Ulta Beauty Announces Fourth Quarter and Fiscal Year 2011 Results

Fourth Quarter Total Sales Increase 23.0%

Fourth Quarter Comparable Store Sales Increase 11.5%

Fourth Quarter Diluted EPS Increased 49.0% to $0.73

Announces $1.00 Per Share Special Cash Dividend

BOLINGBROOK, Ill.--()--Ulta Beauty [NASDAQ:ULTA], today announced financial results for the thirteen week period (“Fourth Quarter”) and fifty-two week period (“Fiscal Year”) ended January 28, 2012, which compares to the same period ended January 29, 2011.

Ulta Beauty also announced that its Board of Directors has declared a special cash dividend of $1.00 per share to shareholders of record as of March 20, 2012, with a payment date of May 15, 2012.

For the Fourth Quarter:

  • Net sales increased 23.0% to $582.5 million from $473.7 million in the fourth quarter of fiscal 2010;
  • Comparable store sales (sales for stores open at least 14 months) increased 11.5% compared to an increase of 10.4% in the fourth quarter of fiscal 2010;
  • Gross profit increased 100 basis points to 34.1% from 33.1% in the fourth quarter of fiscal 2010;
  • Selling, general and administrative (SG&A) expense as a percentage of net sales decreased 110 basis points, excluding the fiscal 2010 nonrecurring compensation charge, compared to the fourth quarter of fiscal 2010.
  • Operating income increased 49.5% to $73.2 million, or 12.6% of net sales, compared to $49.0 million, or 10.3% of net sales, in the fourth quarter of fiscal 2010;
  • Tax rate of 36.7% reflects $0.02 per diluted share benefit compared to fourth quarter fiscal 2010 driven by certain federal and state tax deductions and credits;
  • Net income increased 53.8% to $46.3 million compared to $30.1 million in the fourth quarter of fiscal 2010; and
  • Income per diluted share increased 49.0% to $0.73 compared to $0.49 in the fourth quarter of fiscal 2010.

Chuck Rubin, President and Chief Executive Officer of Ulta stated: “Our positive momentum continued in the fourth quarter and concluded another outstanding year of growth at Ulta Beauty. We grew market share across all major categories in the fourth quarter and fiscal year, demonstrating the ongoing strength of our store experience, our superior customer service and the excitement we bring our guests in new products, brands, services, in-store events and only at Ulta exclusives. Our store expansion continued favorably and included the opening of 61 new stores in the fiscal year for square footage expansion of 16%. Combined, these achievements fueled more than a 20% increase in net sales and double digit comparable store sales growth for the year. We continue to leverage our infrastructure as we grow and deliver significant free cash flow. To this point, we expanded operating margin by 280 basis points to reach 11% of net sales in 2011, moving us closer to our mid-teen operating margin goal. We are very proud of our accomplishments this year and equally confident about our ability to continue our success in fiscal 2012 and long term.”

“As we look forward into 2012 and beyond, we are focused on building upon our successful strategies and determining priorities for the strong cash position we have developed,” Mr. Rubin continued. “Given the attractive returns from our new store program, we are further accelerating our square footage growth in 2012 to approximately 22%, or 100 new locations. In recognition of our expectations of generating significant free cash flow in 2012, while investing in approximately 100 new stores and the people and infrastructure to support our growth, our Board of Directors has decided to return a portion of capital to our shareholders by way of a $1.00 per share special cash dividend. We will continue to evaluate the appropriate use of cash generated in our business to maximize returns for shareholders,” Mr. Rubin concluded.

For the Fiscal Year 2011:

  • Net sales increased 22.1% to $1,776.2 million from $1,454.8 million in fiscal 2010;
  • Comparable store sales (sales for stores open at least 14 months) increased 10.9% compared to an increase of 11.0% in fiscal 2010;
  • Gross profit increased 140 basis points to 34.7% from 33.3% in fiscal 2010;
  • SG&A expense as a percentage of net sales decreased 120 basis points, excluding the fiscal 2010 non-recurring compensation charge, compared to fiscal 2010;
  • Pre-opening expense increased $2.9 million compared to fiscal 2010 due to the accelerated new store opening program which included 61 new stores, 2 relocations and 17 remodels in fiscal 2011 compared to 47 new stores, 5 relocations and 13 remodeled stores in fiscal 2010;
  • Operating income increased 65.0% to $196.2 million, or 11.0% of net sales, compared to $118.9 million, or 8.2% of net sales, in fiscal 2010;
  • Net income increased 69.3% to $120.3 million compared to $71.0 million in fiscal 2010;
  • Tax rate decreased to 38.5% compared to 39.9% in fiscal 2010 due to a decrease in the amount of non-deductible compensation expense and certain federal and state tax credits;
  • Income per diluted share increased 63.8% to $1.90 compared to $1.16 in fiscal 2010.

Balance Sheet and Cash Flow

Merchandise inventories at the end of the fourth quarter totaled $244.6 million, compared to $218.5 million at the end of fourth quarter fiscal 2010, representing an increase of $26.1 million. The increase is primarily due to the addition of 60 net new stores opened since January 29, 2011. Inventory per store decreased 3% compared to the prior year.

The Company generated free cash flow of $92.3 million during fiscal year ended January 28, 2012. Free cash flow is defined as net cash provided by operating activities less purchases of property and equipment. A reconciliation of free cash flow, a non-GAAP measure, is included at Exhibit 5. The Company did not utilize its credit facility during the year ended January 28, 2012 and ended the year with $253.7 million in cash and cash equivalents.

Store Expansion

During the fourth quarter, the Company opened 7 stores located in Champaign, IL; East Brunswick, NJ; Fargo, ND; Mobile, AL; Peoria, IL; San Angelo, TX; and Watertown, NY. The Company ended the fourth quarter with 449 stores and square footage of 4,747,148, which represents a 16% increase in square footage compared to the fourth quarter of fiscal 2010.

Outlook

For the first quarter of fiscal 2012, the Company currently expects net sales in the range of $452 million to $460 million, compared to actual net sales of $386 million in the first quarter of fiscal 2011. This assumes comparable stores sales increase 6% to 8%, compared to an 11.1% increase last year.

Income per diluted share for the first quarter of fiscal 2012 is estimated to be in the range of $0.46 to $0.48. This includes approximately a $0.01 impact driven by incremental pre-opening expense from our accelerated new store program. We plan to open approximately 13 new stores in the first quarter fiscal 2012 compared to five in the first quarter fiscal 2011. Income per diluted share for first quarter fiscal 2011 was $0.37.

For fiscal 2012, the Company plans to:

  • achieve comparable store sales growth at or slightly above the high end of the Company’s long term goal of 3% to 5%;
  • deliver net income growth at the high end of the Company’s long term target of 25% - 30%, including the impact of the accelerated new store program;
  • incur capital expenditures of approximately $170 million, compared to $128.6 million in fiscal 2011;
  • expand square footage by approximately 22% with the opening of approximately 100 new stores;
  • remodel approximately 21 locations; and
  • generate free cash flow.

Conference Call Information

A conference call to discuss fourth quarter results is scheduled for today, March 8, 2012, at 5:00 p.m. Eastern Time. Investors and analysts interested in participating in the call are invited to dial (877) 705-6003 approximately ten minutes prior to the start of the call. The conference call will also be web-cast live at http://ir.ulta.com and remain available for 90 days. A replay of this call will be available until 11:59 p.m. (ET) on March 15, 2012 and can be accessed by dialing (877) 870-5176 and entering conference ID number 388666.

About Ulta Beauty

Ulta Beauty is the largest beauty retailer that provides one-stop shopping for prestige, mass and salon products and salon services in the United States. Ulta Beauty provides affordable indulgence to its customers by combining the product breadth, value and convenience of a beauty superstore with the distinctive environment and experience of a specialty retailer. Ulta Beauty offers a unique combination of over 20,000 prestige and mass beauty products across the categories of cosmetics, fragrance, haircare, skincare, bath and body products and salon styling tools, as well as salon haircare products. Ulta Beauty also offers a full-service salon in all of its stores. As of January 28, 2012, the Company operates 449 retail stores across 43 states and also distributes its products through the Company’s website: www.ulta.com.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “plans,” “estimates,” or other comparable words. Any forward-looking statements contained in this press release are based upon our historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates 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 our Annual Report on Form 10-K for the fiscal year ended January 29, 2011. Our filings with the SEC are available at www.sec.gov. The Company does not undertake to publicly update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

 

Exhibit 1

Ulta Salon, Cosmetics & Fragrance, Inc.
Statements of Income
(In thousands, except per share amounts)
   
13 Weeks Ended 13 Weeks Ended
January 28, January 29,
2012   2011  
(Unaudited) (Unaudited)
Net sales $ 582,511   100.0 % $ 473,659   100.0 %
Cost of sales   384,046   65.9 %   316,973   66.9 %
Gross profit 198,465 34.1 % 156,686 33.1 %
 
Selling, general and administrative expense 124,235 21.3 % 107,159 22.6 %
Pre-opening expenses   983   0.2 %   523   0.1 %
Operating income 73,247 12.6 % 49,004 10.3 %
Interest expense   91   0.0 %   179   0.0 %
Income before income taxes 73,156 12.6 % 48,825 10.3 %
Income tax expense   26,861   4.6 %   18,721   4.0 %
Net income $ 46,295   7.9 % $ 30,104   6.4 %
 
Net income per common share:
Basic $ 0.75 $ 0.50
Diluted $ 0.73 $ 0.49
 
Weighted average common shares outstanding:
Basic 61,905 59,738
Diluted 63,681 61,919
 

Exhibit 2

Ulta Salon, Cosmetics & Fragrance, Inc.
Statements of Income
(In thousands, except per share amounts)
 
  52 Weeks Ended   52 Weeks Ended
January 28, January 29,
2012   2011  
(Unaudited)  
Net sales $ 1,776,151   100.0 % $ 1,454,838 100.0 %
Cost of sales   1,159,311   65.3 %   970,753   66.7 %
Gross profit 616,840 34.7 % 484,085 33.3 %
 
Selling, general and administrative expense 410,658 23.1 % 358,106 24.6 %
Pre-opening expenses   9,987   0.6 %   7,095   0.5 %
Operating income 196,195 11.0 % 118,884 8.2 %
Interest expense   587   0.0 %   755   0.1 %
Income before income taxes 195,608 11.0 % 118,129 8.1 %
Income tax expense   75,344   4.2 %   47,099   3.2 %
Net income $ 120,264   6.8 % $ 71,030   4.9 %
 
Net income per common share:
Basic $ 1.96 $ 1.20
Diluted $ 1.90 $ 1.16
 
Weighted average common shares outstanding:
Basic 61,259 58,959
Diluted 63,334 61,288
 

Exhibit 3

Ulta Salon, Cosmetics & Fragrance, Inc.
Condensed Balance Sheets
(In thousands)
 
  January 28,   January 29,
2012 2011
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 253,738 $ 111,185
Receivables, net 26,153 22,292
Merchandise inventories, net 244,647 218,516
Prepaid expenses and other current assets 43,430 32,790
Prepaid income taxes 10,684
Deferred income taxes   12,264     8,922
Total current assets 580,232 404,389
 
Property and equipment, net   376,985     326,099
Total assets $ 957,217   $ 730,488
 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 86,442 $ 87,093
Accrued liabilities 74,411 76,264
Accrued income taxes   4,002    
Total current liabilities 164,855 163,357
 
Deferred rent 163,463 134,572
Deferred income taxes   44,195     30,026
Total liabilities 372,513 327,955
 
Commitments and contingencies
 
Total stockholders’ equity   584,704     402,533
Total liabilities and stockholders’ equity $ 957,217   $ 730,488
 

Exhibit 4

Ulta Salon, Cosmetics & Fragrance, Inc.
Statements of Cash Flows
(In thousands)
 
  52 Weeks Ended
January 28,   January 29,
2012   2011  
(Unaudited)
Operating activities
Net income $ 120,264 $ 71,030
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 75,931 64,936
Deferred income taxes 10,827 7,741
Non-cash stock compensation charges 11,605 11,155
Excess tax benefits from stock-based compensation (25,899 ) (10,640 )
Loss (gain) on disposal of property and equipment 1,324 (519 )
Change in operating assets and liabilities:
Receivables (3,861 ) (8,815 )
Merchandise inventories (26,131 ) (11,568 )
Prepaid expenses and other current assets (10,640 ) (2,518 )
Income taxes 40,585 (10,354 )
Accounts payable (651 ) 30,706
Accrued liabilities (1,358 ) 14,535
Deferred rent   28,891       20,854  
Net cash provided by operating activities 220,887 176,543
 
Investing activities
Purchases of property and equipment   (128,636 )     (97,115 )
Net cash used in investing activities (128,636 ) (97,115 )
 
Financing activities
Stock options exercised 27,639 17,100
Excess tax benefits from stock-based compensation 25,899 10,640
Common stock repurchased   (3,236 )      
Net cash provided by financing activities   50,302       27,740  
 
Net increase in cash and cash equivalents 142,553 107,168
Cash and cash equivalents at beginning of period   111,185       4,017  
Cash and cash equivalents at end of period $ 253,738     $ 111,185  
 

Exhibit 5

Ulta Salon, Cosmetics & Fragrance, Inc.
SEC Regulation G Disclosure
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
(In thousands)
 
  52 Weeks Ended
January 28,   January 29,
2012   2011
(Unaudited)
Net cash provided by operating activities $ 220,887 $ 176,543
Less: purchases of property and equipment   (128,636)     (97,115)
Free cash flow (a) $ 92,251   $ 79,428

(a) Free cash flow is a non-GAAP financial measure. The Company believes free cash flow is an important metric as it represents a measure of how much cash the Company has available after the deduction of capital expenditures, as the Company requires regular capital expenditures to build and maintain stores and purchase new equipment to improve the business. The Company uses this metric internally as the Company believes the sustained ability to generate free cash flow is an important driver of value creation. However, this non-GAAP financial measure is not intended to supersede or replace the Company’s GAAP results.

   

Exhibit 6

2011 Store Expansion

 
Fiscal 2011  

Total stores open
at beginning of the
quarter

 

Number of stores
opened during the
quarter

 

Number of stores
closed during the
quarter

 

Total stores open
at end of the quarter

1st Quarter   389   5 0 394
2nd Quarter 394 21 0 415
3rd Quarter 415 28 1 442
4th Quarter 442 7 0 449
 
Fiscal 2011  

Total gross square
feet at beginning of
the quarter

 

Gross square feet for
stores opened or
expanded during the
quarter

 

Gross square feet for
stores closed
during the quarter

 

Total gross square
feet at end of the
quarter

1st Quarter 4,094,808 58,612 0 4,153,420
2nd Quarter 4,153,420 236,667 0 4,390,087
3rd Quarter 4,390,087 301,856 18,812 4,673,131
4th Quarter 4,673,131 74,017 0 4,747,148

Contacts

Company:
Ulta Beauty
Gregg Bodnar, 630-410-4633
Chief Financial Officer
or
Investors/Media:
ICR, Inc.
Allison Malkin / Alecia Pulman
203-682-8225 / 203-682-8224

Contacts

Company:
Ulta Beauty
Gregg Bodnar, 630-410-4633
Chief Financial Officer
or
Investors/Media:
ICR, Inc.
Allison Malkin / Alecia Pulman
203-682-8225 / 203-682-8224