Greetings, and welcome to the Ulta Beauty Fourth Quarter 2020 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Kiley Rawlins, Vice President, Investor Relations. Please proceed.

Thank you, Laura, and good afternoon, everyone. Joining me on the call today are Mary Dillon, Chief Executive Officer; Scott Settersten, Chief Financial Officer; and Dave Kimbell, President. Before we begin, I'd like to remind you that statements on 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 caution you not to place undue reliance on these forward-looking statements, which speak only as of today, March 11, 2021. We have no obligation to update or revise our forward-looking statements, except as required by law, and you should not expect us to do so. In today's comments, we will discuss certain non-GAAP financial measures, including adjusted operating income, adjusted net income and adjusted diluted EPS, which have been presented to reflect our view of our ongoing operations by adjusting fiscal 2020 results for store impairment charges, costs associated with the permanent closure of 19 stores and the decision to suspend our expansion into Canada as well as other restructuring costs, and adjusting both 2020 and 2019 for stock compensation and other tax credits. A reconciliation of these measures to the corresponding GAAP measures can be found in our earnings release, which is available on -- in the Investor Relations section of our website at www.ulta.com. Following prepared remarks from our leadership team, we will open the call for questions. As our prepared remarks will be longer than usual, we plan to end our call today at 5:15 Central Time. [Operator Instructions] As always, the IR team will be available for any follow-up questions you have after the call. Now I'd like to turn the call over to Mary. Mary?

Thank you, Kiley, and good afternoon, everyone. I'll start today with comments about our leadership transition plans and then share highlights from our fourth quarter and full year results. Then Dave will discuss our priorities for 2021, and Scott will review the financial results and our outlook. Starting with the succession plans we announced this afternoon. I am very excited to announce that in June, Dave Kimbell will become CEO of Ulta Beauty, and I will transition to Executive Chair of the Board. In addition, Kecia Steelman will be elevated to Chief Operating Officer in June. In conjunction with these changes, Bob DiRomualdo will retire from his role as Chair of the Board as planned, and Lorna Nagler will assume the role of Lead Independent Director. These changes reflect a thorough and thoughtful succession planning process I have engaged in with our Board of Directors over multiple years and are designed to ensure strategic and leadership continuity as Ulta Beauty moves into its next chapter of growth. I personally want to thank our Board for their care, consideration and oversight of this important process. After serving as CEO for nearly 8 years, I believe the time is right for me and for Ulta Beauty to make this change. We have a differentiated business model that has proven its strength over and over again throughout our 30-plus year history and position Ulta Beauty as a leader in the beauty industry. We've developed and sustained a world-class, guest-centric, values-based, high-performance culture. We're emerging from the 2020 pandemic with a strong foundation and good operational momentum, and we have a talented, diverse and experienced team of leaders to drive our next phase of growth. While I'm proud of what we've achieved over these past 8 years, I truly believe now is the time…

Thanks, Mary. Before I discuss our priorities for 2021, I want to thank you, Mary, for your world-class and exceptional leadership of Ulta Beauty, and personally, for your mentorship. Your impact on our company has been tremendous. Under your leadership, Ulta Beauty has grown to become a beloved beauty destination, known as a welcoming and accessible place for guests and an inclusive workplace, offering outstanding career opportunities for associates. I'm grateful to have worked alongside you for many years and look forward to your ongoing support and guidance as I transition to my new role in June. I also want to express my sincere appreciation to our Board of Directors for the opportunity to become Ulta Beauty's next CEO and to all of our associates and partners for their continued support. In addition, I want to offer congratulations to Kecia on her well-deserved promotion to Chief Operating Officer. I look forward to leading with Kecia and our experienced diverse executive team in service of our Ulta Beauty associates, our guests and our shareholders. I am passionate about the beauty category, the vibrant and dynamic business we have built, and the role we play in the beauty industry and in our guests' lives. Ulta Beauty is the leading destination for beauty discovery and meaningful human experiences, and I am excited and humbled by the opportunity to lead such a strong organization through the next phase of its growth. As Mary said earlier, fiscal 2020 was a difficult year, but our teams met the challenges with agility, creativity and an unwavering focus on serving our guests. As a result, we begin 2021 with a strong foundation from which we can accelerate our growth and shape how guests experience beauty in the post-COVID environment. As we think about growth opportunities in the new…

Thanks, Dave, and good afternoon, everyone. Before I review our financial results and provide our outlook for the year, I just wanted to take a moment on behalf of the entire executive team and all of our associates to congratulate Dave on his upcoming appointment as our next CEO. We are excited for Dave as he takes this next step in his already successful career and have the utmost confidence in his ability to lead Ulta Beauty through its next phase of growth. Now beginning with the income statement. Net sales for the quarter declined 4.6%, and total company comp declined 4.8%. As Mary mentioned, we are incredibly pleased with our performance as top line results for the quarter were much better than our internal expectations. Average ticket increased 8.3%, primarily driven by an increase in units per transaction. Transactions declined 12.2%. As we have seen in recent quarters, we experienced nice conversion in both channels. We continue to be impacted by softer traffic to stores as well as capacity limitations and fewer operating hours compared to last year. However, we are encouraged by the sequential improvement in store traffic during the fourth quarter. As expected, e-commerce growth slowed relative to the third quarter as demand in stores improved but still delivered very strong growth versus last year. Our e-commerce operations delivered a sales increase of 72% for the quarter as guests continue to take advantage of our omnichannel capabilities. Buy online, pick up in store and curbside were strong again this quarter, particularly in the weeks leading up to Christmas, and totaled about 15% of e-commerce sales for the quarter. Gross profit margin was 35.1%, an increase of about 10 basis points compared to 35% a year ago. The largest driver of gross margin performance was an increase in…

[Operator Instructions] Our first question comes from the line of Kate McShane with Goldman Sachs.

Congratulations, Mary and Dave, on the news today. My question is centered around the guidance for the 15% to 17% comp growth for 2021. I just wondered to the extent that you could comment how you expect the cadence or the role of haircare and skincare driving that comp versus makeup.

Yes, Kate. Yes. Great question and one that we're spending a lot of time on. As we look out over the course of the year, we continue to be encouraged by the engagement that we're seeing from our guests across channels, both in stores and online. Our non-makeup businesses have been strong throughout -- really, throughout 2020 and certainly in the fourth quarter with skincare, fragrance, haircare, bath, all performing at or above our expectations. And we anticipate that continuing throughout this year. There is -- continues to be a fair amount of uncertainty about makeup. And I'd say that's, as we look out over the year, while we have a lot of confidence in the long term of makeup and we know that there will be innovation and growth and new behaviors that will drive long-term growth, and we see signs of engagement through our consumer research, and we anticipate pent-up demand and excitement from guests -- from consumers as they feel more comfortable participating in society and going out and celebrating and doing all the things that I think we know is coming. The question for us is when that will come. And we've built in a number of models where we're certainly prepared for that renewed engagement in makeup. We haven't fully seen it yet even though we've seen signs of it. But we have a whole line of sight towards driving innovation with our brand partners, highlighting through our marketing and communication, leveraging our digital tools, our virtual try-on tools and then being prepared from -- with close coordination with our brand partners on inventory as we see makeup grow. So uncertainty by when because it's been a bit of a ride even before COVID on makeup, but we're confident in the long term and prepared for that growth. And all of that is reflected in our guidance for 2021.

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

And so, Mary, you're still young. You own a lot of stock in the company, and the business is clearly poised to recover here in 2021. So I think a lot of investors look at the announcement and think this is at least a year early. Can you share your thoughts on why -- further why now? Why investors shouldn't think that way? And any thoughts on how you're thinking about your next career steps beyond June '22 when you leave the board?

Well, Chris, I'll take that as a compliment. I'm teasing you. Listen, this has been planned for a while with the Board in terms of the kind of governance and succession planning that we all do. I just feel that this is the right time for me personally. I'm excited. I'm going to be the Executive Chair for a year. So I'm excited about that as well. I'm staying very close to the strategies in the future as well. We're coming out of 2020 strong. The foundation of the business is very strong. Most importantly, Dave is ready to take on the next chapter of growth as the CEO of the company. So it just felt to us and to me like a natural time to make this transition. I'm very confident, very confident about the future of Ulta Beauty. And we're excited. I'm also excited that Kecia Steelman is going to have new responsibilities as Chief Operating Officer. So all told, I think this is about as seamless of a succession story as you can come up with, and that we're really excited about it.

I guess from the personal side, I mean, do you view this as also a good time for you to take another transition into your career? As you think about beyond Ulta, do you still think you're sort of going to stay in the game here as a retail executive? Or any thoughts there would be really helpful. I know it's a personal question.

There is so many questions. Yes. No, listen, I'm focused on Ulta Beauty right now, and I'm very excited about that. And that's why I'm going to be the Executive Chair. I'll be the CEO through June and the Executive Chair for a year after that. And we'll see. I'm excited to the next -- for the next chapter, but I don't really have any plans yet.

Our next question comes from the line of Omar Saad with Evercore ISI.

I would add my congratulations to everyone as well. I'd be curious -- this is kind of a specific question on makeup, but I'd just be curious what you're seeing given this kind of uncertainty around what the recovery is going to look like and when it's going to start to happen. But a lot of the products you sell have expiration dates on them, expiration periods. I'd be curious if you're seeing any consumers come back into the store or online and kind of throwing out the expired makeup that hasn't been used in the last year and starting to replenish that part of their closet, if you will.

Well, first, yes, we don't -- we haven't had any issues for sure with expired products or too much inventory or anything like that. But your point about consumers refreshing their stock, their cabinets at home is, we believe, a behavior that is happening throughout 2020. There's been -- as there's been slower engagement in makeup pre-pandemic and then certainly all the disruption that happened throughout 2020, we see a renewal coming in just how people will engage -- how our guests will engage in makeup. The behaviors, the fashions, the looks, the styles will continue to evolve. We're excited and optimistic about that emergence. As I said earlier, the timing is a bit uncertain, but we see it coming. And we feel that with that -- our guests are -- they love makeup. They love beauty. They love diving into different categories. They love newness. And I think because the makeup category has been challenged, as a reflection of less engagement for probably the last couple of years, we know our beauty enthusiasts are excited about it. So we'll see that exact behavior you talked about of cleaning out your stock, replacing it with new, leaning into newness, which there is tons coming, and then kind of embracing new looks and new styles as that moves forward. So we think that will be part of the total story.

Our next question comes from the line of Dana Telsey with Telsey Advisory Group.

And Mary, congratulations on a wonderful career at Ulta, and who knows what comes next.

Thank you, Dana.

And Dave, congratulations to you on assuming the new role also. As you think about the changes that happened in 2020 going into 2021, how do you think of the digital channel and e-commerce and the margins that you've had in the past? Any opportunity for margins on e-com and digital to improve go forward and how we get there?

Well, we're thrilled with our digital and e-commerce experience. The growth has been strong for many years and, of course, was extraordinary in 2020 as our guests embrace that channel. And our entire team worked tirelessly to make sure that we are able to service our guests with really unexpected growth in demand. So -- and that engagement will pay off for Ulta Beauty for a long time, not only in the short-term sales, but history shows that as we get our guests engage in multiple aspects of our business, not just in stores, but in stores and online and participating in salon and other aspects, their total loyalty to Ulta Beauty, their total spend, their frequency increases dramatically. And so we're confident that, that will pay off. And so overall, it is a very good outcome for our business to have more people engaged in our digital channels and driving that growth. We are, of course, focused on -- there are margin pressures on that part of the business. Again, overall, a very positive part of our business, but -- and so we're focused on that. And we have an entire kind of process to try to continue to optimize costs through promotional activity and cost to serve, and we see that as an important part of the business. And Scott, do you want to give a little more color on how we're approaching that?

No, no. We've seen -- we've demonstrated in the fourth quarter some of the benefits from promotional optimization, which, again, a lot of that occurs in the digital channel just by the very nature of the shopping experience there. So we believe there's plenty of opportunity to improve the profitability of that channel of our business, both on the promotional side, but also on the supply chain effectiveness side of the business. So the FFC strategy, the ship from store strategy, getting closer to our end customers will help. But also just overall scale as that business continues to grow, we believe, will help drive some rate improvement there over the long term.

Our next question comes from the line of Kelly Crago with Citi Research.

Mary, Dave, congratulations. Mary, you will be missed. My first question or my question is really around the gross margin. A couple of different areas I want to focus on. I guess, number one, is there a chance that gross margin could reach back to F '19 levels in F '21? And then just drilling down a little bit further on the rent and occupancy line. Could you first talk about some of the abatements you got this year and how we should think about the rent and occupancy line in '21? And then on the merch margin, I think you said that you expect the merchandise margin to be up for the year. Is that going to be pretty consistent throughout the year given it seems as your [ strategy ] can pull on to some of these lower promotional [ savings ] going forward?

Yes. So there's a lot connected to that question, but the overall theme about gross margin getting back to 2019, again, there's a lot of puts and takes. If you go back to the -- our prepared remarks, just we gave a lot of detail -- provided a lot of detail on that. I would say our initial outlook is not to get back to 2019. Part of it is the geography change on the services manager moving out of gross margin. So that's a plus up for us, but there is something -- the sales -- lower sales overall, at least our initial outlook there, creates a bit of deleverage there when we look back and try to compare to 2019. So there is quite a laundry list of things besides channel mix, which is one of the biggest drivers when we look at '21 versus '19. Again, a reminder, 2019 e-commerce was in the mid-teens as a percent of total sales, and we're thinking it's going to be in the mid-20s for 2021. So a lot of puts and takes there. I mean I would go back to the comment we made about sales upside. So we are optimistic. We feel good about exiting the fourth quarter. And if sales come back stronger, especially in the makeup part of our business, then there's potentially some good tailwinds there. And that, again, sales helps scale and helps drive leverage.

Got it. And then just on the merchandise margin side, is it -- do you expect it to be consistently up throughout the year? Or is it sort of weighted to the first half given some of the pressures you saw in the first quarter last year?

Yes. I think it'll be a little stronger first half of the year because we're lapping some large disruptions over a year ago and then building momentum throughout the course of the year. So again, there's a lot of levers that we have to pull and push as we navigate through the course of the year with promotion cadence and some of our major events. So again, we're be looking to optimize the total business as we navigate throughout the year.

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

Congratulations, Mary and Dave. I want to ask a question that I think you'll probably defer to the Analyst Day. So I guess, Dave, in the next chapter of growth where margin can go, and part of the question is, it looks like your sales level is not going to be that far below 2019, and it looks like your SG&A level is somewhat back to 2019 levels. So I guess, what level of sales can you get back to 2019 level of margin?

Well, you're right, we'll talk a lot more about the future growth and what we have seen coming ahead at the Analyst Day in the fall, and we're excited to share those plans with you. We do see pressure now that Scott just -- Scott has described on the guidance that we've given around our overall profitability for 2021, and said that over time, we see that we're focused on improving that. We're optimistic that we can improve that, and we see that continued growth as we manage through some of those short-term disruptions. So we'll have much more detail in the outlook, on the planning and the timing of our sales outlook beyond this year. We're focused right now on driving our business through the reemergence as we get in through 2021.

And I would just add to that, that we are -- and we've talked about this over the course of the last couple of phone calls, I mean, that we're -- the executive team and all the senior leaderships are focused on getting back to double-digit EBIT margins. We're very confident we can do that. I think you can look at the fourth quarter result and see it's within striking distance. Again, that's a little bit of an outlier because of the level of sales there and some of the leverage it creates by nature. But we're confident that as 2021, the plan is put together, again, in a prudent and reasonable fashion here initially, and hopefully, the crisis passes by us a little bit quicker, and we can get some win in our sales and hopefully drive a better result overall than what we're planning for today.

Yes. And Dave, when Mary did the keynote for shop talk a couple of years back, she came out dancing. So yes.

Yes. I'll work on that, Simeon. Thanks.

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

And I'll add our congratulations as well to the whole team. Dave, this is a question for you. It's on the changes in the loyalty balance. I think, Mary, you mentioned a 10% reduction in customers within the program. Can you help us just think through, is that a function of how you define customers -- active customers, meaning someone that hasn't shopped with you within your defined period? Or are those customers that have opted out of the loyalty program? And if so, is that giving you any indication about how you have to think about retaining or reengaging those customers that you may have lost?

Yes. Of course, our loyalty program is key to our success and has been for a long time and will be well into the future. We believe we've got just a world-class loyalty program. The engagement, it remains incredibly high. We think we've got one of the best loyalty programs in all of retail. There's been no change to how we define our guests. Our definition is to be counted as a member, you need to have shopped at least once in any of our touch points in the last 12 months. So that hasn't changed. But what we are seeing is we -- as -- particularly early in this crisis when our stores were closed, so a little over -- really about a year ago and for the next few months, we'll start lapping that. Our store-only guests, we lost some of the less engaged -- less tenured, less engaged members that either stepped out of beauty for a little bit or shopped at some of the retailers that were open and did not pivot to our e-commerce business. We've had a big focus in reengaging them. We know who they are. We know that they didn't have a bad experience with Ulta. They just changed behavior in the short term. And so some of this is the math as we start to lap. We're lapping -- we're strong months, 12 strong months in 2019 with some of the challenges we had in 2020. And so we'll continue to work through that over these next few months. Said that there's nothing in any of our research that suggests our guests are any less engaged in beauty over time, in Ulta Beauty or anything that we've done. And one of the biggest and most important parts of that is our diamond and platinum guests, our most engaged guests, have maintained really best-in-class retention, really, very committed and connected to Ulta Beauty. So we have a whole team that's focused. Really everything we do is for our loyalty guests. The communication we have through personalization, the broad scale marketing, our assortment evolution, they love our newness, and the merchant team has done a great job. Our stores are focused on ensuring that every guest gets a great experience. So we're confident. There's a bit of a lapping element going on. And as we work through those short-term disruption, but the long-term outlook for loyalty is very positive.

Our next question comes from the line of Michael Lasser with UBS.

And congratulations to everybody. As part of the succession process, was there a thought to guide conservatively for the year ahead to help with the transition and provide more flexibility for 2021 as folks will be in their new roles? Or does it simply reflect the fact that Ulta's long-term operating profit margin won't be as high as it's been, in part to e-commerce penetration being in the low to mid-20% range versus 2019 when it was in the 13% range?

Well, I would say this. We guide, to the best of our ability, to what we think is going to happen with some range around that. So if you look at the guidance, we feel encouraged and optimistic about the momentum on the business. But as we said, there's a great deal of uncertainty still ahead, and we've embedded some of that uncertainty into our outlook as we would normally under any circumstances, not just due to a transition. As we said, we still lack clear visibility into the exact timing of an improvement in our largest category, which is makeup. So while we see something -- I think Dave explained it really well. We see some green shoots, and we're excited about the pipeline, but the timing is uncertain. So with all the puts and takes, both in managing costs, which I think we're doing well, but also investing in the future of the business, that leads us to the guidance that we provided. We think it's achievable. We're ready to move quickly if things get even faster in terms of the economic recovery and consumer recovery. But we think this is very reasonable guidance.

Our next question comes from the line of Paul Trussell with Deutsche Bank.

My congratulations as well Mary, Dave and Kecia, and also to the team. On the MUSE campaign, this household is a fan. Just wanted to inquire about a few updates. One, 40 store openings this year, just maybe if you can put that in context of how you think about long-term door growth and potential kind of reacceleration in the outer years and maybe incorporate just any updates on Canada into that? And then similarly, just any updates as you've had further conversations with your vendor partners around the Target shop-in-shop and that partnership and what your expectations are for when that launches.

Yes. So yes, I'll start here. The -- first of all, thanks for the shout-out on MUSE. The team -- we're all really proud of that work. And I'm sure some of our team is listening, and they'll be glad to hear that. On stores, we have 40 stores this year, and we remain consistent with the guidance that we've had that over time can grow in to 1,500 to 1,700 stores. No update, no changes to Canada specifically as related to that. That's all on pause, and we have no news related to that. We continue to be optimistic and positive about the outlook of physical retail, and we'll continue to find just terrific locations across the country. The 40 that we're opening this year, we're -- we feel really, really good about, and we see plenty of growth ahead of us. So that's the plan on stores. That's connected in ways to our Target business. So your question about how that's coming along, we're just really, really pleased with that partnership. The relationship we have with Target as we've been building this together has just been exceptional, and we're really thrilled with the feedback that we've had from -- on the concept from our consumers. They are pumped up about this and excited for it to come to life. We really see this as just a completely new way to engage our consumers in the prestige segment, and in beauty overall, it's definitely not. I mean we've worked so hard to make sure this is not just more of the same from a retail standpoint, which we think is really critical in this time of disruption in the marketplace. So this is going to be completely new, totally different, focused on the best of the best in prestige, highly curated assortment, beautiful presentation, exceptional staffing, and we're anticipating high consumer engagement, compelling guest experience and, for us, acquiring millions of new members over time. We're not sharing much more detail than what I shared in the script earlier today. We'll be sharing that as we get a bit closer. But I can assure you that our plans are on track. We're ready to launch Ulta Beauty. And we have tremendous support from our brand partners, both big, the biggest brand partners that we have, and small and emerging brands. In fact, we're going to launch with more brands than we originally considered. We have the brands that we wanted to launch this with and more, and we're excited about it. So it's coming together great. We think it's going to be an awesome experience. We're thrilled to be partnering with Target. They've been nothing but just exceptional partners to build this with, and we're excited to go create this next chapter in the future of beauty.

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

And let me add my congrats. Mary, we'll miss you a lot. And Dave, we look forward to working with you. Congrats on the new role. I guess maybe my first one will be for Scott. But I'm wondering if you can help us understand any of the metrics around how much of the SG&A that you guys have in the plan that you guided us to this year is what you'd call investment. I know -- I think Dave described it as investments partially offsetting some of the tailwinds on the margin. But if we just look at EBIT dollars per store, I think you're at like $740,000 in 2019, and the guidance looks like it's closer to $500,000. So I'm just curious, it seems like a lot of the focus here is in SG&A. And then, Mary, in the markets that have been less restrictive or opened up more quickly, what are you seeing there as leading indicators that leads you describing the beauty category -- the color cosmetics category as low visibility or uncertain as you guide us with your thoughts on how the rest of the markets will start to reopen?

Yes. I wouldn't say that we've seen a material difference in performance across markets for the most part. I mean there's certainly been weather disruptions and everything with COVID. We've been watching it closely. And I think just with makeup, we just know it's a category that's been under pressure even prior to COVID. And then we have a long period of time where folks are changing their makeup routines. And so we know that the category has lots of newness and innovation to come, and it's large. People are very engaged in the category. We're just not sure exactly when people are going to start wearing makeup, more makeup for social occasions and things like that. So we're watching it closely. But it's a great aspect of our business model that we are across so many categories that the self-care, the skincare, the bath and fragrance categories have performed, as you know, exceptionally well. So we're well balanced, and we're poised to take advantage of the uptick, which we think will come.

And on the SG&A part of the question. So again, it depends what you're trying to measure against, 2020 or 2019. I guess I'll keep it in context to 2019, be specific that there's roughly 50 net new stores in the store fleet compared to 2019 by the time we get the end of 2020. So there's a natural fixed cost element of that, that runs through gross margin, and then there's a variable cost piece of that, right, on payroll for stores and all the signage and other variable costs that it takes to operate a store. So that's embedded in there. A top line that's slightly weaker than 2019 is what our initial outlook is. So that's a big element of it. The service manager recategorization, right, out of gross margin down into SG&A. So it's a help on the gross margin line, but it is a headwind on the SG&A line, but it's an overall win for the company because we're more effective in it. It is plus up on operating margin overall. The investment, I mean, we don't -- we've never shied away from that. I mean, yes, 2019, it's a recovery year. That's how we're looking at it. Makeup is a big part of our business. As Dave and Mary both said, there's a lot of uncertainty on when it will come back. We're optimistic that it will, but there's just a question of timing, and that's a big part of our business. And then there's continuing investments in just all the infrastructure, especially in the digital and IT space, which, again, is a key component to being able to deliver a great omnichannel experience to the guests and to make sure that we're continuing to innovate for the long term and to help drive future growth for the business.

Our next question comes from the line of Steve Forbes with Guggenheim Securities.

Let me extend my congratulations as well. Maybe I wanted to sort of focus on the outlook for ad spend. So a quick 2-part here. Scott, you mentioned flat year-over-year. Maybe just tell us, if you can, on what the expense ratio was for 2020. And then more importantly, for maybe all of you, as I think about the reopening opportunity here, right, to drive new customer acquisition, to drive services adoption, right, and maybe reaccelerate those member trends, it just seems like there's a very large opportunity ahead of us. So I'd love to just hear about why not be more aggressive, right, or sort of how you're thinking about overall ad spend, whether it's payback or -- just love to hear just higher level thoughts on how you're sort of viewing this reopening opportunity, right, in terms of customer acquisition vehicle.

Yes. So maybe I can start there. So again, I would just say we're being flexible. Like we were in 2020 when the COVID crisis was on us, we pulled back significantly, especially in area of print and reallocated resources into the digital space, I think, smartly, right, looking at the results of that. So again, this is an area when we talk about EFG, efficiencies for growth, the print -- the whole advertising bucket is another large area of opportunity for us over the long term. And so we continue to look for ways to optimize both print, just the cost of print overall, but also the distribution and the postage and working with our vendor partners on new, better ways to be thinking about how we go to market over the long term. So that's part and parcel of our everyday activities, I guess, I would say. And again, we're thinking it's going to be flattish year-over-year as a percent of sales. So -- but always a work in progress.

Yes. And just to reiterate on the -- yes, your points about reopening and guest reengaging in the category. We feel confident in what we're seeing but uncertain about the pace and the return, particularly in our biggest category of makeup. And so we feel, as Mary has said, I think, as Scott has said, we feel the guidance that we have is right, but we're also prepared to adjust. We've -- becoming increased -- 2020 just further enhanced our skills at agility and being prepared to take whatever comes at us. And so we're ready to drive growth and lead the industry and -- but also feel like the guidance that we've given is correct.

Our final question comes from the line of Ike Boruchow with Wells Fargo.

Congrats to everyone as well. Just 2 quick ones. So Dave, for you, on store productivity, can you talk to us -- I think you were doing around $500 a foot pre-COVID. Can you -- not necessarily this year, but maybe over the next 2 to 3 years, where do you see store productivity kind of normalizing to given the rise in e-com? And to that point, Scott, on the guidance, it seems to imply that e-com sales, you're expecting them to decline year-over-year in dollars based on the mix. Could you maybe give some color about what's embedded on e-com revenue, either first half, back half or full year? Anything would be helpful.

Yes. Store productivity, I'm not going to give any specifics right now because we've got a lot to figure out of where things settle out and settle down. Having said that, we remain really committed and positive about the physical store channel for Ulta Beauty and in beauty in general. And so we're watching that closely. We're seeing positive trends as guests are getting reengaged. We know our guests are telling us and then increasingly demonstrating that they want to get back in a physical way, but we know e-com will play a bigger part of it, too. So I imagine that'll be a big part of our discussion in the fall as we kind of talk about a longer-term outlook, but it's a big focus for sure.

Yes. I would just, yes, add on to that exactly. In the fall, we'd have more to share on that with investors. I mean the fact is that the trends in the store, the traffic trends, have been negative now for a while. And so we're going to have to watch how consumers -- how that rebounds here as 2021 plays out and how that fits into the overall digital part of our business and omnichannel equation. As far as the e-com question goes, Ike, so yes, you're on the right track there. We're guiding 20 -- mid-20-ish kind of penetration for the year, which, again, we're not apologizing for based on what we just delivered in 2020. That business is twice the size it was a year ago this time. And the team is ready, and we're ready to scale that up and take advantage of opportunities that are presented to us. And now we're just focused on making sure we take care of the store fleet, the teams that are out there and make sure as customers come back and shop us in brick-and-mortar, that we're delivering a great guest experience and continue to keep them engaged with the brand.

Okay. I think we're done with the questions. Thank you. So I just want to thank everybody for joining us today. The future is really bright for Ulta Beauty. We have a strong and differentiated business model. We're emerging from the 2020 pandemic with good momentum. We're strategically investing in our business to drive further market share gains, and we have strong leadership for the next chapter of growth. I'm really proud of the job that the Ulta Beauty store, distribution center and corporate associates did all year to deliver this amazing but tough year. I remain very excited about the long-term growth opportunity. I'm confident Ulta Beauty will continue to shape and lead the beauty industry. I'm excited about the next chapter ahead for all of us. It's the right time for me personally, the right time for Dave and Kecia and the right time for Ulta Beauty as the team continues to drive growth for many years to come. We look forward to speaking with all of you again in May when we report on our first quarter results. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.