01—Abstract
Summary
Summary of the 10-K filed April 3, 2018. Cited figures are marked; the original filing is the authoritative source.
Ulta Beauty, Inc. (filing name; Ulta Beauty is the company's name in this 10-K for the fiscal year ended February 3, 2018) reported fiscal 2017 net sales of $5,884.5 milliona, up $1,029.8 million, or 21.2%, from $4,854.7 million in fiscal 2016.
The fiscal year included 53 weeks, with the extra week contributing approximately $108.8 millionb in net sales. Total comparable sales increased 11.0%, driven by a 7.1% increase in retail and salon services and a 59.9% increase in e-commerce. E-commerce sales reached $568.7 million, or 9.7% of total net sales.
Operating income rose to $785.3 millionc from $654.8 million, and net income increased 35.5% to $555.2 million, or $8.96 per diluted share. Income tax expense was $231.6 million, reflecting an effective tax rate of 29.4% that benefited from Tax Reform. The company expects its fiscal 2018 effective tax rate to be significantly lower.
The company operated 1,074 stores in 48 states and the District of Columbia at year-end, opening 102 new stores and remodeling 11 during fiscal 2017. Management expects to open approximately 100 new stores per year for the next several years and sees a long-term potential of 1,400 to 1,700 U.S. stores. Cash flow from operations was $779.4 milliond, and capital expenditures were $440.7 million, with about $375 million budgeted for fiscal 2018.
The company had no borrowings outstanding under its $400.0 million revolving credit facility. Under the 2017 share repurchase program, the company bought back $367.6 million of stock during fiscal 2017, and on March 15, 2018 it authorized a new $625.0 million program.
Key risks cited include consumer discretionary spending sensitivity, intense competition, dependence on top vendors (about 64% of net sales from the top ten vendor partners), distribution capacity as the company adds a sixth distribution center in Fresno, and cybersecurity exposure. The auditor, Ernst & Young LLP, issued unqualified opinions on the financial statements and on internal control over financial reporting.
02—Key points
Key Highlights
- Net sales rose 21.2% to $5,884.5 million in fiscal 2017, with total comparable sales up 11.0%
- Operating income increased to $785.3 million from $654.8 million; net income rose 35.5% to $555.2 million
- Diluted EPS was $8.96 in fiscal 2017, compared with $6.52 in fiscal 2016
- E-commerce sales reached $568.7 million, up from $345.3 million, and represented 9.7% of total net sales
- Operated 1,074 stores at year-end; opened 102 new stores in fiscal 2017, with about 100 new stores expected per year
- Effective tax rate fell to 29.4% from 37.5%, reflecting Tax Reform; fiscal 2018 rate expected to be significantly lower
- Repurchased $367.6 million of common stock in fiscal 2017; new $625.0 million repurchase program authorized March 15, 2018
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Ulta Beauty kept $0.09.
- Revenue$5.88B100.0%
- Cost of revenue−$3.79B64.4%
- Gross profit$2.10B35.6%
- Operating costs−$1.31B22.3%
- Operating income$785.3M13.3%
- Interest, other & tax−$230.1M3.9%
- Net income$555.2M9.4%
Where FY2018 revenue went
$5.88B- Cost of revenue: $3.79B, 64% of revenue
- SG&A: $1.29B, 22% of revenue
- Net income: $555.2M, 9.4% of revenue
- Interest, other & tax: $230.1M, 3.9% of revenue
Kept 9.4% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed April 3, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $5.88B$4.85B | +21.2% |
| Cost of Revenue | $3.79B$3.11B | +21.9% |
| Gross Profit | $2.10B$1.75B | +20.0% |
| SG&A Expenses | $1.29B$1.07B | +19.9% |
| Operating Income | $785.29M$654.82M | +19.9% |
| Net Income | $555.23M$409.76M | +35.5% |
| EPS (Basic) | $9.02$6.55 | +37.7% |
| EPS (Diluted) | $8.96$6.52 | +37.4% |
| Shares Outstanding (Basic) | 61.56M62.52M | −1.5% |
| Shares Outstanding (Diluted) | 61.98M62.85M | −1.4% |
05—Questions
Frequently Asked Questions
How did Ulta Beauty perform financially in fiscal 2017?
Net sales were $5,884.5 million, up 21.2% from $4,854.7 million. Gross profit was $2,096.8 million, operating income was $785.3 million, and net income was $555.2 million, or $8.96 per diluted share. Fiscal 2017 included 53 weeks, with the extra week contributing approximately $108.8 million in net sales.
What drove the growth in comparable sales?
Total comparable sales increased 11.0%, consisting of a 7.1% increase in retail and salon services and a 59.9% increase in e-commerce. Comparable sales growth came from 6.7% higher transactions and a 4.3% higher average ticket, which the company attributes to its marketing and merchandising strategies.
What is the company's store and growth outlook?
The company operated 1,074 stores in 48 states and the District of Columbia at February 3, 2018, and expects to open about 100 new stores per year for the next several years. Over the long term it sees potential for 1,400 to 1,700 U.S. stores. Capital expenditures are expected to be approximately $375 million in fiscal 2018.
How is the company returning capital to shareholders and funding growth?
Ulta Beauty repurchased $367.6 million of common stock in fiscal 2017 and paid no cash dividends. Operating cash flow was $779.4 million, and the company expects to self-fund future capital expenditures. It had no borrowings outstanding under its $400.0 million secured revolving credit facility, which matures in August 2022.
What are the main risks identified in the filing?
Key risks include sensitivity of discretionary beauty spending to economic conditions, intense competition, dependence on vendor partners (the top ten accounted for approximately 64% of net sales), capacity of the distribution network as a sixth distribution center in Fresno, California is added, cybersecurity and information system disruptions, and reliance on power center traffic for store sales.
06—Continue