Ulta Beauty, Inc. Income Taxes Disclosure
11. Income taxes
The provision for income taxes consists of the following:
Fiscal year ended | |||||||||
February 1, | February 3, | January 28, | |||||||
(In thousands) |
| 2025 |
| 2024 |
| 2023 | |||
Current: |
|
|
|
|
|
| |||
Federal | $ | 348,450 | $ | 308,656 | $ | 315,763 | |||
State | 73,826 | 65,415 | 69,719 | ||||||
Total current | 422,276 | 374,071 | 385,482 | ||||||
Deferred: |
|
|
| ||||||
Federal | (31,407) | 27,391 | 11,800 | ||||||
State | (11,921) | 3,184 | 3,854 | ||||||
Total deferred | (43,328) | 30,575 | 15,654 | ||||||
Provision for income taxes | $ | 378,948 | $ | 404,646 | $ | 401,136 | |||
A reconciliation of the federal statutory rate to the Company’s effective tax rate is as follows:
| Fiscal year ended | |||||
February 1, | February 3, | January 28, | ||||
| 2025 |
| 2024 |
| 2023 | |
Federal statutory rate | 21.0% | 21.0% | 21.0% | |||
State effective rate, net of federal tax benefit |
| 3.1% | 3.2% | 3.6% | ||
Executive compensation limitation | 0.3% | 0.3% | 0.3% | |||
Excess deduction of stock compensation | (0.3%) | (0.4%) | (0.2%) | |||
Other |
| (0.1%) | (0.2%) | (0.3%) | ||
Effective tax rate |
| 24.0% | 23.9% | 24.4% | ||
On August 16, 2022, the Inflation Reduction Act of 2022 was enacted into law, which, among other things, introduced a 15% corporate alternative minimum tax on book income of certain large corporations and created a 1% excise tax on net share repurchases. The corporate alternative minimum tax was effective in fiscal 2024 and did not have a material impact on the consolidated financial statements. The excise tax applies to share repurchases made after December 31, 2022.
Significant components of deferred tax assets and liabilities are as follows:
| February 1, | February 3, | ||||
(In thousands) |
| 2025 |
| 2024 | ||
Deferred tax assets: |
|
|
|
| ||
Operating lease liability | $ | 492,729 | $ | 490,907 | ||
Reserves not currently deductible | 50,362 | 58,796 | ||||
Accrued liabilities |
| 49,626 |
| 40,501 | ||
Employee benefits |
| 33,111 |
| 32,885 | ||
Inventory valuation |
| 4,168 |
| 1,962 | ||
Credit carryforwards |
| 390 |
| 359 | ||
NOL carryforwards | 197 | 231 | ||||
Property and equipment | — | 1,729 | ||||
Total deferred tax assets |
| 630,583 |
| 627,370 | ||
Deferred tax liabilities: |
|
|
|
| ||
Operating lease asset | 623,622 | 607,251 | ||||
Prepaid expenses |
| 22,299 |
| 83,775 | ||
Receivables not currently includable | 17,895 | 20,502 | ||||
Property and equipment |
| 8,286 |
| — | ||
Other |
| 1,074 |
| 1,763 | ||
Total deferred tax liabilities |
| 673,176 |
| 713,291 | ||
Net deferred tax liability | $ | (42,593) | $ | (85,921) | ||
At February 1, 2025, the Company had $494 of credit carryforwards for state income tax purposes that expire between 2025 and 2028. The Company had $41 of state net operating loss (NOL) carryforwards that expire by 2038 and $117 of state NOL carryforwards that do not expire. The Company also had $344 of federal NOL carryforwards that do not expire.
The Company accounts for uncertainty in income taxes in accordance with Accounting Standards Codification 740-10. The reserve for uncertain tax positions was $5,220 and $4,060 at February 1, 2025 and February 3, 2024, respectively, which represents the best estimate of the potential liability. A reconciliation of unrecognized tax benefits, excluding interest and penalties, is as follows:
| February 1, | February 3, | ||||
(In thousands) |
| 2025 |
| 2024 | ||
Beginning balance | $ | 4,060 | $ | 4,158 | ||
Increase due to a prior year tax position |
| 1,188 |
| 1,437 | ||
Decrease due to a prior year tax position |
| (28) |
| (590) | ||
Decrease due to a prior year audit adjustment | — | (945) | ||||
Ending balance | $ | 5,220 | $ | 4,060 | ||
The Company acknowledges that the amount of unrecognized tax benefits may change in the next twelve months. However, it does not expect the change to have a significant impact on its consolidated financial statements. Income tax-related interest and penalties were insignificant for fiscal 2024 and 2023.
The Company files tax returns in the U.S. federal and state jurisdictions. The Company is no longer subject to U.S. federal examinations by the Internal Revenue Service for years before 2021 and is no longer subject to examinations by state authorities before 2020.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 27, 2025 | Showing above |
| 2024 | Mar 26, 2024 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.