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