Ulta Beauty, Inc. 10-Q

Item 1. Financial Statements ​ Ulta Beauty, Inc. Consolidated Balance Sheets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ May 4, ​ February 3, ​ April 29, (In thousands, except per share data) 2024 2024 2023 Assets ​ ​ (Unaudited) ​ ​ ​ ​ ​ (Unaudited) Current assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 524,596 ​ $ 766,594 ​ $ 636,449 Receivables, net ​ ​ 203,463 ​ ​ 207,939 ​ ​ 190,282 Merchandise inventories, net ​ ​ 1,906,040 ​ ​ 1,742,136 ​ ​ 1,751,235 Prepaid expenses and other current assets ​ ​ 126,529 ​ ​ 115,598 ​ ​ 108,014 Prepaid income taxes ​ ​ — ​ ​ 4,251 ​ ​ — Total current assets ​ ​ 2,760,628 ​ ​ 2,836,518 ​ ​ 2,685,980 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Property and equipment, net ​ ​ 1,195,658 ​ ​ 1,182,335 ​ ​ 1,019,978 Operating lease assets ​ ​ 1,561,767 ​ ​ 1,574,530 ​ ​ 1,559,560 Goodwill ​ ​ 10,870 ​ ​ 10,870 ​ ​ 10,870 Other intangible assets, net ​ ​ 434 ​ ​ 510 ​ ​ 1,015 Deferred compensation plan assets ​ ​ 45,718 ​ ​ 43,516 ​ ​ 37,002 Other long-term assets ​ ​ 56,864 ​ ​ 58,732 ​ ​ 61,314 Total assets ​ $ 5,631,939 ​ $ 5,707,011 ​ $ 5,375,719 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and stockholders’ equity ​ ​ ​ ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 463,777 ​ $ 544,001 ​ $ 621,272 Accrued liabilities ​ ​ 332,692 ​ ​ 382,468 ​ ​ 308,583 Deferred revenue ​ ​ 398,729 ​ ​ 436,591 ​ ​ 357,217 Current operating lease liabilities ​ ​ 284,815 ​ ​ 283,821 ​ ​ 288,133 Accrued income taxes ​ ​ 92,711 ​ ​ 11,310 ​ ​ 58,695 Total current liabilities ​ ​ 1,572,724 ​ ​ 1,658,191 ​ ​ 1,633,900 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-current operating lease liabilities ​ ​ 1,607,953 ​ ​ 1,627,271 ​ ​ 1,610,256 Deferred income taxes ​ ​ 89,556 ​ ​ 85,921 ​ ​ 57,490 Other long-term liabilities ​ ​ 60,963 ​ ​ 56,300 ​ ​ 56,005 Total liabilities ​ ​ 3,331,196 ​ ​ 3,427,683 ​ ​ 3,357,651 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies (Note 6) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders' equity: ​ ​ ​ ​ ​ ​ ​ ​ ​ Common stock, $ 0.01 par value, 400,000 shares authorized; 48,688 , 49,123 , and 50,729 shares issued; 47,845 , 48,324 , and 49,932 shares outstanding; at May 4, 2024 (unaudited), February 3, 2024, and April 29, 2023 (unaudited), respectively ​ ​ 487 ​ ​ 491 ​ ​ 507 Treasury stock-common, at cost ​ ​ ( 106,315 ) ​ ​ ( 83,032 ) ​ ​ ( 82,129 ) Additional paid-in capital ​ ​ 1,091,822 ​ ​ 1,075,104 ​ ​ 1,040,378 Retained earnings ​ ​ 1,314,749 ​ ​ 1,286,765 ​ ​ 1,059,312 Total stockholders’ equity ​ ​ 2,300,743 ​ ​ 2,279,328 ​ ​ 2,018,068 Total liabilities and stockholders’ equity ​ $ 5,631,939 ​ $ 5,707,011 ​ $ 5,375,719 ​ See accompanying notes to consolidated financial statements. 3 Table of Contents Ulta Beauty, Inc. Consolidated Statements of Income (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ 13 Weeks Ended ​ ​ May 4, ​ April 29, (In thousands, except per share data) 2024 ​ 2023 Net sales ​ $ 2,725,848 ​ $ 2,634,263 Cost of sales ​ ​ 1,656,068 ​ ​ 1,579,406 Gross profit ​ ​ 1,069,780 ​ ​ 1,054,857 ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative expenses ​ ​ 665,913 ​ ​ 612,129 Pre-opening expenses ​ ​ 2,919 ​ ​ 658 Operating income ​ ​ 400,948 ​ ​ 442,070 Interest income, net ​ ​ ( 6,900 ) ​ ​ ( 7,348 ) Income before income taxes ​ ​ 407,848 ​ ​ 449,418 Income tax expense ​ ​ 94,735 ​ ​ 102,367 Net income ​ $ 313,113 ​ $ 347,051 ​ ​ ​ ​ ​ ​ ​ Net income per common share: ​ ​ ​ ​ ​ ​ Basic ​ $ 6.51 ​ $ 6.92 Diluted ​ $ 6.47 ​ $ 6.88 ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding: ​ ​ ​ ​ ​ ​ Basic ​ ​ 48,125 ​ ​ 50,153 Diluted ​ ​ 48,381 ​ ​ 50,469 ​ ​ See accompanying notes to consolidated financial statements. ​ ​ 4 Table of Contents Ulta Beauty, Inc. Consolidated Statements of Cash Flows (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ 13 Weeks Ended ​ ​ May 4, ​ April 29, (In thousands) 2024 2023 Operating activities ​ ​ ​ ​ ​ ​ Net income ​ $ 313,113 ​ $ 347,051 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ Depreciation and amortization ​ ​ 64,739 ​ ​ 57,949 Non-cash lease expense ​ ​ 77,938 ​ ​ 75,478 Deferred income taxes ​ ​ 3,635 ​ ​ 2,144 Stock-based compensation expense ​ ​ 10,082 ​ ​ 9,721 Loss on disposal of property and equipment ​ ​ 2,975 ​ ​ 1,451 Change in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Receivables ​ ​ 4,476 ​ ​ 9,140 Merchandise inventories ​ ​ ( 163,904 ) ​ ​ ( 147,784 ) Prepaid expenses and other current assets ​ ​ ( 10,931 ) ​ ​ 22,232 Income taxes ​ ​ 85,652 ​ ​ 97,003 Accounts payable ​ ​ ( 74,069 ) ​ ​ 62,257 Accrued liabilities ​ ​ ( 43,846 ) ​ ​ ( 98,515 ) Deferred revenue ​ ​ ( 37,862 ) ​ ​ ( 37,460 ) Operating lease liabilities ​ ​ ( 83,500 ) ​ ​ ( 78,562 ) Other assets and liabilities ​ ​ 10,842 ​ ​ ( 17,204 ) Net cash provided by operating activities ​ ​ 159,340 ​ ​ 304,901 ​ ​ ​ ​ ​ ​ ​ Investing activities ​ ​ ​ ​ ​ ​ Capital expenditures ​ ​ ( 91,024 ) ​ ​ ( 109,766 ) Other investments ​ ​ ( 2,563 ) ​ ​ ( 314 ) Net cash used in investing activities ​ ​ ( 93,587 ) ​ ​ ( 110,080 ) ​ ​ ​ ​ ​ ​ ​ Financing activities ​ ​ ​ ​ ​ ​ Repurchase of common shares ​ ​ ( 289,431 ) ​ ​ ( 283,517 ) Stock options exercised ​ ​ 8,913 ​ ​ 8,927 Purchase of treasury shares ​ ​ ( 23,283 ) ​ ​ ( 21,659 ) Debt issuance costs ​ ​ ( 3,950 ) ​ ​ — Net cash used in financing activities ​ ​ ( 307,751 ) ​ ​ ( 296,249 ) ​ ​ ​ ​ ​ ​ ​ Net decrease in cash and cash equivalents ​ ​ ( 241,998 ) ​ ​ ( 101,428 ) Cash and cash equivalents at beginning of period ​ ​ 766,594 ​ ​ 737,877 Cash and cash equivalents at end of period ​ $ 524,596 ​ $ 636,449 ​ ​ ​ ​ ​ ​ ​ Supplemental information ​ ​ ​ ​ ​ ​ Income taxes paid, net of refunds $ 5,057 ​ $ 2,818 Non-cash capital expenditures ​ ​ 51,695 ​ ​ 29,634 ​ 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance – February 3, 2024 ​ 49,123 ​ $ 491 ​ ( 799 ) ​ $ ( 83,032 ) ​ $ 1,075,104 ​ $ 1,286,765 ​ $ 2,279,328 Net income ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 313,113 ​ ​ 313,113 Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ 10,082 ​ ​ — ​ ​ 10,082 Stock options exercised and other awards ​ 153 ​ ​ 2 ​ — ​ ​ — ​ ​ 8,911 ​ ​ — ​ ​ 8,913 Purchase of treasury shares ​ — ​ ​ — ​ ( 44 ) ​ ​ ( 23,283 ) ​ ​ — ​ ​ — ​ ​ ( 23,283 ) Repurchase of common shares, including excise tax ​ ( 588 ) ​ ​ ( 6 ) ​ — ​ ​ — ​ ​ ( 2,275 ) ​ ​ ( 285,129 ) ​ ​ ( 287,410 ) Balance – May 4, 2024 ​ 48,688 ​ $ 487 ​ ( 843 ) ​ $ ( 106,315 ) ​ $ 1,091,822 ​ $ 1,314,749 ​ $ 2,300,743 ​ See accompanying notes to consolidated financial statements. ​ ​ 6 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 May 4, 2024, the Company operated 1,395 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 ​ 172 ​ New Jersey ​ 45 Colorado ​ 27 ​ New Mexico ​ 7 Connecticut ​ 19 ​ New York ​ 56 Delaware ​ 4 ​ North Carolina ​ 45 Florida ​ 99 ​ North Dakota ​ 4 Georgia ​ 43 ​ Ohio ​ 46 Hawaii ​ 4 ​ Oklahoma ​ 22 Idaho ​ 10 ​ Oregon ​ 19 Illinois ​ 55 ​ Pennsylvania ​ 45 Indiana ​ 26 ​ Rhode Island ​ 4 Iowa ​ 11 ​ South Carolina ​ 25 Kansas ​ 13 ​ South Dakota ​ 3 Kentucky ​ 16 ​ Tennessee ​ 32 Louisiana ​ 18 ​ Texas ​ 131 Maine ​ 3 ​ Utah ​ 15 Maryland ​ 28 ​ Vermont ​ 1 Massachusetts ​ 27 ​ Virginia ​ 35 Michigan ​ 49 ​ Washington ​ 37 Minnesota ​ 20 ​ West Virginia ​ 7 Mississippi ​ 12 ​ Wisconsin ​ 21 Missouri ​ 26 ​ Wyoming ​ 4 ​ ​ ​ ​ Total ​ 1,395 ​ 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. 7 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 weeks ended May 4, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending February 1, 2025, 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 February 3, 2024. 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 February 3, 2024. 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 first quarter in fiscal 2024 and 2023 ended on May 4, 2024 and April 29, 2023, 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. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. Recent accounting pronouncements not yet adopted Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure. The guidance updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance. The ASU is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-07 on related disclosures. Income Taxes (Topic 740): Improvements to Income Tax Disclosures In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The guidance includes amendments requiring enhanced income tax disclosures, primarily related to standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The guidance is effective for fiscal years beginning after December 15, 2024 and should be applied either prospectively or retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on related disclosures. 8 Table of Contents SEC Climate-Related Disclosures In March 2024, the SEC adopted rules intended to enhance and standardize climate-related disclosures in registration statements and annual reports. The new rules will require disclosure of material climate-related risks, including disclosure of Board of Directors' oversight and risk management activities, the material impacts of these risks to us and the quantification of material impacts to us as a result of severe weather events and other natural conditions. The rules also require disclosure of material greenhouse gas emissions and any material climate-related targets and goals. The new rules will be effective for annual reporting periods beginning in fiscal year 2025, except for the greenhouse gas emissions disclosures which will be effective for annual reporting periods beginning in fiscal year 2026. The Company is currently evaluating the impact of these new rules. ​ ​ 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 ​ ​ May 4, ​ April 29, (Percentage of net sales) ​ 2024 ​ 2023 Cosmetics ​ 42 % ​ 44 % Skincare ​ 23 % ​ 22 % Haircare ​ 19 % ​ 19 % Fragrance ​ 10 % ​ 9 % Services ​ 4 % ​ 4 % Other ​ 2 % ​ 2 % ​ ​ 100 % ​ 100 % ​ Certain sales departments were reclassified between categories in the prior year to conform to current year presentation, including moving the bath category from Fragrance to Skincare. 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 Ulta Beauty Rewards loyalty points and unredeemed Ulta Beauty gift cards. In addition, breakage on gift cards is recognized proportionately as redemption occurs. 9 Table of Contents ​ The following table provides a summary of the changes included in deferred revenue during the 13 weeks ended May 4, 2024 and April 29, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13 Weeks Ended ​ ​ May 4, ​ April 29, (In thousands) ​ 2024 ​ 2023 Beginning balance ​ $ 428,788 ​ $ 388,583 Additions to contract liabilities (1) ​ ​ 133,495 ​ ​ 124,024 Deductions to contract liabilities (2) ​ ​ ( 170,837 ) ​ ​ ( 162,484 ) Ending balance ​ $ 391,446 ​ $ 350,123 (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 $ 7,283 and $ 7,094 at May 4, 2024 and April 29, 2023, 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 May 4, 2024, February 3, 2024, and April 29, 2023. No additional goodwill was recognized during the 13 weeks ended May 4, 2024. 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. The following table presents a summary of operating lease costs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13 Weeks Ended ​ ​ May 4, ​ April 29, (In thousands) ​ 2024 ​ 2023 Operating lease cost ​ $ 88,155 ​ $ 85,128 ​ ​ ​ 10 Table of Contents Other information The following table presents supplemental disclosures of cash flow information related to operating leases: ​ ​ ​ ​ ​ ​ ​ ​ 13 Weeks Ended ​ ​ May 4, ​ April 29, (In thousands) 2024 ​ 2023 Cash paid for operating lease liabilities (1) ​ $ 101,646 ​ $ 98,055 Operating lease assets obtained in exchange for operating lease liabilities (non-cash) ​ ​ 65,176 ​ ​ 73,775 (1) Excludes $ 7,791 and $ 9,593 related to cash received for tenant incentives for the 13 weeks ended May 4, 2024 and April 29, 2023, 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 March 13, 2024, the Company entered into Amendment No. 3 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 13, 2029, provides maximum revolving loans equal to the lesser of $ 800,000 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 $ 200,000 , 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 0.5 % to 1.0 % or the Term Secured Overnight Financing Rate plus a margin of 1.5 % to 2.0 %, and a credit spread adjustment of 0.10 %, with such margins based on the Company’s borrowing availability, and the unused line fee is 0.25 % to 0.375 % per annum. As of May 4, 2024, February 3, 2024, and April 29, 2023, there were no borrowings outstanding under the credit facility. As of May 4, 2024, 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. ​ 11 Table of Contents As of May 4, 2024, February 3, 2024, and April 29, 2023, there were liabilities related to the non-qualified deferred compensation plan included in other long-term liabilities on the consolidated balance sheets of $ 47,849 , $ 42,653 , and $ 40,374 , 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13 Weeks Ended ​ ​ May 4, ​ April 29, ​ 2024 2023 Volatility rate 33.0 % ​ 45.0 % Average risk-free interest rate 4.4 % ​ 3.8 % Average expected life (in years) 3.5 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 56 and 41 stock options during the 13 weeks ended May 4, 2024 and April 29, 2023, respectively. Stock-based compensation expense for stock options was $ 1,680 and $ 1,470 for the 13 weeks ended May 4, 2024 and April 29, 2023, respectively. The weighted-average grant date fair value of these stock options was $ 157.66 and $ 200.67 for the 13 weeks ended May 4, 2024 and April 29, 2023, respectively. At May 4, 2024, there was approximately $ 16,803 of unrecognized stock-based compensation expense related to unvested stock options. There were 44 and 38 restricted stock units issued during the 13 weeks ended May 4, 2024 and April 29, 2023, respectively. Stock-based compensation expense for restricted stock units was $ 4,388 and $ 4,359 for the 13 weeks ended May 4, 2024 and April 29, 2023, respectively. At May 4, 2024, there was approximately $ 43,539 of unrecognized stock-based compensation expense related to restricted stock units. There were 71 and 32 performance-based restricted stock units issued during the 13 weeks ended May 4, 2024 and April 29, 2023. Stock-based compensation expense for performance-based restricted stock units was $ 4,014 and $ 3,892 for the 13 weeks ended May 4, 2024 and April 29, 2023, respectively. At May 4, 2024, there was approximately $ 34,998 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 $ 94,735 for the 13 weeks ended May 4, 2024 represents an effective tax rate of 23.2 %, compared to $ 102,367 of income tax expense representing an effective tax rate of 22.8 % for the 13 weeks ended April 29, 2023. The higher effective tax rate is primarily due to a reduced benefit 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 is effective beginning in fiscal 2024 and did not have a 12 Table of Contents material impact on the consolidated financial statements for the 13 weeks ended May 4, 2024. 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 ​ ​ May 4, ​ April 29, (In thousands, except per share data) 2024 2023 Numerator: ​ ​ ​ ​ ​ ​ Net income $ 313,113 ​ $ 347,051 ​ ​ ​ ​ ​ ​ ​ Denominator: ​ ​ ​ ​ ​ ​ Weighted-average common shares – Basic ​ ​ 48,125 ​ ​ 50,153 Dilutive effect of stock options and non-vested stock ​ ​ 256 ​ ​ 316 Weighted-average common shares – Diluted ​ ​ 48,381 ​ ​ 50,469 ​ ​ ​ ​ ​ ​ ​ Net income per common share: ​ ​ ​ ​ ​ ​ Basic ​ $ 6.51 ​ $ 6.92 Diluted ​ $ 6.47 ​ $ 6.88 ​ The denominator for diluted net income per common share for the 13 weeks ended May 4, 2024 and April 29, 2023 excludes 150 and 79 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 2022, the Board of Directors authorized a share repurchase program (the 2022 Share Repurchase Program) pursuant to which the Company could repurchase up to $ 2,000,000 of the Company’s common stock. The 2022 Share Repurchase Program authorization revoked the previously authorized but unused amounts from the earlier share repurchase program. The 2022 Share Repurchase Program did not have an expiration date but provided for suspension or discontinuation at any time. ​ In March 2024, the Board of Directors authorized a new share repurchase program (the 2024 Share Repurchase Program) pursuant to which the Company may repurchase up to $ 2,000,000 of the Company’s common stock. The 2024 Share Repurchase Program authorization revoked the previously authorized but unused amounts from the 2022 Share Repurchase Program. The 2024 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13 Weeks Ended ​ ​ May 4, ​ April 29, (In thousands) ​ 2024 2023 Shares repurchased ​ ​ 588 ​ ​ 541 Total cost of shares repurchased, including excise tax ​ $ 287,410 ​ $ 285,783 ​ ​ 13 Table of Contents