Select Comfort Announces Third-quarter 2013 Results

Select Comfort Announces Third-quarter 2013 Results

  • Generates Net Sales of $264 Million, a 7% Year-over-year Increase
  • Reports Third-quarter EPS of $0.36
  • Updates Full-year 2013 Outlook

MINNEAPOLIS--(BUSINESS WIRE)-- Select Comfort Corporation (NAS: SCSS) today reported third-quarter 2013 results for the period ended Sept. 28, 2013.

Third-quarter Financial Summary

  • Net sales increased 7% to $264 million, compared to $247 million in the third quarter of 2012.
  • Company-controlled comparable sales declined 1% year-over-year.
  • Operating income was $30.7 million, compared with $40.2 million in the third quarter of 2012. As a percentage of net sales, operating income was 11.6% compared to 16.3% in the third quarter of 2012.
  • Earnings per diluted share were $0.36, compared to $0.46 in the third quarter of 2012.
  • In the quarter, the company opened 16 stores and closed six, ending the quarter with 423 stores.

"The consumer responded positively to our product innovations and exclusive retail experience as evidenced by market-share gains along with favorable operational and customer-focused metrics," said Shelly Ibach, president and CEO, Select Comfort. "However, our execution was muted by a progressively more challenged macro-economic environment, resulting in performance below expectations."

Ibach continued, "Given the ongoing economic uncertainty, we are actively managing costs across the company, while continuing to support priorities important to long-term growth and profitability."

Cash flows from operating activities were $90 million for the first nine months of 2013, compared with $98 million in the prior year. Capital expenditures for the first nine months of 2013 increased to $57.8 million as compared to $36.8 million in 2012, driven by increased investment in stores, technology and product innovation. During the third quarter, the company repurchased 0.4 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 $164 million, and the company had no borrowings under its revolving credit facility.

Financial Outlook
The company is updating its outlook for full-year 2013 GAAP earnings per diluted share from between $1.30 and $1.45 to between $1.14 and $1.22. This updated guidance includes fourth-quarter earnings per diluted share of $0.18 to $0.26, compared to $0.22 in the fourth quarter of 2012. The midpoint of the fourth-quarter outlook assumes low double-digit growth in total net sales and a net increase in store count from 410 at year-end 2012 to between 435 and 445 by year-end 2013.

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 individualization 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
September 28,% ofSeptember 29,% of
2013Net Sales2012Net Sales
 
Net sales$263,689100.0%$246,817100.0%
Cost of sales 97,269 36.9% 86,08834.9%
Gross profit 166,420 63.1% 160,72965.1%
 
Operating expenses:
Sales and marketing118,30744.9%101,71841.2%
General and administrative15,1505.7%16,9366.9%
Research and development2,3590.9%1,7420.7%
CEO transition benefit(143)(0.1%)-0.0%
Asset impairment charges 48 0.0% 1080.0%
Total operating expenses 135,721 51.5% 120,50448.8%
Operating income30,69911.6%40,22516.3%
Other income, net 74 0.0% 730.0%
Income before income taxes30,77311.7%40,29816.3%
Income tax expense 10,514 4.0% 14,0895.7%
Net income$20,259 7.7%$26,20910.6%
 
Net income per share - basic$0.37 $0.47
 
Net income per share - diluted$0.36 $0.46
 
 

Reconciliation of weighted-average shares outstanding:

Basic weighted-average shares outstanding54,85455,444
Effect of dilutive securities:
Options5311,121
Restricted shares 363  421
Diluted weighted-average shares outstanding 55,748  56,986
 
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited - in thousands, except per share amounts)
      
 
Nine Months Ended
September 28,% ofSeptember 29,% of
2013Net Sales2012Net Sales
 
Net sales$729,317100.0%$714,419100.0%
Cost of sales 268,083 36.8% 257,82036.1%
Gross profit 461,234 63.2% 456,59963.9%
 
Operating expenses:
Sales and marketing326,47744.8%296,14341.5%
General and administrative46,6906.4%50,0857.0%
Research and development7,4751.0%4,2880.6%
CEO transition (benefit) costs(534)(0.1%)5,5950.8%
Asset impairment charges 93 0.0% 1150.0%
Total operating expenses 380,201 52.1% 356,22649.9%
Operating income81,03311.1%100,37314.0%
Other income, net 243 0.0% 1280.0%
Income before income taxes81,27611.1%100,50114.1%
Income tax expense 27,620 3.8% 34,9024.9%
Net income$53,656 7.4%$65,5999.2%
 
Net income per share - basic$0.98 $1.18
 
Net income per share - diluted$0.96 $1.15
 
 

Reconciliation of weighted-average shares outstanding:

Basic weighted-average shares outstanding54,99255,601
Effect of dilutive securities:
Options5891,085
Restricted shares 409  516
Diluted weighted-average shares outstanding 55,990  57,202
 
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
subject to reclassification
    
(unaudited)
September 28,December 29,
20132012
Assets
Current assets:
Cash and cash equivalents$81,301$87,915
Marketable debt securities - current57,40751,264

Accounts receivable, net of allowance for doubtful accounts of $448 and $348, respectively

15,24516,613
Inventories41,31135,564
Prepaid expenses8,8944,299
Deferred income taxes5,3735,401
Other current assets 10,935 9,522
Total current assets220,466210,578
 
Non-current assets:
Marketable debt securities - non-current25,68338,642
Property and equipment, net117,79379,356
Goodwill and intangible assets, net17,0342,881
Deferred income taxes4,2498,511
Other assets 4,621 2,053
Total assets$389,846$342,021
 
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable$75,744$67,703
Customer prepayments15,291<
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