Item 15. Exhibits and Financial Statement Schedules

| --- | --- |

(a)	The following documents are filed as a part of this Form 10-K:

Report of Independent Registered Public Accounting Firm			46
Consolidated Balance Sheets			48
Consolidated Statements of Income			49
Consolidated Statements of Cash Flows			50
Consolidated Statements of Stockholders’ Equity			51
Notes to Consolidated Financial Statements			52
Schedule II – Valuation and Qualifying Accounts			69

Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Ulta Beauty, Inc.

We have audited the consolidated balance sheets of Ulta Beauty, Inc. (the Company) as of January 28, 2017 and January 30, 2016, and the related consolidated statements of income, cash flows, and stockholders’ equity for each of the three years in the period ended January 28, 2017. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ulta Beauty, Inc. at January 28, 2017 and January 30, 2016, and the results of its operations and its cash flows for each of the three years in the period ended January 28, 2017, 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 Beauty, Inc.’s internal control over financial reporting as of January 28, 2017, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 28, 2017, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Chicago, Illinois

March 28, 2017

Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Ulta Beauty, Inc.

We have audited Ulta Beauty, Inc.’s internal control over financial reporting as of January 28, 2017, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Ulta Beauty, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Ulta Beauty, Inc. maintained, in all material respects, effective internal control over financial reporting as of January 28, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Ulta Beauty, Inc. as of January 28, 2017 and January 30, 2016, and the related consolidated statements of income, cash flows and stockholders’ equity for each of the three years in the period ended January 28, 2017 and our report dated March 28, 2017 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Chicago, Illinois

March 28, 2017

Table of Contents

Ulta Beauty, Inc.

Consolidated Balance Sheets

(In thousands, except per share data)		January 28, 2017				January 30, 2016
Assets
Current assets:
Cash and cash equivalents		$	385,010			$	345,840
Short-term investments			30,000				130,000
Receivables, net			88,631				64,992
Merchandise inventories, net			943,975				761,793
Prepaid expenses and other current assets			88,621				72,548
Total current assets			1,536,237				1,375,173
Property and equipment, net			1,004,358				847,600
Deferred compensation plan assets			11,283				8,145
Total assets		$	2,551,878			$	2,230,918
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	259,518			$	196,174
Accrued liabilities			260,854				187,351
Accrued income taxes			8,971				12,702
Total current liabilities			529,343				396,227
Deferred rent			366,191				321,789
Deferred income taxes			86,498				59,527
Other long-term liabilities			19,628				10,489
Total liabilities			1,001,660				788,032
Commitments and contingencies (note 4)
Stockholders’ equity:
Common stock, $.01 par value, 400,000 shares authorized; 62,733 and 64,131 shares issued; 62,129 and 63,540 shares outstanding; at January 28, 2017, and January 30, 2016, respectively			627				641
Treasury stock-common, at cost			(14,524	)			(11,685	)
Additional paid-in capital			658,330				621,715
Retained earnings			905,785				832,215
Total stockholders’ equity			1,550,218				1,442,886
Total liabilities and stockholders’ equity		$	2,551,878			$	2,230,918

See accompanying notes to financial statements.

Table of Contents

Ulta Beauty, Inc.

Consolidated Statements of Income

		Fiscal year ended
(In thousands, except per share data)		January 28, 2017				January 30, 2016				January 31, 2015
Net sales		$	4,854,737			$	3,924,116			$	3,241,369
Cost of sales			3,107,508				2,539,783				2,104,582
Gross profit			1,747,229				1,384,333				1,136,787
Selling, general and administrative expenses			1,073,834				863,354				712,006
Pre-opening expenses			18,571				14,682				14,366
Operating income			654,824				506,297				410,415
Interest income, net			(890	)			(1,143	)			(894	)
Income before income taxes			655,714				507,440				411,309
Income tax expense			245,954				187,432				154,174
Net income		$	409,760			$	320,008			$	257,135
Net income per common share:
Basic		$	6.55			$	5.00			$	4.00
Diluted		$	6.52			$	4.98			$	3.98
Weighted average common shares outstanding:
Basic			62,519				63,949				64,335
Diluted			62,851				64,275				64,651

See accompanying notes to financial statements.

Table of Contents

Ulta Beauty, Inc.

Consolidated Statements of Cash Flows

		Fiscal year ended
(In thousands)		January 28, 2017				January 30, 2016				January 31, 2015
Operating activities
Net income		$	409,760			$	320,008			$	257,135
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			210,295				165,049				131,764
Deferred income taxes			26,971				5,809				9,246
Non-cash stock compensation charges			19,340				15,594				14,923
Excess tax benefits from stock-based compensation			(9,053	)			(9,497	)			(3,229	)
Loss on disposal of property and equipment			9,140				3,690				4,468
Change in operating assets and liabilities:
Receivables			(23,639	)			(12,552	)			(5,391	)
Merchandise inventories			(182,182	)			(180,564	)			(123,296	)
Prepaid expenses and other current assets			(16,073	)			(6,000	)			(10,555	)
Income taxes			5,322				2,795				7,284
Accounts payable			63,344				5,396				42,496
Accrued liabilities			71,057				37,926				37,644
Deferred rent			44,402				27,662				32,497
Other assets and liabilities			6,001				558				1,606
Net cash provided by operating activities			634,685				375,874				396,592
Investing activities
Purchases of short-term investments			(90,000	)			(130,000	)			(200,209	)
Proceeds from short-term investments			190,000				150,209				50,000
Purchases of property and equipment			(373,747	)			(299,167	)			(249,067	)
Net cash used in investing activities			(273,747	)			(278,958	)			(399,276	)
Financing activities
Repurchase of common shares			(344,275	)			(167,396	)			(39,923	)
Stock options exercised			16,293				19,646				10,639
Excess tax benefits from stock-based compensation			9,053				9,497				3,229
Purchase of treasury shares			(2,839	)			(1,972	)			(1,588	)
Net cash used in financing activities			(321,768	)			(140,225	)			(27,643	)
Net increase (decrease) in cash and cash equivalents			39,170				(43,309	)			(30,327	)
Cash and cash equivalents at beginning of year			345,840				389,149				419,476
Cash and cash equivalents at end of year		$	385,010			$	345,840			$	389,149
Supplemental cash flow information
Cash paid for income taxes (net of refunds)		$	212,514			$	179,248			$	137,180
Noncash investing activities:
Change in property and equipment included in accrued liabilities		$	2,446			$	13			$	8,588

See accompanying notes to financial statements.

Table of Contents

Ulta Beauty, Inc.

Consolidated Statements of Stockholders’ Equity

		Common Stock								Treasury - Common Stock								Additional Paid-In Capital				Retained Earnings				Total Stockholders’ Equity
(In thousands)		Issued Shares				Amount				Treasury Shares				Amount
Balance — February 1, 2014			64,793			$	647				(562	)		$	(8,125	)		$	548,194			$	462,378			$	1,003,094
Stock options exercised and other awards			290				3				—				—				10,636				—				10,639
Purchase of treasury shares			—				—				(16	)			(1,588	)			—				—				(1,588	)
Net income			—				—				—				—				—				257,135				257,135
Excess tax benefits from stock-based compensation			—				—				—				—				3,229				—				3,229
Stock compensation charge			—				—				—				—				14,923				—				14,923
Repurchase of common shares			(321	)			(3	)			—				—				—				(39,920	)			(39,923	)
Balance — January 31, 2015			64,762			$	647				(578	)		$	(9,713	)		$	576,982			$	679,593			$	1,247,509
Stock options exercised and other awards			403				4				—				—				19,642				—				19,646
Purchase of treasury shares			—				—				(13	)			(1,972	)			—				—				(1,972	)
Net income			—				—				—				—				—				320,008				320,008
Excess tax benefits from stock-based compensation			—				—				—				—				9,497				—				9,497
Stock compensation charge			—				—				—				—				15,594				—				15,594
Repurchase of common shares			(1,034	)			(10	)			—				—				—				(167,386	)			(167,396	)
Balance — January 30, 2016			64,131			$	641				(591	)		$	(11,685	)		$	621,715			$	832,215			$	1,442,886
Stock options exercised and other awards			241				2				—				—				16,291				—				16,293
Purchase of treasury shares			—				—				(13	)			(2,839	)			—				—				(2,839	)
Net income			—				—				—				—				—				409,760				409,760
Excess tax benefits from stock-based compensation			—				—				—				—				9,053				—				9,053
Stock compensation charge			—				—				—				—				19,340				—				19,340
Repurchase of common shares			(1,639	)			(16	)			—				—				(8,069	)			(336,190	)			(344,275	)
Balance — January 28, 2017			62,733			$	627				(604	)		$	(14,524	)		$	658,330			$	905,785			$	1,550,218

See accompanying notes to financial statements.

Table of Contents

Ulta Beauty, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

1. Business and basis of presentation

On January 29, 2017, Ulta Salon, Cosmetics & Fragrance, Inc. implemented a holding company reorganization. Pursuant to which Ulta Beauty, Inc., which was incorporated as a Delaware corporation in December 2016, became the successor to Ulta Salon, Cosmetics & Fragrance, Inc., the former publicly-traded company and now a wholly owned subsidiary of Ulta Beauty. As used in these notes and throughout this Annual Report on Form 10-K, all references to “we,” “us,” “Ulta Beauty” or the “Company” refer to Ulta Beauty, Inc. and its consolidated subsidiaries.

The Company was originally founded in 1990 to operate specialty retail stores selling cosmetics, fragrance, haircare and skincare products, and related accessories and services. The stores also feature full-service salons. As of January 28, 2017, the Company operated 974 stores in 48 states and the District of Columbia. All amounts are stated in thousands, with the exception of per share amounts and number of stores.

The Company has determined its operating segments on the same basis that it uses to internally evaluate performance. The Company has combined its three operating segments, retail stores, salon services and e-commerce, into one reportable segment because they have a similar class of consumer, economic characteristics, nature of products and distribution methods.

The Company offers a balanced portfolio across five primary categories: (1) cosmetics; (2) skincare, bath and fragrance; (3) haircare products and styling tools; (4) salon services; and (5) other, which includes nail products and accessories. The following table sets forth the approximate percentage of net sales attributed to each category for the periods indicated:

		Fiscal year ended
		January 28, 2017				January 30, 2016				January 31, 2015
Cosmetics			51	%			46	%			42	%
Skincare, Bath & Fragrance			20	%			23	%			24	%
Haircare Products & Styling Tools			20	%			22	%			24	%
Salon Services			5	%			5	%			5	%
Other			4	%			4	%			5	%
			100	%			100	%			100	%

2. Summary of significant accounting policies

Fiscal year

The Company’s fiscal year is the 52 or 53 weeks ending on the Saturday closest to January 31. The Company’s fiscal years ended January 28, 2017 (fiscal 2016), January 30, 2016 (fiscal 2015) and January 31, 2015 (fiscal 2014) were 52 week years.

Consolidation

The Company’s consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts, transactions and unrealized profit were eliminated in consolidation.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of

Table of Contents

assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the accounting period. Actual results could differ from those estimates.

Cash and cash equivalents

Cash and cash equivalents include cash on hand and highly liquid investments with maturities of three months or less from the date of purchase. Cash equivalents include amounts due from third-party credit card receivables because such amounts generally convert to cash within one to three days with little or no default risk.

Short-term investments

The Company determines the balance sheet classification of its investments at the time of purchase and evaluates the classification at each balance sheet date. Money market funds, certificates of deposit and time deposits with maturities of greater than three months but no more than twelve months are carried at cost, which approximates fair value and are recorded in the Consolidated Balance Sheets in Short-term investments (see Note 9, “Investments”).

Receivables

Receivables consist principally of amounts receivable from vendors and landlord construction allowances earned but not yet received. These receivables are computed based on provisions of the vendor and lease agreements in place and the Company’s completed performance. The Company’s vendors are producers of consumer products and landlords. The Company does not require collateral on its receivables and does not accrue interest. Credit risk with respect to receivables is limited due to the diversity of vendors and landlords comprising the Company’s vendor base. The Company performs ongoing credit evaluations of its vendors and evaluates the collectability of its receivables based on the length of time the receivable is past due and historical experience. The receivable for vendor allowances was $59,553 and $46,932 as of January 28, 2017 and January 30, 2016, respectively, and the receivable for landlord allowances was $23,186 and $10,250 as of January 28, 2017 and January 30, 2016, respectively. The allowance for doubtful receivables totaled $2,079 and $1,112 as of January 28, 2017 and January 30, 2016, respectively.

Merchandise inventories

Merchandise inventories are stated at the lower of cost or market. Cost is determined using the weighted-average cost method and includes costs incurred to purchase and distribute goods. Inventory cost also includes vendor allowances related to co-op advertising, markdowns, and volume discounts. The Company maintains reserves for lower of cost or market and shrinkage.

Fair value of financial instruments

The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates their estimated fair values due to the short maturities of these instruments. The Company had no outstanding debt as of January 28, 2017 and January 30, 2016.

Property and equipment

The Company’s property and equipment are stated at cost net of accumulated depreciation and amortization. Maintenance and repairs are charged to operating expense as incurred. The Company’s assets are depreciated or amortized using the straight-line method, over the shorter of their estimated useful lives or the expected lease term as follows:

Equipment and fixtures			3 to 10 years
Leasehold improvements			10 years
Electronic equipment and software			3 to 5 years

Table of Contents

The Company capitalizes costs incurred during the application development stage in developing or purchasing internal use software. These costs are amortized over the estimated useful life of the software.

The Company periodically evaluates whether changes have occurred that would require revision of the remaining useful life of equipment and leasehold improvements or render them not recoverable. If such circumstances arise, the Company uses an estimate of the undiscounted sum of expected future operating cash flows during their holding period to determine whether the long-lived assets are impaired. If the aggregate undiscounted cash flows are less than the carrying amount of the assets, the resulting impairment charges to be recorded are calculated based on the excess of the carrying value of the assets over the fair value of such assets, with the fair value determined based on an estimate of discounted future cash flows. The Company recognized $3,124 of fixed asset impairment charges related to store closures in Chicago, Illinois and Denham Springs, Louisiana in fiscal 2016, which is included in selling, general and administrative (SG&A) expenses in the statements of income. No significant impairment charges were recognized in fiscal 2015 or 2014.

Customer loyalty program

In early fiscal 2014, we completed the conversion of all our loyalty members to Ultamate Rewards, a points-based program. Ultamate Rewards enables customers to earn points based on their purchases. Points earned by members are valid for at least one year and may be redeemed on any product we sell. Prior to this conversion, we ran both Ultamate Rewards and our prior program, The Club at Ulta. The Club at Ulta was a certificate program offering customers reward certificates for free beauty products based on the level of purchases. The Company accrues the cost of anticipated redemptions related to these programs at the time of the initial purchase based on historical experience. The accrued liability related to these loyalty programs at January 28, 2017 and January 30, 2016 was $30,244 and $20,026 respectively. The cost of these programs, which was $77,145, $54,464 and $42,096 in fiscal 2016, 2015 and 2014, respectively, is included in cost of sales in the statements of income.

Credit Cards

During 2016, the Company entered into certain agreements (the Agreements) with third parties to provide our guests with private label and/or co-branded credit cards (collectively, the Credit Cards). The private label credit card can be used at any of our store locations and online and the co-branded credit card can be used anywhere the co-branded card is accepted. A third-party financing company is the sole owner of the accounts and underwrites the credit issued under the Credit Card programs.

The Company receives payments and reimbursements of expenses in accordance with the Agreements and based on usage of the Credit Cards. We recognize income for such cash receipts when the amounts are fixed or determinable and collectability is reasonably assured, which is generally the time at which the actual usage of the Credit Cards or specified transaction occurs. A majority of the funds received are recorded as a reduction of SG&A expenses, and the remaining portion is recognized as a reduction to cost of sales in our statements of income.

Our loyalty members earn points through purchases at Ulta Beauty and anywhere the co-branded card is accepted. Consistent with the current accounting for the customer loyalty program, the Company accrues the cost of anticipated redemptions related to these programs at the time of the initial purchase and costs are included in cost of sales in the statements of income. Other administrative costs related to the Credit Card programs, including payroll, marketing expenses, and other direct costs, are included in SG&A in the statements of income.

Deferred rent

Many of the Company’s operating leases contain predetermined fixed increases of the minimum rental rate during the lease. For these leases, the Company recognizes the related rental expense on a straight-line basis over the expected lease term and records the difference between the amounts charged to expense and the rent paid as deferred rent. The lease term commences on the earlier of the date when the Company becomes legally obligated for rent payments or the date the Company takes possession of the leased space.

Table of Contents

As part of many lease agreements, the Company receives construction allowances from landlords for tenant improvements. These leasehold improvements made by the Company are capitalized and amortized over the shorter of the lease term or 10 years. The construction allowances are recorded as deferred rent and amortized on a straight-line basis over the lease term as a reduction of rent expense.

Revenue recognition

Net sales include merchandise sales, salon service revenue and e-commerce revenue. Revenue from merchandise sales at stores is recognized at the time of sale, net of estimated returns. The Company provides refunds for product returns within 60 days from the original purchase date. Salon revenue is recognized when services are rendered. Salon service revenue amounted to $241,105, $209,249 and $175,533 for fiscal 2016, 2015 and 2014, respectively. Company coupons and other incentives are recorded as a reduction of net sales. State sales taxes are presented on a net basis as the Company considers itself a pass-through conduit for collecting and remitting state sales tax. E-commerce sales are recorded based on delivery of merchandise to the customer. E-commerce revenue amounted to $345,342, $221,077 and $149,857 for fiscal 2016, 2015 and 2014, respectively.

The Company’s gift card sales are deferred and recognized in net sales when the gift card is redeemed for product or services. The Company’s gift cards do not expire and do not include service fees that decrease customer balances. The Company has maintained Company-specific, historical data related to its large pool of similar gift card transactions sold and redeemed over a significant time frame. The Company recognizes gift card breakage to the extent there is no requirement for remitting balances to governmental agencies under unclaimed property laws. Gift card breakage is recognized over the same performance period, and in the same proportion, that the Company’s data has demonstrated that gift cards are redeemed. Gift card breakage was $5,335 and $3,728 at January 28, 2017 and January 30, 2016, respectively, and is recorded as a decrease in SG&A expense in the statements of income. Deferred gift card revenue was $46,268 and $31,830 at January 28, 2017 and January 30, 2016, respectively, and is included in accrued liabilities – accrued customer liabilities (see Note 5, “Accrued liabilities”).

Vendor allowances

The Company receives allowances from vendors in the normal course of business including advertising and markdown allowances, purchase volume discounts and rebates, and reimbursement for defective merchandise, and certain selling and display expenses. Substantially all vendor allowances are recorded as a reduction of the vendor’s product cost and are recognized in cost of sales as the product is sold.

Advertising

Advertising expense consists principally of paper, print and distribution costs related to the Company’s advertising circulars, as well as television, radio and digital advertising. The Company expenses the production and distribution costs related to its advertising circulars in the period the related promotional event occurs. Total advertising costs, exclusive of incentives from vendors and start-up advertising expense, amounted to $212,714, $187,158 and $157,847 for fiscal 2016, 2015 and 2014, respectively. Advertising expense as a percentage of sales was 4.4%, 4.8% and 4.9% for fiscal 2016, 2015 and 2014, respectively. Prepaid advertising costs included in prepaid expenses and other current assets were $9,901 and $6,413 as of January 28, 2017 and January 30, 2016, respectively.

Pre-opening expenses

Non-capital expenditures incurred prior to the grand opening of a new, remodeled or relocated store are charged against earnings as incurred.

Cost of sales

Cost of sales includes the cost of merchandise sold (retail and e-commerce), including a majority of vendor allowances, which are treated as a reduction of merchandise costs; warehousing and distribution costs including labor and related benefits, freight, rent, depreciation and amortization, real estate taxes, utilities, and insurance;

Table of Contents

shipping and handling costs; store occupancy costs including rent, depreciation and amortization, real estate taxes, utilities, repairs and maintenance, insurance, licenses, and cleaning expenses; salon payroll and benefits; customer loyalty program expense; and shrink and inventory valuation reserves.

Selling, general and administrative expenses

Selling, general and administrative expenses includes payroll, bonus, and benefit costs for retail and corporate employees; advertising and marketing costs; credit card program incentives; occupancy costs related to our corporate office facilities; public company expense including Sarbanes-Oxley Act of 2002 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.

Income taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. The amounts reported were derived using the enacted tax rates in effect for the year the differences are expected to reverse.

Income tax benefits related to uncertain tax positions are recognized only when it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. Penalties and interest related to unrecognized tax positions are recorded in income tax expense.

Share-based compensation

Share-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized on a straight-line method over the requisite service period for awards expected to vest. The Company recorded stock compensation expense of $19,340, $15,594 and $14,923 for fiscal 2016, 2015 and 2014, respectively (see Note 10, “Share-based awards”).

Insurance expense

The Company has insurance programs with third party insurers for employee health, workers compensation and general liability, among others, to limit the Company’s liability exposure. The insurance programs are premium based and include retentions, deductibles and stop loss coverage. Current stop loss coverage per claim is $350 for employee health claims, $100 for general liability claims and $250 for workers compensation claims. The Company makes collateral and premium payments during the plan year and accrues expenses in the event additional premium is due from the Company based on actual claim results.

Net income per common share

Basic net income per common share is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share includes dilutive common stock equivalents, using the treasury stock method (see Note 11, “Net income per common share”).

Recent accounting pronouncements not yet adopted

Revenue Recognition from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, issued as a new Topic, Accounting Standards Codification Topic 606 (ASU 2014-09). The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that we will recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect

Table of Contents

to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 Revenue from Contracts with Customers (Topic 606), which delayed the effective date of ASU 2014-09 by one year. With the deferral, the revenue recognition standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods, with early adoption permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (ASU 2016-08) which further clarifies how to implement revenue recognition guidance related to determining whether an entity is a principal or an agent in a revenue transaction. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU 2016-10) which further clarifies the aspects of (a) identifying performance obligations and (b) the licensing implementation guidance. The effective date and transition requirements for ASU 2016-08 and ASU 2016-10 are the same as the effective date and transition requirements of ASU 2014-09. These standards allow for either full retrospective or modified retrospective adoption.

The Company will adopt the new guidance in fiscal 2018, and anticipates using the modified retrospective method. The Company has formed a project team to review our current accounting policies and practices, assess the effect of the standard on our revenue transactions and identify potential differences. While we will continue to evaluate possible impacts on our consolidated financial statements, ASU 2014-09 is expected to impact the recognition timing or classification of revenues and expenses for our sales refund reserve, gift card breakage and loyalty program accounting, however, the Company does not expect a significant impact to pretax income upon adoption. In addition, we are in the process of evaluating changes to our business processes and controls to support recognition and disclosure under the new standard.

Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This standard will change the way all leases of one year or more are treated. Under this guidance, lessees will be required to capitalize virtually all leases on the balance sheet as a right-of-use asset and recognize an associated financing lease liability or capital lease liability. The right-of-use asset represents the lessee’s right to use, or control the use of, a specified asset for the specified lease term. The lease liability represents the lessee’s obligation to make lease payments arising from the lease, measured on a discounted basis. Based on certain characteristics, leases are classified as financing leases or operating leases. Financing lease liabilities, those that contain provisions similar to capitalized leases, are amortized like capital leases under current GAAP as amortization expense and interest expense in the statement of operations. Operating lease liabilities are amortized on a straight-line basis over the life of the lease as lease expense in the statement of operations. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, including interim reporting periods.

At January 28, 2017, the Company has made a decision to early adopt the new standard in fiscal 2018. The Company has formed a project team to review our current accounting policies and practices and assess the effect of the standard on our consolidated financial statements. The team has completed a preliminary assessment of the potential impact of adopting ASU 2016-02 on its financial statements. The adoption of this ASU 2016-02 will have a material impact on the Company’s financial position, however the Company does not believe adoption of this standard will have a material impact on the Company’s results of operations or cash flows.

Liabilities – Extinguishments of Liabilities

In March 2016, the FASB issued ASU 2016-04, Liabilities – Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored – Value Products. This update entitles a company to derecognize amounts related to expected breakage to the extent that it is probable a significant reversal of the recognized breakage amount will not subsequently occur. ASU 2016-04 is effective for annual and interim periods beginning after December 15, 2017, and early adoption is permitted. The adoption of ASU 2016-04 is not expected to have a material impact on the Corporation’s consolidated financial position, results of operations and cash flows.

Table of Contents

Compensation – Stock Compensation

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This guidance will change how companies account for certain aspects of share-based payments to employees. Companies will have to recognize all income tax effects of awards in the income statement when the awards vest or are settled, and additional paid-in capital pools will be eliminated. The guidance on employer’s accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation and for forfeitures is changing, and two practical expedients for non-public entities have been added. ASU 2016-09 is effective for annual and interim reporting periods beginning after December 15, 2016, and early adoption is permitted.

The Company will adopt the new guidance in the first quarter of fiscal 2017. The potential impact that the adoption of ASU 2016-9 will have on the Company’s financial statements during and after the period of adoption are dependent, in part, upon factors that are not fully controllable or predictable by the Company, including future vesting of stock-based awards, market price of the Company’s common stock, timing of employee exercises of vested stock options and achievement of performance criteria that affect the vesting of performance-based awards. However, based on the market price of the Company’s common stock and its outstanding restricted stock units and unexercised stock options as of January 28, 2017, the Company anticipates that the adoption of this pronouncement will result in lower income tax expense in fiscal year 2017 and this anticipated income tax benefit will be reported as a component of cash flows from operating activities. Additionally, the Company will continue to include the impact of estimated forfeitures when determining share-based compensation expense.

Statement of Cash Flows

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). ASU 2016-15 provides classification guidance on certain cash receipts and cash payments, including, but not limited to, debt prepayment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of bank-owned life insurance policies and distributions received from equity method investees. The adoption of ASU 2016-15 requires a retrospective transition method applied to each period presented. ASU 2016-15 is effective for annual periods and interim periods beginning after December 15, 2017, and early adoption is permitted. The adoption of ASU 2016-15 is not expected to have a material impact on the Company’s consolidated financial position, results of operations and cash flows.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the Emerging Issues Task Force), which amends ASU Topic 230. ASU 2016-18 requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer be required to present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. Entities will also have to disclose the nature of their restricted cash and restricted cash equivalent balances. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and interim periods within those years and early adoption is permitted. Entities are required to apply the guidance retrospectively. The adoption of ASU 2016-18 is not expected to have a material impact on the Company’s consolidated financial position, results of operations and cash flows.

Recently adopted accounting pronouncements

Stock Compensation

In June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This update clarifies the accounting for share-based awards with performance targets. ASU 2014-12 is effective for public companies for annual reporting periods beginning after

Table of Contents

December 15, 2015, including interim reporting periods. As permitted, the Company adopted this standard, prospectively, in its first quarter ended April 30, 2016 and its adoption had no impact on its consolidated financial position, results of operations and cash flows.

Goodwill and Other

In April 2015, the FASB issued ASU 2015-05, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customers’ Accounting for Fees Paid in a Cloud Computing Arrangement. This standard provides guidance to determine whether a cloud-based computing arrangement includes a software license. If a cloud-based computing arrangement includes a software license, the customer must account for the software element of the arrangement consistent with the acquisition of other software licenses. Otherwise, the customer must account for the arrangement as a service contract. As permitted, the Company adopted this standard, prospectively, in its first quarter ended April 30, 2016 and its adoption had no impact on its consolidated financial position, results of operations and cash flows.

3. Property and equipment

Property and equipment consists of the following:

		January 28,				January 30,
(In thousands)		2017				2016
Equipment and fixtures		$	708,754			$	556,499
Leasehold improvements			607,690				515,712
Electronic equipment and software			437,262				353,940
Construction-in-progress			49,411				75,804
			1,803,117				1,501,955
Less: accumulated depreciation and amortization			(798,759	)			(654,355	)
Property and equipment, net		$	1,004,358			$	847,600

The Company did not utilize the credit facility during fiscal 2016 and 2015, and therefore had no capitalized interest for the respective fiscal years.

4. Commitments and contingencies

Leases – The Company leases retail stores, distribution and office facilities, and certain equipment. Original non-cancelable lease terms range from three to ten years, and store leases generally contain renewal options for additional years. Total rent expense under operating leases was $202,942, $181,487 and $159,245 for fiscal 2016, 2015 and 2014, respectively. Future minimum lease payments under operating leases as of January 28, 2017, are as follows:

		Operating
		Leases
Fiscal year		(In thousands)
2017		$	270,684
2018			274,625
2019			259,875
2020			246,209
2021			228,073
2022 and thereafter			726,575
Total minimum lease payments		$	2,006,041

Included in the operating lease schedule above is $315,230 of minimum lease payments for stores that are expected to open in future periods.

Table of Contents

Contractual obligations – As of January 28, 2017, the Company had obligations of $27,666 related to commitments made to a third party for products and services for a future distribution center for which a lease has been signed. Payments under this commitment were $11,528 for fiscal 2016. In addition, the Company has entered into various non-cancelable advertising and other goods and service contracts. A majority of these agreements expire over one year and the obligations under these agreements were $19,797 as of January 28, 2017.

General litigation – The Company is involved in various legal proceedings that are incidental to the conduct of our business, including three putative employment class action lawsuits in California, each of which has settled. Two cases have received final court approval and the remaining case has received preliminary court approval. In the opinion of management, the amount of any liability with respect to these proceedings, either individually or in the aggregate, will not have a material adverse effect on the Company’s results of operations, consolidated financial position or liquidity.

5. Accrued liabilities

Accrued liabilities consist of the following:

		January 28,				January 30,
(In thousands)		2017				2016
Accrued vendor liabilities (including accrued property and equipment costs)		$	44,804			$	27,894
Accrued customer liabilities			47,441				54,496
Accrued payroll, bonus and employee benefits			84,555				61,068
Accrued taxes, other			24,883				20,486
Other accrued liabilities			59,171				23,407
Accrued liabilities		$	260,854			$	187,351

6. Income taxes

The provision for income taxes consists of the following:

		Fiscal				Fiscal				Fiscal
(In thousands)		2016				2015				2014
Current:
Federal		$	194,199			$	163,048			$	128,159
State			24,835				18,694				16,909
Total current			219,034				181,742				145,068
Deferred:
Federal			24,480				6,981				8,392
State			2,440				(1,291	)			714
Total deferred			26,920				5,690				9,106
Provision for income taxes		$	245,954			$	187,432			$	154,174

A reconciliation of the federal statutory rate to the Company’s effective tax rate is as follows:

		Fiscal 2016				Fiscal 2015				Fiscal 2014
Federal statutory rate			35.0	%			35.0	%			35.0	%
State effective rate, net of federal tax benefit			2.8	%			2.2	%			2.8	%
Other			(0.3	%)			(0.3	%)			(0.3	%)
Effective tax rate			37.5	%			36.9	%			37.5	%

Table of Contents

Significant components of the Company’s deferred tax assets and liabilities are as follows:

		January 28,				January 30,
(In thousands)		2017				2016
Deferred tax assets:
Reserves not currently deductible		$	33,805			$	27,734
Employee benefits			15,206				10,594
Credit carryforwards			398				441
Accrued liabilities			10,539				10,704
Inventory valuation			3,630				257
Total deferred tax assets			63,578				49,730
Deferred tax liabilities:
Property and equipment			73,454				48,898
Deferred rent obligation			62,252				49,548
Prepaid expenses			14,370				10,811
Total deferred tax liabilities			150,076				109,257
Net deferred tax liability		$	(86,498	)		$	(59,527	)

At January 28, 2017 and January 30, 2016, the Company had $398 and $441, respectively, of credit carryforwards for state income tax purposes.

The Company accounts for uncertainty in income taxes in accordance with the ASC rules for income taxes. The reserve for uncertain tax positions was $3,305 and $2,262 at January 28, 2017 and January 30, 2016, respectively. The balance is the Company’s best estimate of the potential liability for uncertain tax positions. A reconciliation of the Company’s unrecognized tax benefits, excluding interest and penalties, is as follows:

(In thousands)		January 28, 2017				January 30, 2016
Balance at beginning of the period		$	2,262			$	1,414
Increase due to a current year position			1,048				900
Decrease due to a prior period position			(5	)			(52	)
Balance at the end of the period		$	3,305			$	2,262

The Company acknowledges that the amount of unrecognized tax benefits may change in the next twelve months. However, it does not expect the change to have a significant impact on its consolidated financial statements. Income tax-related interest and penalties were insignificant for fiscal 2016 and 2015.

The Company files tax returns in the U.S. Federal and State jurisdictions. The Company is no longer subject to U.S. Federal examinations by the Internal Revenue Services for years before 2013 and is no longer subject to examinations by State authorities before 2012.

7. Notes payable

In 2011, the Company entered into an Amended and Restated Loan and Security Agreement with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent and a Lender thereunder, Wells Fargo Capital Finance LLC as a Lender, J.P. Morgan Securities LLC as a Lender, JP Morgan Chase Bank, N.A. as a Lender and PNC Bank, National Association, as a Lender, which has been amended multiple times since 2011 (as amended, the Loan Agreement). The Loan Agreement currently matures in December 2018, provides maximum revolving loans equal to the lesser of $200,000 or a percentage of eligible owned inventory, contains a $10,000 subfacility for letters of credit and allows the Company to increase the revolving facility by an additional $50,000, subject to consent by each lender and other conditions. The Loan Agreement contains a requirement to maintain a minimum amount of excess borrowing availability at all times. Substantially all of the Company’s

Table of Contents

assets are pledged as collateral for outstanding borrowings under the facility. Outstanding borrowings will bear interest at the prime rate or London Interbank Offered Rate plus 1.50% and the unused line fee is 0.20%.

As of January 28, 2017 and January 30, 2016, the Company had no borrowings outstanding under the credit facility and the Company was in compliance with all terms and covenants of the agreement.

8. Fair value measurements

The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximates their estimated fair values due to the short maturities of these instruments.

Fair value is measured using inputs from the three levels of the fair value hierarchy, which are described as follows:

	•		Level 1 – observable inputs such as quoted prices for identical instruments in active markets.

	•		Level 2 – inputs other than quoted prices in active markets that are observable either directly or indirectly through corroboration with observable market data.

	•		Level 3 – unobservable inputs in which there is little or no market data, which would require the Company to develop its own assumptions.

As of January 28, 2017 and January 30, 2016, the Company held financial liabilities of $10,474 and $7,491, respectively, related to its non-qualified deferred compensation plan. The liabilities have been categorized as Level 2 as they are based on third-party reported values which are based primarily on quoted market prices of underlying assets of the funds within the plan.

9. Investments

The Company’s short-term investments as of January 28, 2017 and January 30, 2016, consist of $30,000 and $130,000, respectively, in certificates of deposit. These short-term investments are carried at cost, which approximates fair value and are recorded in the Consolidated Balance Sheets in Short-term investments. The contractual maturity of the Company’s investments was less than twelve months at January 28, 2017.

10. Share-based awards

Equity incentive plans

The Company has had a number of equity incentive plans over the years. The plans were adopted in order to attract and retain the best available personnel for positions of substantial authority and to provide additional incentive to employees, directors, and consultants to promote the success of the Company’s business. Incentive compensation was awarded under the Amended and Restated Restricted Stock Option Plan until April 2002 and under the 2002 Equity Incentive Plan through July 2007, at which time the 2007 Incentive Award Plan was adopted. All of the plans generally provided for the grant of incentive stock options, non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, and other types of awards to employees, consultants and directors. Unless provided otherwise by the administrator of the plan, options vested over four years at the rate of 25% per year from the date of grant and most must be exercised within ten years. Options were granted with the exercise price equal to the fair value of the underlying stock on the date of grant.

Amended and Restated 2011 Incentive award plan

In June 2016, the Company adopted the Amended and Restated 2011 Incentive Award Plan (the 2011 Plan). The 2011 Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, performance awards, dividend equivalent rights, stock payments, deferred stock and cash-based awards to employees, consultants, and directors. Following its original adoption in June 2011, awards are only being made under the 2011 Plan, and no further awards will be made under any prior plan. As of January 28, 2017, the 2011 Plan reserves for the issuance upon grant or exercise of awards up to 3,912 shares of the Company’s common stock.

Table of Contents

The Company recorded stock compensation expense of $19,340, $15,594 and $14,923 for fiscal 2016, 2015 and 2014, respectively. Cash received from option exercises under all share-based payment arrangements for fiscal 2016, 2015 and 2014 was $16,293, $19,646 and $10,639, respectively. The total income tax benefit recognized in the income statement for equity compensation arrangements was $6,764, $5,354 and $3,526 for fiscal 2016, 2015 and 2014, respectively. The actual tax benefit realized for the tax deductions from option exercise and restricted stock vesting of the share-based payment arrangements totaled $15,868, $14,970 and $6,892, respectively, for fiscal 2016, 2015 and 2014.

Employee stock options

The Company measures share-based compensation cost on the grant date, based on the fair value of the award, and recognizes the expense on a straight-line method over the requisite service period for awards expected to vest. The Company estimated the grant date fair value of stock options using a Black-Scholes valuation model using the following weighted-average assumptions:

		Fiscal 2016		Fiscal 2015		Fiscal 2014
Volatility rate		35.0%		37.9%		40.7%
Average risk-free interest rate		1.2%		1.6%		1.4%
Average expected life (in years)		3.5		4.9		3.8
Dividend yield		None		None		None

The expected volatility is based on the historical volatility of the Company’s common stock. The risk free interest rate is based on the United States Treasury yield curve in effect on the date of grant for the respective expected life of the option. The expected life represents the time the options granted are expected to be outstanding. The expected life of options granted is derived from historical data on Ulta Beauty stock option exercises. Forfeitures of options are estimated at the grant date based on historical rates of the Company’s stock option activity and reduce the compensation expense recognized. The Company does not currently pay a regular dividend.

The Company granted 110 stock options during fiscal 2016. The compensation cost that has been charged against income for stock option grants was $7,983, $7,899, and $9,078 for fiscal 2016, 2015, and 2014, respectively. The weighted-average grant date fair value of options granted in fiscal 2016, 2015 and 2014 was $53.02, $56.44 and $32.38, respectively. The total fair value of stock options issued that vested during fiscal 2016, 2015 and 2014 was $5,932, $8,236 and $8,799, respectively. At January 28, 2017, there was approximately $19,938 of unrecognized compensation expense related to unvested stock options. The unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately three years. The total intrinsic value of options exercised was $27,468, $36,610 and $15,032 in fiscal 2016, 2015 and 2014, respectively.

A summary of the status of the Company’s stock option activity is presented in the following table (shares in thousands):

		Fiscal 2016								Fiscal 2015								Fiscal 2014
		Number of options				Weighted- average exercise price				Number of options				Weighted- average exercise price				Number of options				Weighted- average exercise price
Common stock options outstanding
Beginning of year			939			$	104.58				1,073			$	72.12				1,090			$	56.94
Granted			110				193.64				294				160.01				371				99.40
Exercised			(194	)			83.88				(356	)			55.20				(238	)			44.79
Forfeited			(25	)			118.97				(72	)			91.74				(150	)			72.57
End of year			830			$	120.78				939			$	104.58				1,073			$	72.12
Exercisable at end of year			280			$	69.69				316			$	61.44				440			$	43.98
Vested and Expected to vest			786			$	119.32				890			$	103.36				1,028			$	71.28

Table of Contents

The following table presents information related to options outstanding and options exercisable at January 28, 2017, under the Company’s stock option plans based on ranges of exercise prices (shares in thousands):

		Options outstanding												Options exercisable
Range of Exercise Prices		Number of options				Weighted- average remaining contractual life (years)				Weighted- average exercise price				Number of options				Weighted- average remaining contractual life (years)				Weighted- average exercise price
$9.67 - $57.42			112				3			$	25.13				112				3			$	25.13
$69.96 - $96.81			119				6				82.19				81				6				80.65
$97.89 - $99.66			153				7				98.12				36				7				98.08
$101.35 - $153.87			134				8				136.78				50				8				129.41
$164.06 - $165.27			206				9				164.09				1				9				165.01
$191.76 - $249.64			106				9				193.70				—				—				—
$9.67 - $249.64			830				7			$	120.78				280				5			$	69.69

The aggregate intrinsic value of outstanding and exercisable options as of January 28, 2017 was $125,061 and $56,533, respectively. The last reported sale price of our common stock on the NASDAQ Global Select Market on January 28, 2017 was $271.44 per share.

Restricted stock units

The Company issued 55 restricted stock units during fiscal 2016 to certain employees and its Board of Directors. Employee grants will generally cliff vest after three years and director grants will cliff vest within one year. The grant date fair value of restricted stock units is based on the closing market price of shares of the Company’s common stock on the date of grant. Restricted stock units are expensed straight-line over the requisite service period. The compensation expense recorded in fiscal 2016, 2015 and 2014 was $7,295, $6,040 and $5,845, respectively. Forfeitures of restricted stock units are estimated at the grant date based on historical rates of the Company’s stock award activity and reduce the compensation expense recognized. At January 28, 2017, unrecognized compensation cost related to restricted stock units was $11,920. The unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately one and a half years.

A summary of the status of the Company’s restricted stock units activity is presented in the following table (shares in thousands):

		Fiscal 2016								Fiscal 2015								Fiscal 2014
		Number of units				Weighted- average grant date fair value				Number of units				Weighted- average grant date fair value				Number of units				Weighted- average grant date fair value
Restricted stock units outstanding
Beginning of year			144			$	116.42				151			$	91.74				162			$	87.54
Granted			55				203.40				60				154.77				71				97.73
Vested			(46	)			98.06				(47	)			102.36				(52	)			91.91
Forfeited			(11	)			138.25				(20	)			96.11				(30	)			82.91
End of year			142			$	154.71				144			$	116.42				151			$	91.74
Expected to vest			131			$	154.71				132			$	116.42				140			$	91.74

Performance-based restricted stock units

The Company issued 24 performance-based restricted stock units in fiscal 2016. These awards will cliff vest after three years based upon achievement of pre-established goals at the end of the second year of the term. Consistent

Table of Contents

with restricted stock units, the grant date fair value of performance-based restricted stock units is based on the closing market price of shares of the Company’s common stock on the date of grant. Performance-based units are expensed on a straight-line basis over the requisite service period, based on the probability of achieving the performance goal, with changes in expectations recognized as an adjustment to earnings in the period of the change. If the performance goal is not met, no compensation cost is recognized and any previously recognized compensation cost is reversed. The compensation expense recorded in fiscal 2016 and 2015 was $4,062 and $1,655, respectively. Forfeitures of performance-based restricted stock awards are estimated at the grant date based on historical rates of the Company’s stock award activity and reduce the compensation expense recognized. At January 28, 2017, unrecognized compensation cost related to performance-based restricted stock units was $8,610. The unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately two years.

A summary of the status of the Company’s performance-based restricted stock unit activity is presented in the following table (shares in thousands):

		Fiscal 2016								Fiscal 2015
		Number of units				Weighted- average grant date fair value				Number of units				Weighted- average grant date fair value
Performance-based restricted stock units outstanding
Beginning of year			20			$	151.20				—			$	—
Granted			24				191.76				22				151.20
Vested			—				—				—				—
Forfeited			(3	)			167.71				(2	)			151.20
End of year			41			$	173.47				20			$	151.20
Expected to vest			38			$	173.47				19			$	151.20

The number of performance-based units presented is based on achieving the targeted performance goals as defined in the performance-based unit agreements. As of January 28, 2017, the maximum number of units that could vest under the provisions of the agreements was 82.

11. Net income per common share

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

		Fiscal year ended
(In thousands, except per share data)		January 28, 2017				January 30, 2016				January 31, 2015
Numerator for diluted net income per share – net income		$	409,760			$	320,008			$	257,135
Denominator for basic net income per share – weighted-average common shares			62,519				63,949				64,335
Dilutive effect of stock options and non-vested stock			332				326				316
Denominator for diluted net income per share			62,851				64,275				64,651
Net income per common share:
Basic		$	6.55			$	5.00			$	4.00
Diluted		$	6.52			$	4.98			$	3.98

The denominator for diluted net income per common share for fiscal years 2016, 2015 and 2014 exclude 142, 370 and 686 employee stock options and restricted stock units, respectively, due to their anti-dilutive effects. Outstanding performance-based restricted stock units are included in the computation of dilutive shares only to

Table of Contents

the extent that the underlying performance conditions are satisfied prior to the end of the reporting period or would be considered satisfied if the end of the reporting period were the end of the related contingency period and the results would be dilutive under the treasury stock method.

12. Employee benefit plans

The Company provides a 401(k) retirement plan covering all employees who qualify as to age and length of service. The plan is funded through employee contributions and a Company match. In fiscal 2016, 2015 and 2014, the Company match was 100% of the first 3.0% of eligible compensation. As of January 28, 2017 and January 30, 2016, the liability for the Company match was $6,317 and $5,031, respectively.

The Company also has a non-qualified deferred compensation plan for highly compensated employees whose contributions are limited under qualified defined contribution plans. The plan is funded through employee contributions and a Company match. In fiscal 2016, 2015 and 2014, the Company match was 100% of the first 3.0% of salary. For fiscal year 2016 and 2015, the liability for the Company match was $753 and $554, respectively. Amounts contributed and deferred under the plan are credited or charged with the performance of investment options offered under the plan as elected by the participants. In the event of bankruptcy, the assets of this plan are available to satisfy the claims of general creditors. The liability for compensation deferred under the Company’s plan included in other long-term liabilities was $10,474 and $7,491 as of January 28, 2017 and January 30, 2016, respectively. The Company manages the risk of changes in the fair value of the liability for deferred compensation by electing to match its liability under the plan with investment vehicles that offset a substantial portion of its exposure. The cash value of the investment vehicles included in deferred compensation plan assets was $11,283 and $8,145 as of January 28, 2017 and January 30, 2016, respectively. Total expense recorded under this plan is included in selling, general and administrative expenses and was insignificant during fiscal 2016 and 2015.

13. Selected quarterly financial data (unaudited)

The following tables set forth the Company’s unaudited quarterly results of operations for each of the quarters in fiscal 2016 and fiscal 2015. The Company’s quarterly periods are the 13 weeks ending on the Saturday closest to April 30, July 31, October 31 and January 31.

		2016
		First				Second				Third				Fourth
(In thousands, except per share data)
Net sales		$	1,073,716			$	1,069,215			$	1,131,232			$	1,580,574
Cost of sales			683,286				684,377				704,179				1,035,666
Gross profit			390,430				384,838				427,053				544,908
Selling, general and administrative expenses			240,724				236,380				280,464				316,266
Pre-opening expenses			2,542				4,689				6,928				4,412
Operating income			147,164				143,769				139,661				224,230
Interest income, net			(315	)			(248	)			(211	)			(116	)
Income before income taxes			147,479				144,017				139,872				224,346
Income tax expense			55,503				54,013				52,310				84,128
Net income		$	91,976			$	90,004			$	87,562			$	140,218
Net income per common share:
Basic		$	1.46			$	1.44			$	1.40			$	2.25
Diluted		$	1.45			$	1.43			$	1.40			$	2.24

Table of Contents

		2015
		First				Second				Third				Fourth
(In thousands, except per share data)
Net sales		$	868,122			$	876,999			$	910,700			$	1,268,295
Cost of sales			564,938				570,524				575,062				829,259
Gross profit			303,184				306,475				335,638				439,036
Selling, general and administrative expenses			192,485				183,937				218,763				268,169
Pre-opening expenses			3,117				4,078				6,106				1,381
Operating income			107,582				118,460				110,769				169,486
Interest income, net			(311	)			(276	)			(283	)			(273	)
Income before income taxes			107,893				118,736				111,052				169,759
Income tax expense			40,947				44,567				39,982				61,936
Net income		$	66,946			$	74,169			$	71,070			$	107,823
Net income per common share:
Basic		$	1.04			$	1.16			$	1.11			$	1.69
Diluted		$	1.04			$	1.15			$	1.11			$	1.69

The sum of the quarterly net income per common share may not equal the annual total due to quarterly changes in the weighted average shares and share equivalents outstanding.

14. Share repurchase program

On September 11, 2014, the Company announced that the Board of Directors authorized a share repurchase program (the 2014 Share Repurchase Program) pursuant to which the Company could repurchase up to $300,000 of the Company’s common stock. The 2014 Share Repurchase Program authorization revoked the previously authorized, but unused amounts of $112,664 from the share repurchase program adopted in 2013. On March 12, 2015, the Company announced that the Board of Directors authorized an increase of $100,000 to the 2014 Share Repurchase Program effective March 17, 2015. The 2014 Share Repurchase Program did not have an expiration date, but provided for suspension or discontinuation at any time.

On March 10, 2016, the Company announced that the Board of Directors authorized a new share repurchase program (the 2016 Share Repurchase Program) pursuant to which the Company may repurchase up to $425,000 of the Company’s common stock. The 2016 Share Repurchase Program authorization revoked the previously authorized, but unused amounts of $172,386 from the 2014 Share Repurchase Program. The 2016 Share Repurchase Program does not have an expiration date and may be suspended or discontinued at any time.

As part of the 2016 Share Repurchase Program, the Company entered into an Accelerated Share Repurchase (ASR) agreement with Goldman, Sachs & Co. to repurchase $200,000 of the Company’s common stock. Under the ASR agreement, the Company paid $200,000 to Goldman, Sachs & Co. and received an initial delivery of 852 shares in the first quarter of 2016, which were retired and represented 80% of the total shares the Company expected to receive based on the market price at the time of the initial delivery. In May 2016, the ASR settled and an additional 153 shares were delivered to the Company and retired. The final number of shares delivered upon settlement was determined with reference to the average price of the Company’s common stock over the term of the agreement. The transaction was accounted for as an equity transaction. The par value of shares received was recorded as a reduction to common stock with the remainder recorded as a reduction to additional paid-in capital and retained earnings. Upon receipt of the shares, there was an immediate reduction in the weighted average common shares calculation for basic and diluted earnings per share.

During fiscal 2014, we purchased 321 shares of common stock for $39,923 at an average price of $124.31. During fiscal 2015, we purchased 1,034 shares of common stock for $167,396 at an average price of $161.81. During fiscal 2016, excluding the shares repurchased under the ASR, we purchased 634 shares of common stock for $144,275 at an average price of $227.49.

Table of Contents

15. Subsequent event

On March 9, 2017, the Company announced that the Board of Directors authorized a new share repurchase program (the 2017 Share Repurchase Program) pursuant to which the Company may repurchase up to $425,000 of the Company’s common stock. The 2017 Share Repurchase Program authorization revokes the previously authorized but unused amounts from the 2016 Share Repurchase Program. The 2017 Share Repurchase Program does not have an expiration date and may be suspended or discontinued at any time.

Table of Contents

Item 15. Exhibits and Financial Statement Schedules | --- | --- |

(b)	Financial Statement Schedule

Ulta Beauty, Inc.

Schedule II — Valuation and Qualifying Accounts

(In thousands)

Description		Balance at beginning of period				Charged to costs and expenses				Deductions				Balance at end of period
Fiscal 2016
Allowance for doubtful accounts		$	1,112			$	1,709			$	(742	)(a)		$	2,079
Shrink reserve			15,259				35,505				(31,699	)			19,065
Inventory – lower of cost or market reserve			5,003				10,691				(7,120	)			8,574
Insurance:
Workers Comp / General Liability Prepaid Asset			(1,926	)(b)			9,578				(7,751	)			(99	)
Employee Health Care Accrued Liability			4,187				67,715				(64,705	)			7,197
Fiscal 2015
Allowance for doubtful accounts		$	1,346			$	2,063			$	(2,297	)(a)		$	1,112
Shrink reserve			11,598				29,894				(26,233	)			15,259
Inventory – lower of cost or market reserve			5,253				3,323				(3,573	)			5,003
Insurance:
Workers Comp / General Liability Prepaid Asset			(1,789	)(b)			5,935				(6,072	)			(1,926	)
Employee Health Care Accrued Liability			2,435				55,423				(53,671	)			4,187
Fiscal 2014
Allowance for doubtful accounts		$	915			$	874			$	(443	)(a)		$	1,346
Shrink reserve			9,358				22,374				(20,134	)			11,598
Inventory – lower of cost or market reserve			4,861				4,368				(3,976	)			5,253
Insurance:
Workers Comp / General Liability Prepaid Asset			(1,817	)(b)			6,899				(6,871	)			(1,789	)
Employee Health Care Accrued Liability			2,606				41,335				(41,506	)			2,435

	(a)	Represents write-off of uncollectible accounts

	(b)	Represents prepaid insurance

All other financial statement schedules required by Form 10-K have been omitted because they were inapplicable or otherwise not required under the instructions contained in Regulation S-X.

(c)	Exhibits

The exhibits listed in the accompanying Exhibit Index are filed as part of this Annual Report on Form 10-K.

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Bolingbrook, State of Illinois, on March 28, 2017.

ULTA BEAUTY, INC.
By:		/s/ Scott M. Settersten
		Scott M. Settersten
		Chief Financial Officer, Treasurer and Assistant Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Signatures		Title		Date
/s/ Mary N. Dillon Mary N. Dillon		Chief Executive Officer and Director (Principal Executive Officer)		March 28, 2017
/s/ Scott M. Settersten Scott M. Settersten		Chief Financial Officer, Treasurer and Assistant Secretary (Principal Financial and Accounting Officer)		March 28, 2017
/s/ Michelle L. Collins Michelle L. Collins		Director		March 28, 2017
/s/ Robert F. DiRomualdo Robert F. DiRomualdo		Director		March 28, 2017
/s/ Dennis K. Eck Dennis K. Eck		Director		March 28, 2017
/s/ Catherine Halligan Catherine Halligan		Director		March 28, 2017
/s/ Charles Heilbronn Charles Heilbronn		Director		March 28, 2017
/s/ Michael R. MacDonald Michael R. MacDonald		Director		March 28, 2017
/s/ George Mrkonic George Mrkonic		Director		March 28, 2017
/s/ Lorna E. Nagler Lorna E. Nagler		Director		March 28, 2017
/s/ Charles J. Philippin Charles J. Philippin		Chairman of the Board of Directors		March 28, 2017
/s/ Vanessa A. Wittman Vanessa A. Wittman		Director		March 28, 2017

Table of Contents

Ulta Beauty, Inc.

Exhibit Index to Annual Report on Form 10-K

For the Fiscal Year Ended January 28, 2017

								Incorporated by Reference
Exhibit Number		Description of document		Filed Herewith				Form				Exhibit Number		File Number				Filing Date
2		Agreement and Plan of Merger, dated as of January 27, 2017, by and among Ulta Salon, Cosmetics & Fragrance, Inc., Ulta Beauty, Inc. and Ulta Merger Sub, Inc.							8-K			2			001-33764				1/30/2017
3.1		Certificate of Incorporation of Ulta Beauty, Inc.							8-K			3.1			001-33764				1/30/2017
3.2		Certificate of Designations of Series A Junior Participating Preferred Stock of Ulta Beauty, Inc.							8-K			3.2			001-33764				1/30/2017
3.3		Bylaws of Ulta Beauty, Inc.							8-K			3.3			001-33764				1/30/2017
4.1		Stockholder Rights Agreement							S-1			4.4			333-144405				8/17/2007
4.2		Amendment to Stockholder Rights Agreement, dated as of January 29, 2017							8-K			4			001-33764				1/30/2017
10.01		Compensation Plan Agreement, dated as of January 27, 2017 between Ulta Salon, Cosmetics & Fragrance, Inc. and Ulta Beauty, Inc.*							8-K			10.1			001-33764				1/30/2017
10.02		Amended and Restated Loan and Security Agreement, dated October 19, 2011 (as further amended through November 22, 2016), by and among Ulta Salon, Cosmetics & Fragrance, Inc., Wells Fargo Bank, National Association, Wells Fargo Capital Finance, LLC, J.P. Morgan Securities LLC, JPMorgan Chase Bank, N.A. and PNC Bank, National Association							8-K			10.2			001-33764				1/30/2017
10.03		Ulta Beauty, Inc. Second Amended and Restated Restricted Stock Option Plan*							S-1			10.7			333-144405				8/17/2007
10.04		Amendment to Ulta Beauty, Inc. Second Amended and Restated Restricted Stock Option Plan*							S-1			10.7(a)			333-144405				8/17/2007
10.05		Ulta Beauty, Inc. 2002 Equity Incentive Plan*							S-1			10.9			333-144405				8/17/2007
10.06		Ulta Beauty, Inc. 2007 Incentive Award Plan*							S-1			10.10			333-144405				9/27/2007
10.07		Amended and Restated Ulta Beauty, Inc. 2011 Incentive Award Plan*							DEF 14A			Appendix A			001-33764				4/20/2016

Table of Contents

								Incorporated by Reference
Exhibit Number		Description of document		Filed Herewith				Form				Exhibit Number				File Number				Filing Date
10.08		Form of Restricted Stock Unit Award Agreement — Performance Shares under the 2011 Incentive Award Plan*							8-K				10.1				001-33764				3/31/2015
10.09		Ulta Salon, Cosmetics & Fragrance, Inc. Non-qualified Deferred Compensation Plan*							10-K				10.17				001-33764				4/2/2009
10.10		Letter Agreement dated June 20, 2013 between Ulta Salon, Cosmetics & Fragrance, Inc. and Mary N. Dillon*							8-K				10.1				001-33764				6/24/2013
10.11		Letter Agreement dated September 13, 2013 between Ulta Inc. and Jeffrey J. Childs*							10-Q				10.1				001-33764				6/10/2014
10.12		Letter Agreement dated January 6, 2014 between Ulta Inc. and David Kimbell*							10-Q				10.1				001-33764				6/4/2015
10.13		Form of Option Agreement under the 2011 Incentive Award Plan*			X
10.14		Form of Restricted Stock Unit Award Agreement under the 2011 Incentive Award Plan*			X
10.15		Letter Agreement dated August 3, 2015 between Ulta Inc. and Jodi J. Caro*			X
10.16		Ulta Beauty, Inc. Executive Change in Control and Severance Plan*			X
21		List of Subsidiaries			X
23		Consent of Independent Registered Public Accounting Firm			X
31.1		Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002			X
31.2		Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002			X
32		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002			X

Table of Contents

								Incorporated by Reference
Exhibit Number		Description of document		Filed Herewith				Form				Exhibit Number				File Number				Filing Date
99		Proxy Statement for the 2017 Annual Meeting of Stockholders. [To be filed with the SEC under Regulation 14A within 120 days after January 28, 2017; except to the extent specifically incorporated by reference, the Proxy Statement for the 2017 Annual Meeting of Stockholders shall not be deemed to be filed with the SEC as part of this Annual Report on Form 10-K]
101.INS		XBRL Instance			X
101.SCH		XBRL Taxonomy Extension Schema			X
101.CAL		XBRL Taxonomy Extension Calculation			X
101.LAB		XBRL Taxonomy Extension Labels			X
101.PRE		XBRL Taxonomy Extension Presentation			X
101.DEF		XBRL Taxonomy Extension Definition			X

*	A management contract or compensatory plan or arrangement.