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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 29, 2022

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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 28, 2022 was 50,880,771 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 Income

4

Consolidated Statements of Cash Flows

5

Consolidated Statements of Stockholders’ Equity

6

Notes to Consolidated Financial Statements

8

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

15

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

24

Item 4.    Controls and Procedures

25

Part II - Other Information

25

Item 1.    Legal Proceedings

25

Item 1A. Risk Factors

25

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

26

Item 3.    Defaults Upon Senior Securities

26

Item 4.    Mine Safety Disclosures

26

Item 5.    Other Information

26

Item 6.    Exhibits

27

SIGNATURES

28

2

Table of Contents

Part I - Financial Information

Item 1.Financial Statements

Ulta Beauty, Inc.

Consolidated Balance Sheets

October 29,

January 29,

October 30,

(In thousands, except per share data)

    

2022

    

2022

    

2021

Assets

(Unaudited)

(Unaudited)

Current assets:

Cash and cash equivalents

$

250,628

$

431,560

$

605,053

Receivables, net

200,304

233,682

169,212

Merchandise inventories, net

2,114,669

1,499,218

1,916,343

Prepaid expenses and other current assets

137,642

110,814

105,584

Prepaid income taxes

42,572

5,909

37,501

Total current assets

2,745,815

2,281,183

2,833,693

Property and equipment, net

967,039

914,476

908,665

Operating lease assets

1,556,940

1,482,256

1,464,533

Goodwill

10,870

10,870

10,870

Other intangible assets, net

844

1,538

1,770

Deferred compensation plan assets

31,529

38,409

36,403

Other long-term assets

18,512

35,647

31,833

Total assets

$

5,331,549

$

4,764,379

$

5,287,767

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

647,117

$

552,730

$

747,451

Accrued liabilities

462,773

364,797

329,672

Deferred revenue

312,132

353,579

272,628

Current operating lease liabilities

275,749

274,118

274,365

Accrued income taxes

12,786

Total current liabilities

1,697,771

1,558,010

1,624,116

Non-current operating lease liabilities

1,621,252

1,572,638

1,565,921

Deferred income taxes

38,627

39,693

67,267

Other long-term liabilities

51,644

58,665

43,663

Total liabilities

3,409,294

3,229,006

3,300,967

Commitments and contingencies (Note 6)

Stockholders' equity:

Common stock, $0.01 par value, 400,000 shares authorized; 51,785, 53,049, and 54,907 shares issued; 51,029, 52,311, and 54,170 shares outstanding; at October 29, 2022 (unaudited), January 29, 2022, and October 30, 2021 (unaudited), respectively

517

530

549

Treasury stock-common, at cost

(60,218)

(53,478)

(53,312)

Additional paid-in capital

998,816

934,945

915,814

Retained earnings

983,140

653,376

1,123,749

Total stockholders’ equity

1,922,255

1,535,373

1,986,800

Total liabilities and stockholders’ equity

$

5,331,549

$

4,764,379

$

5,287,767

See accompanying notes to consolidated financial statements.

3

Table of Contents

Ulta Beauty, Inc.

Consolidated Statements of Income

(Unaudited)

13 Weeks Ended

39 Weeks Ended

October 29,

October 30,

October 29,

October 30,

(In thousands, except per share data)

    

2022

2021

2022

2021

Net sales

$

2,338,793

$

1,995,775

$

6,981,807

$

5,901,501

Cost of sales

1,375,976

1,206,301

4,149,800

3,560,276

Gross profit

962,817

789,474

2,832,007

2,341,225

Selling, general and administrative expenses

597,164

503,403

1,632,593

1,411,577

Pre-opening expenses

3,797

1,832

8,422

7,778

Operating income

361,856

284,239

1,190,992

921,870

Interest expense (income), net

(849)

413

(556)

1,196

Income before income taxes

362,705

283,826

1,191,548

920,674

Income tax expense

88,120

68,537

289,891

224,203

Net income

$

274,585

$

215,289

$

901,657

$

696,471

Net income per common share:

Basic

$

5.37

$

3.97

$

17.45

$

12.68

Diluted

$

5.34

$

3.94

$

17.35

$

12.60

Weighted average common shares outstanding:

Basic

51,131

54,291

51,663

54,921

Diluted

51,418

54,660

51,962

55,280

See accompanying notes to consolidated financial statements.

4

Table of Contents

Ulta Beauty, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

39 Weeks Ended

October 29,

October 30,

(In thousands)

    

2022

    

2021

Operating activities

Net income

$

901,657

$

696,471

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

182,182

204,734

Non-cash lease expense

222,548

206,017

Deferred income taxes

(1,066)

1,908

Stock-based compensation expense

32,554

38,217

Loss on disposal of property and equipment

3,892

3,357

Change in operating assets and liabilities:

Receivables

33,378

23,897

Merchandise inventories

(615,451)

(748,128)

Prepaid expenses and other current assets

(26,828)

1,818

Income taxes

(49,446)

(80,027)

Accounts payable

94,214

266,104

Accrued liabilities

64,164

24,482

Deferred revenue

(41,447)

(1,755)

Operating lease liabilities

(246,988)

(222,451)

Other assets and liabilities

20,063

213

Net cash provided by operating activities

573,426

414,857

Investing activities

Capital expenditures

(203,961)

(108,418)

Other investments

(3,068)

Net cash used in investing activities

(207,029)

(108,418)

Financing activities

Repurchase of common shares

(571,908)

(762,167)

Stock options exercised

31,319

30,297

Purchase of treasury shares

(6,740)

(15,511)

Net cash used in financing activities

(547,329)

(747,381)

Effect of exchange rate changes on cash and cash equivalents

(56)

Net decrease in cash and cash equivalents

(180,932)

(440,998)

Cash and cash equivalents at beginning of period

431,560

1,046,051

Cash and cash equivalents at end of period

$

250,628

$

605,053

Supplemental information

Cash paid for interest

$

1,598

$

1,594

Income taxes paid, net of refunds

    

339,290

301,312

Non-cash capital expenditures

33,982

13,148

See accompanying notes to consolidated financial statements.

5

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 – January 29, 2022

53,049

$

530

(738)

$

(53,478)

$

934,945

$

653,376

$

1,535,373

Net income

331,395

331,395

Stock-based compensation

10,356

10,356

Stock options exercised and other awards

73

1

6,501

6,502

Purchase of treasury shares

(14)

(5,172)

(5,172)

Repurchase of common shares

(332)

(3)

(132,831)

(132,834)

Balance – April 30, 2022

52,790

$

528

(752)

$

(58,650)

$

951,802

$

851,940

$

1,745,620

Net income

295,677

295,677

Stock-based compensation

12,519

12,519

Stock options exercised and other awards

95

1

18,018

18,019

Purchase of treasury shares

(3)

(1,153)

(1,153)

Repurchase of common shares

(798)

(8)

(301,606)

(301,614)

Balance – July 30, 2022

52,087

$

521

(755)

$

(59,803)

$

982,339

$

846,011

$

1,769,068

Net income

274,585

274,585

Stock-based compensation

9,679

9,679

Stock options exercised and other awards

38

6,798

6,798

Purchase of treasury shares

(1)

(415)

(415)

Repurchase of common shares

(340)

(4)

(137,456)

(137,460)

Balance – October 29, 2022

51,785

$

517

(756)

$

(60,218)

$

998,816

$

983,140

$

1,922,255

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

56,952

$

569

(692)

$

(37,801)

$

847,303

$

1,189,422

$

56

$

1,999,549

Net income

230,289

230,289

Stock-based compensation

8,978

8,978

Foreign currency translation adjustments

(56)

(56)

Stock options exercised and other awards

94

1

5,031

5,032

Purchase of treasury shares

(21)

(6,766)

(6,766)

Repurchase of common shares

(1,243)

(12)

(392,297)

(392,309)

Balance – May 1, 2021

55,803

$

558

(713)

$

(44,567)

$

861,312

$

1,027,414

$

$

1,844,717

Net income

250,893

250,893

Stock-based compensation

10,119

10,119

Stock options exercised and other awards

104

1

17,775

17,776

Purchase of treasury shares

(1)

(208)

(208)

Repurchase of common shares

(747)

(8)

(243,476)

(243,484)

Balance – July 31, 2021

55,160

$

551

(714)

$

(44,775)

$

889,206

$

1,034,831

$

$

1,879,813

Net income

215,289

215,289

Stock-based compensation

19,120

19,120

Stock options exercised and other awards

87

1

7,488

7,489

Purchase of treasury shares

(23)

(8,537)

(8,537)

Repurchase of common shares

(340)

(3)

(126,371)

(126,374)

Balance – October 30, 2021

54,907

$

549

(737)

$

(53,312)

$

915,814

$

1,123,749

$

$

1,986,800

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 October 29, 2022, the Company operated 1,343 stores across 50 states, as shown in the table below.

Number of

Number of

Location

    

stores

    

Location

    

stores

Alabama

24

Montana

6

Alaska

3

Nebraska

5

Arizona

32

Nevada

16

Arkansas

11

New Hampshire

8

California

166

New Jersey

44

Colorado

26

New Mexico

7

Connecticut

19

New York

52

Delaware

4

North Carolina

43

Florida

92

North Dakota

4

Georgia

43

Ohio

45

Hawaii

4

Oklahoma

21

Idaho

9

Oregon

18

Illinois

55

Pennsylvania

45

Indiana

25

Rhode Island

4

Iowa

11

South Carolina

24

Kansas

13

South Dakota

3

Kentucky

15

Tennessee

28

Louisiana

18

Texas

125

Maine

3

Utah

15

Maryland

28

Vermont

1

Massachusetts

24

Virginia

32

Michigan

49

Washington

37

Minnesota

19

West Virginia

7

Mississippi

12

Wisconsin

20

Missouri

25

Wyoming

3

Total

1,343

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 39 weeks ended October 29, 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, geopolitical 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 13 weeks ending on the Saturday closest to April 30, July 31, October 31, and January 31. The third quarter in fiscal 2022 and 2021 ended on October 29, 2022 and October 30, 2021, respectively.

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, geopolitical 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 Corporation, 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  

39 Weeks Ended

October 29,

October 30,

October 29,

October 30,

(Percentage of net sales)

2022

2021

2022

2021

Cosmetics

44%

45%

43%

44%

Haircare products and styling tools

21%

21%

21%

20%

Skincare

16%

16%

17%

17%

Fragrance and bath

12%

12%

12%

12%

Services

4%

3%

4%

4%

Accessories and other

3%

3%

3%

3%

100%

100%

100%

100%

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 39 weeks ended October 29, 2022 and October 30, 2021:

13 Weeks Ended

39 Weeks Ended

October 29,

October 30,

October 29,

October 30,

(In thousands)

2022

2021

2022

    

2021

Beginning balance

$

305,913

$

256,227

$

345,206

$

269,032

Additions to contract liabilities (1)

97,521

92,074