ULTRA Beauty Annual Report: SEC Filing Insights and Overview
School
University of Illinois, Urbana Champaign**We aren't endorsed by this school
Course
FIN 500
Subject
Management
Date
Dec 12, 2024
Pages
105
Uploaded by BrigadierJayPerson559
Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549FORM 10-K☒Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended January 28, 2023or☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from _____________ to _____________Commission File Number: 001-33764ULTA BEAUTY, INC.(Exact name of registrant as specified in its charter)Delaware(State or other jurisdiction ofincorporation or organization)38-4022268(I.R.S. EmployerIdentification No.)1000 Remington Blvd., Suite 120Bolingbrook, Illinois(Address of principal executive offices)60440(Zip code)Registrant’s telephone number, including area code: (630) 410-4800Securities registered pursuant to Section 12(b) of the Act:Title of each classTrading symbolName of each exchange on which registeredCommon stock, par value $0.01 per shareULTAThe NASDAQ Global Select MarketSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ⌧Yes ◻NoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ◻Yes ⌧NoIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. ⌧Yes ◻NoIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit suchfiles). ⌧Yes ◻NoIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, oremerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growthcompany” in Rule 12b-2 of the Exchange Act.:Large accelerated filer ⌧Accelerated filer ◻Non-accelerated filer ◻Smaller reporting company ☐Emerging growth company ☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any newor revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal controlover financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared orissued its audit report. ⌧If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ◻Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation receivedby any of the registrant’s executive officers during the relevant recovery period pursuant to 240.10D-1(b). ◻
Table of ContentsIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☒NoThe aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the common stock on July 29,2022, as reported on the NASDAQ Global Select Market, was approximately $16,116,323,000.The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of March 20, 2023 was 50,195,089 shares.DOCUMENTS INCORPORATED BY REFERENCEInformation required in response to Part III of Form 10-K is hereby incorporated by reference from portions of the registrant’s Proxy Statement for the2023 Annual Meeting of Stockholders. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’sfiscal year ended January 28, 2023.
Table of ContentsTABLE OF CONTENTSForward Looking Statements1Part IItem 1.Business2Item 1A.Risk Factors14Item 1B.Unresolved Staff Comments25Item 2.Properties26Item 3.Legal Proceedings27Item 4.Mine Safety Disclosures27Item 4A.Executive Officers27Part IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities28Item 6.[Reserved]31Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations31Item 7A.Quantitative and Qualitative Disclosures about Market Risk43Item 8.Financial Statements and Supplementary Data43Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure43Item 9A.Controls and Procedures43Item 9B.Other Information44Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections44Part IIIItem 10.Directors, Executive Officers and Corporate Governance44Item 11.Executive Compensation44Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters45Item 13.Certain Relationships and Related Transactions, and Director Independence45Item 14.Principal Accountant Fees and Services45Part IVItem 15.Exhibits and Financial Statement Schedules46Item 16.Form 10-K Summary79Signatures80
Table of Contents1FORWARD-LOOKING STATEMENTSReferences in this Annual Report on Form 10-K to “we,” “us,” “our,” “Ulta Beauty,” the “Company” and similar references mean UltaBeauty, Inc. and its consolidated subsidiaries, unless otherwise expressly stated or the context otherwise requires.This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Actof 1934, as amended, and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which reflect our currentviews with respect to, among other things, future events and financial performance. You can identify these forward-looking statements bythe use of forward-looking words such as “outlook,” “believes,” “expects,” “plans,” “estimates,” “targets,” “strategies” or other comparablewords. Any forward-looking statements contained in this Form 10-K are based upon our historical performance and on current plans,estimates, and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any otherperson that the future plans, estimates, targets, strategies, or expectations contemplated by us will be achieved. Such forward-lookingstatements are subject to various risks and uncertainties, which include, without limitation:●macroeconomic conditions, including inflation, rising interest rates and recessionary concerns, as well as ongoing labor costpressures, transportation and shipping cost pressures, and the COVID-19 pandemic, have had, and may continue to have, anegative impact on our business, financial condition, profitability, and cash flows (including future uncertain impacts);●changes in the overall level of consumer spending and volatility in the economy, including as a result of macroeconomicconditions and geopolitical events;●our ability to sustain our growth plans and successfully implement our long-range strategic and financial plan;●the ability to execute our operational excellence priorities, including continuous improvement, Project SOAR (our replacemententerprise resource planning platform), and supply chain optimization;●our ability to gauge beauty trends and react to changing consumer preferences in a timely manner;●the possibility that we may be unable to compete effectively in our highly competitive markets;●the possibility of significant interruptions in the operations of our distribution and fast fulfillment centers;●the possibility that cybersecurity or information security breaches and other disruptions could compromise our information orresult in the unauthorized disclosure of confidential information;●the possibility of material disruptions to our information systems, including our Ulta.com website and mobile applications;●the failure to maintain satisfactory compliance with applicable privacy and data protection laws and regulations;●changes in the good relationships we have with our brand partners and/or our ability to continue to offer permanent or temporaryexclusive products of our brand partners;●changes in the wholesale cost of our products and/or interruptions at our brand partners’ or third-party vendors’ operations;●future epidemics, pandemics or natural disasters could negatively impact sales;●the possibility that new store openings and existing locations may be impacted by developer or co-tenant issues;●our ability to attract and retain key executive personnel;●the impact of climate change on our business operations and/or supply chain;●our ability to successfully execute our common stock repurchase program or implement future common stock repurchaseprograms;●a decline in operating results may lead to asset impairment and store closure charges; and●other risk factors detailed in our public filings with the Securities and Exchange Commission (the SEC), including risk factorscontained in Item 1A, “Risk Factors” of this Annual Report on Form 10-K for the year ended January 28, 2023, as such may beamended or supplemented in our subsequently filed Quarterly Reports on Form 10-Q.Except to the extent required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-lookingstatements, whether as a result of new information, future events or otherwise.
Table of Contents2Part IItem 1. BusinessOverviewUlta Beauty is the largest specialty beauty retailer in the United States and the premier beauty destination for cosmetics, fragrance, skin careproducts, hair care products, and salon services. Key aspects of our business include:One-of-a-kind Assortment.We offer guests a differentiated assortment of more than 25,000 products from more than 600 well-established and emerging beauty brands across a variety of categories and price points. We believe we offer the widest selection ofbeauty categories, including prestige and mass cosmetics, fragrance, haircare, prestige and mass skincare, bath and body products,professional hair products, and salon styling tools.Store Footprint.We operate more than 1,350 stores predominantly located in convenient, high-traffic locations. With a bright andopen store environment, we make it easy for guests to discover new products and services. Our store design, fixtures, and openlayout provide the flexibility to respond to consumer trends and changes in our merchandising strategy. We also offer beautyservices in nearly every store, including a full-service hair salon and a BenefitTMBrow Bar. In addition to our free-standinglocations we have more than 350 Ulta Beauty at Target shop-in-shops which provide guests with a highly-curated, prestige beautyassortment in a unique and elevated presentation in 1,000 square feet of dedicated space within certain Target locations.Leading Digital Experiences. Through our website, Ulta.com, and our mobile applications, we offer guests convenient,interactive and personalized digital experiences. Our digital channels enable always-on shopping and discovery, and our diversefulfillment options, including buy online pick-up in store, buy online pick-up curbside, ship from store, ship from distributioncenter, and same-day delivery, provide guests with value and convenience. In addition to e-commerce platforms, we offer guests avariety of unique digital experiences, including virtual try-on and skin analysis tools, which leverage augmented reality capabilitiesand artificial intelligence tools to provide guests with personalized experiences.Best-in-Class Loyalty Program. Our best-in-class loyalty program, Ultamate Rewards, enables members to earn points for everydollar spent on products and beauty services at Ulta Beauty, through purchases on our private label and co-branded credit cards,and purchases at Ulta Beauty at Target. In addition to unique membership benefits, members can redeem points for discounts onany product or service at Ulta Beauty. With more than 95% of total sales coming from members, we are uniquely positioned with adeep understanding of our customers and their preferences, enabling us to personalize experiences, recommendations, andpromotions through our Customer Relationship Management (CRM) platform and support our brand partners’ growth.Great Guest Experiences. We cultivate human connection with warm and welcoming guest experiences across all of ourchannels. Our knowledgeable and approachable store associates, our differentiated service offerings, and our efforts to createrelevant, compelling digital content are competitive advantages and enable us to build strong engagement with guests.We were founded in 1990 as a beauty retailer at a time when prestige, mass, and salon products were sold through distinct channels —department stores for prestige products; drug stores and mass merchandisers for mass products; and salons and authorized retail outlets forprofessional hair care products. We developed a unique specialty retail concept that offers a broad range of brands and price points, selectbeauty services, and a convenient and welcoming shopping environment. We define our target consumer as a beauty enthusiast, a consumerwho is passionate about the beauty category, uses beauty for self-expression, experimentation, and self-investment, and has highexpectations for the shopping experience. We estimate beauty enthusiasts represent approximately 65% of shoppers and account for morethan 80% of beauty products and services spend in the U.S.
Table of Contents3The following description of our business should be read in conjunction with the information contained in our Management’s Discussionand Analysis of Financial Condition and Results of Operations included in Item 7 and our Financial Statements and Supplementary Dataincluded in Item 8 of this Annual Report on Form 10-K.Our strategyWe target beauty enthusiasts across multiple demographics and shopping behaviors. Beauty enthusiasts have a deep emotional connectionwith beauty, and historically, this connection has not diminished in softer economic environments. Our proprietary consumer researchconfirms engagement with the beauty category remains strong. Despite the unprecedented disruption and sustaining effects resulting fromthe COVID-19 pandemic, consumers demonstrated their commitment to beauty as they resumed in-person shopping with enthusiasm, whilealso maintaining some of their online shopping behaviors, however the operational and competitive landscape remains dynamic, andpersistent cost pressures, including supply chain and labor costs, remain a challenge.Reflecting our understanding about how the consumer and beauty category are evolving, in 2021 we refreshed our strategic framework toposition Ulta Beauty for continued success. We are focused on six key strategic pillars designed to expand our market leadership and drivelonger-term profitable growth.Drive breakthrough and disruptive growth through an expanded definition of All Things Beauty. Beauty enthusiasts enjoy the experienceof discovering and trying new products and increasingly include beauty as part of their self-care and wellness journey. Reflecting theseinsights, our objective is to engage and continuously delight beauty enthusiasts with a curated, differentiated, inclusive assortment focusedon leading beauty and self-care trends. We are focused on four key areas: maximizing growth in core categories, including makeup,skincare, haircare, and fragrance; driving growth of cross-category strategic platforms, including Conscious Beauty at Ulta Beauty®, Black-owned and Black, Indigenous, and People of Color (BIPOC)-founded Brands, the Wellness Shop, and SPARKED at Ulta Beauty;differentiating our assortment through exclusive brands and products, including our private label, Ulta Beauty Collection; and increasingprofitability through assortment management, inventory productivity, and promotional optimization.Evolve the omnichannel experience through connected physical and digital ecosystems, All In Your World. Our guest insights andmember data confirm that beauty enthusiasts prefer to transact in physical stores, where they can discover and interact with products andother beauty enthusiasts. At the same time, digital channels offer convenience, product reviews, and price transparency. As a result, theguest journey is increasingly blurring across physical and digital channels. To drive greater guest engagement across all channels, we intendto expand our physical footprint, continue to differentiate our service offerings, and grow our buy anywhere, fill anywhere capabilitieswhile further enhancing our digital and mobile experiences and driving competitive advantage through digital innovation. Our objective isto deliver a cohesive, industry-leading omnichannel experience that drives breakthrough engagement with our guests and unlocks thecombined potential of our physical and digital channels.Expand and deepen our presence across the beauty journey, solidifying Ulta Beauty at the Heart of the Beauty Community. Tounderstand longer-term shifts in consumer values, perceptions, and behaviors, as well as of-the-moment insights, we have developed arobust consumer research capability. In addition, with more than 95% of total sales coming from our 40.2 million active Ultamate Rewardsloyalty program members, we have unique insights about customer preferences and behavior. Based on our proprietary insights, we knowbeauty enthusiasts have an emotional, personal, and deep connection with beauty. Social media contributes to this connection, and weexpect the influence and reach of beauty will continue to grow as engagement with social platforms increases. To expand Ulta Beauty’sreach, relevancy, and guest engagement, we intend to amplify our brand purpose; build a creator and content ecosystem to delivercompelling, relevant beauty entertainment; drive further innovation in our Ultamate Rewards program; and use our member data to increasepersonalization, drive conversion, and support our brands. Our vision is to expand and deepen our presence across the beauty journey to increase consumer acquisition and drive guest engagement, loyalty, and share of wallet. Drive operational excellence and optimization.Similar to other retailers, we are experiencing persistent cost pressures frommacroeconomic trends, including rising wage rates and higher transportation and shipping costs. In addition, we anticipate ongoingheadwinds from channel and category mix shifts. To mitigate the impact of these pressures and
Table of Contents4support our future growth, we have developed a continuous improvement capability to identify and activate meaningful, cross-functionalprocess optimization opportunities; we are upgrading our enterprise resource planning platform to increase efficiency and support futuregrowth; and we are enhancing our supply chain network to increase agility, speed and cost-efficiency. Our vision is to deliver profitablegrowth and competitive advantage by optimizing our cost structure to enable scale, developing agile operating processes that enable real-time visibility and decision-making, and building new capabilities tailored to win in a rapidly evolving omnichannel world.Protect and cultivate our world-class culture and talent.We have developed and nurtured a guest and associate-centric, values-based andhigh-performance culture. These tenets are core to how we lead, how we engage with our guests and partners, and how we make decisions.We value and encourage collaboration and enterprise thinking, and we respect and listen to our associates to continually improve as acompany. We have an experienced leadership team and passionate associates committed to living our values while caring for our guests andfor each other. To support our growth and enhance the guest experience, we will continue to attract, develop and retain talent at all levelsand in all functional areas, and we will continue to work to create an environment where every associate feels they can fully contribute andhave an opportunity to grow.Expand our environmental and social impact.As a leader in the beauty industry, we have an opportunity to drive positive impact. Webelieve that beauty is for everyone, regardless of age, size, ability, skin tone, culture, or gender, and we strive to provide an environmentwhere every associate feels they can realize their full potential and every guest is optimally served, regardless of differences. We empowerand inspire guests to make informed and sustainable product choices through our unique Conscious Beauty at Ulta Beauty®platform, andwe strive to protect the beauty of our natural environment and minimize our impact on the world around us by managing our stores’ energy,water, and waste footprints. We are committed to making the world a better place, and we are focused on driving sustainable change inareas where we can make the biggest impact and committed to collaborating with others to address shared challenges.Our marketWe operate within the large and growing U.S. beauty products and salon services industry. In 2022, this market represented approximately$172 billion in sales, according to forecasted Euromonitor International and IBIS World Inc. In 2022, the beauty products industry totaledapproximately $104 billion and included cosmetics, haircare, fragrance, bath and body, skincare, salon styling tools, and other toiletries. Weestimate that Ulta Beauty had only a 9% share of the $104 billion beauty product industry. Within this market, we compete across all majorcategories as well as a range of price points by offering prestige, mass, and salon products. In 2022, the salon services industry totaledapproximately $68 billion and included hair, skin, and nail services. We estimate that Ulta Beauty had less than 1% share of this industry.We have full-service hair salons in substantially every store and operate brow bars in most of our stores, as well as makeup services throughour salons. In addition, we offer skin services in approximately 150 locations.CompetitionOur major competitors for prestige and mass products include traditional department stores, specialty stores, grocery stores, drug stores,mass merchandisers, and the online capabilities of national retailers and brands, as well as pure-play e-commerce companies. The marketfor salon services and products is highly fragmented. Our competitors for salon services and products include chain and independent salons.Our retail channelsWe are committed to meeting guests where and how they want to shop and strive to offer guests a compelling, personalized shoppingexperience through our stores, digital platform, and partnerships.
Table of Contents5StoresOur member data suggests our guests prefer to transact in physical stores, where they can discover and interact with products and otherbeauty enthusiasts. In our fiscal year ended January, 28, 2023 (fiscal 2022), 76% of our loyalty members transacted with us solely in one ofour stores. Our retail stores are predominantly located in convenient, high-traffic locations such as power strip centers. Our typical store isapproximately 10,000 square feet, including approximately 950 square feet dedicated to our full-service salon. Our retail store concept,including physical layout, displays, lighting, and quality of finishes, has changed over time to reflect the rising expectations of our guestsand our evolving merchandising and operating strategies.We offer a full range of beauty services in our stores, focusing on hair, makeup, brow, and skin services. Our current Ulta Beauty storeformat includes an open and modern salon area, with most of our stores offering brow services on the salon floor. In addition, storesoffering skin services include a skin treatment room or dedicated skin treatment area on the sales floor. The salon features a concierge desk,approximately five to ten stations, and a shampoo and hair color processing area. We employ highly skilled, licensed professional stylistsand estheticians who offer services as well as educational experiences, including consultations, styling lessons, makeup applications,skincare regimens, and at-home care recommendations.In addition to opening new stores, we also remodeled and relocated certain stores, as shown in the following table:Fiscal year endedJanuary 28,January 29,January 30,202320222021Total stores beginning of period1,3081,2641,254Stores opened474830Stores closed–(4)(20)Total stores end of period1,3551,3081,264Total square footage14,200,40313,770,43813,291,838Average square footage per store10,48010,52810,516Stores remodeled209–Stores relocated1275Our real estate vision is to make Ulta Beauty accessible and convenient to more consumers across a variety of markets, and is a key driverof how we plan to expand our market share over time. We believe that over the long term, we have the potential to grow our store footprintto between 1,500 to 1,700 freestanding Ulta Beauty stores in the United States.We leverage a variety of insights to identify the best new store locations and optimize our current store locations, including beauty marketshare information and insights from our loyalty members. This insight-led, analytical approach to site selection has resulted in a highperforming real estate portfolio. The average investment required to open a new Ulta Beauty store is approximately $1.7 million, whichincludes capital investments, net of landlord contributions, pre-opening expenses, and initial inventory, net of payables. Our net investmentrequired to open new stores and the net sales generated by new stores may vary depending on a number of factors, including geographiclocation.As part of our ongoing efforts to enhance and evolve our in-store experience to best engage our guests, we are introducing a new layout inour new and remodeled stores. While our traditional layout is organized by price point, with prestige makeup and skincare on one side ofthe store and mass makeup and skincare on the other, our new layout brings together like categories with intuitive adjacencies to magnifyour differentiated assortment. In the new layout, categories flow from prestige to mass with delineated fixturing showcasing each segment.In addition, we are adding several features including elevated gondolas to showcase key, iconic, and service brands and new Beauty Barsthat offer our brow and makeup services as well as supporting in-store events and highlight beauty-in-action. We believe this new layoutbetter reflects how our guests shop and will simplify exploration and shopping.
Table of Contents6Digital platformIn addition to store expansion, we continue to expand our digital capabilities as more of our guests choose to engage with us across physicaland digital platforms. In fiscal 2022, 17% of our loyalty members shopped both in Ulta Beauty stores and through our digital platforms.Our e-commerce platform has two key roles: generating direct channel sales and profits by communicating with our guests in an interactive,enjoyable way that reinforces the Ulta Beauty brand; and driving traffic to our stores, website, and native applications. Our omnichannelguests are extremely valuable, historically spending nearly three times as much as retail-only guests. We continue to develop and add newwebsite and mobile features and functionality, marketing programs, new products and brands, and omnichannel integration points. Weintend to establish ourselves as a leading online beauty resource by providing our guests with a unique, rich online experience, withinformation on key trends and products, editorial content, expanded assortments, interactive experiences, including virtual try-oncapabilities, and social media content.We continue to improve our order fulfillment capabilities with increased speed of delivery through existing distribution centers, fastfulfillment centers (e-commerce only), and select retail stores, through more efficient processes designed for e-commerce order fulfillment,and starting in 2023, our first market fulfillment center. In addition to ship to home order fulfillment, we offer guests “Buy Online, Pick-upin Store,” “Curbside Pickup,” and “Store 2 Door,” which provides the ability for customers to order in-store and have products delivered totheir homes. In addition, we offer same-day delivery for e-commerce orders in select markets.PartnershipsTo expand our reach and introduce new guests to Ulta Beauty, we have formed a long-term partnership with Target Corporation to create Ulta Beauty at Target, a “shop-in-shop” concept that offers a curated assortment of more than 60 established and emerging prestige brands across a variety of categories. Co-designed by Ulta Beauty and Target, the Ulta Beauty at Target shop is intended to reflect the Ulta Beauty experience with a unique and elevated presentation in 1,000 square feet of dedicated space separate but adjacent to Target’s core beauty department. The shop is staffed by Target team members who are trained by Ulta Beauty to provide recommendations and answer product questions. Members in our loyalty program, Ultamate Rewards, can earn points (but not redeem) for purchases made in the Ulta Beauty at Target shop. Loyalty points can only be redeemed in Ulta Beauty stores, on Ulta.com or through our mobile applications. As of January 28, 2023, Ulta Beauty at Target was available in over 350 Target locations and on target.com. Over time, we expect Ulta Beauty at Target to be in up to 800 Target locations, in addition to our freestanding Ulta Beauty stores.MerchandisingStrategyWe offer one of the most extensive product and brand selections in our industry, including a broad assortment of branded and private labelbeauty products in cosmetics, fragrance, haircare, skincare, bath and body products, and salon styling tools. Across our stores, Ulta.com andour mobile applications, we offer more than 25,000 products from more than 600 well-established and emerging beauty brands across allcategories and price points, including Ulta Beauty’s own private label, the Ulta Beauty Collection. Our merchandising team continuallymonitors beauty and fashion trends, historical sales trends, and new product launches to keep Ulta Beauty’s product assortment fresh andrelevant and to ensure that our assortment reflects the diversity of our guests. We believe our broad selection of merchandise, frommoderately-priced brands to higher-end prestige brands, creates a unique shopping experience for our guests.Certain beauty enthusiasts are growing more interested in choosing products that support their own personal well-being and the well-beingof workers, animals, communities, and the environment, and they are increasingly supporting brands whose products and actions align withtheir own values. Reflecting the growing importance of these trends, in fiscal 2020 we launched Conscious Beauty at Ulta Beauty®in allstores, on Ulta.com, and on our mobile applications. This holistic initiative provides transparency for guests to help them choose brands andproducts that reflect their personal values and individual needs. Through this initiative, we certify brands and products across four keypillars, Clean Ingredients, Cruelty Free, Vegan, and Sustainable Packaging, and recognize brands for their positive impact on our
Table of Contents7community. Displayed in stores on an endcap constructed of recycled and recyclable materials, the program launched with 187 brands. Asof January 28, 2023, more than 300 brands participated in the program, with more than half certified in more than one pillar. As part of thelaunch, we published our “Made Without List,” an evolving ingredient standard for clean beauty products, and established the ConsciousBeauty Advisory Council, a coalition of experts at the forefront of clean beauty, product development, and packaging sustainability. Withthe help of our Advisory Council, we will ensure that Conscious Beauty at Ulta Beauty®will continue to evolve and grow as expectationsand standards for clean beauty continue to change.During the past few years consumers have increased their focus on self-care. Based on internal proprietary research, approximately 65% of consumers see the beauty category as being significantly connected to wellness. In response to this trend, we launched The Wellness Shop in select stores and online that offers an assortment of products across six platforms: everyday care, supplements and ingestibles, relax and renew, down there care, spa at home, and intimate wellness (online only). We have a long tradition of being a diversity-forward company. We aspire to be beauty at its most inclusive and have made severalimportant commitments across our marketing, assortment, and training efforts to ensure guests, associates, partners, and communities feelconnected to and reflected at Ulta Beauty and are able to discover beauty on their own terms. During fiscal 2022, we increased ourassortment of Black-owned and Black-founded brands by 34% with the addition of 12 Black-owned and Black-founded brands, supportingour progress towards our commitment to dedicate 15% of our brand assortment to Black-owned, Black-founded and Black-led brands overtime.We believe our private label, the Ulta Beauty Collection, is a strategically important opportunity for growth and profit contribution. Ourobjective is to provide quality, trend-right private label products to continue to strengthen our guests’ perception of Ulta Beauty as acontemporary beauty destination. Ulta Beauty manages the full development cycle of these products from concept through production todeliver differentiated packaging and formulas that enhance our brand image. The Ulta Beauty Collection has been certified in the CleanIngredients and Cruelty Free pillars within the Conscious Beauty at Ulta Beauty®program. We also offer products such as Tarte DoubleDuty Beauty cosmetics, IT Brushes for Ulta Beauty, and CHI for Ulta Beauty hair care appliances that are permanently exclusive to UltaBeauty. Similarly, we offer a number of brands and products that are exclusive for a limited period of time or are offered in advance of ourcompetitors, such as Morphe, Colourpop, Juvia’s Place, Chanel and Florence. The Ulta Beauty Collection and permanent Ulta Beautyexclusive products represented approximately 4% of our total net sales in fiscal 2022. Both permanent and temporary exclusive productsrepresented approximately 10% of our total net sales in fiscal 2022.CategoriesWe offer a balanced portfolio across six primary categories: (1) cosmetics; (2) haircare products and styling tools; (3) skincare; (4)fragrance and bath; (5) services; and (6) accessories and other, which includes other revenue sources such as the private label and co-branded credit card programs, royalties derived from the partnership with Target, and deferred revenue related to the loyalty program andgift card breakage.The following table sets forth the approximate percentage of net sales attributed to each category for the periods presented:Fiscal year endedJanuary 28,January 29,January 30,(Percentage of net sales)202320222021Cosmetics42%43%45%Haircare products and styling tools21%20%20%Skincare17%17%16%Fragrance and bath14%14%12%Services3%3%3%Accessories and other3%3%4%100%100%100%
Table of Contents8OrganizationOur merchandising team consists of a Chief Merchandising Officer who oversees the Senior Vice President of Cosmetics and category VicePresidents who in turn oversee Divisional Merchandise Managers and their teams of buyers. Our Chief Merchandising Officer alsooversees our centralized merchandise planning and forecasting group to ensure consistent execution across our omnichannel platforms andour planogram team.In stores, we present products in an open-sell environment using centrally produced planograms (detailed schematics showing productplacement in the store) and promotional merchandising planners. Our planogram team assists the merchants and inventory teams to keepnew products flowing into stores on a timely basis. All major product categories undergo planogram revisions on a regular basis, andadjustments are made to assortment mix and product placement based on current sales trends. Our visual team works with ourmerchandising team to develop strategic placement of promotional merchandise, functional and educational signage, and creative productpresentation standards in all of our stores. All stores receive centrally produced promotional merchandising planners to ensure consistentimplementation of our marketing programs.Planning and allocationWe have developed a disciplined approach to buying and a dynamic inventory planning and allocation process to support ourmerchandising strategy. We centrally manage product replenishment to our stores through our merchandise planning group. This groupserves as a strategic partner to, and provides financial oversight of, the merchandising team. The merchandising team creates a salesforecast by category for the year. Our merchandise planning group creates an open-to-buy plan, approved by senior executives, for eachproduct category. The open-to-buy plan is updated weekly with point-of-sale (POS) data, receipts, and inventory levels and is usedthroughout the year to balance buying opportunities and inventory return on investment. We believe this structure maximizes our buyingopportunities while maintaining organizational and financial control. POS data is used to calculate sales forecasts and to determinereplenishment levels. We determine promotional product replenishment levels using sales history from similar or comparable events. Toensure our inventory remains productive, our planning and replenishment group, along with senior executives, monitor the levels ofclearance and aged inventory in our stores on a weekly basis.Brand partnershipsWe have strong, active relationships with our brand partners. Our top ten brand partners, such as L’Oréal and Estée Lauder Companies,among others, represented 56% and 54% of our total net sales in fiscal 2022 and our fiscal year ended January 29, 2022 (fiscal 2021),respectively. We believe our brand partners view us as a significant distribution channel for growth and brand enhancement, and we workclosely with them to market both new and existing brands.All brand partners and respective subcontractors and their facilities are subject to the applicable Ulta Vendor Standards, which set forth theethical, legal, social, and workplace standards to meet in order to do business with Ulta Beauty. In addition to complying with Ulta VendorStandards, many brand partners have committed to help advance our mission to maintain the beauty of our environment andminimize our impact on the world around us by offering sustainable packaging. We have made a commitment that 50% of packaging from products sold at our stores will be recyclable, refillable, or made from recycled or bio-sourced materials by 2025. Marketing and advertisingWe employ a multi-faceted marketing strategy to increase brand awareness, drive traffic to our stores, website, and mobile applications,acquire new loyalty program members, improve guest retention, increase frequency of shopping, and increase spend per member. Wecommunicate with our guests and prospective guests through multiple vehicles, including print advertising, digital and social media,television and radio. These vehicles highlight the breadth of our selection of prestige, mass and salon beauty products, new products andservices, and special offers, as well as build our emotional connection with guests. Our comprehensive public relations strategy enhancesUlta Beauty’s reputation as a beauty destination, increases brand awareness, supports our charitable efforts related to the Ulta BeautyCharitable Foundation, and drives awareness of new products, in-store events, and new store openings.
Table of Contents9The Ultamate Rewards loyalty program is an important tool to increase retention of existing guests and to enhance their loyalty to the UltaBeauty brand. Our CRM platform enables sophisticated analysis of the customer data in our loyalty member database as well as greaterpersonalization of our marketing campaigns and day-to-day communications. Our data demonstrates that loyalty members spend more pervisit as compared to non-members. Ultamate Rewards enables customers to earn points based on their purchases at Ulta Beauty stores,through our digital platforms, and at Ulta Beauty at Target. Points earned are valid for at least one year and may be redeemed on anyproduct we sell or service we provide in Ulta Beauty stores or through our digital platforms. To enhance our loyalty program, we offer co-branded and private label credit cards. The credit cards drive higher wallet share and greater loyalty from our rewards members, provideincreased consumer insights, and offer attractive economics. Furthermore, we continue to expand our gift card program to increasedistribution in our store and online channels and to retail locations in store and online through partnerships with third parties.We are directing a growing percentage of our marketing expense towards digital, social media, and streaming advertising. We believe thesechannels are highly effective in communicating with existing guests, as well as driving consideration amongst those who have not yetshopped with us. Our marketing program has been effective in communicating with our existing online, mobile, and retail guests in atargeted and relevant way. Our digital marketing strategy includes search engine optimization, paid search, mobile advertising, socialmedia, display advertising, and other digital marketing channels. Digital marketing, coupled with our national TV and radio advertising, hashelped us increase brand awareness and consideration among those not familiar with Ulta Beauty, which we believe has resulted in newguests.Retail media networkWe have a deep understanding of our Ultamate Rewards loyalty members and their preferences. This unique understanding combined withour ongoing investment in data analytics and CRM capabilities enables us to create personalized experiences and value for our guests andhas unlocked new ways for us to support our brand partners and drive additional vendor income. As we look to elevate our position as thepremier beauty retailer, in May 2022 we launched our retail media network, UB Media, to transform the way our brand partners canconnect with beauty enthusiasts. UB Media offers brands a suite of media capabilities that aim to personalize guest engagement and drivethe acquisition of new guests.Staffing and operationsRetail storesOur current Ulta Beauty store format is typically staffed with a general manager, a services manager, and three associate managers, alongwith approximately 28 full- and part-time associates, including approximately four to eight prestige consultants and five to ten licensedsalon professionals. The management team in each store reports to the General Manager. The General Manager oversees all store activitiesincluding salon management, inventory management, merchandising, cash management, scheduling, hiring, and guest services. Members ofstore management receive bonuses depending on their position and based upon various performance metrics. Each General Manager reportsto a District Manager, who in turn reports to a Regional Vice President of Operations, who in turn reports to a Senior Vice President ofStores, who in turn reports to the Chief Operating Officer, who in turn reports to the Chief Executive Officer. Each store team receivesadditional support from time to time from recruiting specialists for the retail and salon operations, regionally based talent developmentmanagers, a field loss prevention team, service district educators and service district leaders, and brand partners.Ulta Beauty stores are open seven days a week, typically eleven hours a day, Monday through Saturday, and seven hours on Sunday. Ourstores have extended hours during the holiday season.
Table of Contents10Salon servicesA typical salon is staffed with five to ten licensed salon professionals, including six or more stylists, and select stores have an esthetician.Our most productive salons have a guest coordinator and an assistant manager. Our services district educators and brand partner educationclasses create a comprehensive educational program for approximately 6,800 Ulta Beauty salon professionals.Supply chainOur vision is to build and operate a dynamic and agile end-to-end supply chain that improves operational efficiency, performance, and guestexperience to fuel organizational growth in an effective way. This includes enhanced systems and processes as well as a modernizeddistribution center network to support our new store and e-commerce growth. We operate four distribution centers that support both storesand e-commerce demand, and two fast fulfillment centers that support e-commerce orders only. In addition, 115 stores fulfill e-commerceorders as part of our ship-from-store program. Starting in fiscal 2023, we are introducing a fourth type of facility, a market fulfillmentcenter, which will focus on our most productive products and support ecommerce sales and store demand, enabling us to improve serviceand responsiveness, especially in markets with high store and population density.Inventory is shipped from our suppliers to our distribution centers and fast fulfillment centers. We replenish our stores with such productsprimarily in eaches (i.e., less-than-case quantities), which allows us to ship less than an entire case when only one or two of a particularproduct is required. Our distribution centers and fast fulfillment centers use warehouse management software systems to manage inventoryto support product purchase decisions. Product is delivered to stores using a broad network of contract and local pool (final mile) carriers.Human capital managementWe believe our associates, with their combined skills, knowledge, experiences, and commitment to serving our guests, are among our most important resources and are critical to our continued success. We strive to make Ulta Beauty a great place to work by leading with our hearts, caring for each other in everything we do, and demonstrating integrity, authenticity and inclusivity in our daily actions. The following table sets forth the approximate number of associates employed as of January 28, 2023:Full-time18,500Part-time34,500Total associates53,000We have no collective bargaining agreements and have not experienced any work stoppages. We believe we have good relationships withour associates.Diversity, equity, and inclusionOur goal is to create an inclusive environment where every associate feels he or she can be his or her authentic self and every guest isoptimally served, regardless of differences. A critical way we achieve this is by educating all associates on the lived experiences of theirpeers and key moments in time that have cultural or heritage significance, as well as the unconscious beliefs and biases that shape ourbehavior today. We embed diversity, equity, and inclusion (DEI) efforts through a cross-functional approach, led by our Chief ExecutiveOfficer, to ensure teams remain energized and motivated to lead in this critical space and integrate DEI in all that we do. We accomplishthis through inclusive recruitment strategies, dedicating time to celebrate intersectionality and types of diversity that are not otherwiseformally recognized, encouraging associates to build personal habits through everyday inclusive actions, and managing a diverse leadersprogram to empower, inspire, and educate high-potential diverse associates.In addition, we aim to ensure that all in-store experiences are equitable, fair, and unbiased. We take action to support this goal byconducting quarterly mandatory trainings for in-store associates and providing weekly learning opportunities to
Table of Contents11focus on guest perspectives and reinforce key takeaways. We offer similar training across the organization to help key decision-makers andassociates in their own learning journeys and support our Champion Diversity value and inclusion competency. In fiscal 2022, associatesparticipated in our Inclusion in Action training to reinforce inclusivity and address unconscious bias.The following table sets forth key metrics as of January 28, 2023:Board ofAll OtherDirectorsLeadershipAssociatesWomen55%66%91%Men45%34%9%People of color36%27%53%Oversight and managementWe strive to make sure that our associates are at the heart of every decision we make. The Chief Human Resources Officer, along with theentire executive team, is responsible for developing and executing the Company’s human capital strategy. This includes the attraction,acquisition, development, and engagement of talent and the design of associate compensation and benefits programs. Our human capitalobjectives and initiatives, including the risks related to compensation policies and practices, management development and leadershipsuccession, DEI policies and practices, and implementation and compliance monitoring of our code of business conduct, are also overseenby individual Board committees as described in our corporate governance guidelines.We believe open and honest two-way communication is critical to maintaining strong associate engagement. We regularly conduct anassociate engagement survey to take the pulse of associates’ satisfaction with their roles, their leaders, and the Company as a whole, whichour executive team reviews and monitors. Our leadership team also hosts roundtable sessions to dive deeper on specific topics as well asadditional forums, including department town halls, store and distribution center visits, and other small group gatherings.Training and developmentOur success is dependent, in part, on our ability to attract, train, retain, and motivate qualified associates at all levels of the organization. Weare committed to continually developing our associates and providing career advancement opportunities. Our associates and managementteams are essential to our store expansion strategy. We use a combination of existing managers, promoted associates, and outside hires tosupport our new stores. The majority of our promotions are internal. As we continue to promote and develop from within, we are building abench of associates and leaders who know our business inside and out and support our values-driven culture.All of our associates participate in an interactive new-hire orientation through which each associate becomes acquainted with Ulta Beauty’smission, vision, and values. Through our learning management system and our digital workplace system, we provide continuing educationto associates throughout their careers at Ulta Beauty. Additionally, our leadership development program prepares promising future leadersfor new levels of responsibility.Compensation and benefitsOur commitment to our associates and their well-being is one of our highest priorities. We have assembled a suite of benefits that affirmsand supports all that our associates contribute every day, including:●Health care coverage is offered to those who work more than 30 hours a week in any position. Coverage extends to eligibledependents, including spouses, domestic partners, and children under the age of 26. We offer comprehensive medical plans thatempower associates to choose the coverage that best suits them.●401(k) plan with up to a 4% company match.●Disability and life insurance.●Company-paid short-term disability pay at 80% of pay.
Table of Contents12●Additional insurance options, including legal, pet, home, and auto.●Tuition reimbursement program.●Paid time off, including an extended illness bank.●Discounts on retail products and salon services.In addition, we believe wellness, like beauty, is more than skin deep, so we offer mental health resources, such as counseling services andaccess to mobile applications, financial wellness planning and guidance, and health mobile applications and educational resources for soon-to-be parents.The Ulta Beauty Charitable Foundation (UBCF) supports the Associate Relief Program to assist associates facing unforeseen financialhardship. The Associate Relief Program provides short-term financial support to reimburse medical bills or support temporary housing.SustainabilityWe strive to operate in an environmentally responsible manner. Our retail stores are focused on energy reduction efforts by maintaining safe indoor air for all customers while products are being used in our salons, using adequate energy-efficient lighting, managing the in-store temperatures, and making efficient use of water needed for our salon services. In addition, we will continue to look for ways to reduce our carbon footprint by investments in renewable energy credits and working with our brand partners to identify ways to work together to reduce Scope 3 emissions. Information technologyWe are committed to using technology to enhance our competitive position. We depend on a variety of information systems andtechnologies (including cloud technologies) to maintain and improve our competitive position and to manage the operations of our growingstore base. We rely on computer systems to provide information for all areas of our business, including supply chain, merchandising, POS,e-commerce, marketing, finance, accounting, and human resources. Our core business systems consist mostly of purchased softwareprograms that integrate together and with our internally developed software solutions. Our technology also includes a company-widenetwork that connects all corporate users, stores, and our distribution center infrastructure and provides communications for continualpolling of sales and merchandise movement at the store level.We manage data security and privacy at the highest levels. Our Board of Directors is actively engaged in oversight of cybersecurity, and itis part of the charter of our Audit Committee. Our Chief Information Officer and Chief Executive Officer keep the Board informed oncybersecurity and privacy matters throughout the year. Our Security Operations Center constantly and proactively monitors our networkand application landscape for threats and anomalies. We have established processes for sharing data and performing third-party riskassessment and regular disaster recovery planning and response readiness testing. Our security approach also includes multiple layers ofdefense and testing of controls. We have strengthened our data protection capabilities through investments and training. All Ulta Beautyassociates have a role as stewards of company data, and we educate them on how to keep data safe. As part of our annual code of businessconduct training, we train associates on how to keep devices and data safe in public places; how to avoid security threats and phishingscams; how to maintain a secure workplace; and everyday practices that help maintain the security of corporate digital devices, data andsystems.We intend to leverage our technology infrastructure and systems where appropriate to gain operational efficiencies through more effectiveuse of our systems, people, and processes. In fiscal 2021, we began a multi-year upgrade of our enterprise resource planning platformwhich will provide a flexible and scalable operating environment allowing for greater business efficiency. We will continue to makeinvestments in our information systems to facilitate growth and enhance our competitive position.Intellectual propertyWe have registered trademarks in the United States and other countries. The majority of our trademark registrations contain the ULTAmark, including Ulta Beauty and two related designs, Ulta.com and Ulta Salon, Cosmetics &
Table of Contents13Fragrance (and design). We maintain our marks and monitor filing deadlines for renewal and continued validity. All marks that are deemedmaterial to our business have been applied for or registered in the United States and select foreign countries, including Canada, Mexico andother countries in Latin America, Europe, and Asia.We believe our trademarks, especially those related to the Ulta Beauty brand, “All Things Beauty. All In One Place.®”, “The Possibilitiesare Beautiful®”, “21 Days of Beauty®”, and “Conscious Beauty at Ulta Beauty®” have significant value and are important to building brandrecognition.Government regulationWe are affected by extensive laws, governmental regulations, administrative determinations, court decisions, and similar constraints. Suchlaws, regulations, and other constraints exist at the federal, state, or local levels in the United States. The products we sell, such ascosmetics (including products with cannabidiol), dietary supplements, food, over-the-counter (OTC) drugs, medical devices, and stylingtools, including our Ulta Beauty branded products, may be subject to regulation by the U.S. Food and Drug Administration (FDA), the U.S.Federal Trade Commission (FTC), the Consumer Product Safety Commission (CPSC), the Environmental Protection Agency (EPA), stateregulatory agencies, and State Attorneys General (State AGs). Such regulations principally relate to the safety, labeling, manufacturing,advertising, and distribution of the products. In addition, the salon services provided in our stores may be subject to state and localregulations.Cosmetics, OTC drugs, medical devices, and dietary supplements have specific regulatory requirements, including but not limited toingredient, labeling, manufacturing, and holding requirements. Products such as wrinkle reducing lights may be classified as medicaldevices and, in addition to being subject to labeling and manufacturing requirements, may also be subject to premarketing review by theFDA. Finally, products such as styling tools (e.g., blow dryers and curling irons) are regulated by the CPSC, which has strict requirementsincluding the requirement to report certain product defects. The labeling and packaging of all of these products may also be subject to therequirements of the Fair Packaging and Labeling Act and state specific requirements.Further, statements we make in advertising, including statements about the safety or efficacy of products, pricing, and environmentalclaims, are subject to federal and state consumer protection laws, which generally prohibit unfair or deceptive practices.Federal, state, municipal, and local labor and employment statutes, laws, ordinances, regulations, mandates, and taxation laws, to whichmost retailers are typically subject, also impact our day-to-day operations. We are also subject to typical governmental and real estate landuse restrictions and typical advertising and consumer protection laws (both federal and state). Our services operations are subject to stateboard regulations and state licensing requirements.In our store leases, we require our landlords to obtain all necessary governmental approvals and permits for the site to be used as a retailsite, and we also ask them to obtain any governmental approvals and permits for our specific use (but at times the responsibility forobtaining governmental approvals and permits for our specific use falls to us). As applicable, we require our landlords to deliver acertificate of occupancy for any work they perform on our buildings or the shopping centers in which our stores are located. If required bythe municipality, we are responsible for delivering a certificate of occupancy for any remodeling or build-outs that we perform and areresponsible for complying with all applicable laws in connection with such construction projects or build-outs.SeasonalityOur business is subject to seasonal fluctuation. Significant portions of our net sales and profits are realized during the fourth quarter of thefiscal year due to the holiday selling season. To a lesser extent, our business is also affected by Mother’s Day and Valentine’s Day.
Table of Contents14Available informationOur principal website address is www.ulta.com. We make available at this address under investor relations (at https://ulta.com/investor),free of charge, our proxy statement, annual report to shareholders, annual report on Form 10-K, quarterly reports on Form 10-Q, currentreports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed withor furnished to the SEC. Information available on our website is not incorporated by reference in and is not deemed a part of this Form 10-K. In addition, our filings with the SEC may be accessed through the SEC’s website at www.sec.gov. All statements made in any of oursecurities filings, including all forward-looking statements or information, are made as of the date of the document in which the statement isincluded, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do soby law.Item 1A. Risk FactorsThe risks described below could materially and adversely affect our business, financial condition, results of operations, or future growth.We could also be affected by additional risks that apply to all companies operating in the United States, as well as other risks that are notpresently known to us or that we currently consider to be immaterial. You should carefully consider the following risks and all of the otherinformation contained in this Annual Report on Form 10-K before making an investment in our common stock.Business, Operational and Strategic RisksWe may not be able to sustain our growth plans and successfully implement our long-range strategic, operational and financial plans,which could have a material adverse effect on our business, financial condition, profitability, and cash flows.Our continued and future growth largely depends on our ability to implement our long-range strategic, operational and financial plans andsuccessfully open and operate new stores on a profitable basis. There can be no assurance that we will be successful in implementing ourgrowth plans, long-range strategic imperatives and/or operational excellence priorities, including continuous improvement, Project SOAR(our replacement enterprise resource planning platform) and supply chain optimization, and our failure to do so could have a materialadverse effect on our business, financial condition, profitability, and cash flows.If we are unable to gauge beauty trends and react to changing consumer preferences in a timely manner, our sales may decrease.We believe our success depends in substantial part on our ability to:●recognize and define product and beauty trends;●anticipate, gauge, and react to changing consumer preferences (including relating to sustainability of product sources andpackaging, ingredient transparency, and animal welfare) in a timely manner;●translate market trends into appropriate, saleable product, and service offerings in our stores and salons in advance of ourcompetitors;●develop and maintain vendor relationships that provide us access to the newest merchandise on reasonable terms; and●distribute merchandise to our stores in an efficient and effective manner and maintain appropriate in-stock levels.If we are unable to anticipate and fulfill the merchandise needs of the consumer, our net sales may decrease and we may be forced toincrease markdowns of slow-moving merchandise, either of which could have a material adverse effect on our business, financial condition,profitability, and cash flows.
Table of Contents15Any significant interruption in the operations of our distribution and fast fulfillment centers could disrupt our ability to delivermerchandise to our stores in a timely manner, which could have a material adverse effect on our business, financial condition,profitability, and cash flows.We distribute products to our stores without supplementing such deliveries with direct-to-store arrangements from vendors or wholesalers.We are a retailer carrying over 25,000 beauty products that change on a regular basis in response to beauty trends, which makes the successof our operations particularly vulnerable to disruptions in our distribution infrastructure. Any significant interruption in the operation of oursupply chain infrastructure, such as disruptions in our information systems, disruptions in operations due to fire, natural disasters, or othercatastrophic events, labor disagreements, inventory availability, or shipping and transportation problems, could drastically reduce ourability to receive and process orders and provide products and services to our stores and guests, which could have a material adverse effecton our business, financial condition, profitability, and cash flows. In addition, shipping and transportation costs represent a component ofour cost structure and an increase in shipping and transportation costs, including as a result of inflationary pressures, could have a materialadverse effect on our business, financial condition, profitability, and cash flows.Our e-commerce platform exposes us to certain additional risks which could adversely affect our results of operations.We offer most of our beauty products for sale through our Ulta.com website and through our mobile applications. As a result, we encounterrisks and difficulties frequently experienced by internet-based businesses, including risks related to our ability to attract and retaincustomers on a cost-effective basis and our ability to operate, support, expand, and develop our internet operations, website, mobileapplications and software, and other related operational systems. Although we believe that our omnichannel participation is a distinctadvantage for us due to synergies and the potential for new customers, supporting product offerings through these channels can createissues that have the potential to adversely affect our results of operations. For example, if our e-commerce platform successfully grows, itmay do so in part by attracting existing guests, rather than new guests, who choose to purchase products from us online or through ourmobile applications rather than from our physical stores, thereby reducing the financial performance of our stores. In addition, offeringdifferent products through each channel could cause conflicts and cause some of our current or potential internet or mobile customers toconsider competing distributors of beauty products. Offering products through our internet channel or through our mobile applicationscould also cause some of our current or potential vendors to consider competing internet or mobile offerings of their products either on theirown or through competing distributors. Additionally, omnichannel retailing continues to rapidly evolve, and we must keep pace withchanging guest expectations and new developments by our competitors. As we continue to grow our e-commerce platform, the impact ofattracting existing rather than new guests, conflicts between product offerings online or through our mobile applications and through ourstores, and opening up our channels to increased competition from pure-play e-commerce companies could have a material adverse effecton our business, financial condition, profitability, and cash flows. In addition, if we are unable to make, improve, or develop relevant guest-facing technology in a timely manner, our ability to compete and our results of operations could be adversely affected.Increased costs or interruption in our third-party vendors’ overseas sourcing operations could disrupt production, shipment, or receiptof some of our merchandise, which could result in lost sales and could increase our costs.We directly source the majority of our Ulta Beauty branded product components and gifts with purchase and other promotional productsthrough third-party vendors using foreign factories. In addition, many of our vendors use overseas sourcing to varying degrees tomanufacture some or all of their products. Any event causing a disruption of manufacturing or imports from such foreign countries,including the imposition of import restrictions, geopolitical events, unanticipated political changes, increased customs duties, and legal oreconomic restrictions on overseas suppliers’ ability to produce and deliver products, could result in substantial disruptions in our supplychain (including inventory availability) and materially harm our operations. We have no long-term supply contracts with respect to suchforeign-sourced items, many of which are subject to existing or potential duties, tariffs, or quotas that may limit the quantity of certain typesof goods that may be imported into the United States from such countries. Our business is also subject to a variety of other risks generallyassociated with sourcing goods from abroad, such as political instability, disruption of imports by labor disputes, and local businesspractices. Our sourcing operations may also be hurt by health
Table of Contents16concerns regarding infectious diseases in countries in which our merchandise is produced, adverse weather conditions or natural disastersthat may occur overseas, or acts of war or terrorism, to the extent these acts affect the production, shipment, or receipt of merchandise. Ourfuture operations and performance will be subject to these factors, and these factors could have a material adverse effect on our business,financial condition, profitability, and cash flows or may require us to modify our current business practices and incur increased costs.We rely on our good relationships with brand partners to purchase prestige, mass, and salon beauty products on reasonable terms, andto offer certain brands or products that are permanently or temporarily exclusive to us. If these relationships were to be impaired, or ifcertain brand partners were to change their distribution model or are unable to supply sufficient merchandise to keep pace with ourgrowth plans, we may not be able to obtain a sufficient selection or volume of merchandise on reasonable terms, and we may not be ableto respond promptly to changing trends in beauty products, either of which could have a material adverse effect on our competitiveposition, business, financial condition, profitability, and cash flows.We have no long-term supply agreements with brand partners and, therefore, our success depends on maintaining good relationships withour brand partners. Our business depends to a significant extent on the willingness and ability of our brand partners to supply us with asufficient selection and volume of products to stock our stores. Some of our prestige brand partners may not have the capacity to supply uswith sufficient merchandise to keep pace with our growth plans. We also have strategic partnerships with certain core brands, which haveallowed us to benefit from the growing popularity of such brands. Any of our other core brands could in the future decide to scale back orend its partnership with us and strengthen its relationship with our competitors, which could negatively impact the revenue we earn fromthe sale of such products. If we fail to maintain strong relationships with our existing brand partners, or if we fail to continue acquiring andstrengthening relationships with additional brand partners of beauty products, our ability to obtain a sufficient amount and variety ofmerchandise on reasonable terms may be limited, which could have a negative impact on our competitive position.During fiscal 2022 and fiscal 2021, merchandise supplied to Ulta Beauty by our top ten brand partners accounted for approximately 56%and 54% of our net sales, respectively. There continues to be vendor consolidation within the beauty products industry. The loss of or areduction in the amount of merchandise made available to us by any one of these key vendors, or by any of our other brand partners, couldhave a material adverse effect on our business, financial condition, profitability, and cash flows.We also offer products that are permanently exclusive to us and offer a number of brands and products that are exclusive to us for a limitedperiod of time or are offered in advance of our competitors. If our brand partners ceased granting us permanent or temporary exclusiverights our net sales could be negatively impacted, which could have a material adverse effect on our business, financial condition andprofitability.If we are unable to protect against inventory shrink, our results of operations and financial condition could be adversely affected.Our business depends on our ability to effectively manage our inventory. Risk of inventory loss (also called shrink) is inherent in the retailbusiness. We have historically experienced inventory shrink due to damage, theft (including from organized retail crime), and other causes.While some level of inventory shrink is unavoidable, we continue to experience elevated levels of inventory shrink relative to historicallevels, which have adversely affected, and could continue to adversely affect, our results of operations and financial condition. To protectagainst rising inventory shrink, we have taken, and may continue to take, certain operational and strategic actions that could adverselyaffect our reputation, guest experience, and results of operations.
Table of Contents17Our comparable sales and quarterly financial performance may fluctuate for a variety of reasons, which could result in a decline in theprice of our common stock.Our comparable sales and quarterly results of operations have fluctuated in the past, and we expect them to continue to fluctuate in thefuture. A variety of factors affect our comparable sales and quarterly financial performance, including:●general U.S. economic conditions and, in particular, the retail sales environment;●changes in our merchandising strategy or mix;●performance of our new and remodeled stores;●the effectiveness of our inventory management;●timing and concentration of new store openings, including additional human resource requirements and related pre-opening andother start-up costs;●cannibalization of existing store sales by new store openings;●timing and effectiveness of our marketing activities;●seasonal fluctuations due to weather conditions;●actions by our existing or new competitors; and●hurricanes, tornadoes, wildfires, earthquakes, mudslides, other natural disasters, epidemics or pandemics, and geopolitical events.Accordingly, our results for any one fiscal quarter are not necessarily indicative of the results to be expected for any other quarter, andcomparable sales for any particular future period may decrease. In that event, the price of our common stock may decline.The capacity of our distribution and order fulfillment infrastructure and the performance of our distribution centers and fast fulfillmentcenters may not be adequate to support our future growth, which could prevent the successful implementation of these plans or cause usto incur excess costs to expand this infrastructure, which could have a material adverse effect on our business, financial condition,profitability, and cash flows.We currently operate four distribution centers, which house the distribution operations for Ulta Beauty retail stores together with the orderfulfillment operations of our e-commerce platform, and two fast fulfillment centers (e-commerce only). To support our expected futuregrowth and to maintain the efficient operation of our business, it is likely additional distribution facilities will be added in the future. Ourfailure to effectively upgrade and expand our distribution capacity on a timely basis to keep pace with our anticipated growth in stores andthe performance of our distribution centers could have a material adverse effect on our business, financial condition, profitability, and cashflows.If our marketing, advertising and promotional programs are unsuccessful, our results of operations and financial condition could beadversely affected.Customer traffic and demand for our merchandise are influenced by our advertising, marketing and promotional activities. We usemarketing, advertising and promotional programs to attract customers through various media, including social media, websites, mobileapplications, email, and print. Our future growth and profitability will depend in part upon the effectiveness and efficiency of ouradvertising and marketing programs. Further, disruption to certain media channels could have a material adverse effect on our results ofoperations and financial condition.Use of social media may adversely impact our reputation.There has been a substantial increase in the use of social media platforms, including blogs, social media websites, and other forms ofinternet-based and mobile communications, which allow individuals access to a broad audience of consumers and other interested persons.Negative commentary regarding us or the products we sell may be posted on social media platforms and similar devices at any time andmay be adverse to our reputation or business. Customers value readily available information and often act on such information withoutfurther investigation and without regard to its accuracy or source. The harm may be immediate without affording us an opportunity forredress or correction.
Table of Contents18We also use social media platforms as marketing tools. For example, we maintain Facebook, Twitter, Instagram, TikTok, and Pinterestaccounts. As laws and regulations evolve to govern the use of these platforms and devices, the failure by us, our employees, or third partiesacting at our direction to abide by applicable laws and regulations in the use of these platforms and devices could adversely impact ourbusiness, financial condition, profitability, and cash flows.If we fail to retain our existing senior management team or attract qualified new personnel at all levels, such failure could have amaterial adverse effect on our business, financial condition, profitability, and cash flows.Our business requires disciplined execution at all levels of our organization. This execution requires an experienced and talentedmanagement team. If we were to lose the benefit of the experience, efforts, and abilities of key executive personnel, it could have a materialadverse effect on our business, financial condition, profitability, and cash flows. Furthermore, our ability to manage our retail expansionrequires us to continue to train, motivate, and manage our associates. We also need to attract, motivate, and retain additional qualifiedexecutive, managerial, and merchandising personnel and store and distribution center associates. Competition for this type of personnel isintense, especially in light of the labor pressures resulting from the COVID-19 pandemic, and we may not be successful in attracting,assimilating, and retaining the personnel required to grow and operate our business profitably. In addition, fluctuations in the cost of labor,including as a result of inflationary pressures on wages, may negatively impact our profitability and cash flows.Our secured revolving credit facility contains certain restrictive covenants that could limit our operational flexibility, including ourability to open stores.We have a $1.0 billion secured revolving credit facility with a term expiring in March 2025. Substantially all of our assets are pledged ascollateral for outstanding borrowings under the agreement. The credit facility agreement contains usual and customary restrictive covenantsthat, among other things, limit our ability to incur additional indebtedness, pay cash dividends and repurchase our stock, and merge orconsolidate with another entity, and requires us to maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 during such periodswhen availability under the agreement falls below a specified threshold. These covenants could restrict our operational flexibility and anyfailure to comply with these covenants or our payment obligations would limit our ability to borrow under the credit facility and, in certaincircumstances, may allow the lenders thereunder to require repayment.Economic, Market and Other External RisksMacroeconomic conditions could have a material adverse impact on our business, financial condition, profitability, and cash flows.Macroeconomic conditions, including inflation, rising interest rates and recessionary concerns, as well as ongoing labor cost pressures, transportation and shipping cost pressures, and the COVID-19 pandemic, have had, and may continue to have, a negative impact on our business, financial condition, profitability, and cash flows. For instance, we were negatively impacted in fiscal 2022 by persistent cost pressures, including supply chain and labor costs. We expect inflationary cost pressures to continue in 2023 and we continue to closely monitor macroeconomic conditions, including customer behavior, and the impact of these factors on customer demand. Continuing or worsening inflation, recessionary concerns and/or supply chain and labor challenges, as well as the current turmoil in the banking industry, may have a material adverse impact on our business, financial condition, profitability, and/or cash flows.Although we do not have any operations outside the United States, geopolitical events, including the ongoing conflict between Russia andUkraine and the related economic sanctions by Western governments on Russia, has caused greater uncertainty in the global economy andexacerbated the inflation situation.The health of the economy may affect consumer purchases of discretionary items such as beauty products and salon services, whichcould have a material adverse effect on our business, financial condition, profitability, and cash flows.Our results of operations may be materially affected by conditions in the capital markets and the economy generally. We appeal to a widedemographic consumer profile and offer an extensive selection of beauty products sold directly to retail
Table of Contents19consumers and premium salon services. Uncertainty in the economy could adversely impact consumer purchases of discretionary itemsacross all of our product categories, including prestige beauty products and premium salon services. Factors that could affect consumers’willingness to make such discretionary purchases include: general business conditions, inflationary pressures, recessionary concerns, levelsof employment, interest rates, tax rates, the availability of consumer credit, consumer confidence in future economic conditions, and risksrelated to epidemics or pandemics and geopolitical events. In the event of a prolonged period of inflation, an economic downturn or arecession, consumer spending habits could be adversely affected, and we could experience lower than expected net sales.In addition, a general deterioration in economic conditions could adversely affect our commercial partners including our brand partners aswell as the real estate developers and landlords who we rely on to construct and operate centers in which our stores are located. Abankruptcy or financial failure of a significant vendor or a number of significant real estate developers or shopping center landlords couldhave a material adverse effect on our business, financial condition, profitability, and cash flows. Additionally, volatility and disruption tothe capital and credit markets may have a significant, adverse impact on global economic conditions, resulting in inflationary orrecessionary pressures and declines in consumer confidence and economic growth, which, in turn, may lead to declines in consumerspending. Reduced consumer spending could cause changes in customer order patterns and changes in the level of merchandise purchasedby our customers, and may signify a reset of consumer spending habits, all of which may adversely affect our business, financial condition,profitability, and cash flows.We may be unable to compete effectively in our highly competitive markets.The markets for beauty products and salon services are highly competitive with few barriers to entry. We compete against a diverse groupof retailers, both small and large, including regional and national department stores, specialty retailers, drug stores, mass merchandisers,high-end and discount salon chains, locally owned beauty retailers and salons, online capabilities of national retailers, pure-play e-commerce companies, catalog retailers, and direct response television, including television home shopping retailers and infomercials. Webelieve the principal bases upon which we compete are the breadth of merchandise, our value proposition, the quality of our guests’shopping experience, and the convenience of our stores as one-stop destinations for beauty products and salon services. Many of ourcompetitors are, and many of our potential competitors may be, larger and have greater financial, marketing, and other resources andtherefore, may be able to adapt to changes in customer requirements more quickly, devote greater resources to the marketing and sale oftheir products, generate greater national brand recognition, or adopt more aggressive pricing policies than we can. As a result, we may losemarket share, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.A reduction in traffic to, or the closing of, the other destination retailers in the shopping areas where our stores are located couldsignificantly reduce our sales and leave us with excess inventory, which could have a material adverse effect on our business, financialcondition, profitability, and cash flows.As a result of our real estate strategy, most of our stores are located in off-mall shopping areas known as power centers. Power centerstypically contain three to five big-box anchor stores along with a variety of smaller specialty tenants. As a consequence of most of ourstores being located in such shopping areas, our sales are derived, in part, from the volume of traffic generated by the other destinationretailers and the anchor stores in power centers where our stores are located. Customer traffic to these shopping areas may be adverselyaffected by the closing of such destination retailers or anchor stores, or by a reduction in traffic to such stores resulting from a regional orglobal economic downturn, an outbreak of flu or other viruses, a general downturn in the local area where our store is located, or a declinein the desirability of the shopping environment of a particular power center. Such a reduction in customer traffic would reduce our sales andleave us with excess inventory, which could have a material adverse effect on our business, financial condition, profitability, and cashflows. We may respond by increasing markdowns, initiating marketing promotions, or transferring product to other stores to reduce excessinventory, which would further decrease our gross profits and net income.
Table of Contents20The COVID-19 pandemic continues to negatively affect our business, financial condition, profitability, cash flows and supply chain.Since the first quarter of 2020, there has been a worldwide impact from the COVID 19 pandemic. Government authorities have taken measures to try to contain the virus, such as limiting or closing business activities, transportation and person-to-person interactions, resulting in the temporary closing of all of our stores across the U.S. on March 19, 2020. As a result of this decision, we experienced a significant reduction in customer traffic and demand which resulted in our sales and results of operations being negatively impacted in fiscal 2020. While we have reopened all stores and resumed our in-store services, the potential of temporary restrictions in operating hours, in-store services or reclosing of certain stores in the future is possible. Global trade conditions and customer trends that originated during the pandemic continue to persist and may also have a long-lasting adverse impact on us independently of the progress on the pandemic. For example, the COVID-19 pandemic and its various impacts changed consumer behavior and consumption of beauty products, at least temporarily, due to the closures of offices, retail stores and other businesses and the significant decline in social gatherings, and also resulted in inflationary pressures on wages, transportation and shipping costs, and wholesale costs, recessionary concerns and other evolving macroeconomic conditions. The COVID 19 pandemic has had, and could continue to have, a negative impact on our business, financial condition, profitability, cash flows, and supply chain, although the full extent is still uncertain and cannot be predicted.Future epidemics, pandemics, natural disasters, or other catastrophes or crises could have a material adverse effect on our business,financial condition, profitability, and cash flows.Epidemics, pandemics, or other public health crises, natural disasters, such as hurricanes, tornados, wildfires, earthquakes, and mudslides, as well as acts of violence or terrorism, have resulted in the temporary closure of our stores and, in the future, could also result in physical damage to our properties, the temporary reclosing of our stores, the temporary closing of our distribution and fast fulfillment centers, the temporary lack of an adequate work force, the temporary or long-term disruption in the supply of products (or a substantial increase in the cost of those products) from domestic or foreign suppliers, the temporary disruption in the delivery of goods both to and from our distribution and fast fulfillment centers (or a substantial increase in the cost of those deliveries), the temporary reduction in the availability of products in our stores and/or the temporary reduction in visits to stores by customers. Accordingly, if one or more epidemics, pandemics, natural disasters, and/or acts of violence or terrorism were to occur in the future, it could have a material adverse effect on our business, financial condition, profitability, and cash flows or may require us to incur increased costs.Our stock repurchase programs could affect the price of our common stock and may be suspended or terminated at any time, which mayresult in a decrease in the trading price of our common stock.We may have in place from time to time, a stock repurchase program. Any such stock repurchase program adopted will not obligate theCompany to repurchase any dollar amount or number of shares of common stock and may be suspended or discontinued at any time, whichcould cause the market price of our common stock to decline. Repurchases pursuant to any such stock repurchase program could affect ourstock price and the existence of a stock repurchase program could also cause our stock price to be higher than it would be in the absence ofsuch a program. There can be no assurance that any stock repurchases will enhance stockholder value because the market price of ourcommon stock may decline below the levels at which we repurchased shares of common stock.Climate change might adversely impact our business operations and/or our supply chain.Scientific consensus shows that carbon dioxide and other greenhouse gases in the atmosphere have caused and will in the future causechanges in weather patterns around the globe. Climatologists predict these changes will result in the increased frequency of extremeweather events and natural disasters which could disrupt our business operations or those of our suppliers. These weather events could alsolead to an increased rate of temporary store closures and reduced customer traffic at our stores. In addition, concern about climate changeand greenhouse gases may result in new or additional legal, legislative, and/or regulatory requirements to reduce or mitigate the effects ofclimate change on the
Table of Contents21environment. Any such new requirements could increase our operating costs for things like energy or packaging, as well as our productsupply chain and distribution costs.There is also increased focus, including by investors, guests, and other stakeholders, on climate change and other environmental, social,governance (ESG) and sustainability matters, including single use plastic, energy, waste and worker safety. Concern about climate changemight cause consumer preferences to change, including moving away from products or ingredients considered to have high climate changeimpact and towards products that are more sustainably made, and we expect to incur additional costs in connection with our ESG andsustainability initiatives.Our reputation could be damaged if we do not (or are perceived not to) act responsibly with respect to these matters and, taken together,these matters could materially and adversely affect our business, financial condition, profitability and cash flows, as well as our ability tomeet the needs of our customers.Information Security, Cybersecurity, Data Privacy, Regulatory and Legal RisksCybersecurity or information security breaches and other disruptions could compromise our information, result in the unauthorizeddisclosure of confidential guest, employee, Company and/or business partners’ information, damage our reputation, and expose us toliability, which could negatively impact our business.In the ordinary course of our business, we collect, process, and store sensitive and confidential data, including our proprietary businessinformation and that of our guests, suppliers, and business partners, and personally identifiable information of our guests and employees, inour data centers and on our networks. The secure processing, maintenance, and transmission of this information is critical to our operations.We rely on commercially available systems, software, tools, and monitoring to provide security for processing, transmission, and storage ofconfidential information. Despite the security measures we have in place and continual vigilance in regard to the protection of sensitiveinformation, our systems and those of our third-party service providers may be vulnerable to security breaches, denial-of-service attacks ,break-ins, phishing attacks, social engineering, acts of vandalism, computer viruses, misplaced or lost data, human errors, or other similarevents. Furthermore, we allow certain of our employees to work remotely, as certain of our third-party service providers also allow, and thisremote working environment may increase cybersecurity related risks. Any such breach could compromise our networks and theinformation stored there could be accessed, publicly disclosed, lost, or stolen. Any such access, disclosure, or other loss of informationcould result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations,damage our reputation, and cause a loss of confidence in our business, products, and services, which could adversely affect our business,financial condition, profitability, and cash flows.We are subject to risks relating to our information technology systems, and any failure to adequately protect our critical informationtechnology systems, successfully upgrade our information technology systems or any material disruption of our information systemscould negatively impact financial results and materially adversely affect our business operations, particularly during the holiday season.We are dependent on a variety of information systems, including management, supply chain and financial information, and various otherprocesses and transactions, to effectively manage our business. We also are expanding and upgrading our information systems (includingreplacing our enterprise resource planning platform through Project SOAR) to support historical and expected future growth. The failure ofthese projects, the failure of our information systems to perform as designed, or breaches of security could have an adverse effect on ourbusiness and results of our operations. Any material disruption of our systems could disrupt our ability to track, record, and analyze themerchandise that we sell and could cause delays or cancellation of customer orders or impede the manufacture or shipment of products, theprocessing of transactions, our ability to receive and process e-commerce orders, and/or the reporting of financial results.Our e-commerce operations are increasingly important to our business. The Ulta.com website and our mobile applications serve as aneffective extension of Ulta Beauty’s marketing and prospecting strategies by exposing potential new customers to the Ulta Beauty brand,product offerings, and enhanced content. As the importance of our website, mobile applications, and e-commerce operations to our businesscontinues to grow, we are increasingly vulnerable to
Table of Contents22downtime and other technical failures. Our failure to successfully respond to these risks could reduce e-commerce sales and damage ourbrand’s reputation.Failure to maintain satisfactory compliance with applicable privacy and data protection laws and regulations may subject us to negativefinancial consequences, including civil or criminal penalties, and harm our brand and reputation.Complex local, state and national laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, and otherprocessing of personal data. These privacy and data protection laws and regulations are quickly evolving, with new or modified laws andregulations proposed and implemented frequently (such as those enacted by California and certain other states) and existing laws andregulations subject to new or different interpretations and enforcement. Complying with these laws and regulations may cause us to incursubstantial costs, require changes to our business practices, and limit our ability to obtain data used to provide a differentiated guestexperience. In addition, our failure to comply with applicable laws and regulations or other obligations to which we may be subject relatingto personal data, or to protect personal data from unauthorized access, use, or other processing, could result in enforcement actions andregulatory investigations against us, claims for damages by guests and other affected individuals, fines, and/or damage to our brand andreputation, any of which could adversely affect our business, financial condition, profitability, and cash flows.Litigation and other legal or regulatory proceedings or claims and the outcome of such litigation, proceedings or claims, includingpossible fines and penalties, could have a material adverse effect on our business and any loss contingency accruals may not beadequate to cover actual losses.From time to time, we are subject to litigation, including potential class action and single-plaintiff litigation and other legal or regulatoryproceedings or claims in the ordinary course of our business operations regarding, but not limited to, employment matters, consumerclaims, security of consumer and employee personal information, contractual relations with suppliers, marketing and infringement oftrademarks, and other intellectual property rights. Litigation to defend ourselves against claims by third parties, or to enforce any rights thatwe may have against third parties, may be necessary, which could absorb significant management time and/or result in substantial costs anddiversion of our resources, causing a material adverse effect on our business, financial condition, profitability, and cash flows. We establishaccruals for potential liability arising from litigation and other legal or regulatory proceedings or claims when potential liability is probableand the amount of the loss can be reasonably estimated based on currently available information. We may still incur legal costs for a mattereven if we have not accrued a liability. In addition, actual losses may be higher than the amount accrued for a certain matter, or in theaggregate. Any resolution of litigation or other legal or regulatory proceedings or claims could materially adversely impact our business,financial condition, profitability, and cash flows.Specifically, our technologies, promotional products purchased from third-party vendors, and/or Ulta Beauty branded products, or potentialproducts in development may infringe rights under patents, patent applications, trademark, copyright, or other intellectual property rights ofthird parties in the United States and abroad. These third parties could bring claims against us that would cause us to incur substantialexpenses and, if successful, could cause us to pay substantial damages. Further, if a third party were to bring an intellectual propertyinfringement suit against us, we could be forced to stop or delay development, manufacturing, or sales of the product that is the subject ofthe suit.As a result of intellectual property infringement claims, or to avoid potential claims, we may choose to seek, or be required to seek, alicense from the third party and would most likely be required to pay license fees or royalties or both. These licenses may not be availableon acceptable terms, or at all. Ultimately, we could be prevented from commercializing a product or be forced to cease some aspect of ourbusiness operations if, as a result of actual or threatened intellectual property infringement claims, we are unable to enter into licenses onacceptable terms. Even if we were able to obtain a license, the rights may be non-exclusive, which would give our competitors access to thesame intellectual property. The inability to enter into licenses could harm our business significantly.
Table of Contents23If our manufacturers are unable to produce products manufactured uniquely for Ulta Beauty, including the Ulta Beauty Collection andUlta Beauty branded gifts with purchase and other promotional products, consistent with applicable regulatory requirements, we couldsuffer lost sales and be required to take costly corrective action, which could have a material adverse effect on our business, financialcondition, profitability, and cash flows.We do not own or operate any manufacturing facilities and therefore depend upon independent third-party vendors for the manufacture ofall products manufactured uniquely for Ulta Beauty, including the Ulta Beauty Collection and Ulta Beauty branded gifts with purchase andother promotional products. The FDA does not currently have a pre-market approval system for cosmetics, but requires safety and efficacysubstantiation. If we or our third-party manufacturers fail to comply with applicable regulatory requirements, we could be required to takecostly corrective action. In addition, sanctions under various laws may include seizure of products, injunctions against future shipment ofproducts, restitution and disgorgement of profits, operating restrictions, and criminal prosecution. These events could interrupt themarketing and sale of our Ulta Beauty branded products, severely damage our brand reputation and image in the marketplace, increase thecost of our products, cause us to fail to meet customer expectations, or cause us to be unable to deliver merchandise in sufficient quantitiesor of sufficient quality to our stores, any of which could result in lost sales, which could have a material adverse effect on our business,financial condition, profitability, and cash flows.We, as well as our vendors, are subject to laws and regulations that could require us to modify our current business practices and incurincreased costs, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.In our U.S. markets, numerous laws and regulations at the federal, state, and local levels can affect our business. Legal requirements arefrequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements ortheir effect on our operations. If we fail to comply with any present or future laws or regulations, we could be subject to future liabilities, aprohibition on the operation of our stores, or a prohibition on the sale of our Ulta Beauty branded products. In particular, failure toadequately comply with the following legal requirements could have a material adverse effect on our business, financial condition,profitability, and cash flows.●Our large workforce makes us vulnerable to changes in labor and employment laws. In addition, changes in federal and stateminimum wage laws and other laws relating to employee benefits could cause us to incur additional wage and benefits costs,which could hurt our profitability and affect our growth strategy.●Our salon operations are subject to state board regulations and state licensing requirements for our stylists and our salonprocedures. Failure to maintain compliance with these regulatory and licensing requirements could jeopardize the viability of oursalons.●We operate stores in California, which has enacted legislation commonly referred to as “Proposition 65” requiring that “clear andreasonable” warnings be given to consumers who are exposed to chemicals known to the State of California to cause cancer orreproductive toxicity. Although we have sought to comply with Proposition 65 requirements, there can be no assurance that wewill not be adversely affected by litigation relating to Proposition 65.●Future changes in healthcare reform legislation could significantly impact our business.The formulation, manufacturing, packaging, labeling, distribution, sale, and storage of our vendors’ products and our Ulta Beauty brandedproducts are also subject to extensive regulation by various federal agencies, including FDA, FTC, CPSC, and various state and localagencies, such as State AGs and District Attorneys. If we, our vendors, or the manufacturers of our Ulta Beauty branded products fail tocomply with those regulations, we could become subject to significant penalties, claims, or product recalls, which could harm our results ofoperations, our reputation and/or our ability to conduct our business.Additionally, the adoption of new regulations or changes in the interpretations of existing regulations may result in significant compliancecosts or discontinuation of product sales and may impair the marketability of our vendors’ products or our Ulta Beauty branded products,resulting in significant loss of net sales. Our failure to comply with federal, state, or local requirements when we advertise our products(including prices) or services, or engage in other promotional activities, in digital (including social media), television, or print may result inenforcement actions and imposition of penalties or otherwise harm the distribution and sale of our products.
Table of Contents24Our associates or others may engage in misconduct or other improper activities, including noncompliance with our policies andprocedures.We are exposed to the risk of misconduct or other improper activities by our associates and third parties such as independent contractors oragents. Misconduct by associates, independent contractors, or agents could include inadvertent or intentional failures to comply with ourpolicies and procedures, the laws and regulations to which we are subject, and/or ethical, social, product, labor, and environmentalstandards. Our current and former associates or independent contractors may also become subject to allegations of sexual harassment, racialand gender discrimination, or other similar misconduct, which, regardless of the ultimate outcome, may result in adverse publicity thatcould significantly harm our brand, reputation, and operations. Associate misconduct could also involve improper use of informationobtained in the course of the associate’s prior or current employment, which could result in legal or regulatory action and harm to ourreputation.If we are unable to protect our intellectual property rights, our brand and reputation could be harmed, which could have a materialadverse effect on our business, financial condition, profitability, and cash flows.We regard our trademarks, trade dress, copyrights, trade secrets, know-how, and similar intellectual property as critical to our success. Ourprincipal intellectual property rights include registered and common law trademarks on “The Possibilities are Beautiful.®,” “Ulta Beauty,”“Ulta,” and other marks incorporating our name and “All Things Beauty. All in One Place®,” “21 Days of Beauty®,” and “ConsciousBeauty at Ulta Beauty®,” copyrights in our website and mobile applications content, rights to our domain name www.ulta.com, and tradesecrets and know-how with respect to our Ulta Beauty branded product formulations, product sourcing, sales and marketing, and otheraspects of our business, and our digital innovations such as try-on applications and artificial intelligence. As such, we rely on trademark andcopyright law, trade secret protection, and confidentiality agreements with certain of our employees, consultants, suppliers, and others toprotect our proprietary rights. If we are unable to protect or preserve the value of our trademarks, copyrights, trade secrets, or otherproprietary rights for any reason (including any cybersecurity incident that results in the unauthorized use of our intellectual propertyrights), or if other parties infringe on our intellectual property rights, our brand and reputation could be impaired, and we could losecustomers, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.In addition, we license certain of our trademarks to some of our business partners. While we enter into comprehensive agreements with ourbusiness partners covering, among other things, use of our brand name, the value of our brand and our reputation could be impaired to theextent that our business partners do not operate their businesses, including their stores or websites, in a manner consistent with ourrequirements regarding our brand identities and customer experience standards. Failure to protect the value of our brands, or any otherharmful acts or omissions by a business partner, could have an adverse effect on our business, financial condition, profitability, cash flowsand reputation.Our Ulta Beauty branded products and salon services may cause unexpected and undesirable side effects that could result in theirdiscontinuance or expose us to lawsuits, either of which could result in unexpected costs and damage to our reputation, which couldhave a material adverse effect on our business, financial condition, profitability, and cash flows.Unexpected and undesirable side effects caused by our Ulta Beauty branded products for which we have not provided sufficient labelwarnings or salon services, which may have been performed negligently, could result in the discontinuance of sales of our products or ofcertain salon services or prevent us from achieving or maintaining market acceptance of the affected products and services. Such sideeffects could also expose us to product liability or negligence lawsuits. Any claims brought against us may exceed our existing or futureinsurance policy coverage or limits. Any judgment against us that is in excess of our policy limits would have to be paid from our cashreserves, which would reduce our capital resources. These events could cause negative publicity regarding our Company, brand, orproducts, which could in turn harm our reputation and net sales, which could have a material adverse effect on our business, financialcondition, profitability, and cash flows.
Table of Contents25Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change in control, even if asale of the Company would be beneficial to our stockholders, which could cause our stock price to decline and prevent attempts by ourstockholders to replace or remove our current management.Our certificate of incorporation and bylaws contain provisions that may delay or prevent a change in control, discourage bids at a premiumover the market price of our common stock, and harm the market price of our common stock and diminish the voting and other rights of theholders of our common stock. These provisions include:●dividing our Board of Directors into three classes serving staggered three-year terms;●authorizing our Board of Directors to issue preferred stock and additional shares of our common stock without stockholderapproval;●prohibiting stockholder actions by written consent;●prohibiting our stockholders from calling a special meeting of stockholders; and●requiring advance notice for raising business matters or nominating directors at stockholders’ meetings.We are also subject to provisions of Delaware law that, in general, prohibit any business combination with a beneficial owner of 15% ormore of our common stock for three years after the stockholder becomes a 15% stockholder, subject to specified exceptions. Together, theseprovisions of our certificate of incorporation and bylaws and of Delaware law could make the removal of management more difficult andmay discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common stock.Item 1B. Unresolved Staff CommentsNone.
Table of Contents26Item 2. PropertiesAll of our retail stores, distribution centers, fast fulfillment centers, market fulfillment centers, and corporate offices are leased or subleased.Retail storesOur retail stores are predominantly located in convenient, high-traffic locations such as power centers. Our typical store is approximately10,000 square feet, including approximately 950 square feet dedicated to our full-service salon. Most of our retail store leases provide for afixed minimum annual rent and generally have a 10-year initial term with options for two or three extension periods of five years each,exercisable at our option. As of January 28, 2023, we operated 1,355 retail stores across 50 states, as shown in the table below:Number ofNumber ofLocationstoresLocationstoresAlabama24Montana6Alaska3Nebraska5Arizona33Nevada16Arkansas11New Hampshire8California168New Jersey44Colorado26New Mexico7Connecticut19New York55Delaware4North Carolina43Florida92North Dakota4Georgia43Ohio45Hawaii4Oklahoma22Idaho9Oregon18Illinois55Pennsylvania45Indiana26Rhode Island4Iowa11South Carolina24Kansas13South Dakota3Kentucky15Tennessee29Louisiana18Texas126Maine3Utah15Maryland28Vermont1Massachusetts25Virginia32Michigan49Washington37Minnesota19West Virginia7Mississippi12Wisconsin20Missouri25Wyoming4Total1,355
Table of Contents27Distribution centers, fast fulfillment centers, and market fulfillment centersOur standard distribution center, fast fulfillment center, and market fulfilment center lease provides for a fixed minimum annual rent andgenerally has a 10 or 15-year initial term with three or four renewal options with terms of five years each. The general location andapproximate size, and lease expiration date for each distribution center (DC), fast fulfillment center (FFC) and market fulfillment center(MFC) at January 28, 2023, are set forth below:ApproximateLease ExpirationLocationTypeSquare FeetDateChambersburg, PennsylvaniaDC503,605June 30, 2027Dallas, TexasDC670,680July 31, 2026Fresno, CaliforniaDC670,680July 31, 2028Greenwood, IndianaDC670,680July 31, 2025Greer, South Carolina (1)MFC303,580May 31, 2033Jacksonville, FloridaFFC203,463September 30, 2029Romeoville, IllinoisFFC291,335May 31, 2026(1)Expected to open in fiscal 2023.Corporate officeOur principal executive office is in Bolingbrook, Illinois. The corporate office is approximately 341,000 square feet with lease termsexpiring in 2028. Additionally, we have a satellite corporate office in Chicago, Illinois. The Chicago office is approximately 23,000 squarefeet with lease expiration in 2026.Item 3. Legal ProceedingsSee Note 10 to our consolidated financial statements, “Commitments and contingencies - General litigation,” for information on legalproceedings.Item 4. Mine Safety DisclosuresNone.Item 4A. Executive OfficersThe names of our executive officers, their ages and their positions are shown below:NameAgePositionDavid C. Kimbell56Chief Executive Officer and member of the Board of DirectorsScott M. Settersten62Chief Financial Officer, Treasurer and Assistant SecretaryJodi J. Caro57General Counsel, Chief Risk & Compliance Officer and Corporate SecretaryAnita J. Ryan58Chief Human Resources OfficerKecia L. Steelman52Chief Operating OfficerThere is no family relationship between any of the directors or executive officers and any other director or executive officer of Ulta Beauty.David C. Kimbell. Mr. Kimbell was named Chief Executive Officer in June 2021 after having previously served as President sinceDecember 2019, Chief Merchandising and Marketing Officer since March 2015, and Chief Marketing Officer since February 2014. Prior tojoining Ulta Beauty, he served as Chief Marketing Officer and Executive Vice President at U.S. Cellular, Chief Marketing Officer ofSeventh Generation, Vice President of Marketing at PepsiCo, and held a number of brand management roles in the Beauty Division of TheProcter and Gamble Company from 1995 to
Table of Contents282001. Mr. Kimbell currently serves on the board of directors for Big Brothers Big Sisters of Metropolitan Chicago and Chicago Lights, and is a member of The Economic Club of Chicago.Scott M. Settersten. Mr. Settersten was named Chief Financial Officer, Treasurer and Assistant Secretary in March 2013, after serving asActing Chief Financial Officer and Assistant Secretary since October 2012. Mr. Settersten oversees the company’s finance, accounting, tax,treasury, procurement, internal audit, loss prevention, investor relations, and real estate teams, including the optimization of the company’sstore fleet. Previously, Mr. Settersten served as Vice President of Accounting since 2010, after joining Ulta Beauty in January 2005 as aDirector of Financial Reporting. Prior to Ulta Beauty, Mr. Settersten spent 15 years with PricewaterhouseCoopers LLP as a certified publicaccountant serving in various senior manager roles in the assurance and risk management practices.Jodi J. Caro. Ms. Caro was named General Counsel, Chief Risk & Compliance Officer in August 2015. She also serves as CorporateSecretary and Chief Privacy Officer. Ms. Caro oversees Ulta Beauty’s Legal, Risk & Governance Services team in delivering legal,governance, compliance, risk management and property management services, as well as leading all Environmental, Social, andGovernance efforts. Prior to joining Ulta Beauty, she was Vice President, General Counsel and Secretary for Integrys Energy Group, inaddition to holding the role of Integrys’ Chief Compliance and Ethics Officer. Prior to joining Integrys in 2008, Ms. Caro owned andoperated her own law practice, which provided general counsel and corporate services to clients ranging from established multi-million-dollar companies to medium and small early-stage enterprises. Prior to opening her law practice in 2006, she was co-founder and GeneralCounsel of Looking Glass Networks, a privately held, facilities-based telecommunications company, and served as an in-house attorneywith MCI/WORLDCOM. Ms. Caro is also Vice-Chair of the Retail Litigation Center and serves on the Chicago-Kent College of LawBoard of Advisors as well as the board of directors for Communities in Schools of Chicago.Anita J. Ryan. Ms. Ryan was named Chief Human Resources Officer in April 2022, after having previously served as Senior Vice Presidentof Human Resources since 2018 and Vice President of Human Resources since 2016. Ms. Ryan oversees all human resources activities,including talent acquisition, total rewards, DEI, associate relations, compliance, and training, as well as oversees all strategic internalcommunications. Prior to Ulta Beauty, Ms. Ryan began her career in the grocery industry before transitioning to human resources.Kecia Steelman.Ms. Steelman was named Chief Operating Officer in June 2021. Ms. Steelman oversees store and services operations,supply chain, Ulta Beauty at Target, and enterprise-wide optimization efforts. Previously, Ms. Steelman served as Chief Store OperationsOfficer since September 2015 and as Senior Vice President, Store Operations since July 2014. Prior to joining Ulta Beauty, Ms. Steelmanwas Group Vice President at Family Dollar Stores from 2011 to 2014, after joining the company in 2009 as Vice President, StoreDevelopment and Store Operations. From 2005 to 2009, Ms. Steelman was Vice President, General Manager of Expo Design Center, HomeDepot Design Center, and YardBIRDs and Director of New Store Innovations at the Home Depot Corporation. Ms. Steelman began hercareer at Target Corporation and served in a variety of retail operations and merchandising roles with increasing responsibility from 1993 to2005. Ms. Steelman currently serves on the board of directors for Metropolitan Family Services and the Adler Planetarium, and is amember of The Economic Club of Chicago.Part IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket informationOur common stock has traded on the NASDAQ Global Select Market under the symbol “ULTA” since October 25, 2007.
Table of Contents29Holders of the registrant’s common stockThe last reported sale price of our common stock on the NASDAQ Global Select Market on March 20, 2023 was $510.23 per share. As ofMarch 20, 2023, we had 27 holders of record of our common stock. Because many shares of common stock are held by brokers and otherinstitutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.Purchases of equity securities by the issuer and affiliated purchasersThe following table sets forth repurchases of our common stock during the fourth quarter of 2022:PeriodTotal numberof sharespurchased (1)Averageprice paidper shareTotal numberof sharespurchased aspart of publiclyannouncedplans orprograms (2)Approximatedollar value ofshares that may yetbe purchasedunder plans orprograms(in thousands) (2)October 30, 2022 to November 26, 2022164,683$426.90164,657$1,357,800November 27, 2022 to December 24, 2022557,912462.24557,8001,099,966December 25, 2022 to January 28, 2023388484.68—1,099,96613 weeks ended January 28, 2023722,983454.20722,4571,099,966(1)There were 722,457 shares repurchased as part of our publicly announced share repurchase program during the 13 weeks endedJanuary 28, 2023, and there were 526 shares transferred from employees in satisfaction of minimum statutory tax withholdingobligations upon the vesting of restricted stock during the period.(2)On March 7, 2022, the Board of Directors authorized the 2022 share repurchase program pursuant to which the Company mayrepurchase up to $2.0 billion of the Company’s common stock. As of January 28, 2023, the amount remaining available was $1.1billion.Recent sales of unregistered securitiesNone.Securities authorized for issuance under equity compensation plansThe following table provides information about Ulta Beauty common stock that may be issued under our equity compensation plans as ofJanuary 28, 2023:Number of securitiesNumber of securitiesremaining availableto be issued uponWeighted-averagefor future issuanceexercise of outstandingexercise price ofunder equityoptions, warrantsoutstanding options,compensationPlan categoryand rights (2)warrants and rights (3)plans (4)Equity compensation plans approved by security holders (1)621,214$260.342,424,824(1)Includes options issued and available for exercise and shares available for issuance in connection with past awards under the Amendedand Restated 2011 Incentive Award Plan and predecessor equity incentive plans. We currently grant awards only under the Amendedand Restated 2011 Incentive Award Plan.(2)Includes 324,410 shares issuable pursuant to the exercise of outstanding stock options, 221,045 shares issuable pursuant to restrictedstock units, and 75,759 shares issuable pursuant to performance-based units.
Table of Contents30(3)Calculation of weighted-average exercise price of outstanding awards includes stock options but does not include shares of restrictedstock units or performance-based units that convert to shares of common stock for no consideration.(4)Represents shares that are available for issuance pursuant to the Amended and Restated 2011 Incentive Award Plan. The sharesavailable under the plan are reduced by 1.0 for each stock option awarded and by 1.5 for each restricted stock unit and performance-based unit awarded.Stock performance graphThe following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, norshall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.Set forth below is a graph comparing the cumulative total stockholder return on Ulta Beauty’s common stock with the S&P 500 and theS&P 500 Retailing (Industry Group, SP500-2550) for the period covering February 3, 2018 through the end of Ulta Beauty’s fiscal yearended January 28, 2023. The graph assumes an investment of $100 made at the closing of trading on February 3, 2018 in (i) Ulta Beauty’scommon stock, (ii) the stocks comprising the S&P 500 and (iii) the stocks comprising the S&P 500 Retailing (Industry Group, SP500-2550). All values assume reinvestment of the full amount of all dividends, if any, into additional shares of the same class of equitysecurities at the frequency with which dividends are paid on such securities during the applicable time period.Fiscal year endedFebruary 3,February 2,February 1,January 30,January 29,January 28,Company / Index201820192020202120222023Ulta Beauty$100.00$131.44$120.63$125.96$161.56$227.68S&P 500100.0095.76114.23131.53156.95144.15S&P 500 Retailing100.00107.55125.27176.00185.28152.12
Table of Contents31Item 6. [Reserved]Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financialstatements and related notes included elsewhere in this Annual Report on Form 10-K.OverviewWe were founded in 1990 as a beauty retailer at a time when prestige, mass, and salon products were sold through distinct channels –department stores for prestige products; drug stores and mass merchandisers for mass products; and salons and authorized retail outlets forprofessional hair care products. We developed a unique specialty retail concept that offers a broad range of brands and price points, selectbeauty services, and a convenient and welcoming shopping environment. We define our target consumer as a beauty enthusiast, a consumerwho is passionate about the beauty category, uses beauty for self-expression, experimentation, and self-investment, and has highexpectations for the shopping experience. We estimate beauty enthusiasts represent approximately 65% of shoppers and 80% of beautyproducts and services spend in the U.S. We believe our strategy provides us with the competitive advantages that have contributed to ourfinancial performance.Today, we are the largest specialty beauty retailer in the United States and the premier beauty destination for cosmetics, fragrance, skin careproducts, hair care products, and salon services. Key aspects of our business include: a differentiated assortment of more than 25,000beauty products across a variety of categories and price points as well as a variety of beauty services, including salon services, in more than1,350 stores predominantly located in convenient, high-traffic locations; engaging digital experiences delivered through our website,Ulta.com, and our mobile applications; our best-in-class loyalty program that enables members to earn points for every dollar spent onproducts and beauty services and provides us with deep, proprietary customer insights; and our ability to cultivate human connection withwarm and welcoming guest experiences across all of our channels.The continued growth of our business and any future increases in net sales, net income, and cash flows is dependent on our ability toexecute our strategic priorities: 1) drive breakthrough and disruptive growth through an expanded definition of All Things Beauty; 2)evolve the omnichannel experience through connected physical and digital ecosystems, All In Your World; 3) expand and deepen ourpresence across the beauty journey, solidifying Ulta Beauty at the Heart of the Beauty Community; 4) drive operational excellence andoptimization; 5) protect and cultivate our world-class culture and talent; and 6) expand our environmental and social impact. We believe theattractive and growing U.S. beauty products and salon services industry, the expanding definition of beauty and the role that omnichannelcapabilities play in consumers’ lives, coupled with Ulta Beauty’s competitive strengths, position us to capture additional market share in theindustry.Comparable sales is a key metric that is monitored closely within the retail industry. Our comparable sales have fluctuated in the past, andwe expect them to continue to fluctuate in the future. A variety of factors affect our comparable sales, including general U.S. economicconditions, changes in merchandise strategy or mix, and timing and effectiveness of our marketing activities, among others.Over the long term, our growth strategy is to increase total net sales through growing our comparable sales, expanding omnichannelcapabilities, and opening new stores. Long-term operating profit is expected to increase as a result of our efforts to optimize our real estateportfolio, expand merchandise margin, and leverage our fixed store costs with comparable sales increases and operating efficiencies,partially offset by incremental investments in people, guest experiences, systems, and supply chain required to support a 1,500 to 1,700store chain in the U.S. with successful e-commerce and competitive omnichannel capabilities.
Table of Contents32Current TrendsImpact of COVID-19We closely monitor the continuing impact of COVID-19 on all facets of our business. While operations during fiscal 2022 did not appear tobe negatively impacted, the COVID-19 pandemic and the conditions and trends that originated during the pandemic could have negativeimpacts in the future. The extent of the impact of the pandemic and the conditions and trends that originated during the pandemic on ourfuture business and financial results will depend on, among other things, the potential of temporary restrictions on operating hours, in-storeservices or reclosing of certain stores or other facilities of ours or our brand partners and other suppliers, supply chain disruptions, increasedtransportation and shipping costs, higher wholesale costs, increased labor costs, and the duration, timing and severity of the impact of theforegoing on consumer spending.Industry trendsOur research indicates that Ulta Beauty has captured meaningful market share across all categories over the last several years. However, theCOVID-19 pandemic and its various impacts changed consumer behavior and consumption of beauty products, at least temporarily, due tothe closures of offices, retail stores, and other businesses and the significant decline in travel, entertainment and social gatherings. Theoverall beauty market declined in 2020, stabilized in 2021, and expanded in 2022, as consumers resumed in-person shopping whilemaintaining some of their online shopping behaviors. We remain confident that our differentiated and diverse business model, ourcommitment to strategic investments, and our highly engaged associates will continue to drive market share gains over the long term.Impact of inflation and other macroeconomic trendsAlthough we do not believe inflation had a material impact on our sales during fiscal 2022, continued pressure from inflation or otherevolving macroeconomic conditions could have an adverse impact on consumer spending and could lead to a recession. Furthermore,inflationary pressures, as well as other macroeconomic trends, could negatively impact our ability to maintain current levels of grossmargin and selling, general and administrative expenses as a percentage of net sales if the selling prices of our products do not increasewith higher costs. In addition, inflation could materially increase the interest rates on any future debt.Basis of presentationThe Company has one reportable segment, which includes retail stores, salon services, and e-commerce. We recognize merchandise revenue at the point of sale in our retail stores. E-commerce sales are recognized upon shipment or guest pickupof the merchandisebased on meeting the transfer of control criteria. Retail store and e-commerce sales are recorded net of estimatedreturns. Shipping and handling are treated as costs to fulfill the contract and not a separate performance obligation. Accordingly, werecognize revenue for our single performance obligation related to online sales at the time control of the merchandise passes to thecustomer, which is at the time of shipment or guest pickup. We provide refunds for merchandise returns within 60 days from the originalpurchase date. State sales taxes are presented on a net basis as we consider our self a pass-through conduit for collecting and remitting statesales tax. Salon service revenue is recognized at the time the service is provided to the guest. Gift card sales revenue is deferred until theguest redeems the gift card. Company coupons and other incentives are recorded as a reduction of net sales. Other revenue includes theprivate label and co-branded credit card programs, royalties derived from the partnership with Target Corporation, and deferred revenuerelated to the loyalty program and gift card breakage.Comparable sales reflect sales for stores beginning on the first day of the 14thmonth of operation. Therefore, a store is included in ourcomparable store base on the first day of the period after one year of operations plus the initial one-month grand opening period. Non-comparable store sales include sales from new stores that have not yet completed their 13thmonth of operation and stores that were closedfor part or all of the period in either year. Remodeled stores are included in comparable sales unless the store was closed for a portion of thecurrent or prior period. Comparable sales
Table of Contents33include retail sales, salon services, and e-commerce. There may be variations in the way in which some of our competitors and otherretailers calculate comparable or same store sales.Measuring comparable sales allows us to evaluate the performance of our store base as well as several other aspects of our overall strategy.Several factors could positively or negatively impact our comparable sales results:●the general national, regional, and local economic conditions and corresponding impact on customer spending levels;●the introduction of new products or brands;●the location of new stores in existing store markets;●competition;●our ability to respond on a timely basis to changes in consumer preferences;●the effectiveness of our various merchandising and marketing activities; and●the number of new stores opened and the impact on the average age of all of our comparable stores.Cost of sales includes:●the cost of merchandise sold, offset by vendor income that is not a reimbursement of specific, incremental, and identifiable costs;●distribution costs including labor and related benefits, freight, rent, depreciation and amortization, real estate taxes, utilities, andinsurance;●shipping and handling costs;●retail store 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.Our cost of sales may be negatively impacted as we open new stores. Changes in our merchandise or channel mix may also have an impacton cost of sales. This presentation of items included in cost of sales may not be comparable to the way in which our competitors or otherretailers compute their cost of sales.Selling, general and administrative expenses include:●payroll, bonus, and benefit costs for retail store and corporate employees;●advertising and marketing costs, offset by vendor income that is a reimbursement of specific, incremental, and identifiable 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 stores and distribution operations, which are includedin cost of sales; and●legal, finance, information systems, and other corporate overhead costs.This presentation of items in selling, general and administrative expenses may not be comparable to the way in which our competitors orother retailers compute their selling, general and administrative expenses.Impairment, restructuring and other costs include long-lived asset impairment charges, restructuring costs associated with store closings,costs associated with the suspension of our Canadian expansion, and employee related severance costs. Pre-opening expenses include non-capital expenditures during the period prior to store opening for new, remodeled, and relocated storesincluding rent during the construction period for new and relocated stores, store set-up labor, management and employee training, andgrand opening advertising.
Table of Contents34Interest (income) expense, net includes both interest income and expense. Interest income represents interest from cash equivalents andshort-term investments with maturities of twelve months or less from the date of purchase. Interest expense includes interest costs andfacility fees associated with our credit facility, which is structured as an asset-based lending instrument. Our credit facility interest is basedon a variable interest rate structure which can result in increased cost in periods of rising interest rates.Income tax expense reflects the federal statutory tax rate and the weighted average state statutory tax rate for the states in which we operatestores.Results of operationsOur fiscal years are the 52- or 53-week periods ending on the Saturday closest to January 31. The Company’s fiscal years endedJanuary 28, 2023 (fiscal 2022), January 29, 2022 (fiscal 2021), and January 30, 2021 (fiscal 2020) were all 52-week years.As of January 28, 2023, we operated 1,355 stores across 50 states. The following tables present the components of our consolidated resultsof operations for the periods indicated:Fiscal year endedJanuary 28,January 29,January 30,(Dollars in thousands)202320222021Net sales$10,208,580$8,630,889$6,151,953Cost of sales6,164,0705,262,3354,202,794Gross profit4,044,5103,368,5541,949,159Selling, general and administrative expenses2,395,2992,061,5451,583,017Impairment, restructuring and other costs——114,322Pre-opening expenses10,6019,51715,000Operating income1,638,6101,297,492236,820Interest (income) expense, net(4,934)1,6635,735Income before income taxes1,643,5441,295,829231,085Income tax expense401,136309,99255,250Net income$1,242,408$985,837$175,835Other operating data:Number of stores end of year1,3551,3081,264Comparable sales15.6%37.9%(17.9%)Fiscal year endedJanuary 28,January 29,January 30,(Percentage of net sales)202320222021Net sales100.0%100.0%100.0%Cost of sales60.4%61.0%68.3%Gross profit39.6%39.0%31.7%Selling, general and administrative expenses23.5%23.9%25.7%Impairment, restructuring and other costs0.0%0.0%1.9%Pre-opening expenses0.1%0.1%0.2%Operating income16.1%15.0%3.9%Interest (income) expense, net0.0%0.0%0.1%Income before income taxes16.1%15.0%3.8%Income tax expense3.9%3.6%0.9%Net income12.2%11.4%2.9%
Table of Contents35Fiscal year 2022 versus fiscal year 2021Net salesNet sales increased $1.6 billion, or 18.3%, to $10.2 billion in fiscal 2022 compared to $8.6 billion in fiscal 2021. The net sales increase wasprimarily due to the favorable impact from the continued resilience of the beauty category, retail price increases, the impact of new brandsand product innovation, increased social occasions and fewer COVID-19 limitations compared to fiscal 2021, and an increase of $77.3million in other revenue. The total comparable sales increase of 15.6% in fiscal 2022, compared to an increase of 37.9% in fiscal 2021, wasdriven by a 10.8% increase in transactions and a 4.3% increase in average ticket.Gross profitGross profit increased $676.0 million, or 20.1%, to $4.0 billion in fiscal 2022, compared to $3.4 billion in fiscal 2021. Gross profit asa percentage of net sales increased 60 basis points to 39.6% in fiscal 2022 compared to 39.0% in fiscal 2021. The increase in gross profitmargin was primarily due to:●100 basis points of leverage of fixed costs attributed to the impact of higher sales and ongoing occupancy cost optimizationefforts;●60 basis points of leverage in other revenue primarily due to credit card income growth, an increase in royalty income from ourpartnership with Target, and higher loyalty point redemptions; and●20 basis points of leverage due to favorable channel mix shifts; partially offset by●70 basis points of deleverage in inventory shrink; and●50 basis points of deleverage in merchandise margins driven by brand mix and lapping benefits from favorable inventory reserveadjustments in fiscal 2021, partially offset by the timing of retail price changes.Selling, general and administrative expensesSelling, general and administrative (SG&A) expenses increased $333.8 million, or 16.2%, to $2.4 billion in fiscal 2022 compared to $2.1billion in fiscal 2021. As a percentage of net sales, SG&A expenses decreased 40 basis points to 23.5% in fiscal 2022 compared to 23.9% infiscal 2021. The leverage of SG&A expenses was primarily due to:●80 basis points of leverage due to lower marketing expenses; and●20 basis points of leverage of incentive compensation due to higher sales; partially offset by●40 basis points of deleverage of corporate overhead primarily due to strategic investments; and●20 basis points of deleverage of store payroll and benefits due to wage investments.Pre-opening expensesPre-opening expenses increased $1.1 million, or 11.4%, to $10.6 million in fiscal 2022 compared to $9.5 million in fiscal 2021.Interest (income) expense, netInterest income, net was $4.9 million in fiscal 2022 compared to $1.7 million of interest expense, net in fiscal 2021. Interest incomerepresents interest from cash equivalents and short-term investments with maturities of twelve months or less from the date of purchase.Interest expense represents interest on borrowings and fees related to the credit facility. We did not have any outstanding borrowings on ourcredit facility as of January 28, 2023 and January 29, 2022.Income tax expenseIncome tax expense of $401.1 million in fiscal 2022 represents an effective tax rate of 24.4%, compared to fiscal 2021 income tax expenseof $310.0 million and an effective tax rate of 23.9%. The higher income tax expense is primarily due
Table of Contents36to less tax benefit from the income tax accounting for share-based compensation and an increase in state tax expense compared to fiscal2021.Net incomeNet income increased $256.6 million to $1.2 billion in fiscal 2022 compared to $985.8 million in fiscal 2021. The increase in net incomewas primarily due to a $676.0 million increase in gross profit, partially offset by a $333.8 million increase in SG&A expenses and $91.1million increase in income taxes.Fiscal year 2021 versus fiscal year 2020Net salesNet sales increased $2.5 billion, or 40.3%, to $8.6 billion in fiscal 2021 compared to $6.2 billion in fiscal 2020. The net sales increase wasprimarily due to the favorable impact from stronger consumer confidence, government stimulus payments, and the easing of COVID-19restrictions, and an increase of $15.1 million in other revenue. The total comparable sales increase of 37.9% in fiscal 2021, compared to adecrease of 17.9% in fiscal 2020, was driven by a 30.0% increase in transactions and a 6.0% increase in average ticket.Gross profitGross profit increased $1.4 billion, or 72.8%, to $3.4 billion in fiscal 2021, compared to $1.9 billion in fiscal 2020. Gross profit asa percentage of net sales increased 730 basis points to 39.0% in fiscal 2021 compared to 31.7% in fiscal 2020. The increase in gross profitmargin was primarily due to:●300 basis points leverage of fixed costs attributed to the impact of higher sales;●190 basis points of improvements in merchandise margins driven by lower promotional activity and cost optimization efforts;●140 basis points of leverage due to favorable channel mix shifts; and●100 basis points of leverage in salon expenses attributed to the impact of higher sales.Selling, general and administrative expensesSG&A expenses increased $0.5 billion, or 30.2%, to $2.1 billion in fiscal 2021 compared to $1.6 billion in fiscal 2020. As a percentage ofnet sales, SG&A expenses decreased 180 basis points to 23.9% in fiscal 2021 compared to 25.7% in fiscal 2020. The leverage in SG&Aexpenses was primarily due to:●180 basis points of leverage of corporate overhead due to higher sales;●90 basis points of leverage of store payroll and benefits due to higher sales; and●50 basis points of leverage of store expenses due to higher sales; partially offset by●80 basis points of deleverage due to less employee retention credits received under the Coronavirus Aid, Relief and EconomicSecurity Act (CARES Act); and●60 basis points of deleverage due to higher incentive compensation.Impairment, restructuring and other costsThere were no impairment, restructuring and other costs recognized in fiscal 2021 compared to $114.3 million for fiscal 2020, whichconsisted of $41.9 million due to the impairment of tangible long-lived assets and operating lease assets associated with certain retail stores,$29.1 million related to the suspension of the planned expansion to Canada, $27.5 million related to the permanent closure of 19 stores, and$15.8 million of severance charges.
Table of Contents37Pre-opening expensesPre-opening expenses decreased $5.5 million, or 36.6%, to $9.5 million in fiscal 2021 compared to $15.0 million in fiscal 2020 due tocurrent year real estate activity and stores expected to open in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021.Interest expense, netInterest expense, net was $1.7 million in fiscal 2021 compared to $5.7 million of interest expense, net in fiscal 2020. Interest expenserepresents interest on borrowings and fees related to the credit facility. Interest income results from short-term investments. We did not haveany outstanding borrowings on our credit facility as of January 29, 2022 and January 30, 2021.Income tax expenseIncome tax expense of $310.0 million in fiscal 2021 represents an effective tax rate of 23.9%, compared to fiscal 2020 income tax expenseof $55.3 million and an effective tax rate of 23.9%. The higher income tax expense is primarily due to higher operating income compared tofiscal 2020.Net incomeNet income increased $810.0 million to $985.8 million in fiscal 2021 compared to $175.8 million in fiscal 2020. The increase in net incomewas primarily due to a $1.4 billion increase in gross profit and a $114.3 million decrease in impairment, restructuring and other costs,partially offset by a $0.5 billion increase in SG&A expenses and $254.7 million increase in income taxes.Liquidity and capital resourcesOur primary sources of liquidity are cash and cash equivalents, cash flows from operations, and borrowings under our credit facility. Themost significant components of our working capital are merchandise inventories and cash and cash equivalents reduced by accountspayable, accrued liabilities, and deferred revenue. As of January 28, 2023 and January 29, 2022, we had cash and cash equivalents of$737.9 million and $431.6 million, respectively.Our primary cash needs are for rent, capital expenditures for new, remodeled, and relocated stores, increased merchandise inventoriesrelated to store expansion and new brand additions, supply chain improvements, share repurchases, and continued investment in ourinformation technology systems.Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for leaseexpenses, inventory, labor, distribution, advertising and marketing, and tax liabilities) as well as periodic spend for capital expenditures,investments, and share repurchases. Our working capital needs are greatest from August through November each year as a result of ourinventory build-up during this period for the approaching holiday season.Long-term cash requirements primarily relate to funding lease expenses and other purchase commitments.We generally fund short-term and long-term cash requirements with cash from operating activities. We believe our primary sources ofliquidity will satisfy our cash requirements over both the short term (the next twelve months) and long term.
Table of Contents38The following table summarizes contractual cash requirements as of January 28, 2023:Less Than1 to 33 to 5More than 5(In thousands)Total1 YearYearsYearsYearsOperating lease obligations (1)$2,211,981$342,680$719,329$564,184$585,788Purchase obligations111,23363,41946,2251,589—Total (2)$2,323,214$406,099$765,554$565,773$585,788(1)These amounts are for our undiscounted lease obligations recorded in our consolidated balance sheets as operating lease liabilities.Also included are legally binding minimum lease payments for leases signed but not yet commenced of $91.5 million, which areexcluded from operating lease liabilities shown on our consolidated balance sheets.(2)The unrecognized tax benefit of $4.2 million as of January 28, 2023 is excluded due to uncertainty regarding the realization andtiming of the related future cash flows, if any.Purchase obligations reflect legally binding agreements entered into by the Company to purchase goods or services. The amount ofpurchase obligations relates to commitments for products and services and other goods and service contracts entered into as ofJanuary 28, 2023. Excluded from purchase obligations are normal purchases and contracts entered into in the ordinary course of business.Cash flowsWe believe our ability to generate substantial cash from operating activities and readily secure financing at competitive rates are keystrengths that give us significant flexibility to meet our short and long-term financial commitments.The following table presents a summary of our cash flows during the last three years:Fiscal year endedJanuary 28,January 29,January 30,(In thousands)202320222021Net cash provided by operating activities$1,481,915$1,059,265$810,355Net cash used in investing activities(314,584)(176,484)(48,751)Net cash used in financing activities(861,014)(1,497,216)(107,934)Operating activitiesOperating activities consist of net income adjusted for certain non-cash items, including depreciation and amortization, non-cash leaseexpense, long-lived asset impairment charges, deferred income taxes, stock-based compensation expense, realized gains or losses ondisposal of property and equipment, and the effect of working capital changes.The increase in net cash provided by operating activities in fiscal 2022 is mainly due to the increase in net income, a smaller increase inmerchandise inventories in fiscal 2022, and the timing of receivable collections, partially offset by the timing of payables and a smallerincrease in deferred revenue compared to fiscal 2021.The increase in net income was primarily due to an increase in gross profit resulting from higher sales, partially offset by an increase inSG&A expenses and income taxes.Merchandise inventories, net were $1.6 billion at January 28, 2023, compared to $1.5 billion at January 29, 2022, representing an increaseof $104.2 million or 7.0%. The increase in total inventory is primarily due to the following:●$54 million increase due to the addition of 47 new stores opened since January 29, 2022;●$25 million increase due to new key brand launches; and●$25 million increase primarily due to inventory cost increases.
Table of Contents39The increase in net cash provided by operating activities in fiscal 2021 relative to fiscal 2020 was primarily due to the increase in netincome and deferred revenue, partially offset by higher merchandise inventories, higher cash outflow from higher income taxes, and lowerlong-lived asset impairment charges compared to fiscal 2020.Investing activitiesWe have historically used cash primarily for new, remodeled, relocated, and refreshed stores, supply chain investments, short-terminvestments, and investments in information technology systems. Investment activities for capital expenditures were $312.1 million duringfiscal 2022, compared to $172.2 million during fiscal 2021.The increase in net cash used in investing activities in fiscal 2022 relative to fiscal 2021 was primarily due to more capital expenditurescompared to fiscal 2021.The increase in net cash used in investing activities in fiscal 2021 relative to fiscal 2020 was primarily due to less proceeds of short-terminvestments and more capital expenditures compared to fiscal 2020.Capital expendituresThe following table presents a summary of our store activities during the last three years:Fiscal year endedJanuary 28,January 29,January 30,202320222021Stores opened474830Stores remodeled209–Stores relocated1275During fiscal 2022, the average investment required to open a new Ulta Beauty store was approximately $1.7 million, which includescapital investment net of landlord contributions, pre-opening expenses, and initial inventory net of payables.Capital expenditures during the last three years by major category are as follows:BudgetFiscalFiscalFiscalFiscal(In millions)2023202220212020New, Remodeled, and Relocated Stores$156$102$73$56Merchandising and Refreshed Stores48341614Information Technology Systems108743736Supply Chain113702313Store Maintenance and Other50322333Total$475$312$172$152Our future investments will depend primarily on the number of new, remodeled, and relocated stores, information technology systemsinvestments, and supply chain investments that we undertake and the timing of these expenditures. Based on past performance and currentexpectations, we believe our sources of liquidity will be sufficient to fund future capital expenditures. We expect fiscal 2023 capitalexpenditures will be up to $475 million and will be used primarily to fund our new, remodeled, and relocated stores and strategic priorities,including investments in information technology systems and supply chain optimization.
Table of Contents40Financing activitiesFinancing activities include share repurchases, borrowing and repayment of our revolving credit facility, and capital stock transactions.Purchases of treasury shares represent the fair value of common shares repurchased from plan participants in connection with shareswithheld to satisfy minimum statutory tax obligations upon the vesting of restricted stock.The decrease in net cash used in financing activities in fiscal 2022 relative to fiscal 2021 was primarily due to a decrease in sharerepurchases.The increase in net cash used in financing activities in fiscal 2021 relative to fiscal 2020 was primarily due to an increase in sharerepurchases offset by an increase in stock option exercises, and no activity under our revolving credit facility.We had no borrowings outstanding under the credit facility at the end of fiscal 2022, 2021 and 2020. The zero outstanding borrowingsposition is due to a combination of factors including sales demand, overall performance of management initiatives including expensecontrol, and inventory and other working capital reductions. We may require borrowings under the facility from time to time in futureperiods for unexpected business disruptions, to support our new store program, seasonal inventory needs, or share repurchases.Share repurchase programIn March 2020, the Board of Directors authorized a share repurchase program (the 2020 Share Repurchase Program) pursuant to which theCompany could repurchase up to $1.6 billion of the Company’s common stock. The 2020 Share Repurchase Program authorization revokedthe previously authorized but unused amounts from the earlier share repurchase program. The 2020 Share Repurchase Program did nothave an expiration date but provided for suspension or discontinuation at any time.In March 2022, the Board of Directors authorized a new share repurchase program (the 2022 Share Repurchase Program) pursuant to whichthe Company may repurchase up to $2.0 billion of the Company’s common stock. The 2022 Share Repurchase Program authorizationrevokes the previously authorized but unused amounts from the 2020 Share Repurchase Program. The 2022 Share Repurchase Programdoes not have an expiration date and may be suspended or discontinued at any time.A summary of common stock repurchase activity is presented in the following table:Fiscal year endedJanuary 28,January 29,January 30,(Dollars in millions)202320222021Shares repurchased2,192,5564,249,632474,794Total cost of shares repurchased$900.0$1,521.9$114.9Credit facilityOn March 11, 2020, we entered into Amendment No. 1 to the Second Amended and Restated Loan Agreement (as so amended, the LoanAgreement) with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent and a Lender thereunder; Wells FargoBank, National Association and JPMorgan Chase Bank, N.A., as Lead Arrangers and Bookrunners; JPMorgan Chase Bank, N.A., asSyndication Agent and a Lender; PNC Bank, National Association, as Documentation Agent and a Lender; and the other lenders partythereto. The Loan Agreement matures on March 11, 2025, provides maximum revolving loans equal to the lesser of $1.0 billion or apercentage of eligible owned inventory and eligible owned receivables (which borrowing base may, at the election of the Company andsatisfaction of certain conditions, include a percentage of qualified cash), contains a $50.0 million subfacility for letters of credit and allowsthe Company to increase the revolving facility by an additional $100.0 million, 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 whenavailability under the Loan Agreement falls below a specified threshold.
Table of Contents41Substantially all of the Company’s assets are pledged as collateral for outstanding borrowings under the Loan Agreement. Outstandingborrowings bear interest, at the Company’s election, at either a base rate plus a margin of 0% to 0.125% or the London Interbank OfferedRate plus a margin of 1.125% to 1.250%, with such margins based on the Company’s borrowing availability, and the unused line fee is0.20% per annum.As of January 28, 2023 and January 29, 2022, we had no borrowings outstanding under the credit facility and we were in compliance withall terms and covenants of the Loan Agreement.SeasonalityOur business is subject to seasonal fluctuation. Significant portions of our net sales and profits are realized during the fourth quarter of thefiscal year due to the holiday selling season. To a lesser extent, our business is also affected by Mother’s Day and Valentine’s Day. Anydecrease in sales during these higher sales volume periods could have an adverse effect on our business, financial condition, or operatingresults for the entire fiscal year. Our quarterly results of operations have varied in the past and are likely to do so again in the future. Assuch, we believe that period-to-period comparisons of our results of operations should not be relied upon as an indication of our futureperformance.Critical accounting policies and estimatesManagement’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements,which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statementsrequired the use of estimates and judgments that affect the reported amounts of our assets, liabilities, revenues, and expenses. Managementbases estimates on historical experience and other assumptions it believes to be reasonable under the circumstances and evaluates theseestimates on an on-going basis. Actual results may differ from these estimates. A discussion of our more significant estimates follows.Management has discussed the development, selection, and disclosure of these estimates and assumptions with the Audit Committee of theBoard of Directors.Inventory valuationMerchandise inventories are carried at the lower of cost or net realizable value. Cost is determined using the moving average cost methodand includes costs incurred to purchase and distribute goods as well as related vendor allowances including co-op advertising, markdowns,and volume discounts. We record valuation adjustments to our inventories if the cost of a specific product on hand exceeds the amount weexpect to realize from the ultimate sale or disposal of the inventory. These estimates are based on management’s judgment regarding futuredemand, age of inventory, and analysis of historical experience. If actual demand or market conditions are different than those projected bymanagement, future merchandise margin rates may be affected by adjustments to these estimates.Inventories are adjusted for the results of periodic physical inventory counts at each of our locations. We record a shrink reserverepresenting management’s estimate of inventory losses by location that have occurred since the date of the last physical count. Thisestimate is based on management’s analysis of historical results and operating trends.We do not believe that there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use tocalculate our inventory reserves. Adjustments to earnings resulting from revisions to management’s estimates of the inventory reserves havebeen insignificant during fiscal 2022, 2021 and 2020. An increase or decrease in the lower of cost or net realizable value reserve of 10%would not have a material impact on our operating income for fiscal 2022. An increase or decrease in the shrink rate included in the shrinkreserve calculation of 10% would not have a material impact on our operating income for fiscal 2022.
Table of Contents42Vendor allowancesThe majority of cash consideration received from a vendor is considered to be a reduction of the cost of the related products and is reflectedin cost of sales in our consolidated statements of income as the related products are sold unless it is in exchange for an asset or service or areimbursement of a specific, incremental, identifiable cost incurred by the Company in selling the vendors’ products. We estimate theamount recorded as a reduction of inventory at the end of each period based on a detailed analysis of inventory turns and management’sanalysis of the facts and circumstances of the various contractual agreements with vendors. We record cash consideration expected to bereceived from vendors in receivables. We do not believe there is a reasonable likelihood there will be a material change in the futureestimates or assumptions we use to calculate our reduction of inventory. An increase or decrease in inventory turns of five basis pointswould not have a material impact on our operating income for fiscal 2022.Impairment of long-lived tangible assetsWe review long-lived tangible assets whenever events or circumstances indicate these assets might not be recoverable. Assets are primarilyreviewed at the store level, which is the lowest level for which cash flows can be identified. Significant estimates are used in determiningfuture operating results of each store over its remaining lease term. An impairment loss would be recorded if the carrying amount of thelong-lived asset exceeds its fair value. We do not believe there is a reasonable likelihood there will be a material change in the futureestimates or assumptions we use to calculate our impairment charges. During fiscal 2020, we recognized $72.5 million of impairment oflong-lived tangible and right-of-use assets which consisted of $41.9 million due to the carrying values of certain long-lived assetsexceeding their respective fair values, $19.6 million related to the suspension of the planned expansion to Canada, and $11.0 million relatedto the permanent closure of 19 stores. No impairment charges were recognized in fiscal 2022 or fiscal 2021.Loyalty programWe maintain a customer loyalty program, Ultamate Rewards, which allows members to earn points based on purchases of merchandise orservices. Points earned are valid for at least one year. The loyalty program represents a material right to the customer and points may beredeemed on future products and services. Revenue from the loyalty program is recognized when the members redeem points or pointsexpire. We defer revenue related to points earned that have not yet been redeemed. The amount of deferred revenue includes estimates forthe standalone selling price of points earned by members and the percentage of points expected to be redeemed. The expected redemptionpercentage is based on historical redemption patterns and considers current information or trends. The standalone selling price of pointsearned and the estimated redemption rate is evaluated each reporting period. We do not believe there is a reasonable likelihood there will bea material change in the future estimates or assumptions used to calculate the estimated redemption rate.Adjustments to earnings resulting from revisions to management’s estimates of the redemption rates have been insignificant during fiscal2022, 2021 and 2020. An increase or decrease in the estimated redemption rate of 5% would not have a material impact on our operatingincome in fiscal 2022.Income taxesWe are subject to income taxes in the United States. Judgment is required in determining our provision for income taxes and income taxassets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.We recognize deferred income taxes for the estimated future tax consequences attributable to temporary differences between the financialstatement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measuredusing enacted tax rates expected to apply to taxable income in the years in which temporary differences are anticipated to be recovered orsettled. The effect on deferred taxes of a change in income tax rates is recognized in the consolidated statements of income in the period ofenactment. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets to the amount expected to be realizedunless it is more-likely-than-not that such assets will be realized in full. The estimated tax benefit of an uncertain tax position is
Table of Contents43recorded in our consolidated financial statements only after determining a more-likely-than-not probability that the uncertain tax positionwill withstand challenge, if any, from applicable taxing authorities. Judgment is required in assessing the future tax consequences of events that have been recognized on our consolidated financial statementsor tax returns. Variations in the actual outcome of these future tax consequences could materially impact our consolidated financialstatements.Item 7A. Quantitative and Qualitative Disclosures about Market RiskMarket risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates.Our market risk exposure is primarily the result of fluctuations in interest rates. We do not hold or issue financial instruments for tradingpurposes.Interest rate riskWe are exposed to interest rate risks primarily through borrowings under our credit facility. Interest on our borrowings is based uponvariable rates. We did not have any outstanding borrowings on our credit facility as of January 28, 2023, January 29, 2022 or January 30,2021.Item 8. Financial Statements and Supplementary DataSee the index, consolidated financial statements, and notes to consolidated financial statements included under Item 15, “Exhibits andFinancial Statement Schedules.”Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresEvaluation of disclosure controls and procedures over financial reportingWe have established disclosure controls and procedures to ensure that material information relating to the Company is made known to theofficers who certify our financial reports and to the members of our senior management and Board of Directors.Based on management’s evaluation as of January 28, 2023, our Chief Executive Officer and Chief Financial Officer have concluded thatour disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) areeffective to ensure that the information required to be disclosed by us in our reports that we file or submit under the Securities ExchangeAct of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that suchinformation is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, asappropriate, to allow timely decisions regarding required disclosure.Management’s annual report on internal control over financial reportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.Internal control over financial reporting is a process designed by, or under the supervision of, the principal executive officer and principalfinancial officer and effected by the Board of Directors, management, and other personnel, to provide reasonable assurance regarding thereliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S generallyaccepted accounting principles.Under the supervision and with the participation of our principal executive officer and our principal financial officer, managementevaluated the effectiveness of our internal control over financial reporting as of January 28, 2023, based on
Table of Contents44the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (2013 framework) (the COSO). Based on this evaluation, our principal executive officer and principal financial officerconcluded that our internal controls over financial reporting were effective as of January 28, 2023. Ernst & Young LLP, the independentregistered public accounting firm that audited our financial statements included in this Annual Report on Form 10-K, has audited theeffectiveness of our internal control over financial reporting as of January 28, 2023 and has issued the attestation report included in Item 15of this Annual Report on Form 10-K.Changes in internal control over financial reportingIn the fourth quarter of 2022, we implemented a new payroll system. This implementation resulted in changes to our internal control overfinancial reporting by automating and accelerating payment processing, reducing the risk of errors, and simplifying payroll management.Implementation of the new payroll system was part of the next phase in a multi-year rollout to upgrade our internal systems. Additionalphases of the project will continue to be implemented over the next few years. We will continue to monitor our internal control overfinancial reporting, including evaluating the operating effectiveness of related key controls.Except as described above, there were no changes to our internal controls over financial reporting during the 13 weeks endedJanuary 28, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.Item 9B. Other InformationNone.Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent InspectionsNot applicable.Part IIIItem 10. Directors, Executive Officers, and Corporate GovernanceThe information required by this item with respect to our executive officers is set forth in Part I, Item 4A of this Annual Report on Form 10-K under the caption “Executive Officers.” The additional information required by this item is included under the captions “Corporate Governance – Code of Business Conduct,” “Corporate Governance – Nomination Process – Qualifications,” “Corporate Governance – Proposal One – Election of Directors,” “Corporate Governance – Information About Our Director Nominees,” “Corporate Governance – Information About Our Directors Continuing in Office” and “Corporate Governance – Audit Committee” in our definitive Proxy Statement for our 2023 Annual Meeting of Stockholders (the Proxy Statement) and is hereby incorporated herein by reference.We have a code of business conduct that applies to all of our employees, including our Chief Executive Officer, Chief Financial Officer,Controller, and other persons performing similar functions. We have posted a copy of our code of business conduct under “Governance” inthe Investor Relations section of our website located at http://ulta.com/investor, and such code of business conduct is available in print,without charge, to any stockholder who requests it from our Corporate Secretary. We intend to satisfy the disclosure requirements underItem 5.05 of Form 8-K regarding amendments to, or waivers from, the code of business conduct by posting such information under“Governance” in the Investor Relations section of our website located at http://ulta.com/investor. We are not including the informationcontained on our website as part of, or incorporating it by reference into, this Annual Report on Form 10-K.Item 11. Executive CompensationThe information required by this item is included under the captions “Compensation Discussion and Analysis,” “Corporate Governance –Compensation Committee,” “Corporate Governance – Report of the Compensation Committee
Table of Contents45of the Board of Directors,” and “Corporate Governance – Non-Executive Director Compensation for Fiscal 2022” in the Proxy Statementand is hereby incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this item with respect to security ownership of certain beneficial owners and management is included underthe caption "Stock Ownership” in the Proxy Statement and is hereby incorporated by reference. The information required by this item withrespect to compensation plans under which our equity securities are authorized for issuance as of January 28, 2023 is set forth in Item 5 ofthis Annual Report on Form 10-K under the caption “Securities authorized for issuance under equity compensation plans.”Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by this item is included under the captions “Corporate Governance – Independence,” “Corporate Governance –Compensation Committee – Compensation Committee Interlocks and Insider Participation,” and “Certain Relationships and Transactions”in the Proxy Statement and is hereby incorporated by reference.Item 14. Principal Accountant Fees and ServicesThe information required by this item is included under the caption “Corporate Governance – Proposal Six – Ratification of Appointmentof Independent Registered Public Accounting Firm – Fees to Independent Registered Public Accounting Firm” in the Proxy Statement andis hereby incorporated by reference.
Table of Contents46Part IVItem 15. Exhibits and Financial Statement Schedules(a)The following documents are filed as a part of this Form 10-K:Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42)47Consolidated Balance Sheets51Consolidated Statements of Income52Consolidated Statements of Comprehensive Income53Consolidated Statements of Cash Flows54Consolidated Statements of Stockholders’ Equity55Notes to Consolidated Financial Statements56Schedule II – Valuation and Qualifying Accounts76
Table of Contents47Report of Independent Registered Public Accounting FirmThe Stockholders and the Board of Directors of Ulta Beauty, Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Ulta Beauty, Inc. (the Company) as of January 28, 2023, and January 29,2022, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the threeyears in the period ended January 28, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, inall material respects, the financial position of the Company at January 28, 2023 and January 29, 2022, and the consolidated results of itsoperations and its cash flows for each of the three years in the period ended January 28, 2023, in conformity with U.S. generally acceptedaccounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theCompany's internal control over financial reporting as of January 28, 2023, based on criteria established in Internal Control-IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report datedMarch 24, 2023 expressed an unqualified opinion thereon.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theCompany’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to beindependent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Ouraudits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amountsand disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimatesmade by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide areasonable basis for our opinion.
Table of Contents48Critical audit matterThe critical audit matter communicated below is a matter arising from the current period audit of the financial statements that wascommunicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to thefinancial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical auditmatter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicatingthe critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.Loyalty ProgramDescription of thematterThe Company maintains a loyalty program, Ultamate Rewards, which offers members the ability to earn and redeem points on purchases of products and services. As described in Note 2 to the consolidated financial statements, revenue from the loyalty program is recognized when members redeem points or points expire. The Company estimates the amount of revenue to defer using the standalone selling price of the points earned and the expected redemption percentage. The Company evaluates its estimated standalone selling price quarterly based on the value of products or services purchased using points. The expected redemption percentage is based on historical redemption patterns in conjunction with current information and trends. Auditing the Company’s estimate of loyalty deferred revenue was complex as the calculation involvedmanagement’s assumptions, such as the standalone selling price and expected redemption rate, which drive therevenue deferral. In particular, the estimate is sensitive to these significant assumptions, which are affected byexpectations about future customer behavior.How we addressedthe matter in ourauditWe obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’sestimation process and controls supporting the measurement and recognition of the amount of loyalty revenuedeferred. This included testing controls over management’s review of the assumptions and other inputs used in theestimation, the completeness and accuracy of issuance and redemption data used in the calculation, and controlsover the assignment of membership levels based on customer spending patterns.Our audit procedures included, among others, evaluating the methodology used, analyzing the significantassumptions discussed above, and testing the accuracy and completeness of the underlying data used inmanagement’s calculation. To test the standalone selling price per point, we validated that the price per point foreach membership level was appropriate based on products or services purchased by loyalty members. To audit theredemption rate, we tested redemption activity and compared the results of that testing to the redemption rate usedby management in its estimate. In addition, we tested the value of points redeemed was complete and accurate. Wealso considered recent trends in redemption activity and the impact on the redemption rate. In addition, weperformed sensitivity analyses of significant assumptions to evaluate the change in the deferral amounts./s/ Ernst & Young LLPWe have served as the Company’s auditor since 1997.Chicago, IllinoisMarch 24, 2023
Table of Contents49Report of Independent Registered Public Accounting FirmThe Stockholders’ and the Board of Directors Ulta Beauty, Inc.Opinion on Internal Control over Financial ReportingWe have audited Ulta Beauty, Inc.’s internal control over financial reporting as of January 28, 2023, based on criteria established in InternalControl - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)(the COSO criteria). In our opinion, Ulta Beauty, Inc. (the Company) maintained, in all material respects, effective internal control overfinancial reporting as of January 28, 2023, based on COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theconsolidated balance sheets of the Company as of January 28, 2023 and January 29, 2022, the related consolidated statements of income,comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended January 28, 2023, and therelated notes and financial statement schedule listed in the Index at Item 15 and our report dated March 24, 2023 expressed an unqualifiedopinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting included in the accompanying Management’s annual report on internal control overfinancial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on ouraudit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company inaccordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission andthe PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such otherprocedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizationsof management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Table of Contents50Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections ofany evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies or procedures may deteriorate./s/ Ernst & Young LLPChicago, IllinoisMarch 24, 2023
Table of Contents51Ulta Beauty, Inc.Consolidated Balance SheetsJanuary 28,January 29,(In thousands, except per share data)20232022AssetsCurrent assets:Cash and cash equivalents$737,877$431,560Receivables, net199,422233,682Merchandise inventories, net1,603,4511,499,218Prepaid expenses and other current assets130,246110,814Prepaid income taxes38,3085,909Total current assets2,709,3042,281,183Property and equipment, net1,009,273914,476Operating lease assets1,561,2631,482,256Goodwill10,87010,870Other intangible assets, net1,3121,538Deferred compensation plan assets35,38238,409Other long-term assets43,00735,647Total assets$5,370,411$4,764,379Liabilities and stockholders’ equityCurrent liabilities:Accounts payable$559,527$552,730Accrued liabilities444,278364,797Deferred revenue394,677353,579Current operating lease liabilities283,293274,118Accrued income taxes—12,786Total current liabilities1,681,7751,558,010Non-current operating lease liabilities1,619,8831,572,638Deferred income taxes55,34639,693Other long-term liabilities53,59658,665Total liabilities3,410,6003,229,006Commitments and contingencies (Note 10)Stockholders' equity:Common stock, $0.01 par value, 400,000 shares authorized; 51,120 and 53,049 shares issued; 50,364 and52,311 shares outstanding; at January 28, 2023 and January 29, 2022, respectively511530Treasury stock-common, at cost(60,470)(53,478)Additional paid-in capital1,023,997934,945Retained earnings995,773653,376Total stockholders’ equity1,959,8111,535,373Total liabilities and stockholders’ equity$5,370,411$4,764,379See accompanying notes to consolidated financial statements.
Table of Contents52Ulta Beauty, Inc.Consolidated Statements of IncomeFiscal year endedJanuary 28,January 29,January 30,(In thousands, except per share data)202320222021Net sales$10,208,580 $8,630,889 $6,151,953Cost of sales6,164,0705,262,3354,202,794Gross profit4,044,5103,368,5541,949,159Selling, general and administrative expenses2,395,2992,061,5451,583,017Impairment, restructuring and other costs——114,322Pre-opening expenses10,6019,51715,000Operating income1,638,6101,297,492236,820Interest (income) expense, net(4,934)1,6635,735Income before income taxes1,643,5441,295,829231,085Income tax expense401,136309,99255,250Net income$1,242,408$985,837$175,835Net income per common share:Basic$24.17$18.09$3.12Diluted$24.01$17.98$3.11Weighted average common shares outstanding:Basic51,40354,48256,351Diluted51,73854,84156,558See accompanying notes to consolidated financial statements.
Table of Contents53Ulta Beauty, Inc.Consolidated Statements of Comprehensive IncomeFiscal year endedJanuary 28,January 29,January 30,(In thousands)202320222021Net income$1,242,408 $985,837 $175,835Other comprehensive income:Foreign currency translation adjustments—(56)56Comprehensive income$1,242,408$985,781$175,891See accompanying notes to consolidated financial statements.
Table of Contents54Ulta Beauty, Inc.Consolidated Statements of Cash FlowsFiscal year endedJanuary 28,January 29,January 30,(In thousands)202320222021Operating activitiesNet income$1,242,408$985,837$175,835Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization241,372268,460297,772Non-cash lease expense301,912276,229268,071Long-lived asset impairment charge——72,533Deferred income taxes15,653(25,666)(24,008)Stock-based compensation expense43,04447,25927,583Loss on disposal of property and equipment6,6885,3586,827Change in operating assets and liabilities:Receivables34,260(40,573)(53,772)Merchandise inventories(104,233)(331,003)125,486Prepaid expenses and other current assets(19,432)(3,412)(4,363)Income taxes(45,182)(35,652)58,916Accounts payable8,30966,15662,324Accrued liabilities48,24958,59858,599Deferred revenue41,09879,19636,848Operating lease liabilities(324,500)(303,914)(297,513)Other assets and liabilities(7,731)12,392(783)Net cash provided by operating activities1,481,9151,059,265810,355Investing activitiesProceeds from short-term investments——110,000Capital expenditures(312,126)(172,187)(151,866)Acquisitions, net of cash acquired——(1,220)Other investments(2,458)(4,297)(5,665)Net cash used in investing activities(314,584)(176,484)(48,751)Financing activitiesProceeds from long-term debt——800,000Payments on long-term debt——(800,000)Repurchase of common shares(900,033)(1,521,925)(114,895)Stock options exercised46,01140,38612,229Purchase of treasury shares(6,992)(15,677)(3,353)Debt issuance costs——(1,915)Net cash used in financing activities(861,014)(1,497,216)(107,934)Effect of exchange rate changes on cash and cash equivalents—(56)56Net increase (decrease) in cash and cash equivalents306,317(614,491)653,726Cash and cash equivalents at beginning of year431,5601,046,051392,325Cash and cash equivalents at end of year$737,877$431,560$1,046,051Supplemental informationCash paid for interest$2,138$2,132$6,987Income taxes paid, net of refunds429,846370,64619,454Non-cash capital expenditures69,59139,87420,487See accompanying notes to consolidated financial statements.
Table of Contents55Ulta Beauty, Inc.Consolidated Statements of Stockholders’ EquityTreasury -AccumulatedCommon StockCommon StockAdditionalOtherTotalIssuedTreasury Paid-In RetainedComprehensiveStockholders'(In thousands)SharesAmountSharesAmountCapitalEarningsIncomeEquityBalance – February 1, 202057,285$573(676)$(34,448)$807,492$1,128,477$—$1,902,094Net income—————175,835—175,835Stock-based compensation————27,583——27,583Foreign currency translation adjustments——————5656Stock options exercised and otherawards1421——12,228——12,229Purchase of treasury shares——(16)(3,353)———(3,353)Repurchase of common shares(475)(5)———(114,890)—(114,895)Balance – January 30, 202156,952$569(692)$(37,801)$847,303$1,189,422$56$1,999,549Net income—————985,837—985,837Stock-based compensation————47,259——47,259Foreign currency translation adjustments——————(56)(56)Stock options exercised and otherawards3473——40,383——40,386Purchase of treasury shares——(46)(15,677)———(15,677)Repurchase of common shares(4,250)(42)———(1,521,883)—(1,521,925)Balance – January 29, 202253,049$530(738)$(53,478)$934,945$653,376$—$1,535,373Net income—————1,242,408—1,242,408Stock-based compensation————43,044——43,044Stock options exercised and otherawards2643——46,008——46,011Purchase of treasury shares——(18)(6,992)———(6,992)Repurchase of common shares(2,193)(22)———(900,011)—(900,033)Balance – January 28, 202351,120$511(756)$(60,470)$1,023,997$995,773$—$1,959,811See accompanying notes to consolidated financial statements.
Table of Contents56Ulta Beauty, Inc.Notes to Consolidated Financial Statements(In thousands, except per share and store count data)1. Business and basis of presentationUlta Beauty, Inc. was founded in 1990to operate specialty retail stores selling cosmetics, fragrance, haircare and skincare products, andrelated accessories and services. Nearly every store features a full-service salon. As used in these notes and throughout this Annual Reporton Form 10-K, all references to “we,” “us,” “our,” “Ulta Beauty,” or the “Company” refer to Ulta Beauty, Inc. and its consolidatedsubsidiaries. All amounts are stated in thousands, with the exception of per share amounts and number of stores.As of January 28, 2023, the Company operated 1,355 stores across 50 states.The Company has one reportable segment, which includes retail stores, salon services, and e-commerce. 2. Summary of significant accounting policiesFiscal yearThe Company’s fiscal year is the 52 or 53 weeks ending on the Saturday closest to January 31. The Company’s fiscal years endedJanuary 28, 2023 (fiscal 2022), January 29, 2022 (fiscal 2021), and January 30, 2021 (fiscal 2020) were 52-week years.ConsolidationThe Company’s consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significantintercompany accounts, transactions, and unrealized profit were eliminated in consolidation.Use of estimatesThe preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses during the accounting period. Actual results could differ from thoseestimates. The Company considers its accounting policies relating to inventory valuations, vendor allowances, impairment of long-livedtangible and right-of-use assets, loyalty program and income taxes to be the most significant accounting policies that involve managementestimates and judgments. Significant changes, if any, in those estimates and assumptions resulting from continuing changes in the economicenvironment will be reflected in the consolidated financial statements in future periods.
Table of Contents57Cash and cash equivalentsCash equivalents include highly liquid investments such as money market funds and certificates of deposit with an original maturity ofthree months or less from the date of purchase. Cash equivalents also include amounts due from third-party financial institutions for creditcard and debit card transactions. These receivables typically settle in five days or less with little or no default risk.January 28,January 29,(In thousands)20232022Cash$651,367$165,122Short-term investments—199,939Receivables from third-party financial institutions for credit card and debit card transactions86,51066,499Cash and cash equivalents$737,877$431,560Fair value of financial instrumentsThe carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximates fair value due to the shortmaturities of these instruments. There was no outstanding debt as of January 28, 2023 and January 29, 2022.ReceivablesReceivables primarily include amounts due from vendors for allowances, amounts due from third-party gift card providers, royalties andother credit card amounts, and amounts related to the employee retention credit (ERC). The Company does not require collateral on itsreceivables and does not accrue interest. Credit risk with respect to receivables is limited due to the diversity of vendors comprising theCompany’s vendor base. The Company performs ongoing credit evaluations of its vendors and evaluates the collectability of its receivablesbased on the length of time the receivable is past due and historical experience.January 28,January 29,(In thousands)20232022Vendor allowances$109,899$114,853Gift card42,06534,655Royalties and other credit card19,73811,898Employee retention credit (1)3,76056,426Other25,03616,855Allowance for doubtful accounts(1,076)(1,005)Receivables, net$199,422$233,682(1)The Company qualified for various relief measures resulting from the Coronavirus Aid, Relief and Economic Security (CARES)Act, including the ERC which allowed for a refundable tax credit against certain employment taxes on qualified wages. Duringthe fiscal year ended January 29, 2022, there was $4,021 related to the ERC recognized as a reduction of the associated costswithin selling, general and administrative expenses on the consolidated statements of income.Vendor allowancesThe Company receives consideration from vendors for advertising, markdown allowances, purchase volume discounts and rebates,reimbursement for defective merchandise, and certain selling and display expenses. Substantially all vendor allowances are recorded as areduction of the vendor’s product cost and recognized in cost of sales as the product is sold.
Table of Contents58Merchandise inventoriesMerchandise inventories are stated at the lower of cost or net realizable value. Cost is determined using the moving average cost methodand 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. Theinventory reserve was $39,532 and $26,882 as of January 28, 2023 and January 29, 2022, respectively.Property and equipment and internal use softwareProperty and equipment is stated at cost, net of accumulated depreciation, and depreciated using the straight-line method over the shorter ofthe assets’ estimated useful lives or lease term. Leasehold improvements purchased after the beginning of the initial lease term areamortized over the shorter of the assets’ useful lives or a term that includes the original lease term, plus any renewals that are reasonablycertain at the date the leasehold improvements are acquired. Repair and maintenance costs are expensed as incurred.Equipment and fixtures1 to 10 yearsElectronic equipment and software3 to 15 yearsCosts incurred to obtain or develop internal use software that are capitalized are amortized on a straight-line basis over the estimated usefullife of the software.Cloud computing arrangementsCloud computing arrangements (software-as-a-service contracts) and related implementation costs that are capitalized are amortized on astraight-line basis over the contract term (1 monthto 5 years). These amounts are classified within prepaid expenses and other currentassets and other long-term assets in the consolidated balance sheets.Impairment of long-lived tangible and right-of-use assetsThe asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows ofother 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 offuture 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.Long-lived tangible and right-of-use assets are evaluated for indicators of impairment quarterly or when events or changes in circumstancesindicate that their carrying amounts may not be recoverable. An undiscounted cash flow analysis is performed over the asset group. Assetgroups are written down only to the extent that their carrying value exceeds their respective fair value. Fair values of the asset group aredetermined by discounting the cash flows at a rate that approximates the cost of capital of a market participant. Management’s forecast offuture cash flows is based on the income approach. The fair value of individual right-of-use assets is determined under the market approachusing 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 revenuegrowth rates and operating expenses) and selection of a market-based discount rate. Estimates of market rent are based on non-bindingbroker quotes. As these inputs are unobservable, they are classified as Level 3 inputs under the fair value hierarchy (see Note 14, “Fairvalue measurements”). If actual results are not consistent with estimates and assumptions used in estimating future cash flows and asset fairvalues, there may be exposure to additional impairment losses in a future period (see Note 4, “Impairment, restructuring and other costs”).
Table of Contents59GoodwillGoodwill represents the excess of cost over the fair value of net assets acquired. The recoverability of goodwill is reviewed annually duringthe fourth quarter or more frequently if an event occurs or circumstances change that would indicate that impairment may exist (see Note 7,“Goodwill”).Other intangible assetsOther definite-lived intangible assets are amortized over their useful lives. The recoverability of intangible assets is reviewed wheneverevents or changes in circumstances indicate the carrying amount of such assets may not be recoverable (see Note 8, “Other intangibleassets”).LeasesThe 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 paymentsstated in the lease). For leases with an initial term greater than 12 months, a related lease liability is recorded on the balance sheet at thepresent value of future payments discounted at the estimated fully collateralized incremental borrowing rate (discount rate) correspondingwith 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 tothe lessor before or at the lease commencement date and any initial direct costs incurred, less any tenant improvement allowance incentivesreceived. Tenant incentives are amortized through the right-of-use asset as reduction of rent expense over the lease term. The differencebetween the minimum rents paid and the straight-line rent is reflected within the 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 somevariability in lease expense as a percentage of revenues over the term of the lease in stores where variable lease costs are paid. Contingentrent is accrued each period as the liabilities are incurred, in addition to the straight-line rent expense. This results in some variability inlease 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 isrecognized 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 withthe lease term. As there are no outstanding borrowings under the Company’s credit facility, this rate is estimated based on prevailing marketconditions, comparable company and credit analysis, and judgment. The incremental borrowing rate is reassessed if there is a change to thelease term or if a modification occurs and it is not accounted for as a separate contract (see Note 9, “Leases”).
Table of Contents60Loyalty programThe Company maintains a loyalty program, Ultamate Rewards, which allows members to earn points based on purchases of merchandise orservices. Points earned are valid for at least one year. The loyalty program represents a material right to the customer and points may beredeemed on future products and services. Revenue from the loyalty program is recognized when the members redeem points or pointsexpire. The Company defers revenue related to points earned that have not yet been redeemed. The amount of deferred revenue includesestimates for the standalone selling price of points earned by members and the percentage of points expected to be redeemed. The expectedredemption percentage is based on historical redemption patterns and considers current information or trends. The standalone selling priceof points earned and the estimated redemption rate is evaluated each reporting period. When a guest redeems points or the points expire, theCompany recognizes revenue in net sales on the consolidated statements of income.Credit cardsThe Company has agreements (the Agreements) with third parties to provide guests with private label credit cards and/or co-branded creditcards (collectively, the Credit Cards). The private label credit card can be used at any store location and online, and the co-branded creditcard can be used anywhere the co-branded card is accepted. A third-party financing company is the sole owner of the accounts andunderwrites the credit issued under the Credit Card programs. The Company’s performance obligation is to maintain the Ultamate Rewardsloyalty program as only guests enrolled in the loyalty program can apply for the Credit Cards. Loyalty members earn points throughpurchases at Ulta Beauty, Ulta Beauty at Target, 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 promotethe credit card program. The Company recognizes revenue when collectability is reasonably assured, under the assumption the amounts arenot constrained and it is probable that a significant revenue reversal will not occur in future periods, which is generally the time at whichthe 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 maintainthe Credit Card programs. As a result, all amounts associated with the Agreements are recognized within net sales on the consolidatedstatements of income.Gift card programThe Company records a contract liability for gift card sales which will be redeemed in the future within deferred revenue on theconsolidated balance sheets and recognized in net sales when the gift card is redeemed for product or services. Gift cards do not expire anddo not include service fees that decrease guest balances. The Company maintains historical data related to gift card transactions sold andredeemed over a significant time frame. Gift card breakage (amounts not expected to be redeemed) is recognized to the extent there is norequirement for remitting balances to governmental agencies under unclaimed property laws. Estimated gift card breakage revenue isrecognized over time in proportion to actual gift card redemptions. Gift card breakage revenue was $18,835, $15,266, and $11,717 in fiscal2022, 2021, and 2020, respectively.Revenue recognitionRevenue is recognized when control of the promised goods or services is transferred to the guest, in an amount that reflects theconsideration the Company expects to be entitled to in exchange for those goods or services.
Table of Contents61The 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-commercemerchandise sales is recognized upon shipment to the guest or guest pickup of the merchandise based on meeting the transfer of controlcriteria, net of estimated returns. Salon services revenue is recognized at the time the service is provided to the guest. Shipping andhandling are treated as costs to fulfill the contract and not a separate performance obligation. Accordingly, the Company recognizes revenuefor its single performance obligation related to e-commerce sales at the time control of the merchandise passes to the customer, which is atthe time of shipment or guest pickup. The Company provides refunds for merchandise returns within 60 days from the original purchasedate. State sales taxes are presented on a net basis as the Company considers itself a pass-through conduit for collecting and remitting statesales tax. Company coupons and other incentives are recorded as a reduction of net sales at the point of sale. AdvertisingAdvertising costs primarily consist of print, digital and social media, and television and radio advertising, net of vendor income that is areimbursement of specific, incremental, and identifiable costs. Costs related to advertising are expensed in the period the relatedpromotional event occurs.Fiscal year endedJanuary 28,January 29,January 30,(In thousands)202320222021Advertising expense, net$374,730$387,794$281,573Advertising expense, net as a percentage of net sales3.7%4.5%4.6%Prepaid advertising costs included in prepaid expenses and other current assets on the consolidated balance sheets were $9,466 and $7,612as of January 28, 2023 and January 29, 2022, respectively.Pre-opening expensesNon-capital expenditures incurred prior to the grand opening of a new, remodeled, or relocated store are expensed as incurred.Cost of salesCost of sales includes the cost of merchandise sold, offset by vendor income that is not a reimbursement of specific, incremental, andidentifiable 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 estatetaxes, utilities, repairs and maintenance, insurance, and licenses; salon services payroll and benefits; and shrink and inventory valuationreserves.Selling, general and administrative expensesSelling, general and administrative (SG&A) expenses includes payroll, bonus, and benefit costs for retail store and corporate employees;advertising and marketing costs, offset by vendor income that is a reimbursement of specific, incremental, and identifiable costs; occupancycosts related to our corporate office facilities; stock-based compensation
Table of Contents62expense; depreciation and amortization for all assets, except those related to our retail stores and distribution operations, which are includedin cost of sales; and legal, finance, information systems, and other corporate overhead costs.Income taxesDeferred income taxes reflect the net tax effect of temporary differences between the financial statement carrying amounts of assets andliabilities and their tax bases. The amounts reported were derived using the enacted tax rates in effect for the year the differences areexpected 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 besustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes thateach uncertain tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. Penaltiesand interest related to unrecognized tax positions are recorded in income tax expense in the consolidated statements of income (see Note12, “Income taxes”).Stock-based compensationStock-based compensation expense is measured at grant date, based on the fair value of the award, and is recognized on a straight-line basisover the requisite service period for awards expected to vest. Stock-based compensation expense was $43,044, $47,259, and $27,583 infiscal 2022, 2021 and 2020, respectively (see Note 16, “Stock-based compensation”).Insurance expenseThe Company has insurance programs with third party insurers for employee health, workers compensation, and general liability, amongothers, to limit the Company’s liability exposure. The insurance programs are premium based and include retentions, deductibles, and stoploss coverage. Current stop loss coverage per claim is $400 for employee health claims, $100 for general liability claims, and $250 forworkers compensation claims. The Company makes collateral and premium payments during the plan year and accrues expenses in theevent additional premium is due from the Company based on actual claim results. UB Insurance, Inc., an Arizona-based wholly ownedcaptive insurance subsidiary of the Company, charges the operating subsidiaries of the Company premiums to insure certain liabilityexposures. Pursuant to Arizona insurance regulations, UB Insurance, Inc. maintains certain levels of cash and cash equivalents related to itsliability exposures.Net income per common shareBasic net income per common share is computed by dividing income available to common stockholders by the weighted-average number ofshares 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 17, “Net income per common share”).
Table of Contents633. RevenueNet sales include retail stores and e-commerce merchandise sales as well as salon services and other revenue. Other revenue includes theprivate label and co-branded credit card programs, royalties derived from the partnership with Target Corporation, and deferred revenuerelated to the loyalty program and gift card breakage.Disaggregated revenueThe following table sets forth the approximate percentage of net sales by primary category:Fiscal year endedJanuary 28,January 29,January 30,(Percentage of net sales)202320222021Cosmetics42%43%45%Haircare products and styling tools21%20%20%Skincare17%17%16%Fragrance and bath14%14%12%Services3%3%3%Accessories and other3%3%4%100%100%100%Deferred revenueDeferred revenue primarily represents contract liabilities for the obligation to transfer additional goods or services to a guest for which theCompany has received consideration, such as unredeemed Ultamate Rewards loyalty points and unredeemed Ulta Beauty gift cards. Inaddition, 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 2022 and 2021:Fiscal year endedJanuary 28,January 29,(In thousands)20232022Beginning balance$345,206$269,032Additions to contract liabilities (1)292,254261,139Deductions to contract liabilities (2)(248,877)(184,965)Ending balance$388,583$345,206(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 $6,094 and $8,373 at January 28, 2023 and January 29, 2022, respectively.
Table of Contents644. Impairment, restructuring and other costsThe following table provides a summary of the impairment, restructuring and other costs during fiscal 2020:(In thousands)Impairment of long-lived tangible and right-of-use assets(1)$41,948Store closuresImpairment of long-lived tangible and right-of-use assets (1)19,569Lease termination costs7,443Severance489Total store closures27,501Suspension of Canadian expansionImpairment of long-lived tangible and right-of-use assets (1)11,016Lease termination costs17,388Severance717Total suspension of Canadian expansion29,121Other severance15,752Total (2)$114,322(1)Amount is included in the $72,533 non-cash long-lived asset impairment charge on the consolidated statements of cash flows for the fiscal year ended January 30, 2021. (2)There were no impairment, restructuring and other costs recognized during fiscal 2022 or fiscal 2021.Impairment of long-lived tangible and right-of-use assets. As a result of the COVID-19 pandemic, the Company experienced lower thanprojected revenues and identified indicators of impairment for certain retail stores during fiscal 2020. The Company’s analysis indicatedthat the carrying values of certain long-lived tangible and right-of-use assets exceeded their respective fair values. As a result, the Companyrecognized impairment charges related to certain retail stores in fiscal 2020. These impairment charges were primarily driven by lower thanprojected revenues, lower market rate assessments, and the effect of temporary store closures as a result of the COVID-19 pandemic. TheCompany also recorded long-lived tangible and right-of-use asset impairment charges related to store closures and suspension of theCanadian expansion during fiscal 2020 as described below.Store closures.The Company permanently closed 19 stores in the third quarter of fiscal 2020. The impairment charges recognized in fiscal2020 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 intoCanada. The Company continues to believe international markets provide a long-term growth opportunity. However, as a result of theCOVID-19 pandemic, in September 2020 the Company decided to prioritize growth of its U.S. operations 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. Impairment, restructuring and other costs related to suspension of the Canada expansion were recognized in fiscal 2020. 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 fiscal 2020.
Table of Contents655. Prepaid expenses and other assetsPrepaid expenses and other current assets consist of the following:January 28,January 29,(In thousands)20232022Prepaid supplies$40,454$40,996Cloud computing costs (1)34,90023,379Prepaid advertising9,4667,612Other45,42638,827Prepaid expenses and other current assets$130,246$110,814Other long-term assets consist of the following:January 28,January 29,(In thousands)20232022Cloud computing costs (1)$28,540$22,596Other14,46713,051Other long-term assets$43,007$35,647(1)Expense related to cloud computing arrangements was $87,593, $62,215, and $49,615 in fiscal 2022, fiscal 2021, and fiscal 2020,respectively, and was included in SG&A expenses in the consolidated statements of income.6. Property and equipmentProperty and equipment consists of the following:January 28,January 29,(In thousands)20232022Equipment and fixtures$1,147,870$1,118,312Leasehold improvements855,695813,068Electronic equipment and software663,497609,734Construction-in-progress196,11791,8972,863,1792,633,011Less: accumulated depreciation and amortization(1,853,906)(1,718,535)Property and equipment, net$1,009,273$914,4767. GoodwillThe changes in the carrying amounts of goodwill during the fiscal 2022 and 2021 are as follows:January 28,January 29,(In thousands)20232022Beginning balance$10,870$10,870Acquisitions——Ending balance$10,870$10,870
Table of Contents668. Other intangible assetsOther intangible assets subject to amortization consists of the following:January 28, 2023January 29, 2022Weighted-averageGrossGrossremaining usefulcarryingAccumulatedcarryingAccumulated(In thousands)life in yearsvalueamortization Netvalueamortization Net Developed technology1.0$5,419$(4,107)$1,312$4,631$(3,093)$1,538Amortization expense related to intangible assets was $1,014, $926, and $926 in fiscal 2022, fiscal 2021, and fiscal 2020, respectively.Estimated amortization expense related to intangible assets for the next five years and thereafter is as follows:EstimatedamortizationexpenseFiscal year(In thousands)2023$874202426320251752026—2027—2028 and thereafter—$1,3129. LeasesThe Company leases retail stores, distribution centers, fast fulfillment centers, market fulfillment centers, corporate offices, and certainequipment under non-cancelable operating leases with various expiration dates through 2035. All leases are classified as operating leasesand generally have initial lease terms of 10 years and when determined applicable, include renewal options under substantially the sameterms and conditions as the original leases. Leases do not contain any material residual value guarantees or material restrictive covenants.The following table presents supplemental balance sheet information, the weighted-average remaining lease term, and discount rate foroperating leases:January 28,January 29,(In thousands)Classification on the Balance Sheet20232022Right-of-use assetsOperating lease assets$1,561,263$1,482,256Current lease liabilitiesCurrent operating lease liabilities$283,293$274,118Non-current lease liabilitiesNon-current operating lease liabilities1,619,8831,572,638Total lease liabilities$1,903,176$1,846,756Weighted-average remaining lease term6.7 years6.6 yearsWeighted-average discount rate3.2%3.3%
Table of Contents67Lease costThe following table presents the components of lease cost for operating leases:Fiscal Year EndedJanuary 28,January 29,January 30,(In thousands)Classification on the Statement of Income202320222021Operating lease costCost of sales (1)$322,195$311,546$304,743Variable lease costCost of sales83,48877,43180,557Short-term lease costSG&A expenses685408567Sublease incomeNet sales(1,748)(835)(827)Total lease cost$404,620$388,550$385,040(1)The majority of operating lease cost relates to retail stores, distribution centers, fast fulfillment centers, and market fulfillmentcenters and is classified within cost of sales. Operating lease cost for corporate offices is classified within the SG&A expenses.Operating lease cost from the control date through store opening date is classified within pre-opening expenses.Other informationThe following table presents supplemental disclosures of cash flow information related to operating leases:Fiscal Year EndedJanuary 28,January 29,January 30,(In thousands)202320222021Cash paid for operating lease liabilities (1)$383,209 $368,498 $354,133Operating lease assets obtained in exchange for operating lease liabilities (non-cash)380,922253,870255,966(1)Excludes $30,927, $28,591, and $33,092 related to cash received for tenant incentives as of January 28, 2023, January 29, 2022,and January 30, 2021, respectively.Maturity of lease liabilitiesThe following table presents maturities of operating lease liabilities:Fiscal year(In thousands)2023$339,8082024366,0712025336,7192026298,7162027248,7242028 and thereafter529,926Total lease payments$2,119,964Less: imputed interest(216,788)Present value of operating lease liabilities$1,903,176Operating lease payments exclude $91,474 of legally binding minimum lease payments for leases signed but not yet commenced.
Table of Contents6810. Commitments and contingenciesContractual obligations– As of January 28, 2023, the Company had various non-cancelable obligations of $111,233 primarily due tocommitments made to a third party for products and services for our strategic investments related to supply chain optimization andinformation technology systems. A majority of these agreements are due within three years and are recorded as liabilities when the goodsare received or the services are rendered. Payments under these agreements were $67,456 in fiscal 2022. General litigation –The Company is involved in various legal proceedings that are incidental to the conduct of the business including bothclass 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 ofoperations or cash flows.11. Accrued liabilitiesAccrued liabilities consist of the following:January 28,January 29,(In thousands)20232022Accrued payroll, bonus, and employee benefits$183,828$158,017Accrued taxes58,85043,464Accrued capital expenditures55,43824,209Accrued advertising40,58049,477Other accrued liabilities105,58289,630Accrued liabilities$444,278$364,79712. Income taxesThe provision for income taxes consists of the following:Fiscal year endedJanuary 28,January 29,January 30,(In thousands)202320222021Current:Federal$315,763$280,300$67,724State69,71955,35811,534Total current385,482335,65879,258Deferred:Federal11,800(22,936)(19,631)State3,854(2,730)(4,377)Total deferred15,654(25,666)(24,008)Provision for income taxes$401,136$309,992$55,250
Table of Contents69A reconciliation of the federal statutory rate to the Company’s effective tax rate is as follows:Fiscal year endedJanuary 28,January 29,January 30,202320222021Federal statutory rate21.0%21.0%21.0%State effective rate, net of federal tax benefit3.6%3.3%2.9%Executive compensation limitation0.3%0.5%1.2%Excess deduction of stock compensation(0.2%)(0.5%)(0.3%)Other(0.3%)(0.4%)(0.9%)Effective tax rate24.4%23.9%23.9%On August 16, 2022, the Inflation Reduction Act of 2022 was enacted into law, which, among other things, introduced a 15% corporatealternative minimum tax on book income of certain large corporations and created a 1% excise tax on net share repurchases. The corporatealternative minimum tax will be effective in fiscal 2024, and the excise tax applies to share repurchases made after December 31, 2022. Thecorporate alternative minimum tax and the excise tax are not expected to have a material impact on the consolidated financial statements.Significant components of deferred tax assets and liabilities are as follows:January 28,January 29,(In thousands)20232022Deferred tax assets:Operating lease liability$487,824$471,687Reserves not currently deductible52,13347,059Accrued liabilities39,98933,289Employee benefits27,39524,355Property and equipment16,6001,710Credit carryforwards338334NOL carryforwards265303Total deferred tax assets624,544578,737Deferred tax liabilities:Operating lease asset591,007561,137Prepaid expenses69,24845,815Receivables not currently includable15,6445,398Inventory valuation1,5383,490Other2,3082,224Intangibles145366Total deferred tax liabilities679,890618,430Net deferred tax liability$(55,346)$(39,693)At January 28, 2023, the Company had $428 of credit carryforwards for state income tax purposes that expire between 2023 and 2026. TheCompany had $41 of state net operating loss (NOL) carryforwards that expire by 2038 and $118 of state NOL carryforwards that do notexpire. The Company also had $665 of federal NOL carryforwards that do not expire.The Company accounts for uncertainty in income taxes in accordance with Accounting Standards Codification 740-10. The reserve foruncertain tax positions was $4,158 and $3,389 at January 28, 2023 and January 29, 2022, respectively,
Table of Contents70which represents the best estimate of the potential liability. A reconciliation of unrecognized tax benefits, excluding interest and penalties, isas follows:January 28,January 29,(In thousands)20232022Beginning balance$3,389$2,783Increase due to a prior year tax position1,4731,219Decrease due to a prior year tax position(704)(613)Ending balance$4,158$3,389The Company acknowledges that the amount of unrecognized tax benefits may change in the next twelve months. However, it does notexpect the change to have a significant impact on its consolidated financial statements. Income tax-related interest and penalties wereinsignificant for fiscal 2022 and 2021.The Company files tax returns in the U.S. federal and state jurisdictions. The Company is no longer subject to U.S. federal examinations bythe Internal Revenue Service for years before 2019 and is no longer subject to examinations by state authorities before 2018.13. DebtOn 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 lendersparty thereto. The Loan Agreement matures on March 11, 2025, provides maximum revolving loans equal to the lesser of $1,000,000 or apercentage of eligible owned inventory and eligible owned receivables (which borrowing base may, at the election of the Company andsatisfaction of certain conditions, include a percentage of qualified cash), contains a $50,000 subfacility for letters of credit and allows theCompany to increase the revolving facility by an additional $100,000, subject to the consent by each lender and other conditions. The LoanAgreement contains a requirement to maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 during such periods whenavailability under the Loan Agreement falls below a specified threshold. Substantially all of the Company’s assets are pledged as collateralfor outstanding borrowings under the Loan Agreement. Outstanding borrowings bear interest, at the Company’s election, at either a baserate 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 onthe Company’s borrowing availability, and the unused line fee is 0.20% per annum.As of January 28, 2023 and January 29, 2022, the Company had no borrowings outstanding under the credit facility. As of January 28, 2023, the Company was in compliance with all terms and covenants of the Loan Agreement.14. Fair value measurementsThe carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximates their estimated fair values due tothe 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 corroborationwith observable market data.●Level 3 – unobservable inputs in which there is little or no market data, which would require the Company to develop its ownassumptions.
Table of Contents71As of January 28, 2023 and January 29, 2022, there were liabilities related to the non-qualified deferred compensation plan included inother long-term liabilities on the consolidated balance sheets of $37,501 and $40,839, respectively. The liabilities are categorized as Level 2as they are based on third-party reported values, which are based primarily on quoted market prices of underlying assets of the funds withinthe plan.15. InvestmentsInvestments in renewable energy projects are accounted for under the equity method of accounting. The balance of these investments was$2,316 and $2,671 as of January 28, 2023 and January 29, 2022, respectively, and is included in other long-term assets on the consolidatedbalance sheets. The Company did not contribute capital or receive investment tax credits during fiscal 2022 and 2021.The Company made other investments of $2,458 and $4,297 during fiscal 2022 and 2021, respectively.16. Stock-based compensationThe Company’s equity incentive plan was adopted in order to attract and retain personnel for positions of substantial authority and toprovide additional incentive to employees and directors to promote the success of the business.The Amended and Restated 2011 Incentive Award 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, deferredstock, and cash-based awards to employees, consultants, and directors. Unless provided otherwise by the administrator of the plan, optionsvest 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 theexercise price equal to the fair value of the underlying stock on the date of grant. As of January 28, 2023, the plan reserves for the issuanceupon grant or exercise of awards up to 2,425 shares of common stock.The following table presents information related to stock-based compensation:Fiscal year endedJanuary 28,January 29,January 30,(In thousands)202320222021Stock options$7,250$11,245$10,757Restricted stock units18,48319,28616,608Performance-based restricted stock units17,31116,728218Total stock-based compensation expense$43,044$47,259$27,583Cash received from stock option exercises$46,011$40,386$12,229Income tax benefit$3,829$7,088$750Stock optionsStock-based compensation expense is measured on the grant date based on the fair value of the award. Stock-based compensation expenseis recognized on a straight-line basis over the requisite service period for awards expected to vest. The estimated grant date fair value ofstock options was determined using a Black-Scholes valuation model using the following weighted-average assumptions for the periodsindicated:Fiscal year endedJanuary 28,January 29,January 30,202320222021Volatility rate49.0%46.9%43.0%Average risk-free interest rate2.4%0.4%0.3%Average expected life (in years)3.43.93.4Dividend yield———
Table of Contents72The expected volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on theUnited States Treasury yield curve in effect on the date of grant for the respective expected life of the option. The expected life representsthe time the options granted are expected to be outstanding. The expected life of options granted is derived from historical data on UltaBeauty stock option exercises. Forfeitures of stock options are estimated at the grant date based on historical rates of stock option activityand 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 endedJanuary 28,January 29,January 30,(In thousands, except weighted-average grant date fair value)202320222021Weighted-average grant date fair value$149.14$109.84$54.40Fair value of options vested9,52510,4179,741Intrinsic value of options exercised42,48939,48911,304At January 28, 2023, there was approximately $10,203 of unrecognized stock-based compensation expense related to unvested stockoptions. The unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period ofapproximately one and a half years. A summary of stock option activity is presented in the following table (shares in thousands):Fiscal 2022Fiscal 2021Fiscal 2020Weighted-Weighted-Weighted-Number ofaverageNumber ofaverageNumber ofaverageoptionsexercise priceoptionsexercise priceoptionsexercise priceBeginning of year498$232.85671$208.47539$212.58Granted47395.8161306.96248174.45Exercised(207)222.19(224)180.05(90)135.70Forfeited/Expired(14)311.40(10)225.24(26)219.47End of year324$260.34498$232.85671$208.47Exercisable at end of year118$261.57179$248.11236$209.03Vested and Expected to vest309$260.37474$233.28639$208.49The following table presents information related to stock options outstanding and stock options exercisable at January 28, 2023 based onranges of exercise prices (shares in thousands):Options outstandingOptions exercisableWeighted-Weighted-averageaverageremainingremainingcontractualWeighted-contractualWeighted-Number oflifeaverageNumber oflifeaverageRange of Exercise Pricesoptions(years)exercise priceoptions(years)exercise price$74.91 – $153.8751$103.9651$103.96$153.88 – $174.451327174.45246174.45$174.46 – $204.27255203.53255203.53$204.28 – $306.59647301.49236292.48$306.60 – $365.13514348.85393348.77$365.14 – $395.84479395.812—395.84$74.91 – $395.843247$260.341185$261.57The aggregate intrinsic value of outstanding and exercisable stock options as of January 28, 2023 was $79,588 and $28,728, respectively.The last reported sale price of the Company’s common stock on the NASDAQ Global Select Market on January 28, 2023 was $505.67 pershare.
Table of Contents73Restricted stock unitsRestricted stock units (RSUs) are granted to certain employees and directors. Employee grants generally cliff vest after three years anddirector grants cliff vest after one year. The grant date fair value of RSUs is based on the closing market price of shares of the Company’scommon stock on the date of grant. RSUs are expensed on a straight-line basis over the requisite service period. Forfeitures of RSUs areestimated at the grant date based on historical rates of stock award activity and reduce the stock-based compensation expense recognized.At January 28, 2023, unrecognized stock-based compensation expense related to RSUs was $24,215. The unrecognized stock-basedcompensation expense is expected to be recognized over a weighted-average period of approximately one year.A summary of RSU activity is presented in the following table (shares in thousands):Fiscal 2022Fiscal 2021Fiscal 2020Weighted-Weighted-Weighted-Number ofaverage grantNumber ofaverage grantNumber ofaverage grantunitsdate fair valueunitsdate fair valueunitsdate fair valueBeginning of year221$236.95253$210.46159$259.21Granted61399.4361312.42163179.72Vested(46)312.70(76)209.88(38)276.51Forfeited(15)262.94(17)233.94(31)218.40End of year221$264.08221$236.95253$210.46Expected to vest205$264.08205$236.95234$210.46Performance-based restricted stock unitsPerformance-based restricted stock units (PBSs) are granted to certain employees. PBSs granted prior to 2021 cliff vest after three yearsbased upon achievement of pre-established net sales and earnings before tax goals at the end of the second year of the term. The grant datefair value of these PBSs is based on the closing market price of shares of the Company’s common stock on the date of grant. PBSs grantedin 2021 cliff vest after three years based upon achievement of pre-established net sales and earnings before tax goals for each of the firsttwo years. The performance is then subject to a three year total shareholder return modifier. The grant date fair value of the 2022 and 2021PBSs are measured using a Monte Carlo simulation.PBSs are expensed on a straight-line basis over the requisite service period, based on the probability of achieving the performance goal,with changes in expectations recognized as an adjustment to earnings in the period of the change. If the performance goal is not met, nostock-based compensation expense is recognized and any previously recognized stock-based compensation expense is reversed. Forfeituresof PBSs are estimated at the grant date based on historical rates of stock award activity and reduce the stock-based compensation expenserecognized. At January 28, 2023, unrecognized stock-based compensation expense related to PBSs was $25,689. The unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of approximately one and a half years.A summary of PBS activity is presented in the following table (shares in thousands):Fiscal 2022Fiscal 2021Fiscal 2020Weighted-Weighted-Weighted-Number ofaverageNumber ofaverageNumber ofaverageunitsgrant dateunitsgrant dateunitsgrant dateBeginning of year54$314.3037$271.8862$267.60Granted37395.8374326.99——Change in performance award payout(1)378.79(7)348.73(5)204.27Vested(11)345.53(47)295.49(14)281.53Forfeited(3)332.94(3)319.71(6)263.38End of year76$347.8954$314.3037$271.88Expected to vest70$347.8950$314.3035$271.88
Table of Contents74The number of PBSs granted is based on achieving the targeted performance goals as defined in the PBS agreements. As ofJanuary 28, 2023, the maximum number of units that could vest under the provisions of the agreements was 145.Awards with market conditions are classified as liability awards and the fair value is determined using a Monte Carlo simulation. Market-based restricted stock units totaling 28 shares were granted to the former Chief Executive Officer in fiscal 2018 and settled during fiscal2021. Compensation expense for liability awards was $7,671 and $879 in fiscal 2021 and fiscal 2020, respectively. There was nocompensation expense for liability awards in fiscal 2022.17. Net income per common shareThe following is a reconciliation of net income and the number of shares of common stock used in the computation of net income per basicand diluted common share:Fiscal year endedJanuary 28,January 29,January 30,(In thousands, except per share data)202320222021Numerator:Net income$1,242,408 $985,837 $175,835Denominator:Weighted-average common shares – Basic51,40354,48256,351Dilutive effect of stock options and non-vested stock335359207Weighted-average common shares – Diluted51,73854,84156,558Net income per common share:Basic$24.17$18.09$3.12Diluted$24.01$17.98$3.11The denominator for diluted net income per common share for fiscal years 2022, 2021 and 2020 excludes 84, 205, and 211 employee stockoptions and restricted stock units, respectively, due to their anti-dilutive effects. Outstanding performance-based restricted stock units areincluded in the computation of dilutive shares only to the extent that the underlying performance conditions are satisfied prior to the end ofthe reporting period or would be considered satisfied if the end of the reporting period were the end of the related contingency period andthe results would be dilutive under the treasury stock method.18. Employee benefit plansThe Company provides a 401(k) retirement plan covering all employees who qualify as to age and length of service. The plan is fundedthrough employee contributions and a Company match of 100% of the first 3% of eligible compensation and an additional 50% match forthe next 2% of eligible compensation. Total expense recorded under this plan is included in SG&A expenses in the consolidated statementsof income as follows:Fiscal year endedJanuary 28,January 29,January 30,(In thousands)202320222021401(k) plan match$21,912$19,296$16,878The Company also has a non-qualified deferred compensation plan for highly compensated employees whose contributions are limitedunder qualified defined contribution plans. The plan is funded through employee contributions and a Company match of 100% of the first3% of salary. Amounts contributed and deferred under the plan are credited or charged with the performance of investment options offeredunder the plan as elected by the participants. In the event of bankruptcy, the assets of this plan are available to satisfy the claims of generalcreditors. The Company manages the risk of changes in the fair value of the liability for deferred compensation by electing to match itsliability under the plan with
Table of Contents75investment vehicles that offset a substantial portion of its exposure. Total expense recorded under this plan is included in SG&A expensesin the consolidated statements of income and was insignificant during fiscal 2022, 2021, and 2020.Amounts included in the consolidated balance sheets related to the deferred compensation plan were as follows:January 28,January 29,(In thousands)20232022Deferred compensation plan assets$35,382$38,409Deferred compensation plan liability37,50140,83919. Share repurchase programIn March 2020, the Board of Directors authorized a share repurchase program (the 2020 Share Repurchase Program) pursuant to which theCompany could repurchase up to $1,600,000 of the Company’s common stock. The 2020 Share Repurchase Program authorization revoked the previously authorized but unused amounts from the earlier share repurchase program. The 2020 Share Repurchase Program did not have an expiration date but provided for suspension or discontinuation at any time. During fiscal 2020, the share repurchase program was suspended in order to strengthen liquidity and preserve cash while navigating the COVID-19 pandemic. The program resumed during the fourth quarter of fiscal 2020. In March 2022, the Board of Directors authorized a new share repurchase program (the 2022 Share Repurchase Program) pursuant to whichthe Company may repurchase up to $2,000,000 of the Company’s common stock. The 2022 Share Repurchase Program revokes thepreviously authorized but unused amounts from the 2020 Share Repurchase Program. The 2022 Share Repurchase Program does not havean expiration date and may be suspended or discontinued at any time.A summary of common stock repurchase activity is presented in the following table:Fiscal year endedJanuary 28,January 29,January 30,(In thousands)202320222021Shares repurchased2,1934,250475Total cost of shares repurchased$900,033$1,521,925$114,895
Table of Contents76Item 15. Exhibits and Financial Statement Schedules (Continued)(b) Financial Statement ScheduleUlta Beauty, Inc.Schedule II – Valuation and Qualifying Accounts(In thousands)Balance atCharged toBalance atbeginningcosts andendDescriptionof periodexpensesDeductionsof periodFiscal 2022Allowance for doubtful accounts$1,005$819$(748)(a) $1,076Inventory reserve26,88233,384(20,734)39,532Fiscal 2021Allowance for doubtful accounts$768$388$(151)(a) $1,005Inventory reserve52,8609,525(35,503)26,882Fiscal 2020Allowance for doubtful accounts$1,363$22$(617)(a) $768Inventory reserve46,94142,634(36,715)52,860(a)Represents write-off of uncollectible accountsAll other financial statement schedules required by Form 10-K have been omitted because they were inapplicable or otherwise not requiredunder the instructions contained in Regulation S-X.(c) ExhibitsThe exhibits listed in the Exhibit Index below are filed as part of this Annual Report on Form 10-K.
Table of Contents77EXHIBIT INDEXIncorporated by ReferenceExhibitFiledExhibitFileNumberDescription of documentHerewithFormNumberNumberFiling Date3.1Certificate of Incorporation of UltaBeauty, Inc.8-K3.1001-337641/30/20173.2Bylaws of Ulta Beauty, Inc., as amendedthrough June 3, 20208-K3.2001-337646/8/20204Description of Ulta Beauty, Inc.’s Securities10-K4001-337643/27/202010.1Compensation Plan Agreement, dated as ofJanuary 27, 2017 between Ulta Salon,Cosmetics & Fragrance, Inc. and UltaBeauty, Inc.*8-K10.1001-337641/30/201710.2Second Amended and Restated LoanAgreement, dated as of August 23, 2017,among Ulta Beauty, Inc., Ulta Salon,Cosmetics & Fragrance, Inc., the subsidiariesof Ulta Beauty signatory thereto, Wells FargoBank, National Association, JPMorgan ChaseBank, N.A. and PNC Bank, NationalAssociation8-K10.0001-337648/24/201710.3Amendment No. 1 to Second Amended andRestated Agreement, dated March 11, 2020,among Ulta Beauty, Inc., Ulta Salon,Cosmetics & Fragrance, Inc., the subsidiariesof Ulta Beauty signatory thereto, the lendersparty thereto, and Wells Fargo Bank,National Association, as administrative agentand collateral agent for the lenders10-K10.3001-337643/27/202010.4Ulta Beauty, Inc. Second Amended andRestated Restricted Stock Option Plan*S-110.7333-1444058/17/200710.5Amendment to Ulta Beauty, Inc. SecondAmended and Restated Restricted StockOption Plan*S-110.7(a)333-1444058/17/200710.6Ulta Beauty, Inc. 2007 Incentive Award Plan*S-110.10333-1444059/27/200710.7Amended and Restated Ulta Beauty, Inc.2011 Incentive Award Plan*DEF 14AAppendix A001-337644/20/201610.8Form of Restricted Stock Unit AwardAgreement—Performance Shares under the2011 Incentive Award Plan*8-K10.1001-337643/31/201510.9Ulta Salon, Cosmetics & Fragrance, Inc.Non-qualified Deferred Compensation Plan*10-K10.17001-337644/2/200910.10Letter Agreement dated January 6, 2014between Ulta Inc. and David Kimbell*10-Q10.1001-337646/4/201510.11Form of Option Agreement under the 2011Incentive Award Plan*10-K10.13001-337643/28/2017
Table of Contents78Incorporated by ReferenceExhibitFiledExhibitFileNumberDescription of documentHerewithFormNumberNumberFiling Date10.12Form of Restricted Stock Unit AwardAgreement under the 2011 Incentive AwardPlan*10-K10.14001-337643/28/201710.13Letter Agreement dated August 3, 2015between Ulta Inc. and Jodi J. Caro*10-K10.15001-337643/28/201710.14Ulta Beauty, Inc. Executive Change inControl and Severance Plan*10-K10.16001-337643/28/201710.15New Form of Restricted Stock Unit AwardAgreement—PSUs—under the Amended andRestated Ulta Beauty, Inc. 2011 IncentiveAward Plan*8-K10.1001-337643/30/202110.16New Form of Stock Option Agreement underthe Amended and Restated Ulta Beauty, Inc.2011 Incentive Award Plan*8-K10.2001-337643/30/202110.17Alternative Form of Restricted Stock UnitAward Agreement—PSUs—under theAmended and Restated Ulta Beauty, Inc.2011 Incentive Award Plan*10-K10.25001-337643/25/202210.18Alternative Form of Stock Option Agreementunder the Amended and Restated UltaBeauty, Inc. 2011 Incentive Award Plan*10-K10.26001-337643/25/202210.19Alternative Form of Restricted Stock UnitAward Agreement under the Amended andRestated Ulta Beauty, Inc. 2011 IncentiveAward Plan*10-K10.27001-337643/25/202210.202023 Form of Restricted Stock Unit AwardAgreement—PSUs—under the Amended andRestated Ulta Beauty, Inc. 2011 IncentiveAward Plan*X10.212023 Form of Stock Option Agreement underthe Amended and Restated Ulta Beauty, Inc.2011 Incentive Award Plan*X10.222023 Form of Restricted Stock Unit AwardAgreement under the Amended and RestatedUlta Beauty, Inc. 2011 Incentive Award Plan*X21List of Significant SubsidiariesX23Consent of Independent Registered PublicAccounting FirmX31.1Certification of the Chief Executive Officerpursuant to Rules 13a-14(a) and 15d-14(a) ofthe Securities Exchange Act of 1934, asadopted pursuant to section 302 of theSarbanes-Oxley Act of 2002X
Table of Contents79Incorporated by ReferenceExhibitFiledExhibitFileNumberDescription of documentHerewithFormNumberNumberFiling Date31.2Certification of the Chief Financial Officerpursuant to Rules 13a-14(a) and 15d-14(a) ofthe Securities Exchange Act of 1934, asadopted pursuant to section 302 of theSarbanes-Oxley Act of 2002X32.1Certification of the Chief Executive Officerpursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002X32.2Certification of the Chief Financial Officerpursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002X99Proxy Statement for the 2023 AnnualMeeting of Stockholders. [To be filed withthe SEC under Regulation 14A within120 days after January 28, 2023; except tothe extent specifically incorporated byreference, the Proxy Statement for the 2023Annual Meeting of Stockholders shall not bedeemed to be filed with the SEC as part ofthis Annual Report on Form 10-K]101.INSInline XBRL InstanceX101.SCHInline XBRL Taxonomy Extension SchemaX101.CALInline XBRL Taxonomy ExtensionCalculationX101.LABInline XBRL Taxonomy Extension LabelsX101.PREInline XBRL Taxonomy ExtensionPresentationX101.DEFInline XBRL Taxonomy Extension DefinitionX104Cover Page Interactive Data File (formattedas Inline XBRL with applicable taxonomyextension information contained inExhibits 101).* A management contract or compensatory plan or arrangement.Item 16. Form 10-K SummaryNone.
Table of Contents80SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized, in the City of Bolingbrook, State of Illinois, on March 24, 2023.ULTA BEAUTY, INC.By: /s/ Scott M. SetterstenScott M. SetterstenChief Financial Officer, Treasurer and Assistant SecretaryPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalfof the registrant and in the capacities and on the dates indicated:SignaturesTitleDate/s/ David C. KimbellChief Executive Officer andMarch 24, 2023David C. KimbellDirector (Principal Executive Officer)/s/ Scott M. SetterstenChief Financial Officer, TreasurerMarch 24, 2023Scott M. Setterstenand Assistant Secretary (Principal Financial andAccounting Officer)/s/ Michelle L. CollinsDirectorMarch 24, 2023Michelle L. Collins/s/ Kelly E. GarciaDirectorMarch 24, 2023Kelly E. Garcia/s/ Catherine HalliganDirectorMarch 24, 2023Catherine Halligan/s/ Patricia A. LittleDirectorMarch 24, 2023Patricia A. Little/s/ Michael R. MacDonaldDirectorMarch 24, 2023Michael R. MacDonald/s/ George MrkonicDirectorMarch 24, 2023George Mrkonic/s/ Lorna E. NaglerNon-Executive Chair of the Board of DirectorsMarch 24, 2023Lorna E. Nagler/s/ Heidi G. PetzDirectorMarch 24, 2023Heidi G. Petz/s/ Gisel RuizDirectorMarch 24, 2023Gisel Ruiz/s/ Michael C. SmithDirectorMarch 24, 2023Michael C. Smith
Exhibit 10.20ULTA BEAUTY, INC.AMENDED AND RESTATED 2011 INCENTIVE AWARD PLANRESTRICTED STOCK UNIT AWARD AGREEMENT – Performance SharesUlta Beauty, Inc. (the “Company”) pursuant to the Ulta Beauty, Inc. Amended and Restated 2011 Incentive Award Plan (the “Plan”)hereby grants the following individual the right to earn Restricted Stock Units (each, an “RSU”), subject to the requirements set forth herein and in thePlan. Each RSU earned entitles the Holder to receive an equal number of shares of common stock, par value $0.01 per share (“Shares”) at settlement, asdescribed herein.Grant:Name:Address:Grant Date Target Number of RSUs Granted (“Target Award”)Performance Conditions:Performance Period:[ ]Earning of RSUs and Vesting Date:The RSUs are earned (or not) and become “Vesting EligibleRSUs”) based on achievement relative to the PerformanceGoals and the formulas set forth on Exhibit A to this AwardAgreement. To the extent that the Performance Goals aremet, then any Vesting Eligible RSUs (and any earnedDividend Equivalents thereon) shall be paid to the Holderon March 15, [ ] (the “Vesting Date”), provided theHolder has not incurred a Termination of Service prior to theVesting Date (except as otherwise provided in Exhibit A).Unless otherwise defined herein, capitalized terms shall have the same meanings set forth in the Plan.
21.Determination of Earned RSUs. The number of RSUs granted, represents a target number of shares that may be earned basedupon satisfaction of the target Performance Goal(s) as set forth on Exhibit A (the “Target Award”). The actual number of RSUs earned (“Vesting EligibleRSUs”) may be greater or less than the Target Award, or even zero and will be determined based on the Company's actual performance level achievedaccording to the formulas set forth on Exhibit A. All RSUs that do not become Vesting Eligible RSUs shall be forfeited. Once the performance conditionsfor becoming Vesting Eligible RSUs are satisfied, such Vesting Eligible RSUs remain subject forfeiture until RSUs become “Vested RSUs” on the VestingDate, unless otherwise provided on Exhibit A.2.Limits on Transfer. Holder may not sell, pledge, transfer, subject to lien, assign or otherwise hypothecate the RSUs unless anduntil the RSUs become Vested RSUs, and all other terms and conditions set forth herein and in the Plan have been satisfied. Any attempt to do so contraryto the provisions of this Award Agreement shall be null and void.3.Non-Compete, Non-Solicitation and Confidential Information. The grant of the RSUs is subject to either Holder consentingto or having already consented to and abiding by the terms of the Confidential Information & Protective Covenants Agreement (the “CIPCA”).4.Forfeiture.(a)Unless otherwise provided in Exhibit A, the RSUs shall be forfeited upon the Holder’s Termination of Service with the Company or if Holderviolates the CIPCA prior to the Settlement Date, whether or not such RSUs were otherwise Vesting Eligible RSUs.(b)Notwithstanding Section 4(a), if the Holder has a Termination of Service by reason of the Holder’s Qualified Retirement prior to March 15,[ ], the RSUs will remain outstanding and eligible to vest on March 15, [ ] (and shall be settled in accordance with Section 5) as if the Holder hasnot incurred a Termination of Service; provided, however, that if the Holder owns, operates, or provides any advisory, employment, director or othersimilar services to any Competitive Business (as defined in the CIPCA) in the Restricted Area (as defined in the CIPCA) at any time during the two (2)years following Holder's Termination of Service, then the unvested RSUs will be immediately forfeited. For purposes of this Agreement “QualifiedRetirement” shall mean the Holder’s Termination of Service other than by the Company for Cause at such time that (x) the Holder has reached the age of55, (y) the sum, rounded up to the nearest whole number, of the Holder’s age (measured to two decimal points) and the number of years (measured to twodecimal points) of uninterrupted service with the Company as an Employee, Consultant or Non-Employee Director, is greater than or equal to seventy (70),and (z) to the extent that the Termination of Service is a result of the Holder’s resignation from the Company, the Holder has provided the Company with atleast one (1) year prior written notice of the Holder’s intent to retire (or such other shorter minimum advance written notice that is acceptable to theAdministrator in its sole discretion), provided that the Holder continues to provide services during the notice period. The determination of theAdministrator as to an individual’s Qualified Retirement shall be conclusive on all parties.
35.Settlement and Payment of RSUs. Unless an earlier date is required in Exhibit A, the Company will deliver to Holder thenumber of Shares equal to the Vested RSUs as on the Vesting Date. The Company shall deliver the Shares electronically into a brokerage accountdesignated by Holder and shall not be required to deliver actual physical Share certificates. The issuance of Shares in settlement of Vested RSUs will besubject to tax withholding, as provided below.6.Withholding. The Company has the authority to deduct or withhold, or require Holder to remit to the Company, an amountsufficient to satisfy applicable federal, state, local and foreign withholding taxes with respect to the Shares issued in settlement of Vested RSUs. A Holdermay elect to satisfy his or her tax obligation, in whole or in part: (i) with the consent of the Company, by surrendering Shares or having the Companywithhold Shares otherwise issuable under this Award Agreement, in each case with a Fair Market Value on the date of such surrender or withholding equalto the minimum amount of the tax withholding obligation or (ii) by payment in cash or check. Notwithstanding anything to the contrary herein, if theHolder made no such election or the tax obligation arises during a period in which the Holder is prohibited from trading under any policy of the Companyor by reason of the Securities Exchange Act of 1934, then the tax withholding obligation shall automatically be satisfied by the Company withholdingShares having a Fair Market Value equal to the minimum amount of the tax withholding obligation. No Shares will be delivered to Holder in settlement ofvested RSUs under Section 5 unless and until all tax withholding obligations have been satisfied.7.Rights as Stockholder. The RSUs awarded under this Award Agreement do not confer upon Holder any rights as astockholder, including but not limited to any right to vote or receive dividends. To the extent that dividends are paid on Shares, Holder shall be entitled toreceive with respect to the RSUs, dividend equivalent amounts equal to the regular cash dividend payable to holders of Shares (to the extent regular cashdividends are paid) as if Holder were an actual shareholder with respect to the number of Shares equal to his or her outstanding RSUs (the “DividendEquivalents”). Holder’s rights to Dividend Equivalents shall cease upon forfeiture or payment of the RSUs. The aggregate amount of such DividendEquivalents shall be held by the Company, without interest thereon, and paid to Holder as of the next payroll period after the RSUs are settled as providedin Section 5. Any Dividend Equivalents held by the Company on RSUs which do not become Vested RSUs shall be forfeited and retained by theCompany.8.Employment. This Award Agreement does not constitute a contract of employment, and does not confer upon Holder the rightto be retained in the employ of the Company or any Subsidiary. In addition, nothing in the Plan or this Award Agreement shall be interpreted to interferewith or limit in any way the right of the Company to terminate Holder’s employment or services at any time.9.No Additional Rights. Participation in the Plan is voluntary. The value of the RSUs is an extraordinary item that is not part ofnormal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-serviceawards, pensions or retirement benefits or similar payments unless specifically and otherwise provided in such plans. Rather, the awarding of the RSUsunder the Plan represents a mere investment.
410.Limitations on Plan Rights. The RSUs are granted under and governed by the terms and conditions of the Plan. Byacceptance of the RSUs, Holder acknowledges and agrees that the Plan is discretionary in nature and may be amended, cancelled, or terminated by theCompany, in its sole discretion, at any time. The grant of the RSUs under the Plan is a one-time benefit and does not create any contractual or other rightsin Holder to receive a grant of stock or benefits in lieu of RSUs in the future. Future grants of RSUs, if any, will be at the sole discretion of the Company,including, but not limited to, the timing of the grant, the number of RSUs, and vesting provisions. The Plan has been introduced voluntarily by theCompany and in accordance with the provisions of the Plan may be terminated by the Company at any time. By acceptance of the Restricted Stock UnitAward, Holder consents to the provisions of the Plan and this Award Agreement.11.Clawback. Notwithstanding anything contained in the Award Agreement to the contrary, all RSUs subject this AwardAgreement, and any Shares issued upon settlement hereunder shall be subject to forfeiture, or repayment pursuant to the terms of the Company’s SeniorLeadership Clawback Policy or any other policy that the Company may implement in compliance with the requirements of applicable law, includingwithout limitation the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder.12.Section 409A. To the extent Section 409A of the Code is applicable to the RSUs granted under this Award Agreement, then thisAward Agreement and the RSUs granted thereunder are intended to comply with Section 409A and to be interpreted and construed consistent with suchintent. Without limiting the generality of the foregoing, if Holder is a “specified employee” within the meaning of Section 409A, as determined under theCompany’s established methodology for determining specified employees, then to the extent required in order to avoid accelerated taxation or tax penaltiesunder Section 409A, Shares that would otherwise be issued under this Award (or any other amount due hereunder) upon Termination of Service shallinstead be issued on the first business day after the first to occur of (i) the date that is six months following the Holder’s Termination of Service and (ii) thedate of the Holder’s death. For purposes of this Agreement, the terms “terminate,” “terminated” and “termination” and “Termination of Service” mean atermination of Holder’s employment that constitutes a “separation from service” within the meaning of the default rules of Section 409A of the Code.13.Severability, Waiver, Modification, Assignment, and Governing Law.(a)This Agreement may not be waived or modified except by written agreement of the Company and the Holder, or by court order.(b)If either party waives the right to pursue a claim for the other’s breach of any provision of the Agreement, the waiver will notextinguish that party’s right to pursue a claim for a subsequent breach.(c)If the forfeiture provisions of Section 4(b) of this Agreement are determined by a court of competent jurisdiction to beunenforceable because the definition of Competitive Business or Restricted Area are too broad, or the duration for forfeiture of the RSUs is too long, thenthe court shall modify such definitions and the duration to the extent necessary in order to
5make Section 4(b) enforceable. If any court determines that the forfeiture provisions in Section 4(b) of this Agreement are unenforceable despite the powerto reform them, then Section 4(b) shall be removed from this Agreement in its entirety, and the RSUs will be forfeited, retroactively, as provided in Section4(a) as of and upon the Holder's Termination of Service and the remaining provisions of this Agreement are not to be affected and should be given fulleffect.(d)This Agreement will inure to the benefit of Company’s successors in interest, affiliates, subsidiaries, parents, purchasers, orassignees, and may be enforced by any one or more of same, without need of any further authorization or agreement from Holder.(e)The laws of the State where Employee is employed by the Company as of the Effective Date of this Agreement will govern thisAgreement, and the rights of the Parties in any dispute arising from this Agreement.(f)Any action relating to or arising from this Agreement must be brought in the courts of the State of Illinois or the federal districtcourts located in the State of Illinois (if sufficient grounds for federal court jurisdiction exist). Employee expressly consents to personal jurisdiction andvenue in the aforementioned courts in any such action.COMPANY:ULTA BEAUTY, INC., a Delaware corporationBy:Name:Title: Chief Human Resources Officer
6EXHIBIT APERFORMANCE VESTINGDefined terms used in this Exhibit A that are not otherwise defined in the Award Agreement or the Plan have the meanings given to such terms inthis Exhibit A, including Section 5 below.1.Vesting Eligible RSUs.Except as provided in Sections 2 or 3 below, the number of RSUs in which Holder shall be eligible to vest (the“Vesting Eligible RSUs”) shall be determined according to the following formula:(a)((Target Award x 50%) x EBT Payout Percentage) = “EBT Vesting Eligible RSUs”(b)((Target Award x 50%) x Revenue Payout Percentage) = “Revenue Vesting Eligible RSUs”(c)“Vesting Eligible RSUs”= (EBT Vesting Eligible RSUs + Revenue Vesting Eligible RSUs), subject to the TSR Modifier.The Committee shall have the sole authority and discretion to determine the Vesting Eligible RSUs at the end of the Performance Period based onthe Company’s achievement and to adjust the Performance Goals or actual achievement against the goals as provided in the Plan. No RSUs will becomeVesting Eligible RSUs until the date the Committee determines and certifies the level of achievement. All RSUs that do not become Vesting Eligible RSUswill be forfeited.2.Death or Disability. Notwithstanding Section 1 in the event of the Holder’s Termination of Service by the Company due to Holder’s death orDisability during the Performance Period (a “Qualifying Termination”), then the Vesting Eligible RSUs shall equal a prorated portion of the Target Awardbased on the number of days elapsed in the Performance Period through the Holder’s Termination of Service, subject to the TSR Modifier.3.Change in Control. Upon a Change in Control the Performance Period shall terminate and the number of Vesting Eligible RSUs shall equal thegreater of (1) the Target Award and (2) the number of RSUs that would be Vesting Eligible RSUs applying the formula in Section 1 based on actualperformance through the Change in Control, subject to the TSR Modifier.4.Vesting and Settlement Date. Except as otherwise provided in this Section the Vesting Eligible RSUs will vest and be payable on the VestingDate, provided the Holder has not incurred a Termination of Service prior to the Vesting Date. Notwithstanding the foregoing (A) in the event of (i) theHolder’s Termination of Service by the Company due to the Holder’s death or Disability or (ii) the Holder’s Termination of Service without Cause duringthe Performance Period but within the twelve (12) month period following a Change in Control, then the Vesting Eligible RSUs shall vest upon suchTermination of Service and will become payable and settled as soon as practicable following the Holder’s Termination of Service, but no later than March15 of the year following the year in which the Holder’s Termination of Service occurs, and (B) in the event the Holder has a Termination of Service byreason of the Holder’s Qualified Retirement, the Vesting Eligible RSUs will remain outstanding and eligible to vest on the Vesting Date (and shall besettled
7in accordance with Section 5 of the Award Agreement) as if the Holder has not incurred a Termination of Service, provided, however, that if the Holderowns, operates, or provides any advisory, employment, director or other similar services to any Competitive Business (as defined in the CIPCA) in theRestricted Area (as defined in the CIPCA) at any time during the two (2) years following Holder's Termination of Service, then the unvested RSUs will beimmediately forfeited.5.Definitions.For purposes of this Award Agreement, the following terms shall have the meanings given below:(a)“Cause” shall mean, as determined in the sole discretion of the Administrator, the Holder’s (i) commission of a felony; (ii) dishonesty ormisrepresentation involving the Company; (iii) serious misconduct in the performance or non-performance of his or her responsibilities to theCompany (e.g., gross negligence, willful misconduct, gross insubordination or unethical conduct) or (iv) violation of any material condition ofemployment if Holder is an Employee.(b)“Disability” means that the Holder qualifies to receive long-term disability payments under the Company’s long-term disabilityinsurance program, as it may be amended from time to time.(c)“EBT” shall mean the operating earnings of the Company for such fiscal year as reported in the Company’s publicly filed financialstatements.(d)“EBT Payout Percentage” shall be the percentage determined pursuant to the Payout Chart for the level of achievement of Company’scumulative EBT target shown in the Payout Chart.(e)“Final Stock Price” means the Company’s 20-trading day average closing stock price on its principal stock exchange through andincluding the last trading day of the Performance Period.(f)“Payout Chart” means the following with performance between levels interpolated linearly:Below ThresholdThresholdTargetMaximumFY[ ] EBT AchievementLess than [ ][ ][ ][ ] or moreEBT Payout Percentage0%50%100%200%FY[ ] Revenue AchievementLess than [ ][ ][ ][ ] or moreRevenue Payout Percentage0%50%100%200%(g)“Revenue” for any fiscal year shall mean the annual revenue of the Company for such fiscal year as reported in the Company’s publiclyfiled financial statements.(h)“Revenue Payout Percentage” shall be the percentage determined pursuant to the Payout Chart for the level of achievement of theCompany’s cumulative Revenue target shown in the Payout Chart.(i)“TSR” shall mean the quotient obtained by dividing Company’s Final Stock Price, plus per share dividends paid during the PerformancePeriod (assuming reinvestment in the Company’s common stock as of the applicable ex-dividend date), less $[ ], divided by (ii) $[ ].(j)“TSR Modifier” shall mean that (i) in the event TSR for the Performance Period decreases by [ ] % or greater, the Vesting EligibleRSUs shall not exceed the Target Award; and (ii) in the event TSR for the Performance Period is [ ] % or greater and the EBT PayoutPercentage or Revenue Payout Percentage is below Target, the EBT Vesting Eligible RSUs or Revenue Vesting Eligible RSUs, as applicable, shallequal 50% of the Target Award.
Exhibit 10.21ULTA BEAUTY, INC.AMENDED AND RESTATED 2011 INCENTIVE AWARD PLANOPTION AGREEMENT - CERTIFICATEThe following evidences a grant of an option (the “Option”) to purchase shares of common stock of Ulta Beauty, Inc. (the “Company”)pursuant to the Ulta Beauty, Inc. Amended and Restated 2011 Incentive Award Plan (the “Plan”) to the following individual and upon the following terms:Optionee:Name:Address:Location:Grant Date:Exercise Price Per Share:Total Number of Shares Granted:Type of Option:If designated as an Incentive Stock Option, this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of theCode; provided, however, that to the extent that it does not so qualify that portion which does not so qualify shall be treated as a Non-Qualified StockOption.Unless otherwise defined herein, capitalized terms shall have the same meanings as set forth in the Plan.1.Vesting Schedule. The Option shall vest and become exercisable based on Optionee’s continued service as an Employee,Director or Consultant to the Company on the following dates and according to the following schedule:[ADD VESTING SCHEDULE]Notwithstanding the foregoing:(A) The Option will be fully vested and exercisable if (i) Optionee has a Termination of Service by reason of death or Disability or (ii) Optioneehas a Termination of Service without Cause within twelve (12) months following a Change in Control.(B) If Optionee (i) violates the CIPCA (as defined herein) or (ii) has a Termination of Service for Cause, then the Option will be forfeited, whetheror not previously vested, and all rights Optionee may have to exercise the Option shall immediately terminate. For this purpose “Cause” shall mean, asdetermined in the sole discretion of the Administrator, the Optionee’s (i) commission of a felony; (ii) dishonesty or misrepresentation involving theCompany; (iii) serious
2misconduct in the performance or non-performance of his or her responsibilities to the Company (e.g. gross negligence, willfulmisconduct, gross insubordination or unethical conduct); and (iv) if Optionee is an Employee, violation of any material conditionof employment.(a)(C) If Optionee has a Termination of Service by reason of Optionee’s Qualified Retirement, the Option will continue to vest and becomeexercisable for the term of the Option in accordance with the vesting schedule set forth above as if Optionee has not incurred a Termination of Service,provided, however, that if the Optionee owns, operates, or provides any advisory, employment, director or other similar services to any CompetitiveBusiness (as defined in the CIPCA) in the Restricted Area (as defined in the CIPCA) at any time during the two (2) years following Optionee's Terminationof Service, then the Option will be immediately forfeited. For purposes of this Agreement “Qualified Retirement” shall mean Optionee’s Termination ofService other than by the Company for Cause at such time that (x) Optionee has reached the age of 55, (y) the sum, rounded up to the nearest wholenumber, of Optionee’s age (measured to two decimal points) and the number of years (measured to two decimal points) of uninterrupted service with theCompany as an Employee, Consultant or Non-Employee Director, is greater than or equal to seventy (70), and (z) to the extent that the Termination ofService is a result of Optionee’s resignation from the Company, Optionee has provided the Company with at least one (1) year prior written notice ofOptionee’s intent to retire (or such other shorter minimum advance written notice that is acceptable to the Administrator in its sole discretion), providedthat the Holder continues to provide services during the notice period. The determination of the Administrator as to an individual’s Qualified Retirementshall be conclusive on all parties.2.Option Period. The Option shall be valid for a term commencing on the Grant Date and will expire the earliest of: (i) ten (10) yearsfrom the Grant Date; (ii) if Optionee has a Termination of Service after March 15, [ ] but before March 15, [ ] by reason of a Qualified Retirement,then the date twelve (12) months after the Option or a portion thereof becomes exercisable as provided in the schedule set forth in Section 1; (iii) ifOptionee has a Termination of Service by reason of a Qualified Retirement after March 15, [ ], then twelve (12) months after the Optionee’sTermination of Service; (iv) the date three (3) months after the Optionee’s Termination of Service for any reason other than due to death, Disability, orQualified Retirement or by the Company for Cause; (v) the date twelve (12) months after the Optionee’s Termination of Service by reason of death orDisability; (vi) the date of Optionee’s Termination of Service for reasons of Cause; or (vii) the date Optionee violates the terms of the CIPCA. Forpurposes of this Agreement “Disability” means that the Optionee qualifies to receive long-term disability payments under the Company’s long-termdisability insurance program, as it may be amended from time to time.3.Exercise. The Option may be exercised at any time during its term to the extent vested. If Optionee has a Termination ofService any unvested portion of the Option will terminate and will no longer be exercisable, except as otherwise provided in Section 1(C). The Optionmay not be exercised for fractional shares. In order to exercise the Option, Optionee shall be required to execute such forms and provide such notice as theCompany may require from time to time. The Option will not be deemed exercised until the Exercise Price for each share, plus any required taxwithholding is delivered to the Company. The Exercise Price may be paid pursuant to any method allowable under the Plan.
34.Non-Compete, Non-Solicitation and Confidential Information. The grant of this Option is subject to either the Optionee’sconsenting to or having already consented to and abiding by the terms of the attached Confidential Information & Protective Covenants Agreement(“CIPCA”).5.Withholding. The Company has the authority to deduct or withhold, or require Optionee to remit to the Company, an amountsufficient to satisfy applicable federal, state, local and foreign taxes arising from this Option. Optionee may satisfy his or her tax obligation, in whole or inpart : (i) with the consent of the Company, by having the Company withhold shares otherwise to be delivered with a fair market value equal to theminimum amount of the tax withholding obligation; (ii) with the consent of the Company, by having the Optionee surrender to the Company previouslyowned Common Stock with a fair market value equal to the minimum amount of the tax withholding obligation; (iii) by payment in cash or check; or (iv)with the consent of the Company, by delivery of a notice that the Optionee has placed a market sell order with a broker with respect to shares then issuableupon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfactionof the withholding amount; providedthat payment of such proceeds is then made to the Company upon settlement of such sale.6.No Additional Rights. Participation in the Plan is voluntary. The value of the option is an extraordinary item of compensationoutside the scope of Optionee’s employment contract, if any. As such, the option is not part of normal or expected compensation for purposes ofcalculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pensions or retirement benefits or similarpayments unless specifically and otherwise provided in such plans. Rather, the awarding of an option under the Plan represents a mere investmentopportunity.7.Not Transferable. This Option is not transferable except by will or the laws of descent and distribution.8.Limitations on Plan Rights. This Option is granted under and governed by the terms and conditions of the Plan. Byacceptance of this Option Optionee acknowledges and agrees that the Plan is discretionary in nature and may be amended, cancelled, or terminated by theCompany, in its sole discretion, at any time. The grant of an option under the Plan is a one-time benefit and does not create any contractual or other rightto receive a grant of options or benefits in lieu of options in the future. Future grants of options, if any, will be at the sole discretion of the Company,including, but not limited to, the timing of the grant, the number of stock options, vesting provisions, and the exercise price. The Plan has been introducedvoluntarily by the Company and in accordance with the provisions of the Plan may be terminated by the Company at any time. By acceptance of thisOption, Optionee consents to the provisions of the Plan and this Agreement. Defined terms used herein shall have the meaning set forth in the Plan, unlessotherwise defined herein.9.Severability, Waiver, Modification, Assignment, and Governing Law.(a)This Agreement may not be waived or modified except by written agreement of the Company and the Holder, or by court order.
4(b)If either party waives the right to pursue a claim for the other’s breach of any provision of the Agreement, the waiver will notextinguish that party’s right to pursue a claim for a subsequent breach.(c)If the forfeiture provisions of Section 1(C) of this Agreement are determined by a court of competent jurisdiction to beunenforceable because the definition of Competitive Business or Restricted Area are too broad, or the duration for forfeiture of the Option is too long, thenthe court shall modify such definitions and the duration to the extent necessary in order to make Section 1(C) enforceable. If any court determines that theforfeiture provisions in Section 1(C) of this Agreement are unenforceable despite the power to reform them, then Section 1(C) shall be removed from thisAgreement in its entirety, and the Option will be forfeited, retroactively, as provided in Section 1(B) as of and upon the Optionee's Termination of Serviceand the remaining provisions of this Agreement are not to be affected and should be given full effect.(d)This Agreement will inure to the benefit of Company’s successors in interest, affiliates, subsidiaries, parents, purchasers, orassignees, and may be enforced by any one or more of same, without need of any further authorization or agreement from Holder.(e)The laws of the State where Employee is employed by the Company as of the Effective Date of this Agreement will govern thisAgreement, and the rights of the Parties in any dispute arising from this Agreement.(f)Any action relating to or arising from this Agreement must be brought in the courts of the State of Illinois or the federal districtcourts located in the State of Illinois (if sufficient grounds for federal court jurisdiction exist). Employee expressly consents to personal jurisdiction andvenue in the aforementioned courts in any such action.COMPANY:ULTA BEAUTY, INC., a Delaware corporationBy:Name:Title: Chief Human Resources Officer
Exhibit 10.22ULTA BEAUTY, INC.AMENDED AND RESTATED 2011 INCENTIVE AWARD PLANRESTRICTED STOCK UNIT AWARD AGREEMENTUlta Beauty, Inc. (the “Company”) pursuant to the Amended and Restated Ulta Beauty, Inc. 2011 Incentive Award Plan (the “Plan”)hereby grants the number of Restricted Stock Units (each, an “RSU”) set forth below to the following individual, subject to the restrictions on transfer andforfeiture and such other limitations set forth herein and in the Plan. Each RSU entitles the Holder to receive an equal number of shares of common stock,par value $0.01 per share (“Shares”) at settlement, as described herein.Name:Address:Grant Date: Total Number of RSUs Granted:Unless otherwise defined herein, capitalized terms shall have the same meanings set forth in the Plan.1.Vesting Schedule. The RSUs are subject to the restrictions on transfer set forth in Section 2 and may be forfeited as provided inSection 4, until vested. Once vested, then the RSUs shall be settled and paid on the dates and as provided in Section 5. Holder shall vest in full in theRSUs on the earlier of:(a)March 15, [ ];(b)Holder’s Termination of Service for reasons of death or Disability; or(c)Holder’s Termination of Service without Cause within twelve (12) months following a Change in Control.For purposes of this Award Agreement “Cause” shall mean, as determined in the sole discretion of the Administrator, the Holder’s (i) commission of afelony; (ii) dishonesty or misrepresentation involving the Company; (iii) serious misconduct in the performance or non-performance of his or herresponsibilities to the Company (e.g., gross negligence, willful misconduct, gross insubordination or unethical conduct); or (iv) violation of any materialcondition of employment if Holder is an Employee; and “Disability” shall mean that the Holder qualifies to receive long-term disability payments underthe Company’s long-term disability insurance program, as it may be amended from time to time.2.Limits on Transfer. Holder may not sell, pledge, transfer, subject to lien, assign or otherwise hypothecate the RSUs unless anduntil the RSUs have vested, and all other
2terms and conditions set forth herein and, in the Plan, have been satisfied. Any attempt to do so contrary to the provisions of this Award Agreement shallbe null and void.3.Non-Compete, Non-Solicitation and Confidential Information. The grant of the RSUs is subject to either Holder consentingto or having already consented to and abiding by the terms of the Confidential Information & Restrictive Covenants Agreement (the "CIPCA").4.Forfeiture.(a)Unless otherwise provided herein, all unvested RSUs shall be forfeited upon the Holder’s Termination of Service with the Company (i) beforeMarch 15, [ ], (ii) for Cause at any time prior to the Settlement Date or (iii) the Holder’s violation of the CIPCA prior to the Settlement Date.(b)Notwithstanding Section 4(a), if the Holder has a Termination of Service by reason of the Holder’s Qualified Retirement prior to March 15,[ ], the RSUs will remain outstanding and eligible to vest on March 15, [ ] (and shall be settled in accordance with Section 5) as if the Holder hasnot incurred a Termination of Service; provided, however, that if the Holder owns, operates, or provides any advisory, employment, director or othersimilar services to any Competitive Business (as defined in the CIPCA) in the Restricted Area (as defined in the CIPCA) at any time during the two (2)years following Holder's Termination of Service, then the unvested RSUs will be immediately forfeited. For purposes of this Agreement “QualifiedRetirement” shall mean the Holder’s Termination of Service other than by the Company for Cause at such time that (x) the Holder has reached the age of55, (y) the sum, rounded up to the nearest whole number, of the Holder’s age (measured to two decimal points) and the number of years (measured to twodecimal points) of uninterrupted service with the Company as an Employee, Consultant or Non-Employee Director, is greater than or equal to seventy (70),and (z) to the extent that the Termination of Service is a result of the Holder’s resignation from the Company, the Holder has provided the Company with atleast one (1) year prior written notice of the Holder’s intent to retire (or such other shorter minimum advance written notice that is acceptable to theAdministrator in its sole discretion), provided that the Holder continues to provide services during the notice period. The determination of theAdministrator as to an individual’s Qualified Retirement shall be conclusive on all parties.5.Settlement and Payment of RSUs. The RSUs to the extent vested as provided in Section 1, will become payable and settled inan equal number of Shares on, or as soon as practical following the earlier of the following (the “Settlement Date”):(a)March 15, [ ];(b)Holder’s Termination of Service due to death or Disability; or(c)Holder’s Termination of Service without Cause within twelve (12) months following a Change in Control.6.The Company shall deliver the Shares electronically into a brokerage account designated by Holder and shall not be required todeliver actual physical Share certificates.
3The issuance of Shares in settlement of vested RSUs will be subject to tax withholding, as provided below.7.Withholding. The Company has the authority to deduct or withhold, or require Holder to remit to the Company, an amountsufficient to satisfy applicable federal, state, local and foreign withholding taxes with respect to the vesting and settlement of the vested RSUs. Holder mayelect to satisfy his or her tax obligation, in whole or in part: (i) with the consent of the Company, by surrendering Shares or having the Company withholdShares otherwise issuable under this Award Agreement, in each case with a Fair Market Value on the date of such surrender or withholding equal to theminimum amount of the tax withholding obligation or (ii) by payment in cash or check. Notwithstanding anything to the contrary herein, if the Holdermade no such election or the tax obligation arises during a period in which the Holder is prohibited from trading under any policy of the Company or byreason of the Securities Exchange Act of 1934, then the tax withholding obligation shall automatically be satisfied by the Company withholding Shareshaving a Fair Market Value equal to the minimum amount of the tax withholding obligation. No Shares will be delivered to Holder in settlement of vestedRSUs under Section 5 unless and until all tax withholding obligations have been satisfied.8.Rights as Stockholder. The RSUs awarded under this Award Agreement do not confer upon Holder any rights as astockholder, including but not limited to any right to vote or receive dividends. To the extent that dividends are paid on Shares, Holder shall be entitled toreceive with respect to the RSUs, dividend equivalent amounts equal to the regular cash dividend payable to holders of Shares (to the extent regular cashdividends are paid) as if Holder were an actual shareholder with respect to the number of Shares equal to his or her outstanding RSUs (the “DividendEquivalents”). Participant’s rights to Dividend Equivalents shall cease upon forfeiture or payment of the RSUs. The aggregate amount of such DividendEquivalents shall be held by the Company, without interest thereon, and paid to Participant as of the next payroll period after the Settlement Date. AnyDividend Equivalents held by the Company on RSUs which do not vest, shall be forfeited and retained by the Company.9.Employment. This Award Agreement does not constitute a contract of employment, and does not confer upon Holder the rightto be retained in the employ of the Company or any Subsidiary. In addition, nothing in the Plan or this Award Agreement shall be interpreted to interferewith or limit in any way the right of the Company to terminate Holder’s employment or services at any time.10.No Additional Rights. Participation in the Plan is voluntary. The value of the RSUs is an extraordinary item that is not part ofnormal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-serviceawards, pensions or retirement benefits or similar payments unless specifically and otherwise provided in such plans. Rather, the awarding of the RSUsunder the Plan represents a mere investment.11.Limitations on Plan Rights. The RSUs are granted under and governed by the terms and conditions of the Plan. Byacceptance of the RSUs, Holder acknowledges and agrees that the Plan is discretionary in nature and may be amended, cancelled, or terminated by theCompany, in its sole discretion, at any time. The grant of the RSUs under the Plan is a one-
4time benefit and does not create any contractual or other rights in Holder to receive a grant of stock or benefits in lieu of RSUs in the future. Future grantsof RSUs, if any, will be at the sole discretion of the Company, including, but not limited to, the timing of the grant, the number of RSUs, and vestingprovisions. The Plan has been introduced voluntarily by the Company and in accordance with the provisions of the Plan may be terminated by theCompany at any time. By acceptance of the Restricted Stock Unit Award, Holder consents to the provisions of the Plan and this Award Agreement.12.Clawback. Notwithstanding anything contained in the Agreement to the contrary, all RSUs under this Agreement, and anyShares issued upon settlement hereunder shall be subject to forfeiture, or repayment pursuant to the terms of the Company’s Senior Leadership ClawbackPolicy or any other policy that the Company may implement in compliance with the requirements of applicable law, including without limitation the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder.13.Section 409A. To the extent Section 409A of the Code is applicable to the RSUs granted under this Award Agreement, then thisAward Agreement and the RSUs granted thereunder are intended to comply with Section 409A and to be interpreted and construed consistent with suchintent. Without limiting the generality of the foregoing, if Holder is a “specified employee” within the meaning of Section 409A, as determined under theCompany’s established methodology for determining specified employees, then to the extent required in order to avoid accelerated taxation or tax penaltiesunder Section 409A, Shares that would otherwise be issued under this Award (or any other amount due hereunder) upon Termination of Service shallinstead be issued on the first business day after the first to occur of (i) the date that is six months following the Holder’s Termination of Service and (ii) thedate of the Holder’s death. For purposes of this Agreement, the terms “terminate,” “terminated” and “termination” and “Termination of Service” mean atermination of Holder’s employment that constitutes a “separation from service” within the meaning of the default rules of Section 409A of the Code.14.Severability, Waiver, Modification, Assignment, and Governing Law.(a)This Agreement may not be waived or modified except by written agreement of the Company and the Holder, or by court order.(b)If either party waives the right to pursue a claim for the other’s breach of any provision of the Agreement, the waiver will notextinguish that party’s right to pursue a claim for a subsequent breach.(c)If the forfeiture provisions of Section 4(b) of this Agreement are determined by a court of competent jurisdiction to beunenforceable because the definition of Competitive Business or Restricted Area are too broad, or the duration for forfeiture of the RSUs is too long, thenthe court shall modify such definitions and the duration to the extent necessary in order to make Section 4(b) enforceable. If any court determines that theforfeiture provisions in Section 4(b) of this Agreement are unenforceable despite the power to reform them, then Section 4(b) shall be removed from thisAgreement in its entirety, and the RSUs will be forfeited, retroactively, as provided in Section 4(a) as of and upon the Holder's Termination of Service andthe remaining provisions of this Agreement are not to be affected and should be given full effect.
5(d)This Agreement will inure to the benefit of Company’s successors in interest, affiliates, subsidiaries, parents, purchasers, orassignees, and may be enforced by any one or more of same, without need of any further authorization or agreement from Holder.(e)The laws of the State where Employee is employed by the Company as of the Effective Date of this Agreement will govern thisAgreement, and the rights of the Parties in any dispute arising from this Agreement.(f)Any action relating to or arising from this Agreement must be brought in the courts of the State of Illinois or the federal districtcourts located in the State of Illinois (if sufficient grounds for federal court jurisdiction exist). Employee expressly consents to personal jurisdiction andvenue in the aforementioned courts in any such action.COMPANY:ULTA BEAUTY, INC., a Delaware corporationBy:Name:Title: Chief Human Resources Officer
Exhibit 21SIGNIFICANT SUBSIDIARIES OFULTA BEAUTY, INC.Name of Subsidiary:Jurisdiction of Incorporation or Organization:Ulta Salon, Cosmetics & Fragrance, Inc.DelawareUlta Inc.DelawareUlta Beauty Credit Services CorporationDelawareUlta Beauty Cosmetics, LLCFloridaSubsidiaries not included in the list are omitted because, considered in the aggregate as a single subsidiary, they do not constitute asignificant subsidiary.
Exhibit 23CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the following Registration Statements:(1)Registration Statement (Form S-8 No. 333-147127) pertaining to the Ulta Beauty 2007 Incentive Award Plan, UltaBeauty, Inc., 2002 Equity Incentive Plan, and the Ulta Beauty Inc. Second Amended and Restated Restricted StockOption Plan, as further amended, and(2)Registration Statement (Form S-8 No. 333-176735) pertaining to the Amended and Restated Ulta Beauty, Inc. 2011Incentive Award Planof our reports dated March 24, 2023, with respect to the consolidated financial statements and schedule of Ulta Beauty, Inc.and the effectiveness of internal control over financial reporting of Ulta Beauty, Inc. included in this Annual Report (Form 10-K) of Ulta Beauty, Inc. for the year ended January 28, 2023./s/ Ernst & Young LLPChicago, IllinoisMarch 24, 2023
Exhibit 31.1CERTIFICATION PURSUANT TORULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIESEXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, David C. Kimbell, certify that:1.I have reviewed this annual report on Form 10-K of Ulta Beauty, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presentedin this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in ExchangeAct Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based onsuch evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing theequivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.Date: March 24, 2023By:/s/ David C. KimbellDavid C. KimbellChief Executive Officer and Director
Exhibit 31.2CERTIFICATION PURSUANT TORULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIESEXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Scott M. Settersten, certify that:1.I have reviewed this annual report on Form 10-K of Ulta Beauty, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presentedin this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in ExchangeAct Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based onsuch evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing theequivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.Date: March 24, 2023By:/s/ Scott M. SetterstenScott M. SetterstenChief Financial Officer, Treasurer and Assistant Secretary
Exhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002Pursuant to 18 U.S.C. §1350 (adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002), I, the undersigned Chief ExecutiveOfficer and Director of Ulta Beauty, Inc. (the “Company”), hereby certify that the Annual Report on Form 10-K of the Company forthe fiscal year ended January 28, 2023 (the “Report”), fully complies with the requirements of section 13(a) or 15(d) of the SecuritiesExchange Act of 1934, as amended, and that information contained in the Report fairly presents, in all material respects, the financialcondition and results of operations of the Company.A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by theCompany and furnished to the Securities and Exchange Commission or its staff upon request.Date: March 24, 2023By:/s/ David C. KimbellDavid C. KimbellChief Executive Officer and Director
Exhibit 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002Pursuant to 18 U.S.C. §1350 (adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002), I, the undersigned Chief FinancialOfficer, Treasurer and Assistant Secretary of Ulta Beauty, Inc. (the “Company”), hereby certify that the Annual Report on Form 10-Kof the Company for the fiscal year ended January 28, 2023 (the “Report”), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by theCompany and furnished to the Securities and Exchange Commission or its staff upon request.Date: March 24, 2023By:/s/ Scott M. SetterstenScott M. SetterstenChief Financial Officer, Treasurer and Assistant Secretary