UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the Quarterly Period Ended
or
For the transition period from _____________ to _____________
Commission File Number:
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer |
(Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
The |
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. ☒
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). ☒
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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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).
The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of August 22, 2022 was
ULTA BEAUTY, INC.
TABLE OF CONTENTS
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Part I - Financial Information
Item 1.Financial Statements
Ulta Beauty, Inc.
Consolidated Balance Sheets
July 30, | January 29, | July 31, | |||||||
(In thousands, except per share data) |
| 2022 |
| 2022 |
| 2021 | |||
Assets | (Unaudited) | (Unaudited) | |||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | | $ | | $ | | |||
Receivables, net | | | | ||||||
Merchandise inventories, net | | | | ||||||
Prepaid expenses and other current assets | | | | ||||||
Prepaid income taxes | | | | ||||||
Total current assets | | | | ||||||
Property and equipment, net | | | | ||||||
Operating lease assets | | | | ||||||
Goodwill | | | | ||||||
Other intangible assets, net | | | | ||||||
Deferred compensation plan assets | | | | ||||||
Other long-term assets | | | | ||||||
Total assets | $ | | $ | | $ | | |||
Liabilities and stockholders’ equity | |||||||||
Current liabilities: | |||||||||
Accounts payable | $ | | $ | | $ | | |||
Accrued liabilities | | | | ||||||
Deferred revenue | | | | ||||||
Current operating lease liabilities | | | | ||||||
Accrued income taxes | — | | — | ||||||
Total current liabilities | | | | ||||||
Non-current operating lease liabilities | | | | ||||||
Deferred income taxes | | | | ||||||
Other long-term liabilities | | | | ||||||
Total liabilities | | | | ||||||
Commitments and contingencies (Note 6) | |||||||||
Stockholders' equity: | |||||||||
Common stock, $ | | | | ||||||
Treasury stock-common, at cost | ( | ( | ( | ||||||
Additional paid-in capital | | | | ||||||
Retained earnings | | | | ||||||
Total stockholders’ equity | | | | ||||||
Total liabilities and stockholders’ equity | $ | | $ | | $ | | |||
See accompanying notes to consolidated financial statements.
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Ulta Beauty, Inc.
Consolidated Statements of Income
(Unaudited)
13 Weeks Ended | 26 Weeks Ended | |||||||||||
July 30, | July 31, | July 30, | July 31, | |||||||||
(In thousands, except per share data) |
| 2022 | 2021 | 2022 | 2021 | |||||||
Net sales | $ | | $ | | $ | | $ | | ||||
Cost of sales | | | | | ||||||||
Gross profit | | | | | ||||||||
Selling, general and administrative expenses | | | | | ||||||||
Pre-opening expenses | | | | | ||||||||
Operating income | | | | | ||||||||
Interest expense (income), net | ( | | | | ||||||||
Income before income taxes | | | | | ||||||||
Income tax expense | | | | | ||||||||
Net income | $ | | $ | | $ | | $ | | ||||
Net income per common share: | ||||||||||||
Basic | $ | $ | $ | $ | ||||||||
Diluted | $ | $ | $ | $ | ||||||||
Weighted average common shares outstanding: | ||||||||||||
Basic | | | | | ||||||||
Diluted | | | | | ||||||||
See accompanying notes to consolidated financial statements.
4
Ulta Beauty, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
26 Weeks Ended | ||||||
July 30, | July 31, | |||||
(In thousands) |
| 2022 |
| 2021 | ||
Operating activities | ||||||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
| |||||
Depreciation and amortization | | | ||||
Non-cash lease expense | | | ||||
Deferred income taxes | | ( | ||||
Stock-based compensation expense | | | ||||
Loss on disposal of property and equipment | | | ||||
Change in operating assets and liabilities: | ||||||
Receivables | | | ||||
Merchandise inventories | ( | ( | ||||
Prepaid expenses and other current assets | ( | ( | ||||
Income taxes | ( | ( | ||||
Accounts payable | | | ||||
Accrued liabilities | ( | | ||||
Deferred revenue | ( | ( | ||||
Operating lease liabilities | ( | ( | ||||
Other assets and liabilities | ( | | ||||
Net cash provided by operating activities | | | ||||
Investing activities | ||||||
Capital expenditures | ( | ( | ||||
Other investments | ( | — | ||||
Net cash used in investing activities | ( | ( | ||||
Financing activities | ||||||
Repurchase of common shares | ( | ( | ||||
Stock options exercised | | | ||||
Purchase of treasury shares | ( | ( | ||||
Net cash used in financing activities | ( | ( | ||||
Effect of exchange rate changes on cash and cash equivalents | — | ( | ||||
Net increase (decrease) in cash and cash equivalents | | ( | ||||
Cash and cash equivalents at beginning of period | | | ||||
Cash and cash equivalents at end of period | $ | | $ | | ||
Supplemental information | ||||||
Cash paid for interest | $ | | $ | | ||
Income taxes paid, net of refunds |
| | | |||
Non-cash capital expenditures | | | ||||
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 – January 29, 2022 | | $ | | ( | $ | ( | $ | | $ | | $ | | |||||||
Net income | — | — | — | — | — | | | ||||||||||||
Stock-based compensation | — | — | — | — | | — | | ||||||||||||
Stock options exercised and other awards | | | — | — | | — | | ||||||||||||
Purchase of treasury shares | — | — | ( | ( | — | — | ( | ||||||||||||
Repurchase of common shares | ( | ( | — | — | — | ( | ( | ||||||||||||
Balance – April 30, 2022 | | $ | | ( | $ | ( | $ | | $ | | $ | | |||||||
Net income | — | — | — | — | — | | | ||||||||||||
Stock-based compensation | — | — | — | — | | — | | ||||||||||||
Stock options exercised and other awards | | | — | — | | — | | ||||||||||||
Purchase of treasury shares | — | — | ( | ( | — | — | ( | ||||||||||||
Repurchase of common shares | ( | ( | — | — | — | ( | ( | ||||||||||||
Balance – July 30, 2022 | | $ | | ( | $ | ( | $ | | $ | | $ | | |||||||
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 – January 30, 2021 | | $ | | ( | $ | ( | $ | | $ | | $ | | $ | | ||||||||
Net income | — | — | — | — | — | | — | | ||||||||||||||
Stock-based compensation | — | — | — | — | | — | — | | ||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | ( | ( | ||||||||||||||
Stock options exercised and other awards | | | — | — | | — | — | | ||||||||||||||
Purchase of treasury shares | — | — | ( | ( | — | — | — | ( | ||||||||||||||
Repurchase of common shares | ( | ( | — | — | — | ( | — | ( | ||||||||||||||
Balance – May 1, 2021 | | $ | | ( | $ | ( | $ | | $ | | $ | — | $ | | ||||||||
Net income | — | — | — | — | — | | — | | ||||||||||||||
Stock-based compensation | — | — | — | — | | — | — | | ||||||||||||||
Stock options exercised and other awards | | | — | — | | — | — | | ||||||||||||||
Purchase of treasury shares | — | — | ( | ( | — | — | — | ( | ||||||||||||||
Repurchase of common shares | ( | ( | — | — | — | ( | — | ( | ||||||||||||||
Balance – July 31, 2021 | | $ | | ( | $ | ( | $ | | $ | | $ | — | $ | | ||||||||
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
Ulta Beauty, Inc. was 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 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.
As of July 30, 2022, the Company operated
Number of | Number of | |||||
Location |
| stores |
| Location |
| stores |
Alabama | Montana | |||||
Alaska | Nebraska | |||||
Arizona | Nevada | |||||
Arkansas | New Hampshire | |||||
California | New Jersey | |||||
Colorado | New Mexico | |||||
Connecticut | New York | |||||
Delaware | North Carolina | |||||
Florida | North Dakota | |||||
Georgia | Ohio | |||||
Hawaii | Oklahoma | |||||
Idaho | Oregon | |||||
Illinois | Pennsylvania | |||||
Indiana | Rhode Island | |||||
Iowa | South Carolina | |||||
Kansas | South Dakota | |||||
Kentucky | Tennessee | |||||
Louisiana | Texas | |||||
Maine | Utah | |||||
Maryland | Vermont | |||||
Massachusetts | Virginia | |||||
Michigan | Washington | |||||
Minnesota | West Virginia | |||||
Mississippi | Wisconsin | |||||
Missouri | Wyoming | |||||
Total |
The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and the U.S. Securities and Exchange Commission’s Article 10, Regulation S-X. These financial statements were prepared on a consolidated basis to include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts, transactions, and unrealized profit were eliminated in consolidation. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to fairly state the financial position and results of operations and cash flows for the interim periods presented.
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The Company’s business is subject to seasonal fluctuation, with significant portions of net sales and net income being realized during the fourth quarter of the fiscal year due to the holiday selling season. The results for the 13 and 26 weeks ended July 30, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending January 28, 2023, or for any other future interim period or for any future year, in particular as a result of the uncertainty around the continuing effects of the COVID-19 pandemic, geo-political events, and inflationary cost pressures on future periods.
These unaudited interim consolidated financial statements and the related notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended January 29, 2022. All amounts are stated in thousands, with the exception of per share amounts and number of stores.
2.Summary of significant accounting policies
Information regarding significant accounting policies is contained in Note 2, “Summary of significant accounting policies,” to the consolidated financial statements in the Annual Report on Form 10-K for the year ended January 29, 2022. Presented below and in the following notes is supplemental information that should be read in conjunction with “Notes to Consolidated Financial Statements” in the Annual Report.
Fiscal quarter
The Company’s quarterly periods are the
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the accounting period. Actual results could differ from those estimates. The Company considers its accounting policies relating to inventory valuations, vendor allowances, impairment of long-lived tangible and right-of-use assets, loyalty program and income taxes to be the most significant accounting policies that involve management estimates and judgments. Significant changes, if any, in those estimates and assumptions resulting from continuing changes in the economic environment, including those related to the impacts of the COVID-19 pandemic, geo-political events, and inflationary cost pressures, will be reflected in the consolidated financial statements in future periods.
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3.Revenue
Net sales include retail stores and e-commerce merchandise sales as well as salon services and other revenue. Other revenue includes the private label and co-branded credit card programs, royalties derived from the partnership with Target, and deferred revenue related to the loyalty program and gift card breakage.
Disaggregated revenue
The following table sets forth the approximate percentage of net sales by primary category:
13 Weeks Ended | 26 Weeks Ended | ||||||||
July 30, | July 31, | July 30, | July 31, | ||||||
(Percentage of net sales) | 2022 | 2021 | 2022 | 2021 | |||||
Cosmetics | |||||||||
Haircare products and styling tools | |||||||||
Skincare | |||||||||
Fragrance and bath | |||||||||
Services | |||||||||
Accessories and other | |||||||||
Deferred revenue
Deferred revenue primarily represents contract liabilities for the obligation to transfer additional goods or services to a guest for which the Company has received consideration, such as unredeemed Ultamate Rewards loyalty points and unredeemed Ulta Beauty gift cards. In addition, breakage on gift cards is recognized proportionately as redemption occurs.
The following table provides a summary of the changes included in deferred revenue during the 13 and 26 weeks ended July 30, 2022 and July 31, 2021:
13 Weeks Ended | 26 Weeks Ended | |||||||||||
July 30, | July 31, | July 30, | July 31, | |||||||||
(In thousands) | 2022 | 2021 | 2022 |
| 2021 | |||||||
Beginning balance | $ | | $ | | $ | | $ | | ||||
Additions to contract liabilities (1) | | | | | ||||||||
Deductions to contract liabilities (2) | ( | ( | ( | ( | ||||||||
Ending balance | $ | | $ | | $ | | $ | | ||||
| (1) | Loyalty points and gift cards issued in the current period but not redeemed or expired. |
| (2) | Revenue recognized in the current period related to the beginning liability. |
Other amounts included in deferred revenue were $
4.Goodwill and other intangible assets
Goodwill, which represents the excess of cost over the fair value of net assets acquired, was $
10
Other definite-lived intangible assets are amortized over their useful lives. The recoverability of intangible assets is reviewed whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable.
5.Leases
The Company leases retail stores, distribution centers, fast fulfillment centers, corporate offices, and certain equipment under non-cancelable operating leases with various expiration dates through 2034. All leases are classified as operating leases and generally have initial lease terms of
Lease cost
The majority of operating lease cost relates to retail stores, distribution centers, and fast fulfillment centers and is classified within cost of sales. Operating lease cost for corporate offices is classified within selling, general and administrative expenses. Operating lease cost from the control date through store opening date is classified within pre-opening expenses.
The following table presents a summary of operating lease costs:
13 Weeks Ended | 26 Weeks Ended | |||||||||||
July 30, | July 31, | July 30, | July 31, | |||||||||
(In thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||
Operating lease cost | $ | | $ | | $ | | $ | | ||||
Other information
The following table presents supplemental disclosures of cash flow information related to operating leases:
| 26 Weeks Ended | ||||||
July 30, | July 31, | ||||||
(In thousands) |
| 2022 | 2021 | ||||
Cash paid for operating lease liabilities (1) | $ | | $ | | |||
Operating lease assets obtained in exchange for operating lease liabilities (non-cash) | | | |||||
| (1) | Excludes $ |
6.Commitments and contingencies
The Company is involved in various legal proceedings that are incidental to the conduct of the business including both class action and single plaintiff litigation. In the opinion of management, the amount of any liability with respect to these proceedings, either individually or in the aggregate, will not have a material adverse effect on the consolidated financial position, results of operations or cash flows.
7.Debt
On March 11, 2020, the Company entered into Amendment No. 1 to the Second Amended and Restated Loan Agreement (as so amended, the Loan Agreement) with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent and a Lender thereunder; Wells Fargo Bank, National Association and JPMorgan Chase Bank, N.A., as Lead Arrangers and Bookrunners; JPMorgan Chase Bank, N.A., as Syndication Agent and a Lender; PNC Bank, National Association, as Documentation Agent and a Lender; and the other lenders party thereto. The Loan Agreement matures on March 11, 2025, provides maximum revolving loans equal to the lesser of $
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inventory and eligible owned receivables (which borrowing base may, at the election of the Company and satisfaction of certain conditions, include a percentage of qualified cash), contains a $
As of July 30, 2022, January 29, 2022, and July 31, 2021, there were
As of July 30, 2022, the Company was in compliance with all terms and covenants of the Loan Agreement.
8.Fair value measurements
The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximates their estimated fair values due to the short maturities of these instruments.
Fair value is measured using inputs from the three levels of the fair value hierarchy, which are described as follows:
| ● | Level 1 – observable inputs such as quoted prices for identical instruments in active markets. |
| ● | Level 2 – inputs other than quoted prices in active markets that are observable either directly or indirectly through corroboration with observable market data. |
| ● | Level 3 – unobservable inputs in which there is little or no market data, which would require the Company to develop its own assumptions. |
As of July 30, 2022, January 29, 2022, and July 31, 2021, there were liabilities related to the non-qualified deferred compensation plan included in other long-term liabilities on the consolidated balance sheets of $
9.Stock-based compensation
Stock-based compensation expense is measured on the grant date based on the fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period for awards expected to vest. The estimated grant date fair value of stock options was determined using a Black-Scholes valuation model using the following weighted-average assumptions:
| ||||
26 Weeks Ended | ||||
July 30, | July 31, | |||
| 2022 |
| 2021 | |
Volatility rate |
| |||
Average risk-free interest rate |
| |||
Average expected life (in years) |
|
| ||
Dividend yield |
|
| ||
The expected volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the United States Treasury yield curve in effect on the date of grant for the respective expected life of the option. The expected life represents the time the options granted are expected to be outstanding. The expected life of options granted is derived from historical data on Ulta Beauty stock option exercises. Forfeitures of stock options are estimated at the grant date based on historical rates of stock option activity and reduce the stock-based compensation expense recognized. The Company does not currently pay a regular dividend.
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The Company granted
There were