Scott Settersten: Yes. Thanks Mike. I think probably gets to a larger picture versus the AUR piece of your question there. So let me start it, because I know this is at the top of the list for all investors right now as we’re thinking about next year. So let me start by saying we are very proud of what the Ulta Beauty team has been able to deliver over the last several years with respect to our operating margin profile overall. We continue to lead the beauty category, capture market share gains and deliver some of the strongest operating margins in all of retail, while also absorbing significant cost pressures, driven by an e-commerce business that we doubled the size of since 2019, along with wage pressures, supply chain disruptions, fuel costs and other inflationary pressures across the business.
And also continuing to make significant investments to innovate and build a healthy and vibrant business for the long term. Having said that, we’ve been very transparent with investors all year when discussing the continued beauty rebound in 2022, and that sales trends have been much stronger than what we expected back in the fall of 2021 when we provided our long-term financial outlook. And that sales performance is driving stronger-than-expected operating margins, driven primarily by fixed cost leverage price increase benefits in gross margin that are extraordinary this year and more moderate promotion levels and that the sales increases have been outpacing the inflationary cost pressures that we’ve seen in our business. So again, big picture, let me just lay out a couple of the bigger variables here as we’re thinking about modeling for next year.
So again, back to what we referenced in the script, we do expect we can grow sales next year in line with our longer-term 3% to 5% comp target. So on the top line, merchants have done an outstanding job. We feel good about the queue for newness next year. We’ve got some great things lined up. But we’re going to be lapping over some extraordinary newness this year, right, with these leading brands in each of our key categories, Fenty and makeup, Drunk Elephant in skincare and Olaplex in haircare, all right? Price increase is another major lever. So we’re kind of in uncharted territory right now, right? The percentage of our assortment where we’ve seen increases and the depth of those increases is something we’ve never experienced in all the years here at Ulta Beauty.
So we’re going to be cycling over some of that next year, and it’s kind of yet to be seen how the consumer is going to react to that over the longer period of time. So elasticity and resilient, while it’s been resilient so far, there’s a question of how far we’re able to push this without seeing some kind of impact. Lastly, on the top line, I’d say we’re going to lean into our very powerful loyalty program, the benefits of our credit card. And of course, we’re going to look to continue to see benefit from our Ulta Beauty at Target relationship next year. Thinking about the rest of the P&L then, on the gross margin piece of it, promotion levels, we think, will likely be higher next year than they have been the last couple of years. Channel mix then kind of a benefit this year because stores, the big bounce back and traffic we see in stores has helped right some of the margin headwinds that we see from our digital business.
Pricing benefits, again, this gross margin benefit from the timing between price versus the inventory change as it contributed meaningful benefits this year. And again, some of that will recur next year, but the question is, to what significance? Wage pressure will continue. Fuel will probably moderate, right? We’ve seen that here more recently. Supply chain investments will ramp up next year. And of course, UB Media will accelerate, will step up there. So ramp-up will contribute on the margin line, gross margin line. In SG&A, we got store payroll upward pressure on wages, which we expect to continue, maybe not to the same rate we’ve seen here this year, but certainly will continue upward. Variable cost, inflationary pressures, again, credit card fees, I mean, we’re seeing it in every part of our business right now.
We’ve been able to mitigate a lot of that. And super high sales increases help camouflage that a bit as well. And then, of course, our strategic investments, as we mentioned in the script, we plan to ramp those up, and that’s coming in 2023, so other digital investments and UBN and target as well. So we’ve got mitigating strategies in place, right? You’ve heard us talk about some of these over the years, and we’ve demonstrated the Company we are able to deliver, we’ve delivered hundreds of millions of dollars in benefits from our EFG efforts, and we’ve got plenty of margin enhancement and cost optimization opportunities in front of us, and we’re building out new continuous improvement capabilities, which, again, you’ve heard us talk about are building for the long-term cost optimization of the business.
So I’ll close it up by saying, even in what we see as a more uncertain environment, being with us here into next year, we are well positioned. We’ve got a strong business model. We are in a great category that’s growing and we’ve got a very — a business that delivers very healthy margins. And we expect to be able to grow the top line next year even off extraordinary performance in 2021 and ’22. So, we feel good about where we are.
