Ulta: Fragrance ROI Drives Marketing Payoff; SG&A Leverage Supports Back-Half Visibility in Q1 2026

Ulta: Highest-ROI marketing categories and how SG&A leverage should support back-half visibility under updated profit/EPS guidance and a higher buyback

1) Categories with the greatest ROI on marketing investments (what management highlighted)

From the earnings call, Ulta specifically identified fragrance as the strongest category where marketing spend is showing clear payback. Management cited Mother’s Day performance and related execution (raising fixtures to add assortment, plus the accompanying marketing) as a concrete example of investments translating into category results. ¹²

Ulta also pointed to brand building/exclusive-brand marketing platforms as a high-return engine (not a single “category,” but a related investment category within marketing), especially through:

• Ignite brands and “360” brand building plans, where management said they’re seeing what they “love” and intend to “continue to lean into” in upcoming quarters. ¹
• UB Media (data/targeting tool), described as enabling Ulta to identify where guests shop and “take those brand dollars” to engage them in-store and online—framed as a way to “capture that guest” and drive incremental returns. ¹
• Major event marketing tied to category demand signals, such as 21 Days of Beauty, which management said they were pleased with and expects to continue focusing on in Q2. ¹

Separately, management’s prepared discussion of quarterly category results corroborates fragrance strength:

• Fragrance delivered “high-teen comp growth” and increased as a share of total revenue from 11% to 12% in Q1. ²

Bottom line on “greatest ROI” (as supported by the excerpts):

• #1: Fragrance (explicitly called out as strongest return, with Mother’s Day marketing + merchandising execution). ¹²
• Key marketing investment areas generating returns: exclusive-brand/360 brand building (including Ignite) and UB Media-driven targeting, supported by event-driven campaigns (e.g., 21 Days of Beauty). ¹

2) What SG&A leverage should contribute for back-half visibility (given the updated guidance + higher buyback)

A. Why EPS was raised (and what that implies for back-half visibility)

Ulta raised EPS guidance, stating it was driven by both operating profit increase and share buybacks; the call also explicitly linked the higher EPS to the buyback effect. ³⁴

Management further disclosed the specific capital return change:

• It increased the fiscal 2026 stock buyback target from $1 billion to $1.5 billion (announced in Q1). ⁴
• It also noted Q1 execution of the buyback program, deploying cash and using its revolver to support $555 million of stock repurchases during the quarter. ⁵

And the updated EPS and operating profit framing was:

• Updated diluted EPS expected between $28.36 and $28.80 per share. ⁴
• Operating profit expected to increase 6.5% to 9% for fiscal 2026 (enhanced expectations, while sales guidance remained maintained). ⁶
• Sales guidance maintained at net sales increasing 6% to 7%, with comp 2.5% to 3.5%. ⁶

Implication for back-half visibility: because EPS upside has a structural component from buybacks (not just operating performance), the remaining “visibility” question becomes whether SG&A leverage improves in the back half even while Ulta cycles costs and continues investment. ⁴⁷⁶

B. The actual back-half SG&A leverage mechanism Ulta described

Ulta provided a margin/earnings cadence explanation that directly addresses back-half progression and what SG&A should do:

1. First half vs. second half P&L drivers

• Management said the year is a balanced first-half/second-half operating profit growth profile, with first half modestly above second half. ⁷
• The big difference early was higher benefits of shrink (gross margin tailwind), while SG&A was planned to be higher due to:
  • Space NK costs, and
  • anniversarying prior-year investments. ⁷

2. Why SG&A should help in the back half

• Management stated that in the second half, there is a “slight flip” where gross margin moderates, and then “benefits of SG&A” drive margin improvement in the second half with low single-digit growth. ⁷

3. How SG&A discipline is expected to remain intact while investing Ulta emphasized:

• “Highly confident in the SG&A execution” and that SG&A execution is “playing out as expected.” ⁸
• SG&A growth is expected to be consistent and is influenced by:
  • double-digit first-half growth driven largely by Space NK and anniversarying the Ulta Beauty Unleashed investments from back half of 2025, including wellness and marketplace. ⁸
  • stepping down to low single-digit second-half growth due to anniversarying. ⁸
• Cost optimization is explicitly expected to improve ROI and “put more back in the business,” contributing to leverage. ⁸

4. Operating margin constraint and leverage opportunities Management also stated a guardrail/discipline framework:

• Operating margin will not go backwards year-over-year, and they see opportunities for leverage while balancing invest-to-growth and leverage. ⁹
• They specifically cited strength drivers like supply chain/shrink and consistent performance on SG&A, but the broader point is that leverage exists alongside disciplined investment. ⁹

Bottom line on SG&A leverage and back-half visibility (as stated by management):

• SG&A leverage should contribute to second-half margin improvement, because Ulta expects gross margin to moderate while SG&A benefits become the offsetting driver in the back half. ⁷
• That SG&A leverage is expected to be achieved through planned phasing (anniversarying/unwind timing) and cost optimization that improves ROI, rather than by cutting into margin-protecting investment discipline. ⁷⁸
• EPS visibility is enhanced by buybacks, but Ulta still frames operating profit growth and margin quality as necessary to hit the full-year targets. ⁹⁴⁶

3) Putting it together: which “ROI pockets” should support back-half while SG&A leverages

Given the excerpts, Ulta’s highest-ROI marketing areas (fragrance; Ignite/360 brand building; UB Media targeting; and major events like 21 Days of Beauty) create demand momentum and category share support. ¹² That demand support is important because Ulta also guided that it expects competitive/steady comp growth into the back half (including Q2 being historically its strongest comp quarter last year) and expects overall gross margin to be roughly flat for the year. ⁶¹⁰

With gross margin roughly flat and with shrink benefits cycling (earlier strength, later cycling), the back half’s margin improvement is positioned to come more from SG&A benefits/leverage than from incremental gross margin expansion. ⁷⁶

Meanwhile, the higher buyback target ($1.5B vs. $1B) and executed repurchases add an EPS tailwind, so EPS visibility should be stronger than operating profit alone would imply; however, management still emphasizes disciplined SG&A execution and the second-half SG&A contribution to profitability. ⁴⁵⁷

Overall answer in one sentence: Ulta’s call most directly credits fragrance (and supporting event/assortment execution) plus exclusive-brand/360 brand building enabled by UB Media for marketing ROI, and it expects second-half SG&A leverage (after first-half cost pressure from Space NK and anniversarying) to be the main internal mechanism supporting improved back-half margin visibility under raised profit/EPS guidance and a higher share-buyback program. ¹⁴⁵⁷