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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended July 31, 2021

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _____________ to _____________

Commission File Number: 001-33764

ULTA BEAUTY, INC.

(Exact name of Registrant as specified in its charter)


incorporation or organization)


Identification No.)

Delaware

(State or other jurisdiction of
incorporation or organization)

38-4022268

(I.R.S. Employer
Identification No.)

1000 Remington Blvd., Suite 120

Bolingbrook, Illinois

(Address of principal executive offices)

60440

(Zip code)

Registrant’s telephone number, including area code: (630) 410-4800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

ULTA

The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer      Accelerated filer      Non-accelerated filer      Smaller reporting company       Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of August 23, 2021 was 54,357,566 shares.

Table of Contents

ULTA BEAUTY, INC.

TABLE OF CONTENTS

Part I - Financial Information

Item 1.    Financial Statements

Consolidated Balance Sheets

3

Consolidated Statements of Operations

4

Consolidated Statements of Comprehensive Income (Loss)

5

Consolidated Statements of Cash Flows

6

Consolidated Statements of Stockholders’ Equity

7

Notes to Consolidated Financial Statements

9

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

18

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

27

Item 4.    Controls and Procedures

28

Part II - Other Information

28

Item 1.    Legal Proceedings

28

Item 1A. Risk Factors

28

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

29

Item 3.    Defaults Upon Senior Securities

29

Item 4.    Mine Safety Disclosures

29

Item 5.    Other Information

29

Item 6.    Exhibits

30

SIGNATURES

31

2

Table of Contents

Part I - Financial Information

Item 1.Financial Statements

Ulta Beauty, Inc.

Consolidated Balance Sheets

July 31,

January 30,

August 1,

(In thousands, except per share data)

    

2021

    

2021

    

2020

Assets

(Unaudited)

(Unaudited)

Current assets:

Cash and cash equivalents

$

770,144

$

1,046,051

$

1,157,318

Receivables, net

154,416

193,109

127,992

Merchandise inventories, net

1,443,685

1,168,215

1,368,543

Prepaid expenses and other current assets

108,145

107,402

102,713

Prepaid income taxes

18,544

42,622

Total current assets

2,494,934

2,514,777

2,799,188

Property and equipment, net

909,507

995,795

1,077,825

Operating lease assets

1,470,166

1,504,614

1,548,239

Goodwill

10,870

10,870

10,870

Other intangible assets, net

2,001

2,465

2,927

Deferred compensation plan assets

36,396

33,223

28,789

Other long-term assets

30,711

28,225

29,283

Total assets

$

4,954,585

$

5,089,969

$

5,497,121

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

535,257

$

477,052

$

398,011

Accrued liabilities

313,372

296,334

201,754

Deferred revenue

265,462

274,383

216,545

Current operating lease liabilities

267,442

253,415

245,019

Accrued income taxes

42,529

Total current liabilities

1,381,533

1,343,713

1,061,329

Non-current operating lease liabilities

1,585,539

1,643,386

1,718,549

Long-term debt

800,000

Deferred income taxes

64,535

65,359

94,272

Other long-term liabilities

43,165

37,962

52,178

Total liabilities

3,074,772

3,090,420

3,726,328

Commitments and contingencies (Note 7)

Stockholders' equity:

Common stock, $0.01 par value, 400,000 shares authorized; 55,160, 56,952 and 57,014 shares issued; 54,446, 56,260 and 56,323 shares outstanding; at July 31, 2021 (unaudited), January 30, 2021, and August 1, 2020 (unaudited), respectively

551

569

570

Treasury stock-common, at cost

(44,775)

(37,801)

(37,513)

Additional paid-in capital

889,206

847,303

822,664

Retained earnings

1,034,831

1,189,422

985,042

Accumulated other comprehensive income

56

30

Total stockholders’ equity

1,879,813

1,999,549

1,770,793

Total liabilities and stockholders’ equity

$

4,954,585

$

5,089,969

$

5,497,121

See accompanying notes to consolidated financial statements.

3

Table of Contents

Ulta Beauty, Inc.

Consolidated Statements of Operations

(Unaudited)

13 Weeks Ended

26 Weeks Ended

July 31,

August 1,

July 31,

August 1,

(In thousands, except per share data)

    

2021

2020

2021

2020

Net sales

$

1,967,207

$

1,228,009

$

3,905,726

$

2,401,219

Cost of sales

1,169,244

899,002

2,353,975

1,768,607

Gross profit

797,963

329,007

1,551,751

632,612

Selling, general and administrative expenses

464,299

271,587

908,174

652,499

Impairment, restructuring and other costs

40,758

60,300

Pre-opening expenses

1,357

3,907

5,946

8,542

Operating income (loss)

332,307

12,755

637,631

(88,729)

Interest expense, net

425

2,617

783

3,889

Income (loss) before income taxes

331,882

10,138

636,848

(92,618)

Income tax expense (benefit)

80,989

2,086

155,666

(22,161)

Net income (loss)

$

250,893

$

8,052

$

481,182

$

(70,457)

Net income (loss) per common share:

Basic

$

4.59

$

0.14

$

8.71

$

(1.25)

Diluted

$

4.56

$

0.14

$

8.66

$

(1.25)

Weighted average common shares outstanding:

Basic

54,675

56,318

55,235

56,369

Diluted

55,014

56,497

55,592

56,369

See accompanying notes to consolidated financial statements.

4

Table of Contents

Ulta Beauty, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

13 Weeks Ended

26 Weeks Ended

July 31,

August 1,

July 31,

August 1,

(In thousands)

    

2021

    

2020

    

2021

    

2020

Net income (loss)

    

$

250,893

$

8,052

$

481,182

$

(70,457)

Other comprehensive income:

Foreign currency translation adjustments

105

30

Comprehensive income (loss)

$

250,893

$

8,157

$

481,182

$

(70,427)

See accompanying notes to consolidated financial statements.

5

Table of Contents

Ulta Beauty, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

26 Weeks Ended

July 31,

August 1,

(In thousands)

    

2021

    

2020

Operating activities

Net income (loss)

$

481,182

$

(70,457)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation and amortization

139,577

154,029

Non-cash lease expense

137,521

132,808

Long-lived asset impairment charge

59,997

Deferred income taxes

(824)

4,905

Stock-based compensation expense

19,097

14,595

Loss on disposal of property and equipment

1,703

2,273

Change in operating assets and liabilities:

Receivables

38,693

11,345

Merchandise inventories

(275,470)

(74,842)

Prepaid expenses and other current assets

(741)

854

Income taxes

(61,074)

(26,235)

Accounts payable

59,360

(18,486)

Accrued liabilities

17,858

(32,901)

Deferred revenue

(8,921)

(20,990)

Operating lease liabilities

(146,892)

(137,383)

Other assets and liabilities

344

16,477

Net cash provided by operating activities

401,413

15,989

Investing activities

Proceeds from short-term investments

110,000

Capital expenditures

(57,305)

(77,090)

Acquisitions, net of cash acquired

(1,220)

Purchases of equity investments

(5,386)

Net cash provided by (used in) investing activities

(57,305)

26,304

Financing activities

Proceeds from long-term debt

800,000

Repurchase of common shares

(635,793)

(72,981)

Stock options exercised

22,808

577

Purchase of treasury shares

(6,974)

(3,065)

Debt issuance costs

(1,861)

Net cash provided by (used in) financing activities

(619,959)

722,670

Effect of exchange rate changes on cash and cash equivalents

(56)

30

Net increase (decrease) in cash and cash equivalents

(275,907)

764,993

Cash and cash equivalents at beginning of period

1,046,051

392,325

Cash and cash equivalents at end of period

$

770,144

$

1,157,318

Supplemental information

Cash paid for interest

$

1,057

$

3,132

Income taxes paid, net of refunds

    

216,831

2,287

Non-cash capital expenditures

18,511

19,176

See accompanying notes to consolidated financial statements.

6

Table of Contents

Ulta Beauty, Inc.

Consolidated Statements of Stockholders’ Equity

(Unaudited)

Treasury -

Accumulated

Common Stock

Common Stock

Additional

Other

Total

Issued

Treasury

Paid-In

Retained

Comprehensive

Stockholders'

(In thousands)

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Earnings

    

Income (Loss)

    

Equity

Balance – January 30, 2021

56,952

$

569

(692)

$

(37,801)

$

847,303

$

1,189,422

$

56

$

1,999,549

Net income

230,289

230,289

Stock-based compensation

8,978

8,978

Foreign currency translation adjustments

(56)

(56)

Stock options exercised and other awards

94

1

5,031

5,032

Purchase of treasury shares

(21)

(6,766)

(6,766)

Repurchase of common shares

(1,243)

(12)

(392,297)

(392,309)

Balance – May 1, 2021

55,803

$

558

(713)

$

(44,567)

$

861,312

$

1,027,414

$

$

1,844,717

Net income

250,893

250,893

Stock-based compensation

10,119

10,119

Stock options exercised and other awards

104

1

17,775

17,776

Purchase of treasury shares

(1)

(208)

(208)

Repurchase of common shares

(747)

(8)

(243,476)

(243,484)

Balance – July 31, 2021

55,160

$

551

(714)

$

(44,775)

$

889,206

$

1,034,831

$

$

1,879,813

See accompanying notes to consolidated financial statements.

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Ulta Beauty, Inc.

Consolidated Statements of Stockholders’ Equity

(Unaudited)

Treasury -

Accumulated

Common Stock

Common Stock

Additional

Other

Total

Issued

Treasury

Paid-In

Retained

Comprehensive

Stockholders'

(In thousands)

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Earnings

    

Income (Loss)

    

Equity

Balance – February 1, 2020

57,285

$

573

(676)

$

(34,448)

$

807,492

$

1,128,477

$

$

1,902,094

Net loss

(78,509)

(78,509)

Stock-based compensation

6,182

6,182

Foreign currency translation adjustments

(75)

(75)

Stock options exercised and other awards

45

250

250

Purchase of treasury shares

(15)

(3,002)

(3,002)

Repurchase of common shares

(327)

(3)

(72,978)

(72,981)

Balance – May 2, 2020

57,003

$

570

(691)

$

(37,450)

$

813,924

$

976,990

$

(75)

$

1,753,959

Net income

8,052

8,052

Stock-based compensation

8,413

8,413

Foreign currency translation adjustments

105

105

Stock options exercised and other awards

11

327

327

Purchase of treasury shares

(63)

(63)

Balance – August 1, 2020

57,014

$

570

(691)

$

(37,513)

$

822,664

$

985,042

$

30

$

1,770,793

See accompanying notes to consolidated financial statements.

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Ulta Beauty, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share and store count data) (Unaudited)

1.Business and basis of presentation

The Company was founded in 1990 to operate specialty retail stores selling cosmetics, fragrance, haircare and skincare products, and related accessories and services. The stores also feature full-service salons. As used in these notes and throughout this Quarterly Report on Form 10-Q, all references to “we,” “us,” “our,” “Ulta Beauty,” or the “Company” refer to Ulta Beauty, Inc. and its consolidated subsidiaries.

As of July 31, 2021, the Company operated 1,296 stores across 50 states, as shown in the table below.

Number of

Number of

Location

    

stores

    

Location

    

stores

Alabama

24

Montana

6

Alaska

3

Nebraska

5

Arizona

30

Nevada

15

Arkansas

11

New Hampshire

8

California

162

New Jersey

43

Colorado

26

New Mexico

7

Connecticut

18

New York

51

Delaware

3

North Carolina

36

Florida

90

North Dakota

3

Georgia

39

Ohio

45

Hawaii

4

Oklahoma

21

Idaho

9

Oregon

16

Illinois

55

Pennsylvania

44

Indiana

24

Rhode Island

3

Iowa

11

South Carolina

22

Kansas

13

South Dakota

3

Kentucky

15

Tennessee

28

Louisiana

18

Texas

119

Maine

3

Utah

14

Maryland

27

Vermont

1

Massachusetts

23

Virginia

30

Michigan

49

Washington

35

Minnesota

19

West Virginia

7

Mississippi

10

Wisconsin

20

Missouri

25

Wyoming

3

Total

1,296

The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and the U.S. Securities and Exchange Commission’s Article 10, Regulation S-X. These financial statements were prepared on a consolidated basis to include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts, transactions, and unrealized profit were eliminated in consolidation. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to fairly state the financial position and results of operations and cash flows for the interim periods presented.

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The Company’s business is subject to seasonal fluctuation, with significant portions of net sales and net income being realized during the fourth quarter of the fiscal year due to the holiday selling season. The results for the 13 and 26 weeks ended July 31, 2021 are not necessarily indicative of the results to be expected for the fiscal year ending January 29, 2022, or for any other future interim period or for any future year, in particular as a result of the uncertainty around the continuing effects of the COVID-19 pandemic on future periods.

These unaudited interim consolidated financial statements and the related notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended January 30, 2021. All amounts are stated in thousands, with the exception of per share amounts and number of stores.

2.Summary of significant accounting policies

Information regarding significant accounting policies is contained in Note 2, “Summary of significant accounting policies,” to the consolidated financial statements in the Annual Report on Form 10-K for the year ended January 30, 2021. Presented below and in the following notes is supplemental information that should be read in conjunction with “Notes to Consolidated Financial Statements” in the Annual Report.

Fiscal quarter

The Company’s quarterly periods are the 13 weeks ending on the Saturday closest to April 30, July 31, October 31, and January 31. The second quarter in fiscal 2021 and 2020 ended on July 31, 2021 and August 1, 2020, respectively.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the accounting period. Actual results could differ from those estimates. The Company considers its accounting policies relating to inventory valuations, vendor allowances, impairment of long-lived tangible and right-of-use assets, loyalty program and income taxes to be the most significant accounting policies that involve management estimates and judgments. Significant changes, if any, in those estimates and assumptions resulting from continuing changes in the economic environment, including those related to the impacts of the COVID-19 pandemic, will be reflected in the consolidated financial statements in future periods.

Impairment of long-lived tangible and right-of-use assets

The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets. The asset group identified is at the store level and includes both property and equipment and operating lease assets.

Significant estimates are used in determining future cash flows of each store over its remaining lease term including our expectations of future projected cash flows including revenues and operating expenses. An impairment loss is recorded if the carrying amount of the long-lived asset exceeds its fair value.

Long-lived tangible and right-of-use assets are evaluated for indicators of impairment quarterly or when events or changes in circumstances indicate that their carrying amounts may not be recoverable. An undiscounted cash flow analysis is performed over the asset group. Asset groups are written down only to the extent that their carrying value exceeds their respective fair value. Fair values of the asset group are determined by discounting the cash flows at a rate that approximates the cost of capital of a market participant. Management’s forecast of future cash flows is based on the income approach. The fair value of individual operating lease assets is determined under the market approach using estimated market rent assessments based on broker quotes.

The determination of fair value under the income approach requires assumptions including forecasts of future cash flows (such as revenue growth rates and operating expenses) and selection of a market-based discount rate. Estimates of market rent are based on non-binding broker quotes. As these inputs are unobservable, they are classified as Level 3 inputs

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under the fair value hierarchy (see Note 9, “Fair value measurements”). If actual results are not consistent with estimates and assumptions used in estimating future cash flows and asset fair values, there may be exposure to additional impairment losses in a future period (see Note 4, “Impairment, restructuring and other costs”).

CARES Act

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted. The CARES Act, among other things, includes provisions relating to refundable payroll taxes, deferral of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The most significant relief measures which the Company qualifies for are the employee retention credit, payroll tax deferral, and technical corrections to tax depreciation.

The Company recognizes government grants for which there is a reasonable assurance of compliance with grant conditions and receipt of credits. The Company believes there is a reasonable assurance that it will comply with the relevant conditions of the employee retention credit provision of the CARES Act and that it will receive the credit. The Company will continue to assess the treatment of the CARES Act to the extent additional guidance and regulations are issued, the further applicability of the CARES Act, and the potential impacts on the business.

Employee retention credit (ERC) and payroll tax deferral. The ERC allows for a refundable tax credit against certain employment taxes equal to 50% of the first ten thousand dollars in qualified wages paid to each employee commencing on March 13, 2020 through January 1, 2021 and 70% of the first ten thousand dollars, per quarter, in qualified wages paid to each employee commencing on January 1, 2021 through December 31, 2021. To be eligible, the Company must (i) have had operations fully or partially suspended because of a governmental order, or (ii) have had gross receipts decline by more than 50% in a calendar quarter in fiscal 2020 or 20% in a calendar quarter in fiscal 2021, when compared to the same quarter in 2019. Qualified wages are limited to wages paid to employees who were not providing services due to the COVID-19 pandemic. During the 13 weeks ended July 31, 2021 and August 1, 2020, there was $1,048 and $48,181, respectively, related to the ERC recognized as a reduction of the associated costs within selling, general and administrative expenses on the consolidated statements of operations. During the 26 weeks ended July 31, 2021 and August 1, 2020, there was $3,387 and $48,181, respectively, related to the ERC recognized as a reduction of the associated costs within selling, general and administrative expenses on the consolidated statements of operations. The receivable for the ERC was $55,792, $52,405, and $48,181 as of July 31, 2021, January 30, 2021, and August 1, 2020, respectively.

Additionally, the CARES Act contains provisions for the deferral of the employer portion of social security taxes incurred through the end of calendar 2020. As of July 31, 2021, January 30, 2021, and August 1, 2020, there was $43,845, $43,845, and $18,709, respectively, of social security tax payments deferred, of which 50% are required to be remitted by December 2021 and the remaining 50% by December 2022. The deferred amounts are recorded within accrued liabilities on the consolidated balance sheets.

Technical corrections to tax depreciation. The CARES Act also includes a technical correction of tax depreciation methods for qualified improvement property, which changes 39-year property to 15-year property eligible for 100% tax bonus depreciation. This provision of the CARES Act resulted in a cash tax refund of $4,600 relating to property and equipment, from filing an amendment to the Company’s 2018 federal income tax return, during the 13 and 26 weeks ended August 1, 2020.

Recently adopted accounting pronouncements

Taxes – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes. The guidance removes certain exceptions for recognizing deferred taxes for equity method investments, performing intraperiod allocation, and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for goodwill and allocating

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taxes to members of a consolidated group, among others. This guidance is effective for interim and annual reporting periods beginning after December 15, 2020. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The transition requirements are dependent upon each amendment within this update and will be applied either prospectively or retrospectively. The Company adopted the new guidance as of January 31, 2021, and its adoption had no impact on the Company’s consolidated financial position, results of operations, or cash flows. 

3.Revenue

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 and co-branded credit card programs, as well as deferred revenue related to the loyalty program and gift card breakage.

Disaggregated revenue

The following table sets forth the approximate percentage of net sales by primary category:

13 Weeks Ended  

26 Weeks Ended

July 31,

August 1,

July 31,

August 1,

(Percentage of net sales)

2021

2020

2021

2020

Cosmetics (1)

43%

45%

44%

47%

Skincare (1)

17%

18%

18%

18%

Haircare products and styling tools (1)

21%

21%

20%

19%

Fragrance and bath

12%

9%

11%

8%

Services

4%

3%

4%

4%

Accessories and other (1)

3%

4%

3%

4%

100%

100%

100%

100%

(1)Certain sales departments were reclassified between categories in the prior year to conform to current year presentation.

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Deferred revenue

Deferred revenue primarily represents contract liabilities for the obligation to transfer additional goods or services to a guest for which the Company has received consideration, such as unredeemed Ultamate Rewards loyalty points and unredeemed Ulta Beauty gift cards. In addition, breakage on gift cards is recognized proportionately as redemption occurs.

The following table provides a summary of the changes included in deferred revenue during the 13 and 26 weeks ended July 31, 2021 and August 1, 2020:

13 weeks ended

26 weeks ended

July 31,

August 1,

July 31,

August 1,

(In thousands)

2021

2020

2021

    

2020

Beginning balance

$

253,172

$

206,653

$

269,032

$

230,011

Additions to co