e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
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Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the fiscal year ended
January 29,
2011
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or
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o
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Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the transition period from
to
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Commission File Number:
001-33764
ULTA SALON,
COSMETICS & FRAGRANCE, INC.
(Exact name of Registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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36-3685240
(I.R.S. Employer
Identification No.)
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1000 Remington Blvd., Suite 120
Bolingbrook, Illinois
(Address of principal
executive offices)
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60440
(Zip code)
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Registrants telephone number, including area code:
(630) 410-4800
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common stock, par value $0.01 per share
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The NASDAQ Global Select Market
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. þ Yes o No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. o Yes þ No
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). o Yes o No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-
accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). o Yes þ No
The aggregate market value of the voting stock held by
non-affiliates of the registrant, based upon the closing sale
price of the common stock on July 31, 2010, as reported on
the NASDAQ Global Select Market, was approximately
$1,120,326,000. Shares of the registrants common stock
held by each executive officer and director and by each entity
or person that, to the registrants knowledge, owned 5% or
more of the registrants outstanding common stock as of
July 31, 2010 have been excluded in that such persons may
be deemed to be affiliates of the registrant. This determination
of affiliate status is not necessarily a conclusive
determination for other purposes.
The number of shares of the registrants common stock, par
value $0.01 per share, outstanding as of March 24, 2011 was
60,654,795 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Information required in response to Part III of
Form 10-K
(Items 10, 11, 12, 13 and 14) is hereby incorporated
by reference to the registrants Proxy Statement for the
Annual Meeting of Stockholders to be held during the current
fiscal year. The Proxy Statement will be filed by the registrant
with the SEC no later than 120 days after the close of the
fiscal year covered by this
Form 10-K.
ULTA
SALON, COSMETICS & FRAGRANCE, INC.
TABLE OF
CONTENTS
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PART I
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Item 1.
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Business
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3
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Item 1A.
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Risk Factors
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14
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Item 1B.
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Unresolved Staff Comments
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25
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Item 2.
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Properties
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26
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Item 3.
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Legal Proceedings
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27
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Item 4.
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[Removed and Reserved]
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27
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Part II
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Item 5.
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Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
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28
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Item 6.
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Selected Financial Data
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31
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Item 7.
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Managements Discussion and Analysis of Financial Condition
and Results of Operations
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32
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Item 7A.
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Quantitative and Qualitative Disclosures about Market Risk
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42
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Item 8.
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Financial Statements and Supplementary Data
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43
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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43
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Item 9A.
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Controls and Procedures
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43
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Item 9B.
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Other Information
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Part III
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Item 10.
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Directors, Executive Officers and Corporate Governance
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44
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Item 11.
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Executive Compensation
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44
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Item 12.
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Security Ownership and Certain Beneficial Owners and Management
and Related Stockholder Matters
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44
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Item 13.
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Certain Relationships and Related Transactions, and Director
Independence
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44
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Item 14.
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Principal Accountant Fees and Services
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44
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PART IV
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Item 15.
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Exhibits and Financial Statement Schedules
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45
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EX-10.5.D |
EX-10.6.C |
EX-23.1 |
EX-31.1 |
EX-31.2 |
EX-32.1 |
2
FORWARD
LOOKING STATEMENTS
This Annual Report on
Form 10-K
contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 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, or other comparable words. Any
forward-looking statements contained in this
Form 10-K
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 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; changes in the wholesale cost of our
products; the possibility that we may be unable to compete
effectively in our highly competitive markets; 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 that new store openings
and existing locations may be impacted by developer or co-tenant
issues; the possibility that the capacity of our distribution
and order fulfillment infrastructure may not be adequate to
support our recent growth and expected future growth plans; the
possibility of material disruptions to our information systems;
weather conditions that could negatively impact sales; and other
risk factors detailed in our public filings with the Securities
and Exchange Commission (the SEC), including risk
factors contained in Item 1A, Risk Factors of
this Annual Report on
Form 10-K
for the year ended January 29, 2011. We assume no
obligation to update any forward-looking statements as a result
of new information, future events or developments. References in
the following discussion to we, us,
our, the Company, Ulta and
similar references mean Ulta Salon, Cosmetics &
Fragrance, Inc. unless otherwise expressly stated or the context
otherwise requires.
Part I
Overview
Ulta Salon, Cosmetics & Fragrance, Inc. is the largest
beauty retailer that provides one-stop shopping for prestige,
mass and salon products and salon services in the United States.
We focus on providing affordable indulgence to our customers by
combining the product breadth, value and convenience of a beauty
superstore with the distinctive environment and experience of a
specialty retailer. Key aspects of our business include:
One-Stop Shopping. Our customers can satisfy
all of their beauty needs at Ulta. We offer a unique combination
of over 21,000 prestige and mass beauty products organized by
category in bright, open, self-service displays to encourage our
customers to play, touch, test, learn and explore. We believe we
offer the widest selection of categories across prestige and
mass cosmetics, fragrance, haircare, skincare, bath and body
products and salon styling tools. We also offer a full-service
salon and a wide range of salon haircare products in all of our
stores.
Our Value Proposition. We believe our focus on
delivering a compelling value proposition to our customers
across all of our product categories is fundamental to our
customer loyalty. For example, we run frequent promotions and
gift coupons for our mass brands, gift-with-purchase offers and
multi-product gift sets for our prestige brands, and a
comprehensive customer loyalty program. We also maintain a
strategic value relationship with others in the category through
competitive pricing and promotion.
An Off-Mall Location. We are conveniently
located in high-traffic, primarily off-mall locations such as
power centers and lifestyle centers with other destination
retailers. Our typical store is approximately 10,000 square
feet, including approximately 950 square feet dedicated to
our full-service salon. Our displays, store design and open
layout allow us the flexibility to respond to consumer trends
and changes in our merchandising strategy.
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We were founded in 1990 as a discount beauty retailer at a time
when prestige, mass and salon products were sold through
distinct channels department stores for prestige
products, drug stores and mass merchandisers for mass products,
and salons and authorized retail outlets for professional hair
care products. After extensive research, we recognized an
opportunity to better satisfy how a woman wanted to shop for
beauty products. This led to what we believe to be a unique
retail approach that focuses on all aspects of how women prefer
to shop for beauty products by combining the fundamental
elements of a beauty superstore, including one-stop shopping, a
compelling value proposition and convenient locations, together
with an uplifting specialty retail experience. While we are
currently executing on the core elements of our business
strategy, we plan to continually refine our approach in order to
further enhance the shopping experience for our customers.
Our
competitive strengths
We believe the following competitive strengths differentiate us
from our competitors and are critical to our continuing success:
Differentiated merchandising strategy with broad
appeal. We believe our broad selection of
merchandise across categories, price points and brands offers a
unique shopping experience for our customers. While the products
we sell can be found in department stores, specialty stores,
salons, drug stores and mass merchandisers, we offer all of
these products in one retail format so that our customer can
find everything she needs in one shopping trip. We appeal to a
wide range of customers by offering over 500 brands, such as
Bare Escentuals cosmetics, Chanel and Estée Lauder
fragrances, LOréal haircare and cosmetics and Paul
Mitchell haircare. We also have private label Ulta offerings in
key categories. Because our offerings span a broad array of
product categories in prestige, mass and salon, we appeal to a
wide range of customers including women of all ages,
demographics, and lifestyles.
Our unique customer experience. We combine the
value and convenience of a beauty superstore with the
distinctive environment and experience of a specialty retailer.
We cater to the woman who loves to indulge in shopping for
beauty products as well as the woman who is time constrained and
comes to the store knowing exactly what she wants. Our
distribution infrastructure consistently delivers a greater than
95% in-stock rate, so our customers know they will find the
products they are looking for. Our well-trained beauty
consultants are not commission-based or brand-dedicated and
therefore can provide unbiased and customized advice tailored to
our customers needs. Together with our customer service
strategy, our store locations, layout and design help create our
unique retail shopping experience, which we believe increases
both the frequency and length of our customers visits.
Retail format poised to benefit from shifting channel
dynamics. Over the past several years, the
approximately $96 billion beauty products and salon
services industry has experienced significant changes, including
a shift in how manufacturers distribute and customers purchase
beauty products. This has enabled the specialty retail channel
in which we operate to grow at a greater rate than the industry
overall since at least 2000. We are capitalizing on these trends
by offering a primarily off-mall, service-oriented specialty
retail concept with a comprehensive product mix across
categories and price points.
Loyal and active customer base. We have almost
8 million customer loyalty program members. We utilize this
valuable proprietary database to drive traffic, better
understand our customers purchasing patterns and support
new store site selection. We regularly distribute catalogs and
newspaper inserts to entertain and educate our customers and,
most importantly, to drive traffic to our stores.
Strong vendor relationships across product
categories. We have strong, active relationships
with over 300 vendors, including Estée Lauder, Bare
Escentuals, Coty, LOréal and Procter &
Gamble. We believe the scope and extent of these relationships,
which span the three distinct beauty categories of prestige,
mass and salon and have taken years to develop, create a
significant impediment for other retailers to replicate our
model. These relationships also frequently afford us the
opportunity to work closely with our vendors to market both new
and existing brands in a collaborative manner.
Experienced management team. We have an
experienced senior management team with extensive retail
experience that brings a creative merchandising approach and a
disciplined operating philosophy to our
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business. Chuck Rubin was appointed President, Chief Operating
Officer and a member of the Board of Directors effective
May 10, 2010 and assumed the role of Chief Executive
Officer on September 2, 2010. Mr. Rubin has over
30 years of experience in the retail industry including
senior executive level operating, merchandising and marketing
management roles as well as partner level consulting roles
across retail formats and
e-commerce
businesses. Mr. Rubin along with Gregg Bodnar, our Chief
Financial Officer, lead our senior management team. Over the
past several years, we have significantly expanded the depth of
our management team at all levels and in all functional areas to
support our growth strategy.
Growth
strategy
We intend to expand our presence as a leading retailer of beauty
products and salon services by pursuing the following primary
growth strategies:
Growing our store base to over 1,000 stores in the United
States. We continue to believe that over the
long-term, we have the potential to grow our store base to over
1,000 Ulta stores in the United States. Our internal real estate
model takes into account a number of variables, including
demographic and sociographic data as well as population density
relative to maximum drive times, economic and competitive
factors. We plan to continue opening stores both in markets in
which we currently operate and new markets. As the economy
recovers, we believe our successful track record of opening new
stores in diverse markets across the United States will allow us
to increase our new store growth rates back to historical levels
consistent with our long-term target of 15% to 20%.
We opened 47 new stores during fiscal 2010, representing a 13%
increase in square footage growth and a 27% increase in the
number of new stores opened compared to 37 in fiscal 2009. We
also remodeled 13 stores and relocated 5 stores in fiscal 2010.
The 2009 new store program was reduced primarily due to the
uncertainty in the economy and the decline in high-quality
commercial real estate projects that we typically target for our
new store locations. Our fiscal 2010 new store program
represents primarily new stores opened in existing centers
compared to prior years when the new store openings were more
balanced between new and existing centers. This trend is
expected to continue for several more years. The shift to more
existing centers had no impact on new store performance.
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Fiscal Year
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2006
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2007
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2008
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2009
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2010
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Total stores beginning of period
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167
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196
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249
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311
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346
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Stores opened
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31
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53
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63
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37
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47
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Stores closed
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(2
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(1
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(2
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(4
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Total stores end of period
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196
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249
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311
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346
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389
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Stores remodeled
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7
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17
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8
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6
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13
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Total square footage
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2,023,305
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2,589,244
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3,240,579
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3,613,840
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4,094,808
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Average square footage per store
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10,323
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10,399
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10,420
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10,445
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10,526
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Increasing our sales and profitability by expanding our
product, brand and service offerings. Our
strategy is to continue to expand our portfolio of products,
brands and services both by capitalizing on the success of our
existing vendor relationships and by identifying and developing
new supply sources. Over the last several years we have added
new products from existing vendors across product categories. We
have also added a number of new brands in recent years, most
notably in our prestige category which is currently the beauty
industrys highest growth category. Brand additions include
Juicy Couture, Dolce and Gabanna, and Coach Poppy in fragrance,
Dermalogica, Murad and Philosophy in skin care, Benefit, Cargo
and Tarte in cosmetics and Pureology in hair care. We also offer
haircare services in our full service salons as well as skin and
brow services in each of our stores. We plan to continue
expanding our portfolio of services in the future by
establishing Ulta as a leading salon authority providing high
quality and consistent services from our licensed stylists and
introducing new beauty-related services.
Enhancing our successful loyalty program. We
have almost 8 million active customer loyalty members who
are enrolled in our loyalty programs. Loyalty member
transactions represent more than 50% of our annual
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total net sales, and the transaction data demonstrates that
loyalty members shop with higher frequency and spend more per
visit as compared to non-members. We have been converting
loyalty members from our National certificate program to the
ULTAmate Rewards program which is a points-based program.
Currently slightly more than 20% of our stores are on the
points-based program. Both loyalty programs provide a robust
database of information relative to customer information and
shopping behavior which provides a significant long-term
opportunity for CRM applications including enabling customer
segmentation and
one-on-one
marketing communications tailored to our customers unique
beauty needs.
Broaden our marketing channels. We believe a
key component of our success is the brand exposure we get from
our marketing initiatives, which provide an effective means to
introduce new products, brands and services to our existing and
potential new customers. We have, historically, utilized
primarily direct mail advertising, catalogues and newspaper
inserts to communicate with our customers. Our national magazine
print advertising campaign exposes potential new customers to
our retail and
e-commerce
businesses. We plan to continue to leverage our print marketing
while expanding our reach into other marketing channels
including television, digital, social media and
e-mail
marketing. We also believe we have an opportunity to increase
our in-store marketing efforts as an additional means of
educating our customers and increasing the frequency of their
visits to our stores.
Enhancing and expanding our
e-commerce
business. Our website serves two roles: to
generate direct channel sales and profits and as a vehicle to
communicate with our customers in an interactive, enjoyable way
to reinforce the Ulta brand and drive traffic to our stores. We
continue to aggressively develop and add new website features
and functionality, marketing programs, product assortment and
new brands, and multi-channel integration points. We intend to
establish ourselves over time as a leading online beauty
resource for women by providing our customers with a rich online
experience for information on key trends and products, editorial
content, expanded assortments, leading website features and
functionality, and social media content. Through our continued
enhancements and multi-channel marketing initiatives, we believe
we are well positioned to capitalize on the growth of Internet
sales of beauty products. We believe our website and retail
stores provide our customers with an integrated multi-channel
shopping experience and increased flexibility for their beauty
buying needs.
Improving our profitability by leveraging our fixed
costs. We plan to continue to improve our
operating results by leveraging our existing infrastructure and
continually optimizing our operations. We will continue to make
investments in our information systems to enable us to enhance
our efficiency in areas such as merchandise planning and
allocation, inventory management, distribution and point of sale
(POS) functions. We believe we will continue to improve our
profitability by reducing our operating expenses as a percentage
of net sales, in particular supply chain, general corporate
overhead and fixed store expenses.
Our
market
We operate within the large and steadily growing
U.S. beauty products and salon services industry. This
market represents approximately $96 billion in retail
sales, according to Euromonitor International and IBIS World
Inc. The approximately $52 billion beauty products industry
includes color cosmetics, haircare, fragrance, bath and body,
skincare, salon styling tools and other toiletries. Within this
market, we compete across all major categories as well as a
range of price points by offering prestige, mass and salon
products. The approximately $44 billion salon services
industry consists of hair, face and nail services.
Distribution for beauty products is varied. Prestige products
are typically purchased in department or specialty stores, while
mass products and staple items are generally purchased at drug
stores, food retail stores and mass merchandisers. In addition,
salon haircare products are sold in salons and authorized
professional retail outlets.
Competition
Our major competitors for prestige and mass products include
traditional department stores such as Macys and Nordstrom,
specialty stores such as Sephora and Bath & Body
Works, drug stores such as CVS/pharmacy and Walgreens and mass
merchandisers such as Target and Wal-Mart. We believe the
principal bases upon which we compete are the quality and
assortment of merchandise, our value proposition, the quality of
our
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customers shopping experience and the convenience of our
stores as one-stop destinations for beauty products and salon
services.
The market for salon services and products is highly fragmented.
Our competitors for salon services and products include Regis
Corp., Sally Beauty, JCPenney salons and independent salons.
Key
trends
We believe an important shift is occurring in the distribution
of beauty products. Department stores, which have traditionally
been the primary distribution channel for prestige beauty
products, have been meaningfully affected by changing consumer
preferences and industry consolidation over the past decade. We
believe women, particularly younger generations, tend to find
department stores intimidating, high-pressured and hinder a
multi-brand shopping experience and, as such, are choosing to
shop elsewhere for their beauty care needs. According to
industry sources, 55% of women aged 18 to 24 shop in specialty
stores, compared to 40% of women aged 18 to 64. Over the past
ten years, department stores have lost significant market share
to specialty stores in apparel, and we believe the beauty
category is undergoing a similar shift in retail channels. We
believe women are seeking a shopping experience that provides
something different, a place to experiment, learn about various
products, find what they want and indulge themselves. A recent
Kline & Company report found that consumers seek out
specialty retailers for a number of reasons including that
specialty stores carry more niche products, the merchandise and
retail environment is more fun and provides the ability to shop
across product lines and the customer service is better than in
other channels.
As a result of this market transformation, there has been an
increase in the number of beauty brands pursuing new
distribution channels for their products, such as specialty
retail, spas and salons, direct response television (i.e., home
shopping and infomercials) and the Internet. In addition, many
smaller brands are selling their products through these channels
due to the high fixed costs associated with operating in most
department stores and to capitalize on consumers growing
propensity to shop in these channels. According to industry
sources, color cosmetics sales through these channels are
projected to grow at a higher rate than sales of color cosmetics
in total. There are a growing number of brands that have built
significant consumer awareness and sales by initially offering
their products on direct response television. We benefit from
offering brands that sell their products through this channel,
as we experience increased store traffic and sales after these
brands appear on television.
Historically, manufacturers have distributed their products
through distinct channels department stores for
prestige products, drug stores and mass merchandisers for mass
products, and salons and authorized retail outlets for
professional hair care products. We believe women are
increasingly shopping across retail channels as well as
purchasing a combination of prestige and mass beauty products.
We attribute this trend to a number of factors, including the
growing availability of prestige brands outside of department
stores and increased innovation in mass products. Based on the
competitive environment in which we operate, we believe that we
have been at the forefront of breaking down the industrys
historical distribution paradigm by combining a wide range of
beauty products, categories and price points under one roof. Our
strategy reflects a more customer-centric model of how women
prefer to shop today for their beauty needs.
Major growth drivers for the industry include favorable consumer
spending trends, product innovation and growth of certain
population segments.
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Baby Boomers (born between 1946 and 1964): Baby
Boomers have larger disposable incomes and are increasing their
spending on personal care as well as health and wellness. The
aging of the Baby Boomer generation is also influencing product
innovation and demand for anti-aging products and cosmetic
procedures.
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Generation X (born between 1965 and 1976): Generation
X is entering their peak earning years and represents a
significant contributor to overall consumer spending, including
beauty products. A recent survey by American Express showed that
Generation X spends 60% more on beauty products than Baby
Boomers. In addition, while prior generations grew up shopping
in department stores and general
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merchandisers, Generation X has grown up shopping in specialty
stores and we believe seeks a retail environment that combines a
compelling experience, functionality, variety and location.
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Generation Y (born between 1977 and 1994): According
to the United States Census Bureau data, the 20 to
34 year-old age group is expected to grow by approximately
10% from 2003 to 2015. As Generation Y continues to enter the
workforce, they will have increased disposable income to spend
on beauty products.
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We believe we are well positioned to capitalize on these trends
and capture additional market share in the industry. We believe
we have demonstrated an ability to provide a differentiated
store experience for customers as well as offer a breadth and
depth of merchandise previously unavailable from more
traditional beauty retailers.
Stores
We are conveniently located in high-traffic, primarily off-mall
locations such as power centers and lifestyle centers with other
destination retailers. Our typical store is approximately
10,000 square feet, including approximately 950 square
feet dedicated to our full-service salon. We opened 47 stores in
fiscal 2010 and the average investment required to open a new
Ulta store is approximately $0.9 million, which includes
capital investments, net of landlord contributions, pre-opening
expenses, and initial inventory, net of payables. However, our
net investment required to open new stores and the net sales
generated by new stores may vary depending on a number of
factors, including geographic location. As of January 29,
2011, we operated 389 stores in 40 states.
Store
remodel program
Our retail store concept, including physical layout, displays,
lighting and quality of finishes, has continued to evolve over
time to match the rising expectations of our customers and to
keep pace with our merchandising and operating strategies. In
recent years, our strategic focus has been on refining our new
store model, improving our real estate selection process and
executing on our new store opening program. As a result, we
decided to limit the investments made in our existing store base
from fiscal 2000 to fiscal 2005. In fiscal 2006, we developed
and initiated a store remodel program to update our oldest
stores to provide a consistent shopping experience across all of
our locations. We remodeled 13 stores in fiscal 2010. Our newest
store prototype, including new stores and remodels after 2005,
represents approximately 75% of our store base. We continue to
evolve this program to update older stores with a consistent
look and experience to drive additional customer traffic and
increase our sales and profitability. The remodel store
selection process is subject to the same discipline as our new
store real estate decision process. Our focus is to remodel the
oldest, highest performing stores first, subject to criteria
such as rate of return, lease terms, market performance and
quality of real estate. The average investment to remodel a
store in fiscal 2010 was approximately $0.9 million. Each
remodel takes approximately three months to complete, during
which time we typically keep the store open.
Salon
We operate full-service salons in all of our stores. Our current
Ulta store format includes an open and modern salon area with
eight to ten stations. The entire salon area is approximately
950 square feet with a concierge desk, esthetics room,
semi-private shampoo and hair color processing areas. Each salon
is a full-service salon offering hair cuts, hair coloring and
permanent texture, with most salons also providing facials and
waxing. We employ licensed professional stylists and
estheticians that offer highly skilled services as well as an
educational experience, including consultations, styling
lessons, skincare regimens, and at-home care recommendations.
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Ulta.com
We established Ulta.com to give our customers an integrated
multi-channel buying experience by providing them with an
opportunity to access product offerings and information beyond
our
brick-and-mortar
retail stores. The Ulta.com website and experience supports the
key elements of the Ulta brand proposition and provides access
to more than 13,000 beauty products from hundreds of brands. As
Ulta.com continues to grow in terms of functionality and
content, it will become an even greater element in Ultas
marketing programs and a more important resource for our
customers to access product and store information, beauty trends
and techniques, and buy from a larger assortment of product
offerings.
Merchandising
Strategy
We focus on offering one of the most extensive product and brand
selections in our industry, including a broad assortment of
branded and private label beauty products in cosmetics,
fragrance, haircare, skincare, bath and body products and salon
styling tools. A typical Ulta store carries over 19,000 basic
and over 2,000 promotional products. We present these products
in an assisted self-service environment using centrally produced
planograms (detailed schematics showing product placement in the
store) and promotional merchandising planners. Our merchandising
team continually monitors current fashion trends, historical
sales trends and new product launches to keep Ultas
product assortment fresh and relevant to our customers. We
believe our broad selection of merchandise, from moderate-priced
brands to higher-end prestige brands, offers a unique shopping
experience for our customers. The products we sell can also be
found in department stores, specialty stores, salons, mass
merchandisers and drug stores, but we offer all of these
products in one retail format so that our customer can find
everything she needs in one stop. We believe we offer a
compelling value proposition to our customers across all of our
product categories. For example, we run frequent promotions and
gift coupons for our mass brands, gift-with-purchase offers and
multi-product gift sets for our prestige brands, and a
comprehensive customer loyalty program.
We believe our private label products are a strategically
important category for growth and profit contribution. Our
objective is to provide quality, trend-right private label
products at a good value to continue to strengthen our
customers perception of Ulta as a contemporary beauty
destination. Ulta manages the full development cycle of these
products from concept through production in order to deliver
differentiated packaging and formulas to build brand image.
Current Ulta cosmetics and bath brands have a strong following
and we may expand our private label products into additional
categories.
The
Five Es
In addition to offering one of the most extensive product and
brand selections in our industry, we strive to offer an
uplifting shopping experience through what we refer to as
The Five Es: Escape, Education, Entertainment,
Esthetics and Empowerment.
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Escape. We strive to offer our customers a
timely escape from the stresses of daily life in a welcoming and
approachable environment. Our customer can immerse herself in
our extensive product selection, indulge herself in our hair or
skin treatments, or discover new and exciting products in an
interactive setting. We provide a shopping experience without
the intimidating, commission-oriented and brand-dedicated sales
approach that we believe is found in most department stores and
with a level of service that we believe is typically unavailable
in drug stores and mass merchandisers.
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Education. We staff our stores with a team of
well-trained beauty consultants and professionally licensed
estheticians and stylists whose mission is to educate, inform
and advise our customers regarding their beauty needs. We also
provide product education through demonstrations, in-store
videos and informational displays. Our focus on educating our
customer reinforces our authority as her primary resource for
beauty products and our credibility as a provider of consistent,
high-quality salon services. Our beauty consultants are trained
to service customers across all prestige lines and within our
prestige boutiques where customers can receive a
makeover or skin analysis.
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Entertainment. The entertainment experience
for our customer begins at home when she receives our catalogs
or visits our website. They are designed to introduce our
customers to our newest products and promotions and to be
invitations to come to Ulta to play, touch, test, learn and
explore. A significant percentage of our sales throughout the
year is derived from new products, making every visit to Ulta an
opportunity to discover something new and exciting. In addition
to providing over 4,500 testers in categories such as fragrance,
cosmetics, skincare, and salon styling tools, we further enhance
the shopping experience and store atmosphere through live
demonstrations from our licensed salon professionals and beauty
consultants, and through customer makeovers and in-store videos.
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Esthetics. We strive to create a visually
pleasing and inviting store and salon environment that
exemplifies and reinforces the quality of our products and
services. Our stores are brightly lit, spacious and attractive
on the inside and outside of the store. Our store and salon
design features sleek, modern lines that reinforce our status as
a fashion authority, together with wide aisles that make the
store easy to navigate and pleasant lighting to create a
luxurious and welcoming environment. This strategy enables us to
provide an extensive product selection in a well-organized store
and to offer a salon experience that is both fashionable and
contemporary.
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Empowerment. We are committed to creating an
environment in which women feel empowered by both their inner
and outer beauty; we take honor in providing our guests with
opportunities to showcase how they have empowered themselves and
others. Ulta is committed to positively impacting the lives of
women through our work on empowerment initiatives such as the
Ulta Enrich, Empower and Enlighten Scholarship Fund which grants
deserving high school senior girls scholarships to the
educational institution of their choice.
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Category
mix
We offer products in the following categories:
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Cosmetics, which includes products for the face, eyes, cheeks,
lips and nails;
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Haircare, which includes shampoos, conditioners, styling
products, and hair accessories;
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Salon styling tools, which includes hair dryers, curling irons
and flat irons;
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Skincare and bath and body, which includes products for the
face, hands and body;
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Fragrance for both men and women;
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Private label, consisting of Ulta branded cosmetics, skincare,
bath and body products and haircare; and
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Other, including candles, home fragrance products and other
miscellaneous health and beauty products.
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Organization
Our merchandising team reports directly to our CEO and consists
of a Senior Vice President of Merchandising who oversees; Senior
Vice President of Prestige Cosmetics; Vice President of Mass
Cosmetics, Skincare and Haircare; Vice President of Merchandise
Operations; Vice President of Fragrance, Prestige Skin, Bath and
Gift with Purchase; Divisional Merchandise Manager of Salon
Products; Divisional Merchandise Manager of Styling Tools, and
Director of Inventory. Reporting to the Senior Vice President of
Merchandising are approximately 23 Divisional Merchandise
Managers, Senior Buyers, Buyers and Assistant/Associate Buyers.
Our merchandising team works directly with our centralized
planning and replenishment group to ensure a consistent delivery
of products across our store base.
Our planogram department assists the merchants and replenishment
team to keep new products flowing into stores on a timely basis.
All major product categories undergo planogram revisions once or
twice a year and adjustments are made to assortment mix and
product placement based on current sales trends.
Our visual department works with our merchandising team on every
advertising event regarding strategic placement of promotional
merchandise, along with functional signage and creative product
presentation
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standards, in all of our stores. All stores receive a centrally
produced promotional planner for each event to ensure consistent
implementation.
Planning
and allocation
We have developed a disciplined approach to buying and a dynamic
inventory planning and allocation process to support our
merchandising strategy. We centrally manage product
replenishment to our stores through our planning and
replenishment group. This group serves as a strategic partner
to, and provides financial oversight of, the merchandising team.
The merchandising team creates a sales forecast by category for
the year. Our planning and replenishment group creates an
open-to-buy
plan, approved by senior executives, for each product category.
The
open-to-buy
plan is updated weekly with POS data, receipts and inventory
levels and is used throughout the year to balance buying
opportunities and inventory return on investment. We believe
this structure maximizes our buying opportunities while
maintaining organizational and financial control. Regularly
replenished products are presented consistently in all stores
utilizing a merchandising planogram process. POS data is used to
calculate sales forecasts and to determine replenishment levels.
We determine promotional product replenishment levels using
sales histories from similar or comparable events. To ensure our
inventory remains productive, our planning and replenishment
group, along with senior executives, monitors the levels of
clearance and aged inventory in our stores on a weekly basis.
Vendor
relationships
We work with over 300 vendors. Our Senior Vice President of
Merchandising has over 30 years of experience and each
merchandising vice president has over 15 years of
experience developing relationships in the industry with which
he or she works. We have no long-term supply agreements or
exclusive arrangements with our vendors. Our top ten vendors
represent approximately 48% of our total annual sales. These
include vendors across all product categories, such as Bare
Escentuals, Farouk Systems, LOréal,
Procter & Gamble, and Coty, among others. We believe
our vendors view us as a significant distribution channel for
growth and brand enhancement.
Marketing
and advertising
Marketing
strategy
We employ a multi-faceted marketing strategy to increase brand
awareness and drive traffic to both our stores and website. Our
marketing strategy complements a basic tenet of our business
strategy, which is to provide our customers with a satisfying
and uplifting experience. We communicate this vision to our
customers and prospective customers through a multi-media,
multi-touchpoint approach. Our primary media expenditure is in
direct mail catalogs and free-standing newspaper inserts. These
vehicles allow the customer to see the breadth of our selection
of prestige, mass and salon beauty products.
In order to reach new customers and to establish Ulta as a
national brand, we advertise in national beauty and lifestyle
magazines such as InStyle, Allure, Lucky, Elle and Vanity Fair.
These advertising channels have historically been successful in
raising our brand awareness on a national level and driving
additional sales from both existing and new customers. In
conjunction with our national brand advertising, we have
initiated a public relations strategy that focuses on reaching
top tier magazine editors to ensure consistent messaging in
beauty magazines as well as
direct-to-customer
efforts through multi-media channels.
Our
e-commerce
marketing strategy complements our print media strategy.
Ulta.com serves not only as an
e-commerce
site, but additionally as an extension of Ultas marketing
and prospecting strategies (beyond catalogs, newspaper inserts
and national advertising) by exposing potential new customers to
the Ulta brand and product offerings and providing a
24 hour forum for loyalists to engage with the brand. This
dual role for Ulta.com exists through online marketing
strategies including search marketing, affiliate marketing,
social networking, banner advertising, and other online
marketing channels. Ulta.coms email marketing programs are
also effective in communicating with and driving sales from
online and retail store customers.
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Customer
loyalty programs
We maintain two customer loyalty programs. Our national program
provides reward point certificates for free beauty products.
Customers earn purchase-based reward points and redeem the
related reward certificate during specific promotional periods
during the year. We are also rolling out a loyalty program in
several markets in which customers earn purchase-based points on
an annual basis which can be redeemed at any time. We have
almost 8 million customer loyalty program members.
Staffing
and operations
Retail
Our current Ulta store format is staffed with a general manager,
a salon manager, three to four assistant managers, and
approximately twenty full and part-time associates, including
approximately six to eight prestige consultants and eight to ten
licensed salon professionals. The management team in each store
reports to the general manager. The general manager oversees all
store activities including salon management, inventory
management, merchandising, cash management, scheduling, hiring
and guest services. Members of store management receive bonuses
depending on their position and based upon store sales and
shrink. Each general manager reports to a district manager, who
in turn reports to a Regional Vice President of Operations who
in turn reports to the Senior Vice President of Operations who
in turn reports to our Chief Executive Officer. Each store team
receives additional support from time to time from recruiting
specialists for the retail and salon operations, a field loss
prevention team, salon technical trainers, management trainers
and vendors.
Ulta stores are open seven days a week, eleven hours a day,
Monday through Saturday, and seven hours on Sunday. Our stores
have extended hours during the holiday season.
Salon
A typical salon is staffed with eight to ten licensed salon
professionals, including a salon manager, six stylists, and one
to two estheticians. Our higher producing salons have a guest
coordinator and an assistant manager. Our salon technical
trainers and vendor education classes create a comprehensive
educational program for approximately 3,000 Ulta salon
professionals.
Training
and development
Our success is dependent in part on our ability to attract,
train, retain and motivate qualified employees at all levels of
the organization. We have developed a corporate culture that
enables individual store managers to make store-level operating
decisions and consistently rewards their success. We are
committed to improving the skills and careers of our workforce
and providing advancement opportunities for our associates. Our
associates and management teams are essential to our store
expansion strategy. We primarily use existing managers or
promote from within to support our new stores, although many
outlying stores have all-new teams.
All of our associates participate in an interactive new-hire
orientation through which each associate becomes acquainted with
Ultas vision and mission. Training for new store managers,
prestige consultants and sales associates familiarizes them with
opening and closing routines, guest service expectations, our
loss prevention policy and procedures, and our culture. We also
have ongoing development programs that include operational
training for hourly associates, prestige consultants, management
and stylists. We provide continuing education to both salon
professionals and retail associates throughout their careers at
Ulta. In contrast to the sales teams at traditional department
stores, our sales teams are not commissioned or brand-dedicated.
Our prestige consultants are trained to work across all prestige
lines and within our prestige boutiques, where
customers can receive a makeover or skin analysis.
Distribution
We operate two distribution facilities. The first facility,
located in Romeoville, Illinois, is approximately
317,000 square feet in size, including an overflow
facility. During fiscal 2008, we began operating a second
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distribution facility in Phoenix, Arizona that is approximately
330,000 square feet in size. We intend to open a third
distribution center in fiscal 2012 to support our future growth
needs.
Inventory is shipped from our suppliers to our distribution
facilities. We carry over 21,000 products and replenish our
stores with such products primarily in eaches (i.e.,
less-than-case
quantities), which allows us to ship less than an entire case
when only one or two of a particular product is required. Our
distribution facilities use warehouse management and warehouse
control software systems, which have been upgraded or installed
in the last two years. All products are bar-coded, which
supports real-time inventory management and processing accuracy
throughout the distribution center. Store replenishment order
selection is performed using industry standard
put-to-light
and various other wireless technologies. Product is delivered to
stores using a broad network of contract carriers.
Information
technology
We are committed to using technology to enhance our competitive
position. We depend on a variety of information systems and
technologies to maintain and improve our competitive position
and to manage the operations of our growing store base. We rely
on computer systems to provide information for all areas of our
business, including supply chain, merchandising, POS,
e-commerce,
finance, accounting and human resources. Our core business
systems consist mostly of a purchased software program that
integrates with our internally developed software solutions. Our
technology also includes a company-wide network that connects
all corporate users, stores, and our distribution infrastructure
and provides communications for credit card and daily polling of
sales and merchandise movement at the store level. We intend to
leverage our technology infrastructure and systems where
appropriate to gain operational efficiencies through more
effective use of our systems, people and processes. We update
the technology supporting our stores, distribution
infrastructure and corporate headquarters on a continual basis.
We will continue to make investments in our information systems
to facilitate our growth and enable us to enhance our
competitive position.
Intellectual
property
We have registered a number of trademarks in the United States,
including Ulta Salon Cosmetics Fragrance (and design), Ulta.com,
and Ulta Beauty and two related designs. The renewal dates for
the identified marks are January 22, 2012 (Ulta Salon
Cosmetics Fragrance (and design)), October 8, 2012
(Ulta.com), July 10, 2017 (Ulta Beauty) and
October 16, 2017 (the two Ulta Beauty related designs). All
marks that are deemed material to our business have been
registered in the United States and select foreign countries. We
have applications pending for certain of these marks in Canada.
We believe our trademarks, especially those related to the Ulta
brand, have significant value and are important to building
brand recognition.
Government
regulation
In our U.S. markets, we are affected by extensive laws,
governmental regulations, administrative determinations, court
decisions and similar constraints. Such laws, regulations and
other constraints may exist at the federal, state or local
levels in the United States. The cosmetic and
over-the-counter
(OTC) drug products we sell in our stores, including our Ulta
branded products, are subject to regulation by the Food and Drug
Administration (FDA), the Federal Trade Commission (FTC) and
State Attorneys General (AG) in the United States. Such
regulations principally relate to the safety of ingredients,
proper labeling, advertising, packaging and marketing of the
products.
Products classified as cosmetics (as defined in the Food, Drug
and Cosmetic (FDC) Act) are not subject to pre-market approval
by the FDA, but the products and the ingredients must be safe
and must be properly labeled. Certain products, such as
sunscreens and acne treatments, are classified as OTC drugs
which have specific ingredient, labeling and manufacturing
requirements. The labeling of cosmetic and OTC drug products is
subject to the requirements of the FDC Act and the Fair
Packaging and Labeling Act. Further, claims we make in
advertising, including claims about the safety or efficacy of
products, pricing claims and environmental claims, are subject
to regulation by the FTC and State AGs who generally
prohibit deceptive practices.
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The government regulations that most impact our
day-to-day
operations are the labor and employment and taxation laws to
which most retailers are typically subject. We are also subject
to typical zoning and real estate land use restrictions and
typical advertising and consumer protection laws (both federal
and state). Our salon business is subject to state board
regulations and state licensing requirements for our stylists
and our salon procedures.
In our store leases, we require our landlords to obtain all
necessary zoning approvals and permits for the site to be used
as a retail site and we also ask them to obtain any zoning
approvals and permits for our specific use (but at times the
responsibility for obtaining zoning approvals and permits for
our specific use falls to us). We require our landlords to
deliver a certificate of occupancy for any work they perform on
our buildings or the shopping centers in which our stores are
located. We are responsible for delivering a certificate of
occupancy for any remodeling or build-outs that we perform and
are responsible for complying with all applicable laws in
connection with such construction projects or build-outs.
Associates
As of January 29, 2011, we employed approximately
4,000 people on a full-time basis and approximately 7,700
on a part-time basis. We have no collective bargaining
agreements. We have not experienced any work stoppages and
believe we have good relationships with our associates.
Available
Information
Our principal website address is www.ulta.com. We make available
at this address under investor relations (at
http://ir.ulta.com),
free of charge, our proxy statement, annual report to
shareholders, annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and all amendments to those reports as soon as reasonably
practicable after such material is electronically filed with or
furnished to the SEC. Information available on our website is
not incorporated by reference in and is not deemed a part of
this
Form 10-K.
In addition, our filings with the SEC may be accessed through
the SECs Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system at www.sec.gov. You may read and copy any filed
document at the SECs public reference rooms in
Washington, D.C. at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information about the public reference rooms. All
statements made in any of our securities filings, including all
forward-looking statements or information, are made as of the
date of the document in which the statement is included, and we
do not assume or undertake any obligation to update any of those
statements or documents unless we are required to do so by law.
Item 1A. Risk
Factors
Investment in our common stock involves a high degree of risk
and uncertainty. You should carefully consider the following
risks and all of the other information contained in this
Form 10-K
before making an investment decision. If any of the following
risks occur, our business, financial condition, results of
operations or future growth could suffer. In these
circumstances, the market price of our common stock could
decline, and you may lose all or part of your investment.
The
recent global economic crisis and volatility in global economic
conditions and the financial markets as well as declines in
consumer spending may adversely affect our liquidity and
financial condition.
The global economic crisis and volatility and disruption to the
capital and credit markets have had a significant, adverse
impact on global economic conditions, resulting in recessionary
pressures and declines in consumer confidence and economic
growth. These conditions have led to decreases in consumer
spending across the economy. Increases in the levels of
unemployment, energy costs, healthcare costs and taxes, combined
with tighter credit markets, reduced consumer confidence and
other factors, contribute to the decline in consumer spending.
While this decline has recently moderated, the level of consumer
spending is not where it was prior to the global recession, and
economic conditions could lead to further declines in consumer
spending in the future. Additionally, there can be no assurance
that various governmental activities to stabilize the markets
and stimulate the economy will restore consumer confidence or
change spending habits. Reduced
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consumer spending could cause changes in customer order patterns
and changes in the level of inventory purchased by our
customers, and may signify a reset of consumer spending habits,
all of which may adversely affect our industry, business and
financial condition
Economic conditions have also resulted in a tightening of the
credit markets, including lending by financial institutions,
which is a source of capital for our borrowing and liquidity.
This tightening of the credit markets has increased the cost of
capital and reduced the availability of credit. Concern about
the stability of the markets generally and the strength of
counterparties specifically has led many lenders and
institutional investors to reduce, and in some cases, cease to
provide credit to businesses and consumers. These factors have
led to a decrease in spending by businesses and consumers alike,
and a corresponding decrease in global infrastructure spending.
While global credit and financial markets appear to be
recovering from extreme disruptions experienced over the past
few years, uncertainty about continuing economic stability
remains. It is difficult to predict how long the current
economic and capital and credit market conditions will continue,
the extent to which they will continue to recover, if at all,
and which aspects of our products or business may be adversely
affected. Current market and credit conditions could continue to
make it more difficult for developers and landlords to obtain
the necessary credit to build new retail centers. A significant
decrease in new retail center development has adversely affected
our new store program and could limit our future growth
opportunities as long as the aforementioned conditions exist.
Continued turbulence in the United States and international
markets and economies and declines in consumer spending may
adversely affect our liquidity and financial condition,
including our ability to refinance maturing liabilities and
access the capital markets to meet liquidity needs.
Continued
economic uncertainty may affect consumer purchases of
discretionary beauty products and salon services, which could
delay our growth strategy and have a material adverse effect on
our business, financial condition, profitability and cash
flows.
Our financial condition may be materially affected by conditions
in the global capital markets and the economy generally, both in
the U.S. and elsewhere around the world. The stress
experienced by global capital markets in 2008 and 2009 persisted
into 2010. Concerns over inflation, energy costs, geopolitical
issues, the availability and cost of credit, and the
U.S. mortgage and real estate markets have contributed to
volatility and diminished expectations for the economy. We offer
a wide selection of beauty products and premium salon services.
Continued uncertainty in the economy could adversely impact
levels of consumer discretionary spending across all of our
product categories including prestige beauty products and
premium salon services. Factors that could affect
consumers willingness to make such discretionary purchases
include general business conditions, levels of employment,
interest rates and tax rates, the availability of consumer
credit, and consumer confidence in future economic conditions. A
decrease in spending due to lower consumer discretionary income
or consumer confidence could adversely impact our net sales and
operating results, and could force us to delay or slow our
growth strategy and have a material adverse effect on our
business, financial condition, profitability, and cash flows.
Additionally, the general deterioration in economic conditions
could adversely affect our commercial partners including our
product vendors as well as the real estate developers and
landlords who we rely on to construct and operate centers in
which our stores are located. A bankruptcy or financial failure
of a significant vendor or a number of significant real estate
developers or shopping center landlords could have a material
adverse effect on our business, financial condition,
profitability, and cash flows.
We may
be unable to compete effectively in our highly competitive
markets.
The markets for beauty products and salon services are highly
competitive with few barriers to entry even when economic
conditions are favorable. We compete against a diverse group of
retailers, both small and large, including regional and national
department stores, specialty retailers, drug stores, mass
merchandisers, high-end and discount salon chains, locally owned
beauty retailers and salons, Internet businesses, catalog
retailers and direct response television, including television
home shopping retailers and infomercials. We believe the
principal bases upon which we compete are the quality of
merchandise, our value proposition, the quality of our
customers shopping experience and the convenience of our
stores as one-stop destinations for
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beauty products and salon services. Many of our competitors are,
and many of our potential competitors may be, larger and have
greater financial, marketing and other resources and therefore
may be able to adapt to changes in customer requirements more
quickly, devote greater resources to the marketing and sale of
their products, generate greater national brand recognition or
adopt more aggressive pricing policies than we can. As a result,
we may lose market share, which could have a material adverse
effect on our business, financial condition and results of
operations.
If we
are unable to gauge beauty trends and react to changing consumer
preferences in a timely manner, our sales will
decrease.
We believe our success depends in substantial part on our
ability to:
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recognize and define product and beauty trends;
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anticipate, gauge and react to changing consumer demands in a
timely manner;
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translate market trends into appropriate, saleable product and
service offerings in our stores and salons in advance of our
competitors;
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develop and maintain vendor relationships that provide us access
to the newest merchandise on reasonable terms; and
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distribute merchandise to our stores in an efficient and
effective manner and maintain appropriate in-stock levels.
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If we are unable to anticipate and fulfill the merchandise needs
of the regions in which we operate, our net sales may decrease
and we may be forced to increase markdowns of slow-moving
merchandise, either of which could have a material adverse
effect on our business, financial condition and results of
operations.
If we
fail to retain our existing senior management team or attract
qualified new personnel, such failure could have a material
adverse effect on our business, financial condition and results
of operations.
Our business requires disciplined execution at all levels of our
organization. This execution requires an experienced and
talented management team. Chuck Rubin was appointed President,
Chief Operating Officer and a member of the Board of Directors
effective May 10, 2010 and assumed the role of Chief
Executive Officer on September 2, 2010. Any significant
leadership or executive management transition involves inherent
risks. In addition, if we were to lose the benefit of the
experience, efforts and abilities of other key executive
personnel, it could have a material adverse effect on our
business, financial condition and results of operations.
Furthermore, our ability to manage our retail expansion will
require us to continue to train, motivate and manage our
associates. We will need to attract, motivate and retain
additional qualified executive, managerial and merchandising
personnel and store associates. Competition for this type of
personnel is intense, and we may not be successful in
attracting, assimilating and retaining the personnel required to
grow and operate our business profitably.
We
intend to continue to open new stores, which could strain our
resources and have a material adverse effect on our business and
financial performance.
Our continued and future growth largely depends on our ability
to successfully open and operate new stores on a profitable
basis. During fiscal 2010, we opened 47 new stores. We intend to
continue to grow our number of stores for the foreseeable
future, and believe we have the long-term potential to grow our
store base to over 1,000 stores in the United States. During
fiscal 2010, the average investment required to open a typical
new store was approximately $0.9 million. This continued
expansion could place increased demands on our financial,
managerial, operational and administrative resources. For
example, our planned expansion will require us to increase the
number of people we employ as well as to monitor and upgrade our
management information and other systems and our distribution
infrastructure. These increased demands and operating
complexities could cause us to operate our business less
efficiently, have a material adverse effect on our operations
and financial performance and slow our growth.
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The
capacity of our distribution and order fulfillment
infrastructure may not be adequate to support our recent growth
and expected future growth plans, which could prevent the
successful implementation of these plans or cause us to incur
costs to expand this infrastructure, which could have a material
adverse effect on our business, financial condition and results
of operations.
We operate two distribution facilities, which house the
distribution operations for Ulta retail stores together with the
order fulfillment operations of our
e-commerce
business. In order to support our recent and expected future
growth and to maintain the efficient operation of our business,
we intend to open a third distribution center in fiscal 2012.
Our failure to expand our distribution capacity on a timely
basis to keep pace with our anticipated growth in stores could
have a material adverse effect on our business, financial
condition and results of operations.
Any
significant interruption in the operations of our two
distribution facilities could disrupt our ability to deliver
merchandise to our stores in a timely manner, which could have a
material adverse effect on our business, financial condition and
results of operations.
We distribute products to our stores without supplementing such
deliveries with
direct-to-store
arrangements from vendors or wholesalers. We are a retailer
carrying over 21,000 beauty products that change on a regular
basis in response to beauty trends, which makes the success of
our operations particularly vulnerable to disruptions in our
distribution infrastructure. Any significant interruption in the
operation of our supply chain infrastructure, such as
disruptions in our information systems, disruptions in
operations due to fire or other catastrophic events, labor
disagreements, or shipping and transportation problems, could
drastically reduce our ability to receive and process orders and
provide products and services to our stores, which could have a
material adverse effect on our business, financial condition and
results of operations.
Any
material disruption of our information systems could negatively
impact financial results and materially adversely affect our
business operations, particularly during the holiday
season.
We are increasingly dependent on a variety of information
systems to effectively manage the operations of our growing
store base and fulfill customer orders from our
e-commerce
business. We have identified the need to expand and upgrade our
information systems to support recent and expected future
growth. The failure of our information systems to perform as
designed could have an adverse effect on our business and
results of our operations. Any material disruption of our
systems could disrupt our ability to track, record and analyze
the merchandise that we sell and could negatively impact our
operations, shipment of goods, ability to process financial
information and credit card transactions, and our ability to
receive and process
e-commerce
orders or engage in normal business activities. Moreover,
security breaches or leaks of proprietary information, including
leaks of customers private data, could result in
liability, decrease customer confidence in our company, and
weaken our ability to compete in the marketplace, which could
have a material adverse effect on our business, financial
condition and results of operations.
Our
e-commerce
operations, while relatively small, are increasingly important
to our business. The Ulta.com website serves as an effective
extension of Ultas marketing and prospecting strategies
(beyond catalogs, newspaper inserts and national advertising) by
exposing potential new customers to the Ulta brand, product
offerings, and enhanced content. As the importance of our
website and
e-commerce
operations to our business grows, we are increasingly vulnerable
to website downtime and other technical failures. Our failure to
successfully respond to these risks could reduce
e-commerce
sales and damage our brands reputation.
Increased
costs or interruption in our third-party vendors overseas
sourcing operations could disrupt production, shipment or
receipt of some of our merchandise, which would result in lost
sales and could increase our costs.
We directly source the majority of our gift-with-purchase and
other promotional products through third-party vendors using
foreign factories. In addition, many of our vendors use overseas
sourcing to varying degrees to manufacture some or all of their
products. Any event causing a sudden disruption of manufacturing
or imports from such foreign countries, including the imposition
of additional import restrictions, unanticipated political
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changes, increased customs duties, legal or economic
restrictions on overseas suppliers ability to produce and
deliver products, and natural disasters, could materially harm
our operations. We have no long-term supply contracts with
respect to such foreign-sourced items, many of which are subject
to existing or potential duties, tariffs or quotas that may
limit the quantity of certain types of goods that may be
imported into the United States from such countries. Our
business is also subject to a variety of other risks generally
associated with sourcing goods from abroad, such as political
instability, disruption of imports by labor disputes and local
business practices. Our sourcing operations may also be hurt by
health concerns regarding infectious diseases in countries in
which our merchandise is produced, adverse weather conditions or
natural disasters that may occur overseas or acts of war or
terrorism in the United States or worldwide, to the extent these
acts affect the production, shipment or receipt of merchandise.
Our future operations and performance will be subject to these
factors, which are beyond our control, and these factors could
materially hurt our business, financial condition and results of
operations or may require us to modify our current business
practices and incur increased costs.
A
reduction in traffic to, or the closing of, the other
destination retailers in the shopping areas where our stores are
located could significantly reduce our sales and leave us with
unsold inventory, which could have a material adverse effect on
our business, financial condition and results of
operations.
As a result of our real estate strategy, most of our stores are
located in off-mall shopping areas known as power centers or
lifestyle centers, which also accommodate other well-known
destination retailers. Power centers typically contain three to
five big-box anchor stores along with a variety of smaller
specialty tenants, while lifestyle centers typically contain a
variety of high-end destination retailers but no large anchor
stores. As a consequence of most of our stores being located in
such shopping areas, our sales are derived, in part, from the
volume of traffic generated by the other destination retailers
and the anchor stores in the lifestyle centers and power centers
where our stores are located. Customer traffic to these shopping
areas may be adversely affected by the closing of such
destination retailers or anchor stores, or by a reduction in
traffic to such stores resulting from a regional economic
downturn, a general downturn in the local area where our store
is located, or a decline in the desirability of the shopping
environment of a particular power center or lifestyle center.
Such a reduction in customer traffic would reduce our sales and
leave us with excess inventory, which could have a material
adverse effect on our business, financial condition and results
of operations. We may respond by increasing markdowns or
initiating marketing promotions to reduce excess inventory,
which would further decrease our gross profits and net income.
This risk is more pronounced during the current severe economic
downturn which has resulted in a number of national retailers
filing for bankruptcy or closing stores due to depressed
consumer spending levels.
Diversion
of exclusive salon products, or a decision by manufacturers of
exclusive salon products to utilize other distribution channels,
could negatively impact our revenue from the sale of such
products, which could have a material adverse effect on our
business, financial condition and results of
operations.
The retail products that we sell in our salons are meant to be
sold exclusively by professional salons and authorized
professional retail outlets. However, incidents of product
diversion occur, which involve the selling of salon exclusive
haircare products to unauthorized channels such as drug stores,
grocery stores or mass merchandisers. Diversion could result in
adverse publicity that harms the commercial prospects of our
products (if diverted products are old, tainted or damaged), as
well as lower product revenues should consumers choose to
purchase diverted product from these channels rather than
purchasing from one of our salons. Additionally, the various
product manufacturers could in the future decide to utilize
other distribution channels for such products, therefore
widening the availability of these products in other retail
channels, which could negatively impact the revenue we earn from
the sale of such products.
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We
rely on our good relationships with vendors to purchase
prestige, mass and salon beauty products on reasonable terms. If
these relationships were to be impaired, or if certain vendors
were unable to supply sufficient merchandise to keep pace with
our growth plans, we may not be able to obtain a sufficient
selection or volume of merchandise on reasonable terms, and we
may not be able to respond promptly to changing trends in beauty
products, either of which could have a material adverse effect
on our competitive position, our business and financial
performance.
We have no long-term supply agreements or exclusive arrangements
with vendors and, therefore, our success depends on maintaining
good relationships with our vendors. Our business depends to a
significant extent on the willingness and ability of our vendors
to supply us with a sufficient selection and volume of products
to stock our stores. Some of our prestige vendors may not have
the capacity to supply us with sufficient merchandise to keep
pace with our growth plans. We also have strategic partnerships
with certain core brands, which have allowed us to benefit from
the growing popularity of such brands. Any of our other core
brands could in the future decide to scale back or end its
partnership with us and strengthen its relationship with our
competitors, which could negatively impact the revenue we earn
from the sale of such products. If we fail to maintain strong
relationships with our existing vendors, or fail to continue
acquiring and strengthening relationships with additional
vendors of beauty products, our ability to obtain a sufficient
amount and variety of merchandise on reasonable terms may be
limited, which could have a negative impact on our competitive
position.
During fiscal 2010, merchandise supplied to Ulta by our top ten
vendors accounted for approximately 48% of our net sales. The
loss of or a reduction in the amount of merchandise made
available to us by any one of these key vendors, or by any of
our other vendors, could have an adverse effect on our business.
If we
are unable to protect our intellectual property rights, our
brand and reputation could be harmed, which could have a
material adverse effect on our business, financial condition and
results of operations.
We regard our trademarks, trade dress, copyrights, trade
secrets, know-how and similar intellectual property as critical
to our success. Our principal intellectual property rights
include registered and common law trademarks on our name,
Ulta, and other marks incorporating that name,
copyrights in our website content, rights to our domain name
www.ulta.com and trade secrets and know-how with respect to our
Ulta branded product formulations, product sourcing, sales and
marketing and other aspects of our business. As such, we rely on
trademark and copyright law, trade secret protection and
confidentiality agreements with certain of our employees,
consultants, suppliers and others to protect our proprietary
rights. If we are unable to protect or preserve the value of our
trademarks, copyrights, trade secrets or other proprietary
rights for any reason, or if other parties infringe on our
intellectual property rights, our brand and reputation could be
impaired and we could lose customers.
If our
manufacturers are unable to produce products manufactured
uniquely for Ulta, including Ulta branded products and
gift-with-purchase and other promotional products, consistent
with applicable regulatory requirements, we could suffer lost
sales and be required to take costly corrective action, which
could have a material adverse effect on our business, financial
condition and results of operations.
We do not own or operate any manufacturing facilities and
therefore depend upon independent third-party vendors for the
manufacture of all products manufactured uniquely for Ulta,
including Ulta branded products and gift-with-purchase and other
promotional products. Our third-party manufacturers of Ulta
products may not maintain adequate controls with respect to
product specifications and quality and may not continue to
produce products that are consistent with applicable regulatory
requirements. If we or our third-party manufacturers fail to
comply with applicable regulatory requirements, we could be
required to take costly corrective action. In addition,
sanctions under various laws may include seizure of products,
injunctions against future shipment of products, restitution and
disgorgement of profits, operating restrictions and criminal
prosecution. The FDA does not have a pre-market approval system
for cosmetics, and we believe we are permitted to market our
cosmetics and have them manufactured without submitting safety
or efficacy data to the FDA. However, cosmetic products may
become subject to more extensive regulation in the future. These
events could interrupt the marketing and sale of our Ulta
products, severely damage our brand reputation and
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image in the marketplace, increase the cost of our products,
cause us to fail to meet customer expectations or cause us to be
unable to deliver merchandise in sufficient quantities or of
sufficient quality to our stores, any of which could result in
lost sales, which could have a material adverse effect on our
business, financial condition and results of operations.
We, as
well as our vendors, are subject to laws and regulations that
could require us to modify our current business practices and
incur increased costs, which could have a material adverse
effect on our business, financial condition and results of
operations.
In our U.S. markets, numerous laws and regulations at the
federal, state and local levels can affect our business. Legal
requirements are frequently changed and subject to
interpretation, and we are unable to predict the ultimate cost
of compliance with these requirements or their effect on our
operations. If we fail to comply with any present or future laws
or regulations, we could be subject to future liabilities, a
prohibition on the operation of our stores or a prohibition on
the sale of our Ulta branded products. In particular, failure to
adequately comply with the following legal requirements could
have a material adverse effect on our business, financial
conditions and results of operations:
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In March 2010, comprehensive healthcare reform legislation under
the Patient Protection and Affordable Care Act and the Health
Care Education and Affordability Reconciliation Act
(collectively, the Acts) was passed and signed into
law. This healthcare reform legislation significantly expands
healthcare coverage to many uninsured individuals and to those
already insured. Due to the breadth and complexity of the
healthcare reform legislation and the lack of implementing
regulations and interpretive guidance, it is difficult to
predict the overall impact of the healthcare reform legislation
on our business over the coming years. Possible adverse effects
include increased costs, exposure to expanded liability and
requirements for us to revise the ways in which we conduct
business. Additionally, because significant provisions of the
Acts will become effective on various dates over the next
several years, future changes could significantly impact any
effects on our business that we previously anticipated.
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Our rapidly expanding workforce, growing in pace with our number
of stores, makes us vulnerable to changes in labor and
employment laws. In addition, changes in federal and state
minimum wage laws and other laws relating to employee benefits
could cause us to incur additional wage and benefits costs,
which could hurt our profitability and affect our growth
strategy.
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Our salon business is subject to state board regulations and
state licensing requirements for our stylists and our salon
procedures. Failure to maintain compliance with these regulatory
and licensing requirements could jeopardize the viability of our
salons.
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We operate stores in California, which has enacted legislation
commonly referred to as Proposition 65 requiring
that clear and reasonable warnings be given to
consumers who are exposed to chemicals known to the State of
California to cause cancer or reproductive toxicity. Although we
have sought to comply with Proposition 65 requirements, there
can be no assurance that we will not be adversely affected by
litigation relating to Proposition 65.
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In addition, the formulation, manufacturing, packaging,
labeling, distribution, sale and storage of our vendors
products and our Ulta products are subject to extensive
regulation by various federal agencies, including the FDA, the
FTC and state attorneys general in the United States. If we, our
vendors or the manufacturers of our Ulta products fail to comply
with those regulations, we could become subject to significant
penalties or claims, which could harm our results of operations
or our ability to conduct our business. In addition, the
adoption of new regulations or changes in the interpretations of
existing regulations may result in significant compliance costs
or discontinuation of product sales and may impair the
marketability of our vendors products or our Ulta
products, resulting in significant loss of net sales. Our
failure to comply with FTC or state regulations that cover our
vendors products or our Ulta product claims and
advertising, including direct claims and advertising by us, may
result in enforcement actions and imposition of penalties or
otherwise harm the distribution and sale of our products.
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As we
grow the number of our stores in new cities and states, we are
subject to local building codes in an increasing number of local
jurisdictions. Our failure to comply with local building codes,
and the failure of our landlords to obtain certificates of
occupancy in a timely manner, could cause delays in our new
store openings, which could increase our store opening costs,
cause us to incur lost sales and profits, and damage our public
reputation.
Ensuring compliance with local zoning and real estate land use
restrictions across numerous jurisdictions is increasingly
challenging as we grow the number of our stores in new cities
and states. Our store leases generally require us to provide a
certificate of occupancy with respect to the interior build-out
of our stores (landlords generally provide the certificate of
occupancy with respect to the shell of the store and the larger
shopping area and common areas), and while we strive to remain
in compliance with local building codes relating to the interior
buildout of our stores, the constantly increasing number of
local jurisdictions in which we operate makes it increasingly
difficult to stay abreast of changes in, and requirements of,
local building codes and local building and fire
inspectors interpretations of such building codes.
Moreover, our landlords have occasionally been unable, due to
the requirements of local zoning laws, to obtain in a timely
manner a certificate of occupancy with respect to the shell of
our stores
and/or the
larger shopping centers
and/or
common areas (which certificate of occupancy is required by
local building codes for us to open our store), causing us in
some instances to delay store openings. As the number of local
building codes and local building and fire inspectors to which
we and our landlords are subject to increases, we may be
increasingly vulnerable to increased construction costs and
delays in store openings caused by our or our landlords
compliance with local building codes and local building and fire
inspectors interpretations of such building codes, which
increased construction costs
and/or
delays in store openings could increase our store opening costs,
cause us to incur lost sales and profits, and damage our public
reputation.
Our
Ulta products and salon services may cause unexpected and
undesirable side effects that could result in their
discontinuance or expose us to lawsuits, either of which could
result in unexpected costs and damage to our reputation, which
could have a material adverse effect on our business, financial
condition and results of operations.
Unexpected and undesirable side effects caused by our Ulta
products for which we have not provided sufficient label
warnings, or salon services which may have been performed
negligently, could result in the discontinuance of sales of our
products or of certain salon services or prevent us from
achieving or maintaining market acceptance of the affected
products and services. Such side effects could also expose us to
product liability or negligence lawsuits. Any claims brought
against us may exceed our existing or future insurance policy
coverage or limits. Any judgment against us that is in excess of
our policy limits would have to be paid from our cash reserves,
which would reduce our capital resources. Further, we may not
have sufficient capital resources to pay a judgment, in which
case our creditors could levy against our assets. These events
could cause negative publicity regarding our company, brand or
products, which could in turn harm our reputation and net sales,
which could have a material adverse effect on our business,
financial condition and results of operations.
Legal
proceedings or third-party claims of intellectual property
infringement may require us to spend time and money and could
prevent us from developing certain aspects of our business
operations, which could have a material adverse effect on our
business, financial condition and results of
operations.
Our technologies, promotional products purchased from
third-party vendors, or Ulta products or potential products in
development may infringe rights under patents, patent
applications, trademark, copyright or other intellectual
property rights of third parties in the United States and
abroad. These third parties could bring claims against us that
would cause us to incur substantial expenses and, if successful,
could cause us to pay substantial damages. Further, if a third
party were to bring an intellectual property infringement suit
against us, we could be forced to stop or delay development,
manufacturing, or sales of the product that is the subject of
the suit.
As a result of intellectual property infringement claims, or to
avoid potential claims, we may choose to seek, or be required to
seek, a license from the third party and would most likely be
required to pay license fees or
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royalties or both. These licenses may not be available on
acceptable terms, or at all. Ultimately, we could be prevented
from commercializing a product or be forced to cease some aspect
of our business operations if, as a result of actual or
threatened intellectual property infringement claims, we are
unable to enter into licenses on acceptable terms. Even if we
were able to obtain a license, the rights may be nonexclusive,
which would give our competitors access to the same intellectual
property. The inability to enter into licenses could harm our
business significantly.
In addition to infringement claims against us, we may become a
party to other patent or trademark litigation and other
proceedings, including interference proceedings declared by the
United States Patent and Trademark Office (USPTO) proceedings
before the USPTOs Trademark Trial and Appeal Board and
opposition proceedings in the European Patent Office, regarding
intellectual property rights with respect to products purchased
from third-party vendors or our Ulta branded products and
technology. Some of our competitors may be able to sustain the
costs of such litigation or proceedings better than us because
of their substantially greater financial resources.
Uncertainties resulting from the initiation and continuation of
intellectual property litigation or other proceedings could
impair our ability to compete in the marketplace. Intellectual
property litigation and other proceedings may also absorb
significant management time and resources, which could have a
material adverse effect on our business, financial condition and
results of operations.
Increases
in the demand for, or the price of, raw materials used to build
and remodel our stores could hurt our
profitability.
The raw materials used to build and remodel our stores are
subject to availability constraints and price volatility caused
by weather, supply conditions, government regulations, general
economic conditions and other unpredictable factors. As a
retailer engaged in an active building and remodeling program,
we are particularly vulnerable to increases in construction and
remodeling costs. As a result, increases in the demand for, or
the price of, raw materials could hurt our profitability.
Increases
in costs of mailing, paper and printing will affect the cost of
our catalog and promotional mailings, which will reduce our
profitability.
Postal rate increases and paper and printing costs affect the
cost of our catalog and promotional mailings. In response to any
future increases in mailing costs, we may consider reducing the
number and size of certain catalog editions. In addition, we
rely on discounts from the basic postal rate structure, such as
discounts for bulk mailings and sorting by zip code and carrier
routes. We are not a party to any long-term contracts for the
supply of paper. The cost of paper fluctuates significantly, and
our future paper costs are subject to supply and demand forces
that we cannot control. Future additional increases in postal
rates or in paper or printing costs would reduce our
profitability to the extent that we are unable to offset those
increases by raising selling prices or by reducing the number
and size of certain catalog editions.
Our
secured revolving credit facility contains certain restrictive
covenants that could limit our operational flexibility,
including our ability to open stores.
We have a $200 million secured revolving credit facility,
or credit facility, with a term expiring May 2013. Substantially
all of our assets are pledged as collateral for outstanding
borrowings under the agreement. Outstanding borrowings bear
interest at the prime rate or Libor plus 2.00% and the unused
line fee is 0.25%. The credit facility agreement contains usual
and customary restrictive covenants relating to our management
and the operation of our business. These covenants, among other
things, limit our ability to grant liens on our assets, incur
additional indebtedness, pay cash dividends and redeem our
stock, enter into transactions with affiliates and merge or
consolidate with another entity. These covenants could restrict
our operational flexibility and any failure to comply with these
covenants or our payment obligations would limit our ability to
borrow under the credit facility and, in certain circumstances,
may allow the lenders thereunder to require repayment.
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We may
need to raise additional funds to pursue our growth strategy,
and we may be unable to raise capital when needed, which could
have a material adverse effect on our business, financial
condition and results of operations.
From time to time we may seek additional equity or debt
financing to provide for capital expenditures and working
capital consistent with our growth strategy. In addition, if
general economic, financial or political conditions in our
markets change, or if other circumstances arise that have a
material effect on our cash flow, the anticipated cash needs of
our business as well as our belief as to the adequacy of our
available sources of capital could change significantly. Any of
these events or circumstances could result in significant
additional funding needs, requiring us to raise additional
capital to meet those needs. If financing is not available on
satisfactory terms or at all, we may be unable to execute our
growth strategy as planned and our results of operations may
suffer.
Failure
to maintain adequate financial and management processes and
controls could lead to errors in our financial reporting and
could harm our ability to manage our expenses.
Reporting obligations as a public company and our anticipated
growth are likely to place a considerable strain on our
financial and management systems, processes and controls, as
well as on our personnel. In addition, as a public company we
are required to document and test our internal controls over
financial reporting pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002 so that our management can
periodically certify as to the effectiveness of our internal
controls over financial reporting. As a result, we have been
required to improve our financial and managerial controls,
reporting systems and procedures and have incurred and will
continue to incur expenses to test our systems and to make such
improvements. If our management is unable to certify the
effectiveness of our internal controls or if our independent
registered public accounting firm cannot render an opinion on
the effectiveness of our internal control over financial
reporting, or if material weaknesses in our internal controls
are identified, we could be subject to regulatory scrutiny and a
loss of public confidence, which could have a material adverse
effect on our business and our stock price. In addition, if we
do not maintain adequate financial and management personnel,
processes and controls, we may not be able to accurately report
our financial performance on a timely basis, which could cause a
decline in our stock price and adversely affect our ability to
raise capital.
The
market price for our common stock may be volatile, and an
investor may not be able to sell our stock at a favorable price
or at all.
The market price of our common stock is likely to fluctuate
significantly from time to time in response to factors including:
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differences between our actual financial and operating results
and those expected by investors;
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fluctuations in quarterly operating results;
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our performance during peak retail seasons such as the holiday
season;
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market conditions in our industry and the economy as a whole;
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changes in the estimates of our operating performance or changes
in recommendations by any research analysts that follow our
stock or any failure to meet the estimates made by research
analysts;
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investors perceptions of our prospects and the prospects
of the beauty products and salon services industries;
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the performance of our key vendors;
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announcements by us, our vendors or our competitors of
significant acquisitions, divestitures, strategic partnerships,
joint ventures or capital commitments;
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introductions of new products or new pricing policies by us or
by our competitors;
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small trading volumes and small public float;
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stock transactions by our principal stockholders;
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recruitment or departure of key personnel; and
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the level and quality of securities research analyst coverage
for our common stock.
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In addition, public announcements by our competitors, other
retailers and vendors concerning, among other things, their
performance, strategy, or accounting practices could cause the
market price of our common stock to decline regardless of our
actual operating performance.
Our
comparable store sales and quarterly financial performance may
fluctuate for a variety of reasons, which could result in a
decline in the price of our common stock.
Our comparable store sales and quarterly results of operations
have fluctuated in the past, and we expect them to continue to
fluctuate in the future. A variety of other factors affect our
comparable store sales and quarterly financial performance,
including:
|
|
|
|
|
general U.S. economic conditions and, in particular, the
retail sales environment;
|
|
|
|
changes in our merchandising strategy or mix;
|
|
|
|
performance of our new and remodeled stores;
|
|
|
|
the effectiveness of our inventory management;
|
|
|
|
timing and concentration of new store openings, including
additional human resource requirements and related pre-opening
and other
start-up
costs;
|
|
|
|
cannibalization of existing store sales by new store openings;
|
|
|
|
levels of pre-opening expenses associated with new stores;
|
|
|
|
timing and effectiveness of our marketing activities, such as
catalogs and newspaper inserts;
|
|
|
|
seasonal fluctuations due to weather conditions; and
|
|
|
|
actions by our existing or new competitors.
|
Accordingly, our results for any one fiscal quarter are not
necessarily indicative of the results to be expected for any
other quarter, and comparable store sales for any particular
future period may decrease. In that event, the price of our
common stock would likely decline. For more information on our
quarterly results of operations, see Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
Our
current principal stockholder has significant influence over us
and they could delay, deter, or prevent a change of control or
other business combination or otherwise cause us to take action
with which you might not agree.
Our principal stockholder owns or controls, in the aggregate,
approximately 18% of our outstanding common stock. As a result,
this stockholder will be able to exercise significant influence
over all matters requiring stockholder approval, including the
election of directors, amendment of our certificate of
incorporation and approval of significant corporate transactions
and will have significant influence over our management and
policies. Such concentration of voting power could have the
effect of delaying or deterring a change of control or other
business combination that might otherwise be beneficial to our
stockholders. In addition, the significant concentration of
share ownership may adversely affect the trading price of our
common stock because investors often perceive disadvantages in
owning shares in companies with a stockholder holding such
significant influence.
24
Anti-takeover
provisions in our organizational documents, stockholder rights
agreement and Delaware law may discourage or prevent a change in
control, even if a sale of the Company would be beneficial to
our stockholders, which could cause our stock price to decline
and prevent attempts by our stockholders to replace or remove
our current management.
Our amended and restated certificate of incorporation and
by-laws contain provisions that may delay or prevent a change in
control, discourage bids at a premium over the market price of
our common stock and harm the market price of our common stock
and diminish the voting and other rights of the holders of our
common stock. These provisions include:
|
|
|
|
|
dividing our board of directors into three classes serving
staggered three-year terms;
|
|
|
|
authorizing our board of directors to issue preferred stock and
additional shares of our common stock without stockholder
approval;
|
|
|
|
prohibiting stockholder actions by written consent;
|
|
|
|
prohibiting our stockholders from calling a special meeting of
stockholders;
|
|
|
|
prohibiting our stockholders from making certain changes to our
amended and restated certificate of incorporation or amended and
restated bylaws except with a two-thirds majority stockholder
approval; and
|
|
|
|
requiring advance notice for raising business matters or
nominating directors at stockholders meetings.
|
As permitted by our amended and restated certificate of
incorporation and by-laws, we have a stockholder rights
agreement, sometimes known as a poison pill, which
provides for the issuance of a new series of preferred stock to
holders of common stock. In the event of a takeover attempt,
this preferred stock gives rights to holders of common stock
other than the acquirer to buy additional shares of common stock
at a discount, leading to the dilution of the acquirers
stake.
We are also subject to provisions of Delaware law that, in
general, prohibit any business combination with a beneficial
owner of 15% or more of our common stock for three years after
the stockholder becomes a 15% stockholder, subject to specified
exceptions. Together, these provisions of our certificate of
incorporation, by-laws and stockholder rights agreement and of
Delaware law could make the removal of management more difficult
and may discourage transactions that otherwise could involve
payment of a premium over prevailing market prices for our
common stock.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
25
All of our retail stores, corporate offices and distribution and
warehouse facilities are leased or subleased. Our retail stores
are conveniently located in high-traffic, primarily off-mall
locations such as power centers and lifestyle centers with other
destination retailers. Our typical store is approximately
10,000 square feet, including approximately 950 square
feet dedicated to our full-service salon. Most of our retail
store leases provide for a fixed minimum annual rent and have a
fixed term with options for two or three extension periods of
five years each, exercisable at our option. As of
January 29, 2011, we operated 389 retail stores in
40 states, as shown in the table below:
|
|
|
|
|
|
|
Number
|
|
State
|
|
of Stores
|
|
|
Alabama
|
|
|
7
|
|
Arizona
|
|
|
23
|
|
Arkansas
|
|
|
3
|
|
California
|
|
|
33
|
|
Colorado
|
|
|
11
|
|
Connecticut
|
|
|
3
|
|
Delaware
|
|
|
1
|
|
Florida
|
|
|
29
|
|
Georgia
|
|
|
18
|
|
Illinois
|
|
|
34
|
|
Indiana
|
|
|
8
|
|
Iowa
|
|
|
3
|
|
Kansas
|
|
|
1
|
|
Kentucky
|
|
|
3
|
|
Louisiana
|
|
|
3
|
|
Maine
|
|
|
2
|
|
Maryland
|
|
|
6
|
|
Massachusetts
|
|
|
4
|
|
Michigan
|
|
|
11
|
|
Minnesota
|
|
|
9
|
|
Mississippi
|
|
|
3
|
|
Missouri
|
|
|
3
|
|
Nebraska
|
|
|
2
|
|
Nevada
|
|
|
6
|
|
New Jersey
|
|
|
12
|
|
New Mexico
|
|
|
1
|
|
New York
|
|
|
12
|
|
North Carolina
|
|
|
13
|
|
Ohio
|
|
|
11
|
|
Oklahoma
|
|
|
7
|
|
Oregon
|
|
|
3
|
|
Pennsylvania
|
|
|
17
|
|
Rhode Island
|
|
|
1
|
|
South Carolina
|
|
|
6
|
|
Tennessee
|
|
|
5
|
|
Texas
|
|
|
52
|
|
Utah
|
|
|
2
|
|
Virginia
|
|
|
11
|
|
Washington
|
|
|
6
|
|
Wisconsin
|
|
|
4
|
|
|
|
|
|
|
Total
|
|
|
389
|
|
26
As of January 29, 2011, we operated two distribution
facilitates located in Romeoville, Illinois and Phoenix,
Arizona. The Romeoville warehouse contains approximately
317,000 square feet, including an overflow facility. The
lease for the Romeoville warehouse expires on April 30,
2015 and has one renewal option with a term of five years. The
Phoenix warehouse contains approximately 330,000 square
feet. The lease for the Phoenix warehouse expires on
March 31, 2019 and has three renewal options with terms of
five years each.
Our principal executive office is in Bolingbrook, Illinois. The
lease for the Bolingbrook office expires on August 31, 2018.
|
|
Item 3.
|
Legal
Proceedings
|
General litigation In July 2009 a putative
employment class action lawsuit was filed against us and certain
unnamed defendants in state court in California. The suit
alleges that Ulta misclassified its store General Managers and
Salon Managers as exempt from the Fair Labor Standards Act and
California Labor Code. The suit seeks to recover damages and
penalties as a result of this alleged misclassification. On
August 27, 2009, we filed our answer to the lawsuit, and on
August 31, 2009 we moved the action to the United States
District Court for the Northern District of California. On
November 2, 2009, the plaintiffs filed an amended complaint
adding another named plaintiff. On May 26, 2010, the
Company and plaintiffs engaged in a voluntary mediation.
Although we continue to deny plaintiffs allegations, in
the interest of putting the Salon Manager claims behind us, we
agreed in principle to settle all claims of the putative Salon
Manager class. The settlement, which is not an admission of
liability, received Court approval on December 17, 2010 and
payments were disbursed to individual class members in February
2011. Counsel for the plaintiffs has agreed to dismiss without
prejudice the claims of the General Managers. The settlement
amount is not material.
In May 2010, a putative employment class action lawsuit was
filed against us and certain unnamed defendants in state court
in California. The plaintiff and members of the proposed class
are alleged to be (or have been) non-exempt hourly employees.
The suit alleges that Ulta violated various provisions of the
California labor laws and failed to provide plaintiff and
members of the proposed class with full meal periods, paid rest
breaks, certain wages, overtime compensation and premium pay.
The suit seeks to recover damages and penalties as a result of
these alleged practices. On June 21, 2010, we filed our
answer to the lawsuit. On January 12, 2011, the Company and
plaintiffs engaged in a voluntary mediation. Although we
continue to deny plaintiffs allegations, in the interest
of putting certain of the claims behind us, we agreed in
principle to settle all claims of the putative class consisting
of non-exempt hourly hair designers in the salon department
within the California retail stores. The settlement, which is
not an admission of liability, is subject to final documentation
and Court approval. Counsel for the plaintiffs has agreed to
dismiss without prejudice the claims of all other putative class
members. The proposed settlement amount is not material.
We are also involved in various legal proceedings that are
incidental to the conduct of our business. In the opinion of
management, the amount of any liability with respect to these
proceedings, either individually or in the aggregate, will not
be material.
|
|
Item 4.
|
[Removed
and Reserved]
|
EXECUTIVE
OFFICERS OF THE REGISTRANT
The names of our executive officers, their ages and their
positions are shown below:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Carl S. Rubin
|
|
|
51
|
|
|
President, Chief Executive Officer and Director
|
Gregg R. Bodnar
|
|
|
46
|
|
|
Chief Financial Officer and Assistant Secretary
|
Robert S. Guttman
|
|
|
58
|
|
|
Senior Vice President, General Counsel & Secretary
|
There is no family relationship between any of the Directors or
executive officers and any other Director or executive officer
of Ulta.
Carl S. Rubin. Mr. Rubin has been our
Chief Executive Officer since September 2010 and President and
Director since May 2010. Prior to joining Ulta, Mr. Rubin
was President of the North American Retail
27
division of Office Depot Inc. from January 2006 to April 2010.
Mr. Rubin first joined Office Depot as Executive Vice
President, Chief Marketing Officer and Chief Merchandising
Officer in 2004. From 1998 to 2004, Mr. Rubin served at
Accenture, including three years as a partner, working with a
range of retail clients across department store, specialty store
and
e-commerce
venues. Prior to 1998, Mr. Rubin held a number of senior
merchandising and general management positions in the specialty
retail and department store industry including Federated
Department Stores. Mr. Rubin was a member of the executive
committee of the board of directors of the National Retail
Federation from January 2007 through March 2010.
Gregg R. Bodnar. Mr. Bodnar has been our
Chief Financial Officer and Assistant Secretary since October
2006. Prior to joining Ulta, Mr. Bodnar was Senior Vice
President and Chief Financial Officer of Borders International
(a subsidiary of Borders Group, Inc.) from January 2003 to June
2006. From 1996 to 2003, Mr. Bodnar served in various
positions of increasing responsibility within the finance
department of Borders Group, Inc., and from 1993 to 1996, served
as Vice President, Finance and Chief Financial Officer of Rao
Group Inc. Mr. Bodnar was an auditor and certified public
accountant at the public accounting firm of Coopers &
Lybrand from 1988 to 1993.
Robert S. Guttman. Mr. Guttman has been
our Senior Vice President, General Counsel & Secretary
since August 2007. Prior to joining Ulta, Mr. Guttman was
Vice President, General Counsel and Secretary of The Reynolds
and Reynolds Company from August 2005 to October 2006. From 2000
to 2005, Mr. Guttman served as Senior Vice President,
General Counsel and Secretary of CCC Information Services, Inc.
Prior to that time, Mr. Guttman was an Associate General
Counsel with Sears, Roebuck and Co., having served in various
positions as a lawyer with Sears from 1986 to 2000.
Part II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information
Our common stock has traded on the NASDAQ Global Select Market
under the symbol Ulta since October 25, 2007.
Our initial public offering was priced at $18.00 per share. The
following table sets forth the high and low sales prices for our
common stock on the NASDAQ Global Select Market during fiscal
years 2010 and 2009:
|
|
|
|
|
|
|
|
|
Fiscal Year 2010
|
|
High
|
|
|
Low
|
|
|
First quarter
|
|
$
|
25.36
|
|
|
$
|
17.29
|
|
Second quarter
|
|
|
26.18
|
|
|
|
21.24
|
|
Third quarter
|
|
|
32.33
|
|
|
|
22.18
|
|
Fourth quarter
|
|
|
37.85
|
|
|
|
30.41
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2009
|
|
High
|
|
|
Low
|
|
|
First quarter
|
|
$
|
8.75
|
|
|
$
|
4.29
|
|
Second quarter
|
|
|
11.56
|
|
|
|
8.36
|
|
Third quarter
|
|
|
17.44
|
|
|
|
10.25
|
|
Fourth quarter
|
|
|
21.61
|
|
|
|
15.14
|
|
Holders
of the Registrants Common Stock
The last reported sale price of our common stock on the NASDAQ
Global Select Market on March 24, 2011 was $47.84 per
share. As of March 24, 2011, we had 141 holders of record
of our common stock. Because many shares of common stock are
held by brokers and other institutions on behalf of
stockholders, we are unable to estimate the total number of
stockholders represented by these record holders.
28
Dividends
No cash dividends have been declared on our common stock to date
nor have any decisions been made to pay a dividend in the
foreseeable future. We evaluate our dividend policy on a
periodic basis. Any dividend we might declare in the future
would be subject to the applicable provisions of our credit
agreement, which currently limits our ability to pay cash
dividends.
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
None.
Sales of
Unregistered Securities
None.
Securities
Authorized for Issuance Under Equity Compensation
Plans
The following table provides information about Ulta common stock
that may be issued under our equity compensation plans as of
January 29, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
Number of Securities
|
|
|
|
to be Issued Upon
|
|
|
Weighted-Average
|
|
|
Remaining Available
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
for Future Issuance
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Under Equity
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Compensation Plans
|
|
|
Equity compensation plans approved by security holders
|
|
|
5,035,871
|
|
|
$
|
16.55
|
|
|
|
712,730
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,035,871
|
|
|
$
|
16.55
|
|
|
|
712,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Stock
Performance Graph
The following performance graph and related information shall
not be deemed soliciting material or to be
filed with the SEC, nor shall such information be
incorporated by reference into any future filing under the
Securities Act of 1933 or Securities Exchange Act of 1934, each
as amended, except to the extent that we specifically
incorporate it by reference into such filing.
Set forth below is a graph comparing the cumulative total
stockholder return on Ultas common stock with the NASDAQ
Global Select Market Composite Index (NQGS) and the S&P
Retail Index (RLX) for the period covering Ultas first
trading day on October 25, 2007 through the end of
Ultas fiscal year ended January 29, 2011. The graph
assumes an investment of $100 made at the closing of trading on
October 25, 2007, in (i) Ultas common stock,
(ii) the stocks comprising the NQGS, and (iii) stocks
comprising the RLX. All values assume reinvestment of the full
amount of all dividends, if any, into additional shares of the
same class of equity securities at the frequency with which
dividends are paid on such securities during the applicable time
period.
30
|
|
Item 6.
|
Selected
Financial Data
|
The following table presents our selected financial data. The
table should be read in conjunction with Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and Item 8,
Financial Statements and Supplementary Data, of this
Annual Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended(1)
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share and per square foot data)
|
|
|
Income statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales(2)
|
|
$
|
1,454,838
|
|
|
$
|
1,222,771
|
|
|
$
|
1,084,646
|
|
|
$
|
912,141
|
|
|
$
|
755,113
|
|
Cost of sales(3)
|
|
|
970,753
|
|
|
|
846,202
|
|
|
|
752,939
|
|
|
|
628,495
|
|
|
|
519,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
484,085
|
|
|
|
376,569
|
|
|
|
331,707
|
|
|
|
283,646
|
|
|
|
235,184
|
|
Selling, general and administrative
expenses(3)
|
|
|
358,106
|
|
|
|
302,413
|
|
|
|
271,095
|
|
|
|
225,167
|
|
|
|
188,000
|
|
Pre-opening expenses
|
|
|
7,095
|
|
|
|
6,003
|
|
|
|
14,311
|
|
|
|
11,758
|
|
|
|
7,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
118,884
|
|
|
|
68,153
|
|
|
|
46,301
|
|
|
|
46,721
|
|
|
|
40,088
|
|
Interest expense
|
|
|
755
|
|
|
|
2,202
|
|
|
|
3,943
|
|
|
|
4,542
|
|
|
|
3,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
118,129
|
|
|
|
65,951
|
|
|
|
42,358
|
|
|
|
42,179
|
|
|
|
36,774
|
|
Income tax expense
|
|
|
47,099
|
|
|
|
26,595
|
|
|
|
17,090
|
|
|
|
16,844
|
|
|
|
14,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
71,030
|
|
|
$
|
39,356
|
|
|
$
|
25,268
|
|
|
$
|
25,335
|
|
|
$
|
22,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.20
|
|
|
$
|
0.68
|
|
|
$
|
0.44
|
|
|
$
|
0.69
|
|
|
$
|
1.38
|
|
Diluted
|
|
$
|
1.16
|
|
|
$
|
0.66
|
|
|
$
|
0.43
|
|
|
$
|
0.48
|
|
|
$
|
0.45
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
58,959
|
|
|
|
57,915
|
|
|
|
57,425
|
|
|
|
20,383
|
|
|
|
5,771
|
|
Diluted
|
|
|
61,288
|
|
|
|
59,237
|
|
|
|
58,967
|
|
|
|
53,293
|
|
|
|
49,921
|
|
Other operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable store sales increase(4)
|
|
|
11.0
|
%
|
|
|
1.4
|
%
|
|
|
0.2
|
%
|
|
|
6.4
|
%
|
|
|
14.5
|
%
|
Number of stores end of year
|
|
|
389
|
|
|
|
346
|
|
|
|
311
|
|
|
|
249
|
|
|
|
196
|
|
Total square footage end of year
|
|
|
4,094,808
|
|
|
|
3,613,840
|
|
|
|
3,240,579
|
|
|
|
2,589,244
|
|
|
|
2,023,305
|
|
Total square footage per store(5)
|
|
|
10,526
|
|
|
|
10,445
|
|
|
|
10,420
|
|
|
|
10,399
|
|
|
|
10,323
|
|
Average total square footage(6)
|
|
|
3,811,597
|
|
|
|
3,459,628
|
|
|
|
2,960,355
|
|
|
|
2,283,935
|
|
|
|
1,857,885
|
|
Net sales per average total square foot(7)
|
|
$
|
382
|
|
|
$
|
353
|
|
|
$
|
366
|
|
|
$
|
399
|
|
|
$
|
398
|
|
Capital expenditures
|
|
|
97,115
|
|
|
|
68,105
|
|
|
|
110,863
|
|
|
|
101,866
|
|
|
|
62,331
|
|
Depreciation and amortization
|
|
|
64,936
|
|
|
|
62,166
|
|
|
|
51,445
|
|
|
|
39,503
|
|
|
|
29,736
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
111,185
|
|
|
$
|
4,017
|
|
|
$
|
3,638
|
|
|
$
|
3,789
|
|
|
$
|
3,645
|
|
Working capital
|
|
|
241,032
|
|
|
|
136,417
|
|
|
|
159,695
|
|
|
|
117,039
|
|
|
|
88,105
|
|
Property and equipment, net
|
|
|
326,099
|
|
|
|
290,861
|
|
|
|
292,224
|
|
|
|
236,389
|
|
|
|
162,080
|
|
Total assets
|
|
|
730,488
|
|
|
|
553,635
|
|
|
|
568,932
|
|
|
|
469,413
|
|
|
|
338,597
|
|
Total debt(8)
|
|
|
|
|
|
|
|
|
|
|
106,047
|
|
|
|
74,770
|
|
|
|
55,529
|
|
Total stockholders equity
|
|
|
402,533
|
|
|
|
292,608
|
|
|
|
244,968
|
|
|
|
211,503
|
|
|
|
148,760
|
|
31
|
|
|
(1) |
|
Our fiscal year-end is the Saturday closest to January 31 based
on a 52/53-week year. Each fiscal year consists of four 13-week
quarters, with an extra week added onto the fourth quarter every
five or six years. |
|
(2) |
|
Fiscal 2006 was a 53-week operating year and the 53rd week
represented approximately $16.4 million in net sales. |
|
(3) |
|
The Company made reclassifications in the consolidated income
statements for the fiscal years ended January 30, 2010
(fiscal 2009) and January 31, 2009 (fiscal
2008) to decrease cost of sales and increase selling,
general and administrative expenses by $3,520 and $3,773,
respectively, to conform to the fiscal 2010 presentation.
Amounts were insignificant for fiscal 2007 and 2006. |
|
(4) |
|
Comparable store sales increase reflects sales for stores
beginning on the first day of the 14th month of operation.
Remodeled stores are included in comparable store sales unless
the store was closed for a portion of the current or comparable
prior year. |
|
(5) |
|
Total square footage per store is calculated by dividing total
square footage at end of year by number of stores at end of year. |
|
(6) |
|
Average total square footage represents a weighted average which
reflects the effect of opening stores in different months
throughout the year. |
|
(7) |
|
Net sales per average total square foot was calculated by
dividing net sales for the year by the average square footage
for those stores open during each year. Fiscal 2006 net
sales per average total square foot were adjusted to exclude the
net sales effect of the 53rd week. |
|
(8) |
|
Total debt includes approximately $4.8 million related to
the Series III preferred stock, which is presented between
the liabilities section and the equity section of our balance
sheet for all years prior to February 2, 2008. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion and analysis of our financial
condition and results of operations should be read in
conjunction with our financial statements and related notes
included elsewhere in this Annual Report on
Form 10-K.
This discussion contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of
1934 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, or other comparable words. Any
forward-looking statements contained in this
Form 10-K
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 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; changes in the wholesale cost of our
products; the possibility that we may be unable to compete
effectively in our highly competitive markets; 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 that new store openings
and existing locations may be impacted by developer or co-tenant
issues; the possibility that the capacity of our distribution
and order fulfillment infrastructure may not be adequate to
support our recent growth and expected future growth plans; the
possibility of material disruptions to our information systems;
weather conditions that could negatively impact sales; and other
risk factors detailed in our public filings with the Securities
and Exchange Commission (the SEC), including risk
factors contained in Item 1A, Risk Factors of
this Annual Report on
Form 10-K
for the year ended January 29, 2011. We assume no
obligation to update any forward-looking statements as a result
of new information, future events or developments. References in
the following discussion to we, us,
our, the Company, Ulta and
similar references mean Ulta Salon, Cosmetics &
Fragrance, Inc. unless otherwise expressly stated or the context
otherwise requires.
32
Overview
We were founded in 1990 as a discount beauty retailer at a time
when prestige, mass and salon products were sold through
separate distribution channels. After extensive research, we
recognized an opportunity to better satisfy how a woman wanted
to shop for beauty products, which led to what we believe to be
our unique combination of beauty superstore and specialty store
attributes. We believe our strategy provides us with the
competitive advantages that have contributed to our strong
financial performance.
We are currently the largest beauty retailer that provides
one-stop shopping for prestige, mass and salon products and
salon services in the United States. We combine the unique
elements of a beauty superstore with the distinctive environment
and experience of a specialty retailer. Key aspects of our
beauty superstore strategy include our ability to offer our
customers a broad selection of over 21,000 beauty products
across the categories of cosmetics, fragrance, haircare,
skincare, bath and body products and salon styling tools, as
well as salon haircare products. We focus on delivering a
compelling value proposition to our customers across all of our
product categories. Our stores are conveniently located in
high-traffic, primarily off-mall locations such as power centers
and lifestyle centers with other destination retailers.
The continued growth of our business and any future increases in
net sales, net income and cash flows is dependent on our ability
to execute our growth strategy, including growing our store
base, expanding our product, brand and service offerings,
enhancing our loyalty program, broadening our marketing
channels, expanding our
e-commerce
business and improving our profitability by leveraging our fixed
costs. We believe that the steadily expanding U.S. beauty
products and services industry, the shift in distribution of
prestige beauty products from department stores to specialty
retail stores, coupled with Ultas competitive strengths,
positions us to capture additional market share in the industry
through successful execution of our growth strategy.
Comparable store sales is a key metric that is monitored closely
within the retail industry. Our comparable store sales have
fluctuated in the past and we expect them to continue to
fluctuate in the future. A variety of factors affect our
comparable store sales, including general U.S. economic
conditions, changes in merchandise strategy or mix, and timing
and effectiveness of our marketing activities, among others. We
do not expect our 11.0% fiscal 2010 comparable store sales
increase to continue into the future. Our long-term annual
comparable store sales increase target is 3% to 5%.
Over the long-term, our growth strategy is to increase total net
sales through increases in our comparable store sales and by
opening new stores. Gross profit as a percentage of net sales is
expected to increase as a result of our ability to expand
merchandise margin and leverage our supply chain infrastructure
and fixed store costs with comparable store sales increases and
operating efficiencies. We plan to continue to improve our
operating results by leveraging our fixed costs and decreasing
our selling, general and administrative expenses, as a
percentage of our net sales.
Global
economic conditions
The global economic crisis and resulting volatility and
disruption to the capital and credit markets have had a
significant, adverse impact on global economic conditions,
resulting in recessionary pressures and declines in consumer
confidence and economic growth. While economic conditions have
begun to show signs of improvement, the recovery has proceeded
at a sluggish rate and the retail environment has remained weak.
As a result of market conditions, the cost and availability of
credit has been and may continue to be adversely affected by
decreased liquidity in credit markets and wider credit spreads.
Concern about the stability of the markets generally and the
strength of counterparties specifically has led many lenders and
institutional investors to reduce, and in some cases, cease to
provide credit to businesses and consumers. While global credit
and financial markets appear to be recovering from the extreme
disruptions experienced over the past few years, uncertainty
about continuing economic stability remains. These factors have
led to a decrease in spending by businesses and consumers alike,
and a corresponding decrease in global infrastructure spending.
Continued turbulence in the United States and international
markets and economies and declines in business and consumer
spending may adversely affect our liquidity and financial
condition, and the liquidity and
33
financial condition of our customers, including our ability to
refinance maturing liabilities and access the capital markets to
meet liquidity needs.
Current
business trends
Our comparable store sales for first, second, third and fourth
quarters of fiscal 2009 were -2.3%, -1.7%, 1.5% and 6.2%,
respectively. Comparable store sales for the first, second,
third and fourth quarters of fiscal 2010 were 10.8%, 10.8%,
12.2% and 10.4%, respectively. Fiscal 2010 two year comparable
store sales for the respective quarters were 8.5%, 9.1%, 13.7%,
and 16.6%, respectively. We believe the improvement in our
comparable store sales trends is due to a combination of factors
including effective marketing and merchandising programs as well
as improved consumer sentiment and shopping patterns due to a
general improvement in U.S. economic conditions compared to
fiscal 2009 and 2008.
We do not expect the low double digit comparable store increases
of fiscal 2010 to continue into the future. Our long-term annual
net income growth target of 25% to 30% is based on comparable
store sales increases of 3% to 5%.
Basis of
presentation
The Company has determined its operating segments on the same
basis that it uses to internally evaluate performance. We have
combined our three operating segments: retail stores, salon
services and
e-commerce,
into one reportable segment because they have a similar class of
consumer, economic characteristics, nature of products and
distribution methods.
Net sales include store and
e-commerce
merchandise sales as well as salon service revenue. We recognize
merchandise revenue at the point of sale (POS) in our retail
stores and the time of shipment in the case of Internet sales.
Merchandise sales are recorded net of estimated returns. Salon
service revenue is recognized at the time the service is
provided. Gift card sales revenue is deferred until the customer
redeems the gift card. Company coupons and other incentives are
recorded as a reduction of net sales.
Comparable store sales reflect sales for stores beginning on the
first day of the 14th month of operation. Therefore, a
store is included in our comparable store base on the first day
of the period after one year of operations plus the initial one
month grand opening period. Non-comparable store sales include
sales from new stores that have not yet completed their
13th month of operation and stores that were closed for
part or all of the period in either year as a result of remodel
activity. Remodeled stores are included in comparable store
sales unless the store was closed for a portion of the current
or prior period.
E-commerce
merchandise sales are excluded from comparable store sales.
There may be variations in the way in which some of our
competitors and other retailers calculate comparable or same
store sales. As a result, data herein regarding our comparable
store sales may not be comparable to similar data made available
by our competitors or other retailers.
Comparable store sales is a critical measure that allows us to
evaluate the performance of our store base as well as several
other aspects of our overall strategy. Several factors could
positively or negatively impact our comparable store sales
results:
|
|
|
|
|
the general national, regional and local economic conditions and
corresponding impact on customer spending levels;
|
|
|
|
the introduction of new products or brands;
|
|
|
|
the location of new stores in existing store markets;
|
|
|
|
competition;
|
|
|
|
our ability to respond on a timely basis to changes in consumer
preferences;
|
|
|
|
the effectiveness of our various marketing activities; and
|
|
|
|
the number of new stores opened and the impact on the average
age of all of our comparable stores.
|
34
Cost of sales includes:
|
|
|
|
|
the cost of merchandise sold, including all vendor allowances,
which are treated as a reduction of merchandise costs;
|
|
|
|
warehousing and distribution costs including labor and related
benefits, freight, rent, depreciation and amortization, real
estate taxes, utilities, and insurance;
|
|
|
|
store occupancy costs including rent, depreciation and
amortization, real estate taxes, utilities, repairs and
maintenance, insurance, licenses, and cleaning expenses;
|
|
|
|
salon payroll and benefits;
|
|
|
|
customer loyalty program expense; and
|
|
|
|
shrink and inventory valuation reserves.
|
Our cost of sales may be negatively impacted as we open an
increasing number of stores. Changes in our merchandise mix may
also have an impact on cost of sales. This presentation of items
included in cost of sales may not be comparable to the way in
which our competitors or other retailers compute their cost of
sales.
Selling, general and administrative expenses include:
|
|
|
|
|
payroll, bonus and benefit costs for retail and corporate
employees;
|
|
|
|
advertising and marketing costs;
|
|
|
|
occupancy costs related to our corporate office facilities;
|
|
|
|
stock-based compensation expense;
|
|
|
|
depreciation and amortization for all assets except those
related to our retail and warehouse operations, which is
included in cost of sales; and
|
|
|
|
legal, finance, information systems and other corporate overhead
costs.
|
This presentation of items in selling, general and
administrative expenses may not be comparable to the way in
which our competitors or other retailers compute their selling,
general and administrative expenses.
Pre-opening expense includes non-capital expenditures during the
period prior to store opening for new, remodeled and relocated
stores including rent during the construction period for new and
relocated stores, store
set-up
labor, management and employee training, and grand opening
advertising.
Interest expense includes interest costs and unused facility
fees associated with our credit facility, which is structured as
an asset based lending instrument. Our interest expense will
fluctuate based on the seasonal borrowing requirements
associated with acquiring inventory in advance of key holiday
selling periods and fluctuation in the variable interest rates
we are charged on outstanding balances. Our credit facility is
used to fund seasonal inventory needs and new and remodel store
capital requirements in excess of our cash flow from operations.
Our credit facility interest is based on a variable interest
rate structure which can result in increased cost in periods of
rising interest rates.
Income tax expense reflects the federal statutory tax rate and
the weighted average state statutory tax rate for the states in
which we operate stores.
Results
of operations
Our fiscal years are the 52 or 53 week periods ending on
the Saturday closest to January 31. The Companys
fiscal years ended January 29, 2011, January 30, 2010
and January 31, 2009 were 52 week years and are
hereafter referred to as fiscal 2010, fiscal 2009 and fiscal
2008.
35
As of January 29, 2011, we operated 389 stores across
40 states. The following tables present the components of
our results of operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except number of stores)
|
|
|
Net sales
|
|
$
|
1,454,838
|
|
|
$
|
1,222,771
|
|
|
$
|
1,084,646
|
|
Cost of sales(1)
|
|
|
970,753
|
|
|
|
846,202
|
|
|
|
752,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
484,085
|
|
|
|
376,569
|
|
|
|
331,707
|
|
Selling, general and administrative expenses(1)
|
|
|
358,106
|
|
|
|
302,413
|
|
|
|
271,095
|
|
Pre-opening expenses
|
|
|
7,095
|
|
|
|
6,003
|
|
|
|
14,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
118,884
|
|
|
|
68,153
|
|
|
|
46,301
|
|
Interest expense
|
|
|
755
|
|
|
|
2,202
|
|
|
|
3,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
118,129
|
|
|
|
65,951
|
|
|
|
42,358
|
|
Income tax expense
|
|
|
47,099
|
|
|
|
26,595
|
|
|
|
17,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
71,030
|
|
|
$
|
39,356
|
|
|
$
|
25,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of stores end of period
|
|
|
389
|
|
|
|
346
|
|
|
|
311
|
|
Comparable store sales increase
|
|
|
11.0
|
%
|
|
|
1.4
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
(Percentage of Net Sales)
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
66.7
|
%
|
|
|
69.2
|
%
|
|
|
69.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
33.3
|
%
|
|
|
30.8
|
%
|
|
|
30.6
|
%
|
Selling, general and adminstrative expenses
|
|
|
24.6
|
%
|
|
|
24.7
|
%
|
|
|
25.0
|
%
|
Pre-opening expenses
|
|
|
0.5
|
%
|
|
|
0.5
|
%
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
8.2
|
%
|
|
|
5.6
|
%
|
|
|
4.3
|
%
|
Interest expense
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
8.1
|
%
|
|
|
5.4
|
%
|
|
|
3.9
|
%
|
Income tax expense
|
|
|
3.2
|
%
|
|
|
2.2
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
4.9
|
%
|
|
|
3.2
|
%
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company made reclassifications in the consolidated income
statements for the fiscal years ended January 30, 2010
(fiscal 2009) and January 31, 2009 (fiscal
2008) to decrease cost of sales and increase selling,
general and administrative expenses by $3,520 and $3,773,
respectively, to conform to the fiscal 2010 presentation. |
Fiscal
year 2010 versus fiscal year 2009
Net
sales
Net sales increased $232.0 million, or 19.0%, to
$1,454.8 million in fiscal 2010 compared to
$1,222.8 million in fiscal 2009. Salon service sales
increased $9.8 million, or 12.8%, to $86.4 million
compared to $76.6 million in fiscal 2009. The sales
increases are due to the opening of 43 net new stores in
2010 and a 11.0% increase in comparable store sales which was
primarily due to a 8.6% increase in store traffic.
Non-comparable stores, which include stores opened in fiscal
2010 as well as stores opened in fiscal 2009 which
36
have not yet turned comparable, contributed $102.3 million
of the net sales increase while comparable stores contributed
$129.7 million of the total net sales increase. We believe
the improvement in our comparable store sales trends is due to a
combination of factors including effective marketing and
merchandise programs and the relatively lower comparable store
sales level in the prior year. We also believe that overall
consumer sentiment and shopping patterns improved in 2010 when
compared to 2009 which may have contributed to our improving
trends.
Gross
profit
Gross profit increased $107.5 million, or 28.6%, to
$484.1 million in fiscal 2010, compared to
$376.6 million, in fiscal 2009. Gross profit as a
percentage of net sales increased 250 basis points to 33.3%
in fiscal 2010 compared to 30.8% in fiscal 2009. Gross profit in
fiscal 2010 was impacted by:
|
|
|
|
|
120 basis points of leverage in fixed store costs
attributed to the impact of significantly higher sales levels in
fiscal 2010;
|
|
|
|
80 basis points improvement in merchandise margin due to
improved promotional pricing and a shift in category mix towards
higher margin product compared with fiscal 2009; and
|
|
|
|
20 basis points of supply chain efficiencies on product
handling automation, engineering efforts and higher sales volume.
|
Selling,
general and administrative expenses
Selling, general and administrative (SG&A) expenses
increased $55.7 million, or 18.4%, to $358.1 million
in fiscal 2010 compared to $302.4 million in fiscal 2009.
As a percentage of net sales, SG&A expenses decreased
10 basis points to 24.6% in fiscal 2010 compared to 24.7%
in fiscal 2009. SG&A expense as a percentage of sales was
primarily impacted by:
|
|
|
|
|
40 basis points improvement in marketing expense leverage
attributed to costs efficiencies and higher sales volume; offset
by
|
|
|
|
30 basis points deleverage due to the non-recurring
executive compensation charge related to our newly appointed
President and Chief Executive Officer.
|
Pre-opening
expenses
Pre-opening expenses increased $1.1 million, or 18.2%, to
$7.1 million in fiscal 2010 compared to $6.0 million
in fiscal 2009. During fiscal 2010, we opened 47 new stores,
remodeled 13 stores and relocated 5 stores. During fiscal
2009, we opened 37 new stores and remodeled 6 stores.
Interest
expense
Interest expense decreased $1.4 million, or 65.7%, to
$0.8 million in fiscal 2010 compared to $2.2 million
in fiscal 2009. Fiscal 2010 interest expense represents fees
associated with the credit facility. We did not utilize the
credit facility in fiscal 2010.
Income
tax expense
Income tax expense of $47.1 million in fiscal 2010
represents an effective tax rate of 39.9%, compared to fiscal
2009 tax expense of $26.6 million and an effective tax rate
of 40.3%. The decrease in the effective tax rate in fiscal 2010
is primarily attributed to the large number of stock option
exercises and share sales deemed to be disqualifying
dispositions.
37
Net
income
Net income increased $31.6 million, or 80.5%, to
$71.0 million in fiscal 2010 compared to $39.4 million
in fiscal 2009. The increase in net income was primarily due to
an increase in gross profit of $107.5 million, which was
offset by a $55.7 million increase in SG&A expenses
and a $20.5 million increase in income tax expense.
Fiscal
year 2009 versus fiscal year 2008
Net
sales
Net sales increased $138.2 million, or 12.7%, to
$1,222.8 million in fiscal 2009 compared to
$1,084.6 million in fiscal 2008. Salon service sales
increased $1.6 million, or 2.1%, to $76.6 million
compared to $75.0 million in fiscal 2008. The sales
increases are due to the opening of 35 net new stores in
2009 and a 1.4% increase in comparable store sales which was
primarily due to a 3.6% increase in store traffic.
Non-comparable stores, which include stores opened in fiscal
2009 as well as stores opened in fiscal 2008 which have not yet
turned comparable, contributed $123.3 million of the net
sales increase while comparable stores contributed
$14.9 million of the total net sales increase. Fiscal 2009
comparable store sales were positively affected by the 6.2%
increase in comparable store sales in the fourth quarter. We
believe the improvement in our comparable store sales trends is
due to a combination of factors including our ability to better
plan our marketing and merchandise programs for the challenging
environment and the relatively lower comparable in the prior
year fourth quarter period. We also believe that overall
consumer sentiment and shopping patterns improved somewhat in
the second half of 2009 which may have contributed to our
improving trends when compared to 2008.
Gross
profit
Gross profit increased $44.9 million, or 13.5%, to
$376.6 million in fiscal 2009, compared to
$331.7 million, in fiscal 2008. Gross profit as a
percentage of net sales increased 20 basis points to 30.8%
in fiscal 2009 compared to 30.6% in fiscal 2008. Gross profit in
fiscal 2009 was impacted by:
|
|
|
|
|
70 basis points improvement due to supply chain
efficiencies including labor and freight; offset by
|
|
|
|
40 basis points of deleverage of fixed store costs due to
the impacts of our new store program; the level of fixed store
costs deleverage improved during the course of fiscal 2009 as
the rate of square footage growth slowed consistent with the
decrease in our fiscal 2009 new store program as compared to
fiscal 2008 and 2007.
|
Selling,
general and administrative expenses
SG&A expenses increased $31.3 million, or 11.6%, to
$302.4 million in fiscal 2009 compared to
$271.1 million in fiscal 2008. As a percentage of net
sales, SG&A expenses decreased 30 basis points to
24.7% in fiscal 2009 compared to 25.0% in fiscal 2008. SG&A
expense as a percentage of sales was primarily impacted by:
|
|
|
|
|
40 basis points improvement in variable store expense
leverage attributed to cost management strategies;
|
|
|
|
20 basis points improvement in marketing expense leverage
attributed to improved cost efficiencies while total number of
marketing impressions were maintained at historical levels;
offset by
|
|
|
|
40 basis points deleverage of general corporate overhead
which is attributed to a 90 basis point, or
$11.6 million, increase in incentive compensation compared
to the prior year.
|
Pre-opening
expenses
Pre-opening expenses decreased $8.3 million, or 58.1%, to
$6.0 million in fiscal 2009 compared to $14.3 million
in fiscal 2008. During fiscal 2009, we opened 37 new stores and
remodeled 6 stores. During fiscal 2008, we opened 63 new stores
and remodeled 8 stores.
38
Interest
expense
Interest expense decreased $1.7 million, or 44.2%, to
$2.2 million in fiscal 2009 compared to $3.9 million
in fiscal 2008 primarily due to a $45 million decrease in
the weighted-average debt outstanding on our variable rate
credit facility during fiscal 2009.
Income
tax expense
Income tax expense of $26.6 million in fiscal 2009
represents an effective tax rate of 40.3%, compared to fiscal
2008 tax expense of $17.1 million which represents an
effective tax rate of 40.3%.
Net
income
Net income increased $14.1 million, or 55.8%, to
$39.4 million in fiscal 2009 compared to $25.3 million
in fiscal 2008. The increase in net income was primarily due to
an increase in gross profit of $45.1 million and a
$8.3 million decrease in pre-opening expenses, which were
offset by a $31.6 million increase in selling, general and
administrative expenses and a $9.5 million increase in
income tax expense.
Liquidity
and capital resources
Our primary cash needs are for capital expenditures for new,
relocated and remodeled stores, increased merchandise
inventories related to store expansion, and for continued
improvement in our information technology systems.
Our primary sources of liquidity are cash flows from operations,
including changes in working capital, and borrowings under our
credit facility. The most significant component of our working
capital is merchandise inventories reduced by related accounts
payable and accrued expenses. Our working capital position
benefits from the fact that we generally collect cash from sales
to customers the same day, or within several days of the related
sale, while we typically have up to 30 days to pay our
vendors.
Our working capital needs are greatest from August through
November each year as a result of our inventory
build-up
during this period for the approaching holiday season. This is
also the time of year when we are at maximum investment levels
in our new store class and may not have collected all of the
landlord allowances due to us as part of our lease agreements.
Based on past performance and current expectations, we believe
that cash generated from operations and borrowings under the
credit facility will satisfy the Companys working capital
needs, capital expenditure needs, commitments, and other
liquidity requirements through at least the next 12 months.
The following table presents a summary of our cash flows for
fiscal years 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
176,543
|
|
|
$
|
172,827
|
|
|
$
|
75,203
|
|
Net cash used in investing activities
|
|
|
(97,115
|
)
|
|
|
(68,105
|
)
|
|
|
(110,863
|
)
|
Net cash provided by (used in) financing activities
|
|
|
27,740
|
|
|
|
(104,343
|
)
|
|
|
35,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
107,168
|
|
|
$
|
379
|
|
|
$
|
(151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
Operating activities consist of net income adjusted for certain
non-cash items, including depreciation and amortization,
non-cash stock-based compensation, realized gains or losses on
disposal of property and equipment, and the effect of working
capital changes.
Merchandise inventories were $218.5 million at
January 29, 2011, compared to $206.9 million at
January 30, 2010, representing an increase of
$11.6 million. The increase is due to the addition of
43 net new stores opened since January 30, 2010,
offset by a 6.1% decrease in average inventory per store driven
by management initiatives focused on leveraging store and supply
chain inventories. The reduction in inventories in fiscal 2010
did not affect our store in-stock levels or the customer
experience.
39
Income taxes were prepaid by $10.7 million at
January 29, 2011, compared to an accrual of
$10.8 million at January 30, 2010. The change in our
year end tax position is primarily due to the combination of
2010 changes in Federal tax regulations which allowed
accelerated or bonus depreciation of fixed assets and a large
number of stock option exercises and share sales deemed to be
disqualifying dispositions. The estimate related to bonus
depreciation and the tax benefit related to stock option
exercises were finalized during the fourth quarter fiscal 2010
and resulted in Federal income tax deductions which were
significantly in excess of our year to-date estimated tax
payments. We expect to apply the fiscal 2010 overpayments to our
fiscal 2011 Federal income tax liabilities.
Accounts payable were $87.1 million at January 29,
2011, compared to $56.4 million at January 30, 2010,
an increase of $30.7 million. The increase is attributed to
a combination of a higher level of inventory purchases late in
the fourth quarter of fiscal 2010 compared to the prior year on
significantly higher comparable store sales trends, and changes
in vendor payment terms.
Deferred rent liabilities were $134.6 million at
January 29, 2011, an increase of $20.9 million
compared to the prior year end. Deferred rent includes deferred
construction allowances, future rental increases and rent
holidays which are all recognized on a straight-line basis over
their respective lease term. The increase is due to fiscal 2010
activity which includes 43 net new stores.
Investing
activities
We have historically used cash primarily for new and remodeled
stores as well as investments in information technology systems.
Investment activities primarily related to capital expenditures
were $97.1 million in fiscal 2010, compared to
$68.1 million and $110.9 million in fiscal 2009 and
2008, respectively. Capital expenditures increased in fiscal
2010 compared to fiscal 2009 due to the increase in our 2010 new
store program. During fiscal 2010 we opened 47 new stores,
remodeled 13 stores and relocated 5 stores, compared to 37 new
stores, 6 remodels and 1 relocation during fiscal 2009 and 63
new stores and a new distribution center during fiscal 2008.
Financing
activities
Financing activities in fiscal 2010 consist of capital stock
transactions, while financing activities in fiscal 2009 and 2008
consisted principally of draws and payments on our credit
facility and capital stock transactions. The decrease in cash
used in financing activities of $132.0 million in fiscal
2010 compared to fiscal 2009 is primarily the result of not
utilizing the credit facility in fiscal 2010. The remaining
difference is related to capital stock transactions.
We had no borrowings outstanding under our credit facility at
the end of fiscal 2010. The zero outstanding borrowings position
is due to a combination of factors including stronger than
expected sales growth, overall performance of management
initiatives including expense control as well as inventory and
other working capital reductions, and a planned reduction in our
fiscal 2009 and 2010 new store program.
Credit
facility
Prior to August 31, 2010, the Companys credit
facility was with Bank of America National Association as
administrative agent, Wachovia Capital Finance Corporation as
collateral agent, and JP Morgan Chase Bank as documentation
agent. We had no outstanding borrowings under the facility as of
August 31, 2010.
On August 31, 2010, we terminated our credit facility with
Bank of America and entered into a new credit facility pursuant
to a Loan and Security Agreement with Wells Fargo Bank, National
Association, as Administrative Agent, Collateral Agent and a
Lender thereunder, JPMorgan Chase Bank, N.A. as a Lender, and
PNC Bank, National Association, as a Lender. This new facility
provides maximum credit of $200 million through
May 31, 2013 and is available for working capital and
general corporate purposes. The facility provides maximum
borrowings equal to the lesser of $200 million or a
percentage of eligible owned inventory, and contains a
$10 million subfacility for letters of credit. The new
credit facility agreement contains a restrictive financial
covenant requiring us to maintain tangible net worth of not less
than $200 million. Our tangible net worth was
$402.5 million at January 29, 2011. Substantially all
of our assets are pledged as collateral for outstanding
borrowings under the new facility. Outstanding borrowings will
bear interest at the prime rate or Libor plus 2.00% and the
unused line fee is 0.25%.
40
We did not utilize the new credit facility during fiscal 2010
and had no borrowings outstanding under the new credit facility
as of January 29, 2011.
Seasonality
Our business is subject to seasonal fluctuation. Significant
portions of our net sales and profits are realized during the
fourth quarter of the fiscal year due to the holiday selling
season. To a lesser extent, our business is also affected by
Mothers Day as well as the Back to School
season and Valentines Day. Any decrease in sales during
these higher sales volume periods could have an adverse effect
on our business, financial condition, or operating results for
the entire fiscal year. Our quarterly results of operations have
varied in the past and are likely to do so again in the future.
As such, we believe that
period-to-period
comparisons of our results of operations should not be relied
upon as an indication of our future performance.
Impact of
inflation and changing prices
Although we do not believe that inflation has had a material
impact on our financial position or results of operations to
date, a high rate of inflation in the future may have an adverse
effect on our ability to maintain current levels of gross margin
and selling, general and administrative expenses as a percentage
of net sales if the selling prices of our products do not
increase with these increased costs. In addition, inflation
could materially increase the interest rates on our debt.
Off-balance
sheet arrangements
Our off-balance sheet arrangements consist of operating lease
obligations and letters of credit. We do not have any
non-cancelable purchase commitments as of January 29, 2011.
Our letters of credit outstanding under our revolving credit
facility expired in September 2009; the balance was
$0.3 million as of January 31, 2009.
Contractual
obligations
We lease retail stores, warehouses, corporate offices and
certain equipment under operating leases with various expiration
dates through fiscal 2024. Our store leases generally have
initial lease terms of 10 years and include renewal options
under substantially the same terms and conditions as the
original leases. In addition to future minimum lease payments,
most of our lease agreements include escalating rent provisions
which we recognize straight-line over the term of the lease,
including any lease renewal periods deemed to be probable. For
certain locations, we receive cash tenant allowances and we
report these amounts as deferred rent, which is amortized on a
straight-line basis as a reduction of rent expense over the term
of the lease, including any lease renewal periods deemed to be
probable. While a number of our store leases include contingent
rentals, contingent rent amounts are insignificant.
The following table summarizes our contractual arrangements and
the timing and effect that such commitments are expected to have
on our liquidity and cash flows in future periods. The table
below excludes variable expenses related to contingent rent,
common area maintenance, insurance and real estate taxes. The
table below includes obligations for executed agreements for
which we do not yet have the right to control the use of the
property as of January 29, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
1 to 3
|
|
3 to 5
|
|
After 5
|
|
|
Total
|
|
1 Year
|
|
Years
|
|
Years
|
|
Years
|
|
|
(In thousands)
|
|
Operating lease obligations(1)
|
|
$
|
720,772
|
|
|
$
|
102,798
|
|
|
$
|
202,018
|
|
|
$
|
178,907
|
|
|
$
|
237,049
|
|
|
|
|
(1) |
|
Variable operating lease obligations related to common area
maintenance, insurance and real estate taxes are not included in
the table above. Total expenses related to common area
maintenance, insurance and real estate taxes for fiscal 2010
were $22.4 million. |
Critical
accounting policies and estimates
Managements discussion and analysis of financial condition
and results of operations is based upon our financial
statements, which have been prepared in accordance with
U.S. generally accepted accounting principals (GAAP). The
preparation of these financial statements required the use of
estimates and judgments that affect the reported amounts of our
assets, liabilities, revenues and expenses. Management bases
estimates on historical experience and other assumptions it
believes to be reasonable under the circumstances and
41
evaluates these estimates on an on-going basis. Actual results
may differ from these estimates. A discussion of our more
significant estimates follows. Management has discussed the
development, selection, and disclosure of these estimates and
assumptions with the audit committee of the board of directors.
Inventory
valuation
Merchandise inventories are carried at the lower of average cost
or market value. Cost is determined using the weighted-average
cost method and includes costs incurred to purchase and
distribute goods as well as related vendor allowances including
co-op advertising, markdowns, and volume discounts. We record
valuation adjustments to our inventories if the cost of a
specific product on hand exceeds the amount we expect to realize
from the ultimate sale or disposal of the inventory. These
estimates are based on managements judgment regarding
future demand, age of inventory, and analysis of historical
experience. If actual demand or market conditions are different
than those projected by management, future merchandise margin
rates may be unfavorably or favorably affected by adjustments to
these estimates.
Inventories are adjusted for the results of periodic physical
inventory counts at each of our locations. We record a shrink
reserve representing managements estimate of inventory
losses by location that have occurred since the date of the last
physical count. This estimate is based on managements
analysis of historical results and operating trends. Adjustments
to earnings resulting from revisions to managements
estimates of the lower of cost or market and shrink reserves
have been insignificant during fiscal 2010, 2009 and 2008.
Impairment
of long-lived tangible assets
We review long-lived tangible assets whenever events or
circumstances indicate these assets might not be recoverable
based on undiscounted future cash flows. Assets are reviewed at
the lowest level for which cash flows can be identified, which
is the store level. Significant estimates are used in
determining future operating results of each store over its
remaining lease term. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the
fair value of the assets. We have not recorded an impairment
charge in any of the periods presented in the accompanying
financial statements.
Share-based
compensation
We account for share-based compensation in accordance with the
Accounting Standards
Codificationtm
(ASC) rules for stock compensation. Share-based compensation
cost is measured at grant date, based on the fair value of the
award, and is recognized on a straight-line method over the
requisite service period for awards expected to vest.
We estimate the grant date fair value of stock options using a
Black-Scholes valuation model. The expected volatility is based
on volatilities of our stock and a peer group of publicly-traded
companies. 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. We have limited historical data related to exercise
behavior since our initial public offering on October 30,
2007. As a result, we have elected to use the shortcut approach
to determine the expected life in accordance with the SEC Staff
Accounting Bulletin on share-based payments.
See notes to financial statements, Summary of significant
accounting policies Share-based compensation,
for disclosure related to the Companys stock compensation
expense and related valuation model assumptions. See
Note 10 to our financial statements, Share-based
awards, for disclosure related to our stock compensation
expense and related valuation model assumptions.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Market risk represents the risk of loss that may impact our
financial position due to adverse changes in financial market
prices and rates. Our market risk exposure is primarily the
result of fluctuations in interest rates. We do not hold or
issue financial instruments for trading purposes.
Interest
rate sensitivity
We are exposed to interest rate risks primarily through
borrowing under our credit facility. Interest on our borrowings
is based upon variable rates. We did not utilize the credit
facility during fiscal 2010.
42
The Company had an interest rate swap agreement with a notional
amount of $25 million which was designated as a cash flow
hedge. The agreement expired on January 31, 2010. The
interest rate swap was recorded at fair value in fiscal 2009 and
2008 and changes in market value related to the effective
portion of the cash flow hedge was recorded as unrecognized gain
or loss in accumulated other comprehensive income (loss) section
of the stockholders equity in the balance sheets.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
See the index included under Item 15, Exhibits and
Financial Statement Schedules.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures over Financial
Reporting
We have established disclosure controls and procedures to ensure
that material information relating to the Company is made known
to the officers who certify our financial reports and to the
members of our senior management and board of directors.
Based on managements evaluation as of January 29,
2011, our Chief Executive Officer and Chief Financial Officer
have concluded that our disclosure controls and procedures (as
defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934) are effective to
ensure that the information required to be disclosed by us in
our reports that we file or submit under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commissions rules and forms, and that such information is
accumulated and communicated to our management, including the
Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure.
Managements
Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting for the
Company. Internal control over financial reporting is a process
designed by, or under the supervision of the principal executive
officer and principal financial officer and effected by the
board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for
external purposes in accordance with accounting principles
generally accepted in the United States of America.
Under the supervision and with the participation of our
principal executive officer and our principal financial officer,
management evaluated the effectiveness of our internal control
over financial reporting as of January 29, 2011, based on
the criteria established in Internal Control
Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this evaluation, our principal executive officer and
principal financial officer concluded that our internal controls
over financial reporting were effective as of January 29,
2011. Ernst & Young LLP, the independent registered
public accounting firm that audited our financial statements
included in this Annual Report on
Form 10-K,
has audited the effectiveness of our internal control over
financial reporting as of January 29, 2011 and has issued
the attestation report included in Item 15 of this Annual
Report on
Form 10-K.
Changes
in Internal Control over Financial Reporting
There were no changes to our internal controls over financial
reporting during the three months ended January 29, 2011
that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial
reporting.
|
|
Item 9B.
|
Other
Information
|
None.
43
Part III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this item with respect to our
executive officers is set forth after Part I, Item 4
of this report under the caption Executive Officers of the
Registrant. The additional information required by this
item is incorporated by reference to our definitive proxy
statement to be filed within 120 days after our fiscal year
ended January 29, 2011 pursuant to Regulation 14A
under the Exchange Act in connection with our 2011 annual
meeting of stockholders.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item is incorporated by
reference to our definitive proxy statement to be filed within
120 days after our fiscal year ended January 29, 2011
pursuant to Regulation 14A under the Exchange Act in
connection with our 2011 annual meeting of stockholders.
|
|
Item 12.
|
Security
Ownership and Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this item is incorporated by
reference to our definitive proxy statement to be filed within
120 days after our fiscal year ended January 29, 2011
pursuant to Regulation 14A under the Exchange Act in
connection with our 2011 annual meeting of stockholders.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item is incorporated by
reference to our definitive proxy statement to be filed within
120 days after our fiscal year ended January 29, 2011
pursuant to Regulation 14A under the Exchange Act in
connection with our 2011 annual meeting of stockholders.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this item is incorporated by
reference to our definitive proxy statement to be filed within
120 days after our fiscal year ended January 29, 2011
pursuant to Regulation 14A under the Exchange Act in
connection with our 2011 annual meeting of stockholders.
44
Part IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) The following documents are filed as a part of this
Form 10-K:
The schedules required by
Form 10-K
have been omitted because they were inapplicable, included in
the notes to the financial statements, or otherwise not required
under the instructions contained in
Regulation S-X.
45
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Ulta Salon, Cosmetics & Fragrance, Inc.
We have audited the accompanying balance sheets of Ulta Salon,
Cosmetics & Fragrance, Inc. (the Company) as of
January 29, 2011 and January 30, 2010, and the related
statements of income, cash flows, and stockholders equity
for each of the three years in the period ended January 29,
2011. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Ulta Salon, Cosmetics & Fragrance, Inc. at
January 29, 2011 and January 30, 2010, and the results
of its operations and its cash flows for each of the three years
in the period ended January 29, 2011, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Ulta
Salon, Cosmetics & Fragrance, Inc.s internal
control over financial reporting as of January 29, 2011,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
March 30, 2011, expressed an unqualified opinion thereon.
Chicago, Illinois
March 30, 2011
46
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Ulta Salon, Cosmetics & Fragrance, Inc.
We have audited Ulta Salon, Cosmetics & Fragrance,
Inc.s internal control over financial reporting as of
January 29, 2011, based on criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). Ulta Salon, Cosmetics & Fragrance,
Inc.s management is responsible for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion
on the companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Ulta Salon, Cosmetics & Fragrance,
Inc. maintained, in all material respects, effective internal
control over financial reporting as of January 29, 2011,
based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
balance sheets of Ulta Salon, Cosmetics & Fragrance,
Inc. as of January 29, 2011 and January 30, 2010, and
the related statements of income, cash flows and
stockholders equity for each of the three years in the
period ended January 29, 2011 and our report dated
March 30, 2011 expressed an unqualified opinion thereon.
Chicago, Illinois
March 30, 2011
47
Ulta
Salon, Cosmetics & Fragrance, Inc.
Balance Sheets
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
111,185
|
|
|
$
|
4,017
|
|
Receivables, net
|
|
|
22,292
|
|
|
|
13,477
|
|
Merchandise inventories, net
|
|
|
218,516
|
|
|
|
206,948
|
|
Prepaid expenses and other current assets
|
|
|
32,790
|
|
|
|
30,272
|
|
Prepaid income taxes
|
|
|
10,684
|
|
|
|
|
|
Deferred income taxes
|
|
|
8,922
|
|
|
|
8,060
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
404,389
|
|
|
|
262,774
|
|
Property and equipment, net
|
|
|
326,099
|
|
|
|
290,861
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
730,488
|
|
|
$
|
553,635
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
87,093
|
|
|
$
|
56,387
|
|
Accrued liabilities
|
|
|
76,264
|
|
|
|
59,189
|
|
Accrued income taxes
|
|
|
|
|
|
|
10,781
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
163,357
|
|
|
|
126,357
|
|
Deferred rent
|
|
|
134,572
|
|
|
|
113,718
|
|
Deferred income taxes
|
|
|
30,026
|
|
|
|
20,952
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
327,955
|
|
|
|
261,027
|
|
Commitments and contingencies (note 4)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 400,000 shares
authorized; 60,707 and 58,674 shares issued; 60,202 and
58,169 shares outstanding; at January 29, 2011, and
January 30, 2010, respectively
|
|
|
606
|
|
|
|
586
|
|
Treasury stock-common, at cost
|
|
|
(4,179
|
)
|
|
|
(4,179
|
)
|
Additional paid-in capital
|
|
|
339,576
|
|
|
|
300,701
|
|
Retained earnings / (accumulated deficit)
|
|
|
66,530
|
|
|
|
(4,500
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
402,533
|
|
|
|
292,608
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
730,488
|
|
|
$
|
553,635
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Net sales
|
|
$
|
1,454,838
|
|
|
$
|
1,222,771
|
|
|
$
|
1,084,646
|
|
Cost of sales
|
|
|
970,753
|
|
|
|
846,202
|
|
|
|
752,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
484,085
|
|
|
|
376,569
|
|
|
|
331,707
|
|
Selling, general and administrative expenses
|
|
|
358,106
|
|
|
|
302,413
|
|
|
|
271,095
|
|
Pre-opening expenses
|
|
|
7,095
|
|
|
|
6,003
|
|
|
|
14,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
118,884
|
|
|
|
68,153
|
|
|
|
46,301
|
|
Interest expense
|
|
|
755
|
|
|
|
2,202
|
|
|
|
3,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
118,129
|
|
|
|
65,951
|
|
|
|
42,358
|
|
Income tax expense
|
|
|
47,099
|
|
|
|
26,595
|
|
|
|
17,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
71,030
|
|
|
$
|
39,356
|
|
|
$
|
25,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.20
|
|
|
$
|
0.68
|
|
|
$
|
0.44
|
|
Diluted
|
|
$
|
1.16
|
|
|
$
|
0.66
|
|
|
$
|
0.43
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
58,959
|
|
|
|
57,915
|
|
|
|
57,425
|
|
Diluted
|
|
|
61,288
|
|
|
|
59,237
|
|
|
|
58,967
|
|
See accompanying notes to financial statements.
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
71,030
|
|
|
$
|
39,356
|
|
|
$
|
25,268
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
64,936
|
|
|
|
62,166
|
|
|
|
51,445
|
|
Deferred income taxes
|
|
|
7,741
|
|
|
|
3,143
|
|
|
|
22,583
|
|
Non-cash stock compensation charges
|
|
|
11,155
|
|
|
|
5,949
|
|
|
|
3,877
|
|
Excess tax benefits from stock-based compensation
|
|
|
(10,640
|
)
|
|
|
(476
|
)
|
|
|
(1,774
|
)
|
(Gain) loss on disposal of property and equipment
|
|
|
(519
|
)
|
|
|
(51
|
)
|
|
|
267
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(8,815
|
)
|
|
|
4,791
|
|
|
|
2,375
|
|
Merchandise inventories
|
|
|
(11,568
|
)
|
|
|
6,654
|
|
|
|
(37,493
|
)
|
Prepaid expenses and other assets
|
|
|
(2,518
|
)
|
|
|
(5,978
|
)
|
|
|
(5,110
|
)
|
Income taxes
|
|
|
(10,354
|
)
|
|
|
19,885
|
|
|
|
(11,918
|
)
|
Accounts payable
|
|
|
30,706
|
|
|
|
8,576
|
|
|
|
(4,311
|
)
|
Accrued liabilities
|
|
|
14,535
|
|
|
|
16,382
|
|
|
|
(59
|
)
|
Deferred rent
|
|
|
20,854
|
|
|
|
12,430
|
|
|
|
30,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
176,543
|
|
|
|
172,827
|
|
|
|
75,203
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(97,115
|
)
|
|
|
(68,105
|
)
|
|
|
(110,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(97,115
|
)
|
|
|
(68,105
|
)
|
|
|
(110,863
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds on long-term borrowings
|
|
|
|
|
|
|
1,161,673
|
|
|
|
1,217,969
|
|
Payments on long-term borrowings
|
|
|
|
|
|
|
(1,267,720
|
)
|
|
|
(1,186,692
|
)
|
Proceeds from issuance of common stock under stock plans
|
|
|
17,100
|
|
|
|
1,228
|
|
|
|
2,517
|
|
Excess tax benefits from stock-based compensation
|
|
|
10,640
|
|
|
|
476
|
|
|
|
1,774
|
|
Proceeds from issuance of common stock in initial
|
|
|
|
|
|
|
|
|
|
|
|
|
public offering, net of issuance costs
|
|
|
|
|
|
|
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
27,740
|
|
|
|
(104,343
|
)
|
|
|
35,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
107,168
|
|
|
|
379
|
|
|
|
(151
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
4,017
|
|
|
|
3,638
|
|
|
|
3,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
111,185
|
|
|
$
|
4,017
|
|
|
$
|
3,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
|
|
|
$
|
2,440
|
|
|
$
|
4,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes (net of refunds)
|
|
$
|
49,871
|
|
|
$
|
3,706
|
|
|
$
|
6,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in property and equipment included in accrued liabilities
|
|
$
|
2,540
|
|
|
$
|
(7,353
|
)
|
|
$
|
(3,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on interest rate swap hedge, net of tax
|
|
$
|
|
|
|
$
|
631
|
|
|
$
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury -
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Earnings/
|
|
|
Other
|
|
|
Total
|
|
|
|
Issued
|
|
|
|
|
|
Treasury
|
|
|
|
|
|
Paid-In
|
|
|
(Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Balance February 2, 2008
|
|
|
57,411
|
|
|
$
|
574
|
|
|
|
(505
|
)
|
|
$
|
(4,179
|
)
|
|
$
|
284,951
|
|
|
$
|
(69,124
|
)
|
|
$
|
(719
|
)
|
|
$
|
211,503
|
|
Common stock options exercised
|
|
|
834
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
2,509
|
|
|
|
|
|
|
|
|
|
|
|
2,517
|
|
Unrealized gain on interest rate swap hedge, net of $54 income
tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
|
88
|
|
Net income for the fiscal year ended January 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,268
|
|
|
|
|
|
|
|
25,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,356
|
|
Excess tax benefits from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,774
|
|
|
|
|
|
|
|
|
|
|
|
1,774
|
|
Stock compensation charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,877
|
|
|
|
|
|
|
|
|
|
|
|
3,877
|
|
Initial public offering issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 31, 2009
|
|
|
58,245
|
|
|
$
|
582
|
|
|
|
(505
|
)
|
|
$
|
(4,179
|
)
|
|
$
|
293,052
|
|
|
$
|
(43,856
|
)
|
|
$
|
(631
|
)
|
|
$
|
244,968
|
|
Common stock options exercised
|
|
|
429
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
1,224
|
|
|
|
|
|
|
|
|
|
|
|
1,228
|
|
Unrealized gain on interest rate swap hedge, net of $411 income
tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
631
|
|
|
|
631
|
|
Net income for the fiscal year ended January 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,356
|
|
|
|
|
|
|
|
39,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,987
|
|
Excess tax benefits from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
|
476
|
|
Stock compensation charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,949
|
|
|
|
|
|
|
|
|
|
|
|
5,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 30, 2010
|
|
|
58,674
|
|
|
$
|
586
|
|
|
|
(505
|
)
|
|
$
|
(4,179
|
)
|
|
$
|
300,701
|
|
|
$
|
(4,500
|
)
|
|
$
|
|
|
|
$
|
292,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock options exercised
|
|
|
2,033
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
17,080
|
|
|
|
|
|
|
|
|
|
|
|
17,100
|
|
Net income for the fiscal year ended January 29, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,030
|
|
|
|
|
|
|
|
71,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,030
|
|
Excess tax benefits from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,640
|
|
|
|
|
|
|
|
|
|
|
|
10,640
|
|
Stock compensation charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,155
|
|
|
|
|
|
|
|
|
|
|
|
11,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 29, 2011
|
|
|
60,707
|
|
|
$
|
606
|
|
|
|
(505
|
)
|
|
$
|
(4,179
|
)
|
|
$
|
339,576
|
|
|
$
|
66,530
|
|
|
$
|
|
|
|
$
|
402,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
51
|
|
1.
|
Business
and basis of presentation
|
Ulta Salon, Cosmetics & Fragrance, Inc. (Company or
Ulta) was incorporated in the state of Delaware on
January 9, 1990, to operate specialty retail stores selling
cosmetics, fragrance, haircare and skincare products, and
related accessories and services. The stores also feature
full-service salons. As of January 29, 2011, the Company
operated 389 stores in 40 states. All amounts are stated in
thousands, with the exception of per share amounts and number of
stores.
The Company has determined its operating segments on the same
basis that it uses to internally evaluate performance. The
Company has combined its three operating segments: retail
stores, salon services and
e-commerce,
into one reportable segment because they have a similar class of
consumer, economic characteristics, nature of products and
distribution methods.
|
|
2.
|
Summary
of significant accounting policies
|
Fiscal
year
The Companys fiscal year is the 52 or 53 weeks ending
on the Saturday closest to January 31. The Companys
fiscal years ended January 29, 2011 (fiscal 2010),
January 30, 2010 (fiscal 2009) and January 31,
2009 (fiscal 2008) were 52 week years.
Reclassifications
The Company made reclassifications in the statements of income
for the fiscal years ended January 30, 2010 (fiscal
2009) and January 31, 2009 (fiscal 2008) to
decrease cost of sales and increase selling, general and
administrative expenses by $3,520 and $3,773, respectively, to
conform to the fiscal 2010 presentation.
Use of
estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles (GAAP)
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the accounting period. Actual
results could differ from those estimates.
Cash
and cash equivalents
Cash and cash equivalents include cash on hand and highly liquid
investments with maturities of three months or less from the
date of purchase. Cash equivalents include amounts due from
third-party credit card receivables because such amounts
generally convert to cash within one to three days with little
or no default risk.
Receivables
Receivables consist principally of amounts receivable from
vendors related to allowances earned but not yet received. These
receivables are computed based on provisions of the vendor
agreements in place and the Companys completed
performance. The Companys vendors are primarily
U.S.-based
producers of consumer products. The Company does not require
collateral on its receivables and does not accrue interest.
Credit risk with respect to receivables is limited due to the
diversity of vendors comprising the Companys vendor base.
The Company performs ongoing credit evaluations of its vendors
and evaluates the collectability of its receivables based on the
length of time the receivable is past due and historical
experience. The allowance for receivables totaled $257 and $489
as of January 29, 2011 and January 30, 2010,
respectively.
52
Ulta
Salon, Cosmetics & Fragrance, Inc.
Notes to Financial
Statements (Continued)
Merchandise
inventories
Merchandise inventories are stated at the lower of cost or
market. Cost is determined using the weighted-average cost
method and includes costs incurred to purchase and distribute
goods. Inventory cost also includes vendor allowances related to
co-op advertising, markdowns, and volume discounts. The Company
maintains reserves for lower of cost or market and shrinkage.
Fair
value of financial instruments
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.
The Company had no outstanding debt as of January 29, 2011
and January 30, 2010.
Derivative
financial instruments
The Company had an interest rate swap that expired on
January 31, 2010. This derivative financial instrument was
designated and qualified as a cash flow hedge. Accordingly, the
effective portion of the gain or loss on the derivative
instrument was reported as a component of accumulated other
comprehensive income (loss) and reclassified into interest
expense in the same period or periods during which the hedged
transaction affects earnings. The remaining gain or loss, the
ineffective portion, on the derivative instrument, if other than
inconsequential, was recognized in interest expense during the
period of change. This derivative, which was immaterial, was
recorded in the January 30, 2010 balance sheet at fair
value.
Property
and equipment
The Companys property and equipment are stated at cost net
of accumulated depreciation and amortization. Maintenance and
repairs are charged to operating expense as incurred. The
Companys assets are depreciated or amortized using the
straight-line method, over the shorter of their estimated useful
lives or the expected lease term as follows:
|
|
|
|
|
Equipment and fixtures
|
|
|
3 to 10 years
|
|
Leasehold improvements
|
|
|
10 years
|
|
Electronic equipment and software
|
|
|
3 to 5 years
|
|
The Company capitalizes costs incurred during the application
development stage in developing or obtaining internal use
software. These costs are amortized over the estimated useful
life of the software.
The Company periodically evaluates whether changes have occurred
that would require revision of the remaining useful life of
equipment and leasehold improvements or render them not
recoverable. If such circumstances arise, the Company uses an
estimate of the undiscounted sum of expected future operating
cash flows during their holding period to determine whether the
long-lived assets are impaired. If the aggregate undiscounted
cash flows are less than the carrying amount of the assets, the
resulting impairment charges to be recorded are calculated based
on the excess of the carrying value of the assets over the fair
value of such assets, with the fair value determined based on an
estimate of discounted future cash flows.
Customer
loyalty program
The Company maintains two customer loyalty programs. The
Companys national program provides reward point
certificates for free beauty products. Customers earn
purchase-based reward points and redeem the related reward
certificate during specific promotional periods during the year.
The Company is also rolling out a loyalty program in several
markets in which customers earn purchase-based points on an
annual basis which can be redeemed at any time. The Company
accrues the anticipated redemptions related to these programs at
the time of the initial purchase based on historical experience.
The accrued liability related to both of the loyalty programs at
January 29, 2011 and January 30, 2010 was $4,883 and
$3,784, respectively. The cost of
53
Ulta
Salon, Cosmetics & Fragrance, Inc.
Notes to Financial
Statements (Continued)
these programs, which was $12,942, $10,015 and $9,002 in fiscal
2010, 2009 and 2008, respectively, is included in cost of sales
in the statements of income.
Deferred
rent
Many of the Companys operating leases contain
predetermined fixed increases of the minimum rental rate during
the lease. For these leases, the Company recognizes the related
rental expense on a straight-line basis over the expected lease
term, including cancelable option periods where failure to
exercise such options would result in an economic penalty, and
records the difference between the amounts charged to expense
and the rent paid as deferred rent. The lease term commences on
the earlier of the date when the Company becomes legally
obligated for rent payments or the date the Company takes
possession of the leased space.
As part of many lease agreements, the Company receives
construction allowances from landlords for tenant improvements.
These leasehold improvements made by the Company are capitalized
and amortized over the shorter of their estimated useful lives
or the lease term. The construction allowances are recorded as
deferred rent and amortized on a straight-line basis over the
lease term as a reduction of rent expense.
Revenue
recognition
Net sales include merchandise sales and salon service revenue.
Revenue from merchandise sales at stores is recognized at the
time of sale, net of estimated returns. The Company provides
refunds for product returns within 60 days from the
original purchase date. Salon revenue is recognized when
services are rendered. Salon service revenue amounted to
$86,484, $76,627 and $75,035 for fiscal 2010, 2009 and 2008,
respectively. Company coupons and other incentives are recorded
as a reduction of net sales. State sales taxes are presented on
a net basis as the Company considers itself a pass-through
conduit for collecting and remitting state sales tax.
E-commerce
sales are recorded at the time of shipment.
The Companys gift card sales are deferred and recognized
in net sales when the gift card is redeemed for product or
services. The Companys gift cards do not expire and do not
include service fees that decrease customer balances. The
Company has maintained Company-specific, historical data related
to its large pool of similar gift card transactions sold and
redeemed over a significant time frame. During fiscal 2010,
there was a change in facts and circumstances which resulted in
the Company recognizing approximately $2.0 million of gift
card breakage income which related primarily to gift cards sold
in prior years. The Company recognizes gift card breakage to the
extent there is no requirement for remitting balances to
governmental agencies under unclaimed property laws. Gift card
breakage is recognized over the same performance period, and in
the same proportion, that the Companys data has
demonstrated that gift cards are redeemed. Gift card breakage is
recorded as a decrease in selling, general and administrative
expense in the statements of income. Deferred gift card revenue
was $7,591 and $9,932 at January 29, 2011 and
January 30, 2010, respectively, and is included in accrued
liabilities accrued customer liabilities
(Note 5).
Vendor
allowances
The Company receives allowances from vendors in the normal
course of business including advertising and markdown
allowances, purchase volume discounts and rebates, and
reimbursement for defective merchandise, and certain selling and
display expenses. Substantially all vendor allowances are
recorded as a reduction of the vendors product cost and
are recognized in cost of sales as the product is sold.
Advertising
Advertising expense consists principally of paper, print, and
distribution costs related to the Companys advertising
circulars. The Company expenses the production and distribution
costs related to its advertising circulars in the period the
related promotional event occurs. Total advertising costs,
exclusive of incentives from vendors and
start-up
advertising expense, amounted to $84,796, $76,811 and $70,804
for fiscal 2010,
54
Ulta
Salon, Cosmetics & Fragrance, Inc.
Notes to Financial
Statements (Continued)
2009 and 2008, respectively. Prepaid advertising costs included
in prepaid expenses and other current assets were $3,804 and
$4,000 as of January 29, 2011 and January 30, 2010,
respectively.
Pre-opening
expenses
Non-capital expenditures incurred prior to the grand opening of
a new, remodeled or relocated store are charged against earnings
as incurred.
Cost
of sales
Cost of sales includes the cost of merchandise sold including
all vendor allowances, which are treated as a reduction of
merchandise costs; warehousing and distribution costs including
labor and related benefits, freight, rent, depreciation and
amortization, real estate taxes, utilities, and insurance;
shipping and handling costs; store occupancy costs including
rent, depreciation and amortization, real estate taxes,
utilities, repairs and maintenance, insurance, licenses, and
cleaning expenses; salon payroll and benefits; customer loyalty
program expense; and shrink and inventory valuation reserves.
Selling,
general and administrative expenses
Selling, general and administrative expenses includes payroll,
bonus, and benefit costs for retail and corporate employees;
advertising and marketing costs; occupancy costs related to our
corporate office facilities; public company expense including
Sarbanes-Oxley compliance expenses; stock-based compensation
expense; depreciation and amortization for all assets except
those related to our retail and warehouse operations which is
included in cost of sales; and legal, finance, information
systems and other corporate overhead costs.
Income
taxes
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and
liabilities used for financial reporting purposes and the
amounts used for income tax purposes and the amounts reported
were derived using the enacted tax rates in effect for the year
the differences are expected to reverse.
Income tax benefits related to uncertain tax positions are
recognized only when it is more likely than not that the tax
position will be sustained on examination by the taxing
authorities. The determination is based on the technical merits
of the position and presumes that each uncertain tax position
will be examined by the relevant taxing authority that has full
knowledge of all relevant information. Penalties and interest
related to unrecognized tax positions are recorded in income tax
expense. Although the Company believes that its estimates are
reasonable, actual results could differ from these estimates.
Share-based
compensation
The Company accounts for share-based compensation in accordance
with the Accounting Standards
Codificationtm
(ASC) rules for stock compensation. Share-based compensation
cost is measured at grant date, based on the fair value of the
award, and is recognized on a straight-line method over the
requisite service period for awards expected to vest. The
Company recorded stock compensation expense of $11,155, $5,949
and $3,877 for fiscal 2010, 2009 and 2008, respectively (see
Note 10, Share-based awards).
Insurance
expense
The Company has insurance programs with third party insurers for
employee health, workers compensation and general liability,
among others, to limit the Companys liability exposure.
The insurance programs are premium based and include retentions,
deductibles and stop loss coverage. Current stop loss coverage
is $150 for employee health claims, $100 for general liability
claims and $250 for workers compensation claims. The
55
Ulta
Salon, Cosmetics & Fragrance, Inc.
Notes to Financial
Statements (Continued)
Company makes collateral and premium payments during the plan
year and accrues expenses in the event additional premium is due
from the Company based on actual claim results. Insurance
reserves and related expense activity for fiscal 2010 and 2009
are as follows:
|
|
|
|
|
|
|
|
|
|
|
Workers Comp/
|
|
|
Employee
|
|
|
|
General Liability
|
|
|
Health Care
|
|
|
|
Prepaid Asset
|
|
|
Accrued Liability
|
|
|
Balance, January 31, 2009
|
|
$
|
369
|
|
|
$
|
1,803
|
|
Charged to expense
|
|
|
(2,720
|
)
|
|
|
16,710
|
|
Payments
|
|
|
3,532
|
|
|
|
(16,934
|
)
|
|
|
|
|
|
|
|
|
|
Balance, January 30, 2010
|
|
|
1,181
|
|
|
|
1,579
|
|
Charged to expense
|
|
|
(4,320
|
)
|
|
|
17,601
|
|
Payments
|
|
|
4,109
|
|
|
|
(17,572
|
)
|
|
|
|
|
|
|
|
|
|
Balance, January 29, 2011
|
|
$
|
970
|
|
|
$
|
1,608
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share
Basic net income per common share is computed by dividing income
available to common stockholders by the weighted-average number
of shares of common stock outstanding during the period. Diluted
net income per share includes dilutive common stock equivalents,
using the treasury stock method.
|
|
3.
|
Property
and equipment
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
Equipment and fixtures
|
|
$
|
223,663
|
|
|
$
|
195,431
|
|
Leasehold improvements
|
|
|
233,997
|
|
|
|
219,317
|
|
Electronic equipment and software
|
|
|
105,808
|
|
|
|
89,491
|
|
Construction-in-progress
|
|
|
16,331
|
|
|
|
12,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
579,799
|
|
|
|
516,507
|
|
Less accumulated depreciation and amortization
|
|
|
(253,700
|
)
|
|
|
(225,646
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
326,099
|
|
|
$
|
290,861
|
|
|
|
|
|
|
|
|
|
|
The Company had no capitalized interest for fiscal 2010 as a
result of not utilizing the credit facility during the year. For
the fiscal years 2009 and 2008, the Company capitalized interest
of $242 and $799, respectively.
|
|
4.
|
Commitments
and contingencies
|
Leases The Company leases retail stores,
distribution and office facilities, and certain equipment.
Original non-cancelable lease terms range from three to ten
years, and store leases generally contain renewal options for
additional years. A number of the Companys store leases
provide for contingent rentals based upon sales. Contingent rent
amounts were insignificant in fiscal 2010, 2009 and 2008. Total
rent expense under operating
56
Ulta
Salon, Cosmetics & Fragrance, Inc.
Notes to Financial
Statements (Continued)
leases was $82,365, $73,228 and $66,640 for fiscal 2010, 2009
and 2008, respectively. Future minimum lease payments under
operating leases as of January 29, 2011, are as follows:
|
|
|
|
|
|
|
Operating
|
|
Fiscal year
|
|
Leases
|
|
|
2011
|
|
$
|
102,798
|
|
2012
|
|
|
102,429
|
|
2013
|
|
|
99,589
|
|
2014
|
|
|
94,463
|
|
2015
|
|
|
84,444
|
|
2016 and thereafter
|
|
|
237,049
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
720,772
|
|
|
|
|
|
|
Included in the operating lease schedule above is $45,830 of
minimum lease payments for stores that will open in fiscal 2011.
General litigation In July 2009 a putative
employment class action lawsuit was filed against the Company
and certain unnamed defendants in state court in California. The
suit alleges that Ulta misclassified its store General Managers
and Salon Managers as exempt from the Fair Labor Standards Act
and California Labor Code. The suit seeks to recover damages and
penalties as a result of this alleged misclassification. On
August 27, 2009, the Company filed our answer to the
lawsuit, and on August 31, 2009 the Company moved the
action to the United States District Court for the Northern
District of California. On November 2, 2009, the plaintiffs
filed an amended complaint adding another named plaintiff. On
May 26, 2010, the Company and plaintiffs engaged in a
voluntary mediation. Although the Company continues to deny
plaintiffs allegations, in the interest of putting the
Salon Manager claims behind it, the Company agreed in principle
to settle all claims of the putative Salon Manager class. The
settlement, which is not an admission of liability, received
Court approval on December 17, 2010 and payments were
disbursed to individual class members in February 2011. Counsel
for the plaintiffs has agreed to dismiss without prejudice the
claims of the General Managers. The settlement amount is not
material.
In May 2010, a putative employment class action lawsuit was
filed against the Company and certain unnamed defendants in
state court in California. The plaintiff and members of the
proposed class are alleged to be (or have been) non-exempt
hourly employees. The suit alleges that Ulta violated various
provisions of the California labor laws and failed to provide
plaintiff and members of the proposed class with full meal
periods, paid rest breaks, certain wages, overtime compensation
and premium pay. The suit seeks to recover damages and penalties
as a result of these alleged practices. On June 21, 2010,
the Company filed its answer to the lawsuit. On January 12,
2011, the Company and plaintiffs engaged in a voluntary
mediation. Although the Company continues to deny
plaintiffs allegations, in the interest of putting certain
of the claims behind it, the Company agreed in principle to
settle all claims of the putative class consisting of non-exempt
hourly hair designers in the salon department within the
California retail stores. The settlement, which is not an
admission of liability, is subject to final documentation and
Court approval. Counsel for the plaintiffs has agreed to dismiss
without prejudice the claims of all other putative class
members. The proposed settlement amount is not material.
The Company is also involved in various legal proceedings that
are incidental to the conduct of our business. In the opinion of
management, the amount of any liability with respect to these
proceedings, either individually or in the aggregate, will not
be material.
57
Ulta
Salon, Cosmetics & Fragrance, Inc.
Notes to Financial
Statements (Continued)
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
Accrued vendor liabilities (including accrued property and
equipment costs)
|
|
$
|
12,994
|
|
|
$
|
6,032
|
|
Accrued customer liabilities
|
|
|
16,543
|
|
|
|
15,674
|
|
Accrued payroll, bonus and employee benefits
|
|
|
25,221
|
|
|
|
20,294
|
|
Accrued taxes, other
|
|
|
8,843
|
|
|
|
7,937
|
|
Other accrued liabilities
|
|
|
12,663
|
|
|
|
9,252
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
76,264
|
|
|
$
|
59,189
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
32,288
|
|
|
$
|
20,296
|
|
|
$
|
2,383
|
|
State
|
|
|
7,070
|
|
|
|
2,744
|
|
|
|
1,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
39,358
|
|
|
|
23,040
|
|
|
|
4,318
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
8,076
|
|
|
|
3,237
|
|
|
|
11,725
|
|
State
|
|
|
(335
|
)
|
|
|
318
|
|
|
|
1,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
7,741
|
|
|
|
3,555
|
|
|
|
12,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
47,099
|
|
|
$
|
26,595
|
|
|
$
|
17,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the federal statutory rate to the
Companys effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State effective rate, net of federal tax benefit
|
|
|
3.7
|
%
|
|
|
3.0
|
%
|
|
|
4.6
|
%
|
Other
|
|
|
1.2
|
%
|
|
|
2.3
|
%
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
39.9
|
%
|
|
|
40.3
|
%
|
|
|
40.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
Ulta
Salon, Cosmetics & Fragrance, Inc.
Notes to Financial
Statements (Continued)
Significant components of the Companys deferred tax assets
and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Reserves not currently deductible
|
|
$
|
10,433
|
|
|
$
|
9,905
|
|
Employee benefits
|
|
|
5,327
|
|
|
|
3,721
|
|
Net operating loss carryforwards
|
|
|
334
|
|
|
|
462
|
|
Accrued liabilities
|
|
|
3,202
|
|
|
|
2,579
|
|
Inventory valuation
|
|
|
311
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
19,607
|
|
|
|
16,954
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
23,321
|
|
|
|
15,973
|
|
Deferred rent obligation
|
|
|
12,050
|
|
|
|
8,926
|
|
Prepaid expenses
|
|
|
5,340
|
|
|
|
4,947
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
40,711
|
|
|
|
29,846
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(21,104
|
)
|
|
$
|
(12,892
|
)
|
|
|
|
|
|
|
|
|
|
At January 29, 2011, the Company had net operating loss
carryforwards (NOLs) for federal income tax purposes of
approximately $953, which expires between 2011 and 2014. Based
on Internal Revenue Code Section 382 relating to changes in
ownership of the Company, utilization of the federal NOLs is
subject to an annual limitation of $440 for federal NOLs created
prior to April 1, 1997.
The Company accounts for uncertainty in income taxes in
accordance with the ASC rules for income taxes. The reserve for
uncertain tax positions was $930 and $5,359 at January 29,
2011 and January 30, 2010, respectively. The balance is the
Companys best estimate of the potential liability for
uncertain tax positions. The decrease in the liability for
income taxes associated with uncertain tax positions relates to
audit settlements finalized during fiscal 2010. A reconciliation
of the Companys unrecognized tax benefits, excluding
interest and penalties, is as follows:
|
|
|
|
|
Balance at January 30, 2010
|
|
$
|
5,110
|
|
Decreases attributable to audit settlements during the current
period
|
|
|
(4,248
|
)
|
|
|
|
|
|
Balance at January 29, 2011
|
|
$
|
862
|
|
|
|
|
|
|
The Company anticipates that the amount of unrecognized tax
benefits may change in the next twelve months. However, it does
not expect the change to have a significant impact on its
financial statements. Income tax-related interest and penalties
were insignificant for fiscal 2010, 2009 and 2008.
The Company conducts business only in the United States.
Accordingly, the tax years that remain open to examination by
U.S. federal, state, and local tax jurisdictions are
generally the three prior years, or fiscal 2009, 2008 and 2007.
Prior to August 31, 2010, the Companys credit
facility was with Bank of America National Association as
administrative agent, Wachovia Capital Finance Corporation as
collateral agent, and JP Morgan Chase Bank as documentation
agent. The Company had no outstanding borrowings under the
facility as of August 31, 2010.
On August 31, 2010, the Company terminated its credit
facility with Bank of America and entered into a new credit
facility pursuant to a Loan and Security Agreement with Wells
Fargo Bank, National Association, as
59
Ulta
Salon, Cosmetics & Fragrance, Inc.
Notes to Financial
Statements (Continued)
Administrative Agent, Collateral Agent and a Lender thereunder,
JPMorgan Chase Bank, N.A. as a Lender, and PNC Bank, National
Association, as a Lender. This new facility provides maximum
credit of $200,000 through May 31, 2013 and is available
for working capital and general corporate purposes. The facility
provides maximum borrowings equal to the lesser of $200,000 or a
percentage of eligible owned inventory, and contains a $10,000
subfacility for letters of credit. The new credit facility
agreement contains a restrictive financial covenant requiring
the Company to maintain tangible net worth of not less than
$200,000. The Companys tangible net worth was $402,500 at
January 29, 2011. Substantially all of the Companys
assets are pledged as collateral for outstanding borrowings
under the facility. Outstanding borrowings will bear interest at
the prime rate or Libor plus 2.00% and the unused line fee is
0.25%.
As of January 29, 2011, the Company had no borrowings
outstanding under the new credit facility.
The Company is exposed to certain risks relating to its ongoing
business operations. The primary risk managed by using
derivative instruments is interest rate risk. Interest rate
swaps are entered into to manage interest rate risk associated
with the Companys variable-rate borrowings. The Company
accounts for derivative financial instruments in accordance with
the ASC rules for derivatives and hedging activities.
On February 1, 2009, the Company adopted the ASC disclosure
requirements for derivatives and hedging activities. The
adoption had no impact on amounts recognized in the
Companys financial statements. The new rules are intended
to help investors better understand how derivative instruments
and hedging activities affect an entitys financial
position, financial performance and cash flows through enhanced
disclosure requirements. The enhanced disclosures primarily
surround disclosing the objectives and strategies for using
derivative instruments by their underlying risk as well as a
tabular format of the fair values of the derivative instruments
and their gains and losses.
The Company had an interest rate swap agreement with a notional
amount of $25 million which was designated as a cash flow
hedge. The agreement expired on January 31, 2010. The
interest rate swap was recorded at fair value in fiscal 2009 and
2008 and changes in market value related to the effective
portion of the cash flow hedge were recorded as unrecognized
gains or losses in the accumulated other comprehensive income
(loss) section of the stockholders equity in the balance
sheets.
The Company did not utilize its credit facility during fiscal
2010.
|
|
9.
|
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.
On February 3, 2008, the Company adopted the ASC rules for
fair value measurements and disclosures. The adoption had no
impact on the Companys financial statements. The new rules
established a three-tier hierarchy for fair value measurements,
which prioritizes the inputs used in measuring fair value as
follows:
a. Level 1 observable inputs such as
quoted prices for identical instruments in active markets.
b. Level 2 inputs other than quoted prices
in active markets that are observable either directly or
indirectly through corroboration with observable market data.
c. Level 3 unobservable inputs in which
there is little or no market data, which would require the
Company to develop its own assumptions.
As of January 29, 2011, the Company held financial
liabilities of $1,233 related to its non-qualified deferred
compensation plan. The liabilities have been categorized as
Level 2 as they are based on third-party reported net asset
values which are based primarily on quoted market prices of
underlying assets of the funds within the plan.
60
Ulta
Salon, Cosmetics & Fragrance, Inc.
Notes to Financial
Statements (Continued)
Amended
and Restated Restricted Stock Option Plan
The Company has an Amended and Restated Restricted Stock Option
Plan (the Amended Plan), principally to compensate and provide
an incentive to key employees and members of the board of
directors, under which it may grant options to purchase common
stock. Options generally are granted with the exercise price
equal to the fair value of the underlying stock on the date of
grant. Options vest over four years at the rate of 25% per year
from the date of issuance and must be exercised within the
earlier to occur of 14 years from the date of grant or the
maximum period allowed by applicable state law.
2002
Equity Incentive Plan
In April 2002, the Company adopted the 2002 Equity Incentive
Plan (the 2002 Plan) to attract and retain the best available
personnel for positions of substantial authority and to provide
additional incentive to employees, directors, and consultants to
promote the success of the Companys business. Options
granted on or after April 26, 2002 and before October 2007,
were granted pursuant to the 2002 Plan. The 2002 Plan
incorporates several important features that are typically found
in agreements adopted by companies that report their results to
the public. First, the maximum term of an option was reduced
from 14 to ten years in order to comply with various state laws.
Second, the 2002 Plan provided more flexibility in the vesting
period of options offered to grantees. Third, the 2002 Plan
allowed for the offering of incentive stock options to employees
in addition to nonqualified stock options. Unless provided
otherwise by the administrator of the 2002 Plan, options vest
over four years at the rate of 25% per year from the date of
grant. Options are granted with the exercise price equal to the
fair value of the underlying stock on the date of grant.
2007
Incentive Award Plan
In July 2007, the Company adopted the 2007 Incentive Award Plan
(the 2007 Plan). The 2007 Plan provides for the grant of
incentive stock options, nonqualified stock options, restricted
stock, restricted stock units, stock appreciation rights, and
other types of awards to employees, consultants, and directors.
Following its adoption, awards are only being made under the
2007 Plan, and no further awards will be made under the Amended
Plan or the 2002 Plan. The 2007 Plan reserves for issuance upon
grant or exercise of awards up to 4,108 shares of the
Companys common stock plus 598 shares which were not
issued under the prior plans.
The Company measures share-based compensation cost on the grant
date, based on the fair value of the award, and recognizes the
expense on a straight-line method over the requisite service
period for awards expected to vest. The Company estimated the
grant date fair value of stock options using a Black-Scholes
valuation model using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
Fiscal
|
|
Fiscal
|
|
Fiscal
|
|
|
2010
|
|
2009
|
|
2008
|
|
Volatility rate
|
|
56.9%
|
|
60.6%
|
|
48.7%
|
Average risk-free interest rate
|
|
2.2%
|
|
2.5%
|
|
2.3%
|
Average expected life (in years)
|
|
5.6
|
|
5.3
|
|
5.2
|
Dividend yield
|
|
None
|
|
None
|
|
None
|
The expected volatility is based on the historical volatility of
a peer group of publicly-traded companies. 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. We have limited
historical data related to exercise behavior since our initial
public offering
61
Ulta
Salon, Cosmetics & Fragrance, Inc.
Notes to Financial
Statements (Continued)
on October 30, 2007. As a result, the Company has elected
to generally use the shortcut approach to determine the expected
life in accordance with the SEC Staff Accounting Bulletin on
share-based payments. Any dividend the Company might declare in
the future would be subject to the applicable provisions of its
credit agreement, which currently limits the Companys
ability to pay cash dividends.
The Company granted 1,521 stock options during fiscal 2010. The
compensation cost that has been charged against income was
$9,918, $5,949, and $3,877 for fiscal 2010, 2009, and 2008,
respectively. The total income tax benefit recognized in the
income statement for the share-based compensation arrangements
was $3,300, $1,464 and $984 for fiscal 2010, 2009 and 2008,
respectively. The weighted-average grant date fair value of
options granted in fiscal 2010, 2009 and 2008 was $13.58, $6.64
and $5.46, respectively. At January 29, 2011, there was
approximately $21,784 of unrecognized compensation expense
related to unvested stock options. The unrecognized compensation
expense is expected to be recognized over a weighted-average
period of approximately two years.
The total intrinsic value of options exercised was $42,118,
$4,783 and $8,267 in fiscal 2010, 2009 and 2008, respectively.
Restricted
stock awards
During fiscal 2010, the Company granted 119 restricted common
shares with a fair value of $23.32 per share to its newly
appointed President and Chief Executive Officer. The restricted
shares cannot be sold or otherwise transferred during the
vesting period. The award cliff vests on December 29, 2011.
The award is being expensed on a straight-line basis over the
20 month vesting period. The compensation expense recorded
in fiscal 2010 was $1,237. At January 29, 2011,
unrecognized compensation cost related to the award was $1,543.
A summary of the status of the Companys stock option
activity under the Amended Plan, the 2002 Plan and the 2007 Plan
is presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Options
|
|
|
|
Fiscal 2010
|
|
|
Fiscal 2009
|
|
|
Fiscal 2008
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Options Outstanding
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Beginning of year
|
|
|
5,791
|
|
|
$
|
11.18
|
|
|
|
5,300
|
|
|
$
|
10.27
|
|
|
|
4,644
|
|
|
$
|
7.35
|
|
Granted
|
|
|
1,521
|
|
|
|
26.12
|
|
|
|
977
|
|
|
|
12.44
|
|
|
|
1,856
|
|
|
|
13.39
|
|
Exercised
|
|
|
(2,033
|
)
|
|
|
8.41
|
|
|
|
(429
|
)
|
|
|
2.86
|
|
|
|
(834
|
)
|
|
|
3.02
|
|
Canceled
|
|
|
(243
|
)
|
|
|
16.73
|
|
|
|
(57
|
)
|
|
|
10.46
|
|
|
|
(366
|
)
|
|
|
5.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
5,036
|
|
|
$
|
16.55
|
|
|
|
5,791
|
|
|
$
|
11.18
|
|
|
|
5,300
|
|
|
$
|
10.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
2,272
|
|
|
$
|
12.38
|
|
|
|
2,971
|
|
|
$
|
8.99
|
|
|
|
2,296
|
|
|
$
|
6.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company completed an initial public offering during fiscal
2007 which resulted in compensation expense related to
performance based grants of $425, $637 and $576 in fiscal 2010,
2009 and 2008, respectively. No performance-based options were
granted during fiscal 2010, 2009 and 2008.
Cash received from option exercises under all share-based
payment arrangements for fiscal 2010, 2009 and 2008 was $17,100,
$1,228 and $2,517, respectively. The actual tax benefit realized
for the tax deductions from option exercise of the share-based
payment arrangements totaled $13,373, $630 and $1,774,
respectively, for fiscal 2010, 2009 and 2008.
62
Ulta
Salon, Cosmetics & Fragrance, Inc.
Notes to Financial
Statements (Continued)
The following table presents information related to options
outstanding and options exercisable at January 29, 2011,
under the Amended Plan, the 2002 Plan and the 2007 Plan based on
ranges of exercise prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding
|
|
|
Options exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted-
|
|
|
|
|
|
Remaining
|
|
|
Weighted-
|
|
|
|
Number of
|
|
|
Contractual Life
|
|
|
Average
|
|
|
Number
|
|
|
Contractual Life
|
|
|
Average
|
|
Options outstanding
|
|
Options
|
|
|
(Years)
|
|
|
Exercise Price
|
|
|
of Options
|
|
|
(Years)
|
|
|
Exercise Price
|
|
|
$ 0.02 - 0.17
|
|
|
11
|
|
|
|
2
|
|
|
$
|
.17
|
|
|
|
11
|
|
|
|
2
|
|
|
$
|
.17
|
|
0.18 - 1.11
|
|
|
44
|
|
|
|
4
|
|
|
|
1.11
|
|
|
|
44
|
|
|
|
4
|
|
|
|
1.11
|
|
1.12 - 2.62
|
|
|
258
|
|
|
|
3
|
|
|
|
2.44
|
|
|
|
258
|
|
|
|
3
|
|
|
|
2.44
|
|
2.63 - 4.12
|
|
|
279
|
|
|
|
5
|
|
|
|
3.48
|
|
|
|
279
|
|
|
|
5
|
|
|
|
3.48
|
|
4.13 - 9.18
|
|
|
180
|
|
|
|
7
|
|
|
|
8.03
|
|
|
|
123
|
|
|
|
6
|
|
|
|
8.84
|
|
9.19 - 15.81
|
|
|
2,341
|
|
|
|
8
|
|
|
|
13.41
|
|
|
|
1,171
|
|
|
|
8
|
|
|
|
13.78
|
|
15.82 - 37.85
|
|
|
1,923
|
|
|
|
9
|
|
|
|
25.40
|
|
|
|
386
|
|
|
|
7
|
|
|
|
24.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
5,036
|
|
|
|
8
|
|
|
$
|
16.55
|
|
|
|
2,272
|
|
|
|
7
|
|
|
$
|
12.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of outstanding and exercisable
options as of January 29, 2011 was $101,807 and $55,321,
respectively. The last reported sale price of our common stock
on the NASDAQ Global Select Market on January 29, 2011 was
$36.73 per share.
|
|
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 share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Numerator for diluted net income per share net income
|
|
$
|
71,030
|
|
|
$
|
39,356
|
|
|
$
|
25,268
|
|
Denominator for basic net income per share
weighted-average common shares
|
|
|
58,959
|
|
|
|
57,915
|
|
|
|
57,425
|
|
Dilutive effect of stock options and non-vested stock
|
|
|
2,329
|
|
|
|
1,322
|
|
|
|
1,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income per share
|
|
|
61,288
|
|
|
|
59,237
|
|
|
|
58,967
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.20
|
|
|
$
|
0.68
|
|
|
$
|
0.44
|
|
Diluted
|
|
$
|
1.16
|
|
|
$
|
0.66
|
|
|
$
|
0.43
|
|
The denominator for diluted net income per common share for
fiscal years 2010, 2009 and 2008 exclude 1,263, 3,809 and
3,101 employee options, respectively, due to their
anti-dilutive effects.
l2. Employee
benefit plans
The Company provides a 401(k) retirement plan covering all
employees who qualify as to age and length of service. The plan
is funded through employee contributions and a Company match. In
fiscal 2010, the Company match was 100% of the first 2% of
eligible compensation. In fiscal 2009 and 2008, the Company
match was between 40% and 50% of the first 3% of eligible
compensation. For fiscal years 2010, 2009 and 2008, the Company
match was $1,106, $600 and $437, respectively.
On January 1, 2009, the Company established a non-qualified
deferred compensation plan for highly compensated employees
whose contributions are limited under qualified defined
contribution plans. Amounts
63
Ulta
Salon, Cosmetics & Fragrance, Inc.
Notes to Financial
Statements (Continued)
contributed and deferred under the plan are credited or charged
with the performance of investment options offered under the
plan as elected by the participants. In the event of bankruptcy,
the assets of this plan are available to satisfy the claims of
general creditors. The liability for compensation deferred under
the Companys plan included in accrued liabilities was
$1,233 and $247 as of January 29, 2011 and January 30,
2010, respectively. Total expense recorded under this plan is
included in selling, general and administrative expenses and was
insignificant during fiscal 2010 and 2009. The Company manages
the risk of changes in the fair value of the liability for
deferred compensation by electing to match its liability under
the plan with investment vehicles that offset a substantial
portion of its exposure. The cash value of the investment
vehicles included in prepaid expense and other current assets
was $1,232 and $229 as of January 29, 2011 and
January 30, 2010, respectively.
|
|
13.
|
Valuation
and qualifying accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
|
|
|
End
|
|
|
|
|
Description
|
|
of Period
|
|
|
Expenses
|
|
|
Deductions
|
|
|
of Period
|
|
|
|
|
|
Fiscal 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
489
|
|
|
$
|
189
|
|
|
$
|
(421
|
)(a)
|
|
$
|
257
|
|
|
|
|
|
Shrink reserve
|
|
|
1,869
|
|
|
|
5,191
|
|
|
|
(4,760
|
)
|
|
|
2,300
|
|
|
|
|
|
Inventory lower of cost or market reserve
|
|
|
4,014
|
|
|
|
881
|
|
|
|
(1,579
|
)
|
|
|
3,316
|
|
|
|
|
|
Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
296
|
|
|
$
|
432
|
|
|
$
|
(239
|
)(a)
|
|
$
|
489
|
|
|
|
|
|
Shrink reserve
|
|
|
2,005
|
|
|
|
4,590
|
|
|
|
(4,726
|
)
|
|
|
1,869
|
|
|
|
|
|
Inventory lower of cost or market reserve
|
|
|
2,364
|
|
|
|
2,481
|
|
|
|
(831
|
)
|
|
|
4,014
|
|
|
|
|
|
Fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
309
|
|
|
$
|
209
|
|
|
$
|
(222
|
)(a)
|
|
$
|
296
|
|
|
|
|
|
Shrink reserve
|
|
|
1,745
|
|
|
|
3,785
|
|
|
|
(3,525
|
)
|
|
|
2,005
|
|
|
|
|
|
Inventory lower of cost or market reserve
|
|
|
1,801
|
|
|
|
1,840
|
|
|
|
(1,277
|
)
|
|
|
2,364
|
|
|
|
|
|
|
|
|
(a) |
|
Represents writeoff of uncollectible accounts |
64
Ulta
Salon, Cosmetics & Fragrance, Inc.
Notes to Financial
Statements (Continued)
|
|
14.
|
Selected
quarterly financial data
(unaudited)
|
The following tables set forth the Companys unaudited
quarterly results of operations for each of the quarters in
fiscal 2010 and fiscal 2009. The Company uses a 13 week
fiscal quarter ending on the last Saturday of the quarter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Net sales
|
|
$
|
320,196
|
|
|
$
|
321,804
|
|
|
$
|
339,179
|
|
|
$
|
473,659
|
|
|
$
|
268,825
|
|
|
$
|
273,539
|
|
|
$
|
284,043
|
|
|
$
|
396,364
|
|
Cost of sales
|
|
|
215,661
|
|
|
|
217,846
|
|
|
|
220,273
|
|
|
|
316,973
|
|
|
|
189,283
|
|
|
|
194,825
|
|
|
|
192,372
|
|
|
|
269,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
104,535
|
|
|
|
103,958
|
|
|
|
118,906
|
|
|
|
156,686
|
|
|
|
79,542
|
|
|
|
78,714
|
|
|
|
91,671
|
|
|
|
126,642
|
|
Selling, general and administrative expenses
|
|
|
80,729
|
|
|
|
79,909
|
|
|
|
90,309
|
|
|
|
107,159
|
|
|
|
69,393
|
|
|
|
66,468
|
|
|
|
74,797
|
|
|
|
91,755
|
|
Pre-opening expenses
|
|
|
474
|
|
|
|
1,793
|
|
|
|
4,305
|
|
|
|
523
|
|
|
|
1,195
|
|
|
|
2,010
|
|
|
|
2,183
|
|
|
|
615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
23,332
|
|
|
|
22,256
|
|
|
|
24,292
|
|
|
|
49,004
|
|
|
|
8,954
|
|
|
|
10,236
|
|
|
|
14,691
|
|
|
|
34,272
|
|
Interest expense
|
|
|
118
|
|
|
|
214
|
|
|
|
244
|
|
|
|
179
|
|
|
|
671
|
|
|
|
645
|
|
|
|
441
|
|
|
|
445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
23,214
|
|
|
|
22,042
|
|
|
|
24,048
|
|
|
|
48,825
|
|
|
|
8,283
|
|
|
|
9,591
|
|
|
|
14,250
|
|
|
|
33,827
|
|
Income tax expense
|
|
|
9,553
|
|
|
|
8,980
|
|
|
|
9,845
|
|
|
|
18,721
|
|
|
|
3,363
|
|
|
|
3,841
|
|
|
|
5,790
|
|
|
|
13,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
13,661
|
|
|
$
|
13,062
|
|
|
$
|
14,203
|
|
|
$
|
30,104
|
|
|
$
|
4,920
|
|
|
$
|
5,750
|
|
|
$
|
8,460
|
|
|
$
|
20,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.23
|
|
|
$
|
0.22
|
|
|
$
|
0.24
|
|
|
$
|
0.50
|
|
|
$
|
0.09
|
|
|
$
|
0.10
|
|
|
$
|
0.15
|
|
|
$
|
0.35
|
|
Diluted
|
|
$
|
0.23
|
|
|
$
|
0.22
|
|
|
$
|
0.23
|
|
|
$
|
0.49
|
|
|
$
|
0.08
|
|
|
$
|
0.10
|
|
|
$
|
0.14
|
|
|
$
|
0.34
|
|
The sum of the quarterly net income per common share may not
equal the annual total due to quarterly changes in the weighted
average shares and share equivalents outstanding.
65
Exhibits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
Filed
|
|
|
|
Exhibit
|
|
File
|
|
Filing
|
Number
|
|
Description of Document
|
|
Herewith
|
|
Form
|
|
Number
|
|
Number
|
|
Date
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation
|
|
|
|
S-1
|
|
|
3.1
|
|
|
|
333-144405
|
|
|
|
8/17/2007
|
|
|
3
|
.2
|
|
Amended and Restated Bylaws
|
|
|
|
S-1
|
|
|
3.2
|
|
|
|
333-144405
|
|
|
|
8/17/2007
|
|
|
4
|
.1
|
|
Specimen Common Stock Certificate
|
|
|
|
S-1
|
|
|
4.1
|
|
|
|
333-144405
|
|
|
|
10/11/2007
|
|
|
4
|
.2
|
|
Third Amended and Restated Registration Rights Agreement between
Ulta Salon, Cosmetics & Fragrance, Inc. and the
stockholders party thereto
|
|
|
|
S-1
|
|
|
4.2
|
|
|
|
333-144405
|
|
|
|
8/17/2007
|
|
|
4
|
.3
|
|
Stockholder Rights Agreement
|
|
|
|
S-1
|
|
|
4.4
|
|
|
|
333-144405
|
|
|
|
8/17/2007
|
|
|
10
|
.1
|
|
Ulta Salon, Cosmetics & Fragrance, Inc. Second Amended
and Restated Restricted Stock Option Plan
|
|
|
|
S-1
|
|
|
10.7
|
|
|
|
333-144405
|
|
|
|
8/17/2007
|
|
|
10
|
.1(a)
|
|
Amendment to Ulta Salon, Cosmetics & Fragrance, Inc.
Second Amended and Restated Restricted Stock Option Plan
|
|
|
|
S-1
|
|
|
10.7
|
(a)
|
|
|
333-144405
|
|
|
|
8/17/2007
|
|
|
10
|
.2
|
|
Ulta Salon, Cosmetics & Fragrance, Inc. 2002 Equity
Incentive Plan
|
|
|
|
S-1
|
|
|
10.9
|
|
|
|
333-144405
|
|
|
|
8/17/2007
|
|
|
10
|
.3
|
|
Ulta Salon, Cosmetics & Fragrance, Inc. 2007 Incentive
Award Plan
|
|
|
|
S-1
|
|
|
10.10
|
|
|
|
333-144405
|
|
|
|
9/27/2007
|
|
|
10
|
.4
|
|
Ulta Salon, Cosmetics & Fragrance, Inc. Nonqualified
Deferred Compensation Plan
|
|
|
|
10-K
|
|
|
10.17
|
|
|
|
001-33764
|
|
|
|
4/2/2009
|
|
|
10
|
.5
|
|
Office Lease, dated as of April 17, 2007, between Ulta
Salon, Cosmetics & Fragrance, Inc. and Bolingbrook
Investors, LLC
|
|
|
|
S-1
|
|
|
10.13
|
|
|
|
333-144405
|
|
|
|
8/17/2007
|
|
|
10
|
.5(a)
|
|
Amendment to Lease, dated as of November 2007, by and between
Bolingbrook Investors, LLC and Ulta Salon, Cosmetics &
Fragrance, Inc.
|
|
|
|
10-K
|
|
|
10.5
|
(a)
|
|
|
001-33764
|
|
|
|
3/30/2010
|
|
|
10
|
.5(b)
|
|
Second Amendment to Lease, dated February 20, 2008, by and
between Bolingbrook Investors, LLC and Ulta Salon,
Cosmetics & Fragrance, Inc.
|
|
|
|
10-Q
|
|
|
10.1
|
|
|
|
001-33764
|
|
|
|
6/17/2008
|
|
|
10
|
.5(c)
|
|
Third Amendment to Lease, dated as of March 2008, by and between
Bolingbrook Investors, LLC and Ulta Salon, Cosmetics &
Fragrance, Inc.
|
|
|
|
10-K
|
|
|
10.5
|
(c)
|
|
|
001-33764
|
|
|
|
3/30/2010
|
|
|
10
|
.5(d)
|
|
Fourth Amendment to Lease, dated as of May 3, 2010, by and
between Bolingbrook Investors, LLC and Ulta Salon,
Cosmetics & Fragrance, Inc.
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.6*
|
|
Lease, effective as of June 21, 2007, by and between
Southwest Valley Partners, LLC and Ulta Salon,
Cosmetics & Fragrance, Inc.
|
|
|
|
S-1
|
|
|
10.15
|
|
|
|
333-144405
|
|
|
|
9/27/2007
|
|
|
10
|
.6(a)
|
|
First Amendment to Lease, dated October 23, 2007, by and
between Southwest Valley Partners, LLC and Ulta Salon,
Cosmetics & Fragrance, Inc.
|
|
|
|
10-K
|
|
|
10.6
|
(a)
|
|
|
001-33764
|
|
|
|
3/30/2010
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
Filed
|
|
|
|
Exhibit
|
|
File
|
|
Filing
|
Number
|
|
Description of Document
|
|
Herewith
|
|
Form
|
|
Number
|
|
Number
|
|
Date
|
|
|
10
|
.6(b)*
|
|
Second Amendment to Lease, dated March 17, 2008, by and
between Southwest Valley Partners, LLC and Ulta Salon,
Cosmetics & Fragrance, Inc.
|
|
|
|
10-Q
|
|
|
10.2
|
|
|
|
001-33764
|
|
|
|
6/17/2008
|
|
|
10
|
.6(c)
|
|
Third Amendment to Lease, dated as of August 27, 2010, by
and between The Lincoln National Life Insurance Company and Ulta
Salon, Cosmetics & Fragrance, Inc.
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
.7*
|
|
Acceptance Letter and Commencement Date Agreement, dated
March 24, 2008, by and between Southwest Valley Partners,
LLC and Ulta Salon, Cosmetics & Fragrance, Inc.
|
|
|
|
10-Q
|
|
|
10.3
|
|
|
|
001-33764
|
|
|
|
6/17/2008
|
|
|
10
|
.8
|
|
Lease Agreement, dated June 22, 1999, between ULTA3
Cosmetics & Salon, Inc. and 1135 Arbor Drive Investors
LLC
|
|
|
|
S-1
|
|
|
10.10
|
|
|
|
333-144405
|
|
|
|
8/17/2007
|
|
|
10
|
.8(a)
|
|
First Amendment to Lease Agreement, dated as of November 1,
2000, between Aetna Life Insurance Company
c/o UBS
Realty Investors, LLC and Ulta Salon, Cosmetics &
Fragrance, Inc.
|
|
|
|
10-K
|
|
|
10.8(a
|
)
|
|
|
001-33764
|
|
|
|
3/30/2010
|
|
|
10
|
.8(b)
|
|
Second Amendment to Office/Showroom/ Warehouse Lease, dated as
of April 27, 2009, between 1135 Arbor Drive Investors LLC
and Ulta Salon, Cosmetics & Fragrance, Inc.
|
|
|
|
10-K
|
|
|
10.8(b
|
)
|
|
|
001-33764
|
|
|
|
3/30/2010
|
|
|
10
|
.8(c)
|
|
Third Amendment to Lease, dated November 10, 2009, by and
between 1135 Arbor Drive Investors LLC and Ulta Salon,
Cosmetics & Fragrance, Inc.
|
|
|
|
10-K
|
|
|
10.8(c
|
)
|
|
|
001-33764
|
|
|
|
3/30/2010
|
|
|
10
|
.9
|
|
Amendment to Option Agreement with Grant Date March 24,
2008, by and between Ulta Salon, Cosmetics &
Fragrance, Inc. and Lyn Kirby
|
|
|
|
10-K
|
|
|
10.16(a
|
)
|
|
|
001-33764
|
|
|
|
4/2/2009
|
|
|
10
|
.10
|
|
Succession agreement, dated as of April 23, 2010, by and
between Ulta Salon, Cosmetics & Fragrance, Inc. and
Lyn Kirby.
|
|
|
|
8-K
|
|
|
10.1
|
|
|
|
001-33764
|
|
|
|
4/27/2010
|
|
|
10
|
.11
|
|
Employment Agreement, dated as of April 12, 2010, by and
between Ulta Salon, Cosmetics & Fragrance, Inc. and
Carl Rubin.
|
|
|
|
8-K
|
|
|
10.2
|
|
|
|
001-33764
|
|
|
|
4/27/2010
|
|
|
10
|
.12
|
|
First Amendment to Carl Rubin Employment Agreement, dated
April 28, 2010.
|
|
|
|
10-Q
|
|
|
10.2(a
|
)
|
|
|
001-33764
|
|
|
|
6/3/2010
|
|
|
10
|
.13
|
|
Restricted Stock Award Agreement, dated May 10, 2010, by
and between Ulta Salon, Cosmetics & Fragrance, Inc.
and Carl Rubin.
|
|
|
|
8-K
|
|
|
10.3
|
|
|
|
001-33764
|
|
|
|
4/27/2010
|
|
|
10
|
.14
|
|
Option Agreement, dated May 10, 2010, by and between Ulta
Salon, Cosmetics & Fragrance, Inc. and Carl Rubin.
|
|
|
|
8-K
|
|
|
10.4
|
|
|
|
001-33764
|
|
|
|
4/27/2010
|
|
|
10
|
.15
|
|
Loan and Security Agreement, dated August 31, 2010, by and
between Ulta Salon, Cosmetics & Fragrance, Inc. and
Wells Fargo Bank, National Association, JP Morgan Chase Bank,
N.A., and PNC Bank, National Association.
|
|
|
|
8-K
|
|
|
10.9.B
|
|
|
|
001-33764
|
|
|
|
9/7/2010
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
Filed
|
|
|
|
Exhibit
|
|
File
|
|
Filing
|
Number
|
|
Description of Document
|
|
Herewith
|
|
Form
|
|
Number
|
|
Number
|
|
Date
|
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
.1
|
|
Certification of the Chief Executive Officer pursuant to
Rules 13a-14(a)
and 15d-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to section 302 of the Sarbanes-Oxley Act of 2002
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
.2
|
|
Certification of the Chief Financial Officer pursuant to
Rules 13a-14(a)
and 15d-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to section 302 of the Sarbanes-Oxley Act of 2002
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
.1
|
|
Certification of the Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Confidential treatment has been requested with respect to
certain portions of this Exhibit pursuant to
Rule 24b-2
under the Securities Exchange Act. Omitted portions have been
filed separately with the Securities and Exchange Commission. |
68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chicago, State of
Illinois, on March 30, 2011.
ULTA SALON, COSMETICS & FRAGRANCE, INC.
Gregg R. Bodnar
Chief Financial Officer and Assistant Secretary
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated:
|
|
|
|
|
|
|
Signatures
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Carl
S. Rubin
Carl
S. Rubin
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Gregg
R. Bodnar
Gregg
R. Bodnar
|
|
Chief Financial Officer and Assistant Secretary (Principal
Financial and Accounting Officer)
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Hervé
J.F. Defforey
Hervé
J.F. Defforey
|
|
Director
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Robert
F. DiRomualdo
Robert
F. DiRomualdo
|
|
Director
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Dennis
K. Eck
Dennis
K. Eck
|
|
Chairman of the Board of Directors
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Charles
Heilbronn
Charles
Heilbronn
|
|
Director
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Lorna
E. Nagler
Lorna
E. Nagler
|
|
Director
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Charles
J. Philippin
Charles
J. Philippin
|
|
Director
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Yves
Sisteron
Yves
Sisteron
|
|
Director
|
|
March 30, 2011
|
69