Friday, March 26, 2021

Non-GAAP financial disclosures are a fact of life in modern corporate reporting, and Calcbench is fine with that. We also like to see neat, thorough reconciliation of non-GAAP financial metrics back to their GAAP counterparts.

How should those reconciliations work? For your consideration, we submit the outstanding non-GAAP reconciliation that Ulta Beauty ($ULTA) included in its March 11 earnings release.

Ulta operates retail stores across the United States to sell cosmetics and other beauty products. So as one might imagine, a global pandemic that closed retail stores for weeks on end and left millions of people with no need to put on makeup for office jobs and nights out — well, that hit Ulta rather hard.

Annual revenue fell 16.8 percent, from $7.4 billion in 2019 to $6.15 billion in 2020. Net income fell 75.1 percent, from $705.9 million to $175.8 million, although that was partly driven by a $114.3 million charge for goodwill impairment and restructuring costs.

That brings us to Ulta’s non-GAAP financial metrics.

As part of its earnings release, Ulta reported 11 adjustments to that $175.8 million net income number. When all was tallied up, the firm’s adjusted net income was $264 million.

Most impressive, however, was Ulta’s step-by-step reconciliation between those two numbers. As you can see in Figure 1, below, the company walks analysts through the math of what adjustments add to net income and which ones subtract from it, and then presents the final non-GAAP number.

All firms must reconcile their non-GAAP metrics back to GAAP in any earnings releases that include the non-GAAP numbers. It’s just a welcome sight to see the arithmetic laid out so plainly.

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