Ulta Beauty, Inc. 10-Q

Item 1. Financial Statements Ulta Beauty, Inc. Consolidated Balance Sheets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ October 28, ​ January 28, ​ October 29, (In thousands, except per share data) 2023 2023 2022 Assets ​ ​ (Unaudited) ​ ​ ​ ​ ​ (Unaudited) Current assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 121,811 ​ $ 737,877 ​ $ 250,628 Receivables, net ​ ​ 202,868 ​ ​ 199,422 ​ ​ 200,304 Merchandise inventories, net ​ ​ 2,321,306 ​ ​ 1,603,451 ​ ​ 2,114,669 Prepaid expenses and other current assets ​ ​ 117,282 ​ ​ 130,246 ​ ​ 137,642 Prepaid income taxes ​ ​ 28,773 ​ ​ 38,308 ​ ​ 42,572 Total current assets ​ ​ 2,792,040 ​ ​ 2,709,304 ​ ​ 2,745,815 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Property and equipment, net ​ ​ 1,117,874 ​ ​ 1,009,273 ​ ​ 967,039 Operating lease assets ​ ​ 1,578,316 ​ ​ 1,561,263 ​ ​ 1,556,940 Goodwill ​ ​ 10,870 ​ ​ 10,870 ​ ​ 10,870 Other intangible assets, net ​ ​ 591 ​ ​ 1,312 ​ ​ 844 Deferred compensation plan assets ​ ​ 38,371 ​ ​ 35,382 ​ ​ 31,529 Other long-term assets ​ ​ 56,946 ​ ​ 43,007 ​ ​ 18,512 Total assets ​ $ 5,595,008 ​ $ 5,370,411 ​ $ 5,331,549 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and stockholders’ equity ​ ​ ​ ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 597,373 ​ $ 559,527 ​ $ 647,117 Accrued liabilities ​ ​ 405,443 ​ ​ 444,278 ​ ​ 462,773 Deferred revenue ​ ​ 350,937 ​ ​ 394,677 ​ ​ 312,132 Current operating lease liabilities ​ ​ 287,786 ​ ​ 283,293 ​ ​ 275,749 Short-term debt ​ ​ 195,400 ​ ​ — ​ ​ — Total current liabilities ​ ​ 1,836,939 ​ ​ 1,681,775 ​ ​ 1,697,771 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-current operating lease liabilities ​ ​ 1,616,747 ​ ​ 1,619,883 ​ ​ 1,621,252 Deferred income taxes ​ ​ 56,874 ​ ​ 55,346 ​ ​ 38,627 Other long-term liabilities ​ ​ 55,906 ​ ​ 53,596 ​ ​ 51,644 Total liabilities ​ ​ 3,566,466 ​ ​ 3,410,600 ​ ​ 3,409,294 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies (Note 6) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders' equity: ​ ​ ​ ​ ​ ​ ​ ​ ​ Common stock, $ 0.01 par value, 400,000 shares authorized; 49,458 , 51,120 , and 51,785 shares issued; 48,659 , 50,364 , and 51,029 shares outstanding; at October 28, 2023 (unaudited), January 28, 2023, and October 29, 2022 (unaudited), respectively ​ ​ 495 ​ ​ 511 ​ ​ 517 Treasury stock-common, at cost ​ ​ ( 82,798 ) ​ ​ ( 60,470 ) ​ ​ ( 60,218 ) Additional paid-in capital ​ ​ 1,058,969 ​ ​ 1,023,997 ​ ​ 998,816 Retained earnings ​ ​ 1,051,876 ​ ​ 995,773 ​ ​ 983,140 Total stockholders’ equity ​ ​ 2,028,542 ​ ​ 1,959,811 ​ ​ 1,922,255 Total liabilities and stockholders’ equity ​ $ 5,595,008 ​ $ 5,370,411 ​ $ 5,331,549 ​ 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 28, ​ October 29, ​ October 28, ​ October 29, (In thousands, except per share data) 2023 ​ 2022 ​ 2023 ​ 2022 Net sales ​ $ 2,488,933 ​ $ 2,338,793 ​ $ 7,653,005 ​ $ 6,981,807 Cost of sales ​ ​ 1,496,866 ​ ​ 1,375,976 ​ ​ 4,612,469 ​ ​ 4,149,800 Gross profit ​ ​ 992,067 ​ ​ 962,817 ​ ​ 3,040,536 ​ ​ 2,832,007 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative expenses ​ ​ 661,380 ​ ​ 597,164 ​ ​ 1,874,201 ​ ​ 1,632,593 Pre-opening expenses ​ ​ 3,460 ​ ​ 3,797 ​ ​ 5,396 ​ ​ 8,422 Operating income ​ ​ 327,227 ​ ​ 361,856 ​ ​ 1,160,939 ​ ​ 1,190,992 Interest income, net ​ ​ ( 2,497 ) ​ ​ ( 849 ) ​ ​ ( 14,294 ) ​ ​ ( 556 ) Income before income taxes ​ ​ 329,724 ​ ​ 362,705 ​ ​ 1,175,233 ​ ​ 1,191,548 Income tax expense ​ ​ 80,241 ​ ​ 88,120 ​ ​ 278,597 ​ ​ 289,891 Net income ​ $ 249,483 ​ $ 274,585 ​ $ 896,636 ​ $ 901,657 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income per common share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 5.09 ​ $ 5.37 ​ $ 18.08 ​ $ 17.45 Diluted ​ $ 5.07 ​ $ 5.34 ​ $ 17.99 ​ $ 17.35 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 49,007 ​ ​ 51,131 ​ ​ 49,592 ​ ​ 51,663 Diluted ​ ​ 49,226 ​ ​ 51,418 ​ ​ 49,846 ​ ​ 51,962 ​ See accompanying notes to consolidated financial statements. ​ ​ ​ ​ 4 Table of Contents Ulta Beauty, Inc. Consolidated Statements of Cash Flows (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 39 Weeks Ended ​ ​ October 28, ​ October 29, (In thousands) 2023 2022 Operating activities ​ ​ ​ ​ ​ ​ Net income ​ $ 896,636 ​ $ 901,657 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ Depreciation and amortization ​ ​ 181,273 ​ ​ 182,182 Non-cash lease expense ​ ​ 232,772 ​ ​ 222,548 Deferred income taxes ​ ​ 1,528 ​ ​ ( 1,066 ) Stock-based compensation expense ​ ​ 33,477 ​ ​ 32,554 Loss on disposal of property and equipment ​ ​ 6,310 ​ ​ 3,892 Change in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Receivables ​ ​ ( 3,446 ) ​ ​ 33,378 Merchandise inventories ​ ​ ( 717,855 ) ​ ​ ( 615,451 ) Prepaid expenses and other current assets ​ ​ 12,964 ​ ​ ( 26,828 ) Income taxes ​ ​ 9,535 ​ ​ ( 49,446 ) Accounts payable ​ ​ 41,817 ​ ​ 94,214 Accrued liabilities ​ ​ ( 34,955 ) ​ ​ 64,164 Deferred revenue ​ ​ ( 43,740 ) ​ ​ ( 41,447 ) Operating lease liabilities ​ ​ ( 248,469 ) ​ ​ ( 246,988 ) Other assets and liabilities ​ ​ ( 9,836 ) ​ ​ 20,063 Net cash provided by operating activities ​ ​ 358,011 ​ ​ 573,426 ​ ​ ​ ​ ​ ​ ​ Investing activities ​ ​ ​ ​ ​ ​ Capital expenditures ​ ​ ( 311,030 ) ​ ​ ( 203,961 ) Other investments ​ ​ ( 4,870 ) ​ ​ ( 3,068 ) Net cash used in investing activities ​ ​ ( 315,900 ) ​ ​ ( 207,029 ) ​ ​ ​ ​ ​ ​ ​ Financing activities ​ ​ ​ ​ ​ ​ Borrowings from credit facility ​ ​ 195,400 ​ ​ — Repurchase of common shares ​ ​ ( 840,551 ) ​ ​ ( 571,908 ) Stock options exercised ​ ​ 9,302 ​ ​ 31,319 Purchase of treasury shares ​ ​ ( 22,328 ) ​ ​ ( 6,740 ) Net cash used in financing activities ​ ​ ( 658,177 ) ​ ​ ( 547,329 ) ​ ​ ​ ​ ​ ​ ​ Net decrease in cash and cash equivalents ​ ​ ( 616,066 ) ​ ​ ( 180,932 ) Cash and cash equivalents at beginning of period ​ ​ 737,877 ​ ​ 431,560 Cash and cash equivalents at end of period ​ $ 121,811 ​ $ 250,628 ​ ​ ​ ​ ​ ​ ​ Supplemental information ​ ​ ​ ​ ​ ​ Income taxes paid, net of refunds $ 266,802 ​ $ 339,290 Non-cash capital expenditures ​ ​ 53,936 ​ ​ 33,982 ​ 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 28, 2023 ​ 51,120 ​ $ 511 ​ ( 756 ) ​ $ ( 60,470 ) ​ $ 1,023,997 ​ $ 995,773 ​ $ 1,959,811 Net income ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 347,051 ​ ​ 347,051 Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ 9,721 ​ ​ — ​ ​ 9,721 Stock options exercised and other awards ​ 150 ​ ​ 1 ​ — ​ ​ — ​ ​ 8,926 ​ ​ — ​ ​ 8,927 Purchase of treasury shares ​ — ​ ​ — ​ ( 41 ) ​ ​ ( 21,659 ) ​ ​ — ​ ​ — ​ ​ ( 21,659 ) Repurchase of common shares, including excise tax ​ ( 541 ) ​ ​ ( 5 ) ​ — ​ ​ — ​ ​ ( 2,266 ) ​ ​ ( 283,512 ) ​ ​ ( 285,783 ) Balance – April 29, 2023 ​ 50,729 ​ $ 507 ​ ( 797 ) ​ $ ( 82,129 ) ​ $ 1,040,378 ​ $ 1,059,312 ​ $ 2,018,068 Net income ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 300,102 ​ ​ 300,102 Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ 11,818 ​ ​ — ​ ​ 11,818 Stock options exercised and other awards ​ 4 ​ ​ — ​ — ​ ​ — ​ ​ 220 ​ ​ — ​ ​ 220 Purchase of treasury shares ​ — ​ ​ — ​ ( 1 ) ​ ​ ( 100 ) ​ ​ — ​ ​ — ​ ​ ( 100 ) Repurchase of common shares, including excise tax ​ ( 594 ) ​ ​ ( 6 ) ​ — ​ ​ — ​ ​ ( 2,737 ) ​ ​ ( 275,488 ) ​ ​ ( 278,231 ) Balance – July 29, 2023 ​ 50,139 ​ $ 501 ​ ( 798 ) ​ $ ( 82,229 ) ​ $ 1,049,679 ​ $ 1,083,926 ​ $ 2,051,877 Net income ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 249,483 ​ ​ 249,483 Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ 11,938 ​ ​ — ​ ​ 11,938 Stock options exercised and other awards ​ 5 ​ ​ 1 ​ — ​ ​ — ​ ​ 154 ​ ​ — ​ ​ 155 Purchase of treasury shares ​ — ​ ​ — ​ ( 1 ) ​ ​ ( 569 ) ​ ​ — ​ ​ — ​ ​ ( 569 ) Repurchase of common shares, including excise tax ​ ( 686 ) ​ ​ ( 7 ) ​ — ​ ​ — ​ ​ ( 2,802 ) ​ ​ ( 281,533 ) ​ ​ ( 284,342 ) Balance – October 28, 2023 ​ 49,458 ​ $ 495 ​ ( 799 ) ​ $ ( 82,798 ) ​ $ 1,058,969 ​ $ 1,051,876 ​ $ 2,028,542 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ See accompanying notes to consolidated financial statements. ​ 6 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. ​ ​ 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. Nearly every store features a full-service salon. 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 28, 2023, the Company operated 1,374 stores across 50 states, as shown in the table below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ ​ ​ Number of Location stores Location stores Alabama ​ 25 ​ Montana ​ 6 Alaska ​ 3 ​ Nebraska ​ 5 Arizona ​ 35 ​ Nevada ​ 16 Arkansas ​ 11 ​ New Hampshire ​ 8 California ​ 169 ​ New Jersey ​ 44 Colorado ​ 27 ​ New Mexico ​ 7 Connecticut ​ 19 ​ New York ​ 55 Delaware ​ 4 ​ North Carolina ​ 44 Florida ​ 94 ​ North Dakota ​ 4 Georgia ​ 43 ​ Ohio ​ 46 Hawaii ​ 4 ​ Oklahoma ​ 22 Idaho ​ 9 ​ Oregon ​ 18 Illinois ​ 55 ​ Pennsylvania ​ 45 Indiana ​ 26 ​ Rhode Island ​ 4 Iowa ​ 11 ​ South Carolina ​ 24 Kansas ​ 13 ​ South Dakota ​ 3 Kentucky ​ 16 ​ Tennessee ​ 31 Louisiana ​ 18 ​ Texas ​ 129 Maine ​ 3 ​ Utah ​ 15 Maryland ​ 28 ​ Vermont ​ 1 Massachusetts ​ 26 ​ Virginia ​ 33 Michigan ​ 49 ​ Washington ​ 37 Minnesota ​ 20 ​ West Virginia ​ 7 Mississippi ​ 12 ​ Wisconsin ​ 21 Missouri ​ 25 ​ Wyoming ​ 4 ​ ​ ​ ​ Total ​ 1,374 ​ 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 28, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending February 3, 2024, or for any other future interim period or for any future year. 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 28, 2023. 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 28, 2023. 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 2023 and 2022 ended on October 28, 2023 and October 29, 2022, 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 will be reflected in the consolidated financial statements in future periods. ​ 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 28, ​ October 29, ​ October 28, ​ October 29, (Percentage of net sales) ​ 2023 ​ 2022 ​ 2023 ​ 2022 Cosmetics ​ 42 % ​ 44 % ​ 42 % ​ 43 % Haircare products and styling tools ​ 19 % ​ 21 % ​ 20 % ​ 21 % Skincare ​ 19 % ​ 16 % ​ 19 % ​ 17 % Fragrance and bath ​ 13 % ​ 12 % ​ 12 % ​ 12 % Services ​ 4 % ​ 4 % ​ 4 % ​ 4 % Accessories and other ​ 3 % ​ 3 % ​ 3 % ​ 3 % ​ ​ 100 % ​ 100 % ​ 100 % ​ 100 % ​ 9 Table of Contents 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 28, 2023 and October 29, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13 Weeks Ended ​ 39 Weeks Ended ​ ​ October 28, ​ October 29, ​ October 28, ​ October 29, (In thousands) ​ 2023 ​ 2022 ​ 2023 2022 Beginning balance ​ $ 346,067 ​ $ 305,913 ​ $ 388,583 ​ $ 345,206 Additions to contract liabilities (1) ​ ​ 107,628 ​ ​ 97,521 ​ ​ 250,121 ​ ​ 224,938 Deductions to contract liabilities (2) ​ ​ ( 109,304 ) ​ ​ ( 99,443 ) ​ ​ ( 294,313 ) ​ ​ ( 266,153 ) Ending balance ​ $ 344,391 ​ $ 303,991 ​ $ 344,391 ​ $ 303,991 (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 $ 6,546 and $ 8,141 at October 28, 2023 and October 29, 2022, 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 28, 2023, January 28, 2023, and October 29, 2022. No additional goodwill was recognized during the 13 and 39 weeks ended October 28, 2023. 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. 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, market fulfillment centers, corporate offices, and certain equipment under non-cancelable operating leases with various expiration dates through 2036. All leases are classified as operating leases and generally have initial lease terms of 10 years and, when determined applicable, include renewal options under substantially the same terms and conditions as the original leases. Leases do not contain any material residual value guarantees or material restrictive covenants. ​ Lease cost The majority of operating lease cost relates to retail stores, distribution centers, fast fulfillment centers, and market fulfillment centers and is classified within cost of sales. Operating lease cost for corporate offices is classified within selling, general and administrative expenses. Operating lease cost from the control date through store opening date is classified within pre-opening expenses. ​ ​ ​ ​ ​ ​ 10 Table of Contents The following table presents a summary of operating lease costs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13 Weeks Ended ​ 39 Weeks Ended ​ ​ October 28, ​ October 29, ​ October 28, ​ October 29, (In thousands) ​ 2023 ​ 2022 ​ 2023 ​ 2022 Operating lease cost ​ $ 84,074 ​ $ 80,371 ​ $ 252,323 ​ $ 240,366 ​ Other information The following table presents supplemental disclosures of cash flow information related to operating leases: ​ ​ ​ ​ ​ ​ ​ ​ ​ 39 Weeks Ended ​ ​ ​ October 28, ​ October 29, ​ (In thousands) 2023 ​ 2022 ​ Cash paid for operating lease liabilities (1) ​ $ 296,115 ​ $ 286,016 ​ Operating lease assets obtained in exchange for operating lease liabilities (non-cash) ​ ​ 249,826 ​ ​ 297,232 ​ (1) Excludes $ 27,682 and $ 21,347 related to cash received for tenant incentives for the 39 weeks ended October 28, 2023 and October 29, 2022, 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 Company’s consolidated financial position, results of operations or cash flows. ​ 7. Debt On February 27, 2023, the Company entered into Amendment No. 2 to the Second Amended and Restated Loan Agreement (as so amended, the Loan Agreement) with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent and a Lender thereunder; Wells Fargo Bank, National Association and JPMorgan Chase Bank, N.A., as Lead Arrangers and Bookrunners; JPMorgan Chase Bank, N.A., as Syndication Agent and a Lender; PNC Bank, National Association, as Documentation Agent and a Lender; and the other lenders party thereto. The Loan Agreement matures on March 11, 2025, provides maximum revolving loans equal to the lesser of $ 1,000,000 or a percentage of eligible owned inventory and eligible owned receivables (which borrowing base may, at the election of the Company and satisfaction of certain conditions, include a percentage of qualified cash), contains a $ 50,000 subfacility for letters of credit and allows the Company to increase the revolving facility by an additional $ 100,000 , subject to the consent by each lender and other conditions. The Loan Agreement contains a requirement to maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 during such periods when availability under the Loan Agreement falls below a specified threshold. Substantially all of the Company’s assets are pledged as collateral for outstanding borrowings under the Loan Agreement. Outstanding borrowings bear interest, at the Company’s election, at either a base rate plus a margin of 0 % to 0.125 % or the Term Secured Overnight Financing Rate plus a margin of 1.125 % to 1.250 %, and a credit spread adjustment of 0.10 %, with such margins based on the Company’s borrowing availability, and the unused line fee is 0.20 % per annum. As of October 28, 2023, the Company had $ 195,400 outstanding under the credit facility, and the weighted average interest rate was 8.21 % for the 39 weeks ended October 28, 2023. As of January 28, 2023 and October 29, 2022, there were no borrowings outstanding under the credit facility. As of October 28, 2023, the Company was in compliance with all terms and covenants of the Loan Agreement. ​ 11 Table of Contents 8. Fair value measurements The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and short-term debt 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 28, 2023 , January 28, 2023 , and October 29, 2022 , there were liabilities related to the non-qualified deferred compensation plan included in other long-term liabilities on the consolidated balance sheets of $ 41,633 , $ 37,501 , and $ 34,839 , 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 for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 39 Weeks Ended ​ ​ October 28, ​ October 29, ​ 2023 2022 Volatility rate 45.0 % ​ 49.0 % Average risk-free interest rate 3.8 % ​ 2.4 % Average expected life (in years) 3.4 3.4 Dividend yield — — ​ The expected volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the United States Treasury yield curve in effect on the date of grant for the respective expected life of the option. The expected life represents the time the options granted are expected to be outstanding. The expected life of options granted is derived from historical data on Ulta Beauty stock option exercises. Forfeitures of stock options are estimated at the grant date based on historical rates of stock option activity and reduce the stock-based compensation expense recognized. The Company does not currently pay a regular dividend. The Company granted 42 and 48 stock options during the 39 weeks ended October 28, 2023 and October 29, 2022, respectively. Stock-based compensation expense for stock options was $ 1,742 and $ 1,646 for the 13 weeks ended October 28, 2023 and October 29, 2022, respectively. Stock-based compensation expense for stock options was $ 4,961 and $ 6,152 for the 39 weeks ended October 28, 2023 and October 29, 2022, respectively. The weighted-average grant date fair value of these stock options was $ 199.15 and $ 149.14 for the 39 weeks ended October 28, 2023 and October 29, 2022, respectively. At October 28, 2023, there was approximately $ 13,028 of unrecognized stock-based compensation expense related to unvested stock options. There were 48 and 58 restricted stock units issued during the 39 weeks ended October 28, 2023 and October 29, 2022, respectively. Stock-based compensation expense for restricted stock units was $ 4,959 and $ 4,544 for the 13 weeks ended October 28, 2023 and October 29, 2022, respectively. Stock-based compensation expense for restricted stock units was $ 14,252 and $ 13,983 for the 39 weeks ended October 28, 2023 and October 29, 2022, respectively. At October 28, 2023, there was approximately $ 32,630 of unrecognized stock-based compensation expense related to restricted stock units. 12 Table of Contents There were 33 and 37 performance-based restricted stock units issued during the 39 weeks ended October 28, 2023 and October 29, 2022, respectively. Stock-based compensation expense for performance-based restricted stock units was $ 5,237 and $ 3,489 for the 13 weeks ended October 28, 2023 and October 29, 2022, respectively. Stock-based compensation expense for performance-based restricted stock units was $ 14,264 and $ 12,419 for the 39 weeks ended October 28, 2023 and October 29, 2022, respectively. At October 28, 2023, there was approximately $ 28,755 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 $ 80,241 for the 13 weeks ended October 28, 2023 represents an effective tax rate of 24.3 %, compared to $ 88,120 of tax expense representing an effective tax rate of 24.3 % for the 13 weeks ended October 29, 2022. Income tax expense of $ 278,597 for the 39 weeks ended October 28, 2023 represents an effective tax rate of 23.7 %, compared to $ 289,891 of tax expense representing an effective tax rate of 24.3 % for the 39 weeks ended October 29, 2022. The lower effective tax rate is primarily due to benefits from income tax accounting for stock-based compensation. ​ On August 16, 2022, the Inflation Reduction Act of 2022 was enacted into law, which, among other things, introduced a 15 % corporate alternative minimum tax on book income of certain large corporations and created a 1 % excise tax on net share repurchases. The corporate alternative minimum tax will be effective in fiscal 2024 and is not expected to have a material impact on the consolidated financial statements. The excise tax applies to share repurchases made after December 31, 2022. ​ 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 28, ​ October 29, ​ October 28, ​ October 29, (In thousands, except per share data) 2023 2022 2023 2022 Numerator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income $ 249,483 ​ $ 274,585 ​ $ 896,636 ​ $ 901,657 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares – Basic ​ ​ 49,007 ​ ​ 51,131 ​ ​ 49,592 ​ ​ 51,663 Dilutive effect of stock options and non-vested stock ​ ​ 219 ​ ​ 287 ​ ​ 254 ​ ​ 299 Weighted-average common shares – Diluted ​ ​ 49,226 ​ ​ 51,418 ​ ​ 49,846 ​ ​ 51,962 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income per common share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 5.09 ​ $ 5.37 ​ $ 18.08 ​ $ 17.45 Diluted ​ $ 5.07 ​ $ 5.34 ​ $ 17.99 ​ $ 17.35 ​ The denominator for diluted net income per common share for the 13 weeks ended October 28, 2023 and October 29, 2022 excludes 124 and 50 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 28, 2023 and October 29, 2022 excludes 144 and 119 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. ​ 13 Table of Contents 12. Share repurchase program In March 2022, the Board of Directors authorized a 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 earlier share repurchase program. The authorized value of shares available to be repurchased under the 2022 Share Repurchase Program excludes excise tax. 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 28, ​ October 29, (In thousands) ​ 2023 2022 Shares repurchased ​ ​ 1,821 ​ ​ 1,470 Total cost of shares repurchased, including excise tax ​ $ 848,356 ​ $ 571,908 ​ ​