8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):  October 19, 2011

SELECT COMFORT CORPORATION

(Exact name of registrant as specified in its charter)

Minnesota

(State or other jurisdiction of incorporation or organization)

0-25121	41-1597886
(Commission File No.)	(IRS Employer Identification No.)

9800 59th Avenue North, Minneapolis, Minnesota 55442

(Address of principal executive offices)          (Zip Code)

(763) 551-7000

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

1

ITEM 2.02.  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On October 19, 2011, Select Comfort Corporation issued a press release announcing results for the fiscal third quarter ended October 1, 2011.  A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.

ITEM 7.01.  REGULATION FD DISCLOSURE

On October 19, 2011, Select Comfort Corporation prepared an investor presentation to be referenced with respect to its third quarter earnings announcement.  The presentation is furnished as Exhibit 99.2 to this Current Report on Form 8-K.  The presentation will be posted in the Investor Relations section of www.sleepnumber.com.

ITEM 9.01.  FINANCIAL STATEMENTS AND EXHIBITS

(c)           Exhibits.

Exhibit 99.1 Press Release, dated October 19, 2011

Exhibit 99.2 Investor Presentation, dated October 19, 2011

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	SELECT COMFORT CORPORATION
	(Registrant)
Dated:  October 19, 2011	By:	/s/ Mark A. Kimball
		Mark A. Kimball
	Title:	Senior Vice President

INDEX TO EXHIBITS

The exhibits listed in this index are being furnished pursuant to Item 2.02 and Item 7.01 of Form 8-K and shall not be deemed “filed” for purposes of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any document filed under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except as otherwise expressly stated in any such filing.

Exhibit No. Description of Exhibit

99.1 Press Release, dated October 19, 2011

99.2 Investor Presentation, dated October 19, 2011

2

EX-99.1

EXHIBIT 99.1

FOR IMMEDIATE RELEASE

Media Contact: Gabby Nelson (763) 551-7460 gabby.nelson@selectcomfort.com Investor Contact: Wendy Schoppert (763) 551-7498 investorrelations@selectcomfort.com  

SELECT COMFORT ANNOUNCES THIRD QUARTER 2011 RESULTS

●    Reports Earnings per Diluted Share of $0.31, Up 63 Percent vs. Prior Year

●   Achieves Comparable Sales Growth of 26 Percent

●   Raises 2011 and Long-term Guidance

MINNEAPOLIS – (Oct. 19, 2011) – Select Comfort Corporation (NASDAQ: SCSS) today reported third-quarter results for the period ended Oct. 1, 2011. Net sales for the quarter increased 25 percent to $200 million, compared to $160 million in the third quarter of 2010, driven by company-controlled comparable sales growth of 26 percent and retail comparable sales growth of 29 percent. The company reported net income of $17.2 million, a 64 percent increase versus $10.5 million in the third quarter of 2010.  Earnings per diluted share for the quarter increased 63 percent to $0.31, compared to $0.19 per diluted share in the third quarter of 2010.

“Our outstanding performance in the third quarter further demonstrates the strength of our unique product, our advantaged business model, and the success our strategic initiatives are having in driving profitable growth and increased share,” said Bill McLaughlin, president and CEO, Select Comfort Corporation. “We’re especially pleased with the quality and sustainability of our earnings, driven by continued double-digit revenue growth and record operating margins.”

McLaughlin added, “Given our low brand awareness and underpenetrated distribution in major markets, we believe we are still early in our growth curve. Our plan calls for continued share and earnings growth, fueled by sustained focus on executing our proven, consumer-driven product, marketing and distribution initiatives.”

Third-quarter Summary

In the third quarter, net sales increased by 25 percent as compared to the prior-year period. The increase in sales was driven by company-controlled comparable sales growth of 26

Select Comfort Announces Third Quarter 2011 Results – Page 2 of 10

percent, with average retail sales-per-store during the past 12 months reaching a record $1.6 million, a 29 percent improvement over the prior-year period.

Gross-profit margin in the third quarter of 2011 increased 50 basis points to 63.0 percent of net sales, compared with 62.5 percent in the prior-year period. The increase reflects manufacturing efficiencies and pricing actions, partially offset by $1.6 million of additional customer-service reserves during the quarter.

Sales and marketing costs in the third quarter of 2011 increased by 23 percent to $83.9 million, representing 42.1 percent of net sales. This compares to $68.3 million, or 42.6 percent of net sales in the prior-year period, reflecting continued leverage of sales and marketing. Media investments in the third quarter totaled $24 million, 38 percent higher than a year ago.

General and administrative expenses were $14.3 million in the third quarter, or 7.2 percent of net sales. This compares to $14.3 million, or 8.9 percent of net sales during the same period last year, again reflecting continued leverage of the company’s fixed-cost base.

Operating income of $26.5 million and operating margin of 13.3 percent each represented the best third-quarter performance in company history. This record operating performance resulted in earnings per diluted share of $0.31, a 63 percent improvement versus prior-year.

Cash flows from operating activities were $75 million for the first nine months of 2011 compared to $71 million in the year-ago period. Capital expenditures for the first nine months of 2011 increased to $14.5 million as compared to $3.5 million during the same time period last year, driven by increased investment in stores and information systems. As of the end of the quarter, cash, cash equivalents and marketable-debt securities totaled $136 million and the company had no borrowings under its revolving credit agreement.

Outlook

Based on its robust third-quarter performance, the company is increasing its fiscal 2011 outlook for earnings per diluted share from between $0.90 and $0.96 to between $0.99 and $1.01. Outlook for the fourth quarter of 2011 assumes company-controlled comparable sales growth of between 20 and 25 percent and earnings per diluted share of between $0.19 and $0.21, a 46 to 62 percent increase over prior year. The company expects to end 2011

Select Comfort Announces Third Quarter 2011 Results – Page 3 of 10

with approximately 380 stores after netting planned store openings and closings. Full-year 2011 capital expenditures are expected to be approximately $25 million.

The company also is communicating new annualized growth goals for the next three years, including company-controlled comparable sales growth of at least 10 to 12 percent, net store growth of between 5 and 7 percent, and earnings-per-diluted-share growth of at least 20 percent per year. The company added that it believes there may be opportunity to surpass these levels of growth in the near term.

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 Sleep Number website at http://www.sleepnumber.com/eng/aboutus/InvestorRelations.cfm. The webcast replay will remain available in the investor relations area of the company’s website for approximately 60 days.

About Select Comfort Corporation

Select Comfort Corporation is leading the industry in setting a new standard in sleep by offering consumers high-quality, innovative and individualized sleep solutions, which includes a complete line of SLEEP NUMBER® beds and bedding. The company is the exclusive manufacturer, seller 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 country’s only national specialty mattress retailer, consumers can take advantage of an enhanced mattress-buying experience at one of the approximately 374 Sleep Number stores across the country as well as online at www.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 our marketing messages; the efficiency of our advertising and promotional

Select Comfort Announces Third Quarter 2011 Results – Page 4 of 10

efforts; consumer acceptance of our products, product quality, innovation and brand image; availability of attractive and cost-effective consumer credit options; execution of our retail store distribution strategy; our dependence on significant suppliers, and our 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; our ability to continue to improve our 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 our management information systems to meet the evolving needs of our business and evolving regulatory standards applicable to data privacy and security; our 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 our filings with the Securities and Exchange Commission (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 Announces Third Quarter 2011 Results – Page 5 of 10

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited – in thousands, except per share amounts)

	Three Months Ended
	October 1,		% of			October 2,			% of
	2011		Net Sales			2010			Net Sales
Net sales	$	199,600		100.0	%	$	160,103			100.0	%
Cost of sales		73,838		37.0	%		60,114			37.5	%
Gross profit		125,762		63.0	%		99,989			62.5	%
Operating expenses:
Sales and marketing		83,936		42.1	%		68,252			42.6	%
General and administrative		14,331		7.2	%		14,286			8.9	%
Research and development		1,029		0.5	%		454			0.3	%
Asset impairment charges		7		0.0	%		217			0.1	%
Total operating expenses		99,303		49.8	%		83,209			52.0	%
Operating income		26,459		13.3	%		16,780			10.5	%
Other income (expense), net		23		0.0	%		(50	)		0.0	%
Income before income taxes		26,482		13.3	%		16,730			10.4	%
Income tax expense		9,246		4.6	%		6,242			3.9	%
Net income	$	17,236		8.6	%	$	10,488			6.6	%
Net income per share – basic	$	0.31				$	0.19
Net income per share – diluted	$	0.31				$	0.19
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding		55,214					54,129
Effect of dilutive securities:
Options		777					682
Restricted shares		504					432
Diluted weighted-average shares outstanding		56,495					55,243

Select Comfort Announces Third Quarter 2011 Results – Page 6 of 10

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited – in thousands, except per share amounts)

	Nine Months Ended
	October 1,			% of			October 2,			% of
	2011			Net Sales			2010			Net Sales
Net sales	$	554,130			100.0	%	$	457,008			100.0	%
Cost of sales		202,763			36.6	%		172,470			37.7	%
Gross profit		351,367			63.4	%		284,538			62.3	%
Operating expenses:
Sales and marketing		234,724			42.4	%		201,325			44.1	%
General and administrative		43,074			7.8	%		40,369			8.8	%
Research and development		2,983			0.5	%		1,721			0.4	%
Asset impairment charges		103			0.0	%		217			0.0	%
Total operating expenses		280,884			50.7	%		243,632			53.3	%
Operating income		70,483			12.7	%		40,906			9.0	%
Other expense, net		(37	)		0.0	%		(1,826	)		(0.4	%)
Income before income taxes		70,446			12.7	%		39,080			8.6	%
Income tax expense		25,338			4.6	%		14,630			3.2	%
Net income	$	45,108			8.1	%	$	24,450			5.4	%
Net income per share – basic	$	0.82					$	0.45
Net income per share – diluted	$	0.80					$	0.44
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding		54,966						53,885
Effect of dilutive securities:
Options		804						870
Restricted shares		536						444
Diluted weighted-average shares outstanding		56,306						55,199

Select Comfort Announces Third Quarter 2011 Results – Page 7 of 10

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share amounts)

subject to reclassification

	(unaudited)
	October 1,		January 1,
	2011		2011
Assets
Current assets:
Cash and cash equivalents	$	96,367	$	76,016
Marketable debt securities – current		19,988		-
Accounts receivable, net of allowance for doubtful accounts of $325 and $302, respectively		7,973		9,909
Inventories		20,996		19,647
Prepaid expenses		6,930		6,388
Deferred income taxes		4,129		4,297
Other current assets		5,927		652
Total current assets		162,310		116,909
Marketable debt securities – non-current		20,080		-
Property and equipment, net		38,847		32,953
Deferred income taxes		12,383		15,965
Other assets		4,303		4,130
Total assets	$	237,923	$	169,957
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	45,819	$	42,025
Customer prepayments		13,614		12,944
Compensation and benefits		25,827		24,857
Taxes and withholding		10,172		5,359
Other current liabilities		17,179		11,671
Total current liabilities		112,611		96,856
Non-current liabilities:
Warranty liabilities		2,991		2,815
Other long-term liabilities		12,208		12,309
Total non-current liabilities		15,199		15,124
Total liabilities		127,810		111,980
Shareholders’ equity:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding		-		-
Common stock, $0.01 par value; 142,500 shares authorized, 56,174 and 55,455 shares issued and outstanding, respectively		562		555
Additional paid-in capital		43,791		36,799
Retained earnings		65,731		20,623
Accumulated other comprehensive income		29		-
Total shareholders’ equity		110,113		57,977
Total liabilities and shareholders’ equity	$	237,923	$	169,957

NOTE: In the first quarter of fiscal 2011 we began reporting cash resulting from credit and debit card transactions when received, rather than on an in-transit basis. To maintain consistency and comparability, previously reported amounts have been reclassified to conform to the current-year presentation.

Select Comfort Announces Third Quarter 2011 Results – Page 8 of 10

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited - in thousands)

subject to reclassification

	Nine Months Ended
	October 1,			October 2,
	2011			2010
Cash flows from operating activities:
Net income	$	45,108		$	24,450
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,786			11,313
Stock-based compensation		3,674			2,761
Net disposals and impairments of assets		92			213
Excess tax benefits from stock-based compensation		(1,700	)		(1,298	)
Deferred income taxes		2,579			(1,757	)
Changes in operating assets and liabilities:
Accounts receivable		1,936			4,382
Inventories		(1,349	)		(620	)
Income taxes		5,187			8,657
Prepaid expenses and other assets		(3,486	)		3,293
Accounts payable		2,887			5,785
Customer prepayments		670			(351	)
Accrued compensation and benefits		1,176			7,744
Other taxes and withholding		2,199			1,496
Warranty liabilities		1,210			(137	)
Other accruals and liabilities		4,556			4,668
Net cash provided by operating activities		74,525			70,599
Cash flows from investing activities:
Purchases of property and equipment		(14,492	)		(3,521	)
Proceeds from sales of property and equipment		11			10
Investments in marketable debt securities		(40,021	)		-
Increase in restricted cash		(2,650	)		-
Net cash used in investing activities		(57,152	)		(3,511	)
Cash flows from financing activities:
Net decrease in short-term borrowings		(537	)		(889	)
Repurchases of common stock		(350	)		(1,373	)
Proceeds from issuance of common stock		2,165			859
Excess tax benefits from stock-based compensation		1,700			1,298
Debt issuance costs		-			(143	)
Net cash provided by (used in) financing activities		2,978			(248	)
Net increase in cash and cash equivalents		20,351			66,840
Cash and cash equivalents, at beginning of period		76,016			12,184
Cash and cash equivalents, at end of period	$	96,367		$	79,024

NOTE: To maintain consistency and comparability, certain amounts from previously reported financial statements have been reclassified to conform to the current-year presentation. See Note on page 7.

Select Comfort Announces Third Quarter 2011 Results – Page 9 of 10

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Supplemental Financial Information

(unaudited)

	Three Months Ended						Nine Months Ended
	October 1,			October 2,			October 1,			October 2,
	2011			2010			2011			2010
Percent of sales:
Retail		89.3	%		86.4	%		87.7	%		84.2	%
Direct and E-Commerce		7.5	%		9.6	%		8.5	%		10.9	%
Wholesale		3.2	%		4.0	%		3.8	%		4.9	%
Total		100.0	%		100.0	%		100.0	%		100.0	%
Sales growth rates:
Retail comparable-store sales		29	%		16	%		28	%		24	%
Direct and E-Commerce		(2	%)		4	%		(6	%)		9	%
Company-Controlled comparable sales change		26	%		15	%		24	%		21	%
Net closed stores/other		0	%		(4	%)		(1	%)		(5	%)
Total Company-Controlled Channels		26	%		11	%		23	%		16	%
Wholesale		(1	%)		(32	%)		(6	%)		(32	%)
Total		25	%		9	%		21	%		12	%
Stores open:
Beginning of period		375			395			386			403
Opened		3			2			9			2
Closed		(4	)		(5	)		(21	)		(13	)
End of period		374			392			374			392
Other metrics:
Average sales per store ($ in 000's)1	$	1,611		$	1,252
Average sales per square foot1	$	1,071		$	850
Stores > $1 million net sales1		90	%		68	%
Stores > $2 million net sales1		18	%		6	%
Average mattress sales per mattress unit - Company Controlled Channels2	$	2,252		$	2,031		$	2,191		$	2,002

1 Trailing twelve months for stores open at least one year.

2 Includes revenue from adjustable foundations which has become a more significant part of the mattress mix. The prior definition excluded revenue from adjustable foundations. Previously reported amounts have been reclassified to conform to the current-year presentation.

Select Comfort Announces Third Quarter 2011 Results – Page 10 of 10

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 (benefit), interest expense, depreciation and amortization, stock-based compensation and asset impairments consistent with the definition used in our debt covenant calculations. Management believes EBITDA is a useful indicator of the Company's financial performance. 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
	October 1,		October 2,		October 1,		October 2,
	2011		2010		2011		2010
Net income	$	17,236	$	10,488	$	52,226	$	59,759
Income tax expense (benefit)		9,246		6,242		29,630		(14,232	)
Interest expense		24		69		234		2,896
Depreciation and amortization		3,390		3,162		13,043		13,158
Stock-based compensation		1,418		1,270		4,875		3,455
Asset impairments		7		217		145		416
EBITDA	$	31,321	$	21,448	$	100,153	$	65,452

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

EX-99.2

Exhibit 99.2

October 2011

Sleep Number . . .

Transforming a large, undifferentiated industry

2

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; 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 presentation.

4

•30 years consistent industry
growth, reset in ’08/’09 . . .
6% CAGR

•Premium (>$1,000) outpacing total
industry growth

•Specialty also outpacing with
consumer trend toward better sleep

•Significant growth opportunity in
adjustable “air” segment

•SCSS = 5% market share in $’s;
lead markets 2-3X

Innerspring

Foam

1Total Wholesale Sales based on ISPA 2010 Annual Report and ISPA Oct. 2011
Forecast. Premium percentages for 2012 are company estimates.

Competing in the industry sweet spot

5

Unique, vertically-integrated business model

Differentiated end-to-end brand experience

•374 stores nationwide, supported by
sleepnumber.com and call center

•Knowledgeable, tenured Sleep Experts and “white
glove” home delivery and service

•Company-controlled customer touchpoints provide
direct insight into product innovation and R&D

Flexible, cash advantaged supply chain

•Two plants (UT & SC), 10 hubs and 127 spokes

support national distribution

•Build-to-order, JIT inventory translates to minimal

inventory (15 turns in manufacturing)

•Negative 30-day cash conversion cycle

- Cash receipt at time of order

- Payables cycle tied to time of manufacture

6

Proprietary products . . . real consumer benefits

Individualized comfort at the touch of a button

•9 out of 10 couples prefer different mattress firmness

•Adjustable comfort on both sides…only with Sleep Number

Scientifically proven benefits

•3rd party studies - improved sleep quality, reduced pain

•Superior consumer satisfaction - 20 pts higher

than traditional mattresses

Broad product offering at competitive value

•Good/Better/Best mattresses, full range of bedding & bases

•Pricing starts at $699 (Queen Mattress)

Sleep Number Bed Series & Models (Queen Sets)

Classic Series

c2

$999

c3

$1,299

c4

$1,599

Performance Series

p5

$2,099

p6

$2,599

p7

$2,899

Innovation Series

i8

$3,199

i10

$4,699

7

Product

Marketing

Target

Customer

Distribution

Sustainable
Competitive
Advantages

Expanding consumer base through integrated
consumer-focused strategy

8

The product opportunity

•Value:Addressed price confusion in 2009;
currently emphasizing accessibility (e.g.,
queen mattresses starting @ $699)

•Core promise:Proprietary personalized
comfort for individuals and couples

–Sleep Number brand

–“DualAir technology inside”

–New “signature look”

•Innovation: Support brand development and
re-engage owners

–Enhance - e.g., line refresh 2011 Q2

–Extend - e.g., AirFit pillow 2011 Q4

–Evolve - e.g., R&D investment

•Margin:Goal to continue increasing gross
margin over next 3 years

–Sales/transaction - e.g., bedding, foundations

–Pricing - e.g., +4% annualized taken in 2011

9

Media efficiency performance

Broad Reach
- National

Broad Reach
- Local

Digital

Media spend by type

Direct
Response

•Sleep Number:Recently consolidated
brand in 2010

•Creative & Media:Evolving to reach a
broader target customer, addressing
proprietary benefits - including
advantaged store experience

–Local

–National

•Value & Urgency:Media and
merchandising targeted to mattress
buying consumer holidays

•Sustainable Expansion:Integrated
sales and marketing; leveraging selling
expense now - preparing to leverage
media longer-term

The marketing opportunity

10

New Store Economics

Build out costs (000’s)~$320

Inventory (000’s)$15

Payback12-18 months

First year sales target (000’s)>$1,500

The distribution opportunity

•Company-controlled channel growth

–Average sales/store leverage

–Store expansion starts in 2012; 5-7% net
expansion, >500 stores by 2015

•Market-based development for
profitable expansion

–Accelerate sustainable market share

–Compete locally

•Customer experience leadership &
innovation

–New formats . . . non-mall stores

–New designs . . . experiential

–Advanced selling . . . selection, training,
tenure

11

Today, every $100,000
increase in average
sales per store

•$38 million sales (+1 bed/store/week)

•~ $11 million operating profit

•~ $0.13 incremental EPS

Store growth adds incremental upside potential

12

Integrated marketing and retail demonstrate path
to increase market share

13

1Q3-11 represents trailing 12 months

Early stage growth company . . . revenue and profit

14

	20091	20112	Potential by 2015	Drivers
Gross margin	60%	63%	#2-3 pts	•Supply chain leverage & efficiencies •Product innovation & pricing
Selling & Marketing %	50%	43%	$2-5 pts	•Store base leverage •Media mix & efficiency
G&A/other %	11%	9%	$0-1 pts	•Focus on core business
Operating margin	(1%)	12%	> 15%

1Trailing 12 months ended third quarter on a pro forma basis

2Trailing 12 months ended third quarter

The profit margin opportunity

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Investment Summary . . . why now?

•SCSS emerged from 2008-2009 economic crisis a stronger company,
prepared for an uncertain economy

–Consolidated brand

–Target customer expansion

–Breakeven point lowered

–Flexibility with short lead-time media and promotions

–Balance sheet strength - $136 million cash & securities, no debt

–Management team experience during the crisis and growth

•A unique and highly profitable growth opportunity

–Sustained revenue/share growth

–Continued profit leverage

–Strong cash flow

–Early stage development = opportune time

17

Appendix

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Name	Age	Title	# yrs w/ SCSS	Previous experience
Bill McLaughlin	55	President & CEO	11	PepsiCo/Frito-Lay
Shelly Ibach	52	COO	4	Macy’s, Target Corporation
Kathy Roedel	51	EVP, Chief Technology & Services	6	GE Health Care
Wendy Schoppert	44	EVP & CFO	6	U.S. Bank, America West, Northwest, AMR
Mark Kimball	53	SVP & General Counsel	12	Oppenheimer, Wolff & Donnelly
Karen Richard	41	SVP, Human Capital	15	TCF Financial Corp

Experienced Management Team

19

Unaided Brand Awareness

Unaided Store Awareness

Brand

Store

#1 Growth Opportunity . . .
Awareness & Consideration