EX-99.1 2 exhibit991.htm EXHIBIT Exhibit 99.1
Exhibit 99.1


FOR IMMEDIATE RELEASE
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 - (April 17, 2013) - Select Comfort Corporation (NASDAQ: 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,



Select Comfort Announces First-quarter 2013 Results – Page 2 of 8

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.

# # #

Media Contact: Gabby Nelson; (763) 551-7460; publicrelations@selectcomfort.com
Investor Contact: Dave Schwantes; (763) 551-7498; investorrelations@selectcomfort.com







Select Comfort Announces First-quarter 2013 Results – Page 3 of 8

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited - in thousands, except per share amounts)

 
Three Months Ended
 
March 30,
2013
 
% of
Net Sales
 
March 31,
2012
 
% of
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 Announces First-quarter 2013 Results – Page 4 of 8

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
subject to reclassification
 
(unaudited)
 
 
 
March 30,
2013
 
December 29,
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 Announces First-quarter 2013 Results – Page 5 of 8

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited - in thousands)
subject to reclassification
 
Three Months Ended
 
March 30, 2013
 
March 31, 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
5,898

 
—

Acquisition of business
(15,500
)
 
—

Investment in non-marketable equity securities
(1,500
)
 
—

Net cash used in investing activities
(38,291
)
 
(9,272
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Net decrease in short-term borrowings
(4,370
)
 
(3,371
)
Repurchases of common stock
(10,144
)
 
(1,214
)
Proceeds from issuance of common stock
2,282

 
1,655

Excess tax benefits from stock-based compensation
2,401

 
2,372

Net cash used in financing activities
(9,831
)
 
(558
)
Net (decrease) increase in cash and cash equivalents
(3,100
)
 
34,688

Cash and cash equivalents, at beginning of period
87,915

 
116,255

Cash and cash equivalents, at end of period
$
84,815

 
$
150,943



Select Comfort Announces First-quarter 2013 Results – Page 6 of 8

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)

 
Three Months Ended
 
March 30,
2013
 
March 31,
2012
Percent of sales:
 
 
 
Retail
88.1
%
 
88.2
%
Direct and E-Commerce
6.7
%
 
8.0
%
Wholesale/other
5.2
%
 
3.8
%
Total
100.0
%
 
100.0
%
 
 
 
 
Sales growth rates:
 
 
 
Retail comparable-store sales
(8
%)
 
36
%
Direct and E-Commerce
(18
%)
 
17
%
Company-Controlled comparable sales change
(9
%)
 
34
%
Net new/(closed) stores
6
%
 
2
%
Total Company-Controlled Channel
(3
%)
 
36
%
Wholesale/other
35
%
 
26
%
Total
(2
%)
 
36
%
 
 
 
 
Stores open:
 
 
 
Beginning of period
410

 
381

Opened
10

 
10

   Closed
(9
)
 
(11
)
End of period
411

 
380

 
 
 
 
Other metrics:
 
 
 
Average sales per store ($ in 000's)1
$
2,118

 
$
1,897

Average sales per square foot1
$
1,256

 
$
1,229

Stores > $1 million net sales1
98
%
 
97
%
Stores > $2 million net sales1
46
%
 
36
%
Average net sales per mattress unit - Company Controlled Channel2
$
3,132

 
$
2,751

 
 
 
 
1 Trailing twelve months for stores open at least one year.
 
 
2 Represents Company-Controlled Channel total net sales divided by Company-Controlled Channel mattress units. The previously reported metric "Average mattress sales per mattress unit – Company-Controlled Channel" included only net sales from mattresses and mattress bases. Previously reported amounts have been reclassified to conform to the current-year presentation.




Select Comfort Announces First-quarter 2013 Results – Page 7 of 8

SELECT COMFORT CORPORATION AND SUBSIDIARIES
Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)
(in thousands)

We define earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") as net income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation and asset impairments. Management believes Adjusted EBITDA is a useful indicator of our financial performance and our ability to generate cash from operating activities. Our definition of Adjusted EBITDA may not be comparable to similarly titled definitions used by other companies. The table below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to comparable GAAP financial measure:
 
Three Months Ended
 
Trailing-Twelve Months Ended
 
March 30,
2013
 
March 31,
2012
 
March 30,
2013
 
March 31,
2012
Net income
$
23,471

 
$
22,417

 
$
79,148

 
$
66,312

Income tax expense
11,847

 
11,886

 
41,872

 
32,043

Interest expense
14

 
43

 
62

 
173

Depreciation and amortization
6,333

 
4,230

 
21,838

 
14,574

Stock-based compensation
432

 
6,964

 
3,774

 
10,801

Asset impairments
30

 
4

 
174

 
35

Adjusted EBITDA
$
42,127

 
$
45,544

 
$
146,868

 
$
123,938


Note - Our Adjusted 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


Select Comfort Announces First-quarter 2013 Results – Page 8 of 8

SELECT COMFORT CORPORATION AND SUBSIDIARIES
Reported to Adjusted Statements of Operations Data Reconciliation
(in thousands, except per share amounts)
 
Three Months Ended
 
March 30, 2013
 
March 31, 2012
 
As Reported
 
CEO
Transition
Benefit(1)
 
As Adjusted
 
As Reported
 
CEO
Transition
Costs(1)
 
As Adjusted
 
 
 
 
 
 
Operating income
$
35,227

 
$
(391
)
 
$
34,836

 
$
34,296

 
$
5,595

 
$
39,891

Other income, net
91

 
—

 
91

 
7

 
—

 
7

 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
35,318

 
(391
)
 
34,927

 
34,303

 
5,595

 
39,898

Income tax expense(2)
11,847

 
(134
)
 
11,713

 
11,886

 
1,941

 
13,827

Net income
$
23,471

 
$
(257
)
 
$
23,214

 
$
22,417

 
$
3,654

 
$
26,071

 
 
 
 
 
 
 
 
 
 
 
 
Net income per share –
 
 
 
 
 
 
 
 
 
 
 
    Basic
$
0.43

 
$
0.00

 
$
0.42

 
$
0.40

 
$
0.07

 
$
0.47

    Diluted
$
0.42

 
$
0.00

 
$
0.41

 
$
0.39

 
$
0.06

 
$
0.45

 
 
 
 
 
 
 
 
 
 
 
 
    Basic Shares
55,095

 
55,095

 
55,095

 
55,640

 
55,640

 
55,640

    Diluted Shares
56,251

 
56,251

 
56,251

 
57,440

 
57,440

 
57,440

___________________
(1) In February 2012, we announced that William R. McLaughlin, then President and CEO, would retire from the Company effective June 1, 2012. In recognition of Mr. McLaughlin’s contributions, the Compensation Committee approved the modification of Mr. McLaughlin’s currently unvested stock awards, including performance-based stock awards. As a result of these modifications, we recorded incremental non-cash compensation of $5.6 million in the first three months of 2012. The performance-based stock awards are subject to applicable adjustments through 2014 based on actual performance versus performance targets. In the first three months of 2013, we recorded a non-cash compensation benefit of $0.4 million resulting from performance-based stock award adjustments.

(2) Reflects effective income tax rates, before discrete adjustments, of 34.3% for 2013 and 34.7% for 2012.

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