How did Ulta perform financially in fiscal 2007?

Net sales increased to $912.1 million from $755.1 million, gross profit rose to $283.6 million, and net income increased to $25.3 million from $22.5 million. Gross margin was 31.1% in both fiscal 2007 and fiscal 2006, and operating income was $46.7 million compared with $40.1 million the prior year.

What was the purpose of the initial public offering?

The company sold 7,666,667 shares at $18.00 per share, generating net proceeds of $123.6 million after underwriting discounts and offering expenses. The company used the proceeds to pay $93.0 million of accumulated dividends in arrears on its preferred stock, redeem $4.8 million of Series III preferred stock, and reduce borrowings by $25.8 million, with the remainder for general corporate purposes. The company did not receive proceeds from shares sold by selling stockholders.

What are the main legal risks disclosed?

Three putative securities class action lawsuits were filed in December 2007 and January 2008 in the U.S. District Court for the Northern District of Illinois against the company and certain executive officers. The suits allege the IPO prospectus and registration statement contained materially false and misleading statements, and they were consolidated in March 2008. The company says it is not presently able to reasonably estimate potential losses.

What does the company plan for future growth?

The company plans to grow its store base to more than 1,000 stores in the United States over the next 10 years, expand its prestige brand offerings, grow salon traffic, and expand e-commerce. It began operating a second distribution facility in Phoenix, Arizona, with shipments to stores expected to begin in late April 2008. It also stated that it expects to exercise the $50 million accordion option on its credit facility during fiscal 2008.

What concentration and supplier risks should investors consider?

The top ten vendors accounted for approximately 45% of net sales in fiscal 2007, and the company has no long-term supply agreements or exclusive arrangements with its vendors. The company also depends on a single distribution facility historically, with a second facility recently started, and it relies on overseas sourcing for its gift-with-purchase and other promotional products.

ULTA 10-K FY2008 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed April 16, 2008. Cited figures are marked; the original filing is the authoritative source.

Ulta Salon, Cosmetics & Fragrance, Inc. reported net sales of $912.1 million^a for fiscal 2007 (ended February 2, 2008), up from $755.1 million in fiscal 2006, driven by the opening of 53 new stores and a 6.4% comparable store sales increase.

Gross profit rose to $283.6 million^b, with gross margin flat at 31.1% of net sales, while selling, general and administrative expenses increased to $225.2 million and pre-opening expenses rose to $11.8 million. Operating income was $46.7 million and net income was $25.3 million, though net income available to common stockholders was $14.1 million after $11.2 million of preferred stock dividends. The company operated 249 stores in 31 states at year-end.

The company completed its initial public offering on October 30, 2007, selling 7,666,667 shares at $18.00^c per share for net proceeds of $123.6 million. Proceeds were used to pay $93.0 million of accumulated preferred dividends in arrears, redeem $4.8 million of Series III preferred stock, and reduce borrowings by $25.8 million. Cash flow from operations fell to $46.9 million, while capital expenditures rose to $101.9 million, and total debt was $74.8 million at year-end.

Management's growth plan targets more than 1,000 stores over the next 10 years and includes a second distribution facility in Phoenix, Arizona, expected to begin shipping in late April 2008. Investors should weigh the company's growth against several risks disclosed in the filing: a putative consolidated securities class action related to the IPO prospectus, in which the company says it cannot reasonably estimate potential losses; reliance on its top ten vendors, which represented approximately 45% of net sales; and the expectation that the $50 million^d accordion option on its credit facility will be needed during fiscal 2008. The company also expects a significant amount of shares to become eligible for sale after the lock-up expires on or about April 21, 2008.

02—Key points

Key Highlights

Net sales rose to $912.1 million in fiscal 2007 from $755.1 million in fiscal 2006, with comparable store sales up 6.4%.
Operating income was $46.7 million and net income was $25.3 million, versus $40.1 million and $22.5 million in fiscal 2006.
The IPO on October 30, 2007 raised net proceeds of $123.6 million at $18.00 per share, which were used to pay $93.0 million of accumulated preferred dividends in arrears.
The company opened 53 stores in fiscal 2007 and operated 249 stores in 31 states as of February 2, 2008, with a long-term target of more than 1,000 stores over 10 years.
Capital expenditures increased to $101.9 million from $62.3 million, and operating cash flow declined to $46.9 million from $55.6 million.
A consolidated securities class action has been filed relating to the IPO prospectus and registration statement; the company intends to contest it vigorously and cannot reasonably estimate potential losses.
Top ten vendors accounted for approximately 45% of net sales in fiscal 2007, and the company has no long-term supply agreements with its vendors.

03—Questions

Frequently Asked Questions

How did Ulta perform financially in fiscal 2007?
Net sales increased to $912.1 million from $755.1 million, gross profit rose to $283.6 million, and net income increased to $25.3 million from $22.5 million. Gross margin was 31.1% in both fiscal 2007 and fiscal 2006, and operating income was $46.7 million compared with $40.1 million the prior year.
What was the purpose of the initial public offering?
The company sold 7,666,667 shares at $18.00 per share, generating net proceeds of $123.6 million after underwriting discounts and offering expenses. The company used the proceeds to pay $93.0 million of accumulated dividends in arrears on its preferred stock, redeem $4.8 million of Series III preferred stock, and reduce borrowings by $25.8 million, with the remainder for general corporate purposes. The company did not receive proceeds from shares sold by selling stockholders.
What are the main legal risks disclosed?
Three putative securities class action lawsuits were filed in December 2007 and January 2008 in the U.S. District Court for the Northern District of Illinois against the company and certain executive officers. The suits allege the IPO prospectus and registration statement contained materially false and misleading statements, and they were consolidated in March 2008. The company says it is not presently able to reasonably estimate potential losses.
What does the company plan for future growth?
The company plans to grow its store base to more than 1,000 stores in the United States over the next 10 years, expand its prestige brand offerings, grow salon traffic, and expand e-commerce. It began operating a second distribution facility in Phoenix, Arizona, with shipments to stores expected to begin in late April 2008. It also stated that it expects to exercise the $50 million accordion option on its credit facility during fiscal 2008.
What concentration and supplier risks should investors consider?
The top ten vendors accounted for approximately 45% of net sales in fiscal 2007, and the company has no long-term supply agreements or exclusive arrangements with its vendors. The company also depends on a single distribution facility historically, with a second facility recently started, and it relies on overseas sourcing for its gift-with-purchase and other promotional products.

04—Continue

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