ULTA BEAUTY, INC., 10-K filed on 4/3/2018
Annual Report
v3.8.0.1
Document and Entity Information - USD ($)
12 Months Ended
Feb. 03, 2018
Mar. 29, 2018
Jul. 28, 2017
Document And Entity Information      
Entity Registrant Name Ulta Beauty, Inc.    
Entity Central Index Key 0001403568    
Document Type 10-K    
Document Period End Date Feb. 03, 2018    
Amendment Flag false    
Current Fiscal Year End Date --02-03    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Large Accelerated Filer    
Entity Public Float     $ 9,854,201,000
Entity Common Stock, Shares Outstanding   60,611,334  
Document Fiscal Year Focus 2017    
Document Fiscal Period Focus FY    
Trading Symbol ULTA    
v3.8.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Feb. 03, 2018
Jan. 28, 2017
Current assets:    
Cash and cash equivalents $ 277,445 $ 385,010
Short-term investments 120,000 30,000
Receivables, net 99,719 88,631
Merchandise inventories, net 1,096,424 943,975
Prepaid expenses and other current assets 98,666 88,621
Prepaid income taxes 1,489  
Total current assets 1,693,743 1,536,237
Property and equipment, net 1,189,453 1,004,358
Deferred compensation plan assets 16,827 11,283
Other long-term assets 8,664  
Total assets 2,908,687 2,551,878
Current liabilities:    
Accounts payable 325,758 259,518
Accrued liabilities 302,307 260,854
Accrued income taxes 14,101 8,971
Total current liabilities 642,166 529,343
Deferred rent 407,916 366,191
Deferred income taxes 59,403 86,498
Other long-term liabilities 24,985 19,628
Total liabilities 1,134,470 1,001,660
Commitments and contingencies (Note 4)
Stockholders' equity:    
Common stock, $0.01 par value, 400,000 shares authorized; 61,441 and 62,733 shares issued; 60,822 and 62,129 shares outstanding; at February 3, 2018, and January 28, 2017, respectively 614 627
Treasury stock-common, at cost (18,767) (14,524)
Additional paid-in capital 698,917 658,330
Retained earnings 1,093,453 905,785
Total stockholders' equity 1,774,217 1,550,218
Total liabilities and stockholders' equity $ 2,908,687 $ 2,551,878
v3.8.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Feb. 03, 2018
Jan. 28, 2017
Consolidated Balance Sheets    
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 400,000,000 400,000,000
Common stock, shares issued 61,441,000 62,733,000
Common stock, shares outstanding 60,822,000 62,129,000
v3.8.0.1
Consolidated Statements of Income - USD ($)
shares in Thousands, $ in Thousands
1 Months Ended 3 Months Ended 12 Months Ended
Feb. 03, 2018
Feb. 03, 2018
Feb. 03, 2018
Oct. 28, 2017
Jul. 29, 2017
Apr. 29, 2017
Jan. 28, 2017
Oct. 29, 2016
Jul. 30, 2016
Apr. 30, 2016
Feb. 03, 2018
Jan. 28, 2017
Jan. 30, 2016
Consolidated Statements of Income                          
Net sales $ 108,756   $ 1,937,592 $ 1,342,181 $ 1,289,854 $ 1,314,879 $ 1,580,574 $ 1,131,232 $ 1,069,215 $ 1,073,716 $ 5,884,506 $ 4,854,737 $ 3,924,116
Cost of sales     1,279,245 849,053 820,528 838,871 1,035,666 704,179 684,377 683,286 3,787,697 3,107,508 2,539,783
Gross profit     658,347 493,128 469,326 476,008 544,908 427,053 384,838 390,430 2,096,809 1,747,229 1,384,333
Selling, general and administrative expenses     399,631 320,729 283,427 283,445 316,266 280,464 236,380 240,724 1,287,232 1,073,834 863,354
Pre-opening expenses     4,297 9,732 6,099 4,158 4,412 6,928 4,689 2,542 24,286 18,571 14,682
Operating income     254,419 162,667 179,800 188,405 224,230 139,661 143,769 147,164 785,291 654,824 506,297
Interest income, net     (359) (316) (555) (338) (116) (211) (248) (315) (1,568) (890) (1,143)
Income before income taxes     254,778 162,983 180,355 188,743 224,346 139,872 144,017 147,479 786,859 655,714 507,440
Income tax expense   $ (9,778) 46,605 58,338 66,162 60,520 84,128 52,310 54,013 55,503 231,625 245,954 187,432
Net income     $ 208,173 $ 104,645 $ 114,193 $ 128,223 $ 140,218 $ 87,562 $ 90,004 $ 91,976 $ 555,234 $ 409,760 $ 320,008
Net income per common share:                          
Basic     $ 3.42 $ 1.71 $ 1.84 $ 2.06 $ 2.25 $ 1.40 $ 1.44 $ 1.46 $ 9.02 $ 6.55 $ 5.00
Diluted     $ 3.40 $ 1.70 $ 1.83 $ 2.05 $ 2.24 $ 1.40 $ 1.43 $ 1.45 $ 8.96 $ 6.52 $ 4.98
Weighted average common shares outstanding:                          
Basic                     61,556 62,519 63,949
Diluted                     61,975 62,851 64,275
v3.8.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Feb. 03, 2018
Jan. 28, 2017
Jan. 30, 2016
Operating activities      
Net income $ 555,234 $ 409,760 $ 320,008
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 252,713 210,295 165,049
Deferred income taxes (27,095) 26,971 5,809
Non-cash stock compensation charges 24,399 19,340 15,594
Excess tax benefits from stock-based compensation   (9,053) (9,497)
Loss on disposal of property and equipment 7,518 9,140 3,690
Change in operating assets and liabilities:      
Receivables (11,088) (23,639) (12,552)
Merchandise inventories (152,449) (182,182) (180,564)
Prepaid expenses and other current assets (10,045) (16,073) (6,000)
Income taxes 3,641 5,322 2,795
Accounts payable 66,240 63,344 5,396
Accrued liabilities 36,891 71,057 37,926
Deferred rent 41,725 44,402 27,662
Other assets and liabilities (8,318) 5,701 558
Net cash provided by operating activities 779,366 634,385 375,874
Investing activities      
Purchases of short-term investments (330,000) (90,000) (130,000)
Proceeds from short-term investments 240,000 190,000 150,209
Purchases of property and equipment (440,714) (373,447) (299,167)
Net cash used in investing activities (530,714) (273,447) (278,958)
Financing activities      
Repurchase of common shares (367,581) (344,275) (167,396)
Stock options exercised 16,190 16,293 19,646
Purchase of treasury shares (4,243) (2,839) (1,972)
Excess tax benefits from stock-based compensation   9,053 9,497
Debt issuance costs (583)    
Net cash used in financing activities (356,217) (321,768) (140,225)
Net increase (decrease) in cash and cash equivalents (107,565) 39,170 (43,309)
Cash and cash equivalents at beginning of year 385,010 345,840 389,149
Cash and cash equivalents at end of year 277,445 385,010 345,840
Supplemental cash flow information      
Cash paid for income taxes (net of refunds) 254,619 212,514 179,248
Non-cash investing activities:      
Change in property and equipment included in accrued liabilities $ 4,562 $ 2,446 $ 13
v3.8.0.1
Consolidated Statements of Stockholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Common Stock
Treasury - Common Stock
Additional Paid-In Capital
Retained Earnings
Total
Balance at Jan. 31, 2015 $ 647 $ (9,713) $ 576,982 $ 679,593 $ 1,247,509
Balance (in shares) at Jan. 31, 2015 64,762 (578)      
Stock options exercised and other awards $ 4   19,642   19,646
Stock options exercised and other awards (in shares) 403        
Purchase of treasury shares   $ (1,972)     (1,972)
Purchase of treasury shares (in shares)   (13)      
Net income       320,008 320,008
Excess tax benefits from stock-based compensation     9,497   9,497
Stock compensation charge     15,594   15,594
Repurchase of common shares $ (10)     (167,386) $ (167,396)
Repurchase of common shares (in shares) (1,034)       (1,034)
Balance at Jan. 30, 2016 $ 641 $ (11,685) 621,715 832,215 $ 1,442,886
Balance (in shares) at Jan. 30, 2016 64,131 (591)      
Stock options exercised and other awards $ 2   16,291   16,293
Stock options exercised and other awards (in shares) 241        
Purchase of treasury shares   $ (2,839)     (2,839)
Purchase of treasury shares (in shares)   (13)      
Net income       409,760 409,760
Excess tax benefits from stock-based compensation     9,053   9,053
Stock compensation charge     19,340   19,340
Repurchase of common shares $ (16)   (8,069) (336,190) (344,275)
Repurchase of common shares (in shares) (1,639)        
Balance at Jan. 28, 2017 $ 627 $ (14,524) 658,330 905,785 $ 1,550,218
Balance (in shares) at Jan. 28, 2017 62,733 (604)     62,129
Stock options exercised and other awards $ 2   16,188   $ 16,190
Stock options exercised and other awards (in shares) 212        
Purchase of treasury shares   $ (4,243)     (4,243)
Purchase of treasury shares (in shares)   (15)      
Net income       555,234 555,234
Stock compensation charge     24,399   24,399
Repurchase of common shares $ (15)     (367,566) $ (367,581)
Repurchase of common shares (in shares) (1,504)       (1,504)
Balance at Feb. 03, 2018 $ 614 $ (18,767) $ 698,917 $ 1,093,453 $ 1,774,217
Balance (in shares) at Feb. 03, 2018 61,441 (619)     60,822
v3.8.0.1
Business and basis of presentation
12 Months Ended
Feb. 03, 2018
Business and basis of presentation  
Business and basis of presentation

1.   Business and basis of presentation

On January 29, 2017, Ulta Salon, Cosmetics & Fragrance, Inc. implemented a holding company reorganization. Pursuant to 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. As used in these notes and throughout this Annual Report on Form 10‑K, all references to “we,” “us,” “Ulta Beauty,” or the “Company” refer to Ulta Beauty, Inc. and its consolidated subsidiaries.

The Company was originally founded in 1990 to operate specialty retail stores selling cosmetics, fragrance, haircare and skincare products, and related accessories and services. The stores also feature full-service salons. As of February 3, 2018, the Company operated 1,074 stores in 48 states and the District of Columbia. 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.

The Company offers a balanced portfolio across five primary categories: (1) cosmetics; (2) skincare, bath and fragrance; (3) haircare products and styling tools; (4) salon services; and (5) other, which includes nail products and accessories. The following table sets forth the approximate percentage of net sales attributed to each category for the periods indicated:

 

 

 

 

 

 

 

 

 

Fiscal year ended

 

    

February 3, 2018

   

January 28, 2017

    

January 30, 2016

Cosmetics

 

51%

 

51%

 

46%

Skincare, Bath & Fragrance

 

21%

 

20%

 

23%

Haircare Products & Styling Tools

 

19%

 

20%

 

22%

Salon Services

 

5%

 

5%

 

5%

Other

 

4%

 

4%

 

4%

 

 

100%

 

100%

 

100%

 

v3.8.0.1
Summary of significant accounting policies
12 Months Ended
Feb. 03, 2018
Summary of significant accounting policies  
Summary of significant accounting policies

2.   Summary of significant accounting policies

Fiscal year

The Company’s fiscal year is the 52 or 53 weeks ending on the Saturday closest to January 31. The Company’s fiscal years ended February 3, 2018 (fiscal 2017),  January 28, 2017 (fiscal 2016), and January 30, 2016 (fiscal 2015) were 53,  52, and 52 week years, respectively. 

Consolidation

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

Use of estimates

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

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.

Short-term investments

The Company determines the balance sheet classification of its investments at the time of purchase and evaluates the classification at each balance sheet date. Money market funds, certificates of deposit, and time deposits with maturities of greater than three months but no more than twelve months are carried at cost, which approximates fair value and are recorded in the Consolidated Balance Sheets in Short-term investments (see Note 9, “Investments”).

Receivables

Receivables consist principally of amounts due from vendors and landlord construction allowances earned but not yet received. These receivables are computed based on provisions of the vendor and lease agreements in place and the Company’s completed performance. The Company’s vendors are producers of consumer products and landlords. The Company does not require collateral on its receivables and does not accrue interest. Credit risk with respect to receivables is limited due to the diversity of vendors and landlords comprising the Company’s vendor base. The Company performs ongoing credit evaluations of its vendors and evaluates the collectability of its receivables based on the length of time the receivable is past due and historical experience. The receivable for vendor allowances was $78,238 and $59,553 as of February 3, 2018 and January 28, 2017, respectively, and the receivable for landlord allowances was $12,729 and $23,186 as of February 3, 2018 and January 28, 2017, respectively. The allowance for doubtful receivables totaled $1,371 and $2,079 as of February 3, 2018 and January 28, 2017, 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 February 3, 2018 and January 28, 2017.

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 purchasing internal use software. These costs are amortized over the estimated useful life of the software.

The Company periodically evaluates whether changes have occurred that would require revision of the remaining useful life of equipment and leasehold improvements or render them not recoverable. If such circumstances arise, the Company 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. No significant impairment charges were recognized in fiscal 2017, fiscal 2016, or fiscal 2015. Impairment charges are included in selling, general and administrative (SG&A) expenses in the consolidated statements of income.

Customer loyalty program

The Company’s loyalty rewards program, Ultamate Rewards, is a points-based program. Ultamate Rewards enables customers to earn points based on their purchases. Points earned by members are valid for at least one year and may be redeemed on any product the Company sells. The Company accrues the cost of anticipated redemptions related to this program at the time of the initial purchase based on historical experience. The accrued liability related to this loyalty program at February 3, 2018 and January 28, 2017 was $42,219 and $30,244, respectively. The cost of this program, which was $106,598,  $77,145, and $54,464 in fiscal 2017,  2016, and 2015, respectively, is included in cost of sales in the consolidated statements of income.

Credit cards

During 2016, the Company entered into certain agreements (the Agreements) with third parties to provide guests with private label 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 receives payments and reimbursements of expenses in accordance with the Agreements and based on usage of the Credit Cards. The Company recognizes income for such cash receipts when the amounts are fixed or determinable and collectability is reasonably assured, which is generally the time at which the actual usage of the Credit Cards or specified transaction occurs. A majority of the funds received are recorded as a reduction of SG&A expenses, and the remaining portion is recognized as a reduction to cost of sales in the consolidated statements of income.

Loyalty members earn points through purchases at Ulta Beauty and anywhere the co-branded credit card is accepted. Consistent with the current accounting for the customer loyalty program, the Company accrues the cost of anticipated redemptions of points at the time of the initial purchase and costs are included in cost of sales in the consolidated statements of income. Other administrative costs related to the Credit Card programs, including payroll, marketing expenses, and other direct costs, are included in SG&A in the consolidated 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 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 the lease term or 10 years. 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 retail store and e-commerce merchandise sales as well as salon service revenue. Revenue from merchandise sales at retail 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 service revenue is recognized when services are rendered. Salon service revenue amounted to $277,361,  $241,105, and $209,249 in fiscal 2017,  2016, and 2015, respectively. E-commerce sales are recognized based on delivery of merchandise to the customer. E-commerce revenue amounted to $568,736,  $345,342, and $221,077 in fiscal 2017,  2016, and 2015, 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.

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. 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 was $7,783,  $5,335, and $3,728 in fiscal 2017, 2016, and 2015, respectively, and is recorded as a decrease in SG&A expenses in the consolidated statements of income. Deferred gift card revenue was $63,139 and $46,268 at February 3, 2018 and January 28, 2017, respectively, and is included in accrued liabilities on the consolidated balance sheets.

Vendor allowances

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

Advertising

Advertising expense consists principally of direct mail catalogs, newspaper inserts, television, radio, and digital advertising. The Company expenses the costs related to its advertising in the period the related promotional event occurs. Total advertising costs, exclusive of incentives from vendors and start-up advertising expense, amounted to $259,423,  $212,714, and $187,158 in fiscal 2017,  2016, and 2015, respectively. Advertising expense as a percentage of sales was 4.4%,  4.4%, and 4.8% in fiscal 2017,  2016, and 2015, respectively. Prepaid advertising costs included in prepaid expenses and other current assets on the consolidated balance sheets were $12,811 and $9,901 as of February 3, 2018 and January 28, 2017, respectively.

Pre-opening expenses

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

Cost of sales

Cost of sales includes the cost of merchandise sold (retail store and e-commerce), including a majority of vendor allowances, which are treated as a reduction of merchandise costs; distribution costs including labor and related benefits, freight, rent, depreciation and amortization, real estate taxes, utilities, and insurance; shipping and handling costs; 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

SG&A expenses includes payroll, bonus, and benefit costs for retail and corporate employees; advertising and marketing costs; credit card program incentives; gift card breakage; occupancy costs related to our corporate office facilities; public company expense including Sarbanes-Oxley Act of 2002 compliance expenses; stock-based compensation expense; depreciation and amortization for all assets except those related to our retail store and distribution operations, which are included in cost of sales; and legal, finance, information systems and other corporate overhead costs.

Income taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. The amounts reported were derived using the enacted tax rates in effect for the year the differences are expected to reverse.

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

Share-based compensation

Share-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized on a straight-line basis over the requisite service period for awards expected to vest. The Company recorded stock compensation expense of $24,399,  $19,340, and $15,594 in fiscal 2017,  2016, and 2015, 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 per claim is $350 for employee health claims, $100 for general liability claims, and $250 for workers compensation claims. The Company makes collateral and premium payments during the plan year and accrues expenses in the event additional premium is due from the Company based on actual claim results.

Net income per common share

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

Recent accounting pronouncements not yet adopted

Revenue Recognition from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014‑09, Revenue from Contracts with Customers, issued as a new Topic, Accounting Standards Codification Topic 606 (ASU 2014‑09). The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that the Company will recognize revenue when the transfer of promised goods or services to customers occurs in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The standard also calls for additional disclosures around the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015‑14 Revenue from Contracts with Customers (Topic 606), which delayed the effective date of ASU 2014‑09 by one year. With the deferral, the revenue recognition standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods, with early adoption permitted. This standard and subsequent amendments allow for either full retrospective or modified retrospective adoption.

The Company will adopt the new standard effective February 4, 2018 using the modified retrospective method applied to all contracts as of that date. ASU 2014‑09 will impact the recognition timing or classification of revenues and expenses for the loyalty program (by using the deferred revenue method instead of the incremental cost method), private label credit card and co-branded credit card programs (by recognizing amounts earned under the programs as revenue instead of as a reduction of SG&A expenses), gift card breakage (by including breakage within net sales instead of SG&A expenses under the proportional model), sales refund reserve (by grossing up the balance sheet to record a refund obligation and right of return asset instead of recognizing revenue net of returns), and e-commerce operations (by recognizing revenue upon shipment, when control of the merchandise transfers to the customer, instead of upon receipt by the customer). 

The adoption of ASU 2014-09 will not have a material impact on the Company’s consolidated financial position, results of operations or cash flows. Upon adoption, the Company will recognize the cumulative effect of adopting this standard as an adjustment to the opening balance of retained earnings. Prior periods will not be retrospectively adjusted. The Company expects this adjustment will decrease the fiscal 2018 opening balance of retained earnings by $15,000 to $20,000, which is primarily related to the change in accounting for the loyalty program from the incremental cost method to the deferred revenue method as required by this standard.

Leases

In February 2016, the FASB issued ASU 2016‑02, Leases (Topic 842). 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 financing lease liability or capital 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 leases or operating leases. Financing lease liabilities, those that contain provisions similar to capitalized leases, are amortized like capital leases under current GAAP as amortization expense and interest expense in the statement of operations. Operating lease liabilities are amortized on a straight-line basis over the life of the lease as lease expense in the statement of operations. 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, and have the option to use certain relief. 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’s ability to adopt depends on system readiness, including software procured from third-party providers, and completing an analysis of information necessary to quantify the financial statement impact. 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 completed a preliminary assessment of the potential impact of adopting ASU 2016‑02 on the consolidated financial statements. The adoption of ASU 2016‑02 will have a material impact on the Company’s consolidated financial position, but 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.

Liabilities – Extinguishments of Liabilities

In March 2016, the FASB issued ASU 2016‑04, Liabilities – Extinguishments of Liabilities (Subtopic 405‑20): Recognition of Breakage for Certain Prepaid Stored – Value Products. This update entitles a company to derecognize amounts related to expected breakage to the extent that it is probable a significant reversal of the recognized breakage amount will not subsequently occur. ASU 2016-04 is effective for annual and interim periods beginning after December 15, 2017, and early adoption is permitted. The adoption of ASU 2016-04 is not expected to have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

Recently adopted accounting pronouncements

Compensation – Stock Compensation

In March 2016, the FASB issued ASU 2016‑09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This guidance changed how companies account for certain aspects of share-based payments to employees. Companies have to recognize all income tax effects of awards in the income statement when the awards vest or are settled, and additional paid-in capital pools were eliminated. The guidance on employer’s accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation and for forfeitures changed, and two practical expedients for non-public entities were added. ASU 2016‑09 was effective for annual and interim reporting periods beginning after December 15, 2016.

The Company adopted the new guidance prospectively in the first quarter of fiscal 2017. The adoption resulted in a decrease in the provision for income taxes of $10,024 in fiscal 2017 due to the recognition of excess tax benefits for options exercised and the vesting of equity awards. The extent of excess tax benefits or deficiencies is subject to variation in the Company’s stock price and timing/extent of restricted stock units vesting and employee stock option exercises. Additionally, the consolidated statements of cash flows now present such tax benefits or deficiencies as an operating activity on a prospective basis. Based on the adoption methodology applied, the statement of cash flows classification of prior periods has not been adjusted. As allowed under the new guidance, the Company did not change its accounting principles relative to elements of this standard and continued its existing practice of estimating the number of awards that will be forfeited.

Statement of Cash Flows

In August 2016, the FASB issued ASU 2016‑15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). ASU 2016‑15 provides classification guidance on certain cash receipts and cash payments, including, but not limited to, debt prepayment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of bank-owned life insurance policies, and distributions received from equity method investees. The adoption of ASU 2016‑15 requires a retrospective transition method applied to each period presented. ASU 2016-15 is effective for annual periods and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company early adopted the new guidance, retrospectively, in the fourth quarter of fiscal 2017, and its adoption had no material impact on the Company’s consolidated financial position, results of operation, or cash flows.

In November 2016, the FASB issued ASU 2016‑18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the Emerging Issues Task Force), which amends ASU Topic 230. ASU 2016‑18 requires entities to show the changes in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer be required to present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash, and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. Entities will also have to disclose the nature of their restricted cash and restricted cash equivalent balances. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and interim periods within those years and early adoption is permitted. Entities are required to apply the guidance retrospectively. The Company early adopted the new guidance, retrospectively, in the fourth quarter of fiscal 2017, and its adoption had no material impact on the Company’s consolidated financial position, results of operations, or cash flows.

 

 

Compensation – Stock Compensation: Scope of Modification Accounting

In May 2017, the FASB issued ASU 2017‑09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, which provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, and early adoption is permitted. The Company early adopted this standard in the fourth quarter of fiscal 2017, and its adoption had no impact on the Company’s consolidated financial position, results of operations, or cash flows.

 

v3.8.0.1
Property and equipment
12 Months Ended
Feb. 03, 2018
Property and equipment  
Property and equipment

3.   Property and equipment

Property and equipment consists of the following:

 

 

 

 

 

 

 

 

 

February 3,

 

January 28,

(In thousands)

    

2018

    

2017

Equipment and fixtures

 

$

834,931

 

$

708,754

Leasehold improvements

 

 

705,943

 

 

607,690

Electronic equipment and software

 

 

485,368

 

 

437,262

Construction-in-progress

 

 

122,419

 

 

49,411

 

 

 

2,148,661

 

 

1,803,117

Less: accumulated depreciation and amortization

 

 

(959,208)

 

 

(798,759)

Property and equipment, net

 

$

1,189,453

 

$

1,004,358

 

The Company had no capitalized interest in fiscal 2017 or fiscal 2016.

v3.8.0.1
Commitments and contingencies
12 Months Ended
Feb. 03, 2018
Commitments and contingencies  
Commitments and contingencies

4.   Commitments and contingencies

Leases – The Company leases retail stores, distribution centers, corporate offices, and certain equipment under operating leases with various expiration dates through 2032. 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 $241,559,  $202,942, and $181,487 in fiscal 2017,  2016, and 2015, respectively. Future minimum lease payments under operating leases as of February 3, 2018, are as follows:

 

 

 

 

 

 

Operating

 

 

Leases

Fiscal year

    

(In thousands)

2018

 

$

313,335

2019

 

 

313,562

2020

 

 

299,553

2021

 

 

281,092

2022

 

 

256,820

2023 and thereafter

 

 

770,159

Total minimum lease payments

 

$

2,234,521

 

Included in the operating lease schedule above is $279,574 of minimum lease payments for stores that are expected to open in future periods.

Contractual obligations – As of February 3, 2018, the Company had obligations of $6,397 related to commitments made to a third party for products and services for a new distribution center opening in fiscal 2018. Payments under this commitment were $24,502 and $11,528 in fiscal 2017 and 2016, respectively. In addition, the Company has entered into various non-cancelable advertising and other goods and service contracts. These agreements expire over one year and the obligations under these agreements were $12,605 as of February 3, 2018.

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.

v3.8.0.1
Accrued liabilities
12 Months Ended
Feb. 03, 2018
Accrued liabilities  
Accrued liabilities

5.   Accrued liabilities

Accrued liabilities consist of the following:

 

 

 

 

 

 

 

 

 

February 3,

 

January 28,

(In thousands)

    

2018

    

2017

Accrued vendor liabilities (including accrued property and equipment costs)

 

$

42,462

 

$

44,804

Accrued customer liabilities

 

 

117,034

 

 

47,441

Accrued payroll, bonus, and employee benefits

 

 

82,593

 

 

84,555

Accrued taxes, other

 

 

27,616

 

 

24,883

Other accrued liabilities

 

 

32,602

 

 

59,171

Accrued liabilities

 

$

302,307

 

$

260,854

 

v3.8.0.1
Income taxes
12 Months Ended
Feb. 03, 2018
Income taxes  
Income taxes

6.   Income taxes

The provision for income taxes consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal

 

Fiscal

 

Fiscal

(In thousands)

    

2017

    

2016

    

2015

Current:

 

 

  

 

 

  

 

 

  

Federal

 

$

230,006

 

$

194,199

 

$

163,048

State

 

 

28,714

 

 

24,835

 

 

18,694

Total current

 

 

258,720

 

 

219,034

 

 

181,742

Deferred:

 

 

  

 

 

  

 

 

  

Federal

 

 

(26,256)

 

 

24,480

 

 

6,981

State

 

 

(839)

 

 

2,440

 

 

(1,291)

Total deferred

 

 

(27,095)

 

 

26,920

 

 

5,690

Provision for income taxes

 

$

231,625

 

$

245,954

 

$

187,432

 

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

 

 

 

 

 

 

 

 

 

 

 

    

Fiscal

 

Fiscal

 

Fiscal

 

    

2017

    

2016

    

2015

Federal statutory rate

 

33.7

%  

 

35.0

%  

 

35.0

%  

State effective rate, net of federal tax benefit

 

2.4

%  

 

2.8

%  

 

2.2

%  

Re-measurement of deferred tax liabilities

 

(4.9)

%  

 

0.0

%  

 

0.0

%  

Excess deduction of stock compensation

 

(1.2)

%  

 

0.0

%  

 

0.0

%  

Other

 

(0.6)

%  

 

(0.3)

%  

 

(0.3)

%  

Effective tax rate

 

29.4

%  

 

37.5

%  

 

36.9

%  

 

On December 22, 2017, the Tax Cuts and Jobs Act (Tax Reform) was enacted into law. This new legislation reduces the federal corporate tax rate to 21.0% effective January 1, 2018. In accordance with Section 15 of the Internal Revenue Code, the Company utilized a blended rate of 33.7% for the fiscal 2017 tax year by applying a prorated percentage of the number of days prior to and subsequent to the January 1, 2018 effective date. The Company recorded a provisional estimated after-tax benefit of $38,287 during the fourth quarter of fiscal 2017 based on the re-measurement of net deferred tax liabilities and $9,778 due to the lower tax rate in January 2018. Given the significant complexity of the Tax Reform, the Company will continue to evaluate and analyze the impact of this legislation. The $38,287 estimate is provisional and based on the Company’s initial analysis of the Tax Reform, and may be adjusted in future periods due to, among other things, additional analysis and additional guidance that may be issued by the U.S. Department of Treasury, the Securities and Exchange Commission, and/or the Financial Accounting Standards Board.

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

 

 

 

 

 

 

 

 

    

February 3,

 

January 28,

(In thousands)

    

2018

    

2017

Deferred tax assets:

 

 

  

 

 

  

Reserves not currently deductible

 

$

23,789

 

$

33,805

Employee benefits

 

 

15,273

 

 

15,206

Credit carryforwards

 

 

343

 

 

398

Accrued liabilities

 

 

14,625

 

 

10,539

Inventory valuation

 

 

847

 

 

3,630

Total deferred tax assets

 

 

54,877

 

 

63,578

Deferred tax liabilities:

 

 

  

 

 

  

Property and equipment

 

 

54,210

 

 

73,454

Deferred rent obligation

 

 

49,518

 

 

62,252

Prepaid expenses

 

 

10,552

 

 

14,370

Total deferred tax liabilities

 

 

114,280

 

 

150,076

Net deferred tax liability

 

$

(59,403)

 

$

(86,498)

 

At February 3, 2018, the Company had $343 of credit carryforwards for state income tax purposes that expire between 2022 and 2027.

The Company accounts for uncertainty in income taxes in accordance with the ASC rules for income taxes. The reserve for uncertain tax positions was $3,565 and $3,305 at February 3, 2018 and January 28, 2017, respectively. The balance is the Company’s best estimate of the potential liability for uncertain tax positions. A reconciliation of the Company’s unrecognized tax benefits, excluding interest and penalties, is as follows:

 

 

 

 

 

 

 

 

    

February 3,

 

January 28,

(In thousands)

    

2018

    

2017

Balance at beginning of the period

 

$

3,305

 

$

2,262

Increase due to a prior year tax position

 

 

1,064

 

 

1,048

Decrease due to a prior period position

 

 

(804)

 

 

(5)

Balance at the end of the period

 

$

3,565

 

$

3,305

 

The Company acknowledges that the amount of unrecognized tax benefits may change in the next twelve months. However, it does not expect the change to have a significant impact on its consolidated financial statements. Income tax-related interest and penalties were insignificant for fiscal 2017 and 2016.

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 years before 2014 and is no longer subject to examinations by State authorities before 2013.

v3.8.0.1
Notes payable
12 Months Ended
Feb. 03, 2018
Notes payable  
Notes payable

7.   Notes payable

On August 23, 2017, the Company entered into a Second Amended and Restated Loan Agreement (the Loan Agreement) with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent and a Lender thereunder, Wells Fargo Bank, National Association and JPMorgan Chase Bank, N.A., as Lead Arrangers and Bookrunners, JPMorgan Chase Bank, N.A., as Syndication Agent and a Lender, PNC Bank, National Association, as Documentation Agent and a Lender, and the other lenders party thereto. The Loan Agreement matures on August 23, 2022, provides maximum revolving loans equal to the lesser of $400,000 or a percentage of eligible owned inventory (which borrowing base may, at the election of the Company and satisfaction of certain conditions, include a percentage of eligible owned receivables and qualified cash), contains a $20,000 subfacility for letters of credit and allows the Company to increase the revolving facility by an additional $50,000, subject to the consent by each lender and other conditions. The Loan Agreement contains a requirement to maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 during such periods when availability under the Loan Agreement falls below a specified threshold. Substantially all of the Company’s assets are pledged as collateral for outstanding borrowings under the Loan Agreement. Outstanding borrowings will bear interest at either a base rate or the London Interbank Offered Rate plus 1.25%, and the unused line fee is 0.20% per annum.

As of February 3, 2018 and January 28, 2017, the Company had no borrowings outstanding under the credit facility and the Company was in compliance with all terms and covenants of the agreement.

v3.8.0.1
Fair value measurements
12 Months Ended
Feb. 03, 2018
Fair value measurements  
Fair value measurements

8.   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:

·

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

·

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

·

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

As of February 3, 2018 and January 28, 2017, the Company held financial liabilities of $15,942 and $10,474, respectively, related to its non-qualified deferred compensation plan. The liabilities have been categorized as Level 2 as they are based on third-party reported values which are based primarily on quoted market prices of underlying assets of the funds within the plan.

v3.8.0.1
Investments
12 Months Ended
Feb. 03, 2018
Investments  
Investments

9.   Investments

The Company’s short-term investments as of February 3, 2018 and January 28, 2017, consist of $120,000 and $30,000, 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 February 3, 2018.

v3.8.0.1
Share-based awards
12 Months Ended
Feb. 03, 2018
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, non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, and other types of awards to employees, consultants, and directors. Unless provided otherwise by the administrator of the plan, options vested over four years at the rate of 25% per year from the date of grant and 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.

Amended and Restated 2011 Incentive award plan

In June 2016, the Company adopted the Amended and Restated 2011 Incentive Award Plan (the 2011 Plan). The 2011 Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, performance awards, dividend equivalent rights, stock payments, deferred stock, and cash-based awards to employees, consultants, and directors. Following its original adoption in June 2011, awards are only being made under the 2011 Plan, and no further awards will be made under any prior plan. As of February 3, 2018, the 2011 Plan reserves for the issuance upon grant or exercise of awards up to 3,727 shares of the Company’s common stock.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal

 

Fiscal

 

Fiscal

2011 Incentive award plan (in thousands)

    

2017

    

2016

    

2015

Compensation expense

 

 

 

 

 

 

 

 

 

Common stock options

 

$

8,993

 

$

7,983

 

$

7,899

Restricted stock units

 

 

9,507

 

 

7,295

 

 

6,040

Performance-based restricted stock units

 

 

5,899

 

 

4,062

 

 

1,655

Total stock compensation expense

 

$

24,399

 

$

19,340

 

$

15,594

 

 

 

 

 

 

 

 

 

 

Cash received from stock option exercises

 

$

16,190

 

$

16,293

 

$

19,646

Income tax benefit

 

$

10,024

 

$

6,764

 

$

5,354

Tax benefit realized

 

$

10,024

 

$

15,868

 

$

14,970

 

Common stock options

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

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Fiscal

    

Fiscal

    

Fiscal

 

    

 

2017

    

2016

    

2015

Volatility rate

 

 

30.9%

 

35.0%

 

37.9%

Average risk-free interest rate

 

 

1.6%

 

1.2%

 

1.6%

Average expected life (in years)

 

 

3.5

 

3.5

 

4.9

Dividend yield

 

 

None

 

None

 

None

 

The expected volatility is based on the historical volatility of the Company’s common stock. The risk free interest rate is based on the United States Treasury yield curve in effect on the date of grant for the respective expected life of the option. The expected life represents the time the options granted are expected to be outstanding. The expected life of options granted is derived from historical data on Ulta Beauty stock option exercises. Forfeitures of options are estimated at the grant date based on historical rates of the Company’s stock option activity and reduce the compensation expense recognized. The Company does not currently pay a regular dividend.

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

 

 

 

 

 

 

 

 

 

 

 

Common stock options

 

Fiscal

 

Fiscal

 

Fiscal

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

    

2017

    

2016

    

2015

Weighted-average grant date fair value

 

$

69.61

 

$

53.02

 

$

56.44

Fair value of options vested

 

$

5,656

 

$

5,932

 

$

8,236

Intrinsic value of options exercised

 

$

29,449

 

$

27,468

 

$

36,610

 

At February 3, 2018, there was approximately $18,148 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 and a half years.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2017

 

Fiscal 2016

 

Fiscal 2015

 

 

 

 

 

Weighted-

 

 

 

 

Weighted-

 

 

 

 

Weighted-

 

    

Number of

 

 

average

 

Number of

 

 

average

 

Number of

 

 

average

 

    

options

    

 

exercise price

    

options

    

 

exercise price

    

options

    

 

exercise price

Common stock options outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of year

 

830

 

$

120.78

 

939

 

$

104.58

 

1,073

 

$

72.12

Granted

 

106

 

 

279.76

 

110

 

 

193.64

 

294

 

 

160.01

Exercised

 

(166)

 

 

97.44

 

(194)

 

 

83.88

 

(356)

 

 

55.20

Forfeited

 

(4)

 

 

120.71

 

(25)

 

 

118.97

 

(72)

 

 

91.74

End of year

 

766

 

$

147.76

 

830

 

$

120.78

 

939

 

$

104.58

Exercisable at end of year

 

261

 

$

81.72

 

280

 

$

69.69

 

316

 

$

61.44

Vested and Expected to vest

 

725

 

$

145.86

 

786

 

$

119.32

 

890

 

$

103.36

 

The following table presents information related to options outstanding and options exercisable at February 3, 2018, under the Company’s stock option plans based on ranges of exercise prices (shares in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding

 

Options exercisable

 

 

 

 

Weighted-

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

average

 

 

 

 

 

 

average

 

 

 

 

 

 

 

remaining

 

 

Weighted-

 

 

 

remaining

 

 

Weighted-

 

 

Number of

 

contractual life

 

 

average

 

Number of

 

contractual life

 

 

average

Range of Exercise Prices

    

options

    

(years)

    

 

exercise price

    

options

    

(years)

    

 

exercise price

$9.67 – $57.42

 

100

 

2

 

$

26.11

 

100

 

2

 

$

26.11

$69.96 – $96.81

 

72

 

5

 

 

84.34

 

64

 

5

 

 

83.15

$97.89 – $99.66

 

92

 

6

 

 

98.18

 

31

 

6

 

 

98.14

$101.35 – $153.87

 

87

 

7

 

 

138.70

 

39

 

7

 

 

131.60

$164.06 – $165.27

 

206

 

8

 

 

164.09

 

 3

 

8

 

 

165.01

$191.76 – $281.53

 

209

 

9

 

 

237.17

 

24

 

8

 

 

193.87

$9.67 – $281.53

 

766

 

7

 

$

147.76

 

261

 

4

 

$

81.72

 

The aggregate intrinsic value of outstanding and exercisable options as of February 3, 2018 was $61,348 and $35,982, respectively. The last reported sale price of our common stock on the NASDAQ Global Select Market on February 3, 2018 was $219.47 per share.

Restricted stock units

The Company issues restricted stock units to certain employees and its Board of Directors. Employee grants will generally cliff vest after three years and director grants will cliff vest within one year. The grant date fair value of restricted stock units is based on the closing market price of shares of the Company’s common stock on the date of grant. Restricted stock units are expensed on a straight-line basis over the requisite service period. Forfeitures of restricted stock units are estimated at the grant date based on historical rates of the Company’s stock award activity and reduce the compensation expense recognized. At February 3, 2018, unrecognized compensation cost related to restricted stock units was $13,621. The unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately one and a half years.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2017

 

Fiscal 2016

 

Fiscal 2015

 

    

 

 

Weighted-

 

 

 

Weighted-

 

 

 

Weighted-

 

 

Number of

 

average grant

 

Number of

 

average grant

 

Number of

 

average grant

 

    

units

    

date fair value

    

units

    

date fair value

    

units

    

date fair value

Restricted stock units outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of year

 

142

    

$

154.71

 

144

 

$

116.42

 

151

 

$

91.74

Granted

 

47

 

 

278.48

 

55

 

 

203.40

 

60

 

 

154.77

Vested

 

(46)

 

 

117.61

 

(46)

 

 

98.06

 

(47)

 

 

102.36

Forfeited

 

(9)

 

 

201.51

 

(11)

    

 

138.25

 

(20)

    

 

96.11

End of year

 

134

 

$

207.70

 

142

 

$

154.71

 

144

 

$

116.42

Expected to vest

 

123

 

$

207.70

 

131

 

$

154.71

 

132

 

$

116.42

 

Performance-based restricted stock units

The Company issues performance-based restricted stock units annually to certain employees. These awards will cliff vest after three years based upon achievement of pre-established goals at the end of the second year of the term. Consistent with restricted stock units, the grant date fair value of performance-based restricted stock units is based on the closing market price of shares of the Company’s common stock on the date of grant. Performance-based restricted stock units are expensed on a straight-line basis over the requisite service period, based on the probability of achieving the performance goal, with changes in expectations recognized as an adjustment to earnings in the period of the change. If the performance goal is not met, no compensation cost is recognized and any previously recognized compensation cost is reversed. Forfeitures of performance-based restricted stock units are estimated at the grant date based on historical rates of the Company’s stock award activity and reduce the compensation expense recognized. At February 3, 2018, unrecognized compensation cost related to performance-based restricted stock units was $7,075. The unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately one year.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2017

 

Fiscal 2016

 

Fiscal 2015

 

 

 

 

Weighted-

 

 

 

Weighted-

 

 

 

Weighted-

 

 

Number of

 

average

 

Number of

 

average

 

Number of

 

average

 

    

units

    

grant date

    

units

    

grant date

    

units

    

grant date

Performance-based restricted stock units outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of year

 

41

 

$

173.47

 

20

 

$

151.20

 

 –

 

$

 –

Granted

 

21

 

 

281.53

 

24

 

 

191.76

 

22

 

 

151.20

Change in performance award payout

 

19

 

 

151.20

 

 –

 

 

 –

 

 –

 

 

 –

Vested

 

 –

 

 

 –

 

 –

 

 

 –

 

 –

 

 

 –

Forfeited

 

(3)

 

 

186.90

 

(3)

 

 

167.71

 

(2)

 

 

151.20

End of year

 

78

 

$

196.81

 

41

 

$

173.47

 

20

 

$

151.20

Expected to vest

 

72

 

$

196.81

 

38

 

$

173.47

 

19

 

$

151.20

 

The number of performance-based restricted stock units granted is based on achieving the targeted performance goals as defined in the performance-based restricted stock unit agreements. As of February 3, 2018, the maximum number of units that could vest under the provisions of the agreements was 121.

v3.8.0.1
Net income per common share
12 Months Ended
Feb. 03, 2018
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 common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal year ended

 

 

 

February 3,

 

January 28,

 

January 30,

(In thousands, except per share data)

    

 

2018

    

2017

    

2016

Numerator for diluted net income per share – net income

    

 

$

555,234

    

$

409,760

    

$

320,008

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

 

 

 

61,556

 

 

62,519

 

 

63,949

Dilutive effect of stock options and non-vested stock

 

 

 

419

 

 

332

 

 

326

Denominator for diluted net income per share

 

 

 

61,975

 

 

62,851

 

 

64,275

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

Basic

 

 

$

9.02

 

$

6.55

 

$

5.00

Diluted

 

 

$

8.96

 

$

6.52

 

$

4.98

 

The denominator for diluted net income per common share for fiscal years 2017,  2016, and 2015 excludes 167,  142, and 370 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.