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Ulta Beauty Announces Fourth Quarter Fiscal 2018 Results

March 14, 2019 4:03 PM

Net Sales Increased 9.7% or 16.2% Excluding the 53rd Week of Fiscal 2017

Comparable Sales Increased 9.4%

Diluted EPS Increased 6.2% to $3.61 or 31.3% Excluding the Benefit from Tax Reform Related Items in Fiscal 2017

BOLINGBROOK, Ill.--(BUSINESS WIRE)-- Ulta Beauty,�Inc. (NASDAQ: ULTA) today announced financial results for the thirteen week period (“Fourth Quarter”) and fifty-two week period (“Fiscal Year”) ended February�2,�2019, which compares to the fourteen and fifty-three week periods ended February�3, 2018.

“The Ulta Beauty team delivered excellent results in the fourth quarter,” said Mary Dillon, Chief Executive Officer. “This performance reflects an acceleration in comparable sales in our retail stores, primarily driven by traffic. We continued to gain significant share across all major categories, particularly with digitally native brands where Ulta Beauty is often the only point of distribution in brick and mortar. Solid execution by our merchandising, store operations, e-commerce, marketing, supply chain and systems teams drove healthy sales growth and a differentiated guest experience throughout the important holiday season.”

Recent Accounting Pronouncement – Revenue Recognition

On February 4, 2018, the Company adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606). The Company adopted the new revenue standard using the modified retrospective transition method applied to all contracts with the cumulative effect recorded to the opening balance of retaining earnings as of the date of adoption. The comparative information has not been restated and continues to be reported under accounting standards in effect for those periods. The adoption of the new revenue standard did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows, however, with the adoption we reclassified to net sales income from our credit card program and gift card breakage from selling, general and administrative expenses and now recognize e-commerce revenue upon shipment. These changes increased revenue by $15.0 million and $49.0 million for the 13 weeks and 52 weeks ended February 2, 2019, respectively. These items are partially offset by the value of points earned in our loyalty program now reducing net sales. Due to the adoption of ASC 606, for the 13 weeks ended February 2, 2019, gross profit margin increased by 60 basis points, while selling, general and administrative (SG&A) expenses deleveraged by 90 basis points. For the 52 weeks ended February 2, 2019, gross profit margin increased by 55 basis points, while SG&A expenses deleveraged by 80 basis points. This resulted in a net impact to operating income margin of 30 basis points and 25 basis points of deleverage for the 13 weeks and 52 weeks ended February 2, 2019, respectively. Additional information about the impact of the adoption of ASC 606 can be found in our annual report on Form 10-K available at http://ir.ultabeauty.com.

For the Fourth Quarter of Fiscal 2018

�

Fourth Quarter 2018 Adjusted Diluted Earnings Per Share Results

� � �
Fourth Quarter
� � � 2018 � � 2017
Diluted EPS (GAAP) � � $ 3.61 � � $ 3.40 �
Adjustments related to tax reform: � � � � � �
Re-measurement of net deferred tax liabilities � � - � � (0.62 )
Impact of lower tax rate in 2017 due to tax reform � � - � � (0.16 )
One-time bonus for hourly associates ($0.20 pre-tax) � � - � � 0.13 �
Adjusted diluted EPS (non-GAAP) � � $ 3.61 � � $ 2.75 �
� �

For the Full Year of Fiscal 2018

�

Fiscal Year 2018 Adjusted Diluted Earnings Per Share Results

� � �
Fiscal Year
� � � 2018 � � 2017
Diluted EPS (GAAP) � � $ 10.94 � � � $ 8.96 �
Adjustments related to tax reform: � � � � � �
Re-measurement of net deferred tax liabilities � � - � � � (0.62 )
Impact of lower tax rate in 2017 due to tax reform � � - � � � (0.16 )
One-time bonus for hourly associates ($0.20 pre-tax) � � - � � � 0.13 �
Other tax rate impacts: � � � � � �
Share-based accounting change � � (0.09 ) � � (0.15 )
Adjusted diluted EPS (non-GAAP) � � $ 10.85 � � � $ 8.16 �
� �

Balance Sheet

Merchandise inventories, net at the end of fiscal 2018 totaled $1,214.3 million compared to $1,096.4 million at the end of fiscal 2017, representing an increase of $117.9 million. The increase in total inventory was driven by 100 net new stores and the opening of the Company’s distribution center in Fresno, California, partially offset by inventory productivity benefits from supply chain investments in new systems and merchandise planning tools. Average inventory per store increased 1.3% compared to fiscal 2017.

The Company ended fiscal 2018 with $409.3 million in cash and cash equivalents.

Share Repurchase Program

During fiscal 2018, the Company repurchased 2,463,555 shares of its common stock at a cost of $616.2 million.�As of February�2,�2019, $46.1 million remained available under the $625.0 million share repurchase program announced in March�2018.

On March 12, 2019, the Company’s board of directors approved a new share repurchase authorization of $875 million, which replaces the prior authorization implemented in March 2018. Since 2014, Ulta Beauty has returned $1.5 billion to shareholders through its share repurchase program, while continuing to make strategic growth investments.

Store Expansion

During the fourth quarter of fiscal 2018, the Company opened 12 stores located in Boynton Beach, FL; Charleston, SC; Cumberland, MD; Denver, CO; Indian Land, SC; Kapolei, HI; Rochester, MN; Santa Rosa, CA; Spokane Valley, WA; Willowbrook, IL; Winter Springs, FL; and Woodinville, WA. In addition, the Company closed one store. The Company ended the fourth quarter of fiscal 2018 with 1,174 stores and square footage of 12,337,145, representing a 9.2% increase in square footage compared to the fourth quarter of fiscal 2017.

Outlook

For fiscal 2019, the Company plans to:

To more closely align with industry practices, beginning in 2019, the Company will no longer provide a quarterly outlook. The Company will continue to provide an annual outlook, which it will update on a quarterly basis, as appropriate.

Non-GAAP Financial Information

The Company has used non-GAAP financial measures in this press release. Adjusted financial measures refer to financial information adjusted to exclude from financial measures prepared in accordance with accounting principles generally accepted in the United States (GAAP) items identified in this press release. The Company believes that the presentation of adjusted financial results provides additional information on comparisons between periods by excluding certain items that affect overall comparability. Non-GAAP financial measures should be considered in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP.

Conference Call Information

A conference call to discuss fourth quarter of fiscal 2018 results is scheduled for today, March 14, 2019, at 5:00�p.m. Eastern Time / 4:00�p.m. Central Time. Investors and analysts interested in participating in the call are invited to dial (877) 705-6003. The conference call will also be webcast live at http://ir.ultabeauty.com. A replay of the webcast will remain available for 90�days. A replay of the conference call will be available until 11:59�p.m. ET on March 28, 2019 and can be accessed by dialing (844) 512-2921 and entering conference ID number 13686891.

About Ulta Beauty

At Ulta Beauty (NASDAQ: ULTA), the possibilities are beautiful. Ulta Beauty is the largest U.S. beauty retailer and the premier beauty destination for cosmetics, fragrance, skin care products, hair care products and salon services. In 1990, the Company reinvented�the beauty retail experience by offering�a new way to shop for beauty�– bringing together all�things�beauty, all in�one place. Today, Ulta Beauty has grown to become the top national retailer offering the complete beauty experience.

Ulta Beauty brings possibilities�to life through the power of�beauty each and every day in our stores and online with more than 25,000 products from approximately 500 well-established and emerging beauty brands across all categories and price points, including Ulta Beauty’s own private label. Ulta Beauty also offers a full-service salon in every store featuring hair, skin, brow, and make-up services.

Ulta Beauty is recognized for its commitment to personalized service, fun and inviting stores and our industry-leading Ultamate Rewards loyalty program. As of February�2,�2019, Ulta Beauty operates 1,174 retail stores across 50 states and also distributes its products through its website, which includes a collection of tips, tutorials, and social content. For more information, visit www.ulta.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section�21E of the Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “plans,” “estimates,” “targets,” “strategies” or other comparable words. Any forward-looking statements contained in this press release are based upon our historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates, targets, strategies or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties, which include, without limitation: changes in the overall level of consumer spending and volatility in the economy; the possibility that we may be unable to compete effectively in our highly competitive markets; the possibility that cybersecurity breaches and other disruptions could compromise our information or result in the unauthorized disclosure of confidential information; our ability to gauge beauty trends and react to changing consumer preferences in a timely manner; our ability to attract and retain key executive personnel; the possibility that the capacity of our distribution and order fulfillment infrastructure and the performance of our newly opened and to be opened distribution centers may not be adequate to support our recent growth and expected future growth plans; our ability to sustain our growth plans and successfully implement our long-range strategic and financial plan; the possibility of material disruptions to our information systems; changes in the wholesale cost of our products; the possibility that new store openings and existing locations may be impacted by developer or co-tenant issues; natural disasters that could negatively impact sales; our ability to successfully execute our common stock repurchase program or implement future common stock repurchase programs; the ability to execute our Efficiencies for Growth cost optimization program; and other risk factors detailed in our public filings with the Securities and Exchange Commission (the “SEC”), including risk factors contained in our Annual Report on Form�10-K for the fiscal�year ended February�3, 2018, as such may be amended or supplemented in our subsequently filed Quarterly Reports on Form�10-Q. Our filings with the SEC are available at www.sec.gov. Except to the extent required by the federal securities laws, the Company does not undertake to publicly update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

�

Exhibit 1

�
Ulta Beauty, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
�
� � � � � �
13 Weeks Ended 14 Weeks Ended
February 2, February 3,
2019 2018
(Unaudited) (Unaudited)
Net sales $ 2,124,716 100.0 % $ 1,937,592 100.0 %
Cost of sales � 1,383,857 � 65.1 % � 1,279,245 � 66.0 %
Gross profit 740,859 34.9 % 658,347 34.0 %
�
Selling, general and administrative expenses 457,245 21.5 % 399,631 20.6 %
Pre-opening expenses � 2,404 � 0.1 % � 4,297 � 0.2 %
Operating income 281,210 13.2 % 254,419 13.1 %
Interest income, net � (1,275 ) 0.1 % � (359 ) 0.0 %
Income before income taxes 282,485 13.3 % 254,778 13.1 %
Income tax expense � 67,811 � 3.2 % � 46,605 � 2.4 %
Net income $ 214,674 � 10.1 % $ 208,173 � 10.7 %
�
Net income per common share:
Basic $ 3.64 $ 3.42
Diluted $ 3.61 $ 3.40
�
Weighted average common shares outstanding:
Basic 59,053 60,938
Diluted 59,431 61,293
�

Exhibit 2

�
Ulta Beauty, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
�
� � 52 Weeks Ended � � 53 Weeks Ended
February 2, February 3,
2019 2018
(Unaudited)
Net sales $ 6,716,615 � 100.0 % $ 5,884,506 � 100.0 %
Cost of sales � 4,307,304 � 64.1 % � 3,787,697 � 64.4 %
Gross profit 2,409,311 35.9 % 2,096,809 35.6 %
�
Selling, general and administrative expenses 1,535,464 22.9 % 1,287,232 21.9 %
Pre-opening expenses � 19,767 � 0.3 % � 24,286 � 0.4 %
Operating income 854,080 12.7 % 785,291 13.3 %
Interest income, net � (5,061 ) 0.1 % � (1,568 ) 0.0 %
Income before income taxes 859,141 12.8 % 786,859 13.3 %
Income tax expense � 200,582 � 3.0 % � 231,625 � 3.9 %
Net income $ 658,559 � 9.8 % $ 555,234 � 9.4 %
�
Net income per common share:
Basic $ 11.00 $ 9.02
Diluted $ 10.94 $ 8.96
�
Weighted average common shares outstanding:
Basic 59,864 61,556
Diluted 60,181 61,975
�

Exhibit 3

�
Ulta Beauty, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
�
� � � �
February 2, February 3,
2019 2018
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 409,251 $ 277,445
Short-term investments — 120,000
Receivables, net 136,168 99,719
Merchandise inventories, net 1,214,329 1,096,424
Prepaid expenses and other current assets 138,116 98,666
Prepaid income taxes � 16,997 1,489
Total current assets 1,914,861 1,693,743
�
Property and equipment, net 1,226,029 1,189,453
Goodwill 10,870 —
Other intangible assets, net 4,317 —
Deferred compensation plan assets 20,511 16,827
Other long-term assets � 14,584 � 8,664
Total assets $ 3,191,172 $ 2,908,687
�
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 404,016 $ 325,758
Accrued liabilities 419,720 302,307
Accrued income taxes � — � 14,101
Total current liabilities 823,736 642,166
�
Deferred rent 434,980 407,916
Deferred income taxes 83,864 59,403
Other long-term liabilities � 28,374 � 24,985
Total liabilities 1,370,954 1,134,470
�
Commitments and contingencies
�
Total stockholders’ equity � 1,820,218 � 1,774,217
Total liabilities and stockholders’ equity $ 3,191,172 $ 2,908,687
�

Exhibit 4

�
Ulta Beauty, Inc.
Consolidated Statements of Cash Flows
(In thousands)
�
� � 52 Weeks Ended � � 53 Weeks Ended
February 2, February 3,
2019 � � 2018
(Unaudited)
Operating activities
Net income $ 658,559 $ 555,234
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 279,472 252,713
Deferred income taxes 34,080 (27,095 )
Non-cash stock compensation charges 26,636 24,399
Loss on disposal of property and equipment 2,885 7,518
Change in operating assets and liabilities, net of acquisitions:
Receivables (36,387 ) (11,088 )
Merchandise inventories (122,019 ) (152,449 )
Prepaid expenses and other current assets (39,450 ) (10,045 )
Income taxes (29,609 ) 3,641
Accounts payable 78,256 66,240
Accrued liabilities 79,949 36,891
Deferred rent 27,064 41,725
Other assets and liabilities � (3,309 ) � (8,318 )
Net cash provided by operating activities 956,127 779,366
�
Investing activities
Purchases of short-term investments (386,193 ) (330,000 )
Proceeds from short-term investments 506,193 240,000
Purchases of property and equipment (319,400 ) (440,714 )
Acquisitions, net of cash acquired (13,606 ) —
Purchases of equity investments (2,101 ) — �
Net cash used in investing activities (215,107 ) (530,714 )
�
Financing activities
Repurchase of common shares (616,194 ) (367,581 )
Stock options exercised 13,121 16,190
Purchase of treasury shares (6,141 ) (4,243 )
Debt issuance costs � — � � (583 )
Net cash used in financing activities (609,214 ) (356,217 )
�
Net increase (decrease) in cash and cash equivalents 131,806 (107,565 )
Cash and cash equivalents at beginning of year � 277,445 � � 385,010 �
Cash and cash equivalents at end of year $ 409,251 � $ 277,445 �
�

Exhibit 5

�

2018 Store Expansion

�
� � Total stores open � � Number of stores � � Number of stores � � Total stores
at beginning of the opened during the closed during the open at
Fiscal 2018 quarter quarter quarter end of the quarter
1st Quarter 1,074 34 1 1,107
2nd Quarter 1,107 19 2 1,124
3rd Quarter 1,124 42 3 1,163
4th Quarter 1,163 12 1 1,174
�
Gross square feet for
Total gross square stores opened or Gross square feet for Total gross square
feet at beginning of expanded during the stores closed feet at end of the
Fiscal 2018 the quarter quarter during the quarter quarter
1st Quarter 11,300,920 355,482 10,607 11,645,795
2nd Quarter 11,645,795 198,852 20,638 11,824,009
3rd Quarter 11,824,009 432,627 34,758 12,221,878
4th Quarter 12,221,878 124,067 8,800 12,337,145
�

Exhibit 6

�
Ulta Beauty, Inc.
Pro-forma Effect of ASC 606
(In thousands)
(Unaudited)
�

The Company adopted ASC 606 and the related amendments as of February 4, 2018 using the modified retrospective transition method applied to all contracts. The comparative information has not been restated and continues to be reported under accounting standards in effect for those periods. The following table presents selected as-reported financial results and the pro-forma effect of ASC 606 as if the recognition and presentation guidance in the accounting standard had been applied in fiscal 2017. The fiscal 2017 pro-forma financial information included in the table below is presented for information purposes only.

�
� � Fiscal Year Ended February 3, 2018
� � � � � � Balances with � �
% of ASC 606 Adoption of
(Dollars in thousands) As Reported Sales Adjustments ASC 606 % of Sales
Consolidated Statement of Income:
Net sales $ 5,884,506 100.0 % $ 31,197 $ 5,915,703 100.0 %
Cost of sales 3,787,697 64.4 % (5,746 ) 3,781,951 63.9 %
Gross profit 2,096,809 35.6 % 36,944 2,133,753 36.1 %
Selling, general and administrative expenses 1,287,232 21.9 % 40,730 1,327,962 22.4 %
Operating income 785,291 13.3 % (3,786 ) 781,505 13.2 %
Income tax expense 231,625 3.9 % (1,707 ) 229,918 3.9 %
Net income 555,234 9.4 % (2,079 ) 553,155 9.4 %
�

Company Contacts:

Scott Settersten

Chief Financial Officer

(630) 410-4807

Laurel Lefebvre

Vice President, Investor Relations

(630) 410-5230

Karen May

Director, Public Relations

(630) 410-5457

Source: Ulta Beauty, Inc.

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