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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended July 29, 2023

or

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 BEAUTY, INC.

(Exact name of Registrant as specified in its charter)


incorporation or organization)


Identification No.)

Delaware

(State or other jurisdiction of
incorporation or organization)

38-4022268

(I.R.S. Employer
Identification No.)

1000 Remington Blvd., Suite 120

Bolingbrook, Illinois

(Address of principal executive offices)

60440

(Zip code)

Registrant’s telephone number, including area code: (630) 410-4800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

ULTA

The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer      Accelerated filer      Non-accelerated filer      Smaller reporting company       Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of August 21, 2023 was 49,228,649 shares.

Table of Contents

ULTA BEAUTY, INC.

TABLE OF CONTENTS

Part I - Financial Information

Item 1.    Financial Statements

Consolidated Balance Sheets

3

Consolidated Statements of Income

4

Consolidated Statements of Cash Flows

5

Consolidated Statements of Stockholders’ Equity

6

Notes to Consolidated Financial Statements

8

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

23

Item 4.    Controls and Procedures

23

Part II - Other Information

24

Item 1.    Legal Proceedings

24

Item 1A. Risk Factors

24

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

24

Item 3.    Defaults Upon Senior Securities

24

Item 4.    Mine Safety Disclosures

24

Item 5.    Other Information

24

Item 6.    Exhibits

25

SIGNATURES

26

2

Table of Contents

Part I - Financial Information

Item 1.Financial Statements

Ulta Beauty, Inc.

Consolidated Balance Sheets

July 29,

January 28,

July 30,

(In thousands, except per share data)

    

2023

    

2023

    

2022

Assets

(Unaudited)

(Unaudited)

Current assets:

Cash and cash equivalents

$

388,627

$

737,877

$

434,226

Receivables, net

174,444

199,422

180,514

Merchandise inventories, net

1,815,539

1,603,451

1,666,130

Prepaid expenses and other current assets

110,524

130,246

123,014

Prepaid income taxes

30,114

38,308

39,029

Total current assets

2,519,248

2,709,304

2,442,913

Property and equipment, net

1,073,144

1,009,273

912,017

Operating lease assets

1,549,146

1,561,263

1,509,246

Goodwill

10,870

10,870

10,870

Other intangible assets, net

718

1,312

1,075

Deferred compensation plan assets

40,087

35,382

33,393

Other long-term assets

55,547

43,007

36,480

Total assets

$

5,248,760

$

5,370,411

$

4,945,994

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

521,315

$

559,527

$

586,851

Accrued liabilities

328,247

444,278

323,939

Deferred revenue

354,253

394,677

316,571

Current operating lease liabilities

287,359

283,293

274,693

Total current liabilities

1,491,174

1,681,775

1,502,054

Non-current operating lease liabilities

1,593,040

1,619,883

1,582,003

Deferred income taxes

56,012

55,346

40,029

Other long-term liabilities

56,657

53,596

52,840

Total liabilities

3,196,883

3,410,600

3,176,926

Commitments and contingencies (Note 6)

Stockholders' equity:

Common stock, $0.01 par value, 400,000 shares authorized; 50,139, 51,120, and 52,087 shares issued; 49,341, 50,364, and 51,332 shares outstanding; at July 29, 2023 (unaudited), January 28, 2023, and July 30, 2022 (unaudited), respectively

501

511

521

Treasury stock-common, at cost

(82,229)

(60,470)

(59,803)

Additional paid-in capital

1,049,679

1,023,997

982,339

Retained earnings

1,083,926

995,773

846,011

Total stockholders’ equity

2,051,877

1,959,811

1,769,068

Total liabilities and stockholders’ equity

$

5,248,760

$

5,370,411

$

4,945,994

See accompanying notes to consolidated financial statements.

3

Table of Contents

Ulta Beauty, Inc.

Consolidated Statements of Income

(Unaudited)

13 Weeks Ended

26 Weeks Ended

July 29,

July 30,

July 29,

July 30,

(In thousands, except per share data)

    

2023

2022

2023

2022

Net sales

$

2,529,809

$

2,297,113

$

5,164,072

$

4,643,014

Cost of sales

1,536,197

1,368,949

3,115,603

2,773,824

Gross profit

993,612

928,164

2,048,469

1,869,190

Selling, general and administrative expenses

600,692

534,459

1,212,821

1,035,429

Pre-opening expenses

1,278

2,277

1,936

4,625

Operating income

391,642

391,428

833,712

829,136

Interest (income) expense, net

(4,449)

(108)

(11,797)

293

Income before income taxes

396,091

391,536

845,509

828,843

Income tax expense

95,989

95,859

198,356

201,771

Net income

$

300,102

$

295,677

$

647,153

$

627,072

Net income per common share:

Basic

$

6.05

$

5.73

$

12.97

$

12.08

Diluted

$

6.02

$

5.70

$

12.90

$

12.00

Weighted average common shares outstanding:

Basic

49,617

51,607

49,885

51,928

Diluted

49,849

51,900

50,157

52,237

See accompanying notes to consolidated financial statements.

4

Table of Contents

Ulta Beauty, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

26 Weeks Ended

July 29,

July 30,

(In thousands)

    

2023

    

2022

Operating activities

Net income

$

647,153

$

627,072

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

119,862

123,721

Non-cash lease expense

152,867

146,251

Deferred income taxes

666

336

Stock-based compensation expense

21,539

22,875

Loss on disposal of property and equipment

3,878

2,277

Change in operating assets and liabilities:

Receivables

24,978

53,168

Merchandise inventories

(212,088)

(166,912)

Prepaid expenses and other current assets

19,722

(12,200)

Income taxes

8,194

(45,906)

Accounts payable

(38,752)

40,051

Accrued liabilities

(102,763)

(49,364)

Deferred revenue

(40,424)

(37,008)

Operating lease liabilities

(163,527)

(163,302)

Other assets and liabilities

(12,497)

(392)

Net cash provided by operating activities

428,808

540,667

Investing activities

Capital expenditures

(204,748)

(120,500)

Other investments

(1,687)

(1,249)

Net cash used in investing activities

(206,435)

(121,749)

Financing activities

Repurchase of common shares

(559,011)

(434,448)

Stock options exercised

9,147

24,521

Purchase of treasury shares

(21,759)

(6,325)

Net cash used in financing activities

(571,623)

(416,252)

Net (decrease) increase in cash and cash equivalents

(349,250)

2,666

Cash and cash equivalents at beginning of period

737,877

431,560

Cash and cash equivalents at end of period

$

388,627

$

434,226

Supplemental information

Income taxes paid, net of refunds

    

$

189,166

$

246,641

Non-cash capital expenditures

51,860

42,451

See accompanying notes to consolidated financial statements.

5

Table of Contents

Ulta Beauty, Inc.

Consolidated Statements of Stockholders’ Equity

(Unaudited)

Treasury -

Common Stock

Common Stock

Additional

Total

Issued

Treasury

Paid-In

Retained

Stockholders'

(In thousands)

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Earnings

    

Equity

Balance – January 28, 2023

51,120

$

511

(756)

$

(60,470)

$

1,023,997

$

995,773

$

1,959,811

Net income

347,051

347,051

Stock-based compensation

9,721

9,721

Stock options exercised and other awards

150

1

8,926

8,927

Purchase of treasury shares

(41)

(21,659)

(21,659)

Repurchase of common shares, including excise tax

(541)

(5)

(2,266)

(283,512)

(285,783)

Balance – April 29, 2023

50,729

$

507

(797)

$

(82,129)

$

1,040,378

$

1,059,312

$

2,018,068

Net income

300,102

300,102

Stock-based compensation

11,818

11,818

Stock options exercised and other awards

4

220

220

Purchase of treasury shares

(1)

(100)

(100)

Repurchase of common shares, including excise tax

(594)

(6)

(2,737)

(275,488)

(278,231)

Balance – July 29, 2023

50,139

$

501

(798)

$

(82,229)

$

1,049,679

$

1,083,926

$

2,051,877

See accompanying notes to consolidated financial statements.

6

Table of Contents

Ulta Beauty, Inc.

Consolidated Statements of Stockholders’ Equity

(Unaudited)

Treasury -

Common Stock

Common Stock

Additional

Total

Issued

Treasury

Paid-In

Retained

Stockholders'

(In thousands)

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Earnings

    

Equity

Balance – January 29, 2022

53,049

$

530

(738)

$

(53,478)

$

934,945

$

653,376

$

1,535,373

Net income

331,395

331,395

Stock-based compensation

10,356

10,356

Stock options exercised and other awards

73

1

6,501

6,502

Purchase of treasury shares

(14)

(5,172)

(5,172)

Repurchase of common shares

(332)

(3)

(132,831)

(132,834)

Balance – April 30, 2022

52,790

$

528

(752)

$

(58,650)

$

951,802

$

851,940

$

1,745,620

Net income

295,677

295,677

Stock-based compensation

12,519

12,519

Stock options exercised and other awards

95

1

18,018

18,019

Purchase of treasury shares

(3)

(1,153)

(1,153)

Repurchase of common shares

(798)

(8)

(301,606)

(301,614)

Balance – July 30, 2022

52,087

$

521

(755)

$

(59,803)

$

982,339

$

846,011

$

1,769,068

See accompanying notes to consolidated financial statements.

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Ulta Beauty, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share and store count data) (Unaudited)

1.Business and basis of presentation

Ulta Beauty, Inc. was founded in 1990 to operate specialty retail stores selling cosmetics, fragrance, haircare and skincare products, and related accessories and services. Nearly every store features a full-service salon. As used in these notes and throughout this Quarterly Report on Form 10-Q, all references to “we,” “us,” “our,” “Ulta Beauty,” or the “Company” refer to Ulta Beauty, Inc. and its consolidated subsidiaries.

As of July 29, 2023, the Company operated 1,362 stores across 50 states, as shown in the table below.

Number of

Number of

Location

    

stores

    

Location

    

stores

Alabama

24

Montana

6

Alaska

3

Nebraska

5

Arizona

34

Nevada

16

Arkansas

11

New Hampshire

8

California

168

New Jersey

44

Colorado

27

New Mexico

7

Connecticut

19

New York

55

Delaware

4

North Carolina

43

Florida

93

North Dakota

4

Georgia

43

Ohio

46

Hawaii

4

Oklahoma

22

Idaho

9

Oregon

18

Illinois

55

Pennsylvania

45

Indiana

26

Rhode Island

4

Iowa

11

South Carolina

24

Kansas

13

South Dakota

3

Kentucky

15

Tennessee

30

Louisiana

18

Texas

127

Maine

3

Utah

15

Maryland

28

Vermont

1

Massachusetts

25

Virginia

33

Michigan

49

Washington

37

Minnesota

19

West Virginia

7

Mississippi

12

Wisconsin

20

Missouri

25

Wyoming

4

Total

1,362

The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and the U.S. Securities and Exchange Commission’s Article 10, Regulation S-X. These financial statements were prepared on a consolidated basis to include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts, transactions, and unrealized profit were eliminated in consolidation. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to fairly state the financial position and results of operations and cash flows for the interim periods presented.

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The Company’s business is subject to seasonal fluctuation, with significant portions of net sales and net income being realized during the fourth quarter of the fiscal year due to the holiday selling season. The results for the 13 and 26 weeks ended July 29, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending February 3, 2024, or for any other future interim period or for any future year.

These unaudited interim consolidated financial statements and the related notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended January 28, 2023. All amounts are stated in thousands, with the exception of per share amounts and number of stores.

2.Summary of significant accounting policies

Information regarding significant accounting policies is contained in Note 2, “Summary of significant accounting policies,” to the consolidated financial statements in the Annual Report on Form 10-K for the year ended January 28, 2023. Presented below and in the following notes is supplemental information that should be read in conjunction with “Notes to Consolidated Financial Statements” in the Annual Report.

Fiscal quarter

The Company’s quarterly periods are the 13 weeks ending on the Saturday closest to April 30, July 31, October 31, and January 31. The second quarter in fiscal 2023 and 2022 ended on July 29, 2023 and July 30, 2022, respectively.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the accounting period. Actual results could differ from those estimates. The Company considers its accounting policies relating to inventory valuations, vendor allowances, impairment of long-lived tangible and right-of-use assets, loyalty program and income taxes to be the most significant accounting policies that involve management estimates and judgments. Significant changes, if any, in those estimates and assumptions resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.

3.Revenue

Net sales include retail stores and e-commerce merchandise sales as well as salon services and other revenue. Other revenue includes the private label and co-branded credit card programs, royalties derived from the partnership with Target Corporation, and deferred revenue related to the loyalty program and gift card breakage.

Disaggregated revenue

The following table sets forth the approximate percentage of net sales by primary category:

13 Weeks Ended  

26 Weeks Ended

July 29,

July 30,

July 29,

July 30,

(Percentage of net sales)

2023

2022

2023

2022

Cosmetics

40%

42%

42%

43%

Haircare products and styling tools

21%

22%

19%

21%

Skincare

20%

17%

20%

17%

Fragrance and bath

12%

12%

12%

12%

Services

4%

4%

4%

4%

Accessories and other

3%

3%

3%

3%

100%

100%

100%

100%

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Deferred revenue

Deferred revenue primarily represents contract liabilities for the 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, breakage on gift cards is recognized proportionately as redemption occurs.

The following table provides a summary of the changes included in deferred revenue during the 13 and 26 weeks ended July 29, 2023 and July 30, 2022:

13 Weeks Ended

26 Weeks Ended

July 29,

July 30,

July 29,

July 30,

(In thousands)

2023

2022

2023

    

2022

Beginning balance

$

350,123

$

312,359

$

388,583

$

345,206

Additions to contract liabilities (1)

114,374

101,904

237,770

213,678

Deductions to contract liabilities (2)

(118,430)

(108,350)

(280,286)

(252,971)

Ending balance

$

346,067

$

305,913

$

346,067

$

305,913

(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.

Other amounts included in deferred revenue were $8,186 and $10,658 at July 29, 2023 and July 30, 2022, respectively.

4.Goodwill and other intangible assets

Goodwill, which represents the excess of cost over the fair value of net assets acquired, was $10,870 at July 29, 2023, January 28, 2023, and July 30, 2022. No additional goodwill was recognized during the 13 and 26 weeks ended July 29, 2023. The recoverability of goodwill is reviewed annually during the fourth quarter or more frequently if an event occurs or circumstances change that would indicate that impairment may exist.

Other definite-lived intangible assets are amortized over their useful lives. The recoverability of intangible assets is reviewed whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable.

5.Leases

The Company leases retail stores, distribution centers, fast fulfillment centers, market fulfillment centers, corporate offices, and certain equipment under non-cancelable operating leases with various expiration dates through 2036. All leases are classified as operating leases and generally have initial lease terms of 10 years and, when determined applicable, include renewal options under substantially the same terms and conditions as the original leases. Leases do not contain any material residual value guarantees or material restrictive covenants.

Lease cost

The majority of operating lease cost relates to retail stores, distribution centers, fast fulfillment centers, and market fulfillment centers and is classified within cost of sales. Operating lease cost for corporate offices is classified within selling, general and administrative expenses. Operating lease cost from the control date through store opening date is classified within pre-opening expenses.




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The following table presents a summary of operating lease costs:

13 Weeks Ended

26 Weeks Ended

July 29,

July 30,

July 29,

July 30,

(In thousands)

2023

2022

2023

2022

Operating lease cost

$

83,121

$

79,094

$

168,249

$

159,995

Other information

The following table presents supplemental disclosures of cash flow information related to operating leases:

    

26 Weeks Ended

July 29,

July 30,

(In thousands)

    

2023

2022

Cash paid for operating lease liabilities (1)

$

196,638

$

189,938

Operating lease assets obtained in exchange for operating lease liabilities (non-cash)

140,750

173,241

(1)Excludes $17,450 and $13,363 related to cash received for tenant incentives for the 26 weeks ended July 29, 2023 and July 30, 2022, respectively.

6.Commitments and contingencies

The Company is involved in various legal proceedings that are incidental to the conduct of the business including both class action and single plaintiff litigation. In the opinion of management, the amount of any liability with respect to these proceedings, either individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

7.Debt

On February 27, 2023, the Company entered into Amendment No. 2 to the Second Amended and Restated Loan Agreement (as so amended, the Loan Agreement) with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent and a Lender thereunder; Wells Fargo Bank, National Association and JPMorgan Chase Bank, N.A., as Lead Arrangers and Bookrunners; JPMorgan Chase Bank, N.A., as Syndication Agent and a Lender; PNC Bank, National Association, as Documentation Agent and a Lender; and the other lenders party thereto. The Loan Agreement matures on March 11, 2025, provides maximum revolving loans equal to the lesser of $1,000,000 or a percentage of eligible owned inventory and eligible owned receivables (which borrowing base may, at the election of the Company and satisfaction of certain conditions, include a percentage of qualified cash), contains a $50,000 subfacility for letters of credit and allows the Company to increase the revolving facility by an additional $100,000, subject to the consent by each lender and other conditions. The Loan Agreement contains a requirement to maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 during such periods when availability under the Loan Agreement falls below a specified threshold. Substantially all of the Company’s assets are pledged as collateral for outstanding borrowings under the Loan Agreement. Outstanding borrowings bear interest, at the Company’s election, at either a base rate plus a margin of 0% to 0.125% or the Term Secured Overnight Financing Rate plus a margin of 1.125% to 1.250%, and a credit spread adjustment of 0.10%, with such margins based on the Company’s borrowing availability, and the unused line fee is 0.20% per annum.

As of July 29, 2023, January 28, 2023, and July 30, 2022, there were no borrowings outstanding under the credit facility.

As of July 29, 2023, the Company was in compliance with all terms and covenants of the Loan Agreement.

8.Fair value measurements

The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximates their estimated fair values due to the short maturities of these instruments.

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Fair value is measured using inputs from the three levels of the fair value hierarchy, which are described as follows:

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.

As of July 29, 2023, January 28, 2023, and July 30, 2022, there were liabilities related to the non-qualified deferred compensation plan included in other long-term liabilities on the consolidated balance sheets of $42,529, $37,501, and $36,071, respectively. The liabilities are categorized as Level 2 as they are based on third-party reported values, which are based primarily on quoted market prices of underlying assets of the funds within the plan.

9.Stock-based compensation

Stock-based compensation expense is measured on the grant date based on the fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period for awards expected to vest. The estimated grant date fair value of stock options was determined using a Black-Scholes valuation model using the following weighted-average assumptions for the periods indicated:

    

26 Weeks Ended

July 29,

July 30,

    

2023

    

2022

Volatility rate

 

45.0%

49.0%

Average risk-free interest rate

 

3.8%

2.4%

Average expected life (in years)

 

3.4

 

3.4

Dividend yield

 

 

The expected volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the United States Treasury yield curve in effect on the date of grant for the respective expected life of the option. The expected life represents the time the options granted are expected to be outstanding. The expected life of options granted is derived from historical data on Ulta Beauty stock option exercises. Forfeitures of stock options are estimated at the grant date based on historical rates of stock option activity and reduce the stock-based compensation expense recognized. The Company does not currently pay a regular dividend.

The Company granted 42 and 48 stock options during the 26 weeks ended July 29, 2023 and July 30, 2022, respectively. Stock-based compensation expense for stock options was $1,749 and $2,164 for the 13 weeks ended July 29, 2023 and July 30, 2022, respectively. Stock-based compensation expense for stock options was $3,219 and $4,506 for the 26 weeks ended July 29, 2023 and July 30, 2022, respectively. The weighted-average grant date fair value of these stock options was $199.15 and $149.14 for the 26 weeks ended July 29, 2023 and July 30, 2022, respectively. At July 29, 2023, there was approximately $14,770 of unrecognized stock-based compensation expense related to unvested stock options.

There were 45 and 56 restricted stock units issued during the 26 weeks ended July 29, 2023 and July 30, 2022, respectively. Stock-based compensation expense for restricted stock units was $4,934 and $4,987 for the 13 weeks ended July 29, 2023 and July 30, 2022, respectively. Stock-based compensation expense for restricted stock units was $9,293 and $9,439 for the 26 weeks ended July 29, 2023 and July 30, 2022, respectively. At July 29, 2023, there was approximately $36,561 of unrecognized stock-based compensation expense related to restricted stock units.

There were 33 and 37 performance-based restricted stock units issued during the 26 weeks ended July 29, 2023 and July 30, 2022, respectively. Stock-based compensation expense for performance-based restricted stock units was $5,135 and $5,368 for the 13 weeks ended July 29, 2023 and July 30, 2022, respectively. Stock-based compensation expense for performance-based restricted stock units was $9,027 and $8,930 for the 26 weeks ended July 29, 2023 and July 30, 2022,

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respectively. At July 29, 2023, there was approximately $33,091 of unrecognized stock-based compensation expense related to performance-based restricted stock units.

10.Income taxes

Income tax expense reflects the federal statutory tax rate and the weighted average state statutory tax rate for the states in which the Company operates stores. Income tax expense of $95,989 for the 13 weeks ended July 29, 2023 represents an effective tax rate of 24.2%, compared to $95,859 of tax expense representing an effective tax rate of 24.5% for the 13 weeks ended July 30, 2022.

Income tax expense of $198,356 for the 26 weeks ended July 29, 2023 represents an effective tax rate of 23.5%, compared to $201,771 of tax expense representing an effective tax rate of 24.3% for the 26 weeks ended July 30, 2022. The lower effective tax rate is primarily due to benefits from income tax accounting for stock-based compensation.

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 will be effective in fiscal 2024 and is not expected to have a material impact on the consolidated financial statements. The excise tax applies to share repurchases made after December 31, 2022.

11.Net income per common share

The following is a reconciliation of net income and the number of shares of common stock used in the computation of net income per basic and diluted common share:

13 Weeks Ended

26 Weeks Ended

July 29,

July 30,

July 29,

July 30,

(In thousands, except per share data)

    

2023

    

2022

    

2023

    

2022

Numerator:

Net income

    

$

300,102

$

295,677

$

647,153

$

627,072

Denominator: