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 August 2, 2008
 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
(State or other jurisdiction of 
incorporation or organization)1000 Remington Blvd., Suite 120
Bolingbrook, Illinois
(Address of principal executive offices)
    
    36-3685240
(I.R.S. Employer
Identification No.)60440
(Zip code)
  þ o
   Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    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. Consolidated Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Income
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Consolidated Statements of Stockholders Equity
    
    
    8Notes to Consolidated Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    24Part II   Other Information
    
    
    24Item 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3. Defaults Upon Senior Securities
    
    
    24Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25Item 5. Other Information
    
    
    25Item 6. Exhibits
    
    
    25SIGNATURES
    
    
    26
  2




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##### 



Part
I  Financial Information
 
 Item 1. Consolidated Financial Statements
 Ulta Salon, Cosmetics & Fragrance, Inc.
 
 Consolidated Balance Sheets
 August 2,
    
    February 2,
    
    August 4,(In thousands)
    
    2008
    
    2008
    
    2007(unaudited)
    
    
    
    
    
    (unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    3,255
    
    
    $
    3,789
    
    
    $
    3,165Receivables, net
    
    
    19,164
    
    
    
    20,643
    
    
    
    14,295Merchandise inventories, net
    
    
    197,028
    
    
    
    176,109
    
    
    
    148,559Prepaid expenses and other current assets
    
    
    22,699
    
    
    
    19,184
    
    
    
    23,292Deferred income taxes
    
    
    9,063
    
    
    
    9,219
    
    
    
    5,476Total current assets
    
    
    251,209
    
    
    
    228,944
    
    
    
    194,787Property and equipment, net
    
    
    278,378
    
    
    
    236,389
    
    
    
    196,919Deferred income taxes
    
    
    4,080
    
    
    
    4,080
    
    
    
    4,125Other assets
    
    
    
    
    
    
    
    
    
    
    1,763Total assets
    
    $
    533,667
    
    
    $
    469,413
    
    
    $
    397,594Liabilities and stockholders equityCurrent liabilities:Current portion  notes payable
    
    $
    31,766
    
    
    $
    
    
    
    $
    33,788Accounts payable
    
    
    40,630
    
    
    
    52,122
    
    
    
    41,010Accrued liabilities
    
    
    52,865
    
    
    
    54,719
    
    
    
    45,308Accrued income taxes
    
    
    4,374
    
    
    
    5,064
    
    
    
    Total current liabilities
    
    
    129,635
    
    
    
    111,905
    
    
    
    120,106Notes payable  less current portion
    
    
    86,390
    
    
    
    74,770
    
    
    
    55,038Deferred rent
    
    
    93,291
    
    
    
    71,235
    
    
    
    56,651Total liabilities
    
    
    309,316
    
    
    
    257,910
    
    
    
    231,795Commitments and contingenciesSeries III redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    4,792
 See accompanying notes to consolidated financial statements.
 3




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##### 



Ulta Salon, Cosmetics & Fragrance, Inc.
Consolidated Balance Sheets (continued)
 August 2,
    
    February 2,
    
    August 4,(In thousands, except per share data)
    
    2008
    
    2008
    
    2007(unaudited)
    
    
    
    
    
    (unaudited)Stockholders equity:Preferred stock
    
    $
    
    
    
    $
    
    
    
    $
    230,680Treasury stock-preferred, at cost
    
    
    
    
    
    
    
    
    
    
    (1,815
    )Common stock, $.01 par value, 400,000 shares
authorized; 58,028, 57,411 and 7,733 shares
issued; 57,523, 56,906 and 7,482 shares
outstanding; at August 2, 2008 (unaudited),
February 2, 2008 and August 4, 2007
(unaudited), respectively
    
    
    580
    
    
    
    574
    
    
    
    122Treasury stock-common, at cost
    
    
    (4,179
    )
    
    
    (4,179
    )
    
    
    (2,321
    )Additional paid-in capital
    
    
    289,587
    
    
    
    284,951
    
    
    
    17,753Accumulated deficit
    
    
    (61,161
    )
    
    
    (69,124
    )
    
    
    (83,336
    )Accumulated other comprehensive loss
    
    
    (476
    )
    
    
    (719
    )
    
    
    (76
    )Total stockholders equity
    
    
    224,351
    
    
    
    211,503
    
    
    
    161,007Total liabilities and stockholders equity
    
    $
    533,667
    
    
    $
    469,413
    
    
    $
    397,594
 See accompanying notes to consolidated financial statements.
 4




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##### 



Ulta Salon, Cosmetics & Fragrance, Inc.
 
 Consolidated Statements of Income
 (unaudited)
 Three months ended
    
    Six months endedAugust 2,
    
    August 4,
    
    August 2,
    
    August 4,(In thousands, except per share data)
    
    2008
    
    2007
    
    2008
    
    2007Net sales
    
    $
    249,111
    
    
    $
    200,449
    
    
    $
    488,409
    
    
    $
    394,562Cost of sales
    
    
    175,965
    
    
    
    141,417
    
    
    
    341,342
    
    
    
    276,017Gross profit
    
    
    73,146
    
    
    
    59,032
    
    
    
    147,067
    
    
    
    118,545Selling, general and administrative expenses
    
    
    61,889
    
    
    
    51,188
    
    
    
    123,954
    
    
    
    99,170Pre-opening expenses
    
    
    4,050
    
    
    
    2,914
    
    
    
    7,822
    
    
    
    4,570Operating income
    
    
    7,207
    
    
    
    4,930
    
    
    
    15,291
    
    
    
    14,805Interest expense
    
    
    1,016
    
    
    
    1,162
    
    
    
    1,931
    
    
    
    2,158Income before income taxes
    
    
    6,191
    
    
    
    3,768
    
    
    
    13,360
    
    
    
    12,647Income tax expense
    
    
    2,503
    
    
    
    1,562
    
    
    
    5,397
    
    
    
    5,122Net income
    
    $
    3,688
    
    
    $
    2,206
    
    
    $
    7,963
    
    
    $
    7,525Less preferred stock dividends
    
    
    
    
    
    
    3,878
    
    
    
    
    
    
    
    7,621Net income (loss) available to common
stockholders
    
    $
    3,688
    
    
    $
    (1,672
    )
    
    $
    7,963
    
    
    $
    (96
    )Net income (loss) per common share:Basic
    
    $
    0.06
    
    
    $
    (0.23
    )
    
    $
    0.14
    
    
    $
    (0.01
    )Diluted
    
    $
    0.06
    
    
    $
    (0.23
    )
    
    $
    0.13
    
    
    $
    (0.01
    )Weighted average common shares outstanding:Basic
    
    
    57,435
    
    
    
    7,401
    
    
    
    57,196
    
    
    
    7,289Diluted
    
    
    59,012
    
    
    
    7,401
    
    
    
    59,000
    
    
    
    7,289
 See accompanying notes to consolidated financial statements.
 5




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##### 



Ulta Salon, Cosmetics & Fragrance, Inc.
 
 Consolidated Statements of Cash Flows

(unaudited)
 Six months endedAugust 2,
    
    August 4,(Dollars in thousands)
    
    2008
    
    2007Operating activitiesNet income
    
    $
    7,963
    
    
    $
    7,525Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    24,354
    
    
    
    19,103Non-cash stock compensation charges
    
    
    1,544
    
    
    
    554Excess tax benefits from stock-based compensation
    
    
    (1,101
    )
    
    
    (918
    )Loss (gain) on disposal of property and equipment
    
    
    252
    
    
    
    (65
    )Change in operating assets and liabilities:Receivables
    
    
    1,479
    
    
    
    4,180Merchandise inventories
    
    
    (20,919
    )
    
    
    (19,322
    )Prepaid expenses and other assets
    
    
    (3,515
    )
    
    
    (8,546
    )Accounts payable
    
    
    (11,492
    )
    
    
    (2,062
    )Accrued liabilities
    
    
    433
    
    
    
    (6,676
    )Deferred rent
    
    
    22,056
    
    
    
    6,284Net cash provided by operating activities
    
    
    21,054
    
    
    
    57Investing activitiesPurchases of property and equipment
    
    
    (68,072
    )
    
    
    (42,889
    )Receipt of related party notes receivable
    
    
    
    
    
    
    4,467Net cash used in investing activities
    
    
    (68,072
    )
    
    
    (38,422
    )Financing activitiesProceeds on long-term borrowings
    
    
    579,492
    
    
    
    468,668Payments on long-term borrowings
    
    
    (536,106
    )
    
    
    (430,579
    )Proceeds from issuance of common stock under
stock plans
    
    
    2,056
    
    
    
    785Excess tax benefits from stock-based compensation
    
    
    1,101
    
    
    
    918Initial public offering issuance costs
    
    
    (59
    )
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    (1,907
    )Net cash provided by financing activities
    
    
    46,484
    
    
    
    37,885Net decrease in cash and cash equivalents
    
    
    (534
    )
    
    
    (480
    )Cash and cash equivalents at beginning of period
    
    
    3,789
    
    
    
    3,645Cash and cash equivalents at end of period
    
    $
    3,255
    
    
    $
    3,165
 See accompanying notes to consolidated financial statements.
 6




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Ulta Salon, Cosmetics & Fragrance, Inc.
Consolidated Statements of Cash Flows (continued)
(unaudited)
 Six months endedAugust 2,
    
    August 4,(Dollars in thousands)
    
    2008
    
    2007Supplemental cash flow informationCash paid for interest
    
    $
    2,175
    
    
    $
    2,019Cash paid for income taxes
    
    $
    4,987
    
    
    $
    12,076Noncash investing and financing activities:Change in property and equipment included in
accrued liabilities
    
    $
    (1,477
    )
    
    $
    10,988Unrealized (gain) loss on interest rate swap hedge,
net of tax
    
    $
    (243
    )
    
    $
    95
 See accompanying notes to consolidated financial statements.
 7




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##### 



Ulta Salon, Cosmetics & Fragrance, Inc.
 
 Consolidated Statements of Stockholders Equity
 (unaudited)
 Treasury 
    
    
    
    
    
    
    
    
    
    AccumulatedCommon Stock
    
    Common Stock
    
    Additional
    
    
    
    
    
    Other
    
    TotalIssued
    
    
    
    
    
    Treasury
    
    
    
    
    
    Paid-In
    
    Accumulated
    
    Comprehensive
    
    Stockholders(In thousands, except per share data)
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Deficit
    
    Loss
    
    EquityBalance  February 2, 2008
    
    
    57,411
    
    
    $
    574
    
    
    
    (505
    )
    
    $
    (4,179
    )
    
    $
    284,951
    
    
    $
    (69,124
    )
    
    $
    (719
    )
    
    $
    211,503Common stock options exercised
    
    
    617
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    2,050
    
    
    
    
    
    
    
    
    
    
    
    2,056Unrealized gain on interest rate swap hedge,
net of $156 income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    243
    
    
    
    243Net income for the six months ended August
2, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,963
    
    
    
    
    
    
    
    7,963Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,206Excess tax benefits from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,101
    
    
    
    
    
    
    
    
    
    
    
    1,101Stock compensation charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,544
    
    
    
    
    
    
    
    
    
    
    
    1,544Initial public offering issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59
    )
    
    
    
    
    
    
    
    
    
    
    (59
    )Balance  August 2, 2008
    
    
    58,028
    
    
    $
    580
    
    
    
    (505
    )
    
    $
    (4,179
    )
    
    $
    289,587
    
    
    $
    (61,161
    )
    
    $
    (476
    )
    
    $
    224,351
 See accompanying notes to consolidated financial statements.
 8




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Ulta Salon, Cosmetics & Fragrance, Inc.
 
 Notes to Consolidated Financial Statements
 (unaudited)
 1. Business and basis of presentation
    Number ofState
    
    storesAlabama
    
    
    5Arizona
    
    
    22California
    
    
    28Colorado
    
    
    9Delaware
    
    
    1Florida
    
    
    19Georgia
    
    
    15Illinois
    
    
    30Indiana
    
    
    5Iowa
    
    
    2Kansas
    
    
    1Kentucky
    
    
    2Louisiana
    
    
    1Maryland
    
    
    6Massachusetts
    
    
    3Michigan
    
    
    7Minnesota
    
    
    6Nebraska
    
    
    1Nevada
    
    
    6New Jersey
    
    
    9New York
    
    
    8North Carolina
    
    
    12Ohio
    
    
    4Oklahoma
    
    
    6Oregon
    
    
    3Pennsylvania
    
    
    13Rhode Island
    
    
    1South Carolina
    
    
    4Tennessee
    
    
    3Texas
    
    
    36Utah
    
    
    1Virginia
    
    
    8Washington
    
    
    4Wisconsin
    
    
    2Total
    
    
    283
    Reverse stock split
  9




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##### 



Initial public offering
  2. Summary of significant accounting policies
  Fiscal quarter
  Share-based compensation
 Share-Based Payment
 Share-Based Payment Simplified Method for Plain
Vanilla Share Options,
  Six months endedAugust 2, 2008
    
    August 4, 2007Volatility rate
    
    
    39%  43%
    
    
    
    34%  45%Risk-free interest rate
    
    
    1.67%  3.59%
    
    
    
    4.54%  5.05%Average expected life (years)
    
    
    3.4
    
    
    
    4.7Dividend yield
    
    None
    
    None
  10




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##### 



Income taxes
 Accounting for Uncertainty in Income Taxes,
 Comprehensive income
  Three months ended
    
    Six months endedAugust 2,
    
    August 4,
    
    August 2,
    
    August 4,2008
    
    2007
    
    2008
    
    2007Net income
    
    $
    3,688
    
    
    $
    2,206
    
    
    $
    7,963
    
    
    $
    7,525Unrealized (loss) gain on interest
rate swap hedge, net of income tax
    
    
    100
    
    
    
    4
    
    
    
    243
    
    
    
    (95
    )Comprehensive income
    
    $
    3,788
    
    
    $
    2,210
    
    
    $
    8,206
    
    
    $
    7,430
 Recent accounting pronouncements
 Disclosures about Derivative Instruments and Hedging
Activities  an amendment of SFAS No. 133.
 3. Commitments and contingencies
 Leases 
 Securities litigation 
 11




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##### 



General litigation
 4. Notes payable
      5. Financial instruments
    Fair Value Measurements,
 12




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##### 




    
    Level 1  observable inputs such as quoted prices for identical instruments in active
markets.
    
    Level 2  inputs other than quoted prices in active markets that are observable either
directly or indirectly through corroboration with observable market data.
    
    Level 3  unobservable inputs in which there is little or no market data, which would
require the Company to develop its own assumptions.
  Fair value measurement usingLevel 1
    
    Level 2
    
    Level 3Interest rate swap liability
    
    $
    
    
    
    $
    785
    
    
    $
    
 6. Net income per common share
  Three months ended
    
    Six months endedAugust 2,
    
    August 4,
    
    August 2,
    
    August 4,2008
    
    2007
    
    2008
    
    2007Numerator for diluted net income per share  net
income
    
    $
    3,688
    
    
    $
    2,206
    
    
    $
    7,963
    
    
    $
    7,525Less preferred stock dividends
    
    
    
    
    
    
    3,878
    
    
    
    
    
    
    
    7,621Numerator for basic net income (loss) per share
    
    $
    3,688
    
    
    $
    (1,672
    )
    
    $
    7,963
    
    
    $
    (96
    )Denominator for basic net income per share 
weighted-average common shares
    
    
    57,435
    
    
    
    7,401
    
    
    
    57,196
    
    
    
    7,289Dilutive effect of stock options and non-vested stock
    
    
    1,577
    
    
    
    
    
    
    
    1,804
    
    
    
    Denominator for diluted net income per share
    
    
    59,012
    
    
    
    7,401
    
    
    
    59,000
    
    
    
    7,289Net income (loss) per common share:Basic
    
    $
    0.06
    
    
    $
    (0.23
    )
    
    $
    0.14
    
    
    $
    (0.01
    )Diluted
    
    $
    0.06
    
    
    $
    (0.23
    )
    
    $
    0.13
    
    
    $
    (0.01
    )
    13




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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 consolidated 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 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 and other risk factors detailed in our public filings with the Securities
and Exchange Commission (the SEC), including risk factors contained in our Annual Report on Form
10-K for the year ended February 2, 2008. 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
       14




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##### 



Basis of presentation
    
    
    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; and
    
    shrink and inventory valuation reserves.
 15




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##### 




    
    payroll, bonus, and benefit costs for retail and corporate employees;
    
    advertising and marketing costs;
    
    occupancy costs related to our corporate office facilities;
    
    public company expense including Sarbanes-Oxley compliance expenses;
    
    stock-based compensation expense related to option grants which will result in increases
in expense as we implemented a structured stock option compensation program in 2007;
    
    depreciation and amortization for all assets except those related to our retail and
warehouse operations which is included in cost of sales; and
    
    legal, finance, information systems and other corporate overhead costs.
     16




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##### 



Results of operations
   Three months ended
    
    Six months endedAugust 2,
    
    August 4,
    
    August 2,
    
    August 4,(Dollars in thousands)
    
    2008
    
    2007
    
    2008
    
    2007Net sales
    
    $
    249,111
    
    
    $
    200,449
    
    
    $
    488,409
    
    
    $
    394,562Cost of sales
    
    
    175,965
    
    
    
    141,417
    
    
    
    341,342
    
    
    
    276,017Gross profit
    
    
    73,146
    
    
    
    59,032
    
    
    
    147,067
    
    
    
    118,545Selling, general and administrative expenses
    
    
    61,889
    
    
    
    51,188
    
    
    
    123,954
    
    
    
    99,170Pre-opening expenses
    
    
    4,050
    
    
    
    2,914
    
    
    
    7,822
    
    
    
    4,570Operating income
    
    
    7,207
    
    
    
    4,930
    
    
    
    15,291
    
    
    
    14,805Interest expense
    
    
    1,016
    
    
    
    1,162
    
    
    
    1,931
    
    
    
    2,158Income before income taxes
    
    
    6,191
    
    
    
    3,768
    
    
    
    13,360
    
    
    
    12,647Income tax expense
    
    
    2,503
    
    
    
    1,562
    
    
    
    5,397
    
    
    
    5,122Net income
    
    $
    3,688
    
    
    $
    2,206
    
    
    $
    7,963
    
    
    $
    7,525Other operating data:Number stores end of period
    
    
    283
    
    
    
    211
    
    
    
    283
    
    
    
    211Comparable store sales increase
    
    
    3.7
    %
    
    
    6.5
    %
    
    
    3.8
    %
    
    
    7.8
    %
 Three months ended
    
    Six months endedAugust 2,
    
    August 4,
    
    August 2,
    
    August 4,(Percentage of net sales)
    
    2008
    
    2007
    
    2008
    
    2007Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    70.6
    %
    
    
    70.6
    %
    
    
    69.9
    %
    
    
    70.0
    %Gross profit
    
    
    29.4
    %
    
    
    29.4
    %
    
    
    30.1
    %
    
    
    30.0
    %Selling, general and administrative expenses
    
    
    24.8
    %
    
    
    25.5
    %
    
    
    25.4
    %
    
    
    25.1
    %Pre-opening expenses
    
    
    1.6
    %
    
    
    1.5
    %
    
    
    1.6
    %
    
    
    1.2
    %Operating income
    
    
    2.9
    %
    
    
    2.5
    %
    
    
    3.1
    %
    
    
    3.8
    %Interest expense
    
    
    0.4
    %
    
    
    0.6
    %
    
    
    0.4
    %
    
    
    0.5
    %Income before income taxes
    
    
    2.5
    %
    
    
    1.9
    %
    
    
    2.7
    %
    
    
    3.2
    %Income tax expense
    
    
    1.0
    %
    
    
    0.8
    %
    
    
    1.1
    %
    
    
    1.3
    %Net income
    
    
    1.5
    %
    
    
    1.1
    %
    
    
    1.6
    %
    
    
    1.9
    %
 17




---



##### 



Comparison of three months ended August 2, 2008 to three months ended August 4, 2007
 Net sales
  Gross profit
  Selling, general and administrative expenses
  Pre-opening expenses
  Interest expense
  Income tax expense
  Net income
  Comparison of six months ended August 2, 2008 to six months ended August 4, 2007
 Net sales
  18




---



##### 



Gross profit
  Selling, general and administrative expenses
  Pre-opening expenses
  Interest expense
  Income tax expense
  Net income
  Liquidity and capital resources
   19




---



##### 



Credit facility
     20




---



##### 



Operating activities
  Six months endedAugust 2,
    
    August 4,(Dollars in thousands)
    
    2008
    
    2007Net income
    
    $
    7,963
    
    
    $
    7,525Items not affecting cash:Depreciation and amoritzation
    
    
    24,354
    
    
    
    19,103Non-cash stock compensation charges
    
    
    1,544
    
    
    
    554Excess tax benefits from stock-based compensation
    
    
    (1,101
    )
    
    
    (918
    )Loss (gain) on disposal of property and equipment
    
    
    252
    
    
    
    (65
    )Changes in working capital items
    
    
    (11,958
    )
    
    
    (26,142
    )Net cash provided by operating activities
    
    $
    21,054
    
    
    $
    57
  Investing activities
  Six months endedAugust 2,
    
    August 4,(Dollars in thousands)
    
    2008
    
    2007Purchases of property and equipment, net
    
    $
    (68,072
    )
    
    $
    (42,889
    )Receipt of related party notes receivable
    
    
    
    
    
    
    4,467Net cash used in investing activities
    
    $
    (68,072
    )
    
    $
    (38,422
    )
  21




---



##### 



Financing activities
  Six months endedAugust 2,
    
    August 4,(Dollars in thousands)
    
    2008
    
    2007Proceeds on long-term borrowings
    
    $
    579,492
    
    
    $
    468,668Payments on long-term borrowings
    
    
    (536,106
    )
    
    
    (430,579
    )Proceeds from issuance of common stock under
stock plans
    
    
    2,056
    
    
    
    785Excess tax benefits from stock-based compensation
    
    
    1,101
    
    
    
    918Initial public offering issuance costs
    
    
    (59
    )
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    (1,907
    )Net cash provided by financing activities
    
    $
    46,484
    
    
    $
    37,885
  Contractual obligations
  Off-balance sheet arrangements
  22




---



##### 



Critical accounting policies and estimates
  Share-based compensation
 Share-Based Payment
 Share-Based Payment Simplified Method for
Plain Vanilla Share Options,
  Recent accounting pronouncements
 Disclosures about Derivative Instruments and Hedging
Activities  an amendment of SFAS No. 133.
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Interest rate sensitivity
  23




---



##### 



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control.
 
 Part II  Other Information
 
 Item 1. Legal Proceedings
 Securities litigation 
  General litigation 
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  24




---



##### 



Item 4. Submission of Matters to a Vote of Security Holders
   For
    
    Against
    
    Abstain
    
    WithheldElection of Class I Directors:Dennis K. Eck
    
    
    44,639,984
    
    
    
    
    
    
    
    
    
    
    
    6,187,122Yves Sisteron
    
    
    43,802,296
    
    
    
    
    
    
    
    
    
    
    
    7,024,810Charles J. Philippin
    
    
    50,571,458
    
    
    
    
    
    
    
    
    
    
    
    255,648Ratification of the appointment of
Ernst & Young LLP as our independent
registered public accounting firm
    
    
    50,688,229
    
    
    
    116,439
    
    
    
    22,438
    
    
    
    
  
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibitnumber
    
    Description of document3.1
    
    Amended and Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 to the Companys Registration Statement
on Form S-1 (file No. 333-144405) filed with the Securities and
Exchange Commission on August 17, 2007).3.2
    
    Amended and Restated Bylaws (incorporated by reference to Exhibit
3.2 to the Companys Registration Statement on Form 
S-1 (file No.
333-144405) filed with the Securities and Exchange Commission on
August 17, 2007).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Companys Registration Statement on Form S-1
(file No. 333-144405) filed with the Securities and Exchange
Commission on October 11, 2007).4.2
    
    Third Amended and Restated Registration Rights Agreement between
Ulta Salon, Cosmetics & Fragrance, Inc. and the stockholders party
thereto (incorporated by reference to Exhibit 4.2 to the Companys
Registration Statement on Form S-1 (file No. 333-144405) filed
with the Securities and Exchange Commission on August 17, 2007).4.3
    
    Stockholder Rights Agreement (incorporated by reference to Exhibit
4.4 to the Companys Registration Statement on Form 
S-1 (file No.
333-144405) filed with the Securities and Exchange Commission on
August 17, 2007).10.15
    
    First Amendment to Third Amended and Restated Loan and Security
Agreement, dated as of August 15, 2008 (incorporated by reference
to Exhibit 10.15 to the Companys Current Report on Form 8-K (file
No. 001-33764) filed with the Securities and Exchange Commission
on August 20, 2008).31.1
    
    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 2002.31.2
    
    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 2002.32.1
    
    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.
 25




---



##### 



SIGNATURES
  ULTA SALON, COSMETICS & FRAGRANCE, INC.By:
    
    /s/ Lynelle P. KirbyLynelle P. KirbyPresident, Chief Executive Officer and DirectorBy:
    
    /s/ Gregg R. BodnarGregg R. BodnarChief Financial Officer
 26