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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 May 4, 2024

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 May 24, 2024 was 47,716,365 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

7

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

14

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

22

Item 4.    Controls and Procedures

22

Part II - Other Information

23

Item 1.    Legal Proceedings

23

Item 1A. Risk Factors

23

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

23

Item 3.    Defaults Upon Senior Securities

23

Item 4.    Mine Safety Disclosures

23

Item 5.    Other Information

24

Item 6.    Exhibits

24

SIGNATURES

25

2

Table of Contents

Part I - Financial Information

Item 1.Financial Statements

Ulta Beauty, Inc.

Consolidated Balance Sheets

May 4,

February 3,

April 29,

(In thousands, except per share data)

    

2024

    

2024

    

2023

Assets

(Unaudited)

(Unaudited)

Current assets:

Cash and cash equivalents

$

524,596

$

766,594

$

636,449

Receivables, net

203,463

207,939

190,282

Merchandise inventories, net

1,906,040

1,742,136

1,751,235

Prepaid expenses and other current assets

126,529

115,598

108,014

Prepaid income taxes

4,251

Total current assets

2,760,628

2,836,518

2,685,980

Property and equipment, net

1,195,658

1,182,335

1,019,978

Operating lease assets

1,561,767

1,574,530

1,559,560

Goodwill

10,870

10,870

10,870

Other intangible assets, net

434

510

1,015

Deferred compensation plan assets

45,718

43,516

37,002

Other long-term assets

56,864

58,732

61,314

Total assets

$

5,631,939

$

5,707,011

$

5,375,719

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

463,777

$

544,001

$

621,272

Accrued liabilities

332,692

382,468

308,583

Deferred revenue

398,729

436,591

357,217

Current operating lease liabilities

284,815

283,821

288,133

Accrued income taxes

92,711

11,310

58,695

Total current liabilities

1,572,724

1,658,191

1,633,900

Non-current operating lease liabilities

1,607,953

1,627,271

1,610,256

Deferred income taxes

89,556

85,921

57,490

Other long-term liabilities

60,963

56,300

56,005

Total liabilities

3,331,196

3,427,683

3,357,651

Commitments and contingencies (Note 6)

Stockholders' equity:

Common stock, $0.01 par value, 400,000 shares authorized; 48,688, 49,123, and 50,729 shares issued; 47,845, 48,324, and 49,932 shares outstanding; at May 4, 2024 (unaudited), February 3, 2024, and April 29, 2023 (unaudited), respectively

487

491

507

Treasury stock-common, at cost

(106,315)

(83,032)

(82,129)

Additional paid-in capital

1,091,822

1,075,104

1,040,378

Retained earnings

1,314,749

1,286,765

1,059,312

Total stockholders’ equity

2,300,743

2,279,328

2,018,068

Total liabilities and stockholders’ equity

$

5,631,939

$

5,707,011

$

5,375,719

See accompanying notes to consolidated financial statements.

3

Table of Contents

Ulta Beauty, Inc.

Consolidated Statements of Income

(Unaudited)

13 Weeks Ended

May 4,

April 29,

(In thousands, except per share data)

    

2024

2023

Net sales

$

2,725,848

$

2,634,263

Cost of sales

1,656,068

1,579,406

Gross profit

1,069,780

1,054,857

Selling, general and administrative expenses

665,913

612,129

Pre-opening expenses

2,919

658

Operating income

400,948

442,070

Interest income, net

(6,900)

(7,348)

Income before income taxes

407,848

449,418

Income tax expense

94,735

102,367

Net income

$

313,113

$

347,051

Net income per common share:

Basic

$

6.51

$

6.92

Diluted

$

6.47

$

6.88

Weighted average common shares outstanding:

Basic

48,125

50,153

Diluted

48,381

50,469

See accompanying notes to consolidated financial statements.

4

Table of Contents

Ulta Beauty, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

13 Weeks Ended

May 4,

April 29,

(In thousands)

    

2024

    

2023

Operating activities

Net income

$

313,113

$

347,051

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

    

Depreciation and amortization

64,739

57,949

Non-cash lease expense

77,938

75,478

Deferred income taxes

3,635

2,144

Stock-based compensation expense

10,082

9,721

Loss on disposal of property and equipment

2,975

1,451

Change in operating assets and liabilities:

Receivables

4,476

9,140

Merchandise inventories

(163,904)

(147,784)

Prepaid expenses and other current assets

(10,931)

22,232

Income taxes

85,652

97,003

Accounts payable

(74,069)

62,257

Accrued liabilities

(43,846)

(98,515)

Deferred revenue

(37,862)

(37,460)

Operating lease liabilities

(83,500)

(78,562)

Other assets and liabilities

10,842

(17,204)

Net cash provided by operating activities

159,340

304,901

Investing activities

Capital expenditures

(91,024)

(109,766)

Other investments

(2,563)

(314)

Net cash used in investing activities

(93,587)

(110,080)

Financing activities

Repurchase of common shares

(289,431)

(283,517)

Stock options exercised

8,913

8,927

Purchase of treasury shares

(23,283)

(21,659)

Debt issuance costs

(3,950)

Net cash used in financing activities

(307,751)

(296,249)

Net decrease in cash and cash equivalents

(241,998)

(101,428)

Cash and cash equivalents at beginning of period

766,594

737,877

Cash and cash equivalents at end of period

$

524,596

$

636,449

Supplemental information

Income taxes paid, net of refunds

    

$

5,057

$

2,818

Non-cash capital expenditures

51,695

29,634

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 28, 2023

51,120

$

511

(756)

$

(60,470)

$

1,023,997

$

995,773

$

1,959,811

Net income

347,051

347,051

Stock-based compensation

9,721

9,721

Stock options exercised and other awards

150

1

8,926

8,927

Purchase of treasury shares

(41)

(21,659)

(21,659)

Repurchase of common shares, including excise tax

(541)

(5)

(2,266)

(283,512)

(285,783)

Balance – April 29, 2023

50,729

$

507

(797)

$

(82,129)

$

1,040,378

$

1,059,312

$

2,018,068

Balance – February 3, 2024

49,123

$

491

(799)

$

(83,032)

$

1,075,104

$

1,286,765

$

2,279,328

Net income

313,113

313,113

Stock-based compensation

10,082

10,082

Stock options exercised and other awards

153

2

8,911

8,913

Purchase of treasury shares

(44)

(23,283)

(23,283)

Repurchase of common shares, including excise tax

(588)

(6)

(2,275)

(285,129)

(287,410)

Balance – May 4, 2024

48,688

$

487

(843)

$

(106,315)

$

1,091,822

$

1,314,749

$

2,300,743

See accompanying notes to consolidated financial statements.

6

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

Ulta Beauty, Inc. was founded in 1990 to operate specialty retail stores selling cosmetics, fragrance, haircare and skincare products, and related accessories and services. Nearly every store features a full-service salon. 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 May 4, 2024, the Company operated 1,395 stores across 50 states, as shown in the table below.

Number of

Number of

Location

    

stores

    

Location

    

stores

Alabama

25

Montana

6

Alaska

3

Nebraska

5

Arizona

35

Nevada

16

Arkansas

11

New Hampshire

8

California

172

New Jersey

45

Colorado

27

New Mexico

7

Connecticut

19

New York

56

Delaware

4

North Carolina

45

Florida

99

North Dakota

4

Georgia

43

Ohio

46

Hawaii

4

Oklahoma

22

Idaho

10

Oregon

19

Illinois

55

Pennsylvania

45

Indiana

26

Rhode Island

4

Iowa

11

South Carolina

25

Kansas

13

South Dakota

3

Kentucky

16

Tennessee

32

Louisiana

18

Texas

131

Maine

3

Utah

15

Maryland

28

Vermont

1

Massachusetts

27

Virginia

35

Michigan

49

Washington

37

Minnesota

20

West Virginia

7

Mississippi

12

Wisconsin

21

Missouri

26

Wyoming

4

Total

1,395

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.

7

Table of Contents

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 weeks ended May 4, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending February 1, 2025, or for any other future interim period or for any future year.

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 February 3, 2024. 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 February 3, 2024. 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 first quarter in fiscal 2024 and 2023 ended on May 4, 2024 and April 29, 2023, 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 will be reflected in the consolidated financial statements in future periods.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Recent accounting pronouncements not yet adopted

Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure. The guidance updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance. The ASU is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-07 on related disclosures.

Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The guidance includes amendments requiring enhanced income tax disclosures, primarily related to standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The guidance is effective for fiscal years beginning after December 15, 2024 and should be applied either prospectively or retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on related disclosures.

8

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SEC Climate-Related Disclosures

In March 2024, the SEC adopted rules intended to enhance and standardize climate-related disclosures in registration statements and annual reports. The new rules will require disclosure of material climate-related risks, including disclosure of Board of Directors' oversight and risk management activities, the material impacts of these risks to us and the quantification of material impacts to us as a result of severe weather events and other natural conditions. The rules also require disclosure of material greenhouse gas emissions and any material climate-related targets and goals. The new rules will be effective for annual reporting periods beginning in fiscal year 2025, except for the greenhouse gas emissions disclosures which will be effective for annual reporting periods beginning in fiscal year 2026. The Company is currently evaluating the impact of these new rules.

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  

May 4,

April 29,

(Percentage of net sales)

2024

2023

Cosmetics

42%

44%

Skincare

23%

22%

Haircare

19%

19%

Fragrance

10%

9%

Services

4%

4%

Other

2%

2%

100%

100%

Certain sales departments were reclassified between categories in the prior year to conform to current year presentation, including moving the bath category from Fragrance to Skincare.

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 Ulta Beauty Rewards loyalty points and unredeemed Ulta Beauty gift cards. In addition, breakage on gift cards is recognized proportionately as redemption occurs.

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The following table provides a summary of the changes included in deferred revenue during the 13 weeks ended May 4, 2024 and April 29, 2023:

13 Weeks Ended

May 4,

April 29,

(In thousands)

2024

2023

Beginning balance

$

428,788

$

388,583

Additions to contract liabilities (1)

133,495

124,024

Deductions to contract liabilities (2)

(170,837)

(162,484)

Ending balance

$

391,446

$

350,123

(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 $7,283 and $7,094 at May 4, 2024 and April 29, 2023, respectively.

4.Goodwill and other intangible assets

Goodwill, which represents the excess of cost over the fair value of net assets acquired, was $10,870 at May 4, 2024, February 3, 2024, and April 29, 2023. No additional goodwill was recognized during the 13 weeks ended May 4, 2024. The recoverability of goodwill is reviewed annually during the fourth quarter or more frequently if an event occurs or circumstances change that would indicate that impairment may exist.

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, market fulfillment centers, corporate offices, and certain equipment under non-cancelable operating leases with various expiration dates through 2036. All leases are classified as operating leases and generally have initial lease terms of 10 years and, when determined applicable, include renewal options under substantially the same terms and conditions as the original leases. Leases do not contain any material residual value guarantees or material restrictive covenants.

Lease cost

The majority of operating lease cost relates to retail stores, distribution centers, fast fulfillment centers, and market 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

May 4,

April 29,

(In thousands)

2024

2023

Operating lease cost

$

88,155

$

85,128

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Other information

The following table presents supplemental disclosures of cash flow information related to operating leases:

    

13 Weeks Ended

May 4,

April 29,

(In thousands)

    

2024

2023

Cash paid for operating lease liabilities (1)

$

101,646

$

98,055

Operating lease assets obtained in exchange for operating lease liabilities (non-cash)

65,176

73,775

(1)Excludes $7,791 and $9,593 related to cash received for tenant incentives for the 13 weeks ended May 4, 2024 and April 29, 2023, respectively.

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 Company’s consolidated financial position, results of operations or cash flows.

7.Debt

On March 13, 2024, the Company entered into Amendment No. 3 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 13, 2029, provides maximum revolving loans equal to the lesser of $800,000 or a percentage of eligible owned 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 $50,000 subfacility for letters of credit and allows the Company to increase the revolving facility by an additional $200,000, subject to the consent by each lender and other conditions. The Loan Agreement contains a requirement to maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 during such periods when availability under the Loan Agreement falls below a specified threshold. Substantially all of the Company’s assets are pledged as collateral for outstanding borrowings under the Loan Agreement. Outstanding borrowings bear interest, at the Company’s election, at either a base rate plus a margin of 0.5% to 1.0% or the Term Secured Overnight Financing Rate plus a margin of 1.5% to 2.0%, and a credit spread adjustment of 0.10%, with such margins based on the Company’s borrowing availability, and the unused line fee is 0.25% to 0.375% per annum.

As of May 4, 2024, February 3, 2024, and April 29, 2023, there were no borrowings outstanding under the credit facility.

As of May 4, 2024, 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.

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As of May 4, 2024, February 3, 2024, and April 29, 2023, there were liabilities related to the non-qualified deferred compensation plan included in other long-term liabilities on the consolidated balance sheets of $47,849, $42,653, and $40,374, respectively. The liabilities are categorized as Level 2 as they are based on third-party reported values, which are based primarily on quoted market prices of underlying assets of the funds within the plan.

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 for the periods indicated:

    

13 Weeks Ended

May 4,

April 29,

    

2024

    

2023

Volatility rate

 

33.0%

45.0%

Average risk-free interest rate

 

4.4%

3.8%

Average expected life (in years)

 

3.5

 

3.4

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.

The Company granted 56 and 41 stock options during the 13 weeks ended May 4, 2024 and April 29, 2023, respectively. Stock-based compensation expense for stock options was $1,680 and $1,470 for the 13 weeks ended May 4, 2024 and April 29, 2023, respectively. The weighted-average grant date fair value of these stock options was $157.66 and $200.67 for the 13 weeks ended May 4, 2024 and April 29, 2023, respectively. At May 4, 2024, there was approximately $16,803 of unrecognized stock-based compensation expense related to unvested stock options.

There were 44 and 38 restricted stock units issued during the 13 weeks ended May 4, 2024 and April 29, 2023, respectively. Stock-based compensation expense for restricted stock units was $4,388 and $4,359 for the 13 weeks ended May 4, 2024 and April 29, 2023, respectively. At May 4, 2024, there was approximately $43,539 of unrecognized stock-based compensation expense related to restricted stock units.

There were 71 and 32 performance-based restricted stock units issued during the 13 weeks ended May 4, 2024 and April 29, 2023. Stock-based compensation expense for performance-based restricted stock units was $4,014 and $3,892 for the 13 weeks ended May 4, 2024 and April 29, 2023, respectively. At May 4, 2024, there was approximately $34,998 of unrecognized stock-based compensation expense related to performance-based restricted stock units.

10.Income taxes

Income tax expense reflects the federal statutory tax rate and the weighted average state statutory tax rate for the states in which the Company operates stores. Income tax expense of $94,735 for the 13 weeks ended May 4, 2024 represents an effective tax rate of 23.2%, compared to $102,367 of income tax expense representing an effective tax rate of 22.8% for the 13 weeks ended April 29, 2023. The higher effective tax rate is primarily due to a reduced benefit from income tax accounting for stock-based compensation.

On August 16, 2022, the Inflation Reduction Act of 2022 was enacted into law, which, among other things, introduced a 15% corporate alternative minimum tax on book income of certain large corporations and created a 1% excise tax on net share repurchases. The corporate alternative minimum tax is effective beginning in fiscal 2024 and did not have a

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material impact on the consolidated financial statements for the 13 weeks ended May 4, 2024. The excise tax applies to share repurchases made after December 31, 2022.

11.Net income per common share

The following is a reconciliation of net income and the number of shares of common stock used in the computation of net income per basic and diluted common share:

13 Weeks Ended

May 4,

April 29,

(In thousands, except per share data)

    

2024

    

2023

Numerator:

Net income

    

$

313,113

$

347,051

Denominator:

Weighted-average common shares – Basic

48,125

50,153

Dilutive effect of stock options and non-vested stock

256

316

Weighted-average common shares – Diluted

48,381

50,469

Net income per common share:

Basic

$

6.51

$

6.92

Diluted

$

6.47

$

6.88

The denominator for diluted net income per common share for the 13 weeks ended May 4, 2024 and April 29, 2023 excludes 150 and 79 employee stock options and restricted stock units, respectively, due to their anti-dilutive effects. Outstanding performance-based restricted stock units are included in the computation of dilutive shares only to the extent that the underlying performance conditions are satisfied prior to the end of the reporting period or would be considered satisfied if the end of the reporting period were the end of the related contingency period and the results would be dilutive under the treasury stock method.

12.Share repurchase program

In March 2022, the Board of Directors authorized a share repurchase program (the 2022 Share Repurchase Program) pursuant to which the Company could repurchase up to $2,000,000 of the Company’s common stock. The 2022 Share Repurchase Program authorization revoked the previously authorized but unused amounts from the earlier share repurchase program. The 2022 Share Repurchase Program did not have an expiration date but provided for suspension or discontinuation at any time.

In March 2024, the Board of Directors authorized a new share repurchase program (the 2024 Share Repurchase Program) pursuant to which the Company may repurchase up to $2,000,000 of the Company’s common stock. The 2024 Share Repurchase Program authorization revoked the previously authorized but unused amounts from the 2022 Share Repurchase Program. The 2024 Share Repurchase Program does not have an expiration date and may be suspended or discontinued at any time.

A summary of common stock repurchase activity is presented in the following table:

13 Weeks Ended  

May 4,

April 29,

(In thousands)

2024

    

2023

Shares repurchased

588

541

Total cost of shares repurchased, including excise tax

$

287,410

$

285,783

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this quarterly report. This discussion contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “plans,” “estimates,” “targets,” “strategies,” or other comparable words. Any forward-looking statements contained in this Form 10-Q are based upon our historical performance and on current plans, estimates, and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates, targets, strategies, or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties, which include, without limitation:

macroeconomic conditions, including inflation, elevated interest rates and recessionary concerns, as well as continuing labor cost pressures, and transportation and shipping cost pressures, have had, and may continue to have, a negative impact on our business, financial condition, profitability, and cash flows (including future uncertain impacts);
changes in the overall level of consumer spending and volatility in the economy, including as a result of macroeconomic conditions and geopolitical events;
our ability to sustain our growth plans and successfully implement our long-range strategic and financial plan;
the ability to execute our operational excellence priorities, including continuous improvement, Project SOAR (the replacement of our enterprise resource planning platform), and supply chain optimization;
our ability to gauge beauty trends and react to changing consumer preferences in a timely manner;
the possibility that we may be unable to compete effectively in our highly competitive markets;
the possibility of significant interruptions in the operations of our distribution centers, fast fulfillment centers, and market fulfillment centers;
the possibility that cybersecurity or information security breaches and other disruptions could compromise our information or result in the unauthorized disclosure of confidential information;
the possibility of material disruptions to our information systems, including our Ulta.com website and mobile applications;
the failure to maintain satisfactory compliance with applicable privacy and data protection laws and regulations;
changes in the good relationships we have with our brand partners, our ability to continue to obtain sufficient merchandise from our brand partners, and/or our ability to continue to offer permanent or temporary exclusive products of our brand partners;
our ability to effectively manage our inventory and protect against inventory shrink;
changes in the wholesale cost of our products and/or interruptions at our brand partners’ or third-party vendors’ operations;
epidemics, pandemics or natural disasters, which could negatively impact sales;
the possibility that new store openings and existing locations may be impacted by developer or co-tenant issues;
our ability to attract and retain key executive personnel;
the impact of climate change on our business operations and/or supply chain;
our ability to successfully execute our common stock repurchase program or implement future common stock repurchase programs;
a decline in operating results which could lead to asset impairment and store closure charges; and
other risk factors detailed in our public filings with the Securities and Exchange Commission (the SEC), including risk factors contained in Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended February 3, 2024, as such may be amended or supplemented in our subsequently filed Quarterly Reports on Form 10-Q (including this report).

Except to the extent required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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References in the following discussion to “we,” “us,” “our,” “Ulta Beauty,” the “Company,” and similar references mean Ulta Beauty, Inc. and its consolidated subsidiaries, unless otherwise expressly stated or the context otherwise requires.

Overview

We were founded in 1990 as a beauty retailer at a time when prestige, mass, and salon products were sold through distinct channels – department stores for prestige products; drug stores and mass merchandisers for mass products; and salons and authorized retail outlets for professional hair care products. We developed a unique specialty retail concept that offers a broad range of brands and price points, select beauty services, and a convenient and welcoming shopping environment. We define our target consumer as a beauty enthusiast, a consumer who is passionate about the beauty category, uses beauty for self-expression, experimentation, and self-investment, and has high expectations for the shopping experience. We believe our strategy provides us with the competitive advantages that have contributed to our financial performance.

Today, we are the largest specialty beauty retailer in the United States and the premier beauty destination for cosmetics, fragrance, skin care products, hair care products, and salon services. Key aspects of our business include: a differentiated assortment of approximately 25,000 beauty products across a variety of categories and price points as well as a variety of beauty services, including salon services, in more than 1,350 stores predominantly located in convenient, high-traffic locations; engaging digital experiences delivered through our website, Ulta.com, and our mobile applications; our best-in-class loyalty program that enables members to earn points for every dollar spent on products and beauty services and provides us with deep, proprietary customer insights; and our ability to cultivate human connection with warm and welcoming guest experiences across all of our channels.

The continued growth of our business and any future increases in net sales, net income, and cash flows is dependent on our ability to execute our strategic priorities: 1) drive breakthrough and disruptive growth through an expanded definition of All Things Beauty; 2) evolve the omnichannel experience through connected physical and digital ecosystems, All In Your World; 3) expand and deepen our presence across the beauty journey, positioning Ulta Beauty at the Heart of the Beauty Community; 4) drive operational excellence and optimization; 5) protect and cultivate our world-class culture and talent; and 6) expand our environmental and social impact. We believe the attractive and growing U.S. beauty products and salon services industry, the expanding definition of beauty and the role that omnichannel capabilities play in consumers’ lives, coupled with Ulta Beauty’s competitive strengths, position us to capture additional market share in the industry.

Comparable sales is a key metric that is monitored closely within the retail industry. Our comparable sales have fluctuated in the past, and we expect them to continue to fluctuate in the future. A variety of factors affect our comparable sales, including general U.S. economic conditions, changes in merchandise strategy or mix, and timing and effectiveness of our marketing activities, among others.

Over the long term, our growth strategy is to increase total net sales through growing our comparable sales, expanding omnichannel capabilities, and opening new stores. Long-term operating profit is expected to increase as a result of our efforts to optimize our real estate portfolio, expand merchandise margin, and leverage our fixed store costs with comparable sales increases and operating efficiencies, partially offset by incremental investments in people, guest experiences, systems, and supply chain required to support a 1,500 to 1,700 store chain in the U.S. with successful e-commerce and competitive omnichannel capabilities.

Current Trends

Industry trends

Our research indicates that Ulta Beauty has captured meaningful market share across all categories over the last several years. The overall beauty market expanded in 2023 and into the first quarter of 2024, supported by healthy consumer engagement with the beauty category. We remain confident that our differentiated and diverse business model, our commitment to strategic investments, and our highly engaged associates will continue to drive market share gains over the long term.

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Impact of inflation and other macroeconomic trends

Although we do not believe inflation had a material impact on our sales during the first quarter of fiscal 2024, continued pressure from inflation or other evolving macroeconomic conditions could have an adverse impact on consumer spending and could lead to a recession. Furthermore, inflationary pressures, as well as other macroeconomic trends, could negatively impact our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net sales if the selling prices of our products do not increase with higher costs. In addition, inflation could cause the interest rates on any future debt to remain at an elevated level or increase.

Basis of presentation

The Company has one reportable segment, which includes retail stores, salon services, and e-commerce.

We recognize merchandise revenue at the point of sale in our retail stores. E-commerce sales are recognized upon shipment or guest pickup of the merchandise based on meeting the transfer of control criteria. Retail store and e-commerce sales are recorded net of estimated returns. Shipping and handling are treated as costs to fulfill the contract and not a separate performance obligation. Accordingly, we recognize revenue for our single performance obligation related to online sales at the time control of the merchandise passes to the customer, which is at the time of shipment or guest pickup. We provide refunds for merchandise returns within 60 days from the original purchase date. State sales taxes are presented on a net basis as we consider our self a pass-through conduit for collecting and remitting state sales tax. Salon service revenue is recognized at the time the service is provided to the guest. Gift card sales revenue is deferred until the guest redeems the gift card. Company coupons and other incentives are recorded as a reduction of net sales. 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.

Comparable sales reflect sales for stores beginning on the first day of the 14th month of operation. Therefore, a store is included in our comparable store base on the first day of the period after one year of operations plus the initial one-month grand opening period. Non-comparable store sales include sales from new stores that have not yet completed their 13th month of operation and stores that were closed for part or all of the period in either year. Remodeled stores are included in comparable sales unless the store was closed for a portion of the current or prior period. Comparable sales include retail sales, salon services, and e-commerce. In fiscal years with 53 weeks, the 53rd week of comparable sales is included in the calculation. In the year following a 53-week year, the prior year period is shifted by one week to compare similar calendar weeks. There may be variations in the way in which some of our competitors and other retailers calculate comparable or same store sales.

Measuring comparable sales allows us to evaluate the performance of our store base as well as several other aspects of our overall strategy. Several factors could positively or negatively impact our comparable sales results:

the general national, regional, and local economic conditions and corresponding impact on customer spending levels;
the introduction of new products or brands;
the location of new stores in existing store markets;
competition;
our ability to respond on a timely basis to changes in consumer preferences;
the effectiveness of our various merchandising and marketing activities; and
the number of new stores opened and the impact on the average age of all of our comparable stores.

Cost of sales includes:

the cost of merchandise sold, offset by vendor income that is not a reimbursement of specific, incremental, and identifiable costs;
distribution costs including labor and related benefits, freight, rent, depreciation and amortization, real estate taxes, utilities, and insurance;

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shipping and handling costs for e-commerce orders;
retail store occupancy costs including rent, depreciation and amortization, real estate taxes, utilities, repairs and maintenance, insurance, and licenses;
salon services payroll and benefits; and
shrink and inventory valuation reserves.

Our cost of sales may be negatively impacted as we open new stores. Changes in our merchandise or channel mix may also have an impact on cost of sales. This presentation of items included in cost of sales may not be comparable to the way in which our competitors or other retailers compute their cost of sales.

Selling, general and administrative expenses include:

payroll, bonus, and benefit costs for retail store and corporate employees;
advertising and marketing costs, offset by vendor income that is a reimbursement of specific, incremental, and identifiable costs;
occupancy costs related to our corporate office facilities;
stock-based compensation expense;
depreciation and amortization for all assets, except those related to our retail stores and distribution operations, which are included in cost of sales; and
legal, finance, information systems, and other corporate overhead costs.

This presentation of items in selling, general and administrative expenses may not be comparable to the way in which our competitors or other retailers compute their selling, general and administrative expenses.

Pre-opening expenses include non-capital expenditures during the period prior to store opening for new, remodeled, and relocated stores including rent during the construction period for new and relocated stores, store set-up labor, management and employee training, and grand opening advertising.

Interest income, net represents interest from cash equivalents, which include highly liquid investments such as money market funds and certificates of deposit with an original maturity of three months or less from the date of purchase. Interest expense includes interest costs and facility fees associated with our credit facility, which is structured as an asset-based lending instrument. Our credit facility interest is based on a variable interest rate structure which can result in increased cost in periods of rising or elevated interest rates.

Income tax expense reflects the federal statutory tax rate and the weighted average state statutory tax rate for the states in which we operate stores.

Results of operations

Our quarterly periods are the 13 weeks ending on the Saturday closest to April 30, July 31, October 31, and January 31. The Company’s first quarter in fiscal 2024 and 2023 ended on May 4, 2024 and April 29, 2023, respectively. Our quarterly results of operations have varied in the past and are likely to do so again in the future. As such, we believe that period-to-period comparisons of our results of operations should not be relied upon as an indication of our future performance.

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The following tables present the components of our consolidated results of operations for the periods indicated:

13 Weeks Ended

May 4,

April 29,

(Dollars in thousands)

2024

    

2023

Net sales

$

2,725,848

$

2,634,263

Cost of sales

1,656,068

1,579,406

Gross profit

1,069,780

1,054,857

Selling, general and administrative expenses

665,913

612,129

Pre-opening expenses

2,919

658

Operating income

400,948

442,070

Interest income, net

(6,900)

(7,348)

Income before income taxes

407,848

449,418

Income tax expense

94,735

102,367

Net income

$

313,113

$

347,051

Other operating data:

Number of stores end of period

1,395

1,359

Comparable sales

1.6%

9.3%

13 Weeks Ended

May 4,

April 29,

(Percentage of net sales)

2024

    

2023

Net sales

100.0%

100.0%

Cost of sales

60.8%

60.0%

Gross profit

39.2%

40.0%

Selling, general and administrative expenses

24.4%

23.2%

Pre-opening expenses

0.1%

0.0%

Operating income

14.7%

16.8%

Interest income, net

(0.3%)

(0.3%)

Income before income taxes

15.0%

17.1%

Income tax expense

3.5%

3.9%

Net income

11.5%

13.2%

Comparison of 13 weeks ended May 4, 2024 to 13 weeks ended April 29, 2023

Net sales

Net sales increased $91.6 million or 3.5%, to $2.7 billion for the 13 weeks ended May 4, 2024, compared to $2.6 billion for the 13 weeks ended April 29, 2023. The net sales increase was primarily due to increased comparable sales, new store contribution, and an increase of $9.1 million in other revenue. The total comparable sales increase of 1.6% was driven by a 1.3% increase in transactions and a 0.3% increase in average ticket.

Gross profit

Gross profit increased $14.9 million or 1.4%, to $1.07 billion for the 13 weeks ended May 4, 2024, compared to $1.05 billion for the 13 weeks ended April 29, 2023. Gross profit as a percentage of net sales decreased to 39.2% for the 13 weeks ended May 4, 2024, compared to 40.0% for the 13 weeks ended April 29, 2023. The decrease in gross profit margin was primarily due to lower merchandise margins and higher inventory shrink, partially offset by growth in other revenue.

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Selling, general and administrative expenses

Selling, general and administrative (SG&A) expenses increased $53.8 million or 8.8%, to $665.9 million for the 13 weeks ended May 4, 2024, compared to $612.1 million for the 13 weeks ended April 29, 2023. SG&A expenses as a percentage of net sales increased to 24.4% for the 13 weeks ended May 4, 2024, compared to 23.2% for the 13 weeks ended April 29, 2023, primarily due to higher corporate overhead for strategic investments, higher store payroll and benefits, and higher store expenses.

Pre-opening expenses

Pre-opening expenses were $2.9 million for the 13 weeks ended May 4, 2024 compared to $0.7 million for the 13 weeks ended April 29, 2023.

Interest income, net

Interest income, net was $6.9 million for the 13 weeks ended May 4, 2024 compared to $7.3 million for the 13 weeks ended April 29, 2023. We did not have any outstanding borrowings on the credit facility as of May 4, 2024, February 3, 2024, and April 29, 2023.

Income tax expense

Income tax expense of $94.7 million for the 13 weeks ended May 4, 2024 represents an effective tax rate of 23.2%, compared to $102.4 million of income tax expense representing an effective tax rate of 22.8% for the 13 weeks ended April 29, 2023. The higher income tax rate is primarily due to a reduced benefit from income tax accounting for stock-based compensation.

Net income

Net income was $313.1 million for the 13 weeks ended May 4, 2024, compared to $347.1 million for the 13 weeks ended April 29, 2023. The decrease in net income is primarily related to the $53.8 million increase in SG&A expenses and the $0.4 million decrease in interest income, net, partially offset by the $14.9 million increase in gross profit and the $7.6 million decrease in income tax expense.

Liquidity and capital resources

Our primary sources of liquidity are cash and cash equivalents, cash flows from operations, and borrowings under our credit facility. The most significant components of our working capital are merchandise inventories, cash and cash equivalents, and receivables, reduced by accounts payable, deferred revenue, and accrued liabilities. As of May 4, 2024, February 3, 2024, and April 29, 2023, we had cash and cash equivalents of $524.6 million, $766.6 million, and $636.4 million, respectively.

Our primary cash needs are for rent, capital expenditures for new, remodeled, and relocated stores, increased merchandise inventories related to store expansion and new brand additions, supply chain improvements, share repurchases, and continued investment in our information technology systems.

Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for lease expenses, inventory, labor, distribution, advertising and marketing, and tax liabilities) as well as periodic spend for capital expenditures, investments, and share repurchases. Our working capital needs are greatest from August through November each year as a result of our inventory build-up during this period for the approaching holiday season.

Long-term cash requirements primarily relate to funding lease expenses and other purchase commitments.

We generally fund short-term and long-term cash requirements with cash from operating activities. We believe our primary sources of liquidity will satisfy our cash requirements over both the short term (the next twelve months) and long term.

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Cash flows

We believe our ability to generate substantial cash from operating activities and readily secure financing at competitive rates are key strengths that give us significant flexibility to meet our short and long-term financial commitments.

The following table presents a summary of our cash flows:

13 Weeks Ended

May 4,

April 29,

(In thousands)

    

2024

    

2023

Net cash provided by operating activities

$

159,340

$

304,901

Net cash used in investing activities

(93,587)

(110,080)

Net cash used in financing activities

(307,751)

(296,249)

Operating activities

Operating activities consist of net income adjusted for certain non-cash items, including depreciation and amortization, non-cash lease expense, deferred income taxes, stock-based compensation expense, realized gains or losses on disposal of property and equipment, and the effect of working capital changes.

The decrease in net cash provided by operating activities in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023 was mainly due to the timing of accounts payable, accrued liabilities, accrued income taxes, and prepaid expenses and other current assets, the decrease in net income, and a larger increase in merchandise inventories in the first quarter of fiscal 2024, partially offset by the net decrease in other assets and liabilities.

The decrease in net income was primarily due to an increase in SG&A expenses and a decrease in interest income, partially offset by an increase in gross profit resulting from higher sales and a decrease in income taxes.

Merchandise inventories, net were $1.9 billion at May 4, 2024, compared to $1.8 billion at April 29, 2023, representing an increase of $154.8 million or 8.8%. The increase in total inventory is primarily due to the following:

$72 million increase due to new brand launches;
$46 million increase due to the addition of 36 net new stores opened since April 29, 2023; and
$22 million increase in distribution center inventory primarily due to the opening of the market fulfillment center in Greer, SC.

Investing activities

We have historically used cash primarily for new, remodeled, relocated, and refreshed stores, supply chain investments, short-term investments, and investments in information technology systems. Investing activities for capital expenditures were $91.0 million during the 13 weeks ended May 4, 2024 compared to $109.8 million during the 13 weeks ended April 29, 2023.

During the 13 weeks ended May 4, 2024, we opened 12 new stores, closed two stores, and relocated one store, compared to the 13 weeks ended April 29, 2023, when we opened five new stores, closed one store, remodeled two stores, and relocated one store.

The decrease in net cash used in investing activities in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023 was primarily due to lower capital expenditures for information technology systems and supply chain investments, partially offset by higher capital expenditures for merchandising fixtures, compared to the first quarter of fiscal 2023.

Our future investments will depend primarily on the number of new, remodeled, and relocated stores, information technology systems investments, and supply chain investments that we undertake and the timing of these expenditures.

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Based on past performance and current expectations, we believe our sources of liquidity will be sufficient to fund future capital expenditures. 

Financing activities

Financing activities include share repurchases, borrowing and repayment of our revolving credit facility, and capital stock transactions. Purchases of treasury shares represent the fair value of common shares repurchased from plan participants in connection with shares withheld to satisfy minimum statutory tax obligations upon the vesting of restricted stock.

The increase in net cash used in financing activities in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023 was primarily due to an increase in share repurchases.

We had no borrowings outstanding under the credit facility as of May 4, 2024, February 3, 2024, and April 29, 2023. The zero outstanding borrowings position is due to a combination of factors including sales demand, overall performance of management initiatives including expense control, and inventory and other working capital reductions. We may require borrowings under the facility from time to time in future periods for unexpected business disruptions, to support our new store program, seasonal inventory needs, or share repurchases.

Share repurchase program

In March 2022, the Board of Directors authorized a share repurchase program (the 2022 Share Repurchase Program) pursuant to which the Company could repurchase up to $2.0 billion of the Company’s common stock. The 2022 Share Repurchase Program authorization revoked the previously authorized but unused amounts from the earlier share repurchase program. The 2022 Share Repurchase Program did not have an expiration date but provided for suspension or discontinuation at any time.

In March 2024, the Board of Directors authorized a new share repurchase program (the 2024 Share Repurchase Program) pursuant to which the Company may repurchase up to $2.0 billion of the Company’s common stock. The 2024 Share Repurchase Program authorization revokes the previously authorized but unused amounts from the 2022 Share Repurchase Program. The 2024 Share Repurchase Program does not have an expiration date and may be suspended or discontinued at any time.


A summary of common stock repurchase activity is presented in the following table:

13 Weeks Ended  

May 4,

April 29,

(Dollars in millions)

2024

    

2023

Shares repurchased

588,004

541,108

Total cost of shares repurchased, including excise tax

$

287.4

$

285.8

Credit facility

On March 13, 2024, we entered into Amendment No. 3 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 13, 2029, provides maximum revolving loans equal to the lesser of $800.0 million or a percentage of eligible owned 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 $50.0 million subfacility for letters of credit and allows the Company to increase the revolving facility by an additional $200.0 million, subject to the consent by each lender and other conditions. The Loan Agreement contains a requirement to maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 during such periods when availability under the Loan Agreement falls below a specified threshold. Substantially all of the Company’s assets are pledged as collateral for outstanding borrowings under the Loan

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Agreement. Outstanding borrowings bear interest, at the Company’s election, at either a base rate plus a margin of 0.5% to 1.0% or the Term Secured Overnight Financing Rate plus a margin of 1.5% to 2.0%, and a credit spread adjustment of 0.10%, with such margins based on the Company’s borrowing availability, and the unused line fee is 0.25% to 0.375% per annum.

As of May 4, 2024, February 3, 2024, and April 29, 2023 we had no borrowings outstanding under the credit facility.

As of May 4, 2024, we were in compliance with all terms and covenants of the Loan Agreement.

Seasonality

Our business is subject to seasonal fluctuation. Significant portions of our net sales and profits are realized during the fourth quarter of the fiscal year due to the holiday selling season. To a lesser extent, our business is also affected by Mother’s Day and Valentine’s Day. Any decrease in sales during these higher sales volume periods could have an adverse effect on our business, financial condition, or operating results for the entire fiscal year. Our quarterly results of operations have varied in the past and are likely to do so again in the future. As such, we believe that period-to-period comparisons of our results of operations should not be relied upon as an indication of our future performance.

Critical accounting policies and estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements required the use of estimates and judgments that affect the reported amounts of our assets, liabilities, revenues, and expenses. Management bases estimates on historical experience and other assumptions it believes to be reasonable under the circumstances and evaluates these estimates on an on-going basis. Actual results may differ from these estimates. There have been no significant changes to the critical accounting policies and estimates included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates. We continually monitor this risk and may develop strategies to manage it. We do not hold or issue financial instruments for trading purposes.

Interest rate risk

We are exposed to interest rate risks primarily through borrowings under our credit facility. Interest on our borrowings is based upon variable rates. We did not have any outstanding borrowings on the credit facility as of May 4, 2024, February 3, 2024, and April 29, 2023.

Item 4.Controls and Procedures

Evaluation of disclosure controls and procedures over financial reporting

We have established disclosure controls and procedures to ensure that material information relating to the Company is made known to the officers who certify our financial reports and to the members of our senior management and Board of Directors.

Based on management’s evaluation as of May 4, 2024, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), are effective to ensure that the information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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Changes in internal control over financial reporting

There were no changes to our internal controls over financial reporting during the 13 weeks ended May 4, 2024 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Part II - Other Information

Item 1.Legal Proceedings

See Note 6 to our consolidated financial statements, “Commitments and contingencies,” for information on legal proceedings.

Item 1A.Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended February 3, 2024, which could materially affect our business, financial condition, financial results, or future performance. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended February 3, 2024.

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

The following table sets forth repurchases of our common stock during the first quarter of 2024:

Period

    

Total number
of shares
purchased (1)

    

Average
price paid
per share

    

Total number
of shares
purchased as
part of publicly
announced
plans or
programs

    

Approximate
dollar value of
shares that may yet
be purchased
under plans or programs
(in thousands) (2)

February 4, 2024 to March 2, 2024

79,161

$

537.86

79,161

$

57,777

March 3, 2024 to March 30, 2024

197,316

533.98

154,269

1,943,440

March 31, 2024 to May 4, 2024

355,055

458.38

354,574

1,782,494

13 weeks ended May 4, 2024

631,532

491.97

588,004

1,782,494

(1)

There were 588,004 shares repurchased as part of our publicly announced share repurchase program during the 13 weeks ended May 4, 2024 and there were 43,528 shares transferred from employees in satisfaction of minimum statutory tax withholding obligations upon the vesting of restricted stock during the period.

(2)

In March 2024, we announced the 2024 Share Repurchase Program pursuant to which the Company may repurchase up to $2.0 billion of the Company’s common stock. The 2024 Share Repurchase Program revoked the previously authorized but unused amounts from the 2022 Share Repurchase Program. As of May 4, 2024, $1.8 billion remained available under the 2024 Share Repurchase Program.

Item 3.Defaults Upon Senior Securities

None

Item 4.Mine Safety Disclosures

None

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Item 5.Other Information

During the 13 weeks ended May 4, 2024, no director or Section 16 officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.

Item 6.Exhibits

The exhibits listed in the Exhibit Index below are filed as part of this Quarterly Report on Form 10-Q.