21.04.2010 20:01:00

Select Comfort Announces First Quarter Results

Select Comfort Corporation (NASDAQ: SCSS) today reported results for the 2010 first quarter ended April 3, 2010. Net sales for the quarter totaled $158.0 million, an increase of 13 percent on same-store growth of 29 percent, compared to $139.6 million in the first quarter of 2009. The company reported net income of $7.8 million, or $0.14 per diluted share in the first quarter of 2010, compared to a net loss of $2.7 million, or $0.06 per diluted share, in the first quarter of 2009.

"During the quarter, our solid execution resulted in improved performance, demonstrated by sustained same-store growth and strong operating margins,” said Bill McLaughlin, president and CEO, Select Comfort Corporation. "We took advantage of an improving consumer environment and positive in-market testing to increase media investments behind our proven value messaging. The result was sales growth across all company-owned channels.”

McLaughlin continued, "While still cautious about macro-trends for the balance of the year, we anticipate an improved outlook for 2010 based on our continuing momentum, and consequently are increasing our earnings guidance. We will continue to incrementally invest against our brand and customer experience, which represent key initiatives for the year.”

First Quarter Summary
During the first quarter, net sales increased by 13.0 percent as compared to the year-ago period and operating margins improved to 9.0 percent.

The increase in sales was driven by a 29 percent increase in same-store sales, offset by the impact of the closure of 76 stores since the beginning of 2009 and the termination of retail partner relationships at the end of the third quarter 2009. The net decline in store count and retail partner terminations represented $12.8 million in sales in the first quarter of 2009. Direct marketing and internet sales increased by a combined 16 percent as compared to the year-ago period.

Gross profit margins were 62.1 percent of net sales, in line with company targets and 350 basis points higher than the 58.6 percent gross profit rate in the first quarter 2009.

Sales and marketing costs were 44.4 percent of net sales in the first quarter, a 380 basis point improvement compared to 48.2 percent of net sales in 2009. Sales and marketing costs increased year over year by $2.8 million to $70.1 million in 2010. Media investments in the first quarter totaled $18.2 million, $2.5 million higher than the year-ago period.

General and administrative (G&A) expenses equaled $13.1 million in the first quarter, or 8.3 percent of net sales. This compares to $13.3 million, or 9.6 percent of net sales, in the year-ago period. First-quarter G&A expenses included incentive compensation that was approximately $2.0 million higher than a normal run rate related to strong first-quarter earnings performance.

Cash flows from operating activities were $29.5 million for first quarter 2010 compared to $24.1 million, including a $23.0 million tax refund, in the year-ago period. Capital expenditures totaled $1.0 million, compared to $1.2 million in the year-ago period. As of the end of the quarter, cash and cash equivalents and restricted cash totaled $44.0 million and the company had no borrowings under its revolving credit agreement.

The first quarter of 2009 included a valuation allowance adjustment for income taxes and asset impairment charges. Adjusting for these items, net loss would have been $0.02 per share. A reconciliation is provided at the end of this news release.

Fiscal 2010 Outlook
The company is increasing its previously announced guidance and now expects earnings per share in 2010 of between $0.45 and $0.50 per share. These earnings represent an increase in pre-tax earnings of more than 175 percent as compared to 2009. This outlook assumes a continuation of recent sales trends, adjusted for normal seasonality, for the balance of 2010. The company expects to generate positive same-store growth throughout the year, although it anticipates that the rate of growth will slow as year-over-year comparisons become more difficult, specifically in the back half of the year.

The company concluded the first quarter of 2010 with 399 stores and expects to end fiscal 2010 with between 380 and 390 stores after the consolidation of planned store openings and closings. The company expects that 2010 capital expenditures will be approximately $15.0 million.

Conference Call
Management will host its regularly scheduled conference call to discuss the company’s results at 5 p.m. Eastern Time (4 p.m. Central; 2 p.m. Pacific) 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 Select Comfort Web site.

A webcast replay will remain available until midnight Central Time, April 30, 2010, by dialing (203) 369-1266. The webcast replay will remain available in the investor relations area of the company’s Web site for approximately 60 days.

About Select Comfort Corporation
Founded more than 20 years ago and based in Minneapolis, Select Comfort Corporation designs, manufactures, markets and supports a line of adjustable-firmness mattresses featuring air-chamber technology, branded the Sleep Number® bed, as well as foundations and bedding accessories. SELECT COMFORT® products are sold through its approximately 400 company-owned stores located across the United States; select bedding retailers; direct marketing operations; and online at www.sleepnumber.com.

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 current general and industry economic trends; consumer confidence; the effectiveness of our marketing and sales programs, including advertising and promotional efforts; consumer acceptance of our products, product quality and brand image; our ability to continue to improve our product line and product quality; warranty obligations; availability of attractive and cost-effective consumer credit options; execution of our retail store distribution strategy; rising commodity costs and other inflationary pressures; our dependence on significant suppliers, including several sole-source suppliers and the vulnerability of suppliers to recessionary pressures; industry competition; risks of pending and potentially unforeseen litigation; our ability to fund our operations through cash flow from operations or availability under our bank line of credit or other sources; increasing government regulations; the adequacy of our management information systems to meet the evolving needs of our business and evolving regulatory standards; our ability to attract and retain key employees; 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 our filings with the SEC, including our 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
April 3, % of April 4, % of
2010 Net Sales 2009 Net Sales
 
Net sales $ 157,953 100.0 % $ 139,614 100.0 %
Cost of sales   59,869   37.9 %   57,830   41.4 %
Gross profit   98,084   62.1 %   81,784   58.6 %
Operating expenses:
Sales and marketing 70,092 44.4 % 67,313 48.2 %
General and administrative 13,149 8.3 % 13,345 9.6 %
Research and development 654 0.4 % 486 0.3 %
Asset impairment charges   -   0.0 %   378   0.3 %
Total operating expenses   83,895   53.1 %   81,522   58.4 %
Operating income 14,189 9.0 % 262 0.2 %
Interest expense / other   (1,720 ) (1.1 %)   (1,770 ) (1.3 %)
Income (loss) before income taxes 12,469 7.9 % (1,508 ) (1.1 %)
Income tax expense   4,709   3.0 %   1,187   0.9 %
Net income (loss) $ 7,760   4.9 % $ (2,695 ) (1.9 %)
 
Net income (loss) per share – basic $ 0.14   $ (0.06 )
 
Net income (loss) per share – diluted $ 0.14   $ (0.06 )
 
 
Reconciliation of weighted-average
shares outstanding:
Basic weighted-average shares outstanding 53,615 44,692
Effect of dilutive securities:
Options 996 -
Restricted shares   470     -  
Diluted weighted-average shares outstanding1   55,081     44,692  

1 For the three months ended April 4, 2009, potentially dilutive securities have been excluded from the calculation of diluted weighted average shares outstanding, as their inclusion would have had an anti-dilutive effect on our net loss per diluted share.

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
subject to reclassification
  (unaudited)  
April 3, January 2,
2010 2010
Assets
Current assets:
Cash and cash equivalents $ 39,501 $ 17,717
Restricted cash 4,515 -
Accounts receivable, net of allowance for doubtful accounts
of $299 and $379, respectively 2,532 5,094
Inventories 15,452 15,646
Income taxes receivable 157 3,893
Prepaid expenses 7,788 5,879
Deferred income taxes 6,139 5,153
Other current assets   261     720  
Total current assets 76,345 54,102
Property and equipment, net 35,023 37,682
Deferred income taxes 18,186 19,071
Other assets   4,234     7,385  
Total assets $ 133,788   $ 118,240  
 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 38,324 $ 37,538
Customer prepayments 16,157 11,237
Accruals:
Sales returns 3,396 2,885
Compensation and benefits 17,097 15,518
Taxes and withholding 5,022 4,528
Other current liabilities   7,673     7,831  
Total current liabilities 87,669 79,537
 
Non-current liabilities:
Warranty liabilities 5,016 5,286
Capital lease obligations 178 262
Other long-term liabilities   10,560     10,697  
Total non-current liabilities   15,754     16,245  
Total liabilities 103,423 95,782
 
Shareholders’ equity:
Undesignated preferred stock; 5,000 shares authorized,
no shares issued and outstanding - -
Common stock, $0.01 par value; 142,500 shares authorized,
54,623 and 54,310 shares issued and outstanding, respectively 546 543
Additional paid-in capital 33,004 32,860
Accumulated deficit   (3,185 )   (10,945 )
Total shareholders’ equity   30,365     22,458  
Total liabilities and shareholders’ equity $ 133,788   $ 118,240  
 
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited - in thousands)
subject to reclassification
   
Three Months Ended
April 3, April 4,
2010 2009
 
Cash flows from operating activities:
Net income (loss) $ 7,760 $ (2,695 )
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 4,898 4,824
Stock-based compensation 762 1,020
Disposals and impairments of assets - 378
Excess tax benefits from stock-based compensation (659 ) -
Changes in deferred income taxes (606 ) 1,691
Change in operating assets and liabilities:
Accounts receivable 2,562 (2,397 )
Inventories 194 1,603
Income taxes receivable 4,941 22,066
Prepaid expenses and other assets 261 (2,634 )
Accounts payable 2,321 2,170
Customer prepayments 4,920 (2,039 )
Accrued sales returns 511 1,456
Accrued compensation and benefits 1,579 (716 )
Accrued taxes and withholding 494 767
Warranty liabilities 19 (186 )
Other accruals and liabilities   (437 )   (1,205 )
Net cash provided by operating activities   29,520     24,103  
 
Cash flows from investing activities:
Purchases of property and equipment (999 ) (1,239 )
Investments in restricted cash   (4,515 )   (23,043 )
Net cash used in investing activities   (5,514 )   (24,282 )
 
Cash flows from financing activities:
Net decrease in short-term borrowings (1,486 ) (9,849 )
Repurchases of common stock (1,335 ) -
Proceeds from issuance of common stock 19 92
Excess tax benefits from stock-based compensation 659 -
Debt issuance costs   (79 )   -  
Net cash used in financing activities   (2,222 )   (9,757 )
 
Increase (decrease) in cash and cash equivalents 21,784 (9,936 )
Cash and cash equivalents, at beginning of period   17,717     13,057  
Cash and cash equivalents, at end of period $ 39,501   $ 3,121  
 
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
       
Three Months Ended
April 3, April 4,
2010 2009
 
Percent of sales:
Retail 83.4 % 79.1 %
Direct and E-Commerce 11.7 % 11.5 %
Wholesale   4.9 %   9.4 %
Total   100.0 %   100.0 %
 
Sales growth rates:
Retail same-store sales 29 % (14 %)
Direct and E-Commerce   16 %   (34 %)
Company-Controlled same-store sales change 27 % (17 %)
Net closed stores/other   (9 %)   (2 %)
Total Company-Controlled Channels 19 % (19 %)
Wholesale   (42 %)   14 %
Total   13 %   (17 %)
 
Stores open:
Beginning of period 403 471
Opened 0 0
Closed   (4 )   (30 )
End of period   399     441  
 
Retail partner doors1   148     838  
 
Other metrics:
Average sales per store ($ in 000's)2 $ 1,123 $ 965
Average sales per square foot ($s)2 $ 762 $ 671
Stores > $1 million net sales2 57 % 44 %
Average mattress sales per mattress unit
(Company-controlled channels; $s) $ 1,726 $ 1,666

1 On August 11, 2009 we announced our decision to discontinue distribution through non-company owned mattress retailers in the contiguous United States.
2 Trailing twelve months for stores open at least one year.

 
SELECT COMFORT CORPORATION AND SUBSIDIARIES
Reported to Adjusted Statements of Operations Data Reconciliation
(in thousands, except per share amounts)
       
Three Months Ended 4/4/2009
Tax As
As Reported

Impairments(1)

Valuation(2)

Adjusted
Operating income $ 262 $ 378 $ - $ 640
Interest expense / other   (1,770 )     -     -       (1,770 )
 
Income (loss) before income taxes (1,508 ) 378 - (1,130 )
Income tax expense (benefit)   1,187       144     (1,760 )     (429 )
Net income (loss) $ (2,695 )   $ 234   $ 1,760     $ (701 )
 
Net income (loss) per share –
Basic $ (0.06 ) $ 0.01 $ 0.04 $ (0.02 )
Diluted $ (0.06 ) $ 0.01 $ 0.04 $ (0.02 )
 
Basic Shares 44,692 44,692 44,692 44,692
Diluted Shares 44,692 44,692 44,692 44,692

(1)

  Period ended April 4, 2009 includes asset impairment charges for underperforming stores
 

(2)

During the first quarter of fiscal 2009 we adjusted the valuation allowance against deferred tax assets. As adjusted income tax expense for the period ended April 4, 2009 is presented on a normalized basis using an effective tax rate of 38.0%
      Note -  

Our "as adjusted" data is considered a non-GAAP financial measure and is not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates year-over-year comparisons for investors and financial analysts

 

 

GAAP - generally accepted accounting principles
 
SELECT COMFORT CORPORATION AND SUBSIDIARIES
Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA)
(in thousands)
 

We define earnings before interest, taxes, depreciation and amortization (EBITDA) as net income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation and asset impairments. Management believes EBITDA is a useful indicator of the Company's financial performance. EBITDA is also a measure of current financial performance used in our debt covenant calculations. Our definition of EBITDA may not be comparable to similarly titled definitions used by other companies. The tables below reconcile EBITDA, which is a non-GAAP financial measure, to comparable GAAP financial measures:

 

      Three Months Ended   Trailing-Twelve Months Ended
April 3,   April 4, April 3,   April 4,
2010 2009 2010 2009
   
Net income (loss) $ 7,760 $ (2,695 ) $ 46,008 $ (65,739 )
Income tax expense (benefit) 4,709 1,187 (17,341 ) 2,777
Interest expense 1,724 1,784 5,937 5,518
Depreciation and amortization 3,327 4,614 16,395 20,391
Stock-based compensation 762 1,020 2,977 3,909
Asset impairments - 378 308 34,639
           
EBITDA   $ 18,282   $ 6,288   $ 54,284   $ 1,495  
Note -   Our EBITDA calculation is considered a non-GAAP financial measure and is not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts.
 
GAAP - generally accepted accounting principles

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