##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period Ended October 30, 2010
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number: 001-33764
 ULTA SALON, COSMETICS & FRAGRANCE, INC.
  Delaware
    
    36-3685240(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)1000 Remington Blvd., Suite 120Bolingbrook, Illinois
    
    60440(Address of principal executive offices)
    
    (Zip code)
  þ o
 o o
  Large accelerated filer o   
    Accelerated filer þ
    Non-accelerated filer o
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



ULTA SALON, COSMETICS & FRAGRANCE, INC.
TABLE OF CONTENTS
 Part I  Financial InformationItem 1. Financial StatementsBalance Sheets
    
    
    3Statements of Income
    
    
    5Statements of Cash Flows
    
    
    6Statement of Stockholders Equity
    
    
    7Notes to Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    21Part II  Other Information
    
    
    21Item 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3. Defaults Upon Senior Securities
    
    
    22Item 4. [Removed and Reserved]
    
    
    22Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    22SIGNATURES
    
    
    24
  2




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##### Table of Contents



Part I  Financial Information
 
 Item 1. Financial Statements
 Ulta Salon, Cosmetics & Fragrance, Inc.
 
 Balance Sheets
 October 30,
    
    January 30,
    
    October 31,(In thousands)
    
    2010
    
    2010
    
    2009(unaudited)
    
    
    
    
    
    (unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    8,351
    
    
    $
    4,017
    
    
    $
    3,795Receivables, net
    
    
    20,386
    
    
    
    13,477
    
    
    
    13,340Merchandise inventories, net
    
    
    301,559
    
    
    
    206,948
    
    
    
    273,978Prepaid expenses and other current assets
    
    
    33,366
    
    
    
    30,272
    
    
    
    28,386Prepaid income taxes
    
    
    6,310
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    8,060
    
    
    
    8,060
    
    
    
    7,984Total current assets
    
    
    378,032
    
    
    
    262,774
    
    
    
    327,483Property and equipment, net
    
    
    331,390
    
    
    
    290,861
    
    
    
    293,746Total assets
    
    $
    709,422
    
    
    $
    553,635
    
    
    $
    621,229Liabilities and stockholders equityCurrent liabilities:Current portion  notes payable
    
    $
    
    
    
    $
    
    
    
    $
    14,635Accounts payable
    
    
    120,245
    
    
    
    56,387
    
    
    
    117,520Accrued liabilities
    
    
    83,808
    
    
    
    59,189
    
    
    
    57,811Accrued income taxes
    
    
    
    
    
    
    10,781
    
    
    
    5,682Total current liabilities
    
    
    204,053
    
    
    
    126,357
    
    
    
    195,648Notes payable  less current portion
    
    
    
    
    
    
    
    
    
    
    24,527Deferred rent
    
    
    134,878
    
    
    
    113,718
    
    
    
    113,184Deferred income taxes
    
    
    20,952
    
    
    
    20,952
    
    
    
    17,616Total liabilities
    
    
    359,883
    
    
    
    261,027
    
    
    
    350,975
  See accompanying notes to financial statements.
 3




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##### Table of Contents



Ulta Salon, Cosmetics & Fragrance, Inc.
Balance Sheets (continued)
 October 30,
    
    January 30,
    
    October 31,(In thousands, except per share data)
    
    2010
    
    2010
    
    2009(unaudited)
    
    
    
    
    
    (unaudited)Stockholders equity:Common stock, $.01 par value, 400,000 shares
authorized; 59,842, 58,674 and 58,609 shares
issued; 59,337, 58,169 and 58,104 shares
outstanding; at October 30, 2010 (unaudited),
January 30, 2010 and October 31, 2009
(unaudited), respectively
    
    $
    598
    
    
    $
    586
    
    
    $
    586Treasury stock-common, at cost
    
    
    (4,179
    )
    
    
    (4,179
    )
    
    
    (4,179
    )Additional paid-in capital
    
    
    316,694
    
    
    
    300,701
    
    
    
    298,762Retained earnings (accumulated deficit)
    
    
    36,426
    
    
    
    (4,500
    )
    
    
    (24,726
    )Accumulated other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    (189
    )Total stockholders equity
    
    
    349,539
    
    
    
    292,608
    
    
    
    270,254Total liabilities and stockholders equity
    
    $
    709,422
    
    
    $
    553,635
    
    
    $
    621,229
 See accompanying notes to financial statements.
 4




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##### Table of Contents



Ulta Salon, Cosmetics & Fragrance, Inc.
 
 Statements of Income
 (unaudited)
 Three months ended
    
    Nine months endedOctober 30,
    
    October 31,
    
    October 30,
    
    October 31,(In thousands, except per share data)
    
    2010
    
    2009
    
    2010
    
    2009Net sales
    
    $
    339,179
    
    
    $
    284,043
    
    
    $
    981,179
    
    
    $
    826,407Cost of sales
    
    
    220,273
    
    
    
    192,372
    
    
    
    653,780
    
    
    
    576,480Gross profit
    
    
    118,906
    
    
    
    91,671
    
    
    
    327,399
    
    
    
    249,927Selling, general and administrative expenses
    
    
    90,309
    
    
    
    74,797
    
    
    
    250,947
    
    
    
    210,658Pre-opening expenses
    
    
    4,305
    
    
    
    2,183
    
    
    
    6,572
    
    
    
    5,388Operating income
    
    
    24,292
    
    
    
    14,691
    
    
    
    69,880
    
    
    
    33,881Interest expense
    
    
    244
    
    
    
    441
    
    
    
    576
    
    
    
    1,757Income before income taxes
    
    
    24,048
    
    
    
    14,250
    
    
    
    69,304
    
    
    
    32,124Income tax expense
    
    
    9,845
    
    
    
    5,790
    
    
    
    28,378
    
    
    
    12,994Net income
    
    $
    14,203
    
    
    $
    8,460
    
    
    $
    40,926
    
    
    $
    19,130Net income per common share:Basic
    
    $
    0.24
    
    
    $
    0.15
    
    
    $
    0.70
    
    
    $
    0.33Diluted
    
    $
    0.23
    
    
    $
    0.14
    
    
    $
    0.67
    
    
    $
    0.32Weighted average common shares outstanding:Basic
    
    
    59,063
    
    
    
    57,979
    
    
    
    58,699
    
    
    
    57,847Diluted
    
    
    61,057
    
    
    
    59,376
    
    
    
    60,723
    
    
    
    59,081
 See accompanying notes to financial statements.
 5




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Ulta Salon, Cosmetics & Fragrance, Inc.
 
 Statements of Cash Flows
 (unaudited)
 Nine months endedOctober 30,
    
    
    October 31,(In thousands)
    
    2010
    
    
    2009Operating activitiesNet income
    
    $
    40,926
    
    
    $
    19,130Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    47,698
    
    
    
    46,766Non-cash stock compensation charges
    
    
    7,399
    
    
    
    4,214Excess tax benefits from stock-based compensation
    
    
    (2,309
    )
    
    
    (602
    )(Gain) loss on disposal of property and equipment
    
    
    (399
    )
    
    
    199Change in operating assets and liabilities:Receivables
    
    
    (6,909
    )
    
    
    4,928Merchandise inventories
    
    
    (94,611
    )
    
    
    (60,376
    )Prepaid expenses and other current assets
    
    
    (3,094
    )
    
    
    (4,092
    )Income taxes
    
    
    (14,782
    )
    
    
    14,310Accounts payable
    
    
    63,858
    
    
    
    69,709Accrued liabilities
    
    
    11,556
    
    
    
    8,850Deferred rent
    
    
    21,160
    
    
    
    11,896Net cash provided by operating activities
    
    
    70,493
    
    
    
    114,932Investing activitiesPurchases of property and equipment
    
    
    (74,765
    )
    
    
    (49,390
    )Net cash used in investing activities
    
    
    (74,765
    )
    
    
    (49,390
    )Financing activitiesProceeds on long-term borrowings
    
    
    
    
    
    
    863,237Payments on long-term borrowings
    
    
    
    
    
    
    (930,122
    )Proceeds from issuance of common stock under stock plans
    
    
    6,297
    
    
    
    898Excess tax benefits from stock-based compensation
    
    
    2,309
    
    
    
    602Net cash provided by (used in) financing activities
    
    
    8,606
    
    
    
    (65,385
    )Net increase in cash and cash equivalents
    
    
    4,334
    
    
    
    157Cash and cash equivalents at beginning of period
    
    
    4,017
    
    
    
    3,638Cash and cash equivalents at end of period
    
    $
    8,351
    
    
    $
    3,795Supplemental cash flow informationCash paid for interest
    
    $
    294
    
    
    $
    1,946Cash paid (received) for income taxes
    
    $
    43,160
    
    
    $
    (1,918
    )Noncash investing and financing activities:Change in property and equipment included in accrued liabilities
    
    $
    13,063
    
    
    $
    (903
    )Unrealized gain on interest rate swap hedge, net of tax
    
    $
 
    
    
    $
    442
 See accompanying notes to financial statements.
 6




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Ulta Salon, Cosmetics & Fragrance, Inc.
 
 Statement of Stockholders Equity
 (unaudited)
 Treasury 
    
    
    
    
    
    RetainedCommon Stock
    
    Common Stock
    
    Additional
    
    Earnings
    
    TotalIssued
    
    
    
    
    
    Treasury
    
    
    
    
    
    Paid-In
    
    (Accumulated
    
    Stockholders(In thousands, except per share data)
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Deficit)
    
    EquityBalance  January 30, 2010
    
    
    58,674
    
    
    $
    586
    
    
    
    (505
    )
    
    $
    (4,179
    )
    
    $
    300,701
    
    
    $
    (4,500
    )
    
    $
    292,608Common stock options exercised
    
    
    1,168
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    6,285
    
    
    
    
    
    
    
    6,297Net income for the nine months ended October 30, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,926
    
    
    
    40,926Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,309
    
    
    
    
    
    
    
    2,309Stock compensation charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,399
    
    
    
    
    
    
    
    7,399Balance  October 30, 2010
    
    
    59,842
    
    
    $
    598
    
    
    
    (505
    )
    
    $
    (4,179
    )
    
    $
    316,694
    
    
    $
    36,426
    
    
    $
    349,539
 See accompanying notes to financial statements.
 7




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Ulta Salon, Cosmetics & Fragrance, Inc.
 
 Notes to Financial Statements
 (unaudited)
 1. Business and basis of presentation
  State
    
    Number of storesAlabama
    
    7Arizona
    
    23Arkansas
    
    3California
    
    33Colorado
    
    11Connecticut
    
    3Delaware
    
    1Florida
    
    26Georgia
    
    18Illinois
    
    34Indiana
    
    8Iowa
    
    3Kansas
    
    1Kentucky
    
    3Louisiana
    
    3Maine
    
    2Maryland
    
    6Massachusetts
    
    4Michigan
    
    11Minnesota
    
    9Mississippi
    
    3Missouri
    
    3Nebraska
    
    2Nevada
    
    6New Jersey
    
    11New York
    
    12North Carolina
    
    13Ohio
    
    11Oklahoma
    
    7Oregon
    
    3Pennsylvania
    
    17Rhode Island
    
    1South Carolina
    
    6Tennessee
    
    5Texas
    
    52Utah
    
    2Virginia
    
    11Washington
    
    6Wisconsin
    
    4Total
    
    384
    2. Summary of significant accounting policies
  8




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Fiscal quarter
  Reclassifications
  Share-based compensation
  Nine months endedOctober 30, 2010
    
    October 31, 2009Volatility rate
    
    
    57.1
    %
    
    
    60.6
    %Average risk-free interest rate
    
    
    2.2
    %
    
    
    2.5
    %Average expected life (in years)
    
    
    5.5
    
    
    
    5.3Dividend yield
    
    
    None
    
    
    
    None
   Comprehensive income
  Three months ended

    
    Nine months endedOctober 30,
    
    
    October 31,
    
    
    October 30,
    
    
    October 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income
    
    $
    14,203
    
    
    $
    8,460
    
    
    $
    40,926
    
    
    
    19,130Unrealized gain on
interest rate swap
hedge, net of
income tax
    
    
    
    
    
    
    178
    
    
    
    
    
    
    
    442Comprehensive income
    
    $
    14,203
    
    
    $
    8,638
    
    
    $
    40,926
    
    
    $
    19,572
 3. Commitments and contingencies
 Leases 
 9




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General litigation
   4. Notes payable
    5. Financial instruments
   10




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Amount of Gain (Loss)
    
    Amount of Gain
    
    Amount of GainRecognized in AOCL on
    
    Reclassfied
    
    Recognized in Income onDerivative (Effective
    
    from AOCL into Income
    
    Derivative (IneffectivePortion)
    
    (Effective Portion)
    
    Portion)Three months ended
    
    Three months ended
    
    Three months endedOctober 30, 2010
    
    October 31, 2009
    
    October 30, 2010
    
    October 31, 2009
    
    October 30, 2010
    
    October 31, 2009Interest rate swap, net of tax
    
    $
    
    
    
    $
    178
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Amount of Gain (Loss)
    
    Amount of Gain
    
    Amount of GainRecognized in AOCL on
    
    Reclassfied
    
    Recognized in Income onDerivative (Effective
    
    from AOCL into Income
    
    Derivative (IneffectivePortion)
    
    (Effective Portion)
    
    Portion)Nine months ended
    
    Nine months ended
    
    Nine months endedOctober 30, 2010
    
    October 31, 2009
    
    October 30, 2010
    
    October 31, 2009
    
    October 30, 2010
    
    October 31, 2009Interest rate swap, net of tax
    
    $
    
    
    
    $
    442
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 6. Fair Value Measurements
  7. Net income per common share
  Three months ended
    
    Nine months endedOctober 30,
    
    October 31,
    
    October 30,
    
    October 31,2010
    
    2009
    
    2010
    
    2009Net income
    
    $
    14,203
    
    
    $
    8,460
    
    
    $
    40,926
    
    
    $
    19,130Denominator for basic net income per share 
weighted-average common shares
    
    
    59,063
    
    
    
    57,979
    
    
    
    58,699
    
    
    
    57,847Dilutive effect of stock options and
non-vested stock
    
    
    1,994
    
    
    
    1,397
    
    
    
    2,024
    
    
    
    1,234Denominator for diluted net income per share
    
    
    61,057
    
    
    
    59,376
    
    
    
    60,723
    
    
    
    59,081Net income per common share:Basic
    
    $
    0.24
    
    
    $
    0.15
    
    
    $
    0.70
    
    
    $
    0.33Diluted
    
    $
    0.23
    
    
    $
    0.14
    
    
    $
    0.67
    
    
    $
    0.32
   11




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Item 2.   Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis of our financial condition and results of operations should
be read in conjunction with our financial statements and related notes included elsewhere in this
quarterly report. This discussion contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934 and the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, which reflect our current views with respect to, among other things,
future events and financial performance. You can identify these forward-looking statements by the
use of forward-looking words such as outlook, believes, expects, plans, estimates, or
other comparable words. Any forward-looking statements contained in this Form 10-Q are based upon
our historical performance and on current plans, estimates and expectations. The inclusion of this
forward-looking information should not be regarded as a representation by us or any other person
that the future plans, estimates or expectations contemplated by us will be achieved. Such
forward-looking statements are subject to various risks and uncertainties, which include, without
limitation: the impact of weakness in the economy; changes in the overall level of consumer
spending; changes in the wholesale cost of our products; the possibility that we may be unable to
compete effectively in our highly competitive markets; the possibility that our continued opening
of new stores could strain our resources and have a material adverse effect on our business and
financial performance; the possibility that new store openings and existing locations may be
impacted by developer or co-tenant issues; the possibility that the capacity of our distribution
and order fulfillment infrastructure may not be adequate to support our recent growth and expected
future growth plans; the possibility of material disruptions to our information systems; weather
conditions that could negatively impact sales; the possibility that our business plan and
development strategy may be impacted by our recent leadership change; and other risk factors
detailed in our public filings with the Securities and Exchange Commission (the SEC), including
risk factors contained in Item 1A, Risk Factors of our Annual Report on Form 10-K for the year
ended January 30, 2010. We assume no obligation to update any forward-looking statements as a
result of new information, future events or developments. References in the following discussion to
we, us, our, the Company, Ulta and similar references mean Ulta Salon, Cosmetics &
Fragrance, Inc. unless otherwise expressly stated or the context otherwise requires.
 Overview
      12




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Global economic conditions
  Current business trends
  Change in Management
   Basis of presentation
   13




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
    
    the general national, regional and local economic conditions and corresponding impact on
customer spending levels;
 
    
    the introduction of new products or brands;
 
    
    the location of new stores in existing store markets;
 
    
    competition;
 
    
    our ability to respond on a timely basis to changes in consumer preferences;
 
    
    the effectiveness of our various marketing activities; and
 
    
    the number of new stores opened and the impact on the average age of all of our
comparable stores.
  
    
    the cost of merchandise sold, including all vendor allowances, which are treated as a
reduction of merchandise costs;
 
    
    warehousing and distribution costs including labor and related benefits, freight, rent,
depreciation and amortization, real estate taxes, utilities and insurance;
 
    
    store occupancy costs including rent, depreciation and amortization, real estate taxes,
utilities, repairs and maintenance, insurance, licenses and cleaning expenses;
 
    
    salon payroll and benefits;
 
    
    customer loyalty program expense; and
 
    
    shrink and inventory valuation reserves.
   
    
    payroll, bonus and benefit costs for retail and corporate employees;
 
    
    advertising and marketing costs;
 
    
    occupancy costs related to our corporate office facilities;
 
    
    stock-based compensation expense;
 
    
    depreciation and amortization for all assets except those related to our retail and
warehouse operations, which are included in cost of sales; and
 
    
    legal, finance, information systems and other corporate overhead costs.
  14




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15




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Results of operations
   Three months ended

    
    Nine months endedOctober 30,
    
    
    October 31,
    
    
    October 30,
    
    
    October 31,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Net sales
    
    $
    339,179
    
    
    $
    284,043
    
    
    $
    981,179
    
    
    $
    826,407Cost of sales
    
    
    220,273
    
    
    
    192,372
    
    
    
    653,780
    
    
    
    576,480Gross profit
    
    
    118,906
    
    
    
    91,671
    
    
    
    327,399
    
    
    
    249,927Selling, general and administrative expenses
    
    
    90,309
    
    
    
    74,797
    
    
    
    250,947
    
    
    
    210,658Pre-opening expenses
    
    
    4,305
    
    
    
    2,183
    
    
    
    6,572
    
    
    
    5,388Operating income
    
    
    24,292
    
    
    
    14,691
    
    
    
    69,880
    
    
    
    33,881Interest expense
    
    
    244
    
    
    
    441
    
    
    
    576
    
    
    
    1,757Income before income taxes
    
    
    24,048
    
    
    
    14,250
    
    
    
    69,304
    
    
    
    32,124Income tax expense
    
    
    9,845
    
    
    
    5,790
    
    
    
    28,378
    
    
    
    12,994Net income
    
    $
    14,203
    
    
    $
    8,460
    
    
    $
    40,926
    
    
    $
    19,130Other operating data:Number stores end of period
    
    
    384
    
    
    
    345
    
    
    
    384
    
    
    
    345Comparable store sales increase (decrease)
    
    
    12.2
    %
    
    
    1.5
    %
    
    
    11.3
    %
    
    
    (0.8
    )%
 Three months ended

    
    Nine months endedOctober 30,
    
    
    October 31,
    
    
    October 30,
    
    
    October 31,(Percentage of net sales)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    64.9
    %
    
    
    67.7
    %
    
    
    66.6
    %
    
    
    69.8
    %Gross profit
    
    
    35.1
    %
    
    
    32.3
    %
    
    
    33.4
    %
    
    
    30.2
    %Selling, general and administrative expenses
    
    
    26.6
    %
    
    
    26.3
    %
    
    
    25.6
    %
    
    
    25.5
    %Pre-opening expenses
    
    
    1.3
    %
    
    
    0.8
    %
    
    
    0.7
    %
    
    
    0.7
    %Operating income
    
    
    7.2
    %
    
    
    5.2
    %
    
    
    7.1
    %
    
    
    4.1
    %Interest expense
    
    
    0.1
    %
    
    
    0.2
    %
    
    
    0.1
    %
    
    
    0.2
    %Income before income taxes
    
    
    7.1
    %
    
    
    5.0
    %
    
    
    7.1
    %
    
    
    3.9
    %Income tax expense
    
    
    2.9
    %
    
    
    2.0
    %
    
    
    2.9
    %
    
    
    1.6
    %Net income
    
    
    4.2
    %
    
    
    3.0
    %
    
    
    4.2
    %
    
    
    2.3
    %
 16




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##### Table of Contents



Comparison of three months ended October 30, 2010 to three months ended October 31, 2009
 Net sales
   Gross profit
  
    
    130 basis points of leverage in fixed store costs due to a combination of less drag on
the relatively smaller new store program in the first half of fiscal 2010 and increased
comparable store sales levels;
 
    
    90 basis points improvement in merchandise margins driven by our marketing and
merchandising strategies; and
 
    
    20 basis points of leverage in supply chain due to efficiencies and increased comparable
store sales levels.
 Selling, general and administrative expenses
  
    
    50 basis points of leverage in marketing expense attributed to the benefit of our cost
efficiencies and stronger comparable store sales levels;
 
    
    40 basis points of deleverage of store expenses due to a combination of factors
including deleverage resulting from the large number of new stores opened during the
quarter and higher credit card fees on increased penetration of credit card sales and
higher interchange rates compared to the prior year quarter, and
 
    
    40 basis points of deleverage in corporate overhead attributed to incremental
compensation expense related to the Companys new President and CEO.
 Pre-opening expenses
  Interest expense
  17




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##### Table of Contents



Income tax expense
  Net income
  Comparison of nine months ended October 30, 2010 to nine months ended October 31, 2009
 Net sales
   Gross profit
  
    
    150 basis points of leverage in fixed store costs due to a combination of less drag on
the relatively smaller new store program in the first half of fiscal 2010 and increased
comparable store sales levels;
 
    
    60 basis points improvement in merchandise margins driven by our marketing and
merchandising strategies; and
 
    
    20 basis points of leverage in supply chain due to efficiencies and increased comparable
store sales.
 Selling, general and administrative expenses
  
    
    40 basis points of leverage in marketing expense attributed to the benefit of our fiscal
2009 cost efficiencies and stronger comparable store sales; and
 
    
    60 basis points of deleverage in corporate overhead attributed to incremental
compensation expense related to the Companys new President and CEO.
 Pre-opening expenses
  18




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##### Table of Contents



Interest expense
  Income tax expense
  Net income
  Liquidity and capital resources
     Nine months endedOctober 30,
    
    
    October 31,(In thousands)
    
    2010
    
    
    2009Net cash provided by operating activities
    
    $
    70,493
    
    
    $
    114,932Net cash used in investing activities
    
    
    (74,765
    )
    
    
    (49,390
    )Net cash provided by (used in) financing activities
    
    
    8,606
    
    
    
    (65,385
    )Net increase in cash and cash equivalents
    
    $
    4,334
    
    
    $
    157
 Operating activities
   19




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##### Table of Contents



Investing activities
  Financing activities
  Credit facility
    Off-balance sheet arrangements
  20




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##### Table of Contents



Contractual obligations
  Critical accounting policies and estimates
  
 Item 3.   Quantitative and Qualitative Disclosures about Market Risk
  Interest rate sensitivity
  
 Item 4.   Controls and Procedures
 Evaluation of Disclosure Controls and Procedures over Financial Reporting
   Changes in Internal Control over Financial Reporting
  
 Part II  Other Information
 
 Item 1.   Legal Proceedings
 General litigation 
 21




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##### Table of Contents



Item 1A.   Risk Factors
  We recently underwent a leadership change. The execution of our business plan and development
strategy may be adversely impacted if we are not able to successfully manage this change.
  
 Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3.   Defaults Upon Senior Securities
  
 Item 4.   [Removed and Reserved]
  
 Item 5.   Other Information
  
 Item 6.   Exhibits
 Incorporated by ReferenceExhibit
    
    
    
    Filed
    
    
    
    Exhibit
    
    File
    
    FilingNumber
    
    Description of document
    
    Herewith
    
    Form
    
    Number
    
    Number
    
    Date3.1
    
    Amended and Restated Certificate
of Incorporation
    
    
    
    S-1
    
    
    3.1
    
    
    333-144405
    
    8/17/20073.2
    
    Amended and Restated Bylaws
    
    
    
    S-1
    
    
    3.2
    
    
    333-144405
    
    8/17/20074.1
    
    Specimen Common Stock Certificate
    
    
    
    S-1
    
    
    4.1
    
    
    333-144405
    
    10/11/2007
 22




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##### Table of Contents



Incorporated by ReferenceExhibit
    
    
    
    Filed
    
    
    
    Exhibit
    
    File
    
    FilingNumber
    
    Description of document
    
    Herewith
    
    Form
    
    Number
    
    Number
    
    Date4.2
    
    Third Amended and Restated
Registration Rights Agreement
between Ulta Salon, Cosmetics &
Fragrance, Inc. and the
stockholders party thereto
    
    
    
    S-1
    
    
    4.2
    
    
    333-144405
    
    8/17/20074.3
    
    Stockholder Rights Agreement
    
    
    
    S-1
    
    
    4.4
    
    
    333-144405
    
    8/17/200710.1
    
    Succession agreement, dated as
of April 23, 2010, by and
between Ulta Salon, Cosmetics &
Fragrance, Inc. and Lyn Kirby.
    
    
    
    8-K
    
    
    10.1
    
    
    001-33764
    
    4/27/201010.2
    
    Employment Agreement, dated as
of April 12, 2010, by and
between Ulta Salon, Cosmetics &
Fragrance, Inc. and Carl Rubin.
    
    
    
    8-K
    
    
    10.2
    
    
    001-33764
    
    4/27/201010.2(a)
    
    First Amendment to Carl Rubin
Employment Agreement, dated
April 28, 2010.
    
    
    
    10-Q
    
    
    10.2
    (a)
    
    001-33764
    
    6/3/201010.3
    
    Restricted Stock Award
Agreement, dated May 10, 2010,
by and between Ulta Salon,
Cosmetics & Fragrance, Inc. and
Carl Rubin.
    
    
    
    8-K
    
    
    10.3
    
    
    001-33764
    
    4/27/201010.4
    
    Option Agreement, dated May 10,
2010, by and between Ulta Salon,
Cosmetics & Fragrance, Inc. and
Carl Rubin.
    
    
    
    8-K
    
    
    10.4
    
    
    001-33764
    
    4/27/201010.9.B
    
    Loan and Security Agreement,
dated August 31, 2010, by and
between Ulta Salon, Cosmetics &
Fragrance, Inc. and Wells Fargo
Bank, National Association, JP
Morgan Chase Bank, N.A., and PNC
Bank, National Association.
    
    
    
    8-K
    
    
    10.9.B
    
    
    001-33764
    
    9/7/201031.1
    
    Certification of the Chief
Executive Officer pursuant to
Rules 13a-14(a) and 15d-14(a) of
the Securities Exchange Act of
1934, as adopted pursuant to
section 302 of the
Sarbanes-Oxley Act of 2002
    
    X31.2
    
    Certification of the Chief
Financial Officer pursuant to
Rules 13a-14(a) and 15d-14(a) of
the Securities Exchange Act of
1934, as adopted pursuant to
section 302 of the
Sarbanes-Oxley Act of 2002
    
    X32.1
    
    Certification of the Chief
Executive Officer and Chief
Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    X
 23




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##### Table of Contents



SIGNATURES
  ULTA SALON, COSMETICS & FRAGRANCE, INC.By:
    
    /s/ Carl S. Rubin

Carl S. RubinPresident, Chief Executive Officer and DirectorBy:
    
    /s/ Gregg R. Bodnar

Gregg R. BodnarChief Financial Officer
 24