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Table of Contents

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

or

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

2

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.

3

Table of Contents

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.

4

Table of Contents

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.

5

Table of Contents

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.

6

Table of Contents

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.

7

Table of Contents

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.

8

Table of Contents

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