Investors file lawsuit against troubled Ulta

By Simon Pitman

- Last updated on GMT

Related tags: Quarter results, Generally accepted accounting principles, Ulta salon

A lawsuit has been taken out against Ulta Salon, a leading
distributor of cosmetics and fragrance products in the US, over
terms relating to the company's IPO made in October last year.

The lawsuit, filed at the district court of Illinois was taken out on behalf of all investors who purchased the common stocks, claiming that directors of Ulta did not comply with federal securities laws. It is claimed that, contrary to regulations, the IPO did not disclose any material information relating to the company's third quarter financial results, despite the fact that the quarter was to end nine days before the filing of the registration statement. The company announced its third quarter results on December 11, 2007, showing that it had an extra $15m of seasonal inventory on its books and that its expenses had increased by 36 per cent to $55.6m, due largely to increased expenditure on advertising. In the filing lawyers Schatz Nobel Izard point to the fact that the third quarter results showed that inventory was up 40 percent for the period, a factor that the suit claims was down to the fact that the company was unable to manage the inventory system effectively. Likewise, the lawsuit also points to the fact that the third quarter results showed that selling, general and administrative expenses had also increased significantly in relation to net sales during the quarter, and that adequate internal and financial controls were lacking. Since news of the third quarter results and the lawsuit, shares have tumbled significantly. Before the third quarter results were announced shares had stood at $27.50, whereas they are now currently trading at $15.75. The company most recently announced its sales results for the six week holiday period on January 10, which takes in the period from November 18, up to December 29, showing that sales grew by 21.8 percent to reach $185.3m. On the strength of those results the company reconfirmed that it is expecting full fourth quarter results of between $304m and $310m, reflecting a percentage increase of 21.3 - 23.7 percent. For the full fiscal year the company expect net sales in the range of $907m to $913m, compared to actual fiscal 2006 net sales of $755.1m. Income per diluted is estimated in the range of $0.47 to $0.49, compared to fiscal 2006 income per diluted share of $0.45.

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