So when we look at the consumer going forward, we remain confident in the long-term outlook for this category and the strength of the beauty enthusiast to fuel it going forward. As I mentioned in the — in my comments, there’s a lot of uncertainty, and there has been, frankly, for the last couple of years. But we look into the remainder of this year, we know we’re lapping. We continue to lap strong growth. We’ve been on this strong category growth for a while now. We have more changes coming, including student loans. So we’re cautious and certainly watching carefully how that evolves. Historically, it’s been difficult to tease out any kind of economic or stimulus shift and how directly that impacts the category or our business, and our business and the category itself has been largely resilient.
Not immune, but largely resilient. So when we look out, I guess I’d say we’re optimistic but watching closely and carefully. Staying really close to our guests, understanding what’s happening in their lives and what’s influencing their decisions and making sure we’re adapting. Last thing I’d say and I know I’ve said this many times, but our position, our unique model of having all price points and a really accessible experience, both in-store and online positions us well. So even if there’s shifts, even if there are pressures on consumers, history says we are able to adapt, and I know that’s the strategy that we’re implementing to make sure we’re here for our guests to deliver regardless of what goes on in the broader environment around them.
Kiley Rawlins: Paul, I think we have time for maybe one more question.
Operator: Thank you. Our final question is from Steven Forbes with Guggenheim Securities. Please proceed with your queen.
Steven Forbes: Good afternoon. Dave, Scott, you both mentioned in your prepared remarks the expectation for promotions to remain well below 2019 levels. And I was hoping you could just maybe clarify that statement? Is it isolated in 2023? Or is it meant to be a longer-term comment? And as we think about merchandise margin risk in the model, is there any way to frame what the sort of structural change in promotional activity in the category means for the margin profile in and of itself?
Scott Settersten: Yes. So when we’re talking — again, this has been an evergreen topic, I think, with investors now for quite a while, pointing back to 2019. So the business is in a much different position today than it was back in 2019. Again, for those that have been following 2019, we had some major disruption in the middle of the year in the Makeup category, unexpected deceleration there. There were channel mix headwinds that we were dealing with as a business. There was some investment in some international expansion that was causing some significant deleverage on the business. And so during the course of the pandemic, some initiatives that have been started pre-pandemic. But during the pandemic, we were able to take advantage of making sure that we fully leverage some of our cost optimization initiatives by way of ESG, and now continuous improvement initiatives layered on top of that.
I would say the scale of the business, much larger today than it was back in 2019. So we’re going to get the benefit of the fixed store cost leverage in the base business far and above what we were looking at pre-pandemic. Things around our capabilities like ship-from-store and focus capabilities that really did not exist in any meaningful way back in 2019 that now you heard us say again today. 30% of those digital sales are being serviced out of our store fleet, so a much more efficient delivery to the consumer and a much better overall margin profile of those sales. Things like our credit card program, our Ulta Beauty and Target relationship. UB Media, new business for us, just really out of the starting gate here over the course of the last year, puts us in a much better position overall than we were back in those days.
So again, that’s not promotion directly, but those — all those elements play a role in gross margin and operating margin and expanding that over the course of time. So we feel confident that the promotion levels, again, they are going to moderate. We’ve been talking over the last couple of years that extraordinary environment that we saw in ’21 in ’22 was not sustainable for the long term. And that — as people got back in the business and people were back in malls and other retail outlets that the promotion level was probably going to come back to us a little bit, and that’s kind of how — what we’re seeing play out today. So again, there’s nothing unexpected here. It was in our forecast, our plans for the year. We’re moderating and navigating our way through that in an effective manner, and again, nothing — I don’t think anything that should be overly concerning to investors.
Again, we’re confident that we’re going to be able to manage our way through that with new capabilities, new lines of business, our loyalty program and CRM capabilities being much more mature today than they were back in the pre-pandemic days. So we’re confident we’re going to be able to deliver healthy operating margins in that 14% to 15% range and a very moderate growth expectation of 3% to 5%. So feeling good about our position and where we’re headed for the future.
Steven Forbes: Thank you for that.
Dave Kimbell: Great. Thank you all for joining us today. I appreciate your interest and engagement in Ulta Beauty. I want to close by thanking all of our Ulta Beauty associates for their continued care for our guests while delivering another quarter of strong financial results. We look forward to speaking to all of you again when we report results for the third quarter on November 30. Thanks again, and have a good evening.
Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
