ULTA BEAUTY, INC., 10-K filed on 3/28/2012
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Jan. 28, 2012
Mar. 22, 2012
Jul. 30, 2011
Document and Entity Information [Abstract]
 
 
 
Entity Registrant Name
Ulta Salon, Cosmetics & Fragrance, Inc. 
 
 
Entity Central Index Key
0001403568 
 
 
Document Type
10-K 
 
 
Document Period End Date
Jan. 28, 2012 
 
 
Amendment Flag
false 
 
 
Document Fiscal Year Focus
2012 
 
 
Document Fiscal Period Focus
FY 
 
 
Current Fiscal Year End Date
--01-28 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Public Float
 
 
$ 3,034,284,000 
Entity Common Stock, Shares Outstanding
 
62,474,444 
 
Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jan. 28, 2012
Jan. 29, 2011
Current assets:
 
 
Cash and cash equivalents
$ 253,738 
$ 111,185 
Receivables, net
26,153 
22,292 
Merchandise inventories, net
244,647 
218,516 
Prepaid expenses and other current assets
43,430 
32,790 
Prepaid income taxes
10,684 
Deferred income taxes
12,264 
8,922 
Total current assets
580,232 
404,389 
Property and equipment, net
376,985 
326,099 
Total assets
957,217 
730,488 
Current liabilities:
 
 
Accounts payable
86,442 
87,093 
Accrued liabilities
74,411 
76,264 
Accrued income taxes
4,002 
Total current liabilities
164,855 
163,357 
Deferred rent
163,463 
134,572 
Deferred income taxes
44,195 
30,026 
Total liabilities
372,513 
327,955 
Commitments and contingencies (note 4)
   
   
Stockholders' equity:
 
 
Common stock, $.01 par value, 400,000 shares authorized; 62,764 and 60,707 shares issued; 62,209 and 60,202 shares outstanding; at January 28, 2012, and January 29, 2011, respectively
627 
606 
Treasury stock-common, at cost
(7,415)
(4,179)
Additional paid-in capital
404,698 
339,576 
Retained earnings
186,794 
66,530 
Total stockholders' equity
584,704 
402,533 
Total liabilities and stockholders' equity
$ 957,217 
$ 730,488 
Balance Sheets (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Jan. 28, 2012
Jan. 29, 2011
Balance Sheets [Abstract]
 
 
Common Stock, Par Value
$ 0.01 
$ 0.01 
Common Stock, Shares Authorized
400,000 
400,000 
Common Stock, Shares Issued
62,764 
60,707 
Common Stock, Shares Outstanding
62,209 
60,202 
Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 12 Months Ended
Jan. 28, 2012
Oct. 29, 2011
Jul. 30, 2011
Apr. 30, 2011
Jan. 29, 2011
Oct. 30, 2010
Jul. 31, 2010
May 1, 2010
Jan. 28, 2012
Jan. 29, 2011
Jan. 30, 2010
Statements of Income [Abstract]
 
 
 
 
 
 
 
 
 
 
 
Net sales
$ 582,511 
$ 413,067 
$ 394,567 
$ 386,006 
$ 473,659 
$ 339,179 
$ 321,804 
$ 320,196 
$ 1,776,151 
$ 1,454,838 
$ 1,222,771 
Cost of sales
384,046 
263,884 
260,280 
251,101 
316,973 
220,273 
217,846 
215,661 
1,159,311 
970,753 
846,202 
Gross profit
198,465 
149,183 
134,287 
134,905 
156,686 
118,906 
103,958 
104,535 
616,840 
484,085 
376,569 
Selling, general and administrative expenses
124,235 
100,997 
90,811 
94,615 
107,159 
90,309 
79,909 
80,729 
410,658 
358,106 
302,413 
Pre-opening expenses
983 
3,958 
3,816 
1,230 
523 
4,305 
1,793 
474 
9,987 
7,095 
6,003 
Operating income
73,247 
44,228 
39,660 
39,060 
49,004 
24,292 
22,256 
23,332 
196,195 
118,884 
68,153 
Interest expense
91 
176 
147 
173 
179 
244 
214 
118 
587 
755 
2,202 
Income before income taxes
73,156 
44,052 
39,513 
38,887 
48,825 
24,048 
22,042 
23,214 
195,608 
118,129 
65,951 
Income tax expense
26,861 
17,284 
15,608 
15,591 
18,721 
9,845 
8,980 
9,553 
75,344 
47,099 
26,595 
Net income
$ 46,295 
$ 26,768 
$ 23,905 
$ 23,296 
$ 30,104 
$ 14,203 
$ 13,062 
$ 13,661 
$ 120,264 
$ 71,030 
$ 39,356 
Net income per common share:
 
 
 
 
 
 
 
 
 
 
 
Basic
$ 0.75 
$ 0.44 
$ 0.39 
$ 0.38 
$ 0.50 
$ 0.24 
$ 0.22 
$ 0.23 
$ 1.96 
$ 1.20 
$ 0.68 
Diluted
$ 0.73 
$ 0.42 
$ 0.38 
$ 0.37 
$ 0.49 
$ 0.23 
$ 0.22 
$ 0.23 
$ 1.90 
$ 1.16 
$ 0.66 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
 
61,259 
58,959 
57,915 
Diluted
 
 
 
 
 
 
 
 
63,334 
61,288 
59,237 
Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 28, 2012
Jan. 29, 2011
Jan. 30, 2010
Operating activities
 
 
 
Net income
$ 120,264 
$ 71,030 
$ 39,356 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
75,931 
64,936 
62,166 
Deferred income taxes
10,827 
7,741 
3,143 
Non-cash stock compensation charges
11,605 
11,155 
5,949 
Excess tax benefits from stock-based compensation
(25,899)
(10,640)
(476)
Loss (gain) on disposal of property and equipment
1,324 
(519)
(51)
Change in operating assets and liabilities:
 
 
 
Receivables
(3,861)
(8,815)
4,791 
Merchandise inventories
(26,131)
(11,568)
6,654 
Prepaid expenses and other current assets
(10,640)
(2,518)
(5,978)
Income taxes
40,585 
(10,354)
19,885 
Accounts payable
(651)
30,706 
8,576 
Accrued liabilities
(1,358)
14,535 
16,382 
Deferred rent
28,891 
20,854 
12,430 
Net cash provided by operating activities
220,887 
176,543 
172,827 
Investing activities
 
 
 
Purchases of property and equipment
(128,636)
(97,115)
(68,105)
Net cash used in investing activities
(128,636)
(97,115)
(68,105)
Financing activities
 
 
 
Stock options exercised
27,639 
17,100 
1,228 
Excess tax benefits from stock-based compensation
25,899 
10,640 
476 
Common stock repurchased
(3,236)
 
 
Proceeds on long-term borrowings
 
 
1,161,673 
Payments on long-term borrowings
 
 
(1,267,720)
Net cash provided by (used in) financing activities
50,302 
27,740 
(104,343)
Net increase in cash and cash equivalents
142,553 
107,168 
379 
Cash and cash equivalents at beginning of year
111,185 
4,017 
3,638 
Cash and cash equivalents at end of year
253,738 
111,185 
4,017 
Supplemental cash flow information
 
 
 
Cash paid for interest
 
 
2,440 
Cash paid for income taxes (net of refunds)
24,162 
49,871 
3,706 
Noncash investing and financing activities:
 
 
 
Change in property and equipment included in accrued liabilities
(495)
2,540 
(7,353)
Unrealized gain on interest rate swap hedge, net of tax
 
 
$ 631 
Statements of Stockholders' Equity (USD $)
In Thousands
Total
Common Stock
Treasury - Common Stock
Additional Paid-in Capital
Retained Earnings/(Accumulated Deficit)
Accumulated Other Comprehensive Income (Loss)
Beginning Balance at Jan. 31, 2009
$ 244,968 
$ 582 
$ (4,179)
$ 293,052 
$ (43,856)
$ (631)
Beginning Balance, Shares at Jan. 31, 2009
 
58,245 
(505)
 
 
 
Stock options exercised
1,228 
 
1,224 
 
 
Stock options exercised, Shares
429 
429 
 
 
 
 
Unrealized gain on interest rate swap hedge, net of $411 income tax
631 
 
 
 
 
631 
Net income
39,356 
 
 
 
39,356 
 
Comprehensive income
39,987 
 
 
 
 
 
Excess tax benefits from stock-based compensation
476 
 
 
476 
 
 
Stock compensation charge
5,949 
 
 
5,949 
 
 
Ending Balance at Jan. 30, 2010
292,608 
586 
(4,179)
300,701 
(4,500)
Ending Balance, Shares at Jan. 30, 2010
 
58,674 
(505)
 
 
 
Stock options exercised
17,100 
20 
 
17,080 
 
 
Stock options exercised, Shares
2,033 
2,033 
 
 
 
 
Net income
71,030 
 
 
 
71,030 
 
Comprehensive income
71,030 
 
 
 
 
 
Excess tax benefits from stock-based compensation
10,640 
 
 
10,640 
 
 
Stock compensation charge
11,155 
 
 
11,155 
 
 
Ending Balance at Jan. 29, 2011
402,533 
606 
(4,179)
339,576 
66,530 
Ending Balance, Shares at Jan. 29, 2011
 
60,707 
(505)
 
 
 
Stock options exercised, Shares
1,936 
 
 
 
 
 
Stock options exercised and other awards
27,639 
21 
 
27,618 
 
 
Stock options exercised and other awards, Shares
 
2,057 
 
 
 
 
Common stock repurchased
(3,236)
 
(3,236)
 
 
 
Common stock repurchased, Shares
 
 
(50)
 
 
 
Net income
120,264 
 
 
 
120,264 
 
Comprehensive income
120,264 
 
 
 
 
 
Excess tax benefits from stock-based compensation
25,899 
 
 
25,899 
 
 
Stock compensation charge
11,605 
 
 
11,605 
 
 
Ending Balance at Jan. 28, 2012
$ 584,704 
$ 627 
$ (7,415)
$ 404,698 
$ 186,794 
$ 0 
Ending Balance, Shares at Jan. 28, 2012
 
62,764 
(555)
 
 
 
Statements of Stockholders' Equity (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 30, 2010
Tax expense (benefits), Unrealized gain on interest rate swap hedge
$ 411 
Accumulated Other Comprehensive Income (Loss)
 
Tax expense (benefits), Unrealized gain on interest rate swap hedge
$ 411 
Business and Basis of Presentation
Business and basis of presentation

1.    Business and basis of presentation

Ulta Salon, Cosmetics & Fragrance, Inc. (Company or Ulta) was incorporated in the state of Delaware on January 9, 1990, to operate specialty retail stores selling cosmetics, fragrance, haircare and skincare products, and related accessories and services. The stores also feature full-service salons. As of January 28, 2012, the Company operated 449 stores in 43 states. All amounts are stated in thousands, with the exception of per share amounts and number of stores.

The Company has determined its operating segments on the same basis that it uses to internally evaluate performance. The Company has combined its three operating segments: retail stores, salon services and e-commerce, into one reportable segment because they have a similar class of consumer, economic characteristics, nature of products and distribution methods.

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 January 28, 2012 (fiscal 2011), January 29, 2011 (fiscal 2010) and January 30, 2010 (fiscal 2009) were 52 week years.

Use of estimates

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

Cash and cash equivalents

Cash and cash equivalents include cash on hand and highly liquid investments with maturities of three months or less from the date of purchase. Cash equivalents include amounts due from third-party credit card receivables because such amounts generally convert to cash within one to three days with little or no default risk.

Receivables

Receivables consist principally of amounts receivable from vendors related to allowances earned but not yet received. These receivables are computed based on provisions of the vendor agreements in place and the Company’s completed performance. The Company’s vendors are primarily U.S.-based producers of consumer products. The Company does not require collateral on its receivables and does not accrue interest. Credit risk with respect to receivables is limited due to the diversity of vendors comprising the 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 allowance for receivables totaled $556 and $257 as of January 28, 2012 and January 29, 2011, respectively.

Merchandise inventories

Merchandise inventories are stated at the lower of cost or market. Cost is determined using the weighted-average cost method and includes costs incurred to purchase and distribute goods. Inventory cost also includes vendor allowances related to co-op advertising, markdowns, and volume discounts. The Company maintains reserves for lower of cost or market and shrinkage.

 

Fair value of financial instruments

The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximates their estimated fair values due to the short maturities of these instruments. The Company had no outstanding debt as of January 28, 2012 and January 29, 2011.

Derivative financial instruments

The Company had an interest rate swap that expired on January 31, 2010. This derivative financial instrument was designated and qualified as a cash flow hedge. Accordingly, the effective portion of the gain or loss on the derivative instrument was reported as a component of accumulated other comprehensive income (loss) and reclassified into interest expense in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss, the ineffective portion, on the derivative instrument, if other than inconsequential, was recognized in interest expense during the period of change. This derivative, which was immaterial, was recorded in the January 30, 2010 balance sheet at fair value.

Property and equipment

The 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

  3 to 10 years

Leasehold improvements

  10 years

Electronic equipment and software

  3 to 5 years

The Company capitalizes costs incurred during the application development stage in developing or obtaining internal use software. These costs are amortized over the estimated useful life of the software.

The Company periodically evaluates whether changes have occurred that would require revision of the remaining useful life of equipment and leasehold improvements or render them not recoverable. If such circumstances arise, the Company uses an estimate of the undiscounted sum of expected future operating cash flows during their holding period to determine whether the long-lived assets are impaired. If the aggregate undiscounted cash flows are less than the carrying amount of the assets, the resulting impairment charges to be recorded are calculated based on the excess of the carrying value of the assets over the fair value of such assets, with the fair value determined based on an estimate of discounted future cash flows.

Customer loyalty program

The Company maintains two customer loyalty programs. The Company’s national certificate program provides reward point certificates for free beauty products. Customers earn purchase-based reward points and redeem the related reward certificate during specific promotional periods during the year. The Company is also rolling out its ULTAmate Rewards program in which customers earn purchase-based points on an annual basis which can be redeemed at any time. The Company accrues the cost of anticipated redemptions related to these programs at the time of the initial purchase based on historical experience. The accrued liability related to both of the loyalty programs at January 28, 2012 and January 29, 2011 was $6,207 and $4,883, respectively. The cost of these programs, which was $17,200, $12,942 and $10,015 in fiscal 2011, 2010 and 2009, respectively, is included in cost of sales in the statements of income.

Deferred rent

Many of the Company’s operating leases contain predetermined fixed increases of the minimum rental rate during the lease. For these leases, the Company recognizes the related rental expense on a straight-line basis over the expected lease term, including cancelable option periods where failure to exercise such options would result in an economic penalty, and records the difference between the amounts charged to expense and the rent paid as deferred rent. The lease term commences on the earlier of the date when the Company becomes legally obligated for rent payments or the date the Company takes possession of the leased space.

 

As part of many lease agreements, the Company receives construction allowances from landlords for tenant improvements. These leasehold improvements made by the Company are capitalized and amortized over the shorter of their estimated useful lives or the lease term. The construction allowances are recorded as deferred rent and amortized on a straight-line basis over the lease term as a reduction of rent expense.

Revenue recognition

Net sales include merchandise sales and salon service revenue. Revenue from merchandise sales at stores is recognized at the time of sale, net of estimated returns. The Company provides refunds for product returns within 60 days from the original purchase date. Salon revenue is recognized when services are rendered. Salon service revenue amounted to $98,479, $86,484 and $76,627 for fiscal 2011, 2010 and 2009, respectively. Company coupons and other incentives are recorded as a reduction of net sales. State sales taxes are presented on a net basis as the Company considers itself a pass-through conduit for collecting and remitting state sales tax. E-commerce sales are recorded at the time of shipment.

The Company’s gift card sales are deferred 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 customer balances. The Company has maintained Company-specific, historical data related to its large pool of similar gift card transactions sold and redeemed over a significant time frame. During fiscal 2010, there was a change in facts and circumstances which resulted in the Company recognizing approximately $2.0 million of gift card breakage income which related primarily to gift cards sold in prior years. The Company recognizes gift card breakage to the extent there is no requirement for remitting balances to governmental agencies under unclaimed property laws. Gift card breakage is recognized over the same performance period, and in the same proportion, that the Company’s data has demonstrated that gift cards are redeemed. Gift card breakage is recorded as a decrease in selling, general and administrative expense in the statements of income. Deferred gift card revenue was $10,573 and $7,591 at January 28, 2012 and January 29, 2011, respectively, and is included in accrued liabilities – accrued customer liabilities (Note 5).

Vendor allowances

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

Advertising

Advertising expense consists principally of paper, print, and distribution costs related to the Company’s advertising circulars. The Company expenses the production and distribution costs related to its advertising circulars in the period the related promotional event occurs. Total advertising costs, exclusive of incentives from vendors and start-up advertising expense, amounted to $99,446, $84,796 and $76,811 for fiscal 2011, 2010 and 2009, respectively. Prepaid advertising costs included in prepaid expenses and other current assets were $4,721 and $3,804 as of January 28, 2012 and January 29, 2011, respectively.

Pre-opening expenses

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

Cost of sales

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

 

Selling, general and administrative expenses

Selling, general and administrative expenses includes payroll, bonus, and benefit costs for retail and corporate employees; advertising and marketing costs; occupancy costs related to our corporate office facilities; public company expense including Sarbanes-Oxley compliance expenses; stock-based compensation expense; depreciation and amortization for all assets except those related to our retail and warehouse operations which 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 carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes and the amounts reported were derived using the enacted tax rates in effect for the year the differences are expected to reverse.

Income tax benefits related to uncertain tax positions are recognized only when it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. Penalties and interest related to unrecognized tax positions are recorded in income tax expense.

Share-based compensation

The Company accounts for share-based compensation in accordance with the Accounting Standards Codification TM (ASC) rules for stock compensation. Share-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized on a straight-line method over the requisite service period for awards expected to vest. The Company recorded stock compensation expense of $11,605, $11,155 and $5,949 for fiscal 2011, 2010 and 2009, respectively (see Note 10, “Share-based awards”).

Insurance expense

The Company has insurance programs with third party insurers for employee health, workers compensation and general liability, among others, to limit the Company’s liability exposure. The insurance programs are premium based and include retentions, deductibles and stop loss coverage. Current stop loss coverage is $150 for employee health claims, $100 for general liability claims and $250 for workers compensation claims. The 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.

Net income per common share

Basic net income per common share is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share includes dilutive common stock equivalents, using the treasury stock method (see Note 11, “Net income per common share”).

 

Property and Equipment
Property and Equipment

3.    Property and equipment

Property and equipment consist of the following:

 

 

                 
    January 28,
2012
    January 29,
2011
 

Equipment and fixtures

  $ 256,479     $ 223,663  

Leasehold improvements

    256,487       233,997  

Electronic equipment and software

    126,790       105,808  

Construction-in-progress

    33,598       16,331  
   

 

 

   

 

 

 
      673,354       579,799  

Less accumulated depreciation and amortization

    (296,369     (253,700
   

 

 

   

 

 

 

Property and equipment, net

  $ 376,985     $ 326,099  
   

 

 

   

 

 

 

The Company had no capitalized interest for fiscal 2011 and 2010 as a result of not utilizing the credit facility during the year.

Commitments and Contingencies
Commitments and contingencies

4.    Commitments and contingencies

Leases  The Company leases retail stores, distribution and office facilities, and certain equipment. Original non-cancelable lease terms range from three to ten years, and store leases generally contain renewal options for additional years. A number of the Company’s store leases provide for contingent rentals based upon sales. Contingent rent amounts were insignificant in fiscal 2011, 2010 and 2009. Total rent expense under operating leases was $94,175, $82,365 and $73,228 for fiscal 2011, 2010 and 2009, respectively. Future minimum lease payments under operating leases as of January 28, 2012, are as follows:

 

 

         
    Operating  

Fiscal year

  Leases  

2012

  $ 123,945  

2013

    128,415  

2014

    123,821  

2015

    115,413  

2016

    106,138  

2017 and thereafter

    338,177  
   

 

 

 

Total minimum lease payments

  $ 935,909  
   

 

 

 

Included in the operating lease schedule above is $132,028 of minimum lease payments for stores that will open in fiscal 2012. Also included in the schedule above is the Chambersburg, Pennsylvania distribution center which is expected to open in fiscal 2012.

General litigation — In May 2010, a putative employment class action lawsuit was filed against the Company and certain unnamed defendants in state court in California. The plaintiff and members of the proposed class are alleged to be (or have been) non-exempt hourly employees. The suit alleges that Ulta violated various provisions of the California labor laws and failed to provide plaintiff and members of the proposed class with full meal periods, paid rest breaks, certain wages, overtime compensation and premium pay. The suit seeks to recover damages and penalties as a result of these alleged practices. On June 21, 2010, the Company filed its answer to the lawsuit. On January 12, 2011, the Company and plaintiffs engaged in a voluntary mediation. Although the Company continues to deny plaintiffs’ allegations, in the interest of putting certain of the claims behind it, the Company agreed in principle to settle all claims of the putative class consisting of non-exempt hourly hair designers in the salon department within the California retail stores. The settlement, which is not an admission of liability, is subject to final documentation and Court approval. Counsel for the plaintiffs has agreed to dismiss without prejudice the claims of all other putative class members. The proposed settlement was approved and became final in January 2012. The settlement amount was not material.

 

On March 2, 2012, a putative employment class action lawsuit was filed against us and certain unnamed defendants in state court in Los Angeles County, California. The plaintiff and members of the proposed class are alleged to be (or to have been) non-exempt hourly employees. The suit alleges that Ulta violated various provisions of the California labor laws and failed to provide plaintiff and members of the proposed class with full meal periods, paid rest breaks, certain wages, overtime compensation and premium pay. The suit seeks to recover damages and penalties as a result of these alleged practices. The Company denies plaintiff’s allegations and intends to vigorously defend the matter.

The Company is also involved in various legal proceedings that are incidental to the conduct of our business. In the opinion of management, the amount of any liability with respect to these proceedings, either individually or in the aggregate, will not be material.

Accrued Liabilities
Accrued liabilities

5.    Accrued liabilities

Accrued liabilities consist of the following:

 

 

                 
    January 28,
2012
    January 29,
2011
 

Accrued vendor liabilities (including accrued property and equipment costs)

  $ 10,868     $ 12,994  

Accrued customer liabilities

    17,978       16,543  

Accrued payroll, bonus and employee benefits

    24,449       25,221  

Accrued taxes, other

    7,619       8,843  

Other accrued liabilities

    13,497       12,663  
   

 

 

   

 

 

 

Accrued liabilities

  $ 74,411     $ 76,264  
   

 

 

   

 

 

 
Income Taxes
Income Taxes

6.    Income taxes

The provision for income taxes consists of the following:

 

 

                         
    Fiscal
2011
    Fiscal
2010
    Fiscal
2009
 

Current:

                       

Federal

  $ 53,495     $ 32,288     $ 20,296  

State

    11,022       7,070       2,744  
   

 

 

   

 

 

   

 

 

 

Total current

    64,517       39,358       23,040  

Deferred:

                       

Federal

    10,796       8,076       3,237  

State

    31       (335     318  
   

 

 

   

 

 

   

 

 

 

Total deferred

    10,827       7,741       3,555  
   

 

 

   

 

 

   

 

 

 

Provision for income taxes

  $ 75,344     $ 47,099     $ 26,595  
   

 

 

   

 

 

   

 

 

 

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

 

 

                         
    Fiscal
2011
    Fiscal
2010
    Fiscal
2009
 

Federal statutory rate

    35.0     35.0     35.0

State effective rate, net of federal tax benefit

    3.7     3.7     3.0

Other

    (0.2 %)      1.2     2.3
   

 

 

   

 

 

   

 

 

 

Effective tax rate

    38.5     39.9     40.3
   

 

 

   

 

 

   

 

 

 

 

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

 

 

                 
    January 28,
2012
    January 29,
2011
 

Deferred tax assets:

               

Reserves not currently deductible

  $ 13,207     $ 10,433  

Employee benefits

    4,970       5,327  

Net operating loss carryforwards

    179       334  

Accrued liabilities

    3,499       3,202  

Inventory valuation

    1,570       311  
   

 

 

   

 

 

 

Total deferred tax assets

    23,425       19,607  

Deferred tax liabilities:

               

Property and equipment

    32,414       23,321  

Deferred rent obligation

    16,572       12,050  

Prepaid expenses

    6,370       5,340  
   

 

 

   

 

 

 

Total deferred tax liabilities

    55,356       40,711  
   

 

 

   

 

 

 

Net deferred tax liability

  $ (31,931   $ (21,104
   

 

 

   

 

 

 

At January 28, 2012, the Company had net operating loss carryforwards (NOLs) for federal income tax purposes of approximately $513, which expire between 2012 and 2014. Based on Internal Revenue Code Section 382 relating to changes in ownership of the Company, utilization of the federal NOLs is subject to an annual limitation of $440 for federal NOLs created prior to April 1, 1997.

The Company accounts for uncertainty in income taxes in accordance with the ASC rules for income taxes. The reserve for uncertain tax positions was $930 at January 29, 2011. There was no reserve for uncertain tax positions at January 28, 2012. The balance is the Company’s best estimate of the potential liability for uncertain tax positions. The decrease in the liability for income taxes associated with uncertain tax positions relates to a change in prior period position during fiscal 2011. A reconciliation of the Company’s unrecognized tax benefits, excluding interest and penalties, is as follows:

 

 

                 
    January 28,
2012
    January 29,
2011
 

Balance at beginning of the period

  $ 862     $ 5,110  

Decrease in a change to a prior period position

    (862      

Decrease attributable to audit settlements during the current period

          (4,248
   

 

 

   

 

 

 

Balance at the end of the period

  $     $ 862  
   

 

 

   

 

 

 

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 financial statements. Income tax-related interest and penalties were insignificant for fiscal 2011, 2010 and 2009.

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 Services for the years before 2009 and, this applies to examinations by the State authorities before 2007.

Notes Payable
Notes payable

7.    Notes payable

On August 31, 2010, the Company terminated its credit facility with Bank of America and entered into a new credit facility pursuant to a Loan and Security Agreement with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent and a Lender thereunder, JPMorgan Chase Bank, N.A. as a Lender, and PNC Bank, National Association, as a Lender.

 

On October 19, 2011, the Company entered into an Amended and Restated Loan and Security Agreement (the Loan Agreement) with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent and a Lender thereunder, Wells Fargo Capital Finance LLC as a Lender, J.P. Morgan Securities LLC as a Lender, JP Morgan Chase Bank, N.A. as a Lender and PNC Bank, National Association, as a Lender. The Loan Agreement amended and restated the Loan and Security Agreement, dated as of August 31, 2010, by and among the lenders. The Loan Agreement extends the maturity of the Company’s credit facility to October 2016, provides maximum revolving loans equal to the lesser of $200,000 or a percentage of eligible owned inventory, contains a $10,000 subfacility for letters of credit and allows the Company to increase the revolving facility by an additional $50,000, subject to consent by each lender and other conditions. The Loan Agreement contains a requirement to maintain a minimum amount of excess borrowing availability at all times. Substantially all of the Company’s assets are pledged as collateral for outstanding borrowings under the facility. Outstanding borrowings will bear interest at the prime rate or Libor plus 1.50% and the unused line fee is 0.225%. As of January 28, 2012 and January 29, 2011, the Company had no borrowings outstanding under the new credit facility.

Financial Instruments
Financial instruments

8.    Financial instruments

The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is interest rate risk. Interest rate swaps are entered into to manage interest rate risk associated with the Company’s variable-rate borrowings. The Company accounts for derivative financial instruments in accordance with the ASC rules for derivatives and hedging activities.

On February 1, 2009, the Company adopted the ASC disclosure requirements for derivatives and hedging activities. The adoption had no impact on amounts recognized in the Company’s financial statements. The new rules are intended to help investors better understand how derivative instruments and hedging activities affect an entity’s financial position, financial performance and cash flows through enhanced disclosure requirements. The enhanced disclosures primarily surround disclosing the objectives and strategies for using derivative instruments by their underlying risk as well as a tabular format of the fair values of the derivative instruments and their gains and losses.

The Company had an interest rate swap agreement with a notional amount of $25 million which was designated as a cash flow hedge. The agreement expired on January 31, 2010. The interest rate swap was recorded at fair value in fiscal 2009 and changes in market value related to the effective portion of the cash flow hedge were recorded as unrecognized gains or losses in the accumulated other comprehensive income (loss) section of the stockholders’ equity in the balance sheets.

The Company did not utilize its credit facility during fiscal 2011 or 2010.

Fair Value Measurements
Fair value measurements

9.    Fair value measurements

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

On February 3, 2008, the Company adopted the ASC rules for fair value measurements and disclosures. The adoption had no impact on the Company’s financial statements. The new rules established a three-tier hierarchy for fair value measurements, which prioritizes the inputs used in measuring fair value as follows:

a. Level 1 — observable inputs such as quoted prices for identical instruments in active markets.

b. Level 2 — inputs other than quoted prices in active markets that are observable either directly or indirectly through corroboration with observable market data.

c. Level 3 — unobservable inputs in which there is little or no market data, which would require the Company to develop its own assumptions.

As of January 28, 2012, the Company held financial liabilities of $1,855 related to its non-qualified deferred compensation plan. The liabilities have been categorized as Level 2 as they are based on third-party reported net asset values which are based primarily on quoted market prices of underlying assets of the funds within the plan.

 

Share-based Awards
Share-based awards

10.    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, directors, and consultants to promote the success of the Company’s business. Incentive compensation was awarded under the Amended and Restated Restricted Stock Option Plan until April 2002 and under the 2002 Equity Incentive Plan through July 2007, at which time the 2007 Incentive Award Plan was adopted. All of the plans generally provided for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, and other types of awards to employees, consultants, and directors. 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 most 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.

2011 Incentive Award Plan

In June 2011, the Company adopted the 2011 Incentive Award Plan (the 2011 Plan). The 2011 Plan provides for the grant of incentive stock options, nonqualified 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 adoption, awards are only being made under the 2011 Plan, and no further awards will be made under any prior plan. The 2011 Plan reserves for the issuance upon grant or exercise of awards up to 4,750 shares of the Company’s common stock plus 746 shares that were not issued under prior plans.

The Company measures share-based compensation cost on the grant date, based on the fair value of the award, and recognizes the expense on a straight-line method over the requisite service period for awards expected to vest. The Company estimated the grant date fair value of stock options using a Black-Scholes valuation model using the following weighted-average assumptions:

 

 

                         
    Fiscal
2011
    Fiscal
2010
    Fiscal
2009
 

Volatility rate

    54.0     56.9     60.6

Average risk-free interest rate

    1.5     2.2     2.5

Average expected life (in years)

    6.3       5.6       5.3  

Dividend yield

    None       None       None  

The expected volatility is based on the historical volatility of a peer group of publicly-traded companies. The risk free interest rate is based on the United States Treasury yield curve in effect on the date of grant for the respective expected life of the option. The expected life represents the time the options granted are expected to be outstanding. We have limited historical data related to exercise behavior since our initial public offering on October 30, 2007. As a result, the Company has elected to generally use the shortcut approach to determine the expected life in accordance with the SEC Staff Accounting Bulletin on share-based payments. The Company does not currently pay a regular dividend.

The Company granted 621 stock options during fiscal 2011. The compensation cost that has been charged against income was $9,731, $9,918, and $5,949 for fiscal 2011, 2010, and 2009, respectively. The weighted-average grant date fair value of options granted in fiscal 2011, 2010 and 2009 was $34.81, $13.58 and $6.64, respectively. At January 28, 2012, there was approximately $32,156 of unrecognized compensation expense related to unvested stock options. The unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately two years.

The total intrinsic value of options exercised was $86,030, $42,118 and $4,783 in fiscal 2011, 2010 and 2009, respectively.

 

Restricted stock awards

During fiscal 2010, the Company granted restricted common shares to its newly appointed President and Chief Executive Officer. Restricted shares cannot be sold or otherwise transferred during the vesting period. The award cliff vested on December 29, 2011. The award was expensed on a straight-line basis over the 20 month vesting period. During fiscal 2011 the Company issued restricted stock to certain employees and its board of directors. Employee grants will vest over four years at the rate of 25% per year from the date of grant and director grants will generally cliff vest within one year. The compensation expense recorded in fiscal 2011 and 2010 was $1,874 and $1,237, respectively. At January 28, 2012 and January 29, 2011, unrecognized compensation cost related to restricted stock awards was $935 and $1,543, respectively.

A summary of the status of the Company’s stock option activity is presented in the following tables:

 

 

                                                 
    Fiscal 2011     Fiscal 2010     Fiscal 2009  
    Shares     Weighted-
Average
Exercise Price
    Shares     Weighted-
Average
Exercise Price
    Shares     Weighted-
Average
Exercise Price
 

Common Stock Options Outstanding

                                               

Beginning of year

    5,036     $ 16.55       5,791     $ 11.18       5,300     $ 10.27  

Granted

    621       66.58       1,521       26.12       977       12.44  

Exercised

    (1,936     14.28       (2,033     8.41       (429     2.86  

Canceled

    (162     17.75       (243     16.73       (57     10.46  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of year

    3,559     $ 26.46       5,036     $ 16.55       5,791     $ 11.18  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Exercisable at end of year

    1,437       14.27       2,272     $ 12.38       2,971     $ 8.99  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Restricted Stock Outstanding

                                               

Beginning of year

    128     $ 24.29           $                  

Granted

    15       63.38       128       24.29                  

Vested

    (71     23.62        —        —                   

Repuchased

    (50     23.52        —        —                   
   

 

 

   

 

 

   

 

 

   

 

 

                 

End of year

    22     $ 55.72       128     $ 24.29                  
   

 

 

   

 

 

   

 

 

   

 

 

                 

The Company completed an initial public offering during fiscal 2007 which resulted in compensation expense related to performance based grants of $425 and $637 in fiscal 2010 and 2009, respectively. There was no compensation expense related to performance based grants in 2011. No performance-based options were granted during fiscal 2011, 2010 and 2009.

Cash received from option exercises under all share-based payment arrangements for fiscal 2011, 2010 and 2009 was $27,639, $17,100 and $1,228, respectively. The total income tax benefit recognized in the income statement for the share-based compensation arrangements was $3,545, $3,300 and $1,464 for fiscal 2011, 2010 and 2009, respectively. The actual tax benefit realized for the tax deductions from option exercise and restricted stock vesting of the share-based payment arrangements totaled $29,439, $13,373 and $630, respectively, for fiscal 2011, 2010 and 2009.

 

The following table presents information related to options outstanding and options exercisable at January 28, 2012, under the Company’s stock option plans based on ranges of exercise prices:

 

 

                                                 
    Options outstanding     Options exercisable  

Options outstanding

  Number of
options
    Weighted-
average
remaining
contractual life
(years)
    Weighted-
average
exercise price
    Number
of options
    Weighted-
average
remaining
contractual life
(years)
    Weighted-
average
exercise price
 

$   0.02 - 0.17

    6       1     $ .17       6       1     $ .17  

     0.18 - 1.11

    16       3       1.11       16       3       1.11  

     1.12 - 2.62

    138       3       2.49       138       3       2.49  

     2.63 - 4.12

    67       4       3.72       67       4       3.72  

     4.13 - 9.18

    111       6       7.93       73       5       8.79  

    9.19 - 15.81

    1,292       7       13.51       777       7       13.76  

  15.82 - 37.85

    1,308       9       25.89       360       9       23.78  

  37.86 - 69.96

    621       10       66.58                    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  End of year

    3,559       8     $ 26.46       1,437       7     $ 14.27  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The aggregate intrinsic value of outstanding and exercisable options as of January 28, 2012 was $180,995 and $90,599, respectively. The last reported sale price of our common stock on the NASDAQ Global Select Market on January 28, 2012 was $77.31 per share.

Net Income Per Common Share
Net income per common share

11.     Net income per common share

The following is a reconciliation of net income and the number of shares of common stock used in the computation of net income per basic and diluted share:

 

 

                         
    Fiscal year ended  
    January 28,
2012
    January 29,
2011
    January 30,
2010
 

Numerator for diluted net income per share — net income

  $ 120,264     $ 71,030     $ 39,356  

Denominator for basic net income per share — weighted-average common shares

    61,259       58,959       57,915  

Dilutive effect of stock options and non-vested stock

    2,075       2,329       1,322  
   

 

 

   

 

 

   

 

 

 

Denominator for diluted net income per share

    63,334       61,288       59,237  

Net income per common share:

                       

Basic

  $ 1.96     $ 1.20     $ 0.68  

Diluted

  $ 1.90     $ 1.16     $ 0.66  

The denominator for diluted net income per common share for fiscal years 2011, 2010 and 2009 exclude 621, 1,263 and 3,809 employee options, respectively, due to their anti-dilutive effects.

Employee Benefit Plans
Employee benefit plans

12.    Employee benefit plans

The Company provides a 401(k) retirement plan covering all employees who qualify as to age and length of service. The plan is funded through employee contributions and a Company match. In fiscal 2011 and 2010, the Company match was 100% of the first 2.5% and 2%, respectively, of eligible compensation. In fiscal 2009, the Company match was between 40% and 50% of the first 3% of eligible compensation. For fiscal years 2011, 2010 and 2009, the Company match was $2,146, $1,106 and $600, respectively.

On January 1, 2009, the Company established a non-qualified deferred compensation plan for highly compensated employees whose contributions are limited under qualified defined contribution plans. Amounts contributed and deferred under the plan are credited or charged with the performance of investment options offered under the plan as elected by the participants. In the event of bankruptcy, the assets of this plan are available to satisfy the claims of general creditors. The liability for compensation deferred under the Company’s plan included in accrued liabilities was $1,855 and $1,233 as of January 28, 2012 and January 29, 2011, respectively. Total expense recorded under this plan is included in selling, general and administrative expenses and was insignificant during fiscal 2011 and 2010. The Company manages the risk of changes in the fair value of the liability for deferred compensation by electing to match its liability under the plan with investment vehicles that offset a substantial portion of its exposure. The cash value of the investment vehicles included in prepaid expense and other current assets was $1,968 and $1,232 as of January 28, 2012 and January 29, 2011, respectively.

Valuation and Qualifying Accounts
Valuation and qualifying accounts

13.    Valuation and qualifying accounts

 

 

                                 

Description

  Balance at
beginning
of period
    Charged to
costs and
expenses
    Deductions     Balance at
end of
period
 

Fiscal 2011

                               

Allowance for doubtful accounts

  $ 257     $ 607     $ (308 )(a)    $ 556  

Shrink reserve

    2,300       5,535       (5,390     2,445  

Inventory — lower of cost or market reserve

    3,316       870       (2,116     2,070  

Insurance:

                               

Workers Comp / General Liability Prepaid Assset

    (970 )(b)      4,495       (5,609     (2,084

Employee Health Care Accrued Liability

    1,608       21,036       (20,715     1,929  

Fiscal 2010

                               

Allowance for doubtful accounts

  $ 489     $ 189     $ (421 )(a)    $ 257  

Shrink reserve

    1,869       5,191       (4,760     2,300  

Inventory — lower of cost or market reserve

    4,014       881       (1,579     3,316  

Insurance:

                               

Workers Comp / General Liability Prepaid Assset

    (1,181 )(b)      4,320       (4,109     (970

Employee Health Care Accrued Liability

    1,579       17,601       (17,572     1,608  

Fiscal 2009

                               

Allowance for doubtful accounts

  $ 296     $ 432     $ (239 )(a)    $ 489  

Shrink reserve

    2,005       4,590       (4,726     1,869  

Inventory — lower of cost or market reserve

    2,364       2,481       (831     4,014  

Insurance:

                               

Workers Comp / General Liability Prepaid Assset

    (369 )(b)      2,720       (3,532     (1,181

Employee Health Care Accrued Liability

    1,803       16,710       (16,934     1,579  

 

 

 

(a) Represents writeoff of uncollectible accounts.

 

(b) Represents prepaid insurance

 

Selected Quarterly Financial Data
Selected quarterly financial data (unaudited)

14.     Selected quarterly financial data (unaudited)

The following tables set forth the Company’s unaudited quarterly results of operations for each of the quarters in fiscal 2011 and fiscal 2010. The Company uses a 13 week fiscal quarter ending on the last Saturday of the quarter.

 

 

                                                                 
    2011     2010  
    First     Second     Third     Fourth     First     Second     Third     Fourth  

Net sales

  $ 386,006     $ 394,567     $ 413,067     $ 582,511     $ 320,196     $ 321,804     $ 339,179     $ 473,659  

Cost of sales

    251,101       260,280       263,884       384,046       215,661       217,846       220,273       316,973  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    134,905       134,287       149,183       198,465       104,535       103,958       118,906       156,686  

Selling, general and administrative expenses

    94,615       90,811       100,997       124,235       80,729       79,909       90,309       107,159  

Pre-opening expenses

    1,230       3,816       3,958       983       474       1,793       4,305       523  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    39,060       39,660       44,228       73,247       23,332       22,256       24,292       49,004  

Interest expense

    173       147       176       91       118       214       244       179  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    38,887       39,513       44,052       73,156       23,214       22,042       24,048       48,825  

Income tax expense

    15,591       15,608       17,284       26,861       9,553       8,980       9,845       18,721  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 23,296     $ 23,905     $ 26,768     $ 46,295     $ 13,661     $ 13,062     $ 14,203     $ 30,104  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share:

                                                               

Basic

  $ 0.38     $ 0.39     $ 0.44     $ 0.75     $ 0.23     $ 0.22     $ 0.24     $ 0.50  

Diluted

  $ 0.37     $ 0.38     $ 0.42     $ 0.73     $ 0.23     $ 0.22     $ 0.23     $ 0.49  

The sum of the quarterly net income per common share may not equal the annual total due to quarterly changes in the weighted average shares and share equivalents outstanding.

Subsequent Event
Subsequent event

15.     Subsequent event

On March 8, 2012, we announced that our Board of Directors had declared a $1.00 per share special cash dividend to shareholders of record as of the close of business on March 20, 2012. The special cash dividend, which totals approximately $62 million, will be payable on May 15, 2012.

On March 8, 2012, we also announced the implementation of a Chief Financial Officer succession plan after our current CFO, Gregg R. Bodnar, advised us that due to a family health issue he will be required to relocate to Michigan and as a result intends to step down from his current position at such time as a suitable successor CFO can be identified. In order to facilitate an orderly transition, Mr. Bodnar plans to remain in his present position pending the appointment of his successor and is expected to assist in the transition of his successor.

Summary of Significant Accounting Policies (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 January 28, 2012 (fiscal 2011), January 29, 2011 (fiscal 2010) and January 30, 2010 (fiscal 2009) were 52 week years.

Use of estimates

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

Cash and cash equivalents

Cash and cash equivalents include cash on hand and highly liquid investments with maturities of three months or less from the date of purchase. Cash equivalents include amounts due from third-party credit card receivables because such amounts generally convert to cash within one to three days with little or no default risk.

Receivables

Receivables consist principally of amounts receivable from vendors related to allowances earned but not yet received. These receivables are computed based on provisions of the vendor agreements in place and the Company’s completed performance. The Company’s vendors are primarily U.S.-based producers of consumer products. The Company does not require collateral on its receivables and does not accrue interest. Credit risk with respect to receivables is limited due to the diversity of vendors comprising the 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 allowance for receivables totaled $556 and $257 as of January 28, 2012 and January 29, 2011, respectively.

Merchandise inventories

Merchandise inventories are stated at the lower of cost or market. Cost is determined using the weighted-average cost method and includes costs incurred to purchase and distribute goods. Inventory cost also includes vendor allowances related to co-op advertising, markdowns, and volume discounts. The Company maintains reserves for lower of cost or market and shrinkage.

Fair value of financial instruments

The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximates their estimated fair values due to the short maturities of these instruments. The Company had no outstanding debt as of January 28, 2012 and January 29, 2011.

Derivative financial instruments

The Company had an interest rate swap that expired on January 31, 2010. This derivative financial instrument was designated and qualified as a cash flow hedge. Accordingly, the effective portion of the gain or loss on the derivative instrument was reported as a component of accumulated other comprehensive income (loss) and reclassified into interest expense in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss, the ineffective portion, on the derivative instrument, if other than inconsequential, was recognized in interest expense during the period of change. This derivative, which was immaterial, was recorded in the January 30, 2010 balance sheet at fair value.

Property and equipment

The 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

  3 to 10 years

Leasehold improvements

  10 years

Electronic equipment and software

  3 to 5 years

The Company capitalizes costs incurred during the application development stage in developing or obtaining internal use software. These costs are amortized over the estimated useful life of the software.

The Company periodically evaluates whether changes have occurred that would require revision of the remaining useful life of equipment and leasehold improvements or render them not recoverable. If such circumstances arise, the Company uses an estimate of the undiscounted sum of expected future operating cash flows during their holding period to determine whether the long-lived assets are impaired. If the aggregate undiscounted cash flows are less than the carrying amount of the assets, the resulting impairment charges to be recorded are calculated based on the excess of the carrying value of the assets over the fair value of such assets, with the fair value determined based on an estimate of discounted future cash flows.

Customer loyalty program

The Company maintains two customer loyalty programs. The Company’s national certificate program provides reward point certificates for free beauty products. Customers earn purchase-based reward points and redeem the related reward certificate during specific promotional periods during the year. The Company is also rolling out its ULTAmate Rewards program in which customers earn purchase-based points on an annual basis which can be redeemed at any time. The Company accrues the cost of anticipated redemptions related to these programs at the time of the initial purchase based on historical experience. The accrued liability related to both of the loyalty programs at January 28, 2012 and January 29, 2011 was $6,207 and $4,883, respectively. The cost of these programs, which was $17,200, $12,942 and $10,015 in fiscal 2011, 2010 and 2009, respectively, is included in cost of sales in the statements of income.

Deferred rent

Many of the Company’s operating leases contain predetermined fixed increases of the minimum rental rate during the lease. For these leases, the Company recognizes the related rental expense on a straight-line basis over the expected lease term, including cancelable option periods where failure to exercise such options would result in an economic penalty, and records the difference between the amounts charged to expense and the rent paid as deferred rent. The lease term commences on the earlier of the date when the Company becomes legally obligated for rent payments or the date the Company takes possession of the leased space.

 

As part of many lease agreements, the Company receives construction allowances from landlords for tenant improvements. These leasehold improvements made by the Company are capitalized and amortized over the shorter of their estimated useful lives or the lease term. The construction allowances are recorded as deferred rent and amortized on a straight-line basis over the lease term as a reduction of rent expense.

Revenue recognition

Net sales include merchandise sales and salon service revenue. Revenue from merchandise sales at stores is recognized at the time of sale, net of estimated returns. The Company provides refunds for product returns within 60 days from the original purchase date. Salon revenue is recognized when services are rendered. Salon service revenue amounted to $98,479, $86,484 and $76,627 for fiscal 2011, 2010 and 2009, respectively. Company coupons and other incentives are recorded as a reduction of net sales. State sales taxes are presented on a net basis as the Company considers itself a pass-through conduit for collecting and remitting state sales tax. E-commerce sales are recorded at the time of shipment.

The Company’s gift card sales are deferred 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 customer balances. The Company has maintained Company-specific, historical data related to its large pool of similar gift card transactions sold and redeemed over a significant time frame. During fiscal 2010, there was a change in facts and circumstances which resulted in the Company recognizing approximately $2.0 million of gift card breakage income which related primarily to gift cards sold in prior years. The Company recognizes gift card breakage to the extent there is no requirement for remitting balances to governmental agencies under unclaimed property laws. Gift card breakage is recognized over the same performance period, and in the same proportion, that the Company’s data has demonstrated that gift cards are redeemed. Gift card breakage is recorded as a decrease in selling, general and administrative expense in the statements of income. Deferred gift card revenue was $10,573 and $7,591 at January 28, 2012 and January 29, 2011, respectively, and is included in accrued liabilities – accrued customer liabilities (Note 5).

Vendor allowances

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

Advertising

Advertising expense consists principally of paper, print, and distribution costs related to the Company’s advertising circulars. The Company expenses the production and distribution costs related to its advertising circulars in the period the related promotional event occurs. Total advertising costs, exclusive of incentives from vendors and start-up advertising expense, amounted to $99,446, $84,796 and $76,811 for fiscal 2011, 2010 and 2009, respectively. Prepaid advertising costs included in prepaid expenses and other current assets were $4,721 and $3,804 as of January 28, 2012 and January 29, 2011, respectively.

Pre-opening expenses

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

Cost of sales

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

Selling, general and administrative expenses

Selling, general and administrative expenses includes payroll, bonus, and benefit costs for retail and corporate employees; advertising and marketing costs; occupancy costs related to our corporate office facilities; public company expense including Sarbanes-Oxley compliance expenses; stock-based compensation expense; depreciation and amortization for all assets except those related to our retail and warehouse operations which 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 carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes and the amounts reported were derived using the enacted tax rates in effect for the year the differences are expected to reverse.

Income tax benefits related to uncertain tax positions are recognized only when it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. Penalties and interest related to unrecognized tax positions are recorded in income tax expense.

Share-based compensation

The Company accounts for share-based compensation in accordance with the Accounting Standards Codification TM (ASC) rules for stock compensation. Share-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized on a straight-line method over the requisite service period for awards expected to vest. The Company recorded stock compensation expense of $11,605, $11,155 and $5,949 for fiscal 2011, 2010 and 2009, respectively (see Note 10, “Share-based awards”).

Insurance expense

The Company has insurance programs with third party insurers for employee health, workers compensation and general liability, among others, to limit the Company’s liability exposure. The insurance programs are premium based and include retentions, deductibles and stop loss coverage. Current stop loss coverage is $150 for employee health claims, $100 for general liability claims and $250 for workers compensation claims. The 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.

Net income per common share

Basic net income per common share is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share includes dilutive common stock equivalents, using the treasury stock method (see Note 11, “Net income per common share”).

Summary of Significant Accounting Policies (Tables)
Estimated useful lives or the expected lease term
     

Equipment and fixtures

  3 to 10 years

Leasehold improvements

  10 years

Electronic equipment and software

  3 to 5 years
Property and Equipment (Tables)
Components of property and equipment
                 
    January 28,
2012
    January 29,
2011
 

Equipment and fixtures

  $ 256,479     $ 223,663  

Leasehold improvements

    256,487       233,997  

Electronic equipment and software

    126,790       105,808  

Construction-in-progress

    33,598       16,331  
   

 

 

   

 

 

 
      673,354       579,799  

Less accumulated depreciation and amortization

    (296,369     (253,700
   

 

 

   

 

 

 

Property and equipment, net

  $ 376,985     $ 326,099  
   

 

 

   

 

 

 
Commitments and Contingencies (Tables)
Future minimum lease payments under operating leases
         
    Operating  

Fiscal year

  Leases  

2012

  $ 123,945  

2013

    128,415  

2014

    123,821  

2015

    115,413  

2016

    106,138  

2017 and thereafter

    338,177  
   

 

 

 

Total minimum lease payments

  $ 935,909  
   

 

 

 
Accrued Liabilities (Tables)
Components of accrued liabilities
                 
    January 28,
2012
    January 29,
2011
 

Accrued vendor liabilities (including accrued property and equipment costs)

  $ 10,868     $ 12,994  

Accrued customer liabilities

    17,978       16,543  

Accrued payroll, bonus and employee benefits

    24,449       25,221  

Accrued taxes, other

    7,619       8,843  

Other accrued liabilities

    13,497       12,663  
   

 

 

   

 

 

 

Accrued liabilities

  $ 74,411     $ 76,264  
   

 

 

   

 

 

 
Income Taxes (Tables)
                         
    Fiscal
2011
    Fiscal
2010
    Fiscal
2009
 

Current:

                       

Federal

  $ 53,495     $ 32,288     $ 20,296  

State

    11,022       7,070       2,744  
   

 

 

   

 

 

   

 

 

 

Total current

    64,517       39,358       23,040  

Deferred:

                       

Federal

    10,796       8,076       3,237  

State

    31       (335     318  
   

 

 

   

 

 

   

 

 

 

Total deferred

    10,827       7,741       3,555  
   

 

 

   

 

 

   

 

 

 

Provision for income taxes

  $ 75,344     $ 47,099     $ 26,595  
   

 

 

   

 

 

   

 

 

 
                         
    Fiscal
2011
    Fiscal
2010
    Fiscal
2009
 

Federal statutory rate

    35.0     35.0     35.0

State effective rate, net of federal tax benefit

    3.7     3.7     3.0

Other

    (0.2 %)      1.2     2.3
   

 

 

   

 

 

   

 

 

 

Effective tax rate

    38.5     39.9     40.3
   

 

 

   

 

 

   

 

 

 
                 
    January 28,
2012
    January 29,
2011
 

Deferred tax assets:

               

Reserves not currently deductible

  $ 13,207     $ 10,433  

Employee benefits

    4,970       5,327  

Net operating loss carryforwards

    179       334  

Accrued liabilities

    3,499       3,202  

Inventory valuation

    1,570       311  
   

 

 

   

 

 

 

Total deferred tax assets

    23,425       19,607  

Deferred tax liabilities:

               

Property and equipment

    32,414       23,321  

Deferred rent obligation

    16,572       12,050  

Prepaid expenses

    6,370       5,340  
   

 

 

   

 

 

 

Total deferred tax liabilities

    55,356       40,711  
   

 

 

   

 

 

 

Net deferred tax liability

  $ (31,931   $ (21,104
   

 

 

   

 

 

 
                 
    January 28,
2012
    January 29,
2011
 

Balance at beginning of the period

  $ 862     $ 5,110  

Decrease in a change to a prior period position

    (862      

Decrease attributable to audit settlements during the current period

          (4,248
   

 

 

   

 

 

 

Balance at the end of the period

  $     $ 862  
   

 

 

   

 

 

 
Share-based Awards (Tables)
                         
    Fiscal
2011
    Fiscal
2010
    Fiscal
2009
 

Volatility rate

    54.0     56.9     60.6

Average risk-free interest rate

    1.5     2.2     2.5

Average expected life (in years)

    6.3       5.6       5.3  

Dividend yield

    None       None       None  
                                                 
    Fiscal 2011     Fiscal 2010     Fiscal 2009  
    Shares     Weighted-
Average
Exercise Price
    Shares     Weighted-
Average
Exercise Price
    Shares     Weighted-
Average
Exercise Price
 

Common Stock Options Outstanding

                                               

Beginning of year

    5,036     $ 16.55       5,791     $ 11.18       5,300     $ 10.27  

Granted

    621       66.58       1,521       26.12       977       12.44  

Exercised

    (1,936     14.28       (2,033     8.41       (429     2.86  

Canceled

    (162     17.75       (243     16.73       (57     10.46  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of year

    3,559     $ 26.46       5,036     $ 16.55       5,791     $ 11.18  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Exercisable at end of year

    1,437       14.27       2,272     $ 12.38       2,971     $ 8.99  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Restricted Stock Outstanding

                                               

Beginning of year

    128     $ 24.29           $                  

Granted

    15       63.38       128       24.29                  

Vested

    (71     23.62        —        —                   

Repuchased

    (50     23.52        —        —                   
   

 

 

   

 

 

   

 

 

   

 

 

                 

End of year

    22     $ 55.72       128     $ 24.29                  
   

 

 

   

 

 

   

 

 

   

 

 

                 
                                                 
    Options outstanding     Options exercisable  

Options outstanding

  Number of
options
    Weighted-
average
remaining
contractual life
(years)
    Weighted-
average
exercise price
    Number
of options
    Weighted-
average
remaining
contractual life
(years)
    Weighted-
average
exercise price
 

$   0.02 - 0.17

    6       1     $ .17       6       1     $ .17  

     0.18 - 1.11

    16       3       1.11       16       3       1.11  

     1.12 - 2.62

    138       3       2.49       138       3       2.49  

     2.63 - 4.12

    67       4       3.72       67       4       3.72  

     4.13 - 9.18

    111       6       7.93       73       5       8.79  

    9.19 - 15.81

    1,292       7       13.51       777       7       13.76  

  15.82 - 37.85

    1,308       9       25.89       360       9       23.78  

  37.86 - 69.96

    621       10       66.58                    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  End of year

    3,559       8     $ 26.46       1,437       7     $ 14.27  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Net Income Per Common Share (Tables)
Net income per basic and diluted share
                         
    Fiscal year ended  
    January 28,
2012
    January 29,
2011
    January 30,
2010
 

Numerator for diluted net income per share — net income

  $ 120,264     $ 71,030     $ 39,356  

Denominator for basic net income per share — weighted-average common shares

    61,259       58,959       57,915  

Dilutive effect of stock options and non-vested stock

    2,075       2,329       1,322  
   

 

 

   

 

 

   

 

 

 

Denominator for diluted net income per share

    63,334       61,288       59,237  

Net income per common share:

                       

Basic

  $ 1.96     $ 1.20     $ 0.68  

Diluted

  $ 1.90     $ 1.16     $ 0.66  
Valuation and Qualifying Accounts (Tables)
Valuation and qualifying accounts
                                 

Description

  Balance at
beginning
of period
    Charged to
costs and
expenses
    Deductions     Balance at
end of
period
 

Fiscal 2011

                               

Allowance for doubtful accounts

  $ 257     $ 607     $ (308 )(a)    $ 556  

Shrink reserve

    2,300       5,535       (5,390     2,445  

Inventory — lower of cost or market reserve

    3,316       870       (2,116     2,070  

Insurance:

                               

Workers Comp / General Liability Prepaid Assset

    (970 )(b)      4,495       (5,609     (2,084

Employee Health Care Accrued Liability

    1,608       21,036       (20,715     1,929  

Fiscal 2010

                               

Allowance for doubtful accounts

  $ 489     $ 189     $ (421 )(a)    $ 257  

Shrink reserve

    1,869       5,191       (4,760     2,300  

Inventory — lower of cost or market reserve

    4,014       881       (1,579     3,316  

Insurance:

                               

Workers Comp / General Liability Prepaid Assset

    (1,181 )(b)      4,320       (4,109     (970

Employee Health Care Accrued Liability

    1,579       17,601       (17,572     1,608  

Fiscal 2009

                               

Allowance for doubtful accounts

  $ 296     $ 432     $ (239 )(a)    $ 489  

Shrink reserve

    2,005       4,590       (4,726     1,869  

Inventory — lower of cost or market reserve

    2,364       2,481       (831     4,014  

Insurance:

                               

Workers Comp / General Liability Prepaid Assset

    (369 )(b)      2,720       (3,532     (1,181

Employee Health Care Accrued Liability

    1,803       16,710       (16,934     1,579  

 

 

 

(a) Represents writeoff of uncollectible accounts.

 

(b) Represents prepaid insurance
Selected Quarterly Financial Data (Tables)
Statements of Income
                                                                 
    2011     2010  
    First     Second     Third     Fourth     First     Second     Third     Fourth  

Net sales

  $ 386,006     $ 394,567     $ 413,067     $ 582,511     $ 320,196     $ 321,804     $ 339,179     $ 473,659  

Cost of sales

    251,101       260,280       263,884       384,046       215,661       217,846       220,273       316,973  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    134,905       134,287       149,183       198,465       104,535       103,958       118,906       156,686  

Selling, general and administrative expenses

    94,615       90,811       100,997       124,235       80,729       79,909       90,309       107,159  

Pre-opening expenses

    1,230       3,816       3,958       983       474       1,793       4,305       523  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    39,060       39,660       44,228       73,247       23,332       22,256       24,292       49,004  

Interest expense

    173       147       176       91       118       214       244       179  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    38,887       39,513       44,052       73,156       23,214       22,042       24,048       48,825  

Income tax expense

    15,591       15,608       17,284       26,861       9,553       8,980       9,845       18,721  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 23,296     $ 23,905     $ 26,768     $ 46,295     $ 13,661     $ 13,062     $ 14,203     $ 30,104  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share:

                                                               

Basic

  $ 0.38     $ 0.39     $ 0.44     $ 0.75     $ 0.23     $ 0.22     $ 0.24     $ 0.50  

Diluted

  $ 0.37     $ 0.38     $ 0.42     $ 0.73     $ 0.23     $ 0.22     $ 0.23     $ 0.49  
Business and Basis of Presentation (Details)
Jan. 28, 2012
Segment
State
Store
Business and basis of presentation (Textual) [Abstract]
 
Number of Stores
449 
Number of states in which entity operates
43 
Number of segments in which entity operates
Summary of Significant Accounting Policies (Details)
12 Months Ended
Jan. 28, 2012
Y
Equipment and fixtures [Member]
 
Estimated useful lives or the expected lease term
 
Estimated useful lives or the expected lease term, Minimum
Estimated useful lives or the expected lease term, Maximum
10 
Leasehold improvements [Member]
 
Estimated useful lives or the expected lease term
 
Estimated useful lives or the expected lease term, Average
10 
Electronic equipment and software [Member]
 
Estimated useful lives or the expected lease term
 
Estimated useful lives or the expected lease term, Minimum
Estimated useful lives or the expected lease term, Maximum
Summary of Significant Accounting Policies (Details Textual) (USD $)
12 Months Ended
Jan. 28, 2012
Jan. 29, 2011
Jan. 30, 2010
Summary of significant accounting policies (Textual) [Abstract]
 
 
 
Allowance for receivables net
$ 556,000 
$ 257,000 
 
Outstanding debt
 
Accrued liability loyalty programs
6,207,000 
4,883,000 
 
Cost of loyalty programs
17,200,000 
12,942,000 
10,015,000 
Duration of refund for sales return
60 days 
 
 
Recognized income from gift cards breakage due to change in circumstances
 
2,000,000 
 
Deferred gift card revenue
10,573,000 
7,591,000 
 
Total advertising costs
99,446,000 
84,796,000 
76,811,000 
Prepaid advertising costs
4,721,000 
3,804,000 
 
Stock compensation expense
11,605,000 
11,155,000 
5,949,000 
Stop loss coverage of employee health claims
150,000 
 
 
Stop loss coverage of general liability claims
100,000 
 
 
Stop loss coverage of workers compensation claims
250,000 
 
 
Salon [Member]
 
 
 
Summary of significant accounting policies (Textual) [Abstract]
 
 
 
Revenue from Salon Service
$ 98,479,000 
$ 86,484,000 
$ 76,627,000 
Property and Equipment (Details) (USD $)
In Thousands, unless otherwise specified
Jan. 28, 2012
Jan. 29, 2011
Components of property and equipment
 
 
Property and equipment, Gross
$ 673,354 
$ 579,799 
Less accumulated depreciation and amortization
(296,369)
(253,700)
Property and equipment, net
376,985 
326,099 
Equipment and fixtures [Member]
 
 
Components of property and equipment
 
 
Property and equipment, Gross
256,479 
223,663 
Leasehold improvements [Member]
 
 
Components of property and equipment
 
 
Property and equipment, Gross
256,487 
233,997 
Electronic equipment and software [Member]
 
 
Components of property and equipment
 
 
Property and equipment, Gross
126,790 
105,808 
Construction-in-progress [Member]
 
 
Components of property and equipment
 
 
Property and equipment, Gross
$ 33,598 
$ 16,331 
Commitments and Contingencies (Details) (USD $)
In Thousands, unless otherwise specified
Jan. 28, 2012
Future minimum lease payments under operating leases
 
2012
$ 123,945 
2013
128,415 
2014
123,821 
2015
115,413 
2016
106,138 
2017 and thereafter
338,177 
Total minimum lease payments
$ 935,909 
Commitments and Contingencies (Details Textual) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 28, 2012
Jan. 29, 2011
Jan. 30, 2010
Commitments and contingencies (Textual) [Abstract]
 
 
 
Minimum lease payments for stores to be opened in next fiscal year
$ 935,909 
 
 
Commitments And Contingencies (Textual Additional) [Abstract]
 
 
 
Non-cancelable operating lease terms, minimum
3 years 
 
 
Non-cancelable operating lease terms, maximum
10 years 
 
 
Total rent expense under operating leases
94,175 
82,365 
73,228 
Stores to be opened in next fiscal year [Member]
 
 
 
Commitments and contingencies (Textual) [Abstract]
 
 
 
Minimum lease payments for stores to be opened in next fiscal year
$ 132,028 
 
 
Accrued Liabilities (Details) (USD $)
In Thousands, unless otherwise specified
Jan. 28, 2012
Jan. 29, 2011
Components of accrued liabilities
 
 
Accrued vendor liabilities (including accrued property and equipment costs)
$ 10,868 
$ 12,994 
Accrued customer liabilities
17,978 
16,543 
Accrued payroll, bonus and employee benefits
24,449 
25,221 
Accrued taxes, other
7,619 
8,843 
Other accrued liabilities
13,497 
12,663 
Accrued liabilities
$ 74,411 
$ 76,264 
Income Taxes (Details) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 28, 2012
Jan. 29, 2011
Jan. 30, 2010
Current:
 
 
 
Federal
$ 53,495 
$ 32,288 
$ 20,296 
State
11,022 
7,070 
2,744 
Total current
64,517 
39,358 
23,040 
Deferred:
 
 
 
Federal
10,796 
8,076 
3,237 
State
31 
(335)
318 
Total deferred
10,827 
7,741 
3,143 
Provision for income taxes
$ 75,344 
$ 47,099 
$ 26,595 
Income Taxes (Details 1)
12 Months Ended
Jan. 28, 2012
Jan. 29, 2011
Jan. 30, 2010
Reconciliation of the federal statutory rate to the Company's effective tax rate
 
 
 
Federal statutory rate
35.00% 
35.00% 
35.00% 
State effective rate, net of federal tax benefit
3.70% 
3.70% 
3.00% 
Other
(0.20%)
1.20% 
2.30% 
Effective tax rate
38.50% 
39.90% 
40.30% 
Income Taxes (Details 2) (USD $)
In Thousands, unless otherwise specified
Jan. 28, 2012
Jan. 29, 2011
Deferred tax assets:
 
 
Reserves not currently deductible
$ 13,207 
$ 10,433 
Employee benefits
4,970 
5,327 
Net operating loss carryforwards
179 
334 
Accrued liabilities
3,499 
3,202 
Inventory valuation
1,570 
311 
Total deferred tax assets
23,425 
19,607 
Deferred tax liabilities:
 
 
Property and equipment
32,414 
23,321 
Deferred rent obligation
16,572 
12,050 
Prepaid expenses
6,370 
5,340 
Total deferred tax liabilities
55,356 
40,711 
Net deferred tax liability
$ (31,931)
$ (21,104)
Income Taxes (Details 3) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 28, 2012
Jan. 29, 2011
Reconciliation of the Company's unrecognized tax benefits, excluding interest and penalties
 
 
Balance at beginning of the period
$ 862 
$ 5,110 
Decrease in a change to a prior period position
(862)
 
Decreases attributable to audit settlements during the current period
(4,248)
Balance at end of the period
$ 0 
$ 862 
Income Taxes (Details Textual) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 28, 2012
Jan. 29, 2011
Income Taxes (Textual) [Abstract]
 
 
Net operating loss carryforwards (NOLs) for federal income tax purposes
$ 513 
 
Maximum utilization of net operating loss carryforwards (NOLs) annually
440 
 
Reserve for uncertain tax positions
$ 0 
$ 930 
Maximum [Member]
 
 
Income Taxes [Line Items]
 
 
Expiry Period of net operating loss carryforwards (NOLs)
2014 
 
Minimum [Member]
 
 
Income Taxes [Line Items]
 
 
Expiry Period of net operating loss carryforwards (NOLs)
2012 
 
Notes Payable (Details) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 28, 2012
Jan. 29, 2011
Notes Payable (Additional Textual) [Abstract]
 
 
Letters of credit sub facility, maximum borrowing capacity
$ 10,000 
 
Notes Payable (Textual) [Abstract]
 
 
Line of credit facility, maximum borrowing capacity
10,000 
 
Additional credit available under the revolving facility with consent by each lender and other conditions
50,000 
 
Interest rate on outstanding borrowing under facility
Libor plus 1.50% 
 
Percentage of interest rate on outstanding borrowing under facility
1.50% 
 
Percentage of unused Line of Credit Facility Fee
0.225% 
 
Borrowings outstanding
Standby Letters of Credit [Member]
 
 
Notes Payable (Additional Textual) [Abstract]
 
 
Letters of credit sub facility, maximum borrowing capacity
200,000 
 
Notes Payable (Textual) [Abstract]
 
 
Line of credit facility, maximum borrowing capacity
$ 200,000 
 
Financial Instruments (Details) (USD $)
In Millions, unless otherwise specified
Jan. 30, 2010
Financial Instruments (Textual) [Abstract]
 
Notional amount of interest rate swap agreement
$ 25 
Fair Value Measurements (Details Textual) (USD $)
In Thousands, unless otherwise specified
Jan. 28, 2012
Jan. 29, 2011
Fair Value Measurements (Textual) (Abstract)
 
 
Financial liabilities related to non-qualified deferred compensation plan
$ 1,855 
$ 1,233 
Fair Value Inputs Level2 [Member]
 
 
Fair Value Measurements (Textual) (Abstract)
 
 
Financial liabilities related to non-qualified deferred compensation plan
$ 1,855 
 
Share-based Awards (Details)
12 Months Ended
Jan. 28, 2012
Y
Jan. 29, 2011
Y
Jan. 30, 2010
Y
Estimated the grant date fair value of stock options weighted-average assumptions
 
 
 
Volatility rate
54.00% 
56.90% 
60.60% 
Average risk-free interest rate
1.50% 
2.20% 
2.50% 
Average expected life (in years)
6.3 
5.6 
5.3 
Dividend yield
   
   
   
Share-based Awards (Details 1) (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Jan. 28, 2012
Jan. 29, 2011
Jan. 30, 2010
Common Stock Options Shares
 
 
 
Beginning of year
5,036 
5,791 
5,300 
Granted
621 
1,521 
977 
Exercised
(1,936)
(2,033)
(429)
Canceled
(162)
(243)
(57)
End of year
3,559 
5,036 
5,791 
Exercisable at end of year
1,437 
2,272 
2,971 
Common Stock Options Weighted-Average Exercise Price
 
 
 
Beginning of year
$ 16.55 
$ 11.18 
$ 10.27 
Granted
$ 66.58 
$ 26.12 
$ 12.44 
Exercised
$ 14.28 
$ 8.41 
$ 2.86 
Canceled
$ 17.75 
$ 16.73 
$ 10.46 
End of year
$ 26.46 
$ 16.55 
$ 11.18 
Exercisable at end of year
$ 14.27 
$ 12.38 
$ 8.99 
Restricted Stock Outstanding
 
 
 
Beginning of year
128 
 
Granted
15 
128 
 
Vested
(71)
 
Repurchased
(50)
 
End of year
22 
128 
 
Restricted Stock Outstanding Weighted-Average Exercise Price
 
 
 
Beginning of year
$ 24.29 
 
$ 0 
Granted
$ 63.38 
$ 24.29 
 
Vested
$ 23.62 
$ 0 
 
Repurchased
$ 23.52 
$ 0 
 
End of year
$ 55.72 
$ 24.29 
 
Share-based Awards (Details 2) (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Jan. 28, 2012
Y
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
 
Number of Options
3,559 
Weighted- Average Remaining Contractual Life (Years)