think it's really the performance of some of the new brands and the newness in existing brands have been stronger than we perhaps had forecasted, credit card stronger than we initially thought. So those are a couple of things that, I'd say, were somewhat more accelerated. It really is -- those aren't the only things that are driving the comp growth, right, so that's why I listed the dynamic of multiple factors working together. But those will be a couple examples of things that's probably stronger than we would have thought back then. And then, Dave, on the other question?

Yes. On the specific categories, I guess, I'd just say that we're, one, really pleased across all categories that we're seeing strong growth. I think Mary mentioned in her remarks that we're gaining share in each of our key categories. And the drivers, overall, we've talked about in the past is just a highly engaged consumer in beauty and our continued ability to connect with her and gain market share and gain her trust and loyalty and wallet share. And we think specifically within makeup, a lot of trends driving makeup. It is the fastest-growing segment of beauty right now, and that's really driven by a high-level engagement, particularly with young women, teens and millennials but really across all age groups and all ethnicities. Hispanic and all women of color, in particular, are heavily engaged in makeup. There's more education and training and knowledge and trends around different makeup looks and styles. So it is just a really healthy category, and our participation in that has expanded through the brands that we're carrying, the way we're marketing it, the way we're participating in social media, so we're benefiting from that. Skincare has been struggling for a few years but has shown some nice signs of growth. Korean skincare has played a role in that. We're seeing strong growth in different aspects. Masks are a big part but other Asian skincare trends are driving growth. And overall recognition by millennials, in particular, that it isn't all about makeup, but you need to make sure your skin is in good shape as well. And so we're seeing a nice rebound at skincare. Other categories, fragrance, that's -- that is -- isn't growing anywhere near the level of makeup but a lot of innovation in that space. We, of course, have been driving that with -- one example of that is our Sarah Jessica Parker exclusive, STASH. So a lot of different reasons across key categories, and we -- it's a big focus for Ulta to make sure that we're front and center in all of those trends.

Our next question comes from Chris Horvers of JPMorgan.

So I wanted to ask about the cadence of the quarter. You preannounced in sort of mid-October at 14% to 15% at the Analyst Day. Were you anticipating a potential election disruption that didn't materialize? Was there an acceleration? Or was it just being prudent and conservative in the outlook?

Yes. Again, there's always a lot of things to consider during the course of a quarter, right, and this pre-announcement always presents a little bit of risk. So again, you want to be confident in the numbers you're offering up to investors, right, that you're -- you feel confident that you can hit the target. So there was some hurricane things floating around there in the middle of the quarter, there was the election, the uncertainty. Again, we didn't see it reflected in our business day to day, but everyone else seemed to be talking about it. So again it was just making sure we are prudent and comfortable with what we were communicating.

Understood. That's very helpful. And then just as a quick follow-up, was there any incentive comp pressure that you had in this quarter because the numbers came in much better than expected? And could you quantify the impact to SG&A?

Could you repeat that question again, Chris? I don't think I quite followed it.

Was there any incentive -- any bonus accrual pressure?

Oh, I'm sorry. I did share the comp piece, not the incentive. Yes, so that year-over-year, that there was an impact in SG&A, it's not the most significant piece of it, but there definitely was higher incentive comp accrued this year obviously because of the performance, right, from what we initially thought early in the year.

Our next question comes from Jason Gere of KeyBanc Capital Markets.

Just a simple question. I guess, as you think about the holiday season now, are you surprised by what your competitors are not doing differently than maybe over the last couple of years? Because it seems like based on our checks, they're doing kind of sticking to the script, and we know how that story kind of turns out. So I don't mean to put you on the spot. But just in terms of from other retailers out there and how they're approaching the holiday season, it's a great category obviously, but you seem to have kind of the right recipes. Just surprised that some of your competitors have not adjusted their strategy.

Well, thank you, Jason. I don't know. I mean, I really can just focus on playing our offense, which sounds cliché. But I think we've got a really good bead on the insights, and Dave talked about this. That core focus on is our guest, current and prospective guests, what their needs are, how to think about the shopping experience, partnering with our brand partners to have great products and then our teams putting together great demand tools whether it's a CRM platform, credit card, all the marketing. So I mean, I really -- can't really comment on what people are doing or not doing. We certainly pay a lot of attention and are out there watching it as well. I'm proud about the fact that I think we're leading through guest insights and really driving execution through a lot of collaboration, and it's working.

Our next question comes from Kelly Halsor of Buckingham Research Group.

I just wanted to follow up on the boutiques. I think you -- and correct me if I'm wrong, you called out 500 touch points related to the 3 brands where you have boutiques currently, and I know you guys said that you'd accelerated the growth of that this year kind of ahead of the holiday season. So if that is the case, I mean, what's the kind of opportunity into next year? I mean, are we -- are there opportunity with new brands? In terms of the class of store, is this a situation where as you go to the kind of next tier down of stores that we shouldn't expect the same sort of returns on the boutiques or perhaps you're not wanting to expand further? Just any color on the boutiques would be helpful. And then secondly, just on e-commerce with the implied deceleration relative to 3Q. I mean, we saw that last year as well, but I know you guys had just opened up the Greenwood DC. Now that the 2 DCs are running together and seem to be doing pretty well, is there any opportunity there that you could speak about?

Yes. So on the boutiques, you're right. We've talked about 500 total boutique installations across the entire chain, both new and existing stores, and with those 3 brands: Clinique, Lancôme and Benefit. We said before that we intend or anticipate that -- about that same amount next year, both new stores as well as existing stores. I wouldn't think of it as much going to a different tier of stores. We've really been rolling them out in our comp stores based on what's optimal from a scheduling standpoint, where it can fit lease terms for stores. Because we do other activities within the store when we put a boutique in. We'll update our Ulta Beauty Collection presentation. In some cases, we put in a new fragrance presentation. So it is a part -- an important part but only a portion of the activity that we have in store when we put that in. So we'll continue to put those in next year and see that again. I'd say -- well, so that's important. It is one element of the new brand activity that we'll have across the whole chain next year. And as far as e-com growth in the fourth quarter, we just -- we feel confident within the guidance that we've given, and we'll continue to try to focus on that business. We're happy the results we've had so far this year, and it's an important season for e-com -- for our e-commerce business. And we're confident in our efforts.

Our next question comes from Stephanie Wissink of Piper Jaffray.

I just have a follow-up question on the e-commerce business. Could you compare or contrast a bit your online orders versus some of the store-level analytics? Is it similar from a category mix or mass versus prestige? And then as you think about overall, your loyalty program, how important is that online business to driving kind of a multi-channel shopper over time?

Yes. So the first part of your question around mix, generally, yes. It is very similar both online and in-store. Her shopping behavior is reflective of the in-store experience, in particular over the last couple of years, as we've rounded out our portfolio. Not so long ago, we didn't have all the brands in professional haircare or even in prestige online that we had in store. Now we do have that, and so her behavior is very similar, and we really see it as a complementary part of our in-store business. She looks to find what's most convenient for her as we -- book. As far as loyalty and the importance of that, your question is about loyalty and importance of both online and in-store and how we drive that. Is that right?

Yes. And I think historically, you've given us the metrics around that cross-channel shopper per size and kind of importance versus the single channel.

Yes, yes. So we shared some of the -- those statistics back at our Analyst Day. It's really consistent in that 6% range of online omni-channel shopper. It's growing a little bit. But when our base store growth is so strong, it takes a really high e-commerce growth to make a big difference in that number. But importantly, the absolute number of omni-channel shoppers is expanding, and that's very much part of our overall strategy. We see that as a big part of our future growth, is to get her fully engaged in all aspects of our business: e-commerce, retail business, services and salon. We feel like once we can get her engaged in all parts, then her loyalty raises, her spend has gone up. We shared those numbers before. And so we're continuing to see that in the third quarter, and it will be a focus for us going forward.

Our next question comes from Oliver Chen of Cowen and Company.

We are curious about the next few years with mobile innovation. What's on your radar for just making sure your experience is set apart? And in that context, the reality of Amazon making strides in this category, what are just some of the factors that really continue to set you apart as you look to the future and continue to really distinguish yourself with a product assortment, with the loyalty program, with the newness factor as well versus Amazon? And then if you could just tell us, is strobing and contouring still middle innings? Because it seems like it continues to be a hot trend.

I love it. Oliver, I appreciate your knowledge about the categories. I'll say contouring, strobing, highlighting, all that is still popular. Interesting little fact: false eyelashes is on the move, too, right? So it's something that you wouldn't think. It's a tiny but fast-growing kind of trend, too. So anyway, that's the great thing about beauty. There's so much innovation and interesting trends that cycle in and out. I would just say -- I'll make a comment about mobile and ask Dave to add more color and context here, but you're absolutely spot on. We all -- everybody understands that mobile is the center of everybody's life. It's our appendage, our attachment. And I'm proud about the fact that I think as a company, our team has really been increasing our focus and our execution around mobile. It's becoming more important to us than ever in terms of driving sales and traffic, and it's fast-growing. We've been innovating in terms of our mobile platform, and I mentioned already but an example is GLAM LAB, which is a nice little piece of technology that I'm not good enough to take my selfie to really execute it well. I've tried. But it's a great thing for millennials who want to have a more interactive experience. So as our offering and our execution in mobile improve, we just get stronger there. And it's certainly going to be the epicenter of how we think about sort of a mobile-first mentality as we go forward. Is there anything else you might want to add, Dave, in terms of innovation there?

I'd just say mobile, to put it simplistically, is certainly -- for us, it is the focus of really all of our e-commerce efforts on this. So we'll continue to work on our desktop. But the -- where all the growth is and the attention is in mobile. Over 2/3 of our traffic is coming through mobile right now and a growing part of our sales and 2 core components of that, content and commerce. And we'll keep building a content experience that gives her access to the information when and where she wants it and then just make it as easy as possible for her to shop. It's a different -- as you well know, it's a different shopping experience on a mobile device. And so we're continuing to innovate in that space and make it easy through finding products, paying for products and exploring new information and trends. So it's really a focus for us.

Our last question comes from Simeon Gutman of Morgan Stanley.

First, I'll put in part -- 2 parts. The -- on the top line, you said a lot of the sales or a majority are getting done in the loyalty card, as we know. Can you tell us how, I don't know if this was mentioned, the mix of either new sign-ups, since that's where the majority of sales are coming versus existing and how that's trended versus prior quarters? And then this is also a clarification to an earlier question. On the expense line, if I heard right, even excluding the impairment charge, did the corporate expense line delever? And if so, if -- I'm sorry if this was said, but can you tell us why and if that should continue?

Yes. On the loyalty, Simeon, so -- I mean, we're growing rapidly and adding new members. But the majority of the sales are coming from existing members or members that have reactivated. But as we get new members into the program every day, frankly every week, obviously, that gives us a great base for future sales growth.

And as far as the SG&A line is concerned, the answer to the question is yes. It did delever even ex the store impairment charge. It was primarily kind of a mixture of things, store payroll being one of the primary drivers. Again, part of it is connected to the boutique strategy. So there's a lot of training and payroll preparation associated with those new boutiques that are kind of just getting off the starting line during the course of the third quarter, right, and setting us up for success in fourth quarter and many quarters beyond that. And then we also kind of -- we were also -- with people cost-associated expenses in the quarter, again the way we kind of operate out, but we finally get all of our corporate headcount kind of adds in place usually in the third quarter. So again, that's maxed the leverage point during the course of the year and then a little bit of incentive compensation that goes along with that year-over-year comparison. Again, we leverage that as we go into fourth quarter and into following years.

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

I'd just like to thank our 30,000 associates for another fantastic quarter and all the hard work everybody has put in and has continued to put in to give our guests a great shopping experience over the holiday season. And thanks to all of you for your interest in Ulta Beauty, and we wish you a happy and healthy holiday.

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