Ulta Beauty (ULTA) 10-K risk factor changes: FY2014 vs FY2013

[removed: _The] [added: In addition, the recent] global economic crisis and volatility in global economic conditions and the financial markets [removed: as well as declines in consumer spending] may adversely affect our business, financial condition, profitability, and cash flows._

[removed: The] [added: In addition, the recent] global economic crisis and volatility and disruption to the capital and credit markets have had a significant, adverse impact on global economic conditions, resulting in recessionary pressures and declines in consumer confidence and economic growth.

While [removed: this decline has] [added: these declines have] moderated, the level of consumer spending is not where it was prior to the global recession, and economic conditions could lead to further declines in consumer spending in the future.

We [removed: offer] [added: appeal to] a wide [added: demographic consumer profile and offer an extensive] selection of beauty products [added: sold directly to retail consumers] and premium salon services.

Continued uncertainty in the economy could adversely impact [removed: levels of] consumer [added: purchases of] discretionary [removed: spending] [added: items] across all of our product [removed: categories] [added: categories,] including prestige beauty products and premium salon services.

Reduced consumer spending could cause changes in customer order patterns and changes in the level of [removed: inventory] [added: merchandise] purchased 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.

[removed: Economic] [added: Recent economic] conditions have also resulted in a tightening of the credit markets, including lending by financial institutions, which is a source of capital for our borrowing and liquidity.

A significant decrease in new retail center development [removed: has adversely affected our new store program and] could limit our future growth opportunities as long as the aforementioned conditions exist.

[removed: A bankruptcy 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.

We believe the principal bases upon which we compete are the [removed: quality] [added: breadth] of merchandise, our value proposition, the quality of our customers’ shopping experience and the convenience of our stores as one-stop destinations for beauty products and salon services.

If we were to lose the benefit of the experience, efforts and abilities of [removed: other] key executive personnel, it could have a material adverse effect on our business, financial condition, profitability and cash flows.

[removed: Our inability] [added: In addition, we intend] to [removed: effectively manage and maintain our business through this Chief Executive Officer transition] [added: continue to open new stores, which] could [added: strain our resources and] have a material adverse effect on our business, financial condition, profitability and cash [removed: flows.][added: flows._]

_We [removed: intend to continue] [added: may not be able] to [removed: open new stores, which could strain] [added: sustain] our [removed: resources] [added: growth plans] and [added: successfully develop and implement our long-range strategic and financial plan, which could] have a material adverse effect on our business, financial condition, profitability and cash [removed: flows._][added: flows.]

Our continued and future growth largely depends on our ability to [added: implement our long-range strategic and financial plan and] successfully open and operate new stores on a profitable basis.

During fiscal [removed: 2012,] [added: 2013,] we opened [removed: 102] [added: 127] new stores.

During fiscal [removed: 2012,] [added: 2013,] the average investment required to open a typical new store was approximately $1.0 million.

[removed: This] [added: Our] continued expansion [removed: could place] [added: places] increased demands on our financial, managerial, [removed: operational] [added: operational, supply-chain] and administrative resources.

[removed: In order to support our recent and expected future] growth and to maintain the efficient operation of our business, additional distribution centers may need to be added in the future.

[added: We have identified the need to] expand and upgrade our information systems to support recent and expected future growth.

_We are subject to risks relating to our information technology systems, and any failure to adequately protect our critical information technology systems could [removed: materially affect] [added: have a material adverse effect on] our operations._

_Unauthorized disclosure of confidential customer, associate or company information could damage [removed: out] [added: our] reputation, expose us to litigation and negatively impact our business._

Despite the security measures we have in place, our [removed: systems,] [added: systems] and those of our third party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, human errors, or other similar events.

[removed: 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’ ability to produce and deliver products, and natural disasters, could materially harm our operations.

Our business is also subject to a variety of other risks generally associated with sourcing [added: goods from abroad, such as political instability, disruption of imports by labor disputes and local business practices.]

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 [added: 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.

This risk is more pronounced during the [removed: current] [added: recent] economic downturn which has resulted in a number of national retailers filing for bankruptcy or closing stores due to depressed consumer spending levels.

[removed: Our business depends to a significant extent on the] willingness and ability of our vendors to supply us with a sufficient selection and volume of products to stock our stores.

Any of our other core brands could in the future decide to scale back or end its partnership with us and strengthen its relationship with our competitors, which could [added: negatively impact the revenue we earn from the sale of such products.]

During fiscal [removed: 2012,] [added: 2013,] merchandise supplied to Ulta by our top ten vendors accounted for approximately [removed: 53%] [added: 51%] of our net sales.

Legal requirements are frequently changed and subject to interpretation, and we are unable to predict the ultimate [removed: cost of compliance with these requirements or their effect on our operations.]

[added: In particular, failure to adequately comply] with the following legal requirements could have a material adverse effect on our business, financial [removed: conditions,] [added: condition,] profitability and cash flows:

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 [removed: buildout] [added: build out] of our stores, the constantly increasing number of local jurisdictions in which we operate makes it increasingly difficult to stay abreast of changes in, and requirements of, local building codes and local building and fire inspectors’ interpretations of such building codes.

Moreover, our landlords have occasionally been unable, due to the requirements of local zoning laws, to obtain in a timely manner a certificate of occupancy with respect to the [added: 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 some instances to delay store openings.]

[removed: Ultimately, we could be] prevented from commercializing 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.

Some of our competitors may be able to [removed: sustain] [added: bear] the costs of such litigation or proceedings better than us because of their substantially greater financial resources.

We have a $200 million secured revolving credit facility with a term expiring [removed: October 2016.][added: in December 2018.]

Outstanding borrowings bear interest at the prime rate or Libor plus 1.50% and the unused line fee is [removed: 0.225%.][added: 0.20%.]

Reporting obligations as a public company and our anticipated growth are likely to place a [removed: considerable] strain on our financial and management systems, processes and controls, as well as on our personnel.

[added: As a result, we have been required to improve our] financial and managerial controls, reporting systems and procedures and have incurred and will continue to incur expenses to test our systems and to make such improvements.

A variety of [removed: other] factors affect our comparable store sales and quarterly financial performance, including:

_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 global capital markets and the economy generally, both in the U.S. and internationally.

Concerns over inflation, employment, tax laws, energy costs, healthcare costs, geopolitical issues, terrorism, the availability and cost of credit, the mortgage market, sovereign and private banking systems, sovereign deficits and increasing debt burdens and the real estate and other financial markets in the U.S. and Europe have contributed to increased volatility and diminished expectations for the U.S. and certain foreign economies.

Factors that could affect consumers’ willingness to make 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.

A bankruptcy or financial failure of a significant vendor or a

Mary Dillon was appointed Chief Executive Officer and a member of the Board of Directors effective July 1, 2013 and Scott Settersten was appointed Chief Financial Officer and Assistant Secretary effective March 12, 2013.

Our senior management is currently evaluating our long-range strategic and financial plan to align and prioritize our growth strategies, as well as additional investments that will be needed to support continued and future growth.

There can be no assurance that we will be successful in implementing our growth plan or long-range strategic initiatives, and our failure to do so could have a material adverse impact on our business, financial condition, profitability and cash flows.

In order to support our recent and expected future

We are embarking on a multi-year supply chain project beginning in 2014 which will include adding additional capacity, including a fourth distribution center expected to open in 2015, and system improvements to support expanded omni-channel capabilities.

_Cybersecurity breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer._

In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees, in our data centers and on our networks.

The secure processing, maintenance and transmission of this information is critical to our operations.

Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions.

Any such breach could compromise our networks 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 employ IT security and security-related products and services as well as a full-time staff to proactively monitor our systems and networks.

We maintain continual vigilance in regard to the protection of sensitive information and are in compliance with all applicable data protection laws and regulations.

_Our e-commerce business may be unsuccessful._

We offer many of our beauty products for sale through our website.

As a result, we encounter risks and difficulties frequently experienced by internet-based businesses, including risks 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 and software and other related operational systems.

Although we believe that our participation in both e-commerce and physical store sales is a distinct advantage for us due to synergies and the potential for new customers, supporting product offerings through both of these channels could create issues that have the potential to adversely affect our results of operations.

For example, if our e-commerce business successfully grows, it may do so in part by attracting existing customers, rather than new customers, who choose to purchase products from us online 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 customers to consider competing distributors of beauty products.

In addition, offering products through our internet channel could cause some of our current or potential vendors to consider competing internet offerings of their products either on their own or through competing distributors.

As we continue to grow our e-commerce business, the impact of attracting existing rather than new customers, of conflicts between product offerings online and through our stores, and of opening up our channels to increased internet competition could have a material adverse impact on our business, financial condition, profitability and cash flows, including future growth.

Any event causing a sudden disruption of manufacturing or imports

Our business depends to a significant extent on the

cost of compliance with these requirements or their effect on our operations.

In March 2010, comprehensive healthcare reform legislation under the Patient Protection and Affordable Care Act and the Health Care Education and Affordability Reconciliation Act (collectively, the “Acts”) was passed and signed into law.

This healthcare reform legislation significantly expands healthcare coverage to many uninsured individuals and to those already insured.

Due to the breadth and complexity of the healthcare reform legislation and the staggered implementation and uncertain timing of the regulations and lack of interpretive guidance, it is difficult to predict the overall impact of the healthcare reform legislation on our business over the coming years.

Possible adverse effects include increased costs, exposure to expanded liability and requirements for us to revise the ways in which we conduct business.

For example, the Patient Protection and Affordable Care Act has imposed new mandates on employers, including a requirement effective January 1, 2014 (which has been extended to January 1, 2015 due to a recent executive order) that employers with 50 or more full-time employees provide “credible” health insurance to employees or pay a financial penalty.

Given our current health plan design, and assuming the law is implemented without significant changes, these mandates could materially increase our costs.

Moreover, if we choose to opt out of offering health insurance to our employees, we may become less attractive as an employer and it may be harder for us to compete for qualified employees.

Additionally, because significant provisions of the Acts will become effective on various dates over the next several years, future changes could significantly impact any effects on our business that we previously anticipated.

Ultimately, we could be

We expect the net investment to open a new store in 2014 to increase due to increases in material and labor costs resulting from a stronger commercial and residential building environment compared to the last several years.

These conditions have led to decreases in consumer spending across the economy.

Increases in the levels of unemployment, energy costs, healthcare costs and taxes, combined with tighter credit markets, reduced consumer confidence and other factors, contribute to the decline in consumer spending.

Continued turbulence in the United States and international markets and economies and declines in consumer spending may adversely affect our ability to refinance maturing liabilities and access the capital markets to meet liquidity needs and could adversely affect our business, financial condition, profitability and cash flows.

| --- | --- | --- | --- |

Effective February 21, 2013, Carl S.

Rubin resigned from his position as President and Chief Executive Officer and Dennis K.

Eck, a current board member, is currently serving as Interim Chief Executive Officer until a

permanent replacement is identified.

In addition, Scott M.

Settersten served as Acting Chief Financial Officer and Assistant Secretary of the Company from October 18, 2012 through March 12, 2013 at which time we announced his appointment as permanent Chief Financial Officer and Assistant Secretary.

We are in the process of completing a comprehensive search for a permanent Chief Executive Officer, however there can be no assurance that we will be able to identify and hire a qualified candidate in a timely manner.

Our ability to attract, select and hire a permanent Chief Executive Officer candidate may prove difficult, take more time than anticipated, and be costly.

This may require other senior management to divert part of their attention from their primary duties, which could have a material adverse effect on our business or operations.

We have identified the need to

goods from abroad, such as political instability, disruption of imports by labor disputes and local business practices.

negatively impact the revenue we earn from the sale of such products.

In particular, failure to adequately comply

| | Ÿ | | In March 2010, comprehensive healthcare reform legislation under the Patient Protection and Affordable Care Act and the Health Care Education and Affordability Reconciliation Act (collectively, the “Acts”) was passed and signed into law. This healthcare reform legislation significantly expands healthcare coverage to many uninsured individuals and to those already insured. Due to the breadth and complexity of the healthcare reform legislation and the staggered implementation and uncertain timing of the regulations and lack of interpretive guidance, it is difficult to predict the overall impact of the healthcare reform legislation on our business over the coming years. Possible adverse effects include increased costs, exposure to expanded liability and requirements for us to revise the ways in which we conduct business. Additionally, because significant provisions of the Acts will become effective on various dates over the next several years, future changes could significantly impact any effects on our business that we previously anticipated. |

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 some instances to delay store openings.

As a result, we have been required to improve our

Such forward-looking statements are subject to various risks and uncertainties, which include, without limitation: the impact of weakness in the economy; changes in the overall level of consumer spending; changes in the wholesale cost of our products; the possibility that we may be unable to compete effectively in our highly competitive markets; the possibility that our continued opening of new stores could strain our resources and have a material adverse effect on our business and financial performance; the possibility that new store openings and existing locations may be impacted by developer or co-tenant issues; the possibility that the capacity of our distribution and order fulfillment infrastructure may not be adequate to support our recent growth and expected future growth plans; the possibility of material disruptions to our information systems; weather conditions that could negatively impact sales; our ability to attract and retain key executive personnel; our ability to successfully execute and implement our common stock repurchase program; [added: our ability to sustain our growth plans] and [added: successfully develop and implement our long-range strategic and financial plan; and] other risk factors detailed in our public filings with the Securities and Exchange Commission (the “SEC”), including risk factors contained in Item 1A, “Risk Factors” of this Annual Report on Form 10-K for the year ended February [removed: 2, 2013.][added: 1, 2014.]

References in the following discussion to “we”, “us”, “our”, “the Company”, “Ulta” and similar references mean Ulta Salon, Cosmetics & Fragrance, Inc. [added: and its consolidated subsidiary, Ulta Inc.] unless otherwise expressly stated or the context otherwise requires._

We developed a unique [added: specialty] retail [removed: approach] [added: concept] by combining one-stop shopping, a compelling value proposition, convenient locations [removed: and an uplifting specialty retail experience.]

Key aspects of our business include our ability to offer our customers a broad selection of [removed: over] [added: more than] 20,000 beauty products across the categories of cosmetics, fragrance, haircare, skincare, bath and body products and salon styling tools, as well as salon [removed: styling tools.][added: haircare products.]

Our stores are [removed: predominately] [added: 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 [added: five point] growth strategy, including [removed: accelerating store growth, introducing] [added: growing stores to approximately 1,200 locations, expanding our offering by adding] new products, [removed: services] [added: brands] and [removed: brands,] [added: services,] enhancing our loyalty program, broadening our marketing [removed: reach, increasing our digital focus including Ulta.com] [added: reach] and [removed: improving] [added: expanding] our [removed: operating margin.][added: digital business.]

[removed: Gross] [added: Operating] profit [removed: as a percentage of net sales] is expected to increase as a result of our ability to expand merchandise margin and leverage our [removed: supply chain infrastructure and] fixed store costs with comparable store sales increases and operating [removed: efficiencies.][added: efficiencies offset by incremental investments in people, systems and supply chain required to support a 1,200 store chain with a successful e-commerce business and competitive omni-channel capabilities.]

[removed: The Company has] [added: We have] determined [removed: its] [added: the] operating segments on the same basis that [removed: it uses] [added: we use] to internally evaluate performance.

We recognize merchandise revenue at the point of sale in our retail stores and [removed: the time] [added: e-commerce sales are recorded based on delivery] of [removed: shipment in] [added: merchandise to] the [removed: case of Internet sales.][added: customer.]

Therefore, a store is included in our comparable store base on the first day of the period after one year of [added: operations plus the initial one month grand opening period.]

[removed: Starting in] [added: Beginning with] the first quarter of 2013, comparable store sales [removed: will be reported including] [added: include] the Company’s e-commerce business.

| | Ÿ | | the cost of merchandise sold, including [added: substantially] all vendor allowances, which are treated as a reduction of merchandise costs; |

The Company’s fiscal years ended February [added: 1, 2014, February] 2, [removed: 2013,] [added: 2013 and] January 28, 2012 [removed: and January 29, 2011] were [removed: 53, 52] [added: 52, 53] and 52 week years, respectively, and are hereafter referred to as fiscal [removed: 2012,] [added: 2013,] fiscal [removed: 2011] [added: 2012] and fiscal [removed: 2010.][added: 2011.]

As of February [removed: 2, 2013,] [added: 1, 2014,] we operated [removed: 550] [added: 675] stores across [removed: 45] [added: 46] states.

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

| (Dollars in thousands) | | February [removed: 2, 2013] [added: 1, 2014] | | | | [removed: January 28, 2012] [added: February 2, 2013] | | | | January [removed: 29, 2011] [added: 28, 2012] | | |

| Net sales | | $ | [removed: 2,220,256] [added: 2,670,573] | | | $ | [removed: 1,776,151] [added: 2,220,256] | | | $ | [removed: 1,454,838] [added: 1,776,151] | |

| Cost of sales | | | [removed: 1,436,582] [added: 1,729,325] | | | | [removed: 1,159,311] [added: 1,436,582] | | | | [removed: 970,753] [added: 1,159,311] | |

| Gross profit | | | [removed: 783,674] [added: 941,248] | | | | [removed: 616,840] [added: 783,674] | | | | [removed: 484,085] [added: 616,840] | |

| Selling, general and administrative expenses | | | [removed: 488,880] [added: 596,390] | | | | [removed: 410,658] [added: 488,880] | | | | [removed: 358,106] [added: 410,658] | |

| Pre-opening expenses | | | [removed: 14,816] [added: 17,270] | | | | [removed: 9,987] [added: 14,816] | | | | [removed: 7,095] [added: 9,987] | |

| Operating income | | | [removed: 279,978] [added: 327,588] | | | | [removed: 196,195] [added: 279,978] | | | | [removed: 118,884] [added: 196,195] | |

| Interest [added: (income)] expense | | | [removed: 185] [added: (118] | [added: )] | | | [removed: 587] [added: 185] | | | | [removed: 755] [added: 587] | |

| Income before income taxes | | | [removed: 279,793] [added: 327,706] | | | | [removed: 195,608] [added: 279,793] | | | | [removed: 118,129] [added: 195,608] | |

| Income tax expense | | | [removed: 107,244] [added: 124,857] | | | | [removed: 75,344] [added: 107,244] | | | | [removed: 47,099] [added: 75,344] | |

| Net income | | $ | [removed: 172,549] [added: 202,849] | | | $ | [removed: 120,264] [added: 172,549] | | | $ | [removed: 71,030] [added: 120,264] | |

| Number of stores end of period | | | [removed: 550] [added: 675] | | | | [removed: 449] [added: 550] | | | | [removed: 389] [added: 449] | |

| Comparable store sales increase | | | [removed: 8.8] | [removed: %] | | | [removed: 10.9] | [removed: %] | | | [removed: 11.0] | [removed: %] |

| (Percentage of net sales) | | February [removed: 2, 2013] [added: 1, 2014] | | | | [removed: January 28, 2012] [added: February 2, 2013] | | | | January [removed: 29, 2011] [added: 28, 2012] | | |

| Cost of sales | | | [removed: 64.7] [added: 64.8] | % | | | [removed: 65.3] [added: 64.7] | % | | | [removed: 66.7] [added: 65.3] | % |

| Gross profit | | | [removed: 35.3] [added: 35.2] | % | | | [removed: 34.7] [added: 35.3] | % | | | [removed: 33.3] [added: 34.7] | % |

| Selling, general and administrative expenses | | | [removed: 22.0] [added: 22.3] | % | | | [removed: 23.1] [added: 22.0] | % | | | [removed: 24.6] [added: 23.1] | % |

| Pre-opening expenses | | | [removed: 0.7] [added: 0.6] | % | | | [removed: 0.6] [added: 0.7] | % | | | [removed: 0.5] [added: 0.6] | % |

| Operating income | | | [removed: 12.6] [added: 12.3] | % | | | [removed: 11.0] [added: 12.6] | % | | | [removed: 8.2] [added: 11.0] | % |

| Interest [added: (income)] expense | | | 0.0 | % | | | 0.0 | % | | | [removed: 0.1] [added: 0.0] | % |

| Income before income taxes | | | [removed: 12.6] [added: 12.3] | % | | | [removed: 11.0] [added: 12.6] | % | | | [removed: 8.1] [added: 11.0] | % |

| Income tax expense | | | [removed: 4.8] [added: 4.7] | % | | | [removed: 4.2] [added: 4.8] | % | | | [removed: 3.2] [added: 4.2] | % |

| Net income | | | [removed: 7.8] [added: 7.6] | % | | | [removed: 6.8] [added: 7.8] | % | | | [removed: 4.9] [added: 6.8] | % |

We attribute the increase in comparable store sales to our successful marketing and [removed: merchandise] [added: merchandising] strategies.

| | Ÿ | | 50 basis points of leverage in fixed store costs attributed to the impact of [removed: significantly] higher sales levels in fiscal 2012; and |

and a welcoming shopping environment.

We are currently evaluating our long range strategic and financial plan and expect to share our long-term growth plan and financial targets in the fall of 2014.

| Retail and salon comparable store sales | | | 6.1 | % | | | 8.8 | % | | | 10.9 | % |

| E-commerce comparable store sales | | | 76.6 | % | | | 30.7 | % | | | 37.8 | % |

| Total comparable store sales increase | | | 7.9 | % | | | 9.3 | % | | | 11.5 | % |

Net sales increased $450.3 million, or 20.3%, to $2,670.6 million in fiscal 2013 compared to $2,220.3 million in fiscal 2012.

E-commerce sales increased $40.7 million, or 73.9%, to $95.8 million compared to $55.1 million in fiscal 2012.

The sales for the 53rd week of fiscal 2012 were approximately $55 million.

The 7.9% comparable store sales increase consisted of a 6.1% increase at the Company’s retail and salon stores and a 76.6% increase in the Company’s e-commerce business.

The inclusion of the e-commerce business resulted in an increase of approximately 180 basis points to the Company’s consolidated same store sales calculation for fiscal 2013 compared to 50 basis points for fiscal 2012.

The total comparable store sales increase included a 6.9% increase in average ticket and a 1.0% increase in traffic.

Gross profit increased $157.5 million, or 20.1%, to $941.2 million in fiscal 2013, compared to $783.7 million, in fiscal 2012.

| | Ÿ | | 40 basis points deleverage in merchandise margins due mainly to changes in marketing and merchandising strategies; offset by |

| | Ÿ | | 20 basis point leverage in supply chain due to operating efficiencies; and |

The 30 basis point deleverage in SG&A expense was primarily driven by the planned investments in supply chain, e-commerce and store labor to support rapid growth.

Pre-opening expenses increased $2.5 million, or 16.6%, to $17.3 million in fiscal 2013 compared to $14.8 million in fiscal 2012.

Interest income results from highly liquid investments with maturities of three months or less from the date of purchase.

Net income increased $30.3 million, or 17.6%, to $202.8 million in fiscal 2013 compared to $172.5 million in fiscal 2012.

The sales for the 53rd week of fiscal 2012 were approximately $55 million.

| | | | | | | | | | | | | |

The increase in inventory is primarily due to the following:

| | Ÿ | | approximately $82 million due to the addition of 125 net new stores opened since February 2, 2013; |

| | Ÿ | | approximately $10 million related to new brand additions and existing brand extensions primarily in the prestige color and skin category; and |

| --- | --- | --- | --- |

| | Ÿ | | approximately $5 million related to the addition of in-store prestige boutiques. |

| --- | --- | --- | --- |

During fiscal 2013, the average investment required to open a new Ulta store was approximately $1.0 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 store was approximately $1.2 million.

Capital expenditures for fiscal 2013, 2012 and 2011 and planned fiscal 2014 by major category are as follows:

| | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | 2014 | | | | Fiscal | | | | Fiscal | | | | Fiscal | | |

| (in millions) | | Budget | | | | 2013 | | | | 2012 | | | | 2011 | | |

| New, Remodeled, Relocated Stores | | $ | 117 | | | $ | 140 | | | $ | 124 | | | $ | 76 | |

| Merchandising | | | 28 | | | | 18 | | | | 19 | | | | 12 | |

| Information Systems | | | 50 | | | | 41 | | | | 30 | | | | 24 | |

| Supply Chain | | | 45 | | | | 10 | | | | 5 | | | | 9 | |

| Store Maintenance & Other | | | 25 | | | | 17 | | | | 11 | | | | 8 | |

| | | | | | | | | | | | | | | | | |

| | | $ | 265 | | | $ | 226 | | | $ | 189 | | | $ | 129 | |

After extensive research, we recognized an opportunity to better satisfy how women want to shop for beauty products.

We do not expect our 8.8% fiscal 2012 comparable store sales increase to continue into the future.

Our long-term annual comparable store sales increase target is 4% to 6%, including the impact of e-commerce sales starting in 2013.

We plan to continue to improve our operating results by leveraging our fixed costs and decreasing our selling, general and administrative expenses, as a percentage of our net sales.

operations plus the initial one month grand opening period.

E-commerce merchandise sales are excluded from comparable store sales.

The leverage in SG&A expense was primarily driven by:

Net sales increased $321.4 million, or 22.1%, to $1,776.2 million in fiscal 2011 compared to $1,454.8 million in fiscal 2010.

Gross profit increased $132.7 million, or 27.4%, to $616.8 million in fiscal 2011, compared to $484.1 million, in fiscal 2010.

| | Ÿ | | 70 basis points improvement in merchandise margin due primarily to improved promotional pricing and a shift in category mix towards higher margin product compared with fiscal 2010. |

| | Ÿ | | 70 basis points improvement in variable store and marketing expense leverage attributed to cost efficiencies and higher sales volume; and |

| | Ÿ | | 60 basis points in corporate overhead leverage, excluding the fiscal 2010 non-recurring compensation charge, attributed to higher sales volume. |

Pre-opening expenses increased $2.9 million, or 40.8%, to $10.0 million in fiscal 2011 compared to $7.1 million in fiscal 2010.

Net income increased $49.3 million, or 69.3%, to $120.3 million in fiscal 2011 compared to $71.0 million in fiscal 2010.

The increase in inventory is due to the addition of 101 net new stores opened since January 28, 2012 and incremental inventory related to the recently added prestige brand boutiques as well as strategic inventory investments to improve in-stock levels.

2012, compared to $128.6 million and $97.1 million in fiscal 2011 and 2010, respectively.

Any decrease in sales

| Operating lease obligations(1) | | $ | 1,208,527 | | | $ | 155,542 | | | $ | 313,609 | | | $ | 278,565 | | | $ | 460,811 | |

The expected volatility is based on volatilities of our stock and a peer group of publicly-traded companies.

We did not utilize the credit facility during fiscal [removed: 2012.][added: 2013, 2012 or 2011.]

##### [Table of Contents](#toc)

[removed: _One-Stop Shopping._] Our customers can satisfy all of their beauty needs at Ulta.

We offer a unique combination of [removed: over] [added: more than] 20,000 prestige and mass beauty products organized by category in a bright, open store environment.

The beauty products are arranged in self-service displays and full-service boutiques in a way that encourages our customers to [removed: play, touch, test, learn] [added: enjoy discovering new products] and [removed: explore.][added: services.]

[removed: _Our Value Proposition._] We believe our focus on delivering a compelling value proposition to our customers across all of our product categories [removed: is fundamental to] [added: drives] customer loyalty.

[removed: For example, we run] [added: We offer] frequent promotions and [removed: coupons for our mass brands,] [added: coupons, in store events,] gift-with-purchase [removed: offers and multi-product gift sets for our prestige brands, and] [added: offers,] a comprehensive customer loyalty [removed: program.][added: program and targeted promotions through our CRM platform.]

[removed: _An Off-Mall Location._] Our stores are [removed: predominately] [added: predominantly] located in convenient, high-traffic locations such as power centers.

Our [removed: displays,] store [removed: design] [added: design, fixtures] and open layout provide the flexibility to respond to consumer trends and changes in our merchandising strategy.

We were founded [added: as a Delaware corporation] in 1990 as a beauty retailer at a time when prestige, mass and salon products were sold through distinct channels — department stores for prestige products, drug stores and mass merchandisers for mass [removed: products,] [added: products] and salons and authorized retail outlets for professional hair care products.

We developed a unique [added: specialty] retail [removed: approach by] [added: concept] combining one-stop shopping, a compelling value proposition, convenient locations and [removed: an uplifting specialty retail experience.][added: a welcoming shopping environment.]

We believe the following competitive strengths differentiate us [removed: from our competitors] and are critical to our [removed: continuing] success:

[removed: _Differentiated merchandising strategy with broad appeal._] We believe our broad selection of merchandise across categories, price points and brands offers a unique shopping experience for our customers.

While the products we sell can be found in department stores, specialty stores, salons, drug stores and mass merchandisers, we offer all of these products in one retail format so that our [removed: customer] [added: customers] can find everything [removed: she needs] [added: they need] in one shopping trip.

We [removed: appeal to a wide range of customers by offering over] [added: offer more than] 500 brands, such as Bare Minerals and Urban Decay [added: prestige] cosmetics, [removed: Chanel] [added: Nyx] and [added: Maybelline mass cosmetics, Coty and] Estée Lauder fragrances, Redken and Matrix haircare, as well as Dermalogica and Philosophy skincare and Clarisonic and [removed: Hot Tools] [added: Ultra Chi] personal care appliances.

We also offer private label Ulta products in key [removed: categories,] [added: categories] such [removed: as,] [added: as] cosmetics, [removed: skin care] [added: skincare] and bath.

[removed: _Our unique customer experience._] We combine unmatched product breadth, value and convenience with the distinctive environment and experience of a specialty retailer.

Our [removed: well-trained] [added: well-trained, non-commissioned] beauty advisors [removed: are not commission-based and therefore can] provide unbiased and customized advice tailored to our customers’ needs.

Our customer service strategy, [removed: store locations, layout] [added: convenient locations] and [added: attractive store] design [added: combine to] create a unique shopping [removed: experience, which we believe increases both the frequency and length of our customers’ visits.][added: experience.]

[removed: _Loyal and active customer base._] Approximately [removed: eleven] [added: thirteen] million Ulta customers are members of our loyalty [removed: programs.][added: program.]

We [removed: utilize] [added: use] this valuable proprietary database to drive traffic, better understand our customers’ purchasing patterns and support new store site selection.

We regularly employ a broad range of media, including digital, catalogs and newspaper inserts [added: and targeted promotions driven by our CRM platform,] to drive traffic to our stores [removed: as well as entertain] and [removed: educate our customers.][added: website.]

[removed: _Strong vendor relationships across product categories._] We have strong, active relationships with over 300 vendors, including [removed: Estée Lauder,] Bare Minerals, Coty, [added: Estée Lauder,] L’Oréal and Procter & Gamble.

We believe the scope of these relationships, which span the three [removed: distinct] beauty categories of prestige, mass and salon and which have taken years to develop, [removed: create] [added: creates] a significant impediment for other retailers to replicate our model.

[removed: _Experienced management team__._] We have an experienced senior management team [removed: with extensive retail experience] that brings a creative merchandising approach and a disciplined operating philosophy to our business.

We continue to expand the depth of our management team at all levels and in all functional areas to support our [removed: growth strategy.][added: growth.]

[removed: Growth] [added: Five point growth] strategy

We intend to expand our presence as a leading retailer of beauty products and salon services by pursuing the following [removed: primary] growth strategies:

[removed: _Accelerate pace of new store expansion and grow to approximately 1,200 stores in the United States._] We believe that over the long-term, we have the potential to grow our store base to approximately 1,200 Ulta stores in the United States.

We opened [removed: 102] [added: 127] new stores during fiscal [removed: 2012,] [added: 2013,] representing a [removed: 23%] [added: 22%] increase in square footage growth and a [removed: 67%] [added: 25%] increase in the number of new stores opened compared to [removed: 61] [added: 102] new stores in fiscal [removed: 2011.][added: 2012.]

We also remodeled [removed: 21] [added: 7] stores and relocated [removed: 3] [added: 4] stores in fiscal [removed: 2012.][added: 2013.]

| | | [removed: 2008 | | | |] 2009 | | | | 2010 | | | | 2011 | | | | 2012 | | | [added: | 2013 | | |]

| Total stores beginning of period | | | [removed: 249 | | | |] 311 | | | | 346 | | | | 389 | | | | 449 | | [added: | | 550 | |]

| Stores opened | | | [removed: 63 | | | |] 37 | | | | 47 | | | | 61 | | | | 102 | | [added: | | 127 | |]

| Stores closed | | | [removed: (1] [added: (2] | ) | | | [removed: (2] [added: (4] | ) | | | [removed: (4] [added: (1] | ) | | | (1 | ) | | | [removed: (1] [added: (2] | ) |

| Total stores end of period | | | [removed: 311 | | | |] 346 | | | | 389 | | | | 449 | | | | 550 | | [added: | | 675 | |]

| Stores remodeled | | | [removed: 8 | | | |] 6 | | | | 13 | | | | 17 | | | | 21 | | [added: | | 7 | |]

| Total square footage | | | [removed: 3,240,579 | | | |] 3,613,840 | | | | 4,094,808 | | | | 4,747,148 | | | | 5,847,393 | | [added: | | 7,158,286 | |]

| Average square footage per store | | | [removed: 10,420 | | | |] 10,445 | | | | 10,526 | | | | 10,573 | | | | 10,632 | | [added: | | 10,605 | |]

[removed: _Expanding our offering by adding new products, brands and service._] Our strategy is to continue to expand our portfolio of products, brands and services both by capitalizing on the success of our existing vendor relationships and by identifying and developing new vendor relationships.

We plan to [removed: continue expanding our portfolio of services in the future by establishing] [added: establish] Ulta as a leading salon authority [added: by] providing high quality and consistent services from our licensed stylists and [removed: introducing new beauty-related] [added: by expanding our portfolio of] services.

[removed: _Enhancing our successful loyalty programs._] We have approximately [removed: eleven] [added: thirteen] million active Ulta customers who are enrolled in our loyalty [removed: programs.][added: program.]

_One-Stop Shopping_.

_Our Value Proposition_.

We offer frequent promotions and coupons, in store events, gift-with-purchase offers, a comprehensive customer loyalty program and targeted promotions through our Customer Relationship Management platform (CRM).

_An Off-Mall Location_.

The following description of our business should be read in conjunction with the information contained in our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 and the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

_D__ifferentiated merchandising strategy with broad appeal_.

_Our unique customer experience_.

_L__oyal and active customer base_.

_Strong vendor relationships across product categories_.

_Experienced management team_.

_Growing stores to approximately 1,200 locations_.

Our fiscal 2013 new store program was comprised of approximately 70% new stores opened in existing shopping centers and 30% in new shopping centers.

In fiscal 2013 approximately one third of new stores were in new markets and two thirds were filling in existing markets.

_Expanding our offering by adding new products, brands and services_.

Fiscal 2013 brand additions included IT Cosmetics, Lipstick Queen, Mally, Meaningful Beauty and Perricone.

We continue to roll out Clinique and Lancôme boutiques, ending the year with 100 stores with Clinique boutiques and 105 stores with Lancôme boutiques.

_Enhancing our successful loyalty program_.

In early fiscal 2014, we converted all of our loyalty customers to ULTAmate Rewards, a points-based program.

The customer data captured by our loyalty program, together with our CRM platform, also enables customer segmentation and one-on-one marketing communications tailored to our customers’ unique beauty needs.

_Broadening our marketing reach_.

In addition, we continue to enhance in-store marketing and special events to educate customers and drive traffic.

We believe Ulta has a significant opportunity to attract new customers to our stores and website and we expect to increase our marketing efforts to drive greater awareness of our brand.

_Expanding our digital business_.

We intend to establish ourselves as a leading online beauty resource by providing our customers with a rich online

In 2013 we re-launched ulta.com with enhanced content and capabilities and believe we are well positioned to capitalize on the growth of e-commerce sales of beauty products.

We expect the net investment to open a new store in 2014 to increase due to increases in material and labor costs resulting from a stronger commercial and residential building environment compared to the last several years.

Approximately 95% of our store base features our most current store design.

most salons also providing facials and waxing.

Our e-commerce business represented approximately 4% of our total sales and grew 74% in fiscal 2013.

We are confident our e-commerce business will continue to deliver rapid growth in in the future, but will likely begin to moderate off a larger base.

During 2013 we expanded our e-commerce distribution capabilities by adding fulfillment to the Chambersburg, Pennsylvania distribution center.

Ulta brand products represented approximately 5% of total company sales in fiscal 2013.

| | Ÿ | | Fragrance; |

| | Ÿ | | Nail polish and nailcare products; |

| | Ÿ | | Men’s skincare, haircare and fragrance products; |

| --- | --- | --- | --- |

| --- | --- | --- | --- |

In early fiscal 2014, we converted all of our

loyalty customers to ULTAmate Rewards, a points-based program.

Throughout 2013 we built upon our CRM capabilities to deliver targeted marketing campaigns to our loyalty program members.

After extensive research, we recognized an opportunity to better satisfy how women want to shop for beauty products.

While we are currently executing on the core elements of our business strategy, we plan to continually refine our approach in order to further enhance the shopping experience for our customers.

We cater to the woman who loves to indulge in shopping for beauty products as well as the woman who is time constrained and comes to the store knowing exactly what she wants.

Our distribution infrastructure consistently delivers an in-stock rate of greater than 95%, allowing our customers to find the products they are looking for.

_Retail format poised to benefit from shifting channel dynamics._ Over the past several years, the approximately $100 billion beauty products and salon services industry has experienced significant changes, including a shift in how manufacturers distribute and customers purchase beauty products.

This has enabled the specialty retail channel to grow at a greater rate than the industry overall since at least 2000.

We are capitalizing on these trends by offering a primarily off-mall, service-oriented specialty retail concept with a comprehensive product mix across categories and price points.

We have been successful in opening new stores in diverse markets across the United States, allowing us to accelerate our new store growth rates consistent with our long-term target of 15% to 20%.

Our fiscal 2012 and 2011 new store program represents primarily new stores opened in existing centers compared to prior years when the new store openings were more balanced between new and existing centers.

This trend is expected to continue for several more years.

The shift to more existing centers had no impact on new store performance.

Brand additions include Coach, Dolce and Gabbana, Cartier, Fendi, Chloe, Marc Jacobs, Oscar de la Renta and Thierry Mugler in fragrance; Dermalogica, Philosophy, Dr. Brandt, Juice Beauty, Vichy and La Roche-Posay; Benefit, Butter London, CK One, and Laura Geller in cosmetics; and Carol’s Daughter, DermOrganic, Living Proof, and Ouidad in hair care.

We currently operate two loyalty programs, ULTAmate Rewards and The Club at Ulta.

We have been converting loyalty members from The Club at Ulta, a certificate program, to the ULTAmate Rewards program which is a points-based program.

Currently, approximately half of our stores are on the points-based program and we expect to roll out this program to additional markets in the future.

Both loyalty programs provide a robust database of customer and shopping behavior.

During 2012, we implemented a new Customer Relationship Management tool to enable customer segmentation and one-on-one marketing communications tailored to our customers’ unique beauty needs.

Our national magazine print advertising campaign exposes potential new customers to our retail and digital businesses.

Through our continued enhancements and multi-channel marketing initiatives, we believe we are well positioned to capitalize on the growth of Internet sales of beauty products.

_Improving our operating margin._ We plan to continue to improve our operating results by leveraging our existing infrastructure and continually optimizing the efficiency of our operations.

We will continue to make investments in our information systems to enable us to enhance our efficiency in areas such as merchandise planning and allocation, inventory management, distribution and point of sale (POS) functions.

We believe we will continue to improve our profitability by reducing our operating expenses as a percentage of net sales, in particular supply chain, general corporate overhead and fixed store expenses.

Distribution for beauty products is varied.

Prestige products are typically purchased in department or specialty stores, while mass products and staple items are generally purchased at drug stores, food retail stores and mass merchandisers.

In addition, salon haircare products are sold in salons and authorized professional retail outlets.

We opened 102 stores in fiscal 2012 and the average investment required to open a new Ulta store is

Our newer store prototype, including new stores and remodels, represents approximately 90% of our store base.

We continue to evolve this program to update older stores with a consistent look and experience to drive additional customer traffic and increase our sales and profitability.

The remodel store selection process is subject to the same discipline as our new store real estate decision process.

Our focus is to remodel the oldest, highest performing stores first, subject to criteria such as rate of return, lease terms, market performance and quality of real estate.

We also consider remodeling all relevant stores in a particular geography when appropriate, which allows us to present a consistent brand identity across an entire market.

We established Ulta.com to give our customers an integrated multi-channel buying experience by providing them with an opportunity to access product offerings and information beyond our brick-and-mortar retail stores.

find everything she needs in one stop.

For example, we run frequent promotions and gift coupons for our mass brands, gift-with-purchase offers and multi-product gift sets for our prestige brands, and a comprehensive customer loyalty program.

| | Ÿ | | Fragrance for both men and women; |

There continues to be vendor consolidation within the beauty products industry.

The Club at Ulta is a certificate program offering customers reward certificates for free beauty products based on their level of purchases.

Customers earn reward certificates to redeem during specific promotional periods throughout the year.

We expect to convert all loyalty program members to the ULTAmate Rewards program over time.

Both loyalty programs provide us with rich customer data which continue to fuel our direct marketing programs, with the long term goal of driving higher share of our customers’ spend in the beauty category.

| --- | --- |

On August 8, 2013, the plaintiff asked the court to certify the proposed class and the Company opposed the plaintiff’s request and is waiting for the court to issue a decision.

| | | For the fiscal year ended February [removed: 2, 2013] [added: 1, 2014] |

| Delaware _(State or other jurisdiction [removed: of_ _incorporation] [added: of incorporation] or organization)_ | | 36-3685240 _(I.R.S. Employer_ _Identification No.)_ |

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the common stock on [removed: July 28, 2012,] [added: August 3, 2013,] as reported on the NASDAQ Global Select Market, was approximately [removed: $4,199,998,000.][added: $4,815,407,000.]

Shares of the registrant’s common stock held by each executive officer and director and by each entity or person that, to the registrant’s knowledge, owned 5% or more of the registrant’s outstanding common stock as of [removed: July 28, 2012] [added: August 3, 2013] have been excluded in that such persons may be deemed to be affiliates of the registrant.

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of March [removed: 28, 2013] [added: 27, 2014] was [removed: 63,670,003] [added: 64,295,291] shares.

| Item 1. | | [removed: [Business](#tx466694_2)] [added: [Business](#tx661459_2)] | | | 3 | |

| Item 1A. | | [Risk [removed: Factors](#tx466694_3)] [added: Factors](#tx661459_3)] | | | 12 | |

| Item 1B. | | [Unresolved Staff [removed: Comments](#tx466694_4)] [added: Comments](#tx661459_4)] | | | [removed: 23] [added: 24] | |

| Item 2. | | [removed: [Properties](#tx466694_5)] [added: [Properties](#tx661459_5)] | | | [removed: 24] [added: 25] | |

| Item 3. | | [Legal [removed: Proceedings](#tx466694_6)] [added: Proceedings](#tx661459_6)] | | | [removed: 25] [added: 26] | |

| Item 4. | | [Mine Safety [removed: Disclosures](#tx466694_7)] [added: Disclosures](#tx661459_7)] | | | [removed: 25] [added: 26] | |

| Item 5. | | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#tx466694_9)] [added: Securities](#tx661459_9)] | | | [removed: 26] [added: 28] | |

| Item 6. | | [Selected Financial [removed: Data](#tx466694_10)] [added: Data](#tx661459_10)] | | | [removed: 29] [added: 31] | |

| Item 7. | | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#tx466694_11)] [added: Operations](#tx661459_11)] | | | [removed: 30] [added: 32] | |

| Item 7A. | | [Quantitative and Qualitative Disclosures about Market [removed: Risk](#tx466694_12)] [added: Risk](#tx661459_12)] | | | [removed: 39] [added: 43] | |

| Item 8. | | [Financial Statements and Supplementary [removed: Data](#tx466694_13)] [added: Data](#tx661459_13)] | | | [removed: 40] [added: 43] | |

| Item 9. | | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#tx466694_14)] [added: Disclosure](#tx661459_14)] | | | [removed: 40] [added: 43] | |

| Item 9A. | | [Controls and [removed: Procedures](#tx466694_15)] [added: Procedures](#tx661459_15)] | | | [removed: 40] [added: 43] | |

| Item 9B. | | [Other [removed: Information](#tx466694_16)] [added: Information](#tx661459_16)] | | | [removed: 40] [added: 44] | |

| [Part [removed: III](#tx466694_17)] [added: III](#tx661459_17)] | | | | | | [removed: [](#tx466694_17)] [added: [](#tx661459_17)] |

| Item 10. | | [Directors, Executive Officers and Corporate [removed: Governance](#tx466694_18)] [added: Governance](#tx661459_18)] | | | [removed: 41] [added: 44] | |

| Item 11. | | [Executive [removed: Compensation](#tx466694_19)] [added: Compensation](#tx661459_19)] | | | [removed: 41] [added: 44] | |

| Item 12. | | [Security Ownership and Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#tx466694_20)] [added: Matters](#tx661459_20)] | | | [removed: 41] [added: 44] | |

| Item 13. | | [Certain Relationships and Related Transactions, and Director [removed: Independence](#tx466694_21)] [added: Independence](#tx661459_21)] | | | [removed: 41] [added: 44] | |

| Item 14. | | [Principal Accountant Fees and [removed: Services](#tx466694_22)] [added: Services](#tx661459_22)] | | | [removed: 41] [added: 45] | |

| Item 15. | | [Exhibits and Financial Statement [removed: Schedules](#tx466694_24)] [added: Schedules](#tx661459_24)] | | | [removed: 42] [added: 46] | |

Such forward-looking statements are subject to various risks and uncertainties, which include, without limitation: the impact of weakness in the economy; changes in the overall level of consumer spending; changes in the wholesale cost of our products; the possibility that we may be unable to compete effectively in our highly competitive markets; the possibility that our continued opening of new stores could strain our resources and have a material adverse effect on our business and financial performance; the possibility that new store openings and existing locations may be impacted by developer or co-tenant issues; the possibility that the capacity of our distribution and order fulfillment infrastructure may not be adequate to support our recent growth and expected future growth plans; the possibility of material disruptions to our information systems; weather conditions that could negatively impact sales; our ability to attract and retain key executive personnel; our ability to successfully execute and implement our common stock repurchase program; [added: our ability to sustain our growth plans] and [added: successfully develop and implement our long-range strategic and financial plan; and] other risk factors detailed in our public filings with the Securities and Exchange Commission (the “SEC”), including risk factors contained in Item 1A, “Risk Factors” of this Annual Report on Form 10-K for the year ended February [removed: 2, 2013.][added: 1, 2014.]

References in the following discussion to “we”, “us”, “our”, “the Company”, [removed: “Ulta”] [added: “Ulta”, “Ulta Beauty”] and similar references mean Ulta Salon, Cosmetics & Fragrance, Inc. [added: and its consolidated subsidiary, Ulta Inc.] unless otherwise expressly stated or the context otherwise requires.

10-K 1 d661459d10k.htm 10-K

| [Part I](#tx661459_1) | | | | | | [](#tx661459_1) |

| [Part II](#tx661459_8) | | | | | | [](#tx661459_8) |

| [Part IV](#tx661459_23) | | | | | | [](#tx661459_23) |

10-K 1 d466694d10k.htm 10-K

| [Part I](#tx466694_1) | | | | | | [](#tx466694_1) |

| [Part II](#tx466694_8) | | | | | | [](#tx466694_8) |

| [Part IV](#tx466694_23) | | | | | | [](#tx466694_23) |

Our retail stores are [removed: predominately] [added: predominantly] located in convenient, high-traffic, locations such as power centers.

As of February [removed: 2, 2013,] [added: 1, 2014,] we operated [removed: 550] [added: 675] retail stores in [removed: 45] [added: 46] states, as shown in the table below:

| Alabama | | | [removed: 10] [added: 11] | |

| Arkansas | | | [removed: 4] [added: 5] | |

| California | | | [removed: 55] [added: 73] | |

| Colorado | | | [removed: 12] [added: 13] | |

| Connecticut | | | [removed: 5] [added: 7] | |

| Florida | | | [removed: 39] [added: 45] | |

| Georgia | | | [removed: 21] [added: 24] | |

| Idaho | | | [removed: 3] [added: 4] | |

| Illinois | | | [removed: 38] [added: 44] | |

| Indiana | | | [removed: 10] [added: 13] | |

| Kansas | | | [removed: 3] [added: 4] | |

| Kentucky | | | [removed: 6] [added: 8] | |

| Louisiana | | | [removed: 9] [added: 11] | |

| Maryland | | | [removed: 9] [added: 12] | |

| Massachusetts | | | [removed: 7] [added: 8] | |

| Michigan | | | [removed: 23] [added: 34] | |

| Mississippi | | | [removed: 4] [added: 5] | |

| Missouri | | | [removed: 9] [added: 15] | |

| Montana | | | [removed: 1] [added: 4] | |

| Nevada | | | [removed: 6] [added: 7] | |

| New Hampshire | | | [removed: 2] [added: 4] | |

| New Jersey | | | [removed: 14] [added: 16] | |

| New Mexico | | | [removed: 1] [added: 2] | |

| New York | | | [removed: 19] [added: 22] | |

| North Carolina | | | [removed: 17] [added: 21] | |

| Ohio | | | [removed: 18] [added: 26] | |

| Oregon | | | [removed: 6] [added: 8] | |

| Pennsylvania | | | [removed: 20] [added: 23] | |

| Rhode Island | | | [removed: 1] [added: 2] | |

| South Carolina | | | [removed: 10] [added: 12] | |

| Tennessee | | | [removed: 8] [added: 10] | |

| Texas | | | [removed: 67] [added: 72] | |

| Utah | | | [removed: 6] [added: 7] | |

| Virginia | | | [removed: 14] [added: 19] | |

| Washington | | | [removed: 9] [added: 13] | |

| West Virginia | | | [removed: 1] [added: 2] | |

| Wisconsin | | | [removed: 7] [added: 11] | |

As of February [removed: 2, 2013,] [added: 1, 2014,] we operated three distribution facilitates located in Romeoville, Illinois, Phoenix, Arizona and Chambersburg, Pennsylvania.

| South Dakota | | | 2 | |

| Total | | | 675 | |

We are embarking on a multi-year supply chain project beginning in 2014 which will include adding additional capacity, including a fourth distribution center expected to open in 2015, and system improvements to support expanded omni-channel capabilities.

In 2013 the Company expanded its office space with an additional 42,000 square feet located at its current headquarters.

This additional office space has a lease that will expire September 30, 2016 with an option to extend to August 31, 2018.

| Total | | | 550 | |

On [removed: February 14, 2013, the Company] [added: June 24, 2013 we] announced the resignation of [removed: Carl S.][added: Dennis K.]

[removed: Rubin] [added: Eck] as [removed: President,] [added: Interim] Chief Executive Officer [removed: and Director] [added: of Ulta] and the appointment of [removed: Dennis K.][added: Mary N.]

| [removed: Dennis K. Eck] [added: Mary N. Dillon] | | [removed: 69] [added: 52] | | [removed: Interim] Chief Executive Officer and [removed: Chairman] [added: member] of the Board of Directors |

| Scott M. Settersten | | [removed: 52] [added: 53] | | Chief Financial Officer and Assistant Secretary |

| Robert S. Guttman | | [removed: 60] [added: 61] | | Senior Vice President, General Counsel & Secretary |

[removed: and] [added: | Janet Taake | | 56 | |] Chief Merchandising Officer [removed: in 2004.][added: |]

Settersten._ Mr. Settersten was named Chief Financial Officer and Assistant Secretary [removed: on] [added: in] March [removed: 12,] 2013 after having previously served as Acting Chief Financial Officer and Assistant Secretary since October 18, 2012.

| --- | --- |

Dillon as our Chief Executive Officer and member of the Board of Directors.

Mr. Eck remained a member of the Company’s Board of Directors.

| Jeffrey J. Childs | | 56 | | Chief Human Resources Officer |

| David Kimbell | | 47 | | Chief Marketing Officer |

| Jeffrey T. Severts | | 43 | | Senior Vice President, Marketing |

_Mary N.

Dillon._ Ms. Dillon was named Chief Executive Officer effective July 2013.

Prior to joining Ulta Beauty, she was President and Chief Executive Officer and a Director of U.S. Cellular since June 2010.

From 2005 to 2010, Ms. Dillon served as Global Chief Marketing Officer and Executive Vice President for McDonald’s Corporation.

Prior to joining McDonald’s Corporation, she held various positions at PepsiCo, including President of the Quaker Foods division.

Ms. Dillon served as a member of the Board of Directors for Target Corporation from 2007 to 2013.

_Jeffrey J.

Childs_.

Mr. Childs was named Chief Human Resource Officer in October 2013.

Prior to joining Ulta Beauty, he was Executive Vice President and Chief Human Resource Officer at U.S. Cellular after joining as Senior Vice President of Human Resources in 2004.

From 2001 to 2004, he was President and Owner of Childs Consulting Services.

Previously, he served from 1979 to 2001 in a variety of human resources, marketing, sales, and operations roles at AT&T, including Vice President, Human Resources and Corporate Services.

_David Kimbell._ Mr. Kimbell was named Chief Marketing Officer in February 2014.

Prior to joining Ulta Beauty, he was Chief Marketing Officer and Executive Vice President at U.S. Cellular since February 2011.

From 2008 to 2011, Mr. Kimbell served as Chief Marketing Officer and Senior Vice President of Seventh Generation, a producer of environmentally friendly household and baby care products.

Prior to that from 2001 to 2008, Mr. Kimbell held various positions at PepsiCo, Quaker Food Division, including Vice President of Marketing.

Mr. Kimbell held a number of marketing roles for several brands at The Procter and Gamble Company from 1995 to 2001.

_Jeffrey T.

Severts._ Mr. Severts has served as Senior Vice President, Marketing since November 2012.

Prior to joining Ulta Beauty, he was the Chief Marketing & Services Officer for Best Buy Europe since June 2010.

Prior to his role with Best Buy Europe, he held numerous other senior marketing and management roles with Best Buy USA since 2001.

Before that time, Mr. Severts served as Vice President of Marketing and Management for Techies.Com, Inc. from 1999 to 2001.

Mr. Severts held a number of marketing roles for several brands at General Mills, Inc. from 1992 to 1999.

_Janet Taake._ Ms. Taake was named Chief Merchandising Officer in January 2014, after serving as Senior Vice President – Merchandising since December 2008.

Prior to joining Ulta Beauty, Ms. Taake was Senior Vice President and Chief Merchandising Officer for Babies R Us from 2006 to 2008.

From 2004 to 2006, Ms. Taake served as Vice President and General Merchandise Manager – Home Fashions for Sears Corporation.

From 1998 to 2006, she served in various senior merchandise management roles with Mervyn’s (Target Corporation).

Prior to 1998, Ms. Taake served in senior merchandise management and buyer roles with various national and regional retailers.

##### [Table of Contents](#toc)

Eck as our Interim Chief Executive Officer.

| Carl S. Rubin | | 53 | | Former President, Chief Executive Officer and Director |

_Dennis K.

Eck_.

Mr. Eck was named Interim Chief Executive Officer on February 21, 2013 and has served as Chairman of the Board of Directors and a director of Ulta since 2003.

Prior to that, Mr. Eck served in various executive roles with Coles Myer, one of Australia’s largest retailers, from 1994 to 2001 where he was Chief Executive Officer and a member of the board of Coles Myer LTD Australia from November 1997 to September 2001.

Prior to 1994, Mr. Eck served in various executive roles with Vons Companies, Inc. and American Stores, Inc.

_Carl S.

Rubin._ Mr. Rubin was our Chief Executive Officer from September 2010 to February 2013.

Prior to joining Ulta, Mr. Rubin was President of the North American Retail division of Office Depot Inc. from January 2006 to April 2010.

Mr. Rubin first joined Office Depot as Executive Vice President, Chief Marketing Officer

From 1998 to 2004, Mr. Rubin served at Accenture, including three years as a partner, working with a range of retail clients across department store, specialty store and e-commerce venues.

Prior to 1998, Mr. Rubin held a number of senior merchandising and general management positions in the specialty retail and department store industry including Federated Department Stores.

Mr. Rubin was a member of the executive committee of the board of directors of the National Retail Federation from January 2007 through March 2010.

The following table sets forth the high and low sales prices for our common stock on the NASDAQ Global Select Market during fiscal years [removed: 2012] [added: 2013] and [removed: 2011:][added: 2012:]

| First quarter | | [added: $] | [removed: $95.56] [added: 95.56] | | | $ | 76.15 | |

| Fiscal Year [removed: 2011] [added: 2013] | | High | | | | Low | | |

The last reported sale price of our common stock on the NASDAQ Global Select Market on March [removed: 28, 2013] [added: 27, 2014] was [removed: $81.17] [added: $98.75] per share.

As of March [removed: 28, 2013,] [added: 27, 2014,] we had [removed: 77] [added: 56] holders of record of our common stock.

[removed: _Sales] [added: _Recent Sales] of Unregistered Securities_

The following table provides information about Ulta common stock that may be issued under our equity compensation plans as of February [removed: 2, 2013.][added: 1, 2014.]

Set forth below is a graph comparing the cumulative total stockholder return on Ulta’s common stock with the NASDAQ Global Select Market Composite Index (NQGS) and the S&P Retail Index (RLX) for the period covering [removed: Ulta’s first trading day on October 25, 2007] [added: January 30, 2009] through the end of Ulta’s fiscal year ended February [removed: 2, 2013.][added: 1, 2014.]

The graph assumes an investment of $100 made at the closing of trading on [removed: October 25, 2007,] [added: January 30, 2009,] in (i) Ulta’s common stock, (ii) the stocks comprising the NQGS and (iii) stocks comprising the RLX.

[removed: ][added: ]

| First quarter | | $ | 99.66 | | | $ | 73.96 | |

| Second quarter | | | 103.47 | | | | 84.13 | |

| Third quarter | | | 128.85 | | | | 97.24 | |

| Fourth quarter | | | 131.50 | | | | 80.93 | |

On March 18, 2013, we announced the approval of a stock repurchase program pursuant to which the Company is authorized to repurchase up to $150 million of the Company’s common stock in the open market, in privately negotiated transactions, or otherwise, at prices that the Company deems appropriate and subject to market conditions, applicable law and other factors deemed relevant in the Company’s sole discretion.

The stock repurchase program does not have an expiration date and may be suspended or discontinued at any time.

No repurchases of our common stock were completed during the fourth quarter of 2013.

As of February 1, 2014, $112.7 million remained available under the $150 million program.

| Equity compensation plans approved by security holders | | | 1,089,705 | | | $ | 56.94 | | | | 4,691,043 | |

| Total | | | 1,089,705 | | | $ | 56.94 | | | | 4,691,043 | |

| First quarter | | $ | 53.19 | | | $ | 36.73 | |

| Second quarter | | | 68.70 | | | | 49.61 | |

| Third quarter | | | 72.86 | | | | 48.89 | |

| Fourth quarter | | | 78.80 | | | | 64.09 | |

None.

| Equity compensation plans approved by security holders | | | 1,806,801 | | | $ | 41.60 | | | | 4,916,248 | |

| Total | | | 1,806,801 | | | $ | 41.60 | | | | 4,916,248 | |

The following table presents our selected [added: consolidated] financial data.

| | | February [added: 1, 2014 | | | | February] 2, 2013 | | | | January 28, 2012 | | | | January 29, 2011 | | | | January 30, 2010 | | | [removed: | January 31, 2009 | | |]

| Net sales(2) | | $ | [removed: 2,220,256] [added: 2,670,573] | | | $ | [removed: 1,776,151] [added: 2,220,256] | | | $ | [removed: 1,454,838] [added: 1,776,151] | | | $ | [removed: 1,222,771] [added: 1,454,838] | | | $ | [removed: 1,084,646] [added: 1,222,771] | |

| Cost of sales | | | [removed: 1,436,582] [added: 1,729,325] | | | | [removed: 1,159,311] [added: 1,436,582] | | | | [removed: 970,753] [added: 1,159,311] | | | | [removed: 846,202] [added: 970,753] | | | | [removed: 752,939] [added: 846,202] | |

| Gross profit | | | [removed: 783,674] [added: 941,248] | | | | [removed: 616,840] [added: 783,674] | | | | [removed: 484,085] [added: 616,840] | | | | [removed: 376,569] [added: 484,085] | | | | [removed: 331,707] [added: 376,569] | |

| Selling, general and administrative expenses | | | [removed: 488,880] [added: 596,390] | | | | [removed: 410,658] [added: 488,880] | | | | [removed: 358,106] [added: 410,658] | | | | [removed: 302,413] [added: 358,106] | | | | [removed: 271,095] [added: 302,413] | |

| Pre-opening expenses | | | [removed: 14,816] [added: 17,270] | | | | [removed: 9,987] [added: 14,816] | | | | [removed: 7,095] [added: 9,987] | | | | [removed: 6,003] [added: 7,095] | | | | [removed: 14,311] [added: 6,003] | |

| Operating income | | | [removed: 279,978] [added: 327,588] | | | | [removed: 196,195] [added: 279,978] | | | | [removed: 118,884] [added: 196,195] | | | | [removed: 68,153] [added: 118,884] | | | | [removed: 46,301] [added: 68,153] | |

| Interest [added: (income)] expense | | | [removed: 185] [added: (118] | [added: )] | | | [removed: 587] [added: 185] | | | | [removed: 755] [added: 587] | | | | [removed: 2,202] [added: 755] | | | | [removed: 3,943] [added: 2,202] | |

| Income before income taxes | | | [removed: 279,793] [added: 327,706] | | | | [removed: 195,608] [added: 279,793] | | | | [removed: 118,129] [added: 195,608] | | | | [removed: 65,951] [added: 118,129] | | | | [removed: 42,358] [added: 65,951] | |

| Income tax expense | | | [removed: 107,244] [added: 124,857] | | | | [removed: 75,344] [added: 107,244] | | | | [removed: 47,099] [added: 75,344] | | | | [removed: 26,595] [added: 47,099] | | | | [removed: 17,090] [added: 26,595] | |

| Net income | | $ | [removed: 172,549] [added: 202,849] | | | $ | [removed: 120,264] [added: 172,549] | | | $ | [removed: 71,030] [added: 120,264] | | | $ | [removed: 39,356] [added: 71,030] | | | $ | [removed: 25,268] [added: 39,356] | |

| Basic | | $ | [removed: 2.73] [added: 3.17] | | | $ | [removed: 1.96] [added: 2.73] | | | $ | [removed: 1.20] [added: 1.96] | | | $ | [removed: 0.68] [added: 1.20] | | | $ | [removed: 0.44] [added: 0.68] | |

| Diluted | | $ | [removed: 2.68] [added: 3.15] | | | $ | [removed: 1.90] [added: 2.68] | | | $ | [removed: 1.16] [added: 1.90] | | | $ | [removed: 0.66] [added: 1.16] | | | $ | [removed: 0.43] [added: 0.66] | |

| Basic | | | [removed: 63,250] [added: 63,992] | | | | [removed: 61,259] [added: 63,250] | | | | [removed: 58,959] [added: 61,259] | | | | [removed: 57,915] [added: 58,959] | | | | [removed: 57,425] [added: 57,915] | |

| Diluted | | | [removed: 64,396] [added: 64,461] | | | | [removed: 63,334] [added: 64,396] | | | | [removed: 61,288] [added: 63,334] | | | | [removed: 59,237] [added: 61,288] | | | | [removed: 58,967] [added: 59,237] | |

| Dividends declared per common share | | $ | [removed: 1.00] [added: —] | | | $ | [removed: —] [added: 1.00] | | | $ | — | | | $ | — | | | $ | — | |

| [removed: Comparable] [added: Retail and salon comparable] store sales [removed: increase(3)] | | | [removed: 8.8] [added: 6.1] | % | | | [removed: 10.9] [added: 8.8] | % | | | [removed: 11.0] [added: 10.9] | % | | | [removed: 1.4] [added: 11.0] | % | | | [removed: 0.2] [added: 1.4] | % |

| Number of stores end of year | | | [removed: 550] [added: 675] | | | | [removed: 449] [added: 550] | | | | [removed: 389] [added: 449] | | | | [removed: 346] [added: 389] | | | | [removed: 311] [added: 346] | |

| Total square footage end of year | | | [removed: 5,847,393] [added: 7,158,286] | | | | [removed: 4,747,148] [added: 5,847,393] | | | | [removed: 4,094,808] [added: 4,747,148] | | | | [removed: 3,613,840] [added: 4,094,808] | | | | [removed: 3,240,579] [added: 3,613,840] | |

| Total square footage per store(4) | | | [removed: 10,632] [added: 10,605] | | | | [removed: 10,573] [added: 10,632] | | | | [removed: 10,526] [added: 10,573] | | | | [removed: 10,445] [added: 10,526] | | | | [removed: 10,420] [added: 10,445] | |

| Average total square footage(5) | | | [removed: 5,315,653] [added: 6,555,960] | | | | [removed: 4,413,236] [added: 5,315,653] | | | | [removed: 3,811,597] [added: 4,413,236] | | | | [removed: 3,459,628] [added: 3,811,597] | | | | [removed: 2,960,355] [added: 3,459,628] | |

| Net sales per average total square foot(6) | | $ | [removed: 418] [added: 407] | | | $ | [removed: 402] [added: 418] | | | $ | [removed: 382] [added: 402] | | | $ | [removed: 353] [added: 382] | | | $ | [removed: 366] [added: 353] | |

| Capital expenditures | | | [removed: 188,578] [added: 226,024] | | | | [removed: 128,636] [added: 188,578] | | | | [removed: 97,115] [added: 128,636] | | | | [removed: 68,105] [added: 97,115] | | | | [removed: 110,863] [added: 68,105] | |

| Depreciation and amortization | | | [removed: 88,233] [added: 106,283] | | | | [removed: 75,931] [added: 88,233] | | | | [removed: 64,936] [added: 75,931] | | | | [removed: 62,166] [added: 64,936] | | | | [removed: 51,445] [added: 62,166] | |

| Cash and cash equivalents | | $ | [removed: 320,475] [added: 419,476] | | | $ | [removed: 253,738] [added: 320,475] | | | $ | [removed: 111,185] [added: 253,738] | | | $ | [removed: 4,017] [added: 111,185] | | | $ | [removed: 3,638] [added: 4,017] | |

| Working capital | | | [removed: 568,257] [added: 735,886] | | | | [removed: 415,377] [added: 568,257] | | | | [removed: 241,032] [added: 415,377] | | | | [removed: 136,417] [added: 241,032] | | | | [removed: 159,695] [added: 136,417] | |

| Property and equipment, net | | | [removed: 483,059] [added: 595,736] | | | | [removed: 376,985] [added: 483,059] | | | | [removed: 326,099] [added: 376,985] | | | | [removed: 290,861] [added: 326,099] | | | | [removed: 292,224] [added: 290,861] | |

| Total assets | | | [removed: 1,275,249] [added: 1,602,727] | | | | [removed: 957,217] [added: 1,275,249] | | | | [removed: 730,488] [added: 957,217] | | | | [removed: 553,635] [added: 730,488] | | | | [removed: 568,932] [added: 553,635] | |

| Total stockholders’ equity | | | [removed: 786,942] [added: 1,003,094] | | | | [removed: 584,704] [added: 786,942] | | | | [removed: 402,533] [added: 584,704] | | | | [removed: 292,608] [added: 402,533] | | | | [removed: 244,968] [added: 292,608] | |

| (6) | Net sales per average total square foot was calculated by dividing net sales for the year by the average square footage for those stores open during each year. [added: The sales for the 53rd week of fiscal 2012 were approximately $55 million.] |

| Comparable store sales increase:(3) | | | | | | | | | | | | | | | | | | | | |

| E-commerce comparable store sales | | | 76.6 | % | | | 30.7 | % | | | 37.8 | % | | | 76.8 | % | | | 45.4 | % |

| | | | | | | | | | | | | | | | | | | | | |

| Total comparable store sales increase | | | 7.9 | % | | | 9.3 | % | | | 11.5 | % | | | 11.9 | % | | | 1.9 | % |

| (2) | Fiscal 2012 was a 53-week operating year. The sales for the 53rd week of fiscal 2012 were approximately $55 million. |

| Total debt | | | — | | | | — | | | | — | | | | — | | | | 106,047 | |

| (2) | Fiscal 2012 was a 53-week operating year and the 53rd week represented approximately $40 million in net sales. |

Based on management’s evaluation as of February [removed: 2, 2013,] [added: 1, 2014,] our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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 [removed: 2, 2013,] [added: 1, 2014,] based on the criteria established in “Internal Control – Integrated Framework” [added: (1992 Framework)] issued by the Committee of Sponsoring Organizations of the Treadway Commission (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 [removed: 2, 2013.][added: 1, 2014.]

Ernst & Young LLP, 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 [removed: 2, 2013] [added: 1, 2014] and has issued the attestation report included in Item 15 of this Annual Report on Form 10-K.

There were no changes to our internal controls over financial reporting during the three months ended February [removed: 2, 2013] [added: 1, 2014] that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

##### [Table of Contents](#toc)

##### [Table of Contents](#toc)

The information required by this item with respect to our executive officers is set forth after Part I, Item 4 of this report under the caption “Executive Officers of the Registrant.” The additional information required by this item is incorporated by reference to our definitive proxy statement to be filed within 120 days after our fiscal year ended February [removed: 2, 2013] [added: 1, 2014] pursuant to Regulation 14A under the Exchange Act in connection with our [removed: 2013] [added: 2014] annual meeting of stockholders.

The information required by this item is incorporated by reference to our definitive proxy statement to be filed within 120 days after our fiscal year ended February [removed: 2, 2013] [added: 1, 2014] pursuant to Regulation 14A under the Exchange Act in connection with our [removed: 2013] [added: 2014] annual meeting of stockholders.

The information required by this item is incorporated by reference to our definitive proxy statement to be filed within 120 days after our fiscal year ended February [removed: 2, 2013] [added: 1, 2014] pursuant to Regulation 14A under the Exchange Act in connection with our [removed: 2013] [added: 2014] annual meeting of stockholders.

The information required by this item is incorporated by reference to our definitive proxy statement to be filed within 120 days after our fiscal year ended February [removed: 2, 2013] [added: 1, 2014] pursuant to Regulation 14A under the Exchange Act in connection with our [removed: 2013] [added: 2014] annual meeting of stockholders.

##### [Table of Contents](#toc)

The information required by this item is incorporated by reference to our definitive proxy statement to be filed within 120 days after our fiscal year ended February [removed: 2, 2013] [added: 1, 2014] pursuant to Regulation 14A under the Exchange Act in connection with our [removed: 2013] [added: 2014] annual meeting of stockholders.

| [Report of Independent Registered Public Accounting [removed: Firm](#tx466694_25)] [added: Firm](#tx661459_30)] | | | [removed: 43] [added: 47] | |

[removed: | [Balance Sheets](#tx466694_26) | | | 45 | |][added: Consolidated Balance Sheets]

[removed: | [Statements] [added: Consolidated Statements] of [removed: Income](#tx466694_27) | | | 46 | |][added: Income]

[removed: | [Statements] [added: Consolidated Statements] of Cash [removed: Flows](#tx466694_28) | | | 47 | |][added: Flows]

[removed: | [Statements] [added: Consolidated Statements] of Stockholders’ [removed: Equity](#tx466694_29) | | | 48 | |][added: Equity]

[removed: | [Notes] [added: Notes] to [added: Consolidated] Financial [removed: Statements](#tx466694_30) | | | 49 | |][added: Statements]

The schedules required by Form 10-K have been omitted because they were inapplicable, included in the notes to the [added: consolidated] financial statements, or otherwise not required under the instructions contained in Regulation S-X.

We have audited the accompanying [added: consolidated] balance sheets of Ulta Salon, Cosmetics & Fragrance, Inc. (the Company) as of February [removed: 2, 2013] [added: 1, 2014] and [removed: January 28, 2012,] [added: February 2, 2013,] and the related [added: consolidated] statements of income, cash flows, and stockholders’ equity for each of the three years in the period ended February [removed: 2, 2013.][added: 1, 2014.]

In our opinion, the financial statements referred to above present fairly, in all material respects, the [added: consolidated] financial position of Ulta Salon, Cosmetics & Fragrance, Inc. at February [removed: 2, 2013] [added: 1, 2014] and [removed: January 28, 2012,] [added: February 2, 2013,] and the [added: consolidated] results of its operations and its cash flows for each of the three years in the period ended February [removed: 2, 2013,] [added: 1, 2014,] in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Ulta Salon, Cosmetics & Fragrance, Inc.’s internal control over financial reporting as of February [removed: 2, 2013,] [added: 1, 2014,] based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission [added: (1992 Framework)] and our report dated April [removed: 3, 2013,] [added: 2, 2014,] expressed an unqualified opinion thereon.

We have audited Ulta Salon, Cosmetics & Fragrance, Inc.’s internal control over financial reporting as of February [removed: 2, 2013,] [added: 1, 2014,] based on criteria established in Internal Control — Integrated Framework [added: (1992 Framework)] issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).

In our opinion, Ulta Salon, Cosmetics & Fragrance, Inc. maintained, in all material respects, effective internal control over financial reporting as of February [removed: 2, 2013,] [added: 1, 2014,] based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the [added: consolidated] balance sheets of Ulta Salon, Cosmetics & Fragrance, Inc. as of February [removed: 2, 2013] [added: 1, 2014] and [removed: January 28, 2012,] [added: February 2, 2013,] and the related [added: consolidated] statements of income, cash flows and stockholders’ equity for each of the three years in the period ended February [removed: 2, 2013] [added: 1, 2014] and our report dated April [removed: 3, 2013] [added: 2, 2014] expressed an unqualified opinion thereon.

[removed: Balance Sheets][added: | [Consolidated Balance Sheets](#tx661459_31) | | | 49 | |]

| | | February [added: 1, | | | | February] 2, | | | | January 28, | | |

| (In thousands, except per share data) | | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | |

| Cash and cash equivalents [added: at beginning of year] | | [removed: $] | 320,475 | | | [removed: $] | 253,738 | | [added: | | 111,185 | |]

| Receivables, net | | | [removed: 41,515] [added: 47,049] | | | | [removed: 26,153] [added: 41,515] | |

| Merchandise inventories, net | | | [removed: 361,125] [added: 457,933] | | | | [removed: 244,647] [added: 361,125] | |

| Prepaid expenses and other current assets | | | [removed: 50,452] [added: 55,993] | | | | [removed: 43,430] [added: 50,452] | |

| Deferred income taxes | | | [removed: 15,757] [added: 22,246] | | | | [removed: 12,264] [added: 15,757] | |

| Total current assets | | | [removed: 789,324] [added: 1,002,697] | | | | [removed: 580,232] [added: 789,324] | |

| Property and equipment, net | | | [removed: 483,059] [added: 595,736] | | | | [removed: 376,985] [added: 483,059] | |

| Deferred compensation plan assets | | | [removed: 2,866] [added: 4,294] | | | | [removed: —] [added: 2,866] | |

| Total assets | | $ | [removed: 1,275,249] [added: 1,602,727] | | | $ | [removed: 957,217] [added: 1,275,249] | |

| Accounts payable | | $ | [removed: 118,886] [added: 148,282] | | | $ | [removed: 86,442] [added: 118,886] | |

| Accrued liabilities | | | [removed: 92,127] [added: 103,180] | | | | [removed: 74,411] [added: 92,127] | |

| Accrued income taxes | | | [removed: 10,054] [added: 15,349] | | | | [removed: 4,002] [added: 10,054] | |

| Total current liabilities | | | [removed: 221,067] [added: 266,811] | | | | [removed: 164,855] [added: 221,067] | |

| Deferred rent | | | [removed: 208,003] [added: 261,630] | | | | [removed: 163,463] [added: 208,003] | |

| Deferred income taxes | | | [removed: 56,361] [added: 66,718] | | | | [removed: 44,195] [added: 56,361] | |

| Other long-term liabilities | | | [removed: 2,876] [added: 4,474] | | | | [removed: —] [added: 2,876] | |

| Total liabilities | | | [removed: 488,307] [added: 599,633] | | | | [removed: 372,513] [added: 488,307] | |

| Common stock, $.01 par value, 400,000 shares authorized; [removed: 64,565] [added: 64,793] and [removed: 62,764] [added: 64,565] shares issued; [removed: 64,009] [added: 64,231] and [removed: 62,209] [added: 64,009] shares outstanding; at February [added: 1, 2014, and February] 2, 2013, [removed: and January 28, 2012,] respectively | | | [removed: 645] [added: 647] | | | | [removed: 627] [added: 645] | |

| Treasury stock-common, at cost | | | [removed: (7,494] [added: (8,125] | ) | | | [removed: (7,415] [added: (7,494] | ) |

| Additional paid-in capital | | | [removed: 496,930] [added: 548,194] | | | | [removed: 404,698] [added: 496,930] | |

| Retained earnings | | | [removed: 296,861] [added: 462,378] | | | | [removed: 186,794] [added: 296,861] | |

| Total stockholders’ equity | | | [removed: 786,942] [added: 1,003,094] | | | | [removed: 584,704] [added: 786,942] | |

| Total liabilities and stockholders’ equity | | $ | [removed: 1,275,249] [added: 1,602,727] | | | $ | [removed: 957,217] [added: 1,275,249] | |

[removed: Statements] [added: | [Consolidated Statements] of [removed: Income][added: Income](#tx661459_32) | | | 50 | |]

| [Exhibits](#tx661459_36) | | | 66 | |

April 2, 2014

April 2, 2014

| Cash and cash equivalents | | $ | 419,476 | | | $ | 320,475 | |

| (In thousands) | | 2014 | | | | 2013 | | | | 2012 | | |

| Net income | | $ | 202,849 | | | $ | 172,549 | | | $ | 120,264 | |

| Other assets and liabilities | | | 170 | | | | — | | | | — | |

| Repurchase of common shares | | | (37,337 | ) | | | — | | | | — | |

| Purchase of treasury shares | | | (631 | ) | | | (79 | ) | | | (3,236 | ) |

| Purchase of treasury shares | | | — | | | | — | | | | (50 | ) | | | (3,236 | ) | | | — | | | | — | | | | (3,236 | ) |

| Purchase of treasury shares | | | — | | | | — | | | | (1 | ) | | | (79 | ) | | | — | | | | — | | | | (79 | ) |

| Stock options exercised and other awards | | | 729 | | | | 7 | | | | — | | | | — | | | | 21,883 | | | | — | | | | 21,890 | |

| Purchase of treasury shares | | | — | | | | — | | | | (6 | ) | | | (631 | ) | | | — | | | | — | | | | (631 | ) |

| Repurchase of common shares | | | (501 | ) | | | (5 | ) | | | — | | | | — | | | | — | | | | (37,332 | ) | | | (37,337 | ) |

| Balance — February 1, 2014 | | | 64,793 | | | $ | 647 | | | | (562 | ) | | $ | (8,125 | ) | | $ | 548,194 | | | $ | 462,378 | | | $ | 1,003,094 | |

As used in these notes and throughout this Annual Report on Form 10-K, all references to “we,” “us,” “our,” “Ulta” or the “Company” refer to Ulta Salon, Cosmetics & Fragrance, Inc. and its consolidated subsidiary, Ulta Inc. All amounts are stated in thousands, with the exception of per share amounts and number of stores.

_Consolidation_

The Company’s consolidated financial statements include the accounts of the Company and its wholly owned subsidiary.

All significant intercompany accounts, transactions and unrealized profit were eliminated in consolidation.

The receivable for vendor allowances was $30,591 and $28,236 as of February 1, 2014 and February 2, 2013, respectively and the receivable for landlord allowances was $14,128 and $11,595 as of February 1, 2014 and February 2, 2013, respectively.

In early fiscal 2014 we converted the remaining The Club at Ulta loyalty customers to ULTAmate Rewards, a points-based program.

E-commerce revenue amounted to $95,809, $55,086 and $41,333 for fiscal 2013, 2012 and 2011, respectively.

The amounts reported were derived using the enacted tax rates in effect for the year the differences are expected to reverse.

| (In thousands) | | February 1, 2014 | | | | February 2, 2013 | | |

| | | | 1,022,656 | | | | 838,390 | |

| 2014 | | $ | 184,771 | |

| 2015 | | | 188,655 | |

| 2016 | | | 181,507 | |

| 2017 | | | 168,732 | |

| 2018 | | | 151,546 | |

| 2019 and thereafter | | | 532,453 | |

On August 8, 2013, the plaintiff asked the court to certify the proposed class and the Company opposed the plaintiff’s request and is waiting for the court to issue a decision.

The Company has not recorded any accruals for this matter because the Company’s potential liability for the matter is not probable and cannot be reasonably estimated based on currently available information.

The Company cannot determine a reasonable estimate of the maximum possible loss or range of loss for this matter

given that it is in the early stage of the litigation process and is subject to the inherent uncertainties of litigation (such as the strength of the Company’s legal defenses and the availability of insurance recovery).

Although the maximum amount of liability that may ultimately result from this matter cannot be predicted with certainty, management expects that this matter, when ultimately resolved, will not have a material adverse effect on the Company’s consolidated financial position or liquidity.

It is possible, however, that the ultimate resolution of this matter could have a material adverse effect on the Company’s results of operations in a particular quarter or year if such resolution results in a significant liability for the Company.

| (In thousands) | | February 1, 2014 | | | | February 2, 2013 | | |

| (In thousands) | | February 1, 2014 | | | | February 2, 2013 | | |

The reserve for uncertain tax positions was $795 at February 1, 2014.

| --- | --- |

| [Exhibits](#tx466694_31) | | | 61 | |

April 3, 2013

| | | | | | | | | | | | | |

| Common stock repurchased | | | (79 | ) | | | (3,236 | ) | | | — | |

| Cash and cash equivalents at end of year | | $ | 320,475 | | | $ | 253,738 | | | $ | 111,185 | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Balance — January 30, 2010 | | | 58,674 | | | $ | 586 | | | | (505 | ) | | $ | (4,179 | ) | | $ | 300,701 | | | $ | (4,500 | ) | | $ | 292,608 | |

| Stock options exercised | | | 2,033 | | | | 20 | | | | — | | | | — | | | | 17,080 | | | | — | | | | 17,100 | |

| Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 71,030 | |

| Common stock repurchased | | | — | | | | — | | | | (50 | ) | | | (3,236 | ) | | | — | | | | — | | | | (3,236 | ) |

| Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 120,264 | |

| Common stock repurchased | | | — | | | | — | | | | (1 | ) | | | (79 | ) | | | — | | | | — | | | | (79 | ) |

| Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 172,549 | |

All amounts are stated in thousands, with the exception of per share amounts and number of stores.

During fiscal 2010, there was a change in facts and circumstances which resulted in the Company recognizing approximately $2.0 million of gift card breakage income which related primarily to gift cards sold in prior years.

company expense including Sarbanes-Oxley compliance expenses; stock-based compensation expense; depreciation and amortization for all assets except those related to our retail and warehouse operations which are included in cost of sales; and legal, finance, information systems and other corporate overhead costs.

The Company accounts for share-based compensation in accordance with the Accounting Standards CodificationTM (ASC) rules for stock compensation.

| | | | 838,390 | | | | 673,354 | |

| 2013 | | $ | 155,542 | |

| 2014 | | | 160,168 | |

| 2015 | | | 153,441 | |

| 2016 | | | 144,991 | |

| 2017 | | | 133,574 | |

| 2018 and thereafter | | | 460,811 | |

At February 2, 2013, the Company had net operating loss carryforwards (NOLs) for federal income tax purposes of approximately $73, which expire between 2013 and 2014.

Based on Internal Revenue Code Section 382 relating to changes in ownership of the Company, utilization of the federal NOLs is subject to an annual limitation of $440 for federal NOLs created prior to April 1, 1997.

On February 3, 2008, the Company adopted the ASC rules for fair value measurements and disclosures.

The adoption had no impact on the Company’s financial statements.

The new rules established a three-tier hierarchy for fair value measurements, which prioritizes the inputs used in measuring fair value as follows:

The expected volatility is based on the historical volatility of a peer group of publicly-traded companies.

The Company completed an initial public offering during fiscal 2007 which resulted in compensation expense related to performance based grants of $425 in fiscal 2010.

There was no compensation expense related to performance based grants in 2012 and 2011.

No performance-based options were granted during fiscal 2012, 2011 and 2010.

| $ 0.18 - 1.11 | | | 11,813 | | | | 2 | | | $ | 1.11 | | | | 11,813 | | | | 2 | | | $ | 1.11 | |

| 1.12 - 2.62 | | | 7,523 | | | | 2 | | | | 2.62 | | | | 7,523 | | | | 2 | | | | 2.62 | |

| 2.63 - 4.12 | | | 8,116 | | | | 4 | | | | 3.83 | | | | 8,116 | | | | 4 | | | | 3.83 | |

| 4.13 - 9.18 | | | 32,220 | | | | 7 | | | | 6.57 | | | | 13,160 | | | | 6 | | | | 6.98 | |

| 9.19 - 15.81 | | | 346,052 | | | | 6 | | | | 13.04 | | | | 255,975 | | | | 6 | | | | 12.95 | |

| 15.82 - 37.85 | | | 685,698 | | | | 8 | | | | 26.04 | | | | 184,932 | | | | 8 | | | | 26.58 | |