Ulta 2008 Annual Report Download - page 25

We rely on our good relationships with vendors to purchase prestige, mass and salon beauty products on
reasonable terms. If these relationships were to be impaired, or if certain vendors were unable to supply suf-
ficient 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,
our business and financial performance.
We have no long-term supply agreements or exclusive arrangements with vendors and, therefore, our success
depends on maintaining good relationships with our vendors. Our business depends to a significant extent on
the willingness and ability of our vendors to supply us with a sufficient selection and volume of products to
stock our stores. Some of our prestige vendors 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 other core brands
could in the future decide to scale back or end its partnership with us and strengthen its relationship 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 vendors, or fail to continue acquiring and strengthening
relationships with additional vendors of beauty products, 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 2008, merchandise supplied to Ulta by our top ten vendors accounted for approximately 48% of
our net sales. 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 vendors, could have an adverse effect on our business.
If we are unable to protect our intellectual property rights, our brand and reputation could be harmed,
which could have a material adverse effect on our business, financial condition and results of operations.
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
on our name, “Ulta,” and other marks incorporating that name, copyrights in our website content, rights to our
domain name www.ulta.com and trade secrets and know-how with respect to our Ulta branded product
formulations, product sourcing, sales and marketing and other aspects of our business. As such, we rely on
trademark and copyright law, trade secret protection and confidentiality agreements with certain of our
employees, 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, or if
other parties infringe on our intellectual property rights, our brand and reputation could be impaired and we
could lose customers.
If our manufacturers are unable to produce products manufactured uniquely for Ulta, including Ulta
branded products and gift-with-purchase and other promotional products, consistent with applicable regula-
tory requirements, we could suffer lost sales and be required to take costly corrective action, which could
have a material adverse effect on our business, financial condition and results of operations.
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, including Ulta branded products
and gift-with-purchase and other promotional products. Our third-party manufacturers of Ulta products may
not maintain adequate controls with respect to product specifications and quality and may not continue to
produce products that are consistent with applicable regulatory requirements. 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 the FDC Act may include seizure of products, injunctions
against future shipment of products, restitution and disgorgement of profits, operating restrictions and criminal
prosecution. The FDA does not have a pre-market approval system for cosmetics, and we believe we are
permitted to market our cosmetics and have them manufactured without submitting safety or efficacy data to
the FDA. However, the FDA may in the future determine to regulate our cosmetics or the ingredients included
in our cosmetics as drugs. These events could interrupt the marketing and sale of our Ulta products, severely
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