UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended October 31, 2020

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _____________ to _____________

Commission File Number: 001-33764

ULTA BEAUTY, INC.

(Exact name of Registrant as specified in its charter)

incorporation or organization)

Identification No.)

Delaware

(State or other jurisdiction of
incorporation or organization)

38-4022268

(I.R.S. Employer
Identification No.)

1000 Remington Blvd., Suite 120

Bolingbrook, Illinois

(Address of principal executive offices)

60440

(Zip code)

Registrant’s telephone number, including area code: (630) 410-4800

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	ULTA	The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of November 30, 2020 was 56,338,639 shares.

Table of Contents

ULTA BEAUTY, INC.

TABLE OF CONTENTS


Part I - Financial Information

Item 1. Financial Statements
Consolidated Balance Sheets		3
Consolidated Statements of Operations		4
Consolidated Statements of Comprehensive Income		5
Consolidated Statements of Cash Flows		6
Consolidated Statements of Stockholders’ Equity		7
Notes to Consolidated Financial Statements		9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3. Quantitative and Qualitative Disclosures about Market Risk		31

Item 4. Controls and Procedures		32

Part II - Other Information		32

Item 1. Legal Proceedings		32

Item 1A. Risk Factors		32

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		32

Item 3. Defaults Upon Senior Securities		33

Item 4. Mine Safety Disclosures		33

Item 5. Other Information		33

Item 6. Exhibits		34

SIGNATURES		35

Table of Contents

Part I - Financial Information

Item 1.Financial Statements

Ulta Beauty, Inc.

Consolidated Balance Sheets


	October 31,		February 1,		November 2,
(In thousands, except per share data)	2020		2020		2019
Assets		(Unaudited)				(Unaudited)
Current assets:
Cash and cash equivalents	$	560,902	$	392,325	$	208,843
Short-term investments		—		110,000		—
Receivables, net		136,271		139,337		112,888
Merchandise inventories, net		1,439,098		1,293,701		1,616,920
Prepaid expenses and other current assets		99,810		103,567		118,343
Prepaid income taxes		8,928		16,387		40,474
Total current assets		2,245,009		2,055,317		2,097,468

Property and equipment, net		1,042,262		1,205,524		1,233,412
Operating lease assets		1,510,030		1,537,565		1,529,524
Goodwill		10,870		10,870		10,870
Other intangible assets, net		2,696		3,391		3,622
Deferred compensation plan assets		30,141		27,849		26,269
Other long-term assets		29,986		23,356		27,683
Total assets	$	4,870,994	$	4,863,872	$	4,928,848

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	478,501	$	414,009	$	594,993
Accrued liabilities		268,310		246,088		249,112
Deferred revenue		224,862		237,535		190,188
Current operating lease liabilities		252,171		239,629		222,627
Accrued income taxes		6,499		—		—
Total current liabilities		1,230,343		1,137,261		1,256,920

Non-current operating lease liabilities		1,661,750		1,698,718		1,706,806
Deferred income taxes		89,112		89,367		83,856
Other long-term liabilities		35,352		36,432		34,110
Total liabilities		3,016,557		2,961,778		3,081,692

Commitments and contingencies (Note 8)

Stockholders' equity:
Common stock, $0.01 par value, 400,000 shares authorized; 57,024, 57,285 and 57,959 shares issued; 56,332, 56,609 and 57,283 shares outstanding; at October 31, 2020 (unaudited), February 1, 2020, and November 2, 2019 (unaudited), respectively		570		573		580
Treasury stock-common, at cost		(37,704)		(34,448)		(34,272)
Additional paid-in capital		831,817		807,492		800,986
Retained earnings		1,059,840		1,128,477		1,079,862
Accumulated other comprehensive income (loss)		(86)		—		—
Total stockholders’ equity		1,854,437		1,902,094		1,847,156
Total liabilities and stockholders’ equity	$	4,870,994	$	4,863,872	$	4,928,848

See accompanying notes to consolidated financial statements.

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Ulta Beauty, Inc.

Consolidated Statements of Operations

(Unaudited)


	13 Weeks Ended				39 Weeks Ended
	October 31,		November 2,		October 31,		November 2,
(In thousands, except per share data)	2020		2019		2020		2019
Net sales	$	1,552,033	$	1,682,514	$	3,953,252	$	5,092,150
Cost of sales		1,006,514		1,059,081		2,775,121		3,217,971
Gross profit		545,519		623,433		1,178,131		1,874,179

Selling, general and administrative expenses		416,378		449,198		1,068,877		1,245,174
Impairment, restructuring and other costs		23,624		—		83,924		—
Pre-opening expenses		4,240		6,455		12,782		15,667
Operating income		101,277		167,780		12,548		613,338
Interest expense (income), net		1,383		(900)		5,272		(4,617)
Income before income taxes		99,894		168,680		7,276		617,955
Income tax expense		25,096		38,933		2,935		134,729
Net income	$	74,798	$	129,747	$	4,341	$	483,226

Net income per common share:
Basic	$	1.33	$	2.25	$	0.08	$	8.31
Diluted	$	1.32	$	2.25	$	0.08	$	8.27

Weighted average common shares outstanding:
Basic		56,327		57,568		56,355		58,123
Diluted		56,546		57,763		56,524		58,396

See accompanying notes to consolidated financial statements.

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Ulta Beauty, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)


	13 Weeks Ended				39 Weeks Ended
	October 31,		November 2,		October 31,		November 2,
(In thousands)	2020		2019		2020		2019
Net income	$	74,798	$	129,747	$	4,341	$	483,226
Other comprehensive income (loss):
Foreign currency translation adjustments		(116)		—		(86)		—
Comprehensive income	$	74,682	$	129,747	$	4,255	$	483,226

See accompanying notes to consolidated financial statements.

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Ulta Beauty, Inc.

Consolidated Statements of Cash Flows

(Unaudited)


	39 Weeks Ended
	October 31,		November 2,
(In thousands)	2020		2019
Operating activities
Net income	$	4,341	$	483,226
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		226,386		219,207
Non-cash lease expense		196,354		219,220
Long-lived asset impairment charge		69,932		—
Deferred income taxes		(255)		(8)
Stock-based compensation expense		22,979		19,108
Loss on disposal of property and equipment		5,219		4,821
Change in operating assets and liabilities:
Receivables		3,066		5,812
Merchandise inventories		(145,397)		(402,591)
Prepaid expenses and other current assets		3,007		(5,487)
Income taxes		13,958		(23,477)
Accounts payable		62,337		190,977
Accrued liabilities		24,582		23,109
Deferred revenue		(12,673)		(8,866)
Operating lease liabilities		(212,665)		(198,181)
Other assets and liabilities		(2,126)		30,636
Net cash provided by operating activities		259,045		557,506

Investing activities
Purchases of short-term investments		—		(245,000)
Proceeds from short-term investments		110,000		245,000
Capital expenditures		(116,745)		(241,136)
Acquisitions, net of cash acquired		(1,220)		—
Purchases of equity investments		(5,665)		(43,757)
Net cash used in investing activities		(13,630)		(284,893)

Financing activities
Proceeds from long-term debt		800,000		—
Payments on long-term debt		(800,000)		—
Repurchase of common shares		(72,981)		(506,868)
Stock options exercised		1,346		43,211
Purchase of treasury shares		(3,256)		(9,364)
Debt issuance costs		(1,861)		—
Net cash used in financing activities		(76,752)		(473,021)

Effect of exchange rate changes on cash and cash equivalents		(86)		—
Net increase (decrease) in cash and cash equivalents		168,577		(200,408)
Cash and cash equivalents at beginning of period		392,325		409,251
Cash and cash equivalents at end of period	$	560,902	$	208,843

Supplemental information
Cash paid for interest	$	701	$	—
Income taxes paid, net of refunds		8,100		126,719
Non-cash capital expenditures		27,916		44,271

See accompanying notes to consolidated financial statements.

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Ulta Beauty, Inc.

Consolidated Statements of Stockholders’ Equity

(Unaudited)


				Treasury -							Accumulated
	Common Stock			Common Stock			Additional				Other		Total
	Issued			Treasury			Paid-In		Retained		Comprehensive		Stockholders'
(In thousands)	Shares	Amount		Shares	Amount		Capital		Earnings		Income (Loss)		Equity
Balance – February 1, 2020	57,285	$	573	(676)	$	(34,448)	$	807,492	$	1,128,477	$	—	$	1,902,094
Net loss	—		—	—		—		—		(78,509)		—		(78,509)
Stock-based compensation	—		—	—		—		6,182		—		—		6,182
Foreign currency translation adjustments	—		—	—		—		—		—		(75)		(75)
Stock options exercised and other awards	45		—	—		—		250		—		—		250
Purchase of treasury shares	—		—	(15)		(3,002)		—		—		—		(3,002)
Repurchase of common shares	(327)		(3)	—		—		—		(72,978)		—		(72,981)
Balance – May 2, 2020	57,003	$	570	(691)	$	(37,450)	$	813,924	$	976,990	$	(75)	$	1,753,959
Net income	—		—	—		—		—		8,052		—		8,052
Stock-based compensation	—		—	—		—		8,413		—		—		8,413
Foreign currency translation adjustments	—		—	—		—		—		—		105		105
Stock options exercised and other awards	11		—	—		—		327		—		—		327
Purchase of treasury shares	—		—	—		(63)		—		—		—		(63)
Balance – August 1, 2020	57,014	$	570	(691)	$	(37,513)	$	822,664	$	985,042	$	30	$	1,770,793
Net income	—		—	—		—		—		74,798		—		74,798
Stock-based compensation	—		—	—		—		8,384		—		—		8,384
Foreign currency translation adjustments	—		—	—		—		—		—		(116)		(116)
Stock options exercised and other awards	10		—	—		—		769		—		—		769
Purchase of treasury shares	—		—	(1)		(191)		—		—		—		(191)
Balance – October 31, 2020	57,024	$	570	(692)	$	(37,704)	$	831,817	$	1,059,840	$	(86)	$	1,854,437

See accompanying notes to consolidated financial statements.

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Ulta Beauty, Inc.

Consolidated Statements of Stockholders’ Equity

(Unaudited)


				Treasury -
	Common Stock			Common Stock			Additional				Total
	Issued			Treasury			Paid-In		Retained		Stockholders'
(In thousands)	Shares	Amount		Shares	Amount		Capital		Earnings		Equity
Balance – February 2, 2019	59,232	$	592	(648)	$	(24,908)	$	738,671	$	1,105,863	$	1,820,218
Net income	—		—	—		—		—		192,221		192,221
Stock-based compensation	—		—	—		—		6,030		—		6,030
Adoption of accounting standards - ASC 842	—		—	—		—		—		(2,375)		(2,375)
Stock options exercised and other awards	348		4	—		—		42,052		—		42,056
Purchase of treasury shares	—		—	(27)		(9,183)		—		—		(9,183)
Repurchase of common shares	(318)		(3)	—		—		—		(107,396)		(107,399)
Balance – May 4, 2019	59,262	$	593	(675)	$	(34,091)	$	786,753	$	1,188,313	$	1,941,568
Net income	—		—	—		—		—		161,258		161,258
Stock-based compensation	—		—	—		—		6,736		—		6,736
Stock options exercised and other awards	15		—	—		—		879		—		879
Purchase of treasury shares	—		—	—		(89)		—		—		(89)
Repurchase of common shares	(792)		(8)	—		—		—		(270,893)		(270,901)
Balance – August 3, 2019	58,485	$	585	(675)	$	(34,180)	$	794,368	$	1,078,678	$	1,839,451
Net income	—		—	—		—		—		129,747		129,747
Stock-based compensation	—		—	—		—		6,342		—		6,342
Stock options exercised and other awards	4		—	—		—		276		—		276
Purchase of treasury shares	—		—	(1)		(92)		—		—		(92)
Repurchase of common shares	(530)		(5)	—		—		—		(128,563)		(128,568)
Balance – November 2, 2019	57,959	$	580	(676)	$	(34,272)	$	800,986	$	1,079,862	$	1,847,156

See accompanying notes to consolidated financial statements.

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Ulta Beauty, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share and store count data) (Unaudited)

1.Business and basis of presentation

On January 29, 2017, Ulta Salon, Cosmetics & Fragrance, Inc. implemented a holding company reorganization. Pursuant to the reorganization, Ulta Beauty, Inc., which was incorporated as a Delaware corporation in December 2016, became the successor to Ulta Salon, Cosmetics & Fragrance, Inc., the former publicly-traded company and now a wholly owned subsidiary of Ulta Beauty, Inc. As used in these notes and throughout this Quarterly Report on Form 10-Q, all references to “we,” “us,” “our,” “Ulta Beauty,” or the “Company” refer to Ulta Beauty, Inc. and its consolidated subsidiaries.

The Company was originally founded in 1990 to operate specialty retail stores selling cosmetics, fragrance, haircare and skincare products, and related accessories and services. The stores also feature full-service salons. As of October 31, 2020, the Company operated 1,262 stores across 50 states, as shown in the table below.


	Number of		Number of
Location	stores	Location	stores
Alabama	22	Montana	6
Alaska	3	Nebraska	5
Arizona	30	Nevada	15
Arkansas	10	New Hampshire	7
California	156	New Jersey	41
Colorado	26	New Mexico	7
Connecticut	17	New York	49
Delaware	3	North Carolina	34
Florida	86	North Dakota	3
Georgia	38	Ohio	43
Hawaii	4	Oklahoma	21
Idaho	9	Oregon	17
Illinois	55	Pennsylvania	44
Indiana	24	Rhode Island	3
Iowa	10	South Carolina	20
Kansas	13	South Dakota	3
Kentucky	15	Tennessee	27
Louisiana	18	Texas	117
Maine	3	Utah	14
Maryland	27	Vermont	1
Massachusetts	21	Virginia	30
Michigan	48	Washington	34
Minnesota	18	West Virginia	7
Mississippi	10	Wisconsin	20
Missouri	25	Wyoming	3
		Total	1,262

The accompanying unaudited consolidated financial statements and related notes have been prepared in