Ulta Beauty Announces First Quarter Fiscal 2019 Results

Ulta Beauty, Inc. (NASDAQ: ULTA) today announced financial results for
the first quarter ended May 4, 2019.

“The Ulta Beauty team delivered a strong start to the year with solid
first quarter sales and earnings performance,” said Mary Dillon, Chief
Executive Officer. “These results reflect a healthy balance of traffic
and ticket growth, and double digit comparable sales growth in mass
cosmetics, skin care and fragrance, tempered by continued mixed
performance in prestige cosmetics. We are driving operational excellence
across the enterprise, while investing in growth initiatives to fuel the
long-term success of Ulta Beauty. We are excited to announce our
decision to expand internationally and establish Ulta Beauty as a
successful global brand. Our first step in becoming a global beauty
retailer will be to prepare to launch operations in Canada.”

For the First Quarter of Fiscal 2019

• Net sales increased 12.9% to $1,743.0 million compared to $1,543.7
  million in the first quarter of fiscal 2018;
• Comparable sales (sales for stores open at least 14 months and
  e-commerce sales) increased 7.0% compared to an increase of 8.1% in
  the first quarter of fiscal 2018. The 7.0% comparable sales increase
  was driven by 4.3% transaction growth and 2.7% growth in average
  ticket;
• Gross profit as a percentage of net sales increased 70 basis points to
  37.0% compared to 36.3% in the first quarter of fiscal 2018, primarily
  due to improvement in merchandise margins driven by our marketing and
  merchandising strategies and leverage in fixed store costs, partially
  offset by investments in our salon services and supply chain
  operations;
• Selling, general and administrative expenses as a percentage of net
  sales increased 70 basis points to 23.1% compared to 22.4% in the
  first quarter of fiscal 2018, due to deleverage in corporate overhead
  related to investments in growth initiatives and store labor,
  partially offset by improvement in variable store and marketing
  expense attributed to cost efficiencies and higher sales volume;
• Pre-opening expenses decreased to $4.2 million compared to $5.2
  million in the first quarter of fiscal 2018. Real estate activity in
  the first quarter of fiscal 2019 included 22 new stores and one
  remodeled store, compared to 34 new stores and two remodeled stores in
  the first quarter of fiscal 2018;
• Operating income increased 13.2% to $237.5 million, or 13.6% of net
  sales, compared to $209.8 million, or 13.6% of net sales, in the first
  quarter of fiscal 2018;
• Tax rate decreased to 19.8% compared to 22.1% in the first quarter of
  fiscal 2018. The lower effective tax rate is primarily due to income
  tax accounting for share-based compensation;
• Net income increased 16.9% to $192.2 million compared to $164.4
  million in the first quarter of fiscal 2018; and
• Diluted earnings per share increased 20.7% to $3.26, which included a
  $0.18 benefit due to income tax accounting for share-based
  compensation, compared to $2.70 in the first quarter of fiscal 2018,
  which included a $0.07 benefit due to income tax accounting for
  share-based compensation.

Balance Sheet

Merchandise inventories, net at the end of first quarter of fiscal 2019
totaled $1,250.0 million compared to $1,136.8 million at the end of the
first quarter of fiscal 2018, representing an increase of $113.2
million. The increase in total inventory was driven by 89 net new stores
and the opening of the Company’s distribution center in Fresno,
California, partially offset by inventory productivity benefits from
supply chain investments in new systems and merchandise planning tools.
Average inventory per store increased 1.8% compared to the first quarter
of fiscal 2018.

The Company ended the first quarter of fiscal 2019 with $521.8 million
in cash and cash equivalents and short-term investments.

Recent Accounting Pronouncement – Leases

On February 3, 2019, the Company adopted Accounting Standards
Codification (ASC) 842 using the modified retrospective approach. The
new standard requires leases to be recorded on the balance sheet as
lease liabilities with corresponding right-of-use assets. Upon adoption,
the Company recognized and measured leases without revising comparative
period information or disclosures. The adoption of ASC 842, resulted in
the recording of operating lease assets and liabilities of $1.46 billion
and $1.84 billion, respectively, as of February 3, 2019. As part of the
adoption, the Company recorded an adjustment to retained earnings of
$2.4 million.

Share Repurchase Program

During the first quarter fiscal 2019, the Company repurchased 318,431
shares of its common stock at a cost of $107.4 million. As of
May 4, 2019, $788.2 million remained available under the $875.0 million
share repurchase program announced in March 2019.

Store Expansion

During the first quarter of fiscal 2019, the Company opened 22 stores
located in Birmingham, AL; California, MD; Christiansburg, VA; Dalton,
GA; Foley, AL; Grand Prairie, TX; Hanover, MD; Huntsville, AL; Kennett
Square, PA; Laguna Niguel, CA; Lake Elsinore, CA; Livermore, CA; Lompoc,
CA; Nags Head, NC; Plattsburgh, NY; Raleigh, NC; Rensselaer, NY; Ruston,
LA; Seekonk, MA; South Plainfield, NJ; Virginia Beach, VA; and
Whitestown, IN. The Company ended the first quarter of fiscal 2019 with
1,196 stores and square footage of 12,573,741, representing an 8.0%
increase in square footage compared to the first quarter of fiscal 2018.

Outlook

For fiscal 2019, the Company plans to:

• open approximately 80 new stores, execute approximately 20 remodel or
  relocation projects and complete approximately 270 store refreshes;
• increase total sales in the low double digits percentage range;
• achieve comparable sales growth of approximately 6% to 7%, including
  e-commerce growth of 20% to 30%;
• leverage operating profit margin rate 10 to 20 basis points;
• deliver diluted earnings per share in the range of $12.83 to $13.03,
  including the impact of approximately $700 million in share
  repurchases and assuming a 24% effective tax rate. This guidance
  represents the Company’s previous outlook for the year of $12.65 to
  $12.85, inclusive of the $0.18 income tax benefit in the first
  quarter. The Company continues to expect that diluted earnings per
  share growth will be slightly weighted to the second half of the year,
  excluding the impact of the income tax benefit from the first quarter;
• incur capital expenditures of $380 million to $400 million in fiscal
  2019, compared to fiscal 2018 capital expenditures of $319 million; and
• incur depreciation and amortization expense of $315 million.

To more closely align with industry practices, beginning in 2019, the
Company no longer provides a quarterly outlook. The Company will
continue to provide an annual outlook, which it will update on a
quarterly basis, as appropriate.

Conference Call Information

A conference call to discuss first quarter of fiscal 2019 results is
scheduled for today, May 30, 2019, 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 13,
2019 and can be accessed by dialing (844) 512-2921 and entering
conference ID number 13690528.

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. As of May 4, 2019, Ulta Beauty operates 1,196 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 our current views with
respect to, among other things, future events and financial performance.
You can identify these forward-looking statements 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 our historical performance and on current plans, estimates and
expectations. The inclusion of this forward-looking information should
not be regarded as a representation by us or any other person that the
future plans, estimates, targets, strategies or expectations
contemplated by us will be achieved. Such forward-looking statements are
subject to various risks and uncertainties, which include, without
limitation: changes in the overall level of consumer spending and
volatility in the economy; the possibility that we may be unable to
compete effectively in our highly competitive markets; the possibility
that the capacity of our distribution and order fulfillment
infrastructure and the performance of our newly opened and to be opened
distribution centers may not be adequate to support our recent growth
and expected future growth plans; our ability to sustain our growth
plans and successfully implement our long-range strategic and financial
plan; the ability to execute our Efficiencies for Growth cost
optimization program; the possibility that cybersecurity 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; our ability to gauge
beauty trends and react to changing consumer preferences in a timely
manner; changes in the wholesale cost of our products; 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; natural disasters that could negatively impact
sales; our ability to successfully execute our common stock repurchase
program or implement future common stock repurchase programs; and other
risk factors detailed in our public filings with the Securities and
Exchange Commission (the “SEC”), including risk factors contained in our
Annual Report on Form 10-K for the fiscal year ended February 2, 2019,
as such may be amended or supplemented in our subsequently filed
Quarterly Reports on Form 10-Q. Our 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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