| Revenue |
4. Revenue
Revenue from Contracts with Customers
On February 4, 2018, the Company adopted ASC 606 using the modified retrospective method applied to all contracts as of the date of adoption. The cumulative effect of initially applying the new revenue standard was recorded as an adjustment to the opening balance of retained earnings within the consolidated balance sheets. Under ASC 606, changes were made to the recognition timing or classification of revenues and expenses for the following:
|
|
|
|
|
Description
|
Policy under ASC 605
|
Policy under ASC 606
|
|
Credit card
program
|
Recognized amounts earned under the private label credit card and co-branded credit card programs as a reduction of cost of sales and selling, general and administrative expenses.
|
Recognize amounts earned under private label credit card and co-branded credit card programs within net sales.
|
|
Loyalty program
|
Recognized revenue under the incremental cost method at the time of purchase by the guest (when points were earned). Recorded a liability for the cost associated with the future performance obligation to the guest.
|
Recognize revenue under the deferred revenue method by deferring the recognition of the portion of revenue related to the earning of loyalty points to a future period when the guest redeems the points or the points expire.
|
|
Gift card breakage
|
Recognized gift card breakage (amounts not expected to be redeemed) within selling, general and administrative expenses.
|
Recognize gift card breakage in net sales proportionately as other gift card balances are redeemed.
|
|
Sales refund
reserve
|
Recognized a sales refund reserve as a net liability within accrued liabilities.
|
Recognize a sales refund reserve on a gross basis as a liability within accrued liabilities and a right of return asset within prepaid expense and other current assets.
|
|
E-commerce
revenue
|
Recognized revenue based on delivery of merchandise to the guest.
|
Recognize revenue upon shipment of merchandise to the guest based on meeting the transfer of control criteria.
|
Upon the adoption of ASC 606, the Company recognized the cumulative effect of $29,980, net of tax, as a reduction to the opening balance of retained earnings as of February 4, 2018. The cumulative effect of adoption is primarily related to the change in accounting for the loyalty program. The comparative information has not been restated and continues to be reported under accounting standards in effect for those periods. The adoption of the new revenue standard did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows. The Company expects the impact of the adoption of the new revenue standard will be immaterial to net income on an ongoing basis.
The Company’s net sales include retail stores and e-commerce merchandise sales as well as salon services and other revenue. Other revenue sources include the private label credit card and co-branded credit card programs, as well as deferred revenue related to the loyalty program and gift card breakage.
Disaggregated revenue
The following table sets forth the amount of net sales attributable to retail stores, e-commerce, salon services, and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended
|
|
|
|
February 2,
|
|
February 3,
|
|
January 28,
|
|
(Dollars in thousands)
|
|
2019
|
|
2018
|
|
2017
|
|
Retail stores
|
|
$
|
5,614,624
|
|
84%
|
|
$
|
5,038,409
|
|
85%
|
|
$
|
4,268,290
|
|
88%
|
|
E-commerce
|
|
|
752,224
|
|
11%
|
|
|
568,736
|
|
10%
|
|
|
345,342
|
|
7%
|
|
Salon services
|
|
|
300,863
|
|
4%
|
|
|
277,361
|
|
5%
|
|
|
241,105
|
|
5%
|
|
Other
|
|
|
48,904
|
|
1%
|
|
|
-
|
|
0%
|
|
|
-
|
|
0%
|
|
Total
|
|
$
|
6,716,615
|
|
100%
|
|
$
|
5,884,506
|
|
100%
|
|
$
|
4,854,737
|
|
100%
|
The following table sets forth the approximate percentage of net sales by primary category:
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended
|
|
|
|
February 2,
|
|
February 3,
|
|
January 28,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Cosmetics
|
|
51%
|
|
51%
|
|
51%
|
|
Skincare, Bath & Fragrance
|
|
21%
|
|
21%
|
|
20%
|
|
Haircare Products & Styling Tools
|
|
19%
|
|
19%
|
|
20%
|
|
Salon Services
|
|
4%
|
|
5%
|
|
5%
|
|
Other (nail products, accessories, and other)
|
|
5%
|
|
4%
|
|
4%
|
|
|
|
100%
|
|
100%
|
|
100%
|
Deferred revenue
Deferred revenue primarily represents contract liabilities for the Company’s obligation to transfer additional goods or services to a guest for which the Company has received consideration, such as unredeemed Ultamate Rewards loyalty points and unredeemed Ulta Beauty gift cards. In addition, the Company recognizes breakage on gift cards proportionately as redemption occurs.
The following table provides a summary of the changes included in deferred revenue during fiscal 2018:
|
|
|
|
|
|
|
|
Fiscal year ended
|
|
|
|
February 2, 2019
|
|
Beginning balance
|
|
$
|
110,103
|
|
Adoption of ASC 606
|
|
|
38,773
|
|
Additions to contract liabilities (1)
|
|
|
140,638
|
|
Deductions to contract liabilities (2)
|
|
|
(95,929)
|
|
Ending balance
|
|
$
|
193,585
|
|
(1)
|
|
Loyalty points and gift cards issued in the current period but not redeemed or expired.
|
|
(2)
|
|
Revenue recognized in the current period related to the beginning liability.
|
|