EX-99.1 2 exhibit991_q2fy13.htm EXHIBIT Exhibit 99.1_Q2FY13
Exhibit 99.1

 
FOR IMMEDIATE RELEASE
Select Comfort Announces Second-quarter 2013 Results
•
Generates Net Sales of $207 Million, a 1% Year-over-year Increase
•
Reports Second-quarter EPS of $0.18
•
Reaffirms Full-year 2013 Outlook

MINNEAPOLIS - (July 17, 2013) - Select Comfort Corporation (NASDAQ: SCSS) today reported second-quarter 2013 results for the period ended June 29, 2013.

Second-quarter Financial Summary
•
Net sales increased 1% to $207 million, compared to $205 million in the second quarter of 2012.
•
Company-controlled comparable sales declined 6% year-over-year.
•
Operating income was $15.1 million, compared with $25.9 million in the second quarter of 2012. As a percentage of net sales, operating income was 7.3% compared to 12.6% in the second quarter of 2012.
•
Earnings per diluted share were $0.18, compared to $0.30 in the second quarter of 2012.
•
During the quarter, the company opened 17 stores and closed 15, ending the quarter with 413 stores.

“During the quarter, we experienced sequential monthly sales improvement and strengthened performance as we re-established our proven media-buying formula,” said Shelly Ibach, president and CEO, Select Comfort. “We also made progress on our top priorities, product innovation and local-market development, as we position the company for short- and long-term growth.”

Ibach continued, “Specifically in June, we launched the Sleep Number DualTemp layer, which solves temperature balancing - one of consumers' most common sleep issues. This product can be used with any mattress brand, which is bringing new customers into our Sleep Number stores.”

Cash flows from operating activities were $36 million for the first six months of 2013, compared with $43 million in the prior year. Capital expenditures for the first six months of 2013 increased to $37.1 million as compared to $22.5 million in 2012, driven by increased investment in stores, technology and product innovation. During the second 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 $140 million, and the company had no borrowings under its revolving credit facility.

Financial Outlook
The company is maintaining its outlook for full-year 2013 GAAP earnings per diluted share of between $1.30 and $1.45. This outlook assumes high-teens growth in total net sales for the remainder of the year, with 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 stores, technology and product innovation. While its first priority for capital deployment is investment in its high-return growth programs, the company currently plans to continue repurchasing shares in 2013 with the objective of maintaining share count at or 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.


Select Comfort Announces Second-quarter 2013 Results – Page 2 of 9

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.

# # #

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









Select Comfort Announces Second-quarter 2013 Results – Page 3 of 9

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

 
Three Months Ended
 
June 29,
2013
 
% of
Net Sales
 
June 30,
2012
 
% of
Net Sales
 
 
 
 
 
 
 
 
Net sales
$
207,391

 
100.0
%
 
$
205,219

 
100.0
%
Cost of sales
75,993

 
36.6
%
 
73,648

 
35.9
%
Gross profit
131,398

 
63.4
%
 
131,571

 
64.1
%
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 

 
 
Sales and marketing
98,357

 
47.4
%
 
88,240

 
43.0
%
General and administrative
15,359

 
7.4
%
 
16,220

 
7.9
%
Research and development
2,560

 
1.2
%
 
1,256

 
0.6
%
Asset impairment charges
15

 
0.0
%
 
3

 
0.0
%
Total operating expenses
116,291

 
56.1
%
 
105,719

 
51.5
%
Operating income
15,107

 
7.3
%
 
25,852

 
12.6
%
Other income, net
78

 
0.0
%
 
48

 
0.0
%
Income before income taxes
15,185

 
7.3
%
 
25,900

 
12.6
%
Income tax expense
5,259

 
2.5
%
 
8,927

 
4.3
%
Net income
$
9,926

 
4.8
%
 
$
16,973

 
8.3
%
 
 
 
 
 
 
 
 
Net income per share – basic
$
0.18

 
 
 
$
0.30

 
 
 
 
 
 
 
 
 
 
Net income per share – diluted
$
0.18

 
 
 
$
0.30

 
 
 
 
 
 
 
 
 
 
Reconciliation of weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
55,029

 
 
 
55,719

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
     Options
539

 
 
 
1,129

 
 
     Restricted shares
419

 
 
 
546

 
 
Diluted weighted-average shares outstanding
55,987

 
 
 
57,394

 
 





Select Comfort Announces Second-quarter 2013 Results – Page 4 of 9

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

 
Six Months Ended
 
June 29,
2013
 
% of
Net Sales
 
June 30,
2012
 
% of
Net Sales
 
 
 
 
 
 
 
 
Net sales
$
465,628

 
100.0
 %
 
$
467,602

 
100.0
%
Cost of sales
170,814

 
36.7
 %
 
171,732

 
36.7
%
Gross profit
294,814

 
63.3
 %
 
295,870

 
63.3
%
 
 
 
 
 
 
 
 
Operating expenses:
 

 
 
 
 

 
 
Sales and marketing
208,170

 
44.7
 %
 
194,425

 
41.6
%
General and administrative
31,540

 
6.8
 %
 
33,149

 
7.1
%
Research and development
5,116

 
1.1
 %
 
2,546

 
0.5
%
CEO transition (benefit) costs
(391
)
 
(0.1
)%
 
5,595

 
1.2
%
Asset impairment charges
45

 
0.0
%
 
7

 
0.0
%
Total operating expenses
244,480

 
52.5
 %
 
235,722

 
50.4
%
Operating income
50,334

 
10.8
 %
 
60,148

 
12.9
%
Other income, net
169

 
0.0
 %
 
55

 
0.0
%
Income before income taxes
50,503

 
10.8
 %
 
60,203

 
12.9
%
Income tax expense
17,106

 
3.7
 %
 
20,813

 
4.5
%
Net income
$
33,397

 
7.2
 %
 
$
39,390

 
8.4
%
 
 
 
 
 
 
 
 
Net income per share – basic
$
0.61

 
 
 
$
0.71

 
 
 
 
 
 
 
 
 
 
Net income per share – diluted
$
0.60

 
 
 
$
0.69

 
 
 
 
 
 
 
 
 
 
Reconciliation of weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
55,062

 
 
 
55,680

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
     Options
613

 
 
 
1,099

 
 
     Restricted shares
426

 
 
 
588

 
 
Diluted weighted-average shares outstanding
56,101

 
 
 
57,367

 
 






Select Comfort Announces Second-quarter 2013 Results – Page 5 of 9

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
subject to reclassification
 
(Unaudited)
June 29,
2013
 
December 29,
2012
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
58,189

 
$
87,915

Marketable debt securities – current
53,787

 
51,264

Accounts receivable, net of allowance for doubtful accounts of $459 and $348, respectively
14,385

 
16,613

Inventories
34,473

 
35,564

Prepaid expenses
9,052

 
4,299

Deferred income taxes
5,398

 
5,401

Other current assets
10,904

 
9,522

Total current assets
186,188

 
210,578

 
 
 
 
Non-current assets:
 

 
 
Marketable debt securities – non-current
28,502

 
38,642

Property and equipment, net
105,539

 
79,356

Goodwill and intangible assets, net
17,288

 
2,881

Deferred income taxes
4,470

 
8,511

Other assets
4,573

 
2,053

Total assets
$
346,560

 
$
342,021

 
 
 
 
Liabilities and Shareholders’ Equity
 

 
 
Current liabilities:
 

 
 
Accounts payable
$
63,335

 
$
67,703

Customer prepayments
12,330

 
15,194

Compensation and benefits
15,990

 
21,597

Taxes and withholding
6,134

 
9,282

Other current liabilities
17,716

 
19,285

Total current liabilities
115,505

 
133,061

 
 
 
 
Non-current liabilities:
 

 
 
Warranty liabilities
1,673

 
1,457

Other long-term liabilities
15,293

 
13,806

Total non-current liabilities
16,966

 
15,263

Total liabilities
132,471

 
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, 55,603 and 55,903 shares issued and outstanding, respectively
556

 
559

Additional paid-in capital
20,966

 
33,923

Retained earnings
192,592

 
159,195

Accumulated other comprehensive (loss) income
(25
)
 
20

Total shareholders’ equity
214,089

 
193,697

Total liabilities and shareholders’ equity
$
346,560

 
$
342,021





Select Comfort Announces Second-quarter 2013 Results – Page 6 of 9

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited - in thousands)
subject to reclassification
 
Six Months Ended
 
June 29,
2013
 
June 30,
2012
Cash flows from operating activities:
 
 
 
Net income
$
33,397

 
39,390

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
14,153

 
9,049

Stock-based compensation
1,992

 
8,370

Net gain on disposals and impairments of assets
(58
)
 
(12
)
Excess tax benefits from stock-based compensation
(2,837
)
 
(4,120
)
Deferred income taxes
4,072

 
(2,431
)
Changes in operating assets and liabilities, net of effect of acquisition:

 
 

Accounts receivable
2,541

 
3,055

Inventories
1,769

 
(2,450
)
Income taxes
(3,084
)
 
3,614

Prepaid expenses and other assets
(3,933
)
 
(2,474
)
Accounts payable
(1,708
)
 
202

Customer prepayments
(2,857
)
 
(1,892
)
Accrued compensation and benefits
(4,802
)
 
(9,085
)
Other taxes and withholding
(1,156
)
 
(920
)
Warranty liabilities
(571
)
 
(453
)
Other accruals and liabilities
(775
)
 
3,390

Net cash provided by operating activities
36,143

 
43,233

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(37,096
)
 
(22,499
)
Proceeds from sales of property and equipment
117

 
30

Investments in marketable debt securities
(16,504
)
 
(45,351
)
Proceeds from maturities of marketable debt securities
23,463

 
10,018

Acquisition of business
(15,500
)
 
—

Investment in non-marketable equity securities
(3,000
)
 
—

Net cash used in investing activities
(48,520
)
 
(57,802
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Net decrease in short-term borrowings
(4,750
)
 
(3,349
)
Repurchases of common stock
(22,031
)
 
(14,023
)
Proceeds from issuance of common stock
6,595

 
1,937

Excess tax benefits from stock-based compensation
2,837

 
4,120

Debt issuance costs
—

 
(47
)
Net cash used in financing activities
(17,349
)
 
(11,362
)
Net decrease in cash and cash equivalents
(29,726
)
 
(25,931
)
Cash and cash equivalents, at beginning of period
87,915

 
116,255

Cash and cash equivalents, at end of period
$
58,189

 
$
90,324



Select Comfort Announces Second-quarter 2013 Results – Page 7 of 9

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 29,
2013
 
June 30,
2012
 
June 29,
2013
 
June 30,
2012
Percent of sales:
 
 
 
 
 
 
 
Retail
88.5
%
 
88.9
%
 
88.3
%
 
88.5
%
Direct and E-Commerce
7.6
%
 
7.5
%
 
7.1
%
 
7.8
%
Wholesale/other
3.9
%
 
3.6
%
 
4.6
%
 
3.7
%
Total
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
Sales growth rates:
 
 
 
 
 
 
 
Retail comparable-store sales
(7
%)
 
27
%
 
(7
%)
 
32
%
Direct and E-Commerce
4
%
 
8
%
 
(9
%)
 
13
%
Company-Controlled comparable sales change
(6
%)
 
25
%
 
(8
%)
 
30
%
Net new/(closed) stores
7
%
 
3
%
 
7
%
 
2
%
Total Company-Controlled Channel
1
%
 
28
%
 
(1
%)
 
32
%
Wholesale/other
7
%
 
11
%
 
23
%
 
19
%
Total
1
%
 
27
%
 
0
%
 
32
%
 
 
 
 
 
 
 
 
Stores open:
 
 
 
 
 
 
 
Beginning of period
411

 
380

 
410

 
381

Opened
17

 
12

 
27

 
22

Closed
(15
)
 
(11
)
 
(24
)
 
(22
)
End of period
413

 
381

 
413

 
381

 
 
 
 
 
 
 
 
Other metrics:
 
 
 
 
 
 
 
Average sales per store ($ in 000's)1
$
2,094

 
$
2,012

 
 
 
 
Average sales per square foot1
$
1,197

 
$
1,281

 
 
 
 
Stores > $1 million net sales1
98
%
 
98
%
 
 
 
 
Stores > $2 million net sales1
46
%
 
42
%
 
 
 
 
Average net sales per mattress unit -
  Company-Controlled Channel2
$
3,182

 
$
3,087

 
$
3,154

 
$
2,889

 
 
 
 
 
 
 
 
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 Second-quarter 2013 Results – Page 8 of 9

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 the comparable GAAP financial measure:
 
Three Months Ended
 
Trailing-Twelve Months Ended
 
June 29,
2013
 
June 30,
2012
 
June 29,
2013
 
June 30,
2012
Net income
$
9,926

 
$
16,973

 
$
72,101

 
$
71,996

Income tax expense
5,259

 
8,927

 
38,204

 
34,663

Interest expense
13

 
20

 
55

 
130

Depreciation and amortization
7,172

 
4,726

 
24,284

 
16,090

Stock-based compensation
1,560

 
1,405

 
3,929

 
11,084

Asset impairments
15

 
3

 
186

 
19

Adjusted EBITDA
$
23,945

 
$
32,054

 
$
138,759

 
$
133,982


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 Second-quarter 2013 Results – Page 9 of 9

SELECT COMFORT CORPORATION AND SUBSIDIARIES
Reported to Adjusted Statements of Operations Data Reconciliation
(in thousands, except per share amounts)

 
Six Months Ended
 
June 29, 2013
 
June 30, 2012
 
As Reported
 
CEO
Transition
Benefit(1)
 
As Adjusted
 
As Reported
 
CEO
Transition
Costs(1)
 
As Adjusted
Operating income
$
50,334

 
$
(391
)
 
$
49,943

 
$
60,148

 
$
5,595

 
$
65,743

Other income, net
169

 
—

 
169

 
55

 
—

 
55

 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
50,503

 
(391
)
 
50,112

 
60,203

 
5,595

 
65,798

Income tax expense(2)
17,106

 
(135
)
 
16,971

 
20,813

 
1,919

 
22,732

Net income
$
33,397

 
$
(256
)
 
$
33,141

 
$
39,390

 
$
3,676

 
$
43,066

 
 
 
 
 
 
 
 
 
 
 
 
Net income per share –
 
 
 
 
 
 
 
 
 
 
 
    Basic
$
0.61

 
$
0.00

 
$
0.60

 
$
0.71

 
$
0.07

 
$
0.77

    Diluted
$
0.60

 
$
0.00

 
$
0.59

 
$
0.69

 
$
0.06

 
$
0.75

 

 

 

 
 
 
 
 
 
    Basic Shares
55,062

 
55,062

 
55,062

 
55,680

 
55,680

 
55,680

    Diluted Shares
56,101

 
56,101

 
56,101

 
57,367

 
57,367

 
57,367

___________________
(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 six 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 six 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 34.4% for 2013 and 34.3% 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