Market Overview

Ulta Beauty Announces Fourth Quarter Fiscal 2018 Results

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Net Sales Increased 9.7% or 16.2% Excluding the 53rd Week of Fiscal
2017

Comparable Sales Increased 9.4%

Diluted EPS Increased 6.2% to $3.61 or 31.3% Excluding the Benefit
from Tax Reform Related Items in Fiscal 2017

Ulta Beauty, Inc. (NASDAQ:ULTA) today announced financial results for
the thirteen week period ("Fourth Quarter") and fifty-two week period
("Fiscal Year") ended February 2, 2019, which compares to the fourteen
and fifty-three week periods ended February 3, 2018.

"The Ulta Beauty team delivered excellent results in the fourth
quarter," said Mary Dillon, Chief Executive Officer. "This performance
reflects an acceleration in comparable sales in our retail stores,
primarily driven by traffic. We continued to gain significant share
across all major categories, particularly with digitally native brands
where Ulta Beauty is often the only point of distribution in brick and
mortar. Solid execution by our merchandising, store operations,
e-commerce, marketing, supply chain and systems teams drove healthy
sales growth and a differentiated guest experience throughout the
important holiday season."

Recent Accounting Pronouncement – Revenue Recognition

On February 4, 2018, the Company adopted Accounting Standards
Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC
606). The Company adopted the new revenue standard using the modified
retrospective transition method applied to all contracts with the
cumulative effect recorded to the opening balance of retaining earnings
as of the date of adoption. The comparative information has not been
restated and continues to be reported under accounting standards in
effect for those periods. The adoption of the new revenue standard did
not have a material impact on the Company's consolidated financial
position, results of operations, or cash flows, however, with the
adoption we reclassified to net sales income from our credit card
program and gift card breakage from selling, general and administrative
expenses and now recognize e-commerce revenue upon shipment. These
changes increased revenue by $15.0 million and $49.0 million for the 13
weeks and 52 weeks ended February 2, 2019, respectively. These items are
partially offset by the value of points earned in our loyalty program
now reducing net sales. Due to the adoption of ASC 606, for the 13 weeks
ended February 2, 2019, gross profit margin increased by 60 basis
points, while selling, general and administrative (SG&A) expenses
deleveraged by 90 basis points. For the 52 weeks ended February 2, 2019,
gross profit margin increased by 55 basis points, while SG&A expenses
deleveraged by 80 basis points. This resulted in a net impact to
operating income margin of 30 basis points and 25 basis points of
deleverage for the 13 weeks and 52 weeks ended February 2, 2019,
respectively. Additional information about the impact of the adoption of
ASC 606 can be found in our annual report on Form 10-K available at http://ir.ultabeauty.com.

For the Fourth Quarter of Fiscal 2018

  • Net sales increased 9.7% to $2,124.7 million compared to $1,937.6
    million in the fourth quarter of fiscal 2017. Excluding the sales for
    the 53rd week of fiscal 2017 of $108.8 million, sales
    increased by 16.2%;
  • Comparable sales (sales for stores open at least 14 months and
    e-commerce sales) increased 9.4% compared to an increase of 8.8% in
    the fourth quarter of fiscal 2017. The 9.4% comparable sales increase
    was driven by 7.1% transaction growth and 2.3% growth in average
    ticket;
  • Retail comparable sales increased 7.0%, including salon comparable
    sales growth of 6.2%;
  • E-commerce comparable sales increased 25.1%, representing 240 basis
    points of the total Company comparable sales increase of 9.4%;
  • Salon sales, including the benefit of the 53rd week in
    fiscal 2017, increased 4.7% to $77.2 million compared to $73.7 million
    in the fourth quarter of fiscal 2017;
  • Gross profit as a percentage of net sales increased 90 basis points to
    34.9% compared to 34.0% in the fourth quarter of fiscal 2017. The
    impact of new revenue recognition accounting drove 60 basis points of
    leverage with the remaining 30 basis points of leverage attributed to
    improvement in merchandise margins driven by our marketing and
    merchandising strategies and leverage in fixed store costs attributed
    to the impact of higher sales volume, partially offset by deleverage
    due to investments in our salon services and supply chain operations;
  • SG&A expenses as a percentage of net sales increased 90 basis points
    to 21.5% compared to 20.6% in the fourth quarter of fiscal 2017. The
    impact of new revenue recognition accounting was 90 basis points. The
    underlying flat SG&A expense was driven by leverage due to improvement
    in variable store and marketing expense attributed to cost
    efficiencies and higher sales volume, offset by planned deleverage in
    corporate overhead related to investments in growth initiatives;
  • Pre-opening expenses decreased to $2.4 million compared to $4.3
    million in the fourth quarter of fiscal 2017. Real estate activity in
    the fourth quarter of fiscal 2018 included 12 new stores, compared to
    16 new stores, one remodel, and two relocations in the fourth quarter
    of fiscal 2017;
  • Operating income increased 10.5% to $281.2 million, or 13.2% of net
    sales, compared to $254.4 million, or 13.1% of net sales, in the
    fourth quarter of fiscal 2017;
  • Tax rate increased to 24.0% compared to 18.3% in the fourth quarter of
    fiscal 2017. The increase was primarily due to one-time
    re-measurements of net deferred tax liabilities from tax reform in
    2017;
  • Net income increased 3.1% to $214.7 million compared to $208.2 million
    in the fourth quarter of fiscal 2017; and
  • Diluted earnings per share increased 6.2% to $3.61 compared to $3.40
    in the fourth quarter of fiscal 2017. Diluted earnings per share
    increased 31.3% compared to fourth quarter 2017 adjusted for tax
    reform related items.
 

Fourth Quarter 2018 Adjusted Diluted Earnings Per Share Results

     
Fourth Quarter
      2018     2017
Diluted EPS (GAAP)     $ 3.61     $ 3.40  
Adjustments related to tax reform:            
Re-measurement of net deferred tax liabilities     -     (0.62 )
Impact of lower tax rate in 2017 due to tax reform     -     (0.16 )
One-time bonus for hourly associates ($0.20 pre-tax)     -     0.13  
Adjusted diluted EPS (non-GAAP)     $ 3.61     $ 2.75  
   

For the Full Year of Fiscal 2018

  • Net sales increased 14.1% to $6,716.6 million compared to $5,884.5
    million in fiscal 2017. Excluding the sales for the 53rd
    week in fiscal 2017 of $108.8 million, sales increased 16.3%;
  • Comparable sales increased 8.1% compared to an increase of 11.0% in
    fiscal 2017. The 8.1% comparable sales increase was driven by 5.3%
    transaction growth and 2.8% growth in average ticket;
  • Retail comparable sales increased 5.1%, including salon comparable
    sales growth of 3.6%;
  • E-commerce comparable sales increased 35.4%, representing 300 basis
    points of the total Company comparable sales increase of 8.1%;
  • Salon sales, including the benefit of the 53rd week in
    fiscal 2017, increased 8.5% to $300.9 million compared to $277.4
    million in fiscal 2017;
  • Gross profit as a percentage of net sales increased 30 basis points to
    35.9% compared to 35.6% in fiscal 2017. The impact of new revenue
    recognition accounting drove 55 basis points of leverage with the
    remaining 25 basis points of deleverage attributed to category and
    channel mix shifts and investments in our salon services and supply
    chain operations, partially offset by leverage in fixed store costs
    attributed to the impact of higher sales volume;
  • SG&A expenses as a percentage of net sales increased 100 basis points
    to 22.9% compared to 21.9% in fiscal 2017. The impact of new revenue
    recognition accounting was 80 basis points with the remaining 20 basis
    points due to deleverage from investments in store labor to support
    growth initiatives, partially offset by leverage in corporate overhead;
  • Pre-opening expenses decreased to $19.8 million compared to $24.3
    million in fiscal 2017. Real estate activity in fiscal 2018 included
    107 new stores, 13 remodels, and two relocations, compared to 102 new
    stores, 11 remodels, and seven relocations in fiscal 2017;
  • Operating income increased 8.8% to $854.1 million, or 12.7% of net
    sales, compared to $785.3 million, or 13.3% of net sales, in fiscal
    2017;
  • Tax rate decreased to 23.3% compared to 29.4% in fiscal 2017. The
    decrease was primarily due to one-time re-measurements of net deferred
    tax liabilities from tax reform in 2017;
  • Net income increased 18.6% to $658.6 million compared to $555.2
    million in fiscal 2017; and
  • Diluted earnings per share increased 22.1% to $10.94 compared to $8.96
    in fiscal 2017. Diluted earnings per share increased 33.0% compared to
    fiscal 2017 adjusted for tax reform related items and income tax
    accounting for share-based compensation.
 

Fiscal Year 2018 Adjusted Diluted Earnings Per Share Results

     
Fiscal Year
      2018     2017
Diluted EPS (GAAP)     $ 10.94       $ 8.96  
Adjustments related to tax reform:            
Re-measurement of net deferred tax liabilities     -       (0.62 )
Impact of lower tax rate in 2017 due to tax reform     -       (0.16 )
One-time bonus for hourly associates ($0.20 pre-tax)     -       0.13  
Other tax rate impacts:            
Share-based accounting change     (0.09 )     (0.15 )
Adjusted diluted EPS (non-GAAP)     $ 10.85    
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