ULTA BEAUTY, INC., 10-K filed on 3/26/2021
Annual Report
v3.21.1
Document and Entity Information - USD ($)
12 Months Ended
Jan. 30, 2021
Mar. 22, 2021
Jul. 31, 2020
Cover [Abstract]      
Entity Registrant Name ULTA BEAUTY, INC.    
Document Annual Report true    
Document Transition Report false    
Entity Central Index Key 0001403568    
Document Type 10-K    
Document Period End Date Jan. 30, 2021    
Amendment Flag false    
Current Fiscal Year End Date --01-30    
Entity File Number 001-33764    
Entity Incorporation, State or Country Code DE    
Entity Tax Identification Number 38-4022268    
Entity Address, Address Line One 1000 Remington Blvd.    
Entity Address, Address Line Two Suite 120    
Entity Address, City or Town Bolingbrook    
Entity Address, State or Province IL    
Entity Address, Postal Zip Code 60440    
City Area Code 630    
Local Phone Number 410-4800    
Title of 12(b) Security Common stock, par value $0.01 per share    
Security Exchange Name NASDAQ    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Public Float     $ 8,127,797,000
Entity Common Stock, Shares Outstanding   56,205,592  
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
ICFR Auditor Attestation Flag true    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
Trading Symbol ULTA    
v3.21.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Jan. 30, 2021
Feb. 01, 2020
Current assets:    
Cash and cash equivalents $ 1,046,051 $ 392,325
Short-term investments   110,000
Receivables, net 193,109 139,337
Merchandise inventories, net 1,168,215 1,293,701
Prepaid expenses and other current assets 107,402 103,567
Prepaid income taxes   16,387
Total current assets 2,514,777 2,055,317
Property and equipment, net 995,795 1,205,524
Operating lease assets 1,504,614 1,537,565
Goodwill 10,870 10,870
Other intangible assets, net 2,465 3,391
Deferred compensation plan assets 33,223 27,849
Other long-term assets 28,225 23,356
Total assets 5,089,969 4,863,872
Current liabilities:    
Accounts payable 477,052 414,009
Accrued liabilities 296,334 246,088
Deferred revenue 274,383 237,535
Current operating lease liabilities 253,415 239,629
Accrued income taxes 42,529  
Total current liabilities 1,343,713 1,137,261
Non-current operating lease liabilities 1,643,386 1,698,718
Deferred income taxes 65,359 89,367
Other long-term liabilities 37,962 36,432
Total liabilities 3,090,420 2,961,778
Commitments and contingencies (Note 11)
Stockholders' equity:    
Common stock, $0.01 par value, 400,000 shares authorized; 56,952 and 57,285 shares issued; 56,260 and 56,609 shares outstanding; at January 30, 2021 and February 1, 2020, respectively 569 573
Treasury stock-common, at cost (37,801) (34,448)
Additional paid-in capital 847,303 807,492
Retained earnings 1,189,422 1,128,477
Accumulated other comprehensive income 56  
Total stockholders' equity 1,999,549 1,902,094
Total liabilities and stockholders' equity $ 5,089,969 $ 4,863,872
v3.21.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
shares in Thousands
Jan. 30, 2021
Feb. 01, 2020
Consolidated Balance Sheets    
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 400,000 400,000
Common stock, shares issued 56,952 57,285
Common stock, shares outstanding 56,260 56,609
v3.21.1
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 12 Months Ended
Jan. 30, 2021
Oct. 31, 2020
Aug. 01, 2020
May 02, 2020
Feb. 01, 2020
Nov. 02, 2019
Aug. 03, 2019
May 04, 2019
Jan. 30, 2021
Feb. 01, 2020
Feb. 02, 2019
Consolidated Statements of Operations                      
Net sales $ 2,198,701 $ 1,552,033 $ 1,228,009 $ 1,173,210 $ 2,305,918 $ 1,682,514 $ 1,666,607 $ 1,743,029 $ 6,151,953 $ 7,398,068 $ 6,716,615
Cost of sales 1,427,673 1,006,514 899,002 869,605 1,499,033 1,059,081 1,060,708 1,098,182 4,202,794 4,717,004 4,307,304
Gross profit 771,028 545,519 329,007 303,605 806,885 623,433 605,899 644,847 1,949,159 2,681,064 2,409,311
Selling, general and administrative expenses 514,140 416,378 271,587 380,912 515,542 449,198 392,843 403,133 1,583,017 1,760,716 1,535,464
Impairment, restructuring and other costs 30,398 23,624 40,758 19,542         114,322    
Pre-opening expenses 2,218 4,240 3,907 4,635 3,587 6,455 5,038 4,174 15,000 19,254 19,767
Operating income 224,272 101,277 12,755 (101,484) 287,756 167,780 208,018 237,540 236,820 901,094 854,080
Interest expense (income), net 463 1,383 2,617 1,272 (439) (900) (1,671) (2,046) 5,735 (5,056) (5,061)
Income before income taxes 223,809 99,894 10,138 (102,756) 288,195 168,680 209,689 239,586 231,085 906,150 859,141
Income tax expense 52,315 25,096 2,086 (24,247) 65,476 38,933 48,431 47,365 55,250 200,205 200,582
Net income $ 171,494 $ 74,798 $ 8,052 $ (78,509) $ 222,719 $ 129,747 $ 161,258 $ 192,221 $ 175,835 $ 705,945 $ 658,559
Net income per common share:                      
Basic $ 3.04 $ 1.33 $ 0.14 $ (1.39) $ 3.91 $ 2.25 $ 2.77 $ 3.28 $ 3.12 $ 12.21 $ 11.00
Diluted $ 3.03 $ 1.32 $ 0.14 $ (1.39) $ 3.89 $ 2.25 $ 2.76 $ 3.26 $ 3.11 $ 12.15 $ 10.94
Weighted average common shares outstanding:                      
Basic                 56,351 57,840 59,864
Diluted                 56,558 58,105 60,181
v3.21.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
12 Months Ended
Jan. 30, 2021
Feb. 01, 2020
Feb. 02, 2019
Consolidated Statements of Comprehensive Income      
Net income $ 175,835 $ 705,945 $ 658,559
Other comprehensive income:      
Foreign currency translation adjustments 56    
Comprehensive income $ 175,891 $ 705,945 $ 658,559
v3.21.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Jan. 30, 2021
Feb. 01, 2020
Feb. 02, 2019
Operating activities      
Net income $ 175,835 $ 705,945 $ 658,559
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 297,772 295,599 279,472
Non-cash lease expense 268,071 278,820  
Long-lived asset impairment charge 72,533    
Deferred income taxes (24,008) 5,503 34,080
Stock-based compensation expense 27,583 25,045 26,636
Loss on disposal of property and equipment 6,827 5,850 2,885
Change in operating assets and liabilities:      
Receivables (53,772) (20,637) (36,387)
Merchandise inventories 125,486 (79,372) (122,019)
Prepaid expenses and other current assets (4,363) 9,289 (39,450)
Income taxes 58,916 610 (29,609)
Accounts payable 62,324 9,993 78,256
Accrued liabilities 58,599 28,183 29,265
Deferred revenue 36,848 38,481 50,684
Operating lease liabilities (297,513) (256,910)  
Deferred rent     27,064
Other assets and liabilities (783) 54,894 (3,309)
Net cash provided by operating activities 810,355 1,101,293 956,127
Investing activities      
Purchases of short-term investments   (110,000) (386,193)
Proceeds from short-term investments 110,000   506,193
Capital expenditures (151,866) (298,534) (319,400)
Acquisitions, net of cash acquired (1,220)   (13,606)
Purchases of equity investments (5,665) (62,946) (2,101)
Net cash used in investing activities (48,751) (471,480) (215,107)
Financing activities      
Proceeds from long-term debt 800,000    
Payments on long-term debt (800,000)    
Repurchase of common shares (114,895) (680,979) (616,194)
Stock options exercised 12,229 43,780 13,121
Purchase of treasury shares (3,353) (9,540) (6,141)
Debt issuance costs (1,915)    
Net cash used in financing activities (107,934) (646,739) (609,214)
Effect of exchange rate changes on cash and cash equivalents 56    
Net increase (decrease) in cash and cash equivalents 653,726 (16,926) 131,806
Cash and cash equivalents at beginning of year 392,325 409,251 277,445
Cash and cash equivalents at end of year 1,046,051 392,325 409,251
Supplemental information      
Cash paid for interest 6,987    
Income taxes paid, net of refunds 19,454 133,861 195,869
Non-cash capital expenditures $ 20,487 $ 26,901 $ 28,746
v3.21.1
Consolidated Statements of Stockholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Common Stock
Treasury - Common Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income
Total
Balance at Feb. 03, 2018 $ 614 $ (18,767) $ 698,917 $ 1,093,453   $ 1,774,217
Balance (in shares) at Feb. 03, 2018 61,441 (619)        
Increase (Decrease) in Stockholders' Equity            
Net income       658,559   658,559
Stock-based compensation     26,636     26,636
Adoption of accounting standards | ASU 2014-09, Revenue from Contracts with Customers (Topic 606)       (29,980)   (29,980)
Stock options exercised and other awards $ 3   13,118     13,121
Stock options exercised and other awards (in shares) 255          
Purchase of treasury shares   $ (6,141)       (6,141)
Purchase of treasury shares (in shares)   (29)        
Repurchase of common shares $ (25)     (616,169)   (616,194)
Repurchase of common shares (in shares) (2,464)          
Balance at Feb. 02, 2019 $ 592 $ (24,908) 738,671 1,105,863   1,820,218
Balance (in shares) at Feb. 02, 2019 59,232 (648)        
Increase (Decrease) in Stockholders' Equity            
Net income       705,945   705,945
Stock-based compensation     25,045     25,045
Adoption of accounting standards | ASU 2016-02, Leases (Topic 842)       (2,375)   (2,375)
Stock options exercised and other awards $ 4   43,776     43,780
Stock options exercised and other awards (in shares) 374          
Purchase of treasury shares   $ (9,540)       (9,540)
Purchase of treasury shares (in shares)   (28)        
Repurchase of common shares $ (23)     (680,956)   (680,979)
Repurchase of common shares (in shares) (2,321)          
Balance at Feb. 01, 2020 $ 573 $ (34,448) 807,492 1,128,477   $ 1,902,094
Balance (in shares) at Feb. 01, 2020 57,285 (676)       56,609
Increase (Decrease) in Stockholders' Equity            
Net income       175,835   $ 175,835
Stock-based compensation     27,583     27,583
Foreign currency translation adjustments         $ 56 56
Stock options exercised and other awards $ 1   12,228     12,229
Stock options exercised and other awards (in shares) 142          
Purchase of treasury shares   $ (3,353)       (3,353)
Purchase of treasury shares (in shares)   (16)        
Repurchase of common shares $ (5)     (114,890)   (114,895)
Repurchase of common shares (in shares) (475)          
Balance at Jan. 30, 2021 $ 569 $ (37,801) $ 847,303 $ 1,189,422 $ 56 $ 1,999,549
Balance (in shares) at Jan. 30, 2021 56,952 (692)       56,260
v3.21.1
Business and basis of presentation
12 Months Ended
Jan. 30, 2021
Business and basis of presentation  
Business and basis of presentation

1.   Business and basis of presentation

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

The Company was originally founded in 1990 to operate specialty retail stores selling cosmetics, fragrance, haircare and skincare products, and related accessories and services. The stores also feature full-service salons. As of January 30, 2021, the Company operated 1,264 stores across 50 states. All amounts are stated in thousands, with the exception of per share amounts and number of stores.

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

v3.21.1
Summary of significant accounting policies
12 Months Ended
Jan. 30, 2021
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 30, 2021 (fiscal 2020), February 1, 2020 (fiscal 2019), and February 2, 2019 (fiscal 2018) 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 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. The Company considers its accounting policies relating to inventory valuations, vendor allowances, impairment of long-lived tangible and operating lease assets, loyalty program and income taxes to be the most significant accounting policies that involve management estimates and judgments. The COVID-19 pandemic has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business disruptions and adversely impact the Company’s results of operations. While the full impact of the COVID-19 pandemic is unknown and cannot be reasonably estimated, the Company has made accounting estimates based on the facts and circumstances available as of the reporting date. Actual amounts could differ from these estimates, and such differences could be material.

Reclassifications

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

Cash and cash equivalents

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

January 30,

February 1,

(In thousands)

2021

    

2020

Cash

$

887,299

$

212,876

Short-term investments

99,986

110,000

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

58,766

69,449

Cash and cash equivalents

$

1,046,051

$

392,325

Short-term investments

The balance sheet classification of investments is determined at the time of purchase and evaluated 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 16, “Investments”).

Receivables

Receivables consist principally of amounts due from vendors and amounts related to the employee retention credit (see Note 3, “Impact of the COVID-19 pandemic”). The Company does not require collateral on its receivables and does not accrue interest. Credit risk with respect to receivables is limited due to the diversity of vendors comprising the Company’s vendor base. The Company performs ongoing credit evaluations of its vendors and evaluates the collectability of its receivables based on the length of time the receivable is past due and historical experience.

The receivable for vendor allowances was $90,271 and $113,048 as of January 30, 2021 and February 1, 2020, respectively. The allowance for doubtful receivables was $768 and $1,363 as of January 30, 2021 and February 1, 2020, respectively. The receivable for the employee retention credit was $52,405 as of January 30, 2021. There was no receivable for the employee retention credit as of February 1, 2020.

Merchandise inventories

Merchandise inventories are stated at the lower of cost or net realizable value. Cost is determined using the moving average cost method and includes costs incurred to purchase and distribute goods. Inventory cost also includes vendor allowances related to co-op advertising, markdowns, and volume discounts. The Company maintains an inventory reserve for lower of cost or net realizable value and shrink. The inventory reserve was $52,860 and $46,941 as of January 30, 2021 and February 1, 2020, respectively.

Fair value of financial instruments

The carrying value of cash and cash equivalents, short-term investments, accounts receivable, and accounts payable approximates their estimated fair values due to the short maturities of these instruments. There was no outstanding debt as of January 30, 2021 and February 1, 2020.

Property and equipment

Property and equipment is stated at cost, net of accumulated depreciation, and depreciated using the straight-line method over the shorter of the assets’ estimated useful lives or lease term. Leasehold improvements purchased after the beginning of the initial lease term are amortized over the shorter of the assets’ useful lives or a term that includes the original lease term, plus any renewals that are reasonably certain at the date the leasehold improvements are acquired. Repair and maintenance costs are expensed as incurred.

Equipment and fixtures

1 to 10 years

Electronic equipment and software

3 to 5 years

Costs incurred to obtain or develop internal use software are capitalized. These costs are amortized on a straight-line basis over the estimated useful life of the software.

Impairment of long-lived tangible and right-of-use assets

The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets. The asset group identified is at the store level and includes both property and equipment and operating lease assets.

Significant estimates are used in determining future cash flows of each store over its remaining lease term including our expectations of future projected cash flows including revenues and operating expenses. An impairment loss is recorded if the carrying amount of the long-lived asset exceeds its fair value.

The Company evaluates long-lived tangible and right-of-use assets for indicators of impairment quarterly or when events or changes in circumstances indicate that their carrying amounts may not be recoverable. The Company performs an undiscounted cash flow analysis over the asset group. Asset groups are written down only to the extent that their carrying value exceeds their respective fair value. Fair values of the asset group are determined by discounting the cash flows at a rate that approximates the cost of capital of a market participant. Management’s forecast of future cash flows is based on the income approach. The fair value of individual operating lease assets is determined under the market approach using estimated market rent assessments based on broker quotes.

The determination of fair value under the income approach requires assumptions including forecasts of future cash flows (such as revenue growth rates and operating expenses) and selection of a market-based discount rate. Estimates of market rent are based on non-binding broker quotes. As these inputs are unobservable they are classified as Level 3 inputs under the fair value hierarchy (see Note 15, “Fair value measurements”). If actual results are not consistent with estimates and assumptions used in estimating future cash flows and asset fair values, the Company may be exposed to additional impairment losses in a future period (see Note 6, “Impairment, restructuring and other costs”).

Goodwill

Goodwill represents the excess of cost over the fair value of net assets acquired. The Company reviews the recoverability of goodwill annually during the fourth quarter or more frequently if an event occurs or circumstances change that would indicate that impairment may exist (see Note 8, “Goodwill”).

Other intangible assets

Other definite-lived intangible assets are amortized over their useful lives. The Company reviews the recoverability of intangible assets whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable (see Note 9, “Other intangible assets”).

Leases

The Company adopted ASU 2016-02, Leases (Topic 842) on February 3, 2019 using the modified retrospective approach. Results and disclosure requirements for reporting periods beginning February 3, 2019 and later are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported under Topic 840.

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

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

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

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

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

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

As the interest rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate corresponding with the lease term. As there are no outstanding borrowings under the Company’s credit facility, this rate is estimated based on prevailing market conditions, comparable company and credit analysis, and judgment. The incremental borrowing rate is reassessed if there is a change to the lease term or if a modification occurs and it is not accounted for as a separate contract (see Note 10, “Leases”).

Loyalty program

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

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

Credit cards

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

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

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

Gift card program

The Company records a contract liability for gift card sales which will be redeemed in the future within deferred revenue on the consolidated balance sheets and recognized in net sales when the gift card is redeemed for product or services. Gift cards do not expire and do not include service fees that decrease guest balances. The Company has maintained historical data related to gift card transactions sold and redeemed over a significant time frame. Gift card breakage (amounts not expected to be redeemed) is recognized to the extent there is no requirement for remitting balances to governmental agencies under unclaimed property laws. Estimated gift card breakage revenue is recognized over time in proportion to actual gift card redemptions. Gift card breakage revenue was $11,717, $12,448, and $12,446 in fiscal 2020, 2019, and 2018, respectively.

Revenue recognition

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

The Company determines revenue recognition through the following steps:

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

Net sales include retail stores and e-commerce merchandise sales as well as salon services and other revenue.

Revenue from merchandise sales at retail stores is recognized at the point of sale, net of estimated returns. Revenue from e-commerce merchandise sales is recognized upon shipment to the guest or guest pickup of the merchandise based on meeting the transfer of control criteria, net of estimated returns. Salon services revenue is recognized at the time the service is provided to the guest. Shipping and handling are treated as costs to fulfill the contract and not a separate performance obligation. Accordingly, the Company recognizes revenue for its single performance obligation related to e-commerce sales at the time control of the merchandise passes to the customer, which is at the time of shipment or guest pickup. The Company provides refunds for merchandise returns within 60 days from the original purchase date; however, due to store closures during the first half of fiscal 2020, we extended our return policy to 180 days through November 16, 2020. State sales taxes are presented on a net basis as the Company considers itself a pass-through conduit

for collecting and remitting state sales tax. Company coupons and other incentives are recorded as a reduction of net sales. 

Vendor allowances

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

Advertising

Advertising costs consist principally of print, digital and social media, and television and radio advertising. Costs related to advertising are expensed in the period the related promotional event occurs. Prepaid advertising costs included in prepaid expenses and other current assets on the consolidated balance sheets were $7,112 and $9,605 as of January 30, 2021 and February 1, 2020, respectively. Advertising expense, exclusive of incentives from vendors and start-up advertising expense, is presented in the following table:

Fiscal year ended

January 30,

February 1,

February 2,

(In thousands)

2021

    

2020

    

2019

Advertising expense

$

281,573

$

317,865

$

294,489

Advertising expense as a percentage of net sales

4.6%

4.3%

4.4%

Pre-opening expenses

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

Cost of sales

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

Selling, general and administrative expenses

Selling, general and administrative (SG&A) expenses includes payroll, bonus, and benefit costs for retail and corporate employees; advertising and marketing costs; occupancy costs related to our corporate office facilities; stock-based compensation expense; depreciation and amortization for all assets, except those related to our retail store and distribution operations, which are included in cost of sales; and legal, finance, information systems, and other corporate overhead costs.

Income taxes

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

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

knowledge of all relevant information. Penalties and interest related to unrecognized tax positions are recorded in income tax expense in the consolidated statements of operations (see Note 13, “Income taxes”).

Stock-based compensation

Stock-based compensation expense is measured at grant date, based on the fair value of the award, and is recognized on a straight-line basis over the requisite service period for awards expected to vest. Stock-based compensation expense was $27,583, $25,642, and $27,489 in fiscal 2020, 2019 and 2018, respectively (see Note 17, “Stock-based compensation”).

Insurance expense

The Company has insurance programs with third party insurers for employee health, workers compensation, and general liability, among others, to limit the Company’s liability exposure. The insurance programs are premium based and include retentions, deductibles, and stop loss coverage. Current stop loss coverage per claim is $350 for employee health claims, $100 for general liability claims, and $250 for workers compensation claims. The Company makes collateral and premium payments during the plan year and accrues expenses in the event additional premium is due from the Company based on actual claim results. In fiscal 2018, the Company created UB Insurance, Inc., an Arizona-based wholly owned captive insurance subsidiary of the Company, which charges the operating subsidiaries of the Company premiums to insure certain liability exposures. Pursuant to Arizona insurance regulations, UB Insurance, Inc. maintains certain levels of cash and cash equivalents related to its liability exposures.

Net income per common share

Basic net income per common share is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per common share includes dilutive common stock equivalents, using the treasury stock method (see Note 18, “Net income per common share”).

Recent accounting pronouncements not yet adopted

Taxes – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes. The guidance removes certain exceptions for recognizing deferred taxes for equity method investments, performing intraperiod allocation, and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for goodwill and allocating taxes to members of a consolidated group, among others. This guidance is effective for interim and annual reporting periods beginning after December 15, 2020. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The transition requirements are dependent upon each amendment within this update and will be applied either prospectively or retrospectively. The adoption of ASU 2019-12 is not expected to have a material impact on the Company’s consolidated financial position, results of operations, or cash flows. 

Recently adopted accounting pronouncements

Intangibles – Goodwill and Other-Internal-Use Software.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which clarifies and aligns the accounting for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019 and should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption is permitted. The Company adopted the new guidance prospectively as of

February 2, 2020, and its adoption did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

v3.21.1
Impact of the COVID-19 pandemic
12 Months Ended
Jan. 30, 2021
Impact of the COVID-19 pandemic  
Impact of the COVID-19 pandemic

3. Impact of the COVID-19 pandemic

In March 2020, the World Health Organization declared COVID-19 a global pandemic. In response to federal, state, and local government restrictions and recommendations and for the health and safety of our associates and guests, the Company temporarily closed all stores effective March 19, 2020. Effective April 19, 2020, the Company temporarily furloughed many store and salon associates and introduced curbside pickup, and on May 11, 2020, the Company started a phased store reopening process. By July 20, 2020, the full fleet of Ulta Beauty stores was operational, and by January 30, 2021, salon and brow services had resumed in almost all stores.

Results of operations for the fiscal year ended January 30, 2021 were significantly impacted by the effects of the COVID-19 pandemic, and the pandemic is expected to continue to have a negative impact on the Company’s business, financial condition, profitability, cash flows, and supply chain, although the full extent is uncertain. As the COVID-19 pandemic continues to evolve and resurgences occur, the extent of the impact on the Company’s business, financial condition, profitability, cash flows, and supply chain will depend on future developments, including, but not limited to, the potential temporary reclosing of certain stores, the potential temporary restrictions on certain store operating hours and/or in-store capacity, the duration of potential future quarantines, shelter-in-place and other travel restrictions within the U.S. and other affected countries, the duration of the pandemic and any more dangerous variants of the virus, the duration, timing and severity of the impact on consumer spending, the timing and effectiveness of vaccine distribution, and how quickly and to what extent normal economic and operating conditions can resume, all of which are highly uncertain and cannot be predicted.

The multi-year, strategic investments the Company made to enhance omnichannel and supply chain capabilities, combined with the ongoing commitment of the Company’s distribution associates, enabled the Company to support increased e-commerce demand and guest engagement.

The Company took the following actions during fiscal 2020 to preserve financial liquidity through these unprecedented circumstances:

the drawdown of $800,000 on March 18, 2020 under the Company’s revolving credit facility, which was repaid in full on September 2, 2020;
limited new hires and delayed merit increases for all corporate, store, and salon associates;
reduced marketing, travel and controllable expenses;
aligned inventory receipts with current sales trends;
prioritized payment obligations;
reduced new store openings, relocations and remodel projects; and
suspended the stock repurchase program, which resumed in the fourth quarter of fiscal 2020.

The Company evaluates long-lived tangible and right-of-use assets for indicators of impairment quarterly or when events or changes in circumstances indicate that their carrying amounts may not be recoverable. As a result of the COVID-19 pandemic, the Company experienced lower than projected revenues and identified indicators of impairment for certain stores, which resulted in the recording of certain long-lived asset impairment and restructuring charges. See Note 6, “Impairment, restructuring and other costs,” for additional details.

CARES Act

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted. The CARES Act, among other things, includes provisions relating to refundable payroll taxes, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The most significant relief measures which the Company qualifies for are the employee retention credit, payroll tax deferral, and technical corrections to tax depreciation.

The Company recognizes government grants for which there is a reasonable assurance of compliance with grant conditions and receipt of credits. The Company believes there is a reasonable assurance that it will comply with the relevant conditions of the employee retention credit provision of the CARES Act and that it will receive the credit. The Company will continue to assess the treatment of the CARES Act to the extent additional guidance and regulations are issued, the further applicability of the CARES Act to the Company, and the potential impacts on the business.

Employee retention credit (ERC) and payroll tax deferral. The ERC allows for a refundable tax credit against certain employment taxes equal to 50% of the first ten thousand dollars in qualified wages paid to each employee commencing on March 13, 2020 and through January 1, 2021. To be eligible, the Company must (i) have had operations fully or partially suspended because of a shut-down order from a governmental authority related to the COVID-19 pandemic, or (ii) have had gross receipts decline by more than 50% in a calendar quarter, when compared to the same quarter in 2019. Qualified wages are limited to wages paid to employees who were not providing services due to the COVID-19 pandemic. During the fiscal year ended January 30, 2021, the Company recognized $52,405 related to the ERC as a reduction of the associated costs within selling, general and administrative expenses on the consolidated statements of operations and within accounts receivable, net on the consolidated balance sheets.

Additionally, the CARES Act contains provisions for the deferral of the employer portion of social security taxes incurred through the end of calendar 2020. As of January 30, 2021, the Company had deferred $43,845 in social security tax payments, of which 50% are required to be remitted by December 2021 and the remaining 50% by December 2022. The deferred amounts are recorded within accrued liabilities on the Company’s consolidated balance sheets.

Technical corrections to tax depreciation. The CARES Act also includes a technical correction of tax depreciation methods for qualified improvement property, which changes 39-year property to 15-year property eligible for 100% tax bonus depreciation. This provision of the CARES Act resulted in a cash tax refund of $4,600 relating to property and equipment, from filing an amendment to the Company’s 2018 federal income tax return, during fiscal 2020.

v3.21.1
Acquisitions
12 Months Ended
Jan. 30, 2021
Acquisitions  
Acquisitions

4.   Acquisitions

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

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

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

v3.21.1
Revenue
12 Months Ended
Jan. 30, 2021
Revenue  
Revenue

5.   Revenue

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

Disaggregated revenue

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

Fiscal year ended

    

January 30,

   

February 1,

    

February 2,

2021

2020

2019

Cosmetics

44%

50%

51%

Skincare, bath, and fragrance

28%

22%

21%

Haircare products and styling tools

20%

19%

19%

Services

3%

5%

5%

Other (nail products, accessories, and other)

5%

4%

4%

100%

100%

100%

Deferred revenue

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

The following table provides a summary of the changes included in deferred revenue during fiscal years 2020 and 2019:

January 30,

February 1,

(In thousands)

2021

    

2020

Beginning balance

$

230,011

$

193,585

Additions to contract liabilities (1)

200,267

206,701

Deductions to contract liabilities (2)

(161,246)

(170,275)

Ending balance

$

269,032

$

230,011

(1)Loyalty points and gift cards issued in the current period but not redeemed or expired.
(2)Revenue recognized in the current period related to the beginning liability.

Other amounts included in deferred revenue were $5,351 and $7,524 at January 30, 2021 and February 1, 2020, respectively.

v3.21.1
Impairment, restructuring and other costs
12 Months Ended
Jan. 30, 2021
Impairment, restructuring and other costs  
Impairment, restructuring and other costs

6. Impairment, restructuring and other costs

The following table provides a summary of the impairment, restructuring and other costs included in the consolidated statements of operations:

Fiscal year ended

January 30,

(In thousands)

    

2021

Impairment of long-lived tangible and right-of-use assets (1)

$

41,948

Store closures

Impairment of long-lived tangible and right-of-use assets (1)

19,569

Lease termination costs

7,443

Severance (2)

489

Total store closures

27,501

Suspension of Canadian expansion

Impairment of long-lived tangible and right-of-use assets (1)

11,016

Lease termination costs

17,388

Severance (2)

717

Total suspension of Canadian expansion

29,121

Other severance (2)

15,752

Total (3)

$

114,322

(1)Amount included in the non-cash $72,533 long-lived asset impairment charge on the consolidated statements of cash flows for the fiscal year ended January 30, 2021.

(2)As of January 30, 2021, there was $9,476 in accrued liabilities on the consolidated balance sheets primarily for severance.
(3)There were no impairment, restructuring and other costs recognized during the fiscal years ended February 1, 2020 and February 2, 2019.

Impairment of long-lived tangible and right-of-use assets. As a result of the COVID-19 pandemic, the Company experienced lower than projected revenues and identified indicators of impairment for certain retail stores. The Company’s analysis indicated that the carrying values of certain long-lived tangible and right-of-use assets exceeded their respective fair values. As a result, the Company recognized impairment charges related to certain retail stores for the fiscal year ended January 30, 2021. These impairment charges were primarily driven by lower than projected revenues, lower market rate assessments, and the effect of temporary store closures as a result of the COVID-19 pandemic. The Company also recorded long-lived tangible and right-of-use asset impairment charges related to store closures and suspension of the Canadian expansion during the fiscal year ended January 30, 2021 as described below.

Store closures. During the second quarter of fiscal 2020, the Company announced that after evaluating its store portfolio, it would permanently close 19 stores in the third quarter of fiscal 2020. Accordingly, for the fiscal year ended January 30, 2021, the Company recognized impairment, restructuring and other costs related to store closures. The impairment charges reduced the carrying value of the long-lived tangible and right-of-use assets to their fair value.

Suspension of Canadian expansion. In fiscal 2019, the Company announced plans to expand internationally with an initial launch into Canada. The Company continues to believe international markets provide a long-term growth opportunity. However, given the current operating environment, in September 2020 the Company decided to prioritize growth of its U.S. operations at this time and suspended its planned expansion to Canada. Investments to support the expansion into Canada were limited to early-stage infrastructure buildout and lease obligations for a small number of

stores. The Company recognized impairment, restructuring and other costs related to suspension of the Canada expansion during the fiscal year ended January 30, 2021.

Other severance. As part of the efforts to optimize its cost structure, the Company eliminated certain field and corporate roles. As a result, severance expense was recognized during the fiscal year ended January 30, 2021.

v3.21.1
Property and equipment
12 Months Ended
Jan. 30, 2021
Property and equipment  
Property and equipment

7.   Property and equipment

Property and equipment consists of the following:

January 30,

February 1,

(In thousands)

    

2021

    

2020

Equipment and fixtures

$

1,083,509

$

1,073,764

Leasehold improvements

 

782,036

 

803,398

Electronic equipment and software

 

649,603

 

596,323

Construction-in-progress

 

52,668

 

92,355

 

2,567,816

 

2,565,840

Less: accumulated depreciation and amortization

 

(1,572,021)

 

(1,360,316)

Property and equipment, net

$

995,795

$

1,205,524

v3.21.1
Goodwill
12 Months Ended
Jan. 30, 2021
Goodwill  
Goodwill

8.  Goodwill

The changes in the carrying amounts of goodwill during the fiscal years 2020 and 2019 are as follows:

January 30,

February 1,

(In thousands)

2021

    

2020

Balance at beginning of the period

$

10,870

$

10,870

Acquisitions

Balance at the end of the period

$

10,870

$

10,870

v3.21.1
Other intangible assets
12 Months Ended
Jan. 30, 2021
Other intangible assets  
Other intangible assets

9.   Other intangible assets

Other intangible assets subject to amortization consists of the following:

January 30, 2021

February 1, 2020

Weighted-average

Gross

Gross

remaining useful

carrying

Accumulated

carrying

Accumulated

(In thousands)

    

life in years

    

value

    

amortization

    

Net

    

value

    

amortization

    

    Net    

Developed technology

2.7

$

4,631

$

(2,166)

$

2,465

$

4,631

$

(1,240)

$

3,391

Amortization expense related to intangible assets was $926, $926, and $314 in fiscal 2020, fiscal 2019, and fiscal 2018, respectively.

Estimated amortization expense related to intangible assets at January 30, 2021, for the next five years and thereafter is as follows:

Estimated

amortization

expense

Fiscal year

    

      

(In thousands)

2021

$

926

2022

926

2023

613

2024

2025

2026 and thereafter

$

2,465

v3.21.1
Leases
12 Months Ended
Jan. 30, 2021
Leases  
Leases

10. Leases

The Company leases retail stores, distribution centers, fast fulfillment centers, corporate offices, and certain equipment under non-cancelable operating leases with various expiration dates through 2033. Leases generally have initial lease terms of 10 years and when determined applicable, include renewal options under substantially the same terms and conditions as the original leases. Leases do not contain any material residual value guarantees or material restrictive covenants.

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

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

January 30,

February 1,

(In thousands)

Classification on the Balance Sheet

    

2021

2020

Right-of-use assets

Operating lease assets

$

1,504,614

$

1,537,565

Current lease liabilities

Current operating lease liabilities

$

253,415

$

239,629

Non-current lease liabilities

Non-current operating lease liabilities

1,643,386

1,698,718

Total lease liabilities

$

1,896,801

$

1,938,347

Weighted-average remaining lease term

    

6.9 years

7.3 years

Weighted-average discount rate

3.6%

4.1%

Lease cost

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

Fiscal Year Ended

January 30,

    

February 1,

(In thousands)

    

Classification on the Statement of Operations

    

2021

    

2020

Operating lease cost

Cost of sales (1)

$

304,743

$

289,007

Variable lease cost

Cost of sales

80,557

77,142

Short-term lease cost

Selling, general and administrative expenses

567

352

Sublease income

Net sales

(827)

(691)

Total lease cost

$

385,040

$

365,810

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

Other information

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

    

Fiscal Year Ended

January 30,

February 1,

(In thousands)

    

2021

2020

Cash paid for operating lease liabilities (1)

$

354,133

$

338,942

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

255,966

355,286

(1)Excludes $33,092 and $71,294 related to cash received for tenant incentives as of January 30, 2021 and February 1, 2020, respectively.

Maturity of lease liabilities

The following table presents maturities of operating lease liabilities as of January 30, 2021:

Fiscal year

    

(In thousands)

2021

$

319,430

2022

353,137

2023

316,199

2024

283,813

2025

254,364

2026 and thereafter

624,925

Total lease payments

$

2,151,868

Less: imputed interest

(255,067)

Present value of operating lease liabilities

$

1,896,801

Operating lease payments exclude $75,782 of legally binding minimum lease payments for leases signed but not yet commenced.

v3.21.1
Commitments and contingencies
12 Months Ended
Jan. 30, 2021
Commitments and contingencies  
Commitments and contingencies

11.   Commitments and contingencies

Contractual obligations – As of January 30, 2021, the Company had various non-cancelable obligations of $1,020 related to commitments made for goods and service contracts. All of these agreements expire over one year.

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

v3.21.1
Accrued liabilities
12 Months Ended
Jan. 30, 2021
Accrued liabilities  
Accrued liabilities

12.   Accrued liabilities

Accrued liabilities consist of the following:

January 30,

February 1,

(In thousands)

    

2021

    

2020

Accrued payroll, bonus, and employee benefits

$

143,992

$

77,435

Accrued taxes

 

36,787

 

39,051

Other accrued liabilities

 

115,555

 

129,602

Accrued liabilities

$

296,334

$

246,088

v3.21.1
Income Taxes
12 Months Ended
Jan. 30, 2021
Income Taxes  
Income Taxes

13.   Income taxes

The provision for income taxes consists of the following:

Fiscal year ended

January 30,

February 1,

February 2,

(In thousands)

    

2021

    

2020

    

2019

Current:

 

  

 

  

 

  

Federal

$

67,724

$

163,596

$

137,255

State

11,534

31,106

29,247

Total current

79,258

194,702

166,502

Deferred:

  

  

  

Federal

(19,631)

1,182

29,374

State

(4,377)

4,321

4,706

Total deferred

(24,008)

5,503

34,080

Provision for income taxes

$

55,250

$

200,205

$

200,582

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

    

Fiscal year ended

January 30,

February 1,

February 2,

    

2021

    

2020

    

2019

Federal statutory rate

21.0

%  

21.0

%  

21.0

%  

State effective rate, net of federal tax benefit

 

2.9

%  

3.1

%  

3.1

%  

Executive compensation limitation

1.2

%  

0.2

%  

0.2

%  

Excess deduction of stock compensation

(0.3)

%  

(1.1)

%  

(0.6)

%  

Other

 

(0.9)

%  

(1.1)

%  

(0.4)

%  

Effective tax rate

 

23.9

%  

22.1

%  

23.3

%  

Significant components of deferred tax assets and liabilities are as follows:

    

January 30,

February 1,

(In thousands)

    

2021

    

2020

Deferred tax assets:

 

  

 

  

Operating lease liability

$

484,780

$

496,977

Reserves not currently deductible

32,590

35,626

Accrued liabilities

 

31,056

 

27,363

Employee benefits

 

23,687

 

22,907

Inventory valuation

 

8,386

 

4,021

NOL carryforwards

255

288

Credit carryforwards

 

291

 

224

Other

1,019

Total deferred tax assets

 

581,045

 

588,425

Deferred tax liabilities:

 

  

 

  

Operating lease asset

561,605

567,198

Property and equipment

 

32,812

 

61,570

Prepaid expenses

 

46,013

 

45,354

Receivables not currently includable

3,720

2,863

Intangibles

585

807

Other

 

1,669

 

Total deferred tax liabilities

 

646,404

 

677,792

Net deferred tax liability

$

(65,359)

$

(89,367)

At January 30, 2021, the Company had $291 of credit carryforwards for state income tax purposes that expire between 2022 and 2024. The Company also had $533 of state net operating loss (NOL) carryforwards that expire by 2039 and $985 of federal and $36 of state NOL carryforwards that do not expire.

The Company accounts for uncertainty in income taxes in accordance with the ASC 740-10 rules for income taxes. The reserve for uncertain tax positions was $2,783 and $3,536 at January 30, 2021 and February 1, 2020, respectively. The balance is the Company’s best estimate of the potential liability for uncertain tax positions. A reconciliation of unrecognized tax benefits, excluding interest and penalties, is as follows:

    

January 30,

February 1,

(In thousands)

    

2021

    

2020

Balance at beginning of the year

$

3,536

$

3,844

Increase due to a prior year tax position

 

224

 

602

Decrease due to a prior year tax position

 

(977)

 

(910)

Balance at end of the year

$

2,783

$

3,536

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 2020 and 2019.

The Company files tax returns in the U.S. federal and state jurisdictions. The Company is no longer subject to U.S. federal examinations by the Internal Revenue Service for years before 2018 and is no longer subject to examinations by state authorities before 2016.

v3.21.1
Debt
12 Months Ended
Jan. 30, 2021
Debt  
Debt

14.   Debt

On March 11, 2020, the Company entered into Amendment No. 1 to the Second Amended and Restated Loan Agreement (as so amended, the Loan Agreement) with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent and a Lender thereunder; Wells Fargo Bank, National Association and JPMorgan Chase Bank, N.A., as Lead Arrangers and Bookrunners; JPMorgan Chase Bank, N.A., as Syndication Agent and a Lender; PNC Bank, National

Association, as Documentation Agent and a Lender; and the other lenders party thereto. The Loan Agreement matures on March 11, 2025, provides maximum revolving loans equal to the lesser of $1,000,000 or a percentage of eligible owned inventory and eligible owned receivables (which borrowing base may, at the election of the Company and satisfaction of certain conditions, include a percentage of qualified cash), contains a $50,000 subfacility for letters of credit and allows the Company to increase the revolving facility by an additional $100,000, subject to the consent by each lender and other conditions. The Loan Agreement contains a requirement to maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 during such periods when availability under the Loan Agreement falls below a specified threshold. Substantially all of the Company’s assets are pledged as collateral for outstanding borrowings under the Loan Agreement. Outstanding borrowings bear interest, at the Company’s election, at either a base rate plus a margin of 0% to 0.125% or the London Interbank Offered Rate plus a margin of 1.125% to 1.250%, with such margins based on the Company’s borrowing availability, and the unused line fee is 0.20% per annum.

As of January 30, 2021 and February 1, 2020, the Company had no borrowings outstanding under the credit facility and the weighted average interest rate was 1.56% for fiscal year 2020. As of January 30, 2021, the Company was in compliance with all terms and covenants of the Loan Agreement.

v3.21.1
Fair value measurements
12 Months Ended
Jan. 30, 2021
Fair value measurements  
Fair value measurements

15.   Fair value measurements

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

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

Level 1 – observable inputs such as quoted prices for identical instruments in active markets.
Level 2 – inputs other than quoted prices in active markets that are observable either directly or indirectly through corroboration with observable market data.
Level 3 – unobservable inputs in which there is little or no market data, which would require the Company to develop its own assumptions.

As of January 30, 2021 and February 1, 2020, the Company held financial liabilities included in other long-term liabilities on the consolidated balance sheets of $32,909 and $29,442, 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.

Some assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. These assets can include long-lived assets and goodwill that are reduced to fair value when impaired. Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless further impairment occurs.

v3.21.1
Investments
12 Months Ended
Jan. 30, 2021
Investments  
Investments

16.   Investments

Short-term investments typically consist of certificates of deposit and are carried at cost, which approximates fair value and are recorded in the consolidated balance sheets in short-term investments. There were no short-term investments as of January 30, 2021. Short-term investments were $110,000 as of February 1, 2020.

Investments in renewable energy projects are accounted for under the equity method of accounting. The balance of these investments was $3,174 and $3,936 as of January 30, 2021 and February 1, 2020, respectively, and is included in other long-term assets on the consolidated balance sheets. The Company contributed capital of $5,665 and received distributions including $1,689 of investment tax credits during fiscal year 2020. The Company contributed capital of $62,946 and received distributions including $60,208 of investment tax credits during fiscal year 2019.

v3.21.1
Stock-based awards
12 Months Ended
Jan. 30, 2021
Stock-based compensation  
Share-based awards

17.  Stock-based compensation

The Company’s equity incentive plan was adopted in order to attract and retain the best available personnel for positions of substantial authority and to provide additional incentive to employees and directors to promote the success of the business.

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. Unless provided otherwise by the administrator of the plan, options vest over four years at the rate of 25% per year from the date of grant and must be exercised within ten years. Options are granted with the exercise price equal to the fair value of the underlying stock on the date of grant. As of January 30, 2021, the 2011 Plan reserves for the issuance upon grant or exercise of awards up to 2,791 shares of common stock.

The following table presents information related to stock-based compensation:

Fiscal year ended

January 30,

February 1,

February 2,

(In thousands)

    

2021

    

2020

    

2019

Stock options

$

10,757

$

8,660

$

8,590

Restricted stock units

16,608

12,762

12,077

Performance-based restricted stock units

218

4,220

6,822

Total stock-based compensation expense

$

27,583

$

25,642

$

27,489

Cash received from stock option exercises

$

12,229

$

43,780

$

13,121

Income tax benefit

$

750

$

11,600

$

6,135

Common stock options

Stock-based compensation expense is measured on the grant date based on the fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period for awards expected to vest. The estimated grant date fair value of stock options was determined using a Black-Scholes valuation model with the following weighted-average assumptions:

    

Fiscal year ended

January 30,

February 1,

February 2,

    

2021

    

2020

    

2019

Volatility rate

 

43.0%

31.0%

29.0%

Average risk-free interest rate

 

0.3%

2.3%

2.4%

Average expected life (in years)

 

3.4

 

3.5

 

3.4

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 stock options are estimated at the grant date based on historical rates of stock option activity and reduce the stock-based compensation expense recognized. The Company does not currently pay a regular dividend.

The following table presents information related to common stock options:

Fiscal year ended

January 30,

February 1,

February 2,

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

    

2021

    

2020

    

2019

Weighted-average grant date fair value

$

54.40

$

89.91

$

50.10

Fair value of options vested

9,741

9,143

10,042

Intrinsic value of options exercised

11,304

51,650

25,902

At January 30, 2021, there was approximately $16,810 of unrecognized stock-based compensation expense related to unvested stock options. The unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of approximately two years.

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

Fiscal 2020

Fiscal 2019

Fiscal 2018

Weighted-

Weighted-

Weighted-

    

Number of

average

Number of

average

Number of

average

    

options

    

exercise price

    

options

    

exercise price

    

options

    

exercise price

Beginning of year

539

$

212.58

755

$

174.34

766

$

147.76

Granted

248

174.45

97

348.73

163

204.27

Exercised

(90)

135.70

(285)

153.64

(166)

78.81

Forfeited/Expired

(26)

219.47

(28)

263.34

(8)

260.83

End of year

671

$

208.47

539

$

212.58

755

$

174.34

Exercisable at end of year

236

$

209.03

172

$

159.39

296

$

134.27

Vested and Expected to vest

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