Ulta Beauty : Announces First Quarter Fiscal 2020 Results

Temporary store closures in response to COVID-19 significantly impacted sales and earnings Proactive actions taken to increase financial flexibility during quarter Net Sales of $1,173.2 million compared to $1,743.0 million in the year-ago quarter Comparable Sales decreased (35.3%) Net Loss of ($78.5) million or ($1.39) per dilutive share

Ulta Beauty, Inc. (NASDAQ: ULTA) today announced financial results for the first quarter ended May 2, 2020.

“Fiscal 2020 started off well, with good growth in comparable store sales, market share, and our Ultamate Rewards loyalty program through mid-March. However, the rapid escalation of COVID-19 resulted in significant disruption to our operations. For much of the first quarter, Ulta Beauty operated as a digital-only business, and while e-commerce sales exceeded our expectations, it was not enough to fully offset the impact of our store closings,” said Mary Dillon, chief executive officer. “As we have navigated the pandemic, our priority for every decision has been to protect the well-being of our associates and guests, and I am incredibly proud and appreciative of how quickly our teams adjusted to the dynamic environment.”

“With safety continuing to guide our decisions, we have begun to reopen stores, and today more than 800 stores offer curbside pickup and more than 330 stores are open to guests. While it is still early, we have seen stronger-than-expected sales in reopened stores, and we’re seeing great engagement with our salon services, where available,” continued Dillon. “At Ulta Beauty, we have a strong, differentiated operating model, a brand that is known and loved, and passionate and optimistic associates, and I am confident we will emerge from this crisis well positioned to accelerate our market share gains and extend our competitive advantages.”

COVID-19 Response

The Company has taken decisive actions to protect the safety of its associates and guests and to manage its business through the fluid and challenging environment resulting from the COVID-19 pandemic. On March 19, 2020, the Company temporarily closed all of its stores in an effort to help contain the spread of the virus, while continuing to support its essential e-commerce operations. On April 19, 2020, many of the store and salon associates were temporarily furloughed.

In addition, the Company has taken multiple steps to reinforce the Company’s financial strength and preserve liquidity including:

• drawing down $800.0 million under its $1.0 billion revolving credit facility;
• suspending new hires, and deferring merit increases for all corporate, store, and salon associates;
• reducing marketing, travel and other discretionary expenses;
• moderating the pace of investment to support international capabilities;
• aligning inventory receipts with current sales trends;
• prioritizing payment obligations;
• reducing planned new store openings, relocations and remodel projects; and
• suspending its stock repurchase program.

As result of these and other actions, the Company ended the quarter with $1.2 billion in cash, cash equivalents, and short term investments. The Company is confident that it currently has sufficient liquidity to fund its operations.

On April 23, 2020, the Company launched curbside pickup in select stores, consistent with state and local guidelines. On May 11, 2020, the Company began to reopen select stores. As of today, 333 stores are open to guests, and 840 stores offer curbside pickup. As the impact of COVID-19 varies by region, the Company plans to continue to reopen stores and expand its service offerings on a phased timeline, taking a thoughtful, measured approach based on a variety of criteria, including state and local guidelines.

For the First Quarter of Fiscal 2020

• Net sales decreased 32.7% to $1,173.2 million compared to $1,743.0 million in the first quarter of fiscal 2019 due to the impact of COVID-19.
• Comparable sales (sales for stores open at least 14 months, including stores temporarily closed due to COVID-19, and e-commerce sales) decreased 35.3% compared to an increase of 7.0% in the first quarter of fiscal 2019. The 35.3% comparable sales decrease was driven by a decline of 38.6% in transactions which was partially offset by a 3.3% increase in average ticket.
• Gross profit decreased to $303.6 million compared to $644.8 million in the first quarter of fiscal 2019. As a percentage of net sales, gross profit decreased to 25.9% compared to 37.0% in the first quarter of fiscal 2019, primarily due to deleverage of fixed store costs, pressure from channel mix shifts, and deleverage of salon expenses due to lower sales. These pressures were partially offset by lower promotional activity.
• Selling, general and administrative (“SG&A”) expenses decreased to $380.9 million compared to $403.1 million in the first quarter of fiscal 2019. Lower store expenses and lower marketing expenses were partially offset by higher expenses related to strategic growth investments made in fiscal 2019. As a percentage of net sales, SG&A expenses increased to 32.5% compared to 23.1% in the first quarter of fiscal 2019, primarily due to deleverage related to lower sales resulting from the impact of COVID-19.
• Impairment charges of $19.5 million were driven by the impairment of some tangible long-lived assets and operating lease assets associated with certain retail stores.
• Pre-opening expenses increased to $4.6 million compared to $4.2 million in the first quarter of fiscal 2019. Real estate activity in the first quarter of fiscal 2020 included 11 new stores and one relocated store, compared to 22 new stores and one remodeled store in the first quarter of fiscal 2019.
• Operating loss was $101.5 million, or 8.7% of net sales, compared to operating income of $237.5 million, or 13.6% of net sales, in the first quarter of fiscal 2019.
• Tax rate increased to 23.6% compared to 19.8% in the first quarter of fiscal 2019. The higher effective tax rate is primarily due to income tax accounting for share-based compensation in the first quarter of fiscal 2019.
• Net loss was $78.5 million compared to net income of $192.2 million in the first quarter of fiscal 2019.
• Diluted loss per share was $1.39, compared to diluted earnings per share of $3.26 in the first quarter of fiscal 2019, which included a $0.18 benefit due to income tax accounting for share-based compensation.

Balance Sheet

The Company ended the first quarter of fiscal 2020 with $1,153.5 million in cash, cash equivalents and short-term investments.

Merchandise inventories, net at the end of first quarter of fiscal 2020 totaled $1,340.6 million compared to $1,250.0 million at the end of the first quarter of fiscal 2019, representing an increase of $90.5 million. The increase in total inventory was driven by 68 net new stores and the impact of the temporary closing of all Ulta Beauty stores for most of the quarter. Average inventory per store increased 1.5% compared to the first quarter of fiscal 2019.

During the first quarter of fiscal 2020, as a precautionary measure during the economic uncertainty due to COVID-19 and to enhance financial flexibility, the Company drew down $800 million under its $1.0 billion credit facility.

Share Repurchase Program

During the first quarter fiscal 2020, the Company repurchased 326,970 shares of its common stock at a cost of $73.0 million. As of May 2, 2020, $1.58 billion remained available under the $1.6 billion share repurchase program announced in March 2020. On April 2, 2020, the Company announced that the repurchase program has been suspended in order to preserve financial flexibility.

Store Expansion

During the first quarter of fiscal 2020, the Company opened 11 stores located in College Point, NY; Enfield, CT; Fort Myers, FL (2); Gillette, WY; Indio, CA; Klamath Falls, OR; Monroeville, PA; Paramus, NJ; Portland, OR; and Roseburg, OR. The Company ended the first quarter of fiscal 2020 with 1,264 stores and square footage of 13,294,607, representing a 5.7% increase in square footage compared to the first quarter of fiscal 2019. In addition, the Company permanently closed one store.

Fiscal 2020 Outlook

Given the uncertainty related to the COVID-19 pandemic, the Company withdrew its guidance for fiscal 2020 on March 17, 2020 and is not providing an earnings outlook at this time. However, the Company is providing some updated assumptions for fiscal 2020:

• Given the current environment, the Company has reduced its new store opening and relocation plans. The Company now expects to open between 30 and 40 new stores and execute approximately three relocation projects. The Company will continue to evaluate these plans based on demand and location economics, including committed costs incurred; and
• The Company has reduced its capital expenditure plan for fiscal 2020, and currently anticipates capital expenditures will be between $200 and $210 million.

Conference Call Information

A conference call to discuss first quarter of fiscal 2020 results is scheduled for today, May 28, 2020, at 5:00 p.m. Eastern Time / 4:00 p.m. Central Time. Investors and analysts interested in participating in the call are invited to dial (877) 705‑6003. The conference call will also be webcast live at http://ir.ultabeauty.com. A replay of the webcast will remain available for 90 days. A replay of the conference call will be available until 11:59 p.m. ET on June 11, 2020 and can be accessed by dialing (844) 512‑2921 and entering conference ID number 13702828.

About Ulta Beauty

At Ulta Beauty (NASDAQ: ULTA), the possibilities are beautiful. Ulta Beauty is the largest U.S. beauty retailer and the premier beauty destination for cosmetics, fragrance, skin care products, hair care products and salon services. In 1990, the Company reinvented the beauty retail experience by offering a new way to shop for beauty – bringing together all things beauty, all in one place. Today, Ulta Beauty has grown to become the top national retailer offering the complete beauty experience.

Ulta Beauty brings possibilities to life through the power of beauty each and every day in our stores and online with more than 25,000 products from approximately 500 well-established and emerging beauty brands across all categories and price points, including Ulta Beauty’s own private label. Ulta Beauty also offers a full-service salon in every store featuring hair, skin, brow, and make-up services.

Ulta Beauty is recognized for its commitment to personalized service, fun and inviting stores and our industry-leading Ultamate Rewards loyalty program. Ulta Beauty operates retail stores across 50 states and also distributes its products through its website, which includes a collection of tips, tutorials, and social content. For more information, visit www.ulta.com.

Forward‑Looking Statements

This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which reflect the company’s current views with respect to, among other things, future events and financial performance. These statements can be identified by the use of forward-looking words such as “outlook,” “believes,” “expects,” “plans,” “estimates,” “targets,” “strategies” or other comparable words. Any forward-looking statements contained in this press release are based upon the company’s historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the company or any other person that the future plans, estimates, targets, strategies or expectations contemplated by the company will be achieved. Such forward-looking statements are subject to various risks and uncertainties, which include, without limitation:

• The uncertain negative impacts the coronavirus (COVID-19) has had, and will continue to have, on the company’s business, financial condition, profitability, cash flows and supply chain, as well as consumer spending;
• epidemics, pandemics like COVID-19 or natural disasters that have and could continue to negatively impact the company’s sales;
• changes in the overall level of consumer spending and volatility in the economy, including as a result of the COVID-19 pandemic;
• the company’s ability to sustain its growth plans and successfully implement our long-range strategic and financial plan;
• the company’s ability to gauge beauty trends and react to changing consumer preferences in a timely manner;
• the possibility that the company may be unable to compete effectively in its highly competitive markets;
• the company’s ability to execute its Efficiencies for Growth cost optimization program;
• the possibility that cybersecurity breaches and other disruptions could compromise the company’s information or result in the unauthorized disclosure of confidential information;
• the possibility of material disruptions to the company’s information systems;
• the possibility that the capacity of the company’s distribution and order fulfillment infrastructure and the performance of its newly opened and to be opened distribution centers may not be adequate to support its recent growth and expected future growth plans;
• changes in the wholesale cost of the company’s products;
• the possibility that new store openings and existing locations may be impacted by developer or co-tenant issues;
• the company’s ability to attract and retain key executive personnel;
• the company’s ability to successfully execute its common stock repurchase program or implement future common stock repurchase programs; and
• other risk factors detailed in the company’s public filings with the Securities and Exchange Commission (the SEC), including risk factors contained in its Annual Report on Form 10‑K for the fiscal year ended February 1, 2020, as such may be amended or supplemented in its subsequently filed Quarterly Reports on Form 10-Q.

The company’s filings with the SEC are available at www.sec.gov. Except to the extent required by the federal securities laws, the Company does not undertake to publicly update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

										Exhibit 1
Ulta Beauty, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
		13 Weeks Ended
		May 2,					May 4,
		2020					2019
		(Unaudited)					(Unaudited)
Net sales		$	1,173,210		100.0%		$	1,743,029		100.0%
Cost of sales			869,605		74.1%			1,098,182		63.0%
Gross profit			303,605		25.9%			644,847		37.0%
Selling, general and administrative expenses			380,912		32.5%			403,133		23.1%
Impairment charges			19,542		1.7%			—		0.0%
Pre-opening expenses			4,635		0.4%			4,174		0.2%
Operating income (loss)			(101,484)		(8.7%)			237,540		13.6%
Interest expense (income), net			1,272		(0.1%)			(2,046)		0.1%
Income (loss) before income taxes			(102,756)		(8.8%)			239,586		13.7%
Income tax expense (benefit)			(24,247)		(2.1%)			47,365		2.7%
Net income (loss)		$	(78,509)		(6.7%)		$	192,221		11.0%
Net income (loss) per common share:
Basic		$	(1.39)				$	3.28
Diluted		$	(1.39)				$	3.26
Weighted average common shares outstanding:
Basic			56,419					58,631
Diluted			56,419					58,993

									Exhibit 2
Ulta Beauty, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
		May 2,			February 1,			May 4,
		2020			2020			2019
		(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	1,043,540		$	392,325		$	326,831
Short-term investments			110,000			110,000			195,000
Receivables, net			88,691			139,337			110,046
Merchandise inventories, net			1,340,566			1,293,701			1,250,037
Prepaid expenses and other current assets			97,041			103,567			137,173
Prepaid income taxes			48,982			16,387			245
Total current assets			2,728,820			2,055,317			2,019,332
Property and equipment, net			1,148,341			1,205,524			1,205,919
Operating lease assets			1,583,490			1,537,565			1,479,132
Goodwill			10,870			10,870			10,870
Other intangible assets, net			3,159			3,391			4,085
Deferred compensation plan assets			25,388			27,849			23,910
Other long-term assets			30,483			23,356			23,105
Total assets		$	5,530,551		$	4,863,872		$	4,766,353
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	466,043		$	414,009		$	407,345
Accrued liabilities			173,310			246,088			227,156
Deferred revenue			216,330			237,535			182,993
Current operating lease liabilities			240,496			239,629			211,432
Accrued income taxes			—			—			16,679
Total current liabilities			1,096,179			1,137,261			1,045,605
Non-current operating lease liabilities			1,748,245			1,698,718			1,654,401
Long-term debt			800,000			—			—
Deferred income taxes			95,276			89,367			90,384
Other long-term liabilities			36,892			36,432			34,395
Total liabilities			3,776,592			2,961,778			2,824,785
Commitments and contingencies
Total stockholders’ equity			1,753,959			1,902,094			1,941,568
Total liabilities and stockholders’ equity		$	5,530,551		$	4,863,872		$	4,766,353

						Exhibit 3
Ulta Beauty, Inc.
Consolidated Statements of Cash Flows
(In thousands)
		13 Weeks Ended
		May 2,			May 4,
		2020			2019
		(Unaudited)				(Unaudited)
Operating activities
Net income (loss)		$	(78,509)		$	192,221
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			76,626			71,810
Non-cash lease expense			70,863			75,231
Impairment charges			19,542			—
Deferred income taxes			5,909			6,520
Stock-based compensation expense			6,182			6,030
Loss on disposal of property and equipment			1,521			1,365
Change in operating assets and liabilities:
Receivables			50,646			8,654
Merchandise inventories			(46,865)			(35,708)
Prepaid expenses and other current assets			6,526			(24,317)
Income taxes			(32,595)			33,431
Accounts payable			46,965			3,329
Accrued liabilities			(63,927)			9,971
Deferred revenue			(21,205)			(16,061)
Operating lease liabilities			(68,976)			(67,635)
Other assets and liabilities			2,979			6,837
Net cash provided by (used in) operating activities			(24,318)			271,678
Investing activities
Short-term investments, net			—			(195,000)
Capital expenditures			(41,474)			(71,836)
Purchases of equity investments			(5,386)			(12,736)
Net cash used in investing activities			(46,860)			(279,572)
Financing activities
Proceeds from long-term debt			800,000			—
Repurchase of common shares			(72,981)			(107,399)
Stock options exercised			250			42,056
Purchase of treasury shares			(3,002)			(9,183)
Debt issuance costs			(1,799)			—
Net cash provided by (used in) financing activities			722,468			(74,526)
Effect of exchange rate changes on cash and cash equivalents			(75)			—
Net increase (decrease) in cash and cash equivalents			651,215			(82,420)
Cash and cash equivalents at beginning of period			392,325			409,251
Cash and cash equivalents at end of period		$	1,043,540		$	326,831

								Exhibit 4
2020 Store Expansion
		Total stores open		Number of stores		Number of stores		Total stores
		at beginning of the		opened during the		closed during the		open at
Fiscal 2020		quarter		quarter		quarter		end of the quarter
1st Quarter		1,254		11		1		1,264

				Gross square feet for
		Total gross square		stores opened or		Gross square feet for		Total gross square
		feet at beginning of		expanded during the		stores closed		feet at end of the
Fiscal 2020		the quarter		quarter		during the quarter		quarter
1st Quarter		13,193,076		111,894		10,363		13,294,607

 

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