Net Sales Increased 22.6%
Comparable Sales Increased 8.8%
Diluted EPS Increased 51.8% to $3.40,
Including $0.65 Net Benefit from Tax Reform Related Items
Company Issues One-Time Bonuses for Hourly
Associates
Company Approves New Share Repurchase
Authorization of $625 Million
Ulta Beauty, Inc. (NASDAQ:ULTA) today announced financial
results for the fourth quarter and full year of fiscal 2017 ended
February 3, 2018, both of which contain one additional
week (“53rd week”) versus the comparable prior periods.
“The Ulta Beauty team delivered excellent results in 2017,
achieving 11 percent comparable sales growth and 25 percent
adjusted earnings growth,” said Mary Dillon, Chief Executive
Officer. “We also achieved strong sales and earnings growth in Q4
while continuing to gain market share and make significant progress
on our strategic imperatives, despite continued moderation in the
growth rate of makeup, our largest category.”
Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act was enacted into
law. This new legislation reduced the federal corporate tax rate to
21.0% effective January 1, 2018. In accordance with Section 15 of
the Internal Revenue Code, the Company utilized a blended rate of
33.7% for its fiscal 2017 tax year by applying a prorated
percentage of the number of days prior to and subsequent to the
January 1, 2018 effective date. The Company recorded a provisional
estimated after-tax benefit of $38.3 million during the fourth
quarter of 2017 based on the re-measurement of its net deferred tax
liabilities and $9.8 million due to the lower tax rate in January
2018. Given the significant complexity of the Tax Cuts and Jobs
Act, the Company will continue to evaluate and analyze the impact
of this legislation. The $38.3 million estimate is provisional and
based on the Company’s initial analysis of the Tax Cuts and Jobs
Act, and may be adjusted in future periods due to, among other
things, additional analysis performed by the Company and additional
guidance that may be issued by the U.S. Department of Treasury, the
Securities and Exchange Commission, and/or the Financial Accounting
Standards Board. These benefits, in part offset by a $12.3 million
expense for one-time bonuses for hourly associates, impacted fourth
quarter and fiscal 2017 diluted earnings per share by approximately
$0.65.
For the Fourth Quarter of Fiscal 2017
- Net sales increased 22.6% to $1,937.6
million compared to $1,580.6 million in the fourth quarter of
fiscal 2016. Excluding the impact of the 53rd week in fiscal 2017,
net sales increased 15.7%;
- Net sales in the 53rd week were $108.8
million and represented approximately $0.14 of diluted earnings per
share;
- Comparable sales (sales for stores open
at least 14 months and e-commerce sales) increased 8.8%
compared to an increase of 16.6% in the fourth quarter of fiscal
2016. The 8.8% comparable sales increase was driven by 6.2%
transaction growth and 2.6% growth in average ticket;
- Retail comparable sales increased 4.2%,
including salon comparable sales growth of 3.2%;
- Salon sales increased 17.2% to $73.7
million compared to $62.9 million in the fourth quarter of fiscal
2016. Excluding the impact of the 53rd week in fiscal 2017, salon
sales increased 8.7%;
- E-commerce sales increased 60.4% to
$248.3 million, including the benefit of the 53rd week, compared to
$154.9 million in the fourth quarter of fiscal 2016. E-commerce
comparable sales increased 50.4%, representing 460 basis points of
the total company comparable sales increase of 8.8%;
- Gross profit as a percentage of
net sales decreased 50 basis points to 34.0% compared to 34.5% in
the fourth quarter of fiscal 2016. Gross profit decreased 30 basis
points due to deleverage in merchandise margins and 20 basis points
due to a one-time bonus payment related to tax reform;
- Selling, general and administrative
(SG&A) expenses as a percentage of net sales increased 60
basis points to 20.6%, compared to 20.0% in the fourth quarter of
fiscal 2016. SG&A increased 50 basis points due to deleverage
of investments in store labor to support our growth initiatives and
40 basis points due to the one-time bonus payment related to tax
reform, partially offset by leverage of 30 basis points in
corporate overhead;
- Pre-opening expenses decreased to $4.3
million compared to $4.4 million in the fourth quarter of fiscal
2016. Real estate activity in the fourth quarter of fiscal 2017
included 16 new stores, two relocations and one remodel compared to
25 new stores and one remodel in the fourth quarter of fiscal
2016;
- Operating income increased 13.5% to
$254.4 million, or 13.1% of net sales, compared to $224.2 million,
or 14.2% of net sales, in the fourth quarter of fiscal 2016.
Adjusted operating income of $266.7 million, or 13.8% of net sales,
increased 19.0%, compared to $224.2 million, or 14.2% of net sales,
in the fourth quarter of fiscal 2016. Adjusted operating income
excludes $12.3 million for one-time bonus payments related to tax
reform;
- Tax rate decreased to 18.3% compared to
37.5% in the fourth quarter of fiscal 2016. The decrease was due to
a reduction of net deferred income tax liabilities and a lower
effective tax rate in January 2018 as a result of tax reform;
- Net income increased 48.5% to $208.2
million compared to $140.2 million in the fourth quarter of fiscal
2016; and
- Earnings per diluted share increased
51.8% to $3.40, compared to $2.24 in the fourth quarter of fiscal
2016. Adjusted earnings per diluted share of $2.75, which excludes
a $0.65 net benefit due to tax reform related items, increased
22.8%, compared to $2.24 in the fourth quarter of fiscal 2016.
Fourth Quarter 2017 Adjusted Diluted
Earnings Per Share Results
Fourth Quarter
2017 2016 Diluted EPS (GAAP) $ 3.40
$ 2.24 Adjustments related to tax reform:
Re-measurement of net deferred tax liabilities
(0.62 ) - Impact of lower tax rate in January 2018
(0.16 ) - One-time bonus for hourly associates
0.13 - Adjusted diluted EPS (non-GAAP) $ 2.75
$ 2.24
For the Full Year of Fiscal Year 2017
- Net sales, including the benefit of the
53rd week, increased 21.2% to $5,884.5 million from $4,854.7
million in fiscal 2016. Excluding the impact of the 53rd week in
fiscal 2017, net sales increased 19.0%;
- Net sales in the 53rd week were $108.8
million and represented approximately $0.14 of diluted earnings per
share;
- Comparable sales increased 11.0%
compared to an increase of 15.8% in fiscal 2016. The 11.0%
comparable sales increase was driven by 6.7% transaction growth and
4.3% growth in average ticket;
- Retail comparable sales increased 7.1%,
including salon comparable sales growth of 6.1%;
- Salon sales increased 15.0% to $277.4
million compared to $241.1 million in fiscal 2016. Excluding the
impact of the 53rd week in fiscal 2017, salon sales increased
12.8%;
- E-commerce sales increased 64.7% to
$568.7 million, including the benefit of the 53rd week, compared to
$345.3 million in fiscal 2016. E-commerce comparable sales
increased 59.9%, representing 390 basis points of the total company
comparable sales increase of 11.0%;
- Gross profit as a percentage of
net sales decreased 40 basis points to 35.6% compared to 36.0% in
fiscal 2016. Gross profit decreased 30 basis points due to
deleverage in merchandise margins and 10 basis points due to the
impact of a one-time bonus payment related to tax reform;
- SG&A expenses as a percentage
of net sales decreased 20 basis points to 21.9% compared to 22.1%
in fiscal 2016. SG&A decreased 50 basis points due to leverage
in corporate overhead and 20 basis points due to leverage in
variable store expenses attributed to cost efficiencies and higher
sales volume, partially offset by 30 basis points of deleverage in
store labor and 20 basis points due to the impact of a one-time
bonus payment related to tax reform;
- Pre-opening expenses increased to $24.3
million, compared to $18.6 million in fiscal 2016. Real estate
activity in fiscal 2017 included 102 new stores, seven relocations
and 11 remodels compared to 104 new stores, two relocations and 12
remodels in fiscal 2016;
- Operating income increased 19.9% to
$785.3 million, or 13.3% of net sales, compared to $654.8 million,
or 13.5% of net sales, in fiscal 2016. Adjusted operating income of
$797.6 million or 13.6% of net sales, increased 21.8%, compared to
$654.8 million, or 13.5% of net sales, in fiscal 2016. Adjusted
operating income excludes $12.3 million for one-time bonus payments
related to tax reform;
- Tax rate decreased to 29.4% compared to
37.5% in fiscal 2016. The decrease was primarily due to a reduction
of net deferred income tax liabilities and a lower effective tax
rate in January 2018 as a result of tax reform and the adoption of
a new accounting standard in fiscal 2017 for employee share-based
payments;
- Net income increased 35.5% to $555.2
million compared to $409.8 million in fiscal 2016; and
- Earnings per diluted share increased
37.4% to $8.96 compared to $6.52 in fiscal 2016. Adjusted earnings
per diluted share of $8.16, which excludes a $0.65 net benefit due
to tax reform related items and a $0.15 benefit due to accounting
for share-based payments, increased 25.2%, compared to $6.52 in
fiscal 2016.
Fiscal Year 2017 Adjusted Diluted
Earnings Per Share Results
Fiscal Year
2017 2016 Diluted EPS (GAAP) $ 8.96
$ 6.52 Adjustments related to tax reform:
Re-measurement of net deferred tax liabilities
(0.62 ) - Impact of lower tax rate in January 2018
(0.16 ) - One-time bonus for hourly associates
0.13 - Other tax rate impacts:
Share-based accounting change (0.15 ) -
Adjusted diluted EPS (non-GAAP) $ 8.16 $ 6.52
Balance Sheet
Merchandise inventories at the end of fiscal 2017 totaled
$1,096.4 million compared to $944.0 million at the end of fiscal
2016, representing an increase of $152.4 million. Average inventory
per store increased 5.3% compared to fiscal 2016. The increase in
inventory was driven by 100 net new stores, the ramp up of the
Dallas, Texas distribution center, investments in inventory to
ensure high in-stock levels to support sales growth, and the
expansion of certain prestige brands.
The Company ended fiscal 2017 with $397.4 million in cash and
short-term investments.
Share Repurchase Program
During fiscal 2017, the Company repurchased 1,503,545 shares of
its stock at a cost of $367.6 million. As of
February 3, 2018, $78.6 million remained available under
the $425.0 million share repurchase program announced in
March 2017.
On March 13, 2018, the Company’s board of directors approved a
new share repurchase authorization of $625.0 million, which
replaces the prior authorization implemented in March 2017. Since
2014, Ulta Beauty has returned nearly $1.0 billion to shareholders
through its share repurchase program, while continuing to make
strategic growth investments.
Store Expansion
During the fourth quarter of fiscal 2017, the Company opened 16
stores located in Bixby, OK; Boston, MA; Covington, WA; Fall River,
MA; Greenvale, NY; Lafayette, IN; Lake Jackson, TX; Los Angeles,
CA; Memphis, TN; Midlothian, TX; Montvale, NJ; North Miami Beach,
FL; San Antonio, TX; St. Peters, MO; Turnersville, NJ; and White
Lake, MI. The Company ended fiscal 2017 with 1,074 stores and
square footage of 11,300,920, representing a 10.0% increase in
square footage compared to fiscal 2016.
Outlook
“Looking ahead to 2018, we are deploying a portion of the tax
reform benefits to invest in our people and accelerate investments
to drive growth and innovation,” said Mary Dillon. “We also
recognize operating margin headwinds from various cost pressures
facing all retailers, our higher than expected mix of e-commerce,
and the new revenue recognition accounting standard. To help offset
these pressures, we are implementing a cost optimization program to
deliver benefits in the areas of indirect procurement, end-to-end
operational efficiency, real estate costs, and merchandise margin
improvement. We plan to increase operating profit margin rate over
the long term, but this measure is expected to decline modestly in
2018. Going forward, rather than guiding to a precise operating
margin target or timeline, we will instead ask our stakeholders to
focus on how we create value through our very healthy earnings per
share and margin dollar growth. We are confident that our plan
allows us to continue delivering industry leading results, while
making us a more competitive employer, enhancing the guest
experience, and allowing us to invest in growth platforms to drive
sustainable differentiation and the long-term success of the
business.”
For fiscal 2018, the Company plans to:
- increase total sales in the low teens
percentage range;
- achieve comparable sales growth of
approximately 6% to 8%, including the impact of e-commerce;
- grow e-commerce sales in the 40%
range;
- open approximately 100 new stores and
execute 17 remodel or relocation projects;
- adopt Accounting Standards Update
2014-09, Revenue from Contracts with Customers, which will increase
sales by approximately $50 million and decrease operating profit
margin rate by approximately 20 basis points;
- deleverage operating profit margin rate
in the range of 50 to 70 basis points;
- deliver GAAP earnings per share growth
in the 20 percentage range, including the impact of approximately
$500 million in share repurchases and assuming a 24% effective tax
rate; and
- incur capital expenditures of $375
million in fiscal 2018, compared to fiscal 2017 capital
expenditures of $441 million.
For the first quarter of fiscal 2018, the Company expects net
sales in the range of $1,506 million to $1,519 million, compared to
actual net sales of $1,314.9 million in the first quarter of fiscal
2017. Comparable sales for the first quarter of fiscal 2018,
including e-commerce sales, are expected to increase 6% to 7%. The
Company reported a comparable sales increase of 14.3% in the first
quarter of fiscal 2017.
Earnings per diluted share for the first quarter of fiscal 2018
is estimated to be in the range of $2.43 to $2.48. This compares to
earnings per diluted share for the first quarter of fiscal 2017 of
$2.05.
Non-GAAP Financial Information
The Company has used non-GAAP financial measures in this press
release. Adjusted financial measures refer to financial information
adjusted to exclude from financial measures prepared in accordance
with accounting principles generally accepted in the United States
(GAAP) items identified in this press release. The Company believes
that the presentation of adjusted financial results provides
additional information on comparisons between periods by excluding
certain items that affect overall comparability. Non-GAAP financial
measures should be considered in addition to, and not as an
alternative for, the Company’s reported results prepared in
accordance with GAAP.
Conference Call Information
A conference call to discuss fourth quarter of fiscal 2017
results is scheduled for today, March 15, 2018, at 5:00 p.m.
Eastern Time / 4:00 p.m. Central Time. Investors and analysts
interested in participating in the call are invited to dial (877)
705-6003. The conference call will also be webcast live at
http://ir.ultabeauty.com. A replay of the webcast will remain
available for 90 days. A replay of the conference call will be
available until 11:59 p.m. ET on March 29, 2018 and can be
accessed by dialing (844) 512-2921 and entering conference ID
number 13676924.
About Ulta Beauty
Ulta Beauty 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 approximately 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
February 3, 2018, Ulta Beauty operates 1,074 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; weather conditions that could negatively
impact sales; 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; the possibility that
the capacity of our distribution and order fulfillment
infrastructure and the performance of our newly opened and to be
opened distribution centers may not be adequate to support our
recent growth and expected future growth plans; 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; customer acceptance of our rewards
program and technological and marketing initiatives; 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 28, 2017, 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 Beauty, Inc. Consolidated Statements of Income
(In thousands, except per share data) 14 Weeks
Ended 13 Weeks Ended February 3, January
28, 2018 2017 (Unaudited)
(Unaudited) Net sales $ 1,937,592 100.0 % $ 1,580,574 100.0
% Cost of sales 1,279,245 66.0 % 1,035,666
65.5 % Gross profit 658,347 34.0 % 544,908 34.5 %
Selling, general and administrative expenses 399,631 20.6 % 316,266
20.0 % Pre-opening expenses 4,297 0.2 % 4,412
0.3 % Operating income 254,419 13.1 % 224,230 14.2 %
Interest income, net (359 ) 0.0 % (116 ) 0.0 % Income
before income taxes 254,778 13.1 % 224,346 14.2 % Income tax
expense 46,605 2.4 % 84,128 5.3 % Net
income $ 208,173 10.7 % $ 140,218 8.9 % Net
income per common share: Basic $ 3.42 $ 2.25 Diluted $ 3.40 $ 2.24
Weighted average common shares outstanding: Basic 60,938
62,201 Diluted 61,293 62,544
Exhibit 2
Ulta Beauty, Inc. Consolidated Statements of Income
(In thousands, except per share
data)
53 Weeks Ended 52 Weeks
Ended February 3, January 28, 2018
2017 (Unaudited) Net sales $ 5,884,506 100.0 %
$ 4,854,737 100.0 % Cost of sales 3,787,697 64.4 %
3,107,508 64.0 % Gross profit 2,096,809 35.6 %
1,747,229 36.0 % Selling, general and administrative
expenses 1,287,232 21.9 % 1,073,834 22.1 % Pre-opening expenses
24,286 0.4 % 18,571 0.4 % Operating
income 785,291 13.3 % 654,824 13.5 % Interest income, net
(1,568 ) 0.0 % (890 ) 0.0 % Income before income taxes
786,859 13.3 % 655,714 13.5 % Income tax expense 231,625
3.9 % 245,954 5.1 % Net income $ 555,234
9.4 % $ 409,760 8.4 % Net income per common
share: Basic $ 9.02 $ 6.55 Diluted $ 8.96 $ 6.52 Weighted
average common shares outstanding: Basic 61,556 62,519 Diluted
61,975 62,851
Exhibit 3
Ulta Beauty, Inc. Condensed Consolidated Balance
Sheets (In thousands) February 3,
January 28, 2018 2017
(Unaudited) Assets Current assets: Cash and cash
equivalents $ 277,445 $ 385,010 Short-term investments 120,000
30,000 Receivables, net 99,719 88,631 Merchandise inventories, net
1,096,424 943,975 Prepaid expenses and other current assets 98,666
88,621 Prepaid income taxes 1,489 — Total current assets
1,693,743 1,536,237 Property and equipment, net 1,189,453
1,004,358 Deferred compensation plan assets 16,827 11,283 Other
long-term assets 8,664 — Total assets $ 2,908,687 $
2,551,878
Liabilities and stockholders’ equity
Current liabilities: Accounts payable $ 325,758 $ 259,518 Accrued
liabilities 302,307 260,854 Accrued income taxes 14,101
8,971 Total current liabilities 642,166 529,343
Deferred rent 407,916 366,191 Deferred income taxes 59,403 86,498
Other long-term liabilities 24,985 19,628 Total
liabilities 1,134,470 1,001,660 Commitments and
contingencies Total stockholders’ equity 1,774,217
1,550,218 Total liabilities and stockholders’ equity $
2,908,687 $ 2,551,878
Exhibit 4
Ulta Beauty, Inc. Consolidated Statements of Cash
Flows (In thousands) 53 Weeks
52 Weeks Ended Ended February 3,
January 28, 2018 2017 (Unaudited)
Operating activities
Net income $ 555,234 $ 409,760 Adjustments to reconcile net income
to net cash provided by operating activities: Depreciation and
amortization 252,713 210,295 Deferred income taxes (27,095) 26,971
Non-cash stock compensation charges 24,399 19,340 Excess tax
benefits from stock-based compensation — (9,053) Loss on disposal
of property and equipment 7,518 9,140 Change in operating assets
and liabilities: Receivables (11,088) (23,639) Merchandise
inventories (152,449) (182,182) Prepaid expenses and other current
assets (10,045) (16,073) Income taxes 3,641 5,322 Accounts payable
66,240 63,344 Accrued liabilities 36,891 71,057 Deferred rent
41,725 44,402 Other assets and liabilities (9,484)
5,701 Net cash provided by operating activities 778,200 634,385
Investing activities Purchases of short-term
investments (330,000) (90,000) Proceeds from short-term investments
240,000 190,000 Purchases of property and equipment (440,714)
(373,447) Net cash used in investing activities (530,714) (273,447)
Financing activities Repurchase of common shares
(367,581) (344,275) Stock options exercised 16,190 16,293 Purchase
of treasury shares (4,243) (2,839) Excess tax benefits from
stock-based compensation — 9,053 Debt issuance costs 583
— Net cash used in financing activities (355,051)
(321,768) Net increase (decrease) in cash and cash
equivalents (107,565) 39,170 Cash and cash equivalents at beginning
of year 385,010 345,840 Cash and cash equivalents at
end of year $ 277,445 $ 385,010
Exhibit 5
2017 Store
Expansion
Total stores
open Number of stores Number of stores Total
stores at beginning of the opened during the
closed during the open at Fiscal 2017
quarter quarter quarter end of the
quarter 1st Quarter 974 18 2 990 2nd Quarter 990 20 0 1,010 3rd
Quarter 1,010 48 0 1,058 4th Quarter 1,058 16 0 1,074
Gross square feet for
Total gross square stores opened or Gross square
feet for Total gross square feet at beginning of
expanded during the stores closed feet at end of
the Fiscal 2017 the quarter quarter
during the quarter quarter 1st Quarter 10,271,184
184,833 22,832 10,433,185 2nd Quarter 10,433,185 198,289 0
10,631,474 3rd Quarter 10,631,474 509,345 0 11,140,819 4th Quarter
11,140,819 160,101 0 11,300,920
View source
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Ulta Beauty, Inc.Company Contacts:Scott SetterstenChief
Financial Officer(630) 410-4807orLaurel LefebvreVice President,
Investor Relations(630) 410-5230orKaren MayDirector, Public
Relations(630) 410-5457
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