Ulta Beauty Announces Third Quarter Fiscal 2023 Results

Net Sales of $2.5 Billion Compared to $2.3 Billion in the Year-Ago Quarter

Comparable Sales Increased 4.5%

Net Income of $249.5 Million or $5.07 Per Diluted Share

Ulta Beauty, Inc. (NASDAQ:ULTA) today announced financial results for the thirteen-week period ("third quarter") and thirty-nine-week period ("first nine months") ended October 28, 2023 compared to the same periods ended October 29, 2022.

"The third quarter represented another strong performance by the Ulta Beauty team, as sales, gross profit, and diluted EPS all exceeded our internal expectations. Our traffic trends remained healthy, our brand awareness increased, and we expanded our loyalty program to a record 42.2 million members," said Dave Kimbell, chief executive officer. "As we look to the future, the outlook for the Beauty category is bright, and I am confident Ulta Beauty has the right plans in place to delight our guests this holiday season, expand our leadership position in specialty beauty retail, and deliver long-term shareholder growth."

Third Quarter of Fiscal 2023 Compared to Third Quarter of Fiscal 2022

• Net sales increased 6.4% to $2.5 billion compared to $2.3 billion, primarily due to increased comparable sales, strong new store performance, and strong growth in other revenue.
• Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 4.5% compared to an increase of 14.6%, driven by a 5.9% increase in transactions and a 1.4% decrease in average ticket.
• Gross profit increased 3.0% to $992.1 million compared to $962.8 million. As a percentage of net sales, gross profit decreased to 39.9% compared to 41.2%, primarily due to lower merchandise margin, higher inventory shrink, and higher supply chain costs, partially offset by strong growth in other revenue.
• Selling, general and administrative (SG&A) expenses increased 10.8% to $661.4 million compared to $597.2 million. As a percentage of net sales, SG&A expenses increased to 26.6% compared to 25.5%, primarily due to higher corporate overhead due to strategic investments, higher store expenses, higher store payroll and benefits, and higher marketing expenses, partially offset by lower incentive compensation.
• Operating income was $327.2 million, or 13.1% of net sales, compared to $361.9 million, or 15.5% of net sales.
• Net interest income increased to $2.5 million compared to $0.8 million, due to higher average interest rates on cash balances.
• The tax rate remained flat at 24.3%.
• Net income was $249.5 million compared to $274.6 million.
• Diluted earnings per share was $5.07 compared to $5.34 (which included a $0.02 benefit due to income tax accounting for stock-based compensation).

First Nine Months of Fiscal 2023 Compared to First Nine Months of Fiscal 2022

• Net sales increased 9.6% to $7.7 billion compared to $7.0 billion, primarily due to increased comparable sales, strong new store performance, and strong growth in other revenue.
• Comparable sales increased 7.3% compared to an increase of 15.6%, driven by an 8.7% increase in transactions and a 1.4% decrease in average ticket.
• Gross profit increased 7.4% to $3.0 billion compared to $2.8 billion. As a percentage of net sales, gross profit decreased to 39.7% compared to 40.6%, primarily due to lower merchandise margin, higher inventory shrink, higher supply chain costs, and deleverage of salon expenses, partially offset by strong growth in other revenue and leverage of store fixed costs.
• SG&A expenses increased 14.8% to $1.9 billion compared to $1.6 billion. As a percentage of net sales, SG&A expenses increased to 24.5% compared to 23.4%, primarily due to higher corporate overhead due to strategic investments, higher store payroll and benefits, higher marketing expenses, and higher store expenses, partially offset by lower incentive compensation.
• Operating income was $1.16 billion, or 15.2% of net sales, compared to $1.19 billion, or 17.1% of net sales.
• Net interest income increased to $14.3 million compared to $0.6 million, due to higher average interest rates on cash balances.
• The tax rate decreased to 23.7% compared to 24.3%, primarily due to benefits from income tax accounting for stock-based compensation.
• Net income was $896.6 million compared to $901.7 million.
• Diluted earnings per share was $17.99, including a $0.14 benefit due to income tax accounting for stock-based compensation, compared to $17.35, including a $0.05 benefit due to income tax accounting for stock-based compensation.

Balance Sheet

Cash and cash equivalents at the end of the third quarter of fiscal 2023 totaled $121.8 million.

Merchandise inventories, net at the end of the third quarter of fiscal 2023 increased 9.8% to $2.3 billion compared to $2.1 billion at the end of the third quarter of fiscal 2022. The increase was primarily due to inventory to support expected demand, 31 net new stores, the new market fulfillment center in Greer, SC, new brand launches, and product cost increases.

Short-term debt at the end of the third quarter of fiscal 2023 was $195.4 million, as the Company drew on its revolving credit facility to support ongoing capital allocation priorities, including share repurchases and capital expenditures, and merchandise inventory growth.

Share Repurchase Program

During the third quarter of fiscal 2023, the Company repurchased 686,689 shares of its common stock at a cost of $281.5 million. During the first nine months of fiscal 2023, the Company repurchased 1.8 million shares of its common stock at a cost of $840.5 million. As of October 28, 2023, $259.4 million remained available under the $2.0 billion share repurchase program announced in March 2022.

Store Update

Real estate activity in the third quarter of fiscal 2023 included 12 new stores located in Antioch, TN; Baraboo, WI; Cornelius, NC; Cottage Grove, MN; El Paso, TX (2); Elizabethtown, KY; Leominster, MA; Mesa, AZ; Parrish, FL; Pell City, AL; and Rialto, CA. In addition, the Company relocated two stores and remodeled 11 stores. During the first nine months of fiscal 2023, the Company opened 20 new stores, relocated five stores, remodeled 16 stores, and closed one store.

At the end of the third quarter of fiscal 2023, the Company operated 1,374 stores totaling 14.4 million square feet.

Fiscal 2023 Outlook

The Company has updated its outlook for fiscal 2023.

Conference Call Information

A conference call to discuss third quarter of fiscal 2023 results is scheduled for today, November 30, 2023, at 4:30 p.m. ET / 3:30 p.m. CT. Investors and analysts interested in participating in the call are invited to dial (877) 704-4453. The conference call will also be webcast live at https://ulta.com/investor. 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 December 14, 2023 and can be accessed by dialing (844) 512-2921 and entering conference ID number 13741934.

About Ulta Beauty

At Ulta Beauty (NASDAQ:ULTA), the possibilities are beautiful. Ulta Beauty is the largest specialty 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 operates 1,374 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:

• macroeconomic conditions, including inflation, rising interest rates and recessionary concerns, as well as ongoing labor 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 (including future uncertain impacts);
• changes in the overall level of consumer spending and volatility in the economy, including as a result of the macroeconomic conditions 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 replacement enterprise 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 centers, fast fulfillment centers, and market fulfillment centers;
• the possibility that cybersecurity or information security breaches and other disruptions could compromise our information or result 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 temporary exclusive 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 repurchase programs;
• a decline in operating results may lead to asset impairment and store closure charges; 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 January 28, 2023, 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.

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