Ulta 2008 Annual Report Download - page 12

Growth strategy
We intend to expand our presence as a leading retailer of beauty products and salon services by:
Growing our store base. We opened 63 stores in fiscal 2008 and 53 stores in fiscal 2007 representing square
footage growth of 25% and 28%, respectively. Due to the recent economic downturn, the number of high-
quality commercial real estate projects of the size and with the co-tenant mix that we typically target for our
new store locations has significantly declined. As a result, we have reduced our new store program for 2009 to
approximately 35 stores, representing expected square footage growth of approximately 11%.
As the economy stabilizes and begins to recover, we believe our successful track record of opening new stores
in diverse markets across the United States will allow us to increase our new store growth rates back to
historical levels consistent with our long-term targets. We believe that over the long-term, we have the
potential to grow our store base to over 1,000 Ulta stores in the United States. Our internal real estate model
takes into account a number of variables, including demographic and sociographic data as well as population
density relative to maximum drive times, economic and competitive factors. We plan to open stores both in
markets in which we currently operate and new markets.
2004 2005 2006 2007 2008
Fiscal Year
Total stores beginning of period .......... 126 142 167 196 249
Stores opened...................... 20 25 31 53 63
Stores closed ...................... (4) — (2) — (1)
Total stores end of period . .............. 142 167 196 249 311
Stores remodeled ..................... — 1 7 17 8
Total square footage ................... 1,464,330 1,726,563 2,023,305 2,589,244 3,240,579
Average square footage per store ......... 10,312 10,339 10,323 10,399 10,420
Increasing our sales and profitability by expanding our prestige brand offerings. Our strategy is to continue
to expand our portfolio of products and brands, in particular to enhance our offering of prestige brands, both
by capitalizing on the success of our existing vendor relationships and by identifying and developing new
supply sources. We plan to continue to expand and attract additional prestige brands to our stores by increasing
education for our beauty consultants, providing high levels of customer service, and tailoring the presentation
and merchandising of these products in our stores to appeal to prestige vendors. For example, as of January 31,
2009, we have installed “boutique” areas of approximately 200 square feet in over 160 of our stores to
showcase and build brand equity for key vendors and to provide our customers with a place to experiment and
learn about these products. We intend to install this feature in most of our stores over time. Over the last three
years, we have added several prestige brands including Estée Lauder fragrance, Juicy Couture and Ed Hardy
fragrances, Pureology and Frédéric Fekkai haircare, Smashbox, Napoleon Perdis and Lorac cosmetics, and
Dermalogica skin care. We continue to seek opportunities to test prestige brands in our stores in order to
expand our prestige brand offerings. We believe this strategy will positively influence our number of
transactions and our average transaction value.
Improving our profitability by leveraging our fixed costs. We plan to continue to improve our operating
results by leveraging our existing infrastructure and continually optimizing our operations under normal
economic conditions. We will continue to make investments in our information systems to enable us to
enhance our efficiency in areas such as merchandise planning and allocation, inventory management,
distribution and point of sale (POS) functions. We believe we will continue to improve our profitability by
reducing our operating expenses, in particular general corporate overhead and fixed costs, as a percentage of
sales.
Continuing to enhance our brand awareness to generate sales growth. We believe a key component of our
success is the brand exposure we get from our marketing initiatives. Our direct mail advertising programs are
designed to drive additional traffic to our stores by highlighting current promotional events and new product
offerings. Our national magazine print advertising campaign exposes potential new customers to our retail
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