ULTA BEAUTY, INC., 10-Q filed on 9/3/2015
Quarterly Report
Document and Entity Information
6 Months Ended
Aug. 1, 2015
Aug. 27, 2015
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Aug. 01, 2015 
 
Document Fiscal Year Focus
2015 
 
Document Fiscal Period Focus
Q2 
 
Trading Symbol
ULTA 
 
Entity Registrant Name
Ulta Salon, Cosmetics & Fragrance, Inc. 
 
Entity Central Index Key
0001403568 
 
Current Fiscal Year End Date
--01-30 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
63,939,120 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Aug. 1, 2015
Jan. 31, 2015
Aug. 2, 2014
Current assets:
 
 
 
Cash and cash equivalents
$ 325,214 
$ 389,149 
$ 363,058 
Short-term investments
150,209 
150,209 
100,146 
Receivables, net
45,277 
52,440 
42,110 
Merchandise inventories, net
705,660 
581,229 
541,508 
Prepaid expenses and other current assets
67,076 
66,548 
58,859 
Prepaid income taxes
1,883 
 
 
Deferred income taxes
20,766 
20,780 
22,012 
Total current assets
1,316,085 
1,260,355 
1,127,693 
Property and equipment, net
791,904 
717,159 
646,890 
Deferred compensation plan assets
7,921 
5,656 
5,229 
Total assets
2,115,910 
1,983,170 
1,779,812 
Current liabilities:
 
 
 
Accounts payable
215,720 
190,778 
163,459 
Accrued liabilities
154,494 
149,412 
126,792 
Accrued income taxes
 
19,404 
9,890 
Total current liabilities
370,214 
359,594 
300,141 
Deferred rent
315,931 
294,127 
281,348 
Deferred income taxes
75,167 
74,498 
65,842 
Other long-term liabilities
10,809 
7,442 
6,440 
Total liabilities
772,121 
735,661 
653,771 
Commitments and contingencies (Note 3)
   
   
   
Stockholders' equity:
 
 
 
Common stock, $.01 par value, 400,000 shares authorized; 64,595, 64,762 and 64,951 shares issued; 64,007, 64,184 and 64,375 shares outstanding; at August 1, 2015 (unaudited), January 31, 2015 and August 2, 2014 (unaudited), respectively
646 
647 
650 
Treasury stock-common, at cost
(11,191)
(9,713)
(9,461)
Additional paid-in capital
607,375 
576,982 
561,727 
Retained earnings
746,959 
679,593 
573,125 
Total stockholders' equity
1,343,789 
1,247,509 
1,126,041 
Total liabilities and stockholders' equity
$ 2,115,910 
$ 1,983,170 
$ 1,779,812 
Consolidated Balance Sheets (Parenthetical) (USD $)
Aug. 1, 2015
Jan. 31, 2015
Aug. 2, 2014
Statement of Financial Position [Abstract]
 
 
 
Common stock, par value
$ 0.01 
$ 0.01 
$ 0.01 
Common stock, shares authorized
400,000,000 
400,000,000 
400,000,000 
Common stock, shares issued
64,595,000 
64,762,000 
64,951,000 
Common stock, shares outstanding
64,007,000 
64,184,000 
64,375,000 
Consolidated Statements of Income (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Aug. 1, 2015
Aug. 2, 2014
Aug. 1, 2015
Aug. 2, 2014
Income Statement [Abstract]
 
 
 
 
Net sales
$ 876,999 
$ 734,236 
$ 1,745,121 
$ 1,448,006 
Cost of sales
570,524 
474,894 
1,135,462 
942,711 
Gross profit
306,475 
259,342 
609,659 
505,295 
Selling, general and administrative expenses
183,937 
157,768 
376,422 
320,211 
Pre-opening expenses
4,078 
3,595 
7,195 
6,224 
Operating income
118,460 
97,979 
226,042 
178,860 
Interest income, net
(276)
(209)
(587)
(409)
Income before income taxes
118,736 
98,188 
226,629 
179,269 
Income tax expense
44,567 
37,394 
85,514 
68,522 
Net income
$ 74,169 
$ 60,794 
$ 141,115 
$ 110,747 
Net income per common share:
 
 
 
 
Basic
$ 1.16 
$ 0.94 
$ 2.20 
$ 1.72 
Diluted
$ 1.15 
$ 0.94 
$ 2.19 
$ 1.71 
Weighted average common shares outstanding:
 
 
 
 
Basic
64,087 
64,349 
64,134 
64,311 
Diluted
64,410 
64,636 
64,484 
64,618 
Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Aug. 1, 2015
Aug. 2, 2014
Operating activities
 
 
Net income
$ 141,115 
$ 110,747 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
76,738 
62,372 
Deferred income taxes
683 
(642)
Non-cash stock compensation charges
7,578 
7,603 
Excess tax benefits from stock-based compensation
(7,257)
(1,423)
Loss on disposal of property and equipment
1,629 
2,582 
Change in operating assets and liabilities:
 
 
Receivables
7,163 
4,939 
Merchandise inventories
(124,431)
(83,575)
Prepaid expenses and other current assets
(528)
(2,866)
Income taxes
(14,030)
(4,036)
Accounts payable
24,942 
15,177 
Accrued liabilities
(10,812)
1,601 
Deferred rent
21,804 
19,718 
Other assets and liabilities
1,102 
1,031 
Net cash provided by operating activities
125,696 
133,228 
Investing activities
 
 
Purchases of short-term investments
(50,000)
(100,146)
Proceeds from short-term investments
50,000 
 
Purchases of property and equipment
(137,218)
(94,097)
Net cash used in investing activities
(137,218)
(194,243)
Financing activities
 
 
Repurchase of common shares
(73,753)
 
Stock options exercised
15,561 
4,510 
Excess tax benefits from stock-based compensation
7,257 
1,423 
Purchase of treasury shares
(1,478)
(1,336)
Net cash (used in) provided by financing activities
(52,413)
4,597 
Net decrease in cash and cash equivalents
(63,935)
(56,418)
Cash and cash equivalents at beginning of period
389,149 
419,476 
Cash and cash equivalents at end of period
325,214 
363,058 
Supplemental cash flow information
 
 
Cash paid for income taxes (net of refunds)
98,437 
72,855 
Non-cash investing activities:
 
 
Change in property and equipment included in accrued liabilities
$ 15,893 
$ 22,010 
Consolidated Statement of Stockholders' Equity (Unaudited) (USD $)
In Thousands
Total
Common Stock [Member]
Treasury - Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
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
15,561 
 
15,558 
 
Stock options exercised and other awards, Shares
 
317 
 
 
 
Purchase of treasury shares
(1,478)
 
(1,478)
 
 
Purchase of treasury shares, Shares
 
 
(10)
 
 
Net income
141,115 
 
 
 
141,115 
Excess tax benefits from stock-based compensation
7,257 
 
 
7,257 
 
Stock compensation charge
7,578 
 
 
7,578 
 
Repurchase of common shares
(73,753)
(4)
 
 
(73,749)
Repurchase of common shares, Shares
 
(484)
 
 
 
Balance at Aug. 01, 2015
$ 1,343,789 
$ 646 
$ (11,191)
$ 607,375 
$ 746,959 
Balance, Shares at Aug. 01, 2015
 
 
(588)
 
 
Balance, Shares at Aug. 01, 2015
 
64,595 
 
 
 
Business and Basis of Presentation
Business and Basis of Presentation

1. Business and basis of presentation

Ulta Salon, Cosmetics & Fragrance, Inc. was incorporated in the state of Delaware on January 9, 1990, to operate specialty retail stores selling cosmetics, fragrance, haircare and skincare products and related accessories and services. The stores also feature full-service salons. As of August 1, 2015, the Company operated 817 stores in 48 states, as shown in the table below. As used in these notes and throughout this Quarterly Report on Form 10-Q, all references to “we,” “us,” “our,” “Ulta,” “Ulta Beauty” or “the Company” refer to Ulta Salon, Cosmetics & Fragrance, Inc. and its consolidated subsidiary, Ulta Inc.

 

State

   Number of
stores
    

State

   Number of
stores
 

Alabama

     12       Montana      5   

Alaska

     2       Nebraska      3   

Arizona

     24       Nevada      10   

Arkansas

     6       New Hampshire      6   

California

     97       New Jersey      21   

Colorado

     17       New Mexico      4   

Connecticut

     9       New York      29   

Delaware

     1       North Carolina      25   

Florida

     57       North Dakota      1   

Georgia

     26       Ohio      29   

Idaho

     6       Oklahoma      10   

Illinois

     45       Oregon      9   

Indiana

     15       Pennsylvania      29   

Iowa

     8       Rhode Island      2   

Kansas

     6       South Carolina      14   

Kentucky

     10       South Dakota      2   

Louisiana

     16       Tennessee      13   

Maine

     3       Texas      80   

Maryland

     13       Utah      11   

Massachusetts

     13       Virginia      21   

Michigan

     38       Washington      17   

Minnesota

     12       West Virginia      4   

Mississippi

     5       Wisconsin      14   

Missouri

     16       Wyoming      1   
        

 

 

 
      Total      817   

The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and the U.S. Securities and Exchange Commission’s Article 10, Regulation S-X. These consolidated financial statements were prepared on a consolidated basis to include the accounts of the Company and its wholly owned subsidiary. All significant intercompany accounts, transactions and unrealized profit were eliminated in consolidation. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to fairly state the financial position and results of operations and cash flows for the interim periods presented.

The Company’s business is subject to seasonal fluctuation. Significant portions of the Company’s net sales and net income are realized during the fourth quarter of the fiscal year due to the holiday selling season. The results for the 13 and 26 weeks ended August 1, 2015 are not necessarily indicative of the results to be expected for the fiscal year ending January 30, 2016, or for any other future interim period or for any future year.

 

These interim consolidated financial statements and the related notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2015. All amounts are stated in thousands, with the exception of per share amounts and number of stores.

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

2. Summary of significant accounting policies

Information regarding the Company’s significant accounting policies is contained in Note 2, “Summary of significant accounting policies,” to the financial statements in the Company’s Annual Report on Form 10-K for the year ended January 31, 2015. Presented below and in the following notes is supplemental information that should be read in conjunction with “Notes to Financial Statements” in the Annual Report.

Fiscal quarter

The Company’s quarterly periods are the 13 weeks ending on the Saturday closest to April 30, July 31, October 31, and January 31. The Company’s second quarters in fiscal 2015 and 2014 ended on August 1, 2015 and August 2, 2014, respectively.

Share-based compensation

The Company measures share-based compensation cost on the grant date, based on the fair value of the award, and recognizes the expense on a straight-line 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 for the periods indicated:

 

     26 Weeks Ended  
     August 1, 2015     August 2, 2014  

Volatility rate

     38.0     40.9

Average risk-free interest rate

     1.1     1.4

Average expected life (in years)

     3.6        3.8   

Dividend yield

     None        None   

The Company granted 89 and 320 stock options during the 26 weeks ended August 1, 2015 and August 2, 2014, respectively. The compensation cost that has been charged against operating income was $1,908 and $2,471 for the 13 weeks ended August 1, 2015 and August 2, 2014, respectively. The compensation cost that has been charged against operating income was $3,939 and $4,604 for the 26 weeks ended August 1, 2015 and August 2, 2014, respectively. The weighted-average grant date fair value of these options was $44.79 and $31.74, respectively. At August 1, 2015, there was approximately $32,441 of unrecognized compensation expense related to unvested stock options.

The Company issued 73 and 68 restricted stock awards during 26 weeks ended August 1, 2015 and August 2, 2014, respectively. The compensation cost that has been charged against operating income was $2,328 and $1,069 for the 13 weeks ended August 1, 2015 and August 2, 2014, respectively. The compensation cost that has been charged against operating income was $3,639 and $2,999 for the 26 weeks ended August 1, 2015 and August 2, 2014, respectively. At August 1, 2015, there was approximately $29,931 of unrecognized compensation expense related to restricted stock awards.

Recent accounting pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, issued as a new Topic, Accounting Standards Codification Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that the Company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects 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 beginning in fiscal year 2018 with early adoption permitted beginning in fiscal 2017. The standard allows for either full retrospective or modified retrospective adoption. The Company is currently evaluating the application method and the impact of this new standard on its consolidated financial position, results of operations and cash flows.

In April 2015, the FASB issued Accounting Standards Update No. 2015-05, 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. The standard will take effect for public companies for annual reporting periods beginning after December 15, 2015, including interim reporting periods. Early adoption is permitted. The Company is currently evaluating the impact of this new standard on its consolidated financial position, results of operations and cash flows.

Commitments and Contingencies
Commitments and Contingencies

3. 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 leases generally contain renewal options for additional years. A number of the Company’s store leases provide for contingent rental payments based upon sales. Contingent rent amounts were insignificant in the 13 and 26 weeks ended August 1, 2015 and August 2, 2014. Total rent expense under operating leases was $43,743 and $38,941 for the 13 weeks ended August 1, 2015 and August 2, 2014, respectively. Total rent expense under operating leases was $88,301 and $77,480 for 26 weeks ended August 1, 2015 and August 2, 2014, respectively.

General litigation – On March 2, 2012, a putative employment class action lawsuit (Moore v. Ulta) was filed against us and certain unnamed defendants in state court in Los Angeles County, California. On April 12, 2012, the Company removed the case to the United States District Court for the Central District of California. On August 8, 2013, the plaintiff asked the court to certify the proposed class, the Company opposed the plaintiff’s request and is waiting for the court to issue a decision. The plaintiff and members of the proposed class are alleged to be (or to have been) non-exempt hourly employees. The suit alleges that Ulta violated various provisions of California’s labor laws and failed to provide plaintiff and members of the proposed class with full meal periods, paid rest breaks, certain wages, overtime compensation and premium pay, all related to exit inspections of employees. The suit seeks to recover damages and penalties as a result of these alleged practices. The Company denies plaintiff’s allegations and is vigorously defending the matter.

The Company has not recorded any accruals for this matter because the Company’s potential liability for the matter is not probable and cannot be reasonably estimated based on currently available information and early stage of the pending litigation. Although the maximum amount of liability that may ultimately result from this matter cannot be predicted with certainty, management expects that this matter, when ultimately resolved, will not have a material adverse effect on the Company’s consolidated financial position or liquidity. It is possible, however, that the ultimate resolution of this matter could have a material adverse effect on the Company’s results of operations in a particular quarter or year if such resolution results in a significant liability for the Company.

On December 4, 2013, a putative employment class action lawsuit (Galvez v. Ulta) was filed against us in the Superior Court of California, Santa Clara County and was removed to the United States District Court for the Northern District of California on January 8, 2014. It seeks class action certification for claims involving payment of wages using an ATM card (“pay card” related claims); as well as claims related to allegedly failing to provide accurate and complete wage statements; allegedly failing to pay all minimum and overtime wages; and allegedly failing to pay meal and rest break premiums due to exit inspections of employees (exit inspection related claims). On August 29, 2014, the court stayed the exit inspection portion of the litigation, thus the case is proceeding only with respect to the pay card-related claims. The suit alleges that Ulta was required by law to obtain employee consent to use pay cards for purposes of supplemental and final pay and that pay statements issued in conjunction with pay cards did not comply with California’s Labor Code. The suit seeks to recover damages and penalties as a result of these alleged practices. The Company denies plaintiff’s allegations and is vigorously defending the matter. The parties have agreed to private mediation, which is set for September 2, 2015.

Although the maximum amount of liability that may ultimately result from this matter cannot be predicted with certainty, management expects that this matter, when ultimately resolved, will not have a material adverse effect on the Company’s consolidated financial position or liquidity. It is possible, however, that the ultimate resolution of this matter could have a material adverse effect on the Company’s results of operations in a particular quarter or year if such resolution results in a significant liability for the Company.

On May 19, 2015, a putative employment class action lawsuit (Paez v. Ulta) was filed against us in the Superior Court of California, San Bernardino County, and was removed to the U.S. District Court for the Central District of California on June 24, 2015. As with the Moore class action noted above, it also alleges that Ulta violated various provisions of California’s labor laws and failed to provide plaintiff and members of the proposed class with full meal periods, paid rest breaks, certain wages, overtime compensation and premium pay, all related to exit inspections of employees. The suit seeks to recover damages and penalties as a result of these alleged practices. The Company denies plaintiff’s allegations and is vigorously defending the matter.

The Company has not recorded any accruals for this matter because the Company’s potential liability for the matter is not probable and cannot be reasonably estimated based on currently available information and the early stage of the pending litigation. Although the maximum amount of liability that may ultimately result from this matter cannot be predicted with certainty, management expects that this matter, when ultimately resolved, will not have a material adverse effect on the Company’s consolidated financial position or liquidity. It is possible, however, that the ultimate resolution of this matter could have a material adverse effect on the Company’s results of operations in a particular quarter or year if such resolution results in a significant liability for the Company.

 

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

Notes Payable
Notes Payable

4. Notes payable

On October 19, 2011, the Company entered into an Amended and Restated Loan and Security Agreement (the Loan Agreement) with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent and a Lender thereunder, Wells Fargo Capital Finance LLC as a Lender, J.P. Morgan Securities LLC as a Lender, JP Morgan Chase Bank, N.A. as a Lender and PNC Bank, National Association, as a Lender. The Loan Agreement amended and restated the Loan and Security Agreement, dated as of August 31, 2010, by and among the lenders. The Loan Agreement extended the maturity of the Company’s credit facility to October 2016, provides maximum revolving loans equal to the lesser of $200,000 or a percentage of eligible owned inventory, contains a $10,000 subfacility for letters of credit and allows the Company to increase the revolving facility by an additional $50,000, subject to consent by each lender and other conditions. The Loan Agreement contains a requirement to maintain a minimum amount of excess borrowing availability at all times.

On September 5, 2012, the Company entered into Amendment No. 1 to Amended and Restated Loan and Security Agreement (the First Amendment) with the lender group. The First Amendment updated certain administrative terms and conditions and provides the Company greater flexibility to take certain corporate actions. There were no changes to the revolving loan amounts available, interest rates, covenants or maturity date under terms of the Loan Agreement.

On December 6, 2013, the Company entered into Amendment No. 2 to the Amended and Restated Loan and Security Agreement (the Second Amendment) with the lender group. The Second Amendment extended the maturity of the facility to December 2018. Substantially all of the Company’s assets are pledged as collateral for outstanding borrowings under the facility. Outstanding borrowings will bear interest at the prime rate or LIBOR plus 1.50% and the unused line fee is 0.20%.

As of August 1, 2015, January 31, 2015 and August 2, 2014, the Company had no borrowings outstanding under the credit facility and the Company was in compliance with all terms and covenants of the agreement.

Investments
Investments

5. Investments

The Company’s short-term investments as of August 1, 2015 consist of $150,209 in certificates of deposit. These short-term investments are carried at cost, which approximates fair value and are recorded in the Consolidated Balance Sheets in Short-term investments. The contractual maturity of the Company’s investments was less than twelve months at August 1, 2015.

Fair Value Measurements
Fair Value Measurements

6. Fair Value Measurements

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

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

 

    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 August 1, 2015, January 31, 2015 and August 2, 2014, the Company held financial liabilities of $8,026, $5,574 and $4,494, 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 net asset values, which are based primarily on quoted market prices of underlying assets of the funds within the plan.

Net Income Per Common Share
Net Income Per Common Share

7. 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:

 

     13 Weeks Ended      26 Weeks Ended  

(In thousands, except per share data)

   August 1,
2015
     August 2,
2014
     August 1,
2015
     August 2,
2014
 

Numerator for diluted net income per share – net income

   $ 74,169       $ 60,794       $ 141,115       $ 110,747   

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

     64,087         64,349         64,134         64,311   

Dilutive effect of stock options and non-vested stock

     323         287         350         307   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator for diluted net income per share

     64,410         64,636         64,484         64,618   

Net income per common share:

           

Basic

   $ 1.16       $ 0.94       $ 2.20       $ 1.72   

Diluted

   $ 1.15       $ 0.94       $ 2.19       $ 1.71   

The denominators for diluted net income per common share for the 13 weeks ended August 1, 2015 and August 2, 2014 exclude 119 and 621 employee stock options and restricted stock, respectively, due to their anti-dilutive effects.

The denominators for diluted net income per common share for the 26 weeks ended August 1, 2015 and August 2, 2014 exclude 185 and 743 employee stock options and restricted stock, respectively, due to their anti-dilutive effects.

Share Repurchase Program
Share Repurchase Program

8. Share repurchase program

On September 11, 2014, the Company announced that our Board of Directors authorized a new share repurchase program (the 2014 Share Repurchase Program) pursuant to which the Company may repurchase up to $300,000 of the Company’s common stock. The 2014 Share Repurchase Program authorization revoked the previously authorized but unused amount of $112,664 from the share repurchase program adopted in 2013. The 2014 Share Repurchase Program does not have an expiration date and may be suspended or discontinued at any time.

On March 12, 2015, the Company announced that our Board of Directors authorized an increase of $100 million to the 2014 Share Repurchase Program effective March 17, 2015.

During the 26 weeks ended August 1, 2015, we purchased 484 shares of common stock for $73,753 at an average price of $152.48. There were no repurchases during the 26 weeks ended August 2, 2014.

Summary of Significant Accounting Policies (Policies)

Fiscal quarter

The Company’s quarterly periods are the 13 weeks ending on the Saturday closest to April 30, July 31, October 31, and January 31. The Company’s second quarters in fiscal 2015 and 2014 ended on August 1, 2015 and August 2, 2014, respectively.

Share-based compensation

The Company measures share-based compensation cost on the grant date, based on the fair value of the award, and recognizes the expense on a straight-line 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 for the periods indicated:

 

     26 Weeks Ended  
     August 1, 2015     August 2, 2014  

Volatility rate

     38.0     40.9

Average risk-free interest rate

     1.1     1.4

Average expected life (in years)

     3.6        3.8   

Dividend yield

     None        None   

The Company granted 89 and 320 stock options during the 26 weeks ended August 1, 2015 and August 2, 2014, respectively. The compensation cost that has been charged against operating income was $1,908 and $2,471 for the 13 weeks ended August 1, 2015 and August 2, 2014, respectively. The compensation cost that has been charged against operating income was $3,939 and $4,604 for the 26 weeks ended August 1, 2015 and August 2, 2014, respectively. The weighted-average grant date fair value of these options was $44.79 and $31.74, respectively. At August 1, 2015, there was approximately $32,441 of unrecognized compensation expense related to unvested stock options.

The Company issued 73 and 68 restricted stock awards during 26 weeks ended August 1, 2015 and August 2, 2014, respectively. The compensation cost that has been charged against operating income was $2,328 and $1,069 for the 13 weeks ended August 1, 2015 and August 2, 2014, respectively. The compensation cost that has been charged against operating income was $3,639 and $2,999 for the 26 weeks ended August 1, 2015 and August 2, 2014, respectively. At August 1, 2015, there was approximately $29,931 of unrecognized compensation expense related to restricted stock awards.

Recent accounting pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, issued as a new Topic, Accounting Standards Codification Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that the Company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects 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 beginning in fiscal year 2018 with early adoption permitted beginning in fiscal 2017. The standard allows for either full retrospective or modified retrospective adoption. The Company is currently evaluating the application method and the impact of this new standard on its consolidated financial position, results of operations and cash flows.

In April 2015, the FASB issued Accounting Standards Update No. 2015-05, 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. The standard will take effect for public companies for annual reporting periods beginning after December 15, 2015, including interim reporting periods. Early adoption is permitted. The Company is currently evaluating the impact of this new standard on its consolidated financial position, results of operations and cash flows.

Business and Basis of Presentation (Tables)
Details of Company Operated Stores
As of August 1, 2015, the Company operated 817 stores in 48 states, as shown in the table below. As used in these notes and throughout this Quarterly Report on Form 10-Q, all references to “we,” “us,” “our,” “Ulta,” “Ulta Beauty” or “the Company” refer to Ulta Salon, Cosmetics & Fragrance, Inc. and its consolidated subsidiary, Ulta Inc.

 

State

   Number of
stores
    

State

   Number of
stores
 

Alabama

     12       Montana      5   

Alaska

     2       Nebraska      3   

Arizona

     24       Nevada      10   

Arkansas

     6       New Hampshire      6   

California

     97       New Jersey      21   

Colorado

     17       New Mexico      4   

Connecticut

     9       New York      29   

Delaware

     1       North Carolina      25   

Florida

     57       North Dakota      1   

Georgia

     26       Ohio      29   

Idaho

     6       Oklahoma      10   

Illinois

     45       Oregon      9   

Indiana

     15       Pennsylvania      29   

Iowa

     8       Rhode Island      2   

Kansas

     6       South Carolina      14   

Kentucky

     10       South Dakota      2   

Louisiana

     16       Tennessee      13   

Maine

     3       Texas      80   

Maryland

     13       Utah      11   

Massachusetts

     13       Virginia      21   

Michigan

     38       Washington      17   

Minnesota

     12       West Virginia      4   

Mississippi

     5       Wisconsin      14   

Missouri

     16       Wyoming      1   
        

 

 

 
      Total      817   
Summary of Significant Accounting Policies (Tables)
Black-Scholes Valuation Model Weighted-Average Assumptions

The Company estimated the grant date fair value of stock options using a Black-Scholes valuation model using the following weighted-average assumptions for the periods indicated:

 

     26 Weeks Ended  
     August 1, 2015     August 2, 2014  

Volatility rate

     38.0     40.9

Average risk-free interest rate

     1.1     1.4

Average expected life (in years)

     3.6        3.8   

Dividend yield

     None        None   
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:

 

     13 Weeks Ended      26 Weeks Ended  

(In thousands, except per share data)

   August 1,
2015
     August 2,
2014
     August 1,
2015
     August 2,
2014
 

Numerator for diluted net income per share – net income

   $ 74,169       $ 60,794       $ 141,115       $ 110,747   

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

     64,087         64,349         64,134         64,311   

Dilutive effect of stock options and non-vested stock

     323         287         350         307   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator for diluted net income per share

     64,410         64,636         64,484         64,618   

Net income per common share:

           

Basic

   $ 1.16       $ 0.94       $ 2.20       $ 1.72   

Diluted

   $ 1.15       $ 0.94       $ 2.19       $ 1.71   
Business and Basis of Presentation - Additional Information (Detail)
Aug. 1, 2015
State
Store
Organization, Consolidation and Presentation of Financial Statements [Abstract]
 
Number of stores
817 
Number of states in which entity operates
48 
Business and Basis of Presentation - Details of Company Operated Stores (Detail)
Aug. 1, 2015
Store
Product Information [Line Items]
 
Number of stores
817 
Alabama [Member]
 
Product Information [Line Items]
 
Number of stores
12 
Alaska [Member]
 
Product Information [Line Items]
 
Number of stores
Arizona [Member]
 
Product Information [Line Items]
 
Number of stores
24 
Arkansas [Member]
 
Product Information [Line Items]
 
Number of stores
California [Member]
 
Product Information [Line Items]
 
Number of stores
97 
Colorado [Member]
 
Product Information [Line Items]
 
Number of stores
17 
Connecticut [Member]
 
Product Information [Line Items]
 
Number of stores
Delaware [Member]
 
Product Information [Line Items]
 
Number of stores
Florida [Member]
 
Product Information [Line Items]
 
Number of stores
57 
Georgia [Member]
 
Product Information [Line Items]
 
Number of stores
26 
Idaho [Member]
 
Product Information [Line Items]
 
Number of stores
Illinois [Member]
 
Product Information [Line Items]
 
Number of stores
45 
Indiana [Member]
 
Product Information [Line Items]
 
Number of stores
15 
Iowa [Member]
 
Product Information [Line Items]
 
Number of stores
Kansas [Member]
 
Product Information [Line Items]
 
Number of stores
Kentucky [Member]
 
Product Information [Line Items]
 
Number of stores
10 
Louisiana [Member]
 
Product Information [Line Items]
 
Number of stores
16 
Maine [Member]
 
Product Information [Line Items]
 
Number of stores
Maryland [Member]
 
Product Information [Line Items]
 
Number of stores
13 
Massachusetts [Member]
 
Product Information [Line Items]
 
Number of stores
13 
Michigan [Member]
 
Product Information [Line Items]
 
Number of stores
38 
Minnesota [Member]
 
Product Information [Line Items]
 
Number of stores
12 
Mississippi [Member]
 
Product Information [Line Items]
 
Number of stores
Missouri [Member]
 
Product Information [Line Items]
 
Number of stores
16 
Montana [Member]
 
Product Information [Line Items]
 
Number of stores
Nebraska [Member]
 
Product Information [Line Items]
 
Number of stores
Nevada [Member]
 
Product Information [Line Items]
 
Number of stores
10 
New Hampshire [Member]
 
Product Information [Line Items]
 
Number of stores
New Jersey [Member]
 
Product Information [Line Items]
 
Number of stores
21 
New Mexico [Member]
 
Product Information [Line Items]
 
Number of stores
New York [Member]
 
Product Information [Line Items]
 
Number of stores
29 
North Carolina [Member]
 
Product Information [Line Items]
 
Number of stores
25 
North Dakota [Member]
 
Product Information [Line Items]
 
Number of stores
Ohio [Member]
 
Product Information [Line Items]
 
Number of stores
29 
Oklahoma [Member]
 
Product Information [Line Items]
 
Number of stores
10 
Oregon [Member]
 
Product Information [Line Items]
 
Number of stores
Pennsylvania [Member]
 
Product Information [Line Items]
 
Number of stores
29 
Rhode Island [Member]
 
Product Information [Line Items]
 
Number of stores
South Carolina [Member]
 
Product Information [Line Items]
 
Number of stores
14 
South Dakota [Member]
 
Product Information [Line Items]
 
Number of stores
Tennessee [Member]
 
Product Information [Line Items]
 
Number of stores
13 
Texas [Member]
 
Product Information [Line Items]
 
Number of stores
80 
Utah [Member]
 
Product Information [Line Items]
 
Number of stores
11 
Virginia [Member]
 
Product Information [Line Items]
 
Number of stores
21 
Washington [Member]
 
Product Information [Line Items]
 
Number of stores
17 
West Virginia [Member]
 
Product Information [Line Items]
 
Number of stores
Wisconsin [Member]
 
Product Information [Line Items]
 
Number of stores
14 
Wyoming [Member]
 
Product Information [Line Items]
 
Number of stores
Summary of Significant Accounting Policies - Black-Scholes Valuation Model Weighted-Average Assumptions (Detail)
6 Months Ended
Aug. 1, 2015
Aug. 2, 2014
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract]
 
 
Volatility rate
38.00% 
40.90% 
Average risk-free interest rate
1.10% 
1.40% 
Average expected life (in years)
3 years 7 months 6 days 
3 years 9 months 18 days 
Dividend yield
0.00% 
0.00% 
Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Aug. 1, 2015
Aug. 2, 2014
Aug. 1, 2015
Aug. 2, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Compensation expenses
 
 
$ 7,578 
$ 7,603 
Employee Stock Option [Member]
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Number of shares granted
 
 
89 
320 
Weighted-average fair value of stock option
 
 
$ 44.79 
$ 31.74 
Compensation expenses
1,908 
2,471 
3,939 
4,604 
Unrecognized compensation expense
32,441 
 
32,441 
 
Restricted Stock [Member]
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Number of shares granted
 
 
73 
68 
Compensation expenses
2,328 
1,069 
3,639 
2,999 
Unrecognized compensation expense
$ 29,931 
 
$ 29,931 
 
Commitments and Contingencies - Additional Information (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Aug. 1, 2015
Aug. 2, 2014
Aug. 1, 2015
Aug. 2, 2014
Long-term Purchase Commitment [Line Items]
 
 
 
 
Total rent expense under operating leases
$ 43,743 
$ 38,941 
$ 88,301 
$ 77,480 
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 
 
Notes Payable - Additional Information (Detail) (USD $)
6 Months Ended
Aug. 1, 2015
Jan. 31, 2015
Aug. 2, 2014
Line of Credit Facility [Line Items]
 
 
 
Letters of credit, maximum borrowing capacity
$ 200,000,000 
 
 
Additional credit available under the revolving facility with consent by each lender and other conditions
50,000,000 
 
 
Interest rate on outstanding borrowing under facility
LIBOR plus 1.50% 
 
 
Percentage of unused Line of Credit Facility Fee
0.20% 
 
 
Outstanding debt under credit facility
Subfacility for Standby Letters of Credit [Member]
 
 
 
Line of Credit Facility [Line Items]
 
 
 
Letters of credit, maximum borrowing capacity
$ 10,000,000 
 
 
Investments - Additional Information (Detail) (USD $)
In Thousands, unless otherwise specified
Aug. 1, 2015
Investments Schedule [Abstract]
 
Certificates of deposit
$ 150,209 
Fair Value Measurements - Additional Information (Detail) (Fair Value, Inputs, Level 2 [Member], USD $)
In Thousands, unless otherwise specified
Aug. 1, 2015
Jan. 31, 2015
Aug. 2, 2014
Fair Value, Inputs, Level 2 [Member]
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
Deferred compensation plan liability
$ 8,026 
$ 5,574 
$ 4,494 
Net Income Per Common Share - Net Income Per Basic and Diluted Share (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Aug. 1, 2015
Aug. 2, 2014
Aug. 1, 2015
Aug. 2, 2014
Earnings Per Share [Abstract]
 
 
 
 
Numerator for diluted net income per share - net income
$ 74,169 
$ 60,794 
$ 141,115 
$ 110,747 
Denominator for basic net income per share - weighted-average common shares
64,087 
64,349 
64,134 
64,311 
Dilutive effect of stock options and non-vested stock
323 
287 
350 
307 
Denominator for diluted net income per share
64,410 
64,636 
64,484 
64,618 
Net income per common share:
 
 
 
 
Basic
$ 1.16 
$ 0.94 
$ 2.20 
$ 1.72 
Diluted
$ 1.15 
$ 0.94 
$ 2.19 
$ 1.71 
Net Income Per Common Share - Additional Information (Detail)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Aug. 1, 2015
Aug. 2, 2014
Aug. 1, 2015
Aug. 2, 2014
Earnings Per Share [Abstract]
 
 
 
 
Employee stock options and restricted stock excluded from the computation of net income per common share
119 
621 
185 
743 
Share Repurchase Program - Additional Information (Detail) (USD $)
6 Months Ended 6 Months Ended
Aug. 1, 2015
Sep. 11, 2014
2013 Share Repurchase Program [Member]
Aug. 1, 2015
2014 Share Repurchase Program [Member]
Aug. 2, 2014
2014 Share Repurchase Program [Member]
Mar. 12, 2015
2014 Share Repurchase Program [Member]
Aug. 1, 2015
2014 Share Repurchase Program [Member]
Maximum [Member]
Stock Repurchase Program [Line Items]
 
 
 
 
 
 
Repurchase of common stock authorized amount
 
 
 
 
 
$ 300,000,000 
Shares authorized but unused amount revoked
 
112,664,000 
 
 
 
 
Repurchase of common stock authorized increase
 
 
 
 
100,000,000 
 
Repurchase of common stock, shares
 
 
484,000 
 
 
Repurchase of common stock
$ 73,753,000 
 
$ 73,753,000 
 
 
 
Repurchase of common stock, average price per share
 
 
$ 152.48