Ulta Beauty(ULTA) - 2025 Q3 - Quarterly Report

Part I - Financial Information This section presents the Company's unaudited consolidated financial statements, management's discussion, market risk, and controls Item 1. Financial Statements This section presents the Company's unaudited consolidated financial statements, including Balance Sheets, Income, Cash Flows, and Stockholders' Equity, with detailed notes Consolidated Balance Sheets This statement provides a snapshot of the Company's assets, liabilities, and stockholders' equity at specific points in time | Metric | November 2, 2024 (Unaudited) (in thousands) | February 3, 2024 (in thousands) | October 28, 2023 (Unaudited) (in thousands) | | :--------------------------- | :--------------------------- | :--------------- | :--------------------------- | | Total assets | $5,958,486 | $5,707,011 | $5,595,008 | | Total liabilities | $3,629,477 | $3,427,683 | $3,566,466 | | Total stockholders' equity | $2,329,009 | $2,279,328 | $2,028,542 | | Cash and cash equivalents | $177,782 | $766,594 | $121,811 | | Merchandise inventories, net | $2,365,186 | $1,742,136 | $2,321,306 | Consolidated Statements of Income This statement details the Company's net sales, net income, and earnings per share over specific reporting periods | Metric | 13 Weeks Ended Nov 2, 2024 (in thousands) | 13 Weeks Ended Oct 28, 2023 (in thousands) | 39 Weeks Ended Nov 2, 2024 (in thousands) | 39 Weeks Ended Oct 28, 2023 (in thousands) | | :------------------------- | :------------------------- | :-------------------------- | :------------------------- | :-------------------------- | | Net sales | $2,530,100 | $2,488,933 | $7,808,035 | $7,653,005 | | Net income | $242,179 | $249,483 | $807,848 | $896,636 | | Basic EPS | $5.16 | $5.09 | $17.00 | $18.08 | | Diluted EPS | $5.14 | $5.07 | $16.93 | $17.99 | Consolidated Statements of Cash Flows This statement reports the cash generated and used by the Company's operating, investing, and financing activities | Metric | 39 Weeks Ended Nov 2, 2024 (in thousands) | 39 Weeks Ended Oct 28, 2023 (in thousands) | | :---------------------------------- | :------------------------- | :-------------------------- | | Net cash provided by operating activities | $302,041 | $358,011 | | Net cash used in investing activities | $(306,644) | $(315,900) | | Net cash used in financing activities | $(584,209) | $(658,177) | | Cash and cash equivalents at end of period | $177,782 | $121,811 | Consolidated Statements of Stockholders' Equity This statement outlines changes in the Company's equity, including net income contributions and share repurchases | Metric | November 2, 2024 (in thousands) | February 3, 2024 (in thousands) | October 28, 2023 (in thousands) | | :------------------------- | :--------------- | :--------------- | :--------------- | | Total Stockholders' Equity | $2,329,009 | $2,279,328 | $2,028,542 | - For the 39 weeks ended November 2, 2024, net income contributed $807.8 million to retained earnings, while common share repurchases, including excise tax, reduced retained earnings by $767.0 million[27][30] Notes to Consolidated Financial Statements These notes provide detailed explanations of the Company's business, accounting policies, and specific financial statement line items 1. Business and basis of presentation This note describes Ulta Beauty's operations as a specialty beauty retailer and its store count - Ulta Beauty operates specialty retail stores for cosmetics, fragrance, haircare, skincare, and salon services, with nearly every store featuring a full-service salon[34] | Metric | Value | | :----- | :---- | | Total Stores (as of Nov 2, 2024) | 1,437 | 2. Summary of significant accounting policies This note details the Company's accounting policies, including seasonal fluctuations and recent accounting pronouncements - The Company's business is subject to seasonal fluctuation, with significant portions of net sales and net income realized during the fourth quarter of the fiscal year due to the holiday selling season[39] - Recent accounting pronouncements include ASU 2023-07 (Segment Reporting), ASU 2023-09 (Income Tax Disclosures), SEC Climate-Related Disclosures (currently stayed), and ASU 2024-03 (Expense Disaggregation Disclosures), all of which the Company is evaluating for impact[44][45][47][48] 3. Revenue This note explains the components of net sales, disaggregated revenue categories, and deferred revenue balances - Net sales include retail stores and e-commerce merchandise sales, salon services, and other revenue from private label/co-branded credit card programs, Target Corporation royalties, and deferred revenue related to loyalty programs and gift card breakage[49] | Category | 13 Weeks Ended Nov 2, 2024 | 13 Weeks Ended Oct 28, 2023 | 39 Weeks Ended Nov 2, 2024 | 39 Weeks Ended Oct 28, 2023 | | :--------- | :------------------------- | :-------------------------- | :------------------------- | :-------------------------- | | Cosmetics | 41% | 42% | 41% | 42% | | Skincare | 23% | 22% | 24% | 22% | | Haircare | 20% | 21% | 19% | 21% | | Fragrance | 10% | 9% | 10% | 9% | | Services | 4% | 4% | 4% | 4% | | Other | 2% | 2% | 2% | 2% | | Metric | 39 Weeks Ended Nov 2, 2024 (in thousands) | 39 Weeks Ended Oct 28, 2023 (in thousands) | | :-------------------------------- | :------------------------- | :-------------------------- | | Beginning balance (Deferred Revenue) | $428,788 | $388,583 | | Additions to contract liabilities | $279,195 | $250,121 | | Deductions to contract liabilities | $(310,049) | $(294,313) | | Ending balance (Deferred Revenue) | $397,934 | $344,391 | 4. Goodwill and other intangible assets This note provides information on the Company's goodwill balance and its annual impairment review process - Goodwill remained constant at $10.87 million as of November 2, 2024, February 3, 2024, and October 28, 2023, with no additional goodwill recognized during the reported periods[57] 5. Leases This note details the Company's operating lease arrangements for stores and facilities, including associated costs - The Company leases retail stores, distribution centers, fast fulfillment centers, market fulfillment centers, corporate offices, and certain equipment under non-cancelable operating leases, generally with initial terms of 10 years[59] | Metric | 13 Weeks Ended Nov 2, 2024 (in thousands) | 13 Weeks Ended Oct 28, 2023 (in thousands) | 39 Weeks Ended Nov 2, 2024 (in thousands) | 39 Weeks Ended Oct 28, 2023 (in thousands) | | :---------------- | :------------------------- | :-------------------------- | :------------------------- | :-------------------------- | | Operating lease cost | $88,965 | $84,074 | $265,200 | $252,323 | | Metric | 39 Weeks Ended Nov 2, 2024 (in thousands) | 39 Weeks Ended Oct 28, 2023 (in thousands) | | :------------------------------------------------------ | :------------------------- | :-------------------------- | | Cash paid for operating lease liabilities | $307,732 | $296,115 | | Operating lease assets obtained (non-cash) | $280,476 | $249,826 | 6. Commitments and contingencies This note addresses the Company's legal proceedings and management's assessment of their financial impact - Management believes that the amount of any liability with respect to various legal proceedings will not have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows[63] 7. Debt This note describes the Company's Loan Agreement, outstanding borrowings, and compliance with covenants - The Loan Agreement, amended on March 13, 2024, matures on March 13, 2029, and provides maximum revolving loans equal to the lesser of $800 million or a percentage of eligible inventory and receivables[64] | Metric | November 2, 2024 (in thousands) | October 28, 2023 (in thousands) | | :-------------------------- | :--------------- | :--------------- | | Outstanding under credit facility | $199,700 | $195,400 | | Weighted average interest rate (39 weeks) | 7.15% | 8.21% | - As of November 2, 2024, the Company was in compliance with all terms and covenants of the Loan Agreement[65] 8. Fair value measurements This note explains the Company's fair value hierarchy and the valuation of non-qualified deferred compensation plan liabilities - Fair value is measured using a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[66][68] | Date | Non-qualified Deferred Compensation Plan Liabilities (in thousands) | Fair Value Level | | :--------------- | :---------------------------------------------------------- | :--------------- | | November 2, 2024 | $51,916 | Level 2 | | February 3, 2024 | $42,653 | Level 2 | | October 28, 2023 | $41,633 | Level 2 | 9. Stock-based compensation This note details the Company's stock-based compensation expense, award types, and unrecognized compensation costs - Stock-based compensation expense is measured on the grant date based on the fair value of the award and recognized on a straight-line basis over the requisite service period[70] | Award Type | 39 Weeks Ended Nov 2, 2024 (in thousands) | 39 Weeks Ended Oct 28, 2023 (in thousands) | Unrecognized Expense (Nov 2, 2024, in thousands) | | :----------------------------- | :---------------------------------------- | :----------------------------------------- | :----------------------------------------------- | | Stock options expense | $4,716 | $4,961 | $13,690 | | Restricted stock units expense | $14,561 | $14,252 | $33,877 | | Performance-based RSUs expense | $8,414 | $14,264 | $17,805 | - The Company granted 56 stock options, 53 restricted stock units, and 71 performance-based restricted stock units during the 39 weeks ended November 2, 2024[71][72][73] 10. Income taxes This note presents the Company's effective tax rates and the impact of recent tax legislation | Period | Effective Tax Rate Nov 2, 2024 | Effective Tax Rate Oct 28, 2023 | | :--------------- | :----------------------------- | :------------------------------ | | 13 Weeks Ended | 24.4% | 24.3% | | 39 Weeks Ended | 23.9% | 23.7% | - The Inflation Reduction Act of 2022, which introduced a 15% corporate alternative minimum tax and a 1% excise tax on net share repurchases, did not have a material impact on the consolidated financial statements for the 13 and 39 weeks ended November 2, 2024[77] 11. Net income per common share This note provides basic and diluted net income per common share figures and details on anti-dilutive securities | Metric | 13 Weeks Ended Nov 2, 2024 | 13 Weeks Ended Oct 28, 2023 | 39 Weeks Ended Nov 2, 2024 | 39 Weeks Ended Oct 28, 2023 | | :------------------------- | :------------------------- | :-------------------------- | :------------------------- | :-------------------------- | | Basic EPS | $5.16 | $5.09 | $17.00 | $18.08 | | Diluted EPS | $5.14 | $5.07 | $16.93 | $17.99 | - The denominator for diluted net income per common share excludes anti-dilutive employee stock options and restricted stock units (176 and 124 for 13 weeks, 206 and 144 for 39 weeks, respectively)[78] 12. Share repurchase program This note outlines the Company's share repurchase authorizations and activity for the reported periods - In October 2024, the Board of Directors authorized a new $3.0 billion share repurchase program, revoking previously authorized but unused amounts from the March 2024 program[83] | Metric | 39 Weeks Ended Nov 2, 2024 | 39 Weeks Ended Oct 28, 2023 | | :--------------------------------------------------- | :------------------------- | :-------------------------- | | Shares repurchased (in thousands) | 1,869 | 1,821 | | Total cost of shares repurchased, including excise tax (in thousands) | $771,492 | $848,356 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses Ulta Beauty's business model, strategic priorities, financial performance, liquidity, and critical accounting policies Overview This section describes Ulta Beauty's position as a leading beauty retailer and its strategic growth initiatives - Ulta Beauty is the largest specialty beauty retailer in the United States, offering approximately 25,000 beauty and wellness products and services in over 1,400 stores and through digital experiences[90] - The Company's long-term growth strategy focuses on four foundational areas: Assortment, Experience, Access, and Loyalty, to drive profitable growth and market share leadership[91][94] Current Trends This section discusses market share gains in the beauty industry and the impact of macroeconomic pressures on consumer spending - Ulta Beauty has captured meaningful market share across all categories, with the overall beauty market expanding in 2023 and the first 39 weeks of fiscal 2024[95] - Persistent inflationary and macroeconomic pressures have impacted consumer spending habits, potentially contributing to lower sales trends and affecting the Company's ability to grow sales and maintain historical profitability levels[96] Basis of presentation This section explains the Company's single reportable segment, revenue recognition policies, and comparable sales metric - The Company has one reportable segment, which includes retail stores, salon services, and e-commerce[97] - Merchandise revenue is recognized at the point of sale in retail stores or upon shipment/guest pickup for e-commerce; salon service revenue is recognized when provided; and gift card sales revenue is deferred until redemption[98] - Comparable sales reflect sales for stores beginning on the first day of the 14th month of operation and include retail sales, salon services, and e-commerce[99] Results of operations This section analyzes the Company's net sales, gross profit, SG&A expenses, and net income for the reported periods | Metric | 13 Weeks Ended Nov 2, 2024 (in thousands) | 13 Weeks Ended Oct 28, 2023 (in thousands) | Change (%) | | :----------------------------------- | :---------------------------------------- | :----------------------------------------- | :--------- | | Net sales | $2,530,100 | $2,488,933 | 1.7% | | Gross profit | $1,005,644 | $992,067 | 1.4% | | Gross profit as % of net sales | 39.7% | 39.9% | (0.2) pp | | Selling, general and administrative expenses | $682,259 | $661,380 | 3.2% | | SG&A as % of net sales | 27.0% | 26.6% | 0.4 pp | | Operating income | $318,502 | $327,227 | (2.7)% | | Net income | $242,179 | $249,483 | (2.9)% | | Comparable sales | 0.6% | 4.5% | (3.9) pp | | Metric | 39 Weeks Ended Nov 2, 2024 (in thousands) | 39 Weeks Ended Oct 28, 2023 (in thousands) | Change (%) | | :----------------------------------- | :---------------------------------------- | :----------------------------------------- | :--------- | | Net sales | $7,808,035 | $7,653,005 | 2.0% | | Gross profit | $3,053,601 | $3,040,536 | 0.4% | | Gross profit as % of net sales | 39.1% | 39.7% | (0.6) pp | | Selling, general and administrative expenses | $1,992,993 | $1,874,201 | 6.3% | | SG&A as % of net sales | 25.5% | 24.5% | 1.0 pp | | Operating income | $1,048,651 | $1,160,939 | (9.6)% | | Net income | $807,848 | $896,636 | (9.9)% | | Comparable sales | 0.3% | 7.3% | (7.0) pp | - The decrease in net income for the 13 weeks was primarily due to increased SG&A and pre-opening expenses, partially offset by increased gross profit and lower income taxes[121] - For the 39 weeks, the decrease was mainly due to increased SG&A and pre-opening expenses, partially offset by decreased income taxes and increased gross profit[129] Liquidity and capital resources This section details the Company's liquidity sources, primary cash needs, and working capital requirements - Primary sources of liquidity are cash and cash equivalents, cash flows from operations, and borrowings under the credit facility[130] | Date | Cash and Cash Equivalents (in thousands) | | :--------------- | :------------------------------------- | | November 2, 2024 | $177,800 | | February 3, 2024 | $766,600 | | October 28, 2023 | $121,800 | - Primary cash needs include capital expenditures for new, remodeled, and relocated stores, increased merchandise inventories, supply chain improvements, share repurchases, and investments in information technology systems[131] - Working capital needs are greatest from August through November due to holiday inventory build-up[133] Cash flows This section analyzes changes in cash flows from operating, investing, and financing activities for the reported periods | Activity | 39 Weeks Ended Nov 2, 2024 (in thousands) | 39 Weeks Ended Oct 28, 2023 (in thousands) | | :---------------------------------- | :---------------------------------------- | :----------------------------------------- | | Net cash provided by operating activities | $302,041 | $358,011 | | Net cash used in investing activities | $(306,644) | $(315,900) | | Net cash used in financing activities | $(584,209) | $(658,177) | - The decrease in net cash provided by operating activities was mainly due to lower net income and the timing of accrued income taxes, prepaid expenses, other current assets, accrued liabilities, accounts payable, and deferred revenue, partially offset by a lower increase in merchandise inventories[137] - Capital expenditures for investing activities were $300.5 million for the 39 weeks ended November 2, 2024, a decrease from $311.0 million in the prior year, primarily due to lower spending on information technology systems and supply chain investments, partially offset by higher capital expenditures for new, remodeled, and relocated stores[139][141][144] Share repurchase program This section provides details on the Company's share repurchase authorizations and activity - In October 2024, the Board of Directors authorized a new $3.0 billion share repurchase program, which revokes the previously authorized but unused amounts from the March 2024 Share Repurchase Program[150] | Metric | 39 Weeks Ended Nov 2, 2024 | 39 Weeks Ended Oct 28, 2023 | | :--------------------------------------------------- | :------------------------- | :-------------------------- | | Shares repurchased | 1,869,314 | 1,821,426 | | Total cost of shares repurchased, including excise tax (in millions) | $771.5 | $848.4 | Credit facility This section describes the Company's revolving credit facility, outstanding borrowings, and compliance status - The Loan Agreement, amended on March 13, 2024, matures on March 13, 2029, and provides maximum revolving loans equal to the lesser of $800.0 million or a percentage of eligible owned inventory and receivables[154] | Metric | November 2, 2024 (in thousands) | October 28, 2023 (in thousands) | | :-------------------------- | :--------------- | :--------------- | | Outstanding under credit facility | $199,700 | $195,400 | | Weighted average interest rate (39 weeks) | 7.15% | 8.21% | - As of November 2, 2024, the Company was in compliance with all terms and covenants of the Loan Agreement[156] Seasonality This section highlights the seasonal nature of the Company's business, particularly the impact of the holiday selling season - The Company's business is subject to seasonal fluctuation, with significant portions of net sales and profits realized during the fourth quarter of the fiscal year due to the holiday selling season[157] Critical accounting policies and estimates This section confirms no significant changes to the Company's critical accounting policies and estimates - There have been no significant changes to the critical accounting policies and estimates included in the Annual Report on Form 10-K for the fiscal year ended February 3, 2024[158] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the Company's exposure to market risk, primarily from interest rate fluctuations on variable-rate debt - The Company's market risk exposure is primarily the result of fluctuations in interest rates, particularly through borrowings under its variable-rate credit facility[159][160] - A hypothetical 1% increase in interest rates on variable rate debt would not have a material impact on the Company's operating income for the 39 weeks ended November 2, 2024[161] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and reports no material changes to internal controls - As of November 2, 2024, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective[164] - There were no changes to internal controls over financial reporting during the 13 weeks ended November 2, 2024, that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting[165] Part II - Other Information This section provides additional information, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This section refers to Note 6 for details on legal proceedings, which management believes will not have a material adverse effect - Information on legal proceedings is provided in Note 6 to the consolidated financial statements[166] Item 1A. Risk Factors This section states there have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K - There have been no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended February 3, 2024[167] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details common stock repurchases during the quarter and the remaining authorization under the share repurchase program | Period | Total number of shares purchased (1) | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Dollar value of shares that may yet be purchased under plans or programs (in thousands) (2) | | :---------------------------------- | :--------------------------------- | :--------------------------- | :------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------ | | August 4, 2024 to August 31, 2024 | 226,000 | $345.91 | 226,000 | $1,492,756 | | September 1, 2024 to September 28, 2024 | 193,542 | $385.24 | 193,436 | $1,418,971 | | September 29, 2024 to November 2, 2024 | 312,205 | $374.81 | 312,022 | $2,945,284 | | 13 weeks ended November 2, 2024 | 731,747 | $368.64 | 731,458 | $2,945,284 | - As of November 2, 2024, $2.9 billion remained available under the October 2024 Share Repurchase Program[174] Item 3. Defaults Upon Senior Securities This section reports that the Company had no defaults upon senior securities - No defaults upon senior securities were reported[175] Item 4. Mine Safety Disclosures This section reports that the Company had no mine safety disclosures - No mine safety disclosures were reported[175] Item 5. Other Information This section confirms no Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers - No director or Section 16 officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the 13 weeks ended November 2, 2024[175] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications and XBRL documents - The exhibit index includes certifications (31.1, 31.2, 32), Inline XBRL Instance and Taxonomy Extension documents (101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF, 104), and corporate governance documents (3.1, 3.2)[173][178][180] SIGNATURES This section provides the names and titles of the officers signing the report and the date of signing - The report was signed on December 5, 2024, by David C. Kimbell, Chief Executive Officer and Director, and Paula M. Oyibo, Chief Financial Officer and Treasurer[182][183]