Ulta 2010 Annual Report Download - page 3

Dear Stockholders,
In my first letter to you as Ulta’s CEO, I am very proud to highlight both our strong 2010 performance and our
very appealing long-term financial potential. We believe our unique position in the beauty industry, commitment
to providing our guests with a compelling product and service offering, exciting shopping experience and
demonstrated financial management discipline will allow us to further grow sales, profits and cash flow,
capture more market share and ultimately create even greater shareholder value.
Fiscal 2010 represented an outstanding year that included record sales and earnings. We achieved all of our
store expansion goals while surpassing the financial guidance we set each quarter.
In total, for the year, net sales rose 19% to $1.5 billion. This included a strong comparable store sales increase
of 11%, plus the successful opening of 47 new stores. In addition, our e-commerce business, while still
relatively small, grew significantly. Operating profit grew 74%, at a rate much faster than sales as we increased
product margins, delivered operating efficiencies and leveraged fixed costs. All of these efforts resulted in a
260 basis point expansion in operating margin and a 76% increase in our earnings per share.
Our balance sheet remained strong. At year end, cash and cash equivalents stood at an impressive $111
million, we had no debt and we reduced average inventory per store by 6.1% due to continued benefits from
our inventory management strategies. Our powerful net income growth and balance sheet management led
to the generation of $79 million in free cash flow even as we invested in our long-term growth strategy.
Stockholders rewarded our efforts as evidenced by the 89% appreciation in our stock price for the fiscal year.
Ulta’s outstanding financial performance results from the enthusiasm our guests have for our store experience
and the discipline with which we manage our company and execute our strategies. Ulta remains the only re-
tailer that provides products and services that satisfy consumers’ full range of beauty needs including skincare,
color cosmetics, fragrance, bath and haircare products, along with a full service salon in every store. Our offer-
ings range across price points from mass to prestige and professional products. Our welcoming and fun shop-
ping environment provides a unique experience to our guests, whether they are shopping at our brick-and-mor-
tar stores or online. We strive to deliver an exciting shopping experience by providing enthusiastic, well-trained
associates who are not driven by commission dollars and are instead focused on helping our guests with all of
her wants and needs. All of this has contributed to our unique position in the competitive beauty marketplace.
As we begin fiscal 2011, I am proud of our accomplishments, yet equally focused and confident in our ability
to continue our successful expansion and growth this year. Our company is strong financially, disciplined and
motivated to grow by continuing on its path to capture market share in the $96 billion beauty industry.
We believe we are well positioned to continue on our growth trajectory and point to five key drivers of this
expectation: 1) accelerate our store expansion; 2) continue to introduce new products, brands, services, and
expand categories; 3) accelerate the innovation in our marketing to further increase customer count;
4) enhance our loyalty program to garner increased share of wallet and store visits from existing guests;
and 5) intensify our focus on our e-commerce channel to further fuel sales growth.
Delving into each strategy in more detail:
New store expansion In fiscal 2011, we will accelerate the pace of our store openings. Our plans include the
opening of approximately 61 new stores, representing 16% square footage growth, which is above the 13%
square footage growth we achieved in fiscal 2010. Longer term, we expect to increase square footage by 15%
to 20% on an annual basis as we look to achieve our long-term goal of 1,000 Ulta stores in our 10,000 square
foot format in the United States.