• Second Quarter Net Sales Increases 9.8%

• Second Quarter Diluted EPS of $0.10

• First Six Months Generates $40.1 Million of Free Cash Flow

ROMEOVILLE, Ill.--(BUSINESS WIRE)--Sep. 3, 2009-- Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ: ULTA), today announced financial results for the thirteen-week period (“Second Quarter”) and twenty-six-week period (“First Six Months”) ended August 1, 2009, which compare to the same periods ended August 2, 2008.

For the Second Quarter:

• Net sales increased 9.8% to $273.5 million from $249.1 million in the second quarter of fiscal 2008;
• Comparable store sales (sales for stores open at least 14 months) decreased 1.7% compared to an increase of 3.7% in the second quarter of fiscal 2008;
• Pre-opening expenses decreased $2.1 million to $2.0 million in the second quarter fiscal 2009 due to the planned decrease in the Company’s new store program;
• Operating income increased 42.0% to $10.2 million compared to $7.2 million in the second quarter of fiscal 2008;
• Net income increased 55.9% to $5.8 million compared to $3.7 million in the second quarter of fiscal 2008;
• Income per diluted share increased to $0.10, compared to $0.06 in the second quarter of fiscal 2008.

Lyn Kirby, Ulta’s President and Chief Executive Officer, stated: “We are pleased to deliver second quarter results that surpassed our expectations including a sequential improvement in comparable store sales and earnings from the first quarter. We continued to execute on our strategies of dynamic marketing, strong value proposition, new store growth and new brand introductions to drive traffic and market share gains. These strategies delivered a 2.2% comparable store traffic increase for the quarter in an ongoing difficult consumer spending environment without incremental investment in marketing. Our expense and working capital management initiatives continued to gain momentum which helped generate second quarter earnings above our expectations and year-to-date free cash flow of $40 million.

“As we begin the second half of the year, the consumer environment remains difficult but appears to be more stable than earlier quarters,” Ms Kirby continued. “We are confident in our positioning and will continue to focus on our core strategies and tactics to drive market share gains and make Ulta the preferred beauty shopping experience. In addition, as we continue to deliver on our working capital and cost management strategies, we believe we can drive improved profitability during the remainder of 2009. We also believe our strategies and initiatives will enable us to continue our success this year while positioning Ulta for sustained long term growth in sales and profits.”

For the First Six Months:

• Net sales increased 11.0% to $542.4 million from $488.4 million in the first six months of fiscal 2008;
• Comparable store sales (sales for stores open at least 14 months) decreased 2.0% compared to an increase of 3.8% in the first six months of fiscal 2008;
• Pre-opening expenses decreased $4.6 million to $3.2 million in the first six months of fiscal 2009 due to the planned decrease in the Company’s new store program;
• Operating income increased to $19.2 million compared to $15.3 million in the first six months of fiscal 2008;
• Net income increased to $10.7 million compared to $8.0 million in the first six months of fiscal 2008;
• Income per diluted share increased to $0.18 compared to $0.13 in the first six months of fiscal 2008, which included $0.01 per share of severance costs for the management change in March 2008.

Balance Sheet and Cash Flow

Merchandise inventories at the end of the second quarter totaled $209.2 million, compared to $197.0 million at the end of second quarter fiscal 2008, representing an increase of $12.2 million due to the addition of 50 new stores opened since August 2, 2008. Average inventory per store decreased 9.8%.

For the first six months of fiscal 2009, the Company generated free cash flow of $40.1 million. Free cash flow is defined as net cash provided by operating activities less purchases of property and equipment. A reconciliation of free cash flow, a non-GAAP measure, is included at Exhibit 5.

Store Expansion

During the second quarter, the Company opened 13 stores, 1 each in North Haven, CT; Jacksonville, FL; West Melbourne, FL; Canton, GA; Des Moines, IA; Fairview Hts. IL; Flowood, MS; Amherst, NY; Monroe, NY; Tulsa, OK; Wilkes-Barre, PA; Wichita Falls, TX; Short Pump, VA. The Company ended the second quarter with 333 stores and square footage of 3,469,448, which represents an 18% increase compared to the second quarter of fiscal 2008.

Outlook

For the third quarter of fiscal 2009, the Company currently expects net sales in the range of $270 million to $278 million, compared to actual net sales of $254.8 million in the third quarter of fiscal 2008. This assumes comparable stores sales decrease 1% to 4%, compared to an increase of 2.0% in the third quarter last year.

Income per diluted share for the third quarter of fiscal 2009 is estimated to be in the range of $0.08 to $0.11. This compares to income per diluted share for third quarter fiscal 2008 of $0.09.

For fiscal 2009, the Company plans to:

• generate free cash flow of approximately $50 million, compared to a $35.7 million net cash out flow in fiscal 2008;
• permanently reduce expenses by approximately $18 million including supply chain, store and other operating costs;
• open approximately 35 new stores;
• incur capital expenditures in a range of $72 million to $74 million, compared to $110.9 million in capital expenditures reported in fiscal 2008; and
• reduce inventory by approximately 9% on an average per store basis by year end 2009.

Conference Call Information

A conference call to discuss second quarter results is scheduled for today, September 3, 2009, at 5:00 p.m. Eastern Time. Investors and analysts interested in participating in the call are invited to dial (877) 407-0784 approximately ten minutes prior to the start of the call. The conference call will also be web-cast live at http://ir.ulta.com and remain available for 90 days. A replay of this call will be available until 11:59 p.m. (ET) on September 10, 2009 and can be accessed by dialing (877) 660-6853 and entering account number 3055 and conference ID number 331275.

About Ulta

Ulta is the largest beauty retailer that provides one-stop shopping for prestige, mass and salon products and salon services in the United States. Ulta provides affordable indulgence to its customers by combining the product breadth, value and convenience of a beauty superstore with the distinctive environment and experience of a specialty retailer. Ulta offers a unique combination of over 21,000 prestige and mass beauty products across the categories of cosmetics, fragrance, haircare, skincare, bath and body products and salon styling tools, as well as salon haircare products. Ulta also offers a full-service salon in all of its stores. The Company currently operates 333 retail stores across 38 states and also distributes its products through the Company’s website: www.ulta.com.

Forward-Looking Statements

This press release 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 press release 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 January 31, 2009. Our filings with the SEC are available at www.sec.gov. The Company does not undertake to publicly update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

(a) Free cash flow is a non-GAAP financial measure. The Company believes free cash flow is an important metric as it represents a measure of how much cash the Company has available after the deduction of capital expenditures, as the Company requires regular capital expenditures to build and maintain stores and purchase new equipment to improve the business. The Company uses this metric internally as the Company believes the sustained ability to generate free cash flow is an important driver of value creation. However, this non-GAAP financial measure is not intended to supersede or replace the Company’s GAAP results.

Source: Ulta Salon, Cosmetics & Fragrance, Inc.

Ulta Salon, Cosmetics & Fragrance, Inc.
Gregg Bodnar, 630-410-4633
Chief Financial Officer
or
Investors/Media
ICR, Inc.
Allison Malkin/Alecia Pulman
203-682-8225/646-277-1220