What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-12-01 compared with 2022-08-25 · 60 added, 55 removed, 213 unchanged (35% of the section changed)

6 unchanged sentences

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, including as a result of the COVID-19 pandemic and geo-political events;

● changes in the overall level of consumer spending and volatility in the economy, including as a result of the COVID-19 pandemic and geopolitical events;

● the impact of current inflationary cost pressures on payroll, benefits, supply chain, and other operating costs;

20 unchanged sentences

drug stores and mass merchandisers for mass products;

and salons and authorized retail outlets for professional hair care products.

We developed a unique specialty retail concept that offers a broad range of brands and price points, select beauty services, and a convenient and welcoming shopping

salons and authorized retail outlets for professional hair care products.

We developed a unique specialty retail concept that offers a broad range of brands and price points, select beauty services, and a convenient and welcoming shopping environment.

We define our target consumer as a beauty enthusiast, a consumer who is passionate about the beauty category, uses beauty for self-expression, experimentation and self-investment, and has high expectations for the shopping experience.

7 unchanged sentences

The continued growth of our business and any future increases in net sales, net income, and cash flows is dependent on our ability to execute our strategic priorities:

1) drive breakthrough and disruptive growth through an expanded definition of All Things Beauty, 2) evolve the omnichannel experience through connected physical and digital ecosystems, All In Your World, 3) expand and deepen our presence across the beauty journey, solidifying Ulta Beauty at the Heart of the Beauty Community, 4) drive operational excellence and optimization, 5) protect and cultivate our world-class culture and talent and 6) expand our environmental and social impact.

We believe that the attractive and growing U.S.

1) drive breakthrough and disruptive growth through an expanded definition of All Things Beauty;

2) evolve the omnichannel experience through connected physical and digital ecosystems, All In Your World;

3) expand and deepen our presence across the beauty journey, solidifying Ulta Beauty at the Heart of the Beauty Community;

4) drive operational excellence and optimization;

5) protect and cultivate our world-class culture and talent;

and 6) expand our environmental and social impact.

We believe the attractive and growing U.S.

beauty products and salon services industry, the expanding definition of beauty and the role that omnichannel capabilities play in consumers’ lives, coupled with Ulta Beauty’s competitive strengths, position us to capture additional market share in the industry.

9 unchanged sentences

We closely monitor the continuing impact of COVID-19 on all facets of our business.

During the first half of fiscal 2022, we experienced an increase in sales driven primarily by the favorable impact from the easing of COVID-19 restrictions.

While operations during the first half of fiscal 2022 did not appear to be negatively impacted, the continuing COVID-19 pandemic could have negative impacts in the future.

While operations during the first three quarters of fiscal 2022 did not appear to be negatively impacted, the continuing COVID-19 pandemic could have negative impacts in the future.

The extent of the impact of the pandemic on our future business and financial results will depend on, among other things, the potential temporary reclosing of certain stores, the potential temporary restrictions on certain store operating hours and/or in-store capacity, supply chain disruptions, increased freight costs and higher wholesale costs, the continued duration of the pandemic and any variants of the virus, the duration, timing and severity of the impact on consumer spending, the timing and effectiveness of vaccine distribution, vaccination rates, and how quickly and to what extent normal economic and operating conditions can resume.

1 unchanged sentence

Our research indicates that Ulta Beauty has captured meaningful market share across all categories over the last several years.

However, the COVID-19 pandemic and its various impacts have changed consumer behavior and consumption of beauty products due to the closures of offices, retail stores and other businesses and the significant decline in travel,

entertainment and social gatherings.

However, the COVID-19 pandemic and its various impacts changed consumer behavior and consumption of

beauty products due to the closures of offices, retail stores and other businesses and the significant decline in travel, entertainment and social gatherings.

The overall beauty market declined in 2020 but stabilized in 2021, as consumers began to recover from the impacts of COVID-19.

1 unchanged sentence

Impact of inflation and changing prices

Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, continued pressure from inflation could have an adverse impact on consumer spending and sales and could lead to a recession.

Furthermore, inflation pressure could negatively impact our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net sales if the selling prices of our products do not increase with higher costs.

Although we do not believe inflation had a material impact on our sales year to date, continued pressure from inflation could have an adverse impact on consumer spending and sales and could lead to an economic recession.

Furthermore, inflationary pressures could negatively impact our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net sales if the selling prices of our products do not increase with higher costs.

In addition, inflation could materially increase the interest rates on any future debt.

11 unchanged sentences

Company coupons and other incentives are recorded as a reduction of net sales.

Other revenue includes the private label and co-branded credit card programs, royalties derived from the partnership with Target, and deferred revenue related to the loyalty program and gift card breakage.

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.

Comparable sales reflect sales for stores beginning on the first day of the 14 th month of operation.

32 unchanged sentences

Pre-opening expenses include non-capital expenditures during the period prior to store opening for new, remodeled, and relocated stores including rent during the construction period for new and relocated stores, store set-up labor, management and employee training, and grand opening advertising.

Interest expense, net includes both interest expense and income.

Interest expense (income), net includes both interest expense and income.

Interest expense includes interest costs and facility fees associated with our credit facility, which is structured as an asset-based lending instrument.

4 unchanged sentences

Our quarterly periods are the 13 weeks ending on the Saturday closest to April 30, July 31, October 31, and January 31.

The Company’s second quarter in fiscal 2022 and 2021 ended on July 30, 2022 and July 31, 2021, respectively.

The Company’s third quarter in fiscal 2022 and 2021 ended on October 29, 2022 and October 30, 2021, respectively.

Our quarterly results of operations have varied in the past and are likely to do so again in the future.

24 unchanged sentences

Income tax expense

Comparison of 13 weeks ended July 30, 2022 to 13 weeks ended July 31, 2021

Net sales increased $329.9 million or 16.8%, to $2.3 billion for the 13 weeks ended July 30, 2022, compared to $2.0 billion for the 13 weeks ended July 31, 2021.

The net sales increase was primarily due to the favorable impact from the continued resilience of the beauty category, the impact of new brands and product innovation, the easing of COVID-19 restrictions and an increase of $19.0 million in other revenue compared to the 13 weeks ended July 31, 2021.

The total comparable sales increase of 14.4% during the 13 weeks ended July 30, 2022 was driven by an 8.3% increase in transactions and a 5.6% increase in average ticket.

Gross profit increased $130.2 million or 16.3%, to $928.2 million for the 13 weeks ended July 30, 2022, compared to $798.0 million for the 13 weeks ended July 31, 2021.

Gross profit as a percentage of net sales decreased to 40.4% for the 13 weeks ended July 30, 2022, compared to 40.6% for the 13 weeks ended July 31, 2021.

The decrease in gross profit margin was primarily due to lower merchandise margin and higher inventory shrink, partially offset by leverage of fixed costs and strong growth in other revenue.

Comparison of 13 weeks ended October 29, 2022 to 13 weeks ended October 30, 2021

Net sales increased $343.0 million or 17.2%, to $2.3 billion for the 13 weeks ended October 29, 2022, compared to $2.0 billion for the 13 weeks ended October 30, 2021.

The net sales increase was primarily due to the favorable impact from the continued resilience of the beauty category, retail price increases, the impact of new brands and product innovation, and an increase of $20.2 million in other revenue compared to the 13 weeks ended October 30, 2021.

The total comparable sales increase of 14.6% during the 13 weeks ended October 29, 2022 was driven by a 10.7% increase in transactions and a 3.5% increase in average ticket.

Gross profit increased $173.3 million or 22.0%, to $962.8 million for the 13 weeks ended October 29, 2022, compared to $789.5 million for the 13 weeks ended October 30, 2021.

Gross profit as a percentage of net sales increased to 41.2% for the 13 weeks ended October 29, 2022, compared to 39.6% for the 13 weeks ended October 30, 2021.

The increase in gross profit margin was primarily due to leverage of fixed costs, strong growth in other revenue, and higher merchandise margin, partially offset by higher inventory shrink.

Selling, general and administrative expenses

Selling, general and administrative (SG&A) expenses increased $70.2 million or 15.1%, to $534.5 million for the 13 weeks ended July 30, 2022, compared to $464.3 million for the 13 weeks ended July 31, 2021.

SG&A expenses as a percentage of net sales decreased to 23.3% for the 13 weeks ended July 30, 2022, compared to 23.6% for the 13 weeks ended July 31, 2021, primarily due to lower marketing expenses and leverage of store payroll and benefits and store expenses due to higher sales, partially offset by deleverage in corporate overhead primarily due to strategic investments and higher incentive compensation.

Selling, general and administrative (SG&A) expenses increased $93.8 million or 18.6%, to $597.2 million for the 13 weeks ended October 29, 2022, compared to $503.4 million for the 13 weeks ended October 30, 2021.

SG&A expenses as a percentage of net sales increased to 25.5% for the 13 weeks ended October 29, 2022, compared to 25.2% for the 13 weeks ended October 30, 2021, primarily due to deleverage in store payroll and benefits and corporate overhead due to strategic investments, partially offset by lower marketing expenses.

Pre-opening expenses

Pre-opening expenses increased $0.9 million to $2.3 million for the 13 weeks ended July 30, 2022 compared to $1.4 million for the 13 weeks ended July 31, 2021.

Pre-opening expenses increased $2.0 million to $3.8 million for the 13 weeks ended October 29, 2022 compared to $1.8 million for the 13 weeks ended October 30, 2021.

Interest expense (income), net

Interest income, net was $0.1 million for the 13 weeks ended July 30, 2022 compared to interest expense, net of $0.4 million for the 13 weeks ended July 31, 2021.

Interest income, net was $0.8 million for the 13 weeks ended October 29, 2022 compared to interest expense, net of $0.4 million for the 13 weeks ended October 30, 2021.

Interest income represents interest from cash equivalents and short-term investments with maturities of twelve months or less from the date of purchase.

Interest expense represents interest on borrowings and fees related to the credit facility.

We did not have any outstanding borrowings on our credit facility as of July 30, 2022, January 29, 2022, and July 31, 2021.

We did not have any outstanding borrowings on our credit facility as of October 29, 2022, January 29, 2022, and October 30, 2021.

Income tax expense

Income tax expense of $95.9 million for the 13 weeks ended July 30, 2022 represents an effective tax rate of 24.5%, compared to $81.0 million of tax expense representing an effective tax rate of 24.4% for the 13 weeks ended July 31, 2021.

Net income was $295.7 million for the 13 weeks ended July 30, 2022, compared to $250.9 million for the 13 weeks ended July 31, 2021.

Income tax expense of $88.1 million for the 13 weeks ended October 29, 2022 represents an effective tax rate of 24.3%, compared to $68.5 million of tax expense representing an effective tax rate of 24.1% for the 13 weeks ended October 30, 2021.

Net income increased $59.3 million or 27.5%, to $274.6 million for the 13 weeks ended October 29, 2022, compared to $215.3 million for the 13 weeks ended October 30, 2021.

The increase in net income is primarily due to the $173.3 million increase in gross profit, partially offset by the $93.8 million increase in SG&A expenses and the $19.6 million increase in income taxes.

Comparison of 26 weeks ended July 30, 2022 to 26 weeks ended July 31, 2021

Net sales increased $737.3 million or 18.9%, to $4.6 billion for the 26 weeks ended July 30, 2022, compared to $3.9 billion for the 26 weeks ended July 31, 2021.

The net sales increase was primarily due to the favorable impact from the continued resilience of the beauty category, the impact of new brands and product innovation, the easing of COVID-19 restrictions and an increase of $39.4 million in other revenue compared to the 26 weeks ended July 31, 2021.

The total comparable sales increase of 16.2% during the 26 weeks ended July 30, 2022 was driven by a 9.2% increase in transactions and a 6.4% increase in average ticket.

Gross profit increased $317.4 million or 20.5%, to $1.9 billion for the 26 weeks ended July 30, 2022, compared to $1.6 billion for the 26 weeks ended July 31, 2021.

Gross profit as a percentage of net sales increased to 40.3% for the 26 weeks ended July 30, 2022, compared to 39.7% for the 26 weeks ended July 31, 2021.

Comparison of 39 weeks ended October 29, 2022 to 39 weeks ended October 30, 2021

Net sales increased $1.1 billion or 18.3%, to $7.0 billion for the 39 weeks ended October 29, 2022, compared to $5.9 billion for the 39 weeks ended October 30, 2021.

The net sales increase was primarily due to the favorable impact from the continued resilience of the beauty category, retail price increases, the impact of new brands and product innovation, the easing of COVID-19 restrictions, and an increase of $59.6 million in other revenue compared to the 39 weeks ended October 30, 2021.

The total comparable sales increase of 15.6% during the 39 weeks ended October 29, 2022 was driven by a 9.7% increase in transactions and a 5.4% increase in average ticket.

Gross profit increased $490.8 million or 21.0%, to $2.8 billion for the 39 weeks ended October 29, 2022, compared to $2.3 billion for the 39 weeks ended October 30, 2021.

Gross profit as a percentage of net sales increased to 40.6% for the 39 weeks ended October 29, 2022, compared to 39.7% for the 39 weeks ended October 30, 2021.

The increase in gross profit margin was primarily due to leverage of fixed costs, strong growth in other revenue, and favorable channel mix shifts, partially offset by lower merchandise margin and higher inventory shrink.

Selling, general and administrative expenses

SG&A expenses increased $127.3 million or 14.0%, to $1.0 billion for the 26 weeks ended July 30, 2022, compared to $908.2 million for the 26 weeks ended July 31, 2021.

SG&A expenses as a percentage of net sales decreased to 22.3% for the 26 weeks ended July 30, 2022, compared to 23.3% for the 26 weeks ended July 31, 2021, due to lower marketing expenses and leverage of store payroll and benefits due to higher sales, partially offset by deleverage in corporate overhead primarily due to strategic investments.

SG&A expenses increased $221.0 million or 15.7%, to $1.6 billion for the 39 weeks ended October 29, 2022, compared to $1.4 billion for the 39 weeks ended October 30, 2021.

SG&A expenses as a percentage of net sales decreased to 23.4% for the 39 weeks ended October 29, 2022, compared to 23.9% for the 39 weeks ended October 30, 2021, due to lower marketing expenses, partially offset by deleverage in corporate overhead primarily due to strategic investments.

Pre-opening expenses

Pre-opening expenses decreased $1.3 million to $4.6 million for the 26 weeks ended July 30, 2022, compared to $5.9 million for the 26 weeks ended July 31, 2021.

Interest expense, net

Interest expense, net was $0.3 million for the 26 weeks ended July 30, 2022 compared to $0.8 million for the 26 weeks ended July 31, 2021.

Pre-opening expenses increased $0.6 million to $8.4 million for the 39 weeks ended October 29, 2022, compared to $7.8 million for the 39 weeks ended October 30, 2021.

Interest expense (income), net

Interest income, net was $0.6 million for the 39 weeks ended October 29, 2022 compared to interest expense, net of $1.2 million for the 39 weeks ended October 30, 2021.

Interest income represents interest from cash equivalents and short-term investments with maturities of twelve months or less from the date of purchase.

Interest expense represents interest on borrowings and fees related to the credit facility.

We did not have any outstanding borrowings on our credit facility as of July 30, 2022, January 29, 2022, and July 31, 2021.

We did not have any outstanding borrowings on our credit facility as of October 29, 2022, January 29, 2022, and October 30, 2021.

Income tax expense

Income tax expense of $201.8 million for the 26 weeks ended July 30, 2022 represents an effective tax rate of 24.3%, compared to $155.7 million of tax expense representing an effective tax rate of 24.4% for the 26 weeks ended July 31, 2021.

Net income was $627.1 million for the 26 weeks ended July 30, 2022 compared to $481.2 million for the 26 weeks ended July 31, 2021.

Income tax expense of $289.9 million for the 39 weeks ended October 29, 2022 represents an effective tax rate of 24.3%, compared to $224.2 million of tax expense representing an effective tax rate of 24.4% for the 39 weeks ended October 30, 2021.

Net income increased $205.2 million or 29.5%, to $901.7 million for the 39 weeks ended October 29, 2022 compared to $696.5 million for the 39 weeks ended October 30, 2021.

The increase in net income is primarily due to the $490.8 million increase in gross profit, partially offset by the $221.0 million increase in SG&A expenses and the $65.7 million increase in income taxes.

1 unchanged sentence

Our primary sources of liquidity are cash and cash equivalents, cash flows from operations, and borrowings under our credit facility.

The most significant components of our working capital are merchandise inventories and cash and cash equivalents reduced by related accounts payable, accrued expenses and deferred revenue.

As of July 30, 2022, January

29, 2022, and July 31, 2021, we had cash and cash equivalents of $434.2 million, $431.6 million, and $770.1 million, respectively.

The most significant components of our working capital are merchandise inventories and cash and cash

equivalents reduced by related accounts payable, accrued liabilities and deferred revenue.

As of October 29, 2022, January 29, 2022, and October 30, 2021, we had cash and cash equivalents of $250.6 million, $431.6 million, and $605.1 million, respectively.

Our primary cash needs are for rent, capital expenditures for new, remodeled, and relocated stores, increased merchandise inventories related to store expansion and new brand additions, supply chain improvements, share repurchases, and continued improvement in our information technology systems.

5 unchanged sentences

We believe our ability to generate substantial cash from operating activities and readily secure financing at competitive rates are key strengths that give us significant flexibility to meet our short and long-term financial commitments.

The following table presents a summary of our cash flows for the 26 weeks ended July 30, 2022 and July 31, 2021:

The following table presents a summary of our cash flows for the 39 weeks ended October 29, 2022 and October 30, 2021:

39 Weeks Ended

5 unchanged sentences

Operating activities consist of net income adjusted for certain non-cash items, including depreciation and amortization, non-cash lease expense, deferred income taxes, stock-based compensation expense, realized gains or losses on disposal of property and equipment, and the effect of working capital changes.

The increase in net cash provided by operating activities in the first 26 weeks of fiscal 2022 is mainly due to the increase in net income and merchandise inventories, partially offset by timing of accounts payable and accrued liabilities and increase in deferred revenue compared to the first 26 weeks of fiscal 2021.

The increase in net income was primarily due to an increase in gross profit resulting from higher sales, partially offset by an increase in SG&A expenses and income taxes.

Merchandise inventories, net were $1.67 billion at July 30, 2022, compared to $1.44 billion at July 31, 2021, representing an increase of $222.4 million or 15.4%.

The increase in net cash provided by operating activities in the first 39 weeks of fiscal 2022 is mainly due to the increase in net income, lower spend on merchandise inventories, and timing of accrued liabilities, partially offset by timing of accounts payable and increase in deferred revenue compared to the first 39 weeks of fiscal 2021.

The increase in net income was primarily due to an increase in gross profit, partially offset by an increase in SG&A expenses and income taxes.

Merchandise inventories, net were $2.11 billion at October 29, 2022, compared to $1.92 billion at October 30, 2021, representing an increase of $198.3 million or 10.3%.

The change in total inventory is primarily due to the following:

● $32 million increase due to the addition of 29 net new stores opened since July 31, 2021;

● $91 million increase due to new key brand launches;

● $60 million increase due to the addition of 41 net new stores opened since October 30, 2021;

● $47 million increase due to inventory cost increases and inventory receipts to maintain strong in-stocks of key items to support expected demand.

1 unchanged sentence

We have historically used cash primarily for new, remodeled, relocated, and refreshed stores, supply chain investments, short-term investments, and investments in information technology systems.

Investment activities for capital expenditures were $120.5 million during the 26 weeks ended July 30, 2022, compared to $57.3 million during the 26 weeks ended July 31, 2021.

During the 26 weeks ended July 30, 2022, we opened 17 new stores and relocated 10 stores, compared to the 26 weeks ended July 31, 2021, when we opened 35 new stores, relocated two stores and remodeled five stores.

Investment activities for capital expenditures were $204.0 million during the 39 weeks ended October 29, 2022, compared to $108.4 million during the 39 weeks ended October 30, 2021.

During the 39 weeks ended October 29, 2022, we opened 35 new stores, relocated 11 stores and remodeled eight stores, compared to the 39 weeks ended October 30, 2021, when we opened 42 new stores, relocated four stores and remodeled eight stores.

The increase in net cash used in investing activities in the first 39 weeks of fiscal 2022 compared to the first 39 weeks of fiscal 2021 was primarily due to more capital expenditures.

5 unchanged sentences

The decrease in net cash used in financing activities in the first 39 weeks of fiscal 2022 compared to the first 39 weeks of fiscal 2021 was primarily due to a decrease in share repurchases.

We had no borrowings outstanding under the credit facility as of July 30, 2022, January 29, 2022, and July 31, 2021.

We had no borrowings outstanding under the credit facility as of October 29, 2022, January 29, 2022, and October 30, 2021.

The zero outstanding borrowings position continues to be due to a combination of factors including sales demand, overall performance of management initiatives including expense control, and inventory and other working capital reductions.

23 unchanged sentences

Outstanding borrowings bear interest, at the Company’s election, at either a base rate plus a margin of 0% to 0.125% or the London Interbank Offered Rate plus a margin of 1.125% to 1.250%, with such margins based on the Company’s borrowing availability, and the unused line fee is 0.20% per annum.

As of July 30, 2022, January 29, 2022, and July 31, 2021, we had no borrowings outstanding under the credit facility.

As of July 30, 2022, we were in compliance with all terms and covenants of the Loan Agreement.

As of October 29, 2022, January 29, 2022, and October 30, 2021, we had no borrowings outstanding under the credit facility.

As of October 29, 2022, we were in compliance with all terms and covenants of the Loan Agreement.

Our business is subject to seasonal fluctuation.

12 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis