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Select Comfort Files Definitive Proxy Materials in Connection with 2015 Annual Meeting of Shareholders
Letter to Shareholders Urges Re-Election of Board Nominees
In conjunction with the definitive proxy filing,
The following letter to
The full text of the letter is below:
Dear Fellow Shareholder,
At Select Comfort’s upcoming Annual Meeting of Shareholders, which is
scheduled to be held on
This year your vote is especially important, given the contested
election of directors. Specifically,
As evident from our 2014 results, this is an exciting time for the Company, with accelerating consumer acceptance and operating performance, in addition to above-peer return on invested capital (ROIC). It is also a delicate and complex period of evolution and transformative change that requires a high level of expertise, judgment, acumen and experience to oversee.
We are committed to maintaining a top-flight and diverse board, which
has the skill sets and capacity to evolve in a rapidly changing
environment and the courage to hold management accountable for
delivering on our high ambitions. In that vein, we have taken seriously
our responsibility to recommend the three board nominees who are most
qualified and likely to contribute to maximizing value creation for all
WE URGE SHAREHOLDERS TO VOTE THE WHITE PROXY CARD TO:
— ELECT SELECT COMFORT’S NOMINEES TO SUPPORT THE CONTINUED EXECUTION OF OUR TRANSFORMATIONAL STRATEGY
— REJECT BLUE CLAY’S ATTEMPTS TO FORCE RISKY AND POORLY CONCEIVED CHANGES TO SELECT COMFORT’S SUCCESSFUL STRATEGY
Your vote is important in this election and we urge you to vote so that your voice is heard at this year’s Annual Meeting.
Support Select Comfort’s proven strategy by using the WHITE
proxy card to re-elect all three independent, experienced and highly
Select Comfort’s differentiated growth strategy, developed and
implemented by your Board and management team, is driving performance
and positioning the Company for sustained profitable growth. The
opportunity for continued revenue and profit growth is significant, as
Blue Clay’s inexperienced Board nominees are advocating risky changes to the Company’s strategies based on arbitrary targets, without understanding the negative effects of these changes on the business and shareholder value. Shareholders should be concerned about the risk posed to their investment by the detrimental consequences of Blue Clay’s attempts to force unwarranted changes to Select Comfort’s transformational strategy at a critical time.
SELECT COMFORT’S CURRENT BOARD AND MANAGEMENT TEAM
HAVE DELIVERED STRONG PERFORMANCE
Select Comfort’s current Board and management team have led the development and implementation of the Company’s progressive, long-term growth strategy, while prudently managing operating risk and efficiently deploying capital. This strategy has delivered:
Total Shareholder Return of 312% over the five years ending with
fiscal 2014, well above the NASDAQ Stock Market Index, the
S&P500 Index and the S&P400 Specialty Store Index.
$115 millionreturned to shareholders over the past 11 quarters through our share repurchase program, representing 124% of free cash flows. The Company paid an average price per share of $22.40, well below our ending stock price of $33.97per share on March 30, 2015.
Full-year 2014 results including:
Record net sales of
$1.16 billion, an increase of 20% over 2013, including 12% Company-controlled comparable sales growth
Earnings per diluted share of
$1.25, an increase of 16% compared to $1.08in 2013
- Return on invested capital of 15% (50% greater than our 10% weighted average cost of capital) on a growing invested capital base
- Record net sales of
Your Board and management team are committed to continued shareholder value creation.
We expect to more than double our 2014 EPS over the next five years,
CONSUMER-DRIVEN INNOVATION STRATEGY AND CLEAR COMPETITIVE ADVANTAGES
PRODUCING STRONG FINANCIAL RESULTS
Your Board and management team have positioned the Company to deliver sustainable, superior shareholder returns by pursuing a consumer-driven innovation strategy that leverages our vertically integrated business model. This strategy prioritizes strengthening our three unique competitive advantages to deliver sustainable profitable growth. These advantages include: proprietary sleep innovations, ongoing customer relationships and exclusive distribution.
- Proprietary Sleep Innovations: Smart technology is at the forefront of Select Comfort’s strategy. In an industry characterized by commodity merchandise and promotional pricing, the Board and management have positioned the Company as the sleep innovation leader by offering technology-driven products that resonate with consumers who seek the benefits of improved sleep. In the past two years, we have introduced a completely new portfolio of Sleep Number beds, which combine our proprietary SleepIQ sensor technology with DualAir adjustability for the individual knowledge to adjust for your best sleep. In addition, we introduced innovations such as the Sleep Number x12 bed, DualTemp layer and the FlexFit adjustable base series featuring Partner Snore technology. The Company’s innovations have won numerous technology awards and the Sleep Number Bed was rated “#1 for comfort and back pain relief”, rated as a “best buy” and rated as “best bed for couples” by a leading consumer magazine in the past year.
The consumer’s response to these innovations resulted in 31% net sales growth and 63% earnings per share growth for the second half of 2014 versus the prior year period. Select Comfort’s innovations have also helped drive growth in both average revenue per mattress unit (ARU), which grew by 13%, and Company-controlled mattress unit sales, which increased 8% in 2014.
- Ongoing Customer Relationships: As both the manufacturer and retailer, Sleep Number develops life−long relationships with its customers. The Company’s smart technology and connectivity are deepening these relationships. In addition, the significant sleep data and daily insights are fueling future innovation. “Repeat and referral” sales from existing customers continue to be an important source of growth, constituting more than 30% of net sales.
- Exclusive Distribution: Sleep Number stores offer our customers
a differentiated, value-added experience, which results in retail
leading store productivity. Our sleep professionals focus on
meeting customers’ individual sleep needs with our proprietary products
and sales process. Our productive, award winning store design
complements the sales process and results in consistent high conversion.
Our distribution strategy is well informed, highly tested and built for
agility as consumers’ shopping behavior shifts toward mobile and digital
interaction. Exclusive distribution is the foundation for sustainable,
profitable growth in our advantaged business model. Annual sales per
comparable store have increased to
SELECT COMFORT’S BALANCED CAPITAL ALLOCATION STRATEGY RETURNS CAPITAL
SHAREHOLDERS AND SUPPORTS GROWTH
Select Comfort’s Board and management team’s capital allocation strategy is focused on three priorities: funding organic growth, maintaining financial flexibility and returning cash to shareholders.
- Return on Investment: While increasing its average invested capital base through investment in growth opportunities, the Company generated a 15% ROIC in 2014, 50% greater than the Company’s weighted average cost of capital of 10%. This ROIC exceeds returns earned by direct competitors2 and other home furnishing companies3 and demonstrates the strength of the investment decisions being made by your management team and Board. The Company’s long-term guidance includes an expectation for at least mid-teen ROIC going forward.
- Return of Capital to Shareholders: Over the past 11 quarters
through the fourth quarter of fiscal 2014,
Furthermore, following the third quarter of 2014, the Company announced
an increase in its outstanding share repurchase authorization to
- Investing to Support Growth: One of the Company’s top priorities in 2015 is to successfully implement an Enterprise Resource Planning (ERP) system. The ERP implementation, which involves replacing much of Select Comfort’s 20-year-old core transactional operating systems, is critical to support our vertically integrated business with efficiency, stability, and scalability. Periods of high consumer demand for our products, as we experienced in 2014, strain legacy infrastructure, create inefficiencies in our supply chain and adversely impact customer experience. These constraints underscore the importance of building new capabilities and agile systems.
The implementation of the ERP system will enable the continued
successful execution of Select Comfort’s strategy. In 2015, the Company
plans to invest approximately
- Balance Sheet Strength to Retain Flexibility: We are committed
to retaining sufficient balance sheet strength to provide adequate
liquidity to meet Select Comfort’s operating needs, including
BLUE CLAY’S PROPOSAL TO DOUBLE STORE COUNT DEMONSTRATES A LACK OF
UNDERSTANDING OF SELECT COMFORT’S BUSINESS MODEL AND WOULD IMPAIR FINANCIAL PERFORMANCE
X Blue Clay asserts that any concern around sales
cannibalization is unwarranted: “We believe that the Company should immediately
undertake a capital expenditure strategy focused on aggressive new store
development …”4 In materials shared with
Implications: An immediate capital expenditure strategy to double store count regardless of sales cannibalization would reduce the productivity and profitability of stores while adding significantly to the Company’s fixed cost structure. The sales cannibalization resulting from a store development approach that “seems reasonable” to Blue Clay would, in fact, seriously impair the financial performance of the business and Select Comfort’s ability to grow in a sustainable and profitable manner. Blue Clay’s proposed actions would also reduce agility to respond to changing consumer shopping behaviors, which is of increasing importance.
IN CONTRAST, SELECT COMFORT’S STRATEGIC APPROACH TO MARKET DEVELOPMENT
INCLUSIVE OF NEW STORE DEVELOPMENT IS DISCIPLINED, TESTED AND PROVEN, WHILE ALSO
DELIVERING RETAIL-LEADING COMPARABLE SALES AND PRODUCTIVITY
- Market Development: Our disciplined market-based development
approach results in market share gains and profitable growth. In 2011,
we introduced an ‘Aggressive Growth’ strategy designed to accelerate and
sustain market share in 13 of our large and underpenetrated markets.
These markets represented about one-third of U.S. mattress sales, and we
are on track to launch our tenth market in 2015, with elements of this
strategy already deployed in all markets. The objective of our
Aggressive Growth strategy is to double market share in these markets in
a sustainable manner within three to four years post-launch. Launching
an Aggressive Growth market requires investments in both new and
existing stores and heavy up-front local advertising spend to support
sales growth. Our multi-faceted Aggressive Growth strategy is carefully
calibrated to deliver optimal return on investment and sales growth
market-by-market in a sustainable manner. In the four markets
launched in 2011,
- Store Productivity: The Company’s approach to store site
selection combines art with science utilizing our proprietary Customer
Prospecting Model to evaluate each market. This process results in
increased productivity of existing stores while adding new stores with
cannibalization rates of less than 20%. Since 2011, the Company has been
optimizing its national real estate footprint through new stores,
relocations from mall to non-mall and within malls. During this time, we
have improved more than 70% of the Company’s existing store portfolio,
including location, size and store design. Our strategy, which includes
rigorous tests of site characteristics, is delivering a strong return on
investment and high store productivity and profitability. Our target
over the next five years is 590 to 650 stores. As of
BLUE CLAY’S PROPOSAL TO SIGNIFICANTLY CUT ADVERTISING SPEND INCREASES
SALES AND DEMONSTRATES LACK OF UNDERSTANDING OF SELECT COMFORT’S VERTICALLY
INTEGRATED BUSINESS MODEL
X Blue Clay advocates cutting advertising spend as a
percent of net sales by over 25%5 and
eliminating all TV advertising. In materials shared with
- Advertising is our engine. As both the retailer and manufacturer, and the exclusive distributor of our differentiated proprietary products, advertising is our engine. Our advertising strategy increases brand awareness and consideration, as well as raising consumer demand and traffic. We analyze and prioritize our media spend on a return on investment basis. Over the past two years, we have built an econometric model that contributes to the predictability of efficiently allocating media spend based on consumer behavior. We are continuing to advance our marketing effectiveness, and improve media return on investment by optimizing our media mix and investment and leveraging our growing scale. In 2014, a 9% increase in media spend helped to drive a 20% increase in sales, while providing 140 basis points of leverage.
We believe shareholders should be concerned about the negative impact on sales and shareholder value of Blue Clay’s plans to significantly cut advertising spend. Reducing advertising spending would be especially troublesome in combination with the aggressive and immediate store expansion plans advocated by Blue Clay.
SELECT COMFORT’S HIGHLY QUALIFIED DIRECTORS ARE THE RIGHT CHOICE TO
CONTINUED EXECUTION OF THE COMPANY’S STRATEGY
- Progressive Board: Select Comfort’s Board has regenerated itself through a progressive and diligent succession planning process. The Board is comprised of nine highly qualified directors with diverse experience and expertise in strategic and financial disciplines and industries that are relevant and important to the Company’s business and continued success. Eight Board members are independent, including the Chairman, and one third of the Board are women. The Board’s thoughtful succession planning process has brought in four new directors over the past four years, who have diverse experience that is complementary to the composition of the Board. Collectively, the Board and executive officers beneficially own 3.4% of the Company’s shares, significantly more than Blue Clay’s ownership position.
- Recognized Governance: The Company’s high governance standards
were recognized by Institutional Shareholder Services (ISS) in its
latest annual review, which ranked
- Proactive Shareholder Outreach: The Company has a commitment
and a track record of soliciting and considering shareholder input.
X Blue Clay Nominees Not Qualified: After Blue Clay privately submitted a nominations notice, the Company invited its nominees to meet with a majority of the members of our Board, including all of the members of the Board’s Corporate Governance and Nominating Committee and the Company’s Chief Executive Officer. After carefully considering the credentials and experience of the Blue Clay nominees, the Board determined that the Blue Clay nominees did not meet the Company’s criteria for director nominees and would not be included in the Company’s slate of nominees at the Annual Meeting.
We urge you to support the
DO NOT ALLOW BLUE CLAY TO PUT THE VALUE OF YOUR INVESTMENT AT RISK —
You may receive materials from Blue Clay, which is seeking to elect its own nominees to the Select Comfort Board. We believe that adding any of the Blue Clay nominees would be detrimental to the execution of Select Comfort’s successful strategy.
Blue Clay’s commentary on
Your Board fully understands this business and is working hard to ensure that the Company’s value-creation strategy drives enhanced shareholder returns. The Board is addressing both the challenges and the opportunities we face and there is no reason to interrupt the Company’s progress.
PROTECT YOUR INVESTMENT - VOTE THE WHITE PROXY CARD TODAY
We urge you to protect your investment by voting the enclosed WHITE proxy card today “FOR” all of Select Comfort’s nominees.
Your vote is extremely important, no matter how many or how few shares you own. We urge you to vote today by telephone, online or by signing and dating the enclosed WHITE proxy card and returning it in the postage-paid envelope provided. Please do not return or otherwise vote any Blue proxy card sent to you by Blue Clay.
On behalf of the Board of Directors and management team, we appreciate
the continued support of
|Jean-Michel Valette||Shelly Ibach|
|Chairman of the Board||President & Chief Executive Officer|
If you have questions or need assistance in voting your shares, please call:
480 Washington Boulevard, 26th Floor
Jersey City, NJ 07310
(800) 561-3991 (Toll Free)
SLEEP NUMBER, a sleep innovation leader, delivers unparalleled sleep experiences by offering high-quality, innovative sleep products and services. The company is the exclusive designer, manufacturer, marketer, retailer and servicer of a complete line of Sleep Number® beds including our newest addition, the SleepIQ Kids™ bed. Only the Sleep Number bed offers SleepIQ® technology – proprietary sensor technology that works directly with the bed’s DualAir™ system to track and monitor each individual’s sleep. SleepIQ technology communicates how you slept and what adjustments you can make to optimize your sleep and improve your daily life. Sleep Number also offers a full line of exclusive sleep products including FlexFit™ adjustable bases and Sleep Number® pillows, sheets and other bedding products. Consumers also benefit from a unique, value-added retail experience at one of the more than 460 Sleep Number® stores across the country, online at SleepNumber.com, or via phone at (800) Sleep Number or (800) 753-3768.
Important Additional Information and Where to Find It
The Company has filed a proxy statement on Schedule 14A and other
relevant documents with the
Certain Information Regarding Participants in Solicitation
The Company, its directors, its executive officers and its nominees for
election as director may be deemed participants in the solicitation of
proxies from shareholders in connection with the matters to be
considered at the Company’s 2015 Annual Meeting. Information regarding
the persons who may, under the rules of the
Statements used in this news release relating to future plans, events,
financial results, management or performance are forward-looking
statements within the meaning of the Securities Act of 1933 and the
Securities Exchange Act of 1934 and are subject to certain risks and
uncertainties including, among others, such factors as current and
future general and industry economic trends and consumer confidence; the
effectiveness of our marketing messages; the efficiency of our
advertising and promotional efforts; our ability to execute our
company-controlled distribution strategy; our ability to achieve and
maintain acceptable levels of product and service quality, and
acceptable product return and warranty claims rates; our ability to
continue to improve and expand our product line; consumer acceptance of
our products, product quality, innovation and brand image; industry
competition, the emergence of additional competitive products, and the
adequacy of our intellectual property rights to protect our products and
brand from competitive or infringing activities; availability of
attractive and cost-effective consumer credit options; pending and
unforeseen litigation and the potential for adverse publicity associated
with litigation; our “just-in-time” manufacturing processes with minimal
levels of inventory, which may leave us vulnerable to shortages in
supply; 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; risks inherent in
global sourcing activities; risks of disruption in the operation of
either of our two primary manufacturing facilities; 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 to
protect sensitive data from potential cyber threats; the costs,
distractions and potential disruptions to our business related to
upgrading our management information systems; our ability to attract,
retain and motivate qualified management, executive and other key
employees, including qualified retail sales professionals and managers;
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
|Source: May 20, 2014. “Apple and the Other Most Successful Retailers by Sales Per Square Foot”. Forbes.com|
|Direct competitors referenced are Mattress Firm and Tempur-Sealy; ROIC comparison utilizes publicly available information for competitors and applies Select Comfort’s previously disclosed ROIC calculation|
|3||Home furnishings companies referenced are Ethan Allen, Havertys, La-Z-Boy and Pier1; ROIC comparison utilizes publicly available information for competitors and applies Select Comfort’s previously disclosed ROIC calculation|
|4||Blue Clay Preliminary Proxy Statement (emphasis added)|
|5||Select Comfort’s 2014 advertising spend of $158.5 million represented 13.7% of 2014 net sales|
Select Comfort Corporation
Dave Schwantes, 763-551-7498
Steven Pantina, 201-222-4229
Senior Managing Director
Joele Frank, Wilkinson Brimmer Katcher
Tim Lynch / Scott Bisang