ULTA BEAUTY, INC., 10-K filed on 3/27/2020
Annual Report
v3.20.1
Document and Entity Information - USD ($)
12 Months Ended
Feb. 01, 2020
Mar. 23, 2020
Aug. 02, 2019
Document And Entity Information      
Entity Registrant Name ULTA BEAUTY, INC.    
Document Annual Report true    
Document Transition Report false    
Entity Central Index Key 0001403568    
Document Type 10-K    
Document Period End Date Feb. 01, 2020    
Amendment Flag false    
Current Fiscal Year End Date --02-01    
Entity File Number 001-33764    
Entity Incorporation, State or Country Code DE    
Entity Tax Identification Number 38-4022268    
Entity Address, Address Line One 1000 Remington Blvd.    
Entity Address, Address Line Two Suite 120    
Entity Address, City or Town Bolingbrook    
Entity Address, State or Province IL    
Entity Address, Postal Zip Code 60440    
City Area Code 630    
Local Phone Number 410-4800    
Title of 12(b) Security Common stock, par value $0.01 per share    
Security Exchange Name NASDAQ    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Public Float     $ 14,367,080,000
Entity Common Stock, Shares Outstanding   56,309,476  
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Trading Symbol ULTA    
v3.20.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Feb. 01, 2020
Feb. 02, 2019
Current assets:    
Cash and cash equivalents $ 392,325 $ 409,251
Short-term investments 110,000 0
Receivables, net 139,337 136,168
Merchandise inventories, net 1,293,701 1,214,329
Prepaid expenses and other current assets 103,567 138,116
Prepaid income taxes 16,387 16,997
Total current assets 2,055,317 1,914,861
Property and equipment, net 1,205,524 1,226,029
Operating lease assets 1,537,565  
Goodwill 10,870 10,870
Other intangible assets, net 3,391 4,317
Deferred compensation plan assets 27,849 20,511
Other long-term assets 23,356 14,584
Total assets 4,863,872 3,191,172
Current liabilities:    
Accounts payable 414,009 404,016
Accrued liabilities 246,088 220,666
Deferred revenue 237,535 199,054
Current operating lease liabilities 239,629  
Total current liabilities 1,137,261 823,736
Non-current operating lease liabilities 1,698,718  
Deferred rent   434,980
Deferred income taxes 89,367 83,864
Other long-term liabilities 36,432 28,374
Total liabilities 2,961,778 1,370,954
Commitments and contingencies (Note 9)
Stockholders' equity:    
Common stock, $0.01 par value, 400,000 shares authorized; 57,285 and 59,232 shares issued; 56,609 and 58,584 shares outstanding; at February 1, 2020 and February 2, 2019, respectively 573 592
Treasury stock-common, at cost (34,448) (24,908)
Additional paid-in capital 807,492 738,671
Retained earnings 1,128,477 1,105,863
Total stockholders' equity 1,902,094 1,820,218
Total liabilities and stockholders' equity $ 4,863,872 $ 3,191,172
v3.20.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
shares in Thousands
Feb. 01, 2020
Feb. 02, 2019
Consolidated Balance Sheets    
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 400,000 400,000
Common stock, shares issued 57,285 59,232
Common stock, shares outstanding 56,609 58,584
v3.20.1
Consolidated Statements of Income - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 12 Months Ended
Feb. 01, 2020
Nov. 02, 2019
Aug. 03, 2019
May 04, 2019
Feb. 02, 2019
Nov. 03, 2018
Aug. 04, 2018
May 05, 2018
Feb. 01, 2020
Feb. 02, 2019
Feb. 03, 2018
Consolidated Statements of Income                      
Net sales $ 2,305,918 $ 1,682,514 $ 1,666,607 $ 1,743,029 $ 2,124,716 $ 1,560,011 $ 1,488,221 $ 1,543,667 $ 7,398,068 $ 6,716,615 $ 5,884,506
Cost of sales 1,499,033 1,059,081 1,060,708 1,098,182 1,383,857 987,733 952,760 982,954 4,717,004 4,307,304 3,787,697
Gross profit 806,885 623,433 605,899 644,847 740,859 572,278 535,461 560,713 2,681,064 2,409,311 2,096,809
Selling, general and administrative expenses 515,542 449,198 392,843 403,133 457,245 395,453 337,142 345,624 1,760,716 1,535,464 1,287,232
Pre-opening expenses 3,587 6,455 5,038 4,174 2,404 7,612 4,504 5,247 19,254 19,767 24,286
Operating income 287,756 167,780 208,018 237,540 281,210 169,213 193,815 209,842 901,094 854,080 785,291
Interest income, net (439) (900) (1,671) (2,046) (1,275) (1,318) (1,143) (1,325) (5,056) (5,061) (1,568)
Income before income taxes 288,195 168,680 209,689 239,586 282,485 170,531 194,958 211,167 906,150 859,141 786,859
Income tax expense 65,476 38,933 48,431 47,365 67,811 39,365 46,635 46,771 200,205 200,582 231,625
Net income $ 222,719 $ 129,747 $ 161,258 $ 192,221 $ 214,674 $ 131,166 $ 148,323 $ 164,396 $ 705,945 $ 658,559 $ 555,234
Net income per common share:                      
Basic $ 3.91 $ 2.25 $ 2.77 $ 3.28 $ 3.64 $ 2.20 $ 2.47 $ 2.71 $ 12.21 $ 11.00 $ 9.02
Diluted $ 3.89 $ 2.25 $ 2.76 $ 3.26 $ 3.61 $ 2.18 $ 2.46 $ 2.70 $ 12.15 $ 10.94 $ 8.96
Weighted average common shares outstanding:                      
Basic                 57,840 59,864 61,556
Diluted                 58,105 60,181 61,975
v3.20.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Feb. 01, 2020
Feb. 02, 2019
Feb. 03, 2018
Operating activities      
Net income $ 705,945 $ 658,559 $ 555,234
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 295,599 279,472 252,713
Non-cash lease expense 278,820    
Deferred income taxes 5,503 34,080 (27,095)
Stock-based compensation expense 25,045 26,636 24,399
Loss on disposal of property and equipment 5,850 2,885 7,518
Change in operating assets and liabilities      
Receivables (20,637) (36,387) (11,088)
Merchandise inventories (79,372) (122,019) (152,449)
Prepaid expenses and other current assets 9,289 (39,450) (10,045)
Income taxes 610 (29,609) 3,641
Accounts payable 9,993 78,256 66,240
Accrued liabilities 28,183 29,265 (30,695)
Deferred revenue 38,481 50,684 67,586
Operating lease liabilities (256,910)    
Deferred rent   27,064 41,725
Other assets and liabilities 54,894 (3,309) (8,318)
Net cash provided by operating activities 1,101,293 956,127 779,366
Investing activities      
Purchases of short-term investments (110,000) (386,193) (330,000)
Proceeds from short-term investments   506,193 240,000
Capital expenditures (298,534) (319,400) (440,714)
Acquisitions, net of cash acquired   (13,606)  
Purchases of equity investments (62,946) (2,101)  
Net cash used in investing activities (471,480) (215,107) (530,714)
Financing activities      
Repurchase of common shares (680,979) (616,194) (367,581)
Stock options exercised 43,780 13,121 16,190
Purchase of treasury shares (9,540) (6,141) (4,243)
Debt issuance costs     (583)
Net cash used in financing activities (646,739) (609,214) (356,217)
Net increase (decrease) in cash and cash equivalents (16,926) 131,806 (107,565)
Cash and cash equivalents at beginning of year 409,251 277,445 385,010
Cash and cash equivalents at end of year 392,325 409,251 277,445
Supplemental information      
Income taxes paid, net of refunds 133,861 195,869 254,619
Non-cash capital expenditures $ 26,901 $ 28,746 $ 43,471
v3.20.1
Consolidated Statements of Stockholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Common Stock
Treasury - Common Stock
Additional Paid-In Capital
Retained Earnings
Total
Balance at Jan. 28, 2017 $ 627 $ (14,524) $ 658,330 $ 905,785 $ 1,550,218
Balance (in shares) at Jan. 28, 2017 62,733 (604)      
Net income       555,234 555,234
Stock-based compensation     24,399   24,399
Stock options exercised and other awards $ 2   16,188   16,190
Stock options exercised and other awards (in shares) 212        
Purchase of treasury shares   $ (4,243)     (4,243)
Purchase of treasury shares (in shares)   (15)      
Repurchase of common shares $ (15)     (367,566) (367,581)
Repurchase of common shares (in shares) (1,504)        
Balance at Feb. 03, 2018 $ 614 $ (18,767) 698,917 1,093,453 1,774,217
Balance (in shares) at Feb. 03, 2018 61,441 (619)      
Net income       658,559 658,559
Stock-based compensation     26,636   26,636
Adoption of accounting standards | ASU 2014-09, Revenue from Contracts with Customers (Topic 606)       (29,980) (29,980)
Stock options exercised and other awards $ 3   13,118   13,121
Stock options exercised and other awards (in shares) 255        
Purchase of treasury shares   $ (6,141)     (6,141)
Purchase of treasury shares (in shares)   (29)      
Repurchase of common shares $ (25)     (616,169) (616,194)
Repurchase of common shares (in shares) (2,464)        
Balance at Feb. 02, 2019 $ 592 $ (24,908) 738,671 1,105,863 $ 1,820,218
Balance (in shares) at Feb. 02, 2019 59,232 (648)     58,584
Net income       705,945 $ 705,945
Stock-based compensation     25,045   25,045
Adoption of accounting standards | ASU 2016-02, Leases (Topic 842)       (2,375) (2,375)
Stock options exercised and other awards $ 4   43,776   43,780
Stock options exercised and other awards (in shares) 374        
Purchase of treasury shares   $ (9,540)     (9,540)
Purchase of treasury shares (in shares)   (28)      
Repurchase of common shares $ (23)     (680,956) (680,979)
Repurchase of common shares (in shares) (2,321)        
Balance at Feb. 01, 2020 $ 573 $ (34,448) $ 807,492 $ 1,128,477 $ 1,902,094
Balance (in shares) at Feb. 01, 2020 57,285 (676)     56,609
v3.20.1
Business and basis of presentation
12 Months Ended
Feb. 01, 2020
Business and basis of presentation  
Business and basis of presentation

1.   Business and basis of presentation

On January 29, 2017, Ulta Salon, Cosmetics & Fragrance, Inc. implemented a holding company reorganization. Pursuant to the reorganization, Ulta Beauty, Inc., which was incorporated as a Delaware corporation in December 2016, became the successor to Ulta Salon, Cosmetics & Fragrance, Inc., the former publicly-traded company and now a wholly owned subsidiary of Ulta Beauty. As used in these notes and throughout this Annual Report on Form 10-K, all references to “we,” “us,” “our,” “Ulta Beauty,” or the “Company” refer to Ulta Beauty, Inc. and its consolidated subsidiaries.

The Company was originally founded in 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 February 1, 2020, the Company operated 1,254 stores across 50 states. All amounts are stated in thousands, with the exception of per share amounts and number of stores.

The Company has one reportable segment, which includes retail stores, salon services, and e-commerce.

v3.20.1
Summary of significant accounting policies
12 Months Ended
Feb. 01, 2020
Summary of significant accounting policies  
Summary of significant accounting policies

2.   Summary of significant accounting policies

Fiscal year

The Company’s fiscal year is the 52 or 53 weeks ending on the Saturday closest to January 31. The Company’s fiscal years ended February 1, 2020 (fiscal 2019), February 2, 2019 (fiscal 2018), and February 3, 2018 (fiscal 2017) were 52, 52, and 53-week years, respectively.

Consolidation

The Company’s consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts, transactions, and unrealized profit were eliminated in consolidation.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the accounting period. Actual results could differ from those estimates.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Cash and cash equivalents

Cash and cash equivalents include cash on hand and highly liquid investments with original maturities of three months or less from the date of purchase. Cash equivalents also include amounts due from third-party financial institutions for credit card and debit card transactions. These receivables typically settle in five days or less with little or no default risk.

February 1,

February 2,

(In thousands)

2020

    

2019

Cash

$

212,876

$

351,553

Short-term investments

110,000

Receivables from third-party financial institutions for credit card and debit card transactions

69,449

57,698

Cash and cash equivalents

$

392,325

$

409,251

Short-term investments

The Company determines the balance sheet classification of its investments at the time of purchase and evaluates the classification at each balance sheet date. Money market funds, certificates of deposit, and time deposits with maturities of greater than three months but no more than twelve months are carried at cost, which approximates fair value and are recorded in the consolidated balance sheets in short-term investments (see Note 14, “Investments”).

Receivables

Currently, receivables consist principally of amounts due from vendors. In previous years, receivables also included tenant improvement allowances earned but not yet received. These receivables are computed based on provisions of the vendor and lease agreements in place and the Company’s completed performance. 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 and landlords comprising the Company’s 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 receivable for vendor allowances was $113,048 and $97,885 as of February 1, 2020 and February 2, 2019, respectively. The receivable for landlord allowances was $19,746 as of February 2, 2019. Prior to fiscal 2019, all tenant improvement allowances were included in the receivable for landlord allowances. Subsequent to the adoption of Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), a portion of landlord allowances is recorded in the right-of-use asset. The allowance for doubtful receivables was $1,363 and $651 as of February 1, 2020 and February 2, 2019, respectively.

Merchandise inventories

Merchandise inventories are stated at the lower of cost or market (net realizable value). Cost is determined using the moving 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 an inventory reserve for lower of cost or market (net realizable value) and shrink. The inventory reserve was $46,941 and $36,640 as of February 1, 2020 and February 2, 2019, respectively.

Fair value of financial instruments

The carrying value of cash and cash equivalents, short-term investments, 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 February 1, 2020 and February 2, 2019.

Property and equipment

The Company’s property and equipment are stated at cost, net of accumulated depreciation and amortization. Maintenance and repairs are charged to operating expense as incurred. The Company’s 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

1 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 purchasing 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 estimates the undiscounted future operating cash flows based on the remaining useful life of the asset to determine whether the long-lived assets are impaired. If the 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. No significant impairment charges were recognized in fiscal 2019, fiscal 2018, or fiscal 2017. Impairment charges are included in selling, general and administrative (SG&A) expenses in the consolidated statements of income.

Goodwill

Goodwill represents the excess of cost over the fair value of net assets acquired. The Company reviews the recoverability of goodwill annually during the fourth quarter or more frequently if an event occurs or circumstances change that would indicate that impairment may exist (see Note 6, “Goodwill”).

Other intangible assets

Other definite-lived intangible assets are amortized over their useful lives. The Company reviews the recoverability of long-lived assets whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable (see Note 7, “Other intangible assets”).

Leases

The Company determines whether an arrangement is or contains a lease at contract inception. The lease classification evaluation begins at the lease commencement date. The lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain.

Total rent payable is recorded during the lease term, including rent escalations in which the amount of future rent is fixed on the straight-line basis over the term of the lease (including the rent holiday period beginning upon control of the premises and any fixed payments stated in the lease). For leases with an initial term greater than 12 months, a related lease liability is recorded on the balance sheet at the present value of future payments discounted at the estimated fully collateralized incremental borrowing rate (discount rate) corresponding with the lease term. In addition, a right-of-use asset is recorded as the initial amount of the lease liability, plus any lease payments made to the lessor before or at the lease commencement date and any initial direct costs incurred, less any tenant improvement allowance incentives received. Tenant incentives are amortized through the right-of-use asset as reduction of rent expense over the lease term. The difference between the minimum rents paid and the straight-line rent is reflected within the associated right-of-use asset. Prior to fiscal 2019, this difference was recorded as deferred rent on the consolidated balance sheets. Operating lease expense is recognized on a straight-line basis over the lease term. 

Certain leases contain provisions that require variable payments based upon sales volume or payment of common area maintenance costs (variable lease cost)Variable lease costs are expensed as incurred. This results in some variability in lease expense as a percentage of revenues over the term of the lease in stores where variable lease costs are paid. Contingent rent is accrued each period as the liabilities are incurred, in addition to the straight-line rent expense. This results in some variability in lease expense as a percentage of revenues over the term of the lease in stores where contingent rent is paid.

Leases with an initial term of 12 months or less (short-term leases) are not recorded on the balance sheet. Short-term lease expense is recognized on a straight-line basis over the lease term.

The Company subleases certain real estate to third parties for stores with excess square footage space.

The Company does not separate lease and non-lease components (e.g., common area maintenance).

As the interest rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate corresponding with the lease term. As there are no outstanding borrowings under the Company’s credit facility, this rate is estimated based on prevailing market conditions, comparable company and credit analysis, and judgment. The incremental borrowing rate is reassessed if there is a change to the lease term or if a modification occurs and it is not accounted for as a separate contract.

Loyalty program

The Company maintains a loyalty program, Ultamate Rewards, which allows members to earn points based on purchases of merchandise or services. Points earned are valid for at least one year. The loyalty program represents a material right to the customer and points may be redeemed on future products and services. Revenue from the loyalty program is recognized when the members redeem points or points expire. The Company defers revenue related to points earned that have not yet been redeemed. The amount of deferred revenue includes estimates for the standalone selling price of points earned by members and the percentage of points expected to be redeemed. The expected redemption percentage is based on historical redemption patterns and considers current information or trends.

When a guest redeems points or the points expire, the Company recognizes revenue in net sales on the consolidated statements of income.

Prior to fiscal 2018, loyalty program revenue was recorded using the incremental cost method within cost of sales on the consolidated statements of income.

Credit cards

The Company has agreements (the Agreements) with third parties to provide guests with private label credit cards and/or co-branded credit cards (collectively, the Credit Cards). The private label credit card can be used at any store location and online, and the co-branded credit card can be used anywhere the co-branded card is accepted. A third-party financing company is the sole owner of the accounts and underwrites the credit issued under the Credit Card programs. The Company’s performance obligation is to maintain the Ultamate Rewards loyalty program as only guests enrolled in the loyalty program can apply for the Credit Cards. Loyalty members earn points through purchases at Ulta Beauty and anywhere the co-branded credit card is accepted.

The third parties reimburse the Company for certain credit card program costs such as advertising and loyalty points, which help promote the credit card program. The Company recognizes revenue when collectability is reasonably assured, under the assumption the amounts are not constrained and it is probable that a significant revenue reversal will not occur in future periods, which is generally the time at which the actual usage of the Credit Cards or specified transaction occurs.

The Company accounts for the amounts associated with the Agreements as a single contract with the sole commercial objective to maintain the Credit Card programs. As a result, all amounts associated with the Agreements are recognized within net sales on the consolidated statements of income.

Gift card program

The Company records a contract liability for gift card sales which will be redeemed in the future within deferred revenue on the consolidated balance sheets and recognized in net sales when the gift card is redeemed for product or services. The Company’s gift cards do not expire and do not include service fees that decrease guest balances. The Company has maintained historical data related to gift card transactions sold and redeemed over a significant time frame. The Company recognizes gift card breakage (amounts not expected to be redeemed) to the extent there is no requirement for remitting balances to governmental agencies under unclaimed property laws. Estimated gift card breakage revenue is recognized over time in proportion to actual gift card redemptions. Gift card breakage revenue was $12,448, $12,446, and $7,783 in fiscal 2019, 2018, and 2017, respectively.

Revenue recognition

Revenue is recognized when control of the promised goods or services is transferred to the guest, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The Company determines revenue recognition through the following steps:

Identification of the contract, or contracts, with a guest;
Identification of the performance obligations in the contract;
Determination of the transaction price;
Allocation of the transaction price to the performance obligations in the contract; and
Recognition of revenue when, or as, a performance obligation is satisfied.

The Company’s net sales include retail stores and e-commerce merchandise sales as well as salon services and other revenue.

Revenue from merchandise sales at retail stores is recognized at the point of sale, net of estimated returns. Revenue from e-commerce merchandise sales is recognized upon shipment of the merchandise to the guest based on meeting the transfer of control criteria, net of estimated returns. Salon services revenue is recognized at the time the service is provided to the guest. Shipping and handling are treated as costs to fulfill the contract and not a separate performance obligation. Accordingly, the Company recognizes revenue for its single performance obligation related to online sales at the time control of the merchandise passes to the customer, which is at the time of shipment. The Company provides refunds for merchandise returns within 60 days from the original purchase date. 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. Company coupons and other incentives are recorded as a reduction of net sales. 

Vendor allowances

The Company receives allowances from vendors in the normal course of business including advertising and markdown allowances, purchase volume discounts and rebates, reimbursement for defective merchandise, and certain selling and display expenses. Substantially all vendor allowances are recorded as a reduction of the vendor’s product cost and are recognized in cost of sales as the product is sold.

Advertising

Advertising expense consists principally of print, digital and social media, and television and radio advertising. The Company expenses the costs related to its advertising in the period the related promotional event occurs. Prepaid advertising costs included in prepaid expenses and other current assets on the consolidated balance sheets were $9,605

and $9,384 as of February 1, 2020 and February 2, 2019, respectively. Total advertising costs, exclusive of incentives from vendors and start-up advertising expense, are presented in the following table:

February 1,

February 2,

February 3,

(In thousands)

2020

2019

    

2018

Advertising costs

$

317,865

$

294,489

$

259,423

Advertising expense as a percentage of sales

4.3%

4.4%

4.4%

Pre-opening expenses

Non-capital expenditures incurred prior to the grand opening of a new, remodeled, or relocated store are expensed as incurred.

Cost of sales

Cost of sales includes the cost of merchandise sold, including substantially all vendor allowances, which are treated as a reduction of merchandise costs; distribution costs including labor and related benefits, freight, rent, depreciation and amortization, real estate taxes, utilities, and insurance; shipping and handling costs; retail stores occupancy costs including rent, depreciation and amortization, real estate taxes, utilities, repairs and maintenance, insurance, licenses, and cleaning expenses; salon services payroll and benefits; and shrink and inventory valuation reserves.

Selling, general and administrative expenses

SG&A expenses includes 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 store and distribution operations, which are 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 financial statement carrying amounts of assets and liabilities and their tax bases. 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 in the consolidated statements of income.

Share-based 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 basis over the requisite service period for awards expected to vest. The Company recorded stock compensation expense of $25,642, $27,489, and $24,399 in fiscal 2019, 2018 and 2017, respectively (see Note 15, “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 Company’s liability exposure. The insurance programs are premium based and include retentions, deductibles, and stop loss coverage. Current stop loss coverage per claim is $350 for employee health claims, $100 for general liability claims, and $250 for workers compensation claims. The 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. In fiscal 2018, the Company created UB Insurance, Inc., an Arizona-based wholly owned captive insurance subsidiary of the Company, which charges the operating subsidiaries of the Company premiums to insure certain liability exposures. Pursuant to Arizona insurance regulations, UB Insurance, Inc. maintains certain levels of cash and cash equivalents related to its liability exposures.

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 common share includes dilutive common stock equivalents, using the treasury stock method (see Note 16, “Net income per common share”).

Recent accounting pronouncements not yet adopted

Intangibles – Goodwill and Other-Internal-Use Software

In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-15, Intangibles – Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which clarifies and aligns the accounting for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019 and should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption is permitted. The adoption of ASU 2018-15 is not expected to have a material impact on the Company’s consolidated financial position, results of operations, or cash flows. 

Recently adopted accounting pronouncements

Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in ASU 2016-02 and subsequently issued amendments requires lessees to capitalize virtually all leases with terms of more than twelve months on the balance sheet as a right-of-use asset and recognize an associated lease liability. The right-of-use asset represents the lessee’s right to use, or control the use of, a specified asset for the specified lease term. The lease liability represents the lessee’s obligation to make lease payments arising from the lease, measured on a discounted basis. Based on certain characteristics, leases are classified as financing or operating leases and their classification impacts the recognition of expense in the income statement. Entities are allowed to apply the modified retrospective approach (1) retrospectively to each comparative period presented or (2) retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment.

The Company adopted the new standard on February 3, 2019 using the modified retrospective approach by recognizing and measuring leases without revising comparative period information or disclosures. The Company elected the transition package of three practical expedients permitted within the standard, which among other things, allows for the carryforward of historical lease classifications. In addition, the Company elected to apply the practical expedient that allows for the combination of lease and non-lease components for all asset classes. The Company made an accounting policy election to keep leases with terms of twelve months or less off the balance sheet and recognize those lease payments on a straight-line basis over the lease term.

The adoption of ASU 2016-02 resulted in the recording of operating lease assets and liabilities of $1,460,866 and $1,839,970 within the consolidated balance sheet, respectively, as of February 3, 2019. As part of the adoption, the Company recorded an adjustment to retained earnings of $2,375. The standard did not materially impact the Company’s consolidated results of operations and had no impact on cash flows. See Note 8, “Leases,” for further details.

The impact to the Company’s opening consolidated balance sheet as of February 3, 2019 was as follows:

As Reported

Effect of Adopting

Balance at

(In thousands)

    

February 2, 2019

    

ASC 842

    

February 3, 2019

Assets

(Unaudited)

Receivables, net

$

136,168

$

(17,468)

$

118,700

Prepaid expenses and other current assets

138,116

(25,260)

112,856

Property and equipment, net

1,226,029

(16,983)

1,209,046

Operating lease assets

1,460,866

1,460,866

Liabilities and stockholders’ equity

Accrued liabilities

220,666

(1,460)

219,206

Current operating lease liabilities

210,721

210,721

Deferred rent

434,980

(434,980)

Non-current operating lease liabilities

1,629,249

1,629,249

Retained earnings

1,105,863

(2,375)

1,103,488

v3.20.1
Acquisitions
12 Months Ended
Feb. 01, 2020
Acquisitions  
Acquisitions

3.   Acquisitions

The Company continues to make investments to evolve the customer experience, with a strong emphasis on integrating technology across the business. To support these efforts, the Company paid $13,606 to acquire two technology companies in fiscal 2018.

On September 10, 2018, the Company acquired QM Scientific, an artificial intelligence technology company. The acquisition is not material to the Company’s consolidated financial statements.

On October 29, 2018, the Company acquired GlamST, an augmented reality technology company. The acquisition is not material to the Company’s consolidated financial statements.

v3.20.1
Revenue
12 Months Ended
Feb. 01, 2020
Revenue  
Revenue

4.   Revenue

The Company’s net sales include retail stores and e-commerce merchandise sales as well as salon services and other revenue. Other revenue sources include the private label and co-branded credit card programs, as well as deferred revenue related to the loyalty program and gift card breakage.

Disaggregated revenue

The following table sets forth the approximate percentage of net sales by primary category:

Fiscal year ended

    

February 1,

   

February 2,

    

February 3,

2020

2019

2018

Cosmetics

50%

51%

51%

Skincare, bath, and fragrance

22%

21%

21%

Haircare products and styling tools

19%

19%

19%

Services

5%

5%

6%

Other (nail products, accessories, and other)

4%

4%

3%

100%

100%

100%

Deferred revenue

Deferred revenue primarily represents contract liabilities for the Company’s obligation to transfer additional goods or services to a guest for which the Company has received consideration, such as unredeemed Ultamate Rewards loyalty points and unredeemed Ulta Beauty gift cards. In addition, the Company recognizes breakage on gift cards proportionately as redemption occurs.

The following table provides a summary of the changes included in deferred revenue during fiscal years 2019 and 2018:

Fiscal year ended

February 1,

February 2,

2020

2019

Beginning balance

$

193,585

$

110,103

Adoption of ASC 606

38,773

Additions to contract liabilities (1)

206,701

140,638

Deductions to contract liabilities (2)

(170,275)

(95,929)

Ending balance

$

230,011

$

193,585

(1)Loyalty points and gift cards issued in the current period but not redeemed or expired.

Revenue recognized in the current period related to the beginning liability.

v3.20.1
Property and equipment
12 Months Ended
Feb. 01, 2020
Property and equipment  
Property and equipment

5.   Property and equipment

Property and equipment consists of the following:

February 1,

February 2,

(In thousands)

    

2020

    

2019

Equipment and fixtures

$

1,073,764

$

994,668

Leasehold improvements

 

803,398

 

785,276

Electronic equipment and software

 

596,323

 

544,618

Construction-in-progress

 

92,355

 

50,574

 

2,565,840

 

2,375,136

Less: accumulated depreciation and amortization

 

(1,360,316)

 

(1,149,107)

Property and equipment, net

$

1,205,524

$

1,226,029

v3.20.1
Goodwill
12 Months Ended
Feb. 01, 2020
Goodwill  
Goodwill

6.  Goodwill

The changes in the carrying amounts of goodwill during the fiscal years 2019 and 2018 are as follows:

February 1,

February 2,

(In thousands)

2020

    

2019

Balance at beginning of the period

$

10,870

$

Acquisitions

10,870

Balance at the end of the period

$

10,870

$

10,870

v3.20.1
Other intangible assets
12 Months Ended
Feb. 01, 2020
Other intangible assets  
Other intangible assets

7.   Other intangible assets

Other intangible assets subject to amortization consists of the following:

February 1, 2020

February 2, 2019

Weighted-average

Gross

Gross

remaining useful

carrying

Accumulated

carrying

Accumulated

(In thousands)

    

life in years

    

value

    

amortization

    

Net

    

value

    

amortization

    

    Net    

Developed technology

3.7

$

4,631

$

(1,240)

$

3,391

$

4,631

$

(314)

$

4,317

Amortization expense related to intangible assets was $926, $314, and $0 in fiscal 2019, fiscal 2018, and fiscal 2017, respectively.

Estimated amortization expense related to intangible assets at February 1, 2020, for the next five years and thereafter is as follows:

Estimated

amortization

expense

Fiscal year

    

      

(In thousands)

2020

$

926

2021

926

2022

926

2023

613

2024

2025 and thereafter

$

3,391

v3.20.1
Leases
12 Months Ended
Feb. 01, 2020
Leases  
Leases

8. Leases

The Company leases retail stores, distribution and fast fulfillment centers, corporate offices, and certain equipment under non-cancelable operating leases with various expiration dates through 2032. Leases generally have initial lease terms of 10 years and include renewal options under substantially the same terms and conditions as the original leases. Leases do not contain any material residual value guarantees or material restrictive covenants.

All retail store, distribution and fast fulfillment center, and corporate office leases are classified as operating leases. The Company does not have any finance leases.

The following table presents supplemental balance sheet information, the weighted-average remaining lease term, and discount rate for operating leases as of February 1, 2020:

(In thousands)

Classification on the Balance Sheet

    

February 1, 2020

Right-of-use assets

Operating lease assets

$

1,537,565

Current lease liabilities

Current operating lease liabilities

$

239,629

Non-current lease liabilities

Non-current operating lease liabilities

1,698,718

Total lease liabilities

$

1,938,347

Weighted-average remaining lease term

    

7.3 years

Weighted-average discount rate

4.1%

Lease cost

The following table presents the components of lease cost for operating leases:

Fiscal Year Ended

(In thousands)

    

Classification on the Statement of Income

    

February 1, 2020

Operating lease cost

Cost of sales (1)

$

289,007

Variable lease cost

Cost of sales

29,054

Short-term lease cost

Selling, general and administrative expenses

352

Sublease income

Net sales

(691)

Total lease cost

$

317,722

(1)The majority of operating lease cost relates to retail stores and distribution and fast fulfillment centers and is classified within cost of sales. Operating lease cost for corporate offices is classified within the selling, general and administrative expenses. Operating lease cost from the control date through store opening date is classified within pre-opening expenses.

Other information

The following table presents supplemental disclosures of cash flow information related to operating leases:

    

Fiscal Year Ended

(In thousands)

    

February 1, 2020

Cash paid for operating lease liabilities (1)

$

338,942

Operating lease assets obtained in exchange for operating lease liabilities (non-cash)

355,286

(1) Excludes $71,294 related to cash received for tenant incentives.

Maturity of lease liabilities

The following table presents maturities of operating lease liabilities as of February 1, 2020:

Fiscal year

    

(In thousands)

2020

$

310,663

2021

345,531

2022

327,349

2023

291,561

2024

258,571

2025 and thereafter

716,516

Total lease payments

$

2,250,191

Less: Imputed interest

(311,844)

Present value of operating lease liabilities

$

1,938,347

Operating lease payments exclude $214,553 of legally binding minimum lease payments for leases signed but not yet commenced.

v3.20.1
Commitments and contingencies
12 Months Ended
Feb. 01, 2020
Commitments and contingencies  
Commitments and contingencies

9.   Commitments and contingencies

Contractual obligations – As of February 1, 2020, the Company had obligations of $1,940 related to commitments made to a third party for products and services for a new fast fulfillment center opening in fiscal 2021. Payments under this commitment were $9,212 in fiscal 2019. In addition, the Company has entered into various non-cancelable advertising and other goods and service contracts. A majority of these agreements expire over one year and the obligations under these agreements were $33,066 as of February 1, 2020.

General litigation – The Company is involved in various legal proceedings that are incidental to the conduct of the business including both class action and single plaintiff litigation. In the opinion of management, the amount of any liability with respect to these proceedings, either individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

v3.20.1
Accrued liabilities
12 Months Ended
Feb. 01, 2020
Accrued liabilities  
Accrued liabilities

10.   Accrued liabilities

Accrued liabilities consist of the following:

February 1,

February 2,

(In thousands)

    

2020

    

2019

Accrued payroll, bonus, and employee benefits

$

77,435

$

96,020

Accrued taxes

 

39,051

 

32,085

Other accrued liabilities

 

129,602

 

92,561

Accrued liabilities

$

246,088

$

220,666

v3.20.1
Income Taxes
12 Months Ended
Feb. 01, 2020
Income Taxes  
Income Taxes

11.   Income taxes

The provision for income taxes consists of the following:

Fiscal

Fiscal

Fiscal

(In thousands)

    

2019

    

2018

    

2017

Current:

 

  

 

  

 

  

Federal

$

163,596

$

137,255

$

230,006

State

31,106

29,247

28,714

Total current

194,702

166,502

258,720

Deferred:

  

  

  

Federal

1,182

29,374

(26,256)

State

4,321

4,706

(839)

Total deferred

5,503

34,080

(27,095)

Provision for income taxes

$

200,205

$

200,582

$

231,625

A reconciliation of the federal statutory rate to the Company’s effective tax rate is as follows:

    

Fiscal

Fiscal

Fiscal

    

2019

    

2018

    

2017

Federal statutory rate

21.0

%  

21.0

%  

33.7

%  

State effective rate, net of federal tax benefit

 

3.1

%  

3.1

%  

2.4

%  

Re-measurement of deferred tax liabilities

0.0

%  

0.0

%  

(4.9)

%  

Excess deduction of stock compensation

(1.1)

%  

(0.6)

%  

(1.2)

%  

Other

 

(0.9)

%  

(0.2)

%  

(0.6)

%  

Effective tax rate

 

22.1

%  

23.3

%  

29.4

%  

At February 3, 2018, the Company recorded a provisional tax expense related to the impacts of the Tax Cuts and Jobs Act (Tax Reform). The SEC issued guidance on December 22, 2017 under Staff Accounting Bulletin No. 118 (“SAB 118”) which allowed recording a provisional tax expense using a measurement period, not to exceed more than one year from the enactment date. The Company’s accounting for the impacts of the Tax Reform is complete and the Company has not recorded any material adjustments to the provisional amounts under SAB 118.

Significant components of the Company’s deferred tax assets and liabilities are as follows:

    

February 1,

February 2,

(In thousands)

    

2020

    

2019

Deferred tax assets:

 

  

 

  

Operating lease liability

$

496,977

$

Reserves not currently deductible

35,626

30,669

Accrued liabilities

 

27,363

 

34,391

Employee benefits

 

22,907

 

18,491

Inventory valuation

 

4,021

 

4,107

NOL carryforwards

288

413

Credit carryforwards

 

224

 

237

Other

1,019

Total deferred tax assets

 

588,425

 

88,308

Deferred tax liabilities:

 

  

 

  

Operating lease asset

567,198

Property and equipment

 

61,570

 

69,265

Prepaid expenses

 

45,354

 

39,915

Receivables not currently includable

2,863

1,449

Intangibles

807

1,018

Deferred rent obligation

 

 

60,525

Total deferred tax liabilities

 

677,792

 

172,172

Net deferred tax liability

$

(89,367)

$

(83,864)

At February 1, 2020, the Company had $224 of credit carryforwards for state income tax purposes that expire between 2024 and 2029. The Company also had $523 of state net operating loss (NOL) carryforwards that expire by 2036 and $1,145 of federal and $26 of state NOL carryforwards that do not expire.

The Company accounts for uncertainty in income taxes in accordance with the ASC 740-10 rules for income taxes. The reserve for uncertain tax positions was $3,536 and $3,844 at February 1, 2020 and February 2, 2019, respectively. The balance is the Company’s best estimate of the potential liability for uncertain tax positions. A reconciliation of the Company’s unrecognized tax benefits, excluding interest and penalties, is as follows:

    

February 1,

February 2,

(In thousands)

    

2020

    

2019

Balance at beginning of the year

$

3,844

$

3,565

Increase due to a prior year tax position

 

602

 

1,008

Decrease due to a prior year tax position

 

(910)

 

(729)

Balance at end of the year

$

3,536

$

3,844

The Company acknowledges 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 consolidated financial statements. Income tax-related interest and penalties were insignificant for fiscal 2019 and 2018.

The Company files tax returns in the U.S. federal and state jurisdictions. The Company is no longer subject to U.S. federal examinations by the Internal Revenue Service for years before 2018 and is no longer subject to examinations by state authorities before 2015.

v3.20.1
Notes payable
12 Months Ended
Feb. 01, 2020
Notes payable  
Notes payable

12.   Notes payable

On August 23, 2017, the Company entered into a Second Amended and Restated Loan Agreement (the Loan Agreement) with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent and a Lender thereunder; Wells Fargo Bank, National Association and JPMorgan Chase Bank, N.A., as Lead Arrangers and Bookrunners; JPMorgan Chase Bank, N.A., as Syndication Agent and a Lender; PNC Bank, National Association, as Documentation Agent and a

Lender; and the other lenders party thereto. The Loan Agreement matures on August 23, 2022, provides maximum revolving loans equal to the lesser of $400,000 or a percentage of eligible owned inventory (which borrowing base may, at the election of the Company and satisfaction of certain conditions, include a percentage of eligible owned receivables and qualified cash), contains a $20,000 subfacility for letters of credit and allows the Company to increase the revolving facility by an additional $50,000, subject to the consent by each lender and other conditions. The Loan Agreement contains a requirement to maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 during such periods when availability under the Loan Agreement falls below a specified threshold. Substantially all of the Company’s assets are pledged as collateral for outstanding borrowings under the Loan Agreement. Outstanding borrowings will bear interest at either a base rate or the London Interbank Offered Rate plus 1.25%, and the unused line fee is 0.20% per annum.

As of February 1, 2020 and February 2, 2019, the Company had no borrowings outstanding under the credit facility and the Company was in compliance with all terms and covenants of the Loan Agreement.

v3.20.1
Fair value measurements
12 Months Ended
Feb. 01, 2020
Fair value measurements  
Fair value measurements

13.   Fair value measurements

The carrying value of cash and cash equivalents, short-term investments, accounts receivable, and accounts payable approximates their estimated fair values due to the short maturities of these instruments.

Fair value is measured using inputs from the three levels of the fair value hierarchy, which are described as follows:

Level 1 – observable inputs such as quoted prices for identical instruments in active markets.
Level 2 – inputs other than quoted prices in active markets that are observable either directly or indirectly through corroboration with observable market data.
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 February 1, 2020 and February 2, 2019, the Company held financial liabilities included in other long-term liabilities on the consolidated balance sheets of $29,442 and $19,615, respectively, related to its non-qualified deferred compensation plan. The liabilities have been categorized as Level 2 as they are based on third-party reported values which are based primarily on quoted market prices of underlying assets of the funds within the plan.

v3.20.1
Investments
12 Months Ended
Feb. 01, 2020
Investments  
Investments

14.   Investments

Short-term investments typically consist of certificates of deposit and are carried at cost, which approximates fair value and are recorded in the consolidated balance sheets in short-term investments. The Company’s short-term investments as of February 1, 2020 and February 2, 2019 were $110,000 and $0, respectively.

The Company’s investments in renewable energy projects are accounted for under the equity method of accounting. The balance of these investments was $3,936 and $2,101 as of February 1, 2020 and February 2, 2019, and is included in other long-term assets on the consolidated balance sheets. The Company contributed capital of $62,946 and received distributions including $60,208 of investment tax credits during fiscal year 2019.

v3.20.1
Share-based awards
12 Months Ended
Feb. 01, 2020
Share-based awards  
Share-based awards

15.  Share-based awards

Equity incentive plans

The Company has had a number of equity incentive plans over the years. The plans were adopted in order to attract and retain the best available personnel for positions of substantial authority and to provide additional incentive to employees and directors to promote the success of the Company’s business. All of the plans generally provided for the grant of incentive stock options, non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, and other types of awards to employees, consultants, and directors. Unless provided otherwise by the administrator of the plan, options vested over four years at the rate of 25% per year from the date of grant and must be exercised within ten years. Options were granted with the exercise price equal to the fair value of the underlying stock on the date of grant.

Amended and restated 2011 incentive award plan

In June 2016, the Company adopted the Amended and Restated 2011 Incentive Award Plan (the 2011 Plan). The 2011 Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, performance awards, dividend equivalent rights, stock payments, deferred stock, and cash-based awards to employees, consultants, and directors. Following its original adoption in June 2011, awards are only being made under the 2011 Plan, and no further awards will be made under any prior plan. As of February 1, 2020, the 2011 Plan reserves for the issuance upon grant or exercise of awards up to 3,194 shares of the Company’s common stock.

The following table presents information related to the Company’s 2011 Incentive award plan:

Fiscal

Fiscal

Fiscal

2011 Incentive award plan (in thousands)

    

2019

    

2018

    

2017

Compensation expense

 

Common stock options

$

8,660

$

8,590

$

8,993

Restricted stock units

12,762

12,077

9,507

Performance-based restricted stock units

4,220

6,822

5,899

Total stock compensation expense

$

25,642

$

27,489

$

24,399

Cash received from stock option exercises

$

43,780

$

13,121

$

16,190

Income tax benefit

$

11,600

$

6,135

$

10,024

Common stock options

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 basis 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

    

2019

    

2018

    

2017

Volatility rate

 

31.0%

29.0%

30.9%

Average risk-free interest rate

 

2.3%

2.4%

1.6%

Average expected life (in years)

 

3.5

 

3.4

 

3.5

Dividend yield

 

None

 

None

 

None

The expected volatility is based on the historical volatility of the Company’s common stock. 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. The expected life of options granted is derived from historical data on Ulta Beauty stock option exercises. Forfeitures of options are estimated at the grant date based on historical rates of the Company’s stock option activity and reduce the compensation expense recognized. The Company does not currently pay a regular dividend.

The following table presents information related to the Company’s common stock options:

Common stock options

Fiscal

Fiscal

Fiscal

(in thousands, except weighted-average grant date fair value)

    

2019

    

2018

    

2017

Weighted-average grant date fair value

$

89.91

$

50.10

$

69.61

Fair value of options vested

9,143

10,042

5,656

Intrinsic value of options exercised

51,650

25,902

29,449

At February 1, 2020, there was approximately $15,621 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.

A summary of the status of the Company’s stock option activity is presented in the following table (shares in thousands):

Fiscal 2019

Fiscal 2018

Fiscal 2017

Weighted-

Weighted-

Weighted-

    

Number of

average

Number of

average

Number of

average

    

options

    

exercise price

    

options

    

exercise price

    

options

    

exercise price

Common stock options outstanding

Beginning of year

755

$

174.34

766

$

147.76

830

$

120.78

Granted

97

348.73

163

204.27

106

279.76

Exercised

(285)

153.64

(166)

78.81

(166)

97.44

Forfeited

(28)

263.34

(8)

260.83

(4)

120.71

End of year

539

$

212.58

755

$

174.34

766

$

147.76

Exercisable at end of year

172

$

159.39

296

$

134.27

261

$

81.72

Vested and Expected to vest

510

$

211.14

718

$

173.02

725

$

145.86

The following table presents information related to options outstanding and options exercisable at February 1, 2020, under the Company’s stock option plans based on ranges of exercise prices (shares in thousands):

Options outstanding

Options exercisable

Weighted-

Weighted-

average

average

remaining

remaining

contractual

Weighted-

contractual

Weighted-

Number of

life

average

Number of

life

average

Range of Exercise Prices

    

options

    

(years)

    

exercise price

    

options

    

(years)

    

exercise price

$25.80 – $57.42

28

1

$

47.26

28

1

$

47.26

$57.43 – $127.15

30

3

92.37

30

3

92.37

$127.16 – $165.27

155

6

163.70

55

6

163.04

$165.28 – $204.27

155

8

201.54

25

7

198.39

$204.28 – $281.53

81

7

278.76

34

7

278.90

$281.54 – $348.73

90

9

348.73

$25.80 – $348.73

539

7

$

212.58

172

5

$

159.39

The aggregate intrinsic value of outstanding and exercisable options as of February 1, 2020 was $38,157 and $19,120, respectively. The last reported sale price of our common stock on the NASDAQ Global Select Market on February 1, 2020 was $267.91 per share.

Restricted stock units

The Company issues restricted stock units to certain employees and its Board of Directors. Employee grants will generally cliff vest after three years and director grants will cliff vest within one year. The grant date fair value of restricted stock units is based on the closing market price of shares of the Company’s common stock on the date of grant. Restricted stock units are expensed on a straight-line basis over the requisite service period. Forfeitures of restricted stock units are estimated at the grant date based on historical rates of the Company’s stock award activity and reduce the compensation expense recognized. At February 1, 2020, unrecognized compensation cost related to restricted stock units was $20,484. The unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately one and a half years.

A summary of the status of the Company’s restricted stock units activity is presented in the following table (shares in thousands):

Fiscal 2019

Fiscal 2018

Fiscal 2017

    

Weighted-

Weighted-

Weighted-

Number of

average grant

Number of

average grant

Number of

average grant

    

units

    

date fair value

    

units

    

date fair value

    

units

    

date fair value

Restricted stock units outstanding

Beginning of year

168

    

$

220.68

134

$

207.70

142

$

154.71

Granted

53

335.28

97

208.82

47

278.48

Vested

(46)

207.77

(52)

164.35

(46)

117.61

Forfeited

(16)

259.65

(11)

227.44

(9)

    

201.51

End of year

159

$

259.21

168

$

220.68

134

$

207.70

Expected to vest

147

$

259.21

154

$

220.68

123

$

207.70

Performance-based restricted stock units

The Company issues performance-based restricted stock units annually to certain employees. These awards will cliff vest after three years based upon achievement of pre-established goals at the end of the second year of the term. Consistent with restricted stock units, the grant date fair value of performance-based restricted stock units is based on the closing market price of shares of the Company’s common stock on the date of grant. Performance-based restricted stock units are expensed on a straight-line basis over the requisite service period, based on the probability of achieving the performance goal, with changes in expectations recognized as an adjustment to earnings in the period of the change. If the performance goal is not met, no compensation cost is recognized and any previously recognized compensation cost is reversed. Forfeitures of performance-based restricted stock units are estimated at the grant date based on historical rates of the Company’s stock award activity and reduce the compensation expense recognized. At February 1, 2020, unrecognized compensation cost related to performance-based restricted stock units was $6,214. The unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately one year.

A summary of the status of the Company’s performance-based restricted stock unit activity is presented in the following table (shares in thousands):

Fiscal 2019

Fiscal 2018

Fiscal 2017

Weighted-

Weighted-

Weighted-

Number of

average

Number of

average

Number of

average

units

    

grant date

    

units

    

grant date

    

units

    

grant date

Performance-based restricted stock units outstanding

Beginning of year

94

$

214.64

78

$

196.81

41

$

173.47

Granted

21

348.73

33

204.27

21

281.53

Change in performance award payout

(3)

281.53

22

191.76

19

151.20

Vested

(43)

191.76

(36)

151.20

Forfeited

(7)

258.80

(3)

224.49

(3)

186.90

End of year

62

$

267.60

94

$

214.64

78

$

196.81

Expected to vest

57

$

267.60

87

$

214.64

72

$

196.81

The number of performance-based restricted stock units granted is based on achieving the targeted performance goals as defined in the performance-based restricted stock unit agreements. As of February 1, 2020, the maximum number of units that could vest under the provisions of the agreements was 114.