Select Comfort Announces First-quarter 2013 Results
Select Comfort Announces First-quarter 2013 Results
Reports First-quarter EPS of $0.42 on a GAAP Basis and $0.41 on an Adjusted Basis
Generates Net Sales of $258 Million, a 2% Year-over-year Decrease
Updates Full-year 2013 Outlook
MINNEAPOLIS--(BUSINESS WIRE)-- Select Comfort Corporation (NAS: SCSS) today reported first-quarter 2013 results for the period ended March 30, 2013.
First-quarter Financial Summary
Net sales decreased 2% to $258 million, compared to $262 million in the first quarter of 2012.
Company-controlled comparable sales declined 9% year-over-year.
Operating income, adjusted both years for the non-cash impact of the 2012 chief executive officer (CEO) transition, decreased to $34.8 million, compared with $39.9 million in the first quarter of 2012. As a percentage of net sales, adjusted operating income was 13.5% compared to 15.2% in the first quarter of 2012.
The 170 basis-point, year-over-year decrease in adjusted operating margin included a 200 basis-point increase in sales and marketing expenses and a 50 basis-point increase in research and development expenses, partially offset by a 70 basis-point improvement in gross margin and a 20 basis-point decrease in general and administrative (G&A) expenses.
Earnings per diluted share on a GAAP basis were $0.42, compared with $0.39 in the first quarter of 2012. Adjusted earnings per diluted share (excluding CEO transition charges) were $0.41 per share, a 9% decrease compared to $0.45 in the first quarter of 2012.
During the quarter, the company opened 10 stores and closed nine, ending the quarter with 411 stores.
"As reported in early March, changes to our media buying negatively impacted traffic and sales, resulting in first-quarter underperformance. We took decisive action to correct the issue and are making steady progress against a backdrop of soft industry performance," said Shelly Ibach, president and CEO, Select Comfort. "During the quarter, we progressed as planned in the other key areas of our customer-focused growth strategy, specifically exclusive distribution and product innovation."
Ibach continued, "In the second quarter, we are introducing the first in a series of break-through sleep innovations that have been in development for the past 15 months. We are excited to expand our offering of individualized air products that provide meaningful benefits for our customers."
Cash flows from operating activities were $45 million in the first quarter, which was consistent with the prior year. Capital expenditures increased to $14.3 million as compared to $9.3 million in 2012, driven by increased investment in stores, information systems and product innovation. During the first quarter, the company repurchased 0.5 million shares of its common stock for a total cost of $10 million. As of the end of the quarter, cash, cash equivalents and marketable-debt securities totaled $181 million, and the company had no borrowings under its revolving credit facility.
Financial Outlook
The company is lowering its outlook for full-year 2013 GAAP earnings per diluted share from between $1.65 and $1.80 to between $1.30 and $1.45. This outlook reflects the impact of the media-buying issue and slowing industry trends, and assumes a company-controlled comparable sales increase for the remainder of the year of low- to mid-single digits. This outlook also reflects a net increase in store count from 410 at year-end 2012 to between 435 and 445 by year-end 2013.
The company currently anticipates that 2013 capital expenditures will be $70-$80 million, reflecting continued investment in new stores, relocated and remodeled stores, and customer-management systems, along with new investments in product innovation. While the company's first priority for capital deployment is to invest in its high-return growth programs, it currently plans to continue repurchasing shares in 2013, with the objective of maintaining share count at or slightly below current levels.
Conference Call Information
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 for approximately 60 days.
About Select Comfort Corporation
Select Comfort Corporation 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 more than 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 | |||||||||||||||
March 30, | % of | March 31, | % of | ||||||||||||
2013 | Net Sales | 2012 | Net Sales | ||||||||||||
Net sales | $ | 258,237 | 100.0 | % | $ | 262,383 | 100.0 | % | |||||||
Cost of sales | 94,821 | 36.7 | % | 98,084 | 37.4 | % | |||||||||
Gross profit | 163,416 | 63.3 | % | 164,299 | 62.6 | % | |||||||||
Operating expenses: | |||||||||||||||
Sales and marketing | 109,813 | 42.5 | % | 106,185 | 40.5 | % | |||||||||
General and administrative | 16,181 | 6.3 | % | 16,929 | 6.5 | % | |||||||||
Research and development | 2,556 | 1.0 | % | 1,290 | 0.5 | % | |||||||||
CEO transition (benefit) costs | (391 | ) | (0.2 | %) | 5,595 | 2.1 | % | ||||||||
Asset impairment charges | 30 | 0.0 | % | 4 | 0.0 | % | |||||||||
Total operating expenses | 128,189 | 49.6 | % | 130,003 | 49.5 | % | |||||||||
Operating income | 35,227 | 13.6 | % | 34,296 | 13.1 | % | |||||||||
Other income, net | 91 | 0.0 | % | 7 | 0.0 | % | |||||||||
Income before income taxes | 35,318 | 13.7 | % | 34,303 | 13.1 | % | |||||||||
Income tax expense | 11,847 | 4.6 | % | 11,886 | 4.5 | % | |||||||||
Net income | $ | 23,471 | 9.1 | % | $ | 22,417 | 8.5 | % | |||||||
Net income per share - basic | $ | 0.43 | $ | 0.40 | |||||||||||
Net income per share - diluted | $ | 0.42 | $ | 0.39 | |||||||||||
Reconciliation of weighted-average shares outstanding: | |||||||||||||||
Basic weighted-average shares outstanding | 55,095 | 55,640 | |||||||||||||
Effect of dilutive securities: | |||||||||||||||
Options | 690 | 1,156 | |||||||||||||
Restricted shares | 466 | 644 | |||||||||||||
Diluted weighted-average shares outstanding | 56,251 | 57,440 | |||||||||||||
SELECT COMFORT CORPORATION | ||||||||
AND SUBSIDIARIES | ||||||||
Consolidated Balance Sheets | ||||||||
(in thousands, except per share amounts) | ||||||||
subject to reclassification | ||||||||
(unaudited) | ||||||||
March 30, | December 29, | |||||||
2013 | 2012 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 84,815 | $ | 87,915 | ||||
Marketable debt securities - current | 57,856 | 51,264 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $455 and $348, respectively | 14,526 | 16,613 | ||||||
Inventories | 30,973 | 35,564 | ||||||
Prepaid expenses | 7,035 | 4,299 | ||||||
Deferred income taxes | 5,403 | 5,401 | ||||||
Other current assets | 8,466 | 9,522 | ||||||
Total current assets | 209,074 | 210,578 | ||||||
Marketable debt securities - non-current | 38,700 | 38,642 | ||||||
Property and equipment, net | 91,362 | 79,356 | ||||||
Goodwill and intangible assets, net | 17,552 | 2,881 | ||||||
Deferred income taxes | 7,928 | 8,511 | ||||||
Other assets | 2,973 | 2,053 | ||||||
Total assets | $ | 367,589 | $ | 342,021 | ||||
Liabilities and Shareholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 80,084 | $ | 67,703 | ||||
Customer prepayments | 17,489 | 15,194 | ||||||
Compensation and benefits | 11,965 | 21,597 | ||||||
Taxes and withholding | 14,735 | 9,282 | ||||||
Other current liabilities | 17,097 | 19,285 | ||||||
Total current liabilities | 141,370 | 133,061 | ||||||
Non-current liabilities: | ||||||||
Warranty liabilities | 1,641 | 1,457 | ||||||
Other long-term liabilities | 14,209 | 13,806 | ||||||
Total non-current liabilities | 15,850 | 15,263 | ||||||
Total liabilities | 157,220 | 148,324 | ||||||
Shareholders' equity: | ||||||||
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding | - | - | ||||||
Common stock, $0.01 par value; 142,500 shares authorized, 55,650 and 55,903 shares issued and outstanding, respectively | 556 | 559 | ||||||
Additional paid-in capital | 27,134 | 33,923 | ||||||
Retained earnings | 182,666 | 159,195 | ||||||
Accumulated other comprehensive income | 13 | 20 | ||||||
Total shareholders' equity | 210,369 | 193,697 | ||||||
Total liabilities and shareholders' equity | $ | 367,589 | $ | 342,021 | ||||
SELECT COMFORT CORPORATION | ||||||||||||
AND SUBSIDIARIES | ||||||||||||
Consolidated Statements of Cash Flows | ||||||||||||
(unaudited - in thousands) | ||||||||||||
subject to reclassification | ||||||||||||
Three Months Ended | ||||||||||||
March 30, | March 31, | |||||||||||
2013 | 2012 | |||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 23,471 | $ | 22,417 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 6,661 | 4,245 | ||||||||||
Stock-based compensation | 432 | 6,964 | ||||||||||
Net loss on disposals and impairments of assets | 27 | 4 | ||||||||||
Excess tax benefits from stock-based compensation | (2,401 | ) | (2,372 | ) | ||||||||
Deferred income taxes | 585 | (2,610 | ) | |||||||||
Changes in operating assets and liabilities, net of effect of acquisition: | ||||||||||||
Accounts receivable | 2,454 | 1,390 | ||||||||||
Inventories | 5,269 | (33 | ) | |||||||||
Income taxes | 7,534 | 10,388 | ||||||||||
Prepaid expenses and other assets | (889 | ) | 186 | |||||||||
Accounts payable | 12,955 | 6,591 | ||||||||||
Customer prepayments | 2,302 | 6,348 | ||||||||||
Accrued compensation and benefits | (9,165 | ) | (12,449 | ) | ||||||||
Other taxes and withholding | (1,443 | ) | 1,160 | |||||||||
Warranty liabilities | (239 | ) | 569 | |||||||||
Other accruals and liabilities | (2,531 | ) | 1,720 | |||||||||
Net cash provided by operating activities | 45,022 | 44,518 | ||||||||||
Cash flows from investing activities: | ||||||||||||
Purchases of property and equipment | (14,309 | ) | (9,281 | ) | ||||||||
Proceeds from sales of property and equipment | 3 | 9 | ||||||||||
Investments in marketable debt securities | (12,883 | ) | - | |||||||||
Proceeds from maturities of marketable debt securities | ||||||||||||
