ULTA Beauty Announces Second Quarter 2015 Results

Total Sales Increased 19.4%
Comparable Sales Increased
10.1%

Diluted EPS Increased 22.3% to $1.15
Company
Raises Guidance for Fiscal Year 2015

BOLINGBROOK, Ill.–(BUSINESS WIRE)–ULTA Beauty (NASDAQ:ULTA) today announced financial results for the
thirteen week period (“Second Quarter”) and twenty-six week period
(“First Six Months”) ended August 1, 2015, which compares to the same
periods ended August 2, 2014.

“The Ulta Beauty team achieved outstanding results in the second
quarter, with top line momentum delivering better than expected earnings
growth,” said Mary Dillon, Chief Executive Officer. “Strong traffic
growth drove healthy comparable sales increases across stores, salon and
e-commerce, while average ticket growth also contributed. An exciting
pipeline of new products, combined with increasing effectiveness of our
marketing strategies, drove market share gains across all categories. In
light of the excellent performance of the business in the first half of
the year, we are raising our outlook for the full year and now expect to
achieve earnings per share growth in the high teens.”

For the Second Quarter

  • Net sales increased 19.4% to $877.0 million from $734.2 million in the
    second quarter of fiscal 2014;
  • Comparable sales (sales for stores open at least 14 months and
    e-commerce sales) increased 10.1% compared to an increase of 9.6% in
    the second quarter of fiscal 2014. The 10.1% comparable sales increase
    was driven by 7.0% growth in transactions and 3.1% growth in average
    ticket;
  • Retail comparable sales increased 8.9%, including salon comparable
    sales growth of 10.1%;
  • Salon sales increased 19.7% to $51.6 million from $43.1 million in the
    second quarter of fiscal 2014;
  • E-commerce sales grew 43.4% to $36.1 million from $25.2 million in the
    second quarter of fiscal 2014, representing 120 basis points of the
    total company comparable sales increase of 10.1%;
  • Gross profit decreased 40 basis points to 34.9% from 35.3% in the
    second quarter of fiscal 2014 primarily due to supply chain
    initiatives including the new Greenwood, Indiana distribution center;
  • Selling, general and administrative (SG&A) expense as a percentage of
    net sales decreased 50 basis points to 21.0% compared to 21.5% in the
    second quarter of fiscal 2014 primarily due to marketing efficiencies;
  • Pre-opening expenses increased to $4.1 million, compared to $3.6
    million in the second quarter of fiscal 2014. Real estate activity in
    the second quarter of fiscal 2015 included 20 new stores, one
    relocation and two remodels compared to 19 new stores and four
    remodels in the second quarter of fiscal 2014;
  • Operating income increased 20.9% to $118.5 million, or 13.5% of net
    sales, compared to $98.0 million, or 13.3% of net sales, in the second
    quarter of fiscal 2014;
  • Net income increased 22.0% to $74.2 million compared to $60.8 million
    in the second quarter of fiscal 2014; and
  • Income per diluted share increased 22.3% to $1.15 compared to $0.94 in
    the second quarter of fiscal 2014.

For the First Six Months

  • Net sales increased 20.5% to $1,745.1 million from $1,448.0 million in
    the first six months of fiscal 2014;
  • Comparable sales (sales for stores open at least 14 months and
    e-commerce sales) increased 10.8% compared to an increase of 9.2% in
    the first six months of fiscal 2014. The 10.8% comparable sales
    increase was driven by 7.2% growth in transactions and 3.6% growth in
    average ticket;
  • Retail comparable sales increased 9.3%, including salon comparable
    sales growth of 10.2%;
  • Salon sales increased 20.1% to $102.9 million from $85.7 million in
    the first six months of fiscal 2014;
  • E-commerce comparable sales grew 46.8% to $80.1 million from $54.5
    million in the first six months of fiscal 2014, representing 150 basis
    points of the total company comparable sales increase of 10.8%;
  • Gross profit as a percentage of net sales was equal to the first six
    months of fiscal 2014 at 34.9%;
  • SG&A expense as a percentage of net sales decreased 50 basis points to
    21.6% compared to 22.1% in the first six months in fiscal 2014;
  • Pre-opening expense increased to $7.2 million compared to $6.2 million
    in the first six months of fiscal 2014. Real estate activity in the
    first six months of 2015 included 44 new stores, two relocations and
    two remodels compared to 40 new stores and four remodels in the first
    six months of fiscal 2014;
  • Operating income increased 26.4% to $226.0 million, or 13.0% of net
    sales, compared to $178.9 million, or 12.4% of net sales, in the first
    six months of fiscal 2014;
  • Net income increased 27.4% to $141.1 million compared to $110.7
    million in the first six months of fiscal 2014; and
  • Income per diluted share increased 28.1% to $2.19 compared to $1.71 in
    the first six months of fiscal 2014.

Balance Sheet

Merchandise inventories at the end of the second quarter of fiscal 2015
totaled $705.7 million, compared to $541.5 million at the end of the
second quarter of fiscal 2014, representing an increase of $164.2
million. This increase was driven by 102 net new stores, the opening of
the Company’s fourth distribution center in Greenwood, Indiana, as well
as new brand additions. Average inventory per store increased 14%,
compared to the second quarter of fiscal 2014. This increase was
primarily driven by the new Greenwood, Indiana distribution center,
investments in inventory to ensure high in-stock levels to support
strong sales growth and incremental inventory for new brands and
in-store prestige brand boutiques. Average inventory per store,
excluding the investment in the new Greenwood, Indiana distribution
center, increased 10.9%.

The Company ended the second quarter of fiscal 2015 with $475.4 million
in cash and short-term investments.

Share Repurchase Program

During the second quarter, the Company repurchased 291,227 shares of its
stock at a cost of approximately $46 million under its 10b5-1 plan. As
of August 1, 2015, $286.3 million remained available under the $400
million share repurchase program.

Store Expansion

During the second quarter, the Company opened 20 stores located in
Albuquerque, NM; Ammon, ID; Bristol, TN; Chattanooga, TN; Clark, NJ;
Federal Way, WA; Jacksonville Beach, FL; Laurel, MD; Miami, FL; Myrtle
Beach, SC; Rancho Cordova, CA; Redlands, CA; Reno, NV; Roseville, MI;
San Francisco, CA; San Luis Obispo, CA; Shawnee, OK; Sioux City, IA;
Twin Falls, ID and Waterford, CT. The Company ended the second quarter
with 817 stores and square footage of 8,628,213, representing a 14%
increase in square footage compared to the second quarter of fiscal 2014.

Outlook

For the third quarter of fiscal 2015, the Company currently expects net
sales in the range of $869 million to $883 million, compared to actual
net sales of $745.7 million in the third quarter of fiscal 2014.
Comparable sales for the third quarter of 2015, including e-commerce
sales, are expected to increase 8% to 10%. The Company reported a
comparable sales increase of 9.5% in the third quarter of 2014.

Income per diluted share for the third quarter of fiscal 2015 is
estimated to be in the range of $1.00 to $1.05. This compares to income
per diluted share for the third quarter of fiscal 2014 of $0.91. As
previously communicated, earnings growth in the second half of 2015 is
expected to moderate compared to the first half of the year, reflecting
the timing of marketing expenses and supply chain investments including
a new distribution center in Greenwood, Indiana which opened on August
3, 2015.

The Company is raising its previously announced fiscal 2015 guidance.
The Company plans to:

  • achieve comparable sales growth of approximately 8% to 10%, including
    the impact of the e-commerce business, compared to previous guidance
    of 7% to 9%;
  • increase total sales in the mid to high teens percentage range;
  • grow e-commerce sales in the 40% range;
  • expand square footage by approximately 13% with the opening of 100 net
    new stores;
  • remodel four locations;
  • deliver earnings per share growth in the high teens, compared to
    previous guidance of the high end of the range of 15% to 17%. This
    includes planned supply chain and system investments, excluding the
    $0.02 non-recurring tax benefit in the fourth quarter of 2014, and
    assuming continued share repurchases to offset dilution; and
  • incur capital expenditures in the $300 million range in fiscal 2015,
    compared to $249 million in fiscal 2014.

Conference Call Information

A conference call to discuss second quarter results is scheduled for
today, August 27, 2015, at 5:00 p.m. Eastern Time. Investors and
analysts interested in participating in the call are invited to dial
(877) 705-6003. 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 September 10, 2015 and can be
accessed by dialing (877) 870-5176 and entering conference ID number
13617296.

About ULTA Beauty

ULTA Beauty (NASDAQ: ULTA) is the largest beauty retailer in the United
States and the premier beauty destination for cosmetics, fragrance,
skin, hair care products and salon services. Since opening its first
store 25 years ago, ULTA Beauty has grown to become the top national
retailer providing All Things Beauty, All in One Place™. The Company
offers more than 20,000 products from over 500 well-established and
emerging beauty brands across all categories and price points, including
ULTA Beauty’s own private label. ULTA Beauty also offers a full-service
salon in every store featuring hair, skin and brow services. ULTA Beauty
is recognized for its commitment to personalized service, fun and
inviting stores and its industry-leading ULTAmate Rewards loyalty
program. As of August 1, 2015 ULTA Beauty operates 817 retail stores
across 48 states and also distributes its products through its website,
which includes a collection of tips, tutorials and social content. For
more information, visit www.ulta.com.

Forward-Looking Statements

This press release contains “forward-looking statements” within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, which reflect our current views with
respect to, among other things, future events and financial performance.

You can identify these forward-looking statements by the use of
forward-looking words such as “outlook,” “believes,” “expects,” “plans,”
“estimates,” “targets,” “strategies” or other comparable words. Any
forward-looking statements contained in this press release are based
upon our historical performance and on current plans, estimates and
expectations. The inclusion of this forward-looking information should
not be regarded as a representation by us or any other person that the
future plans, estimates, targets, strategies or expectations
contemplated by us will be achieved. Such forward-looking statements are
subject to various risks and uncertainties, which include, without
limitation: the impact of weakness in the economy; changes in the
overall level of consumer spending; customer acceptance of our rewards
program and technological and marketing initiatives; 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 and the performance of our newly opened distribution
center 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; our ability to attract and retain key executive personnel; our
ability to successfully execute our common stock repurchase program or
implement future common stock repurchase programs; our ability to
sustain our growth plans and successfully implement our long-range
strategic and financial plan; 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 31, 2015.
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.

Consolidated Statements of Income

(In thousands, except per share amounts)

         
13 Weeks Ended 13 Weeks Ended
August 1, August 2,
2015 2014
(Unaudited) (Unaudited)
Net sales $ 876,999     100.0 % $ 734,236     100.0 %
Cost of sales   570,524       65.1 %   474,894       64.7 %
Gross profit 306,475 34.9 % 259,342 35.3 %
 
Selling, general and administrative expenses 183,937 21.0 % 157,768 21.5 %
Pre-opening expenses   4,078       0.5 %   3,595       0.5 %
Operating income 118,460 13.5 % 97,979 13.3 %
Interest income, net   (276 )     0.0 %   (209 )     0.0 %
Income before income taxes 118,736 13.5 % 98,188 13.4 %
Income tax expense   44,567       5.1 %   37,394       5.1 %
Net income $ 74,169       8.5 % $ 60,794       8.3 %
 
Net income per common share:
Basic $ 1.16 $ 0.94
Diluted $ 1.15 $ 0.94
 
Weighted average common shares outstanding:
Basic 64,087 64,349
Diluted 64,410 64,636
 
 

Exhibit 2

 

Ulta Salon, Cosmetics & Fragrance, Inc.

Consolidated Statements of Income

(In thousands, except per share amounts)

         
26 Weeks Ended 26 Weeks Ended
August 1, August 2,
2015 2014
(Unaudited) (Unaudited)
Net sales $ 1,745,121     100.0 % $ 1,448,006     100.0 %
Cost of sales   1,135,462       65.1 %   942,711       65.1 %
Gross profit 609,659 34.9 % 505,295 34.9 %
 
Selling, general and administrative expenses 376,422 21.6 % 320,211 22.1 %
Pre-opening expenses   7,195       0.4 %   6,224       0.4 %
Operating income 226,042 13.0 % 178,860 12.4 %
Interest income, net   (587 )     0.0 %   (409 )     0.0 %
Income before income taxes 226,629 13.0 % 179,269 12.4 %
Income tax expense   85,514       4.9 %   68,522       4.7 %
Net income $ 141,115       8.1 % $ 110,747       7.6 %
 
Net income per common share:
Basic $ 2.20 $ 1.72
Diluted $ 2.19 $ 1.71
 
Weighted average common shares outstanding:
Basic 64,134 64,311
Diluted 64,484 64,618
 
 

Exhibit 3

 

Ulta Salon, Cosmetics & Fragrance, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

             
August 1, January 31, August 2,
2015     2015     2014
(Unaudited) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 325,214 $ 389,149 $ 363,058
Short-term investments 150,209 150,209 100,146
Receivables, net 45,277 52,440 42,110
Merchandise inventories, net 705,660 581,229 541,508
Prepaid expenses and other current assets 67,076 66,548 58,859
Prepaid income taxes 1,883
Deferred income taxes   20,766       20,780       22,012
Total current assets 1,316,085 1,260,355

 

1,127,693
 
Property and equipment, net 791,904 717,159 646,890
Deferred compensation plan assets   7,921       5,656       5,229
Total assets $ 2,115,910     $ 1,983,170     $ 1,779,812
 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 215,720 $ 190,778 $ 163,459
Accrued liabilities 154,494 149,412 126,792
Accrued income taxes         19,404       9,890
Total current liabilities 370,214 359,594 300,141
 
Deferred rent 315,931 294,127 281,348
Deferred income taxes 75,167 74,498 65,842
Other long-term liabilities   10,809       7,442       6,440
Total liabilities 772,121 735,661 653,771
 
Commitments and contingencies
 
Total stockholders’ equity   1,343,789       1,247,509       1,126,041
Total liabilities and stockholders’ equity $ 2,115,910     $ 1,983,170     $ 1,779,812
 
 

Exhibit 4

         

Ulta Salon, Cosmetics & Fragrance, Inc.

Consolidated Statements of Cash Flows

(In thousands)

 
26 Weeks Ended
August 1, August 2,
2015     2014
(Unaudited)
Operating activities
Net income $ 141,115 $ 110,747
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 76,738 62,372
Deferred income taxes 683 (642 )
Non-cash stock compensation charges 7,578 7,603
Excess tax benefits from stock-based compensation (7,257 ) (1,423 )
Loss on disposal of property and equipment 1,629 2,582
Change in operating assets and liabilities:
Receivables 7,163 4,939
Merchandise inventories (124,431 ) (83,575 )
Prepaid expenses and other current assets (528 ) (2,866 )
Income taxes (14,030 ) (4,036 )
Accounts payable 24,942 15,177
Accrued liabilities (10,812 ) 1,601
Deferred rent 21,804 19,718
Other assets and liabilities   1,102     1,031  
Net cash provided by operating activities 125,696 133,228
 
Investing activities
Purchases of short-term investments (50,000 ) (100,146 )
Proceeds from short-term investments 50,000
Purchases of property and equipment   (137,218 )   (94,097 )
Net cash used in investing activities (137,218 ) (194,243 )
 
Financing activities
Repurchase of common shares (73,753 )
Stock options exercised 15,561 4,510
Excess tax benefits from stock-based compensation 7,257 1,423
Purchase of treasury shares   (1,478 )   (1,336 )
Net cash (used in) provided by financing activities   (52,413 )   4,597  
 
Net decrease in cash and cash equivalents (63,935 ) (56,418 )
Cash and cash equivalents at beginning of period   389,149     419,476  
Cash and cash equivalents at end of period $ 325,214   $ 363,058  
 
 

Exhibit 5

 

2015 Store Expansion

                 
Total stores open at Number of stores Number of stores
beginning of the opened during the closed during the Total stores open at
Fiscal 2015       quarter     quarter     quarter     end of the quarter
1st Quarter 774 24 1 797
2nd Quarter 797 20 0 817
 
Gross square feet for
Total gross square stores opened or Gross square feet Total gross square
feet at beginning of expanded during the for stores closed feet at end of the
Fiscal 2015       the quarter     quarter     during the quarter     quarter
1st Quarter 8,182,404 253,429 10,452 8,425,381
2nd Quarter 8,425,381 202,832 0 8,628,213

Contacts

ULTA Beauty
Scott Settersten
Chief Financial Officer
(630)
410-4807
or
Laurel Lefebvre
Vice President, Investor
Relations
(630) 410-5230
or
Karen May
Director,
Public Relations
(630) 410-5457