Thank you, Leila. Good afternoon, everyone, and thank you for joining us for a discussion of Ulta Beauty's results for the third quarter of fiscal 2025. Hosting our call today are Kecia Steelman, President and Chief Executive Officer, and Chris Lialios, Interim Chief Financial Officer. As a reminder, today's earnings release and the comments made by management during this call include forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, factors identified in the earnings release and in our most recent 10-Ks and 10-Q filings. The company undertakes no obligation to revise any forward-looking statements. And as always, the IR team will be available for any follow-up questions after the call. Now I'll turn the call over to Kecia. Kecia?
Thank you, Kiley, and good afternoon, everyone. The Ulta Beauty team delivered another quarter that exceeded our expectations. For the third quarter, net sales increased 12.9% to $2.9 billion. Operating profit was 10.8% of sales, and diluted EPS was $5.14 per share. These results highlight the expanding relevance of the Ulta Beauty brand for our guest, the favorable impact of investments that we're making to support our long-term strategy, and the continued commitment of our teams. Today, I'll take a few minutes to outline the key drivers that fueled our outperformance, update you on our progress against the Ulta Beauty Unleashed strategy, and discuss our outlook for the upcoming holiday.
As I reflect over the past 11 months in my role as CEO, I'm incredibly proud of the steps our teams have taken to accelerate our top-line growth and increase our market share, and how these actions continue to resonate with our guest and drive our results. The third quarter highlights are a clear result of these actions and include comparable sales growth of 6.3%, positive comps across all categories and channels with notable double-digit strength in our e-commerce results, continued market share gains in mass and prestige beauty, including prestige market share gains in both brick-and-mortar and digital channels, loyalty member growth of 4% year-over-year to a record 46.3 million members, and ongoing improvement across several key performance indicators, including brand engagement, earned media value, and app engagement. The investments to support our Ulta Beauty Unleashed strategy are fueling our strong top-line results.
At the same time, we know we have opportunities to tighten SG&A spend and to optimize resources to drive long-term profitable growth, which will be a key area of focus as we turn to fiscal 2026. Before I dive into the drivers of our performance, let me touch on the beauty landscape more broadly. Despite a softening in overall consumer confidence in Q3, beauty engagement remained healthy. During the third quarter, both mass and prestige beauty markets delivered mid-single-digit growth, according to Circana. Turning now to the key drivers of our performance, which center around our three strategic priorities: strengthening our core U.S. business, scaling new businesses, including expanding internationally to capitalize on key growth opportunities, and realigning our foundation for the future by streamlining our cost structure, optimizing our ways of working, and re-energizing our culture. Let me begin with our actions to strengthen our core U.S.
business, which continues to power our overall results. We have been focused on the fundamentals and elevating our go-to-market approach through operational excellence, marketing leadership, and compelling merchandising innovation. Our enhanced go-to-market collaboration between our merchandising, marketing, and store teams has been a key unlock to improving our performance, and we're leveraging this new approach to accelerate our brand-building, digital, and personalization efforts. In stores, our team's dedication to disciplined execution continues to underpin our performance. Stores are elevating and energizing the guest experience with improved in-stocks, well-staffed stores, friendly service, and engaging events, all translating into improving guest satisfaction results for the quarter. We drove solid in-store traffic and sales growth with successful execution of key moments and events, including Back to School, 21 Days of Beauty, and Fall Haul. In addition, we hosted nearly 33,000 in-store events across our fleet during the quarter.
These unique activations included celebrity appearances, brand launches, brand education, and highlighted our differentiated in-store experience, which truly makes Ulta Beauty an unmatched beauty destination for our guest. From a category perspective, all major categories exceeded our expectations and delivered positive comp growth against the third quarter last year. Fragrance sustained its position as our strongest growing category, delivering double-digit comp sales growth in Q3. Newness from luxury brands like Valentino and Dolce & Gabbana, alongside compelling new-to-market brand launches from Miu Miu and prestige and Squishmallows in mass resonated with the guest. This quarter demonstrated the power of our unique low-to-luxury brand assortment. In October, we also rolled out incremental shelf space for fragrance in more than 60% of our U.S. stores, which we believe positions us to capture holiday demand and beyond for this important and growing category.
Skincare, our second fastest growing category, delivered solid high single-digit comp growth driven primarily by the strength of prestige skincare and solid growth of mass skincare. Our unmatched K-Beauty assortment continues to resonate and drive skincare sales. In addition, Prestige skincare also benefited from the highly successful launch of Fenty Skin Body, exclusive to Ulta Beauty, and strengths in brands like Tatcha and Dermalogica. Mass skincare benefited from newness and social media virality in key brands like BYOMA and Starface. In addition, our newly expanded wellness assortment also contributed positively to skincare performance. Makeup delivered another quarter of mid-single-digit comparable sales growth, supported by growth in both mass and prestige makeup. Mass makeup growth was driven by compelling newness from brands like NYX, Morphe, and L'Oréal, as well as the benefit from market-wide price increases from select brands.
Prestige makeup growth in the quarter was supported by a highly successful 21 Days of Beauty event, with notable brand standouts being Estée Lauder and MAC within the event. Across the quarter, we also delivered strong growth across a number of our prestige brands, including Hourglass and NARS, and in our Only at Ulta brand portfolio with new NEST and DIBS. Our new K-beauty assortment in makeup is also driving strong growth. The hair care category delivered mid-single-digits comps, fueled primarily by strong performance in prestige hair. Mass hair, hair color, and accessories also contributed positively. This growth was partially offset by sales declines in personal styling tools, which continues to navigate pressures from tariff-related price increases. From a brand perspective, major new prestige launches from Moroccanoil and Nutrafol, along with guest favorites Redken and Matrix, resonated with guests and delivered strong growth.
Our exclusive brand Cécred continued to drive guests into the hair care category and performed ahead of expectations. Finally, services delivered mid-single-digit comp growth in Q3, driven by strength in cut-and-color services, expanded brow services, and ongoing improvement in stylist productivity. During the quarter, we began offering benefit brow services in our salon, expanding capacity and convenience for our guests. Execution of our salon workshop strategy featuring events like Back to School Blowout drove sales and member trial. Moving to our long-term strategy to enhance our assortment and brand-building capabilities. Overall, we are intensely focused on strengthening and modernizing our full low-to-luxury assortment, and during the quarter, we launched more than 35 new brands, many of which were exclusive. Our new brands are thoughtfully selected to drive incrementality and complement our balanced portfolio of the best brands across all categories, all life stages, and all price points.
Strengthening our brand-building capability is key to the strategy, and we are focused on leveraging our unique advantages to be the retail partner of choice to launch, build, scale, and globalize brands. Our enhanced focus and capabilities are already delivering, with Beyoncé's hair care line Cécred, only available at Ulta, being a great example of how we can uniquely unlock the power of 46 million loyalty members to launch and scale a new retail-to-brand successfully in just a few months. Based on its first six months of performance, Cécred is the most successful prestige hair care launch in Ulta Beauty's history. Our K-beauty assortment is another example of our holistic brand-building strategy. With an already established stronghold in K-beauty skincare, with long-standing exclusive brands like Peach & Lily, we saw space for growing K-beauty trends in both skincare and makeup.
We moved with agility to build a complementary and largely exclusive pipeline, including a portfolio of new and many exclusive brands throughout 2025, like Anua, medicube, TIRTIR, fwee, and Unleashia. We have leveraged all of the Ulta Beauty go-to-market levers to drive excitement and awareness of these new brands, attracting the next generation of beauty guests. Our core assortment is now being complemented with the recent launch of UB Marketplace, which I will give you more details on in a moment. Shifting to marketing, we are elevating our marketing efforts to spark excitement and awareness, drive engagement, and attract and retain loyalty members. During the third quarter, we debuted our new brand equity campaign, "Beauty Happens Here," on social and across traditional and connected TV.
The new campaign aims to inspire and reinforce that Ulta Beauty is where beauty lives and is the destination for all ages and all life stages. The campaign is already driving significant awareness gains broadly and with key cohorts and is also driving strong brand health gains. In addition, we continue to leverage our integrated marketing efforts to support key events and strategies, including high-impact merchandising campaigns like 21 Days of Beauty and Fall Haul, designed to drive engagement and conversion against priority categories. Our exclusive only at Ulta brand launches and category plans, reinforcing our leadership in a differentiated way, and culturally relevant activations like hosting Ulta Beauty's first-ever multi-market experiential activation, the College Glow Up Tour, in collaboration with Her Campus. The tour delivered product sampling and education for various exclusive brands like Polite Society, Isamaya, and Snif.
Moving to our digital platforms, our investments to accelerate digital engagement and personalization are delivering results, and we continue to add capabilities that drive app engagement, enhance the guest shopping experience, and remove friction. From new features like Replenish & Save and Wishlist to new payment choices like Venmo to doubling ship-from-store locations to more than 1,000 stores, we are steadily improving the guest experience and fueling our momentum. Our app engagement continues to grow and accounted for 65% of our online member sales in Q3, up from 63% in Q2. In addition, strong buy-online pickup and store contribution highlights how guests value the powerful combination of our digital shop experience and the convenience of our stores. Next, turning to our second strategic priority, scale new businesses to capitalize on key growth opportunities and ensure that we remain relevant in a rapidly changing world.
Thanks, Kecia. And good afternoon, everyone.
I'll begin with a discussion of our consolidated third-quarter results and then share our expectations for the fourth quarter and full year. As a reminder, our results for the third quarter of fiscal 2025 include financial results for Space NK, which was acquired in July and is not material to our consolidated financial statements. The Ulta Beauty team delivered strong performance again this quarter, reflecting better-than-expected growth from comparable sales, favorable shrink results, and stronger merchandise margin. Consolidated net sales for the quarter increased 12.9% to $2.9 billion compared to $2.5 billion last year. During the quarter, we opened 28 new Ulta Beauty stores, remodeled 15 stores, and closed one store. We also opened two new Space NK stores, relocated one store, and closed one store. We ended the period with 1,500 Ulta Beauty stores and 84 Space NK stores.
Comparable sales increased 6.3%, driven by a 3.8% increase in average ticket and a 2.4% increase in transactions. Other revenue increased approximately $8 million versus the third quarter last year. Looking at the cadence of comp sales through the quarter, growth was fairly consistent across all periods. From a channel perspective, both store and digital channels contributed to comp growth, with e-commerce sales increasing in the mid-teen range and comp stores delivering mid-single-digit growth. Consolidated gross margin for the quarter increased 70 basis points to 40.4% of sales compared to 39.7% last year. The increase was primarily due to lower inventory shrink and higher merchandise margin, which was partially offset by adverse channel mix, reflecting strong growth from our digital platforms. Our team's focus on reducing inventory shrink while also delivering great guest experiences continues to produce meaningful results.
Our investments in fixtures and process improvements, as well as focused associate training and store-specific action plans, have delivered shrink reductions across every category and almost every region. Merchandise margin increased this quarter primarily due to the timing of market-wide price actions from select brands and more effective promotion strategies. These benefits were partially offset by unfavorable category mix. While many of our brand partners continued to be cautious about passing through tariff-related price changes, we saw more brand-driven price increases in Q3 as compared to Q2. Reflecting on our average cost inventory valuation methodology, we often see a short-term benefit to cost of goods as we move through the lower-cost inventory after the retail price changes executed. Merchandise margin in the quarter also benefited from greater promotional effectiveness. We delivered strong performance from key events, including 21 Days of Beauty and Fall Haul, and eliminated unproductive offers.
As a result, the impact to merchandise margin from promotional activity was lower than last year. Moving to expenses, consolidated SG&A increased 23.3% to $841 million. SG&A growth was elevated this quarter, primarily reflecting higher incentive compensation, the impact of Space NK, and the timing of investments we're making to support our Ulta Beauty Unleashed strategy. Excluding the impact of incentive compensation and Space NK, SG&A growth for the quarter was about 14%. As a percentage of sales, SG&A increased 240 basis points to 29.4% compared to 27% last year, largely due to higher incentive compensation reflecting our better-than-planned performance, as well as the lapping of a benefit from lower incentive compensation in the third quarter last year. Higher store payroll and benefit expense, store expenses, and amortization of cloud-based software investments also deleveraged as a percent of sales.
Store payroll and benefit expenses increased primarily due to additional selling hours to support the guest experience and higher healthcare costs. The deleverage of store expenses largely reflects higher supplies to support key merchandising initiatives and inflationary pressures. The growth of cloud investment amortization reflects the impact of technology investments we are making to support our long-term growth. Over the last several years, we've upgraded key elements of our technology infrastructure, including our ERP system, digital store platform, POS systems, data infrastructure, and critical supply chain systems. With this foundation in place, this year, we've invested in new go-to-market capabilities, including marketplace, personalization, and other digital enhancements to support the guest and associate experience. Many of these investments are cloud-based arrangements, and as we launch and operationalize these capabilities, we are experiencing higher operating expense.
While these investments are driving near-term expense pressure, we expect they will support long-term revenue and market share growth. Operating profit was $309 million compared to $319 million last year. As a percent of sales, operating margin was 10.8% of sales compared to 12.6% last year. Wrapping up the P&L, diluted earnings per share was $5.14 per share, or flat to last year. Moving to highlights from the balance sheet and cash flow statement. We ended the quarter with $205 million in cash and cash equivalents and $552 million in short-term debt. Similar to the third quarter in past years, we leveraged our revolving credit facility during the quarter to support working capital needs and ongoing capital allocation priorities, including share repurchases and capital expenditures. As a reminder, we funded the Space NK acquisition in Q2 with cash on hand and borrowings under our existing credit facility.
Total inventory increased 16% to $2.7 billion compared to $2.4 billion last year, primarily reflecting additional inventory to support new brand launches, Space NK, and the impact of 63 net new Ulta Beauty stores. Capital expenditures were $87 million for the quarter, mostly driven by investments in new and existing stores and IT systems. Depreciation increased 13% to $76 million compared to $67 million last year, largely reflecting store investments. In the quarter, we repurchased 427,000 shares, bringing the year-to-date total for our share buyback program to 1.7 million shares for $693 million. At the end of the quarter, we had $2 billion remaining under our current $3 billion repurchase authorization. Turning now to our updated outlook for the year, we have increased our fiscal 2025 guidance to reflect our third-quarter results, as well as our updated expectations for the fourth quarter.
For the year, we now expect net sales will be approximately $12.3 billion, with comp sales growth between 4.4% and 4.7%. We now expect operating margin will be between 12.3% and 12.4% of net sales, with the deleverage driven primarily by SG&A. We expect gross margin will be roughly flat for the year. Reflecting these assumptions, we expect diluted EPS for the year will be between $25.20 and $25.50. With one quarter left in the year, I want to share how we are thinking about Q4. We have increased our outlook for revenue growth, but believe it is prudent to continue to take a cautious view of consumer spending this holiday season, given the dynamic macroeconomic and operating environment. Reflecting our performance through Cyber Monday, we now expect Q4 comp growth will be between 2.5% and 3.5%.
For Q4 modeling purposes, we expect operating margin will be between 12% and 12.3%, driven by gross margin and SG&A deleverage. And we expect EPS for the quarter will be between $7.61 and $7.90. And now I'll turn the call over to our operator to moderate the Q&A session.