Ulta 2011 Annual Report Download - page 20

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 increasingly dependent on a variety of information systems to effectively manage the operations of our
growing store base and fulfill customer orders from our e-commerce business. We have identified the need to
expand and upgrade our information systems to support recent and expected future growth. The failure of our
information systems to perform as designed 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 negatively impact our operations, shipment of goods, ability to process
financial information and credit card transactions, and our ability to receive and process e-commerce orders or
engage in normal business activities. Moreover, security breaches or leaks of proprietary information, including
leaks of customers’ private data, could result in liability, decrease customer confidence in our company, and
weaken our ability to compete in the marketplace, which could have a material adverse effect on our business,
financial condition, profitability and cash flows.
Our e-commerce operations, while relatively small, are increasingly important to our business. The Ulta.com
website serves as an effective extension of Ulta’s marketing and prospecting strategies (beyond catalogs,
newspaper inserts and national advertising) by exposing potential new customers to the Ulta brand, product
offerings, and enhanced content. As the importance of our website and e-commerce operations to our business
grows, we are increasingly vulnerable to website downtime and other technical failures. Our failure to
successfully respond to these risks could reduce e-commerce sales and damage our brand’s reputation.
Unauthorized disclosure of confidential customer, associate or company information could damage out
reputation, expose us to litigation and negatively impact our business.
We collect, process and retain sensitive and confidential customer and associate information as part of our
normal course of business. 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, our systems, and those of our third party service providers, may be vulnerable to security breaches,
acts of vandalism, computer viruses, misplaced or lost data, human errors, or other similar events. Any security
breach of customer, associate or company confidential information could result in damage to our reputation and
result in lost sales, litigation, fines, or additional investments to fix or replace the systems that were breached.
Any of these events 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 would result in lost sales and could
increase our costs.
We directly source the majority of our gift-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 sudden disruption of manufacturing or imports
from such foreign countries, including the imposition of additional import restrictions, unanticipated political
changes, increased customs duties, legal or economic restrictions on overseas suppliers’ ability to produce and
deliver products, and natural disasters, could 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 United States
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, disruption of imports by labor disputes and local business
practices. Our sourcing 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 in the United States or worldwide, 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 are
beyond our control, and these factors 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.
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