ULTA BEAUTY, INC., 10-K filed on 3/28/2017
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Jan. 28, 2017
Mar. 23, 2017
Jul. 29, 2016
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Jan. 28, 2017 
 
 
Document Fiscal Year Focus
2016 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
ULTA 
 
 
Entity Registrant Name
Ulta Beauty, Inc. 
 
 
Entity Central Index Key
0001403568 
 
 
Current Fiscal Year End Date
--01-28 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
62,132,265 
 
Entity Public Float
 
 
$ 10,919,168,000 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jan. 28, 2017
Jan. 30, 2016
Current assets:
 
 
Cash and cash equivalents
$ 385,010 
$ 345,840 
Short-term investments
30,000 
130,000 
Receivables, net
88,631 
64,992 
Merchandise inventories, net
943,975 
761,793 
Prepaid expenses and other current assets
88,621 
72,548 
Total current assets
1,536,237 
1,375,173 
Property and equipment, net
1,004,358 
847,600 
Deferred compensation plan assets
11,283 
8,145 
Total assets
2,551,878 
2,230,918 
Current liabilities:
 
 
Accounts payable
259,518 
196,174 
Accrued liabilities
260,854 
187,351 
Accrued income taxes
8,971 
12,702 
Total current liabilities
529,343 
396,227 
Deferred rent
366,191 
321,789 
Deferred income taxes
86,498 
59,527 
Other long-term liabilities
19,628 
10,489 
Total liabilities
1,001,660 
788,032 
Commitments and contingencies (note 4)
   
   
Stockholders' equity:
 
 
Common stock, $.01 par value, 400,000 shares authorized; 62,733 and 64,131 shares issued; 62,129 and 63,540 shares outstanding; at January 28, 2017, and January 30, 2016, respectively
627 
641 
Treasury stock-common, at cost
(14,524)
(11,685)
Additional paid-in capital
658,330 
621,715 
Retained earnings
905,785 
832,215 
Total stockholders' equity
1,550,218 
1,442,886 
Total liabilities and stockholders' equity
$ 2,551,878 
$ 2,230,918 
Consolidated Balance Sheets (Parenthetical) (USD $)
Jan. 28, 2017
Jan. 30, 2016
Statement of Financial Position [Abstract]
 
 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
400,000,000 
400,000,000 
Common stock, shares issued
62,733,000 
64,131,000 
Common stock, shares outstanding
62,129,000 
63,540,000 
Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 12 Months Ended
Jan. 28, 2017
Oct. 29, 2016
Jul. 30, 2016
Apr. 30, 2016
Jan. 30, 2016
Oct. 31, 2015
Aug. 1, 2015
May 2, 2015
Jan. 28, 2017
Jan. 30, 2016
Jan. 31, 2015
Income Statement [Abstract]
 
 
 
 
 
 
 
 
 
 
 
Net sales
$ 1,580,574 
$ 1,131,232 
$ 1,069,215 
$ 1,073,716 
$ 1,268,295 
$ 910,700 
$ 876,999 
$ 868,122 
$ 4,854,737 
$ 3,924,116 
$ 3,241,369 
Cost of sales
1,035,666 
704,179 
684,377 
683,286 
829,259 
575,062 
570,524 
564,938 
3,107,508 
2,539,783 
2,104,582 
Gross profit
544,908 
427,053 
384,838 
390,430 
439,036 
335,638 
306,475 
303,184 
1,747,229 
1,384,333 
1,136,787 
Selling, general and administrative expenses
316,266 
280,464 
236,380 
240,724 
268,169 
218,763 
183,937 
192,485 
1,073,834 
863,354 
712,006 
Pre-opening expenses
4,412 
6,928 
4,689 
2,542 
1,381 
6,106 
4,078 
3,117 
18,571 
14,682 
14,366 
Operating income
224,230 
139,661 
143,769 
147,164 
169,486 
110,769 
118,460 
107,582 
654,824 
506,297 
410,415 
Interest income, net
(116)
(211)
(248)
(315)
(273)
(283)
(276)
(311)
(890)
(1,143)
(894)
Income before income taxes
224,346 
139,872 
144,017 
147,479 
169,759 
111,052 
118,736 
107,893 
655,714 
507,440 
411,309 
Income tax expense
84,128 
52,310 
54,013 
55,503 
61,936 
39,982 
44,567 
40,947 
245,954 
187,432 
154,174 
Net income
$ 140,218 
$ 87,562 
$ 90,004 
$ 91,976 
$ 107,823 
$ 71,070 
$ 74,169 
$ 66,946 
$ 409,760 
$ 320,008 
$ 257,135 
Net income per common share:
 
 
 
 
 
 
 
 
 
 
 
Basic
$ 2.25 
$ 1.40 
$ 1.44 
$ 1.46 
$ 1.69 
$ 1.11 
$ 1.16 
$ 1.04 
$ 6.55 
$ 5.00 
$ 4.00 
Diluted
$ 2.24 
$ 1.40 
$ 1.43 
$ 1.45 
$ 1.69 
$ 1.11 
$ 1.15 
$ 1.04 
$ 6.52 
$ 4.98 
$ 3.98 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
 
62,519 
63,949 
64,335 
Diluted
 
 
 
 
 
 
 
 
62,851 
64,275 
64,651 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 28, 2017
Jan. 30, 2016
Jan. 31, 2015
Operating activities
 
 
 
Net income
$ 409,760 
$ 320,008 
$ 257,135 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
210,295 
165,049 
131,764 
Deferred income taxes
26,971 
5,809 
9,246 
Non-cash stock compensation charges
19,340 
15,594 
14,923 
Excess tax benefits from stock-based compensation
(9,053)
(9,497)
(3,229)
Loss on disposal of property and equipment
9,140 
3,690 
4,468 
Change in operating assets and liabilities:
 
 
 
Receivables
(23,639)
(12,552)
(5,391)
Merchandise inventories
(182,182)
(180,564)
(123,296)
Prepaid expenses and other current assets
(16,073)
(6,000)
(10,555)
Income taxes
5,322 
2,795 
7,284 
Accounts payable
63,344 
5,396 
42,496 
Accrued liabilities
71,057 
37,926 
37,644 
Deferred rent
44,402 
27,662 
32,497 
Other assets and liabilities
6,001 
558 
1,606 
Net cash provided by operating activities
634,685 
375,874 
396,592 
Investing activities
 
 
 
Purchases of short-term investments
(90,000)
(130,000)
(200,209)
Proceeds from short-term investments
190,000 
150,209 
50,000 
Purchases of property and equipment
(373,747)
(299,167)
(249,067)
Net cash used in investing activities
(273,747)
(278,958)
(399,276)
Financing activities
 
 
 
Repurchase of common shares
(344,275)
(167,396)
(39,923)
Stock options exercised
16,293 
19,646 
10,639 
Excess tax benefits from stock-based compensation
9,053 
9,497 
3,229 
Purchase of treasury shares
(2,839)
(1,972)
(1,588)
Net cash used in financing activities
(321,768)
(140,225)
(27,643)
Net increase (decrease) in cash and cash equivalents
39,170 
(43,309)
(30,327)
Cash and cash equivalents at beginning of year
345,840 
389,149 
419,476 
Cash and cash equivalents at end of year
385,010 
345,840 
389,149 
Supplemental cash flow information
 
 
 
Cash paid for income taxes (net of refunds)
212,514 
179,248 
137,180 
Noncash investing activities:
 
 
 
Change in property and equipment included in accrued liabilities
$ 2,446 
$ 13 
$ 8,588 
Consolidated Statements of Stockholders' Equity (USD $)
In Thousands
Total
Common Stock [Member]
Treasury Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Balance at Feb. 01, 2014
$ 1,003,094 
$ 647 
$ (8,125)
$ 548,194 
$ 462,378 
Balance, Shares at Feb. 01, 2014
 
 
(562)
 
 
Balance, Shares at Feb. 01, 2014
 
64,793 
 
 
 
Stock options exercised and other awards
10,639 
 
10,636 
 
Stock options exercised and other awards, Shares
 
290 
 
 
 
Purchase of treasury shares
(1,588)
 
(1,588)
 
 
Purchase of treasury shares, Shares
 
 
(16)
 
 
Net income
257,135 
 
 
 
257,135 
Excess tax benefits from stock-based compensation
3,229 
 
 
3,229 
 
Stock compensation charge
14,923 
 
 
14,923 
 
Repurchase of common shares
(39,923)
(3)
 
 
(39,920)
Repurchase of common shares, Shares
 
(321)
 
 
 
Balance at Jan. 31, 2015
1,247,509 
647 
(9,713)
576,982 
679,593 
Balance, Shares at Jan. 31, 2015
 
 
(578)
 
 
Balance, Shares at Jan. 31, 2015
 
64,762 
 
 
 
Stock options exercised and other awards
19,646 
 
19,642 
 
Stock options exercised and other awards, Shares
 
403 
 
 
 
Purchase of treasury shares
(1,972)
 
(1,972)
 
 
Purchase of treasury shares, 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
(167,396)
(10)
 
 
(167,386)
Repurchase of common shares, Shares
 
(1,034)
 
 
 
Balance at Jan. 30, 2016
1,442,886 
641 
(11,685)
621,715 
832,215 
Balance, Shares at Jan. 30, 2016
 
 
(591)
 
 
Balance, Shares at Jan. 30, 2016
64,131 
64,131 
 
 
 
Stock options exercised and other awards
16,293 
 
16,291 
 
Stock options exercised and other awards, Shares
 
241 
 
 
 
Purchase of treasury shares
(2,839)
 
(2,839)
 
 
Purchase of treasury shares, 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
(344,275)
(16)
 
(8,069)
(336,190)
Repurchase of common shares, Shares
 
(1,639)
 
 
 
Balance at Jan. 28, 2017
$ 1,550,218 
$ 627 
$ (14,524)
$ 658,330 
$ 905,785 
Balance, Shares at Jan. 28, 2017
 
 
(604)
 
 
Balance, Shares at Jan. 28, 2017
62,733 
62,733 
 
 
 
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 January 28, 2017, the Company operated 974 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  
     January 28,
2017
    January 30,
2016
    January 31,
2015
 

Cosmetics

     51     46     42

Skincare, Bath & Fragrance

     20     23     24

Haircare Products & Styling Tools

     20     22     24

Salon Services

     5     5     5

Other

     4     4     5
  

 

 

   

 

 

   

 

 

 
     100     100     100
  

 

 

   

 

 

   

 

 

 
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, 2017 (fiscal 2016), January 30, 2016 (fiscal 2015) and January 31, 2015 (fiscal 2014) were 52 week years.

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 receivable 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 $59,553 and $46,932 as of January 28, 2017 and January 30, 2016, respectively, and the receivable for landlord allowances was $23,186 and $10,250 as of January 28, 2017 and January 30, 2016, respectively. The allowance for doubtful receivables totaled $2,079 and $1,112 as of January 28, 2017 and January 30, 2016, 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, 2017 and January 30, 2016.

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. The Company recognized $3,124 of fixed asset impairment charges related to store closures in Chicago, Illinois and Denham Springs, Louisiana in fiscal 2016,which is included in selling, general and administrative (SG&A) expenses in the statements of income. No significant impairment charges were recognized in fiscal 2015 or 2014.

Customer loyalty program

In early fiscal 2014, we completed the conversion of all our loyalty members to Ultamate Rewards, 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 we sell. Prior to this conversion, we ran both Ultamate Rewards and our prior program, The Club at Ulta. The Club at Ulta was a certificate program offering customers reward certificates for free beauty products based on the level of purchases. 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 these loyalty programs at January 28, 2017 and January 30, 2016 was $30,244 and $20,026 respectively. The cost of these programs, which was $77,145, $54,464 and $42,096 in fiscal 2016, 2015 and 2014, respectively, is included in cost of sales in the statements of income.

Credit Cards

During 2016, the Company entered into certain agreements (the Agreements) with third parties to provide our guests with private label and/or co-branded credit cards (collectively, the Credit Cards). The private label credit card can be used at any of our store locations 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. We recognize 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 our statements of income.

Our loyalty members earn points through purchases at Ulta Beauty and anywhere the co-branded card is accepted. Consistent with the current accounting for the customer loyalty program, the Company accrues the cost of anticipated redemptions related to these programs at the time of the initial purchase and costs are included in cost of sales in the 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 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 merchandise sales, salon service revenue and e-commerce 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 $241,105, $209,249 and $175,533 for fiscal 2016, 2015 and 2014, 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 based on delivery of merchandise to the customer. E-commerce revenue amounted to $345,342, $221,077 and $149,857 for fiscal 2016, 2015 and 2014, respectively.

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 $5,335 and $3,728 at January 28, 2017 and January 30, 2016, respectively, and is recorded as a decrease in SG&A expense in the statements of income. Deferred gift card revenue was $46,268 and $31,830 at January 28, 2017 and January 30, 2016, respectively, and is included in accrued liabilities – accrued customer liabilities (see Note 5, “Accrued liabilities”).

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, as well as television, radio and digital advertising. 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 $212,714, $187,158 and $157,847 for fiscal 2016, 2015 and 2014, respectively. Advertising expense as a percentage of sales was 4.4%, 4.8% and 4.9% for fiscal 2016, 2015 and 2014, respectively. Prepaid advertising costs included in prepaid expenses and other current assets were $9,901 and $6,413 as of January 28, 2017 and January 30, 2016, 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 (retail and e-commerce), including a majority of 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; credit card program incentives; 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 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. 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

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 $19,340, $15,594 and $14,923 for fiscal 2016, 2015 and 2014, 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 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 we will recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. 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 for annual reporting periods beginning after December 15, 2016, including interim reporting periods. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (ASU 2016-08) which further clarifies how to implement revenue recognition guidance related to determining whether an entity is a principal or an agent in a revenue transaction. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU 2016-10) which further clarifies the aspects of (a) identifying performance obligations and (b) the licensing implementation guidance. The effective date and transition requirements for ASU 2016-08 and ASU 2016-10 are the same as the effective date and transition requirements of ASU 2014-09. These standards allow for either full retrospective or modified retrospective adoption.

The Company will adopt the new guidance in fiscal 2018, and anticipates using the modified retrospective method. The Company has formed a project team to review our current accounting policies and practices, assess the effect of the standard on our revenue transactions and identify potential differences. While we will continue to evaluate possible impacts on our consolidated financial statements, ASU 2014-09 is expected to impact the recognition timing or classification of revenues and expenses for our sales refund reserve, gift card breakage and loyalty program accounting, however, the Company does not expect a significant impact to pretax income upon adoption. In addition, we are in the process of evaluating changes to our business processes and controls to support recognition and disclosure under the new 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. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, including interim reporting periods.

At January 28, 2017, the Company has made a decision to early adopt the new standard in fiscal 2018. The Company has formed a project team to review our current accounting policies and practices and assess the effect of the standard on our consolidated financial statements. The team has completed a preliminary assessment of the potential impact of adopting ASU 2016-02 on its financial statements. The adoption of this ASU 2016-02 will have a material impact on the Company’s financial position, however the Company does not believe adoption of this standard will have a material impact on the Company’s 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 Corporation’s consolidated financial position, results of operations and cash flows.

 

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 will change how companies account for certain aspects of share-based payments to employees. Companies will 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 will be 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 is changing, and two practical expedients for non-public entities have been added. ASU 2016-09 is effective for annual and interim reporting periods beginning after December 15, 2016, and early adoption is permitted.

The Company will adopt the new guidance in the first quarter of fiscal 2017. The potential impact that the adoption of ASU 2016-9 will have on the Company’s financial statements during and after the period of adoption are dependent, in part, upon factors that are not fully controllable or predictable by the Company, including future vesting of stock-based awards, market price of the Company’s common stock, timing of employee exercises of vested stock options and achievement of performance criteria that affect the vesting of performance-based awards. However, based on the market price of the Company’s common stock and its outstanding restricted stock units and unexercised stock options as of January 28, 2017, the Company anticipates that the adoption of this pronouncement will result in lower income tax expense in fiscal year 2017 and this anticipated income tax benefit will be reported as a component of cash flows from operating activities. Additionally, the Company will continue to include the impact of estimated forfeitures when determining share-based compensation expense.

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 adoption of ASU 2016-15 is not expected to have a material impact on the Company’s consolidated financial position, results of operations and 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 adoption of ASU 2016-18 is not expected to have a material impact on the Company’s consolidated financial position, results of operations and cash flows.

Recently adopted accounting pronouncements

Stock Compensation

In June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This update clarifies the accounting for share-based awards with performance targets. ASU 2014-12 is effective for public companies for annual reporting periods beginning after December 15, 2015, including interim reporting periods. As permitted, the Company adopted this standard, prospectively, in its first quarter ended April 30, 2016 and its adoption had no impact on its consolidated financial position, results of operations and cash flows.

Goodwill and other

In April 2015, the FASB issued ASU 2015-05, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customers’ Accounting for Fees Paid in a Cloud Computing Arrangement. This standard provides guidance to determine whether a cloud-based computing arrangement includes a software license. If a cloud-based computing arrangement includes a software license, the customer must account for the software element of the arrangement consistent with the acquisition of other software licenses. Otherwise, the customer must account for the arrangement as a service contract. As permitted, the Company adopted this standard, prospectively, in its first quarter ended April 30, 2016 and its adoption had no impact on its consolidated financial position, results of operations and cash flows.

 
Property and equipment
Property and equipment

3.    Property and equipment

Property and equipment consists of the following:

 

     January 28,      January 30,  

(In thousands)

   2017      2016  

Equipment and fixtures

   $ 708,754      $ 556,499  

Leasehold improvements

     607,690        515,712  

Electronic equipment and software

     437,262        353,940  

Construction-in-progress

     49,411        75,804  
  

 

 

    

 

 

 
     1,803,117        1,501,955  

Less: accumulated depreciation and amortization

     (798,759      (654,355
  

 

 

    

 

 

 

Property and equipment, net

   $ 1,004,358      $ 847,600  
  

 

 

    

 

 

 

The Company did not utilize the credit facility during fiscal 2016 and 2015, and therefore had no capitalized interest for the respective fiscal years.

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. Total rent expense under operating leases was $202,942, $181,487 and $159,245 for fiscal 2016, 2015 and 2014, respectively. Future minimum lease payments under operating leases as of January 28, 2017, are as follows:

 

     Operating  
     Leases  

Fiscal year

   (in thousands)  

2017

   $ 270,684  

2018

     274,625  

2019

     259,875  

2020

     246,209  

2021

     228,073  

2022 and thereafter

     726,575  
  

 

 

 

Total minimum lease payments

   $ 2,006,041  
  

 

 

 

Included in the operating lease schedule above is $315,230 of minimum lease payments for stores that are expected to open in future periods.

Contractual obligations – As of January 28, 2017, the Company had obligations of $27,666 related to commitments made to a third party for products and services for a future distribution center for which a lease has been signed. Payments under this commitment were $11,528 for fiscal 2016. In addition, the Company has entered into various non-cancelable advertising and other goods and service contracts. A majority of these agreements expire over one year and the obligations under these agreements were $19,797 as of January 28, 2017.

General litigation – The Company is involved in various legal proceedings that are incidental to the conduct of our business, including three putative employment class action lawsuits in California, each of which has settled. Two cases have received final court approval and the remaining case has received preliminary court approval. 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 results of operations, consolidated financial position or liquidity.

 

Accrued liabilities
Accrued liabilities

5.    Accrued liabilities

Accrued liabilities consist of the following:

 

     January 28,      January 30,  

(In thousands)

   2017      2016  

Accrued vendor liabilities (including accrued

property and equipment costs)

   $ 44,804      $ 27,894  

Accrued customer liabilities

     47,441        54,496  

Accrued payroll, bonus and employee benefits

     84,555        61,068  

Accrued taxes, other

     24,883        20,486  

Other accrued liabilities

     59,171        23,407  
  

 

 

    

 

 

 

Accrued liabilities

   $ 260,854      $ 187,351  
  

 

 

    

 

 

 
Income taxes
Income taxes

6.    Income taxes

The provision for income taxes consists of the following:

 

     Fiscal      Fiscal      Fiscal  

(In thousands)

   2016      2015      2014  

Current:

        

Federal

   $ 194,199      $ 163,048      $ 128,159  

State

     24,835        18,694        16,909  
  

 

 

    

 

 

    

 

 

 

Total current

     219,034        181,742        145,068  

Deferred:

        

Federal

     24,480        6,981        8,392  

State

     2,440        (1,291      714  
  

 

 

    

 

 

    

 

 

 

Total deferred

     26,920        5,690        9,106  
  

 

 

    

 

 

    

 

 

 

Provision for income taxes

   $ 245,954      $ 187,432      $ 154,174  
  

 

 

    

 

 

    

 

 

 

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

 

     Fiscal
2016
    Fiscal
2015
    Fiscal
2014
 

Federal statutory rate

     35.0     35.0     35.0

State effective rate, net of federal tax benefit

     2.8     2.2     2.8

Other

     (0.3 %)      (0.3 %)      (0.3 %) 
  

 

 

   

 

 

   

 

 

 

Effective tax rate

     37.5     36.9     37.5
  

 

 

   

 

 

   

 

 

 

 

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

 

     January 28,      January 30,  

(In thousands)

   2017      2016  

Deferred tax assets:

     

Reserves not currently deductible

   $ 33,805      $ 27,734  

Employee benefits

     15,206        10,594  

Credit carryforwards

     398        441  

Accrued liabilities

     10,539        10,704  

Inventory valuation

     3,630        257  
  

 

 

    

 

 

 

Total deferred tax assets

     63,578        49,730  

Deferred tax liabilities:

     

Property and equipment

     73,454        48,898  

Deferred rent obligation

     62,252        49,548  

Prepaid expenses

     14,370        10,811  
  

 

 

    

 

 

 

Total deferred tax liabilities

     150,076        109,257  
  

 

 

    

 

 

 

Net deferred tax liability

   $ (86,498    $ (59,527
  

 

 

    

 

 

 

At January 28, 2017 and January 30, 2016, the Company had $398 and $441, respectively, of credit carryforwards for state income tax purposes.

The Company accounts for uncertainty in income taxes in accordance with the ASC rules for income taxes. The reserve for uncertain tax positions was $3,305 and $2,262 at January 28, 2017 and January 30, 2016, 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:

 

(In thousands)

   January 28,
2017
     January 30,
2016
 

Balance at beginning of the period

   $ 2,262      $ 1,414  

Increase due to a current year position

     1,048        900  

Decrease due to a prior period position

     (5      (52
  

 

 

    

 

 

 

Balance at the end of the period

   $ 3,305      $ 2,262  
  

 

 

    

 

 

 

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 2016 and 2015.

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 2013 and is no longer subject to examinations by State authorities before 2012.

Notes payable
Notes payable

7.    Notes payable

In 2011, the Company entered into an Amended and Restated Loan and Security 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, which has been amended multiple times since 2011 (as amended, the Loan Agreement). The Loan Agreement currently matures in December 2018, 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 London Interbank Offered Rate plus 1.50% and the unused line fee is 0.20%.

As of January 28, 2017 and January 30, 2016, the Company had no borrowings outstanding under the credit facility and the Company was in compliance with all terms and covenants of the agreement.

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 January 28, 2017 and January 30, 2016, the Company held financial liabilities of $10,474 and $7,491, respectively, related to its non-qualified deferred compensation plan. The liabilities have been categorized as Level 2 as they are based on third-party reported values which are based primarily on quoted market prices of underlying assets of the funds within the plan.

Investments
Investments

9.    Investments

The Company’s short-term investments as of January 28, 2017 and January 30, 2016, consist of $30,000 and $130,000, 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 January 28, 2017.

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 January 28, 2017, the 2011 Plan reserves for the issuance upon grant or exercise of awards up to 3,912 shares of the Company’s common stock.

 

The Company recorded stock compensation expense of $19,340, $15,594 and $14,923 for fiscal 2016, 2015 and 2014, respectively. Cash received from option exercises under all share-based payment arrangements for fiscal 2016, 2015 and 2014 was $16,293, $19,646 and $10,639, respectively. The total income tax benefit recognized in the income statement for equity compensation arrangements was $6,764, $5,354 and $3,526 for fiscal 2016, 2015 and 2014, respectively. The actual tax benefit realized for the tax deductions from option exercise and restricted stock vesting of the share-based payment arrangements totaled $15,868, $14,970 and $6,892, respectively, for fiscal 2016, 2015 and 2014.

Employee 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 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
2016
  Fiscal
2015
  Fiscal
2014

Volatility rate

   35.0%   37.9%   40.7%

Average risk-free interest rate

   1.2%   1.6%   1.4%

Average expected life (in years)

   3.5   4.9   3.8

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 Company granted 110 stock options during fiscal 2016. The compensation cost that has been charged against income for stock option grants was $7,983, $7,899, and $9,078 for fiscal 2016, 2015, and 2014, respectively. The weighted-average grant date fair value of options granted in fiscal 2016, 2015 and 2014 was $53.02, $56.44 and $32.38, respectively. The total fair value of stock options issued that vested during fiscal 2016, 2015 and 2014 was $5,932, $8,236 and $8,799, respectively. At January 28, 2017, there was approximately $19,938 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 three years. The total intrinsic value of options exercised was $27,468, $36,610 and $15,032 in fiscal 2016, 2015 and 2014, respectively.

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

 

     Fiscal 2016      Fiscal 2015      Fiscal 2014  
     Number of
options
    Weighted-
average
exercise price
     Number of
options
    Weighted-
average
exercise price
     Number of
options
    Weighted-
average
exercise price
 

Common stock options outstanding

              

Beginning of year

     939     $ 104.58        1,073     $ 72.12        1,090     $ 56.94  

Granted

     110       193.64        294       160.01        371       99.40  

Exercised

     (194     83.88        (356     55.20        (238     44.79  

Forfeited

     (25     118.97        (72     91.74        (150     72.57  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

End of year

     830     $ 120.78        939     $ 104.58        1,073     $ 72.12  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Exercisable at end of year

     280     $ 69.69        316     $ 61.44        440     $ 43.98  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Vested and Expected to vest

     786     $ 119.32        890     $ 103.36        1,028     $ 71.28  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

The following table presents information related to options outstanding and options exercisable at January 28, 2017, under the Company’s stock option plans based on ranges of exercise prices (shares in thousands):

 

     Options outstanding      Options exercisable  

Range of Exercise Prices

   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
 

$9.67 - $57.42

     112        3      $ 25.13        112        3      $ 25.13  

$69.96 - $96.81

     119        6        82.19        81        6        80.65  

$97.89 - $99.66

     153        7        98.12        36        7        98.08  

$101.35 - $153.87

     134        8        136.78        50        8        129.41  

$164.06 - $165.27

     206        9        164.09        1        9        165.01  

$191.76 - $249.64

     106        9        193.70                       
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

$9.67 - $249.64

     830        7      $ 120.78        280        5      $ 69.69  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The aggregate intrinsic value of outstanding and exercisable options as of January 28, 2017 was $125,061 and $56,533, respectively. The last reported sale price of our common stock on the NASDAQ Global Select Market on January 28, 2017 was $271.44 per share.

Restricted stock units

The Company issued 55 restricted stock units during fiscal 2016 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 straight-line over the requisite service period. The compensation expense recorded in fiscal 2016, 2015 and 2014 was $7,295, $6,040 and $5,845, respectively. 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 January 28, 2017, unrecognized compensation cost related to restricted stock units was $11,920. 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 2016      Fiscal 2015      Fiscal 2014  
     Number
of units
    Weighted-
average
grant date
fair value
     Number
of units
    Weighted-
average
grant date
fair value
     Number
of units
    Weighted-
average
grant date
fair value
 

Restricted stock units outstanding

              

Beginning of year

     144     $ 116.42        151     $ 91.74        162     $ 87.54  

Granted

     55       203.40        60       154.77        71       97.73  

Vested

     (46     98.06        (47     102.36        (52     91.91  

Forfeited

     (11     138.25        (20     96.11        (30     82.91  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

End of year

     142     $ 154.71        144     $ 116.42        151     $ 91.74  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Expected to vest

     131     $ 154.71        132     $ 116.42        140     $ 91.74  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Performance-based restricted stock units

The Company issued 24 performance-based restricted stock units in fiscal 2016. 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 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. The compensation expense recorded in fiscal 2016 and 2015 was $4,062 and $1,655, respectively. Forfeitures of performance-based restricted stock awards are estimated at the grant date based on historical rates of the Company’s stock award activity and reduce the compensation expense recognized. At January 28, 2017, unrecognized compensation cost related to performance-based restricted stock units was $8,610. The unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately two years.

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

 

     Fiscal 2016      Fiscal 2015  
     Number
of units
     Weighted-
average
grant date
fair value
     Number
of units
     Weighted-
average
grant date
fair value
 

Performance-based restricted stock units outstanding

 

  

Beginning of year

     20      $ 151.20             $  

Granted

     24        191.76        22        151.20  

Vested

                           

Forfeited

     (3      167.71        (2      151.20  
  

 

 

    

 

 

    

 

 

    

 

 

 

End of year

     41      $ 173.47        20      $ 151.20  
  

 

 

    

 

 

    

 

 

    

 

 

 

Expected to vest

     38      $ 173.47        19      $ 151.20  
  

 

 

    

 

 

    

 

 

    

 

 

 

The number of performance-based units presented is based on achieving the targeted performance goals as defined in the performance-based unit agreements. As of January 28, 2017, the maximum number of units that could vest under the provisions of the agreements was 82.

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  

(In thousands, except per share data)

   January 28,
2017
     January 30,
2016
     January 31,
2015
 

Numerator for diluted net income per share – net income

   $ 409,760      $ 320,008      $ 257,135  

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

     62,519        63,949        64,335  

Dilutive effect of stock options and non-vested stock

     332        326        316  
  

 

 

    

 

 

    

 

 

 

Denominator for diluted net income per share

     62,851        64,275        64,651  

Net income per common share:

        

Basic

   $ 6.55      $ 5.00      $ 4.00  

Diluted

   $ 6.52      $ 4.98      $ 3.98  

The denominator for diluted net income per common share for fiscal years 2016, 2015 and 2014 exclude 142, 370 and 686 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.

 

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 2016, 2015 and 2014, the Company match was 100% of the first 3.0% of eligible compensation. As of January 28, 2017 and January 30, 2016, the liability for the Company match was $6,317 and $5,031, respectively.

The Company also has a non-qualified deferred compensation plan for highly compensated employees whose contributions are limited under qualified defined contribution plans. The plan is funded through employee contributions and a Company match. In fiscal 2016, 2015 and 2014, the Company match was 100% of the first 3.0% of salary. For fiscal year 2016 and 2015, the liability for the Company match was $753 and $554, respectively. 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 other long-term liabilities was $10,474 and $7,491 as of January 28, 2017 and January 30, 2016, respectively. 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 deferred compensation plan assets was $11,283 and $8,145 as of January 28, 2017 and January 30, 2016, respectively. Total expense recorded under this plan is included in selling, general and administrative expenses and was insignificant during fiscal 2016 and 2015.

Selected quarterly financial data (unaudited)
Selected quarterly financial data (unaudited)

13.    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 2016 and fiscal 2015. The Company’s quarterly periods are the 13 weeks ending on the Saturday closest to April 30, July 31, October 31 and January 31.

 

     2016  
     First     Second     Third     Fourth  
(In thousands, except per share data)                         

Net sales

   $ 1,073,716     $ 1,069,215     $ 1,131,232     $ 1,580,574  

Cost of sales

     683,286       684,377       704,179       1,035,666  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     390,430       384,838       427,053       544,908  

Selling, general and administrative expenses

     240,724       236,380       280,464       316,266  

Pre-opening expenses

     2,542       4,689       6,928       4,412  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     147,164       143,769       139,661       224,230  

Interest income, net

     (315     (248     (211     (116
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     147,479       144,017       139,872       224,346  

Income tax expense

     55,503       54,013       52,310       84,128  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 91,976     $ 90,004     $ 87,562     $ 140,218  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share:

        

Basic

   $ 1.46     $ 1.44     $ 1.40     $ 2.25  

Diluted

   $ 1.45     $ 1.43     $ 1.40     $ 2.24  

 

     2015  
     First     Second     Third     Fourth  
(In thousands, except per share data)                         

Net sales

   $ 868,122     $ 876,999     $ 910,700     $ 1,268,295  

Cost of sales

     564,938       570,524       575,062       829,259  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     303,184       306,475       335,638       439,036  

Selling, general and administrative expenses

     192,485       183,937       218,763       268,169  

Pre-opening expenses

     3,117       4,078       6,106       1,381  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     107,582       118,460       110,769       169,486  

Interest income, net

     (311     (276     (283     (273
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     107,893       118,736       111,052       169,759  

Income tax expense

     40,947       44,567       39,982       61,936  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 66,946     $ 74,169     $ 71,070     $ 107,823  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share:

        

Basic

   $ 1.04     $ 1.16     $ 1.11     $ 1.69  

Diluted

   $ 1.04     $ 1.15     $ 1.11     $ 1.69  

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.

Share repurchase program
Share repurchase program

14.    Share repurchase program

On September 11, 2014, the Company announced that the Board of Directors authorized a share repurchase program (the 2014 Share Repurchase Program) pursuant to which the Company could repurchase up to $300,000 of the Company’s common stock. The 2014 Share Repurchase Program authorization revoked the previously authorized, but unused amounts of $112,664 from the share repurchase program adopted in 2013. On March 12, 2015, the Company announced that the Board of Directors authorized an increase of $100,000 to the 2014 Share Repurchase Program effective March 17, 2015. The 2014 Share Repurchase Program did not have an expiration date, but provided for suspension or discontinuation at any time.

On March 10, 2016, the Company announced that the Board of Directors authorized a new share repurchase program (the 2016 Share Repurchase Program) pursuant to which the Company may repurchase up to $425,000 of the Company’s common stock. The 2016 Share Repurchase Program authorization revoked the previously authorized, but unused amounts of $172,386 from the 2014 Share Repurchase Program. The 2016 Share Repurchase Program does not have an expiration date and may be suspended or discontinued at any time.

As part of the 2016 Share Repurchase Program, the Company entered into an Accelerated Share Repurchase (ASR) agreement with Goldman, Sachs & Co. to repurchase $200,000 of the Company’s common stock. Under the ASR agreement, the Company paid $200,000 to Goldman, Sachs & Co. and received an initial delivery of 852 shares in the first quarter of 2016, which were retired and represented 80% of the total shares the Company expected to receive based on the market price at the time of the initial delivery. In May 2016, the ASR settled and an additional 153 shares were delivered to the Company and retired. The final number of shares delivered upon settlement was determined with reference to the average price of the Company’s common stock over the term of the agreement. The transaction was accounted for as an equity transaction. The par value of shares received was recorded as a reduction to common stock with the remainder recorded as a reduction to additional paid-in capital and retained earnings. Upon receipt of the shares, there was an immediate reduction in the weighted average common shares calculation for basic and diluted earnings per share.

During fiscal 2014, we purchased 321 shares of common stock for $39,923 at an average price of $124.31. During fiscal 2015, we purchased 1,034 shares of common stock for $167,396 at an average price of $161.81. During fiscal 2016, excluding the shares repurchased under the ASR, we purchased 634 shares of common stock for $144,275 at an average price of $227.49.

Subsequent event
Subsequent event

15.    Subsequent event

On March 9, 2017, the Company announced that the Board of Directors authorized a new share repurchase program (the 2017 Share Repurchase Program) pursuant to which the Company may repurchase up to $425,000 of the Company’s common stock. The 2017 Share Repurchase Program authorization revokes the previously authorized but unused amounts from the 2016 Share Repurchase Program. The 2017 Share Repurchase Program does not have an expiration date and may be suspended or discontinued at any time.

Schedule II - Valuation and Qualifying Accounts
Schedule II - Valuation and Qualifying Accounts

Ulta Beauty, Inc.

Schedule II — Valuation and Qualifying Accounts

(in thousands)

 

Description

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

Fiscal 2016

         

Allowance for doubtful accounts

   $ 1,112     $ 1,709      $ (742 )(a)    $ 2,079  

Shrink reserve

     15,259       35,505        (31,699     19,065  

Inventory – lower of cost or market reserve

     5,003       10,691        (7,120     8,574  

Insurance:

         

Workers Comp / General Liability Prepaid Asset

     (1,926 )(b)      9,578        (7,751     (99

Employee Health Care Accrued Liability

     4,187       67,715        (64,705     7,197  

Fiscal 2015

         

Allowance for doubtful accounts

   $ 1,346     $ 2,063      $ (2,297 )(a)    $ 1,112  

Shrink reserve

     11,598       29,894        (26,233     15,259  

Inventory – lower of cost or market reserve

     5,253       3,323        (3,573     5,003  

Insurance:

         

Workers Comp / General Liability Prepaid Asset

     (1,789 )(b)      5,935        (6,072     (1,926

Employee Health Care Accrued Liability

     2,435       55,423        (53,671     4,187  

Fiscal 2014

         

Allowance for doubtful accounts

   $ 915     $ 874      $ (443 )(a)    $ 1,346  

Shrink reserve

     9,358       22,374        (20,134     11,598  

Inventory – lower of cost or market reserve

     4,861       4,368        (3,976     5,253  

Insurance:

         

Workers Comp / General Liability Prepaid Asset

     (1,817 )(b)      6,899        (6,871     (1,789

Employee Health Care Accrued Liability

     2,606       41,335        (41,506     2,435  

 

  (a) Represents write-off of uncollectible accounts

 

  (b) Represents prepaid insurance
 
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, 2017 (fiscal 2016), January 30, 2016 (fiscal 2015) and January 31, 2015 (fiscal 2014) were 52 week years.

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 receivable 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 $59,553 and $46,932 as of January 28, 2017 and January 30, 2016, respectively, and the receivable for landlord allowances was $23,186 and $10,250 as of January 28, 2017 and January 30, 2016, respectively. The allowance for doubtful receivables totaled $2,079 and $1,112 as of January 28, 2017 and January 30, 2016, 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, 2017 and January 30, 2016.

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. The Company recognized $3,124 of fixed asset impairment charges related to store closures in Chicago, Illinois and Denham Springs, Louisiana in fiscal 2016,which is included in selling, general and administrative (SG&A) expenses in the statements of income. No significant impairment charges were recognized in fiscal 2015 or 2014.

Customer loyalty program

In early fiscal 2014, we completed the conversion of all our loyalty members to Ultamate Rewards, 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 we sell. Prior to this conversion, we ran both Ultamate Rewards and our prior program, The Club at Ulta. The Club at Ulta was a certificate program offering customers reward certificates for free beauty products based on the level of purchases. 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 these loyalty programs at January 28, 2017 and January 30, 2016 was $30,244 and $20,026 respectively. The cost of these programs, which was $77,145, $54,464 and $42,096 in fiscal 2016, 2015 and 2014, respectively, is included in cost of sales in the statements of income.

Credit Cards

During 2016, the Company entered into certain agreements (the Agreements) with third parties to provide our guests with private label and/or co-branded credit cards (collectively, the Credit Cards). The private label credit card can be used at any of our store locations 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. We recognize 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 our statements of income.

Our loyalty members earn points through purchases at Ulta Beauty and anywhere the co-branded card is accepted. Consistent with the current accounting for the customer loyalty program, the Company accrues the cost of anticipated redemptions related to these programs at the time of the initial purchase and costs are included in cost of sales in the 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 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 merchandise sales, salon service revenue and e-commerce 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 $241,105, $209,249 and $175,533 for fiscal 2016, 2015 and 2014, 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 based on delivery of merchandise to the customer. E-commerce revenue amounted to $345,342, $221,077 and $149,857 for fiscal 2016, 2015 and 2014, respectively.

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 $5,335 and $3,728 at January 28, 2017 and January 30, 2016, respectively, and is recorded as a decrease in SG&A expense in the statements of income. Deferred gift card revenue was $46,268 and $31,830 at January 28, 2017 and January 30, 2016, respectively, and is included in accrued liabilities – accrued customer liabilities (see Note 5, “Accrued liabilities”).

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, as well as television, radio and digital advertising. 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 $212,714, $187,158 and $157,847 for fiscal 2016, 2015 and 2014, respectively. Advertising expense as a percentage of sales was 4.4%, 4.8% and 4.9% for fiscal 2016, 2015 and 2014, respectively. Prepaid advertising costs included in prepaid expenses and other current assets were $9,901 and $6,413 as of January 28, 2017 and January 30, 2016, 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 (retail and e-commerce), including a majority of 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; credit card program incentives; 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 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. 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

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 $19,340, $15,594 and $14,923 for fiscal 2016, 2015 and 2014, 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 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 we will recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. 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 for annual reporting periods beginning after December 15, 2016, including interim reporting periods. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (ASU 2016-08) which further clarifies how to implement revenue recognition guidance related to determining whether an entity is a principal or an agent in a revenue transaction. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU 2016-10) which further clarifies the aspects of (a) identifying performance obligations and (b) the licensing implementation guidance. The effective date and transition requirements for ASU 2016-08 and ASU 2016-10 are the same as the effective date and transition requirements of ASU 2014-09. These standards allow for either full retrospective or modified retrospective adoption.

The Company will adopt the new guidance in fiscal 2018, and anticipates using the modified retrospective method. The Company has formed a project team to review our current accounting policies and practices, assess the effect of the standard on our revenue transactions and identify potential differences. While we will continue to evaluate possible impacts on our consolidated financial statements, ASU 2014-09 is expected to impact the recognition timing or classification of revenues and expenses for our sales refund reserve, gift card breakage and loyalty program accounting, however, the Company does not expect a significant impact to pretax income upon adoption. In addition, we are in the process of evaluating changes to our business processes and controls to support recognition and disclosure under the new 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. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, including interim reporting periods.

At January 28, 2017, the Company has made a decision to early adopt the new standard in fiscal 2018. The Company has formed a project team to review our current accounting policies and practices and assess the effect of the standard on our consolidated financial statements. The team has completed a preliminary assessment of the potential impact of adopting ASU 2016-02 on its financial statements. The adoption of this ASU 2016-02 will have a material impact on the Company’s financial position, however the Company does not believe adoption of this standard will have a material impact on the Company’s 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 Corporation’s consolidated financial position, results of operations and cash flows.

 

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 will change how companies account for certain aspects of share-based payments to employees. Companies will 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 will be 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 is changing, and two practical expedients for non-public entities have been added. ASU 2016-09 is effective for annual and interim reporting periods beginning after December 15, 2016, and early adoption is permitted.

The Company will adopt the new guidance in the first quarter of fiscal 2017. The potential impact that the adoption of ASU 2016-9 will have on the Company’s financial statements during and after the period of adoption are dependent, in part, upon factors that are not fully controllable or predictable by the Company, including future vesting of stock-based awards, market price of the Company’s common stock, timing of employee exercises of vested stock options and achievement of performance criteria that affect the vesting of performance-based awards. However, based on the market price of the Company’s common stock and its outstanding restricted stock units and unexercised stock options as of January 28, 2017, the Company anticipates that the adoption of this pronouncement will result in lower income tax expense in fiscal year 2017 and this anticipated income tax benefit will be reported as a component of cash flows from operating activities. Additionally, the Company will continue to include the impact of estimated forfeitures when determining share-based compensation expense.

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 adoption of ASU 2016-15 is not expected to have a material impact on the Company’s consolidated financial position, results of operations and 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 adoption of ASU 2016-18 is not expected to have a material impact on the Company’s consolidated financial position, results of operations and cash flows.

Recently adopted accounting pronouncements

Stock Compensation

In June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This update clarifies the accounting for share-based awards with performance targets. ASU 2014-12 is effective for public companies for annual reporting periods beginning after December 15, 2015, including interim reporting periods. As permitted, the Company adopted this standard, prospectively, in its first quarter ended April 30, 2016 and its adoption had no impact on its consolidated financial position, results of operations and cash flows.

Goodwill and other

In April 2015, the FASB issued ASU 2015-05, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customers’ Accounting for Fees Paid in a Cloud Computing Arrangement. This standard provides guidance to determine whether a cloud-based computing arrangement includes a software license. If a cloud-based computing arrangement includes a software license, the customer must account for the software element of the arrangement consistent with the acquisition of other software licenses. Otherwise, the customer must account for the arrangement as a service contract. As permitted, the Company adopted this standard, prospectively, in its first quarter ended April 30, 2016 and its adoption had no impact on its consolidated financial position, results of operations and cash flows.

 

Business and basis of presentation (Tables)
Percentage of Net Sales Attributed to Merchandise Category

The following table sets forth the approximate percentage of net sales attributed to each category for the periods indicated:

 

     Fiscal year ended  
     January 28,
2017
    January 30,
2016
    January 31,
2015
 

Cosmetics

     51     46     42

Skincare, Bath & Fragrance

     20     23     24

Haircare Products & Styling Tools

     20     22     24

Salon Services

     5     5     5

Other

     4     4     5
  

 

 

   

 

 

   

 

 

 
     100     100     100
  

 

 

   

 

 

   

 

 

 
Summary of significant accounting policies (Tables)
Summary of Estimated Useful Lives or Expected Lease Term

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  
Property and equipment (Tables)
Components of Property and Equipment

Property and equipment consists of the following:

 

     January 28,      January 30,  

(In thousands)

   2017      2016  

Equipment and fixtures

   $ 708,754      $ 556,499  

Leasehold improvements

     607,690        515,712  

Electronic equipment and software

     437,262        353,940  

Construction-in-progress

     49,411        75,804  
  

 

 

    

 

 

 
     1,803,117        1,501,955  

Less: accumulated depreciation and amortization

     (798,759      (654,355
  

 

 

    

 

 

 

Property and equipment, net

   $ 1,004,358      $ 847,600  
  

 

 

    

 

 

 
Commitments and contingencies (Tables)
Schedule of Future Minimum Lease Payments Under Operating Leases

Future minimum lease payments under operating leases as of January 28, 2017, are as follows:

 

     Operating  
     Leases  

Fiscal year

   (in thousands)  

2017

   $ 270,684  

2018

     274,625  

2019

     259,875  

2020

     246,209  

2021

     228,073  

2022 and thereafter

     726,575  
  

 

 

 

Total minimum lease payments

   $ 2,006,041  
  

 

 

 
Accrued liabilities (Tables)
Schedule of Accrued Liabilities

Accrued liabilities consist of the following:

 

     January 28,      January 30,  

(In thousands)

   2017      2016  

Accrued vendor liabilities (including accrued

property and equipment costs)

   $ 44,804      $ 27,894  

Accrued customer liabilities

     47,441        54,496  

Accrued payroll, bonus and employee benefits

     84,555        61,068  

Accrued taxes, other

     24,883        20,486  

Other accrued liabilities

     59,171        23,407  
  

 

 

    

 

 

 

Accrued liabilities

   $ 260,854      $ 187,351  
  

 

 

    

 

 

 
Income taxes (Tables)

The provision for income taxes consists of the following:

 

     Fiscal      Fiscal      Fiscal  

(In thousands)

   2016      2015      2014  

Current:

        

Federal

   $ 194,199      $ 163,048      $ 128,159  

State

     24,835        18,694        16,909  
  

 

 

    

 

 

    

 

 

 

Total current

     219,034        181,742        145,068  

Deferred:

        

Federal

     24,480        6,981        8,392  

State

     2,440        (1,291      714  
  

 

 

    

 

 

    

 

 

 

Total deferred

     26,920        5,690        9,106  
  

 

 

    

 

 

    

 

 

 

Provision for income taxes

   $ 245,954      $ 187,432      $ 154,174  
  

 

 

    

 

 

    

 

 

 

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

 

     Fiscal
2016
    Fiscal
2015
    Fiscal
2014
 

Federal statutory rate

     35.0     35.0     35.0

State effective rate, net of federal tax benefit

     2.8     2.2     2.8

Other

     (0.3 %)      (0.3 %)      (0.3 %) 
  

 

 

   

 

 

   

 

 

 

Effective tax rate

     37.5     36.9     37.5
  

 

 

   

 

 

   

 

 

 

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

 

     January 28,      January 30,  

(In thousands)

   2017      2016  

Deferred tax assets:

     

Reserves not currently deductible

   $ 33,805      $ 27,734  

Employee benefits

     15,206        10,594  

Credit carryforwards

     398        441  

Accrued liabilities

     10,539        10,704  

Inventory valuation

     3,630        257  
  

 

 

    

 

 

 

Total deferred tax assets

     63,578        49,730  

Deferred tax liabilities:

     

Property and equipment

     73,454        48,898  

Deferred rent obligation

     62,252        49,548  

Prepaid expenses

     14,370        10,811  
  

 

 

    

 

 

 

Total deferred tax liabilities

     150,076        109,257  
  

 

 

    

 

 

 

Net deferred tax liability

   $ (86,498    $ (59,527
  

 

 

    

 

 

 

A reconciliation of the Company’s unrecognized tax benefits, excluding interest and penalties, is as follows:

 

(In thousands)

   January 28,
2017
     January 30,
2016
 

Balance at beginning of the period

   $ 2,262      $ 1,414  

Increase due to a current year position

     1,048        900  

Decrease due to a prior period position

     (5      (52
  

 

 

    

 

 

 

Balance at the end of the period

   $ 3,305      $ 2,262  
  

 

 

    

 

 

 
Share-based awards (Tables)
The Company estimated the grant date fair value of stock options using a Black-Scholes valuation model using the following weighted-average assumptions:

 

     Fiscal
2016
  Fiscal
2015
  Fiscal
2014

Volatility rate

   35.0%   37.9%   40.7%

Average risk-free interest rate

   1.2%   1.6%   1.4%

Average expected life (in years)

   3.5   4.9   3.8

Dividend yield

   None   None   None

The following table presents information related to options outstanding and options exercisable at January 28, 2017, under the Company’s stock option plans based on ranges of exercise prices (shares in thousands):

 

     Options outstanding      Options exercisable  

Range of Exercise Prices

   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
 

$9.67 - $57.42

     112        3      $ 25.13        112        3      $ 25.13  

$69.96 - $96.81

     119        6        82.19        81        6        80.65  

$97.89 - $99.66

     153        7        98.12        36        7        98.08  

$101.35 - $153.87

     134        8        136.78        50        8        129.41  

$164.06 - $165.27

     206        9        164.09        1        9        165.01  

$191.76 - $249.64

     106        9        193.70                       
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

$9.67 - $249.64

     830        7      $ 120.78        280        5      $ 69.69  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     Fiscal 2016      Fiscal 2015      Fiscal 2014  
     Number of
options
    Weighted-
average
exercise price
     Number of
options
    Weighted-
average
exercise price
     Number of
options
    Weighted-
average
exercise price
 

Common stock options outstanding

              

Beginning of year

     939     $ 104.58        1,073     $ 72.12        1,090     $ 56.94  

Granted

     110       193.64        294       160.01        371       99.40  

Exercised

     (194     83.88        (356     55.20        (238     44.79  

Forfeited

     (25     118.97        (72     91.74        (150     72.57  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

End of year

     830     $ 120.78        939     $ 104.58        1,073     $ 72.12  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Exercisable at end of year

     280     $ 69.69        316     $ 61.44        440     $ 43.98  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Vested and Expected to vest

     786     $ 119.32        890     $ 103.36        1,028     $ 71.28  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

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

 

     Fiscal 2016      Fiscal 2015      Fiscal 2014  
     Number
of units
    Weighted-
average
grant date
fair value
     Number
of units
    Weighted-
average
grant date
fair value
     Number
of units
    Weighted-
average
grant date
fair value
 

Restricted stock units outstanding

              

Beginning of year

     144     $ 116.42        151     $ 91.74        162     $ 87.54  

Granted

     55       203.40        60       154.77        71       97.73  

Vested

     (46     98.06        (47     102.36        (52     91.91  

Forfeited

     (11     138.25        (20     96.11        (30     82.91  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

End of year

     142     $ 154.71        144     $ 116.42        151     $ 91.74  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Expected to vest

     131     $ 154.71        132     $ 116.42        140     $ 91.74  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

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 2016      Fiscal 2015  
     Number
of units
     Weighted-
average
grant date
fair value
     Number
of units
     Weighted-
average
grant date
fair value
 

Performance-based restricted stock units outstanding

 

  

Beginning of year

     20      $ 151.20             $  

Granted

     24        191.76        22        151.20  

Vested

                           

Forfeited

     (3      167.71        (2      151.20  
  

 

 

    

 

 

    

 

 

    

 

 

 

End of year

     41      $ 173.47        20      $ 151.20  
  

 

 

    

 

 

    

 

 

    

 

 

 

Expected to vest

     38      $ 173.47        19      $ 151.20  
  

 

 

    

 

 

    

 

 

    

 

 

 
Net income per common share (Tables)
Net Income Per Basic and Diluted 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  

(In thousands, except per share data)

   January 28,
2017
     January 30,
2016
     January 31,
2015
 

Numerator for diluted net income per share – net income

   $ 409,760      $ 320,008      $ 257,135  

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

     62,519        63,949        64,335  

Dilutive effect of stock options and non-vested stock

     332        326        316  
  

 

 

    

 

 

    

 

 

 

Denominator for diluted net income per share

     62,851        64,275        64,651  

Net income per common share:

        

Basic

   $ 6.55      $ 5.00      $ 4.00  

Diluted

   $ 6.52      $ 4.98      $ 3.98  
 
Selected quarterly financial data (unaudited) (Tables)
Quarterly Financial Information

The following tables set forth the Company’s unaudited quarterly results of operations for each of the quarters in fiscal 2016 and fiscal 2015. The Company’s quarterly periods are the 13 weeks ending on the Saturday closest to April 30, July 31, October 31 and January 31.

 

     2016  
     First     Second     Third     Fourth  
(In thousands, except per share data)                         

Net sales

   $ 1,073,716     $ 1,069,215     $ 1,131,232     $ 1,580,574  

Cost of sales

     683,286       684,377       704,179       1,035,666  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     390,430       384,838       427,053       544,908  

Selling, general and administrative expenses

     240,724       236,380       280,464       316,266  

Pre-opening expenses

     2,542       4,689       6,928       4,412  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     147,164       143,769       139,661       224,230  

Interest income, net

     (315     (248     (211     (116
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     147,479       144,017       139,872       224,346  

Income tax expense

     55,503       54,013       52,310       84,128  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 91,976     $ 90,004     $ 87,562     $ 140,218  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share:

        

Basic

   $ 1.46     $ 1.44     $ 1.40     $ 2.25  

Diluted

   $ 1.45     $ 1.43     $ 1.40     $ 2.24  

 

     2015  
     First     Second     Third     Fourth  
(In thousands, except per share data)                         

Net sales

   $ 868,122     $ 876,999     $ 910,700     $ 1,268,295  

Cost of sales

     564,938       570,524       575,062       829,259  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     303,184       306,475       335,638       439,036  

Selling, general and administrative expenses

     192,485       183,937       218,763       268,169  

Pre-opening expenses

     3,117       4,078       6,106       1,381  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     107,582       118,460       110,769       169,486  

Interest income, net

     (311     (276     (283     (273
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     107,893       118,736       111,052       169,759  

Income tax expense

     40,947       44,567       39,982       61,936  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 66,946     $ 74,169     $ 71,070     $ 107,823  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share:

        

Basic

   $ 1.04     $ 1.16     $ 1.11     $ 1.69  

Diluted

   $ 1.04     $ 1.15     $ 1.11     $ 1.69  
Business and Basis of Presentation - Additional Information (Detail)
12 Months Ended
Jan. 28, 2017
Segment
Store
State
Organization, Consolidation and Presentation of Financial Statements [Abstract]
 
Number of stores
974 
Number of states in which entity operates
48 
Number of operating segments
Number of reportable segments
Business and Basis of Presentation - Percentage of Net Sales Attributed to Merchandise Category (Detail)
12 Months Ended
Jan. 28, 2017
Jan. 30, 2016
Jan. 31, 2015
Cosmetics [Member]
 
 
 
Product Information [Line Items]
 
 
 
Sales percentage
51.00% 
46.00% 
42.00% 
Skincare, Bath & Fragrance [Member]
 
 
 
Product Information [Line Items]
 
 
 
Sales percentage
20.00% 
23.00% 
24.00% 
Haircare Products & Styling Tools [Member]
 
 
 
Product Information [Line Items]
 
 
 
Sales percentage
20.00% 
22.00% 
24.00% 
Salon Services [Member]
 
 
 
Product Information [Line Items]
 
 
 
Sales percentage
5.00% 
5.00% 
5.00% 
Other [Member]
 
 
 
Product Information [Line Items]
 
 
 
Sales percentage
4.00% 
4.00% 
5.00% 
Sales Revenue Net [Member]
 
 
 
Product Information [Line Items]
 
 
 
Sales percentage
100.00% 
100.00% 
100.00% 
Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
12 Months Ended
Jan. 28, 2017
Jan. 30, 2016
Jan. 31, 2015
Organization Consolidation and Presentation of Financial Statements [Line Items]
 
 
 
Allowance for doubtful receivable
$ 2,079,000 
$ 1,112,000 
 
Outstanding debt
 
Fixed asset impairment charges
3,124,000 
Accrued liability loyalty programs
30,244,000 
20,026,000 
 
Cost of loyalty programs
77,145,000 
54,464,000 
42,096,000 
Duration of refund for sales return
60 days 
 
 
Deferred gift card revenue
46,268,000 
31,830,000 
 
Gift card breakage
5,335,000 
3,728,000 
 
Total advertising costs
212,714,000 
187,158,000 
157,847,000 
Prepaid advertising costs
9,901,000 
6,413,000 
 
Stock compensation expense
19,340,000 
15,594,000 
14,923,000 
Stop loss coverage of employee health claims
350,000 
 
 
Stop loss coverage of general liability claims
100,000 
 
 
Stop loss coverage of workers compensation claims
250,000 
 
 
Sales [Member]
 
 
 
Organization Consolidation and Presentation of Financial Statements [Line Items]
 
 
 
Percentage of advertisement expense to sales
4.40% 
4.80% 
4.90% 
Leasehold Improvements [Member]
 
 
 
Organization Consolidation and Presentation of Financial Statements [Line Items]
 
 
 
Estimated useful lives or the expected lease term
10 years 
 
 
Salon Service [Member]
 
 
 
Organization Consolidation and Presentation of Financial Statements [Line Items]
 
 
 
Revenue from Salon service
241,105,000 
209,249,000 
175,533,000 
E-commerce [Member]
 
 
 
Organization Consolidation and Presentation of Financial Statements [Line Items]
 
 
 
Revenue from E-Commerce
345,342,000 
221,077,000 
149,857,000 
Vendor Allowances [Member]
 
 
 
Organization Consolidation and Presentation of Financial Statements [Line Items]
 
 
 
Allowances receivable
59,553,000 
46,932,000 
 
Landlord Allowances [Member]
 
 
 
Organization Consolidation and Presentation of Financial Statements [Line Items]
 
 
 
Allowances receivable
$ 23,186,000 
$ 10,250,000 
 
Summary of Significant Accounting Policies - Summary of Estimated Useful Lives or Expected Lease Term (Detail)
12 Months Ended
Jan. 28, 2017
Equipment and Fixtures [Member] |
Minimum [Member]
 
Property, Plant and Equipment [Line Items]
 
Estimated useful lives or the expected lease term
3 years 
Equipment and Fixtures [Member] |
Maximum [Member]
 
Property, Plant and Equipment [Line Items]
 
Estimated useful lives or the expected lease term
10 years 
Leasehold Improvements [Member]
 
Property, Plant and Equipment [Line Items]
 
Estimated useful lives or the expected lease term
10 years 
Electronic Equipment and Software [Member] |
Minimum [Member]
 
Property, Plant and Equipment [Line Items]
 
Estimated useful lives or the expected lease term
3 years 
Electronic Equipment and Software [Member] |
Maximum [Member]
 
Property, Plant and Equipment [Line Items]
 
Estimated useful lives or the expected lease term
5 years 
Property and Equipment - Components of Property and Equipment (Detail) (USD $)
In Thousands, unless otherwise specified
Jan. 28, 2017
Jan. 30, 2016
Property, Plant and Equipment [Line Items]
 
 
Property plant and equipment, gross
$ 1,803,117 
$ 1,501,955 
Less: accumulated depreciation and amortization
(798,759)
(654,355)
Property and equipment, net
1,004,358 
847,600 
Equipment and Fixtures [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property plant and equipment, gross
708,754 
556,499 
Leasehold Improvements [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property plant and equipment, gross
607,690 
515,712 
Electronic Equipment and Software [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property plant and equipment, gross
437,262 
353,940 
Construction-in-progress [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property plant and equipment, gross
$ 49,411 
$ 75,804 
Property and Equipment - Additional Information (Detail) (USD $)
12 Months Ended
Jan. 28, 2017
Jan. 30, 2016
Property, Plant and Equipment [Abstract]
 
 
Capitalized interest
$ 0 
$ 0 
Commitments and Contingencies - Additional Information - Leases (Detail) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 28, 2017
Jan. 30, 2016
Jan. 31, 2015
Long-term Purchase Commitment [Line Items]
 
 
 
Total rent expense under operating leases
$ 202,942 
$ 181,487 
$ 159,245 
Retail Stores [Member]
 
 
 
Long-term Purchase Commitment [Line Items]
 
 
 
Minimum lease payments for stores to be opened in future periods
$ 315,230 
 
 
Minimum [Member]
 
 
 
Long-term Purchase Commitment [Line Items]
 
 
 
Non-cancelable operating lease terms
3 years 
 
 
Maximum [Member]
 
 
 
Long-term Purchase Commitment [Line Items]
 
 
 
Non-cancelable operating lease terms
10 years 
 
 
Commitments and Contingencies - Schedule of Future Minimum Lease Payments Under Operating Leases (Detail) (USD $)
In Thousands, unless otherwise specified
Jan. 28, 2017
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]
 
2017
$ 270,684 
2018
274,625 
2019
259,875 
2020
246,209 
2021
228,073 
2022 and thereafter
726,575 
Total minimum lease payments
$ 2,006,041 
Commitments and Contingencies - Additional Information - Contractual Obligations (Detail) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 28, 2017
Non Cancelable Advertising Other Goods And Service Contracts [Member]
 
Long-term Purchase Commitment [Line Items]
 
Contractual obligations related to commitments
$ 19,797 
Contractual obligation agreements expiry period
1 year 
Multi-Year Supply Chain [Member]
 
Long-term Purchase Commitment [Line Items]
 
Contractual obligations related to commitments
27,666 
Payments under commitments
$ 11,528 
Commitments and Contingencies - Additional Information - General Litigation (Detail)
Jan. 28, 2017
Lawsuits
Commitments and Contingencies Disclosure [Abstract]
 
Putative employment class action lawsuits
Accrued Liabilities - Schedule of Accrued Liabilities (Detail) (USD $)
In Thousands, unless otherwise specified
Jan. 28, 2017
Jan. 30, 2016
Schedule Of Accrued Liabilities [Abstract]
 
 
Accrued vendor liabilities (including accrued property and equipment costs)
$ 44,804 
$ 27,894 
Accrued customer liabilities
47,441 
54,496 
Accrued payroll, bonus and employee benefits
84,555 
61,068 
Accrued taxes, other
24,883 
20,486 
Other accrued liabilities
59,171 
23,407 
Accrued liabilities
$ 260,854 
$ 187,351 
Income Taxes - Schedule of Provision for Income Taxes (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 12 Months Ended
Jan. 28, 2017
Oct. 29, 2016
Jul. 30, 2016
Apr. 30, 2016
Jan. 30, 2016
Oct. 31, 2015
Aug. 1, 2015
May 2, 2015
Jan. 28, 2017
Jan. 30, 2016
Jan. 31, 2015
Current: