Ulta 2013 Annual Report Download - page 19

growth and to maintain the efficient operation of our business, additional distribution centers may need to be
added in the future. We are embarking on a multi-year supply chain project beginning in 2014 which will include
adding additional capacity, including a fourth distribution center expected to open in 2015, and system
improvements to support expanded omni-channel capabilities. Our failure to effectively upgrade and expand our
distribution capacity on a timely basis to keep pace with our anticipated growth in stores could have a material
adverse effect on our business, financial condition, profitability and cash flows.
Any significant interruption in the operations of our distribution facilities could disrupt our ability to deliver
merchandise to our stores 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 over 20,000 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 or other
catastrophic events, labor disagreements, or shipping and transportation problems, could drastically reduce our
ability to receive and process orders and provide products and services to our stores, which could have a material
adverse effect on our business, financial condition, profitability and cash flows.
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 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.
We are subject to risks relating to our information technology systems, and any failure to adequately protect
our critical information technology systems could have a material adverse effect on our operations.
We rely on information technology systems across our operations, including for management, supply chain and
financial information and various other processes and transactions. Our ability to effectively manage our business
depends on the security, reliability and capacity of these systems. Information technology system failures,
network disruptions or breaches of security could disrupt our operations, causing delays or cancellation of
customer orders or impeding the manufacture or shipment of products, processing of transactions or reporting of
financial results. An attack or other problem with our systems could also result in the disclosure of proprietary
information about our business or confidential information concerning our customers or employees, which could
result in significant damage to our business and our reputation.
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