Ulta Beauty Announces Fourth Quarter Fiscal 2018 Results

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

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

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

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

For the Full Year of Fiscal 2018
• Net sales increased 14.1% to $6,716.6 million compared to $5,884.5 million in fiscal 2017. Excluding the sales for the 53rd week in fiscal 2017 of $108.8 million, sales increased 16.3%;
• Comparable sales increased 8.1% compared to an increase of 11.0% in fiscal 2017. The 8.1% comparable sales increase was driven by 5.3% transaction growth and 2.8% growth in average ticket;
• Retail comparable sales increased 5.1%, including salon comparable sales growth of 3.6%;
• E-commerce comparable sales increased 35.4%, representing 300 basis points of the total Company comparable sales increase of 8.1%;
• Salon sales, including the benefit of the 53rd week in fiscal 2017, increased 8.5% to $300.9 million compared to $277.4 million in fiscal 2017;
• Gross profit as a percentage of net sales increased 30 basis points to 35.9% compared to 35.6% in fiscal 2017. The impact of new revenue recognition accounting drove 55 basis points of leverage with the remaining 25 basis points of deleverage attributed to category and channel mix shifts and investments in our salon services and supply chain operations, partially offset by leverage in fixed store costs attributed to the impact of higher sales volume;
• SG&A expenses as a percentage of net sales increased 100 basis points to 22.9% compared to 21.9% in fiscal 2017. The impact of new revenue recognition accounting was 80 basis points with the remaining 20 basis points due to deleverage from investments in store labor to support growth initiatives, partially offset by leverage in corporate overhead;
• Pre-opening expenses decreased to $19.8 million compared to $24.3 million in fiscal 2017. Real estate activity in fiscal 2018 included 107 new stores, 13 remodels, and two relocations, compared to 102 new stores, 11 remodels, and seven relocations in fiscal 2017;
• Operating income increased 8.8% to $854.1 million, or 12.7% of net sales, compared to $785.3 million, or 13.3% of net sales, in fiscal 2017;
• Tax rate decreased to 23.3% compared to 29.4% in fiscal 2017. The decrease was primarily due to one-time re-measurements of net deferred tax liabilities from tax reform in 2017;
• Net income increased 18.6% to $658.6 million compared to $555.2 million in fiscal 2017; and
• Diluted earnings per share increased 22.1% to $10.94 compared to $8.96 in fiscal 2017. Diluted earnings per share increased 33.0% compared to fiscal 2017 adjusted for tax reform related items and income tax accounting for share-based compensation.
more detail at: http://ir.ultabeauty.com/news-releases/news-release-details/2019/Ulta-Beauty-Announces-Fourth-Quarter-Fiscal-2018-Results/default.aspx

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