Ulta Beauty, Inc. 10-Q

Item 1. Financial Statements Ulta Beauty, Inc. Consolidated Balance Sheets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ October 29, ​ January 29, ​ October 30, (In thousands, except per share data) 2022 2022 2021 Assets ​ ​ (Unaudited) ​ ​ ​ ​ ​ (Unaudited) Current assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 250,628 ​ $ 431,560 ​ $ 605,053 Receivables, net ​ ​ 200,304 ​ ​ 233,682 ​ ​ 169,212 Merchandise inventories, net ​ ​ 2,114,669 ​ ​ 1,499,218 ​ ​ 1,916,343 Prepaid expenses and other current assets ​ ​ 137,642 ​ ​ 110,814 ​ ​ 105,584 Prepaid income taxes ​ ​ 42,572 ​ ​ 5,909 ​ ​ 37,501 Total current assets ​ ​ 2,745,815 ​ ​ 2,281,183 ​ ​ 2,833,693 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Property and equipment, net ​ ​ 967,039 ​ ​ 914,476 ​ ​ 908,665 Operating lease assets ​ ​ 1,556,940 ​ ​ 1,482,256 ​ ​ 1,464,533 Goodwill ​ ​ 10,870 ​ ​ 10,870 ​ ​ 10,870 Other intangible assets, net ​ ​ 844 ​ ​ 1,538 ​ ​ 1,770 Deferred compensation plan assets ​ ​ 31,529 ​ ​ 38,409 ​ ​ 36,403 Other long-term assets ​ ​ 18,512 ​ ​ 35,647 ​ ​ 31,833 Total assets ​ $ 5,331,549 ​ $ 4,764,379 ​ $ 5,287,767 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and stockholders’ equity ​ ​ ​ ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 647,117 ​ $ 552,730 ​ $ 747,451 Accrued liabilities ​ ​ 462,773 ​ ​ 364,797 ​ ​ 329,672 Deferred revenue ​ ​ 312,132 ​ ​ 353,579 ​ ​ 272,628 Current operating lease liabilities ​ ​ 275,749 ​ ​ 274,118 ​ ​ 274,365 Accrued income taxes ​ ​ — ​ ​ 12,786 ​ ​ — Total current liabilities ​ ​ 1,697,771 ​ ​ 1,558,010 ​ ​ 1,624,116 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-current operating lease liabilities ​ ​ 1,621,252 ​ ​ 1,572,638 ​ ​ 1,565,921 Deferred income taxes ​ ​ 38,627 ​ ​ 39,693 ​ ​ 67,267 Other long-term liabilities ​ ​ 51,644 ​ ​ 58,665 ​ ​ 43,663 Total liabilities ​ ​ 3,409,294 ​ ​ 3,229,006 ​ ​ 3,300,967 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies (Note 6) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders' equity: ​ ​ ​ ​ ​ ​ ​ ​ ​ Common stock, $ 0.01 par value, 400,000 shares authorized; 51,785 , 53,049 , and 54,907 shares issued; 51,029 , 52,311 , and 54,170 shares outstanding; at October 29, 2022 (unaudited), January 29, 2022, and October 30, 2021 (unaudited), respectively ​ ​ 517 ​ ​ 530 ​ ​ 549 Treasury stock-common, at cost ​ ​ ( 60,218 ) ​ ​ ( 53,478 ) ​ ​ ( 53,312 ) Additional paid-in capital ​ ​ 998,816 ​ ​ 934,945 ​ ​ 915,814 Retained earnings ​ ​ 983,140 ​ ​ 653,376 ​ ​ 1,123,749 Total stockholders’ equity ​ ​ 1,922,255 ​ ​ 1,535,373 ​ ​ 1,986,800 Total liabilities and stockholders’ equity ​ $ 5,331,549 ​ $ 4,764,379 ​ $ 5,287,767 ​ See accompanying notes to consolidated financial statements. 3 Table of Contents Ulta Beauty, Inc. Consolidated Statements of Income (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13 Weeks Ended ​ 39 Weeks Ended ​ ​ October 29, ​ October 30, ​ October 29, ​ October 30, (In thousands, except per share data) 2022 ​ 2021 ​ 2022 ​ 2021 Net sales ​ $ 2,338,793 ​ $ 1,995,775 ​ $ 6,981,807 ​ $ 5,901,501 Cost of sales ​ ​ 1,375,976 ​ ​ 1,206,301 ​ ​ 4,149,800 ​ ​ 3,560,276 Gross profit ​ ​ 962,817 ​ ​ 789,474 ​ ​ 2,832,007 ​ ​ 2,341,225 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative expenses ​ ​ 597,164 ​ ​ 503,403 ​ ​ 1,632,593 ​ ​ 1,411,577 Pre-opening expenses ​ ​ 3,797 ​ ​ 1,832 ​ ​ 8,422 ​ ​ 7,778 Operating income ​ ​ 361,856 ​ ​ 284,239 ​ ​ 1,190,992 ​ ​ 921,870 Interest expense (income), net ​ ​ ( 849 ) ​ ​ 413 ​ ​ ( 556 ) ​ ​ 1,196 Income before income taxes ​ ​ 362,705 ​ ​ 283,826 ​ ​ 1,191,548 ​ ​ 920,674 Income tax expense ​ ​ 88,120 ​ ​ 68,537 ​ ​ 289,891 ​ ​ 224,203 Net income ​ $ 274,585 ​ $ 215,289 ​ $ 901,657 ​ $ 696,471 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income per common share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 5.37 ​ $ 3.97 ​ $ 17.45 ​ $ 12.68 Diluted ​ $ 5.34 ​ $ 3.94 ​ $ 17.35 ​ $ 12.60 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 51,131 ​ ​ 54,291 ​ ​ 51,663 ​ ​ 54,921 Diluted ​ ​ 51,418 ​ ​ 54,660 ​ ​ 51,962 ​ ​ 55,280 ​ See accompanying notes to consolidated financial statements. ​ ​ ​ ​ 4 Table of Contents Ulta Beauty, Inc. Consolidated Statements of Cash Flows (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 39 Weeks Ended ​ ​ October 29, ​ October 30, (In thousands) 2022 2021 Operating activities ​ ​ ​ ​ ​ ​ Net income ​ $ 901,657 ​ $ 696,471 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ Depreciation and amortization ​ ​ 182,182 ​ ​ 204,734 Non-cash lease expense ​ ​ 222,548 ​ ​ 206,017 Deferred income taxes ​ ​ ( 1,066 ) ​ ​ 1,908 Stock-based compensation expense ​ ​ 32,554 ​ ​ 38,217 Loss on disposal of property and equipment ​ ​ 3,892 ​ ​ 3,357 Change in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Receivables ​ ​ 33,378 ​ ​ 23,897 Merchandise inventories ​ ​ ( 615,451 ) ​ ​ ( 748,128 ) Prepaid expenses and other current assets ​ ​ ( 26,828 ) ​ ​ 1,818 Income taxes ​ ​ ( 49,446 ) ​ ​ ( 80,027 ) Accounts payable ​ ​ 94,214 ​ ​ 266,104 Accrued liabilities ​ ​ 64,164 ​ ​ 24,482 Deferred revenue ​ ​ ( 41,447 ) ​ ​ ( 1,755 ) Operating lease liabilities ​ ​ ( 246,988 ) ​ ​ ( 222,451 ) Other assets and liabilities ​ ​ 20,063 ​ ​ 213 Net cash provided by operating activities ​ ​ 573,426 ​ ​ 414,857 ​ ​ ​ ​ ​ ​ ​ Investing activities ​ ​ ​ ​ ​ ​ Capital expenditures ​ ​ ( 203,961 ) ​ ​ ( 108,418 ) Other investments ​ ​ ( 3,068 ) ​ ​ — Net cash used in investing activities ​ ​ ( 207,029 ) ​ ​ ( 108,418 ) ​ ​ ​ ​ ​ ​ ​ Financing activities ​ ​ ​ ​ ​ ​ Repurchase of common shares ​ ​ ( 571,908 ) ​ ​ ( 762,167 ) Stock options exercised ​ ​ 31,319 ​ ​ 30,297 Purchase of treasury shares ​ ​ ( 6,740 ) ​ ​ ( 15,511 ) Net cash used in financing activities ​ ​ ( 547,329 ) ​ ​ ( 747,381 ) ​ ​ ​ ​ ​ ​ ​ Effect of exchange rate changes on cash and cash equivalents ​ ​ — ​ ​ ( 56 ) Net decrease in cash and cash equivalents ​ ​ ( 180,932 ) ​ ​ ( 440,998 ) Cash and cash equivalents at beginning of period ​ ​ 431,560 ​ ​ 1,046,051 Cash and cash equivalents at end of period ​ $ 250,628 ​ $ 605,053 ​ ​ ​ ​ ​ ​ ​ Supplemental information ​ ​ ​ ​ ​ ​ Cash paid for interest ​ $ 1,598 ​ $ 1,594 Income taxes paid, net of refunds ​ 339,290 ​ ​ 301,312 Non-cash capital expenditures ​ ​ 33,982 ​ ​ 13,148 ​ See accompanying notes to consolidated financial statements. ​ ​ 5 Table of Contents Ulta Beauty, Inc. Consolidated Statements of Stockholders’ Equity (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Treasury - ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Common Stock ​ Additional ​ ​ ​ Total ​ ​ Issued ​ ​ ​ Treasury ​ ​ ​ Paid-In ​ Retained ​ Stockholders' (In thousands) Shares Amount Shares Amount Capital Earnings Equity Balance – January 29, 2022 ​ 53,049 ​ $ 530 ​ ( 738 ) ​ $ ( 53,478 ) ​ $ 934,945 ​ $ 653,376 ​ $ 1,535,373 Net income ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 331,395 ​ ​ 331,395 Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ 10,356 ​ ​ — ​ ​ 10,356 Stock options exercised and other awards ​ 73 ​ ​ 1 ​ — ​ ​ — ​ ​ 6,501 ​ ​ — ​ ​ 6,502 Purchase of treasury shares ​ — ​ ​ — ​ ( 14 ) ​ ​ ( 5,172 ) ​ ​ — ​ ​ — ​ ​ ( 5,172 ) Repurchase of common shares ​ ( 332 ) ​ ​ ( 3 ) ​ — ​ ​ — ​ ​ — ​ ​ ( 132,831 ) ​ ​ ( 132,834 ) Balance – April 30, 2022 ​ 52,790 ​ $ 528 ​ ( 752 ) ​ $ ( 58,650 ) ​ $ 951,802 ​ $ 851,940 ​ $ 1,745,620 Net income ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 295,677 ​ ​ 295,677 Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ 12,519 ​ ​ — ​ ​ 12,519 Stock options exercised and other awards ​ 95 ​ ​ 1 ​ — ​ ​ — ​ ​ 18,018 ​ ​ — ​ ​ 18,019 Purchase of treasury shares ​ — ​ ​ — ​ ( 3 ) ​ ​ ( 1,153 ) ​ ​ — ​ ​ — ​ ​ ( 1,153 ) Repurchase of common shares ​ ( 798 ) ​ ​ ( 8 ) ​ — ​ ​ — ​ ​ — ​ ​ ( 301,606 ) ​ ​ ( 301,614 ) Balance – July 30, 2022 ​ 52,087 ​ $ 521 ​ ( 755 ) ​ $ ( 59,803 ) ​ $ 982,339 ​ $ 846,011 ​ $ 1,769,068 Net income ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 274,585 ​ ​ 274,585 Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ 9,679 ​ ​ — ​ ​ 9,679 Stock options exercised and other awards ​ 38 ​ ​ — ​ — ​ ​ — ​ ​ 6,798 ​ ​ — ​ ​ 6,798 Purchase of treasury shares ​ — ​ ​ — ​ ( 1 ) ​ ​ ( 415 ) ​ ​ — ​ ​ — ​ ​ ( 415 ) Repurchase of common shares ​ ( 340 ) ​ ​ ( 4 ) ​ — ​ ​ — ​ ​ — ​ ​ ( 137,456 ) ​ ​ ( 137,460 ) Balance – October 29, 2022 ​ 51,785 ​ $ 517 ​ ( 756 ) ​ $ ( 60,218 ) ​ $ 998,816 ​ $ 983,140 ​ $ 1,922,255 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ See accompanying notes to consolidated financial statements. ​ 6 Table of Contents Ulta Beauty, Inc. Consolidated Statements of Stockholders’ Equity (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 (Loss) Equity Balance – January 30, 2021 ​ 56,952 ​ $ 569 ​ ( 692 ) ​ $ ( 37,801 ) ​ $ 847,303 ​ $ 1,189,422 ​ $ 56 ​ $ 1,999,549 Net income ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 230,289 ​ ​ — ​ ​ 230,289 Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ 8,978 ​ ​ — ​ ​ — ​ ​ 8,978 Foreign currency translation adjustments ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 56 ) ​ ​ ( 56 ) Stock options exercised and other awards ​ 94 ​ ​ 1 ​ — ​ ​ — ​ ​ 5,031 ​ ​ — ​ ​ — ​ ​ 5,032 Purchase of treasury shares ​ — ​ ​ — ​ ( 21 ) ​ ​ ( 6,766 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 6,766 ) Repurchase of common shares ​ ( 1,243 ) ​ ​ ( 12 ) ​ — ​ ​ — ​ ​ — ​ ​ ( 392,297 ) ​ ​ — ​ ​ ( 392,309 ) Balance – May 1, 2021 ​ 55,803 ​ $ 558 ​ ( 713 ) ​ $ ( 44,567 ) ​ $ 861,312 ​ $ 1,027,414 ​ $ — ​ $ 1,844,717 Net income ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 250,893 ​ ​ — ​ ​ 250,893 Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ 10,119 ​ ​ — ​ ​ — ​ ​ 10,119 Stock options exercised and other awards ​ 104 ​ ​ 1 ​ — ​ ​ — ​ ​ 17,775 ​ ​ — ​ ​ — ​ ​ 17,776 Purchase of treasury shares ​ — ​ ​ — ​ ( 1 ) ​ ​ ( 208 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 208 ) Repurchase of common shares ​ ( 747 ) ​ ​ ( 8 ) ​ — ​ ​ — ​ ​ — ​ ​ ( 243,476 ) ​ ​ — ​ ​ ( 243,484 ) Balance – July 31, 2021 ​ 55,160 ​ $ 551 ​ ( 714 ) ​ $ ( 44,775 ) ​ $ 889,206 ​ $ 1,034,831 ​ $ — ​ $ 1,879,813 Net income ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 215,289 ​ ​ — ​ ​ 215,289 Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ 19,120 ​ ​ — ​ ​ — ​ ​ 19,120 Stock options exercised and other awards ​ 87 ​ ​ 1 ​ — ​ ​ — ​ ​ 7,488 ​ ​ — ​ ​ — ​ ​ 7,489 Purchase of treasury shares ​ — ​ ​ — ​ ( 23 ) ​ ​ ( 8,537 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 8,537 ) Repurchase of common shares ​ ( 340 ) ​ ​ ( 3 ) ​ — ​ ​ — ​ ​ — ​ ​ ( 126,371 ) ​ ​ — ​ ​ ( 126,374 ) Balance – October 30, 2021 ​ 54,907 ​ $ 549 ​ ( 737 ) ​ $ ( 53,312 ) ​ $ 915,814 ​ $ 1,123,749 ​ $ — ​ $ 1,986,800 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ See accompanying notes to consolidated financial statements. ​ ​ 7 Table of Contents ​ Ulta Beauty, Inc. Notes to Consolidated Financial Statements (In thousands, except per share and store count data) (Unaudited) ​ 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. The stores also feature full-service salons. As used in these notes and throughout this Quarterly Report on Form 10-Q, all references to “we,” “us,” “our,” “Ulta Beauty,” or the “Company” refer to Ulta Beauty, Inc. and its consolidated subsidiaries. As of October 29, 2022, the Company operated 1,343 stores across 50 states, as shown in the table below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ ​ ​ Number of Location stores Location stores Alabama ​ 24 ​ Montana ​ 6 Alaska ​ 3 ​ Nebraska ​ 5 Arizona ​ 32 ​ Nevada ​ 16 Arkansas ​ 11 ​ New Hampshire ​ 8 California ​ 166 ​ New Jersey ​ 44 Colorado ​ 26 ​ New Mexico ​ 7 Connecticut ​ 19 ​ New York ​ 52 Delaware ​ 4 ​ North Carolina ​ 43 Florida ​ 92 ​ North Dakota ​ 4 Georgia ​ 43 ​ Ohio ​ 45 Hawaii ​ 4 ​ Oklahoma ​ 21 Idaho ​ 9 ​ Oregon ​ 18 Illinois ​ 55 ​ Pennsylvania ​ 45 Indiana ​ 25 ​ Rhode Island ​ 4 Iowa ​ 11 ​ South Carolina ​ 24 Kansas ​ 13 ​ South Dakota ​ 3 Kentucky ​ 15 ​ Tennessee ​ 28 Louisiana ​ 18 ​ Texas ​ 125 Maine ​ 3 ​ Utah ​ 15 Maryland ​ 28 ​ Vermont ​ 1 Massachusetts ​ 24 ​ Virginia ​ 32 Michigan ​ 49 ​ Washington ​ 37 Minnesota ​ 19 ​ West Virginia ​ 7 Mississippi ​ 12 ​ Wisconsin ​ 20 Missouri ​ 25 ​ Wyoming ​ 3 ​ ​ ​ ​ Total ​ 1,343 ​ The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and the U.S. Securities and Exchange Commission’s Article 10, Regulation S-X. These financial statements were prepared on a consolidated basis to include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts, transactions, and unrealized profit were eliminated in consolidation. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to fairly state the financial position and results of operations and cash flows for the interim periods presented. 8 Table of Contents The Company’s business is subject to seasonal fluctuation, with significant portions of net sales and net income being realized during the fourth quarter of the fiscal year due to the holiday selling season. The results for the 13 and 39 weeks ended October 29, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending January 28, 2023, or for any other future interim period or for any future year, in particular as a result of the uncertainty around the continuing effects of the COVID-19 pandemic, geopolitical events, and inflationary cost pressures on future periods. These unaudited interim consolidated financial statements and the related notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended January 29, 2022. All amounts are stated in thousands, with the exception of per share amounts and number of stores. ​ 2. Summary of significant accounting policies Information regarding significant accounting policies is contained in Note 2, “Summary of significant accounting policies,” to the consolidated financial statements in the Annual Report on Form 10-K for the year ended January 29, 2022. Presented below and in the following notes is supplemental information that should be read in conjunction with “Notes to Consolidated Financial Statements” in the Annual Report. Fiscal quarter The Company’s quarterly periods are the 13 weeks ending on the Saturday closest to April 30, July 31, October 31, and January 31. The third quarter in fiscal 2022 and 2021 ended on October 29, 2022 and October 30, 2021, respectively. 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, including those related to the impacts of the COVID-19 pandemic, geopolitical events, and inflationary cost pressures, will be reflected in the consolidated financial statements in future periods. ​ ​ ​ ​ ​ ​ 9 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13 Weeks Ended ​ ​ 39 Weeks Ended ​ ​ October 29, ​ October 30, ​ ​ October 29, ​ October 30, (Percentage of net sales) ​ 2022 ​ 2021 ​ ​ 2022 ​ 2021 Cosmetics ​ 44 % ​ 45 % ​ ​ 43 % ​ 44 % Haircare products and styling tools ​ 21 % ​ 21 % ​ ​ 21 % ​ 20 % Skincare ​ 16 % ​ 16 % ​ ​ 17 % ​ 17 % Fragrance and bath ​ 12 % ​ 12 % ​ ​ 12 % ​ 12 % Services ​ 4 % ​ 3 % ​ ​ 4 % ​ 4 % Accessories and other ​ 3 % ​ 3 % ​ ​ 3 % ​ 3 % ​ ​ 100 % ​ 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 Ultamate 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 the 13 and 39 weeks ended October 29, 2022 and October 30, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13 Weeks Ended ​ 39 Weeks Ended ​ ​ October 29, ​ October 30, ​ October 29, ​ October 30, (In thousands) ​ 2022 ​ 2021 ​ 2022 2021 Beginning balance ​ $ 305,913 ​ $ 256,227 ​ $ 345,206 ​ $ 269,032 Additions to contract liabilities (1) ​ ​ 97,521 ​ ​ 92,074 ​ ​ 224,938 ​ ​ 201,106 Deductions to contract liabilities (2) ​ ​ ( 99,443 ) ​ ​ ( 85,078 ) ​ ​ ( 266,153 ) ​ ​ ( 206,915 ) Ending balance ​ $ 303,991 ​ $ 263,223 ​ $ 303,991 ​ $ 263,223 (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 $ 8,141 and $ 9,405 at October 29, 2022 and October 30, 2021, respectively. ​ 4. Goodwill and other intangible assets Goodwill, which represents the excess of cost over the fair value of net assets acquired, was $ 10,870 at October 29, 2022, January 29, 2022, and October 30, 2021. No additional goodwill was recognized during the 13 and 39 weeks ended October 29, 2022. 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. 10 Table of Contents 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. ​ 5. Leases The Company leases retail stores, distribution centers, fast fulfillment centers, corporate offices, and certain equipment under non-cancelable operating leases with various expiration dates through 2034. 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. ​ Lease cost The majority of operating lease cost relates to retail stores, distribution centers, and fast fulfillment centers and is classified within cost of sales. Operating lease cost for corporate offices is classified within selling, general and administrative expenses. Operating lease cost from the control date through store opening date is classified within pre-opening expenses. ​ The following table presents a summary of operating lease costs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13 Weeks Ended ​ 39 Weeks Ended ​ ​ October 29, ​ October 30, ​ October 29, ​ October 30, (In thousands) ​ 2022 ​ 2021 ​ 2022 ​ 2021 Operating lease cost ​ $ 80,371 ​ $ 77,976 ​ $ 240,366 ​ $ 233,488 ​ Other information The following table presents supplemental disclosures of cash flow information related to operating leases: ​ ​ ​ ​ ​ ​ ​ ​ ​ 39 Weeks Ended ​ ​ ​ October 29, ​ October 30, ​ (In thousands) 2022 ​ 2021 ​ Cash paid for operating lease liabilities (1) ​ $ 286,016 ​ $ 275,016 ​ Operating lease assets obtained in exchange for operating lease liabilities (non-cash) ​ ​ 297,232 ​ ​ 165,936 ​ (1) Excludes $ 21,347 and $ 24,570 related to cash received for tenant incentives for the 39 weeks ended October 29, 2022 and October 30, 2021, respectively. ​ 6. Commitments and contingencies 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 consolidated financial position, results of operations or cash flows. ​ 7. Debt On March 11, 2020, the Company entered into Amendment No. 1 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 11 Table of Contents 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 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 October 29, 2022, January 29, 2022, and October 30, 2021, there were no borrowings outstanding under the credit facility. As of October 29, 2022, the Company was in compliance with all terms and covenants of the Loan Agreement. ​ 8. Fair value measurements The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximates their estimated fair values due to the short maturities of these instruments. Fair value is measured using inputs from the three levels of the fair value hierarchy, which are described as follows: ● Level 1 – observable inputs such as quoted prices for identical instruments in active markets. ● Level 2 – inputs other than quoted prices in active markets that are observable either directly or indirectly through corroboration with observable market data. ● Level 3 – unobservable inputs in which there is little or no market data, which would require the Company to develop its own assumptions. ​ As of October 29, 2022, January 29, 2022, and October 30, 2021, there were liabilities related to the non-qualified deferred compensation plan included in other long-term liabilities on the consolidated balance sheets of $ 34,839 , $ 40,839 , and $ 38,333 , 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. ​ 9. Stock-based compensation 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 39 Weeks Ended ​ ​ October 29, ​ October 30, ​ 2022 2021 Volatility rate 49.0 % ​ 46.9 % Average risk-free interest rate 2.4 % ​ 0.4 % Average expected life (in years) 3.4 3.9 Dividend yield None None ​ The expected volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the United States Treasury yield curve in effect on the date of grant for the respective expected life of the option. The expected life represents the time the options granted are expected to be outstanding. The expected life of options granted is derived from historical data on Ulta Beauty stock option exercises. Forfeitures of 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. 12 Table of Contents The Company granted 48 and 61 stock options during the 39 weeks ended October 29, 2022 and October 30, 2021, respectively. Stock-based compensation expense for stock options was $ 1,646 and $ 2,712 for the 13 weeks ended October 29, 2022 and October 30, 2021, respectively. Stock-based compensation expense for stock options was $ 6,152 and $ 8,710 for the 39 weeks ended October 29, 2022 and October 30, 2021, respectively. The weighted-average grant date fair value of these stock options was $ 149.14 and $ 109.72 for the 39 weeks ended October 29, 2022 and October 30, 2021, respectively. At October 29, 2022, there was approximately $ 12,073 of unrecognized stock-based compensation expense related to unvested stock options. There were 58 and 60 restricted stock units issued during the 39 weeks ended October 29, 2022 and October 30, 2021, respectively. Stock-based compensation expense for restricted stock units was $ 4,544 and $ 4,622 for the 13 weeks ended October 29, 2022 and October 30, 2021, respectively. Stock-based compensation expense for restricted stock units was $ 13,983 and $ 14,606 for the 39 weeks ended October 29, 2022 and October 30, 2021, respectively. At October 29, 2022, there was approximately $ 28,260 of unrecognized stock-based compensation expense related to restricted stock units. There were 37 and 46 performance-based restricted stock units issued during the 39 weeks ended October 29, 2022 and October 30, 2021, respectively. Stock-based compensation expense for performance-based restricted stock units was $ 3,489 and $ 1,786 for the 13 weeks ended October 29, 2022 and October 30, 2021, respectively. Stock-based compensation expense for performance-based restricted stock units was $ 12,419 and $ 4,901 for the 39 weeks ended October 29, 2022 and October 30, 2021, respectively. At October 29, 2022, there was approximately $ 27,039 of unrecognized stock-based compensation expense related to performance-based restricted stock units. ​ 10. Income taxes Income tax expense reflects the federal statutory tax rate and the weighted average state statutory tax rate for the states in which the Company operates stores. Income tax expense of $ 88,120 for the 13 weeks ended October 29, 2022 represents an effective tax rate of 24.3 %, compared to $ 68,537 of tax expense representing an effective tax rate of 24.1 % for the 13 weeks ended October 30, 2021. Income tax expense of $ 289,891 for the 39 weeks ended October 29, 2022 represents an effective tax rate of 24.3 %, compared to $ 224,203 of tax expense representing an effective tax rate of 24.4 % for the 39 weeks ended October 30, 2021. ​ On August 16, 2022, the Inflation Reduction Act of 2022 was enacted into law, which, among other things, introduces a 15 % corporate alternative minimum tax on book income of certain large corporations and creates a 1 % excise tax on net share repurchases. The corporate alternative minimum tax will be effective in fiscal 2024, and the excise tax applies to share repurchases made after December 31, 2022. The corporate alternative minimum tax and the excise tax are not expected to have a material impact on the consolidated financial statements. ​ ​ 13 Table of Contents 11. Net income per common share The following is a reconciliation of net income and the number of shares of common stock used in the computation of net income per basic and diluted common share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13 Weeks Ended ​ 39 Weeks Ended ​ ​ October 29, ​ October 30, ​ October 29, ​ October 30, (In thousands, except per share data) 2022 2021 2022 2021 Numerator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income $ 274,585 ​ $ 215,289 ​ $ 901,657 ​ $ 696,471 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares – Basic ​ ​ 51,131 ​ ​ 54,291 ​ ​ 51,663 ​ ​ 54,921 Dilutive effect of stock options and non-vested stock ​ ​ 287 ​ ​ 369 ​ ​ 299 ​ ​ 359 Weighted-average common shares – Diluted ​ ​ 51,418 ​ ​ 54,660 ​ ​ 51,962 ​ ​ 55,280 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income per common share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 5.37 ​ $ 3.97 ​ $ 17.45 ​ $ 12.68 Diluted ​ $ 5.34 ​ $ 3.94 ​ $ 17.35 ​ $ 12.60 ​ The denominator for diluted net income per common share for the 13 weeks ended October 29, 2022 and October 30, 2021 excludes 50 and 144 employee stock options and restricted stock units, respectively, due to their anti-dilutive effects. The denominator for diluted net income per common share for the 39 weeks ended October 29, 2022 and October 30, 2021 excludes 119 and 173 employee stock options and restricted stock units, respectively, due to their anti-dilutive effects. Outstanding performance-based restricted stock units are included in the computation of dilutive shares only to the extent that the underlying performance conditions are satisfied prior to the end of the reporting period or would be considered satisfied if the end of the reporting period were the end of the related contingency period and the results would be dilutive under the treasury stock method. ​ 12. 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 amount of $ 177,805 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 new share repurchase program (the 2022 Share Repurchase Program) pursuant to which the Company may repurchase up to $ 2,000,000 of the Company’s common stock. The 2022 Share Repurchase Program revokes the previously authorized but unused amounts from the 2020 Share Repurchase Program. The 2022 Share Repurchase Program does not have an expiration date and may be suspended or discontinued at any time. ​ A summary of common stock repurchase activity is presented in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ 39 Weeks Ended ​ ​ October 29, ​ October 30, (In thousands) ​ 2022 2021 Shares repurchased ​ ​ 1,470 ​ ​ 2,330 Total cost of shares repurchased ​ $ 571,908 ​ $ 762,167 ​ ​ ​ 14 Table of Contents ​