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 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, 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.

Consolidated Statements of Operations
(unaudited - in thousands, except per share amounts)
Three Months Ended
March 30,% ofMarch 31,% of
2013Net Sales 2012Net Sales
Net sales$258,237100.0%$262,383100.0%
Cost of sales 94,821 36.7% 98,08437.4%
Gross profit 163,416 63.3% 164,29962.6%
Operating expenses:
Sales and marketing109,81342.5%106,18540.5%
General and administrative16,1816.3%16,9296.5%
Research and development2,5561.0%1,2900.5%
CEO transition (benefit) costs(391)(0.2%)5,5952.1%
Asset impairment charges 30 0.0% 40.0%
Total operating expenses 128,189 49.6% 130,00349.5%
Operating income35,22713.6%34,29613.1%
Other income, net 91 0.0% 70.0%
Income before income taxes35,31813.7%34,30313.1%
Income tax expense 11,847 4.6% 11,8864.5%
Net income$23,471 9.1%$22,4178.5%
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 outstanding55,09555,640
Effect of dilutive securities:
Restricted shares 466  644
Diluted weighted-average shares outstanding 56,251  57,440
Consolidated Balance Sheets
(in thousands, except per share amounts)
subject to reclassification
March 30,December 29,
Current assets:
Cash and cash equivalents$84,815$87,915
Marketable debt securities - current57,85651,264

Accounts receivable, net of allowance for doubtful accounts of $455 and $348, respectively

Prepaid expenses7,0354,299
Deferred income taxes5,4035,401
Other current assets 8,466 9,522
Total current assets 209,074 210,578
Marketable debt securities - non-current38,70038,642
Property and equipment, net91,36279,356
Goodwill and intangible assets, net17,5522,881
Deferred income taxes7,9288,511
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 prepayments17,48915,194
Compensation and benefits11,96521,597
Taxes and withholding14,7359,282
Other current liabilities 17,097 19,285
Total current liabilities141,370133,061
Non-current liabilities:
Warranty liabilities1,6411,457
Other long-term liabilities 14,209 13,806
Total non-current liabilities 15,850 15,263
Total liabilities157,220148,324
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

Additional paid-in capital27,13433,923
Retained earnings182,666159,195
Accumulated other comprehensive income 13 20
Total shareholders' equity 210,369 193,697
Total liabilities and shareholders' equity$367,589$342,021
Consolidated Statements of Cash Flows
(unaudited - in thousands)
subject to reclassification
Three Months Ended
March 30,March 31,
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 amortization6,6614,245
Stock-based compensation4326,964
Net loss on disposals and impairments of assets274
Excess tax benefits from stock-based compensation(2,401)(2,372)
Deferred income taxes585(2,610)

Changes in operating assets and liabilities, net of effect of acquisition:

Accounts receivable2,4541,390
Income taxes7,53410,388
Prepaid expenses and other assets(889)186
Accounts payable12,9556,591
Customer prepayments2,3026,348
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 equipment39
Investments in marketable debt securities(12,883)-
Proceeds from maturities of marketable debt securities
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