Insiders ranked by realized 90-day signed return on their open-market trades at Ulta Beauty, Inc.. Minimum 3 scored trades. Returns are signed - a sale followed by a rally counts against the insider.
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -1.56pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-2.67pp
Big -
Net-tone change vs last year's 10-K.
MD&A
-0.45pp
Lean -
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
negative+10
failure+8
adversely+7
losses+6
adverse+5
Positive rising
able+3
adequately+3
desirable+3
successfully+2
successful+2
Risk Factors (Item 1A)
9,980 words
Item 1A. Risk Factors
The risks described below reflect the Company’s beliefs and opinions as to factors that could materially and adversely affect our business, financial condition, results of operations, or future growth. We could also be affected by additional risks that apply to all companies operating in the United States or our other markets, as well as other risks that are not presently known to us or that we currently consider to be immaterial. References to past events are provided only for example and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their probability of occurring in the future. You should carefully consider the following risks and all of the other information contained in this Annual Report on Form 10-K before making an investment in our common stock.
Economic, Market, and Other External Risks
Macroeconomic conditions could have a material adverse impact on our business, financial condition, profitability, and cash flows.
Macroeconomic conditions, including inflation and elevated interest rates, as well as labor, transportation, and shipping cost pressures, have had, and may continue to have, a negative impact on our business, financial condition, profitability,
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
loss+12
impairment+7
impaired+3
adverse+1
opposed+1
Positive rising
excellence+1
opportunities+1
success+1
greater+1
MD&A (Item 7)
6,933 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
Overview
We were founded in 1990 as a beauty retailer at a time when prestige, mass, and salon products were sold through distinct channels – department stores for prestige products; drug stores and mass merchandisers for mass products; and salons and authorized retail outlets for professional hair care products. We developed a unique specialty retail concept that offers a broad range of brands and price points, select beauty services, and a convenient and welcoming shopping environment. We define our target consumer as a beauty enthusiast, a consumer who is passionate about the beauty category, uses beauty for self-expression, experimentation, and self-investment, and has high expectations for the shopping experience. Based on our consumer insights research, we estimate there are approximately 140 million beauty enthusiasts in the U.S. We believe our strategy provides us with competitive advantages that have contributed to our financial performance.
Today, our U.S. operations (“Ulta U.S.”) make us the largest specialty beauty retailer in the United States and the beauty destination for cosmetics, fragrance, skin care, bath and body products, hair care, salon styling tools, wellness products, and salon services. In addition to our U.S. operations, we are expanding our presence internationally through our subsidiary, Space NK, a luxury beauty retailer operating in the U.K. and Ireland, our joint venture in Mexico, and our franchise in the Middle East.
and cash flows. Continuing dynamic global trade conditions and elevated tariff levels could contribute to increased input costs, supply chain disruption, pricing volatility, and heightened economic uncertainty, and it could be time-consuming and expensive for us to alter our operations in order to adapt to this environment. Additionally, we expect the impact of inflationary and macroeconomic pressures to continue in 2026, and we continue to closely monitor conditions, including guest behavior, and the impact of these factors on guest demand. Continuing or worsening inflation and/or cost pressures may have a material adverse impact on our business, financial condition, profitability, and/or cash flows.
As we expand internationally, the magnitude of the effects of geopolitical events, including the ongoing conflicts in Ukraine and the Middle East and cartel violence and related unrest in Mexico, on the Company’s business, financial condition, profitability, and/or cash flow could be greater than when the Company’s operations were solely U.S.-based.
The health of the economy may affect consumer purchases of discretionary items such as beauty products and salon services, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.
Our results of operations may be materially affected by conditions in the capital markets and the U.S. or global economy generally. We appeal to a wide demographic consumer profile and offer an extensive selection of beauty products sold directly to retail consumers as well as premium salon services. Uncertainty in the economy has adversely impacted, and could continue to adversely impact, consumer purchases of discretionary items across all of our product categories, including prestige beauty products and premium salon services. Factors that could affect consumers’ willingness to make such discretionary purchases include: general business conditions, inflationary pressures, levels of employment, interest rates, tax rates, the availability of consumer credit, consumer confidence in future economic conditions, tariffs or other trade restrictions (including uncertainty as to the scale and short- and long-term effects of currently proposed or future tariffs), risks related to epidemics or pandemics, geopolitical events, and recessionaryconcerns. In the event of a prolonged period of inflation, an economic downturn, or a recession, consumer spending habits could be adversely affected, and we could experience lower than expected net sales. Reduced consumer spending could cause changes in guest order patterns and in the level of merchandise purchased by our guests, and may signify a reset of consumer spending habits, all of which could adversely affect our business, financial condition, profitability, and cash flows.
In addition, a general deterioration in economic conditions could adversely affect our commercial partners, including our brand partners, as well as the real estate developers and landlords who we rely on to construct and operate commercial centers in which our stores are located. A bankruptcy or financial failure of a significant vendor or a number of significant real estate developers or shopping center landlords could have a material adverse effect on our business, financial condition, profitability, and cash flows. Adverse economic conditions could negatively affect our vendors’ access to the capital and liquidity required to maintain their inventory, production levels, timeliness, and product quality and to operate their businesses, which could adversely affect our supply chain, or could reduce our vendors’ offerings of trade credit, customer incentives, vendor allowances, cooperative marketing expenditures, and product promotions, which could adversely affect our results of operations. Adverse economic conditions could also make it difficult for both us and our vendors to accurately forecast future product demand trends, which could cause us to carry too much or too little merchandise in various product categories.
We may be unable to compete effectively in our highly competitive markets.
The markets for beauty and wellness products and salon services are highly competitive with few barriers to entry. With regard to beauty and wellness products, we compete against a diverse group of retailers, both small and large, including mass merchandisers, specialty retailers, online capabilities of national retailers, pure-play e-commerce companies, online marketplaces (including those operated by social media platforms), and drug stores. In some regions or in connection with some products, we also compete against regional and national department stores, catalog retailers, local specialty retail stores, and direct response television, including television home shopping retailers and infomercials. With regard to salon services, we compete primarily against high-end and discount salon chains as well as locally owned salons.
We believe the principal bases upon which we compete are the breadth of merchandise, our value proposition, the quality of our guests’ shopping experience (including through our omnichannel offerings), and the convenience of our stores as one-stop destinations for beauty products and salon services. Many of our competitors are, and many of our potential competitors may be, larger and have greater financial, marketing, and other resources and therefore may be able to adapt
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to changes in guest requirements more quickly, devote greater resources to the marketing and sale of their products, generate greater brand recognition, or adopt more aggressive pricing policies than we can. As a result, we may lose market share, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.
Epidemics, pandemics, natural disasters, conflicts, or other catastrophes or crises could have a material adverse effect on our business, financial condition, profitability, and cash flows.
Epidemics, pandemics, and other public health crises, natural disasters, such as hurricanes, tornados, wildfires, earthquakes, and mudslides, as well as conflicts, such as wars, acts of violence, and terrorism, have resulted in the temporary closure of our stores and, in the future, could also result in physical damage to our properties, the temporary closing of our stores, the temporary closing of our distribution, fast fulfillment, and market fulfillment centers, the temporary lack of an adequate work force, the temporary or long-term disruption in the supply of products (or a substantial increase in the cost of those products) from domestic or foreign suppliers, the temporary disruption in the delivery of goods both to and from our distribution, fast fulfillment, and market fulfillment centers (or a substantial increase in the cost of those deliveries), the temporary reduction in the availability of products in our stores and/or the temporary reduction in visits to stores by guests. Accordingly, if one or more epidemics, pandemics, natural disasters, and/or acts of violence or terrorism were to occur in the future, it could have a material adverse effect on our business, financial condition, profitability, and cash flows or may require us to incur increased costs.
Climate change could adversely impact our business operations and/or our supply chain.
Scientific consensus shows that carbon dioxide and other greenhouse gases in the atmosphere have caused and will in the future cause changes in weather patterns around the globe. Climatologists predict these changes will result in the increased frequency of extreme weather events and natural disasters, which could disrupt our business operations or those of our suppliers. These weather events could also lead to an increased rate of temporary store closures and reduced guest traffic at our stores. In addition, concern about climate change and greenhouse gases may result in new or additional legal, legislative, and/or regulatory requirements to reduce or mitigate the effects of climate change on the environment. Any such new requirements could increase our operating costs for things like energy or packaging, as well as our product supply chain and distribution costs.
There is also increased focus, including by investors, guests, and other stakeholders, on climate change and other environmental, social, governance, and sustainability matters, including single use plastic, energy, waste, and worker safety. Concern about climate change might cause consumer preferences to change, including moving away from products or ingredients considered to have high climate change impact and towards products that are more sustainably made, and we expect to incur additional costs in connection with our initiatives in this area.
Our reputation could be damaged if we do not (or are perceived not to) act responsibly with respect to these matters and, taken together, these matters could materially and adversely affect our business, financial condition, profitability, and cash flows, as well as our ability to meet the needs of our guests.
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Business, Operational, and Strategic Risks
Our comparable sales and quarterly financial performance may fluctuate due to seasonality and other factors outside of our control, which could result in a decline in the price of our common stock.
We have historically experienced and expect to continue to experience seasonal fluctuations in our net sales, operating income, and net income. A significant portion of our net sales and profits is driven by holidays, such as Valentine’s Day and Mother’s Day in the first and second quarters and the November/December holiday season in the fourth quarter. We must carry a significant amount of inventory, particularly before these selling periods. If we miscalculate demand for our products generally or for our product mix during certain holiday seasons, our net sales could decline or we could accumulate excess inventory, which would harm our financial performance. If we are not successful in selling our inventory during these periods, we may be forced to rely on markdowns or promotional sales to dispose of the excess inventory or may not be able to sell the inventory at all, which could have a material adverse effect on our business, financial condition, and results of operations.
Additionally, our comparable sales and quarterly financial performance have historically been affected, and may continue to be affected, by any of the other types of risks and events described in these risk factors. Accordingly, our results for any one fiscal quarter are not necessarily indicative of the results to be expected for any other quarter, and comparable sales for any particular future period may decrease. In that event, the price of our common stock may decline.
If we are not successful in managing our inventory balances, our sales may decline and our results of operations may be negatively affected.
We must maintain sufficient inventory levels of merchandise that our guests desire to successfully operate our business. A shortage of popular merchandise could reduce our net sales. Conversely, we also must seek to avoid accumulating excess inventory to maintain appropriate in-stock levels. If we overstock unpopular merchandise, then we may be forced to take significant inventory markdowns or missopportunities for the sale of other merchandise, both of which could have a negative impact on our profitability, and, in turn, our sales may decline or we may be required to sell the merchandise we have obtained at lower prices. If we are not successful in managing our inventory balances, our results of operations may be negatively affected.
If we are unable to gauge beauty trends and react to changing consumer preferences in a timely manner, our sales may decrease.
We believe our success depends in substantial part on our ability to:
recognize and define product and beauty trends;
anticipate, gauge, and react to changing consumer preferences (including relating to sustainability of product sources and packaging, ingredient transparency, and animal welfare) in a timely manner;
translate market trends into appropriate, saleable product and service offerings in our stores and salons in advance of our competitors;
develop and maintain vendor relationships that provide us access to the newest merchandise on reasonable terms; and
distribute merchandise to our stores in an efficient and effective manner and maintain appropriate in-stock levels.
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If we are unable to anticipate and fulfill the merchandise needs of the consumer, our net sales may decrease and we may be forced to increase markdowns of slow-moving merchandise, either of which could have a material adverse effect on our business, financial condition, profitability, and cash flows.
We rely on our good relationships with brand partners to purchase prestige, mass, and salon beauty products on reasonable terms, and to offer certain brands or products that are permanently or temporarily exclusive to us. If these relationships were to be impaired, or if certain brand partners were to change their distribution model or become unable to supply sufficient merchandise to keep pace with our growth plans, we may not be able to obtain a sufficient selection or volume of merchandise on reasonable terms, and we may not be able to respond promptly to changing trends in beauty products, either of which could have a material adverse effect on our competitive position, business, financial condition, profitability, and cash flows.
We have no long-term supply agreements with brand partners, so our success depends on maintaining good relationships with them. Our business depends to a significant extent on the willingness and ability of our brand partners to supply us with a sufficient selection and volume of products to stock our stores. Some of our prestige brand partners may not have the capacity to supply us with sufficient merchandise to keep pace with our growth plans. We also have strategic partnerships with certain core brands, which have allowed us to benefit from the growing popularity of such brands. Any of our brand partners could in the future decide to scale back or end their partnerships with us and strengthen their relationships with our competitors, which could negatively impact the revenue we earn from the sale of such products. If we fail to maintain strong relationships with our existing brand partners, or if we fail to continue acquiring and strengthening relationships with additional brand partners, our ability to obtain a sufficient amount and variety of merchandise on reasonable terms may be limited, which could have a negative impact on our competitive position.
During fiscal 2025 and fiscal 2024, merchandise supplied by our top ten brand partners accounted for approximately 51% and 54% of our net sales, respectively. There continues to be vendor consolidation within the beauty products industry. The loss of or a reduction in the amount of merchandise made available to us by any one of these key vendors, or by any of our other brand partners, could have a material adverse effect on our business, financial condition, profitability, and cash flows.
We also offer products that are permanently exclusive to us and offer a number of brands and products that are exclusive to us for a limited period of time or are offered in advance of our competitors. If our brand partners ceased granting us permanent or temporary exclusive rights our net sales could be negatively impacted, which could have a material adverse effect on our business, financial condition, and profitability.
The development and use or misuse of AI or the failure to use AI present risks and challenges that may negatively affect our business.
Failure to adapt to a rapidly changing technological environment or failure to adopt emerging technologies, including advances relating to AI and agentic commerce, in a timely manner could negatively affect our business. For example, if we are unable to match or surpass the advances in technologies and capabilities of our competitors for either external (guest)-facing or internal use cases, our competitive position could be adversely affected. In addition, if we adopt new technologies such as AI and fail to deploy them effectively or if we, our associates, or third parties acting at our direction use them incorrectly, unethically, or illegally, it could have a negative impact on our business, reputation, and financial results. The development of AI technologies is complex, and there are technical and other challenges associated with achieving the desired level of accuracy, efficiency, and reliability. The algorithms and models utilized in generative AI systems may have limitations, including biases, errors, or the inability to handle certain data types or scenarios. Additionally, there is a risk of system failures, disruptions, or vulnerabilities that could compromise the integrity, security, or privacy of data inputs or generated content. These limitations or failures could result in reputational harm, legal liabilities, or loss of guest, employee, or business partner confidence. Uncertainty regarding the regulation of AI and other burgeoning technologies may require significant resources to modify and maintain business practices to comply with U.S. and non-U.S. laws, the nature of which cannot be determined at this time. An increasing number of jurisdictions around the globe, including several U.S. states, have already proposed or enacted laws governing AI. Other jurisdictions may decide to adopt similar or more restrictive legislation that may render the use of such technologies challenging. These obligations may make it harder for us to conduct our business using AI, lead to regulatory fines or
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penalties, require us to change our business practices, or prevent or limit our use of AI. If we are unable to effectively use AI, or that use is restricted, our business may be less efficient, or we may be at a competitive disadvantage. Any of these factors could have a material adverse effect on our business, financial condition, profitability, and cash flows.
Any significant interruption in the operations of our distribution, fast fulfillment, and market fulfillment centers could disrupt our ability to deliver merchandise to our stores and guests in a timely manner, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.
We distribute products to our stores without supplementing such deliveries with direct-to-store arrangements from vendors or wholesalers. We are a retailer carrying approximately 30,000 beauty products that change on a regular basis in response to beauty trends, which makes the success of our operations particularly vulnerable to disruptions in our distribution infrastructure. Any significant interruption in the operation of our supply chain infrastructure, such as disruptions in our information systems, disruptions in operations due to fire, natural disasters, or other catastrophic events, labor disagreements, inventory availability (including as a result of tariffs or trade barriers), or shipping and transportation problems, could drastically reduce our ability to receive and process orders and provide products and services to our stores and guests, which could have a material adverse effect on our business, financial condition, profitability, and cash flows. In addition, shipping and transportation costs represent a component of our cost structure and an increase in shipping and transportation costs, including as a result of inflationary pressures, could have a material adverse effect on our business, financial condition, profitability, and cash flows.
If we fail to retain our existing senior management team or attract qualified new personnel at all levels, such failure could have a material adverse effect on our business, financial condition, profitability, and cash flows.
Our business requires disciplined execution at all levels of our organization. This execution requires an experienced and talented management team. If we were to lose the benefit of the experience, efforts, and abilities of key executive personnel, it could have a material adverse effect on our business, financial condition, profitability, and cash flows. Furthermore, the success of our business depends significantly on our ability to attract, motivate, and retain qualified associates, including store managers and other store associates, distribution center associates, and corporate personnel. Competition for this type of personnel is intense, and we may not be successful in attracting, assimilating, and retaining the associates required to grow and operate our business profitably. In addition, fluctuations in the cost of labor, including as a result of inflationary pressures on wages, may negatively impact our profitability and cash flows.
Recent or potential future legislative initiatives may seek to increase the federal minimum wage in the United States, as well as the minimum wages in certain individual states or markets. As federal or state minimum wage rates increase, we may need to increase not only the wage rates of our minimum wage associates, but also the wages paid to our other hourly associates. Further, should we fail to increase our wages competitively in response to increasing wage rates, the quality of our workforce could decline, causing our customer service to suffer. Any increase in the cost of our labor could have an adverse effect on our operating costs, financial condition, and results of operations. If we are unable to hire and retain store-level associates capable of providing a high level of customer service, skilled distribution center associates, and other qualified personnel, our business could be materially adversely affected.
Although none of our associates are currently covered under collective bargaining agreements, we cannot guarantee that our associates will not elect to be represented by labor unions in the future. If some or all of our workforce were to become unionized and collectively bargained terms were significantly different from our current compensation arrangements or work practice, it could have a material adverse effect on our business, financial condition, and results of operations.
Our e-commerce platform exposes us to certain additional risks which could adversely affect our results of operations.
We offer most of our beauty products for sale through our Ulta.com website and through our mobile applications. As a result, we encounter risks and difficulties frequently experienced by internet-based businesses, including risks related to our ability to attract and retain guests on a cost-effective basis and our ability to operate, support, expand, and develop our internet operations, website, mobile applications and software, and other related operational systems. Although we
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believe that our omnichannel participation is a distinct advantage for us due to synergies and the potential for new guests, supporting product offerings through these channels can create issues that have the potential to adversely affect our results of operations. For example, if our e-commerce platform successfully grows, it may do so in part by attracting existing guests, rather than new guests, who choose to purchase products from us online or through our mobile applications rather than from our physical stores, thereby reducing the financial performance of our stores. In addition, offering different products through each channel could cause conflicts and cause some of our current or potential future internet or mobile guests to consider competing distributors of beauty products. Offering products through our internet channel or through our mobile applications could also cause some of our current or potential vendors to consider competing internet or mobile offerings of their products either on their own or through competing distributors. Additionally, omnichannel retailing continues to rapidly evolve, and we must keep pace with changing guest expectations and new developments by our competitors. As we continue to grow our e-commerce platform, the impact of attracting existing rather than new guests, conflicts between product offerings online or through our mobile application and through our stores, and opening up our channels to increased competition from pure-play e-commerce companies could have a material adverse effect on our business, financial condition, profitability, and cash flows. In addition, if we are unable to make, improve, or develop relevant guest-facing technology in a timely manner, our ability to compete and our results of operations could be adversely affected.
If our marketing, advertising, and promotional programs are unsuccessful, our results of operations and financial condition could be adversely affected.
Guest traffic and demand for our merchandise are influenced by our advertising, marketing, and promotional activities. We use marketing, advertising, and promotional programs to attract guests through various media, including social media, websites, mobile applications, email, and print. Our future growth and profitability will depend in part upon the effectiveness and efficiency of our advertising and marketing programs. Further, disruption to certain media channels could have a material adverse effect on our results of operations and financial condition.
The capacity of our distribution and order fulfillment infrastructure and the performance of our distribution centers, fast fulfillment center, and market fulfillment centers may not be adequate to support our future growth, which could prevent the successful implementation of these plans or cause us to incur excess costs to expand this infrastructure, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.
We currently operate four regional distribution centers, which house the distribution operations for Ulta U.S. retail stores together with the order fulfillment operations of our e-commerce platform, one fast fulfillment center (e-commerce only), and two market fulfillment centers, which focus on our most productive products and support e-commerce and retail stores. To support our expected future growth and to maintain the efficient operation of our business, it is likely that new distribution facilities will be added and existing facilities will be refurbished in the future. Our failure to effectively upgrade and expand our distribution capacity on a timely basis to keep pace with our anticipated growth in stores and the performance of our distribution centers could have a material adverse effect on our business, financial condition, profitability, and cash flows.
Increased costs or interruption in our third-party vendors’ overseas sourcing operations could disrupt production, shipment, or receipt of some of our merchandise, which could result in lost sales and could increase our costs.
We directly source the majority of our Ulta Beauty Collection components and Ulta Beauty branded gifts with purchase and other promotional products through third-party vendors using foreign factories. In addition, many of our vendors use overseas sourcing to varying degrees to manufacture some or all of their products. Any event causing a disruption of manufacturing or imports from such foreign countries, including the imposition of import restrictions, increased customs duties, tariffs, trade barriers (including quotas), trade wars, geopolitical events, political changes, and legal or economic restrictions on overseas suppliers’ ability to produce and deliver products, could result in substantial disruptions in our supply chain (including inventory availability) and materially harm our operations. We have no long-term supply contracts with respect to such foreign-sourced items, many of which are subject to existing or potential duties, tariffs, or quotas that may limit the quantity of certain types of goods that may be imported into the U.S. from such countries. Our business is also subject to a variety of other risks generally associated with sourcing goods from abroad, such as political instability, wars or other conflicts, disruption of imports by labor disputes, and local business practices. Our sourcing
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operations may also be hurt by health concerns regarding infectious diseases in countries in which our merchandise is produced, adverse weather conditions or natural disasters that may occur overseas, or acts of war or terrorism, to the extent these acts affect the production, shipment, or receipt of merchandise. Our future operations and performance will be subject to these factors, which could have a material adverse effect on our business, financial condition, profitability, and cash flows or may require us to modify our current business practices and incur increased costs.
An inability to execute our real estate growth and optimization strategy could affect our financial results.
Our financial performance could be affected by our ability to successfully grow and optimize our retail store footprint. There is no assurance that we will be able to locate and lease adequate desirable locations that meet our criteria. Additionally, our ability to negotiate favorable lease terms depends on conditions in the real estate markets, including competition for desirable properties, our relationships with current and prospective property owners or shopping center operators, and other factors that may be outside our control. Our financial performance could be further adversely affected if we are unable to successfully optimize our existing retail store fleet, including by opening new stores and relocating existing stores in desirable locations, renewing or extending leases, restructuring leases to obtain more favorable renewal terms, refreshing and remodeling existing stores, and, if necessary, closingunderperforming and poorly located stores. If any aspect of our real estate growth and/or optimization strategy does not achieve the results we expect, in whole or in part, we may fail to meet our performance expectations.
Expanding into international markets exposes us to additional risks.
In 2025, we expanded internationally through our acquisition of Space NK and the establishment of a joint venture in Mexico and a franchise relationship in the Middle East. Although our international activities are not significant to our financial results, our increasing international presence exposes us to additional risks. We have relatively little operating experience in international markets and may be challenged in replicating our business model in other countries. It is costly to establish, develop, and maintain international operations and promote our brand internationally. For these and other reasons, our international operations may not become profitable on a sustained basis. As international physical, e-commerce, and omnichannel retail and other services grow, competition will intensify, including through adoption of evolving business models. Local companies may have a substantial competitive advantage because of their greater understanding of, and focus on, the local customer, as well as their more established local brand names.
In addition, our international operations are subject to a number of unique risks, including those relating to local economic and political conditions; government regulation; restrictive trade policies; restrictions on the sale or distribution of certain products or services; uncertainty regarding liability for products, services, and content, including uncertainty as a result of unfamiliar local laws and legal systems; business licensing or certification requirements; limited fulfillment and technology infrastructure; laws and regulations regarding privacy, data use, data protection, data security, data localization, network security, consumer protection, payments, advertising, and restrictions on pricing or discounts; compliance with the U.S. Foreign Corrupt Practices Act and other applicable U.S. and foreign laws prohibiting corrupt payments to government officials and other third parties; laws and policies of the U.S. and other jurisdictions affecting trade, foreign investment, loans, and taxes; and geopolitical events, including war and terrorism.
Harm to our reputation could adversely impact our ability to attract and retain guests, associates, vendors, and/or other partners.
Negative publicity or perceptions involving us or our brands, products, associates, operations, vendors, spokespersons, or marketing and other partners may negatively impact our reputation and adversely affect our ability to attract and retain guests, associates, vendors, and/or other partners. Failure to detect, prevent, or mitigate issues that might give rise to reputational risk or failure to adequately address negative publicity or perceptions could adversely impact our business, results of operations, and financial condition. Issues that might pose a reputational risk include failure of our cybersecurity measures to protect against cybersecurity incidents; product liability and product recalls; inaccurateclaims regarding the sustainability or content/ingredients of the products sold in our stores, including in connection with our Conscious Beauty program; our social media activity; our handling of issues relating to corporate responsibility matters, including our responses to such matters; failure to comply with applicable laws and regulations or enforce our own policies; public stances on controversial social or political issues; concerns surrounding labor, environmental, workplace
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safety, and other practices that may vary from U.S. standards in any of our foreign vendors or partners, whether directly or indirectly; and any of the other risks enumerated in these risk factors. As part of our marketing efforts, we rely on social media platforms and other digital marketing to attract and retain guests. A variety of risks are associated with our social media activity and digital marketing, including the improper disclosure of proprietary information, negative comments about or negativeincidents regarding us, exposure of personally identifiable information, fraud, or out-of-date information. The inappropriate use of social media and digital marketing vehicles by us, our guests, associates, or others could increase our costs, lead to litigation, or result in negative publicity that could damage our reputation. Many social media platforms immediately publish the content, videos, and/or photographs created or uploaded by their subscribers and participants, often without filters or checks on accuracy of the content posted. Information posted on such platforms at any time may be adverse to our interests and/or inaccurate. The dissemination of negative information related to us or our brands, products, associates, operations, vendors, spokespersons, or partners could harm our business, results of operations, and financial condition, regardless of the information’s accuracy, and the harm may be immediate without affording us an opportunity for redress or correction. It may be difficult to address negative publicity across media channels, regardless of its accuracy or the reputability of its source, and this challenge could be further exacerbated by fictitious media content, such as content produced by generative AI or bad actors. Furthermore, the prevalence of news coverage, the internet, and social media may accelerate and increase the potential scope of any negative publicity we might receive and could increase the negative impact of these issues on our reputation, business, results of operations, and financial condition.
If we are unable to protect against inventory shrink, our results of operations and financial condition could be adversely affected.
Our business depends on our ability to effectively manage our inventory. Risk of inventory loss (also called shrink) is inherent in the retail business. We have historically experienced inventory shrink due to damage, theft (including from organized retail crime), and other causes. While some level of inventory shrink is unavoidable, in past years we have experienced levels of inventory shrink greater than our historical levels, which have adversely affected, and could continue to adversely affect, our results of operations and financial condition. To protect against inventory shrink, we have taken, and may continue to take, certain operational and strategic actions that could adversely affect our reputation, guest experience, and results of operations.
Our private label brand merchandise exposes us to various risks generally encountered by companies that source, manufacture, market, and retail exclusive private label brand merchandise.
In addition to merchandise provided by vendors, we offer private label brand merchandise, which subjects us to certain risks, including:
our ability to successfully and profitably conduct sourcing and manufacturing activities internally or with third-party agents, manufacturers, and distributors;
our failure or our manufacturers’ failure to comply with applicable regulatory requirements, including product safety, working age and conditions, anti-corruption, import and customs, and retail sale restrictions;
potential mandatory or voluntary product recalls;
claims and lawsuits resulting from injuries associated with the use of our private label brand merchandise;
our ability to successfully protect our intellectual property or other proprietary rights (e.g., defendingagainstcounterfeit, knock-offs, grey-market, infringing, or otherwise unauthorized goods);
our ability to successfully navigate and avoid claims related to the intellectual property or other proprietary rights of third parties;
sourcing and manufacturing outside the United States, including foreign laws and regulations, political unrest, disruptions or delays in cross-border shipments, changes in economic conditions in foreign countries, exchange rate and import duty fluctuations, and conducting activities with third-party manufacturers; and
price increases of raw materials used in the manufacturing of our private label brand merchandise and other risks generally encountered by entities that source, manufacture, market, and retail private label brand merchandise.
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Our failure to adequately address some or all of these risks could have a material adverse effect on our business, results of operations, and financial condition.
We may not realize the anticipated benefits of acquisitions, joint ventures, and partnerships, or these benefits may take longer to realize than expected.
From time to time, we may make strategic acquisitions and participate in joint ventures and partnerships. Acquisitions, joint ventures, and partnerships we have entered into, or may enter into in the future, may involve significant challenges and risks, including that the acquisitions, joint ventures, or partnerships do not advance our business strategy or fail to produce satisfactory returns on investment. Other risks could include difficulties in integrating acquisitions with our operations, applying internal control processes to these acquisitions (including those related to cybersecurity), managing strategic investments, and/or combining business cultures; regulatory or compliance exposure until appropriate processes and controls are implemented; integration costs and significant attention from management and personnel; failing to realize the anticipated benefits of acquisitions, joint ventures, or partnerships, or the realization of benefits being significantly delayed, including because the businesses acquired may not be complementary or compatible with our business strategy or may not enhance our market position, footprint, or capability set; and due diligence evaluations of potential transactions not identifying all of the business, legal, compliance, and financial risks to accurately estimate the impact of a particular acquisition, joint venture, or partnership, including potential exposure to regulatory sanctions resulting from an acquisition target’s or business partner’s previous activities.
Our secured revolving credit facility contains certain restrictive covenants that could limit our operational flexibility, including our ability to open stores.
We have a $1.0 billion secured revolving credit facility with a term expiring in March 2029. Substantially all of our assets are pledged as collateral for outstanding borrowings under the agreement. The credit facility agreement contains usual and customary restrictive covenants that, among other things, limit our ability to incur additional indebtedness, pay cash dividends and repurchase our stock, and merge or consolidate with another entity, and requires us to maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 during such periods when availability under the agreement falls below a specified threshold. In addition, Space NK maintains a £40.0 million revolving credit facility maturing in April 2028 that is secured by substantially all of Space NK's assets and contains a requirement to maintain an interest coverage ratio not less than 4.0 to 1.0 and a leverage ratio not to exceed 2.0 to 1.0 for any relevant period. These covenants could restrict our operational flexibility and any failure to comply with these covenants or our payment obligations would limit our ability to borrow under the credit facilities and, in certain circumstances, may allow the lenders thereunder to require repayment.
Our stock repurchase programs could affect the price of our common stock and may be suspended or terminated at any time, which may result in a decrease in the trading price of our common stock.
We may have a stock repurchase program in place that we may utilize from time to time. Any such stock repurchase program adopted will not obligate the Company to repurchase any dollar amount or number of shares of common stock and may be suspended or discontinued at any time, which could cause the market price of our common stock to decline. Repurchases pursuant to any such stock repurchase program could affect our stock price and the existence of a stock repurchase program could also cause our stock price to be higher than it would be in the absence of such a program. There can be no assurance that any stock repurchases will enhance stockholder value because the market price of our common stock may decline below the levels at which we repurchased shares of common stock.
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Information Security, Cybersecurity, Data Privacy, Regulatory, and Legal Risks
We are subject to risks relating to our information technology systems, and any failure to adequately protect our critical information technology systems, successfully upgrade our information technology systems, or any material disruption of our information systems could negatively impact financial results and materially adversely affect our business operations, particularly during the holiday season.
We are dependent on a variety of information systems, including management, supply chain and financial information, and various other processes and transactions, to effectively manage our business. We are also expanding and upgrading our information systems (including the recent replacement of our enterprise resource planning platform) to support historical and expected future growth. The failure of these projects, the failure of our information systems to perform as designed, the failure by us to adequately maintain or update our information systems, or breaches of security could have an adverse effect on our business and results of our operations. Any material disruption of our systems could disrupt our ability to track, record, and analyze the merchandise that we sell and could cause delays or cancellation of guest orders or impede the manufacture or shipment of products, the processing of transactions, our ability to receive and process e-commerce orders, and/or the reporting of financial results.
Our e-commerce operations are increasingly important to our business. The Ulta.com website and our mobile applications serve as an effective extension of our marketing and prospecting strategies by exposing potential new guests to the Ulta Beauty brand, product offerings, and enhanced content. As the importance of our website, mobile applications, and e-commerce operations to our business continues to grow, we are increasingly vulnerable to downtime and other technical failures. Our failure to successfully respond to these risks could reduce e-commerce sales and damage our brand’s reputation.
Cybersecurity or information security breaches and other disruptions could compromise our information, result in the unauthorized disclosure of confidential guest, employee, Company, and/or business partner information, damage our reputation, and expose us to liability, which could negatively impact our business.
In the ordinary course of our business, we collect, process, and store sensitive and confidential data, including our proprietary business information and that of our guests, suppliers, and business partners, and personally identifiable information of our guests and employees, in our data centers and on our networks. The secure processing, maintenance, and transmission of this information is critical to our operations. We rely on commercially available systems, software, tools, and monitoring to provide security for processing, transmission, and storage of confidential information. Despite the security measures we have in place and continual vigilance in regard to the protection of sensitive information, our systems and those of our third-party service providers may be vulnerable to security breaches, denial-of-service attacks, break-ins, phishing attacks, social engineering, acts of vandalism, computer viruses, misplaced or lost data, human errors, or other similar events. Furthermore, we allow certain of our employees to work remotely, as certain of our third-party service providers also allow, and this remote working environment may increase cybersecurity-related risks. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost, or stolen. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disruption to our operations, damage to our reputation, and/or loss of confidence in our business, products, and services, which could adversely affect our business, financial condition, profitability, and cash flows.
Failure to maintain satisfactory compliance with applicable privacy and data protection laws and regulations may subject us to negative financial consequences, including civil or criminalpenalties, and harm our brand and reputation.
Complex local, state, national, and international/foreign laws and regulations, such as the California Consumer Privacy Act and the EU General Data Protection Regulation, apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal data. These privacy and data protection laws and regulations are quickly evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations and enforcement. Complying with these laws and regulations may cause us to incur substantial costs, require changes to our business practices, and limit our ability to obtain data used to
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provide a differentiated guest experience. In addition, our failure to comply with applicable laws and regulations or other obligations to which we may be subject relating to personal data, or to protect personal data from unauthorized access, use, or other processing, could result in enforcement actions and regulatory investigationsagainst us, claims for damages by guests and other affected individuals, fines, and/or damage to our brand and reputation, any of which could adversely affect our business, financial condition, profitability, and cash flows.
We, as well as our vendors, are subject to numerous laws and regulations that could require us to modify our current business practices and incur increased costs, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.
In our U.S. and international markets, numerous laws and regulations at the national, state, and local levels can affect our business. Legal requirements are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations. If we fail to comply with any present or future laws or regulations, we could be subject to future liabilities, a prohibition on the operation of our stores, or a prohibition on the sale of our Ulta Beauty branded products. In particular, failure to adequately comply with the following legal requirements could have a material adverse effect on our business, financial condition, profitability, and cash flows:
Our sizable workforce makes us vulnerable to changes in labor and employment laws.
Our salon operations are subject to state board regulations and state licensing requirements for our stylists and salon procedures. Failure to maintain compliance with these regulatory and licensing requirements could jeopardize the viability of our salons.
We operate stores in California, which has enacted legislation commonly referred to as “Proposition 65” requiring that “clear and reasonable” warnings be given to consumers who are exposed to chemicals known to the State of California to cause cancer or reproductive toxicity. Although we have sought to comply with Proposition 65 requirements, there can be no assurance that we will not be adversely affected by litigation relating to Proposition 65.
Future changes in healthcare reform legislation could significantly impact our business.
Evolving anti-discrimination laws could impact our efforts to support inclusion and belonging across our business for our guests, assortment, associates, brands, other partners, and stakeholders.
We are subject to antibribery and corruption laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, that prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence government officials or private individuals for the purpose of obtaining or retaining a business advantage. Violations of these laws and regulations could result in criminal or civil sanctions and may have a material adverse effect on our reputation, business, results of operations, and financial condition.
The formulation, manufacturing, packaging, labeling, distribution, sale, and storage of our vendors’ products and our Ulta Beauty branded products are also subject to extensive regulation by various federal agencies in the U.S., including the Food and Drug Administration (FDA), Federal Trade Commission (FTC), Consumer Product Safety Commission (CPSC), Environmental Protection Agency (EPA), and various state and local agencies, such as State Attorneys General and District Attorneys, as well as similar analogous authorities in our international markets. If we, our vendors, or the manufacturers of our Ulta Beauty branded products fail to comply with those regulations, we could become subject to significant penalties, claims, or product recalls, which could harm our results of operation, our reputation, and/or our ability to conduct our business.
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Additionally, the adoption of new regulations or changes in the interpretations of existing regulations could result in significant compliance costs or discontinuation of product sales and may impair the marketability of our vendors’ products or our Ulta Beauty branded products, resulting in significant loss of net sales. Our failure to comply with federal, state, or local requirements when we advertise our products (including prices) or services, or engage in other promotional activities, in digital (including social media), television, or print may result in enforcement actions and imposition of penalties or otherwise harm the distribution and sale of our products.
Our associates or others may engage in misconduct or other improper activities, including noncompliance with our policies and procedures.
We are exposed to the risk of misconduct or other improper activities by our associates and third parties such as independent contractors, agents, and business partners. Misconduct by associates, independent contractors, or agents could include inadvertent or intentionalfailures to comply with the Company’s policies and procedures, the laws and regulations to which they are subject, and/or ethical, social, product, labor, and environmental standards. Our current and former associates or independent contractors may also become subject to allegations of sexual harassment, racial and gender discrimination, or other similar misconduct, which, regardless of the ultimate outcome, may result in adverse publicity that could significantly harm our brand, reputation, and operations. Associate misconduct could also involve improper use of information obtained in the course of the associate’s prior or current employment, which could result in legal or regulatory action and harm to our reputation.
Litigation and other legal or regulatory proceedings or claims and the outcome of such litigation, proceedings, or claims, including possible fines and penalties, could have a material adverse effect on our business and any loss contingency accruals may not be adequate to cover actual losses.
From time to time, we are subject to litigation, including potential class action and single-plaintifflitigation, and other legal or regulatory proceedings or claims in the ordinary course of our business operations regarding, but not limited to, employment matters, consumer claims, security of consumer and employee personal information, product labeling or content, advertising compliance, contractual relations with suppliers, marketing, and infringement of trademarks and other intellectual property rights. Litigation to defend ourselves againstclaims by third parties, or to enforce any rights that we may have against third parties, may be necessary, which could absorb significant management time and/or result in substantial costs and diversion of our resources, causing a material adverse effect on our business, financial condition, profitability, and cash flows. We establish accruals for potential liabilities arising from litigation and other legal or regulatory proceedings or claims when potential liability is probable and the amount of the loss can be reasonably estimated based on currently available information. We may still incur legal costs for a matter even if we have not accrued a liability. In addition, actual losses may be higher than the amount accrued for a certain matter, or in the aggregate. Any resolution of litigation or other legal or regulatory proceedings or claims could materially adversely impact our business, financial condition, profitability, and cash flows.
Specifically, our technologies, promotional products purchased from third-party vendors, and/or Ulta Beauty branded products, or potential products in development, may infringe rights under patents, patent applications, trademark, copyright, or other intellectual property rights of third parties in the United States and abroad. These third parties could bring claimsagainst us that would cause us to incur substantial expenses and, if successful, could cause us to pay substantial damages. Further, if a third party were to bring an intellectual property infringement suit against us, we could be forced to stop or delay development, manufacturing, or sales of the product that is the subject of the suit.
As a result of intellectual property infringementclaims, or to avoid potential claims, we may choose to seek, or be required to seek, a license from the third party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Ultimately, we could be prevented from commercializing a product or be forced to cease some aspect of our business operations if, as a result of actual or threatened intellectual property infringementclaims, we are unable to enter into licenses on acceptable terms. Even if we were able to obtain a license, the rights may be non-exclusive, which would give our competitors access to the same intellectual property. The inability to enter into licenses could harm our business significantly.
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We maintain insurance coverages with third-party insurers. However, not every risk or liability is or can be protected by insurance, and, for those risks we insure, the limits of coverage we purchase or that are reasonably obtainable in the market may not be sufficient to cover all actual losses or liabilities incurred. Liability insurance coverage is expensive and there is a risk that commercially available liability insurance will not continue to be available to us at a reasonable cost, if at all. If we or other industry participants sustain significant losses or make significant insurance claims, our ability to obtain future insurance coverage at commercially reasonable rates could be materially adversely affected. An inability to obtain liability insurance, significant increases in the cost of insurance we obtain, or losses in excess of our liability insurance coverage could have a material adverse effect on us.
Any insurance we carry reflects deductibles, self-insured retentions, limits of liability, and similar provisions that we believe are prudent based on our operations. To offset negative insurance market trends, we may elect to self-insure, accept higher insurance deductibles, or reduce the amount of insurance coverage in response to market changes. Additionally, we self-insure a portion of expected losses under our workers’ compensation, general liability, Texas non-subscription plan, and group health insurance programs. We currently self-insure a portion of our commercial insurance deductible risk through our captive insurance company. To the extent that our captive insurance company is unable to bear the insured risk, we may be required to fund additional capital to our captive insurance company or to bear the loss. We use the services of independent actuaries for loss adjustment expense reserve analyses for the aforementioned lines of insurance. Liabilities associated with these lines of insurance are based on actual claim data and estimates of incurred but not reported claims developed using actuarial methodologies, and may be based on historical claim trends, industry factors, claim development, as well as other actuarial assumptions. Unanticipated changes in any applicable actuarial assumptions and management estimates underlying our recorded liabilities for these losses, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, insolvency of insurance carriers, and changes in discount rates could result in materially different expenses than expected under these programs, which could have a material adverse effect on our results of operations and financial condition.
We require many of our vendors to carry their own insurance, and we have indemnity agreements with many of our vendors, but we cannot be assured that (1) any specific claim or lawsuit will be subject to a vendor’s insurance or indemnity agreement, (2) our vendors will carry or maintain such insurance coverage or meet their indemnity obligations, or (3) we will be able to collect payments from our vendors sufficient to offset liability losses or, in the case of our private label brand products, where almost all of the manufacturing occurs outside the United States, that we will be able to collect anything at all.
If our manufacturers are unable to produce products manufactured uniquely for Ulta Beauty, including Ulta Beauty Collection and Ulta Beauty branded gifts with purchase and other promotional products, consistent with applicable regulatory requirements, we could sufferlost sales and be required to take costly corrective action, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.
We do not own or operate any manufacturing facilities and therefore depend upon independent third-party vendors for the manufacture of all products manufactured uniquely for Ulta Beauty, including Ulta Beauty Collection and Ulta Beauty branded gifts with purchase and other promotional products. The FDA does not currently have a pre-market approval system for cosmetics, but requires safety and efficacy substantiation. If we or our third-party manufacturers fail to comply with applicable regulatory requirements, we could be required to take costly corrective action. In addition, sanctions under various laws may include seizure of products, injunctionsagainst future shipment of products, restitution and disgorgement of profits, operating restrictions, and criminalprosecution. These events could interrupt the marketing and sale of our Ulta Beauty branded products, severelydamage our brand reputation and image in the marketplace, increase the cost of our products, cause us to fail to meet guest expectations, or cause us to be unable to deliver merchandise in sufficient quantities or of sufficient quality to our stores, any of which could result in lost sales, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.
If we are unable to protect our intellectual property rights and our brand name, our brand and reputation could be harmed, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.
We regard our trademarks, trade dress, copyrights, trade secrets, know-how, and similar intellectual property as critical to our success. Our principal intellectual property rights include registered and common law trademarks, copyrights in
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our website and mobile applications content, rights to our domain name www.ulta.com, and trade secrets and know-how with respect to our Ulta Beauty branded product formulations, product sourcing, sales and marketing, and other aspects of our business, and our digital innovations such as try-on applications and AI. As such, we rely on trademark and copyright law, trade secret protection, and confidentiality agreements with certain of our associates, consultants, suppliers, and others to protect our proprietary rights. If we are unable to protect or preserve the value of our trademarks, copyrights, trade secrets, or other proprietary rights for any reason (including any cybersecurity incident that results in the unauthorized use of our intellectual property rights), or if other parties infringe on our intellectual property rights, our brand and reputation could be impaired, and we could lose guests, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.
In addition, we license certain of our trademarks to some of our business partners. While we enter into comprehensive agreements with our business partners covering, among other things, use of our brand name, the value of our brand and our reputation could be impaired to the extent that our business partners do not operate their businesses, including their stores or websites, in a manner consistent with our requirements regarding our brand identities and guest experience standards. Failure to protect the value of our brands, or any other harmful acts or omissions by a business partner, could have an adverse effect on our business, financial condition, profitability, cash flows and reputation.
Our Ulta Beauty branded products and salon services may cause unexpected and undesirable side effects that could result in their discontinuance or expose us to lawsuits, either of which could result in unexpected costs and damage to our reputation, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.
Unexpected and undesirable side effects caused by our Ulta Beauty branded products for which we have not provided sufficient label warnings or salon services, which may have been performed negligently, could result in the discontinuance of sales of our products or of certain salon services or prevent us from achieving or maintaining market acceptance of the affected products and services. Such side effects could also expose us to product liability or negligence lawsuits. These events could cause negative publicity regarding our Company, brand, or products, which could in turn harm our reputation and net sales, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.
premier
Key points of strategic differentiation include: a differentiated assortment of established and emerging brands across a variety of categories and price points; our convenient omnichannel footprint, offering products through our stores, delivering immersive and personalized experiences through our digital platforms, and providing the Ulta Beauty experience internationally through our partnerships; our best-in-class loyalty program that enables members to earn points for products and beauty services and provides us with a deep understanding of our customers and their preferences; and our ability to cultivate human connection with warm and welcoming guest experiences across all of our channels.
The continued growth of our business and any future increases in net sales, net income, and cash flows is dependent on our ability to execute our strategic priorities across three foundational focus areas, as outlined in our Ulta Beauty Unleashed strategy: 1) Drive Core Business Growth through operational excellence and an elevated go-to-market approach; 2) Scale New, Accretive Businesses by capitalizing on key growth opportunities to ensure relevancy in a rapidly changing world; and 3) Align Our Foundation for Future Success by optimizing our ways of working, streamlining our cost structure, and cultivating an engaging, associate-centered culture. Ulta U.S. operates in the large and growing U.S. beauty products and salon services industry, and we believe our strong operating model, competitive advantages, and financial foundation, paired with our investments to drive our growth, position us to capture additional market share in the industry.
Comparable sales is a key metric that is monitored closely within the retail industry. Our comparable sales have fluctuated in the past, and we expect them to continue to fluctuate in the future. A variety of factors affect our comparable sales, including general economic conditions, changes in merchandise strategy or mix, and timing and effectiveness of our marketing activities, among others.
Over the long term, our growth strategy is to drive profitable growth and market share leadership in beauty and wellness through growing our comparable sales, expanding omnichannel capabilities, and opening new stores. Long-term operating profit is expected to increase as a result of our efforts to drive revenue growth, leverage fixed costs, increase
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operating efficiencies, and grow other revenue, partially offset by incremental investments to enhance the guest experience, people, assortment, advertising, and depreciation.
Current Trends
Industry trend s
The overall U.S. beauty market expanded in 2024 and 2025, supported by ongoing consumer engagement with and resilience in the beauty category. We remain confident that our differentiated and diverse business model, our commitment to strategic investments, and our highly engaged associates will continue to drive market share gains in the U.S. beauty category over the long term.
Impact of inflation and other macroeconomic trends
Persistent inflationary and macroeconomic pressures have impacted consumer spending habits broadly. The continuation of inflationary and macroeconomic pressures could impact our ability to grow sales and maintain historical profitability levels. In addition, inflation could cause the interest rates on any debt to remain at an elevated level or increase.
Basis of presentation
The Company has one reportable segment, which includes retail stores, salon services, and e-commerce.
We recognize merchandise revenue at the point of sale in our retail stores. E-commerce sales are recognized upon shipment or guest pickup of the merchandise based on meeting the transfer of control criteria. Retail store and e-commerce sales are recorded net of estimated returns. Shipping and handling are treated as costs to fulfill the contract and not a separate performance obligation. Accordingly, we recognize revenue for our single performance obligation related to online sales at the time control of the merchandise passes to the guest, which is at the time of shipment or guest pickup. We provide refunds for merchandise returns within 30 days from the original purchase date. State sales taxes are presented on a net basis as we consider ourselves a pass-through conduit for collecting and remitting state sales tax. Salon service revenue is recognized at the time the service is provided to the guest. Gift card sales revenue is deferred until the guest redeems the gift card. Company coupons and other incentives are recorded as a reduction of net sales. Other revenue includes private label and co-branded credit card programs, deferred revenue related to the loyalty program and gift card breakage, and royalties.
Comparable sales reflect sales for stores and e-commerce platforms beginning on the first day of the 14 th month of operation. Therefore, a store is included in our comparable store base on the first day of the period after one year of operations plus the initial one-month grand opening period. Non-comparable store sales include sales from new stores that have not yet completed their 13 th month of operation and stores that were closed for part or all of the period in either year. Remodeled stores are included in comparable sales unless the store was closed for a portion of the current or prior period. Comparable sales include retail sales, salon services, and e-commerce. In fiscal years with 53 weeks, the 53 rd week of comparable sales is included in the calculation. In the year following a 53-week year, the prior year period is shifted by one week to compare similar calendar weeks. There may be variations in the way in which some of our competitors and other retailers calculate comparable or same store sales.
Measuring comparable sales allows us to evaluate the performance of our store base as well as several other aspects of our overall strategy. Several factors could positively or negatively impact our comparable sales results:
the general national, regional, and local economic conditions and corresponding impact on customer spending levels;
the introduction of new products or brands;
the location of new stores in existing store markets;
competition / alternative distribution channels;
our ability to respond on a timely basis to changes in consumer preferences;
the effectiveness of our various merchandising and marketing activities; and
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the number of new stores opened and the impact on the average age of all of our comparable stores.
Cost of sales includes:
the cost of merchandise sold, offset by vendor income that is not a reimbursement of specific, incremental, and identifiable costs;
distribution costs including labor and related benefits, freight, rent, depreciation and amortization, real estate taxes, utilities, and insurance;
shipping and handling costs for e-commerce orders;
retail store occupancy costs including rent, depreciation and amortization, real estate taxes, utilities, repairs and maintenance, insurance, and licenses;
salon services payroll and benefits; and
shrink and inventory valuation reserves.
Our cost of sales may be negatively impacted as we open new stores. Changes in our merchandise or channel mix may also have an impact on cost of sales. This presentation of items included in cost of sales may not be comparable to the way in which our competitors or other retailers compute their cost of sales.
Selling, general and administrative (SG&A) expenses include:
payroll, bonus, and benefit costs for retail store and corporate employees;
advertising and marketing costs, offset by vendor income that is a reimbursement of specific, incremental, and identifiable costs;
occupancy costs related to our corporate office facilities;
stock-based compensation expense;
depreciation and amortization for all assets, except those related to our retail stores and distribution operations, which are included in cost of sales; and
legal, finance, information systems, and other corporate overhead costs.
This presentation of items in selling, general and administrative expenses may not be comparable to the way in which our competitors or other retailers compute their selling, general and administrative expenses.
Pre-opening expenses include non-capital expenditures during the period prior to store opening for new, remodeled, and relocated stores including rent during the construction period for new and relocated stores, store set-up labor, management and employee training, and grand opening advertising.
Interest income represents interest from cash equivalents, which includes highly liquid investments such as money market funds and certificates of deposit with an original maturity of three months or less from the date of purchase. Interest expense includes interest costs and facility fees associated with our credit facilities. Our credit facility interest rates are based on a variable rate structure which can result in increased cost in periods of rising or elevated interest rates.
Income tax expense reflects the federal and foreign statutory tax rates and the weighted average state statutory tax rate for the states in which we operate stores.
Equity net loss of affiliate represents our proportionate share of net loss from equity method investees.
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Results of operations
Our fiscal years are the 52- or 53-week periods ending on the Saturday closest to January 31 each year. The Company’s fiscal years ended January 31, 2026 (fiscal 2025), February 1, 2025 (fiscal 2024), and February 3, 2024 (fiscal 2023) were 52-, 52-, and 53-week years, respectively.
The following tables present the components of our consolidated results of operations for the periods indicated:
Fiscal Year Ended
January 31,
February 1,
February 3,
(Dollars in thousands)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Pre-opening expenses
Operating income
Interest expense (income), net
Income before income taxes and equity net loss of affiliate
Income tax expense
Income before equity net loss of affiliate
Equity net loss of affiliate
Net income
Other operating data:
Number of stores end of period (1)
Comparable sales
Includes 1,505 Ulta Beauty stores located in the U.S. and 86 Space NK stores located in the U.K. and Ireland as of January 31, 2026.
Fiscal Year Ended
January 31,
February 1,
February 3,
(Percentage of net sales)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Pre-opening expenses
Operating income
Interest expense (income), net
Income before income taxes and equity net loss of affiliate
Income tax expense
Income before equity net loss of affiliate
Equity net loss of affiliate
Net income
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Fiscal year 2025 versus fiscal year 2024
Net sales
Net sales increased $1.1 billion, or 9.7%, to $12.4 billion in fiscal 2025 compared to $11.3 billion in fiscal 2024. The net sales increase was primarily due to increased comparable sales, the acquisition of Space NK, and sales from new stores. The total comparable sales increase of 5.4% in fiscal 2025 was driven by a 3.3% increase in average ticket and a 2.0% increase in transactions. The total comparable sales increase in fiscal 2024 was 0.7%.
Gross profit
Gross profit increased $458.0 million, or 10.4%, to $4.8 billion in fiscal 2025 compared to $4.4 billion in fiscal 2024. Gross profit as a percentage of net sales increased to 39.1% in fiscal 2025 compared to 38.8% in fiscal 2024. The increase in gross profit margin was primarily due to lower inventory shrink and higher merchandise margin, partially offset by adverse channel mix, deleverage of other revenue, and deleverage of store fixed expenses.
Selling, general and administrative expenses
SG&A expenses increased $487.8 million, or 17.4%, to $3.3 billion in fiscal 2025 compared to $2.8 billion in fiscal 2024. As a percentage of net sales, SG&A expenses increased to 26.6% in fiscal 2025 compared to 24.9% in fiscal 2024. The deleverage of SG&A expenses was primarily due to higher incentive compensation, higher store payroll and benefits, higher corporate overhead primarily due to strategic investments, and higher store expenses.
Pre-opening expenses
Pre-opening expenses increased $2.1 million, or 15.6%, to $15.8 million in fiscal 2025 compared to $13.7 million in fiscal 2024.
Interest expense (income), net
Net interest expense was $1.8 million in fiscal 2025 compared to $15.1 million of net interest income in fiscal 2024. The increase in interest expense was primarily due to increased borrowings on our credit facilities in fiscal 2025. As of January 31, 2026, we had $62.3 million outstanding under our credit facilities. We did not have any outstanding borrowings on the credit facilities as of February 1, 2025.
Income tax expense
Income tax expense of $373.9 million in fiscal 2025 represented an effective tax rate of 24.5%, compared to fiscal 2024 income tax expense of $378.9 million and an effective tax rate of 24.0%.
Equity net loss of affiliate
Equity net loss of affiliate was $3.9 million in fiscal 2025 related to our joint venture in Mexico.
Net income
Net income decreased $47.6 million to $1.15 billion in fiscal 2025 compared to $1.20 billion in fiscal 2024. The decrease in net income was primarily due to a $487.8 million increase in SG&A expenses, a $16.9 million increase in net interest expense, a $3.9 million increase in equity net loss of affiliate, and a $2.1 million increase in pre-opening expenses, partially offset by a $458.0 million increase in gross profit and a $5.1 million decrease in income taxes.
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Fiscal year 2024 versus fiscal year 2023
Net sales
Net sales increased $88.4 million, or 0.8%, to $11.3 billion in fiscal 2024 compared to $11.2 billion in fiscal 2023. The net sales increase was primarily due to new store performance, increased comparable sales, and an increase of $3.7 million in other revenue, partially offset by the benefit of an extra week of sales in fiscal 2023. Net sales for the 53 rd week of fiscal 2023 were approximately $181.9 million. The total comparable sales increase of 0.7% in fiscal 2024 was driven by a 1.1% increase in average ticket and a 0.4% decrease in transactions. The total comparable sales increase in fiscal 2023 was 5.7%.
Gross profit
Gross profit increased $6.2 million, or 0.1%, to $4.39 billion in fiscal 2024, compared to $4.38 billion in fiscal 2023. Gross profit as a percentage of net sales decreased to 38.8% in fiscal 2024 compared to 39.1% in fiscal 2023. The decrease in gross profit margin was primarily due to lower merchandise margin, deleverage of store fixed costs, and higher supply chain costs, partially offset by lower inventory shrink and favorable channel mix.
Selling, general and administrative expenses
SG&A expenses increased $114.0 million, or 4.2%, to $2.8 billion in fiscal 2024 compared to $2.7 billion in fiscal 2023. As a percentage of net sales, SG&A expenses increased to 24.9% in fiscal 2024 compared to 24.0% in fiscal 2023. The deleverage of SG&A expenses was primarily due to deleverage of store payroll and benefits, corporate overhead due to strategic investments, and store expenses, partially offset by lower incentive compensation.
Pre-opening expenses
Pre-opening expenses increased $5.2 million, or 60.9%, to $13.7 million in fiscal 2024 compared to $8.5 million in fiscal 2023.
Interest income, net
Net interest income was $15.1 million in fiscal 2024 compared to $17.6 million in fiscal 2023, due to lower average cash balances. We did not have any outstanding borrowings on our credit facilities as of February 1, 2025 and February 3, 2024.
Income tax expense
Income tax expense of $378.9 million in fiscal 2024 represented an effective tax rate of 24.0%, compared to fiscal 2023 income tax expense of $404.6 million and an effective tax rate of 23.9%.
Net income
Net income decreased $89.9 million to $1.2 billion in fiscal 2024 compared to $1.3 billion in fiscal 2023. The decrease in net income was primarily due to a $114.0 million increase in SG&A expenses and a $5.2 million increase in pre-opening expenses, partially offset by a $25.7 million decrease in income taxes and a $6.2 million increase in gross profit.
Liquidity and capital resources
Our primary sources of liquidity are cash and cash equivalents, cash flows from operations, and borrowings under our credit facilities. The most significant components of our working capital are merchandise inventories, cash and cash equivalents, and receivables, reduced by accounts payable, deferred revenue, and accrued liabilities. As of January 31, 2026 and February 1, 2025, we had cash and cash equivalents of $424.2 million and $703.2 million, respectively.
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Our primary cash needs are for rent, capital expenditures for new, remodeled, and relocated stores, increased merchandise inventories related to store expansion and new brand additions, supply chain improvements, share repurchases, and continued investment in our information technology systems.
Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for lease expenses, inventory, labor, distribution, advertising and marketing, and tax liabilities) as well as periodic spend for capital expenditures, investments, and share repurchases. Our working capital needs are greatest from August through November each year as a result of our inventory build-up during this period for the approaching holiday season.
Long-term cash requirements primarily relate to funding lease expenses and other purchase commitments.
We generally fund short-term and long-term cash requirements with cash from operating activities. We believe our primary sources of liquidity will satisfy our cash requirements over both the short term (the next twelve months) and long term.
The following table summarizes contractual cash requirements as of January 31, 2026:
Less Than
More than 5
(In thousands)
Total
1 Year
Years
Years
Years
Operating lease obligations (1)
Purchase obligations
Total (2)
These amounts are for our undiscounted lease obligations recorded in our consolidated balance sheets as operating lease liabilities. Also included are legally binding minimum lease payments for leases signed but not yet commenced of $128.4 million, which are excluded from operating lease liabilities shown on our consolidated balance sheets.
The unrecognized tax benefit of $9.0 million as of January 31, 2026 is excluded due to uncertainty regarding the realization and timing of the related future cash flows, if any.
Purchase obligations reflect legally binding agreements entered into by the Company to purchase goods or services. The amount of purchase obligations relates to commitments for products and services and other goods and service contracts entered into as of January 31, 2026. Excluded from purchase obligations are normal purchases and contracts entered into in the ordinary course of business.
Cash flows
We believe our ability to generate substantial cash from operating activities and readily secure financing at competitive rates are key strengths that give us significant flexibility to meet our short and long-term financial commitments.
The following table presents a summary of our cash flows during the last three years:
Fiscal Year Ended
January 31,
February 1,
February 3,
(In thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
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Operating activities
Operating activities consist of net income adjusted for certain non-cash items, including depreciation and amortization, non-cash lease expense, deferred income taxes, stock-based compensation expense, realized gains or losses on disposal of property and equipment, and the effect of working capital changes.
The increase in net cash provided by operating activities in fiscal 2025 compared to fiscal 2024 is mainly due to a lower increase in merchandise inventories in fiscal 2025 and timing of accrued liabilities and deferred revenue.
Merchandise inventories, net were $2.2 billion at January 31, 2026, compared to $2.0 billion at February 1, 2025, representing an increase of $212.9 million or 10.8%. The increase in total inventory is primarily due to new brand launches, the acquisition of Space NK, and the addition of new Ulta Beauty stores in the U.S.
The decrease in net cash provided by operating activities in fiscal 2024 compared to fiscal 2023 is mainly due to the decrease in net income, a larger increase in merchandise inventories in fiscal 2024, and timing of deferred income taxes, prepaid expenses and other current assets, accrued liabilities, accounts payable, and deferred revenue.
Investing activities
We have historically used cash primarily for new, remodeled, relocated, and refreshed stores, supply chain investments, short-term investments, and investments in information technology systems. Investment activities for capital expenditures were $434.8 million during fiscal 2025, compared to $374.5 million during fiscal 2024. Purchases of short-term investments were $70.0 million during fiscal 2025 and consisted of certificates of deposit with maturities of three to twelve months from the date of purchase.
The increase in net cash used in investing activities in fiscal 2025 relative to fiscal 2024 was primarily due to the acquisition of Space NK in the second quarter of fiscal 2025.
The decrease in net cash used in investing activities in fiscal 2024 relative to fiscal 2023 was primarily due to less capital expenditures for information technology systems and supply chain, partially offset by more capital expenditures for new, remodeled, and relocated stores compared to fiscal 2023.
Capital expenditures
The following table presents a summary of our consolidated store activities during the last three years:
Fiscal Year Ended
January 31,
February 1,
February 3,
Stores opened
Stores remodeled
Stores relocated
During fiscal 2025, the average investment required to open a new Ulta Beauty store in the U.S. was approximately $2.4 million, which included capital investment net of landlord contributions, pre-opening expenses, and initial inventory net of payables.
Capital expenditures were $434.8 million, $374.5 million, and $435.3 million in fiscal 2025, fiscal 2024, and fiscal 2023, respectively.
Our future investments will depend primarily on the number of new, remodeled, and relocated stores, information technology systems investments, and supply chain investments that we undertake and the timing of these expenditures. Based on past performance and current expectations, we believe our sources of liquidity will be sufficient to fund future capital expenditures. We expect capital expenditures will not be greater than $450 million in fiscal 2026 and will
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primarily be used to fund our new, remodeled, and relocated stores and strategic priorities, including investments in information technology systems and supply chain optimization.
Financing activities
Financing activities include share repurchases, borrowings and repayments under our revolving credit facilities, and capital stock transactions. Purchases of treasury shares represent the fair value of common shares repurchased from plan participants in connection with shares withheld to satisfy minimum statutory tax obligations upon the vesting of restricted stock.
The decrease in net cash used in financing activities in fiscal 2025 relative to fiscal 2024 was primarily due to a decrease in share repurchases.
The increase in net cash used in financing activities in fiscal 2024 relative to fiscal 2023 was primarily due to an increase in share repurchases.
As of January 31, 2026, we had $62.3 million outstanding under our credit facilities. We did not have any outstanding borrowings on the credit facilities as of February 1, 2025 or February 3, 2024.
Share repurchase program
In March 2022, the Board of Directors authorized a share repurchase program (the 2022 Share Repurchase Program) pursuant to which the Company could repurchase up to $2.0 billion of the Company’s common stock. The 2022 Share Repurchase Program revoked the previously authorized but unused amounts from an earlier share repurchase program. The 2022 Share Repurchase Program did not have an expiration date but provided for suspension or discontinuation at any time.
In March 2024, the Board of Directors authorized a share repurchase program (the March 2024 Share Repurchase Program) pursuant to which the Company could repurchase up to $2.0 billion of the Company’s common stock. The March 2024 Share Repurchase Program authorization revoked the previously authorized but unused amounts under the 2022 Share Repurchase Program. The March 2024 Share Repurchase Program did not have an expiration date but provided for suspension or discontinuation at any time.
In October 2024, the Board of Directors authorized a share repurchase program (the October 2024 Share Repurchase Program) pursuant to which the Company may repurchase up to $3.0 billion of the Company’s common stock. The October 2024 Share Repurchase Program authorization revoked the previously authorized but unused amounts under the March 2024 Share Repurchase Program. The October 2024 Share Repurchase Program does not have an expiration date and may be suspended or discontinued at any time.
A summary of common stock repurchase activity is presented in the following table:
Fiscal Year Ended
January 31,
February 1,
February 3,
(Dollars in millions)
Shares repurchased
Total cost of shares repurchased
Credit facilities
On August 27, 2025, we entered into Amendment No. 4 to the Second Amended and Restated Loan Agreement (as so amended, the “Loan Agreement”) with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent, and a Lender thereunder; Wells Fargo Bank, National Association and JPMorgan Chase Bank, N.A., as Lead Arrangers and Bookrunners; JPMorgan Chase Bank, N.A., as Syndication Agent and a Lender; and the other lenders party thereto. The Loan Agreement matures on March 13, 2029, provides maximum revolving loans equal to the lesser
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of $1.0 billion or a percentage of eligible owned inventory and eligible owned receivables (which borrowing base may, at the election of the Company and satisfaction of certain conditions, include a percentage of qualified cash), and contains a $50.0 million subfacility for letters of credit. The Loan Agreement requires the Company to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 whenever availability under the Loan Agreement falls below the specified threshold. Substantially all of the Company’s assets are pledged as collateral for outstanding borrowings under the Loan Agreement. Outstanding borrowings bear interest, at the Company’s election, at either a base rate plus a margin of 0.5% to 1.0% or the Term Secured Overnight Financing Rate plus a margin of 1.5% to 2.0%, and a credit spread adjustment of 0.10%, with such margins based on the Company’s borrowing availability. The unused line fee is 0.25% to 0.375% per annum. As of January 31, 2026 and February 1, 2025, there were no borrowings outstanding under the Loan Agreement.
Ulta Beauty’s wholly owned subsidiary, Space NK, maintains a multi-currency revolving credit facility (the “Facility Agreement”) with National Westminster Bank plc, providing up to £40.0 million for working capital requirements. The Facility Agreement, maturing on April 17, 2028, allows Space NK to increase the revolving facility by an additional £10.0 million with lender consent. The facility is secured by the assets of Space NK and contains a requirement to maintain an interest coverage ratio not less than 4.0 to 1.0 and a leverage ratio not to exceed 2.0 to 1.0 for any relevant period. Borrowings bear interest at either the compound or term Sterling Overnight Index Average plus a margin of 1.75%, and an unused line fee of 0.60% per annum. As of January 31, 2026, there was $62.3 million outstanding under the Facility Agreement.
As of January 31, 2026, we were in compliance with all terms and covenants of the Loan Agreement and Facility Agreement.
Seasonality
Our business is subject to seasonal fluctuation. Significant portions of our net sales and profits are realized during the fourth quarter of the fiscal year due to the holiday selling season. To a lesser extent, our business is also affected by Mother’s Day and Valentine’s Day. Any decrease in sales during these higher sales volume periods could have an adverse effect on our business, financial condition, or operating results for the entire fiscal year. Our quarterly results of operations have varied in the past and are likely to do so again in the future. As such, we believe that period-to-period comparisons of our results of operations should not be relied upon as an indication of our future performance.
Critical accounting policies and estimates
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements required the use of estimates and judgments that affect the reported amounts of our assets, liabilities, revenues, and expenses. Management bases estimates on historical experience and other assumptions it believes to be reasonable under the circumstances and evaluates these estimates on an ongoing basis. Actual results may differ from these estimates. A discussion of our more significant estimates follows. Management has discussed the development, selection, and disclosure of these estimates and assumptions with the Audit Committee.
Inventory valuation
Merchandise inventories are carried at the lower of cost or net realizable value. Cost is determined using the moving average cost method and includes costs incurred to purchase and distribute goods as well as related vendor allowances including co-op advertising, markdowns, and volume discounts. We record valuation adjustments to our inventories if the cost of a specific product on hand exceeds the amount we expect to realize from the ultimate sale or disposal of the inventory as well as for any excess or discontinued inventory. These estimates are based on management’s judgment regarding future demand, age of inventory, and analysis of historical experience. If actual demand or market conditions are different than those projected by management, future merchandise margin rates may be affected by adjustments to these estimates.
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Inventories are adjusted for the results of periodic physical inventory counts at each of our locations. We record a shrink reserve representing management’s estimate of inventory losses by location that have occurred since the date of the last physical count. This estimate is based on management’s analysis of historical results, including consideration of current loss rates.
We do not believe that there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our inventory reserves. Adjustments to earnings resulting from revisions to management’s estimates of the inventory reserves have been insignificant during fiscal 2025, 2024, and 2023. An increase or decrease in the lower of cost or net realizable value reserve of 10% would not have a material impact on our operating income for fiscal 2025. An increase or decrease in the shrink rate included in the shrink reserve calculation of 10% would not have a material impact on our operating income for fiscal 2025.
Vendor allowances
The majority of cash consideration received from a vendor is considered to be a reduction of the cost of the related products and is reflected in cost of sales in our consolidated statements of income as the related products are sold unless it is in exchange for an asset or service or a reimbursement of a specific, incremental, identifiable cost incurred by the Company in selling the vendors’ products. We estimate the amount recorded as a reduction of inventory at the end of each period based on a detailed analysis of inventory turns and management’s analysis of the facts and circumstances of the various contractual agreements with vendors. We record cash consideration expected to be received from vendors in receivables. We do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to calculate our reduction of inventory. An increase or decrease in inventory turns of five basis points would not have a material impact on our operating income for fiscal 2025.
Impairment of long-lived tangible assets
We review long-lived tangible assets for impairment quarterly or more frequently if events or circumstances indicate these assets might be impaired. Assets are primarily reviewed at the store level, which is the lowest level for which cash flows can be identified. Significant estimates are used in determining future operating results of each store over its remaining lease term. An impairmentloss would be recorded if the carrying amount of the long-lived asset exceeds its fair value. We do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to calculate our impairment charges. No impairment charges were recognized in fiscal 2025, 2024, or 2023.
Impairment of goodwill and other intangible assets
We review goodwill and other intangible assets for impairment annually or more frequently if events or circumstances indicate these assets might be impaired. An impairmentloss would be recorded if the carrying amount of goodwill or other intangible assets exceeds their respective fair value. We do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to calculate our impairment charges. No impairment charges were recognized in fiscal 2025, 2024, or 2023.
Loyalty program
We maintain a customer loyalty program, Ulta Beauty Rewards ® , which allows members to earn points based on purchases of merchandise or services. Points earned are valid for at least one year. The loyalty program represents a material right to the customer and points may be redeemed on future products and services. Revenue from the loyalty program is recognized when the members redeem points or points expire. We defer revenue related to points earned that have not yet been redeemed. The amount of deferred revenue includes estimates for the standalone selling price of points earned by members and the percentage of points expected to be redeemed. The expected redemption percentage is based on historical redemption patterns and considers current information or trends. The standalone selling price of points earned and the estimated redemption rate is evaluated each reporting period. We do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions used to calculate the estimated redemption rate.
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Adjustments to earnings resulting from revisions to management’s estimates of the redemption rates have been insignificant during fiscal 2025, 2024, and 2023. An increase or decrease in the estimated redemption rate of 5% would not have a material impact on our operating income in fiscal 2025.
Income taxes
Judgment is required in determining our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.
We recognize deferred income taxes for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are anticipated to be recovered or settled. The effect on deferred taxes of a change in income tax rates is recognized in the consolidated statements of income in the period of enactment. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets to the amount expected to be realized unless it is more-likely-than-not that such assets will be realized in full. The estimated tax benefit of an uncertain tax position is recorded in our consolidated financial statements only after determining a more-likely-than-not probability that the uncertain tax position will withstand challenge, if any, from applicable taxing authorities.
Judgment is required in assessing the future tax consequences of events that have been recognized on our consolidated financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our consolidated financial statements.
Business combinations
Business combinations are accounted for using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. The determination of the acquisition date fair values of identifiable assets acquired and liabilities assumed requires estimates and the use of valuation techniques when fair value is not readily available and requires judgment. For the valuation of indefinite-lived intangible assets acquired in a business combination, the Company typically uses the relief from royalty method, which utilizes the present value of the after-tax royalty savings attributable to owning the intangible assets as opposed to paying a third party for its use. The significant assumptions used to estimate the fair values of intangible assets include projected revenues, discount rate, remaining useful life, and estimated royalty rate. Although the Company believes its estimates of acquisition date fair values are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on the determination of the fair values of the intangible assets acquired.
If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could record impairment charges. In addition, we have estimated the economic lives of certain acquired tangible and intangible assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could increase or decrease, or the acquired asset could be impaired.
Recently adopted accounting pronouncements
See Note 2 to our consolidated financial statements, “Summary of significant accounting policies – Recently adopted accounting pronouncements.”
Recent accounting pronouncements not yet adopted
See Note 2 to our consolidated financial statements, “Summary of significant accounting policies – Recent accounting pronouncements not yet adopted.”
