Item 15. Exhibits and Financial Statement Schedules

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

Reports of Independent Registered Public Accounting Firm	45
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

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Ulta Beauty, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Ulta Beauty, Inc. (the Company) as of February 3, 2018, and January 28, 2017, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended February 3, 2018, and the related notes and financial statement schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at February 3, 2018 and January 28, 2017, and the consolidated results of its operations and its cash flows for each of the three years in the period ended February 3, 2018, 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) (PCAOB), the Company's internal control over financial reporting as of February 3, 2018, 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 April 3, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company‘s management. Our responsibility is to express an opinion on the Company‘s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company‘s auditor since 1997.

Chicago, Illinois

April 3, 2018

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Ulta Beauty, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Ulta Beauty, Inc.’s internal control over financial reporting as of February 3, 2018, 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). In our opinion, Ulta Beauty, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of February 3, 2018, based on COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of February 3, 2018 and January 28, 2017, the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended February 3, 2018, and the related notes and financial statement schedule listed in the Index at Item 15 and our report dated April 3, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the 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.

Definition and Limitations of Internal Control Over Financial Reporting

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.

/s/ Ernst & Young LLP

Chicago, Illinois

April 3, 2018

Ulta Beauty, Inc.

Consolidated Balance Sheets

		February 3,			January 28,
(In thousands, except per share data)		2018			2017
Assets
Current assets:
Cash and cash equivalents		$	277,445		$	385,010
Short-term investments			120,000			30,000
Receivables, net			99,719			88,631
Merchandise inventories, net			1,096,424			943,975
Prepaid expenses and other current assets			98,666			88,621
Prepaid income taxes			1,489			—
Total current assets			1,693,743			1,536,237
Property and equipment, net			1,189,453			1,004,358
Deferred compensation plan assets			16,827			11,283
Other long-term assets			8,664			—
Total assets		$	2,908,687		$	2,551,878
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	325,758		$	259,518
Accrued liabilities			302,307			260,854
Accrued income taxes			14,101			8,971
Total current liabilities			642,166			529,343
Deferred rent			407,916			366,191
Deferred income taxes			59,403			86,498
Other long-term liabilities			24,985			19,628
Total liabilities			1,134,470			1,001,660
Commitments and contingencies (Note 4)
Stockholders' equity:
Common stock, $0.01 par value, 400,000 shares authorized; 61,441 and 62,733 shares issued; 60,822 and 62,129 shares outstanding; at February 3, 2018, and January 28, 2017, respectively			614			627
Treasury stock-common, at cost			(18,767)			(14,524)
Additional paid-in capital			698,917			658,330
Retained earnings			1,093,453			905,785
Total stockholders’ equity			1,774,217			1,550,218
Total liabilities and stockholders’ equity		$	2,908,687		$	2,551,878

See accompanying notes to consolidated financial statements.

Ulta Beauty, Inc.

Consolidated Statements of Income

			Fiscal year ended
			February 3,			January 28,			January 30,
(In thousands, except per share data)			2018			2017			2016
Net sales			$	5,884,506		$	4,854,737		$	3,924,116
Cost of sales				3,787,697			3,107,508			2,539,783
Gross profit				2,096,809			1,747,229			1,384,333
Selling, general and administrative expenses				1,287,232			1,073,834			863,354
Pre-opening expenses				24,286			18,571			14,682
Operating income				785,291			654,824			506,297
Interest income, net				(1,568)	R		(890)			(1,143)
Income before income taxes				786,859			655,714			507,440
Income tax expense				231,625			245,954			187,432
Net income			$	555,234		$	409,760		$	320,008
Net income per common share:
Basic			$	9.02		$	6.55		$	5.00
Diluted			$	8.96		$	6.52		$	4.98
Weighted average common shares outstanding:
Basic				61,556			62,519			63,949
Diluted				61,975			62,851			64,275

See accompanying notes to consolidated financial statements.

Ulta Beauty, Inc.

Consolidated Statements of Cash Flows

		Fiscal year ended
		February 3,			January 28,			January 30,
(In thousands)		2018			2017			2016
Operating activities
Net income		$	555,234		$	409,760		$	320,008
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			252,713			210,295			165,049
Deferred income taxes			(27,095)			26,971			5,809
Non-cash stock compensation charges			24,399			19,340			15,594
Excess tax benefits from stock-based compensation			—			(9,053)			(9,497)
Loss on disposal of property and equipment			7,518			9,140			3,690
Change in operating assets and liabilities:
Receivables			(11,088)			(23,639)			(12,552)
Merchandise inventories			(152,449)			(182,182)			(180,564)
Prepaid expenses and other current assets			(10,045)			(16,073)			(6,000)
Income taxes			3,641			5,322			2,795
Accounts payable			66,240			63,344			5,396
Accrued liabilities			36,891			71,057			37,926
Deferred rent			41,725			44,402			27,662
Other assets and liabilities			(8,318)			5,701			558
Net cash provided by operating activities			779,366			634,385			375,874
Investing activities
Purchases of short-term investments			(330,000)			(90,000)			(130,000)
Proceeds from short-term investments			240,000			190,000			150,209
Purchases of property and equipment			(440,714)			(373,447)			(299,167)
Net cash used in investing activities			(530,714)			(273,447)			(278,958)
Financing activities
Repurchase of common shares			(367,581)			(344,275)			(167,396)
Stock options exercised			16,190			16,293			19,646
Purchase of treasury shares			(4,243)			(2,839)			(1,972)
Excess tax benefits from stock-based compensation			—			9,053			9,497
Debt issuance costs			(583)			—			—
Net cash used in financing activities			(356,217)			(321,768)			(140,225)
Net increase (decrease) in cash and cash equivalents			(107,565)			39,170			(43,309)
Cash and cash equivalents at beginning of year			385,010			345,840			389,149
Cash and cash equivalents at end of year		$	277,445		$	385,010		$	345,840
Supplemental cash flow information
Cash paid for income taxes (net of refunds)		$	254,619		$	212,514		$	179,248
Non-cash investing activities:
Change in property and equipment included in accrued liabilities		$	4,562		$	2,446		$	13

See accompanying notes to consolidated financial statements.

Ulta Beauty, Inc.

Consolidated Statements of Stockholders’ Equity

							Treasury -
		Common Stock					Common Stock					Additional						Total
		Issued					Treasury					Paid-In			Retained			Stockholders'
(In thousands)		Shares		Amount			Shares		Amount			Capital			Earnings			Equity
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)		R	(2,839)		R	-			-			(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
Stock options exercised and other awards		212			2		-			-			16,188			-			16,190
Purchase of treasury shares		-			-		(15)			(4,243)			-			-			(4,243)
Net income		-			-		-			-			-			555,234			555,234
Stock compensation charge		-			-		-			-			24,399			-			24,399
Repurchase of common shares		(1,504)			(15)		-			-			-			(367,566)			(367,581)
Balance – February 3, 2018		61,441		$	614		(619)		$	(18,767)		$	698,917		$	1,093,453		$	1,774,217

See accompanying notes to consolidated financial statements.

Ulta Beauty, Inc. Notes to Consolidated Financial Statements (In thousands, except per share and store count 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 February 3, 2018, the Company operated 1,074 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
		February 3, 2018		January 28, 2017		January 30, 2016
Cosmetics		51%		51%		46%
Skincare, Bath & Fragrance		21%		20%		23%
Haircare Products & Styling Tools		19%		20%		22%
Salon Services		5%		5%		5%
Other		4%		4%		4%
		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 February 3, 2018 (fiscal 2017), January 28, 2017 (fiscal 2016), and January 30, 2016 (fiscal 2015) were 53, 52, and 52 week years, respectively.

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 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 due from vendors and landlord construction allowances earned but not yet received. These receivables are computed based on provisions of the vendor and lease agreements in place and the Company’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 $78,238 and $59,553 as of February 3, 2018 and January 28, 2017, respectively, and the receivable for landlord allowances was $12,729 and $23,186 as of February 3, 2018 and January 28, 2017, respectively. The allowance for doubtful receivables totaled $1,371 and $2,079 as of February 3, 2018 and January 28, 2017, 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 February 3, 2018 and January 28, 2017.

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

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. No significant impairment charges were recognized in fiscal 2017, fiscal 2016, or fiscal 2015. Impairment charges are included in selling, general and administrative (SG&A) expenses in the consolidated statements of income.

Customer loyalty program

The Company’s loyalty rewards program, Ultamate Rewards, is 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 the Company sells. The Company accrues the cost of anticipated redemptions related to this program at the time of the initial purchase based on historical experience. The accrued liability related to this loyalty program at February 3, 2018 and January 28, 2017 was $42,219 and $30,244, respectively. The cost of this program, which was $106,598, $77,145, and $54,464 in fiscal 2017, 2016, and 2015, respectively, is included in cost of sales in the consolidated statements of income.

Credit cards

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

The Company receives payments and reimbursements of expenses in accordance with the Agreements and based on usage of the Credit Cards. The Company recognizes 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 the consolidated statements of income.

Loyalty members earn points through purchases at Ulta Beauty and anywhere the co-branded credit card is accepted. Consistent with the current accounting for the customer loyalty program, the Company accrues the cost of anticipated redemptions of points at the time of the initial purchase and costs are included in cost of sales in the consolidated 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 consolidated 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.

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 retail store and e-commerce merchandise sales as well as salon service revenue. Revenue from merchandise sales at retail 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 service revenue is recognized when services are rendered. Salon service revenue amounted to $277,361, $241,105, and $209,249 in fiscal 2017, 2016, and 2015, respectively. E-commerce sales are recognized based on delivery of merchandise to the customer. E-commerce revenue amounted to $568,736, $345,342, and $221,077 in fiscal 2017, 2016, and 2015, 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.

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 $7,783, $5,335, and $3,728 in fiscal 2017, 2016, and 2015, respectively, and is recorded as a decrease in SG&A expenses in the consolidated statements of income. Deferred gift card revenue was $63,139 and $46,268 at February 3, 2018 and January 28, 2017, respectively, and is included in accrued liabilities on the consolidated balance sheets.

Vendor allowances

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

Advertising

Advertising expense consists principally of direct mail catalogs, newspaper inserts, television, radio, and digital advertising. The Company expenses the costs related to its advertising in the period the related promotional event occurs. Total advertising costs, exclusive of incentives from vendors and start-up advertising expense, amounted to $259,423, $212,714, and $187,158 in fiscal 2017, 2016, and 2015, respectively. Advertising expense as a percentage of sales was 4.4%, 4.4%, and 4.8% in fiscal 2017, 2016, and 2015, respectively. Prepaid advertising costs included in prepaid expenses and other current assets on the consolidated balance sheets were $12,811 and $9,901 as of February 3, 2018 and January 28, 2017, respectively.

Pre-opening expenses

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

Cost of sales

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

SG&A expenses includes payroll, bonus, and benefit costs for retail and corporate employees; advertising and marketing costs; credit card program incentives; gift card breakage; 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 store and distribution 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 in the consolidated statements of income.

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 basis over the requisite service period for awards expected to vest. The Company recorded stock compensation expense of $24,399, $19,340, and $15,594 in fiscal 2017, 2016, and 2015, 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 common 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 the Company will recognize revenue when the transfer of promised

goods or services to customers occurs in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The standard also calls for additional disclosures around the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. 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. This standard and subsequent amendments allow for either full retrospective or modified retrospective adoption.

The Company will adopt the new standard effective February 4, 2018 using the modified retrospective method applied to all contracts as of that date. ASU 2014‑09 will impact the recognition timing or classification of revenues and expenses for the loyalty program (by using the deferred revenue method instead of the incremental cost method), private label credit card and co-branded credit card programs (by recognizing amounts earned under the programs as revenue instead of as a reduction of SG&A expenses), gift card breakage (by including breakage within net sales instead of SG&A expenses under the proportional model), sales refund reserve (by grossing up the balance sheet to record a refund obligation and right of return asset instead of recognizing revenue net of returns), and e-commerce operations (by recognizing revenue upon shipment, when control of the merchandise transfers to the customer, instead of upon receipt by the customer).

The adoption of ASU 2014-09 will not have a material impact on the Company’s consolidated financial position, results of operations or cash flows. Upon adoption, the Company will recognize the cumulative effect of adopting this standard as an adjustment to the opening balance of retained earnings. Prior periods will not be retrospectively adjusted. The Company expects this adjustment will decrease the fiscal 2018 opening balance of retained earnings by $15,000 to $20,000, which is primarily related to the change in accounting for the loyalty program from the incremental cost method to the deferred revenue method as required by this 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. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, and have the option to use certain relief. ASU 2016‑02 is effective for public companies for annual reporting periods beginning after December 15, 2018, including interim reporting periods. Early adoption is permitted.

The Company will adopt the new standard in fiscal 2019. The Company’s ability to adopt depends on system readiness, including software procured from third-party providers, and completing an analysis of information necessary to quantify the financial statement impact. The Company formed a project team to review the current accounting policies and practices and assess the effect of the standard on the consolidated financial statements. The team completed a preliminary assessment of the potential impact of adopting ASU 2016‑02 on the consolidated financial statements. The adoption of ASU 2016‑02 will have a material impact on the Company’s consolidated financial position, but the Company is not able to quantify the difference at this time. The Company does not believe adoption of this standard will have a material impact on the Company’s consolidated 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 Company’s consolidated financial position, results of operations, or cash flows.

Recently adopted accounting pronouncements

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 changed how companies account for certain aspects of share-based payments to employees. Companies 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 were 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 changed, and two practical expedients for non-public entities were added. ASU 2016‑09 was effective for annual and interim reporting periods beginning after December 15, 2016.

The Company adopted the new guidance prospectively in the first quarter of fiscal 2017. The adoption resulted in a decrease in the provision for income taxes of $10,024 in fiscal 2017 due to the recognition of excess tax benefits for options exercised and the vesting of equity awards. The extent of excess tax benefits or deficiencies is subject to variation in the Company’s stock price and timing/extent of restricted stock units vesting and employee stock option exercises. Additionally, the consolidated statements of cash flows now present such tax benefits or deficiencies as an operating activity on a prospective basis. Based on the adoption methodology applied, the statement of cash flows classification of prior periods has not been adjusted. As allowed under the new guidance, the Company did not change its accounting principles relative to elements of this standard and continued its existing practice of estimating the number of awards that will be forfeited.

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 Company early adopted the new guidance, retrospectively, in the fourth quarter of fiscal 2017, and its adoption had no material impact on the Company’s consolidated financial position, results of operation, or 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 Company early adopted the new guidance, retrospectively, in the fourth quarter of fiscal 2017, and its adoption had no material impact on the Company’s consolidated financial position, results of operations, or cash flows.

Compensation – Stock Compensation: Scope of Modification Accounting

In May 2017, the FASB issued ASU 2017‑09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, which provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, and early adoption is permitted. The Company early adopted this standard in the fourth quarter of fiscal 2017, and its adoption had no impact on the Company’s consolidated financial position, results of operations, or cash flows.

3. Property and equipment

Property and equipment consists of the following:

		February 3,			January 28,
(In thousands)		2018			2017
Equipment and fixtures		$	834,931		$	708,754
Leasehold improvements			705,943			607,690
Electronic equipment and software			485,368			437,262
Construction-in-progress			122,419			49,411
			2,148,661			1,803,117
Less: accumulated depreciation and amortization			(959,208)			(798,759)
Property and equipment, net		$	1,189,453		$	1,004,358

The Company had no capitalized interest in fiscal 2017 or fiscal 2016.

4. Commitments and contingencies

Leases – The Company leases retail stores, distribution centers, corporate offices, and certain equipment under operating leases with various expiration dates through 2032. 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 $241,559, $202,942, and $181,487 in fiscal 2017, 2016, and 2015, respectively. Future minimum lease payments under operating leases as of February 3, 2018, are as follows:

		Operating
		Leases
Fiscal year		(In thousands)
2018		$	313,335
2019			313,562
2020			299,553
2021			281,092
2022			256,820
2023 and thereafter			770,159
Total minimum lease payments		$	2,234,521

Included in the operating lease schedule above is $279,574 of minimum lease payments for stores that are expected to open in future periods.

Contractual obligations – As of February 3, 2018, the Company had obligations of $6,397 related to commitments made to a third party for products and services for a new distribution center opening in fiscal 2018. Payments under this commitment were $24,502 and $11,528 in fiscal 2017 and 2016, respectively. In addition, the Company has entered into various non-cancelable advertising and other goods and service contracts. These agreements expire over one year and the obligations under these agreements were $12,605 as of February 3, 2018.

General litigation – The Company is involved in various legal proceedings that are incidental to the conduct of the business. In the opinion of management, the amount of any liability with respect to these proceedings, either individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

5. Accrued liabilities

Accrued liabilities consist of the following:

		February 3,			January 28,
(In thousands)		2018			2017
Accrued vendor liabilities (including accrued property and equipment costs)		$	42,462		$	44,804
Accrued customer liabilities			117,034			47,441
Accrued payroll, bonus, and employee benefits			82,593			84,555
Accrued taxes, other			27,616			24,883
Other accrued liabilities			32,602			59,171
Accrued liabilities		$	302,307		$	260,854

6. Income taxes

The provision for income taxes consists of the following:

		Fiscal			Fiscal			Fiscal
(In thousands)		2017			2016			2015
Current:
Federal		$	230,006		$	194,199		$	163,048
State			28,714			24,835			18,694
Total current			258,720			219,034			181,742
Deferred:
Federal			(26,256)			24,480			6,981
State			(839)			2,440			(1,291)
Total deferred			(27,095)			26,920			5,690
Provision for income taxes		$	231,625		$	245,954		$	187,432

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

		Fiscal			Fiscal			Fiscal
		2017			2016			2015
Federal statutory rate		33.7	%		35.0	%		35.0	%
State effective rate, net of federal tax benefit		2.4	%		2.8	%		2.2	%
Re-measurement of deferred tax liabilities		(4.9)	%		0.0	%		0.0	%
Excess deduction of stock compensation		(1.2)	%		0.0	%		0.0	%
Other		(0.6)	%		(0.3)	%		(0.3)	%
Effective tax rate		29.4	%		37.5	%		36.9	%

On December 22, 2017, the Tax Cuts and Jobs Act (Tax Reform) was enacted into law. This new legislation reduces the federal corporate tax rate to 21.0% effective January 1, 2018. In accordance with Section 15 of the Internal Revenue Code, the Company utilized a blended rate of 33.7% for the fiscal 2017 tax year by applying a prorated percentage of the number of days prior to and subsequent to the January 1, 2018 effective date. The Company recorded a provisional estimated after-tax benefit of $38,287 during the fourth quarter of fiscal 2017 based on the re-measurement of net deferred tax liabilities and $9,778 due to the lower tax rate in January 2018. Given the significant complexity of the Tax Reform, the Company will continue to evaluate and analyze the impact of this legislation. The $38,287 estimate is provisional and based on the Company’s initial analysis of the Tax Reform, and may be adjusted in future periods due to,

among other things, additional analysis and additional guidance that may be issued by the U.S. Department of Treasury, the Securities and Exchange Commission, and/or the Financial Accounting Standards Board.

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

		February 3,			January 28,
(In thousands)		2018			2017
Deferred tax assets:
Reserves not currently deductible		$	23,789		$	33,805
Employee benefits			15,273			15,206
Credit carryforwards			343			398
Accrued liabilities			14,625			10,539
Inventory valuation			847			3,630
Total deferred tax assets			54,877			63,578
Deferred tax liabilities:
Property and equipment			54,210			73,454
Deferred rent obligation			49,518			62,252
Prepaid expenses			10,552			14,370
Total deferred tax liabilities			114,280			150,076
Net deferred tax liability		$	(59,403)		$	(86,498)

At February 3, 2018, the Company had $343 of credit carryforwards for state income tax purposes that expire between 2022 and 2027.

The Company accounts for uncertainty in income taxes in accordance with the ASC rules for income taxes. The reserve for uncertain tax positions was $3,565 and $3,305 at February 3, 2018 and January 28, 2017, 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:

		February 3,			January 28,
(In thousands)		2018			2017
Balance at beginning of the period		$	3,305		$	2,262
Increase due to a prior year tax position			1,064			1,048
Decrease due to a prior period position			(804)			(5)
Balance at the end of the period		$	3,565		$	3,305

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 2017 and 2016.

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 2014 and is no longer subject to examinations by State authorities before 2013.

7. Notes payable

On August 23, 2017, the Company entered into a Second Amended and Restated Loan Agreement (the Loan Agreement) with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent and a Lender thereunder, Wells Fargo Bank, National Association and JPMorgan Chase Bank, N.A., as Lead Arrangers and Bookrunners, JPMorgan Chase Bank, N.A., as Syndication Agent and a Lender, PNC Bank, National Association, as Documentation Agent and a Lender, and the other lenders party thereto. The Loan Agreement matures on August 23, 2022, provides maximum revolving loans equal to the lesser of $400,000 or a percentage of eligible owned inventory (which borrowing base may, at the election of the Company and satisfaction of certain conditions, include a percentage of eligible owned receivables and qualified cash), contains a $20,000 subfacility for letters of credit and allows the Company to increase the revolving

facility by an additional $50,000, subject to the consent by each lender and other conditions. The Loan Agreement contains a requirement to maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 during such periods when availability under the Loan Agreement falls below a specified threshold. Substantially all of the Company’s assets are pledged as collateral for outstanding borrowings under the Loan Agreement. Outstanding borrowings will bear interest at either a base rate or the London Interbank Offered Rate plus 1.25%, and the unused line fee is 0.20% per annum.

As of February 3, 2018 and January 28, 2017, 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 February 3, 2018 and January 28, 2017, the Company held financial liabilities of $15,942 and $10,474, 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 February 3, 2018 and January 28, 2017, consist of $120,000 and $30,000, 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 February 3, 2018.

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 February 3, 2018, the 2011 Plan reserves for the issuance upon grant or exercise of awards up to 3,727 shares of the Company’s common stock.

The following table presents information related to the Company’s 2011 Incentive award plan:

		Fiscal			Fiscal			Fiscal
2011 Incentive award plan (in thousands)		2017			2016			2015
Compensation expense
Common stock options		$	8,993		$	7,983		$	7,899
Restricted stock units			9,507			7,295			6,040
Performance-based restricted stock units			5,899			4,062			1,655
Total stock compensation expense		$	24,399		$	19,340		$	15,594
Cash received from stock option exercises		$	16,190		$	16,293		$	19,646
Income tax benefit		$	10,024		$	6,764		$	5,354
Tax benefit realized		$	10,024		$	15,868		$	14,970

Common 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 basis 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		Fiscal		Fiscal
			2017		2016		2015
Volatility rate			30.9%		35.0%		37.9%
Average risk-free interest rate			1.6%		1.2%		1.6%
Average expected life (in years)			3.5		3.5		4.9
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 following table presents information related to the Company’s common stock options:

Common stock options		Fiscal			Fiscal			Fiscal
(in thousands, except weighted-average grant fair value)		2017			2016			2015
Weighted-average grant date fair value		$	69.61		$	53.02		$	56.44
Fair value of options vested		$	5,656		$	5,932		$	8,236
Intrinsic value of options exercised		$	29,449		$	27,468		$	36,610

At February 3, 2018, there was approximately $18,148 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 two and a half years.

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

		Fiscal 2017					Fiscal 2016					Fiscal 2015
					Weighted-					Weighted-					Weighted-
		Number of			average		Number of			average		Number of			average
		options			exercise price		options			exercise price		options			exercise price
Common stock options outstanding
Beginning of year		830		$	120.78		939		$	104.58		1,073		$	72.12
Granted		106			279.76		110			193.64		294			160.01
Exercised		(166)			97.44		(194)			83.88		(356)			55.20
Forfeited		(4)			120.71		(25)			118.97		(72)			91.74
End of year		766		$	147.76		830		$	120.78		939		$	104.58
Exercisable at end of year		261		$	81.72		280		$	69.69		316		$	61.44
Vested and Expected to vest		725		$	145.86		786		$	119.32		890		$	103.36

The following table presents information related to options outstanding and options exercisable at February 3, 2018, under the Company’s stock option plans based on ranges of exercise prices (shares in thousands):

		Options outstanding							Options exercisable
				Weighted-							Weighted-
				average							average
				remaining			Weighted-				remaining			Weighted-
		Number of		contractual life			average		Number of		contractual life			average
Range of Exercise Prices		options		(years)			exercise price		options		(years)			exercise price
$9.67 – $57.42		100		2		$	26.11		100		2		$	26.11
$69.96 – $96.81		72		5			84.34		64		5			83.15
$97.89 – $99.66		92		6			98.18		31		6			98.14
$101.35 – $153.87		87		7			138.70		39		7			131.60
$164.06 – $165.27		206		8			164.09		3		8			165.01
$191.76 – $281.53		209		9			237.17		24		8			193.87
$9.67 – $281.53		766		7		$	147.76		261		4		$	81.72

The aggregate intrinsic value of outstanding and exercisable options as of February 3, 2018 was $61,348 and $35,982, respectively. The last reported sale price of our common stock on the NASDAQ Global Select Market on February 3, 2018 was $219.47 per share.

Restricted stock units

The Company issues restricted stock units to certain employees and its Board of Directors. Employee grants will generally cliff vest after three years and director grants will cliff vest within one year. The grant date fair value of restricted 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 on a straight-line basis over the requisite service period. 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 February 3, 2018, unrecognized compensation cost related to restricted stock units was $13,621. 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 2017					Fiscal 2016					Fiscal 2015
				Weighted-					Weighted-					Weighted-
		Number of		average grant			Number of		average grant			Number of		average grant
		units		date fair value			units		date fair value			units		date fair value
Restricted stock units outstanding
Beginning of year		142		$	154.71		144		$	116.42		151		$	91.74
Granted		47			278.48		55			203.40		60			154.77
Vested		(46)			117.61		(46)			98.06		(47)			102.36
Forfeited		(9)			201.51		(11)			138.25		(20)			96.11
End of year		134		$	207.70		142		$	154.71		144		$	116.42
Expected to vest		123		$	207.70		131		$	154.71		132		$	116.42

Performance-based restricted stock units

The Company issues performance-based restricted stock units annually to certain employees. These awards will cliff vest after three years based upon achievement of pre-established goals at the end of the second year of the term. Consistent with restricted 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 restricted stock 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. Forfeitures of performance-based 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 February 3, 2018, unrecognized compensation cost related to performance-based restricted stock units was $7,075. The unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately one year.

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 2017					Fiscal 2016					Fiscal 2015
				Weighted-					Weighted-					Weighted-
		Number of		average			Number of		average			Number of		average
		units		grant date			units		grant date			units		grant date
Performance-based restricted stock units outstanding
Beginning of year		41		$	173.47		20		$	151.20		–		$	–
Granted		21			281.53		24			191.76		22			151.20
Change in performance award payout		19			151.20		–			–		–			–
Vested		–			–		–			–		–			–
Forfeited		(3)			186.90		(3)			167.71		(2)			151.20
End of year		78		$	196.81		41		$	173.47		20		$	151.20
Expected to vest		72		$	196.81		38		$	173.47		19		$	151.20

The number of performance-based restricted stock units granted is based on achieving the targeted performance goals as defined in the performance-based restricted stock unit agreements. As of February 3, 2018, the maximum number of units that could vest under the provisions of the agreements was 121.

11. Net income per common share

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

			Fiscal year ended
			February 3,			January 28,			January 30,
(In thousands, except per share data)			2018			2017			2016
Numerator for diluted net income per share – net income			$	555,234		$	409,760		$	320,008
Denominator for basic net income per share – weighted-average common shares				61,556			62,519			63,949
Dilutive effect of stock options and non-vested stock				419			332			326
Denominator for diluted net income per share				61,975			62,851			64,275
Net income per common share:
Basic			$	9.02		$	6.55		$	5.00
Diluted			$	8.96		$	6.52		$	4.98

The denominator for diluted net income per common share for fiscal years 2017, 2016, and 2015 excludes 167, 142, and 370 employee stock options and restricted stock units, respectively, due to their anti-dilutive effects. Outstanding performance-based restricted stock units are included in the computation of dilutive shares only to the extent that the underlying performance conditions are satisfied prior to the end of the reporting period or would be considered satisfied if the end of the reporting period were the end of the related contingency period and the results would be dilutive under the treasury stock method.

12. 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 2017, 2016, and 2015, the Company match was 100% of the first 3.0% of eligible compensation. The liability for the Company match included in accrued liabilities in the consolidated balance sheets was $8,139 and $6,317 as of February 3, 2018 and January 28, 2017, respectively. Total expense recorded under this plan is included in SG&A expenses in the consolidated statements of income and was $7,570, $5,852, and $4,640 during fiscal 2017, 2016, and 2015, 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 2017, 2016, and 2015, the Company match was 100% of the first 3.0% of salary. The liability for the Company match included in accrued liabilities in the consolidated balance sheets was $895 and $753 as of February 3, 2018 and January 28, 2017, 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 in the consolidated balance sheets was $15,942 and $10,474 as of February 3, 2018 and January 28, 2017, 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 $16,827 and $11,283 as of February 3, 2018 and January 28, 2017, respectively. Total expense recorded under this plan is included in SG&A expenses in the consolidated statements of income and was insignificant during fiscal 2017, 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 2017 and fiscal 2016. The Company’s quarterly periods are the 13 weeks (14 weeks in fourth quarter fiscal 2017) ending on the Saturday closest to April 30, July 31, October 31, and January 31.

		Fiscal 2017
(In thousands, except per share data)		First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Net sales (1)		$	1,314,879		$	1,289,854		$	1,342,181		$	1,937,592
Cost of sales			838,871			820,528			849,053			1,279,245
Gross profit			476,008			469,326			493,128			658,347
Selling, general and administrative expenses			283,445			283,427			320,729			399,631
Pre-opening expenses			4,158			6,099			9,732			4,297
Operating income			188,405			179,800			162,667			254,419
Interest income, net			(338)			(555)			(316)			(359)
Income before income taxes			188,743			180,355			162,983			254,778
Income tax expense			60,520			66,162			58,338			46,605
Net income (2)		$	128,223		$	114,193		$	104,645		$	208,173
Net income per common share (2):
Basic		$	2.06		$	1.84		$	1.71		$	3.42
Diluted		$	2.05		$	1.83		$	1.70		$	3.40

	(1)		Fiscal 2017 includes 53 weeks. Net sales for the 53rd week of fiscal 2017 were approximately $108,756.

	(2)		Net income and basic and diluted earnings per share for the fourth quarter of 2017 included a significant tax provision benefit as a result of the impact of Tax Reform. See Note 6, “Income taxes,” for further information.

		Fiscal 2016
(In thousands, except per share data)		First Quarter			Second Quarter			Third Quarter			Fourth Quarter
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

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 March 10, 2016, the Company announced that the Board of Directors authorized a share repurchase program (the 2016 Share Repurchase Program) pursuant to which the Company could 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 earlier share repurchase program. The 2016 Share Repurchase Program did not have an expiration date but provided for suspension or discontinuation at any time.

As part of the 2016 Share Repurchase Program, the Company entered into an Accelerated Share Repurchase (ASR) agreement with 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 fiscal 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.

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 could repurchase up to $425,000 of the Company’s common stock. The 2017 Share Repurchase Program authorization revoked the previously authorized but unused amount of $79,863 from the 2016 Share Repurchase Program. The 2017 Share Repurchase Program did not have an expiration date but provided for suspension or discontinuation at any time.

During fiscal 2015, the Company purchased 1,034 shares of common stock for $167,396. During fiscal 2016, excluding the shares repurchased under the ASR, the Company purchased 634 shares of common stock for $144,275. During fiscal 2017, the Company purchased 1,504 shares of common stock for $367,581.

15. Subsequent event

On March 15, 2018, the Company announced that the Board of Directors authorized a new share repurchase program (the 2018 Share Repurchase Program) pursuant to which the Company may repurchase up to $625,000 of the Company’s common stock. The 2018 Share Repurchase Program authorization revokes the previously authorized but unused amounts from the 2017 Share Repurchase Program. The 2018 Share Repurchase Program does not have an expiration date and may be suspended or discontinued at any time.

Item 15. Exhibits and Financial Statement Schedules (Continued)

(b) Financial Statement Schedule

Ulta Beauty, Inc. Schedule II – Valuation and Qualifying Accounts (In thousands)

		Balance at			Charged to						Balance at
		beginning			costs and						end
Description		of period			expenses			Deductions			of period
Fiscal 2017
Allowance for doubtful accounts		$	2,079		$	143		$	(851)	(a)	$	1,371
Shrink reserve			19,065			33,431			(37,352)			15,144
Inventory - lower of cost or market reserve			8,574			6,418			(5,332)			9,660
Insurance:
Workers comp / general liability prepaid asset			(99)	(b)		7,633			(10,424)			(2,890)
Employee health care accrued liability			7,197			64,031			(62,086)			9,142
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

	(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 Exhibit Index below are filed as part of this Annual Report on Form 10‑K.

EXHIBIT INDEX

						Incorporated by Reference
Exhibit				Filed					Exhibit		File
Number		Description of document		Herewith		Form			Number		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
10.1		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
10.2		Second Amended and Restated Loan Agreement, dated as of August 23, 2017, among Ulta Beauty, Inc., Ulta Salon, Cosmetics & Fragrance, Inc., the subsidiaries of Ulta Beauty signatory thereto, Wells Fargo Bank, National Association, JPMorgan Chase Bank, N.A. and PNC Bank, National Association				8-K		10.0			001-33764		8/24/2017
10.3		Ulta Beauty, Inc. Second Amended and Restated Restricted Stock Option Plan*				S‑1		10.7			333‑144405		8/17/2007
10.4		Amendment to Ulta Beauty, Inc. Second Amended and Restated Restricted Stock Option Plan*				S‑1		10.7(a)			333‑144405		8/17/2007
10.5		Ulta Beauty, Inc. 2002 Equity Incentive Plan*				S‑1		10.9			333‑144405		8/17/2007
10.6		Ulta Beauty, Inc. 2007 Incentive Award Plan*				S‑1		10.10			333‑144405		9/27/2007
10.7		Amended and Restated Ulta Beauty, Inc. 2011 Incentive Award Plan*				DEF 14A		Appendix A			001‑33764		4/20/2016
10.8		Form of Restricted Stock Unit Award Agreement—Performance Shares under the 2011 Incentive Award Plan*				8‑K		10.1			001‑33764		3/31/2015
10.9		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*				10‑K		10.13			001‑33764		3/28/2017
10.14		Form of Restricted Stock Unit Award Agreement under the 2011 Incentive Award Plan*				10‑K		10.14			001‑33764		3/28/2017
10.15		Letter Agreement dated August 3, 2015 between Ulta Inc. and Jodi J. Caro*				10‑K		10.15			001‑33764		3/28/2017

						Incorporated by Reference
Exhibit				Filed				Exhibit		File
Number		Description of document		Herewith		Form		Number		Number		Filing Date
10.16		Ulta Beauty, Inc. Executive Change in Control and Severance Plan*				10‑K		10.16		001‑33764		3/28/2017
10.17		Restricted Stock Unit Award Agreement dated March 29, 2018, with Mary Dillon*		X
10.18		Amendment to Employment Letter Regarding Severance Entitlements, dated March 29, 2018, between Ulta Beauty, Inc. and Mary Dillon*		X
11		Computation of per share earnings (contained in Note 11 to the Consolidated Financial Statements in this Form 10-K)		X
21		List of Subsidiaries				10‑K		21		001‑33764		3/28/2017
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
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		X
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		X
99		Proxy Statement for the 2018 Annual Meeting of Stockholders. [To be filed with the SEC under Regulation 14A within 120 days after February 3, 2018; 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.