Net Sales Increased 16.2%
Comparable Sales Increased 7.8%
Diluted EPS Increased 28.2% to $2.18
Company Reiterates FY 2018 Guidance for
Diluted EPS Growth in the Low Twenties Percentage Range
Ulta Beauty, Inc. (NASDAQ: ULTA) today announced financial
results for the thirteen week period (“Third Quarter”) and
thirty-nine week period (“First Nine Months”) ended
November 3, 2018, which compares to the same periods
ended October 28, 2017.
“Ulta Beauty’s strong performance in the third quarter reflects
continued market share gains across all major categories,
acceleration in our overall comp driven by healthy traffic,
excellent new store productivity, and robust e-commerce growth,”
said Mary Dillon, Chief Executive Officer.
Recent Accounting Pronouncement – Revenue Recognition
On February 4, 2018, the Company adopted Accounting Standards
Codification (ASC) Topic 606, Revenue from Contracts with Customers
(ASC 606). The Company adopted the new revenue standard using the
modified retrospective transition method applied to all contracts
with the cumulative effect recorded to the opening balance of
retaining earnings as of the date of adoption. The comparative
information has not been restated and continues to be reported
under accounting standards in effect for those periods.
The adoption of the new revenue standard increased revenue by
$10.5 million and $34.0 million for the 13 weeks and 39 weeks ended
November 3, 2018, respectively. This is due to income from our
credit card program and gift card breakage now being included in
net sales, as well as e-commerce revenue now being recognized upon
shipment, versus the previous accounting treatment that was based
on delivery of merchandise to the guest. These items are partially
offset by the value of points earned in our loyalty program now
reducing net sales. Due to the adoption of ASC 606, for both the 13
weeks and 39 weeks ended November 3, 2018, gross profit margin
increased by 50 basis points, while selling, general and
administrative expenses deleveraged by 70 basis points. This
resulted in a net impact to operating income margin of 20 basis
points of deleverage for both the 13 weeks and 39 weeks ended
November 3, 2018. Additional information about the impact of the
adoption of ASC 606 can be found in our quarterly report on Form
10-Q available at http://ir.ultabeauty.com.
For the Third Quarter of Fiscal 2018
- Net sales increased 16.2% to $1,560.0
million compared to $1,342.2 million in the third quarter of fiscal
2017;
- Comparable sales (sales for stores open
at least 14 months and e-commerce sales) increased 7.8%
compared to an increase of 10.3% in the third quarter of fiscal
2017. The 7.8% comparable sales increase was driven by 5.3%
transaction growth and 2.5% growth in average ticket;
- Retail comparable sales increased 4.4%,
including salon comparable sales growth of 3.5%;
- E-commerce sales increased 42.5% to
$170.7 million compared to $119.8 million in the third quarter of
fiscal 2017, representing 340 basis points of the total Company
comparable sales increase of 7.8%;
- Salon sales increased 10.7% to $74.0
million compared to $66.9 million in the third quarter of fiscal
2017;
- Gross profit as a percentage of
net sales remained flat at 36.7% compared to the third quarter of
fiscal 2017, due to category and channel mix shifts and investments
in our salon services and supply chain operations, fully offset by
leverage in fixed store costs and the impact of new revenue
recognition accounting;
- Selling, general and administrative
(SG&A) expenses as a percentage of net sales increased 140
basis points to 25.3% compared to 23.9% in the third quarter of
fiscal 2017, due to deleverage from investments in store labor to
support growth initiatives, deleverage in marketing expenses, and
the impact of new revenue recognition accounting, partially offset
by leverage in corporate overhead;
- Pre-opening expenses decreased to $7.6
million compared to $9.7 million in the third quarter of fiscal
2017. Real estate activity in the third quarter of fiscal 2018
included 42 new stores, four remodels, and one relocation, compared
to 48 new stores, five remodels, and two relocations in the third
quarter of fiscal 2017;
- Operating income increased 4.0% to
$169.2 million, or 10.8% of net sales, compared to $162.7 million,
or 12.1% of net sales, in the third quarter of fiscal 2017;
- Tax rate decreased to 23.1% compared to
35.8% in the third quarter of fiscal 2017. The decrease was
primarily due to tax reform;
- Net income increased 25.3% to $131.2
million compared to $104.6 million in the third quarter of fiscal
2017; and
- Diluted earnings per share increased
28.2% to $2.18, including a $0.02 benefit due to income tax
accounting for share-based compensation, compared to $1.70 in the
third quarter of fiscal 2017, which included a $0.04 benefit due to
income tax accounting for share-based compensation.
For the First Nine Months
- Net sales increased 16.3% to $4,591.9
million compared to $3,946.9 million in the first nine months of
fiscal 2017;
- Comparable sales increased 7.5%
compared to an increase of 12.1% in the first nine months of fiscal
2017. The 7.5% comparable sales increase was driven by 4.5%
transaction growth and 3.0% growth in average ticket;
- Retail comparable sales increased 4.3%,
including salon comparable sales growth of 2.8%;
- E-commerce sales increased 42.9% to
$457.9 million compared to $320.4 million in the first nine months
of fiscal 2017, representing 320 basis points of the total company
comparable sales increase of 7.5%;
- Salon sales increased 9.8% to $223.7
million compared to $203.7 million in the first nine months of
fiscal 2017;
- Gross profit as a percentage of net
sales decreased 10 basis points to 36.3% compared to 36.4% in the
first nine months of fiscal 2017, due to category and channel mix
shifts and investments in our salon services and supply chain
operations, partially offset by leverage in fixed store costs and
the impact of new revenue recognition accounting;
- SG&A expenses as a percentage of
net sales increased 100 basis points to 23.5% compared to 22.5% in
the first nine months of fiscal 2017, due to deleverage from
investments in store labor to support growth initiatives,
deleverage in marketing expenses, and the impact of new revenue
recognition accounting, partially offset by leverage in corporate
overhead;
- Pre-opening expenses decreased to $17.4
million compared to $20.0 million in the first nine months of 2017.
Real estate activity in the first nine months of 2018 included 95
new stores, 13 remodels, and two relocations, compared to 86 new
stores, 10 remodels, and five relocations in the first nine months
of fiscal 2017;
- Operating income increased 7.9% to
$572.9 million, or 12.5% of net sales, compared to $530.9 million,
or 13.5% of net sales, in the first nine months of fiscal
2017;
- Tax rate decreased to 23.0% compared to
34.8% in the first nine months of fiscal 2017. The decrease was
primarily due to tax reform;
- Net income increased 27.9% to $443.9
million compared to $347.1 million in the first nine months of
fiscal 2017; and
- Diluted earnings per share increased
31.7% to $7.35, including a $0.09 benefit due to income tax
accounting for share-based compensation, compared to $5.58 in the
first nine months of fiscal 2017, which included a $0.20 benefit
due to income tax accounting for share-based compensation.
Balance Sheet
Merchandise inventories at the end of the third quarter of
fiscal 2018 totaled $1,484.6 million compared to $1,349.7 million
at the end of the third quarter of fiscal 2017, representing an
increase of $134.9 million. The increase in total inventory was
driven by 105 net new stores and the opening of the Company’s
distribution center in Fresno, California, partially offset by
inventory productivity benefits from supply chain investments in
new systems and merchandise planning tools. Average inventory per
store was flat compared to the third quarter of fiscal 2017.
The Company ended the third quarter of fiscal 2018 with $296.9
million in cash.
Share Repurchase Program
During the third quarter of fiscal 2018, the Company repurchased
451,424 shares of its common stock at a cost of $119.0
million. Year to date fiscal 2018, the Company has repurchased
1,582,118 shares at a cost of $379.4 million. As of
November 3, 2018, $282.8 million remained available under
the $625.0 million share repurchase program announced in
March 2018.
Store Expansion
During the third quarter of fiscal 2018, the Company opened 42
stores located in Ann Arbor, MI; Ashland, KY; Avondale, AZ; Belton,
MO; Calabasas, CA; Capital Heights, MD; Chester, VA; Concord, NC;
Cookeville, TN; Dania Beach, FL; Daytona Beach, FL; Derby, KS;
Evans, GA; Fort Walton Beach, FL; Homestead, FL; Jacksonville, FL;
Kailua, HI; Kansas City, MO; Kirkland, WA; League City, TX;
Louisville, KY; Maryville, TN; Monrovia, CA; Morgan Hill, CA; North
Brunswick, NJ; Northbrook, IL; Orlando, FL; Oxford, AL; Pearl City,
HI; Pleasant Hill, CA; Rialto, CA; Richmond, KY; San Diego, CA (2);
Searcy, AR; Sierra Vista, AZ; Stillwater, MN; Trumbull, CT; Vienna,
WV; Westlake, OH; Westminster, MD; and Williston, VT. In addition,
the Company closed three stores. The Company ended the third
quarter of fiscal 2018 with 1,163 stores and square footage of
12,221,878, representing a 9.7% increase in square footage compared
to the third quarter of fiscal 2017.
Outlook
For the fourth quarter of fiscal 2018, the Company expects net
sales in the range of $2,085.0 million to $2,103.0 million,
compared to actual net sales of $1,937.6 million in the fourth
quarter of fiscal 2017, which included $108.8 million of sales for
the 53rd week. Comparable sales for the fourth quarter of fiscal
2018, including e-commerce sales, are expected to increase 7% to
8%. The Company reported a comparable sales increase of 8.8% in the
fourth quarter of fiscal 2017.
Diluted earnings per share for the fourth quarter of fiscal 2018
is estimated to be in the range of $3.50 to $3.55. This compares to
diluted earnings per share for the fourth quarter of fiscal 2017 of
$3.40, which included a $0.65 benefit related to tax reform and a
$0.14 impact related to the 53rd week.
The Company is maintaining its previously announced fiscal 2018
guidance. The Company plans to:
- increase total sales in the low teens
percentage range;
- achieve comparable sales growth of
approximately 7% to 8%;
- grow e-commerce sales in the 40%
range;
- open approximately 100 new stores and
execute 15 remodel or relocation projects;
- deleverage operating profit margin rate
in the range of 50 to 70 basis points;
- deliver diluted earnings per share
growth in the low twenties 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.
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 third quarter of fiscal 2018
results is scheduled for today, December 6, 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 December 20, 2018 and can be
accessed by dialing (844) 512-2921 and entering conference ID
number 13685175.
About Ulta Beauty
At Ulta Beauty (NASDAQ: ULTA), the possibilities are beautiful.
Ulta Beauty is the largest U.S. beauty retailer and the premier
beauty destination for cosmetics, fragrance, skin care products,
hair care products and salon services. In 1990, the Company
reinvented the beauty retail experience by offering a new
way to shop for beauty – bringing together
all things beauty, all in one place. Today, Ulta
Beauty has grown to become the top national retailer offering the
complete beauty experience.
Ulta Beauty brings possibilities to life through the power
of beauty each and every day in our stores and online with
more than 25,000 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, brow, and
make-up services.
Ulta Beauty is recognized for its commitment to personalized
service, fun and inviting stores and our industry-leading Ultamate
Rewards loyalty program. As of November 3, 2018, Ulta
Beauty operates 1,163 retail stores across 50 states 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: changes in the
overall level of consumer spending and volatility in the economy;
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;
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 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; natural disasters
that could negatively impact sales; our ability to successfully
execute our common stock repurchase program or implement future
common stock repurchase programs; the ability to execute our
Efficiencies for Growth cost optimization program; 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 February 3, 2018, 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)
13 Weeks Ended November
3, October 28, 2018 2017
(Unaudited) (Unaudited) Net sales $ 1,560,011 100.0 %
$ 1,342,181 100.0 % Cost of sales 987,733 63.3 %
849,053 63.3 % Gross profit 572,278 36.7 % 493,128
36.7 % Selling, general and administrative expenses 395,453
25.3 % 320,729 23.9 % Pre-opening expenses 7,612 0.5
% 9,732 0.7 % Operating income 169,213 10.8 % 162,667
12.1 % Interest income, net (1,318 ) 0.1 % (316 ) 0.0
% Income before income taxes 170,531 10.9 % 162,983 12.1 % Income
tax expense 39,365 2.5 % 58,338 4.3 %
Net income $ 131,166 8.4 % $ 104,645 7.8 % Net
income per common share: Basic $ 2.20 $ 1.71 Diluted $ 2.18 $ 1.70
Weighted average common shares outstanding: Basic 59,724
61,299 Diluted 60,062 61,630
Exhibit 2
Ulta Beauty, Inc. Consolidated Statements of Income
(In thousands, except per share data)
39 Weeks Ended November 3, October 28,
2018 2017 (Unaudited) (Unaudited) Net
sales $ 4,591,899 100.0 % $ 3,946,914 100.0 % Cost of sales
2,923,447 63.7 % 2,508,452 63.6 % Gross profit
1,668,452 36.3 % 1,438,462 36.4 % Selling, general and
administrative expenses 1,078,219 23.5 % 887,601 22.5 % Pre-opening
expenses 17,363 0.4 % 19,989 0.5 %
Operating income 572,870 12.5 % 530,872 13.5 % Interest income, net
(3,786 ) 0.1 % (1,209 ) 0.0 % Income before income
taxes 576,656 12.6 % 532,081 13.5 % Income tax expense
132,771 2.9 % 185,020 4.7 % Net income $
443,885 9.7 % $ 347,061 8.8 % Net income per
common share: Basic $ 7.38 $ 5.62 Diluted $ 7.35 $ 5.58
Weighted average common shares outstanding: Basic 60,135 61,778
Diluted 60,432 62,198
Exhibit 3
Ulta Beauty, Inc. Condensed Consolidated Balance
Sheets (In thousands) November
3, February 3, October 28, 2018
2018 2017 (Unaudited) (Unaudited)
Assets Current assets: Cash and cash equivalents $ 296,944 $
277,445 $ 46,787 Short-term investments — 120,000 60,000
Receivables, net 102,353 99,719 82,934 Merchandise inventories, net
1,484,565 1,096,424 1,349,714 Prepaid expenses and other current
assets 119,817 98,666 101,403 Prepaid income taxes 22,294
1,489 5,450 Total current assets 2,025,973 1,693,743 1,646,288
Property and equipment, net 1,257,775 1,189,453 1,172,682
Goodwill 9,084 — — Other intangible assets 6,985 — — Deferred
compensation plan assets 21,397 16,827 15,903 Other long-term
assets 11,477 8,664 — Total assets $ 3,332,691
$ 2,908,687 $ 2,834,873
Liabilities and stockholders’
equity Current liabilities: Accounts payable $ 574,480 $
325,758 $ 447,293 Accrued liabilities 409,603 302,307 266,435
Accrued income taxes — 14,101 984 Total
current liabilities 984,083 642,166 714,712 Deferred rent
432,052 407,916 400,477 Deferred income taxes 50,045 59,403 78,647
Other long-term liabilities 30,775 24,985
24,986 Total liabilities 1,496,955 1,134,470 1,218,822
Commitments and contingencies Total stockholders’ equity
1,835,736 1,774,217 1,616,051 Total
liabilities and stockholders’ equity $ 3,332,691 $ 2,908,687 $
2,834,873
Exhibit 4
Ulta Beauty, Inc. Consolidated Statements of Cash
Flows (In thousands) 39 Weeks Ended
November 3, October 28, 2018
2017 (Unaudited) Operating activities Net
income $ 443,885 $ 347,061 Adjustments to reconcile net income to
net cash provided by operating activities: Depreciation and
amortization 207,652 187,710 Deferred income taxes (408 ) (7,851 )
Non-cash stock compensation charges 20,308 17,898 Loss on disposal
of property and equipment 1,339 5,707 Change in operating assets
and liabilities: Receivables (2,594 ) 5,697 Merchandise inventories
(388,141 ) (405,739 ) Prepaid expenses and other current assets
(19,603 ) (12,782 ) Income taxes (34,906 ) (13,437 ) Accounts
payable 248,719 187,775 Accrued liabilities 44,114 (18,721 )
Deferred rent 24,136 34,286 Other assets and liabilities
(2,287 ) 1,489 Net cash provided by operating
activities 542,214 329,093
Investing activities
Purchases of short-term investments (386,193 ) (240,000 ) Proceeds
from short-term investments 506,193 210,000 Purchases of property
and equipment (256,415 ) (337,639 ) Acquisitions, net of cash
acquired (13,606 ) — Net cash used in investing activities
(150,021 ) (367,639 )
Financing activities Repurchase
of common shares (379,423 ) (309,767 ) Stock options exercised
12,668 14,849 Purchase of treasury shares (5,939 ) (4,208 ) Debt
issuance costs — (551 ) Net cash used in
financing activities (372,694 ) (299,677 ) Net increase
(decrease) in cash and cash equivalents 19,499 (338,223 ) Cash and
cash equivalents at beginning of period 277,445
385,010 Cash and cash equivalents at end of period $
296,944 $ 46,787
Exhibit 5
2018 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 2018 quarter
quarter quarter end of the quarter 1st Quarter
1,074 34 1 1,107 2nd Quarter 1,107 19 2 1,124 3rd Quarter 1,124 42
3 1,163
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 2018 the quarter quarter
during the quarter quarter 1st Quarter 11,300,920
355,482 10,607 11,645,795 2nd Quarter 11,645,795 198,852 20,638
11,824,009 3rd Quarter 11,824,009 432,627 34,758 12,221,878
Exhibit 6
Ulta Beauty, Inc. Pro-forma Effect of ASC 606 (In
thousands) (Unaudited)
The Company adopted ASC 606 and the
related amendments as of February 4, 2018 using the modified
retrospective transition method applied to all contracts. The
comparative information has not been restated and continues to be
reported under accounting standards in effect for those periods.
The following table presents selected as-reported financial results
and the pro-forma effect of ASC 606 as if the recognition and
presentation guidance in the accounting standard had been applied
in fiscal 2017. The fiscal 2017 pro-forma financial information
included in the table below is presented for information purposes
only.
Fiscal Year Ended February 3,
2018 Balances with ASC 606 Adoption of ASC
(Dollars in
thousands)
As Reported % of Sales Adjustments 606
% of Sales Consolidated Statement of Income: Net sales $
5,884,506 100.0 % $ 31,197 $ 5,915,703 100.0 % Cost of sales
3,787,697 64.4 % (5,746 ) 3,781,951 63.9 % Gross profit 2,096,809
35.6 % 36,944 2,133,753 36.1 % Selling, general and administrative
expenses 1,287,232 21.9 % 40,730 1,327,962 22.4 % Operating income
785,291 13.3 % (3,786 ) 781,505 13.2 % Income tax expense 231,625
3.9 % (1,707 ) 229,918 3.9 % Net income 555,234 9.4 % (2,079 )
553,155 9.4 %
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version on businesswire.com: https://www.businesswire.com/news/home/20181206005944/en/
Company Contacts:Scott SetterstenChief Financial Officer(630)
410-4807
Laurel LefebvreVice President, Investor Relations(630)
410-5230
Karen MayDirector, Public Relations(630) 410-5457
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