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Select Comfort Sends Letter to Shareholders Highlighting Clear Distinction Between Its Successful Strategy and Blue Clay’s Risky, Poorly Conceived Plans
Select Comfort Urges All Shareholders to Protect the Value of Their Investment By Voting on the WHITE Proxy Card
The full text of the letter is below:
Dear Fellow Shareholder,
At Select Comfort’s
SHAREHOLDER VALUE CREATION IS BEING DRIVEN BY STRATEGIC ACTIONS TAKEN BY SELECT COMFORT’S BOARD AND MANAGEMENT TEAM
Consumers have responded positively to the Company’s transformational strategy, as evidenced by sharply increased consumer demand for Sleep Number’s innovative products and services, accelerated increases in net sales and operating profits, and return on invested capital (ROIC) 50% greater than the company’s weighted average cost of capital1.
Over the last five years, Select Comfort’s Board and management team have made key strategic decisions to:
- Build Sleep Number® as a consumer lifestyle brand with technology as our differentiator;
- Invest to strengthen our core consumer-benefit driven innovation, which has led to industry-leading growth;
- Expand our target customer to a four times larger consumer base and relocate a large number of mall stores to non-mall locations to better serve this broader consumer base;
- Provide a significantly differentiated retail experience while improving and growing our store portfolio to drive retail-leading productivity;
- Advance our national distribution footprint, while developing markets locally – this disciplined, integrated approach has resulted in highly profitable and productive stores, which is the foundation for our sustainable profitable growth; and
- Invest in technology including an Enterprise Resource Planning (ERP) platform to enable future growth and efficiencies through agility and speed.
Select Comfort’s strong performance is clear – we urge shareholders not
to be misled by the cherry-picked and arbitrary time comparisons
selected by
5-Year TSR | 3-Year TSR | 1-Year TSR | |||||||||||||||
1/2/10 - | 12/31/11 - | 12/31/13 - | |||||||||||||||
1/3/15 |
Extended |
1/3/15 |
Extended |
1/3/15 |
Extended | ||||||||||||
SCSS | 312% | 420% | 24% | 56% | 27% | 60% | |||||||||||
S&P 400 Specialty Stores Index | 278% | 315% | 125% | 147% | 24% | 36% | |||||||||||
Peer* Median | 133% | 146% | 41% | 66% | (7%) | (6%) |
* See 2015 Definitive Proxy for listing of 16 peer companies
Note: TSR performance using Select Comfort’s fiscal years; extended
period adds performance through first fiscal quarter of 2015 ended
Our strategy is delivering significant revenue and profit growth. We
expect to more than double 2014 EPS over the next five years to
BLUE CLAY’S RISKY AND POORLY CONCEIVED PROPOSALS TO CHANGE SELECT COMFORT’S BUSINESS ARE BASED ON A FUNDAMENTAL FAILURE TO UNDERSTAND OUR BUSINESS-MODEL AND GROWTH AND PROFITABILITY DRIVERS
Blue Clay is attempting to replace two incumbent
- Blue Clay demands 900 stores. Immediately and aggressively expanding the store base is inconsistent with a strategy centered on exclusive distribution of proprietary products. Blue Clay’s aggressive bricks and mortar expansion plan fails to recognize that the company today operates stores in 47 states nationwide. Our national distribution with a local market development approach in both real estate and advertising creates sustainable and profitable growth. Blue Clay’s plan also ignores that retail is dynamic, with a consumer base that increasingly interacts with brands through ecommerce and mobile shopping.
- Blue Clay declares concern over sales cannibalization “unwarranted.” This comment reflects a lack of experience with real estate, and specifically with an exclusive distribution strategy. The profitability profile of our stores is underpinned by deliberate site selection that maintains the distance between stores and avoids over-building our real estate. We closed approximately 100 stores in 2008/2009 in part because our stores were too close together and sales cannibalization ranged from 30-70%. Blue Clay’s lack of concern about sales cannibalization because our stores are “so profitable” should be concerning to investors.
- Blue Clay mischaracterizes investments in store relocations as low return. This assessment is simply incorrect. Both store relocations and new stores achieve similarly high returns on investment with an approximate 2-year payback. In addition, relocating stores from mall to non-mall has resulted in more favorable long-term store economics and lower fixed costs.
- Blue Clay infers a competitor’s real estate approach is the right strategy for Sleep Number. Blue Clay states “increased store density and proximity are key drivers to accelerating sales.” This is perhaps the most concerning element of Blue Clay’s plan and illustrates their limited experience with vertically integrated business models and our industry. Our retail competitors have a different business model because they have essentially the same assortment as every other mattress retailer, competing mostly on price in a commoditized market. In contrast, our growth is dependent on our advertising to build brand awareness and consideration. Blue Clay’s plans to build real estate because a competitor is doing it, in combination with a dramatic reduction in advertising, will significantly impair our growth and deleverage the business model.
Blue Clay’s Plan
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In contrast
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Blue Clay demands immediate and aggressive expansion to 900 stores |
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Blue Clay declares concern over sales cannibalization “unwarranted” |
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Blue Clay mischaracterizes investments in store relocations as low return |
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Blue Clay denies its plans to cut advertising expenses and eliminate TV advertising |
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Blue Clay has not offered any valuable ideas or insights. Blue Clay’s plans indicate a fundamental lack of understanding of our business model and growth and profitability drivers.
VOTE YOUR WHITE PROXY CARD TODAY “FOR” SELECT COMFORT’S NOMINEES TO SUPPORT THE CONTINUED EXECUTION OF OUR TRANSFORMATIONAL STRATEGY
Select Comfort’s Board and management team welcome Blue Clay’s investment, just as we welcome the investment made by all of our shareholders, including yours. However, we believe Blue Clay’s poorly conceived and risky plans will have a significant negative impact on Select Comfort’s transformational strategy and could cause the destruction of shareholder value. It is unfortunate that Blue Clay believes that its interests are best served by waging a proxy fight.
Whether or not you plan to attend the Annual Meeting, you have the opportunity to support our value creation strategy by voting the WHITE proxy card. We urge you to vote today by Internet, by telephone or by signing and dating the enclosed WHITE proxy card and returning it in the postage-paid envelope provided.
The Board of Directors strongly urges you not to sign or return any proxy card sent to you by or on behalf of Blue Clay. If you have previously submitted a blue card sent to you by Blue Clay, you can revoke that proxy and vote for our Director nominees and on the other matters to be voted on at the 2015 Annual Meeting by using the enclosed WHITE proxy card.
We thank you for your continued support of
Sincerely,
/s/ |
/s/ |
|||||||||
Jean-Michel Valette | Shelly Ibach | |||||||||
Chairman of the Board | President & Chief Executive Officer | |||||||||
SLEEP NUMBER® setting 35 | SLEEP NUMBER® setting 40 | |||||||||
If you have questions or need assistance in voting your shares, please call:
Georgeson
480 Washington Boulevard, 26th Floor Jersey City, NJ 07310 (800) 561-3991 (Toll Free) e-mail: selectcomfort@georgeson.com
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About
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
Forward-looking Statements
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
1 As disclosed in the company's Form 10-K for the fiscal year
ended
2
Store Closing Announcements Signal Omni-Channel Future is Here.
National Real Estate Investor, 04/10/15
3 Select
Comfort’s 2014 advertising spend of
Source:
Investor Contact:
Select Comfort Corporation
Dave
Schwantes, 763-551-7498
investorrelations@selectcomfort.com
or
Georgeson
Inc.
Steven Pantina, 201-222-4229
Senior Managing Director
spantina@georgeson.com
or
Media
Contact:
Joele Frank, Wilkinson Brimmer Katcher
Tim Lynch
/ Scott Bisang, 212-355-4449