filings.toolsItem 8. Financial Statements and Supplementary Data
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Item 8. Financial Statements and Supplementary Data
ULTA BEAUTY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Fir****m
The Stockholders and the Board of Directors of 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, 2024 and January 28, 2023, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended February 3, 2024, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at February 3, 2024 and January 28, 2023, and the consolidated results of its operations and its cash flows for each of the three years in the period ended February 3, 2024, 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, 2024, 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 26, 2024 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.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| | |
|---|---|
| | Loyalty Program |
| Description of the matter | The Company maintains a loyalty program, Ulta Beauty Rewards, which offers members the ability to earn and redeem points on purchases of products and services. As described in Note 2 to the consolidated financial statements, revenue from the loyalty program is recognized when members redeem points or points expire. The Company estimates the amount of revenue to defer using the standalone selling price of the points earned and the expected redemption percentage. The Company evaluates its estimated standalone selling price quarterly based on the value of products or services purchased using points. The expected redemption percentage is based on historical redemption patterns in conjunction with current information and trends. Auditing the Company’s estimate of loyalty deferred revenue was complex as the calculation involved management’s assumptions, such as the standalone selling price and expected redemption rate, which drive the revenue deferral. In particular, the estimate is sensitive to these significant assumptions, which are affected by expectations about future customer behavior. |
| How we addressed the matter in our audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s estimation process and controls supporting the measurement and recognition of the amount of loyalty revenue deferred. This included testing controls over management’s review of the assumptions and other inputs used in the estimation, the completeness and accuracy of issuance, redemption, and expiration data used in the calculation, and controls over the assignment of membership levels based on customer spending patterns. Our audit procedures included, among others, evaluating the methodology used, analyzing the significant assumptions discussed above, and testing the accuracy and completeness of the underlying data used in management’s calculation. To test the standalone selling price per point, we validated that the price per point for each membership level was appropriate based on products or services purchased by loyalty members. In addition, we tested the value of points redeemed was complete and accurate. To audit the redemption rate, we tested the issuance and redemption activity and compared the results of that testing to the redemption rate used by management in its estimate. We also considered recent trends in redemption activity and the impact on the redemption rate. In addition, we performed sensitivity analyses of significant assumptions to evaluate the change in the deferral amounts. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1997.
Chicago, Illinois
March 26, 2024
Report of Independent Registered Public Accounting Firm
The Stockholders’ and the Board of Directors 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, 2024, 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, 2024, 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, 2024 and January 28, 2023, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended February 3, 2024, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated March 26, 2024 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
March 26, 2024
Ulta Beauty, Inc.
Consolidated Balance Sheets
| | | | | | | |
|---|---|---|---|---|---|---|
| | | February 3, | | January 28, | ||
| (In thousands, except per share data) | 2024 | 2023 | ||||
| Assets | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 766,594 | | $ | 737,877 |
| Receivables, net | | | 207,939 | | | 199,422 |
| Merchandise inventories, net | | | 1,742,136 | | | 1,603,451 |
| Prepaid expenses and other current assets | | | 115,598 | | | 130,246 |
| Prepaid income taxes | | | 4,251 | | | 38,308 |
| Total current assets | | | 2,836,518 | | | 2,709,304 |
| | | | | | | |
| Property and equipment, net | | | 1,182,335 | | | 1,009,273 |
| Operating lease assets | | | 1,574,530 | | | 1,561,263 |
| Goodwill | | | 10,870 | | | 10,870 |
| Other intangible assets, net | | | 510 | | | 1,312 |
| Deferred compensation plan assets | | | 43,516 | | | 35,382 |
| Other long-term assets | | | 58,732 | | | 43,007 |
| Total assets | | $ | 5,707,011 | | $ | 5,370,411 |
| | | | | | | |
| Liabilities and stockholders’ equity | | | | | | |
| Current liabilities: | | | | | | |
| Accounts payable | | $ | 544,001 | | $ | 559,527 |
| Accrued liabilities | | | 382,468 | | | 444,278 |
| Deferred revenue | | | 436,591 | | | 394,677 |
| Current operating lease liabilities | | | 283,821 | | | 283,293 |
| Accrued income taxes | | | 11,310 | | | — |
| Total current liabilities | | | 1,658,191 | | | 1,681,775 |
| | | | | | | |
| Non-current operating lease liabilities | | | 1,627,271 | | | 1,619,883 |
| Deferred income taxes | | | 85,921 | | | 55,346 |
| Other long-term liabilities | | | 56,300 | | | 53,596 |
| Total liabilities | | | 3,427,683 | | | 3,410,600 |
| | | | | | | |
| Commitments and contingencies (Note 9) | | | | | | |
| | | | | | | |
| Stockholders' equity: | | | | | | |
| Common stock, $0.01 par value, 400,000 shares authorized; 49,123 and 51,120 shares issued; 48,324 and 50,364 shares outstanding; at February 3, 2024 and January 28, 2023, respectively | | | 491 | | | 511 |
| Treasury stock-common, at cost | | | (83,032) | | | (60,470) |
| Additional paid-in capital | | | 1,075,104 | | | 1,023,997 |
| Retained earnings | | | 1,286,765 | | | 995,773 |
| Total stockholders’ equity | | | 2,279,328 | | | 1,959,811 |
| Total liabilities and stockholders’ equity | | $ | 5,707,011 | | $ | 5,370,411 |
See accompanying notes to consolidated financial statements.
Ulta Beauty, Inc.
Consolidated Statements of Income
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| | | Fiscal year ended | |||||||
| | | February 3, | | January 28, | | January 29, | |||
| (In thousands, except per share data) | | 2024 | 2023 | 2022 | |||||
| Net sales | | $ | 11,207,303 | $ | 10,208,580 | $ | 8,630,889 | ||
| Cost of sales | | | 6,826,203 | | | 6,164,070 | | | 5,262,335 |
| Gross profit | | | 4,381,100 | | | 4,044,510 | | | 3,368,554 |
| | | | | | | | | | |
| Selling, general and administrative expenses | | | 2,694,561 | | | 2,395,299 | | | 2,061,545 |
| Pre-opening expenses | | | 8,510 | | | 10,601 | | | 9,517 |
| Operating income | | | 1,678,029 | | | 1,638,610 | | | 1,297,492 |
| Interest (income) expense, net | | | (17,622) | | | (4,934) | | | 1,663 |
| Income before income taxes | | | 1,695,651 | | | 1,643,544 | | | 1,295,829 |
| Income tax expense | | | 404,646 | | | 401,136 | | | 309,992 |
| Net income | | $ | 1,291,005 | | $ | 1,242,408 | | $ | 985,837 |
| | | | | | | | | | |
| Net income per common share: | | | | | | | | | |
| Basic | | $ | 26.18 | | $ | 24.17 | | $ | 18.09 |
| Diluted | | $ | 26.03 | | $ | 24.01 | | $ | 17.98 |
| | | | | | | | | | |
| Weighted average common shares outstanding: | | | | | | | | | |
| Basic | | | 49,304 | | | 51,403 | | | 54,482 |
| Diluted | | | 49,596 | | | 51,738 | | | 54,841 |
See accompanying notes to consolidated financial statements.
Ulta Beauty, Inc.
Consolidated Statements of Comprehensive Income
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| | | Fiscal year ended | |||||||
| | | February 3, | | January 28, | | January 29, | |||
| (In thousands) | | 2024 | 2023 | 2022 | |||||
| Net income | | $ | 1,291,005 | $ | 1,242,408 | $ | 985,837 | ||
| Other comprehensive income: | | | | | | | | | |
| Foreign currency translation adjustments | | | — | | | — | | | (56) |
| Comprehensive income | | $ | 1,291,005 | | $ | 1,242,408 | | $ | 985,781 |
See accompanying notes to consolidated financial statements.
Ulta Beauty, Inc.
Consolidated Statements of Cash Flows
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| | | Fiscal year ended | |||||||
| | | February 3, | | January 28, | | January 29, | |||
| (In thousands) | | 2024 | 2023 | 2022 | |||||
| Operating activities | | | | | | | | | |
| Net income | | $ | 1,291,005 | | $ | 1,242,408 | | $ | 985,837 |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | |
| Depreciation and amortization | | | 243,840 | | | 241,372 | | | 268,460 |
| Non-cash lease expense | | | 332,754 | | | 301,912 | | | 276,229 |
| Deferred income taxes | | | 30,575 | | | 15,653 | | | (25,666) |
| Stock-based compensation expense | | | 48,246 | | | 43,044 | | | 47,259 |
| Loss on disposal of property and equipment | | | 11,419 | | | 6,688 | | | 5,358 |
| Change in operating assets and liabilities: | | | | | | | | | |
| Receivables | | | (8,517) | | | 34,260 | | | (40,573) |
| Merchandise inventories | | | (138,685) | | | (104,233) | | | (331,003) |
| Prepaid expenses and other current assets | | | 14,648 | | | (19,432) | | | (3,412) |
| Income taxes | | | 45,367 | | | (45,182) | | | (35,652) |
| Accounts payable | | | (20,873) | | | 8,309 | | | 66,156 |
| Accrued liabilities | | | (62,238) | | | 48,249 | | | 58,598 |
| Deferred revenue | | | 41,914 | | | 41,098 | | | 79,196 |
| Operating lease liabilities | | | (338,105) | | | (324,500) | | | (303,914) |
| Other assets and liabilities | | | (15,084) | | | (7,731) | | | 12,392 |
| Net cash provided by operating activities | | | 1,476,266 | | | 1,481,915 | | | 1,059,265 |
| | | | | | | | | | |
| Investing activities | | | | | | | | | |
| Capital expenditures | | | (435,267) | | | (312,126) | | | (172,187) |
| Other investments | | | (6,158) | | | (2,458) | | | (4,297) |
| Net cash used in investing activities | | | (441,425) | | | (314,584) | | | (176,484) |
| | | | | | | | | | |
| Financing activities | | | | | | | | | |
| Borrowings from credit facility | | | 195,400 | | | — | | | — |
| Payments on credit facility | | | (195,400) | | | — | | | — |
| Repurchase of common shares | | | (995,738) | | | (900,033) | | | (1,521,925) |
| Stock options exercised | | | 12,176 | | | 46,011 | | | 40,386 |
| Purchase of treasury shares | | | (22,562) | | | (6,992) | | | (15,677) |
| Net cash used in financing activities | | | (1,006,124) | | | (861,014) | | | (1,497,216) |
| | | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | — | | | — | | | (56) |
| Net increase (decrease) in cash and cash equivalents | | | 28,717 | | | 306,317 | | | (614,491) |
| Cash and cash equivalents at beginning of year | | | 737,877 | | | 431,560 | | | 1,046,051 |
| Cash and cash equivalents at end of year | | $ | 766,594 | | $ | 737,877 | | $ | 431,560 |
| | | | | | | | | | |
| Supplemental information | | | | | | | | | |
| Cash paid for interest | | $ | 3,327 | | $ | 2,138 | | $ | 2,132 |
| Income taxes paid, net of refunds | | | 328,215 | | | 429,846 | | | 370,646 |
| Non-cash investing and financing activities: | | | | | | | | ||
| Non-cash capital expenditures | | | 61,757 | | | 69,591 | | | 39,874 |
| Repurchase of common shares in accrued liablities | | | 4,297 | | | — | | | — |
See accompanying notes to consolidated financial statements.
Ulta Beauty, Inc.
Consolidated Statements of Stockholders’ Equity
| | | | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | Treasury - | | | | | | Accumulated | | | | |||||||||
| | | Common Stock | | Common Stock | | Additional | | | | Other | | Total | ||||||||||
| | | Issued | | | | Treasury | | | | Paid-In | | Retained | | Comprehensive | | Stockholders' | ||||||
| (In thousands) | Shares | Amount | Shares | Amount | Capital | Earnings | | Income | | Equity | ||||||||||||
| Balance – January 30, 2021 | | 56,952 | | $ | 569 | | (692) | | $ | (37,801) | | $ | 847,303 | | $ | 1,189,422 | | $ | 56 | | $ | 1,999,549 |
| Net income | | — | | | — | | — | | | — | | | — | | | 985,837 | | | — | | | 985,837 |
| Stock-based compensation | | — | | | — | | — | | | — | | | 47,259 | | | — | | | — | | | 47,259 |
| Foreign currency translation adjustments | | — | | | — | | — | | | — | | | — | | | — | | | (56) | | | (56) |
| Stock options exercised and other awards | | 347 | | | 3 | | — | | | — | | | 40,383 | | | — | | | — | | | 40,386 |
| Purchase of treasury shares | | — | | | — | | (46) | | | (15,677) | | | — | | | — | | | — | | | (15,677) |
| Repurchase of common shares | | (4,250) | | | (42) | | — | | | — | | | — | | | (1,521,883) | | | — | | | (1,521,925) |
| Balance – January 29, 2022 | | 53,049 | | $ | 530 | | (738) | | $ | (53,478) | | $ | 934,945 | | $ | 653,376 | | $ | — | | $ | 1,535,373 |
| Net income | | — | | | — | | — | | | — | | | — | | | 1,242,408 | | | — | | | 1,242,408 |
| Stock-based compensation | | — | | | — | | — | | | — | | | 43,044 | | | — | | | — | | | 43,044 |
| Stock options exercised and other awards | | 264 | | | 3 | | — | | | — | | | 46,008 | | | — | | | — | | | 46,011 |
| Purchase of treasury shares | | — | | | — | | (18) | | | (6,992) | | | — | | | — | | | — | | | (6,992) |
| Repurchase of common shares | | (2,193) | | | (22) | | — | | | — | | | — | | | (900,011) | | | — | | | (900,033) |
| Balance – January 28, 2023 | | 51,120 | | $ | 511 | | (756) | | $ | (60,470) | | $ | 1,023,997 | | $ | 995,773 | | $ | — | | $ | 1,959,811 |
| Net income | | — | | | — | | — | | | — | | | — | | | 1,291,005 | | | — | | | 1,291,005 |
| Stock-based compensation | | — | | | — | | — | | | — | | | 48,246 | | | — | | | — | | | 48,246 |
| Stock options exercised and other awards | | 176 | | | 2 | | — | | | — | | | 12,174 | | | — | | | — | | | 12,176 |
| Purchase of treasury shares | | — | | | — | | (43) | | | (22,562) | | | — | | | — | | | — | | | (22,562) |
| Repurchase of common shares, including excise tax | | (2,173) | | | (22) | | — | | | — | | | (9,313) | | | (1,000,013) | | | — | | | (1,009,348) |
| Balance – February 3, 2024 | | 49,123 | | $ | 491 | | (799) | | $ | (83,032) | | $ | 1,075,104 | | $ | 1,286,765 | | $ | — | | $ | 2,279,328 |
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
Ulta Beauty, Inc. was founded in 1990 to operate specialty retail stores selling cosmetics, fragrance, haircare and skincare products, and related accessories and services. Nearly every store features a full-service salon. As used in these notes and throughout this Annual Report on Form 10-K, all references to “we,” “us,” “our,” “Ulta Beauty,” or the “Company” refer to Ulta Beauty, Inc. and its consolidated subsidiaries. All amounts are stated in thousands, with the exception of per share amounts and number of stores.
As of February 3, 2024, the Company operated 1,385 stores across 50 states.
The Company has one reportable segment, which includes retail stores, salon services, and e-commerce.
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, 2024 (fiscal 2023), January 28, 2023 (fiscal 2022), and January 29, 2022 (fiscal 2021) 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 requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the accounting period. Actual results could differ from those estimates. The Company considers its accounting policies relating to inventory valuations, vendor allowances, impairment of long-lived tangible and right-of-use assets, loyalty program and income taxes to be the most significant accounting policies that involve management estimates and judgments. Significant changes, if any, in those estimates and assumptions resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Cash and cash equivalents
Cash equivalents include highly liquid investments such as money market funds and certificates of deposit with an original maturity of three months or less from the date of purchase. Cash equivalents also include amounts due from third-party financial institutions for credit card and debit card transactions. These receivables typically settle in five days or less with little or no default risk.
| | | | | | | |
|---|---|---|---|---|---|---|
| | | February 3, | | January 28, | ||
| (In thousands) | | 2024 | 2023 | |||
| Cash | | $ | 677,004 | | $ | 651,367 |
| Receivables from third-party financial institutions for credit card and debit card transactions | | | 89,590 | | | 86,510 |
| Cash and cash equivalents | | $ | 766,594 | | $ | 737,877 |
Fair value of financial instruments
The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximates fair value due to the short maturities of these instruments. There was no outstanding debt as of February 3, 2024 and January 28, 2023.
Receivables
Receivables primarily include amounts due from vendors for allowances, royalties and other credit card amounts, and amounts due from third-party gift card providers. 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 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.
| | | | | | | |
|---|---|---|---|---|---|---|
| | | February 3, | | January 28, | ||
| (In thousands) | | 2024 | 2023 | |||
| Vendor allowances | | $ | 140,356 | | $ | 109,899 |
| Royalties and other credit card | | | 24,818 | | | 19,738 |
| Gift card | | | 11,694 | | | 42,065 |
| Other | | | 31,706 | | | 28,796 |
| Allowance for doubtful accounts | | | (635) | | | (1,076) |
| Receivables, net | | $ | 207,939 | | $ | 199,422 |
Vendor allowances
The Company receives consideration from vendors for advertising, markdown allowances, purchase volume discounts and rebates, reimbursement for defective merchandise, and certain selling and display expenses. A majority of all vendor allowances are recorded as a reduction of the vendor’s product cost and recognized in cost of sales as the product is sold.
Merchandise inventories
Merchandise inventories are stated at the lower of cost or net realizable value. Cost is determined using the moving 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 an inventory reserve for lower of cost or net realizable value and shrink. The inventory reserve was $45,360 and $39,532 as of February 3, 2024 and January 28, 2023, respectively.
Property and equipment and internal use software
Property and equipment is stated at cost, net of accumulated depreciation, and depreciated using the straight-line method over the shorter of the assets’ estimated useful lives or lease term. Leasehold improvements purchased after the beginning of the initial lease term are amortized over the shorter of the assets’ useful lives or a term that includes the original lease term, plus any renewals that are reasonably certain at the date the leasehold improvements are acquired. Repair and maintenance costs are expensed as incurred.
| | | | | | | |
|---|---|---|---|---|---|---|
| Equipment and fixtures | | | | | | 1 to 10 years |
| Electronic equipment and software | | | | | | 3 to 15 years |
Costs incurred to obtain or develop internal use software that are capitalized are amortized on a straight-line basis over the estimated useful life of the software.
Cloud computing arrangements
Cloud computing arrangements (software-as-a-service contracts) and related implementation costs that are capitalized are amortized on a straight-line basis over the contract term (1 month to 5 years). These amounts are classified within prepaid expenses and other current assets and other long-term assets in the consolidated balance sheets.
Impairment of long-lived tangible and right-of-use assets
The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets. The asset group identified is at the store level and includes both property and equipment and operating lease assets.
Significant estimates are used in determining future cash flows of each store over its remaining lease term including our expectations of future projected cash flows including revenues and operating expenses. An impairment loss is recorded if the carrying amount of the long-lived asset exceeds its fair value.
Long-lived tangible and right-of-use assets are evaluated for indicators of impairment quarterly or when events or changes in circumstances indicate that their carrying amounts may not be recoverable. An undiscounted cash flow analysis is performed over the asset group. Asset groups are written down only to the extent that their carrying value exceeds their respective fair value. Fair values of the asset group are determined by discounting the cash flows at a rate that approximates the cost of capital of a market participant. Management’s forecast of future cash flows is based on the income approach. The fair value of individual right-of-use assets is determined under the market approach using estimated market rent assessments based on broker quotes.
The determination of fair value under the income approach requires assumptions including forecasts of future cash flows (such as revenue growth rates and operating expenses) and selection of a market-based discount rate. Estimates of market rent are based on non-binding broker quotes. As these inputs are unobservable, they are classified as Level 3 inputs under the fair value hierarchy. If actual results are not consistent with estimates and assumptions used in estimating future cash flows and asset fair values, there may be exposure to additional impairment losses in a future period.
Goodwill
Goodwill represents the excess of cost over the fair value of net assets acquired. The recoverability of goodwill is reviewed annually during the fourth quarter or more frequently if an event occurs or circumstances change that would indicate that impairment may exist (see Note 6, “Goodwill”).
Other intangible assets
Other definite-lived intangible assets are amortized over their useful lives. The recoverability of intangible assets is reviewed whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable (see Note 7, “Other intangible assets”).
Leases
The Company determines whether an arrangement is or contains a lease at contract inception. The lease classification evaluation begins at the lease commencement date. The lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain.
Total rent payable is recorded during the lease term, including rent escalations in which the amount of future rent is fixed on the straight-line basis over the term of the lease (including the rent holiday period beginning upon control of the premises and any fixed payments stated in the lease). For leases with an initial term greater than 12 months, a related lease liability is recorded on the balance sheet at the present value of future payments discounted at the estimated fully collateralized incremental borrowing rate (discount rate) corresponding with the lease term. In addition, a right-of-use asset is recorded as the initial amount of the lease liability, plus any lease payments made to the lessor before or at the lease commencement date and any initial direct costs incurred, less any tenant improvement allowance incentives received. Tenant incentives are amortized through the right-of-use asset as reduction of rent expense over the lease term. The difference between the minimum rents paid and the straight-line rent is reflected within the right-of-use asset.
Certain leases contain provisions that require variable payments based upon sales volume or payment of common area maintenance costs, real estate taxes, and insurance related to leases (variable lease cost). Variable lease costs are expensed as incurred. This results in some variability in lease expense as a percentage of revenues over the term of the lease in stores where variable lease costs are paid. Contingent rent is accrued each period as the liabilities are incurred, in addition to the straight-line rent expense. This results in some variability in lease expense as a percentage of revenues over the term of the lease in stores where contingent rent is paid.
Leases with an initial term of 12 months or less (short-term leases) are not recorded on the balance sheet. Short-term lease expense is recognized on a straight-line basis over the lease term.
The Company subleases certain real estate to third parties for stores with excess square footage space.
The Company does not separate lease and non-lease components (e.g., common area maintenance).
As the interest rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate corresponding with the lease term. As there are no outstanding borrowings under the Company’s credit facility, this rate is estimated based on prevailing market conditions, comparable company and credit analysis, and judgment. The incremental borrowing rate is reassessed if there is a change to the lease term or if a modification occurs and it is not accounted for as a separate contract (see Note 8, “Leases”).
Loyalty program
The Company maintains a loyalty program, Ulta Beauty Rewards, which allows members to earn points based on purchases of merchandise or services. Points earned are valid for at least one year. The loyalty program represents a material right to the customer and points may be redeemed on future products and services. Revenue from the loyalty program is recognized when the members redeem points or points expire. The Company defers revenue related to points earned that have not yet been redeemed. The amount of deferred revenue includes estimates for the standalone selling price of points earned by members and the percentage of points expected to be redeemed. The expected redemption percentage is based on historical redemption patterns and considers current information or trends. The standalone selling price of points earned and the estimated redemption rate is evaluated each reporting period. When a guest redeems points or the points expire, the Company recognizes revenue in net sales on the consolidated statements of income.
Credit cards
The Company has agreements (the Agreements) with third parties to provide guests with private label credit cards and/or co-branded credit cards (collectively, the Credit Cards). The private label credit card can be used at any store location and online, and the co-branded credit card can be used anywhere the co-branded card is accepted. A third-party financing company is the sole owner of the accounts and underwrites the credit issued under the Credit Card programs. The Company’s performance obligation is to maintain the Ulta Beauty Rewards loyalty program as only guests enrolled in the loyalty program can apply for the Credit Cards. Loyalty members earn points through purchases at Ulta Beauty, Ulta Beauty at Target, and anywhere the co-branded credit card is accepted.
The third parties reimburse the Company for certain credit card program costs such as advertising and loyalty points, which help promote the credit card program. The Company recognizes revenue when collectability is reasonably assured, under the assumption the amounts are not constrained and it is probable that a significant revenue reversal will not occur in future periods, which is generally the time at which the actual usage of the Credit Cards or specified transaction occurs.
The Company accounts for the amounts associated with the Agreements as a single contract with the sole commercial objective to maintain the Credit Card programs. As a result, all amounts associated with the Agreements are recognized within net sales on the consolidated statements of income.
Gift card program
The Company records a contract liability for gift card sales which will be redeemed in the future within deferred revenue on the consolidated balance sheets and recognized in net sales when the gift card is redeemed for product or services. Gift cards do not expire and do not include service fees that decrease guest balances. The Company maintains historical data related to gift card transactions sold and redeemed over a significant time frame. Gift card breakage (amounts not expected to be redeemed) is recognized to the extent there is no requirement for remitting balances to governmental agencies under unclaimed property laws. Estimated gift card breakage revenue is recognized over time in proportion to actual gift card redemptions. Gift card breakage revenue was $22,606, $18,835, and $15,266 in fiscal 2023, 2022, and 2021, respectively.
Revenue recognition
Revenue is recognized when control of the promised goods or services is transferred to the guest, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company determines revenue recognition through the following steps:
| ● | Identification of the contract, or contracts, with a guest; |
|---|
| ● | Identification of the performance obligations in the contract; |
|---|
| ● | Determination of the transaction price; |
|---|
| ● | Allocation of the transaction price to the performance obligations in the contract; and |
|---|
| ● | Recognition of revenue when, or as, a performance obligation is satisfied. |
|---|
Net sales include retail stores and e-commerce merchandise sales as well as salon services and other revenue.
Revenue from merchandise sales at retail stores is recognized at the point of sale, net of estimated returns. Revenue from e-commerce merchandise sales is recognized upon shipment to the guest or guest pickup of the merchandise based on meeting the transfer of control criteria, net of estimated returns. Salon services revenue is recognized at the time the service is provided to the guest. Shipping and handling are treated as costs to fulfill the contract and not a separate performance obligation. Accordingly, the Company recognizes revenue for its single performance obligation related to e-commerce sales at the time control of the merchandise passes to the customer, which is at the time of shipment or guest pickup. The Company provides refunds for merchandise returns within 60 days from the original purchase date. State sales taxes are presented on a net basis as the Company considers itself a pass-through conduit for collecting and
remitting state sales tax. Company coupons and other incentives are recorded as a reduction of net sales at the point of sale.
Advertising
Advertising costs primarily consist of print, digital and social media, and television and radio advertising, net of vendor income that is a reimbursement of specific, incremental, and identifiable costs. Costs related to advertising are expensed in the period the related promotional event occurs.
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| | | Fiscal year ended | |||||||
| | | February 3, | | January 28, | | January 29, | |||
| (In thousands) | | 2024 | 2023 | 2022 | |||||
| Advertising expense, net | | $ | 422,779 | | $ | 374,730 | | $ | 387,794 |
| Advertising expense, net as a percentage of net sales | | | 3.8% | | | 3.7% | | | 4.5% |
Prepaid advertising costs included in prepaid expenses and other current assets on the consolidated balance sheets were $12,708 and $9,466 as of February 3, 2024 and January 28, 2023, 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, offset by vendor income that is not a reimbursement of specific, incremental, and identifiable costs; distribution costs including labor and related benefits, freight, rent, depreciation and amortization, real estate taxes, utilities, and insurance; shipping and handling costs; retail stores occupancy costs including rent, depreciation and amortization, real estate taxes, utilities, repairs and maintenance, insurance, and licenses; salon services payroll and benefits; and shrink and inventory valuation reserves.
Selling, general and administrative expenses
Selling, general and administrative (SG&A) expenses includes payroll, bonus, and benefit costs for retail store and corporate employees; advertising and marketing costs, offset by vendor income that is a reimbursement of specific, incremental, and identifiable costs; occupancy costs related to our corporate office facilities; stock-based compensation expense; depreciation and amortization for all assets, except those related to our retail stores 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 financial statement carrying amounts of assets and liabilities and their tax bases. The amounts reported were derived using the enacted tax rates in effect for the year the differences are expected to reverse.
Income tax benefits related to uncertain tax positions are 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 (see Note 11, “Income taxes”).
Stock-based compensation
Stock-based compensation expense 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. Stock-based compensation expense was $48,246, $43,044, and $47,259 in fiscal 2023, 2022 and 2021, respectively (see Note 15, “Stock-based compensation”).
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 $400 for employee health claims, $350 for general liability claims, and $350 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. UB Insurance, Inc., an Arizona-based wholly owned captive insurance subsidiary of the Company, charges the operating subsidiaries of the Company premiums to insure certain liability exposures. Pursuant to Arizona insurance regulations, UB Insurance, Inc. maintains certain levels of cash and cash equivalents related to its liability exposures.
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 16, “Net income per common share”).
Recent accounting pronouncements not yet adopted
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure. The guidance updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance. The ASU is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-07 on related disclosures.
_Income Taxes (Topic 740): Improvements to Income Tax Disclosures_In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The guidance includes amendments requiring enhanced income tax disclosures, primarily related to standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The guidance is effective for fiscal years beginning after December 15, 2024 and should be applied either prospectively or retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on related disclosures.
_SEC Climate-Related Disclosures_In March 2024, the SEC adopted rules intended to enhance and standardize climate-related disclosures in registration statements and annual reports. The new rules will require disclosure of material climate-related risks, including disclosure of Board of Directors' oversight and risk management activities, the material impacts of these risks to us and the quantification of material impacts to us as a result of severe weather events and other natural conditions. The rules also require disclosure of material greenhouse gas emissions and any material climate-related targets and goals. The new rules will be effective for annual reporting periods beginning in fiscal year 2025, except for the greenhouse gas
emissions disclosures which will be effective for annual reporting periods beginning in fiscal year 2026. The Company is currently evaluating the impact of these new rules.
3. Revenue
Net sales include retail stores and e-commerce merchandise sales as well as salon services and other revenue. Other revenue includes the private label and co-branded credit card programs, royalties derived from the partnership with Target Corporation, and deferred revenue related to the loyalty program and gift card breakage.
Disaggregated revenue
The following table sets forth the approximate percentage of net sales by primary category:
| | | | | | | |
|---|---|---|---|---|---|---|
| | | Fiscal year ended | ||||
| | | February 3, | | January 28, | | January 29, |
| (Percentage of net sales) | | 2024 | | 2023 | | 2022 |
| Cosmetics | | 41% | | 42% | | 43% |
| Skincare | | 19% | | 17% | | 17% |
| Haircare products and styling tools | | 19% | | 21% | | 20% |
| Fragrance and bath | | 15% | | 14% | | 14% |
| Services | | 3% | | 3% | | 3% |
| Accessories and other | | 3% | | 3% | | 3% |
| | | 100% | | 100% | | 100% |
Deferred revenue
Deferred revenue primarily represents contract liabilities for the obligation to transfer additional goods or services to a guest for which the Company has received consideration, such as unredeemed Ulta Beauty Rewards loyalty points and unredeemed Ulta Beauty gift cards. In addition, breakage on gift cards is recognized proportionately as redemption occurs.
The following table provides a summary of the changes included in deferred revenue during fiscal 2023 and 2022:
| | | | | | | |
|---|---|---|---|---|---|---|
| | | Fiscal year ended | ||||
| | | February 3, | | January 28, | ||
| (In thousands) | | 2024 | 2023 | |||
| Beginning balance | | $ | 388,583 | | $ | 345,206 |
| Additions to contract liabilities (1) | | | 332,369 | | | 292,254 |
| Deductions to contract liabilities (2) | | | (292,164) | | | (248,877) |
| Ending balance | | $ | 428,788 | | $ | 388,583 |
| (1) | Loyalty points and gift cards issued in the current period but not redeemed or expired. |
|---|
| (2) | Revenue recognized in the current period related to the beginning liability. |
|---|
Other amounts included in deferred revenue were $7,803 and $6,094 at February 3, 2024 and January 28, 2023, respectively.
4. Prepaid expenses and other assets
Prepaid expenses and other current assets consist of the following:
| | | | | | | |
|---|---|---|---|---|---|---|
| | | February 3, | | January 28, | ||
| (In thousands) | 2024 | 2023 | ||||
| Prepaid supplies | | $ | 37,839 | | $ | 40,454 |
| Cloud computing costs (1) | | 24,583 | | 34,900 | ||
| Prepaid maintenance | | | 14,855 | | | 10,789 |
| Prepaid advertising | | 12,708 | | 9,466 | ||
| Other | | 25,613 | | 34,637 | ||
| Prepaid expenses and other current assets | | $ | 115,598 | | $ | 130,246 |
Other long-term assets consist of the following:
| | | | | | | |
|---|---|---|---|---|---|---|
| | | February 3, | | January 28, | ||
| (In thousands) | 2024 | 2023 | ||||
| Cloud computing costs (1) | | $ | 39,669 | | $ | 28,540 |
| Other | | 19,063 | | 14,467 | ||
| Other long-term assets | | $ | 58,732 | | $ | 43,007 |
| (1) | Expense related to cloud computing arrangements was $101,062, $87,593, and $62,215 in fiscal 2023, fiscal 2022, and fiscal 2021, respectively, and was included in SG&A expenses in the consolidated statements of income. |
|---|
5. Property and equipment
Property and equipment consists of the following:
| | | | | | | |
|---|---|---|---|---|---|---|
| | | February 3, | | January 28, | ||
| (In thousands) | 2024 | 2023 | ||||
| Equipment and fixtures | | $ | 1,297,428 | | $ | 1,147,870 |
| Leasehold improvements | | 928,900 | | 855,695 | ||
| Electronic equipment and software | | 774,441 | | 663,497 | ||
| Construction-in-progress | | 193,260 | | 196,117 | ||
| | | 3,194,029 | | 2,863,179 | ||
| Less: accumulated depreciation and amortization | | (2,011,694) | | (1,853,906) | ||
| Property and equipment, net | | $ | 1,182,335 | | $ | 1,009,273 |
** **6. Goodwill
The changes in the carrying amounts of goodwill during the fiscal 2023 and 2022 are as follows:
| | | | | | | |
|---|---|---|---|---|---|---|
| | | February 3, | | January 28, | ||
| (In thousands) | | 2024 | 2023 | |||
| Beginning balance | | $ | 10,870 | | $ | 10,870 |
| Acquisitions | | | — | | | — |
| Ending balance | | $ | 10,870 | | $ | 10,870 |
7. Other intangible assets
Other intangible assets subject to amortization consists of the following:
| | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | February 3, 2024 | | January 28, 2023 | ||||||||||||||
| | | Weighted-average | | Gross | | | | | | Gross | | | | | ||||||
| | | remaining useful | | carrying | | Accumulated | | | | carrying | | Accumulated | | | ||||||
| (In thousands) | life in years | value | amortization | Net | value | amortization | Net | |||||||||||||
| Developed technology | | 1.7 | | $ | 5,506 | | $ | (4,996) | | $ | 510 | | $ | 5,419 | | $ | (4,107) | | $ | 1,312 |
Amortization expense related to intangible assets was $889, $1,014, and $926 in fiscal 2023, fiscal 2022, and fiscal 2021, respectively.
Estimated amortization expense related to intangible assets for the next five years and thereafter is as follows:
| | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | | | | | Estimated | |
| | | | | | | | | | | | | | | | | | | | amortization | |
| | | | | | | | | | | | | | | | | | | | expense | |
| Fiscal year | | | | | | | | | | | | | | | | | (In thousands) | |||
| 2024 | | | | | | | | | | | | | | | | | | | $ | 306 |
| 2025 | | | | | | | | | | | | | | | | | | | | 204 |
| 2026 | | | | | | | | | | | | | | | | | | | | — |
| 2027 | | | | | | | | | | | | | | | | | | | | — |
| 2028 | | | | | | | | | | | | | | | | | | | | — |
| 2029 and thereafter | | | | | | | | | | | | | | | | | | | | — |
| | | | | | | | | | | | | | | | | | | | $ | 510 |
8. Leases
The Company leases retail stores, distribution centers, fast fulfillment centers, market fulfillment centers, corporate offices, and certain equipment under non-cancelable operating leases with various expiration dates through 2036. All leases are classified as operating leases and generally have initial lease terms of 10 years and, when determined applicable, include renewal options under substantially the same terms and conditions as the original leases. Leases do not contain any material residual value guarantees or material restrictive covenants.
The following table presents supplemental balance sheet information, the weighted-average remaining lease term, and discount rate for operating leases:
| | | | | | | | | |
|---|---|---|---|---|---|---|---|---|
| | | | | | | | | |
| | | | | February 3, | | January 28, | ||
| (In thousands) | | Classification on the Balance Sheet | 2024 | | 2023 | |||
| Right-of-use assets | | Operating lease assets | | $ | 1,574,530 | | $ | 1,561,263 |
| | | | | | | | | |
| Current lease liabilities | | Current operating lease liabilities | | $ | 283,821 | | $ | 283,293 |
| Non-current lease liabilities | | Non-current operating lease liabilities | | | 1,627,271 | | | 1,619,883 |
| Total lease liabilities | | | | $ | 1,911,092 | | $ | 1,903,176 |
| | | | | | | | | |
| Weighted-average remaining lease term | | | | 6.6 years | | | 6.7 years | |
| Weighted-average discount rate | | | | | 3.7% | | | 3.2% |
Lease cost
The following table presents the components of lease cost for operating leases:
| | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | Fiscal year ended | |||||||
| | | | | February 3, | January 28, | January 29, | |||||
| (In thousands) | Classification on the Statement of Income | 2024 | 2023 | 2022 | |||||||
| Operating lease cost | | Cost of sales (1) | | $ | 344,600 | | $ | 322,195 | | $ | 311,546 |
| Variable lease cost | | Cost of sales | | | 88,381 | | | 83,488 | | | 77,431 |
| Short-term lease cost | | SG&A expenses | | | 1,451 | | | 685 | | | 408 |
| Sublease income | | Net sales | | | (1,672) | | | (1,748) | | | (835) |
| Total lease cost | | | | $ | 432,760 | | $ | 404,620 | | $ | 388,550 |
| (1) | The majority of operating lease cost relates to retail stores, distribution centers, fast fulfillment centers, and market fulfillment centers and is classified within cost of sales. Operating lease cost for corporate offices is classified within the SG&A expenses. Operating lease cost from the control date through store opening date is classified within pre-opening expenses. |
|---|
Other information
The following table presents supplemental disclosures of cash flow information related to operating leases:
| | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|
| | | | Fiscal year ended | |||||||
| | | | February 3, | | January 28, | | January 29, | |||
| (In thousands) | | | 2024 | | 2023 | | 2022 | |||
| Cash paid for operating lease liabilities (1) | | | $ | 396,573 | | $ | 383,209 | | $ | 368,498 |
| Operating lease assets obtained in exchange for operating lease liabilities (non-cash) | | | | 346,021 | | | 380,922 | | | 253,870 |
| (1) | Excludes $39,654, $30,927, and $28,591 related to cash received for tenant incentives as of February 3, 2024, January 28, 2023, and January 29, 2022, respectively. |
|---|
Maturity of lease liabilities
The following table presents maturities of operating lease liabilities:
| | | | | | |
|---|---|---|---|---|---|
| Fiscal year | | | (In thousands) | ||
| 2024 | | | | $ | 347,558 |
| 2025 | | | | | 385,859 |
| 2026 | | | | | 346,833 |
| 2027 | | | | | 297,232 |
| 2028 | | | | | 225,358 |
| 2029 and thereafter | | | | | 564,247 |
| Total lease payments | | | | $ | 2,167,087 |
| Less: imputed interest | | | | | (255,995) |
| Present value of operating lease liabilities | | | | $ | 1,911,092 |
Operating lease payments exclude $122,203 of legally binding minimum lease payments for leases signed but not yet commenced.
9. Commitments and contingencies
Contractual obligations – As of February 3, 2024, the Company had various non-cancelable obligations of $55,587 primarily due to commitments made to a third party for products and services for our strategic investments related to supply chain optimization and information technology systems. A majority of these agreements are due within three years and are recorded as liabilities when the goods are received or the services are rendered. Payments under these agreements were $51,161 in fiscal 2023.
General litigation – The Company is involved in various legal proceedings that are incidental to the conduct of the business including both class action and single plaintiff litigation. In the opinion of management, the amount of any liability with respect to these proceedings, either individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
10**. Accrued liabilities**
Accrued liabilities consist of the following:
| | | | | | | |
|---|---|---|---|---|---|---|
| | | February 3, | | January 28, | ||
| (In thousands) | 2024 | 2023 | ||||
| Accrued payroll, bonus, and employee benefits | | $ | 150,880 | | $ | 183,828 |
| Accrued taxes | | 56,790 | | 58,850 | ||
| Accrued capital expenditures | | | 42,257 | | | 55,438 |
| Accrued advertising | | 33,875 | | 40,580 | ||
| Other accrued liabilities | | 98,666 | | 105,582 | ||
| Accrued liabilities | | $ | 382,468 | | $ | 444,278 |
11. Income taxes
The provision for income taxes consists of the following:
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| | | Fiscal year ended | |||||||
| | | February 3, | | January 28, | | January 29, | |||
| (In thousands) | 2024 | 2023 | 2022 | ||||||
| Current: | | | | ||||||
| Federal | | $ | 308,656 | | $ | 315,763 | | $ | 280,300 |
| State | | | 65,415 | | | 69,719 | | | 55,358 |
| Total current | | | 374,071 | | | 385,482 | | | 335,658 |
| Deferred: | | | | | | | |||
| Federal | | | 27,391 | | | 11,800 | | | (22,936) |
| State | | | 3,184 | | | 3,854 | | | (2,730) |
| Total deferred | | | 30,575 | | | 15,654 | | | (25,666) |
| Provision for income taxes | | $ | 404,646 | | $ | 401,136 | | $ | 309,992 |
A reconciliation of the federal statutory rate to the Company’s effective tax rate is as follows:
| | | | | | | |
|---|---|---|---|---|---|---|
| | Fiscal year ended | |||||
| | | February 3, | | January 28, | | January 29, |
| | 2024 | 2023 | 2022 | |||
| Federal statutory rate | | 21.0% | | 21.0% | | 21.0% |
| State effective rate, net of federal tax benefit | 3.2% | | 3.6% | | 3.3% | |
| Executive compensation limitation | | 0.3% | | 0.3% | | 0.5% |
| Excess deduction of stock compensation | | (0.4%) | | (0.2%) | | (0.5%) |
| Other | (0.2%) | | (0.3%) | | (0.4%) | |
| Effective tax rate | 23.9% | | 24.4% | | 23.9% |
On August 16, 2022, the Inflation Reduction Act of 2022 was enacted into law, which, among other things, introduced a 15% corporate alternative minimum tax on book income of certain large corporations and created a 1% excise tax on net share repurchases. The corporate alternative minimum tax will be effective in fiscal 2024 and is not expected to have a material impact on the consolidated financial statements. The excise tax applies to share repurchases made after December 31, 2022.
Significant components of deferred tax assets and liabilities are as follows:
| | | | | | | |
|---|---|---|---|---|---|---|
| | February 3, | | January 28, | |||
| (In thousands) | 2024 | 2023 | ||||
| Deferred tax assets: | | | ||||
| Operating lease liability | | $ | 490,907 | | $ | 487,824 |
| Reserves not currently deductible | | | 58,796 | | | 52,133 |
| Accrued liabilities | | 40,501 | | 39,989 | ||
| Employee benefits | | 32,885 | | 27,395 | ||
| Inventory valuation | | 1,962 | | — | ||
| Property and equipment | | | 1,729 | | | 16,600 |
| Credit carryforwards | | 359 | | 338 | ||
| NOL carryforwards | | | 231 | | | 265 |
| Total deferred tax assets | | 627,370 | | 624,544 | ||
| Deferred tax liabilities: | | | ||||
| Operating lease asset | | | 607,251 | | | 591,007 |
| Prepaid expenses | | 83,775 | | 69,248 | ||
| Receivables not currently includable | | | 20,502 | | | 15,644 |
| Other | | 1,763 | | 2,308 | ||
| Inventory valuation | | | — | | | 1,538 |
| Intangibles | | | — | | | 145 |
| Total deferred tax liabilities | | 713,291 | | 679,890 | ||
| Net deferred tax liability | | $ | (85,921) | | $ | (55,346) |
At February 3, 2024, the Company had $454 of credit carryforwards for state income tax purposes that expire between 2024 and 2027. The Company had $41 of state net operating loss (NOL) carryforwards that expire by 2038 and $117 of state NOL carryforwards that do not expire. The Company also had $505 of federal NOL carryforwards that do not expire.
The Company accounts for uncertainty in income taxes in accordance with Accounting Standards Codification 740-10. The reserve for uncertain tax positions was $4,060 and $4,158 at February 3, 2024 and January 28, 2023, respectively, which represents the best estimate of the potential liability. A reconciliation of unrecognized tax benefits, excluding interest and penalties, is as follows:
| | | | | | | |
|---|---|---|---|---|---|---|
| | February 3, | | January 28, | |||
| (In thousands) | 2024 | 2023 | ||||
| Beginning balance | | $ | 4,158 | | $ | 3,389 |
| Increase due to a prior year tax position | | 1,437 | | 1,473 | ||
| Decrease due to a prior year tax position | | (590) | | (704) | ||
| Decrease due to a prior year audit adjustment | | | (945) | | | — |
| Ending balance | | $ | 4,060 | | $ | 4,158 |
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 2023 and 2022.
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 Service for years before 2020 and is no longer subject to examinations by
state authorities before 2019.
12**. Debt**
On February 27, 2023, the Company entered into Amendment No. 2 to the Second Amended and Restated Loan Agreement (as so amended, 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 March 11, 2025, provides maximum revolving loans equal to the lesser of $1,000,000 or a percentage of eligible owned inventory and eligible owned receivables (which borrowing base may, at the election of the Company and satisfaction of certain conditions, include a percentage of qualified cash), contains a $50,000 subfacility for letters of credit and allows the Company to increase the revolving facility by an additional $100,000, 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 bear interest, at the Company’s election, at either a base rate plus a margin of 0% to 0.125% or the Term Secured Overnight Financing Rate plus a margin of 1.125% to 1.250%, and a credit spread adjustment of 0.10%, with such margins based on the Company’s borrowing availability, and the unused line fee is 0.20% per annum.
As of February 3, 2024 and January 28, 2023, the Company had no borrowings outstanding under the credit facility.
As of February 3, 2024, the Company was in compliance with all terms and covenants of the Loan Agreement.
13. 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, 2024 and January 28, 2023, there were liabilities related to the non-qualified deferred compensation plan included in other long-term liabilities on the consolidated balance sheets of $42,653 and $37,501, respectively. The liabilities are 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.
14**. Investments**
Investments in renewable energy projects are accounted for under the equity method of accounting. The balance of these investments was $1,163 and $2,316 as of February 3, 2024 and January 28, 2023, respectively, and is included in other long-term assets on the consolidated balance sheets. The Company did not contribute capital or receive investment tax credits during fiscal 2023 and 2022.
The Company made other investments of $6,158 and $2,458 during fiscal 2023 and 2022, respectively.
15**. Stock-based compensation**
The Company’s equity incentive plan was adopted in order to attract and retain personnel for positions of substantial authority and to provide additional incentive to employees and directors to promote the success of the business.
The Amended and Restated 2011 Incentive Award 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. Unless provided otherwise by the administrator of the plan, options vest over four years at the rate of 25% per year from the date of grant and must be exercised within ten years. Options are granted with the exercise price equal to the fair value of the underlying stock on the date of grant. As of February 3, 2024, the plan reserves for the issuance upon grant or exercise of awards up to 2,281 shares of common stock.
The following table presents information related to stock-based compensation:
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| | | Fiscal year ended | |||||||
| | | February 3, | | January 28, | | January 29, | |||
| (In thousands) | 2024 | 2023 | 2022 | ||||||
| Stock options | | $ | 7,429 | | $ | 7,250 | | $ | 11,245 |
| Restricted stock units | | | 19,724 | | | 18,483 | | | 19,286 |
| Performance-based restricted stock units | | | 21,093 | | | 17,311 | | | 16,728 |
| Total stock-based compensation expense | | $ | 48,246 | | $ | 43,044 | | $ | 47,259 |
| | | | | | | | | | |
| Cash received from stock option exercises | | $ | 12,176 | | $ | 46,011 | | $ | 40,386 |
| Income tax benefit | | $ | 7,167 | | $ | 3,829 | | $ | 7,088 |
Stock options
Stock-based compensation expense is measured on the grant date based on the fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period for awards expected to vest. The estimated grant date fair value of stock options was determined using a Black-Scholes valuation model using the following weighted-average assumptions for the periods indicated:
| | | | | | | | | |
|---|---|---|---|---|---|---|---|---|
| | | | | | | | | |
| | Fiscal year ended | |||||||
| | February 3, | | January 28, | | January 29, | |||
| | 2024 | 2023 | 2022 | |||||
| Volatility rate | | 45.0% | | | 49.0% | | | 46.9% |
| Average risk-free interest rate | | 3.8% | | | 2.4% | | | 0.4% |
| Average expected life (in years) | | 3.4 | | 3.4 | | 3.9 | ||
| Dividend yield | | — | | — | | — |
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 stock options are estimated at the grant date based on historical rates of stock option activity and reduce the stock-based compensation expense recognized. The Company does not currently pay a regular dividend.
The following table presents information related to common stock options:
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| | | Fiscal year ended | |||||||
| | | February 3, | | January 28, | | January 29, | |||
| (In thousands, except weighted-average grant date fair value) | 2024 | 2023 | 2022 | ||||||
| Weighted-average grant date fair value | | $ | 199.15 | | $ | 149.14 | | $ | 109.84 |
| Fair value of options vested | | | 7,169 | | | 9,525 | | | 10,417 |
| Intrinsic value of options exercised | | | 15,509 | | | 42,489 | | | 39,489 |
At February 3, 2024, there was approximately $10,498 of unrecognized stock-based compensation expense related to unvested stock options. The unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of approximately one and a half years.
A summary of stock option activity is presented in the following table (shares in thousands):
| | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Fiscal 2023 | | Fiscal 2022 | | Fiscal 2021 | |||||||||
| | | | | | Weighted- | | | | | Weighted- | | | | | Weighted- |
| | Number of | | | average | | Number of | | | average | | Number of | | | average | |
| | options | | exercise price | options | | exercise price | options | | exercise price | ||||||
| Beginning of year | | 324 | | $ | 260.34 | | 498 | | $ | 232.85 | | 671 | | $ | 208.47 |
| Granted | | 42 | | | 541.39 | | 47 | | | 395.81 | | 61 | | | 306.96 |
| Exercised | | (54) | | | 223.59 | | (207) | | | 222.19 | | (224) | | | 180.05 |
| Forfeited/Expired | | (5) | | | 382.48 | | (14) | | | 311.40 | | (10) | | | 225.24 |
| End of year | | 307 | | $ | 303.47 | | 324 | | $ | 260.34 | | 498 | | $ | 232.85 |
| Exercisable at end of year | | 154 | | $ | 264.87 | | 118 | | $ | 261.57 | | 179 | | $ | 248.11 |
| Vested and Expected to vest | | 297 | | $ | 302.05 | | 309 | | $ | 260.37 | | 474 | | $ | 233.28 |
The following table presents information related to stock options outstanding and stock options exercisable at February 3, 2024 based on ranges of exercise prices (shares in thousands):
| | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Options outstanding | | Options exercisable | ||||||||||
| | | | | Weighted- | | | | | | | Weighted- | | | |
| | | | | average | | | | | | | average | | | |
| | | | | remaining | | | | | | | remaining | | | |
| | | | | contractual | | | Weighted- | | | | contractual | | | Weighted- |
| | | Number of | | life | | | average | | Number of | | life | | | average |
| Range of Exercise Prices | options | (years) | | exercise price | options | (years) | | exercise price | ||||||
| $127.15 – $174.45 | | 102 | | 6 | | $ | 174.10 | | 49 | | 6 | | $ | 173.72 |
| $174.46 – $281.53 | | 33 | | 4 | | | 231.88 | | 33 | | 4 | | | 231.88 |
| $281.54 – $306.59 | | 47 | | 7 | | | 306.59 | | 20 | | 7 | | | 306.59 |
| $306.60 – $348.73 | | 43 | | 5 | | | 348.73 | | 43 | | 5 | | | 348.73 |
| $348.74 – $395.84 | | 40 | | 8 | | | 395.54 | | 9 | | 7 | | | 395.17 |
| $395.85 – $545.67 | | 42 | | 9 | | | 541.35 | | | | | | | |
| $127.15 – $545.67 | | 307 | | 6 | | $ | 303.47 | | 154 | | 5 | | $ | 264.87 |
The aggregate intrinsic value of outstanding and exercisable stock options as of February 3, 2024 was $63,678 and $37,031, respectively. The last reported sale price of the Company’s common stock on the NASDAQ Global Select Market on February 3, 2024 was $505.33 per share.
Restricted stock units
Restricted stock units (RSUs) are granted to certain employees and directors. Employee grants generally cliff vest after three years and director grants cliff vest after one year. The grant date fair value of RSUs is based on the closing market price of shares of the Company’s common stock on the date of grant. RSUs are expensed on a straight-line basis over the requisite service period. Forfeitures of RSUs are estimated at the grant date based on historical rates of stock award
activity and reduce the stock-based compensation expense recognized. At February 3, 2024, unrecognized stock-based compensation expense related to RSUs was $26,806. The unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of approximately one year.
A summary of RSU activity is presented in the following table (shares in thousands):
| | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Fiscal 2023 | | Fiscal 2022 | | Fiscal 2021 | |||||||||
| | | | 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 | |||||||||
| Beginning of year | | 221 | $ | 264.08 | | 221 | $ | 236.95 | | 253 | $ | 210.46 | |||
| Granted | | 50 | | | 518.45 | | 61 | | | 399.43 | | 61 | | | 312.42 |
| Vested | | (122) | | | 191.76 | | (46) | | | 312.70 | | (76) | | | 209.88 |
| Forfeited | | (9) | | | 408.21 | | (15) | | | 262.94 | | (17) | | | 233.94 |
| End of year | | 140 | | $ | 408.86 | | 221 | | $ | 264.08 | | 221 | | $ | 236.95 |
| Expected to vest | | 130 | | $ | 408.86 | | 205 | | $ | 264.08 | | 205 | | $ | 236.95 |
Performance-based restricted stock units
Performance-based restricted stock units (PBSs) are granted to certain employees. PBSs cliff vest after three years based upon achievement of pre-established net sales and earnings before tax goals for each of the first two years. The performance is then subject to a three year total shareholder return modifier. The grant date fair value of the PBSs are measured using a Monte Carlo simulation.
PBSs 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 stock-based compensation expense is recognized and any previously recognized stock-based compensation expense is reversed. Forfeitures of PBSs are estimated at the grant date based on historical rates of stock award activity and reduce the stock-based compensation expense recognized. At February 3, 2024, unrecognized stock-based compensation expense related to PBSs was $22,087. The unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of approximately one year.
A summary of PBS activity is presented in the following table (shares in thousands):
| | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Fiscal 2023 | | Fiscal 2022 | | Fiscal 2021 | |||||||||
| | | | 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 | ||||||||
| Beginning of year | 76 | | $ | 347.89 | | 54 | | $ | 314.30 | | 37 | | $ | 271.88 |
| Granted | 33 | | | 542.33 | | 37 | | | 395.83 | | 74 | | | 326.99 |
| Change in performance award payout | – | | | – | | (1) | | | 378.79 | | (7) | | | 348.73 |
| Vested | – | | | – | | (11) | | | 345.53 | | (47) | | | 295.49 |
| Forfeited | (3) | | | 403.60 | | (3) | | | 332.94 | | (3) | | | 319.71 |
| End of year | 106 | | $ | 407.03 | | 76 | | $ | 347.89 | | 54 | | $ | 314.30 |
| Expected to vest | 98 | | $ | 407.03 | | 70 | | $ | 347.89 | | 50 | | $ | 314.30 |
The number of PBSs granted is based on achieving the targeted performance goals as defined in the PBS agreements. As of February 3, 2024, the maximum number of units that could vest under the provisions of the agreements was 139.
Awards with market conditions are classified as liability awards and the fair value is determined using a Monte Carlo simulation. Market-based restricted stock units totaling 28 shares were granted to the former Chief Executive Officer in fiscal 2018 and settled during fiscal 2021. Compensation expense for liability awards was $7,671 in fiscal 2021. There was no compensation expense for liability awards in fiscal 2023 or 2022.
16**. 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 29, | |||
| (In thousands, except per share data) | | 2024 | 2023 | 2022 | |||||
| Numerator: | | | | | | | | | |
| Net income | | $ | 1,291,005 | $ | 1,242,408 | $ | 985,837 | ||
| | | | | | | | | | |
| Denominator: | | | | | | | | | |
| Weighted-average common shares – Basic | | | 49,304 | | | 51,403 | | | 54,482 |
| Dilutive effect of stock options and non-vested stock | | | 292 | | | 335 | | | 359 |
| Weighted-average common shares – Diluted | | | 49,596 | | | 51,738 | | | 54,841 |
| | | | | | | | | | |
| Net income per common share: | | | | | | | | | |
| Basic | | $ | 26.18 | | $ | 24.17 | | $ | 18.09 |
| Diluted | | $ | 26.03 | | $ | 24.01 | | $ | 17.98 |
The denominator for diluted net income per common share for fiscal years 2023, 2022 and 2021 excludes 138, 84, and 205 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.
17**. 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 of 100% of the first 3% of eligible compensation and an additional 50% match for the next 2% of eligible compensation. Total expense recorded under this plan is included in SG&A expenses in the consolidated statements of income as follows:
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| | | Fiscal year ended | |||||||
| | | February 3, | | January 28, | | January 29, | |||
| (In thousands) | | 2024 | | 2023 | | 2022 | |||
| 401(k) plan match | | $ | 24,533 | | $ | 21,912 | | $ | 19,296 |
| | | | | | | | | | |
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 of 100% of the first 3% of salary. 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 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. Total expense recorded under this plan is included in SG&A expenses in the consolidated statements of income and was insignificant during fiscal 2023, 2022, and 2021.
Amounts included in the consolidated balance sheets related to the deferred compensation plan were as follows:
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| | | | | | February 3, | | January 28, | ||
| (In thousands) | | | | | 2024 | | 2023 | ||
| Deferred compensation plan assets | | | | | $ | 43,516 | | $ | 35,382 |
| Deferred compensation plan liability | | | | | | 42,653 | | | 37,501 |
18. Share repurchase program
In March 2020, the Board of Directors authorized a share repurchase program (the 2020 Share Repurchase Program) pursuant to which the Company could repurchase up to $1,600,000 of the Company’s common stock. The 2020 Share Repurchase Program authorization revoked the previously authorized but unused amounts from the earlier share repurchase program. The 2020 Share Repurchase Program did not have an expiration date but provided for suspension or discontinuation at any time.
In March 2022, the Board of Directors authorized a share repurchase program (the 2022 Share Repurchase Program) pursuant to which the Company could repurchase up to $2,000,000 of the Company’s common stock. The 2022 Share Repurchase Program revoked the previously authorized but unused amounts from the 2020 Share Repurchase Program. The 2022 Share Repurchase Program did not have an expiration date but provided for suspension or discontinuation at any time.
A summary of common stock repurchase activity is presented in the following table:
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| | | Fiscal year ended | |||||||
| | | February 3, | | January 28, | | January 29, | |||
| (In thousands) | | 2024 | | 2023 | | 2022 | |||
| Shares repurchased | | | 2,173 | | | 2,193 | | | 4,250 |
| Total cost of shares repurchased | | $ | 1,009,348 | | $ | 900,033 | | $ | 1,521,925 |
19. Subsequent events
On March 12, 2024, the Board of Directors authorized a new share repurchase program (the 2024 Share Repurchase
Program) pursuant to which the Company may repurchase up to $2,000,000 of the Company’s common stock. The 2024 Share Repurchas Program authorization revokes the previously authorized but unused amounts from the 2022 Share Repurchase Program. The 2024 Share Repurchase Program does not have an expiration date and may be suspended or discontinued at any time.
On March 13, 2024, the Company entered into an Amendment No. 3 to its Second Amended and Restated Loan Agreement, which amended and restated the existing agreement. The new loan agreement extends the maturity of the facility to March 13, 2029, provides maximum revolving loans equal to the lesser of $800,000 or a percentage of eligible owned inventory, contains a $50,000 sub-facility for letters of credit and allows the Company to increase the revolving facility by an additional $200,000.
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 2023 | | | | | | | | | | | | |
| Allowance for doubtful accounts | $ | 1,076 | | $ | 243 | | $ | (684) | (a) | $ | 635 | |
| Inventory reserve | | | 39,532 | | | 42,840 | | | (37,012) | | | 45,360 |
| Fiscal 2022 | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 1,005 | | $ | 819 | | $ | (748) | (a) | $ | 1,076 |
| Inventory reserve | | | 26,882 | | | 33,384 | | | (20,734) | | | 39,532 |
| Fiscal 2021 | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 768 | | $ | 388 | | $ | (151) | (a) | $ | 1,005 |
| Inventory reserve | | | 52,860 | | | 9,525 | | | (35,503) | | | 26,882 |
| (a) | Represents write-off of uncollectible accounts |
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Previous: Item 7A. Quantitative and Qualitative Disclosures about Market Risk · Next: Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure