ULTA Ulta Beauty Inc

Total Sales Increased 24.2%

Comparable Sales Increased 16.7%

Diluted EPS Increased 26.1% to $1.40

Company Raises Guidance for Fiscal Year 2016

Ulta Beauty (NASDAQ:ULTA) today announced financial results for the thirteen week period (“Third Quarter”) and thirty-nine week period (“First Nine Months”) ended October 29, 2016, which compares to the same periods ended October 31, 2015.

“Ulta Beauty’s top line accelerated in the third quarter, driving record sales and earnings performance,” said Mary Dillon, Chief Executive Officer. “Our associates continue to execute against our growth strategies, resulting in success across several areas: new brand acquisition, increased Ulta Beauty brand awareness, rapid growth in our loyalty program, improving supply chain performance, and robust e-commerce growth.”

For the Third Quarter

• Net sales increased 24.2% to $1,131.2 million from $910.7 million in the third quarter of fiscal 2015;
• Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 16.7% compared to an increase of 12.8% in the third quarter of fiscal 2015. The 16.7% comparable sales increase was driven by 11.1% growth in transactions and 5.6% growth in average ticket;
• Retail comparable sales increased 14.3%, including salon comparable sales growth of 10.3%;
• Salon sales increased 16.7% to $60.4 million from $51.7 million in the third quarter of fiscal 2015;
• E-commerce sales grew 59.1% to $73.6 million from $46.2 million in the third quarter of fiscal 2015, representing 240 basis points of the total company comparable sales increase of 16.7%;
• Gross profit increased 90 basis points to 37.8% from 36.9% in the third quarter of fiscal 2015, due to product margin expansion and leverage in fixed store costs, partly offset by planned supply chain deleverage related to supply chain investments;
• Selling, general and administrative (SG&A) expense as a percentage of net sales increased 80 basis points to 24.8%, compared to 24.0% in the third quarter of fiscal 2015, primarily due to investments to support growth initiatives and deleverage of corporate overhead costs, in part due to a $1.8 million impairment charge related to a Louisiana store impacted by the August floods;
• Pre-opening expenses increased to $6.9 million, compared to $6.1 million in the third quarter of fiscal 2015. Real estate activity in the third quarter of fiscal 2016 included 42 new stores, one relocation and six remodels compared to 45 new stores, two relocations and two remodels in the third quarter of fiscal 2015;
• Operating income increased 26.1% to $139.7 million, or 12.4% of net sales, compared to $110.8 million, or 12.2% of net sales, in the third quarter of fiscal 2015;
• Net income increased 23.2% to $87.6 million compared to $71.1 million in the third quarter of fiscal 2015; and
• Income per diluted share increased 26.1% to $1.40 compared to $1.11 in the third quarter of fiscal 2015.

For the First Nine Months

• Net sales increased 23.3% to $3,274.2 million from $2,655.8 million in the first nine months of fiscal 2015;
• Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 15.4% compared to an increase of 11.4% in the first nine months of fiscal 2015. The 15.4% comparable sales increase was driven by 10.6% growth in transactions and 4.8% growth in average ticket;
• Retail comparable sales increased 13.6%, including salon comparable sales growth of 8.7%;
• Salon sales increased 15.2% to $178.2 million from $154.7 million in the first nine months of fiscal 2015;
• E-commerce comparable sales grew 50.8% to $190.5 million from $126.3 million in the first nine months of fiscal 2015, representing 180 basis points of the total company comparable sales increase of 15.4%;
• Gross profit increased 110 basis points to 36.7% from 35.6% in the first nine months of fiscal 2015;
• SG&A expense as a percentage of net sales increased 70 basis points to 23.1% compared to 22.4% in the first nine months of fiscal 2015. This includes 10 basis points related to the impairment charges in the second and third quarters of fiscal 2016 for the Chicago and Louisiana store closures;
• Pre-opening expenses increased to $14.2 million, compared to $13.3 million in the first nine months of 2015. Real estate activity in the first nine months of 2016 included 79 new stores, two relocations and eleven remodels compared to 89 new stores, four relocations and four remodels in the first nine months of fiscal 2015;
• Operating income increased 27.8% to $430.6 million, or 13.2% of net sales, compared to $336.8 million, or 12.7% of net sales, in the first nine months of fiscal 2015;
• Net income increased 27.0% to $269.5 million compared to $212.2 million in the first nine months of fiscal 2015; and
• Income per diluted share increased 29.7% to $4.28 compared to $3.30 in the first nine months of fiscal 2015.

Balance Sheet

Merchandise inventories at the end of the third quarter of fiscal 2016 totaled $1,137.0 million, compared to $884.4 million at the end of the third quarter of fiscal 2015, representing an increase of $252.6 million. Average inventory per store increased 16.5%, compared to the third quarter of fiscal 2015. The increase in inventory was primarily driven by 89 net new stores, the scaling up of the Greenwood, Indiana and the opening of the Dallas, Texas distribution centers, investments in inventory to ensure high in-stock levels to support sales growth, and incremental inventory for new brands and in-store prestige brand boutiques. Average inventory per store, excluding the investment in the new Dallas, Texas distribution center, increased 9.8%.

The Company ended the third quarter of fiscal 2016 with $243.1 million in cash and short-term investments.

Share Repurchase Program

For the first nine months, including the Accelerated Share Repurchase and activity under the 10b5-1 plan, the Company has repurchased 1,449,594 shares of its stock at a cost of $297 million at an average price of approximately $205. As of October 29, 2016, approximately $148 million remained available under the $425 million share repurchase program announced in March 2016.

Store Expansion

During the third quarter, the Company opened 42 stores located in Albuquerque, NM; Allentown, PA; American Fork, UT; Brick, NJ; Brownsville, TX; Castle Rock, CO; Cheyenne, WY; Conway, AR; Danbury, CT; Edmond, OK; Fairfield, CA; Farmington, NM; Fenton, MI; Frisco, TX; Goshen, IN; Houston, TX; Houston, TX; Hutchinson, KS; Lapeer, MI; Las Vegas, NV; Marysville, WA; Menomonee Falls, WI; Meridian, ID; Morristown, TN; Ontario, CA; Orange, CA; Oshkosh, WI; Oxford, MS; Peachtree City, GA; Prattville, AL; Redding, CA; Rochester, NH; San Antonio, TX; Seminole, FL; Shelby Township, MI; Sherman, TX; Smyrna, TN; Temecula, CA; Valley Stream, NY; Warner Robins, GA; Wayne, NJ and Wichita, KS. The Company ended the third quarter with 949 stores and square footage of 10,012,142, representing a 10% increase in square footage compared to the third quarter of fiscal 2015.

Outlook

For the fourth quarter of fiscal 2016, the Company currently expects net sales in the range of $1,516 million to $1,541 million, compared to actual net sales of $1,268.3 million in the fourth quarter of fiscal 2015. Comparable sales for the fourth quarter of 2016, including e-commerce sales, are expected to increase 12% to 14%. The Company reported a comparable sales increase of 12.5% in the fourth quarter of 2015.

Income per diluted share for the fourth quarter of fiscal 2016 is estimated to be in the range of $2.08 to $2.13. This compares to income per diluted share for the fourth quarter of fiscal 2015 of $1.69.

The Company is raising its previously announced fiscal 2016 guidance. The Company plans to:

• achieve comparable sales growth of approximately 13% to 15%, including the impact of the e-commerce business;
• increase total sales in the low twenties percentage range, compared to previous guidance of high teens percentage;
• grow e-commerce sales in the 40% range;
• expand square footage by approximately 11% with the opening of 100 net new stores;
• remodel 12 locations;
• deliver earnings per share growth in the high twenties percentage range, compared to previous guidance of mid-twenties percent growth, including the impact of the new Dallas distribution center, the accelerated rollout of prestige brand boutiques, the accelerated share repurchase program, and continued open market share repurchases; and
• incur capital expenditures in the $390 million range in fiscal 2016, compared to $299 million in fiscal 2015. The planned increase in capital expenditures includes approximately $80 million to fund an accelerated rollout of prestige brand boutiques and enhancements to the Ulta Beauty Collection and fragrance fixtures in hundreds of stores.

Conference Call Information

A conference call to discuss third quarter results is scheduled for today, December 1, 2016 at 5:00 p.m. Eastern Time. Investors and analysts interested in participating in the call are invited to dial (877) 705-6003. The conference call will also be web-cast live at http://ir.ulta.com and remain available for 90 days. A replay of this call will be available until 11:59 p.m. (ET) on December 15, 2016 and can be accessed by dialing (844) 512-2921 and entering conference ID number 13650257.

About Ulta Beauty

Ulta Beauty (NASDAQ: ULTA) is the largest beauty retailer in the United States and the premier beauty destination for cosmetics, fragrance, skin, hair care products and salon services. Since opening its first store in 1990, Ulta Beauty has grown to become the top national retailer providing All Things Beauty, All in One Place™. The Company offers more than 20,000 products from over 500 well-established and emerging beauty brands across all categories and price points, including Ulta Beauty’s own private label. Ulta Beauty also offers a full-service salon in every store featuring hair, skin and brow services. Ulta Beauty is recognized for its commitment to personalized service, fun and inviting stores and its industry-leading Ultamate Rewards loyalty program. As of October 29, 2016 Ulta Beauty operates 949 retail stores across 48 states and the District of Columbia and also distributes its products through its website, which includes a collection of tips, tutorials and social content. For more information, visit www.ulta.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “plans,” “estimates,” “targets,” “strategies” or other comparable words. Any forward-looking statements contained in this press release are based upon our historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates, targets, strategies or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties, which include, without limitation: the impact of weakness in the economy; changes in the overall level of consumer spending; the possibility that we may be unable to compete effectively in our highly competitive markets; the possibility that cybersecurity breaches and other disruptions could compromise our information or result in the unauthorized disclosure of confidential information; the possibility that the capacity of our distribution and order fulfillment infrastructure and the performance of our newly opened distribution centers may not be adequate to support our recent growth and expected future growth plans; our ability to gauge beauty trends and react to changing consumer preferences in a timely manner; our ability to attract and retain key executive personnel; customer acceptance of our rewards program and technological and marketing initiatives; our ability to sustain our growth plans and successfully implement our long-range strategic and financial plan; the possibility that our continued opening of new stores could strain our resources and have a material adverse effect on our business and financial performance; the possibility of material disruptions to our information systems; changes in the wholesale cost of our products; the possibility that new store openings and existing locations may be impacted by developer or co-tenant issues; weather conditions that could negatively impact sales; our ability to successfully execute our common stock repurchase program or implement future common stock repurchase programs; and other risk factors detailed in our public filings with the Securities and Exchange Commission (the “SEC”), including risk factors contained in our Annual Report on Form 10-K for the fiscal year ended January 30, 2016, as such may be amended or supplemented in our subsequently filed Quarterly Reports on Form 10-Q. Our filings with the SEC are available at www.sec.gov. Except to the extent required by the federal securities laws, the Company does not undertake to publicly update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

 

Exhibit 1

  Ulta Salon, Cosmetics & Fragrance, Inc. Consolidated Statements of Income (In thousands, except per share data)     13 Weeks Ended   13 Weeks Ended October 29, October 31, 2016 2015 (Unaudited) (Unaudited) Net sales $   1,131,232   100.0 % $   910,700   100.0 % Cost of sales     704,179     62.2 %     575,062     63.1 % Gross profit 427,053 37.8 % 335,638 36.9 %   Selling, general and administrative expenses 280,464 24.8 % 218,763 24.0 % Pre-opening expenses     6,928     0.6 %     6,106     0.7 % Operating income 139,661 12.4 % 110,769 12.2 % Interest income, net     (211 )   0.0 %     (283 )   0.0 % Income before income taxes 139,872 12.4 % 111,052 12.2 % Income tax expense     52,310     4.6 %     39,982     4.4 % Net income $   87,562     7.7 % $   71,070     7.8 %   Net income per common share: Basic $ 1.40 $ 1.11 Diluted $ 1.40 $ 1.11   Weighted average common shares outstanding: Basic 62,371 63,882 Diluted 62,692 64,196  

Exhibit 2

  Ulta Salon, Cosmetics & Fragrance, Inc. Consolidated Statements of Income (In thousands, except per share data)     39 Weeks Ended   39 Weeks Ended October 29, October 31, 2016 2015 (Unaudited) (Unaudited) Net sales $   3,274,163   100.0 % $   2,655,821   100.0 % Cost of sales     2,071,842     63.3 %     1,710,524     64.4 % Gross profit 1,202,321 36.7 % 945,297 35.6 %   Selling, general and administrative expenses 757,568 23.1 % 595,185 22.4 % Pre-opening expenses     14,159     0.4 %     13,301     0.5 % Operating income 430,594 13.2 % 336,811 12.7 % Interest income, net     (774 )   0.0 %     (870 )   0.0 % Income before income taxes 431,368 13.2 % 337,681 12.7 % Income tax expense     161,826     4.9 %     125,496     4.7 % Net income $   269,542     8.2 % $   212,185     8.0 %   Net income per common share: Basic $ 4.30 $ 3.31 Diluted $ 4.28 $ 3.30   Weighted average common shares outstanding: Basic 62,625 64,050 Diluted 62,932 64,383  

Exhibit 3

  Ulta Salon, Cosmetics & Fragrance, Inc. Condensed Consolidated Balance Sheets (In thousands)     October 29,   January 30,   October 31, 2016   2016   2015 (Unaudited)   (Unaudited) Assets     Current assets: Cash and cash equivalents $ 133,108 $ 345,840 $ 209,552 Short-term investments 110,000 130,000 150,209 Receivables, net 65,708 64,992 50,939 Merchandise inventories, net 1,137,023 761,793 884,407 Prepaid expenses and other current assets 85,611 72,548 70,467 Prepaid income taxes 7,015 – 2,133 Deferred income taxes     –       –       20,483 Total current assets 1,538,465 1,375,173

 

1,388,190   Property and equipment, net 1,001,938 847,600 844,238 Deferred compensation plan assets     10,798       8,145       7,570 Total assets $   2,551,201   $   2,230,918   $   2,239,998   Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 425,071 $ 196,174 $ 291,269 Accrued liabilities 229,569 187,351 166,707 Accrued income taxes     –       12,702       – Total current liabilities 654,640 396,227 457,976   Deferred rent 361,667 321,789 324,314 Deferred income taxes 62,669 59,527 72,646 Other long-term liabilities     20,141       10,489       10,903 Total liabilities 1,099,117 788,032 865,839   Commitments and contingencies   Total stockholders’ equity     1,452,084       1,442,886       1,374,159 Total liabilities and stockholders’ equity $   2,551,201   $   2,230,918   $   2,239,998  

Exhibit 4

  Ulta Salon, Cosmetics & Fragrance, Inc. Consolidated Statements of Cash Flows (In thousands)     39 Weeks Ended October 29,   October 31, 2016   2015 (Unaudited) Operating activities     Net income $ 269,542 $ 212,185 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 151,014 119,051 Deferred income taxes 3,142 (1,555 ) Non-cash stock compensation charges 14,203 11,126 Excess tax benefits from stock-based compensation (9,001 ) (8,608 ) Loss on disposal of property and equipment 6,822 2,647 Change in operating assets and liabilities: Receivables (716 ) 1,501 Merchandise inventories (375,230 ) (303,178 ) Prepaid expenses and other current assets (13,063 ) (3,919 ) Income taxes (10,716 ) (12,929 ) Accounts payable 228,897 100,491 Accrued liabilities 11,247 427 Deferred rent 39,878 30,187 Other assets and liabilities     6,999       1,547   Net cash provided by operating activities 323,018 148,973   Investing activities Purchases of short-term investments (60,000 ) (50,000 ) Proceeds from short-term investments 80,000 50,000 Purchases of property and equipment     (281,203 )     (231,909 ) Net cash used in investing activities (261,203 ) (231,909 )   Financing activities Repurchase of common shares (296,994 ) (121,272 ) Stock options exercised 16,188 17,877 Excess tax benefits from stock-based compensation 9,001 8,608 Purchase of treasury shares     (2,742 )     (1,874 ) Net cash used in financing activities     (274,547 )     (96,661 )   Net decrease in cash and cash equivalents (212,732 ) (179,597 ) Cash and cash equivalents at beginning of period     345,840       389,149   Cash and cash equivalents at end of period $   133,108   $   209,552    

Exhibit 5

 

2016 Store Expansion

    Total stores open at   Number of stores   Number of stores   beginning of the opened during the closed during the Total stores open at Fiscal 2016   quarter   quarter   quarter   end of the quarter 1st Quarter 874 13 1 886 2nd Quarter 886 24 3 907 3rd Quarter 907 42 0 949   Gross square feet for Total gross square stores opened or Gross square feet Total gross square feet at beginning expanded during the for stores closed feet at end of the Fiscal 2016   of the quarter   quarter   during the quarter   quarter 1st Quarter 9,225,957 132,812 10,192 9,348,577 2nd Quarter 9,348,577 253,023 46,408 9,555,192 3rd Quarter 9,555,192 456,950 0 10,012,142  

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Ulta BeautyScott SetterstenChief Financial Officer(630) 410-4807orLaurel LefebvreVice President, Investor Relations(630) 410-5230orKaren MayDirector, Public Relations(630) 410-5457