Document and Entity Information - shares |
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Document And Entity Information | ||
Entity Registrant Name | Ulta Beauty, Inc. | |
Entity Central Index Key | 0001403568 | |
Document Type | 10-Q | |
Document Period End Date | Aug. 04, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --02-02 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 59,770,399 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q2 | |
Trading Symbol | ULTA |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Aug. 04, 2018 |
Feb. 03, 2018 |
Jul. 29, 2017 |
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Consolidated Balance Sheets | |||
Common stock, par value | $ 0.01 | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 400,000,000 | 400,000,000 | 400,000,000 |
Common stock, shares issued | 60,518,000 | 61,441,000 | 62,263,000 |
Common stock, shares outstanding | 59,872,000 | 60,822,000 | 61,645,000 |
Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands |
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Jul. 29, 2017 |
Aug. 04, 2018 |
Jul. 29, 2017 |
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Consolidated Statements of Income | ||||
Net sales | $ 1,488,221 | $ 1,289,854 | $ 3,031,888 | $ 2,604,733 |
Cost of sales | 952,760 | 820,528 | 1,935,714 | 1,659,399 |
Gross profit | 535,461 | 469,326 | 1,096,174 | 945,334 |
Selling, general and administrative expenses | 337,142 | 283,427 | 682,766 | 566,872 |
Pre-opening expenses | 4,504 | 6,099 | 9,751 | 10,257 |
Operating income | 193,815 | 179,800 | 403,657 | 368,205 |
Interest income, net | (1,143) | (555) | (2,468) | (893) |
Income before income taxes | 194,958 | 180,355 | 406,125 | 369,098 |
Income tax expense | 46,635 | 66,162 | 93,406 | 126,682 |
Net income | $ 148,323 | $ 114,193 | $ 312,719 | $ 242,416 |
Net income per common share: | ||||
Basic | $ 2.47 | $ 1.84 | $ 5.18 | $ 3.91 |
Diluted | $ 2.46 | $ 1.83 | $ 5.16 | $ 3.88 |
Weighted average common shares outstanding: | ||||
Basic | 60,070 | 61,935 | 60,340 | 62,018 |
Diluted | 60,375 | 62,379 | 60,630 | 62,483 |
Consolidated Statements of Stockholders' Equity - 6 months ended Aug. 04, 2018 - USD ($) shares in Thousands, $ in Thousands |
Common Stock |
Treasury - Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Total |
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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) | 60,822 | ||
Adoption of accounting standards (Note 3) | (29,980) | $ (29,980) | |||
Stock options exercised and other awards | $ 2 | 8,446 | 8,448 | ||
Stock options exercised and other awards (in shares) | 208 | ||||
Purchase of treasury shares | $ (5,646) | (5,646) | |||
Purchase of treasury shares (in shares) | (27) | ||||
Net income | 312,719 | 312,719 | |||
Stock compensation charge | 13,172 | 13,172 | |||
Repurchase of common shares | $ (11) | (260,441) | (260,452) | ||
Repurchase of common shares (in shares) | (1,131) | ||||
Balance at Aug. 04, 2018 | $ 605 | $ (24,413) | $ 720,535 | $ 1,115,751 | $ 1,812,478 |
Balance (in shares) at Aug. 04, 2018 | 60,518 | (646) | 59,872 |
Business and basis of presentation |
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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 which 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, Inc. As used in these notes and throughout this Quarterly Report on Form 10‑Q, 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 August 4, 2018, the Company operated 1,124 stores in 49 states, as shown in the table below.
The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10‑Q and the U.S. Securities and Exchange Commission’s Article 10, Regulation S-X. These consolidated financial statements were prepared on a consolidated basis to include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts, transactions, and unrealized profit were eliminated in consolidation. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to fairly state the financial position and results of operations and cash flows for the interim periods presented. The Company’s business is subject to seasonal fluctuation. Significant portions of the Company’s net sales and net income are realized during the fourth quarter of the fiscal year due to the holiday selling season. The results for the 13 weeks and 26 weeks ended August 4, 2018 are not necessarily indicative of the results to be expected for the fiscal year ending February 2, 2019, or for any other future interim period or for any future year. These interim consolidated financial statements and the related notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10‑K for the year ended February 3, 2018. All amounts are stated in thousands, with the exception of per share amounts and number of stores. |
Summary of significant accounting policies |
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Summary of significant accounting policies | |||||||||||||||||||||||||||||||||||||||||
Summary of significant accounting policies | 2.Summary of significant accounting policies Information regarding the Company’s significant accounting policies is contained in Note 2, “Summary of significant accounting policies,” to the consolidated financial statements in the Company’s Annual Report on Form 10‑K for the year ended February 3, 2018. Presented below and in the following notes is supplemental information that should be read in conjunction with “Notes to Consolidated Financial Statements” in the Annual Report. Fiscal quarter The Company’s quarterly periods are the 13 weeks ending on the Saturday closest to April 30, July 31, October 31, and January 31. The Company’s second quarter in fiscal 2018 and 2017 ended on August 4, 2018 and July 29, 2017, respectively. Share-based compensation 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 for the periods indicated:
The Company granted 163 and 103 stock options during the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for stock options was $2,215 and $2,235 for the 13 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for stock options was $4,423 and $4,377 for the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. The weighted-average grant date fair value of these stock options was $50.10 and $70.12 for the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. At August 4, 2018, there was approximately $21,720 of unrecognized compensation expense related to unvested stock options. The Company issued 92 and 42 restricted stock units during the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for restricted stock units was $3,290 and $2,354 for the 13 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for restricted stock units was $5,795 and $4,453 for the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. At August 4, 2018, there was approximately $25,569 of unrecognized compensation expense related to restricted stock units. The Company issued 33 and 21 performance-based restricted stock units during the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for performance-based restricted stock units was $1,722 and $1,569 for the 13 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for performance-based restricted stock units was $3,179 and $2,819 for the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. At August 4, 2018, there was approximately $12,426 of unrecognized compensation expense related to performance-based restricted stock units. Recent accounting pronouncements not yet adopted Leases In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016‑02, Leases (Topic 842) and has since issued additional ASUs to further clarify or add options to the issued guidance. This standard will change the way all leases of one year or more are treated. Under this guidance, lessees will be required to capitalize virtually all leases 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 required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, but have the option to apply this guidance to leases at the beginning of the period in which ASU 2016-02 is adopted instead. The Company continues to assess the method of adoption. ASU 2016‑02 is effective for public companies for annual reporting periods beginning after December 15, 2018, including interim reporting periods. Early adoption is permitted. The Company will adopt the new standard in fiscal 2019. The Company formed a project team to review the current accounting policies and practices and assess the effect of the standard on the consolidated financial statements. The team is evaluating the impact of the standard, including optional practical expedients that may be elected upon adoption, and is progressing with the implementation plan. The implementation plan includes identifying the lease population, updating and assessing the lease administration software, and identifying changes to processes and controls. The adoption of ASU 2016‑02 will have a material impact on the Company’s consolidated financial position as the Company will have approximately 1,200 leased locations at the time of adoption, including the corporate office, stores, and distribution centers, however, the Company is not able to quantify the difference at this time. The Company does not believe adoption of this standard will have a material impact on the Company’s consolidated results of operations or cash flows. Recently adopted accounting pronouncements Revenue Recognition from Contracts with Customers In May 2014, the FASB issued ASU 2014‑09, Revenue from Contracts with Customers (ASU 2014‑09), issued as a new Topic, Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition (ASC 605). The guidance in ASU 2014-09 and subsequently issued amendments outlines a comprehensive model for all entities to use in accounting for revenue arising from contracts with customers as well as required disclosures. Under the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration, which the entity expects to receive in exchange for those goods or services. The new standard requires additional disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers including significant judgments and changes in judgments. The Company adopted the new revenue standard effective February 4, 2018 using the modified retrospective transition method applied to all contracts with the cumulative effect recorded to the opening balance of retained earnings as of the date of adoption. The comparative information has not been restated and continues to be reported under accounting standards in effect for those periods. The adoption of the new revenue standard did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows. The Company expects the impact of the adoption of the new revenue standard will be immaterial to net income on an ongoing basis. See Note 3, “Revenue”, for further details.
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Revenue |
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Revenue | Revenue from Contracts with Customers On February 4, 2018, the Company adopted ASC 606 using the modified retrospective method applied to all contracts as of the date of adoption. The cumulative effect of initially applying the new revenue standard was recorded as an adjustment to the opening balance of retained earnings within the consolidated balance sheets. Under ASC 606, changes were made to the recognition timing or classification of revenues and expenses for the following:
Upon the adoption of ASC 606, the Company recognized the cumulative effect of $29,980, net of tax, as a reduction to the opening balance of retained earnings as of February 4, 2018. The cumulative effect of adoption is primarily related to the change in accounting for the loyalty program. The comparative information has not been restated and continues to be reported under accounting standards in effect for those periods. The adoption of the new revenue standard did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows. The Company expects the impact of the adoption of the new revenue standard will be immaterial to net income on an ongoing basis. Revenue recognition policies 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:
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. Shipping and handling are treated as costs to fulfill the contract, and as a result, any fees received from guests are included in the transaction price allocated to the performance obligation of providing goods with a corresponding amount accrued within cost of sales for amounts paid to applicable carriers. 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.
Salon services revenue is recognized at the time the service is provided to the guest.
Other revenue sources include the private label credit card and co-branded credit card programs, as well as deferred revenue related to the loyalty program and gift card breakage.
Credit card program
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 pay the Company for the 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.
Consistent with the accounting for the customer loyalty program, the Company defers the value of the Ultamate Rewards points earned at the time of the initial purchase in accrued liabilities on the consolidated balance sheets until the points are redeemed or expire. Other administrative costs related to the Credit Card programs, including payroll, marketing expenses, and other direct costs, are included in selling, general and administrative expenses on the consolidated statements of income.
Loyalty program
The Company maintains a customer loyalty program, Ultamate Rewards, in which program members earn points based on purchases of merchandise or services. Points earned by members are valid for at least one year and may be redeemed on any product the Company sells.
In the Ultamate Rewards loyalty program there is a contract with the guest that creates enforceable rights and obligations. In exchange for the guest’s consideration (i.e. payment), the guest is granted the right to a certain number of Ultamate Rewards points depending upon the program level and any active promotional multipliers. The points earned are a distinct promise from the original purchase that can be exchanged for future goods, which creates a performance obligation for the Company to provide goods until those points are redeemed or expire.
The standalone selling price of the goods or services provided is directly observable, as it is the price paid by the guest for those goods or services at the time of sale. The standalone selling price of the Ultamate Rewards points awarded is not directly observable and as such that amount must be estimated. The Company utilizes the expected retail value to account for Ultamate Rewards points earned and considers the expected redemption rate as part of that calculation. The estimated redemption rate is based on historical experience and other assumptions. The estimates are evaluated on an on-going basis. The Company does not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions used to calculate the redemption rates. The Company defers the value of the Ultamate Rewards points earned at the time of the initial purchase in accrued liabilities on the consolidated balance sheets until the points are redeemed or expire.
Gift card program
The Company’s gift card sales are deferred within accrued liabilities 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.
Disaggregated revenue The following table sets forth the amount of net sales attributable to retail stores, e-commerce, salon services, and other:
The following table sets forth the approximate percentage of net sales by primary category:
Deferred revenue Contract liabilities primarily represent the Company’s obligation to transfer additional goods or services to a guest for which the Company has received consideration, such as Ultamate Rewards loyalty points and unredeemed Ulta Beauty gift cards. In addition, the Company recognizes breakage on gift cards proportionately as redemption occurs.
During the 13 weeks and 26 weeks ended August 4, 2018, the contract liabilities balance includes additions related to the earnings of Ultamate Rewards loyalty points or issuances of Ulta Beauty gift cards and deductions for revenues recognized during the period as a result of the redemption of Ultamate Rewards loyalty points or Ulta Beauty gift cards and breakage of Ulta Beauty gift cards. The following table provides a summary of the changes in deferred revenue (included in accrued liabilities):
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Commitments and contingencies |
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Commitments and contingencies | |
Commitments and contingencies | 4.Commitments and contingencies Leases – The Company leases retail stores, distribution centers, and corporate offices. Original non-cancelable lease terms range from three to ten years, and store leases generally contain renewal options for additional years. Total rent expense under operating leases was $64,128 and $57,812 for the 13 weeks ended August 4, 2018 and July 29, 2017, respectively. Total rent expense under operating leases was $129,503 and $114,595 for the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. General litigation – The Company is involved in various legal proceedings that are incidental to the conduct of the business. 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. |
Notes payable |
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Notes payable | |
Notes payable | 5.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 August 4, 2018, February 3, 2018, and July 29, 2017, 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. |
Fair value measurements |
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Fair value measurements | 6.Fair value measurements The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximates their estimated fair values due to the short maturities of these instruments. Fair value is measured using inputs from the three levels of the fair value hierarchy, which are described as follows:
As of August 4, 2018, February 3, 2018, and July 29, 2017, the Company held financial liabilities of $20,419, $15,942, and $14,303, 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. |
Investments |
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Investments | |
Investments | 7.Investments The Company’s short-term investments as of August 4, 2018, February 3, 2018, and July 29, 2017 consist of $149,000, $120,000, and $180,000, respectively, in certificates of deposit. These short-term investments are carried at cost, which approximates fair value and are recorded in the consolidated balance sheets in short-term investments. The contractual maturity of the Company’s investments was less than twelve months at August 4, 2018. |
Income Taxes |
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Income Taxes | |
Income Taxes | 8.Income Taxes Income tax expense reflects the federal statutory tax rate and the weighted average state statutory tax rate for the states in which the Company operates stores. Income tax expense of $46,635 for the 13 weeks ended August 4, 2018 represents an effective tax rate of 23.9%, compared to $66,162 of tax expense representing an effective tax rate of 36.7% for the 13 weeks ended July 29, 2017. Income tax expense of $93,406 for the 26 weeks ended August 4, 2018 represents an effective tax rate of 23.0%, compared to $126,682 of tax expense representing an effective tax rate of 34.3% for the 26 weeks ended July 29, 2017. The lower effective tax rate is primarily due to tax reform. |
Net income per common share |
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Net income per common share | 9.Net income per common share The following is a reconciliation of net income and the number of shares of common stock used in the computation of net income per basic and diluted share:
The denominator for diluted net income per common share for the 13 weeks ended August 4, 2018 and July 29, 2017 excludes 285 and 112 employee stock options and restricted stock units, respectively, due to their anti-dilutive effects. The denominator for diluted net income per common share for the 26 weeks ended August 4, 2018 and July 29, 2017 excludes 378 and 151 employee stock options and restricted stock units, respectively, due to their anti-dilutive effects. Outstanding performance-based restricted stock units are included in the computation of dilutive shares only to the extent that the underlying performance conditions are satisfied prior to the end of the reporting period or would be considered satisfied if the end of the reporting period were the end of the related contingency period and the results would be dilutive under the treasury stock method. |
Share repurchase program |
6 Months Ended |
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Aug. 04, 2018 | |
Share repurchase program | |
Share repurchase program | 10. Share repurchase program On March 9, 2017, the Company announced that the Board of Directors authorized a share repurchase program (the 2017 Share Repurchase Program) pursuant to which the Company could repurchase up to $425,000 of the Company’s common stock. The 2017 Share Repurchase Program authorization revoked the previously authorized but unused amount of $79,863 from the earlier share repurchase program. The 2017 Share Repurchase Program did not have an expiration date but provided for suspension or discontinuation at any time. On March 15, 2018, the Company announced that the Board of Directors authorized a new share repurchase program (the 2018 Share Repurchase Program) pursuant to which the Company may repurchase up to $625,000 of the Company’s common stock. The 2018 Share Repurchase Program authorization revoked the previously authorized but unused amount of $41,317 from the 2017 Share Repurchase Program. The 2018 Share Repurchase Program does not have an expiration date and may be suspended or discontinued at any time. During the 26 weeks ended August 4, 2018, the Company purchased 1,131 shares of common stock for $260,452. During the 26 weeks ended July 29, 2017, the Company purchased 647 shares of common stock for $178,085. |
Summary of significant accounting policies (Policies) |
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Summary of significant accounting policies | |||||||||||||||||||||||||||||||||||||||||
Fiscal quarter | Fiscal quarter The Company’s quarterly periods are the 13 weeks ending on the Saturday closest to April 30, July 31, October 31, and January 31. The Company’s second quarter in fiscal 2018 and 2017 ended on August 4, 2018 and July 29, 2017, respectively. |
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Share-based compensation | Share-based compensation 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 for the periods indicated:
The Company granted 163 and 103 stock options during the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for stock options was $2,215 and $2,235 for the 13 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for stock options was $4,423 and $4,377 for the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. The weighted-average grant date fair value of these stock options was $50.10 and $70.12 for the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. At August 4, 2018, there was approximately $21,720 of unrecognized compensation expense related to unvested stock options. The Company issued 92 and 42 restricted stock units during the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for restricted stock units was $3,290 and $2,354 for the 13 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for restricted stock units was $5,795 and $4,453 for the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. At August 4, 2018, there was approximately $25,569 of unrecognized compensation expense related to restricted stock units. The Company issued 33 and 21 performance-based restricted stock units during the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for performance-based restricted stock units was $1,722 and $1,569 for the 13 weeks ended August 4, 2018 and July 29, 2017, respectively. The compensation cost charged against operating income for performance-based restricted stock units was $3,179 and $2,819 for the 26 weeks ended August 4, 2018 and July 29, 2017, respectively. At August 4, 2018, there was approximately $12,426 of unrecognized compensation expense related to performance-based restricted stock units. |
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Recent accounting pronouncements not yet adopted and Recently adopted accounting pronouncements | Recent accounting pronouncements not yet adopted Leases In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016‑02, Leases (Topic 842) and has since issued additional ASUs to further clarify or add options to the issued guidance. This standard will change the way all leases of one year or more are treated. Under this guidance, lessees will be required to capitalize virtually all leases 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 required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, but have the option to apply this guidance to leases at the beginning of the period in which ASU 2016-02 is adopted instead. The Company continues to assess the method of adoption. ASU 2016‑02 is effective for public companies for annual reporting periods beginning after December 15, 2018, including interim reporting periods. Early adoption is permitted. The Company will adopt the new standard in fiscal 2019. The Company formed a project team to review the current accounting policies and practices and assess the effect of the standard on the consolidated financial statements. The team is evaluating the impact of the standard, including optional practical expedients that may be elected upon adoption, and is progressing with the implementation plan. The implementation plan includes identifying the lease population, updating and assessing the lease administration software, and identifying changes to processes and controls. The adoption of ASU 2016‑02 will have a material impact on the Company’s consolidated financial position as the Company will have approximately 1,200 leased locations at the time of adoption, including the corporate office, stores, and distribution centers, however, the Company is not able to quantify the difference at this time. The Company does not believe adoption of this standard will have a material impact on the Company’s consolidated results of operations or cash flows. Recently adopted accounting pronouncements Revenue Recognition from Contracts with Customers In May 2014, the FASB issued ASU 2014‑09, Revenue from Contracts with Customers (ASU 2014‑09), issued as a new Topic, Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition (ASC 605). The guidance in ASU 2014-09 and subsequently issued amendments outlines a comprehensive model for all entities to use in accounting for revenue arising from contracts with customers as well as required disclosures. Under the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration, which the entity expects to receive in exchange for those goods or services. The new standard requires additional disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers including significant judgments and changes in judgments. The Company adopted the new revenue standard effective February 4, 2018 using the modified retrospective transition method applied to all contracts with the cumulative effect recorded to the opening balance of retained earnings as of the date of adoption. The comparative information has not been restated and continues to be reported under accounting standards in effect for those periods. The adoption of the new revenue standard did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows. The Company expects the impact of the adoption of the new revenue standard will be immaterial to net income on an ongoing basis. See Note 3, “Revenue”, for further details. |
Business and basis of presentation (Tables) |
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Schedule of stores operated by geographic area | As of August 4, 2018, the Company operated 1,124 stores in 49 states, as shown in the table below.
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Schedule of weighted average assumptions to determine grant date fair value of employee stock options |
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Revenue (Tables) |
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Summary of changes made to the recognition timing or classification of revenues and expenses under ASC 606 |
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Schedule of revenue |
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Schedule of approximate percentage of net sales attributed to each category |
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Summary of changes in deferred revenue |
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Net income per common share (Tables) |
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Schedule of reconciliation of net income and number of shares of common stock used in computation of net income per basic and diluted share |
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Summary of significant accounting policies - Fiscal Quarter (Details) |
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Aug. 04, 2018 |
Jul. 29, 2017 |
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Summary of significant accounting policies | ||
Fiscal period | 91 days | 91 days |
Summary of significant accounting policies – Leases (Details) |
Aug. 04, 2018
property
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Summary of significant accounting policies | |
Number of expected lease locations | 1,200 |
Revenue - Deferred revenue (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended |
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Aug. 04, 2018 |
Aug. 04, 2018 |
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Summary of changes in deferred revenue | ||
Balance at beginning of period | $ 130,591 | $ 110,103 |
Adoption of ASC 606 | 38,773 | |
Additions to contract liabilities | 89,001 | 174,835 |
Deductions to contract liabilities | (88,976) | (193,095) |
Balance at end of period | $ 130,616 | $ 130,616 |
Commitments and contingencies (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Aug. 04, 2018 |
Jul. 29, 2017 |
Aug. 04, 2018 |
Jul. 29, 2017 |
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Leases | ||||
Total rent expense under operating leases | $ 64,128 | $ 57,812 | $ 129,503 | $ 114,595 |
Minimum | ||||
Leases | ||||
Original non-cancelable lease term | 3 years | |||
Maximum | ||||
Leases | ||||
Original non-cancelable lease term | 10 years |
Notes payable (Details) |
6 Months Ended | ||
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Aug. 04, 2018
USD ($)
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Feb. 03, 2018
USD ($)
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Jul. 29, 2017
USD ($)
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Notes payable | |||
Outstanding borrowings under credit facility | $ 0 | $ 0 | $ 0 |
Second Amended and Restated Loan Agreement | |||
Notes payable | |||
Unused line fee (as a percent) | 0.20% | ||
Second Amended and Restated Loan Agreement | Minimum | |||
Notes payable | |||
Fixed charge coverage ratio covenant | 1.0 | ||
Second Amended and Restated Loan Agreement | London Interbank Offered Rate | |||
Notes payable | |||
Interest rate margin (as a percent) | 1.25% | ||
Second Amended and Restated Loan Agreement | Revolving loans | |||
Notes payable | |||
Maximum borrowing capacity | $ 400,000,000 | ||
Contingent increase to revolving facility | 50,000,000 | ||
Second Amended and Restated Loan Agreement | Letters of credit | |||
Notes payable | |||
Maximum borrowing capacity | $ 20,000,000 |
Fair value measurements (Details) - USD ($) $ in Thousands |
Aug. 04, 2018 |
Feb. 03, 2018 |
Jul. 29, 2017 |
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Level 2 | Non-qualified deferred compensation plan | |||
Fair value measurements | |||
Fair value of financial liabilities | $ 20,419 | $ 15,942 | $ 14,303 |
Investments (Details) - USD ($) $ in Thousands |
Aug. 04, 2018 |
Feb. 03, 2018 |
Jul. 29, 2017 |
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Investments | |||
Short-term investments | $ 149,000 | $ 120,000 | $ 180,000 |
Income Taxes (Details) - USD ($) $ in Thousands |
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Aug. 04, 2018 |
Jul. 29, 2017 |
Aug. 04, 2018 |
Jul. 29, 2017 |
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Income Taxes | ||||
Income tax expense | $ 46,635 | $ 66,162 | $ 93,406 | $ 126,682 |
Effective tax rate (as a percent) | 23.90% | 36.70% | 23.00% | 34.30% |
Net income per common share - Reconciliation (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Aug. 04, 2018 |
Jul. 29, 2017 |
Aug. 04, 2018 |
Jul. 29, 2017 |
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Net income per common share | ||||
Numerator for diluted net income per share - net income | $ 148,323 | $ 114,193 | $ 312,719 | $ 242,416 |
Denominator for basic net income per share - weighted-average common shares | 60,070 | 61,935 | 60,340 | 62,018 |
Dilutive effect of stock options and non-vested stock | 305 | 444 | 290 | 465 |
Denominator for diluted net income per share | 60,375 | 62,379 | 60,630 | 62,483 |
Net income per common share: | ||||
Basic | $ 2.47 | $ 1.84 | $ 5.18 | $ 3.91 |
Diluted | $ 2.46 | $ 1.83 | $ 5.16 | $ 3.88 |
Net income per common share - Anti-dilutive Shares (Details) - shares shares in Thousands |
3 Months Ended | 6 Months Ended | ||
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Aug. 04, 2018 |
Jul. 29, 2017 |
Aug. 04, 2018 |
Jul. 29, 2017 |
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Net income per common share | ||||
Employee stock options and restricted stock units excluded from the computation of net income per common share | 285 | 112 | 378 | 151 |