Net Sales Increased 7.9% Comparable
Sales Increased 3.2% Diluted EPS Increased 3.2% to $2.25
Company Updates Fiscal 2019 Guidance
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 2,
2019 compared to the same periods ended November 3, 2018.
“Our differentiated model is winning in the marketplace,” said
Mary Dillon, Chief Executive Officer. “The Ulta Beauty team
delivered another quarter of solid top-line performance, gross
margin expansion, and EPS growth, despite the current challenges
facing the U.S. cosmetics category. We continue to gain market
share across all major beauty categories, and we are extending our
leadership position by creating stronger connections with our
guests and engaging with them in better and more exciting
ways.”
For the Third Quarter of Fiscal
2019
- Net sales increased 7.9% to $1,682.5 million compared to
$1,560.0 million in the third quarter of fiscal 2018;
- Comparable sales (sales for stores open at least 14 months and
e-commerce sales) increased 3.2% compared to an increase of 7.8% in
the third quarter of fiscal 2018. The 3.2% comparable sales
increase was driven by 2.3% transaction growth and 0.9% growth in
average ticket;
- Gross profit as a percentage of net sales increased 40 basis
points to 37.1% compared to 36.7% in the third quarter of fiscal
2018, primarily due to improvement in merchandise margins driven by
marketing and merchandising strategies and leverage of fixed store
costs, partially offset by investments in salon services;
- Selling, general and administrative (SG&A) expenses as a
percentage of net sales increased 140 basis points to 26.7%
compared to 25.3% in the third quarter of fiscal 2018, primarily
due to deleverage of corporate overhead related to investments in
growth initiatives and store labor, partially offset by lower
incentive compensation expense and leverage in marketing
expense;
- Pre-opening expenses decreased to $6.5 million compared to $7.6
million in the third quarter of fiscal 2018. Real estate activity
in the third quarter of fiscal 2019 included 31 new stores, three
remodels, and two relocations, compared to 42 new stores, four
remodels, and one relocation in the third quarter of fiscal
2018;
- Operating income was $167.8 million, or 10.0% of net sales,
compared to $169.2 million, or 10.8% of net sales, in the third
quarter of fiscal 2018;
- Tax rate was 23.1%, flat as compared to the third quarter of
fiscal 2018;
- Net income was $129.7 million compared to $131.2 million in the
third quarter of fiscal 2018; and
- Diluted earnings per share increased 3.2% to $2.25, which
included a $0.02 per share benefit primarily due to an increase in
federal income tax credits, compared to $2.18 in the third quarter
of fiscal 2018, which included a $0.02 per share benefit due to
income tax accounting for share-based compensation.
For the First Nine Months of Fiscal 2019
- Net sales increased 10.9% to $5,092.2 million compared to
$4,591.9 million in the first nine months of fiscal 2018;
- Comparable sales increased 5.4%, compared to an increase of
7.5% in the first nine months of fiscal 2018. The 5.4% comparable
sales increase was driven by 4.0% transaction growth and 1.4%
growth in average ticket;
- Gross profit as a percentage of net sales increased 50 basis
points to 36.8% compared to 36.3% in the first nine months of
fiscal 2018, primarily due to improvement in merchandise margins
driven by marketing and merchandising strategies and leverage of
fixed store costs, partially offset by investments in salon
services and supply chain operations;
- SG&A expenses as a percentage of net sales increased 100
basis points to 24.5% compared to 23.5% in the first nine months of
fiscal 2018, primarily due to deleverage of corporate overhead
related to investments in growth initiatives and store labor,
partially offset by leverage in marketing expense;
- Pre-opening expenses decreased to $15.7 million compared to
$17.4 million in the first nine months of fiscal 2018. Real estate
activity in first nine months of fiscal 2019 included 73 new
stores, 12 remodels, and six relocations, compared to 95 new
stores, 13 remodels, and two relocations in the first nine months
of fiscal 2018;
- Operating income increased to $613.3 million, or 12.0% of net
sales, compared to $572.9 million, or 12.5% of net sales, in the
first nine months of fiscal 2018;
- Tax rate decreased to 21.8% compared to 23.0% in the first nine
months of fiscal 2018. The lower effective tax rate is primarily
due to income tax accounting for share-based compensation and
federal income tax credits;
- Net income increased to $483.2 million compared to $443.9
million in the first nine months of fiscal 2018; and
- Diluted earnings per share increased 12.5% to $8.27, which
included a $0.24 per share benefit primarily due to income tax
accounting for share-based compensation, compared to $7.35 in the
first nine months of fiscal 2018, which included a $0.09 per share
benefit due to income tax accounting for share-based
compensation.
Balance Sheet
Merchandise inventories, net at the end of the third quarter of
fiscal 2019 totaled $1,616.9 million compared to $1,484.6 million
at the end of the third quarter of fiscal 2018, representing an
increase of $132.4 million. The increase in total inventory was
driven by 78 net new stores and timing of shipments ahead of the
holiday season. Average inventory per store increased 2.1% compared
to the third quarter of fiscal 2018.
The Company ended the third quarter of fiscal 2019 with $208.8
million in cash and cash equivalents.
Recent Accounting Pronouncement –
Leases
On February 3, 2019, the Company
adopted Accounting Standards Codification (ASC) 842 using the
modified retrospective approach. The new standard requires leases
to be recorded on the balance sheet as lease liabilities with
corresponding right-of-use assets. Upon adoption, the Company
recognized and measured leases without revising comparative period
information or disclosures. The adoption of ASC 842 resulted in the
recording of operating lease assets and liabilities of $1.46
billion and $1.84 billion, respectively, as of February 3, 2019. As
part of the adoption, the Company recorded an adjustment to
retained earnings of $2.4 million.
Share Repurchase Program
During the third quarter of fiscal 2019, the Company repurchased
529,404 shares of its common stock at a cost of $128.6 million.
During the first nine months of fiscal 2019, the Company
repurchased 1,639,438 shares of its common stock at a cost of
$506.9 million. As of November 2, 2019, $388.8 million remained
available under the $875.0 million share repurchase program
announced in March 2019.
Store Expansion
During the third quarter of fiscal 2019, the Company opened 31
stores located in Albuquerque, NM; Bethlehem, GA; Cleveland, TN;
Columbus, OH; Conroe, TX; Davenport, FL; El Segundo, CA;
Georgetown, TX; Germantown, TN; Grand Rapids, MI; Jacksonville, NC;
Jeffersonville, IN; Johns Creek, GA; Kearny, NJ; Lake Stevens, WA;
Lakewood, WA; Matthews, NC; Millbury, MA; Parsippany, NJ; Pasadena,
MD; Perris, CA; Philadelphia, PA; Raleigh, NC; Shirley, NY;
Southfield, MI; Topeka, KS; Wareham, MA; West Mifflin, PA; Wheat
Ridge, CO; Williamsville, NY; and Yuma, AZ. In addition, the
Company closed three stores.
The Company ended the third quarter of fiscal 2019 with 1,241
stores and square footage of 13,061,791, representing a 6.9%
increase in square footage compared to the third quarter of fiscal
2018.
Outlook
The Company has updated its fiscal
2019 outlook and now expects to:
- open approximately 80 new stores, execute approximately 20
remodel or relocation projects, and complete approximately 270
store refreshes;
- increase total sales by approximately 10% (previously between
9% and 12%);
- achieve comparable sales growth in the range of 4.7% to 5.0%
(previously 4% to 6%), including e-commerce growth of 20% to
30%;
- deleverage operating income margin rate in the range of 60 to
70 basis points;
- deliver diluted earnings per share in the range of $11.93 to
$12.03 (previously $11.86 to $12.06), including the impact of
approximately $700 million in share repurchases and assuming an
effective tax rate of approximately 23%;
- incur capital expenditures between $305 million and $315
million (previously $340 million to $350 million); and
- incur depreciation and amortization expense of approximately
$300 million.
As previously discussed, to more
closely align with industry practices the Company no longer
provides a quarterly outlook. The Company will continue to provide
an annual outlook, which it will update on a quarterly basis, as
appropriate.
Conference Call
Information
A conference call to discuss third
quarter of fiscal 2019 results is scheduled for today, December 5,
2019, 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 19, 2019 and can be
accessed by dialing (844) 512‑2921 and entering conference ID
number 13696497.
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 2, 2019, Ulta Beauty
operates 1,241 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 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 ability to execute our Efficiencies for Growth
cost optimization program; the possibility that cybersecurity
breaches and other disruptions could compromise our information or
result in the unauthorized disclosure of confidential information;
the possibility of material disruptions to our information systems;
our ability to gauge beauty trends and react to changing consumer
preferences in a timely manner; 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; our
ability to attract and retain key executive personnel; natural
disasters 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
February 2, 2019, 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 2,
November 3,
2019
2018
(Unaudited)
(Unaudited)
Net sales
$
1,682,514
100.0%
$
1,560,011
100.0%
Cost of sales
1,059,081
62.9%
987,733
63.3%
Gross profit
623,433
37.1%
572,278
36.7%
Selling, general and administrative
expenses
449,198
26.7%
395,453
25.3%
Pre-opening expenses
6,455
0.4%
7,612
0.5%
Operating income
167,780
10.0%
169,213
10.8%
Interest income, net
(900)
0.1%
(1,318)
0.1%
Income before income taxes
168,680
10.1%
170,531
10.9%
Income tax expense
38,933
2.3%
39,365
2.5%
Net income
$
129,747
7.7%
$
131,166
8.4%
Net income per common share:
Basic
$
2.25
$
2.20
Diluted
$
2.25
$
2.18
Weighted average common shares
outstanding:
Basic
57,568
59,724
Diluted
57,763
60,062
Exhibit 2
Ulta Beauty, Inc.
Consolidated Statements of
Income
(In thousands, except per
share data)
39 Weeks Ended
November 2,
November 3,
2019
2018
(Unaudited)
(Unaudited)
Net sales
$
5,092,150
100.0%
$
4,591,899
100.0%
Cost of sales
3,217,971
63.2%
2,923,447
63.7%
Gross profit
1,874,179
36.8%
1,668,452
36.3%
Selling, general and administrative
expenses
1,245,174
24.5%
1,078,219
23.5%
Pre-opening expenses
15,667
0.3%
17,363
0.4%
Operating income
613,338
12.0%
572,870
12.5%
Interest income, net
(4,617)
0.1%
(3,786)
0.1%
Income before income taxes
617,955
12.1%
576,656
12.6%
Income tax expense
134,729
2.6%
132,771
2.9%
Net income
$
483,226
9.5%
$
443,885
9.7%
Net income per common share:
Basic
$
8.31
$
7.38
Diluted
$
8.27
$
7.35
Weighted average common shares
outstanding:
Basic
58,123
60,135
Diluted
58,396
60,432
Exhibit 3
Ulta Beauty, Inc.
Condensed Consolidated Balance
Sheets
(In thousands)
November 2,
February 2,
November 3,
2019
2019
2018
(Unaudited)
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
$
208,843
$
409,251
$
296,944
Receivables, net
112,888
136,168
102,353
Merchandise inventories, net
1,616,920
1,214,329
1,484,565
Prepaid expenses and other current
assets
118,343
138,116
119,817
Prepaid income taxes
40,474
16,997
22,294
Total current assets
2,097,468
1,914,861
2,025,973
Property and equipment, net
1,233,412
1,226,029
1,257,775
Operating lease assets
1,529,524
—
—
Goodwill
10,870
10,870
9,084
Other intangible assets, net
3,622
4,317
6,985
Deferred compensation plan assets
26,269
20,511
21,397
Other long-term assets
27,683
14,584
11,477
Total assets
$
4,928,848
$
3,191,172
$
3,332,691
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
594,993
$
404,016
$
574,480
Accrued liabilities
249,112
220,666
255,156
Deferred revenue
190,188
199,054
154,447
Current operating lease liabilities
222,627
—
—
Total current liabilities
1,256,920
823,736
984,083
Non-current operating lease
liabilities
1,706,806
—
—
Deferred rent
—
434,980
432,052
Deferred income taxes
83,856
83,864
50,045
Other long-term liabilities
34,110
28,374
30,775
Total liabilities
3,081,692
1,370,954
1,496,955
Commitments and contingencies
Total stockholders’ equity
1,847,156
1,820,218
1,835,736
Total liabilities and stockholders’
equity
$
4,928,848
$
3,191,172
$
3,332,691
Exhibit 4
Ulta Beauty, Inc.
Consolidated Statements of
Cash Flows
(In thousands)
39 Weeks Ended
November 2,
November 3,
2019
2018
(Unaudited)
(Unaudited)
Operating activities
Net income
$
483,226
$
443,885
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
219,207
207,652
Non-cash lease expense
219,220
—
Deferred income taxes
(8)
(408)
Stock-based compensation expense
19,108
20,308
Loss on disposal of property and
equipment
4,821
1,339
Change in operating assets and
liabilities:
Receivables
5,812
(2,594)
Merchandise inventories
(402,591)
(388,141)
Prepaid expenses and other current
assets
(5,487)
(19,603)
Income taxes
(23,477)
(34,906)
Accounts payable
190,977
248,719
Accrued liabilities
23,109
42,151
Deferred revenue
(8,866)
1,963
Operating lease liabilities
(198,181)
—
Deferred rent
—
24,136
Other assets and liabilities
30,636
(2,287)
Net cash provided by operating
activities
557,506
542,214
Investing activities
Purchases of short-term investments
(245,000)
(386,193)
Proceeds from short-term investments
245,000
506,193
Purchases of property and equipment
(241,136)
(256,415)
Acquisitions, net of cash acquired
—
(13,606)
Purchases of equity investments
(43,757)
—
Net cash used in investing activities
(284,893)
(150,021)
Financing activities
Repurchase of common shares
(506,868)
(379,423)
Stock options exercised
43,211
12,668
Purchase of treasury shares
(9,364)
(5,939)
Net cash used in financing activities
(473,021)
(372,694)
Net increase (decrease) in cash and cash
equivalents
(200,408)
19,499
Cash and cash equivalents at beginning of
period
409,251
277,445
Cash and cash equivalents at end of
period
$
208,843
$
296,944
Exhibit 5
2019 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 2019
quarter
quarter
quarter
end of the quarter
1st Quarter
1,174
22
0
1,196
2nd Quarter
1,196
20
3
1,213
3rd Quarter
1,213
31
3
1,241
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 2019
the quarter
quarter
during the quarter
quarter
1st Quarter
12,337,145
236,596
0
12,573,741
2nd Quarter
12,573,741
209,469
29,612
12,753,598
3rd Quarter
12,753,598
339,469
31,276
13,061,791
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191205005817/en/
Investor Contacts: Kiley Rawlins, CFA Vice President, Investor
Relations krawlins@ulta.com (331) 757-2206 Patrick Flaherty Senior
Manager, Investor Relations pflaherty@ulta.com (331) 253-3521 Media
Contact: Olivia Mata Senior Manager, Public Relations (630)
410-5408
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