After its business was hit by the pandemic, retailer Ulta Beauty Inc. appears to have used some accounting cosmetics to add a gloss to its financial results.

Operating income at the once-fast-growing chain, which temporarily closed stores during the health crisis, plummeted to $13 million for the nine months through October, a fraction of the $613 million earned in the same period in 2019. Two coronavirus-related items affected the math: a $40 million impairment charge for the value of some stores that reduced the operating income, and $51 million of federal tax credits that increased it.

Ulta also reported a much healthier $98 million “adjusted operating income.” This tally, designed to strip out one-time items, added back the $40 million impairment cost, which boosted the adjusted number, but didn’t take off the $51 million of federal aid. If that aid had been removed, the adjusted-operating-income number would have been half of what the company reported.

About a year into the pandemic, regulators are ramping up their scrutiny of potentially misleading coronavirus disclosures by companies. A senior Securities and Exchange Commission official warned in December that companies should be consistent in positive and negative adjustments when showing the impact of the pandemic.

An Ulta Beauty spokeswoman denied cherry-picking data to flatter the adjusted metric. She said the impairment cost was a legitimate one-time charge caused by the impact of Covid-19 on some stores, not a direct cost of the pandemic such as cleaning supplies.

This post first appeared on wsj.com

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