Select Comfort Announces Third-quarter 2012 Results

Select Comfort Announces Third-quarter 2012 Results

  • Reports Record Third-quarter Net Sales of $247 Million, Up 24 Percent vs. Prior Year

  • Achieves 15thConsecutive Quarter of Double-digit Year-over-Year Operating Income Growth

  • Reports Record Third-quarter Earnings per Diluted Share of $0.46, Up 48 Percent vs. Prior Year

  • Raises Full-year 2012 Guidance

MINNEAPOLIS--(BUSINESS WIRE)-- Select Comfort Corporation (NAS: SCSS) today reported third-quarter results for the period ended Sept. 29, 2012. Net sales for the quarter increased 24 percent to a third-quarter record of $247 million, compared to $200 million in the third quarter of 2011. Results were driven by company-controlled comparable sales growth of 21 percent. The company reported record third-quarter earnings per diluted share of $0.46, a 48 percent increase versus $0.31 per diluted share in the third quarter of 2011.

"Customers continue to enthusiastically respond to the Sleep Number brand experience, including our proprietary products and exclusive store experience, which drove record third-quarter sales," said Shelly Ibach, president and CEO, Select Comfort. "And the strength of our business model resulted in record operating margin as well as record earnings per share."


"In the fourth quarter, we'll accelerate investments in our consumer-focused growth strategies to build brand awareness and advance product innovation while also developing markets with more convenient locations and enhanced store experiences," continued Ibach. "We remain committed to our goal of delivering greater than 20 percent annual earnings-per-share growth while exceeding $1.5 billion in sales and 15 percent operating margin by 2015."

Third-quarter Summary
In the third quarter, net sales increased by 24 percent as compared to the prior-year period. The increase was driven by company-controlled comparable sales growth of 21 percent, with average retail sales-per-comparable-store during the past 12 months reaching a record $2.1 million, a 31 percent increase over the prior-year period. The sales increase also was driven by 20 net new stores opened during the past 12 months, including 13 net new stores opened during the third quarter. There were 394 stores open as of Sept. 29, 2012.

Operating income for the third quarter was $40.2 million, and operating margin during the quarter was 16.3 percent of net sales, a 300 basis-point improvement from 13.3 percent in 2011. Operating income and operating margin were both quarterly records for the company. The 300 basis-point operating margin growth was primarily driven by a 210 basis-point increase in gross-profit margin and a 90 basis-point improvement in the sales and marketing expense rate.

Gross-profit margin in the third quarter of 2012 was 65.1 percent of net sales, an increase of 210 basis points versus 63.0 percent in the prior-year period. The year-over-year increase was primarily driven by pricing and mix associated with new product innovation. In addition, the prior-year period was impacted by a $1.6 million increase to customer-service reserves.

Sales and marketing costs were $101.7 million in the third quarter, or 41.2 percent of net sales. This compares to $83.9 million, or 42.1 percent of net sales in the prior-year period, reflecting continued leverage from the company's sales growth. Media spending during the quarter was $32 million, a 33 percent increase versus the prior-year period.

General and administrative expenses were $16.9 million in the third quarter, or 6.9 percent of net sales. This compares to $14.3 million, or 7.2 percent of net sales, during the same period last year, again reflecting continued leverage of the company's fixed-cost base.

Cash from operating activities was $98 million for the first nine months of 2012 compared to $75 million in the same period one year ago. Capital expenditures for the first nine months of 2012 increased to $37 million as compared to $14 million in 2011, driven by increased investment in stores and information systems. During the third quarter, the company returned $10 million to shareholders through the repurchase of 0.4 million shares of its common stock, bringing the total share repurchases year-to-date to $20 million, or 0.8 million shares. As of the end of the quarter, cash, cash equivalents and marketable-debt securities totaled $193 million, and the company had no borrowings under its revolving credit facility.

Fiscal 2012 Outlook
The company is raising its outlook for 2012 GAAP earnings per diluted share, including the $5.6 million non-recurring charge in the first quarter of 2012, from between $1.35 and $1.41 to between $1.45 and $1.47, a 36 to 37 percent increase versus the prior year. Excluding the charge, this represents non-GAAP guidance of between $1.51 and $1.53, a 41 to 43 percent increase versus prior year. This outlook assumes total sales growth during the fourth quarter of at least 20 percent.

The company expects year-end 2012 store count to be between 408 and 412 stores, a 7 to 8 percent increase from the 381 stores at year-end 2011. Capital expenditures for 2012 are estimated to be approximately $50 million, reflecting new stores, repositioned stores and remodels, along with continued investment in information systems. The company also plans to continue repurchasing shares for the remainder of 2012, with the objective of maintaining share count.

Conference Call
Management will host its regularly scheduled conference call to discuss the company's results at 5 p.m. EDT (4 p.m. CDT; 2 p.m. PDT) today. To listen to the call, please dial (800) 593-9959 (international participants dial (517) 308-9340) and reference the passcode "Sleep." To access the webcast, please visit the investor relations area of the Sleep Number website at http://www.sleepnumber.com/eng/aboutus/InvestorRelations.cfm. The webcast replay will remain available in the investor relations area of the company's website for approximately 60 days.

About Select Comfort Corporation
Select Comfort Corporation (NAS: SCSS) is leading the industry in delivering an unparalleled sleep experience by offering consumers high-quality, innovative and individualized sleep solutions and services, which include a complete line of SLEEP NUMBER® beds and bedding. The company is the exclusive manufacturer, marketer, retailer and servicer of the revolutionary Sleep Number bed, which allows individuals to adjust the firmness and support of each side at the touch of a button. The company offers further personalization through its solutions-focused line of Sleep Number pillows, sheets and other bedding products. And as the only national specialty-mattress retailer, consumers can take advantage of an enhanced mattress-buying experience at one of 400 Sleep Number stores across the country, online at sleepnumber.com, or via phone at (800) Sleep Number or (800) 753-3768.

Forward-looking Statements
Statements used in this news release relating to future plans, events, financial results or performance are forward-looking statements subject to certain risks and uncertainties including, among others, such factors as general and industry economic trends; consumer confidence; the effectiveness of the company's marketing messages; the efficiency of its advertising and promotional efforts; consumer acceptance of its products, product quality, innovation and brand image; availability of attractive and cost-effective consumer credit options; execution of the company's retail store distribution strategy; the company's dependence on significant suppliers, and its ability to maintain relationships with key suppliers, including several sole-source suppliers; the vulnerability of key suppliers to recessionary pressures, labor negotiations, liquidity concerns or other factors; rising commodity costs and other inflationary pressures; industry competition; the company's ability to continue to improve its product line; warranty expenses; risks of pending and potentially unforeseen litigation; increasing government regulations, which have added or will add cost pressures and process changes to ensure compliance; the adequacy of the company's management information systems to meet the evolving needs of its business and evolving regulatory standards applicable to data privacy and security; the company's ability to attract and retain senior leadership and other key employees, including qualified sales professionals; and uncertainties arising from global events, such as terrorist attacks or a pandemic outbreak, or the threat of such events. Additional information concerning these and other risks and uncertainties is contained in the company's filings with the Securities and Exchange Commission (SEC), including the Annual Report on Form 10-K, and other periodic reports filed with the SEC. The company has no obligation to publicly update or revise any of the forward-looking statements in this news release.

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited - in thousands, except per share amounts)

Three Months Ended

September 29,

% of

October 1,

% of

2012

Net Sales

2011

Net Sales

Net sales

$

246,817

100.0%

$

199,600

100.0%

Cost of sales

86,088

34.9%

73,838

37.0%

Gross profit

160,729

65.1%

125,762

63.0%

Operating expenses:

Sales and marketing

101,718

41.2%

83,936

42.1%

General and administrative

16,936

6.9%

14,331

7.2%

Research and development

1,742

0.7%

1,029

0.5%

Asset impairment charges

108

0.0%

7

0.0%

Total operating expenses

120,504

48.8%

99,303

49.8%

Operating income

40,225

16.3%

26,459

13.3%

Other income, net

73

0.0%

23

0.0%

Income before income taxes

40,298

16.3%

26,482

13.3%

Income tax expense

14,089

5.7%

9,246

4.6%

Net income

$

26,209

10.6%

$

17,236

8.6%

Net income per share - basic

$

0.47

$

0.31

Net income per share - diluted

$

0.46

$

0.31

Reconciliation of weighted-average shares outstanding:

Basic weighted-average shares outstanding

55,444

55,214

Effect of dilutive securities:

Options

1,121

777

Restricted shares

421

504

Diluted weighted-average shares outstanding

56,986

56,495

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited - in thousands, except per share amounts)

Nine Months Ended

September 29,

% of

October 1,

% of

2012

Net Sales

2011

Net Sales

Net sales

$

714,419

100.0%

$

554,130

100.0%

Cost of sales

257,820

36.1%

202,763

36.6%

Gross profit

456,599

63.9%

351,367

63.4%

Operating expenses:

Sales and marketing

296,143

41.5%

234,724

42.4%

General and administrative

50,085

7.0%

43,074

7.8%

Research and development

4,288

0.6%

2,983

0.5%

CEO transition costs

5,595

0.8%

-

0.0%

Asset impairment charges

115

0.0%

103

0.0%

Total operating expenses

356,226

49.9%

280,884

50.7%

Operating income

100,373

14.0%

70,483

12.7%

Other income (expense), net

128

0.0%

(37

)

0.0%

Income before income taxes

100,501

14.1%

70,446

12.7%

Income tax expense

34,902

4.9%

25,338

4.6%

Net income

$

65,599

9.2%

$

45,108

8.1%

Net income per share - basic

$

1.18

$

0.82

Net income per share - diluted

$

1.15

$

0.80

Reconciliation of weighted-average shares outstanding:

Basic weighted-average shares outstanding

55,601

54,966

Effect of dilutive securities:

Options

1,085

804

Restricted shares

516

536

Diluted weighted-average shares outstanding

57,202

56,306

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share amounts)

subject to reclassification

(unaudited)

September 29,

December 31,

2012

2011

Assets

Current assets:

Cash and cash equivalents

$

110,408

$

116,255

Marketable debt securities - current

47,232

20,020

Accounts receivable, net of allowance for doubtful accounts of $345 and $397, respectively

15,215

13,844

Inventories

28,997

24,851

Prepaid expenses

8,098

5,778

Deferred income taxes

4,454

4,443

Other current assets

9,141

6,004

Total current assets

223,545

191,195

Marketable debt securities - non-current

35,518

10,042

Property and equipment, net

68,301

43,850

Deferred income taxes

13,694

12,964

Other assets

4,994

4,606

Total assets

$

346,052

$

262,657

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable

$

64,816

$

50,141

Customer prepayments

15,411

13,529

Compensation and benefits

23,060

29,806

Taxes and withholding

18,087

9,883

Other current liabilities

20,084

15,691

Total current liabilities

141,458

119,050

Non-current liabilities:

Warranty liabilities

1,924

2,714

Other long-term liabilities

14,106

11,502

Total non-current liabilities

16,030

14,216

Total liabilities

157,488

133,266

Shareholders' equity:

Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding

-

-

Common stock, $0.01 par value; 142,500 shares authorized, 56,040 and 56,397 shares issued and outstanding, respectively

560

564

Additional paid-in capital

41,285

47,701

Retained earnings

146,700

81,101

Accumulated other comprehensive income

19

25