Bleed-to-Spine: 8.375"
Trim-to-Spine: 8.25"
Type Safety: 7.75"
Spine-to-Bleed: 8.375"
Spine-to-Trim: 8.25"
Type Safety: 7.75"
"
0
.
1
1
:
d
e
e
B
l
"
5
7
.
0
1
:
m
i
r
T
"
5
2
.
0
1
:
y
t
e
f
a
S
e
p
y
T
73520_ULTA UTANNUALREPORT COVER.indd 1
Ulta Beauty
2018 Annual Report
8.25"w 10.75"h
Back Cover
Ulta Beauty
2018 Annual Report
8.25"w 10.75"h
Front Cover
4/11/19 5:15 PM
2018
ANNUAL
REPORT
Bleed-to-Gutter: 8.375"
Trim-to-Gutter: 8.25"
Type Safety: 7.75"
Gutter-to-Bleed: 8.375"
Gutter-to-Trim: 8.25"
Type Safety: 7.75"
"
0
.
1
1
:
d
e
e
B
l
"
5
7
.
0
1
:
m
i
r
T
"
5
2
.
0
1
:
y
t
e
f
a
S
e
p
y
T
Financial Highlights
NET SALES (IN MILLIONS)
$6,716
$5,884.5
$4,854.7
$3,924.1
$3,241.4
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
NET INCOME (IN MILLIONS)
$658.6
$555.2
$409.8
$320.0
$257.1
$700
$600
$500
$400
$300
$200
$100
$0
1300
1200
1100
1000
900
800
700
600
500
400
300
200
100
0
STORE COUNT
1,174
1,074
974
874
774
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
5-Year CAGR - 20%*
5-Year CAGR - 27%*
5-Year CAGR - 12%*
Income Statement:
Net sales(2)
Cost of sales
Gross profit
Selling, general and administrative expenses
Pre-opening expenses
Operating income
Interest income, net
Income before income taxes
Income tax expense(3)
Net income
Net income per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Other Operating Data:
Comparable sales increase(4)
Retail and salon comparable sales
E-commerce comparable sales
Total comparable sales increase
Number of stores end of year
Capital expenditures
Depreciation and amortization
Repurchase of common shares
Balance Sheet Data:
Cash and cash equivalents
Short-term investments
Working capital
Property and equipment, net
Total assets
Total stockholders’ equity
FISCAL YEAR ENDED(1)
(In thousands, except per share, per square foot and store count data)
February 2, 2019
6,716,615
$
February 3, 2018
5,884,506
$
January 28, 2017
$
4,854,737
January 30, 2016
$
3,924, 1 1 6
January 31, 2015
$
3,241,369
$
$
$
4,307,304
2,409,311
1,535,464
19,767
854,080
(5,061)
859,141
200,582
658,559
11.00
10.94
59,864
60,181
5.1%
35.4%
8.1%
1,174
319,400
279,472
616,194
$
$
$
$
$
$
3,787,697
2,096,809
1,287,232
24,286
785,291
(1,568)
786,859
231,625
555,234
9.02
8.96
61,556
61,975
7.1%
59.9%
11.0%
1,074
440,714
252,713
367,581
$
409,251
$
277,445
$
-
1,091,125
1,226,029
3,191,172
1,820,218
120,000
1,051,577
1,189,453
2,908,687
1,774,217
3,107,508
1,747,229
1,073,834
18,571
654,824
(890)
655,714
245,954
409,760
6.55
6.52
62,519
62,851
13.4%
56.2%
15.8%
974
373,447
210,295
344,275
385,010
30,000
1,006,894
1,004,358
2,551,878
1,550,218
$
$
$
$
2,539,783
1,384,333
863,354
14,682
506,297
(1,143)
507,440
187,432
320,008
5.00
4.98
63,949
64,275
10.0%
47.5%
11.8%
874
299,167
165,049
167,396
345,840
130,000
978,946
847,600
2,230,918
1,442,886
$
$
$
$
2,104,582
1,136,787
712,006
14,366
410,415
(894)
411,309
154,174
257,135
4.00
3.98
64,335
64,651
8.1%
56.4%
9.9%
774
249,067
131,764
39,923
389,149
150,209
900,761
717,159
1,983,170
1,247,509
* 5-Year Compound Annual Growth Rate (CAGR) is based on fiscal 2013 net sales, net income and store count of $2,670.6 million, $202.8 million and 675, respectively.
(1) Our fiscal year-end is the Saturday closest to January 31 based on a 52/53-week year. Each fiscal year consists of four 13-week quarters, with an extra week added onto the fourth quarter every five or six years.
(2) The Company adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606) using the modified retrospective transition method in fiscal 2018. Results from
fiscal years prior to fiscal 2018 have not been recast for the adoption of ASC 606. Fiscal 2017 includes 53 weeks; all other fiscal years reported include 52 weeks. Net sales for the 53rd week of fiscal 2017 were
approximately $108.8 million.
(3) On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law. This new legislation reduced the federal corporate tax rate to 21.0% effective January 1, 2018. In accordance with Section 15 of the
Internal Revenue Code, the Company utilized a blended rate of 33.7% for the fiscal 2017 tax year, by applying a prorated percentage of the number of days prior to and subsequent to the January 1, 2018 effective
date. Income tax expense in fiscal 2018 reflects the lower federal tax rate for the entire fiscal year.
(4) Comparable sales increase reflects sales for stores beginning on the first day of the 14th month of operation. Remodeled stores are included in comparable sales unless the store was closed for a portion of the
current or comparable prior year.
Dear S
The Ulta B
fisc
driv
result
supply chain and s
Our t
to o
Incr
We opened 1
stor
During 20
as w
our r
stor
Dr
E-commer
8.1%. This gr
than 1
in e
full chain in 20
addition of GlamS
intelligenc
and help us unlock pers
Bec
We
categories and pric
hair
Chanel, and de
like Morphe
and t
emer
Op
Our c
in-st
transf
hallmarks of this ne
edu
This pr
2019
to enhanc
Ev
The Ultamat
repr
expectations and dr
program benefit, offering o
very w
artificial int
Suppor
We
in F
anno
only e-c
syst
2018 while managing inv
73520_ULTA UTANNUALREPORT COVER.indd 2
Ulta Beauty
2018 Annual Report
8.25"w 10.75"h
pg02
Ulta Beauty
2018 Annual Report
8.25"w 10.75"h
pg07
4/11/19 5:15 PM
Gutter-to-Bleed: 8.375"
Gutter-to-Trim: 8.25"
Type Safety: 7.75"
Dear Stakeholder,
The Ulta Beauty team achieved record sales and earnings in 2018, and gained market share across all major categories. Sales for
fiscal 2018 increased 14.1%, or 16.3% adjusted for the 53rd week in 2017, to $6.7 billion. Total company comparable sales rose 8.1%,
driven primarily by strong traffic. GAAP earnings per diluted share grew 22.1% to $10.94. We achieved these excellent financial
results by making exceptional progress against our strategic imperatives. The entire enterprise, including our store operations,
supply chain and systems, e-commerce, and merchandising and marketing teams, made significant contributions to these results.
Our teams also enhanced and protected our high performance, values-based culture, which we believe is an important contributor
to our strong results.
Increasing Store Productivity
We opened 100 net new stores in 2018, growing square footage by 9% and ending the year with 1,174 stores in all 50 states. New
store productivity continues to be very strong, and the entire fleet of stores is delivering healthy comparable store sales growth.
During 2018, we raised the bottom of our long-term store target, committing to a range of 1,500 to 1,700 stores in the United States,
as we continue to see opportunity to open highly productive stores in both new and existing markets. In addition to store growth,
our real estate strategy is strengthening its focus on portfolio management, with heightened attention on optimizing our existing
store fleet, as well as remodeling and refreshing stores to ensure a consistent guest experience across the portfolio.
Driving Digital Innovation
E-commerce sales rose 32.3% to $752 million in 2018, driving 300 basis points of our total company comparable sales increase of
8.1%. This growth was driven by robust traffic to our site, with particular strength in mobile. Omnichannel shoppers grew to more
than 12% of our loyalty membership, and continued to spend nearly three times as much as retail only shoppers. We are investing
in expanding our omnichannel capabilities, and launched Buy Online Pick Up in Store in 50 stores, with plans to roll out to the
full chain in 2019. For the first time in our history, we acquired two companies to build out our innovation ecosystem. With the
addition of GlamST, our partner behind the development of Glamlab, our virtual try-on experience, and QM Scientific, an artificial
intelligence startup, we now own technology assets to support our digital experience roadmap, develop an innovation pipeline,
and help us unlock personalization.
Becoming the Partner of Choice for Brands Across the Beauty Spectrum
We continue to evolve our one-of-a-kind, differentiated beauty assortment with the addition of sought after brands across all
categories and price points. We drove market share gains in both mass and prestige with strong sales of cosmetics, skincare,
haircare, and fragrance. We expanded the presence of classic brands like Clinique, Lancôme, MAC, Estee Lauder, NARS and
Chanel, and developed exclusive lines with brands like Tarte and Too Faced. The addition or expansion of digitally native brands
like Morphe, Colourpop, Kylie Cosmetics, KKW Fragrances, Beauty Bakerie and Juvia’s Place captured evolving sources of newness
and trends, and contributed to strong traffic to our stores and website. To maximize this opportunity, we launched a dedicated
emerging brands team within our Merchandising organization to specialize in attracting and nurturing new, exciting brands.
Optimizing Salon Services
Our comprehensive services offering including hair, skin, brow, and makeup services, is a key component that differentiates the
in-store guest experience. Services increased sales 8.5% to $301 million in 2018, with comparable sales growth of 3.6%. We’re
transforming the way our guests experience beauty services by continuing to roll out our services optimization program. The
hallmarks of this new model are compensation designed to attract and retain top talent, industry leading internal training and
education, simplified menus, transparent pricing and an enhanced field team focused on business acumen and technical training.
This program is showing positive results in the stores where it has been introduced, and we plan to roll it out to the full chain in
2019. We launched our new Skin Bar at Ulta Beauty in 200 stores in 2018, including the introduction of multi-brand skin services,
to enhance the productivity of our skin care category.
Evolving our World Class Loyalty Program
The Ultamate Rewards loyalty program remains an extremely valuable asset, now reaching 31.8 million active members, and
representing more than 95% of our sales. Launched at the beginning of 2018, the “Diamond” tier for top spending guests exceeded
expectations and drove greater share of our guests’ beauty spend amid very high engagement with the program. The latest loyalty
program benefit, offering our guests the ability to redeem loyalty points on all skin, brow, make-up, and hair services has been
very well received. Personalization is the next frontier in loyalty, and we are investing to accelerate our capabilities in the areas of
artificial intelligence and augmented reality to support our efforts to achieve true one-to-one personalization in the future.
Supporting Growth through Supply Chain Investments
We continued to improve our infrastructure and supply chain capabilities in 2018, with the opening of a new distribution center
in Fresno, California with the same systems and capabilities as our previously opened facilities in Indiana and Texas. We
announced plans to test “ship from store” as well as our intention to open Fast Fulfillment Centers in the future that will service
only e-commerce shipments, helping us meet our new goal of two-day delivery for Ulta.com orders by 2021. Benefitting from new
systems and tools to improve inventory productivity, we increased inventory turns and achieved strong in-stock levels throughout
2018 while managing inventory growth well below comparable sales growth.
Ulta Beauty
2018 Annual Report
8.25"w 10.75"h
pg03
, 2015
,369
04,582
787
006
14,366
415
(894)
,309
174
135
.00
3.98
64,335
651
8.1%
4%
9%
774
067
764
,923
149
,209
761
159
170
,509
e or six years.
s from
e
18 effective
tion of the
Bleed-to-Gutter: 8.375"
Trim-to-Gutter: 8.25"
Type Safety: 7.75"
Setting the Stage for “Efficiencies for Growth”
During 2018 we launched a cost optimization program, called Efficiencies for Growth, designed to generate savings of $150 to
$200 million from 2019 to 2021. The core work streams include category performance management to expand merchandise
margins, indirect procurement savings, efficiencies in real estate costs, and improved execution of end-to-end supply chain and
store operations. We anticipate that capturing efficiencies in these areas will fund our investments in future growth initiatives
and drive operating margin improvement in each of the next three fiscal years.
Sustaining a Strong Financial Position
Ulta Beauty further strengthened its excellent financial position during 2018. We generated $637 million in free cash flow for the
year, after investing $319 million in capital expenditures to support our growth. At year end, our debt free balance sheet included
$409 million of cash and cash equivalents. During 2018, we increased our share repurchase program, buying back approximately
2.5 million shares of stock for $616 million to return value to shareholders. Our strong balance sheet supports continued
investment in projects including store growth, digital innovation, reinvention of our salon services strategy, expansion of our
omnichannel capabilities, and enhancing the guest experience. We are confident that these investments will drive attractive sales
and earnings growth and continued market share gains.
Evolving our Mission: “The Possibilities are Beautiful”
Our mission is to use the power of beauty to bring to life the possibilities that lie within each of us; inspiring every guest and
enabling each associate to build a fulfilling career. This mission is at the core of everything we do and how we lead through our
values. In 2018, we evolved our brand purpose to this more aspirational place, supported by a new marketing campaign that
connects with beauty enthusiasts on a new level and inspires our associates as we build the brand from the inside out. We have
also heightened our focus on our core value of championing diversity, with a belief that beauty is for everyone, regardless of age,
size, ability, skin tone, culture or gender. We provide an environment where every associate feels they can fully contribute and
every guest is optimally served, regardless of differences. These values support our vision to be the most loved beauty destination
of our guests and the most admired retailer by our Ulta Beauty associates, communities, partners, and investors. For insight
into our efforts to be a world class employer, to support our communities, to protect the environment, and to exercise excellent
corporate governance, please visit our corporate social responsibility page on our website at www.ulta.com/aboutus.
In closing, I would like to thank our 45,000 passionate, beauty loving associates who bring to life our mission, vision and values and
deliver the exceptional guest experience that is the foundation of our stellar financial performance. I would also like to express my
deep appreciation for the support of our shareholders, guests, brand partners, and Board of Directors.
Sincerely,
Mary N. Dillon
Chief Executive Officer
"
0
.
1
1
:
d
e
e
B
l
"
5
7
.
0
1
:
m
i
r
T
"
5
2
.
0
1
:
y
t
e
f
a
S
e
p
y
T
Ex
M
Chief Ex
Sc
Chief F
Jodi C
General C
& C
Jeffr
Chief Human R
David Kimbell
Chief Mer
B
M
Chief Ex
Rober
Non-Ex
Sally Blo
Member of the A
Michelle C
Chair of the Nominating
& C
Member of the A
Dennis E
Member of the C
Member of the Nominating
& C
C
Chair of the C
Member of the Nominating
Corporat
C
Member of the C
Member of the Nominating
& C
Michael M
Chair of the A
Member of the C
Geor
Member of the A
Lorna N
Member of the C
Member of the Nominating
& C
Ulta Beauty
2018 Annual Report
8.25"w 10.75"h
pg04
UNITED STATES
SECURITIES AND EXCHAN(cid:42)E CO(cid:48)(cid:48)ISSION
(cid:58)(cid:68)(cid:86)hi(cid:81)(cid:74)t(cid:82)(cid:81), DC 205(cid:23)9
FOR(cid:48) 10-(cid:46)
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
F(cid:82)(cid:85) th(cid:72) (cid:73)i(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71) F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2, 2019
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from (cid:66)(cid:66)(cid:66)(cid:66)(cid:66)(cid:66)(cid:66)(cid:66)(cid:66)(cid:66)(cid:66)(cid:66)(cid:66) to (cid:66)(cid:66)(cid:66)(cid:66)(cid:66)(cid:66)(cid:66)(cid:66)(cid:66)(cid:66)(cid:66)(cid:66)(cid:66)
C(cid:82)(cid:80)(cid:80)i(cid:86)(cid:86)i(cid:82)(cid:81) Fi(cid:79)(cid:72) N(cid:88)(cid:80)b(cid:72)(cid:85)(cid:29) 001-33(cid:26)6(cid:23)
ULTA BEAUTY, INC.
(Exact name of registrant as specified in its charter)
D(cid:72)(cid:79)(cid:68)(cid:90)(cid:68)(cid:85)(cid:72)
(State or other (cid:77)urisdiction of
incorporation or organi(cid:93)ation)
1000 R(cid:72)(cid:80)i(cid:81)(cid:74)t(cid:82)(cid:81) B(cid:79)(cid:89)(cid:71)., S(cid:88)it(cid:72) 120
B(cid:82)(cid:79)i(cid:81)(cid:74)b(cid:85)(cid:82)(cid:82)(cid:78), I(cid:79)(cid:79)i(cid:81)(cid:82)i(cid:86)
(Address of principal executive offices)
38-(cid:23)022268
(I.R.S. Employer
Identification (cid:49)o.)
60(cid:23)(cid:23)0
((cid:61)ip code)
Registrant(cid:182)s telephone number, including area code: (630) 410-4800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
C(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) (cid:86)t(cid:82)(cid:70)(cid:78), (cid:83)(cid:68)(cid:85) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72) (cid:7)0.01 (cid:83)(cid:72)(cid:85) (cid:86)h(cid:68)(cid:85)(cid:72)
(cid:49)ame of each exchange on which registered
Th(cid:72) NASDA(cid:52) (cid:42)(cid:79)(cid:82)b(cid:68)(cid:79) S(cid:72)(cid:79)(cid:72)(cid:70)t (cid:48)(cid:68)(cid:85)(cid:78)(cid:72)t
Securities registered pursuant to Section 12(g) of the Act: N(cid:82)(cid:81)(cid:72)
Indicate by chec(cid:78) mar(cid:78) if the registrant is a well-(cid:78)nown seasoned issuer, as defined in Rule 405 of the Securities Act. (cid:60)es (cid:49)o
Indicate by chec(cid:78) mar(cid:78) if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. (cid:60)es (cid:49)o
Indicate by chec(cid:78) mar(cid:78) 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 sub(cid:77)ect to such
filing requirements for the past 90 days. (cid:60)es (cid:49)o
Indicate by chec(cid:78) mar(cid:78) 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). (cid:60)es (cid:49)o
Indicate by chec(cid:78) mar(cid:78) if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant(cid:182)s (cid:78)nowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate by chec(cid:78) mar(cid:78) whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.:
(cid:47)arge accelerated filer
(cid:49)on-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by chec(cid:78) mar(cid:78) 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 chec(cid:78) mar(cid:78) whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (cid:60)es (cid:49)o
The aggregate mar(cid:78)et value of the voting stoc(cid:78) held by non-affiliates of the registrant, based upon the closing sale price of the common stoc(cid:78) on
August 3, 2018, as reported on the (cid:49)ASDA(cid:52) (cid:42)lobal Select Mar(cid:78)et, was approximately (cid:7)10,(cid:26)35,950,000.
The number of shares of the registrant(cid:182)s common stoc(cid:78), par value (cid:7)0.01 per share, outstanding as of March 28, 2019 was 58,803,(cid:26)44 shares.
Information required in response to Part III of Form 10-K is hereby incorporated by reference from portions of the registrant(cid:182)s Proxy Statement for the
2019 Annual Meeting of Stoc(cid:78)holders. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the
registrant(cid:182)s fiscal year ended February 2, 2019.
DOCU(cid:48)ENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Forward (cid:47)oo(cid:78)ing Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Part I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Item 1A.
Ris(cid:78) Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
Item 1B.
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item (cid:26).
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
(cid:47)egal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
Mar(cid:78)et for Registrant(cid:182)s Common Equity, Related Stoc(cid:78)holder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2(cid:26)
Management(cid:182)s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . .
28
Item (cid:26)A.
(cid:52)uantitative and (cid:52)ualitative Disclosures about Mar(cid:78)et Ris(cid:78) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40
Item 8.
Item 9.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . .
40
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41
Item 9B.
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41
Part III
Item 10.
Directors, Executive Officers and Corporate (cid:42)overnance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42
Item 11.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stoc(cid:78)holder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42
Item 13.
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . .
42
Item 14.
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42
Part I(cid:57)
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43
Item 16.
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:26)2
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:26)3
FOR(cid:58)ARD-LOO(cid:46)IN(cid:42) STATE(cid:48)ENTS
References in this Annual Report on Form 10-K 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.
This Annual Report on Form 10-K contains forward-loo(cid:78)ing 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 (cid:47)itigation Reform
Act of 1995, which reflect our current views with respect to, among other things, future events and financial
performance. (cid:60)ou can identify these forward-loo(cid:78)ing statements by the use of forward-loo(cid:78)ing words such as “outloo(cid:78),”
“believes,” “expects,” “plans,” “estimates,” “targets,” “strategies” or other comparable words. Any forward-loo(cid:78)ing
statements contained in this Form 10-K are based upon our historical performance and on current plans, estimates, and
expectations. The inclusion of this forward-loo(cid:78)ing 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-loo(cid:78)ing statements are sub(cid:77)ect to various ris(cid:78)s and uncertainties, which include, without limitation:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
changes in the overall level of consumer spending and volatility in the economy(cid:30)
the possibility that we may be unable to compete effectively in our highly competitive mar(cid:78)ets(cid:30)
the possibility that the capacity of our distribution and order fulfillment infrastructure and the performance of
our newly opened and to be opened distribution centers may not be adequate to support our recent growth and
expected future growth plans(cid:30)
our ability to sustain our growth plans and successfully implement our long-range strategic and financial plan(cid:30)
the ability to execute our Efficiencies for (cid:42)rowth cost optimi(cid:93)ation program(cid:30)
the possibility that cybersecurity breaches and other disruptions could compromise our information or result in
the unauthori(cid:93)ed disclosure of confidential information(cid:30)
the possibility of material disruptions to our information systems(cid:30)
our ability to gauge beauty trends and react to changing consumer preferences in a timely manner(cid:30)
changes in the wholesale cost of our products(cid:30)
the possibility that new store openings and existing locations may be impacted by developer or co-tenant issues(cid:30)
our ability to attract and retain (cid:78)ey executive personnel(cid:30)
natural disasters that could negatively impact sales(cid:30)
our ability to successfully execute our common stoc(cid:78) repurchase program or implement future common stoc(cid:78)
repurchase programs(cid:30) and
other ris(cid:78) factors detailed in our public filings with the Securities and Exchange Commission (the SEC),
including ris(cid:78) factors contained in Item 1A, “Ris(cid:78) Factors” of this Annual Report on Form 10-K for the year
ended February 2, 2019, as such may be amended or supplemented in our subsequently filed (cid:52)uarterly Reports
on Form 10-(cid:52).
Except to the extent required by the federal securities laws, we underta(cid:78)e no obligation to publicly update or revise any
forward-loo(cid:78)ing statements, whether as a result of new information, future events or otherwise.
P(cid:68)(cid:85)t I
It(cid:72)(cid:80) 1. B(cid:88)(cid:86)i(cid:81)(cid:72)(cid:86)(cid:86)
O(cid:89)(cid:72)(cid:85)(cid:89)i(cid:72)(cid:90)
Ulta Beauty is the largest beauty retailer in the United States and the premier beauty destination for cosmetics, fragrance,
s(cid:78)in care products, hair care products, and salon services. (cid:58)e provide unmatched product breadth, value, and
convenience in a distinctive specialty retail environment. Key aspects of our business include:
Sh(cid:82)(cid:83)(cid:83)i(cid:81)(cid:74) Ex(cid:83)(cid:72)(cid:85)i(cid:72)(cid:81)(cid:70)(cid:72). Our guests can satisfy all of their beauty needs at Ulta Beauty. Our stores, website, and
mobile applications offer more than 25,000 products from approximately 500 well-established and emerging
1
beauty brands across all categories and price points, including Ulta Beauty(cid:182)s own private label, the Ulta Beauty
Collection. Our bright and open store environment and easy to shop website and mobile applications encourage
our guests to en(cid:77)oy discovering new products and services. (cid:58)e believe we offer the widest selection of
categories across prestige and mass cosmetics, fragrance, haircare, s(cid:78)incare, bath and body products, and salon
styling tools. (cid:58)e also offer a full-service salon in every store featuring hair, s(cid:78)in, ma(cid:78)eup, and brow services.
(cid:57)(cid:68)(cid:79)(cid:88)(cid:72) P(cid:85)(cid:82)(cid:83)(cid:82)(cid:86)iti(cid:82)(cid:81). (cid:58)e believe our focus on delivering a compelling value proposition to our guests across all
of our product categories drives guest loyalty. (cid:58)e offer a comprehensive loyalty program, Ultamate Rewards,
and targeted promotions through our Customer Relationship Management (CRM) platform. (cid:58)e also offer
frequent promotions and coupons, in-store events, and gifts with purchase.
C(cid:82)(cid:81)(cid:89)(cid:72)(cid:81)i(cid:72)(cid:81)(cid:70)(cid:72). Our stores are predominantly located in convenient, high-traffic locations such as power centers.
Our typical store is approximately 10,000 square feet, including approximately 950 square feet dedicated to our
full-service salon. Our store design, fixtures, and open layout provide the flexibility to respond to consumer
trends and changes in our merchandising strategy. As of February 2, 2019, we operated 1,1(cid:26)4 retail stores
across 50 states, as well as an e-commerce website and mobile applications.
(cid:58)e were founded in 1990 as a beauty retailer at a time when prestige, mass, and salon products were sold through
distinct channels (cid:178) department stores for prestige products, drug stores and mass merchandisers for mass products, and
salons and authori(cid:93)ed retail outlets for professional hair care products. (cid:58)e developed a unique specialty retail concept
that offers a broad range of brands and price points, a compelling value proposition, and a convenient and welcoming
shopping environment. (cid:58)e define our target consumer as a beauty enthusiast, a consumer who is passionate about the
beauty category and has high expectations for the shopping experience. (cid:58)e estimate that beauty enthusiasts represent
approximately 5(cid:26)(cid:8) of shoppers and (cid:26)(cid:26)(cid:8) of spend in the U.S. beauty category.
The following description of our business should be read in con(cid:77)unction with the information contained in our
Management(cid:182)s Discussion and Analysis of Financial Condition and Results of Operations included in Item (cid:26) and our
Financial Statements and Supplementary Data included in Item 8 of this Annual Report on Form 10-K.
O(cid:88)(cid:85) (cid:86)t(cid:85)(cid:68)t(cid:72)(cid:74)(cid:92)
(cid:58)e are committed to executing our strategic imperatives to drive long-term growth and sustainable competitive
advantages.
Drive growth across beauty enthusiast consumer groups. (cid:58)e target beauty enthusiasts across multiple demographics
and shopping behaviors. (cid:58)ith the unique needs and perspectives of our beauty enthusiast consumer groups, we have
evolved how we connect with each group individually. (cid:58)e believe we can drive guest acquisition across beauty
enthusiast consumer groups by evolving our brand purpose and mar(cid:78)eting mix, expanding our efforts to target specific
consumer groups, and driving our leadership as a diversity forward brand.
As we sharpen our brand positioning, we are increasing awareness of the Ulta Beauty brand by communicating our brand
differentiation through broad scale advertising. (cid:58)e leverage a wide range of mar(cid:78)eting tactics including digital,
television, direct mail, social media, and public relations to drive brand engagement, deepen the guest connection to Ulta
Beauty, and strengthen our authority in the beauty category. (cid:58)e also plan to continue to drive brand awareness and
traffic by ma(cid:78)ing human connections in more innovative and meaningful ways by continuing to transform our mar(cid:78)eting
mix towards channels of the future.
Deepen Ulta Beauty love and loyalty. (cid:58)e believe we can expand Ulta Beauty(cid:182)s reach, relevancy, and engagement with
our guests by evolving the value proposition of our Ultamate Rewards program, building strategic partnerships that
create incremental value for our guests, and using our customer data to deliver personali(cid:93)ed member experiences. (cid:58)e
have more than 31.8 million active Ulta Beauty guests enrolled in our Ultamate Rewards loyalty program. (cid:47)oyalty
member transactions represent over 95(cid:8) of our annual total net sales, and our data demonstrates that loyalty members
shop with higher frequency and spend more per visit as compared to non-members. (cid:58)e aim to continue to innovate this
2
program to (cid:78)eep it relevant, exciting, engaging, and growing. Our vision is to personali(cid:93)e messaging, communication,
and experiences across every touch point: in-store, online, and through digital (including mobile) and print channels.
Deliver a one of a kind, world class beauty assortment. Assortment is at the center of our value proposition and
represents a core differentiator within the mar(cid:78)et. (cid:58)e engage beauty enthusiasts to discover and play across all
categories with an enticing assortment focused on innovation and leading trends, differentiation and exclusivity, and
speed to mar(cid:78)et. (cid:58)e believe our broad selection of merchandise across categories, price points, and brands offer a
unique shopping experience for our guests. (cid:58)hile the products we sell can be found in department stores, specialty
stores, salons, drug stores, mass merchandisers, and pure-play e-commerce companies, we offer approximately
500 brands so that our guests can find everything they need in one shopping trip. (cid:58)e continue to evolve our assortment
to meet our guests(cid:182) desire for new and exclusive products. (cid:58)e also continue to upgrade and enhance the Ulta Beauty
Collection, our private label, which offers products in (cid:78)ey categories such as cosmetics, s(cid:78)incare, and bath. Because of
our broad array of categories, brand, and price points, we appeal to a wide range of consumers of all ages, demographics,
and lifestyles.
Lead the in-store and beauty services experience transformation. The Ulta Beauty guest experience today is
differentiated by our broad array of categories, brands and price points, high quality services, and friendly, well-trained
associates. Our strategic vision is to transcend our competition by creating an immersive store experience that brings
beauty to life in ways others cannot, by weaving together the best of products and services, focusing on human
connection, and delivering a meaningful guest experience. Ulta Beauty is a leading salon authority that provides high
quality and consistent services from our licensed stylists, with a focus on hair, s(cid:78)in, ma(cid:78)eup, and brows. Our service
offering is an important platform because it creates a means to connect more closely with our guests and to elevate their
experience in our stores. Our strategy is to drive awareness and trial of our salon services with new guests as well as
accelerate the frequency of existing guests(cid:182) visits. Salon guests shop more frequently and spend almost three times more
than non-salon guests based on our loyalty guest data. (cid:58)e believe focusing on guest satisfaction, increasing effectiveness
of promotions, and optimi(cid:93)ing staffing, scheduling, and training will ma(cid:78)e our services business an even stronger
differentiator in our stores.
Reinvent beauty digital engagement. Our strategic vision is to build industry leading e-commerce experiences that
engage our guests through our differentiated assortment, personali(cid:93)ation, convenience and interactive experiences. Our
omnichannel guests are extremely valuable, spending nearly three times more than retail only guests. To increase this
engagement, we have a multifaceted approach to communicate, engage, and transact across all channels and touch
points. By creating digital experiences that are visual and immersive, and seamlessly merging content and commerce, we
aim to be the unmatched source of personali(cid:93)ed beauty information and ma(cid:78)e the beauty shopping experience fun,
interactive, easy, and functional. During fiscal 2018, we extended our digital innovation capabilities by partnering with
technology companies such as Spruce and Iterate, and by acquiring technology companies (cid:42)lamST and (cid:52)M Scientific.
Deliver operational excellence and drive efficiencies. Our strategic vision is to manage end-to-end speed, quality, and
efficiency to deliver exceptional guest experience, while leveraging efficiencies of scale to drive profit improvement.
These operating efficiencies will help us fund investments required for future growth. Through our cost optimi(cid:93)ation
program, Efficiencies For (cid:42)rowth, we plan to achieve cost savings in four wor(cid:78) streams: category performance
improvement, indirect procurement, end-to-end operations, and real estate. (cid:58)e expect to achieve savings of (cid:7)150 million
to (cid:7)200 million through this program over the next three years.
Invest in talent that drives a winning culture. (cid:47)eadership, culture, and engagement of our associates are (cid:78)ey drivers of
our performance. (cid:58)e have an experienced management team that brings a creative merchandising approach and a
disciplined operating philosophy to our business. Our well-trained, non-commissioned store associates are highly
engaged and deliver a differentiated guest experience. (cid:58)e continue to expand the depth of our team at all levels and in
all functional areas to support our growth.
O(cid:88)(cid:85) (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)t
(cid:58)e operate within the large and growing U.S. beauty products and salon services industry. This mar(cid:78)et represents
approximately (cid:7)145 billion in sales, according to Euromonitor International and IBIS (cid:58)orld Inc. The approximately (cid:7)86
billion beauty products industry includes cosmetics, haircare, fragrance, bath and body, s(cid:78)incare, salon styling tools, and
3
other toiletries. (cid:58)ithin this mar(cid:78)et, we compete across all ma(cid:77)or categories as well as a range of price points by offering
prestige, mass, and salon products. The approximately (cid:7)59 billion salon services industry consists of hair, s(cid:78)in, and nail
services.
C(cid:82)(cid:80)(cid:83)(cid:72)titi(cid:82)(cid:81)
Our ma(cid:77)or competitors for prestige and mass products include traditional department stores, specialty stores, drug stores,
mass merchandisers, and the online capabilities of national retailers, as well as pure-play e-commerce companies. The
mar(cid:78)et for salon services and products is highly fragmented. Our competitors for salon services and products include
chain and independent salons.
O(cid:88)(cid:85) (cid:86)t(cid:82)(cid:85)(cid:72)(cid:86)
Our retail stores are predominantly located in convenient, high-traffic locations such as power centers. Our typical store
is approximately 10,000 square feet, including approximately 950 square feet dedicated to our full-service salon. Our
retail store concept, including physical layout, displays, lighting, and quality of finishes, has evolved over time to match
the rising expectations of our guests and to (cid:78)eep pace with our merchandising and operating strategies.
(cid:58)e offer a full range of services in all of our stores, focusing on hair, s(cid:78)in, ma(cid:78)eup, and brow services. Our current Ulta
Beauty store format includes an open and modern salon area with approximately eight to ten stations and the ma(cid:77)ority of
our stores offer brow services. The salon features a concierge des(cid:78), s(cid:78)in treatment room or dedicated s(cid:78)in treatment
area, and shampoo and hair color processing area. (cid:58)e employ highly s(cid:78)illed licensed professional stylists and
estheticians who offer services as well as educational experiences, including consultations, styling lessons, ma(cid:78)eup
applications, s(cid:78)incare regimens, and at-home care recommendations.
In fiscal 2018, (cid:26)4(cid:8) of new stores opened in existing shopping centers and 26(cid:8) opened in new shopping centers. Almost
all new stores were filling in existing mar(cid:78)ets compared to new mar(cid:78)ets. As of February 2, 2019, we operated
1,1(cid:26)4 stores across 50 states.
In addition to opening new stores, we also remodeled, relocated, or refreshed (in-store fixtures and merchandising
upgrades) certain stores, as shown in the following table:
Total stores beginning of period . . . . . .
Stores opened . . . . . . . . . . . . . . . . . . .
Stores closed . . . . . . . . . . . . . . . . . . . .
Total stores end of period . . . . . . . . . . .
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2,
2019
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 3,
2018
(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92) 28,
201(cid:26)
1,0(cid:26)4
10(cid:26)
((cid:26))
1,1(cid:26)4
9(cid:26)4
102
(2)
1,0(cid:26)4
8(cid:26)4
104
(4)
9(cid:26)4
Total square footage . . . . . . . . . . . . . . .
Average square footage per store . . . . .
12,33(cid:26),145
10,509
11,300,920
10,522
10,2(cid:26)1,184
10,545
Stores remodeled . . . . . . . . . . . . . . . . . .
Stores relocated . . . . . . . . . . . . . . . . . . .
Stores refreshed . . . . . . . . . . . . . . . . . . .
13
2
109
11
(cid:26)
190
12
2
213
Our real estate vision is to ma(cid:78)e Ulta Beauty accessible and convenient to more consumers across a variety of mar(cid:78)ets, a
(cid:78)ey part of how we plan to expand our mar(cid:78)et share over time. (cid:58)e believe that over the long term, we have the potential
to grow our store base to between 1,500 to 1,(cid:26)00 Ulta Beauty stores in the United States. (cid:58)e plan to further penetrate
existing suburban mar(cid:78)ets, expand our presence in small mar(cid:78)ets, and further develop urban mar(cid:78)ets. Our rigorous
analytical approach to site selection has translated into a high performing real estate portfolio. (cid:58)e expect to open
approximately (cid:26)0 to 80 new stores per year for the next several years. The average investment required to open a new
Ulta Beauty store is approximately (cid:7)1.4 million, which includes capital investments, net of landlord contributions, pre-
4
opening expenses, and initial inventory, net of payables. Our net investment required to open new stores and the net sales
generated by new stores may vary depending on a number of factors, including geographic location.
O(cid:80)(cid:81)i(cid:70)h(cid:68)(cid:81)(cid:81)(cid:72)(cid:79) (cid:86)t(cid:85)(cid:68)t(cid:72)(cid:74)(cid:92)
In addition to store expansion, we expect to significantly grow our omnichannel capabilities. Our e-commerce platform
has two (cid:78)ey roles: generating direct channel sales and profits by communicating with our guests in an interactive,
en(cid:77)oyable way that reinforces the Ulta Beauty brand and driving traffic to our stores, website, and native applications.
Our omnichannel guests are extremely valuable, spending nearly three times as much as retail only guests. (cid:58)e continue
to develop and add new website and mobile features and functionality, mar(cid:78)eting programs, product assortment, new
brands, and omnichannel integration points. (cid:58)e intend to establish ourselves as a leading online beauty resource by
providing our guests with a rich online experience for information on (cid:78)ey trends and products, editorial content,
expanded assortments, best in class features and functionality, interactive experiences, including virtual try-on
capabilities, and social media content. (cid:58)e also continue to improve our order fulfillment capabilities with increased
speed of delivery through new distribution centers and efficient processes designed for e-commerce order fulfillment.
(cid:58)e have begun to roll out omnichannel capabilities such as “Buy Online, Pic(cid:78)-up in Store” and during 2018, we
deployed “Store 2 Door” in all stores which provide the ability for customers to order in-store and have products
delivered to their homes.
(cid:48)(cid:72)(cid:85)(cid:70)h(cid:68)(cid:81)(cid:71)i(cid:86)i(cid:81)(cid:74)
Strategy
(cid:58)e offer one of the most extensive product and brand selections in our industry, including a broad assortment of branded
and private label beauty products in cosmetics, fragrance, haircare, s(cid:78)incare, bath and body products, and salon styling
tools. A typical Ulta Beauty store carries more than 25,000 products from approximately 500 well-established and
emerging beauty brands across all categories and price points, including Ulta Beauty(cid:182)s own private label, the Ulta Beauty
Collection. (cid:58)e present these products in an open-sell environment using centrally produced planograms (detailed
schematics showing product placement in the store) and promotional merchandising planners. Our merchandising team
continually monitors current fashion trends, historical sales trends, and new product launches to (cid:78)eep Ulta Beauty(cid:182)s
product assortment fresh and relevant to our guests. (cid:58)e believe our broad selection of merchandise, from moderate-
priced brands to higher-end prestige brands, creates a unique shopping experience for our guests.
(cid:58)e believe our private label products, the Ulta Beauty Collection, are a strategically important category for growth and
profit contribution. Our ob(cid:77)ective is to provide quality, trend-right private label products to continue to strengthen our
guests(cid:182) perception of Ulta Beauty as a contemporary beauty destination. Ulta Beauty manages the full development cycle
of these products from concept through production in order to deliver differentiated pac(cid:78)aging and formulas to build our
brand image. (cid:58)e also offer products such as Tarte Double Duty Beauty cosmetics, IT Brushes for Ulta Beauty, and C(cid:43)I
for Ulta Beauty hair care appliances that are permanently exclusive to Ulta Beauty. (cid:58)e also offer a number of products
that are exclusive for a limited time or are offered in advance of our competitors. The Ulta Beauty Collection and Ulta
Beauty exclusive products, both permanent and temporary, represented approximately 6.5(cid:8) of our total net sales in
fiscal 2018.
Categories
(cid:58)e offer a balanced portfolio across five primary categories: (1) cosmetics(cid:30) (2) s(cid:78)incare, bath and fragrance(cid:30) (3) haircare
products and styling tools(cid:30) (4) salon services(cid:30) and (5) other, which includes nail products and accessories. (cid:58)e have
gained mar(cid:78)et share across all categories of our business.
5
The following table sets forth the approximate percentage of net sales attributed to each category for the periods
presented:
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2, F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 3, (cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92) 28,
2018
2019
201(cid:26)
Cosmetics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S(cid:78)incare, Bath (cid:9) Fragrance . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:43)aircare Products (cid:9) Styling Tools . . . . . . . . . . . . . . . . . . . . .
Salon Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (nail products, accessories, and other) . . . . . . . . . . . . . .
51(cid:8)
21(cid:8)
19(cid:8)
4(cid:8)
5(cid:8)
100(cid:8)
51(cid:8)
21(cid:8)
19(cid:8)
5(cid:8)
4(cid:8)
100(cid:8)
51(cid:8)
20(cid:8)
20(cid:8)
5(cid:8)
4(cid:8)
100(cid:8)
Organization
Our merchandising team consists of a Chief Merchandising and Mar(cid:78)eting Officer overseeing two Senior (cid:57)ice
Presidents who in turn oversee a team of category (cid:57)ice Presidents, Divisional Merchandise Managers, and their team of
buyers. Our merchandising team wor(cid:78)s with our centrali(cid:93)ed merchandise planning and forecasting group to ensure a
consistent execution across our store base and e-commerce platform.
Our planogram department assists the merchants and inventory teams to (cid:78)eep new products flowing into stores on a
timely basis. All ma(cid:77)or product categories undergo planogram revisions on a regular basis and ad(cid:77)ustments are made to
assortment mix and product placement based on current sales trends.
Our visual department wor(cid:78)s with our merchandising team on strategic placement of promotional merchandise, along
with functional and educational signage and creative product presentation standards in all of our stores. All stores receive
a centrally produced promotional merchandising planner to ensure consistent implementation of our mar(cid:78)eting programs.
Planning and allocation
Our merchandising team wor(cid:78)s to ensure consistent execution across our store base and e-commerce platform. (cid:58)e have
developed a disciplined approach to buying and a dynamic inventory planning and allocation process to support our
merchandising strategy. (cid:58)e centrally manage product replenishment to our stores through our merchandise planning
group. This group serves as a strategic partner to, and provides financial oversight of, the merchandising team. The
merchandising team creates a sales forecast by category for the year. Our merchandise planning group creates an open-
to-buy plan, approved by senior executives, for each product category. The open-to-buy plan is updated wee(cid:78)ly with
point-of-sale (POS) data, receipts and inventory levels and is used throughout the year to balance buying opportunities
and inventory return on investment. (cid:58)e believe this structure maximi(cid:93)es our buying opportunities while maintaining
organi(cid:93)ational and financial control. Regularly replenished products are presented consistently in all stores utili(cid:93)ing a
merchandising planogram process. POS data is used to calculate sales forecasts and to determine replenishment levels.
(cid:58)e determine promotional product replenishment levels using sales history from similar or comparable events. To
ensure our inventory remains productive, our planning and replenishment group, along with senior executives, monitor
the levels of clearance and aged inventory in our stores on a wee(cid:78)ly basis. (cid:58)e continue to optimi(cid:93)e our merchandising
planning and forecasting system, master data, and space and floor planning systems.
Vendor partnerships
(cid:58)e have strong, active relationships with our more than 400 vendor partners. Our top ten vendor partners, such as Est(cid:112)e
(cid:47)auder Companies, (cid:47)(cid:182)Or(cid:112)al, and Shiseido among others, represented approximately 62(cid:8) and 64(cid:8) of our total net sales
in fiscal 2018 and fiscal 201(cid:26), respectively. (cid:58)e believe our vendor partners view us as a significant distribution channel
for growth and brand enhancement and we wor(cid:78) closely with them to mar(cid:78)et both new and existing brands.
6
(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)ti(cid:81)(cid:74) (cid:68)(cid:81)(cid:71) (cid:68)(cid:71)(cid:89)(cid:72)(cid:85)ti(cid:86)i(cid:81)(cid:74)
Marketing strategy
(cid:58)e employ a multi-faceted mar(cid:78)eting strategy to increase brand awareness, drive traffic to our stores, website, and
mobile applications, acquire new guests, improve guest retention, and increase frequency of shopping. (cid:58)e communicate
with our guests and prospective guests through multiple vehicles, including print advertising, digital and social media,
and television and radio. These vehicles highlight the breadth of our selection of prestige, mass, and salon beauty
products, new products and services, and special offers. Our comprehensive public relations strategy enhances Ulta
Beauty(cid:182)s reputation as a beauty destination, increases brand awareness, supports our charitable efforts related to the Ulta
Beauty Charitable Foundation, and drives awareness of new products, in-store events, and new store openings.
Our loyalty program, Ultamate Rewards, is an important tool to increase retention of existing guests and to enhance their
loyalty to the Ulta Beauty brand. Approximately 31.8 million active loyalty program members generated more than 95(cid:8)
of Ulta Beauty(cid:182)s total net sales in fiscal 2018. Ultamate Rewards enables customers to earn points based on their
purchases. Points earned are valid for at least one year and may be redeemed on any product we sell or service provided.
Our CRM platform enables sophisticated analysis of the customer data in our loyalty member database as well as greater
personali(cid:93)ation of our mar(cid:78)eting campaigns. To enhance our loyalty program, we offer co-branded and private label
credit cards. The credit cards drive higher wallet share and greater loyalty from our rewards members, provide increased
consumer insights, and offer attractive economics. (cid:58)e continue to expand our gift card program to increase distribution
to thousands of supermar(cid:78)ets and other retailers through a partnership with third parties.
(cid:58)e are directing a growing percentage of our mar(cid:78)eting expense towards email mar(cid:78)eting, digital and social mar(cid:78)eting,
and national T(cid:57) and radio advertising. (cid:58)e believe these channels are highly effective in communicating with existing
guests, as well as reaching those who have not yet shopped with us. Our email mar(cid:78)eting program has been effective in
communicating with our existing online, mobile, and retail guests in a targeted and relevant way. Our digital mar(cid:78)eting
strategy includes search engine optimi(cid:93)ation, paid search, mobile advertising, social media, display advertising, and
other digital mar(cid:78)eting channels. Digital mar(cid:78)eting, coupled with our national T(cid:57) and radio advertising, has helped us
grow brand awareness among those not familiar with Ulta Beauty, which we believe has resulted in new guests.
St(cid:68)(cid:73)(cid:73)i(cid:81)(cid:74) (cid:68)(cid:81)(cid:71) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)ti(cid:82)(cid:81)(cid:86)
Retail stores
Our current Ulta Beauty store format is staffed with a general manager, a salon manager, two associate managers, a full
time prestige manager, a part time operations manager, and approximately twenty full and part-time associates(cid:30) including
approximately four to eight prestige consultants and eight to ten licensed salon professionals. The management team in
each store reports to the general manager. The general manager oversees all store activities including salon management,
inventory management, merchandising, cash management, scheduling, hiring, and guest services. Members of store
management receive bonuses depending on their position and based upon various metrics. Each general manager reports
to a district manager, who in turn reports to a Regional (cid:57)ice President of Operations, who in turn reports to a Senior (cid:57)ice
President of Store Operations, who in turn reports to the Chief Store Operations Officer, who in turn reports to the Chief
Executive Officer. Each store team receives additional support from time to time from recruiting specialists for the retail
and salon operations, regionally based human resource managers, a field loss prevention team, salon technical trainers,
management trainers, and vendor partners.
Ulta Beauty stores are open seven days a wee(cid:78), typically eleven hours a day, Monday through Saturday, and seven hours
on Sunday. Our stores have extended hours during the holiday season.
Salon services
A typical salon is staffed with eight to ten licensed salon professionals, including a salon manager, six or more stylists,
and one or two estheticians. Our most productive salons have a guest coordinator and an assistant manager. Our salon
(cid:26)
technical trainers and vendor partner education classes create a comprehensive educational program for approximately
9,(cid:26)00 Ulta Beauty salon professionals.
Training and development
Our success is dependent in part on our ability to attract, train, retain, and motivate qualified associates at all levels of the
organi(cid:93)ation. (cid:58)e have developed a corporate culture that enables individual store managers to ma(cid:78)e store-level
operating decisions and we consistently reward high performance. (cid:58)e are committed to continually developing our
associates and providing career advancement opportunities. Our associates and management teams are essential to our
store expansion strategy. (cid:58)e use a combination of existing managers, promoted associates, and outside hires to support
our new stores.
All of our associates participate in an interactive new-hire orientation through which each associate becomes acquainted
with Ulta Beauty(cid:182)s mission, vision, and values. (cid:58)e train and educate our new store managers, prestige beauty advisors,
and sales associates on our beauty products and services, our policies and procedures, opening and closing routines,
guest service expectations, loss prevention practices, and our culture. (cid:58)e provide continuing education to salon
professionals and retail associates throughout their careers at Ulta Beauty. Our learning management system and our
digital wor(cid:78)place system allows us to provide ongoing training to all associates to continually enhance their product
(cid:78)nowledge, technical s(cid:78)ills, and guest service expertise. In contrast to the sales teams at traditional department stores,
our retail sales teams are not commissioned. Our prestige beauty advisors are trained to wor(cid:78) across all prestige lines and
within our prestige boutiques (sets of custom-designed fixtures configured to prominently display certain prestige brands
within our stores), where guests can receive ma(cid:78)eup demonstrations, s(cid:78)in analysis, and assistance in selecting the
products and services that suit them best.
Di(cid:86)t(cid:85)ib(cid:88)ti(cid:82)(cid:81)
Our vision is to develop an expanded and optimi(cid:93)ed end-to-end supply chain that improves operational efficiency,
performance, and guest experience. This includes enhanced systems and processes as well as a moderni(cid:93)ed distribution
center networ(cid:78) to support our new store program and rapid e-commerce growth. Currently, we operate five distribution
centers. Starting in fiscal 2019, we expect to open a fast fulfillment center and pilot “Ship from Store” capabilities to
reduce e-commerce shipment time.
Inventory is shipped from our suppliers to our distribution centers. (cid:58)e carry more than 25,000 products and replenish
our stores with such products primarily in eaches (i.e., less-than-case quantities), which allows us to ship less than an
entire case when only one or two of a particular product is required. Our distribution centers use distribution
management and distribution control software systems to maintain and support product purchase decisions. Store
replenishment order selection is performed using pic(cid:78)-to-light processing technologies. Product is delivered to stores
using a broad networ(cid:78) of contract and local pool (final mile) carriers.
I(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)ti(cid:82)(cid:81) t(cid:72)(cid:70)h(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)
(cid:58)e are committed to using technology to enhance our competitive position. (cid:58)e depend on a variety of information
systems and technologies to maintain and improve our competitive position and to manage the operations of our growing
store base. (cid:58)e rely on computer systems to provide information for all areas of our business, including supply chain,
merchandising, POS, e-commerce, mar(cid:78)eting, finance, accounting, and human resources. Our core business systems
consist mostly of purchased software programs that integrate together and with our internally developed software
solutions. Our technology also includes a company-wide networ(cid:78) that connects all corporate users, stores, and our
distribution center infrastructure and provides communications for continual polling of sales and merchandise movement
at the store level. (cid:58)e intend to leverage our technology infrastructure and systems where appropriate to gain operational
efficiencies through more effective use of our systems, people, and processes. (cid:58)e update the technology supporting our
stores, distribution infrastructure, and corporate headquarters on a regular basis. (cid:58)e will continue to ma(cid:78)e investments in
our information systems to facilitate growth and enhance our competitive position.
8
I(cid:81)t(cid:72)(cid:79)(cid:79)(cid:72)(cid:70)t(cid:88)(cid:68)(cid:79) (cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)t(cid:92)
(cid:58)e have registered trademar(cid:78)s in the United States and other countries. The ma(cid:77)ority of our trademar(cid:78) registrations
contain the U(cid:47)TA mar(cid:78), including Ulta Beauty and two related designs, Ulta.com and Ulta Salon, Cosmetics (cid:9)
Fragrance (and design). (cid:58)e maintain our mar(cid:78)s and monitor filing deadlines for renewal and continued validity. All
mar(cid:78)s that are deemed material to our business have been applied for or registered in the United States and select foreign
countries, including Canada, Mexico and other countries in (cid:47)atin America, Europe, and Asia.
(cid:58)e believe our trademar(cid:78)s, especially those related to the Ulta Beauty brand, “The Possibilities are Beautiful(cid:138)”, and
“21 Days of Beauty(cid:138)” have significant value and are important to building brand recognition.
(cid:42)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:80)(cid:72)(cid:81)t (cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)ti(cid:82)(cid:81)
(cid:58)e are affected by extensive laws, governmental regulations, administrative determinations, court decisions, and similar
constraints. Such laws, regulations, and other constraints exist at the federal, state, or local levels in the United States.
The products we sell in our stores, such as cosmetics, dietary supplements, food and over-the-counter (OTC) drugs,
medical devices, and styling tools, including our Ulta Beauty branded products, may be sub(cid:77)ect to regulation by the U.S.
Food and Drug Administration (FDA), the U.S. Federal Trade Commission (FTC), the Consumer Product Safety
Commission (CPSC), the Environmental Protection Agency (EPA), state regulatory agencies, and State Attorneys
(cid:42)eneral (State A(cid:42)s). Such regulations principally relate to the safety, labeling, manufacturing, advertising, and
distribution of the products. In addition, the salon services provided in our stores may be sub(cid:77)ect to state and local
regulations.
Products classified as cosmetics (as defined in the Federal Food, Drug and Cosmetic Act) are not sub(cid:77)ect to pre-mar(cid:78)et
approval by the FDA, but the products must generally be safe and must be properly manufactured and labeled. Certain
products, such as sunscreens and acne treatments, are classified as OTC drugs, and certain ingestible products, such as
vitamins and minerals, are classified as dietary supplements. Both OTC drugs and dietary supplements have specific
regulatory requirements, including ingredient, labeling, and manufacturing requirements. Products such as wrin(cid:78)le
reducing lights may be classified as medical devices and, in addition to being sub(cid:77)ect to labeling and manufacturing
requirements, may also be sub(cid:77)ect to premar(cid:78)eting review by the FDA. Finally, products such as styling tools (e.g. blow
dryers and curling irons) are regulated by the CPSC, which has strict requirements including the requirement to report
certain product defects. The labeling and pac(cid:78)aging of all of these products may also be sub(cid:77)ect to the requirements of
the Fair Pac(cid:78)aging and (cid:47)abeling Act and state specific requirements.
Further, statements we ma(cid:78)e in advertising, including statements about the safety or efficacy of products, pricing, and
environmental claims, are sub(cid:77)ect to federal and state consumer protection laws, which generally prohibit unfair or
deceptive practices.
(cid:47)abor and employment and taxation laws, to which most retailers are typically sub(cid:77)ect, also impact our day-to-day
operations. (cid:58)e are also sub(cid:77)ect to typical (cid:93)oning and real estate land use restrictions and typical advertising and
consumer protection laws (both federal and state). Our services business is sub(cid:77)ect to state board regulations and state
licensing requirements.
In our store leases, we require our landlords to obtain all necessary (cid:93)oning approvals and permits for the site to be used
as a retail site and we also as(cid:78) them to obtain any (cid:93)oning approvals and permits for our specific use (but at times the
responsibility for obtaining (cid:93)oning approvals and permits for our specific use falls to us). (cid:58)e require our landlords to
deliver a certificate of occupancy for any wor(cid:78) they perform on our buildings or the shopping centers in which our stores
are located. (cid:58)e are responsible for delivering a certificate of occupancy for any remodeling or build-outs that we
perform and are responsible for complying with all applicable laws in connection with such construction pro(cid:77)ects or
build-outs.
9
E(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)
As of February 2, 2019, we employed approximately 16,000 associates on a full-time basis and approximately
28,000 associates on a part-time basis. (cid:58)e have no collective bargaining agreements. (cid:58)e have not experienced any wor(cid:78)
stoppages and believe we have good relationships with our employees.
S(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:79)it(cid:92)
Our business is sub(cid:77)ect to seasonal fluctuation. Significant portions of our net sales and profits are reali(cid:93)ed 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(cid:182)s Day, (cid:57)alentine(cid:182)s Day, and the “Bac(cid:78) to School” season.
A(cid:89)(cid:68)i(cid:79)(cid:68)b(cid:79)(cid:72) i(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)ti(cid:82)(cid:81)
Our principal website address is www.ulta.com. (cid:58)e ma(cid:78)e available at this address under investor relations (at
http://ir.ultabeauty.com), free of charge, our proxy statement, annual report to shareholders, annual report on Form 10-K,
quarterly reports on Form 10-(cid:52), current reports on Form 8-K, and all amendments to those reports as soon as reasonably
practicable after such material is electronically filed with or furnished to the SEC. Information available on our website
is not incorporated by reference in and is not deemed a part of this Form 10-K. In addition, our filings with the SEC may
be accessed through the SEC(cid:182)s website at www.sec.gov. All statements made in any of our securities filings, including
all forward-loo(cid:78)ing statements or information, are made as of the date of the document in which the statement is
included and we do not assume or underta(cid:78)e any obligation to update any of those statements or documents unless we
are required to do so by law.
It(cid:72)(cid:80) 1A. Ri(cid:86)(cid:78) F(cid:68)(cid:70)t(cid:82)(cid:85)(cid:86)
The risks described below could materially and adversely affect our business, financial condition, results of operations,
or future growth. We could also be affected by additional risks that apply to all companies operating in the United
States, as well as other risks that are not presently known to us or that we currently consider to be immaterial. You
should carefully consider the following risks and all of the other information contained in this Annual Report on
Form 10-K before making an investment in our common stock.
The health of the economy in the channels we serve may affect consumer purchases of discretionary items such as
beauty products and salon services, which could have a material adverse effect on our business, financial condition,
profitability, and cash flows.
Our results of operations may be materially affected by conditions in the capital mar(cid:78)ets and the economy generally,
both in the U.S. and internationally. (cid:58)e appeal to a wide demographic consumer profile and offer an extensive selection
of beauty products sold directly to retail consumers and premium salon services. Uncertainty in the economy could
adversely impact consumer purchases of discretionary items across all of our product categories, including prestige
beauty products and premium salon services. Factors that could affect consumers(cid:182) willingness to ma(cid:78)e such discretionary
purchases include: general business conditions, levels of employment, interest rates, tax rates, the availability of
consumer credit, and consumer confidence in future economic conditions. In the event of a prolonged economic
downturn or acute recession, consumer spending habits could be adversely affected and we could experience lower than
expected net sales.
In addition, a general deterioration in economic conditions could adversely affect our commercial partners including our
vendor partners as well as the real estate developers and landlords who we rely on to construct and operate centers in
which our stores are located. A ban(cid:78)ruptcy or financial failure of a significant vendor or a number of significant real
estate developers or shopping center landlords could have a material adverse effect on our business, financial condition,
profitability, and cash flows. Additionally, volatility and disruption to the capital and credit mar(cid:78)ets in the recent global
recession had a significant, adverse impact on global economic conditions, resulting in recessionary pressures and
declines in consumer confidence and economic growth, which, in turn, led to declines in consumer spending. Reduced
consumer spending could cause changes in customer order patterns and changes in the level of merchandise purchased
10
by our customers, and may signify a reset of consumer spending habits, all of which may adversely affect our business,
financial condition, profitability, and cash flows.
We may be unable to compete effectively in our highly competitive markets.
The mar(cid:78)ets for beauty products and salon services are highly competitive with few barriers to entry. (cid:58)e compete
against a diverse group of retailers, both small and large, including regional and national department stores, specialty
retailers, drug stores, mass merchandisers, high-end and discount salon chains, locally owned beauty retailers and salons,
online capabilities of national retailers, pure-play e-commerce companies, catalog retailers, and direct response
television, including television home shopping retailers, and infomercials. (cid:58)e believe the principal bases upon which we
compete are the breadth of merchandise, our value proposition, the quality of our guests(cid:182) shopping experience, and the
convenience of our stores as one-stop destinations for beauty products and salon services. Many of our competitors are,
and many of our potential competitors may be, larger and have greater financial, mar(cid:78)eting, and other resources and
therefore, may be able to adapt to changes in customer requirements more quic(cid:78)ly, devote greater resources to the
mar(cid:78)eting and sale of their products, generate greater national brand recognition, or adopt more aggressive pricing
policies than we can. As a result, we may lose mar(cid:78)et share, which could have a material adverse effect on our business,
financial condition, profitability, and cash flows.
Our comparable sales and quarterly financial performance may fluctuate for a variety of reasons, which could result
in a decline in the price of our common stock.
Our comparable sales and quarterly results of operations have fluctuated in the past, and we expect them to continue to
fluctuate in the future. A variety of factors affect our comparable sales and quarterly financial performance, including:
•
•
•
•
•
•
•
•
•
•
•
general U.S. economic conditions and, in particular, the retail sales environment(cid:30)
changes in our merchandising strategy or mix(cid:30)
performance of our new and remodeled stores(cid:30)
the effectiveness of our inventory management(cid:30)
timing and concentration of new store openings, including additional human resource requirements and related
pre-opening and other start-up costs(cid:30)
cannibali(cid:93)ation of existing store sales by new store openings(cid:30)
levels of pre-opening expenses associated with new stores(cid:30)
timing and effectiveness of our mar(cid:78)eting activities(cid:30)
seasonal fluctuations due to weather conditions(cid:30)
actions by our existing or new competitors(cid:30) and
hurricanes, tornadoes, wildfires, earthqua(cid:78)es, mudslides, and other natural disasters.
Accordingly, our results for any one fiscal quarter are not necessarily indicative of the results to be expected for any
other quarter, and comparable sales for any particular future period may decrease. In that event, the price of our common
stoc(cid:78) may decline. For more information on our quarterly results of operations, see (cid:49)ote 1(cid:26) to our consolidated financial
statements, “Selected quarterly financial data (unaudited),” and Item (cid:26), “Management(cid:182)s Discussion and Analysis of
Financial Condition and Results of Operations.”
The capacity of our distribution and order fulfillment infrastructure and the performance of our distribution centers
may not be adequate to support our historical growth and expected future growth plans, which could prevent the
successful implementation of these plans or cause us to incur excess costs to expand this infrastructure, which could
have a material adverse effect on our business, financial condition, profitability, and cash flows.
(cid:58)e currently operate five distribution facilities, which house the distribution operations for Ulta Beauty retail stores
together with the order fulfillment operations of our e-commerce platform. In 2014, we began a multi-year supply chain
pro(cid:77)ect, which focused on, among other things, adding capacity and system improvements to support expanded
omnichannel capabilities. In order to support our historical and expected future growth and to maintain the efficient
operation of our business, it is li(cid:78)ely additional distribution centers or fast fulfillment centers (e-commerce only) will be
11
added in the future. Our failure to effectively upgrade and expand our distribution capacity on a timely basis to (cid:78)eep pace
with our anticipated growth in stores and the performance of our distribution centers could have a material adverse effect
on our business, financial condition, profitability, and cash flows.
Any significant interruption in the operations of our distribution facilities could disrupt our ability to deliver
merchandise to our stores in a timely manner, which could have a material adverse effect on our business, financial
condition, profitability, and cash flows.
(cid:58)e distribute products to our stores without supplementing such deliveries with direct-to-store arrangements from
vendors or wholesalers. (cid:58)e are a retailer carrying over 25,000 beauty products that change on a regular basis in response
to beauty trends, which ma(cid:78)es the success of our operations particularly vulnerable to disruptions in our distribution
infrastructure. Any significant interruption in the operation of our supply chain infrastructure, such as disruptions in our
information systems, disruptions in operations due to fire, natural disasters, or other catastrophic events, labor
disagreements, or shipping and transportation problems, could drastically reduce our ability to receive and process orders
and provide products and services to our stores, which could have a material adverse effect on our business, financial
condition, profitability, and cash flows.
Our e-commerce platform may be unsuccessful.
(cid:58)e offer most of our beauty products for sale through our Ulta.com website. As a result, we encounter ris(cid:78)s and
difficulties frequently experienced by internet-based businesses, including ris(cid:78)s related to our ability to attract and retain
customers on a cost-effective basis and our ability to operate, support, expand, and develop our internet operations,
website, mobile applications and software, and other related operational systems. Although we believe that our
omnichannel participation is a distinct advantage for us due to synergies and the potential for new customers, supporting
product offerings through these channels could create issues that have the potential to adversely affect our results of
operations. For example, if our e-commerce platform successfully grows, it may do so in part by attracting existing
guests, rather than new guests, who choose to purchase products from us online or through our mobile applications rather
than from our physical stores, thereby reducing the financial performance of our stores. In addition, offering different
products through each channel could cause conflicts and cause some of our current or potential internet or mobile
customers to consider competing distributors of beauty products. Offering products through our internet channel or
through our mobile applications could also cause some of our current or potential vendors to consider competing internet
or mobile offerings of their products either on their own or through competing distributors. As we continue to grow our
e-commerce platform, the impact of attracting existing rather than new guests, conflicts between product offerings online
or through our mobile applications and through our stores, and opening up our channels to increased competition from
pure-play e-commerce companies could have a material adverse effect on our business, financial condition, profitability,
and cash flows.
We may not be able to sustain our growth plans and successfully implement our long-range strategic and financial
plans, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.
In addition, we intend to continue to open new stores, which could strain our resources and have a material adverse
effect on our business, financial condition, profitability, and cash flows.
Our continued and future growth largely depends on our ability to implement our long-range strategic and financial plans
and successfully open and operate new stores on a profitable basis. There can be no assurance that we will be successful
in implementing our growth plans or long-range strategic imperatives, including our Efficiencies for (cid:42)rowth cost
optimi(cid:93)ation program, and our failure to do so could have a material adverse effect on our business, financial condition,
profitability, and cash flows. (cid:58)e intend to continue to grow our number of stores for the foreseeable future. Our
continued expansion places increased demands on our financial, managerial, operational, supply-chain, and
administrative resources. For example, our planned expansion will require us to increase the number of people we
employ, as well as to monitor and upgrade our management information and other systems, and our distribution
infrastructure. These increased demands and operating complexities could cause us to operate our business less
efficiently and could have a material adverse effect on our business, financial condition, profitability, and cash flows.
12
Cybersecurity breaches and other disruptions could compromise our information, result in the unauthorized
disclosure of confidential guest, employee, Company and/or business partners’ information, damage our reputation,
and expose us to liability, which could negatively impact our business.
In the ordinary course of our business, we collect, process, and store sensitive and confidential data, including our
proprietary business information and that of our guests, suppliers and business partners, and personally identifiable
information of our guests and employees, in our data centers and on our networ(cid:78)s. The secure processing, maintenance,
and transmission of this information is critical to our operations. (cid:58)e rely on commercially available systems, software,
tools, and monitoring to provide security for processing, transmission, and storage of confidential information. Despite
the security measures we have in place and continual vigilance in regard to the protection of sensitive information, our
systems and those of our third-party service providers may be vulnerable to security breaches, attac(cid:78)s by hac(cid:78)ers, acts of
vandalism, computer viruses, misplaced or lost data, human errors, or other similar events. Any such breach could
compromise our networ(cid:78)s and the information stored there could be accessed, publicly disclosed, lost, or stolen. Any
such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that
protect the privacy of personal information, disrupt our operations, damage our reputation, and cause a loss of confidence
in our business, products, and services, which could adversely affect our business, financial condition, profitability, and
cash flows.
We are subject to risks relating to our information technology systems, and any failure to adequately protect our
critical information technology systems or any material disruption of our information systems could negatively impact
financial results and materially adversely affect our business operations, particularly during the holiday season.
(cid:58)e are increasingly dependent on a variety of information systems, including management, supply chain and financial
information, and various other processes and transactions, to effectively manage our business. (cid:58)e have also identified
the need to expand and upgrade our information systems to support historical and expected future growth. The failure of
our information systems to perform as designed or breaches of security could have an adverse effect on our business and
results of our operations. Any material disruption of our systems could disrupt our ability to trac(cid:78), record, and analy(cid:93)e
the merchandise that we sell and could cause delays or cancellation of customer orders or impede the manufacture or
shipment of products, the processing of transactions, our ability to receive and process e-commerce orders, and/or the
reporting of financial results.
Our e-commerce operations are increasingly important to our business. The Ulta.com website and our mobile
applications serve as an effective extension of Ulta Beauty(cid:182)s mar(cid:78)eting and prospecting strategies (beyond catalogs,
newspaper inserts, and national advertising) by exposing potential new customers to the Ulta Beauty brand, product
offerings, and enhanced content. As the importance of our website, mobile applications, and e-commerce operations to
our business grows, we are increasingly vulnerable to downtime and other technical failures. Our failure to successfully
respond to these ris(cid:78)s could reduce e-commerce sales and damage our brand(cid:182)s reputation.
Increased costs or interruption in our third-party vendors’ overseas sourcing operations could disrupt production,
shipment, or receipt of some of our merchandise, which could result in lost sales and could increase our costs.
(cid:58)e directly source the ma(cid:77)ority of our Ulta Beauty branded product components and gifts with purchase and other
promotional products through third-party vendors using foreign factories. In addition, many of our vendors use overseas
sourcing to varying degrees to manufacture some or all of their products. Any event causing a sudden disruption of
manufacturing or imports from such foreign countries, including the imposition of additional import restrictions,
unanticipated political changes, increased customs duties, legal or economic restrictions on overseas suppliers(cid:182) ability to
produce and deliver products, and natural disasters, could materially harm our operations. (cid:58)e have no long-term supply
contracts with respect to such foreign-sourced items, many of which are sub(cid:77)ect to existing or potential duties, tariffs, or
quotas that may limit the quantity of certain types of goods that may be imported into the United States from such
countries. Our business is also sub(cid:77)ect to a variety of other ris(cid:78)s generally associated with sourcing goods from abroad,
such as political instability, disruption of imports by labor disputes, and local business practices. Our sourcing operations
may also be hurt by health concerns regarding infectious diseases in countries in which our merchandise is produced,
adverse weather conditions or natural disasters that may occur overseas, or acts of war or terrorism in the United States
or worldwide, to the extent these acts affect the production, shipment, or receipt of merchandise. Our future operations
13
and performance will be sub(cid:77)ect to these factors and these factors could have a material adverse effect on our business,
financial condition, profitability, and cash flows or may require us to modify our current business practices and incur
increased costs.
A reduction in traffic to, or the closing of, the other destination retailers in the shopping areas where our stores are
located could significantly reduce our sales and leave us with excess inventory, which could have a material adverse
effect on our business, financial condition, profitability, and cash flows.
As a result of our real estate strategy, most of our stores are located in off-mall shopping areas (cid:78)nown as power centers.
Power centers typically contain three to five big-box anchor stores along with a variety of smaller specialty tenants. As a
consequence of most of our stores being located in such shopping areas, our sales are derived, in part, from the volume
of traffic generated by the other destination retailers and the anchor stores in power centers where our stores are located.
Customer traffic to these shopping areas may be adversely affected by the closing of such destination retailers or anchor
stores, or by a reduction in traffic to such stores resulting from a regional or global economic downturn, a general
downturn in the local area where our store is located, or a decline in the desirability of the shopping environment of a
particular power center. Such a reduction in customer traffic would reduce our sales and leave us with excess inventory,
which could have a material adverse effect on our business, financial condition, profitability, and cash flows. (cid:58)e may
respond by increasing mar(cid:78)downs, initiating mar(cid:78)eting promotions, or transferring product to other stores to reduce
excess inventory, which would further decrease our gross profits and net income.
Diversion of exclusive salon products, or a decision by manufacturers of exclusive salon products to utilize other
distribution channels, could negatively impact our revenue from the sale of such products, which could have a
material adverse effect on our business, financial condition, profitability, and cash flows.
The retail products that we sell in our salons are meant to be sold exclusively by professional salons and authori(cid:93)ed
professional retail outlets. (cid:43)owever, incidents of product diversion occur, which involve the selling of salon exclusive
haircare products to unauthori(cid:93)ed channels such as drug stores, grocery stores, or mass merchandisers. Diversion could
result in adverse publicity that harms the commercial prospects of our products (if diverted products are old, tainted, or
damaged), as well as lower product revenues should consumers choose to purchase diverted product from these channels
rather than purchasing from one of our salons. Additionally, the various product manufacturers could, in the future,
decide to utili(cid:93)e other distribution channels for such products, therefore widening the availability of these products in
other retail channels, which could negatively impact the revenue we earn from the sale of such products.
We rely on our good relationships with vendor partners to purchase prestige, mass, and salon beauty products on
reasonable terms. If these relationships were to be impaired, or if certain vendor partners were to change their
distribution model, or are unable to supply sufficient merchandise to keep pace with our growth plans, we may not be
able to obtain a sufficient selection or volume of merchandise on reasonable terms, and we may not be able to
respond promptly to changing trends in beauty products, either of which could have a material adverse effect on our
competitive position, business, financial condition, profitability, and cash flows.
(cid:58)e have no long-term supply agreements with vendor partners and, therefore, our success depends on maintaining good
relationships with our vendor partners. Our business depends to a significant extent on the willingness and ability of our
vendor partners to supply us with a sufficient selection and volume of products to stoc(cid:78) our stores. Some of our prestige
vendor partners may not have the capacity to supply us with sufficient merchandise to (cid:78)eep pace with our growth plans.
(cid:58)e also have strategic partnerships with certain core brands, which have allowed us to benefit from the growing
popularity of such brands. Any of our other core brands could in the future decide to scale bac(cid:78) or end its partnership
with us and strengthen its relationship with our competitors, which could negatively impact the revenue we earn from the
sale of such products. If we fail to maintain strong relationships with our existing vendor partners, or fail to continue
acquiring and strengthening relationships with additional vendor partners of beauty products, our ability to obtain a
sufficient amount and variety of merchandise on reasonable terms may be limited, which could have a negative impact
on our competitive position.
14
During fiscal 2018 and fiscal 201(cid:26), merchandise supplied to Ulta Beauty by our top ten vendor partners accounted for
approximately 62(cid:8) and 64(cid:8) of our net sales, respectively. There continues to be vendor consolidation within the beauty
products industry. The loss of or a reduction in the amount of merchandise made available to us by any one of these (cid:78)ey
vendors, or by any of our other vendor partners, could have a material adverse effect on our business, financial condition,
profitability, and cash flows.
Use of social media may adversely impact our reputation.
There has been a substantial increase in the use of social media platforms, including blogs, social media websites, and
other forms of internet-based and mobile communications, which allow individuals access to a broad audience of
consumers and other interested persons. (cid:49)egative commentary regarding us or the products we sell may be posted on
social media platforms and similar devices at any time and may be adverse to our reputation or business. Customers
value readily available information and often act on such information without further investigation and without regard to
its accuracy or source. The harm may be immediate without affording us an opportunity for redress or correction.
(cid:58)e also use social media platforms as mar(cid:78)eting tools. For example, we maintain Faceboo(cid:78), Twitter, Instagram, and
Pinterest accounts. As laws and regulations rapidly evolve to govern the use of these platforms and devices, the failure
by us, our employees, or third parties acting at our direction to abide by applicable laws and regulations in the use of
these platforms and devices could adversely impact our business, financial condition, profitability, and cash flows.
Litigation and other legal or regulatory proceedings or claims and the outcome of such litigation, proceedings or
claims, including possible fines and penalties, could have a material adverse effect on our business and any loss
contingency accruals may not be adequate to cover actual losses.
From time to time, we are sub(cid:77)ect to litigation, including potential class action and single-plaintiff litigation and other
legal or regulatory proceedings or claims in the ordinary course of our business operations regarding, but not limited to,
employment matters, consumer claims, security of consumer and employee personal information, contractual relations
with suppliers, mar(cid:78)eting and infringement of trademar(cid:78)s, and other intellectual property rights. (cid:47)itigation to defend
ourselves against claims by third parties, or to enforce any rights that we may have against third parties, may be
necessary, which could absorb significant management time, result in substantial costs and diversion of our resources,
causing a material adverse effect on our business, financial condition, profitability, and cash flows. (cid:58)e establish accruals
for potential liability arising from litigation and other legal or regulatory proceedings or claims when potential liability is
probable and the amount of the loss can be reasonably estimated based on currently available information. (cid:58)e may still
incur legal costs for a matter even if we have not accrued a liability. In addition, actual losses may be higher than the
amount accrued for a certain matter, or in the aggregate. Any resolution of litigation or other legal or regulatory
proceedings or claims could materially adversely impact our business, financial condition, profitability, and cash flows.
Specifically, our technologies, promotional products purchased from third-party vendors, and/or Ulta Beauty branded
products, or potential products in development may infringe rights under patents, patent applications, trademar(cid:78),
copyright, or other intellectual property rights of third parties in the United States and abroad. These third parties could
bring claims against us that would cause us to incur substantial expenses and, if successful, could cause us to pay
substantial damages. Further, if a third party were to bring an intellectual property infringement suit against us, we could
be forced to stop or delay development, manufacturing, or sales of the product that is the sub(cid:77)ect of the suit.
As a result of intellectual property infringement claims, or to avoid potential claims, we may choose to see(cid:78), or be
required to see(cid:78), a license from the third party and would most li(cid:78)ely be required to pay license fees or royalties or both.
These licenses may not be available on acceptable terms, or at all. Ultimately, we could be prevented from
commerciali(cid:93)ing a product or be forced to cease some aspect of our business operations if, as a result of actual or
threatened intellectual property infringement claims, we are unable to enter into licenses on acceptable terms. Even if we
were able to obtain a license, the rights may be non-exclusive, which would give our competitors access to the same
intellectual property. The inability to enter into licenses could harm our business significantly.
In addition to infringement claims against us, we may become a party to other patent or trademar(cid:78) litigation and other
proceedings, including interference proceedings declared by the United States Patent and Trademar(cid:78) Office (USPTO)
15
proceedings before the USPTO(cid:182)s Trademar(cid:78) Trial and Appeal Board and opposition proceedings in the European Patent
Office, regarding intellectual property rights with respect to our technologies, products purchased from third-party
vendors or our Ulta Beauty branded products. Some of our competitors may be able to bear the costs of such litigation or
proceedings better than us because of their substantially greater financial resources. Uncertainties resulting from the
initiation and continuation of intellectual property litigation or other proceedings could impair our ability to compete in
the mar(cid:78)etplace. Intellectual property litigation and other proceedings may also absorb significant management time and
resources, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.
If we are unable to gauge beauty trends and react to changing consumer preferences in a timely manner, our sales
may decrease.
(cid:58)e believe our success depends in substantial part on our ability to:
•
•
•
•
•
recogni(cid:93)e and define product and beauty trends(cid:30)
anticipate, gauge, and react to changing consumer demands in a timely manner(cid:30)
translate mar(cid:78)et trends into appropriate, saleable product, and service offerings in our stores and salons in
advance of our competitors(cid:30)
develop and maintain vendor relationships that provide us access to the newest merchandise on reasonable
terms(cid:30) and
distribute merchandise to our stores in an efficient and effective manner and maintain appropriate in-stoc(cid:78)
levels.
If we are unable to anticipate and fulfill the merchandise needs of the consumer, our net sales may decrease and we may
be forced to increase mar(cid:78)downs of slow-moving merchandise, either of which could have a material adverse effect on
our business, financial condition, profitability, and cash flows.
If we are unable to protect our intellectual property rights, our brand and reputation could be harmed, which could
have a material adverse effect on our business, financial condition, profitability, and cash flows.
(cid:58)e regard our trademar(cid:78)s, trade dress, copyrights, trade secrets, (cid:78)now-how, and similar intellectual property as critical
to our success. Our principal intellectual property rights include registered and common law trademar(cid:78)s on “The
Possibilities are Beautiful.(cid:138),” “Ulta Beauty,” “Ulta,” and other mar(cid:78)s incorporating our name and “All Things Beauty.
All in One Place(cid:138),” and “21 Days of Beauty(cid:138),” copyrights in our website and mobile applications content, rights to our
domain name www.ulta.com, and trade secrets and (cid:78)now-how with respect to our Ulta Beauty branded product
formulations, product sourcing, sales and mar(cid:78)eting and other aspects of our business, and our digital innovations such
as try-on applications and artificial intelligence. As such, we rely on trademar(cid:78) and copyright law, trade secret
protection, and confidentiality agreements with certain of our employees, consultants, suppliers, and others to protect our
proprietary rights. If we are unable to protect or preserve the value of our trademar(cid:78)s, copyrights, trade secrets, or other
proprietary rights for any reason (including any cybersecurity incident that results in the unauthori(cid:93)ed use of our
intellectual property rights), or if other parties infringe on our intellectual property rights, our brand and reputation could
be impaired and we could lose customers.
If our manufacturers are unable to produce products manufactured uniquely for Ulta Beauty, including Ulta Beauty
branded products and gifts with purchase and other promotional products, consistent with applicable regulatory
requirements, we could suffer lost sales and be required to take costly corrective action, which could have a material
adverse effect on our business, financial condition, profitability, and cash flows.
(cid:58)e do not own or operate any manufacturing facilities and therefore depend upon independent third-party vendors for
the manufacture of all products manufactured uniquely for Ulta Beauty, including the Ulta Beauty Collection and Ulta
Beauty branded gifts with purchase and other promotional products. Our third-party manufacturers of Ulta Beauty
products may not maintain adequate controls with respect to product specifications and quality and may not continue to
produce products that are consistent with applicable regulatory requirements. If we or our third-party manufacturers fail
to comply with applicable regulatory requirements, we could be required to ta(cid:78)e costly corrective action. In addition,
sanctions under various laws may include sei(cid:93)ure of products, in(cid:77)unctions against future shipment of products, restitution
16
and disgorgement of profits, operating restrictions, and criminal prosecution. The FDA does not have a pre-mar(cid:78)et
approval system for cosmetics, and we believe we are permitted to mar(cid:78)et our cosmetics and have them manufactured
without submitting safety or efficacy data to the FDA. (cid:43)owever, cosmetic products may become sub(cid:77)ect to more
extensive regulation in the future. These events could interrupt the mar(cid:78)eting and sale of our Ulta Beauty products,
severely damage our brand reputation and image in the mar(cid:78)etplace, increase the cost of our products, cause us to fail to
meet customer expectations, or cause us to be unable to deliver merchandise in sufficient quantities or of sufficient
quality to our stores, any of which could result in lost sales, which could have a material adverse effect on our business,
financial condition, profitability, and cash flows.
We, as well as our vendors, are subject to laws and regulations that could require us to modify our current business
practices and incur increased costs, which could have a material adverse effect on our business, financial condition,
profitability, and cash flows.
In our U.S. mar(cid:78)ets, numerous laws and regulations at the federal, state, and local levels can affect our business. (cid:47)egal
requirements are frequently changed and sub(cid:77)ect to interpretation, and we are unable to predict the ultimate cost of
compliance with these requirements or their effect on our operations. If we fail to comply with any present or future laws
or regulations, we could be sub(cid:77)ect to future liabilities, a prohibition on the operation of our stores, or a prohibition on
the sale of our Ulta Beauty branded products. In particular, failure to adequately comply with the following legal
requirements could have a material adverse effect on our business, financial condition, profitability, and cash flows.
• Comprehensive healthcare reform legislation under the Patient Protection and Affordable Care Act and the
(cid:43)ealth Care Education and Affordability Reconciliation Act (collectively, the Acts) was signed into law in
2010. This healthcare reform legislation significantly expanded healthcare coverage and future changes could
significantly impact our business.
• Our rapidly expanding wor(cid:78)force, growing in pace with our number of stores, ma(cid:78)es us vulnerable to changes
in labor and employment laws. In addition, changes in federal and state minimum wage laws and other laws
relating to employee benefits could cause us to incur additional wage and benefits costs, which could hurt our
profitability and affect our growth strategy.
• Our salon business is sub(cid:77)ect to state board regulations and state licensing requirements for our stylists and our
salon procedures. Failure to maintain compliance with these regulatory and licensing requirements could
(cid:77)eopardi(cid:93)e the viability of our salons.
• (cid:58)e operate stores in California, which has enacted legislation commonly referred to as “Proposition 65”
requiring that “clear and reasonable” warnings be given to consumers who are exposed to chemicals (cid:78)nown to
the State of California to cause cancer or reproductive toxicity. Although we have sought to comply with
Proposition 65 requirements, there can be no assurance that we will not be adversely affected by litigation
relating to Proposition 65.
In addition, the formulation, manufacturing, pac(cid:78)aging, labeling, distribution, sale, and storage of our vendors(cid:182) products
and our Ulta Beauty branded products are sub(cid:77)ect to extensive regulation by various federal agencies, including FDA,
FTC, CPSC, and various state and local agencies, such as State A(cid:42)s and District Attorneys. If we, our vendors, or the
manufacturers of our Ulta Beauty branded products fail to comply with those regulations, we could become sub(cid:77)ect to
significant penalties, claims, or product recalls, which could harm our results of operations or our ability to conduct our
business.
In addition, the adoption of new regulations or changes in the interpretations of existing regulations may result in
significant compliance costs or discontinuation of product sales and may impair the mar(cid:78)etability of our vendors(cid:182)
products or our Ulta Beauty branded products, resulting in significant loss of net sales. Our failure to comply with
federal, state, or local requirements when we advertise our products (including prices) or services, or engage in other
promotional activities, in digital (including social media), television, or print may result in enforcement actions and
imposition of penalties or otherwise harm the distribution and sale of our products.
1(cid:26)
Our Ulta Beauty branded products and salon services may cause unexpected and undesirable side effects that could
result in their discontinuance or expose us to lawsuits, either of which could result in unexpected costs and damage to
our reputation, which could have a material adverse effect on our business, financial condition, profitability, and
cash flows.
Unexpected and undesirable side effects caused by our Ulta Beauty branded products for which we have not provided
sufficient label warnings or salon services, which may have been performed negligently, could result in the
discontinuance of sales of our products or of certain salon services or prevent us from achieving or maintaining mar(cid:78)et
acceptance of the affected products and services. Such side effects could also expose us to product liability or negligence
lawsuits. Any claims brought against us may exceed our existing or future insurance policy coverage or limits. Any
(cid:77)udgment against us that is in excess of our policy limits would have to be paid from our cash reserves, which would
reduce our capital resources. These events could cause negative publicity regarding our Company, brand, or products,
which could in turn harm our reputation and net sales, which could have a material adverse effect on our business,
financial condition, profitability, and cash flows.
If we fail to retain our existing senior management team or attract qualified new personnel, such failure could have a
material adverse effect on our business, financial condition, profitability, and cash flows.
Our business requires disciplined execution at all levels of our organi(cid:93)ation. This execution requires an experienced and
talented management team. If we were to lose the benefit of the experience, efforts, and abilities of (cid:78)ey executive
personnel, it could have a material adverse effect on our business, financial condition, profitability, and cash flows.
Furthermore, our ability to manage our retail expansion will require us to continue to train, motivate, and manage our
associates. (cid:58)e will need to attract, motivate, and retain additional qualified executive, managerial, and merchandising
personnel and store associates. Competition for this type of personnel is intense, and we may not be successful in
attracting, assimilating, and retaining the personnel required to grow and operate our business profitably.
Natural disasters or other catastrophes could have a material adverse effect on our business, financial condition,
profitability, and cash flows.
(cid:49)atural disasters, such as hurricanes, tornados, wildfires, earthqua(cid:78)es, and mudslides, as well as acts of violence or
terrorism, could result in physical damage to our properties, the temporary closure of stores and/or distribution centers,
the temporary lac(cid:78) of an adequate wor(cid:78) force, the temporary or long-term disruption in the supply of products (or a
substantial increase in the cost of those products) from domestic or foreign suppliers, the temporary disruption in the
delivery of goods both to and from our distribution centers (or a substantial increase in the cost of those deliveries), the
temporary reduction in the availability of products in our stores and/or the temporary reduction in visits to stores by
customers. Accordingly, if one or more natural disasters and/or acts of violence or terrorism were to occur, it could have
a material adverse effect on our business, financial condition, profitability, and cash flows or may require us to incur
increased costs.
As we grow the number of our stores in new locations, we are subject to local building codes in an increasing number
of local jurisdictions. Our failure to comply with local building codes, and the failure of our landlords to obtain
certificates of occupancy in a timely manner, could cause delays in our new store openings, which could increase our
store opening costs, cause us to incur lost sales and profits, and damage our public reputation.
Ensuring compliance with local (cid:93)oning and real estate land use restrictions across numerous (cid:77)urisdictions is increasingly
challenging as we grow the number of our stores in new locations. Our store leases generally require us to provide a
certificate of occupancy with respect to the interior build-out of our stores (landlords generally provide the certificate of
occupancy with respect to the shell of the store and the larger shopping area and common areas), and while we strive to
remain in compliance with local building codes relating to the interior build out of our stores, the constantly increasing
number of local (cid:77)urisdictions in which we operate ma(cid:78)es it increasingly difficult to stay abreast of changes in, and
requirements of, local building codes and local building and fire inspectors(cid:182) interpretations of such building codes.
Moreover, our landlords have occasionally been unable, due to the requirements of local (cid:93)oning laws, to obtain in a
timely manner a certificate of occupancy with respect to the shell of our stores and/or the larger shopping centers and/or
common areas (which certificate of occupancy is required by local building codes for us to open our store), causing us in
18
some instances to delay store openings. As the number of local building codes and local building and fire inspectors to
which we and our landlords are sub(cid:77)ect to increases, we may be increasingly vulnerable to increased construction costs
and delays in store openings caused by our or our landlords(cid:182) compliance with local building codes and local building and
fire inspectors(cid:182) interpretations of such building codes. Any such increased construction costs and/or delays in store
openings could increase our store opening costs, cause us to incur lost sales and profits, and damage our public
reputation, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.
Increases in the demand for, or the price of, raw materials used to build and remodel our stores could hurt our
profitability.
The raw materials used to build and remodel our stores are sub(cid:77)ect to availability constraints and price volatility caused
by weather, supply conditions, government regulations, general economic conditions, and other unpredictable factors. As
a retailer engaged in an active building and remodeling program, we are particularly vulnerable to increases in
construction and remodeling costs. As a result, increases in the demand for, or the price of, raw materials could have a
material adverse effect on our business, financial condition, profitability, and cash flows.
Our secured revolving credit facility contains certain restrictive covenants that could limit our operational flexibility,
including our ability to open stores.
(cid:58)e have a (cid:7)400 million secured revolving credit facility with a term expiring in August 2022. Substantially all of our
assets are pledged as collateral for outstanding borrowings under the agreement. Outstanding borrowings bear interest at
either a base rate or the (cid:47)ondon Interban(cid:78) Offered Rate ((cid:47)IBOR) plus 1.25(cid:8) and the unused line fee is 0.20(cid:8) per
annum. The credit facility agreement contains usual and customary restrictive covenants relating to our management and
the operation of our business. These covenants, among other things, limit our ability to grant liens on our assets, incur
additional indebtedness, pay cash dividends and redeem our stoc(cid:78), enter into transactions with affiliates, and merge or
consolidate with another entity. These covenants could restrict our operational flexibility and any failure to comply with
these covenants or our payment obligations would limit our ability to borrow under the credit facility and, in certain
circumstances, may allow the lenders thereunder to require repayment.
The market price for our common stock may be volatile.
The mar(cid:78)et price of our common stoc(cid:78) is li(cid:78)ely to fluctuate significantly from time to time in response to factors
including:
differences between our actual financial and operating results and those expected by investors(cid:30)
fluctuations in quarterly operating results(cid:30)
our performance during pea(cid:78) retail seasons such as the holiday season(cid:30)
•
•
•
• mar(cid:78)et conditions in our industry and the economy as a whole(cid:30)
•
changes in the estimates of our operating performance or changes in recommendations by any research analysts
that follow our stoc(cid:78) or any failure to meet the estimates made by research analysts(cid:30)
investors(cid:182) perceptions of our prospects and the prospects of the beauty products and salon services industries(cid:30)
the performance of our (cid:78)ey vendor partners(cid:30)
announcements by us, our vendor partners, or our competitors of significant acquisitions, divestitures, strategic
partnerships, (cid:77)oint ventures, or capital commitments(cid:30)
introductions of new products or new pricing policies by us or by our competitors(cid:30)
stoc(cid:78) transactions by our principal stoc(cid:78)holders(cid:30)
recruitment or departure of (cid:78)ey personnel(cid:30) and
the level and quality of securities research analyst coverage for our common stoc(cid:78).
•
•
•
•
•
•
•
In addition, public announcements by our competitors, other retailers, and vendors concerning, among other things, their
performance, strategy, or accounting practices could cause the mar(cid:78)et price of our common stoc(cid:78) to decline regardless of
our actual operating performance.
19
Increases in costs of mailing, paper, and printing will affect the cost of our catalog and promotional mailings, which
could reduce our profitability.
Postal rate increases and paper and printing costs affect the cost of our catalog and promotional mailings. In response to
any future increases in mailing costs, we may consider reducing the number and si(cid:93)e of certain catalog editions. In
addition, we rely on discounts from the basic postal rate structure, such as discounts for bul(cid:78) mailings and sorting by (cid:93)ip
code and carrier routes. (cid:58)e are not a party to any long-term contracts for the supply of paper. The cost of paper
fluctuates significantly, and our future paper costs are sub(cid:77)ect to supply and demand forces that we cannot control. Future
additional increases in postal rates or in paper or printing costs could have a material adverse effect on our business,
financial condition, profitability, and cash flows.
Our previously announced stock repurchase programs, and any subsequent stock purchase program put in place
from time to time, could affect the price of our common stock and increase volatility and may be suspended or
terminated at any time, which may result in a decrease in the trading price of our common stock.
(cid:58)e may have in place from time to time, a stoc(cid:78) repurchase program. Any such stoc(cid:78) repurchase program adopted will
not obligate the Company to repurchase any dollar amount or number of shares of common stoc(cid:78) and may be suspended
or discontinued at any time, which could cause the mar(cid:78)et price of our common stoc(cid:78) to decline. The timing and actual
number of shares repurchased under any such stoc(cid:78) repurchase program depends on a variety of factors including the
timing of open trading windows, price, corporate and regulatory requirements, and other mar(cid:78)et conditions. (cid:58)e may
affect repurchases under any stoc(cid:78) repurchase program from time to time in the open mar(cid:78)et, in privately negotiated
transactions or otherwise, including accelerated stoc(cid:78) repurchase arrangements. Repurchases pursuant to any such stoc(cid:78)
repurchase program could affect our stoc(cid:78) price and increase its volatility. The existence of a stoc(cid:78) repurchase program
could also cause our stoc(cid:78) price to be higher than it would be in the absence of such a program and could potentially
reduce the mar(cid:78)et liquidity for our stoc(cid:78). There can be no assurance that any stoc(cid:78) repurchases will enhance stoc(cid:78)holder
value because the mar(cid:78)et price of our common stoc(cid:78) may decline below the levels at which we repurchased shares of
common stoc(cid:78). Although our stoc(cid:78) repurchase program is intended to enhance stoc(cid:78)holder value, short-term stoc(cid:78) price
fluctuations could reduce the program(cid:182)s effectiveness.
Changes in accounting standards and subjective assumptions, estimates, and judgments by management related to
complex accounting matters could affect our financial results or financial condition.
(cid:42)enerally accepted accounting principles and related accounting pronouncements, implementation guidelines, and
interpretations with regard to a wide range of matters that are relevant to our business, such as revenue recognition, lease
obligations, inventory valuation, vendor allowances, impairment of long-lived tangible assets, customer loyalty program,
share-based compensation, tax matters, and litigation, are highly complex and involve many sub(cid:77)ective assumptions,
estimates, and (cid:77)udgments. Changes in these rules or their interpretation or changes in underlying assumptions, estimates,
or (cid:77)udgments could negatively affect our reported or expected financial performance or financial condition.
We are a holding company with no operations of our own, and we depend on our subsidiaries for cash.
(cid:58)e are a holding company and we do not have any material assets or operations other than ownership of equity interests
of our subsidiaries. Our operations are conducted entirely through our subsidiaries, and our ability to generate cash to
meet our obligations or to repurchase stoc(cid:78) or pay dividends (if declared by our Board of Directors in the future) is
dependent on the earnings of, and receipt of funds from, our subsidiaries through dividends or intercompany loans. The
ability of our subsidiaries to generate sufficient cash flow from operations to allow us and them to ma(cid:78)e scheduled
payments on our obligations will depend on their future financial performance, which will be affected by a range of
economic, competitive, and business factors, many of which are outside of our control.
20
Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change in
control, even if a sale of the Company would be beneficial to our stockholders, which could cause our stock price to
decline and prevent attempts by our stockholders to replace or remove our current management.
Our certificate of incorporation and bylaws contain provisions that may delay or prevent a change in control, discourage
bids at a premium over the mar(cid:78)et price of our common stoc(cid:78), and harm the mar(cid:78)et price of our common stoc(cid:78) and
diminish the voting and other rights of the holders of our common stoc(cid:78). These provisions include:
•
•
•
•
•
•
dividing our Board of Directors into three classes serving staggered three-year terms(cid:30)
authori(cid:93)ing our Board of Directors to issue preferred stoc(cid:78) and additional shares of our common stoc(cid:78) without
stoc(cid:78)holder approval(cid:30)
prohibiting stoc(cid:78)holder actions by written consent(cid:30)
prohibiting our stoc(cid:78)holders from calling a special meeting of stoc(cid:78)holders(cid:30)
prohibiting our stoc(cid:78)holders from ma(cid:78)ing certain changes to our certificate of incorporation or bylaws except
with a two-thirds ma(cid:77)ority stoc(cid:78)holder approval(cid:30) and
requiring advance notice for raising business matters or nominating directors at stoc(cid:78)holders(cid:182) meetings.
(cid:58)e are also sub(cid:77)ect to provisions of Delaware law that, in general, prohibit any business combination with a beneficial
owner of 15(cid:8) or more of our common stoc(cid:78) for three years after the stoc(cid:78)holder becomes a 15(cid:8) stoc(cid:78)holder, sub(cid:77)ect to
specified exceptions. Together, these provisions of our certificate of incorporation and bylaws and of Delaware law
could ma(cid:78)e the removal of management more difficult and may discourage transactions that otherwise could involve
payment of a premium over prevailing mar(cid:78)et prices for our common stoc(cid:78).
It(cid:72)(cid:80) 1B. U(cid:81)(cid:85)(cid:72)(cid:86)(cid:82)(cid:79)(cid:89)(cid:72)(cid:71) St(cid:68)(cid:73)(cid:73) C(cid:82)(cid:80)(cid:80)(cid:72)(cid:81)t(cid:86)
(cid:49)one.
21
It(cid:72)(cid:80) 2. P(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)ti(cid:72)(cid:86)
All of our retail stores, distribution centers, and corporate offices are leased or subleased.
Retail stores
Our retail stores are predominantly located in convenient, high-traffic locations such as power centers. Our typical store
is approximately 10,000 square feet, including approximately 950 square feet dedicated to our full-service salon. Most of
our retail store leases provide for a fixed minimum annual rent and generally have a 10-year initial term with options for
two or three extension periods of five years each, exercisable at our option. As of February 2, 2019, we operated 1,1(cid:26)4
retail stores across 50 states, as shown in the table below:
N(cid:88)(cid:80)b(cid:72)(cid:85) (cid:82)(cid:73)
N(cid:88)(cid:80)b(cid:72)(cid:85) (cid:82)(cid:73)
L(cid:82)(cid:70)(cid:68)ti(cid:82)(cid:81)
Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alas(cid:78)a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ari(cid:93)ona . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ar(cid:78)ansas . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Connecticut . . . . . . . . . . . . . . . . . . . . . . . . .
Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:42)eorgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:43)awaii . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Idaho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iowa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kentuc(cid:78)y . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:47)ouisiana . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . .
Massachusetts . . . . . . . . . . . . . . . . . . . . . . .
Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . .
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:86)t(cid:82)(cid:85)(cid:72)(cid:86)
18
3
2(cid:26)
10
150
25
16
3
83
35
4
8
55
22
10
12
14
1(cid:26)
3
22
18
46
1(cid:26)
9
23
L(cid:82)(cid:70)(cid:68)ti(cid:82)(cid:81)
Montana . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:49)ebras(cid:78)a . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:49)evada . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:49)ew (cid:43)ampshire . . . . . . . . . . . . . . . . . . . . . .
(cid:49)ew (cid:45)ersey . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:49)ew Mexico . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:49)ew (cid:60)or(cid:78) . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:49)orth Carolina . . . . . . . . . . . . . . . . . . . . . . .
(cid:49)orth Da(cid:78)ota . . . . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
O(cid:78)lahoma . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . .
Rhode Island . . . . . . . . . . . . . . . . . . . . . . . .
South Carolina . . . . . . . . . . . . . . . . . . . . . . .
South Da(cid:78)ota . . . . . . . . . . . . . . . . . . . . . . . .
Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . .
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:57)ermont . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:57)irginia . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:58)ashington . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:58)est (cid:57)irginia . . . . . . . . . . . . . . . . . . . . . . . .
(cid:58)isconsin . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:58)yoming . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
T(cid:82)t(cid:68)(cid:79)
(cid:86)t(cid:82)(cid:85)(cid:72)(cid:86)
6
5
14
(cid:26)
34
6
45
30
3
41
20
14
42
3
20
2
24
104
14
1
2(cid:26)
33
(cid:26)
20
2
1,1(cid:26)(cid:23)
22
Distribution centers
Our standard distribution center lease provides for a fixed minimum annual rent and generally has a 10 or 15-year initial
term with three or four renewal options with terms of five years each. The general location, approximate si(cid:93)e, and lease
expiration dates of our distribution centers at February 2, 2019, are set forth below:
L(cid:82)(cid:70)(cid:68)ti(cid:82)(cid:81)
Romeoville, Illinois . . . . . . . . . . . . . . . . . . . . .
Chambersburg, Pennsylvania . . . . . . . . . . . . .
(cid:42)reenwood, Indiana . . . . . . . . . . . . . . . . . . . .
Dallas, Texas . . . . . . . . . . . . . . . . . . . . . . . . . .
Fresno, California . . . . . . . . . . . . . . . . . . . . . .
A(cid:83)(cid:83)(cid:85)(cid:82)xi(cid:80)(cid:68)t(cid:72)
S(cid:84)(cid:88)(cid:68)(cid:85)(cid:72) F(cid:72)(cid:72)t
291,000
3(cid:26)3,000
6(cid:26)1,000
6(cid:26)1,000
6(cid:26)1,000
L(cid:72)(cid:68)(cid:86)(cid:72) Ex(cid:83)i(cid:85)(cid:68)ti(cid:82)(cid:81)
D(cid:68)t(cid:72)
April 30, 2020
March 31, 202(cid:26)
(cid:45)uly 31, 2025
(cid:45)uly 31, 2026
(cid:45)uly 31, 2028
The Phoenix, Ari(cid:93)ona distribution center lease expired on March 31, 2019.
Corporate office
Our principal executive office is in Bolingbroo(cid:78), Illinois. The corporate office is approximately 411,000 square feet with
lease terms expiring from 2019 to 2028. Additionally, we have a satellite corporate office in Chicago, Illinois. The
Chicago office is approximately 23,000 square feet with lease expiration in 2024.
It(cid:72)(cid:80) 3. L(cid:72)(cid:74)(cid:68)(cid:79) P(cid:85)(cid:82)(cid:70)(cid:72)(cid:72)(cid:71)i(cid:81)(cid:74)(cid:86)
See (cid:49)ote 8 to our consolidated financial statements, “Commitments and contingencies - (cid:42)eneral litigation,” for
information on legal proceedings.
It(cid:72)(cid:80) (cid:23). (cid:48)i(cid:81)(cid:72) S(cid:68)(cid:73)(cid:72)t(cid:92) Di(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)
(cid:49)one.
EXECUTI(cid:57)E OFFICERS OF THE RE(cid:42)ISTRANT
The names of our executive officers, their ages and their positions are shown below:
N(cid:68)(cid:80)(cid:72)
Mary (cid:49). Dillon . . . . . . . .
Scott M. Settersten . . . . .
(cid:45)odi (cid:45). Caro . . . . . . . . . . .
(cid:45)effrey (cid:45). Childs . . . . . . . .
David C. Kimbell. . . . . . .
A(cid:74)(cid:72) P(cid:82)(cid:86)iti(cid:82)(cid:81)
5(cid:26) Chief Executive Officer and member of the Board of Directors
58 Chief Financial Officer, Treasurer and Assistant Secretary
53 (cid:42)eneral Counsel, Chief Compliance Officer and Corporate Secretary
61 Chief (cid:43)uman Resources Officer
52 Chief Merchandising and Mar(cid:78)eting Officer
There is no family relationship between any of the directors or executive officers and any other director or executive
officer of Ulta Beauty.
Mary N. Dillon. Ms. Dillon was named Chief Executive Officer effective (cid:45)uly 2013. Prior to (cid:77)oining Ulta Beauty, she
was President and Chief Executive Officer and a Director of U.S. Cellular from (cid:45)une 2010 to (cid:45)uly 2013. From 2005 to
2010, Ms. Dillon served as (cid:42)lobal Chief Mar(cid:78)eting Officer and Executive (cid:57)ice President for McDonald(cid:182)s Corporation.
Prior to (cid:77)oining McDonald(cid:182)s Corporation, she held various positions at PepsiCo, including President of the (cid:52)ua(cid:78)er Foods
division. Ms. Dillon serves as a member of the Board of Directors for Starbuc(cid:78)s Corporation and KKR (cid:9) Co. Inc. and
previously served on the board of Target Corporation from 200(cid:26) to 2013.
Scott M. Settersten. Mr. Settersten was named Chief Financial Officer, Treasurer and Assistant Secretary in March 2013
after having previously served as Acting Chief Financial Officer and Assistant Secretary since October 2012. Prior to
23
this role, Mr. Settersten served as (cid:57)ice President of Accounting since 2010 and was responsible for accounting, tax,
external reporting and investor relations. (cid:43)e (cid:77)oined Ulta Beauty in (cid:45)anuary 2005 as a Director of Financial Reporting.
Prior to (cid:77)oining Ulta Beauty, Mr. Settersten spent 15 years with PricewaterhouseCoopers (cid:47)(cid:47)P as a certified public
accountant serving in various senior manager roles in the assurance and ris(cid:78) management practices.
Jodi J. Caro. Ms. Caro was named (cid:42)eneral Counsel, Chief Compliance Officer (cid:9) Corporate Secretary in August 2015.
Prior to (cid:77)oining Ulta Beauty, she was (cid:57)ice President, (cid:42)eneral Counsel and Secretary for Integrys Energy (cid:42)roup, in
addition to holding the role of Integrys(cid:182) Chief Compliance and Ethics Officer. Prior to (cid:77)oining Integrys in 2008,
Ms. Caro owned and operated her own law practice, which provided general counsel and corporate services to clients
ranging from established multi-million dollar companies to medium and small early-stage enterprises. Prior to opening
her law practice in 2006, she was co-founder and (cid:42)eneral Counsel of (cid:47)oo(cid:78)ing (cid:42)lass (cid:49)etwor(cid:78)s, a privately held,
facilities-based telecommunications company, and served as an in-house attorney with MCI/(cid:58)OR(cid:47)DCOM.
Jeffrey J. Childs. Mr. Childs was named Chief (cid:43)uman Resource Officer in October 2013. Prior to (cid:77)oining Ulta Beauty,
he was Executive (cid:57)ice President and Chief (cid:43)uman Resource Officer at U.S. Cellular after (cid:77)oining as Senior (cid:57)ice
President of (cid:43)uman Resources in 2004. From 2001 to 2004, he was President and Owner of Childs Consulting Services.
Previously, he served from 19(cid:26)9 to 2001 in a variety of human resources, mar(cid:78)eting, sales and operations roles at
AT(cid:9)T, Ameritech and SBC including (cid:57)ice President, (cid:43)uman Resources and Corporate Services.
David C. Kimbell. Mr. Kimbell was named Chief Merchandising and Mar(cid:78)eting Officer in March 2015 after having
previously served as Chief Mar(cid:78)eting Officer since February 2014. Prior to (cid:77)oining Ulta Beauty, he was Chief Mar(cid:78)eting
Officer and Executive (cid:57)ice President at U.S. Cellular since February 2011. From 2008 to 2011, Mr. Kimbell served as
Chief Mar(cid:78)eting Officer and Senior (cid:57)ice President of Seventh (cid:42)eneration, a producer of environmentally friendly
household and baby care products. Prior to that from 2001 to 2008, Mr. Kimbell held various positions at PepsiCo,
(cid:52)ua(cid:78)er Food Division, including (cid:57)ice President of Mar(cid:78)eting. Mr. Kimbell held a number of mar(cid:78)eting roles for several
brands at The Procter and (cid:42)amble Company from 1995 to 2001.
P(cid:68)(cid:85)t II
It(cid:72)(cid:80) 5. (cid:48)(cid:68)(cid:85)(cid:78)(cid:72)t (cid:73)(cid:82)(cid:85) R(cid:72)(cid:74)i(cid:86)t(cid:85)(cid:68)(cid:81)t(cid:182)(cid:86) C(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) E(cid:84)(cid:88)it(cid:92), R(cid:72)(cid:79)(cid:68)t(cid:72)(cid:71) St(cid:82)(cid:70)(cid:78)h(cid:82)(cid:79)(cid:71)(cid:72)(cid:85) (cid:48)(cid:68)tt(cid:72)(cid:85)(cid:86) (cid:68)(cid:81)(cid:71) I(cid:86)(cid:86)(cid:88)(cid:72)(cid:85) P(cid:88)(cid:85)(cid:70)h(cid:68)(cid:86)(cid:72)(cid:86) (cid:82)(cid:73) E(cid:84)(cid:88)it(cid:92)
S(cid:72)(cid:70)(cid:88)(cid:85)iti(cid:72)(cid:86)
Market information
Our common stoc(cid:78) has traded on the (cid:49)ASDA(cid:52) (cid:42)lobal Select Mar(cid:78)et under the symbol “U(cid:47)TA” since October 25,
200(cid:26).
Holders of the registrant’s common stock
The last reported sale price of our common stoc(cid:78) on the (cid:49)ASDA(cid:52) (cid:42)lobal Select Mar(cid:78)et on March 28, 2019 was
(cid:7)345.23 per share. As of March 28, 2019, we had 38 holders of record of our common stoc(cid:78). Because many shares of
common stoc(cid:78) are held by bro(cid:78)ers and other institutions on behalf of stoc(cid:78)holders, we are unable to estimate the total
number of stoc(cid:78)holders represented by these record holders.
24
Purchases of equity securities by the issuer and affiliated purchasers
The following table sets forth repurchases of our common stoc(cid:78) during the fourth quarter of 2018:
P(cid:72)(cid:85)i(cid:82)(cid:71)
(cid:49)ovember 4, 2018 to December 1, 2018 . . . . .
December 2, 2018 to December 29, 2018 . . . .
December 30, 2018 to February 2, 2019 . . . . .
13 wee(cid:78)s ended February 2, 2019 . . . . . . . . . .
T(cid:82)t(cid:68)(cid:79) (cid:81)(cid:88)(cid:80)b(cid:72)(cid:85)
(cid:82)(cid:73) (cid:86)h(cid:68)(cid:85)(cid:72)(cid:86)
(cid:83)(cid:88)(cid:85)(cid:70)h(cid:68)(cid:86)(cid:72)(cid:71) (cid:11)1(cid:12)
A(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)
(cid:83)(cid:85)i(cid:70)(cid:72) (cid:83)(cid:68)i(cid:71)
(cid:83)(cid:72)(cid:85) (cid:86)h(cid:68)(cid:85)(cid:72)
150,338 (cid:7)
393,(cid:26)06
338,18(cid:26)
882,231
302.49
249.0(cid:26)
2(cid:26)6.30
268.61
T(cid:82)t(cid:68)(cid:79) (cid:81)(cid:88)(cid:80)b(cid:72)(cid:85)
(cid:82)(cid:73) (cid:86)h(cid:68)(cid:85)(cid:72)(cid:86)
(cid:83)(cid:88)(cid:85)(cid:70)h(cid:68)(cid:86)(cid:72)(cid:71) (cid:68)(cid:86)
(cid:83)(cid:68)(cid:85)t (cid:82)(cid:73) (cid:83)(cid:88)b(cid:79)i(cid:70)(cid:79)(cid:92)
(cid:68)(cid:81)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:71)
(cid:83)(cid:79)(cid:68)(cid:81)(cid:86) (cid:82)(cid:85)
(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:86) (cid:11)2(cid:12)
A(cid:83)(cid:83)(cid:85)(cid:82)xi(cid:80)(cid:68)t(cid:72)
(cid:71)(cid:82)(cid:79)(cid:79)(cid:68)(cid:85) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72) (cid:82)(cid:73)
(cid:86)h(cid:68)(cid:85)(cid:72)(cid:86) th(cid:68)t (cid:80)(cid:68)(cid:92) (cid:92)(cid:72)t
t(cid:82) b(cid:72) (cid:83)(cid:88)(cid:85)(cid:70)h(cid:68)(cid:86)(cid:72)(cid:71)
(cid:88)(cid:81)(cid:71)(cid:72)(cid:85) (cid:83)(cid:79)(cid:68)(cid:81)(cid:86) (cid:82)(cid:85)
(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:86)
(cid:11)i(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12) (cid:11)2(cid:12)
150,338 (cid:7)
393,4(cid:26)2
33(cid:26),62(cid:26)
881,43(cid:26)
23(cid:26),361
139,362
46,065
46,065
(1) There were 881,43(cid:26) shares repurchased as part of our publicly announced share repurchase program during the
13 wee(cid:78)s ended February 2, 2019 and there were (cid:26)94 shares transferred from employees in satisfaction of minimum
statutory tax withholding obligations upon the vesting of restricted stoc(cid:78) during the period.
(2) On March 15, 2018, we announced our 2018 share repurchase program pursuant to which the Company may
repurchase up to (cid:7)625.0 million of the Company(cid:182)s common stoc(cid:78). The 2018 share repurchase program did not have
an expiration date but provided for suspension or discontinuation at any time. As of February 2, 2019, (cid:7)46.1 million
remained available under the (cid:7)625.0 million 2018 share repurchase program. On March 14, 2019, we announced the
2019 share repurchase program. For additional information on the 2019 share repurchase program see (cid:49)ote 19 to
our consolidated financial statements, “Subsequent event.”
Recent sales of unregistered securities
(cid:49)one.
Securities authorized for issuance under equity compensation plans
The following table provides information about Ulta Beauty common stoc(cid:78) that may be issued under our equity
compensation plans as of February 2, 2019:
P(cid:79)(cid:68)(cid:81) (cid:70)(cid:68)t(cid:72)(cid:74)(cid:82)(cid:85)(cid:92)
Equity compensation plans approved by
security holders (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
N(cid:88)(cid:80)b(cid:72)(cid:85) (cid:82)(cid:73) (cid:86)(cid:72)(cid:70)(cid:88)(cid:85)iti(cid:72)(cid:86)
t(cid:82) b(cid:72) i(cid:86)(cid:86)(cid:88)(cid:72)(cid:71) (cid:88)(cid:83)(cid:82)(cid:81)
(cid:72)x(cid:72)(cid:85)(cid:70)i(cid:86)(cid:72) (cid:82)(cid:73) (cid:82)(cid:88)t(cid:86)t(cid:68)(cid:81)(cid:71)i(cid:81)(cid:74)
(cid:82)(cid:83)ti(cid:82)(cid:81)(cid:86), (cid:90)(cid:68)(cid:85)(cid:85)(cid:68)(cid:81)t(cid:86)
(cid:68)(cid:81)(cid:71) (cid:85)i(cid:74)ht(cid:86) (cid:11)2(cid:12)
(cid:58)(cid:72)i(cid:74)ht(cid:72)(cid:71)-(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)
(cid:72)x(cid:72)(cid:85)(cid:70)i(cid:86)(cid:72) (cid:83)(cid:85)i(cid:70)(cid:72) (cid:82)(cid:73)
(cid:82)(cid:88)t(cid:86)t(cid:68)(cid:81)(cid:71)i(cid:81)(cid:74) (cid:82)(cid:83)ti(cid:82)(cid:81)(cid:86),
(cid:90)(cid:68)(cid:85)(cid:85)(cid:68)(cid:81)t(cid:86) (cid:68)(cid:81)(cid:71) (cid:85)i(cid:74)ht(cid:86) (cid:11)3(cid:12)
N(cid:88)(cid:80)b(cid:72)(cid:85) (cid:82)(cid:73) (cid:86)(cid:72)(cid:70)(cid:88)(cid:85)iti(cid:72)(cid:86)
(cid:85)(cid:72)(cid:80)(cid:68)i(cid:81)i(cid:81)(cid:74) (cid:68)(cid:89)(cid:68)i(cid:79)(cid:68)b(cid:79)(cid:72)
(cid:73)(cid:82)(cid:85) (cid:73)(cid:88)t(cid:88)(cid:85)(cid:72) i(cid:86)(cid:86)(cid:88)(cid:68)(cid:81)(cid:70)(cid:72)
(cid:88)(cid:81)(cid:71)(cid:72)(cid:85) (cid:72)(cid:84)(cid:88)it(cid:92)
(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)ti(cid:82)(cid:81)
(cid:83)(cid:79)(cid:68)(cid:81)(cid:86) (cid:11)(cid:23)(cid:12)
1,016,561 (cid:7)
1(cid:26)4.34
3,336,386
(1) Includes options issued and available for exercise and shares available for issuance in connection with past awards
under the Amended and Restated 2011 Incentive Award Plan and predecessor equity incentive plans. (cid:58)e currently
grant awards only under the Amended and Restated 2011 Incentive Award Plan.
(2) Includes (cid:26)54,666 shares issuable pursuant to the exercise of outstanding stoc(cid:78) options, 16(cid:26),(cid:26)42 shares issuable
pursuant to restricted stoc(cid:78) units, and 94,153 shares issuable pursuant to performance-based units.
(3) Calculation of weighted-average exercise price of outstanding awards includes stoc(cid:78) options, but does not include
shares of restricted stoc(cid:78) units or performance-based units that convert to shares of common stoc(cid:78) for no
consideration.
25
(4) Represents shares that are available for issuance pursuant to the Amended and Restated 2011 Incentive Award Plan.
The shares available under the plan are reduced by 1.0 for each stoc(cid:78) option awarded and by 1.5 for each restricted
stoc(cid:78) unit and performance-based unit awarded.
Stock performance graph
The following performance graph and related information shall not be deemed “soliciting material” or to be “filed”
with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of
1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by
reference into such filing.
Set forth below is a graph comparing the cumulative total stoc(cid:78)holder return on Ulta Beauty(cid:182)s common stoc(cid:78) with the
(cid:49)ASDA(cid:52) (cid:42)lobal Select Mar(cid:78)et Composite Index ((cid:49)(cid:52)(cid:42)S) and the S(cid:9)P Retail Index (R(cid:47)(cid:59)) for the period covering
February 1, 2014 through the end of Ulta Beauty(cid:182)s fiscal year ended February 2, 2019. The graph assumes an investment
of (cid:7)100 made at the closing of trading on February 1, 2014 in (i) Ulta Beauty(cid:182)s common stoc(cid:78), (ii) the stoc(cid:78)s comprising
the (cid:49)(cid:52)(cid:42)S and (iii) stoc(cid:78)s comprising the R(cid:47)(cid:59). All values assume reinvestment of the full amount of all dividends, if
any, into additional shares of the same class of equity securities at the frequency with which dividends are paid on such
securities during the applicable time period.
(cid:7)(cid:23)(cid:19)(cid:19)
(cid:7)(cid:22)(cid:19)(cid:19)
(cid:7)(cid:21)(cid:19)(cid:19)
(cid:7)(cid:20)(cid:19)(cid:19)
(cid:7)(cid:19)
(cid:23)
(cid:20)
(cid:16)
(cid:81)
(cid:68)
(cid:45)
(cid:24)
(cid:20)
(cid:16)
(cid:81)
(cid:68)
(cid:45)
(cid:25)
(cid:20)
(cid:16)
(cid:81)
(cid:68)
(cid:45)
(cid:26)
(cid:20)
(cid:16)
(cid:81)
(cid:68)
(cid:45)
(cid:27)
(cid:20)
(cid:16)
(cid:81)
(cid:68)
(cid:45)
(cid:28)
(cid:20)
(cid:16)
(cid:81)
(cid:68)
(cid:45)
(cid:56)(cid:79)(cid:87)(cid:68)
(cid:49)(cid:52)(cid:42)(cid:54)
(cid:53)(cid:47)(cid:59)
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 1,
(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92) 31,
C(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92) (cid:18) I(cid:81)(cid:71)(cid:72)x
Ulta Beauty . . . . . . . . . . . . . . . . . . . (cid:7)
(cid:49)(cid:52)(cid:42)S . . . . . . . . . . . . . . . . . . . . . . . .
R(cid:47)(cid:59) . . . . . . . . . . . . . . . . . . . . . . . . .
2015
201(cid:23)
100.00 (cid:7) 154.91 (cid:7)
100.00
100.00
113.40
118.(cid:26)5
201(cid:26)
(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92) 28,
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 3,
(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92) 30,
2016
212.(cid:26)2 (cid:7) 319.69 (cid:7) 260.(cid:26)(cid:26) (cid:7) 342.(cid:26)5
1(cid:26)9.24
113.55
248.01
13(cid:26).22
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2,
2019
138.09
160.31
182.52
230.59
2018
26
It(cid:72)(cid:80) 6. S(cid:72)(cid:79)(cid:72)(cid:70)t(cid:72)(cid:71) Fi(cid:81)(cid:68)(cid:81)(cid:70)i(cid:68)(cid:79) D(cid:68)t(cid:68)
The following table presents our selected consolidated financial data. The table should be read in con(cid:77)unction with
Item (cid:26), “Management(cid:182)s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 8,
“Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71) (cid:11)1(cid:12)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2,
2019 (cid:11)2(cid:12)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 3,
2018 (cid:11)3(cid:12)
(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92) 28,
201(cid:26)
(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92) 30,
2016
(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92) 31,
2015
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86), (cid:72)x(cid:70)(cid:72)(cid:83)t (cid:83)(cid:72)(cid:85) (cid:86)h(cid:68)(cid:85)(cid:72) (cid:68)(cid:81)(cid:71) (cid:83)(cid:72)(cid:85) (cid:86)(cid:84)(cid:88)(cid:68)(cid:85)(cid:72) (cid:73)(cid:82)(cid:82)t (cid:71)(cid:68)t(cid:68)(cid:12)
(cid:7)
6,(cid:26)16,615
4,30(cid:26),304
2,409,311
(cid:7)
5,884,506
3,(cid:26)8(cid:26),69(cid:26)
2,096,809
(cid:7)
4,854,(cid:26)3(cid:26)
3,10(cid:26),508
1,(cid:26)4(cid:26),229
(cid:7) 3,924,116
2,539,(cid:26)83
1,384,333
(cid:7) 3,241,369
2,104,582
1,136,(cid:26)8(cid:26)
1,535,464
19,(cid:26)6(cid:26)
854,080
(5,061)
859,141
200,582
658,559
(cid:7)
1,28(cid:26),232
24,286
(cid:26)85,291
(1,568)
(cid:26)86,859
231,625
555,234
9.02
8.96
(cid:7)
(cid:7)
(cid:7)
1,0(cid:26)3,834
18,5(cid:26)1
654,824
(890)
655,(cid:26)14
245,954
409,(cid:26)60
6.55
6.52
(cid:7)
(cid:7)
(cid:7)
(cid:7)
(cid:7)
(cid:7)
863,354
14,682
506,29(cid:26)
(1,143)
50(cid:26),440
18(cid:26),432
320,008
5.00
4.98
(cid:7)
(cid:7)
(cid:7)
(cid:26)12,006
14,366
410,415
(894)
411,309
154,1(cid:26)4
25(cid:26),135
4.00
3.98
I(cid:81)(cid:70)(cid:82)(cid:80)(cid:72) (cid:86)t(cid:68)t(cid:72)(cid:80)(cid:72)(cid:81)t(cid:29)
(cid:49)et sales. . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . .
(cid:42)ross profit . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pre-opening expenses . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . .
Interest income, net . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . .
Income tax expense (4) . . . . . . . . . . . . . . .
(cid:49)et income . . . . . . . . . . . . . . . . . . . . . . .
(cid:49)et income per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . .
(cid:7)
(cid:7)
11.00
10.94
(cid:58)eighted average common shares
outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . .
59,864
60,181
61,556
61,9(cid:26)5
62,519
62,851
63,949
64,2(cid:26)5
64,335
64,651
Oth(cid:72)(cid:85) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)ti(cid:81)(cid:74) (cid:71)(cid:68)t(cid:68)(cid:29)
Comparable sales increase: (5)
Retail and salon comparable sales . . . . . .
E-commerce comparable sales . . . . . . . .
Total comparable sales increase . . . . . . .
(cid:49)umber of stores end of year . . . . . . . . . . .
Total square footage end of year . . . . . . . .
Total square footage per store (6) . . . . . . .
Average total square footage ((cid:26)) . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . .
Depreciation and amorti(cid:93)ation . . . . . . . . . .
Repurchase of common shares . . . . . . . . . .
B(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72) (cid:86)h(cid:72)(cid:72)t (cid:71)(cid:68)t(cid:68)(cid:29)
Cash and cash equivalents . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . .
(cid:58)or(cid:78)ing capital (8) . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
Total stoc(cid:78)holders(cid:10) equity . . . . . . . . . . . . .
5.1(cid:8)
35.4(cid:8)
8.1(cid:8)
1,1(cid:26)4
12,33(cid:26),145
10,509
11,893,413
319,400
2(cid:26)9,4(cid:26)2
616,194
(cid:26).1(cid:8)
59.9(cid:8)
11.0(cid:8)
1,0(cid:26)4
11,300,920
10,522
10,(cid:26)42,8(cid:26)4
440,(cid:26)14
252,(cid:26)13
36(cid:26),581
13.4(cid:8)
56.2(cid:8)
15.8(cid:8)
9(cid:26)4
10,2(cid:26)1,184
10,545
9,641,36(cid:26)
3(cid:26)3,(cid:26)4(cid:26)
210,295
344,2(cid:26)5
10.0(cid:8)
4(cid:26).5(cid:8)
11.8(cid:8)
8(cid:26)4
9,225,95(cid:26)
10,556
8,(cid:26)24,581
299,16(cid:26)
165,049
16(cid:26),396
8.1(cid:8)
56.4(cid:8)
9.9(cid:8)
(cid:26)(cid:26)4
8,182,404
10,5(cid:26)2
(cid:26),690,(cid:26)42
249,06(cid:26)
131,(cid:26)64
39,923
(cid:7)
409,251
(cid:178)
1,091,125
1,226,029
3,191,1(cid:26)2
1,820,218
(cid:7)
2(cid:26)(cid:26),445
120,000
1,051,5(cid:26)(cid:26)
1,189,453
2,908,68(cid:26)
1,(cid:26)(cid:26)4,21(cid:26)
(cid:7)
385,010
30,000
1,006,894
1,004,358
2,551,8(cid:26)8
1,550,218
(cid:7)
345,840
130,000
9(cid:26)8,946
84(cid:26),600
2,230,918
1,442,886
(cid:7)
389,149
150,209
900,(cid:26)61
(cid:26)1(cid:26),159
1,983,1(cid:26)0
1,24(cid:26),509
(1) Our fiscal year-end is the Saturday closest to (cid:45)anuary 31 based on a 52/53-wee(cid:78) year. Each fiscal year consists of
four 13-wee(cid:78) quarters, with an extra wee(cid:78) added onto the fourth quarter every five or six years.
(2) The Company adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with
Customers (ASC 606) using the modified retrospective transition method in fiscal 2018. Results from fiscal years
prior to fiscal 2018 have not been recast for the adoption of ASC 606.
2(cid:26)
(3) Fiscal 201(cid:26) includes 53 wee(cid:78)s(cid:30) all other fiscal years reported include 52 wee(cid:78)s. (cid:49)et sales for the 53rd wee(cid:78) of fiscal
201(cid:26) were approximately (cid:7)108.8 million.
(4) On December 22, 201(cid:26), the Tax Cuts and (cid:45)obs Act was enacted into law. This new legislation reduced the federal
corporate tax rate to 21.0(cid:8) effective (cid:45)anuary 1, 2018. In accordance with Section 15 of the Internal Revenue Code,
the Company utili(cid:93)ed a blended rate of 33.(cid:26)(cid:8) for the fiscal 201(cid:26) tax year, by applying a prorated percentage of the
number of days prior to and subsequent to the (cid:45)anuary 1, 2018 effective date. Income tax expense in fiscal 2018
reflects the lower federal tax rate for the entire fiscal year.
(5) Comparable sales increase reflects sales for stores beginning on the first day of the 14th month of operation.
Remodeled stores are included in comparable sales unless the store was closed for a portion of the current or
comparable prior year.
(6) Total square footage per store is calculated by dividing total square footage at end of year by number of stores at end
of year.
((cid:26)) Average total square footage represents a weighted average, which reflects the effect of opening stores in
different months throughout the year.
(8) The Company prospectively adopted Accounting Standards Update (cid:49)o. 2015-1(cid:26), Balance Sheet Classification of
Deferred Taxes, in the fourth quarter of fiscal 2015. As a result of this adoption, current deferred tax assets were
classified as non-current liabilities at February 2, 2019, February 3, 2018, (cid:45)anuary 28, 201(cid:26), and (cid:45)anuary 30, 2016.
It(cid:72)(cid:80) (cid:26). (cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)t(cid:182)(cid:86) Di(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)i(cid:82)(cid:81) (cid:68)(cid:81)(cid:71) A(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)i(cid:86) (cid:82)(cid:73) Fi(cid:81)(cid:68)(cid:81)(cid:70)i(cid:68)(cid:79) C(cid:82)(cid:81)(cid:71)iti(cid:82)(cid:81) (cid:68)(cid:81)(cid:71) R(cid:72)(cid:86)(cid:88)(cid:79)t(cid:86) (cid:82)(cid:73) O(cid:83)(cid:72)(cid:85)(cid:68)ti(cid:82)(cid:81)(cid:86)
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 Annual Report on Form 10-K.
O(cid:89)(cid:72)(cid:85)(cid:89)i(cid:72)(cid:90)
(cid:58)e were founded in 1990 as a beauty retailer at a time when prestige, mass, and salon products were sold through
distinct channels (cid:177) department stores for prestige products, drug stores and mass merchandisers for mass products, and
salons and authori(cid:93)ed retail outlets for professional hair care products. (cid:58)e developed a unique specialty retail concept
that offers a broad range of brands and price points, a compelling value proposition, and a convenient and welcoming
shopping environment. (cid:58)e define our target consumer as a beauty enthusiast, a consumer who is passionate about the
beauty category and has high expectations for the shopping experience. (cid:58)e estimate the beauty enthusiasts represents
approximately 5(cid:26)(cid:8) of shoppers and (cid:26)(cid:26)(cid:8) of spend in the U.S. beauty category. (cid:58)e believe our strategy provides us with
the competitive advantages that have contributed to our financial performance.
(cid:58)e are the largest beauty retailer in the United States and the premier beauty destination for cosmetics, fragrance, s(cid:78)in
care products, hair care products, and salon services. (cid:58)e provide unmatched product breadth, value, and convenience in
a distinctive specialty retail environment. Key aspects of our business include: our ability to offer our guests a unique
combination of more than 25,000 beauty products from across the categories of prestige and mass cosmetics, fragrance,
haircare, s(cid:78)incare, bath and body products, and salon styling tools, as well as a full-service salon in every store featuring
hair, s(cid:78)in, and brow services(cid:30) our focus on delivering a compelling value proposition to our guests across all of our
product categories(cid:30) and convenience, as our stores are predominantly located in convenient, high-traffic locations such as
power centers.
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 imperatives: 1) drive growth across beauty enthusiast consumer groups, 2) deepen
Ulta Beauty love and loyalty, 3) deliver a one of a (cid:78)ind, world class beauty assortment, 4) lead the in-store and beauty
services experience transformation, 5) reinvent beauty digital engagement, 6) deliver operational excellence and drive
efficiencies, and (cid:26)) invest in talent that drives a winning culture. (cid:58)e believe that the expanding U.S. beauty products and
salon services industry, the shift in distribution channel of prestige beauty products from department stores to specialty
28
retail stores, coupled with Ulta Beauty(cid:182)s competitive strengths, positions us to capture additional mar(cid:78)et share in the
industry.
Comparable sales is a (cid:78)ey 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 mar(cid:78)eting activities, among others.
Over the long term, our growth strategy is to increase total net sales through increases in our comparable sales, opening
new stores, and increasing omnichannel capabilities. Operating profit is expected to increase as a result of our ability to
expand merchandise margin and leverage our fixed store costs with comparable sales increases and operating efficiencies
offset by incremental investments in people, systems, and supply chain required to support a 1,500 to 1,(cid:26)00 store chain
in the U.S. with successful e-commerce and competitive omnichannel capabilities.
B(cid:68)(cid:86)i(cid:86) (cid:82)(cid:73) (cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)t(cid:68)ti(cid:82)(cid:81)
The Company has one reportable segment, which includes retail stores, salon services, and e-commerce.
(cid:58)e recogni(cid:93)e merchandise revenue at the point of sale in our retail stores. E-commerce merchandise sales are recogni(cid:93)ed
based upon shipment of merchandise to the guest 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 as a result, any fees received from guests are included in the transaction price allocated to the performance obligation
of providing goods with a corresponding amount accrued within cost of sales for amounts paid to applicable carriers. (cid:58)e
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 recogni(cid:93)ed at the time the service is provided to the guest. (cid:42)ift 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
sources include the private label credit card and co-branded credit card programs, as well as deferred revenue related to
the loyalty program and gift card brea(cid:78)age.
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. (cid:49)on-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 as a result of remodel
activity. 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. 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(cid:30)
the introduction of new products or brands(cid:30)
the location of new stores in existing store mar(cid:78)ets(cid:30)
competition(cid:30)
our ability to respond on a timely basis to changes in consumer preferences(cid:30)
the effectiveness of our various merchandising and mar(cid:78)eting activities(cid:30) and
the number of new stores opened and the impact on the average age of all of our comparable stores.
29
Cost of sales includes:
•
•
•
•
•
•
the cost of merchandise sold, including substantially all vendor allowances, which are treated as a reduction of
merchandise costs(cid:30)
distribution costs including labor and related benefits, freight, rent, depreciation and amorti(cid:93)ation, real estate
taxes, utilities, and insurance(cid:30)
shipping and handling costs(cid:30)
retail stores occupancy costs including rent, depreciation and amorti(cid:93)ation, real estate taxes, utilities, repairs and
maintenance, insurance, licenses, and cleaning expenses(cid:30)
salon services payroll and benefits(cid:30) and
shrin(cid:78) and inventory valuation reserves.
Our cost of sales may be negatively impacted as we open an increasing number of stores. Changes in our merchandise
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 stores and corporate employees(cid:30)
advertising and mar(cid:78)eting costs(cid:30)
occupancy costs related to our corporate office facilities(cid:30)
stoc(cid:78)-based compensation expense(cid:30)
depreciation and amorti(cid:93)ation for all assets, except those related to our retail stores and distribution operations,
which are included in cost of sales(cid:30) 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 includes both interest income and expense. Interest income represents interest from cash equivalents
and short-term investments with maturities of twelve 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 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.
30
R(cid:72)(cid:86)(cid:88)(cid:79)t(cid:86) (cid:82)(cid:73) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)ti(cid:82)(cid:81)(cid:86)
Our fiscal years are the 52 or 53 wee(cid:78) periods ending on the Saturday closest to (cid:45)anuary 31. The Company(cid:182)s fiscal years
ended February 2, 2019 (fiscal 2018), February 3, 2018 (fiscal 201(cid:26)), and (cid:45)anuary 28, 201(cid:26) (fiscal 2016) were 52, 53,
and 52-wee(cid:78) years, respectively.
As of February 2, 2019, we operated 1,1(cid:26)4 stores across 50 states. The following tables present the components of our
consolidated results of operations for the periods indicated:
(cid:11)D(cid:82)(cid:79)(cid:79)(cid:68)(cid:85)(cid:86) i(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)
(cid:49)et sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:42)ross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2,
2019
(cid:7)
6,(cid:26)16,615
4,30(cid:26),304
2,409,311
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 3,
2018
5,884,506
3,(cid:26)8(cid:26),69(cid:26)
2,096,809
(cid:7)
(cid:7)
(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92) 28,
201(cid:26)
4,854,(cid:26)3(cid:26)
3,10(cid:26),508
1,(cid:26)4(cid:26),229
Selling, general and administrative expenses . . . . . . . . . . . . . .
Pre-opening expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:49)et income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
1,535,464
19,(cid:26)6(cid:26)
854,080
(5,061)
859,141
200,582
658,559
(cid:7)
1,28(cid:26),232
24,286
(cid:26)85,291
(1,568)
(cid:26)86,859
231,625
555,234
1,0(cid:26)3,834
18,5(cid:26)1
654,824
(890)
655,(cid:26)14
245,954
409,(cid:26)60
(cid:7)
Other operating data:
(cid:49)umber of stores end of period . . . . . . . . . . . . . . . . . . . . . . . . .
Comparable sales increase:
Retail stores and salon services comparable sales . . . . . . .
E-commerce comparable sales . . . . . . . . . . . . . . . . . . . . . .
Total comparable sales increase . . . . . . . . . . . . . . . . . . . . .
(cid:11)P(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)t(cid:68)(cid:74)(cid:72) (cid:82)(cid:73) (cid:81)(cid:72)t (cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:12)
(cid:49)et sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:42)ross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . .
Pre-opening expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:49)et income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) 2018 (cid:89)(cid:72)(cid:85)(cid:86)(cid:88)(cid:86) (cid:73)i(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) 201(cid:26)
Net sales
1,1(cid:26)4
5.1(cid:8)
35.4(cid:8)
8.1(cid:8)
1,0(cid:26)4
(cid:26).1(cid:8)
59.9(cid:8)
11.0(cid:8)
9(cid:26)4
13.4(cid:8)
56.2(cid:8)
15.8(cid:8)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2,
2019
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 3,
2018
(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92) 28,
201(cid:26)
100.0(cid:8)
64.1(cid:8)
35.9(cid:8)
22.9(cid:8)
0.3(cid:8)
12.(cid:26)(cid:8)
0.1(cid:8)
12.8(cid:8)
3.0(cid:8)
9.8(cid:8)
100.0(cid:8)
64.4(cid:8)
35.6(cid:8)
21.9(cid:8)
0.4(cid:8)
13.3(cid:8)
0.0(cid:8)
13.3(cid:8)
3.9(cid:8)
9.4(cid:8)
100.0(cid:8)
64.0(cid:8)
36.0(cid:8)
22.1(cid:8)
0.4(cid:8)
13.5(cid:8)
0.0(cid:8)
13.5(cid:8)
5.1(cid:8)
8.4(cid:8)
(cid:49)et sales increased (cid:7)832.1 million, or 14.1(cid:8), to (cid:7)6,(cid:26)16.6 million in fiscal 2018 compared to (cid:7)5,884.5 million in fiscal
201(cid:26). E-commerce sales increased (cid:7)183.5 million, or 32.3(cid:8), to (cid:7)(cid:26)52.2 million compared to (cid:7)568.(cid:26) million in fiscal
201(cid:26). Salon service sales increased (cid:7)23.5 million, or 8.5(cid:8), to (cid:7)300.9 million compared to (cid:7)2(cid:26)(cid:26).4 million in fiscal 201(cid:26).
The net sales increases are due to the opening of 100 net new stores in 2018 and an 8.1(cid:8) increase in comparable sales.
31
(cid:49)on-comparable stores, which include stores opened in fiscal 2018 as well as stores opened in fiscal 201(cid:26), which have
not yet turned comparable, contributed (cid:7)321.9 million of the net sales increase, while comparable stores contributed
(cid:7)461.3 million of the total net sales increase. Other revenue increased (cid:7)48.9 million in fiscal 2018. The sales for the 53rd
wee(cid:78) of fiscal 201(cid:26) were approximately (cid:7)108.8 million.
The 8.1(cid:8) comparable sales increase consisted of a 5.1(cid:8) increase in retail stores and salon services and a 35.4(cid:8) increase
in e-commerce. The inclusion of e-commerce resulted in an increase of approximately 300 basis points to the total
comparable sales in fiscal 2018 compared to 390 basis points in fiscal 201(cid:26). The total comparable sales increase included
a 5.3(cid:8) increase in transactions and a 2.8(cid:8) increase in average tic(cid:78)et. (cid:58)e attribute the increase in comparable sales to
our successful mar(cid:78)eting and merchandising strategies.
Gross profit
(cid:42)ross profit increased (cid:7)312.5 million, or 14.9(cid:8), to (cid:7)2,409.3 million in fiscal 2018, compared to (cid:7)2,096.8 million in
fiscal 201(cid:26). (cid:42)ross profit as a percentage of net sales increased 30 basis points to 35.9(cid:8) in fiscal 2018 compared to
35.6(cid:8) in fiscal 201(cid:26). The impact of new revenue recognition accounting drove 55 basis points of leverage. The
remaining 25 basis points of deleverage in gross profit margin was primarily due to:
•
•
55 basis points deleverage attributed to category and channel mix shifts and investments in our salon services
and supply chain operation, partially offset by(cid:30)
30 basis points leverage in fixed store costs attributed to the impact of higher sales volume.
Selling, general and administrative expenses
Selling, general and administrative (S(cid:42)(cid:9)A) expenses increased (cid:7)248.2 million, or 19.3(cid:8), to (cid:7)1,535.5 million in fiscal
2018 compared to (cid:7)1,28(cid:26).2 million in fiscal 201(cid:26). As a percentage of net sales, S(cid:42)(cid:9)A expenses increased 100 basis
points to 22.9(cid:8) in fiscal 2018 compared to 21.9(cid:8) in fiscal 201(cid:26). The impact of new revenue recognition accounting
drove 80 basis points of deleverage. The remaining 20 basis points of deleverage in S(cid:42)(cid:9)A expenses was primarily
due to:
•
•
30 basis points deleverage in investments in store labor to support growth initiatives, partially offset by(cid:30)
10 basis points leverage in corporate overhead due to the impact of higher sales volume.
Pre-opening expenses
Pre-opening expenses decreased (cid:7)4.5 million, or 18.6(cid:8), to (cid:7)19.8 million in fiscal 2018 compared to (cid:7)24.3 million in
fiscal 201(cid:26). During fiscal 2018, we opened 10(cid:26) new stores, remodeled 13 stores, and relocated two stores. During fiscal
201(cid:26), we opened 102 new stores, remodeled 11 stores, and relocated seven stores.
Interest income, net
Interest income, net was (cid:7)5.1 million in fiscal 2018 compared to (cid:7)1.6 million in fiscal 201(cid:26). Interest income results from
cash equivalents and short-term investments with maturities of twelve months or less from the date of purchase. Interest
expense represents interest on borrowings and fees related to the credit facility. (cid:58)e did not have any outstanding
borrowings on our credit facility as of February 2, 2019 and February 3, 2018.
Income tax expense
Income tax expense of (cid:7)200.6 million in fiscal 2018 represents an effective tax rate of 23.3(cid:8), compared to fiscal 201(cid:26)
tax expense of (cid:7)231.6 million and an effective tax rate of 29.4(cid:8). The lower tax rate is primarily due to tax reform.
32
Net income
(cid:49)et income increased (cid:7)103.3 million, or 18.6(cid:8), to (cid:7)658.6 million in fiscal 2018 compared to (cid:7)555.2 million in fiscal
201(cid:26). The increase in net income was primarily due to a (cid:7)312.5 million increase in gross profit and a (cid:7)31.0 million
decrease in income tax expense, which was partially offset by a (cid:7)248.2 million increase in S(cid:42)(cid:9)A expenses.
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) 201(cid:26) (cid:89)(cid:72)(cid:85)(cid:86)(cid:88)(cid:86) (cid:73)i(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) 2016
Net sales
(cid:49)et sales increased (cid:7)1,029.8 million, or 21.2(cid:8), to (cid:7)5,884.5 million in fiscal 201(cid:26) compared to (cid:7)4,854.(cid:26) million in fiscal
2016. The sales for the 53rd wee(cid:78) of fiscal 201(cid:26) were approximately (cid:7)108.8 million. Salon service sales increased
(cid:7)36.3 million, or 15.0(cid:8) to (cid:7)2(cid:26)(cid:26).4 million compared to (cid:7)241.1 million in fiscal 2016. Excluding the impact of the 53rd
wee(cid:78), salon service sales increased 12.8(cid:8). E-commerce sales increased (cid:7)223.4 million, or 64.(cid:26)(cid:8), to (cid:7)568.(cid:26) million
compared to (cid:7)345.3 million in fiscal 2016. Excluding the impact of the 53rd wee(cid:78), e-commerce sales increased 59.9(cid:8).
The net sales increases are due to the opening of 100 net new stores in fiscal 201(cid:26) and an 11.0(cid:8) increase in comparable
sales. (cid:49)on-comparable stores, which include stores opened in fiscal 201(cid:26) as well as stores opened in fiscal 2016, which
have not yet turned comparable, contributed (cid:7)493.8 million of the net sales increase, while comparable stores contributed
(cid:7)536.0 million of the total net sales increase.
The 11.0(cid:8) comparable sales increase consisted of a (cid:26).1(cid:8) increase in retail and salon services and a 59.9(cid:8) increase in
e-commerce. The inclusion of e-commerce resulted in an increase of approximately 390 basis points to the total
comparable sales in fiscal 201(cid:26) compared to 240 basis points in fiscal 2016. The total comparable sales increase included
a 6.(cid:26)(cid:8) increase in transactions and a 4.3(cid:8) increase in average tic(cid:78)et. (cid:58)e attribute the increase in comparable sales to
our successful mar(cid:78)eting and merchandising strategies.
Gross profit
(cid:42)ross profit increased (cid:7)349.6 million, or 20.0(cid:8), to (cid:7)2,096.8 million in fiscal 201(cid:26), compared to (cid:7)1,(cid:26)4(cid:26).2 million in
fiscal 2016. (cid:42)ross profit as a percentage of net sales decreased 40 basis points to 35.6(cid:8) in fiscal 201(cid:26) compared to
36.0(cid:8) in fiscal 2016. The decrease in gross profit margin was primarily due to:
•
•
30 basis points deleverage in merchandise margins driven by our mar(cid:78)eting and merchandising strategies(cid:30) and
10 basis points deleverage due to the impact of a one-time bonus payment to hourly associates related to tax
reform.
Selling, general and administrative expenses
S(cid:42)(cid:9)A expenses increased (cid:7)213.4 million, or 19.9(cid:8), to (cid:7)1,28(cid:26).2 million in fiscal 201(cid:26) compared to (cid:7)1,0(cid:26)3.8 million in
fiscal 2016. As a percentage of net sales, S(cid:42)(cid:9)A expenses decreased 20 basis points to 21.9(cid:8) in fiscal 201(cid:26) compared to
22.1(cid:8) in fiscal 2016. The leverage in S(cid:42)(cid:9)A expenses was primarily due to:
•
•
•
(cid:26)0 basis points leverage due to corporate overhead and variable store expenses attributed to cost efficiencies and
higher sales volume, partially offset by(cid:30)
30 basis points deleverage due to investments in store labor(cid:30) and
20 basis points deleverage due to the impact of a one-time bonus payment related to tax reform.
Pre-opening expenses
Pre-opening expenses increased (cid:7)5.(cid:26) million, or 30.8(cid:8), to (cid:7)24.3 million in fiscal 201(cid:26) compared to (cid:7)18.6 million in
fiscal 2016. During fiscal 201(cid:26), we opened 102 new stores, remodeled 11 stores, and relocated seven stores. During
fiscal 2016, we opened 104 new stores, remodeled 12 stores, and relocated two stores.
33
Interest income, net
Interest income, net was (cid:7)1.6 million in fiscal 201(cid:26) compared to (cid:7)0.9 million in fiscal 2016. Interest income results from
cash equivalents and short-term investments with maturities of twelve months or less from the date of purchase. Interest
expense represents interest on borrowings and fees related to the credit facility. (cid:58)e did not have any outstanding
borrowings on our credit facility as of February 3, 2018 and (cid:45)anuary 28, 201(cid:26).
Income tax expense
Income tax expense of (cid:7)231.6 million in fiscal 201(cid:26) represents an effective tax rate of 29.4(cid:8), compared to fiscal 2016
tax expense of (cid:7)246.0 million and an effective tax rate of 3(cid:26).5(cid:8). The lower tax rate is primarily due to a reduction of net
deferred income tax liabilities and a lower effective tax rate in (cid:45)anuary 2018 as a result of tax reform and the adoption of
a new accounting standard in fiscal 201(cid:26) for employee share-based payments.
Net income
(cid:49)et income increased (cid:7)145.5 million, or 35.5(cid:8), to (cid:7)555.2 million in fiscal 201(cid:26) compared to (cid:7)409.8 million in fiscal
2016. The increase in net income was primarily due to a (cid:7)349.6 million increase in gross profit and a (cid:7)14.3 million
decrease in income tax expense, which was partially offset by a (cid:7)213.4 million increase in S(cid:42)(cid:9)A expenses.
Li(cid:84)(cid:88)i(cid:71)it(cid:92) (cid:68)(cid:81)(cid:71) (cid:70)(cid:68)(cid:83)it(cid:68)(cid:79) (cid:85)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)
Our primary cash needs are for rent, capital expenditures for new, remodeled, relocated, and refreshed stores (prestige
boutiques and related in-store merchandising upgrades), increased merchandise inventories related to store expansion
and new brand additions, in-store boutiques (sets of custom-designed fixtures configured to prominently display certain
prestige brands within our stores), supply chain improvements, share repurchases, and continued improvement in our
information technology systems.
Our primary sources of liquidity are cash and cash equivalents, short-term investments, cash flows from operations,
including changes in wor(cid:78)ing capital, and borrowings under our credit facility. The most significant component of our
wor(cid:78)ing capital is merchandise inventories and cash and cash equivalents reduced by related accounts payable and
accrued expenses.
Our wor(cid:78)ing capital needs are greatest from August through (cid:49)ovember each year as a result of our inventory build-up
during this period for the approaching holiday season. This is also the time of year when we are at maximum investment
levels in our new store class and may not have collected all of the landlord allowances due to us as part of our lease
agreements. Based on past performance and current expectations, we believe that cash and cash equivalents, short-term
investments, cash generated from operations, and borrowings under the credit facility will satisfy the Company(cid:182)s
wor(cid:78)ing capital needs, capital expenditure needs, commitments, and other liquidity requirements through at least the next
twelve months.
The following table presents a summary of our cash flows for fiscal years 2018, 201(cid:26) and 2016:
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2, F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 3,
2018
(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92) 28,
201(cid:26)
(cid:7) (cid:26)(cid:26)9,366 (cid:7) 634,385
(2(cid:26)3,44(cid:26))
(530,(cid:26)14)
(321,(cid:26)68)
(356,21(cid:26))
39,1(cid:26)0
(cid:7) (10(cid:26),565) (cid:7)
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)
(cid:49)et cash provided by operating activities . . . . . . . . . .
(cid:49)et cash used in investing activities . . . . . . . . . . . . . .
(cid:49)et cash used in financing activities . . . . . . . . . . . . . .
(cid:49)et increase (decrease) in cash and cash equivalents .
2019
(cid:7) 956,12(cid:26)
(215,10(cid:26))
(609,214)
(cid:7) 131,806
34
O(cid:83)(cid:72)(cid:85)(cid:68)ti(cid:81)(cid:74) (cid:68)(cid:70)ti(cid:89)iti(cid:72)(cid:86)
Operating activities consist of net income ad(cid:77)usted for certain non-cash items, including depreciation and amorti(cid:93)ation,
deferred income taxes, non-cash stoc(cid:78)-based compensation, reali(cid:93)ed gains or losses on disposal of property and
equipment, and the effect of wor(cid:78)ing capital changes, net of acquisitions.
Merchandise inventories, net were (cid:7)1,214.3 million at February 2, 2019, compared to (cid:7)1,096.4 million at February 3,
2018, representing an increase of (cid:7)11(cid:26).9 million or 10.8(cid:8). Average inventory per store increased 1.3(cid:8) compared to
prior year. The increase in inventory is primarily due to the following:
•
•
•
approximately (cid:7)102 million due to the addition of 100 net new stores opened since February 3, 2018(cid:30)
approximately (cid:7)64 million due to the opening of the Company(cid:182)s distribution center in Fresno, California,
partially offset by(cid:30)
approximately (cid:7)48 million of productivity benefits from supply chain investments in new systems and
merchandise planning tools.
Deferred rent liabilities were (cid:7)435.0 million at February 2, 2019, an increase of (cid:7)2(cid:26).1 million compared to
(cid:7)40(cid:26).9 million at February 3, 2018. Deferred rent includes deferred construction allowances, future rental increases, free
rent, and rent holidays, which are all recogni(cid:93)ed on a straight-line basis over their respective lease term. The increase is
primarily due to the addition of 100 net new stores opened since February 3, 2018 and corporate and supply chain
expansion.
I(cid:81)(cid:89)(cid:72)(cid:86)ti(cid:81)(cid:74) (cid:68)(cid:70)ti(cid:89)iti(cid:72)(cid:86)
(cid:58)e have historically used cash primarily for new, remodeled, relocated, and refreshed stores, supply chain investments,
short-term investments, and investments in information technology systems. Investment activities for capital
expenditures were (cid:7)319.4 million in fiscal 2018 compared to (cid:7)440.(cid:26) million and (cid:7)3(cid:26)3.4 million in fiscal 201(cid:26) and 2016,
respectively. Capital expenditures decreased in fiscal 2018 compared to fiscal 201(cid:26) mainly due to lower cost in the new
store program, less store refreshes, and total reduction in spend on information technology systems. Purchases of short-
term investments were (cid:7)386.2 million during fiscal 2018 and consist of certificates of deposit with maturities of
twelve months or less from the date of purchase.
The following table presents a summary of our store activities in fiscal years 2018, 201(cid:26), and 2016:
Fi(cid:86)(cid:70)(cid:68)(cid:79)
2018
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71)
Fi(cid:86)(cid:70)(cid:68)(cid:79)
201(cid:26)
Fi(cid:86)(cid:70)(cid:68)(cid:79)
2016
Stores opened. . . . . . . . . . . . . . . . . . . . .
Stores remodeled . . . . . . . . . . . . . . . . . .
Stores relocated . . . . . . . . . . . . . . . . . . .
Stores refreshed . . . . . . . . . . . . . . . . . . .
10(cid:26)
13
2
109
102
11
(cid:26)
190
104
12
2
213
During fiscal 2018, the average investment required to open a new Ulta Beauty store was approximately (cid:7)1.4 million,
which includes capital investment net of landlord contributions, pre-opening expenses, and initial inventory net of
payables. The average investment required to remodel an Ulta Beauty store was approximately (cid:7)1.0 million in fiscal
2018. The average investment required to refresh an Ulta Beauty store was approximately (cid:7)0.5 million in fiscal 2018.
35
Capital expenditures for fiscal 2018, 201(cid:26), and 2016 by ma(cid:77)or category are as follows:
(cid:11)I(cid:81) (cid:80)i(cid:79)(cid:79)i(cid:82)(cid:81)(cid:86)(cid:12)
(cid:49)ew, Remodeled, and Relocated Stores . . (cid:7)
Merchandising and Refreshed Stores . . . . .
Information Technology Systems . . . . . . .
Supply Chain . . . . . . . . . . . . . . . . . . . . . . . .
Store Maintenance and Other . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
B(cid:88)(cid:71)(cid:74)(cid:72)t
Fi(cid:86)(cid:70)(cid:68)(cid:79)
2019
Fi(cid:86)(cid:70)(cid:68)(cid:79)
2018
Fi(cid:86)(cid:70)(cid:68)(cid:79)
201(cid:26)
Fi(cid:86)(cid:70)(cid:68)(cid:79)
2016
150
40
80
60
60
390
(cid:7)
(cid:7)
154
63
51
22
29
319
(cid:7)
(cid:7)
190
8(cid:26)
(cid:26)4
42
48
441
(cid:7)
(cid:7)
154
83
56
41
40
3(cid:26)4
Our future investments will depend primarily on the number of new, remodeled, and relocated stores, information
technology systems, and supply chain investments that we underta(cid:78)e and the timing of these expenditures. Based on past
performance and current expectations, we expect to self-fund future capital expenditures. (cid:58)e expect to spend
approximately (cid:7)390 million for capital expenditures in fiscal 2019. (cid:58)e are continuing our multi-year supply chain
pro(cid:77)ect which includes adding capacity and system improvements to support expanded omnichannel capabilities.
Fi(cid:81)(cid:68)(cid:81)(cid:70)i(cid:81)(cid:74) (cid:68)(cid:70)ti(cid:89)iti(cid:72)(cid:86)
Financing activities in fiscal 2018, 201(cid:26) and 2016 consist principally of share repurchases and capital stoc(cid:78) 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 stoc(cid:78).
(cid:58)e had no borrowings outstanding under our credit facility at the end of fiscal 2018, 201(cid:26) and 2016. The (cid:93)ero
outstanding borrowings position is due to a combination of factors including strong sales growth, overall performance of
management initiatives including expense control as well as inventory and other wor(cid:78)ing capital reductions. (cid:58)e may
require borrowings under the facility from time to time in future periods to support our new store program, share
repurchases, and seasonal inventory needs.
Share repurchase plan
On March 10, 2016, we announced that our Board of Directors authori(cid:93)ed a share repurchase program (the 2016 Share
Repurchase Program) pursuant to which the Company could repurchase up to (cid:7)425.0 million of the Company(cid:182)s common
stoc(cid:78). The 2016 Share Repurchase Program authori(cid:93)ation revo(cid:78)ed the previously authori(cid:93)ed, but unused amounts of
(cid:7)1(cid:26)2.4 million from the earlier share repurchase program. The 2016 Share Repurchase Program did not have an
expiration date but provided for suspension or discontinuation at any time.
As part of the 2016 Share Repurchase Program, we entered into an Accelerated Share Repurchase (ASR) agreement with
(cid:42)oldman, Sachs (cid:9) Co. to repurchase (cid:7)200.0 million of the Company(cid:182)s common stoc(cid:78). Under the ASR agreement, the
Company paid (cid:7)200.0 million to (cid:42)oldman, Sachs (cid:9) Co. and received an initial delivery of 851,653 shares in the first
quarter of fiscal 2016, which were retired and represented 80(cid:8) of the total shares the Company expected to receive
based on the mar(cid:78)et price at the time of the initial delivery. In May 2016, the ASR settled and an additional
153,418 shares were delivered to the Company and retired. The final number of shares delivered upon settlement was
determined with reference to the average price of the Company(cid:182)s common stoc(cid:78) over the term of the agreement. The
transaction was accounted for as an equity transaction. The par value of shares received was recorded as a reduction to
common stoc(cid:78) with the remainder recorded as a reduction to additional paid-in capital and retained earnings. Upon
receipt of the shares, there was an immediate reduction in the weighted average common shares calculation for basic and
diluted earnings per share.
On March 9, 201(cid:26), we announced that the Board of Directors authori(cid:93)ed a new share repurchase program (the 201(cid:26)
Share Repurchase Program) pursuant to which the Company could repurchase up to (cid:7)425.0 million of the Company(cid:182)s
common stoc(cid:78). The 201(cid:26) Share Repurchase Program authori(cid:93)ation revo(cid:78)ed the previously authori(cid:93)ed but unused amount
36
of (cid:7)(cid:26)9.9 million from the earlier share repurchase program. The 201(cid:26) Share Repurchase Program did not have an
expiration date but provided for suspension or discontinuation at any time.
On March 15, 2018, we announced that the Board of Directors authori(cid:93)ed a new share repurchase program (the 2018
Share Repurchase Program) pursuant to which the Company could repurchase up to (cid:7)625.0 million of the Company(cid:182)s
common stoc(cid:78). The 2018 Share Repurchase Program authori(cid:93)ation revo(cid:78)ed the previously authori(cid:93)ed but unused amount
of (cid:7)41.3 million from the 201(cid:26) Share Repurchase Program. The 2018 Share Repurchase Program did not have an
expiration date but provided for suspension or discontinuation at any time.
During fiscal 2016, excluding the shares repurchased under the ASR, we purchased 634,155 shares of common stoc(cid:78) for
(cid:7)144.3 million. During fiscal 201(cid:26), we purchased 1,503,545 shares of common stoc(cid:78) for (cid:7)36(cid:26).6 million. During fiscal
2018, we purchased 2,463,555 shares of common stoc(cid:78) for (cid:7)616.2 million.
On March 14, 2019, we announced that the Board of Directors authori(cid:93)ed a new share repurchase program (the 2019
Share Repurchase Program) pursuant to which the Company may repurchase up to (cid:7)8(cid:26)5.0 million of the Company(cid:182)s
common stoc(cid:78). The 2019 Share Repurchase Program authori(cid:93)ation revo(cid:78)es the previously authori(cid:93)ed but unused
amounts from the 2018 Share Repurchase Program. The 2019 Share Repurchase Program does not have an expiration
date and may be suspended or discontinued at any time.
Credit facility
On August 23, 201(cid:26), we entered into a Second Amended and Restated (cid:47)oan Agreement (the (cid:47)oan Agreement) with
(cid:58)ells Fargo Ban(cid:78), (cid:49)ational Association, as Administrative Agent, Collateral Agent and a (cid:47)ender thereunder, (cid:58)ells
Fargo Ban(cid:78), (cid:49)ational Association and (cid:45)PMorgan Chase Ban(cid:78), (cid:49).A., as (cid:47)ead Arrangers and Boo(cid:78)runners, (cid:45)PMorgan
Chase Ban(cid:78), (cid:49).A., as Syndication Agent and a (cid:47)ender, P(cid:49)C Ban(cid:78), (cid:49)ational Association, as Documentation Agent and a
(cid:47)ender, and the other lenders party thereto. The (cid:47)oan Agreement matures on August 23, 2022, provides maximum
revolving loans equal to the lesser of (cid:7)400.0 million or a percentage of eligible owned inventory (which borrowing base
may, at the election of the Company and satisfaction of certain conditions, include a percentage of eligible owned
receivables and qualified cash), contains a (cid:7)20.0 million subfacility for letters of credit and allows the Company to
increase the revolving facility by an additional (cid:7)50.0 million, sub(cid:77)ect to the consent by each lender and other conditions.
The (cid:47)oan 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 (cid:47)oan Agreement falls below a specified threshold. Substantially all of the
Company(cid:182)s assets are pledged as collateral for outstanding borrowings under the (cid:47)oan Agreement. Outstanding
borrowings will bear interest at either a base rate or the (cid:47)IBOR plus 1.25(cid:8), and the unused line fee is 0.20(cid:8) per annum.
As of February 2, 2019 and February 3, 2018, we had no borrowings outstanding under the credit facility and the
Company was in compliance with all terms and covenants of the (cid:47)oan Agreement.
S(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:79)it(cid:92)
Our business is sub(cid:77)ect to seasonal fluctuation. Significant portions of our net sales and profits are reali(cid:93)ed 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(cid:182)s Day, (cid:57)alentine(cid:182)s Day, as well as the “Bac(cid:78) to School” season. 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 li(cid:78)ely 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.
I(cid:80)(cid:83)(cid:68)(cid:70)t (cid:82)(cid:73) i(cid:81)(cid:73)(cid:79)(cid:68)ti(cid:82)(cid:81) (cid:68)(cid:81)(cid:71) (cid:70)h(cid:68)(cid:81)(cid:74)i(cid:81)(cid:74) (cid:83)(cid:85)i(cid:70)(cid:72)(cid:86)
Although we do not believe that inflation has had a material impact on our financial position or results of operations to
date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross
margin and S(cid:42)(cid:9)A expenses as a percentage of net sales if the selling prices of our products do not increase with these
increased costs. In addition, inflation could materially increase the interest rates on any future debt.
3(cid:26)
O(cid:73)(cid:73)-b(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72) (cid:86)h(cid:72)(cid:72)t (cid:68)(cid:85)(cid:85)(cid:68)(cid:81)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)t(cid:86)
As of February 2, 2019, we have not entered into any “off-balance sheet” arrangements, as that term is described by the
SEC. (cid:58)e do, however, have off-balance sheet operating leases and purchases obligations incurred in the ordinary course
of business as indicated within the contractual obligations table below.
C(cid:82)(cid:81)t(cid:85)(cid:68)(cid:70)t(cid:88)(cid:68)(cid:79) (cid:82)b(cid:79)i(cid:74)(cid:68)ti(cid:82)(cid:81)(cid:86)
The following table summari(cid:93)es our contractual arrangements and the timing and effect that such commitments are
expected to have on our liquidity and cash flows in future periods. The table below excludes variable expenses related to
contingent rent, common area maintenance, insurance, and real estate taxes. The table below includes obligations for
executed agreements for which we do not yet have the right to control the use of the property as of February 2, 2019:
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)
Operating lease obligations (1) . . . . . . . . . . . . . . . . . . . . . . (cid:7)2,285,412
Purchase obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,208
Total (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)2,314,620
T(cid:82)t(cid:68)(cid:79)
L(cid:72)(cid:86)(cid:86) Th(cid:68)(cid:81)
1 Y(cid:72)(cid:68)(cid:85)
1 t(cid:82) 3
Y(cid:72)(cid:68)(cid:85)(cid:86)
3 t(cid:82) 5
Y(cid:72)(cid:68)(cid:85)(cid:86)
(cid:48)(cid:82)(cid:85)(cid:72) th(cid:68)(cid:81) 5
Y(cid:72)(cid:68)(cid:85)(cid:86)
(cid:7)334,508 (cid:7)652,2(cid:26)9
24,393
4,815
(cid:7)358,901 (cid:7)65(cid:26),094
(cid:7)545,288
(cid:178)
(cid:7)545,288
(cid:7) (cid:26)53,33(cid:26)
(cid:178)
(cid:7) (cid:26)53,33(cid:26)
(1) (cid:57)ariable operating lease obligations related to common area maintenance, insurance, and real estate taxes are not
included in the table above. Total expenses related to common area maintenance, insurance, and real estate taxes for
fiscal 2018 were approximately (cid:7)(cid:26)5.8 million.
(2) The unrecogni(cid:93)ed tax benefit of (cid:7)3.8 million as of February 2, 2019 is excluded due to uncertainty regarding the
reali(cid:93)ation and timing of the related future cash flows, if any.
(cid:58)e lease retail stores, distribution centers, corporate offices, and certain equipment under operating leases with various
expiration dates through fiscal 2032. Our store leases generally have initial lease terms of 10 years and include renewal
options under substantially the same terms and conditions as the original leases. In addition to future minimum lease
payments, most of our lease agreements include escalating rent provisions which we recogni(cid:93)e straight-line over the term
of the lease, including any lease renewal periods deemed to be probable. For certain locations, we receive cash tenant
allowances and we report these amounts as deferred rent, which is amorti(cid:93)ed on a straight-line basis as a reduction of
rent expense over the term of the lease, including any lease renewal periods deemed to be probable.
Purchase obligations reflect legally binding agreements entered into by the Company to purchase goods or services.
Excluded from our purchase obligations are normal purchases and contracts entered into in the ordinary course of
business. The amount of purchase obligations relates to commitments made to a third party for products and services for
the new fast fulfillment center expected to open in fiscal 2020, advertising, and other goods and service contracts entered
into as of February 2, 2019.
C(cid:85)iti(cid:70)(cid:68)(cid:79) (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)ti(cid:81)(cid:74) (cid:83)(cid:82)(cid:79)i(cid:70)i(cid:72)(cid:86) (cid:68)(cid:81)(cid:71) (cid:72)(cid:86)ti(cid:80)(cid:68)t(cid:72)(cid:86)
Management(cid:182)s discussion and analysis of financial condition and results of operations is based upon our financial
statements, which have been prepared in accordance with U.S. generally accepted accounting principles ((cid:42)AAP). The
preparation of these financial statements required the use of estimates and (cid:77)udgments 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. A discussion of our more significant estimates follows. Management has
discussed the development, selection, and disclosure of these estimates and assumptions with the Audit Committee of the
Board of Directors.
38
Inventory valuation
Merchandise inventories are carried at the lower of cost or mar(cid:78)et. Cost is determined using the weighted-average cost
method and includes costs incurred to purchase and distribute goods as well as related vendor allowances including
co-op advertising, mar(cid:78)downs, and volume discounts. (cid:58)e record valuation ad(cid:77)ustments to our inventories if the cost of a
specific product on hand exceeds the amount we expect to reali(cid:93)e from the ultimate sale or disposal of the inventory.
These estimates are based on management(cid:182)s (cid:77)udgment regarding future demand, age of inventory, and analysis of
historical experience. If actual demand or mar(cid:78)et conditions are different than those pro(cid:77)ected by management, future
merchandise margin rates may be unfavorably or favorably affected by ad(cid:77)ustments to these estimates.
Inventories are ad(cid:77)usted for the results of periodic physical inventory counts at each of our locations. (cid:58)e record a shrin(cid:78)
reserve representing management(cid:182)s estimate of inventory losses by location that have occurred since the date of the last
physical count. This estimate is based on management(cid:182)s analysis of historical results and operating trends.
(cid:58)e do not believe that there is a reasonable li(cid:78)elihood that there will be a material change in the future estimates or
assumptions we use to calculate our lower of cost or mar(cid:78)et or shrin(cid:78) reserves. Ad(cid:77)ustments to earnings resulting from
revisions to management(cid:182)s estimates of the lower of cost or mar(cid:78)et and shrin(cid:78) reserves have been insignificant during
fiscal 2018, 201(cid:26) and 2016. An increase or decrease in the lower of cost or mar(cid:78)et reserve of 10(cid:8) would not have a
material impact on our pre-tax income for fiscal 2018. An increase or decrease in the shrin(cid:78) rate included in the shrin(cid:78)
reserve calculation of 10(cid:8) would not have a material impact on our pre-tax income for fiscal 2018.
Vendor allowances
The ma(cid:77)ority of cash consideration received from a supplier is considered to be a reduction of the cost of the related
products and is reflected in cost of sales in our consolidated statements of income as the related products are sold unless
it is in exchange for an asset or service or a reimbursement of a specific, incremental, identifiable cost incurred by the
Company in selling the vendors(cid:182) products. (cid:58)e estimate the amount recorded as a reduction of inventory at the end of
each period based on a detailed analysis of inventory turns and management(cid:182)s analysis of the facts and circumstances of
the various contractual agreements with vendors. (cid:58)e record cash consideration expected to be received from vendors in
receivables. (cid:58)e do not believe there is a reasonable li(cid:78)elihood there will be a material change in the future estimates or
assumptions we use to calculate our reduction of inventory. An increase or decrease in inventory turns of five basis
points would not have a material impact on our pre-tax income for fiscal 2018.
Impairment of long-lived tangible assets
(cid:58)e review long-lived tangible assets whenever events or circumstances indicate these assets might not be recoverable.
Assets are primarily reviewed at the store level, which is the lowest level for which cash flows can be identified.
Significant estimates are used in determining future operating results of each store over its remaining lease term. If such
assets are considered to be impaired, the impairment to be recogni(cid:93)ed is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. (cid:58)e do not believe that there is a reasonable li(cid:78)elihood that there
will be a material change in the future estimates or assumptions we use to calculate our impairment charges. (cid:49)o
significant impairment charges were recogni(cid:93)ed in fiscal 2018, fiscal 201(cid:26), or fiscal 2016.
Loyalty program
(cid:58)e maintain a customer loyalty program, Ultamate Rewards, which allows members to earn points based on purchases
of merchandise or services. Points earned are valid for at least one year. The loyalty program represents a material right
to the customer and points may be redeemed on future products and services. The relative standalone selling price of
points earned by members is included in deferred revenue on the consolidated balance sheets based on the percentage of
points expected to be redeemed. The expected redemption percentage is based on historical redemption patterns and
considers current information or trends. The estimated redemption rate is evaluated each reporting period. (cid:58)e do not
believe that there is a reasonable li(cid:78)elihood there will be a material change in the future estimates or assumptions used to
calculate the estimated redemption rate.
39
Ad(cid:77)ustments to earnings resulting from revisions to management(cid:182)s estimates of the redemption rates have been
insignificant during fiscal 2018, 201(cid:26) and 2016. An increase or decrease in the estimated redemption rate of 5(cid:8) would
not have a material impact on our pre-tax income in fiscal 2018.
Income taxes
(cid:58)e are sub(cid:77)ect to income taxes in the United States. (cid:45)udgment is required in determining our provision for income taxes
and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and
complex tax laws.
(cid:58)e recogni(cid:93)e deferred income taxes for the estimated future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which temporary differences are anticipated to be recovered or settled. The effect on deferred taxes of a change in
income tax rates is recogni(cid:93)ed in the consolidated statements of income in the period of enactment. A valuation
allowance is recorded to reduce the carrying amounts of deferred tax assets to the amount expected to be reali(cid:93)ed unless
it is more-li(cid:78)ely-than-not that such assets will be reali(cid:93)ed in full. The estimated tax benefit of an uncertain tax position is
recorded in our consolidated financial statements only after determining a more-li(cid:78)ely-than-not probability that the
uncertain tax position will withstand challenge, if any, from applicable taxing authorities.
(cid:45)udgment is required in assessing the future tax consequences of events that have been recogni(cid:93)ed on our consolidated
financial statements or tax returns. (cid:57)ariations in the actual outcome of these future tax consequences could materially
impact our consolidated financial statements.
R(cid:72)(cid:70)(cid:72)(cid:81)t (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)ti(cid:81)(cid:74) (cid:83)(cid:85)(cid:82)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)t(cid:86) (cid:81)(cid:82)t (cid:92)(cid:72)t (cid:68)(cid:71)(cid:82)(cid:83)t(cid:72)(cid:71)
See (cid:49)ote 2 to our consolidated financial statements, “Summary of significant accounting policies (cid:177) Recent accounting
pronouncements not yet adopted.”
R(cid:72)(cid:70)(cid:72)(cid:81)t(cid:79)(cid:92) (cid:68)(cid:71)(cid:82)(cid:83)t(cid:72)(cid:71) (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)ti(cid:81)(cid:74) (cid:83)(cid:85)(cid:82)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)t(cid:86)
See (cid:49)ote 2 to our consolidated financial statements, “Summary of significant accounting policies (cid:177) Recently adopted
accounting pronouncements.”
It(cid:72)(cid:80) (cid:26)A. (cid:52)(cid:88)(cid:68)(cid:81)tit(cid:68)ti(cid:89)(cid:72) (cid:68)(cid:81)(cid:71) (cid:52)(cid:88)(cid:68)(cid:79)it(cid:68)ti(cid:89)(cid:72) Di(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86) (cid:68)b(cid:82)(cid:88)t (cid:48)(cid:68)(cid:85)(cid:78)(cid:72)t Ri(cid:86)(cid:78)
Mar(cid:78)et ris(cid:78) represents the ris(cid:78) of loss that may impact our financial position due to adverse changes in financial mar(cid:78)et
prices and rates. Our mar(cid:78)et ris(cid:78) exposure is primarily the result of fluctuations in interest rates. (cid:58)e do not hold or issue
financial instruments for trading purposes.
I(cid:81)t(cid:72)(cid:85)(cid:72)(cid:86)t (cid:85)(cid:68)t(cid:72) (cid:85)i(cid:86)(cid:78)
(cid:58)e are exposed to interest rate ris(cid:78)s primarily through borrowing under our credit facility. Interest on our borrowings is
based upon variable rates. (cid:58)e did not have any outstanding borrowings on our credit facility as of February 2, 2019,
February 3, 2018, or (cid:45)anuary 28, 201(cid:26).
It(cid:72)(cid:80) 8. Fi(cid:81)(cid:68)(cid:81)(cid:70)i(cid:68)(cid:79) St(cid:68)t(cid:72)(cid:80)(cid:72)(cid:81)t(cid:86) (cid:68)(cid:81)(cid:71) S(cid:88)(cid:83)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)t(cid:68)(cid:85)(cid:92) D(cid:68)t(cid:68)
See the index, consolidated financial statements, and notes to consolidated financial statements included under Item 15,
“Exhibits and Financial Statement Schedules.”
It(cid:72)(cid:80) 9. Ch(cid:68)(cid:81)(cid:74)(cid:72)(cid:86) i(cid:81) (cid:68)(cid:81)(cid:71) Di(cid:86)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)t(cid:86) (cid:90)ith A(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)t(cid:68)(cid:81)t(cid:86) (cid:82)(cid:81) A(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)ti(cid:81)(cid:74) (cid:68)(cid:81)(cid:71) Fi(cid:81)(cid:68)(cid:81)(cid:70)i(cid:68)(cid:79) Di(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)
(cid:49)one.
40
It(cid:72)(cid:80) 9A. C(cid:82)(cid:81)t(cid:85)(cid:82)(cid:79)(cid:86) (cid:68)(cid:81)(cid:71) P(cid:85)(cid:82)(cid:70)(cid:72)(cid:71)(cid:88)(cid:85)(cid:72)(cid:86)
E(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)ti(cid:82)(cid:81) (cid:82)(cid:73) (cid:71)i(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72) (cid:70)(cid:82)(cid:81)t(cid:85)(cid:82)(cid:79)(cid:86) (cid:68)(cid:81)(cid:71) (cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:71)(cid:88)(cid:85)(cid:72)(cid:86) (cid:82)(cid:89)(cid:72)(cid:85) (cid:73)i(cid:81)(cid:68)(cid:81)(cid:70)i(cid:68)(cid:79) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)ti(cid:81)(cid:74)
(cid:58)e have established disclosure controls and procedures to ensure that material information relating to the Company is
made (cid:78)nown to the officers who certify our financial reports and to the members of our senior management and Board of
Directors.
Based on management(cid:182)s evaluation as of February 2, 2019, 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, summari(cid:93)ed, and reported within the
time periods specified in the SEC(cid:182)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.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)t(cid:182)(cid:86) (cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)t (cid:82)(cid:81) i(cid:81)t(cid:72)(cid:85)(cid:81)(cid:68)(cid:79) (cid:70)(cid:82)(cid:81)t(cid:85)(cid:82)(cid:79) (cid:82)(cid:89)(cid:72)(cid:85) (cid:73)i(cid:81)(cid:68)(cid:81)(cid:70)i(cid:68)(cid:79) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)ti(cid:81)(cid:74)
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the
Company. Internal control over financial reporting is a process designed by, or under the supervision of, the principal
executive officer and principal financial officer and effected by the Board of Directors, management, and other
personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with (cid:42)AAP.
Under the supervision and with the participation of our principal executive officer and our principal financial officer,
management evaluated the effectiveness of our internal control over financial reporting as of February 2, 2019, based on
the criteria established in Internal Control (cid:177) Integrated Framewor(cid:78) issued by the Committee of Sponsoring Organi(cid:93)ations
of the Treadway Commission (2013 framewor(cid:78)) (the COSO). Based on this evaluation, our principal executive officer
and principal financial officer concluded that our internal controls over financial reporting were effective as of
February 2, 2019. Ernst (cid:9) (cid:60)oung (cid:47)(cid:47)P, the independent registered public accounting firm that audited our financial
statements included in this Annual Report on Form 10-K, has audited the effectiveness of our internal control over
financial reporting as of February 2, 2019 and has issued the attestation report included in Item 15 of this Annual Report
on Form 10-K.
Ch(cid:68)(cid:81)(cid:74)(cid:72)(cid:86) i(cid:81) i(cid:81)t(cid:72)(cid:85)(cid:81)(cid:68)(cid:79) (cid:70)(cid:82)(cid:81)t(cid:85)(cid:82)(cid:79) (cid:82)(cid:89)(cid:72)(cid:85) (cid:73)i(cid:81)(cid:68)(cid:81)(cid:70)i(cid:68)(cid:79) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)ti(cid:81)(cid:74)
There were no changes to our internal controls over financial reporting during the 13 wee(cid:78)s ended February 2, 2019 that
have materially affected, or are reasonably li(cid:78)ely to materially affect, our internal controls over financial reporting.
It(cid:72)(cid:80) 9B. Oth(cid:72)(cid:85) I(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)ti(cid:82)(cid:81)
(cid:49)one.
41
It(cid:72)(cid:80) 10. Di(cid:85)(cid:72)(cid:70)t(cid:82)(cid:85)(cid:86), Ex(cid:72)(cid:70)(cid:88)ti(cid:89)(cid:72) O(cid:73)(cid:73)i(cid:70)(cid:72)(cid:85)(cid:86), (cid:68)(cid:81)(cid:71) C(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)t(cid:72) (cid:42)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)
P(cid:68)(cid:85)t III
The information required by this item with respect to our executive officers is set forth after Part I, Item 4 of this Annual
Report on Form 10-K under the caption “Executive Officers of the Registrant.” The additional information required by
this item is included under the captions “Corporate (cid:42)overnance (cid:177) Code of Business Conduct,” “Corporate (cid:42)overnance (cid:177)
(cid:49)omination Process (cid:177) (cid:52)ualifications,” “Corporate (cid:42)overnance (cid:177) Proposal One (cid:177) Election of Directors,” “Corporate
(cid:42)overnance (cid:177) Information About Our Director (cid:49)ominees,” “Corporate (cid:42)overnance (cid:177) Information About Our Directors
Continuing in Office,” “Corporate (cid:42)overnance (cid:177) Audit Committee” and “Stoc(cid:78) (cid:177) Section 16(a) Beneficial Ownership
Reporting Compliance” in our definitive Proxy Statement for our 2019 Annual Meeting of Stoc(cid:78)holders (the Proxy
Statement) and is hereby incorporated herein by reference.
(cid:58)e have a Code of Business Conduct that applies to all of our employees, including our Chief Executive Officer, Chief
Financial Officer, Controller, and other persons performing similar functions. (cid:58)e have posted a copy of our Code of
Business Conduct under “(cid:42)overnance” in the Investor Relations section of our website located at
http://ir.ultabeauty.com, and such Code of Business Conduct is available in print, without charge, to any stoc(cid:78)holder who
requests it from our Corporate Secretary. (cid:58)e intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K
regarding amendments to, or waivers from, the Code of Business Conduct by posting such information under
“(cid:42)overnance” in the Investor Relations section of our website located at http://ir.ultabeauty.com. (cid:58)e are not including
the information contained on our website as part of, or incorporating it by reference into, this Annual Report on
Form 10-K.
It(cid:72)(cid:80) 11. Ex(cid:72)(cid:70)(cid:88)ti(cid:89)(cid:72) C(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)ti(cid:82)(cid:81)
The information required by this item is included under the captions “Compensation Discussion and Analysis,”
“Corporate (cid:42)overnance (cid:177) Compensation Committee,” “Corporate (cid:42)overnance (cid:177) Report of the Compensation Committee
of the Board of Directors,” and “Corporate (cid:42)overnance (cid:177) (cid:49)on-Executive Director Compensation for Fiscal 2018” in the
Proxy Statement and is hereby incorporated herein by reference.
It(cid:72)(cid:80) 12. S(cid:72)(cid:70)(cid:88)(cid:85)it(cid:92) O(cid:90)(cid:81)(cid:72)(cid:85)(cid:86)hi(cid:83) (cid:82)(cid:73) C(cid:72)(cid:85)t(cid:68)i(cid:81) B(cid:72)(cid:81)(cid:72)(cid:73)i(cid:70)i(cid:68)(cid:79) O(cid:90)(cid:81)(cid:72)(cid:85)(cid:86) (cid:68)(cid:81)(cid:71) (cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)t (cid:68)(cid:81)(cid:71) R(cid:72)(cid:79)(cid:68)t(cid:72)(cid:71) St(cid:82)(cid:70)(cid:78)h(cid:82)(cid:79)(cid:71)(cid:72)(cid:85) (cid:48)(cid:68)tt(cid:72)(cid:85)(cid:86)
The information required by this item with respect to security ownership of certain beneficial owners and management is
included under the caption (cid:5)Stoc(cid:78) - Security Ownership of Certain Beneficial Owners and Management(cid:5) in the Proxy
Statement and is hereby incorporated by reference. The information required by this item with respect to compensation
plans under which our equity securities are authori(cid:93)ed for issuance as of February 2, 2019 is set forth in Item 5 of this
Annual Report on Form 10-K under the caption “Securities authori(cid:93)ed for issuance under equity compensation plans.”
It(cid:72)(cid:80) 13. C(cid:72)(cid:85)t(cid:68)i(cid:81) R(cid:72)(cid:79)(cid:68)ti(cid:82)(cid:81)(cid:86)hi(cid:83)(cid:86) (cid:68)(cid:81)(cid:71) R(cid:72)(cid:79)(cid:68)t(cid:72)(cid:71) T(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)ti(cid:82)(cid:81)(cid:86), (cid:68)(cid:81)(cid:71) Di(cid:85)(cid:72)(cid:70)t(cid:82)(cid:85) I(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)
The information required by this item is included under the captions “Corporate (cid:42)overnance (cid:177) Independence,”
“Corporate (cid:42)overnance (cid:177) Compensation Committee (cid:177) Compensation Committee Interloc(cid:78)s and Insider Participation,”
and “Certain Relationships and Transactions” in the Proxy Statement and is hereby incorporated by reference.
It(cid:72)(cid:80) 1(cid:23). P(cid:85)i(cid:81)(cid:70)i(cid:83)(cid:68)(cid:79) A(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)t(cid:68)(cid:81)t F(cid:72)(cid:72)(cid:86) (cid:68)(cid:81)(cid:71) S(cid:72)(cid:85)(cid:89)i(cid:70)(cid:72)(cid:86)
The information required by this item is included under the caption “Corporate (cid:42)overnance (cid:177) Proposal Two (cid:177)
Ratification of Appointment of Independent Registered Public Accounting Firm (cid:177) Fees to Independent Registered Public
Accounting Firm” in the Proxy Statement and is hereby incorporated by reference.
42
It(cid:72)(cid:80) 15. Exhibit(cid:86) (cid:68)(cid:81)(cid:71) Fi(cid:81)(cid:68)(cid:81)(cid:70)i(cid:68)(cid:79) St(cid:68)t(cid:72)(cid:80)(cid:72)(cid:81)t S(cid:70)h(cid:72)(cid:71)(cid:88)(cid:79)(cid:72)(cid:86)
(a) The following documents are filed as a part of this Form 10-K:
P(cid:68)(cid:85)t I(cid:57)
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4(cid:26)
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Consolidated Statements of Stoc(cid:78)holders(cid:182) Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(cid:49)otes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Schedule II (cid:177) (cid:57)aluation and (cid:52)ualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:26)0
43
R(cid:72)(cid:83)(cid:82)(cid:85)t (cid:82)(cid:73) I(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)t R(cid:72)(cid:74)i(cid:86)t(cid:72)(cid:85)(cid:72)(cid:71) P(cid:88)b(cid:79)i(cid:70) A(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)ti(cid:81)(cid:74) Fi(cid:85)(cid:80)
The Stoc(cid:78)holders and the Board of Directors of Ulta Beauty, Inc.
O(cid:83)i(cid:81)i(cid:82)(cid:81) (cid:82)(cid:81) th(cid:72) Fi(cid:81)(cid:68)(cid:81)(cid:70)i(cid:68)(cid:79) St(cid:68)t(cid:72)(cid:80)(cid:72)(cid:81)t(cid:86)
(cid:58)e have audited the accompanying consolidated balance sheets of Ulta Beauty, Inc. (the Company) as of February 2,
2019, and February 3, 2018, the related consolidated statements of income, stoc(cid:78)holders(cid:182) equity, and cash flows for each
of the three years in the period ended February 3, 2018, and the related notes and financial statement schedule listed in
the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the consolidated financial position of the Company at February 2, 2019 and
February 3, 2018, and the consolidated results of its operations and its cash flows for each of the three years in the period
ended February 2, 2019, in conformity with U.S. generally accepted accounting principles.
(cid:58)e also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company(cid:10)s internal control over financial reporting as of February 2, 2019, based on criteria
established in Internal Control-Integrated Framewor(cid:78) issued by the Committee of Sponsoring Organi(cid:93)ations of the
Treadway Commission (2013 framewor(cid:78)) and our report dated April 2, 2019 expressed an unqualified opinion thereon.
B(cid:68)(cid:86)i(cid:86) (cid:73)(cid:82)(cid:85) O(cid:83)i(cid:81)i(cid:82)(cid:81)
These financial statements are the responsibility of the Company(cid:182)s management. Our responsibility is to express an
opinion on the Company(cid:182)s financial statements based on our audits. (cid:58)e are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
(cid:58)e conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the ris(cid:78)s of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those
ris(cid:78)s. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. (cid:58)e believe that our audits
provide a reasonable basis for our opinion.
/s/ Ernst (cid:9) (cid:60)oung (cid:47)(cid:47)P
(cid:58)e have served as the Company(cid:182)s auditor since 199(cid:26).
Chicago, Illinois
April 2, 2019
44
R(cid:72)(cid:83)(cid:82)(cid:85)t (cid:82)(cid:73) I(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)t R(cid:72)(cid:74)i(cid:86)t(cid:72)(cid:85)(cid:72)(cid:71) P(cid:88)b(cid:79)i(cid:70) A(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)ti(cid:81)(cid:74) Fi(cid:85)(cid:80)
The Stoc(cid:78)holders(cid:182) and the Board of Directors Ulta Beauty, Inc.
O(cid:83)i(cid:81)i(cid:82)(cid:81) (cid:82)(cid:81) I(cid:81)t(cid:72)(cid:85)(cid:81)(cid:68)(cid:79) C(cid:82)(cid:81)t(cid:85)(cid:82)(cid:79) (cid:82)(cid:89)(cid:72)(cid:85) Fi(cid:81)(cid:68)(cid:81)(cid:70)i(cid:68)(cid:79) R(cid:72)(cid:83)(cid:82)(cid:85)ti(cid:81)(cid:74)
(cid:58)e have audited Ulta Beauty, Inc.(cid:182)s internal control over financial reporting as of February 2, 2019, based on criteria
established in Internal Control - Integrated Framewor(cid:78) issued by the Committee of Sponsoring Organi(cid:93)ations of the
Treadway Commission (2013 framewor(cid:78)) (the COSO criteria). In our opinion, Ulta Beauty, Inc. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of February 2, 2019, based on
COSO criteria.
(cid:58)e also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of February 2, 2019 and February 3, 2018, the
related consolidated statements of income, stoc(cid:78)holders(cid:182) equity and cash flows for each of the three years in the period
ended February 2, 2019, and the related notes and financial statement schedule listed in the Index at Item 15 and our
report dated April 2, 2019 expressed an unqualified opinion thereon.
B(cid:68)(cid:86)i(cid:86) (cid:73)(cid:82)(cid:85) O(cid:83)i(cid:81)i(cid:82)(cid:81)
The Company(cid:182)s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management(cid:182)s
annual report on internal control over financial reporting. Our responsibility is to express an opinion on the Company(cid:182)s
internal control over financial reporting based on our audit. (cid:58)e are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
(cid:58)e conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the ris(cid:78) that a
material wea(cid:78)ness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed ris(cid:78), and performing such other procedures as we considered necessary in the circumstances. (cid:58)e believe that
our audit provides a reasonable basis for our opinion.
D(cid:72)(cid:73)i(cid:81)iti(cid:82)(cid:81) (cid:68)(cid:81)(cid:71) Li(cid:80)it(cid:68)ti(cid:82)(cid:81)(cid:86) (cid:82)(cid:73) I(cid:81)t(cid:72)(cid:85)(cid:81)(cid:68)(cid:79) C(cid:82)(cid:81)t(cid:85)(cid:82)(cid:79) O(cid:89)(cid:72)(cid:85) Fi(cid:81)(cid:68)(cid:81)(cid:70)i(cid:68)(cid:79) R(cid:72)(cid:83)(cid:82)(cid:85)ti(cid:81)(cid:74)
A company(cid:182)s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company(cid:182)s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company(cid:30) (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authori(cid:93)ations of
management and directors of the company(cid:30) and (3) provide reasonable assurance regarding prevention or timely
detection of unauthori(cid:93)ed acquisition, use, or disposition of the company(cid:182)s assets that could have a material effect on the
financial statements.
45
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, pro(cid:77)ections of any evaluation of effectiveness to future periods are sub(cid:77)ect to the ris(cid:78) that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Ernst (cid:9) (cid:60)oung (cid:47)(cid:47)P
Chicago, Illinois
April 2, 2019
46
U(cid:79)t(cid:68) B(cid:72)(cid:68)(cid:88)t(cid:92), I(cid:81)(cid:70).
C(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)i(cid:71)(cid:68)t(cid:72)(cid:71) B(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72) Sh(cid:72)(cid:72)t(cid:86)
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86), (cid:72)x(cid:70)(cid:72)(cid:83)t (cid:83)(cid:72)(cid:85) (cid:86)h(cid:68)(cid:85)(cid:72) (cid:71)(cid:68)t(cid:68)(cid:12)
A(cid:86)(cid:86)(cid:72)t(cid:86)
Current assets:
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2,
2019
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 3,
2018
409,251 (cid:7)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
(cid:178)
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
136,168
Merchandise inventories, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,214,329
138,116
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,99(cid:26)
Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,914,861
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2(cid:26)(cid:26),445
120,000
99,(cid:26)19
1,096,424
98,666
1,489
1,693,(cid:26)43
1,189,453
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:178)
(cid:42)oodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:178)
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,82(cid:26)
Deferred compensation plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,664
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7) 3,191,1(cid:26)2 (cid:7) 2,908,68(cid:26)
1,226,029
10,8(cid:26)0
4,31(cid:26)
20,511
14,584
Li(cid:68)bi(cid:79)iti(cid:72)(cid:86) (cid:68)(cid:81)(cid:71) (cid:86)t(cid:82)(cid:70)(cid:78)h(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182) (cid:72)(cid:84)(cid:88)it(cid:92)
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
404,016 (cid:7)
220,666
199,054
(cid:178)
823,(cid:26)36
325,(cid:26)58
189,1(cid:26)1
113,136
14,101
642,166
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
434,980
83,864
28,3(cid:26)4
1,3(cid:26)0,954
40(cid:26),916
59,403
24,985
1,134,4(cid:26)0
Commitments and contingencies ((cid:49)ote 8)
Stoc(cid:78)holders(cid:10) equity:
Common stoc(cid:78), (cid:7)0.01 par value, 400,000 shares authori(cid:93)ed(cid:30) 59,232 and 61,441 shares
issued(cid:30) 58,584 and 60,822 shares outstanding(cid:30) at February 2, 2019 and February 3,
592
2018, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(24,908)
Treasury stoc(cid:78)-common, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:26)38,6(cid:26)1
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,105,863
1,820,218
614
(18,(cid:26)6(cid:26))
698,91(cid:26)
1,093,453
Total stoc(cid:78)holders(cid:182) equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,(cid:26)(cid:26)4,21(cid:26)
Total liabilities and stoc(cid:78)holders(cid:182) equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7) 3,191,1(cid:26)2 (cid:7) 2,908,68(cid:26)
See accompanying notes to consolidated financial statements.
4(cid:26)
U(cid:79)t(cid:68) B(cid:72)(cid:68)(cid:88)t(cid:92), I(cid:81)(cid:70).
C(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)i(cid:71)(cid:68)t(cid:72)(cid:71) St(cid:68)t(cid:72)(cid:80)(cid:72)(cid:81)t(cid:86) (cid:82)(cid:73) I(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86), (cid:72)x(cid:70)(cid:72)(cid:83)t (cid:83)(cid:72)(cid:85) (cid:86)h(cid:68)(cid:85)(cid:72) (cid:71)(cid:68)t(cid:68)(cid:12)
(cid:49)et sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:42)ross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2,
2019
6,(cid:26)16,615 (cid:7)
4,30(cid:26),304
2,409,311
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 3,
2018
5,884,506 (cid:7)
3,(cid:26)8(cid:26),69(cid:26)
2,096,809
(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92) 28,
201(cid:26)
4,854,(cid:26)3(cid:26)
3,10(cid:26),508
1,(cid:26)4(cid:26),229
Selling, general and administrative expenses . . . . . . . . . . . . . . .
Pre-opening expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:49)et income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:7)
1,535,464
19,(cid:26)6(cid:26)
854,080
(5,061)
859,141
200,582
658,559 (cid:7)
1,28(cid:26),232
24,286
(cid:26)85,291
(1,568)
(cid:26)86,859
231,625
555,234 (cid:7)
1,0(cid:26)3,834
18,5(cid:26)1
654,824
(890)
655,(cid:26)14
245,954
409,(cid:26)60
(cid:49)et income per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
11.00 (cid:7)
10.94 (cid:7)
9.02 (cid:7)
8.96 (cid:7)
6.55
6.52
(cid:58)eighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59,864
60,181
61,556
61,9(cid:26)5
62,519
62,851
See accompanying notes to consolidated financial statements.
48
U(cid:79)t(cid:68) B(cid:72)(cid:68)(cid:88)t(cid:92), I(cid:81)(cid:70).
C(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)i(cid:71)(cid:68)t(cid:72)(cid:71) St(cid:68)t(cid:72)(cid:80)(cid:72)(cid:81)t(cid:86) (cid:82)(cid:73) C(cid:68)(cid:86)h F(cid:79)(cid:82)(cid:90)(cid:86)
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)
O(cid:83)(cid:72)(cid:85)(cid:68)ti(cid:81)(cid:74) (cid:68)(cid:70)ti(cid:89)iti(cid:72)(cid:86)
(cid:49)et income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7) 658,559
Ad(cid:77)ustments to reconcile net income to net cash provided by operating
activities:
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2,
2019
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 3,
2018
(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92) 28,
201(cid:26)
(cid:7) 555,234 (cid:7) 409,(cid:26)60
Depreciation and amorti(cid:93)ation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:49)on-cash stoc(cid:78) compensation charges . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stoc(cid:78)-based compensation . . . . . . . . . . . . . . . . .
(cid:47)oss on disposal of property and equipment . . . . . . . . . . . . . . . . . . . . . . .
Change in operating assets and liabilities, net of acquisitions:
2(cid:26)9,4(cid:26)2
34,080
26,636
(cid:178)
2,885
252,(cid:26)13
(2(cid:26),095)
24,399
(cid:178)
(cid:26),518
210,295
26,9(cid:26)1
19,340
(9,053)
9,140
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchandise inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities and deferred revenue . . . . . . . . . . . . . . . . . . . . . .
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:49)et cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(36,38(cid:26))
(122,019)
(39,450)
(29,609)
(cid:26)8,256
(cid:26)9,949
2(cid:26),064
(3,309)
956,12(cid:26)
(11,088)
(152,449)
(10,045)
3,641
66,240
36,891
41,(cid:26)25
(8,318)
(cid:26)(cid:26)9,366
(23,639)
(182,182)
(16,0(cid:26)3)
5,322
63,344
(cid:26)1,05(cid:26)
44,402
5,(cid:26)01
634,385
I(cid:81)(cid:89)(cid:72)(cid:86)ti(cid:81)(cid:74) (cid:68)(cid:70)ti(cid:89)iti(cid:72)(cid:86)
Purchases of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:49)et cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(386,193)
506,193
(319,400)
(13,606)
(2,101)
(215,10(cid:26))
(330,000)
240,000
(440,(cid:26)14)
(cid:178)
(cid:178)
(530,(cid:26)14)
(90,000)
190,000
(3(cid:26)3,44(cid:26))
(cid:178)
(cid:178)
(2(cid:26)3,44(cid:26))
Fi(cid:81)(cid:68)(cid:81)(cid:70)i(cid:81)(cid:74) (cid:68)(cid:70)ti(cid:89)iti(cid:72)(cid:86)
Repurchase of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stoc(cid:78) options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stoc(cid:78)-based compensation . . . . . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:49)et cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(616,194)
13,121
(6,141)
(cid:178)
(cid:178)
(609,214)
(36(cid:26),581)
16,190
(4,243)
(cid:178)
(583)
(356,21(cid:26))
(344,2(cid:26)5)
16,293
(2,839)
9,053
(cid:178)
(321,(cid:26)68)
131,806
(cid:49)et increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . .
2(cid:26)(cid:26),445
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7) 409,251
(10(cid:26),565)
385,010
39,1(cid:26)0
345,840
(cid:7) 2(cid:26)(cid:26),445 (cid:7) 385,010
S(cid:88)(cid:83)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)t(cid:68)(cid:79) (cid:70)(cid:68)(cid:86)h (cid:73)(cid:79)(cid:82)(cid:90) i(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)ti(cid:82)(cid:81)
Cash paid for income taxes (net of refunds) . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7) 195,869
(cid:49)on-cash investing activities:
(cid:7) 254,619 (cid:7) 212,514
Change in property and equipment included in accrued liabilities . . . . . .
(cid:7)
11
(cid:7)
4,562
(cid:7)
2,446
See accompanying notes to consolidated financial statements.
49
.
(cid:70)
(cid:81)
I
,
(cid:92)
t
(cid:88)
(cid:68)
(cid:72)
B
(cid:68)
t
(cid:79)
U
(cid:92)
t
i
(cid:88)
(cid:84)
E
(cid:182)
(cid:86)
(cid:85)
(cid:72)
(cid:71)
(cid:79)
(cid:82)
h
(cid:78)
(cid:70)
(cid:82)
t
S
(cid:73)
(cid:82)
(cid:86)
t
(cid:81)
(cid:72)
(cid:80)
(cid:72)
t
(cid:68)
t
S
(cid:71)
(cid:72)
t
(cid:68)
(cid:71)
i
(cid:79)
(cid:82)
(cid:86)
(cid:81)
(cid:82)
C
t
(cid:81)
(cid:88)
(cid:82)
(cid:80)
A
1
4
6
(cid:7)
(cid:78)
(cid:70)
(cid:82)
t
S
(cid:81)
(cid:82)
(cid:80)
(cid:80)
(cid:82)
C
0
4
3
,
9
1
3
9
2
,
6
1
0
6
(cid:26)
,
9
0
4
3
5
0
,
9
(cid:79)
(cid:68)
t
(cid:82)
T
(cid:10)
(cid:86)
(cid:85)
(cid:72)
(cid:71)
(cid:79)
(cid:82)
h
(cid:78)
(cid:70)
(cid:82)
t
S
(cid:92)
t
i
(cid:88)
(cid:84)
E
6
8
8
,
2
4
4
,
1
(cid:7)
)
9
3
8
,
2
(
)
5
(cid:26)
2
,
4
4
3
(
8
1
2
,
0
5
5
,
1
(cid:7)
9
9
3
,
4
2
0
9
1
,
6
1
)
3
4
2
,
4
(
4
3
2
,
5
5
5
)
1
8
5
,
(cid:26)
6
3
(
5
1
2
,
2
3
8
0
6
(cid:26)
,
9
0
4
(cid:71)
(cid:72)
(cid:81)
i
(cid:68)
t
(cid:72)
R
(cid:86)
(cid:74)
(cid:81)
i
(cid:81)
(cid:85)
(cid:68)
E
(cid:178)
(cid:178)
(cid:178)
(cid:178)
)
0
9
1
,
6
3
3
(
5
8
(cid:26)
,
5
0
9
4
3
2
,
5
5
5
(cid:178)
(cid:178)
(cid:178)
)
6
6
5
,
(cid:26)
6
3
(
(cid:7)
5
1
(cid:26)
,
1
2
6
(cid:7)
)
5
8
6
,
1
1
(
(cid:7)
)
1
9
5
(
(cid:79)
(cid:68)
(cid:81)
(cid:82)
i
t
i
(cid:71)
(cid:71)
A
(cid:81)
I
-
(cid:71)
i
(cid:68)
P
(cid:79)
(cid:68)
t
i
(cid:83)
(cid:68)
C
-
(cid:92)
(cid:85)
(cid:88)
(cid:86)
(cid:68)
(cid:72)
(cid:85)
T
(cid:78)
(cid:70)
(cid:82)
t
S
(cid:81)
(cid:82)
(cid:80)
(cid:80)
(cid:82)
C
t
(cid:81)
(cid:88)
(cid:82)
(cid:80)
A
(cid:92)
(cid:85)
(cid:88)
(cid:86)
(cid:68)
(cid:72)
(cid:85)
T
(cid:86)
(cid:72)
(cid:85)
(cid:68)
h
S
(cid:178)
0
4
3
,
9
1
1
9
2
,
6
1
3
5
0
,
9
(cid:178)
)
9
6
0
,
8
(
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
)
9
3
8
,
2
(
(cid:178)
(cid:178)
(cid:178)
(cid:178)
)
3
1
(
(cid:178)
(cid:7)
0
3
3
,
8
5
6
(cid:7)
)
4
2
5
,
4
1
(
(cid:7)
)
4
0
6
(
(cid:178)
(cid:178)
(cid:178)
9
9
3
,
4
2
8
8
1
,
6
1
(cid:178)
(cid:178)
(cid:178)
(cid:178)
)
3
4
2
,
4
(
(cid:178)
(cid:178)
(cid:178)
)
5
1
(
(cid:178)
(cid:26)
1
2
,
4
(cid:26)
(cid:26)
,
1
(cid:7)
3
5
4
,
3
9
0
,
1
(cid:7)
(cid:26)
1
9
,
8
9
6
(cid:7)
)
(cid:26)
6
(cid:26)
,
8
1
(
(cid:7)
)
9
1
6
(
6
3
6
,
6
2
9
5
5
,
8
5
6
)
0
8
9
,
9
2
(
)
1
4
1
,
6
(
1
2
1
,
3
1
)
4
9
1
,
6
1
6
(
(cid:178)
(cid:178)
(cid:178)
9
5
5
,
8
5
6
)
0
8
9
,
9
2
(
)
9
6
1
,
6
1
6
(
(cid:178)
(cid:178)
(cid:178)
(cid:178)
6
3
6
,
6
2
8
1
1
,
3
1
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
)
1
4
1
,
6
(
(cid:178)
(cid:178)
(cid:178)
(cid:178)
)
9
2
(
(cid:178)
8
1
2
,
0
2
8
,
1
(cid:7)
3
6
8
,
5
0
1
,
1
(cid:7)
1
(cid:26)
6
,
8
3
(cid:26)
(cid:7)
)
8
0
9
,
4
2
(
(cid:7)
)
8
4
6
(
(cid:178)
(cid:178)
2
(cid:178)
(cid:178)
)
6
1
(
(cid:26)
2
6
(cid:178)
(cid:178)
2
(cid:178)
)
5
1
(
4
1
6
(cid:178)
(cid:178)
(cid:178)
3
(cid:178)
)
5
2
(
2
9
5
(cid:7)
(cid:7)
(cid:178)
(cid:178)
1
4
2
(cid:178)
(cid:178)
(cid:71)
(cid:72)
(cid:88)
(cid:86)
(cid:86)
I
(cid:86)
(cid:72)
(cid:85)
(cid:68)
h
S
1
3
1
,
4
6
)
9
3
6
,
1
(
3
3
(cid:26)
,
2
6
(cid:178)
(cid:178)
(cid:178)
2
1
2
)
4
0
5
,
1
(
1
4
4
,
1
6
(cid:178)
(cid:178)
(cid:178)
(cid:178)
5
5
2
(cid:7)
)
4
6
4
,
2
(
2
3
2
,
9
5
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
6
1
0
2
,
0
3
(cid:92)
(cid:85)
(cid:68)
(cid:88)
(cid:81)
(cid:68)
(cid:45)
(cid:177)
(cid:72)
(cid:70)
(cid:81)
(cid:68)
(cid:79)
(cid:68)
B
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
e
m
o
c
n
i
t
e
(cid:49)
.
e
g
r
a
h
c
n
o
i
t
a
s
n
e
p
m
o
c
(cid:78)
c
o
t
S
s
d
r
a
w
a
r
e
h
t
o
d
n
a
d
e
s
i
c
r
e
x
e
s
n
o
i
t
p
o
(cid:78)
c
o
t
S
d
e
s
a
b
-
(cid:78)
c
o
t
s
m
o
r
f
s
t
i
f
e
n
e
b
x
a
t
s
s
e
c
x
E
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
n
o
i
t
a
s
n
e
p
m
o
c
s
e
r
a
h
s
y
r
u
s
a
e
r
t
f
o
e
s
a
h
c
r
u
P
s
e
r
a
h
s
n
o
m
m
o
c
f
o
e
s
a
h
c
r
u
p
e
R
.
.
.
.
(cid:26)
1
0
2
,
8
2
(cid:92)
(cid:85)
(cid:68)
(cid:88)
(cid:81)
(cid:68)
(cid:45)
(cid:177)
(cid:72)
(cid:70)
(cid:81)
(cid:68)
(cid:79)
(cid:68)
B
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
e
m
o
c
n
i
t
e
(cid:49)
.
e
g
r
a
h
c
n
o
i
t
a
s
n
e
p
m
o
c
(cid:78)
c
o
t
S
s
d
r
a
w
a
r
e
h
t
o
d
n
a
d
e
s
i
c
r
e
x
e
s
n
o
i
t
p
o
(cid:78)
c
o
t
S
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
s
e
r
a
h
s
y
r
u
s
a
e
r
t
f
o
e
s
a
h
c
r
u
P
s
e
r
a
h
s
n
o
m
m
o
c
f
o
e
s
a
h
c
r
u
p
e
R
.
.
.
.
8
1
0
2
,
3
(cid:92)
(cid:85)
(cid:68)
(cid:88)
(cid:85)
b
(cid:72)
F
(cid:177)
(cid:72)
(cid:70)
(cid:81)
(cid:68)
(cid:79)
(cid:68)
B
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
e
m
o
c
n
i
t
e
(cid:49)
.
e
g
r
a
h
c
n
o
i
t
a
s
n
e
p
m
o
c
(cid:78)
c
o
t
S
)
4
e
t
o
(cid:49)
(
s
d
r
a
d
n
a
t
s
g
n
i
t
n
u
o
c
c
a
f
o
n
o
i
t
p
o
d
A
.
.
.
.
s
d
r
a
w
a
r
e
h
t
o
d
n
a
d
e
s
i
c
r
e
x
e
s
n
o
i
t
p
o
(cid:78)
c
o
t
S
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
s
e
r
a
h
s
y
r
u
s
a
e
r
t
f
o
e
s
a
h
c
r
u
P
s
e
r
a
h
s
n
o
m
m
o
c
f
o
e
s
a
h
c
r
u
p
e
R
.
.
9
1
0
2
,
2
(cid:92)
(cid:85)
(cid:68)
(cid:88)
(cid:85)
b
(cid:72)
F
(cid:177)
(cid:72)
(cid:70)
(cid:81)
(cid:68)
(cid:79)
(cid:68)
B
(cid:12)
(cid:86)
(cid:71)
(cid:81)
(cid:68)
(cid:86)
(cid:88)
(cid:82)
h
t
(cid:81)
I
(cid:11)
50
.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
f
d
e
t
a
d
i
l
o
s
n
o
c
o
t
s
e
t
o
n
g
n
i
y
n
a
p
m
o
c
c
a
e
e
S
U(cid:79)t(cid:68) B(cid:72)(cid:68)(cid:88)t(cid:92), I(cid:81)(cid:70).
N(cid:82)t(cid:72)(cid:86) t(cid:82) C(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)i(cid:71)(cid:68)t(cid:72)(cid:71) Fi(cid:81)(cid:68)(cid:81)(cid:70)i(cid:68)(cid:79) St(cid:68)t(cid:72)(cid:80)(cid:72)(cid:81)t(cid:86)
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86), (cid:72)x(cid:70)(cid:72)(cid:83)t (cid:83)(cid:72)(cid:85) (cid:86)h(cid:68)(cid:85)(cid:72) (cid:68)(cid:81)(cid:71) (cid:86)t(cid:82)(cid:85)(cid:72) (cid:70)(cid:82)(cid:88)(cid:81)t (cid:71)(cid:68)t(cid:68)(cid:12)
1. B(cid:88)(cid:86)i(cid:81)(cid:72)(cid:86)(cid:86) (cid:68)(cid:81)(cid:71) b(cid:68)(cid:86)i(cid:86) (cid:82)(cid:73) (cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)t(cid:68)ti(cid:82)(cid:81)
On (cid:45)anuary 29, 201(cid:26), Ulta Salon, Cosmetics (cid:9) Fragrance, Inc. implemented a holding company reorgani(cid:93)ation. Pursuant
to the reorgani(cid:93)ation, Ulta Beauty, Inc., which was incorporated as a Delaware corporation in December 2016, became
the successor to Ulta Salon, Cosmetics (cid:9) Fragrance, Inc., the former publicly-traded company and now a wholly owned
subsidiary of Ulta Beauty. As used in these notes and throughout this Annual Report on Form 10-K, all references to
“we,” “us,” “Ulta Beauty,” or the “Company” refer to Ulta Beauty, Inc. and its consolidated subsidiaries.
The Company was originally founded in 1990 to operate specialty retail stores selling cosmetics, fragrance, haircare and
s(cid:78)incare products, and related accessories and services. The stores also feature full-service salons. As of
February 2, 2019, the Company operated 1,1(cid:26)4 stores across 50 states. All amounts are stated in thousands, with the
exception of per share amounts and number of stores.
The Company has one reportable segment, which includes retail stores, salon services, and e-commerce.
2. S(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92) (cid:82)(cid:73) (cid:86)i(cid:74)(cid:81)i(cid:73)i(cid:70)(cid:68)(cid:81)t (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)ti(cid:81)(cid:74) (cid:83)(cid:82)(cid:79)i(cid:70)i(cid:72)(cid:86)
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85)
The Company(cid:182)s fiscal year is the 52 or 53 wee(cid:78)s ending on the Saturday closest to (cid:45)anuary 31. The Company(cid:182)s
fiscal years ended February 2, 2019 (fiscal 2018), February 3, 2018 (fiscal 201(cid:26)), and (cid:45)anuary 28, 201(cid:26) (fiscal 2016)
were 52, 53, and 52-wee(cid:78) years, respectively.
C(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)i(cid:71)(cid:68)ti(cid:82)(cid:81)
The Company(cid:182)s consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany accounts, transactions, and unreali(cid:93)ed profit were eliminated in consolidation.
U(cid:86)(cid:72) (cid:82)(cid:73) (cid:72)(cid:86)ti(cid:80)(cid:68)t(cid:72)(cid:86)
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles
((cid:42)AAP) requires management to ma(cid:78)e 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.
R(cid:72)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)i(cid:73)i(cid:70)(cid:68)ti(cid:82)(cid:81)(cid:86)
Certain prior year amounts have been reclassified to conform to the current year presentation.
C(cid:68)(cid:86)h (cid:68)(cid:81)(cid:71) (cid:70)(cid:68)(cid:86)h (cid:72)(cid:84)(cid:88)i(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)t(cid:86)
Cash and cash equivalents include cash on hand and highly liquid investments with original maturities of three months or
less from the date of purchase. Cash equivalents also include amounts due from third-party financial institutions for
credit card and debit card transactions. These receivables typically settle in five days or less with little or no default ris(cid:78).
Amounts from third-party financial institutions for credit card and debit card transactions were (cid:7)5(cid:26),698 and (cid:7)60,(cid:26)(cid:26)3 as
of February 2, 2019 and February 3, 2018, respectively.
51
Sh(cid:82)(cid:85)t-t(cid:72)(cid:85)(cid:80) i(cid:81)(cid:89)(cid:72)(cid:86)t(cid:80)(cid:72)(cid:81)t(cid:86)
The Company determines the balance sheet classification of its investments at the time of purchase and evaluates the
classification at each balance sheet date. Money mar(cid:78)et funds, certificates of deposit, and time deposits with maturities
of greater than three months but no more than twelve months are carried at cost, which approximates fair value and are
recorded in the consolidated balance sheets in short-term investments (see (cid:49)ote 13, “Investments”).
R(cid:72)(cid:70)(cid:72)i(cid:89)(cid:68)b(cid:79)(cid:72)(cid:86)
Receivables consist principally of amounts due from vendors and landlord construction allowances earned but not yet
received. These receivables are computed based on provisions of the vendor and lease agreements in place and the
Company(cid:182)s completed performance. The Company does not require collateral on its receivables and does not accrue
interest. Credit ris(cid:78) with respect to receivables is limited due to the diversity of vendors and landlords comprising the
Company(cid:182)s vendor base. The Company performs ongoing credit evaluations of its vendors and evaluates the
collectability of its receivables based on the length of time the receivable is past due and historical experience.
The receivable for vendor allowances was (cid:7)9(cid:26),885 and (cid:7)(cid:26)8,238 as of February 2, 2019 and February 3, 2018,
respectively. The receivable for landlord allowances was (cid:7)19,(cid:26)46 and (cid:7)12,(cid:26)29 as of February 2, 2019 and February 3,
2018, respectively. The allowance for doubtful receivables was (cid:7)651 and (cid:7)1,3(cid:26)1 as of February 2, 2019 and February 3,
2018, respectively.
(cid:48)(cid:72)(cid:85)(cid:70)h(cid:68)(cid:81)(cid:71)i(cid:86)(cid:72) i(cid:81)(cid:89)(cid:72)(cid:81)t(cid:82)(cid:85)i(cid:72)(cid:86)
Merchandise inventories are stated at the lower of cost or mar(cid:78)et. Cost is determined using the weighted-average cost
method and includes costs incurred to purchase and distribute goods. Inventory cost also includes vendor allowances
related to co-op advertising, mar(cid:78)downs, and volume discounts. The Company maintains an inventory reserve for lower
of cost or mar(cid:78)et and shrin(cid:78). The inventory reserve was (cid:7)36,640 and (cid:7)24,804 as of February 2, 2019 and February 3,
2018, respectively.
F(cid:68)i(cid:85) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72) (cid:82)(cid:73) (cid:73)i(cid:81)(cid:68)(cid:81)(cid:70)i(cid:68)(cid:79) i(cid:81)(cid:86)t(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)t(cid:86)
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. The Company had no outstanding debt as of February 2, 2019
and February 3, 2018.
P(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)t(cid:92) (cid:68)(cid:81)(cid:71) (cid:72)(cid:84)(cid:88)i(cid:83)(cid:80)(cid:72)(cid:81)t
The Company(cid:182)s property and equipment are stated at cost, net of accumulated depreciation and amorti(cid:93)ation.
Maintenance and repairs are charged to operating expense as incurred. The Company(cid:182)s assets are depreciated or
amorti(cid:93)ed using the straight-line method over the shorter of their estimated useful lives or the expected lease term as
follows:
Equipment and fixtures . . . . . . . . . .
(cid:47)easehold improvements . . . . . . . . .
Electronic equipment and software .
3 to 10 years
10 years
3 to 5 years
The Company capitali(cid:93)es costs incurred during the application development stage in developing or purchasing internal
use software. These costs are amorti(cid:93)ed over the estimated useful life of the software.
The Company periodically evaluates whether changes have occurred that would require revision of the remaining useful
life of equipment and leasehold improvements or render them not recoverable. If such circumstances arise, the Company
uses an estimate of the undiscounted sum of expected future operating cash flows during their holding period to
determine whether the long-lived assets are impaired. If the aggregate undiscounted cash flows are less than the carrying
amount of the assets, the resulting impairment charges to be recorded are calculated based on the excess of the carrying
52
value of the assets over the fair value of such assets. (cid:49)o significant impairment charges were recogni(cid:93)ed in fiscal 2018,
fiscal 201(cid:26), or fiscal 2016. Impairment charges are included in selling, general and administrative (S(cid:42)(cid:9)A) expenses in
the consolidated statements of income.
(cid:42)(cid:82)(cid:82)(cid:71)(cid:90)i(cid:79)(cid:79)
(cid:42)oodwill represents the excess of cost over the fair value of net assets acquired. The Company reviews the recoverability
of goodwill annually during the fourth quarter or more frequently if an event occurs or circumstances change that would
indicate that impairment may exist (see (cid:49)ote 6, “(cid:42)oodwill”).
Oth(cid:72)(cid:85) i(cid:81)t(cid:68)(cid:81)(cid:74)ib(cid:79)(cid:72) (cid:68)(cid:86)(cid:86)(cid:72)t(cid:86)
Other definite-lived intangible assets are amorti(cid:93)ed over their useful lives. The Company reviews the recoverability of
long-lived assets whenever events or changes in circumstances indicate the carrying amount of such assets may not be
recoverable (see (cid:49)ote (cid:26), “Other intangible assets”).
L(cid:82)(cid:92)(cid:68)(cid:79)t(cid:92) (cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)
The Company maintains a loyalty program, Ultamate Rewards, which allows members to earn points based on purchases
of merchandise or services. Points earned are valid for at least one year. The loyalty program represents a material right
to the customer and points may be redeemed on future products and services. The relative standalone selling price of
points earned by members is included in deferred revenue on the consolidated balance sheets based on the percentage of
points expected to be redeemed. The expected redemption percentage is based on historical redemption patterns and
considers current information or trends.
(cid:58)hen a guest redeems points or the points expire, the Company recogni(cid:93)es revenue in net sales on the consolidated
statements of income.
Prior to fiscal 2018, loyalty program revenue was recorded using the incremental cost method within cost of sales on the
consolidated statements of income.
C(cid:85)(cid:72)(cid:71)it (cid:70)(cid:68)(cid:85)(cid:71)(cid:86)
The Company has agreements (the Agreements) with third parties to provide guests with private label credit cards and/or
co-branded credit cards (collectively, the Credit Cards). The private label credit card can be used at any store location
and online, and the co-branded credit card can be used anywhere the co-branded card is accepted. A third-party financing
company is the sole owner of the accounts and underwrites the credit issued under the Credit Card programs. The
Company(cid:182)s performance obligation is to maintain the Ultamate Rewards loyalty program as only guests enrolled in the
loyalty program can apply for the Credit Cards. (cid:47)oyalty members earn points through purchases at Ulta Beauty and
anywhere the co-branded credit card is accepted.
The third parties reimburse the Company for certain credit card program costs such as advertising and loyalty points,
which help promote the credit card program. The Company recogni(cid:93)es revenue when collectability is reasonably
assured, under the assumption the amounts are not constrained and it is probable that a significant revenue reversal will
not occur in future periods, which is generally the time at which the actual usage of the Credit Cards or specified
transaction occurs.
The Company accounts for the amounts associated with the Agreements as a single contract with the sole commercial
ob(cid:77)ective to maintain the Credit Card programs. As a result, all amounts associated with the Agreements are recogni(cid:93)ed
within net sales on the consolidated statements of income.
Other administrative costs related to the Credit Card programs, including payroll, mar(cid:78)eting expenses, and other direct
costs, are included in S(cid:42)(cid:9)A expenses on the consolidated statements of income.
53
D(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71) (cid:85)(cid:72)(cid:81)t
Many of the Company(cid:182)s operating leases contain predetermined fixed increases of the minimum rental rate during the
lease term. For these leases, the Company recogni(cid:93)es the related rental expense on a straight-line basis over the expected
lease term and records the difference between the amounts charged to expense and the rent paid as deferred rent. The
lease term commences on the date the Company ta(cid:78)es possession of the leased space.
For most lease agreements, the Company receives construction allowances from landlords for tenant improvements.
These leasehold improvements made by the Company are capitali(cid:93)ed and amorti(cid:93)ed over the shorter of the lease term or
10 years. The construction allowances are recorded as deferred rent and amorti(cid:93)ed on a straight-line basis over the lease
term as a reduction of rent expense.
(cid:42)i(cid:73)t (cid:70)(cid:68)(cid:85)(cid:71) (cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)
The Company records a contract liability for gift card sales which will be redeemed in the future within deferred
revenue on the consolidated balance sheets and recogni(cid:93)ed in net sales when the gift card is redeemed for product or
services. The Company(cid:182)s gift cards do not expire and do not include service fees that decrease guest balances. The
Company has maintained historical data related to gift card transactions sold and redeemed over a significant time frame.
The Company recogni(cid:93)es gift card brea(cid:78)age (amounts not expected to be redeemed) to the extent there is no requirement
for remitting balances to governmental agencies under unclaimed property laws. Estimated gift card brea(cid:78)age revenue is
recogni(cid:93)ed over time in proportion to actual gift card redemptions. (cid:42)ift card brea(cid:78)age revenue was (cid:7)12,446, (cid:7)(cid:26),(cid:26)83, and
(cid:7)5,335 in fiscal 2018, 201(cid:26), and 2016, respectively.
R(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72) (cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)iti(cid:82)(cid:81)
Revenue is recogni(cid:93)ed when control of the promised goods or services is transferred to the guest, in an amount that
reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company determines revenue recognition through the following steps:
Identification of the contract, or contracts, with a guest(cid:30)
Identification of the performance obligations in the contract(cid:30)
•
•
• Determination of the transaction price(cid:30)
• Allocation of the transaction price to the performance obligations in the contract(cid:30) and
• Recognition of revenue when, or as, a performance obligation is satisfied.
The Company(cid:182)s net sales include retail stores and e-commerce merchandise sales as well as salon services and other
revenue.
Revenue from merchandise sales at retail stores is recogni(cid:93)ed at the point of sale, net of estimated returns. Revenue from
e-commerce merchandise sales is recogni(cid:93)ed upon shipment of the merchandise to the guest based on meeting the
transfer of control criteria, net of estimated returns. E-commerce revenue amounted to (cid:7)(cid:26)52,224, (cid:7)568,(cid:26)36, and
(cid:7)345,342 in fiscal 2018, 201(cid:26), and 2016, respectively. Shipping and handling are treated as costs to fulfill the contract,
and as a result, any fees received from guests are included in the transaction price allocated to the performance obligation
of providing goods with a corresponding amount accrued within cost of sales for amounts paid to applicable carriers. The
Company provides refunds for merchandise returns within 60 days from the original purchase date. State sales taxes are
presented on a net basis as the Company considers itself a pass-through conduit for collecting and remitting state sales
tax. Company coupons and other incentives are recorded as a reduction of net sales.
Salon services revenue is recogni(cid:93)ed at the time the service is provided to the guest. Salon service revenue was
(cid:7)300,863, (cid:7)2(cid:26)(cid:26),361, and (cid:7)241,105 in fiscal 2018, 201(cid:26) and 2016, respectively.
Other revenue sources include the private label credit card and co-branded credit card programs, as well as deferred
revenue related to the loyalty program and gift card brea(cid:78)age.
54
(cid:57)(cid:72)(cid:81)(cid:71)(cid:82)(cid:85) (cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)
The Company receives allowances from vendors in the normal course of business including advertising and mar(cid:78)down
allowances, purchase volume discounts and rebates, reimbursement for defective merchandise, and certain selling and
display expenses. Substantially all vendor allowances are recorded as a reduction of the vendor(cid:182)s product cost and are
recogni(cid:93)ed in cost of sales as the product is sold.
A(cid:71)(cid:89)(cid:72)(cid:85)ti(cid:86)i(cid:81)(cid:74)
Advertising expense consists principally of print, digital and social media, and television and radio advertising. The
Company expenses the costs related to its advertising in the period the related promotional event occurs. Total
advertising costs, exclusive of incentives from vendors and start-up advertising expense, amounted to (cid:7)294,489,
(cid:7)259,423, and (cid:7)212,(cid:26)14 in fiscal 2018, 201(cid:26) and 2016, respectively. Advertising expense as a percentage of sales was
4.4(cid:8) in fiscal 2018, 201(cid:26) and 2016. Prepaid advertising costs included in prepaid expenses and other current assets on
the consolidated balance sheets were (cid:7)9,384 and (cid:7)12,811 as of February 2, 2019 and February 3, 2018, respectively.
P(cid:85)(cid:72)-(cid:82)(cid:83)(cid:72)(cid:81)i(cid:81)(cid:74) (cid:72)x(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)
(cid:49)on-capital expenditures incurred prior to the grand opening of a new, remodeled, or relocated store are expensed as
incurred.
C(cid:82)(cid:86)t (cid:82)(cid:73) (cid:86)(cid:68)(cid:79)(cid:72)(cid:86)
Cost of sales includes the cost of merchandise sold, including substantially all vendor allowances, which are treated as a
reduction of merchandise costs(cid:30) distribution costs including labor and related benefits, freight, rent, depreciation and
amorti(cid:93)ation, real estate taxes, utilities, and insurance(cid:30) shipping and handling costs(cid:30) retail stores occupancy costs
including rent, depreciation and amorti(cid:93)ation, real estate taxes, utilities, repairs and maintenance, insurance, licenses, and
cleaning expenses(cid:30) salon services payroll and benefits(cid:30) and shrin(cid:78) and inventory valuation reserves.
S(cid:72)(cid:79)(cid:79)i(cid:81)(cid:74), (cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79) (cid:68)(cid:81)(cid:71) (cid:68)(cid:71)(cid:80)i(cid:81)i(cid:86)t(cid:85)(cid:68)ti(cid:89)(cid:72) (cid:72)x(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)
S(cid:42)(cid:9)A expenses includes payroll, bonus, and benefit costs for retail and corporate employees(cid:30) advertising and mar(cid:78)eting
costs(cid:30) occupancy costs related to our corporate office facilities(cid:30) stoc(cid:78)-based compensation expense(cid:30) depreciation and
amorti(cid:93)ation for all assets, except those related to our retail store and distribution operations, which are included in cost
of sales(cid:30) and legal, finance, information systems, and other corporate overhead costs.
I(cid:81)(cid:70)(cid:82)(cid:80)(cid:72) t(cid:68)x(cid:72)(cid:86)
Deferred income taxes reflect the net tax effect of temporary differences between the financial statement carrying
amounts of assets and liabilities and their tax bases. The amounts reported were derived using the enacted tax rates in
effect for the year the differences are expected to reverse.
Income tax benefits related to uncertain tax positions are recogni(cid:93)ed only when it is more li(cid:78)ely than not that the tax
position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of
the position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has full
(cid:78)nowledge of all relevant information. Penalties and interest related to unrecogni(cid:93)ed tax positions are recorded in income
tax expense in the consolidated statements of income.
Sh(cid:68)(cid:85)(cid:72)-b(cid:68)(cid:86)(cid:72)(cid:71) (cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)ti(cid:82)(cid:81)
Share-based compensation cost is measured at grant date, based on the fair value of the award, and is recogni(cid:93)ed on a
straight-line basis over the requisite service period for awards expected to vest. The Company recorded stoc(cid:78)
compensation expense of (cid:7)2(cid:26),489, (cid:7)24,399, and (cid:7)19,340 in fiscal 2018, 201(cid:26), and 2016, respectively (see (cid:49)ote 14,
“Share-based awards”).
55
I(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72) (cid:72)x(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)
The Company has insurance programs with third party insurers for employee health, wor(cid:78)ers compensation, and general
liability, among others, to limit the Company(cid:182)s liability exposure. The insurance programs are premium based and
include retentions, deductibles, and stop loss coverage. Current stop loss coverage per claim is (cid:7)350 for employee health
claims, (cid:7)100 for general liability claims, and (cid:7)250 for wor(cid:78)ers compensation claims. The Company ma(cid:78)es collateral and
premium payments during the plan year and accrues expenses in the event additional premium is due from the Company
based on actual claim results. In fiscal 2018, the Company created UB Insurance, Inc., an Ari(cid:93)ona-based wholly owned
captive insurance subsidiary of the Company, which charges the operating subsidiaries of the Company premiums to
insure certain liability exposures. Pursuant to Ari(cid:93)ona insurance regulations, UB Insurance, Inc. maintains certain levels
of cash and cash equivalents related to its liability exposures.
N(cid:72)t i(cid:81)(cid:70)(cid:82)(cid:80)(cid:72) (cid:83)(cid:72)(cid:85) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) (cid:86)h(cid:68)(cid:85)(cid:72)
Basic net income per common share is computed by dividing income available to common stoc(cid:78)holders by the weighted-
average number of shares of common stoc(cid:78) outstanding during the period. Diluted net income per common share
includes dilutive common stoc(cid:78) equivalents, using the treasury stoc(cid:78) method (see (cid:49)ote 15, “(cid:49)et income per common
share”).
R(cid:72)(cid:70)(cid:72)(cid:81)t (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)ti(cid:81)(cid:74) (cid:83)(cid:85)(cid:82)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)t(cid:86) (cid:81)(cid:82)t (cid:92)(cid:72)t (cid:68)(cid:71)(cid:82)(cid:83)t(cid:72)(cid:71)
Leases
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2016-02, (cid:47)eases (Topic 842). The guidance in ASU 2016-02 and subsequently issued amendments requires lessees to
capitali(cid:93)e virtually all leases with terms of more than twelve months on the balance sheet as a right-of-use asset and
recogni(cid:93)e an associated lease liability. The right-of-use asset represents the lessee(cid:182)s right to use, or control the use of, a
specified asset for the specified lease term. The lease liability represents the lessee(cid:182)s obligation to ma(cid:78)e lease payments
arising from the lease, measured on a discounted basis. Based on certain characteristics, leases are classified as financing
or operating leases and their classification impacts the recognition of expense in the income statement. Entities are
allowed to apply the modified retrospective approach (1) retrospectively to each comparative period presented or
(2) retrospectively at the beginning of the period of adoption through a cumulative-effect ad(cid:77)ustment. ASU 2016-02 is
effective for public companies for interim and annual reporting periods beginning after December 15, 2018.
The Company will adopt the new standard on February 3, 2019 using the modified retrospective approach. Therefore,
upon adoption, the Company will recogni(cid:93)e and measure leases without revising comparative period information or
disclosures.
The Company formed a cross-functional pro(cid:77)ect team to assess the impact of the standard on the consolidated financial
statements, which included updating the lease software and identifying changes to processes and controls. The Company
plans to implement the transition pac(cid:78)age of three practical expedients permitted within the standard, which among other
things, allows for the carryforward of historical lease classifications. The Company will ma(cid:78)e an accounting policy
election to (cid:78)eep leases with terms of twelve months or less off the balance sheet and result in recogni(cid:93)ing those lease
payments on a straight-line basis over the lease term.
As a result of adopting ASU 2016-02, the Company estimates it will record lease liabilities of approximately (cid:7)1,900,000
with a corresponding amount for the right-of-use assets, which will also be ad(cid:77)usted by reclassifications of existing assets
and liabilities primarily related to deferred rent. The adoption of this new standard is not expected to have a material
impact on the Company(cid:182)s consolidated results of operations or cash flows.
Intangibles – Goodwill and Other-Internal-Use Software
In August 2018, the FASB issued ASU 2018-15, Intangibles (cid:177) (cid:42)oodwill and Other-Internal-Use Software (Subtopic
350-40): Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a
56
Service Contract, which clarifies and aligns the accounting for capitali(cid:93)ing implementation costs incurred in a hosting
arrangement that is a service contract with the requirements for capitali(cid:93)ing implementation costs incurred to develop or
obtain internal-use software. This guidance is effective for interim and annual reporting periods beginning after
December 15, 2019 and should be applied either retrospectively or prospectively to all implementation costs incurred
after the date of adoption. Early adoption is permitted. The adoption of ASU 2018-15 is not expected to have a material
impact on the Company(cid:182)s consolidated financial position, results of operations, or cash flows.
R(cid:72)(cid:70)(cid:72)(cid:81)t(cid:79)(cid:92) (cid:68)(cid:71)(cid:82)(cid:83)t(cid:72)(cid:71) (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)ti(cid:81)(cid:74) (cid:83)(cid:85)(cid:82)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)t(cid:86)
Revenue Recognition from Contracts with Customers
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASU 2014-09), issued as a new
Topic, Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606), which
supersedes the revenue recognition requirements in ASC 605, Revenue Recognition (ASC 605). The guidance in
ASU 2014-09 and subsequently issued amendments outlines a comprehensive model for all entities to use in accounting
for revenue arising from contracts with customers as well as required disclosures. Under the new standard, recognition of
revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the
consideration, which the entity expects to receive in exchange for those goods or services. The new standard requires
additional disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts
with customers including significant (cid:77)udgments and changes in (cid:77)udgments.
The Company adopted the new revenue standard effective February 4, 2018 using the modified retrospective transition
method applied to all contracts with the cumulative effect recorded to the opening balance of retained earnings as of the
date of adoption. The comparative information has not been restated and continues to be reported under accounting
standards in effect for those periods. The adoption of the new revenue standard did not have a material impact on the
Company(cid:182)s consolidated financial position, results of operations, or cash flows. The Company expects the impact of the
adoption of the new revenue standard will be immaterial to net income on an ongoing basis. See (cid:49)ote 4, “Revenue”, for
further details.
Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
In (cid:45)anuary 201(cid:26), the FASB issued ASU 201(cid:26)-04, Intangibles (cid:177) (cid:42)oodwill and Other (Topic 350): Simplifying the Test
for (cid:42)oodwill Impairment, which simplifies how all entities assess goodwill for impairment by eliminating Step 2 from
the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value
of a reporting unit with its carrying amount. An entity should recogni(cid:93)e a goodwill impairment charge for the amount by
which the carrying amount exceeds the reporting unit(cid:182)s fair value, except that the loss recogni(cid:93)ed should not exceed the
total amount of goodwill allocated to the reporting unit. This guidance is effective for interim and annual reporting
periods beginning after December 15, 2019 and should be applied prospectively. Early adoption is permitted. The
Company early adopted the new guidance, prospectively, in the fourth quarter of fiscal 2018, and its adoption had no
material impact on the Company(cid:182)s consolidated financial position, results of operation, or cash flows.
3. A(cid:70)(cid:84)(cid:88)i(cid:86)iti(cid:82)(cid:81)(cid:86)
The Company continues to ma(cid:78)e investments to evolve the customer experience, with a strong emphasis on integrating
technology across the business. To support these efforts, the Company paid (cid:7)13,606 to acquire two technology
companies in fiscal 2018.
On September 10, 2018, the Company acquired (cid:52)M Scientific, an artificial intelligence technology company. The
acquisition is not material to the Company(cid:182)s consolidated financial statements.
On October 29, 2018, the Company acquired (cid:42)lamST, an augmented reality technology company. The acquisition is not
material to the Company(cid:182)s consolidated financial statements.
5(cid:26)
(cid:23). R(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)
Revenue from Contracts with Customers
On February 4, 2018, the Company adopted ASC 606 using the modified retrospective method applied to all contracts as
of the date of adoption. The cumulative effect of initially applying the new revenue standard was recorded as an
ad(cid:77)ustment to the opening balance of retained earnings within the consolidated balance sheets. Under ASC 606, changes
were made to the recognition timing or classification of revenues and expenses for the following:
D(cid:72)(cid:86)(cid:70)(cid:85)i(cid:83)ti(cid:82)(cid:81)
Credit card
program
P(cid:82)(cid:79)i(cid:70)(cid:92) (cid:88)(cid:81)(cid:71)(cid:72)(cid:85) ASC 605
Recogni(cid:93)ed amounts earned under the private
label credit card and co-branded credit card
programs as a reduction of cost of sales and
selling, general and administrative expenses.
(cid:47)oyalty program Recogni(cid:93)ed revenue under the incremental cost
method at the time of purchase by the guest
(when points were earned). Recorded a liability
for the cost associated with the future
performance obligation to the guest.
(cid:42)ift card brea(cid:78)age Recogni(cid:93)ed gift card brea(cid:78)age (amounts not
Sales refund
reserve
expected to be redeemed) within selling,
general and administrative expenses.
Recogni(cid:93)ed a sales refund reserve as a net
liability within accrued liabilities.
E-commerce
revenue
Recogni(cid:93)ed revenue based on delivery of
merchandise to the guest.
P(cid:82)(cid:79)i(cid:70)(cid:92) (cid:88)(cid:81)(cid:71)(cid:72)(cid:85) ASC 606
Recogni(cid:93)e amounts earned under private label
credit card and co-branded credit card programs
within net sales.
Recogni(cid:93)e revenue under the deferred revenue
method by deferring the recognition of the
portion of revenue related to the earning of
loyalty points to a future period when the guest
redeems the points or the points expire.
Recogni(cid:93)e gift card brea(cid:78)age in net sales
proportionately as other gift card balances are
redeemed.
Recogni(cid:93)e a sales refund reserve on a gross basis
as a liability within accrued liabilities and a right
of return asset within prepaid expense and other
current assets.
Recogni(cid:93)e revenue upon shipment of
merchandise to the guest based on meeting the
transfer of control criteria.
Upon the adoption of ASC 606, the Company recogni(cid:93)ed the cumulative effect of (cid:7)29,980, net of tax, as a reduction to
the opening balance of retained earnings as of February 4, 2018. The cumulative effect of adoption is primarily related to
the change in accounting for the loyalty program. The comparative information has not been restated and continues to be
reported under accounting standards in effect for those periods. The adoption of the new revenue standard did not have a
material impact on the Company(cid:182)s consolidated financial position, results of operations, or cash flows. The Company
expects the impact of the adoption of the new revenue standard will be immaterial to net income on an ongoing basis.
The Company(cid:182)s net sales include retail stores and e-commerce merchandise sales as well as salon services and other
revenue. Other revenue sources include the private label credit card and co-branded credit card programs, as well as
deferred revenue related to the loyalty program and gift card brea(cid:78)age.
Disaggregated revenue
The following table sets forth the amount of net sales attributable to retail stores, e-commerce, salon services, and other:
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2,
2019
(cid:11)D(cid:82)(cid:79)(cid:79)(cid:68)(cid:85)(cid:86) i(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)
Retail stores . . . . . . (cid:7) 5,614,624 84(cid:8)
11(cid:8)
E-commerce . . . . . .
4(cid:8)
Salon services . . . .
1(cid:8)
Other . . . . . . . . . . . .
100(cid:8)
(cid:26)52,224
300,863
48,904
Total . . . . . . . . . . . (cid:7) 6,(cid:26)16,615
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 3,
2018
(cid:7) 5,038,409 85(cid:8)
10(cid:8)
5(cid:8)
0(cid:8)
100(cid:8)
568,(cid:26)36
2(cid:26)(cid:26),361
(cid:178)
(cid:7) 5,884,506
(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92) 28,
201(cid:26)
(cid:7) 4,268,290 88(cid:8)
(cid:26)(cid:8)
5(cid:8)
0(cid:8)
100(cid:8)
345,342
241,105
(cid:178)
(cid:7) 4,854,(cid:26)3(cid:26)
58
The following table sets forth the approximate percentage of net sales by primary category:
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2, F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 3, (cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92) 28,
2018
2019
201(cid:26)
Cosmetics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S(cid:78)incare, Bath (cid:9) Fragrance . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:43)aircare Products (cid:9) Styling Tools . . . . . . . . . . . . . . . . . . . . .
Salon Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (nail products, accessories, and other) . . . . . . . . . . . . . .
51(cid:8)
21(cid:8)
19(cid:8)
4(cid:8)
5(cid:8)
100(cid:8)
51(cid:8)
21(cid:8)
19(cid:8)
5(cid:8)
4(cid:8)
100(cid:8)
51(cid:8)
20(cid:8)
20(cid:8)
5(cid:8)
4(cid:8)
100(cid:8)
Deferred revenue
Deferred revenue primarily represents contract liabilities for the Company(cid:182)s 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, the Company recogni(cid:93)es brea(cid:78)age on gift cards
proportionately as redemption occurs.
The following table provides a summary of the changes included in deferred revenue during fiscal 2018:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
Adoption of ASC 606 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to contract liabilities (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deductions to contract liabilities (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2, 2019
110,103
38,(cid:26)(cid:26)3
140,638
(95,929)
193,585
(1) (cid:47)oyalty points and gift cards issued in the current period but not redeemed or expired.
(2) Revenue recogni(cid:93)ed in the current period related to the beginning liability.
5. P(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)t(cid:92) (cid:68)(cid:81)(cid:71) (cid:72)(cid:84)(cid:88)i(cid:83)(cid:80)(cid:72)(cid:81)t
Property and equipment consists of the following:
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)
Equipment and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
(cid:47)easehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronic equipment and software . . . . . . . . . . . . . . . . . . .
Construction-in-progress . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:47)ess: accumulated depreciation and amorti(cid:93)ation . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2,
2019
994,668
(cid:26)85,2(cid:26)6
544,618
50,5(cid:26)4
2,3(cid:26)5,136
(1,149,10(cid:26))
1,226,029
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 3,
2018
834,931
(cid:26)05,943
485,368
122,419
2,148,661
(959,208)
1,189,453
(cid:7)
(cid:7)
6. (cid:42)(cid:82)(cid:82)(cid:71)(cid:90)i(cid:79)(cid:79)
The changes in the carrying amounts of goodwill during the fiscal years 2018 and 201(cid:26) are as follows:
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)
Balance as of February 3, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of February 2, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:7)
(cid:7)
(cid:178)
10,8(cid:26)0
10,8(cid:26)0
59
The Company did not have a goodwill balance prior to fiscal 2018.
(cid:26). Oth(cid:72)(cid:85) i(cid:81)t(cid:68)(cid:81)(cid:74)ib(cid:79)(cid:72) (cid:68)(cid:86)(cid:86)(cid:72)t(cid:86)
Other intangible assets sub(cid:77)ect to amorti(cid:93)ation consists of the following:
(cid:58)(cid:72)i(cid:74)ht(cid:72)(cid:71)-(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)
(cid:85)(cid:72)(cid:80)(cid:68)i(cid:81)i(cid:81)(cid:74) (cid:88)(cid:86)(cid:72)(cid:73)(cid:88)(cid:79) (cid:79)i(cid:73)(cid:72) i(cid:81) (cid:70)(cid:68)(cid:85)(cid:85)(cid:92)i(cid:81)(cid:74) A(cid:70)(cid:70)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)t(cid:72)(cid:71)
(cid:42)(cid:85)(cid:82)(cid:86)(cid:86)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2, 2019
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)
Developed technology . . . . . . . . . . . . . .
(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)
4.(cid:26)
The Company did not have any other intangible assets prior to fiscal 2018.
(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)
(cid:7) 4,631 (cid:7)
(cid:68)(cid:80)(cid:82)(cid:85)ti(cid:93)(cid:68)ti(cid:82)(cid:81) N(cid:72)t
(314) (cid:7) 4,31(cid:26)
Amorti(cid:93)ation expense related to intangible assets was (cid:7)314, (cid:7)0, and (cid:7)0 in fiscal 2018, fiscal 201(cid:26), and fiscal 2016,
respectively.
Estimated amorti(cid:93)ation expense related to intangible assets at February 2, 2019, for the next five years and thereafter is
as follows:
E(cid:86)ti(cid:80)(cid:68)t(cid:72)(cid:71)
(cid:68)(cid:80)(cid:82)(cid:85)ti(cid:93)(cid:68)ti(cid:82)(cid:81)
(cid:72)x(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85)
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:7)
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)
926
926
926
926
613
(cid:178)
4,31(cid:26)
(cid:7)
8. C(cid:82)(cid:80)(cid:80)it(cid:80)(cid:72)(cid:81)t(cid:86) (cid:68)(cid:81)(cid:71) (cid:70)(cid:82)(cid:81)ti(cid:81)(cid:74)(cid:72)(cid:81)(cid:70)i(cid:72)(cid:86)
Leases (cid:177) The Company leases retail stores, distribution centers, corporate offices, and certain equipment under operating
leases with various expiration dates through 2032. Store leases generally have initial lease terms of 10 years and include
renewal options under substantially the same terms and conditions as the original leases. Total rent expense under
operating leases was (cid:7)262,2(cid:26)5, (cid:7)241,559, and (cid:7)202,942 in fiscal 2018, 201(cid:26) and 2016, respectively. As of February 2,
2019, future minimum lease payments under operating leases for the non-cancellable period are as follows:
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85)
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
O(cid:83)(cid:72)(cid:85)(cid:68)ti(cid:81)(cid:74)
L(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)
334,508
334,238
318,041
294,412
250,8(cid:26)6
(cid:26)53,33(cid:26)
2,285,412
Included in the operating lease schedule above is (cid:7)219,89(cid:26) of minimum lease payments for stores that are expected to
open in future periods.
60
Contractual obligations (cid:177) As of February 2, 2019, the Company had obligations of (cid:7)11,1(cid:26)5 related to commitments
made to a third party for products and services for a new fast fulfillment center opening in fiscal 2020. Payments under
this commitment were (cid:7)1,(cid:26)92 in fiscal 2018. In addition, the Company has entered into various non-cancelable
advertising and other goods and service contracts. A ma(cid:77)ority of these agreements expire over one year and the
obligations under these agreements were (cid:7)18,033 as of February 2, 2019.
General litigation – 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(cid:182)s consolidated financial position, results of operations or cash flows.
9. A(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71) (cid:79)i(cid:68)bi(cid:79)iti(cid:72)(cid:86)
Accrued liabilities consist of the following:
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2, F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 3,
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)
Accrued payroll, bonus, and employee benefits . . . . . . . . . . . . . . . . . . . . (cid:7) 96,020 (cid:7) 82,593
28,306
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:26)8,2(cid:26)2
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7) 220,666 (cid:7) 189,1(cid:26)1
32,085
92,561
2018
2019
10. I(cid:81)(cid:70)(cid:82)(cid:80)(cid:72) t(cid:68)x(cid:72)(cid:86)
The provision for income taxes consists of the following:
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)
Current:
Fi(cid:86)(cid:70)(cid:68)(cid:79)
2018
Fi(cid:86)(cid:70)(cid:68)(cid:79)
201(cid:26)
Fi(cid:86)(cid:70)(cid:68)(cid:79)
2016
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,24(cid:26)
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166,502
Deferred:
(cid:7) 13(cid:26),255 (cid:7) 230,006 (cid:7) 194,199
24,835
219,034
28,(cid:26)14
258,(cid:26)20
24,480
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,440
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,920
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7) 200,582 (cid:7) 231,625 (cid:7) 245,954
(26,256)
(839)
(2(cid:26),095)
29,3(cid:26)4
4,(cid:26)06
34,080
A reconciliation of the federal statutory rate to the Company(cid:182)s effective tax rate is as follows:
Fi(cid:86)(cid:70)(cid:68)(cid:79)
2018
Fi(cid:86)(cid:70)(cid:68)(cid:79)
201(cid:26)
Fi(cid:86)(cid:70)(cid:68)(cid:79)
2016
Federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.0 (cid:8) 33.(cid:26) (cid:8) 35.0 (cid:8)
2.8 (cid:8)
State effective rate, net of federal tax benefit . . . . . . . . . . . . . . . . . 3.1 (cid:8)
0.0 (cid:8)
0.0 (cid:8)
Re-measurement of deferred tax liabilities . . . . . . . . . . . . . . . . . . .
0.0 (cid:8)
Excess deduction of stoc(cid:78) compensation . . . . . . . . . . . . . . . . . . . .
(0.6)(cid:8)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.2)(cid:8)
(0.3)(cid:8)
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.3 (cid:8) 29.4 (cid:8) 3(cid:26).5 (cid:8)
2.4 (cid:8)
(4.9)(cid:8)
(1.2)(cid:8)
(0.6)(cid:8)
At February 3, 2018, the Company recorded a provisional tax expense related to the impacts of the Tax Cuts and (cid:45)obs
Act (Tax Reform). The SEC issued guidance on December 22, 201(cid:26) under Staff Accounting Bulletin (cid:49)o. 118
(“SAB 118”) which allowed recording a provisional tax expense using a measurement period, not to exceed more than
one year from the enactment date. The Company(cid:182)s accounting for the impacts of the Tax Reform is complete and the
Company has not recorded any material ad(cid:77)ustments to the provisional amounts under SAB 118.
61
Significant components of the Company(cid:182)s deferred tax assets and liabilities are as follows:
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)
Deferred tax assets:
Reserves not currently deductible . . . . . . . . . . . . . . . . . (cid:7)
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:49)O(cid:47) carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent obligation . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables not currently includable . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . .
(cid:49)et deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2,
2019
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 3,
2018
(cid:7)
30,669
18,491
23(cid:26)
34,391
4,10(cid:26)
413
88,308
69,265
60,525
39,915
1,018
1,449
1(cid:26)2,1(cid:26)2
(83,864) (cid:7)
23,(cid:26)89
15,2(cid:26)3
343
14,625
84(cid:26)
(cid:178)
54,8(cid:26)(cid:26)
54,210
49,518
10,552
(cid:178)
(cid:178)
114,280
(59,403)
At February 2, 2019, the Company had (cid:7)23(cid:26) of credit carryforwards for state income tax purposes that expire between
2023 and 2028. The Company also had (cid:7)1,114 of federal and (cid:7)1,136 of state net operating loss ((cid:49)O(cid:47)) carryforwards that
expire by 2035 and (cid:7)368 of federal and (cid:7)345 of state (cid:49)O(cid:47) carryforwards that do not expire.
The Company accounts for uncertainty in income taxes in accordance with the ASC (cid:26)40-10 rules for income taxes. The
reserve for uncertain tax positions was (cid:7)3,844 and (cid:7)3,565 at February 2, 2019 and February 3, 2018, respectively. The
balance is the Company(cid:182)s best estimate of the potential liability for uncertain tax positions. A reconciliation of the
Company(cid:182)s unrecogni(cid:93)ed tax benefits, excluding interest and penalties, is as follows:
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)
Balance at beginning of the period. . . . . . . . . . . . . . . . . . . (cid:7)
Increase due to a prior year tax position . . . . . . . . . . . . . .
Decrease due to a prior period position . . . . . . . . . . . . . . .
Balance at the end of the period . . . . . . . . . . . . . . . . . . . . . (cid:7)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2,
2019
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 3,
2018
3,565
1,008
((cid:26)29)
3,844
(cid:7)
(cid:7)
3,305
1,064
(804)
3,565
The Company ac(cid:78)nowledges that the amount of unrecogni(cid:93)ed tax benefits may change in the next twelve months.
(cid:43)owever, it does not expect the change to have a significant impact on its consolidated financial statements. Income tax-
related interest and penalties were insignificant for fiscal 2018 and 201(cid:26).
The Company files tax returns in the U.S. federal and state (cid:77)urisdictions. The Company is no longer sub(cid:77)ect to U.S.
federal examinations by the Internal Revenue Service for years before 201(cid:26) and is no longer sub(cid:77)ect to examinations by
state authorities before 2014.
11. N(cid:82)t(cid:72)(cid:86) (cid:83)(cid:68)(cid:92)(cid:68)b(cid:79)(cid:72)
On August 23, 201(cid:26), the Company entered into a Second Amended and Restated (cid:47)oan Agreement (the (cid:47)oan Agreement)
with (cid:58)ells Fargo Ban(cid:78), (cid:49)ational Association, as Administrative Agent, Collateral Agent and a (cid:47)ender thereunder, (cid:58)ells
Fargo Ban(cid:78), (cid:49)ational Association and (cid:45)PMorgan Chase Ban(cid:78), (cid:49).A., as (cid:47)ead Arrangers and Boo(cid:78)runners, (cid:45)PMorgan
Chase Ban(cid:78), (cid:49).A., as Syndication Agent and a (cid:47)ender, P(cid:49)C Ban(cid:78), (cid:49)ational Association, as Documentation Agent and a
(cid:47)ender, and the other lenders party thereto. The (cid:47)oan Agreement matures on August 23, 2022, provides maximum
revolving loans equal to the lesser of (cid:7)400,000 or a percentage of eligible owned inventory (which borrowing base may,
62
at the election of the Company and satisfaction of certain conditions, include a percentage of eligible owned receivables
and qualified cash), contains a (cid:7)20,000 subfacility for letters of credit and allows the Company to increase the revolving
facility by an additional (cid:7)50,000, sub(cid:77)ect to the consent by each lender and other conditions. The (cid:47)oan 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 (cid:47)oan Agreement falls below a specified threshold. Substantially all of the Company(cid:182)s assets are
pledged as collateral for outstanding borrowings under the (cid:47)oan Agreement. Outstanding borrowings will bear interest at
either a base rate or the (cid:47)ondon Interban(cid:78) Offered Rate plus 1.25(cid:8), and the unused line fee is 0.20(cid:8) per annum.
As of February 2, 2019 and February 3, 2018, the Company had no borrowings outstanding under the credit facility and
the Company was in compliance with all terms and covenants of the (cid:47)oan Agreement.
12. F(cid:68)i(cid:85) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72) (cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)t(cid:86)
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:
• (cid:47)evel 1 (cid:177) observable inputs such as quoted prices for identical instruments in active mar(cid:78)ets.
• (cid:47)evel 2 (cid:177) inputs other than quoted prices in active mar(cid:78)ets that are observable either directly or indirectly
through corroboration with observable mar(cid:78)et data.
• (cid:47)evel 3 (cid:177) unobservable inputs in which there is little or no mar(cid:78)et data, which would require the Company to
develop its own assumptions.
As of February 2, 2019 and February 3, 2018, the Company held financial liabilities included in other long-term
liabilities on the consolidated balance sheets of (cid:7)19,615 and (cid:7)15,942, respectively, related to its non-qualified deferred
compensation plan. The liabilities have been categori(cid:93)ed as (cid:47)evel 2 as they are based on third-party reported values
which are based primarily on quoted mar(cid:78)et prices of underlying assets of the funds within the plan.
13. I(cid:81)(cid:89)(cid:72)(cid:86)t(cid:80)(cid:72)(cid:81)t(cid:86)
The Company did not have any short-term investments as of February 2, 2019. The Company(cid:182)s short-term investments
as of February 3, 2018 consisted of (cid:7)120,000 in certificates of deposit. Short-term investments are carried at cost, which
approximates fair value and are recorded in the consolidated balance sheets in short-term investments.
1(cid:23). Sh(cid:68)(cid:85)(cid:72)-b(cid:68)(cid:86)(cid:72)(cid:71) (cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)
Equity incentive plans
The Company has had a number of equity incentive plans over the years. The plans were adopted in order to attract and
retain the best available personnel for positions of substantial authority and to provide additional incentive to employees
and directors to promote the success of the Company(cid:182)s business. Incentive compensation was awarded under the
Amended and Restated Restricted Stoc(cid:78) Option Plan until April 2002 and under the 2002 Equity Incentive Plan through
(cid:45)uly 200(cid:26), at which time the 200(cid:26) Incentive Award Plan was adopted. All of the plans generally provided for the grant of
incentive stoc(cid:78) options, non-qualified stoc(cid:78) options, restricted stoc(cid:78), restricted stoc(cid:78) units, stoc(cid:78) appreciation rights, and
other types of awards to employees, consultants, and directors. Unless provided otherwise by the administrator of the
plan, options vested over four years at the rate of 25(cid:8) per year from the date of grant and most must be exercised within
ten years. Options were granted with the exercise price equal to the fair value of the underlying stoc(cid:78) on the date of
grant.
Amended and restated 2011 incentive award plan
In (cid:45)une 2016, the Company adopted the Amended and Restated 2011 Incentive Award Plan (the 2011 Plan). The 2011
Plan provides for the grant of incentive stoc(cid:78) options, non-qualified stoc(cid:78) options, restricted stoc(cid:78), restricted stoc(cid:78) units,
63
stoc(cid:78) appreciation rights, performance awards, dividend equivalent rights, stoc(cid:78) payments, deferred stoc(cid:78), and cash-
based awards to employees, consultants, and directors. Following its original adoption in (cid:45)une 2011, awards are only
being made under the 2011 Plan, and no further awards will be made under any prior plan. As of February 2, 2019, the
2011 Plan reserves for the issuance upon grant or exercise of awards up to 3,336 shares of the Company(cid:182)s common
stoc(cid:78).
The following table presents information related to the Company(cid:182)s 2011 Incentive award plan:
2011 I(cid:81)(cid:70)(cid:72)(cid:81)ti(cid:89)(cid:72) (cid:68)(cid:90)(cid:68)(cid:85)(cid:71) (cid:83)(cid:79)(cid:68)(cid:81) (cid:11)i(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)
Compensation expense
Fi(cid:86)(cid:70)(cid:68)(cid:79)
2018
Fi(cid:86)(cid:70)(cid:68)(cid:79)
201(cid:26)
Fi(cid:86)(cid:70)(cid:68)(cid:79)
2016
Common stoc(cid:78) options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7) 8,590 (cid:7) 8,993 (cid:7) (cid:26),983
(cid:26),295
Restricted stoc(cid:78) units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,062
Performance-based restricted stoc(cid:78) units . . . . . . . . . . . . . . .
Total stoc(cid:78) compensation expense . . . . . . . . . . . . . . . . . . . . (cid:7) 2(cid:26),489 (cid:7) 24,399 (cid:7) 19,340
12,0(cid:26)(cid:26)
6,822
9,50(cid:26)
5,899
Cash received from stoc(cid:78) option exercises . . . . . . . . . . . . . . . . (cid:7) 13,121 (cid:7) 16,190 (cid:7) 16,293
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7) 6,135 (cid:7) 10,024 (cid:7) 6,(cid:26)64
Tax benefit reali(cid:93)ed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7) 6,135 (cid:7) 10,024 (cid:7) 15,868
Common stock options
The Company measures share-based compensation cost on the grant date, based on the fair value of the award, and
recogni(cid:93)es the expense on a straight-line basis over the requisite service period for awards expected to vest. The
Company estimated the grant date fair value of stoc(cid:78) options using a Blac(cid:78)-Scholes valuation model using the following
weighted-average assumptions:
Fi(cid:86)(cid:70)(cid:68)(cid:79)
2018
29.0(cid:8)
(cid:57)olatility rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.4(cid:8)
Average ris(cid:78)-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . .
3.4
Average expected life (in years) . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:49)one
Fi(cid:86)(cid:70)(cid:68)(cid:79)
201(cid:26)
30.9(cid:8)
1.6(cid:8)
3.5
(cid:49)one
Fi(cid:86)(cid:70)(cid:68)(cid:79)
2016
35.0(cid:8)
1.2(cid:8)
3.5
(cid:49)one
The expected volatility is based on the historical volatility of the Company(cid:182)s common stoc(cid:78). The ris(cid:78)-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 stoc(cid:78) option exercises. Forfeitures of options are estimated
at the grant date based on historical rates of the Company(cid:182)s stoc(cid:78) option activity and reduce the compensation expense
recogni(cid:93)ed. The Company does not currently pay a regular dividend.
The following table presents information related to the Company(cid:182)s common stoc(cid:78) options:
Fi(cid:86)(cid:70)(cid:68)(cid:79)
C(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) (cid:86)t(cid:82)(cid:70)(cid:78) (cid:82)(cid:83)ti(cid:82)(cid:81)(cid:86)
2016
(cid:11)i(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86), (cid:72)x(cid:70)(cid:72)(cid:83)t (cid:90)(cid:72)i(cid:74)ht(cid:72)(cid:71)-(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72) (cid:74)(cid:85)(cid:68)(cid:81)t (cid:71)(cid:68)t(cid:72) (cid:73)(cid:68)i(cid:85) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:12)
(cid:58)eighted-average grant date fair value . . . . . . . . . . . . . . . . . . . (cid:7) 50.10
(cid:7) 53.02
Fair value of options vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7) 10,042 (cid:7) 5,656 (cid:7) 5,932
Intrinsic value of options exercised . . . . . . . . . . . . . . . . . . . . . . (cid:7) 25,902 (cid:7) 29,449 (cid:7) 2(cid:26),468
Fi(cid:86)(cid:70)(cid:68)(cid:79)
201(cid:26)
(cid:7) 69.61
Fi(cid:86)(cid:70)(cid:68)(cid:79)
2018
At February 2, 2019, there was approximately (cid:7)1(cid:26),311 of unrecogni(cid:93)ed compensation expense related to unvested stoc(cid:78)
options. The unrecogni(cid:93)ed compensation expense is expected to be recogni(cid:93)ed over a weighted-average period of
approximately two and a half years.
64
A summary of the status of the Company(cid:182)s stoc(cid:78) option activity is presented in the following table (shares in thousands):
Fi(cid:86)(cid:70)(cid:68)(cid:79) 2018
(cid:58)(cid:72)i(cid:74)ht(cid:72)(cid:71)-
Fi(cid:86)(cid:70)(cid:68)(cid:79) 201(cid:26)
(cid:58)(cid:72)i(cid:74)ht(cid:72)(cid:71)-
Fi(cid:86)(cid:70)(cid:68)(cid:79) 2016
(cid:58)(cid:72)i(cid:74)ht(cid:72)(cid:71)-
N(cid:88)(cid:80)b(cid:72)(cid:85) (cid:82)(cid:73)
(cid:82)(cid:83)ti(cid:82)(cid:81)(cid:86)
(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)
N(cid:88)(cid:80)b(cid:72)(cid:85) (cid:82)(cid:73)
(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)
N(cid:88)(cid:80)b(cid:72)(cid:85) (cid:82)(cid:73)
(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)
(cid:72)x(cid:72)(cid:85)(cid:70)i(cid:86)(cid:72) (cid:83)(cid:85)i(cid:70)(cid:72) (cid:82)(cid:83)ti(cid:82)(cid:81)(cid:86)
(cid:72)x(cid:72)(cid:85)(cid:70)i(cid:86)(cid:72) (cid:83)(cid:85)i(cid:70)(cid:72) (cid:82)(cid:83)ti(cid:82)(cid:81)(cid:86)
(cid:72)x(cid:72)(cid:85)(cid:70)i(cid:86)(cid:72) (cid:83)(cid:85)i(cid:70)(cid:72)
C(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) (cid:86)t(cid:82)(cid:70)(cid:78) (cid:82)(cid:83)ti(cid:82)(cid:81)(cid:86) (cid:82)(cid:88)t(cid:86)t(cid:68)(cid:81)(cid:71)i(cid:81)(cid:74)
Beginning of year . . . . . . . . . . . . . . . .
(cid:42)ranted . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . .
End of year . . . . . . . . . . . . . . . . . . . . .
Exercisable at end of year . . . . . . . . .
(cid:57)ested and Expected to vest . . . . . . .
(cid:26)66 (cid:7)
163
(166)
(8)
(cid:26)55 (cid:7)
296 (cid:7)
(cid:26)18 (cid:7)
14(cid:26).(cid:26)6
204.2(cid:26)
(cid:26)8.81
260.83
1(cid:26)4.34
134.2(cid:26)
1(cid:26)3.02
830 (cid:7)
106
(166)
(4)
(cid:26)66 (cid:7)
261 (cid:7)
(cid:26)25 (cid:7)
120.(cid:26)8
2(cid:26)9.(cid:26)6
9(cid:26).44
120.(cid:26)1
14(cid:26).(cid:26)6
81.(cid:26)2
145.86
939 (cid:7)
110
(194)
(25)
830 (cid:7)
280 (cid:7)
(cid:26)86 (cid:7)
104.58
193.64
83.88
118.9(cid:26)
120.(cid:26)8
69.69
119.32
The following table presents information related to options outstanding and options exercisable at February 2, 2019,
under the Company(cid:182)s stoc(cid:78) option plans based on ranges of exercise prices (shares in thousands):
O(cid:83)ti(cid:82)(cid:81)(cid:86) (cid:82)(cid:88)t(cid:86)t(cid:68)(cid:81)(cid:71)i(cid:81)(cid:74)
(cid:58)(cid:72)i(cid:74)ht(cid:72)(cid:71)-
(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)
(cid:85)(cid:72)(cid:80)(cid:68)i(cid:81)i(cid:81)(cid:74)
N(cid:88)(cid:80)b(cid:72)(cid:85) (cid:82)(cid:73)
(cid:70)(cid:82)(cid:81)t(cid:85)(cid:68)(cid:70)t(cid:88)(cid:68)(cid:79) (cid:79)i(cid:73)(cid:72)
(cid:82)(cid:83)ti(cid:82)(cid:81)(cid:86)
(cid:11)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:12)
2
4
5
(cid:26)
8
8
(cid:26)
(cid:7)
(cid:7)
(cid:58)(cid:72)i(cid:74)ht(cid:72)(cid:71)-
(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)
(cid:72)x(cid:72)(cid:85)(cid:70)i(cid:86)(cid:72) (cid:83)(cid:85)i(cid:70)(cid:72)
N(cid:88)(cid:80)b(cid:72)(cid:85) (cid:82)(cid:73)
(cid:82)(cid:83)ti(cid:82)(cid:81)(cid:86)
41.06
83.(cid:26)1
104.53
161.56
199.24
2(cid:26)8.4(cid:26)
1(cid:26)4.34
43
4(cid:26)
60
(cid:26)6
43
2(cid:26)
296
O(cid:83)ti(cid:82)(cid:81)(cid:86) (cid:72)x(cid:72)(cid:85)(cid:70)i(cid:86)(cid:68)b(cid:79)(cid:72)
(cid:58)(cid:72)i(cid:74)ht(cid:72)(cid:71)-
(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)
(cid:85)(cid:72)(cid:80)(cid:68)i(cid:81)i(cid:81)(cid:74)
(cid:70)(cid:82)(cid:81)t(cid:85)(cid:68)(cid:70)t(cid:88)(cid:68)(cid:79) (cid:79)i(cid:73)(cid:72)
(cid:11)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:12)
2
4
5
(cid:26)
(cid:26)
8
5
(cid:7)
(cid:7)
(cid:58)(cid:72)i(cid:74)ht(cid:72)(cid:71)-
(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)
(cid:72)x(cid:72)(cid:85)(cid:70)i(cid:86)(cid:72) (cid:83)(cid:85)i(cid:70)(cid:72)
41.06
83.(cid:26)1
104.53
159.15
190.22
2(cid:26)(cid:26).84
134.2(cid:26)
R(cid:68)(cid:81)(cid:74)(cid:72) (cid:82)(cid:73) Ex(cid:72)(cid:85)(cid:70)i(cid:86)(cid:72) P(cid:85)i(cid:70)(cid:72)(cid:86)
(cid:7)22.86 (cid:177) (cid:7)5(cid:26).42 . . . . . .
(cid:7)69.96 (cid:177) (cid:7)96.81 . . . . . .
(cid:7)9(cid:26).89 (cid:177) (cid:7)125.23 . . . . .
(cid:7)12(cid:26).15 (cid:177) (cid:7)164.06 . . . .
(cid:7)164.61 (cid:177) (cid:7)204.2(cid:26) . . . .
(cid:7)210.(cid:26)2 (cid:177) (cid:7)281.53 . . . .
(cid:7)22.86 (cid:177) (cid:7)281.53 . . . . .
43
4(cid:26)
60
245
255
105
(cid:26)55
The aggregate intrinsic value of outstanding and exercisable options as of February 2, 2019 was (cid:7)88,30(cid:26) and (cid:7)46,503,
respectively. The last reported sale price of our common stoc(cid:78) on the (cid:49)ASDA(cid:52) (cid:42)lobal Select Mar(cid:78)et on February 2,
2019 was (cid:7)291.36 per share.
Restricted stock units
The Company issues restricted stoc(cid:78) units to certain employees and its Board of Directors. Employee grants will
generally cliff vest after three years and director grants will cliff vest within one year. The grant date fair value of
restricted stoc(cid:78) units is based on the closing mar(cid:78)et price of shares of the Company(cid:182)s common stoc(cid:78) on the date of grant.
Restricted stoc(cid:78) units are expensed on a straight-line basis over the requisite service period. Forfeitures of restricted
stoc(cid:78) units are estimated at the grant date based on historical rates of the Company(cid:182)s stoc(cid:78) award activity and reduce the
compensation expense recogni(cid:93)ed. At February 2, 2019, unrecogni(cid:93)ed compensation cost related to restricted stoc(cid:78) units
was (cid:7)19,3(cid:26)0. The unrecogni(cid:93)ed compensation expense is expected to be recogni(cid:93)ed over a weighted-average period of
approximately one and a half years.
65
A summary of the status of the Company(cid:182)s restricted stoc(cid:78) units activity is presented in the following table (shares in
thousands):
Fi(cid:86)(cid:70)(cid:68)(cid:79) 2018
Fi(cid:86)(cid:70)(cid:68)(cid:79) 201(cid:26)
Fi(cid:86)(cid:70)(cid:68)(cid:79) 2016
N(cid:88)(cid:80)b(cid:72)(cid:85) (cid:82)(cid:73)
(cid:58)(cid:72)i(cid:74)ht(cid:72)(cid:71)-
(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72) (cid:74)(cid:85)(cid:68)(cid:81)t N(cid:88)(cid:80)b(cid:72)(cid:85) (cid:82)(cid:73)
(cid:88)(cid:81)it(cid:86)
(cid:71)(cid:68)t(cid:72) (cid:73)(cid:68)i(cid:85) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)
(cid:88)(cid:81)it(cid:86)
(cid:58)(cid:72)i(cid:74)ht(cid:72)(cid:71)-
(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72) (cid:74)(cid:85)(cid:68)(cid:81)t N(cid:88)(cid:80)b(cid:72)(cid:85) (cid:82)(cid:73)
(cid:71)(cid:68)t(cid:72) (cid:73)(cid:68)i(cid:85) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)
(cid:88)(cid:81)it(cid:86)
(cid:58)(cid:72)i(cid:74)ht(cid:72)(cid:71)-
(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72) (cid:74)(cid:85)(cid:68)(cid:81)t
(cid:71)(cid:68)t(cid:72) (cid:73)(cid:68)i(cid:85) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)
R(cid:72)(cid:86)t(cid:85)i(cid:70)t(cid:72)(cid:71) (cid:86)t(cid:82)(cid:70)(cid:78) (cid:88)(cid:81)it(cid:86) (cid:82)(cid:88)t(cid:86)t(cid:68)(cid:81)(cid:71)i(cid:81)(cid:74)
Beginning of year . . . . . . . . .
(cid:42)ranted . . . . . . . . . . . . . . . . .
(cid:57)ested . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . .
End of year . . . . . . . . . . . . . .
Expected to vest . . . . . . . . . .
134 (cid:7)
9(cid:26)
(52)
(11)
168
154
(cid:7)
(cid:7)
20(cid:26).(cid:26)0
208.82
164.35
22(cid:26).44
220.68
220.68
Performance-based restricted stock units
(cid:7)
142
4(cid:26)
(46)
(9)
(cid:7)
(cid:7)
134
123
154.(cid:26)1
2(cid:26)8.48
11(cid:26).61
201.51
20(cid:26).(cid:26)0
20(cid:26).(cid:26)0
(cid:7)
144
55
(46)
(11)
(cid:7)
142
(cid:7)
131
116.42
203.40
98.06
138.25
154.(cid:26)1
154.(cid:26)1
The Company issues performance-based restricted stoc(cid:78) units annually to certain employees. These awards will cliff vest
after three years based upon achievement of pre-established goals at the end of the second year of the term. Consistent
with restricted stoc(cid:78) units, the grant date fair value of performance-based restricted stoc(cid:78) units is based on the closing
mar(cid:78)et price of shares of the Company(cid:182)s common stoc(cid:78) on the date of grant. Performance-based restricted stoc(cid:78) units
are expensed on a straight-line basis over the requisite service period, based on the probability of achieving the
performance goal, with changes in expectations recogni(cid:93)ed as an ad(cid:77)ustment to earnings in the period of the change. If
the performance goal is not met, no compensation cost is recogni(cid:93)ed and any previously recogni(cid:93)ed compensation cost is
reversed. Forfeitures of performance-based restricted stoc(cid:78) units are estimated at the grant date based on historical rates
of the Company(cid:182)s stoc(cid:78) award activity and reduce the compensation expense recogni(cid:93)ed. At February 2, 2019,
unrecogni(cid:93)ed compensation cost related to performance-based restricted stoc(cid:78) units was (cid:7)9,182. The unrecogni(cid:93)ed
compensation expense is expected to be recogni(cid:93)ed over a weighted-average period of approximately one year.
A summary of the status of the Company(cid:182)s performance-based restricted stoc(cid:78) unit activity is presented in the following
table (shares in thousands):
Fi(cid:86)(cid:70)(cid:68)(cid:79) 2018
Fi(cid:86)(cid:70)(cid:68)(cid:79) 201(cid:26)
Fi(cid:86)(cid:70)(cid:68)(cid:79) 2016
N(cid:88)(cid:80)b(cid:72)(cid:85) (cid:82)(cid:73)
(cid:88)(cid:81)it(cid:86)
(cid:58)(cid:72)i(cid:74)ht(cid:72)(cid:71)-
(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)
(cid:74)(cid:85)(cid:68)(cid:81)t (cid:71)(cid:68)t(cid:72)
N(cid:88)(cid:80)b(cid:72)(cid:85) (cid:82)(cid:73)
N(cid:88)(cid:80)b(cid:72)(cid:85) (cid:82)(cid:73)
(cid:58)(cid:72)i(cid:74)ht(cid:72)(cid:71)-
(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)
(cid:58)(cid:72)i(cid:74)ht(cid:72)(cid:71)-
(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)
(cid:88)(cid:81)it(cid:86)
(cid:74)(cid:85)(cid:68)(cid:81)t (cid:71)(cid:68)t(cid:72) (cid:88)(cid:81)it(cid:86)
(cid:74)(cid:85)(cid:68)(cid:81)t (cid:71)(cid:68)t(cid:72)
P(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)-b(cid:68)(cid:86)(cid:72)(cid:71) (cid:85)(cid:72)(cid:86)t(cid:85)i(cid:70)t(cid:72)(cid:71) (cid:86)t(cid:82)(cid:70)(cid:78) (cid:88)(cid:81)it(cid:86)
(cid:82)(cid:88)t(cid:86)t(cid:68)(cid:81)(cid:71)i(cid:81)(cid:74)
Beginning of year . . . . . . . . . . . . . . . . . .
(cid:42)ranted . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in performance award payout . .
(cid:57)ested . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . .
End of year . . . . . . . . . . . . . . . . . . . . . . .
Expected to vest . . . . . . . . . . . . . . . . . . .
(cid:26)8 (cid:7)
33
22
(36)
(3)
94 (cid:7)
8(cid:26) (cid:7)
196.81
204.2(cid:26)
191.(cid:26)6
151.20
224.49
214.64
241.64
41 (cid:7) 1(cid:26)3.4(cid:26)
281.53
21
151.20
19
(cid:178)
(cid:178)
(3)
186.90
(cid:26)8 (cid:7) 196.81
(cid:26)2 (cid:7) 196.81
20 (cid:7) 151.20
191.(cid:26)6
24
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(3)
16(cid:26).(cid:26)1
41 (cid:7) 1(cid:26)3.4(cid:26)
38 (cid:7) 1(cid:26)3.4(cid:26)
The number of performance-based restricted stoc(cid:78) units granted is based on achieving the targeted performance goals as
defined in the performance-based restricted stoc(cid:78) unit agreements. As of February 2, 2019, the maximum number of
units that could vest under the provisions of the agreements was 146.
66
15. N(cid:72)t i(cid:81)(cid:70)(cid:82)(cid:80)(cid:72) (cid:83)(cid:72)(cid:85) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81) (cid:86)h(cid:68)(cid:85)(cid:72)
The following is a reconciliation of net income and the number of shares of common stoc(cid:78) used in the computation of
net income per basic and diluted common share:
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86), (cid:72)x(cid:70)(cid:72)(cid:83)t (cid:83)(cid:72)(cid:85) (cid:86)h(cid:68)(cid:85)(cid:72) (cid:71)(cid:68)t(cid:68)(cid:12)
(cid:49)umerator for diluted net income per share (cid:177) net income . . . . . . . . . . . . . . (cid:7)
Fi(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71)
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 3,
F(cid:72)b(cid:85)(cid:88)(cid:68)(cid:85)(cid:92) 2,
2019
2018
658,559 (cid:7) 555,234 (cid:7) 409,(cid:26)60
(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92) 28,
201(cid:26)
Denominator for basic net income per share (cid:177) weighted-average common
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive effect of stoc(cid:78) options and non-vested stoc(cid:78) . . . . . . . . . . . . . . . . . .
Denominator for diluted net income per share . . . . . . . . . . . . . . . . . . . . . . . .
59,864
31(cid:26)
60,181
61,556
419
61,9(cid:26)5
62,519
332
62,851
(cid:49)et income per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:7)
(cid:7)
11.00 (cid:7)
10.94 (cid:7)
9.02 (cid:7)
8.96 (cid:7)
6.55
6.52
The denominator for diluted net income per common share for fiscal years 2018, 201(cid:26) and 2016 excludes 302, 16(cid:26), and
142 employee stoc(cid:78) options and restricted stoc(cid:78) units, respectively, due to their anti-dilutive effects. Outstanding
performance-based restricted stoc(cid:78) 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 stoc(cid:78) method.
16. E(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72) b(cid:72)(cid:81)(cid:72)(cid:73)it (cid:83)(cid:79)(cid:68)(cid:81)(cid:86)
The Company provides a 401((cid:78)) retirement plan covering all employees who qualify as to age and length of service. The
plan is funded through employee contributions and a Company match. In fiscal 2018, 201(cid:26) and 2016, the Company
match was 100(cid:8) of the first 3.0(cid:8) of eligible compensation. Starting in (cid:45)anuary 2019, the Company added an additional
50(cid:8) match for the next 2(cid:8) of eligible compensation. The liability for the Company match included in accrued liabilities
in the consolidated balance sheets was (cid:7)9,61(cid:26) and (cid:7)8,139 as of February 2, 2019 and February 3, 2018, respectively.
Total expense recorded under this plan is included in S(cid:42)(cid:9)A expenses in the consolidated statements of income and was
(cid:7)10,029, (cid:7)(cid:26),5(cid:26)0, and (cid:7)5,852 during fiscal 2018, 201(cid:26), and 2016, respectively.
The Company also has a non-qualified deferred compensation plan for highly compensated employees whose
contributions are limited under qualified defined contribution plans. The plan is funded through employee contributions
and a Company match. In fiscal 2018, 201(cid:26) and 2016, the Company match was 100(cid:8) of the first 3.0(cid:8) of salary. The
liability for the Company match included in accrued liabilities in the consolidated balance sheets was (cid:7)1,21(cid:26) and (cid:7)895 as
of February 2, 2019 and February 3, 2018, respectively. Amounts contributed and deferred under the plan are credited or
charged with the performance of investment options offered under the plan as elected by the participants. In the event of
ban(cid:78)ruptcy, the assets of this plan are available to satisfy the claims of general creditors. The liability for compensation
deferred under the Company(cid:182)s plan included in other long-term liabilities in the consolidated balance sheets was (cid:7)19,615
and (cid:7)15,942 as of February 2, 2019 and February 3, 2018, respectively. The Company manages the ris(cid:78) of changes in the
fair value of the liability for deferred compensation by electing to match its liability under the plan with investment
vehicles that offset a substantial portion of its exposure. The cash value of the investment vehicles included in deferred
compensation plan assets was (cid:7)20,511 and (cid:7)16,82(cid:26) as of February 2, 2019 and February 3, 2018, respectively. Total
expense recorded under this plan is included in S(cid:42)(cid:9)A expenses in the consolidated statements of income and was
insignificant during fiscal 2018, 201(cid:26), and 2016.
6(cid:26)
1(cid:26). S(cid:72)(cid:79)(cid:72)(cid:70)t(cid:72)(cid:71) (cid:84)(cid:88)(cid:68)(cid:85)t(cid:72)(cid:85)(cid:79)(cid:92) (cid:73)i(cid:81)(cid:68)(cid:81)(cid:70)i(cid:68)(cid:79) (cid:71)(cid:68)t(cid:68) (cid:11)(cid:88)(cid:81)(cid:68)(cid:88)(cid:71)it(cid:72)(cid:71)(cid:12)
The following tables set forth the Company(cid:182)s unaudited quarterly results of operations for each of the quarters in fiscal
2018 and fiscal 201(cid:26). The Company(cid:182)s quarterly periods are the 13 wee(cid:78)s (14 wee(cid:78)s in fourth quarter fiscal 201(cid:26)) ending
on the Saturday closest to April 30, (cid:45)uly 31, October 31, and (cid:45)anuary 31.
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86), (cid:72)x(cid:70)(cid:72)(cid:83)t (cid:83)(cid:72)(cid:85) (cid:86)h(cid:68)(cid:85)(cid:72) (cid:71)(cid:68)t(cid:68)(cid:12)
(cid:49)et sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:42)ross profit . . . . . . . . . . . . . . . . . . . . . . . .
1,543,66(cid:26) (cid:7)
982,954
560,(cid:26)13
1,488,221 (cid:7)
952,(cid:26)60
535,461
1,560,011 (cid:7)
98(cid:26),(cid:26)33
5(cid:26)2,2(cid:26)8
F(cid:82)(cid:88)(cid:85)th (cid:52)(cid:88)(cid:68)(cid:85)t(cid:72)(cid:85)
2,124,(cid:26)16
1,383,85(cid:26)
(cid:26)40,859
Fi(cid:85)(cid:86)t (cid:52)(cid:88)(cid:68)(cid:85)t(cid:72)(cid:85)
S(cid:72)(cid:70)(cid:82)(cid:81)(cid:71) (cid:52)(cid:88)(cid:68)(cid:85)t(cid:72)(cid:85)
Thi(cid:85)(cid:71) (cid:52)(cid:88)(cid:68)(cid:85)t(cid:72)(cid:85)
Fi(cid:86)(cid:70)(cid:68)(cid:79) 2018
Selling, general and administrative expenses
Pre-opening expenses . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . .
Interest income, net . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . .
(cid:49)et income . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
345,624
5,24(cid:26)
209,842
(1,325)
211,16(cid:26)
46,(cid:26)(cid:26)1
164,396 (cid:7)
33(cid:26),142
4,504
193,815
(1,143)
194,958
46,635
148,323 (cid:7)
395,453
(cid:26),612
169,213
(1,318)
1(cid:26)0,531
39,365
131,166 (cid:7)
45(cid:26),245
2,404
281,210
(1,2(cid:26)5)
282,485
6(cid:26),811
214,6(cid:26)4
(cid:49)et income per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
2.(cid:26)1 (cid:7)
2.(cid:26)0 (cid:7)
2.4(cid:26) (cid:7)
2.46 (cid:7)
2.20 (cid:7)
2.18 (cid:7)
3.64
3.61
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86), (cid:72)x(cid:70)(cid:72)(cid:83)t (cid:83)(cid:72)(cid:85) (cid:86)h(cid:68)(cid:85)(cid:72) (cid:71)(cid:68)t(cid:68)(cid:12)
(cid:49)et sales (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:42)ross profit . . . . . . . . . . . . . . . . . . . . . . . .
1,314,8(cid:26)9 (cid:7)
1,289,854 (cid:7)
838,8(cid:26)1
4(cid:26)6,008
820,528
469,326
1,342,181 (cid:7)
F(cid:82)(cid:88)(cid:85)th (cid:52)(cid:88)(cid:68)(cid:85)t(cid:72)(cid:85)
1,93(cid:26),592
1,2(cid:26)9,245
658,34(cid:26)
Fi(cid:85)(cid:86)t (cid:52)(cid:88)(cid:68)(cid:85)t(cid:72)(cid:85)
S(cid:72)(cid:70)(cid:82)(cid:81)(cid:71) (cid:52)(cid:88)(cid:68)(cid:85)t(cid:72)(cid:85)
Thi(cid:85)(cid:71) (cid:52)(cid:88)(cid:68)(cid:85)t(cid:72)(cid:85)
Fi(cid:86)(cid:70)(cid:68)(cid:79) 201(cid:26)
Selling, general and administrative expenses
Pre-opening expenses . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . .
Interest income, net . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . .
(cid:49)et income (2) . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
283,445
4,158
188,405
(338)
188,(cid:26)43
60,520
128,223 (cid:7)
283,42(cid:26)
6,099
1(cid:26)9,800
(555)
180,355
66,162
114,193 (cid:7)
849,053
493,128
320,(cid:26)29
9,(cid:26)32
162,66(cid:26)
(316)
162,983
58,338
104,645 (cid:7)
399,631
4,29(cid:26)
254,419
(359)
254,(cid:26)(cid:26)8
46,605
208,1(cid:26)3
(cid:49)et income per common share (2):
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:7)
2.06 (cid:7)
2.05 (cid:7)
1.84 (cid:7)
1.83 (cid:7)
1.(cid:26)1 (cid:7)
1.(cid:26)0 (cid:7)
3.42
3.40
(1) Fiscal 201(cid:26) includes 53 wee(cid:78)s. (cid:49)et sales for the 53rd wee(cid:78) of fiscal 201(cid:26) were approximately (cid:7)108,(cid:26)56.
(2) (cid:49)et income and basic and diluted earnings per share for the fourth quarter of 201(cid:26) included a significant tax
provision benefit as a result of the impact of Tax Reform.
The sum of the quarterly net income per common share may not equal the annual total due to quarterly changes in the
weighted average shares and share equivalents outstanding.
68
18. Sh(cid:68)(cid:85)(cid:72) (cid:85)(cid:72)(cid:83)(cid:88)(cid:85)(cid:70)h(cid:68)(cid:86)(cid:72) (cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)
On March 10, 2016, the Company announced that the Board of Directors authori(cid:93)ed a share repurchase program (the
2016 Share Repurchase Program) pursuant to which the Company could repurchase up to (cid:7)425,000 of the Company(cid:182)s
common stoc(cid:78). The 2016 Share Repurchase Program authori(cid:93)ation revo(cid:78)ed the previously authori(cid:93)ed, but unused
amounts of (cid:7)1(cid:26)2,386 from the earlier share repurchase program. The 2016 Share Repurchase Program did not have an
expiration date but provided for suspension or discontinuation at any time.
As part of the 2016 Share Repurchase Program, the Company entered into an Accelerated Share Repurchase (ASR)
agreement with (cid:42)oldman, Sachs (cid:9) Co. to repurchase (cid:7)200,000 of the Company(cid:182)s common stoc(cid:78). Under the ASR
agreement, the Company paid (cid:7)200,000 to (cid:42)oldman, Sachs (cid:9) Co. and received an initial delivery of 852 shares in the
first quarter of fiscal 2016, which were retired and represented 80(cid:8) of the total shares the Company expected to receive
based on the mar(cid:78)et price at the time of the initial delivery. In May 2016, the ASR settled and an additional 153 shares
were delivered to the Company and retired. The final number of shares delivered upon settlement was determined with
reference to the average price of the Company(cid:182)s common stoc(cid:78) over the term of the agreement. The transaction was
accounted for as an equity transaction. The par value of shares received was recorded as a reduction to common stoc(cid:78)
with the remainder recorded as a reduction to additional paid-in capital and retained earnings. Upon receipt of the shares,
there was an immediate reduction in the weighted average common shares calculation for basic and diluted earnings per
share.
On March 9, 201(cid:26), the Company announced that the Board of Directors authori(cid:93)ed a new share repurchase program (the
201(cid:26) Share Repurchase Program) pursuant to which the Company could repurchase up to (cid:7)425,000 of the Company(cid:182)s
common stoc(cid:78). The 201(cid:26) Share Repurchase Program authori(cid:93)ation revo(cid:78)ed the previously authori(cid:93)ed but unused amount
of (cid:7)(cid:26)9,863 from the 2016 Share Repurchase Program. The 201(cid:26) Share Repurchase Program did not have an expiration
date but provided for suspension or discontinuation at any time.
On March 15, 2018, the Company announced that the Board of Directors authori(cid:93)ed a new share repurchase program
(the 2018 Share Repurchase Program) pursuant to which the Company could repurchase up to (cid:7)625,000 of the
Company(cid:182)s common stoc(cid:78). The 2018 Share Repurchase Program authori(cid:93)ation revo(cid:78)ed the previously authori(cid:93)ed but
unused amount of (cid:7)41,31(cid:26) from the 201(cid:26) Share Repurchase Program. The 2018 Share Repurchase Program did not have
an expiration date but provided for suspension or discontinuation at any time.
During fiscal 2016, excluding the shares repurchased under the ASR, the Company purchased 634 shares of common
stoc(cid:78) for (cid:7)144,2(cid:26)5. During fiscal 201(cid:26), the Company purchased 1,504 shares of common stoc(cid:78) for (cid:7)36(cid:26),581. During
fiscal 2018, the Company purchased 2,464 shares of common stoc(cid:78) for (cid:7)616,194.
19. S(cid:88)b(cid:86)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)t (cid:72)(cid:89)(cid:72)(cid:81)t
On March 14, 2019, the Company announced that the Board of Directors authori(cid:93)ed a new share repurchase program
(the 2019 Share Repurchase Program) pursuant to which the Company may repurchase up to (cid:7)8(cid:26)5,000 of the Company(cid:182)s
common stoc(cid:78). The 2019 Share Repurchase Program authori(cid:93)ation revo(cid:78)es the previously authori(cid:93)ed but unused
amounts from the 2018 Share Repurchase Program. The 2019 Share Repurchase Program does not have an expiration
date and may be suspended or discontinued at any time.
69
It(cid:72)(cid:80) 15. Exhibit(cid:86) (cid:68)(cid:81)(cid:71) Fi(cid:81)(cid:68)(cid:81)(cid:70)i(cid:68)(cid:79) St(cid:68)t(cid:72)(cid:80)(cid:72)(cid:81)t S(cid:70)h(cid:72)(cid:71)(cid:88)(cid:79)(cid:72)(cid:86) (cid:11)C(cid:82)(cid:81)ti(cid:81)(cid:88)(cid:72)(cid:71)(cid:12)
(cid:11)b(cid:12) Fi(cid:81)(cid:68)(cid:81)(cid:70)i(cid:68)(cid:79) St(cid:68)t(cid:72)(cid:80)(cid:72)(cid:81)t S(cid:70)h(cid:72)(cid:71)(cid:88)(cid:79)(cid:72)
U(cid:79)t(cid:68) B(cid:72)(cid:68)(cid:88)t(cid:92), I(cid:81)(cid:70).
S(cid:70)h(cid:72)(cid:71)(cid:88)(cid:79)(cid:72) II (cid:177) (cid:57)(cid:68)(cid:79)(cid:88)(cid:68)ti(cid:82)(cid:81) (cid:68)(cid:81)(cid:71) (cid:52)(cid:88)(cid:68)(cid:79)i(cid:73)(cid:92)i(cid:81)(cid:74) A(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)t(cid:86)
(cid:11)I(cid:81) th(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)
D(cid:72)(cid:86)(cid:70)(cid:85)i(cid:83)ti(cid:82)(cid:81)
Fiscal 2018
B(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72) (cid:68)t
b(cid:72)(cid:74)i(cid:81)(cid:81)i(cid:81)(cid:74)
(cid:82)(cid:73) (cid:83)(cid:72)(cid:85)i(cid:82)(cid:71)
Ch(cid:68)(cid:85)(cid:74)(cid:72)(cid:71) t(cid:82)
(cid:70)(cid:82)(cid:86)t(cid:86) (cid:68)(cid:81)(cid:71)
(cid:72)x(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)
D(cid:72)(cid:71)(cid:88)(cid:70)ti(cid:82)(cid:81)(cid:86)
B(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72) (cid:68)t
(cid:72)(cid:81)(cid:71)
(cid:82)(cid:73) (cid:83)(cid:72)(cid:85)i(cid:82)(cid:71)
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . .
Inventory reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:7)
1,3(cid:26)1 (cid:7)
24,804
5(cid:26)3 (cid:7)
4(cid:26),923
(1,293)(a) (cid:7)
(36,08(cid:26))
651
36,640
Fiscal 201(cid:26)
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . .
Inventory reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:7)
2,0(cid:26)9 (cid:7)
2(cid:26),639
143 (cid:7)
(851)(a) (cid:7)
39,849
(42,684)
Fiscal 2016
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . .
Inventory reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(cid:7)
1,112 (cid:7)
20,262
1,(cid:26)09 (cid:7)
46,196
((cid:26)42)(a) (cid:7)
(38,819)
1,3(cid:26)1
24,804
2,0(cid:26)9
2(cid:26),639
(a) Represents write-off of uncollectible accounts
All other financial statement schedules required by Form 10-K have been omitted because they were inapplicable or
otherwise not required under the instructions contained in Regulation S-(cid:59).
(cid:11)(cid:70)(cid:12) Exhibit(cid:86)
The exhibits listed in the Exhibit Index below are filed as part of this Annual Report on Form 10-K.
(cid:26)0
EXHIBIT INDEX
Fi(cid:79)(cid:72)(cid:71)
H(cid:72)(cid:85)(cid:72)(cid:90)ith F(cid:82)(cid:85)(cid:80)
8-K
I(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)t(cid:72)(cid:71) b(cid:92) R(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)
Exhibit
Fi(cid:79)(cid:72)
N(cid:88)(cid:80)b(cid:72)(cid:85) N(cid:88)(cid:80)b(cid:72)(cid:85) Fi(cid:79)i(cid:81)(cid:74) D(cid:68)t(cid:72)
001-33(cid:26)64 1/30/201(cid:26)
2
Exhibit
N(cid:88)(cid:80)b(cid:72)(cid:85) D(cid:72)(cid:86)(cid:70)(cid:85)i(cid:83)ti(cid:82)(cid:81) (cid:82)(cid:73) (cid:71)(cid:82)(cid:70)(cid:88)(cid:80)(cid:72)(cid:81)t
2
3.1
3.2
3.3
10.1
10.2
10.3
10.4
10.5
10.6
10.(cid:26)
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
Agreement and Plan of Merger, dated as of
(cid:45)anuary 2(cid:26), 201(cid:26), by and among Ulta Salon,
Cosmetics (cid:9) Fragrance, Inc., Ulta Beauty, Inc.
and Ulta Merger Sub, Inc.
Certificate of Incorporation of Ulta Beauty, Inc.
Certificate of Designations of Series A (cid:45)unior
Participating Preferred Stoc(cid:78) of Ulta
Beauty, Inc.
Bylaws of Ulta Beauty, Inc.
Compensation Plan Agreement, dated as of
(cid:45)anuary 2(cid:26), 201(cid:26) between Ulta Salon,
Cosmetics (cid:9) Fragrance, Inc. and Ulta
Beauty, Inc.(cid:13)
Second Amended and Restated (cid:47)oan
Agreement, dated as of August 23, 201(cid:26), among
Ulta Beauty, Inc., Ulta Salon, Cosmetics (cid:9)
Fragrance, Inc., the subsidiaries of Ulta Beauty
signatory thereto, (cid:58)ells Fargo Ban(cid:78), (cid:49)ational
Association, (cid:45)PMorgan Chase Ban(cid:78), (cid:49).A. and
P(cid:49)C Ban(cid:78), (cid:49)ational Association
Ulta Beauty, Inc. Second Amended and Restated
Restricted Stoc(cid:78) Option Plan(cid:13)
Amendment to Ulta Beauty, Inc. Second
Amended and Restated Restricted Stoc(cid:78) Option
Plan(cid:13)
Ulta Beauty, Inc. 2002 Equity Incentive Plan(cid:13)
Ulta Beauty, Inc. 200(cid:26) Incentive Award Plan(cid:13)
Amended and Restated Ulta Beauty, Inc. 2011
Incentive Award Plan(cid:13)
Form of Restricted Stoc(cid:78) Unit Award
Agreement(cid:178)Performance Shares under the
2011 Incentive Award Plan(cid:13)
Ulta Salon, Cosmetics (cid:9) Fragrance, Inc. (cid:49)on-
qualified Deferred Compensation Plan(cid:13)
(cid:47)etter Agreement dated (cid:45)une 20, 2013 between
Ulta Salon, Cosmetics (cid:9) Fragrance, Inc. and
Mary (cid:49). Dillon(cid:13)
(cid:47)etter Agreement dated September 13, 2013
between Ulta Inc. and (cid:45)effrey (cid:45). Childs(cid:13)
(cid:47)etter Agreement dated (cid:45)anuary 6, 2014 between
Ulta Inc. and David Kimbell(cid:13)
Form of Option Agreement under the 2011
Incentive Award Plan(cid:13)
Form of Restricted Stoc(cid:78) Unit Award
Agreement under the 2011 Incentive Award
Plan(cid:13)
(cid:47)etter Agreement dated August 3, 2015 between
Ulta Inc. and (cid:45)odi (cid:45). Caro(cid:13)
(cid:26)1
8-K
8-K
8-K
8-K
3.1
3.2
001-33(cid:26)64 1/30/201(cid:26)
001-33(cid:26)64 1/30/201(cid:26)
3.3
10.1
001-33(cid:26)64 1/30/201(cid:26)
001-33(cid:26)64 1/30/201(cid:26)
8-K
10.0
001-33(cid:26)64 8/24/201(cid:26)
S-1
S-1
10.(cid:26)
333-144405 8/1(cid:26)/200(cid:26)
10.(cid:26)(a)
333-144405 8/1(cid:26)/200(cid:26)
S-1
S-1
333-144405 8/1(cid:26)/200(cid:26)
333-144405 9/2(cid:26)/200(cid:26)
DEF 14A Appendix A 001-33(cid:26)64 4/20/2016
10.9
10.10
8-K
10.1
001-33(cid:26)64 3/31/2015
10-K
10.1(cid:26)
001-33(cid:26)64 4/2/2009
8-K
10.1
001-33(cid:26)64 6/24/2013
10-(cid:52)
10.1
001-33(cid:26)64 6/10/2014
10-(cid:52)
10.1
001-33(cid:26)64 6/4/2015
10-K
10.13
001-33(cid:26)64 3/28/201(cid:26)
10-K
10.14
001-33(cid:26)64 3/28/201(cid:26)
10-K
10.15
001-33(cid:26)64 3/28/201(cid:26)
Exhibit
N(cid:88)(cid:80)b(cid:72)(cid:85) D(cid:72)(cid:86)(cid:70)(cid:85)i(cid:83)ti(cid:82)(cid:81) (cid:82)(cid:73) (cid:71)(cid:82)(cid:70)(cid:88)(cid:80)(cid:72)(cid:81)t
10.16
10.1(cid:26)
10.18
21
23
31.1
31.2
32.1
32.2
99
Ulta Beauty, Inc. Executive Change in Control
and Severance Plan(cid:13)
Restricted Stoc(cid:78) Unit Award Agreement dated
March 29, 2018, with Mary Dillon(cid:13)
Amendment to Employment (cid:47)etter Regarding
Severance Entitlements, dated March 29, 2018,
between Ulta Beauty, Inc. and Mary Dillon(cid:13)
(cid:47)ist of Significant Subsidiaries
Consent of Independent Registered Public
Accounting Firm
Certification of the Chief Executive Officer
pursuant to Rules 13a-14(a) and 15d-14(a) of the
Securities Exchange Act of 1934, as adopted
pursuant to section 302 of the Sarbanes-Oxley
Act of 2002
Certification of the Chief Financial Officer
pursuant to Rules 13a-14(a) and 15d-14(a) of the
Securities Exchange Act of 1934, as adopted
pursuant to section 302 of the Sarbanes-Oxley
Act of 2002
Certification of the Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Certification of the Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Proxy Statement for the 2019 Annual Meeting of
Stoc(cid:78)holders. (cid:62)To be filed with the SEC under
Regulation 14A within 120 days after February
2, 2019(cid:30) except to the extent specifically
incorporated by reference, the Proxy Statement
for the 2019 Annual Meeting of Stoc(cid:78)holders
shall not be deemed to be filed with the SEC as
part of this Annual Report on Form 10-K(cid:64)
101.I(cid:49)S (cid:59)BR(cid:47) Instance
101.SC(cid:43) (cid:59)BR(cid:47) Taxonomy Extension Schema
101.CA(cid:47) (cid:59)BR(cid:47) Taxonomy Extension Calculation
101.(cid:47)AB (cid:59)BR(cid:47) Taxonomy Extension (cid:47)abels
101.PRE (cid:59)BR(cid:47) Taxonomy Extension Presentation
101.DEF (cid:59)BR(cid:47) Taxonomy Extension Definition
Fi(cid:79)(cid:72)(cid:71)
H(cid:72)(cid:85)(cid:72)(cid:90)ith F(cid:82)(cid:85)(cid:80)
10-K
I(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)t(cid:72)(cid:71) b(cid:92) R(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)
Exhibit
Fi(cid:79)(cid:72)
N(cid:88)(cid:80)b(cid:72)(cid:85) N(cid:88)(cid:80)b(cid:72)(cid:85) Fi(cid:79)i(cid:81)(cid:74) D(cid:68)t(cid:72)
001-33(cid:26)64 3/28/201(cid:26)
10.16
10-K
10.1(cid:26)
001-33(cid:26)64 4/3/2018
10-K
10.18
001-33(cid:26)64 4/3/2018
(cid:59)
(cid:59)
(cid:59)
(cid:59)
(cid:59)
(cid:59)
(cid:59)
(cid:59)
(cid:59)
(cid:59)
(cid:59)
(cid:59)
(cid:13) A management contract or compensatory plan or arrangement.
It(cid:72)(cid:80) 16. F(cid:82)(cid:85)(cid:80) 10-(cid:46) S(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92)
(cid:49)one.
(cid:26)2
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authori(cid:93)ed, in the City of Bolingbroo(cid:78),
State of Illinois, on April 2, 2019.
SI(cid:42)NATURES
U(cid:47)TA BEAUT(cid:60), I(cid:49)C.
By: /s/ Scott M. Settersten
Scott M. Settersten
Chief Financial Officer, Treasurer and Assistant Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated:
Si(cid:74)(cid:81)(cid:68)t(cid:88)(cid:85)(cid:72)(cid:86)
Tit(cid:79)(cid:72)
/s/ Mary (cid:49). Dillon
Mary (cid:49). Dillon
Chief Executive Officer and
Director (Principal Executive Officer)
/s/ Scott M. Settersten
Scott M. Settersten
/s/ Sally E. Blount
Sally E. Blount
/s/ Michelle (cid:47). Collins
Michelle (cid:47). Collins
/s/ Robert F. DiRomualdo
Robert F. DiRomualdo
/s/ Dennis K. Ec(cid:78)
Dennis K. Ec(cid:78)
/s/ Catherine (cid:43)alligan
Catherine (cid:43)alligan
/s/ Charles (cid:43)eilbronn
Charles (cid:43)eilbronn
/s/ Michael R. MacDonald
Michael R. MacDonald
/s/ (cid:42)eorge Mr(cid:78)onic
(cid:42)eorge Mr(cid:78)onic
/s/ (cid:47)orna E. (cid:49)agler
(cid:47)orna E. (cid:49)agler
Chief Financial Officer, Treasurer
and Assistant Secretary (Principal
Financial and Accounting Officer)
Director
Director
D(cid:68)t(cid:72)
April 2, 2019
April 2, 2019
April 2, 2019
April 2, 2019
Chairperson of the Board of Directors
April 2, 2019
April 2, 2019
April 2, 2019
April 2, 2019
April 2, 2019
April 2, 2019
April 2, 2019
Director
Director
Director
Director
Director
Director
(cid:26)3
SI(cid:42)NIFICANT SUBSIDIARIES OF
ULTA BEAUTY, INC.
Exhibit 21
N(cid:68)(cid:80)(cid:72) (cid:82)(cid:73) S(cid:88)b(cid:86)i(cid:71)i(cid:68)(cid:85)(cid:92)(cid:29)
(cid:45)(cid:88)(cid:85)i(cid:86)(cid:71)i(cid:70)ti(cid:82)(cid:81) (cid:82)(cid:73) I(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)ti(cid:82)(cid:81) (cid:82)(cid:85) O(cid:85)(cid:74)(cid:68)(cid:81)i(cid:93)(cid:68)ti(cid:82)(cid:81)(cid:29)
Ulta Salon, Cosmetics (cid:9) Fragrance, Inc.
Ulta Inc.
Ulta Beauty Credit Services Corporation
Ulta Beauty Cosmetics, (cid:47)(cid:47)C
Delaware
Delaware
Delaware
Florida
Subsidiaries not included in the list are omitted because, considered in the aggregate as a single subsidiary, they do
not constitute a significant subsidiary.
Exhibit 23
CONSENT OF INDEPENDENT RE(cid:42)ISTERED PUBLIC ACCOUNTIN(cid:42) FIR(cid:48)
(cid:58)e consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 (cid:49)o. 333-14(cid:26)12(cid:26)) pertaining to the Ulta Beauty 200(cid:26) Incentive
Award Plan, Ulta Beauty, Inc., 2002 Equity Incentive Plan, and the Ulta Beauty Inc. Second
Amended and Restated Restricted Stoc(cid:78) Option Plan, as further amended, and
(2) Registration Statement (Form S-8 (cid:49)o. 333-1(cid:26)6(cid:26)35) pertaining to the Amended and Restated Ulta
Beauty, Inc. 2011 Incentive Award Plan
of our reports dated April 2, 2019, with respect to the consolidated financial statements and schedule of Ulta
Beauty, Inc. and the effectiveness of internal control over financial reporting of Ulta Beauty, Inc. included in this
Annual Report (Form 10-K) for the year ended February 2, 2019.
/s/ Ernst (cid:9) (cid:60)oung (cid:47)(cid:47)P
Chicago, Illinois
April 2, 2019
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13(cid:68)-1(cid:23)(cid:11)(cid:68)(cid:12) AND 15(cid:71)-1(cid:23)(cid:11)(cid:68)(cid:12) UNDER THE SECURITIES
EXCHAN(cid:42)E ACT OF 193(cid:23), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mary (cid:49). Dillon, certify that:
1.
I have reviewed this annual report on Form 10-K of Ulta Beauty, Inc.(cid:30)
2. Based on my (cid:78)nowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to ma(cid:78)e the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report(cid:30)
3. Based on my (cid:78)nowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report(cid:30)
4. The registrant(cid:182)s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made (cid:78)nown to us by others within those entities, particularly during the period in
which this report is being prepared(cid:30)
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles(cid:30)
c) Evaluated the effectiveness of the registrant(cid:182)s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation(cid:30) and
d) Disclosed in this report any change in the registrant(cid:182)s internal control over financial reporting that occurred
during the registrant(cid:182)s most recent fiscal quarter (the registrant(cid:182)s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably li(cid:78)ely to materially affect, the registrant(cid:182)s internal control
over financial reporting(cid:30) and
5. The registrant(cid:182)s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant(cid:182)s auditors and the audit committee of the registrant(cid:182)s Board of Directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material wea(cid:78)nesses in the design or operation of internal control over financial
reporting which are reasonably li(cid:78)ely to adversely affect the registrant(cid:182)s ability to record, process, summari(cid:93)e
and report financial information(cid:30) and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant(cid:182)s internal control over financial reporting.
Date: April 2, 2019
By:
/s/ Mary (cid:49). Dillon
Mary (cid:49). Dillon
Chief Executive Officer and Director
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13(cid:68)-1(cid:23)(cid:11)(cid:68)(cid:12) AND 15(cid:71)-1(cid:23)(cid:11)(cid:68)(cid:12) UNDER THE SECURITIES
EXCHAN(cid:42)E ACT OF 193(cid:23), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Scott M. Settersten, certify that:
1.
I have reviewed this annual report on Form 10-K of Ulta Beauty, Inc.(cid:30)
2. Based on my (cid:78)nowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to ma(cid:78)e the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report(cid:30)
3. Based on my (cid:78)nowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report(cid:30)
4. The registrant(cid:182)s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made (cid:78)nown to us by others within those entities, particularly during the period in
which this report is being prepared(cid:30)
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles(cid:30)
c) Evaluated the effectiveness of the registrant(cid:182)s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation(cid:30) and
d) Disclosed in this report any change in the registrant(cid:182)s internal control over financial reporting that occurred
during the registrant(cid:182)s most recent fiscal quarter (the registrant(cid:182)s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably li(cid:78)ely to materially affect, the registrant(cid:182)s internal control
over financial reporting(cid:30) and
5. The registrant(cid:182)s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant(cid:182)s auditors and the audit committee of the registrant(cid:182)s Board of Directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material wea(cid:78)nesses in the design or operation of internal control over financial
reporting which are reasonably li(cid:78)ely to adversely affect the registrant(cid:182)s ability to record, process, summari(cid:93)e
and report financial information(cid:30) and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant(cid:182)s internal control over financial reporting.
Date: April 2, 2019
By:
/s/ Scott M. Settersten
Scott M. Settersten
Chief Financial Officer, Treasurer and Assistant Secretary
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Pursuant to 18 U.S.C. §1350 (adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002), I, the undersigned Chief
Executive Officer and Director of Ulta Beauty, Inc. (the “Company”), hereby certify that the Annual Report on
Form 10-K of the Company for the fiscal year ended February 2, 2019 (the “Report”), fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information
contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: April 2, 2019
By:
/s/ Mary (cid:49). Dillon
Mary (cid:49). Dillon
Chief Executive Officer and Director
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
Pursuant to 18 U.S.C. §1350 (adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002), I, the undersigned Chief
Financial Officer, Treasurer and Assistant Secretary of Ulta Beauty, Inc. (the “Company”), hereby certify that the
Annual Report on Form 10-K of the Company for the fiscal year ended February 2, 2019 (the “Report”), fully complies
with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that
information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: April 2, 2019
By:
/s/ Scott M. Settersten
Scott M. Settersten
Chief Financial Officer, Treasurer and Assistant Secretary
ded
ely
ales
Executive Officers
Mary Dillon
Chief Executive Officer
Scott Settersten
Chief Financial Officer, Treasurer & Assistant Secretary
Jodi Caro
General Counsel, Chief Compliance Officer
& Corporate Secretary
Jeffrey Childs
Chief Human Resources Officer
David Kimbell
Chief Merchandising & Marketing Officer
Board of Directors
Mary Dillon
Chief Executive Officer
y destination
Robert DiRomualdo
Non-Executive Chairman of the Board of Directors
es and
ess my
Sally Blount
Member of the Audit Committee
Michelle Collins
Chair of the Nominating
& Corporate Governance Committee
Member of the Audit Committee
Dennis Eck
Member of the Compensation Committee
Member of the Nominating
& Corporate Governance Committee
Catherine Halligan
Chair of the Compensation Committee
Member of the Nominating &
Corporate Governance Committee
Charles Heilbronn
Member of the Compensation Committee
Member of the Nominating
& Corporate Governance Committee
Michael MacDonald
Chair of the Audit Committee
Member of the Compensation Committee
George Mrkonic
Member of the Audit Committee
Lorna Nagler
Member of the Compensation Committee
Member of the Nominating
& Corporate Governance Committee
Gutter-to-Bleed: 8.375"
Gutter-to-Trim: 8.25"
Type Safety: 7.75"
Company Headquarters
Ulta Salon, Cosmetics & Fragrance, Inc.
1000 Remington Boulevard
Suite 120
Bolingbrook, IL 60440
630.410.4800
www.ulta.com
Annual Meeting
The Annual Meeting of Stockholders will be held at
10:00 am on Wednesday, June 5, 2019, at:
Ulta Beauty Company Headquarters
1000 Remington Boulevard
Suite 120
Bolingbrook, IL 60440
Transfer Agent & Registrar
American Stock Transfer & Trust Company
Operations Center
6201 – 15th Avenue
Brooklyn, NY 11219
800.937.5449
www.amstock.com
Stockholder Inquiries
Ulta Beauty Investor Relations
1000 Remington Boulevard
Suite 120
Bolingbrook, IL 60440
630.410.4627
InvestorRelations@ulta.com
Independent Registered
Public Accounting Firm
Ernst & Young LLP
Chicago, IL
Corporate & Securities Counsel
Foley & Lardner LLP
Milwaukee, WI
The Company has filed with the Securities and Exchange
Commission, as Exhibit 31 to its Annual Report on Form
10-K for fiscal year 2018, the Chief Executive Officer and
Chief Financial Officer certifications as required by Section
302 of the Sarbanes-Oxley Act of 2002.
Safe Harbor Language
Portions of this report may contain “forward-looking
statements” within the meaning of Section 21E of the
Securities and 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. Any forward-looking
statements contained in this report are based upon our
historical performance and on current plans, estimates
and expectations. Such forward-looking statements are
subject to various risks and uncertainties, including risk
factors contained in our Form 10-K for the year ended
February 2, 2019 which is on file with the Securities and
Exchange Commission and available at www.sec.gov and
at www.ulta.com. We undertake no obligation to update
any forward-looking statements to reflect events or
circumstances after the date of such statements.
Ulta Beauty
2018 Annual Report
8.25"w 10.75"h
pg05
Bleed-to-Gutter: 8.375"
Trim-to-Gutter: 8.25"
Type Safety: 7.75"
"
0
.
1
1
:
d
e
e
B
l
"
5
7
.
0
1
:
m
i
r
T
"
5
2
.
0
1
:
y
t
e
f
a
S
e
p
y
T
64
Ulta Beauty
2018 Annual Report
8.25"w 10.75"h
pg06
Bleed-to-Gutter: 8.375"
Trim-to-Gutter: 8.25"
Type Safety: 7.75"
Gutter-to-Bleed: 8.375"
Gutter-to-Trim: 8.25"
Type Safety: 7.75"
"
0
.
1
1
:
d
e
e
B
l
"
5
7
.
0
1
:
m
i
r
T
"
5
2
.
0
1
:
y
t
e
f
a
S
e
p
y
T
Financial Highlights
NET SALES (IN MILLIONS)
$6,716
$5,884.5
$4,854.7
$3,924.1
$3,241.4
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
NET INCOME (IN MILLIONS)
$658.6
$555.2
$409.8
$320.0
$257.1
$700
$600
$500
$400
$300
$200
$100
$0
1300
1200
1100
1000
900
800
700
600
500
400
300
200
100
0
STORE COUNT
1,174
1,074
974
874
774
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
5-Year CAGR - 20%*
5-Year CAGR - 27%*
5-Year CAGR - 12%*
Income Statement:
Net sales(2)
Cost of sales
Gross profit
Selling, general and administrative expenses
Pre-opening expenses
Operating income
Interest income, net
Income before income taxes
Income tax expense(3)
Net income
Net income per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Other Operating Data:
Comparable sales increase(4)
Retail and salon comparable sales
E-commerce comparable sales
Total comparable sales increase
Number of stores end of year
Capital expenditures
Depreciation and amortization
Repurchase of common shares
Balance Sheet Data:
Cash and cash equivalents
Short-term investments
Working capital
Property and equipment, net
Total assets
Total stockholders’ equity
FISCAL YEAR ENDED(1)
(In thousands, except per share, per square foot and store count data)
February 2, 2019
6,716,615
$
February 3, 2018
5,884,506
$
January 28, 2017
$
4,854,737
January 30, 2016
$
3,924, 1 1 6
January 31, 2015
$
3,241,369
$
$
$
4,307,304
2,409,311
1,535,464
19,767
854,080
(5,061)
859,141
200,582
658,559
11.00
10.94
59,864
60,181
5.1%
35.4%
8.1%
1,174
319,400
279,472
616,194
$
$
$
$
$
$
3,787,697
2,096,809
1,287,232
24,286
785,291
(1,568)
786,859
231,625
555,234
9.02
8.96
61,556
61,975
7.1%
59.9%
11.0%
1,074
440,714
252,713
367,581
$
409,251
$
277,445
$
-
1,091,125
1,226,029
3,191,172
1,820,218
120,000
1,051,577
1,189,453
2,908,687
1,774,217
3,107,508
1,747,229
1,073,834
18,571
654,824
(890)
655,714
245,954
409,760
6.55
6.52
62,519
62,851
13.4%
56.2%
15.8%
974
373,447
210,295
344,275
385,010
30,000
1,006,894
1,004,358
2,551,878
1,550,218
$
$
$
$
2,539,783
1,384,333
863,354
14,682
506,297
(1,143)
507,440
187,432
320,008
5.00
4.98
63,949
64,275
10.0%
47.5%
11.8%
874
299,167
165,049
167,396
345,840
130,000
978,946
847,600
2,230,918
1,442,886
$
$
$
$
2,104,582
1,136,787
712,006
14,366
410,415
(894)
411,309
154,174
257,135
4.00
3.98
64,335
64,651
8.1%
56.4%
9.9%
774
249,067
131,764
39,923
389,149
150,209
900,761
717,159
1,983,170
1,247,509
* 5-Year Compound Annual Growth Rate (CAGR) is based on fiscal 2013 net sales, net income and store count of $2,670.6 million, $202.8 million and 675, respectively.
(1) Our fiscal year-end is the Saturday closest to January 31 based on a 52/53-week year. Each fiscal year consists of four 13-week quarters, with an extra week added onto the fourth quarter every five or six years.
(2) The Company adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606) using the modified retrospective transition method in fiscal 2018. Results from
fiscal years prior to fiscal 2018 have not been recast for the adoption of ASC 606. Fiscal 2017 includes 53 weeks; all other fiscal years reported include 52 weeks. Net sales for the 53rd week of fiscal 2017 were
approximately $108.8 million.
(3) On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law. This new legislation reduced the federal corporate tax rate to 21.0% effective January 1, 2018. In accordance with Section 15 of the
Internal Revenue Code, the Company utilized a blended rate of 33.7% for the fiscal 2017 tax year, by applying a prorated percentage of the number of days prior to and subsequent to the January 1, 2018 effective
date. Income tax expense in fiscal 2018 reflects the lower federal tax rate for the entire fiscal year.
(4) Comparable sales increase reflects sales for stores beginning on the first day of the 14th month of operation. Remodeled stores are included in comparable sales unless the store was closed for a portion of the
current or comparable prior year.
Dear S
The Ulta B
fisc
driv
result
supply chain and s
Our t
to o
Incr
We opened 1
stor
During 20
as w
our r
stor
Dr
E-commer
8.1%. This gr
than 1
in e
full chain in 20
addition of GlamS
intelligenc
and help us unlock pers
Bec
We
categories and pric
hair
Chanel, and de
like Morphe
and t
emer
Op
Our c
in-st
transf
hallmarks of this ne
edu
This pr
2019
to enhanc
Ev
The Ultamat
repr
expectations and dr
program benefit, offering o
very w
artificial int
Suppor
We
in F
anno
only e-c
syst
2018 while managing inv
73520_ULTA UTANNUALREPORT COVER.indd 2
Ulta Beauty
2018 Annual Report
8.25"w 10.75"h
pg02
Ulta Beauty
2018 Annual Report
8.25"w 10.75"h
pg07
4/11/19 5:15 PM
Bleed-to-Spine: 8.375"
Trim-to-Spine: 8.25"
Type Safety: 7.75"
Spine-to-Bleed: 8.375"
Spine-to-Trim: 8.25"
Type Safety: 7.75"
"
0
.
1
1
:
d
e
e
B
l
"
5
7
.
0
1
:
m
i
r
T
"
5
2
.
0
1
:
y
t
e
f
a
S
e
p
y
T
73520_ULTA UTANNUALREPORT COVER.indd 1
Ulta Beauty
2018 Annual Report
8.25"w 10.75"h
Back Cover
Ulta Beauty
2018 Annual Report
8.25"w 10.75"h
Front Cover
4/11/19 5:15 PM
2018
ANNUAL
REPORT