Printer Friendly Version View printer-friendly version
Select Comfort Announces Third Quarter 2017 Results
  • Reported net sales increase of 9% to $403 million
  • Generated record operating cash flow of $176 million for the first nine months of the year
  • Increased share repurchase authorization to $500 million
  • Maintained midpoint of EPS outlook, while narrowing range to $1.30 to $1.45 per share

MINNEAPOLIS--(BUSINESS WIRE)--Oct. 17, 2017-- Select Comfort Corporation (NASDAQ: SCSS) today reported third quarter 2017 results for the period ended September 30, 2017.

“Strong demand in the quarter for our revolutionary Sleep Number 360™ smart beds, higher than expected gross margins, and disciplined expense controls partially offset unexpected hurricane impacts,” said Shelly Ibach, president and chief executive officer of Select Comfort. “We are excited with how the consumer continues to respond to our innovations focused on quality sleep and wellness. With cash flow generation at record levels and the underlying strength of our business, we are increasing our share repurchase authorization to $500 million and are reaffirming the midpoint of our 2017 EPS guidance.”

The company also announced that effective November 1st, it will officially change the corporate name to Sleep Number Corporation and will also change the Nasdaq ticker symbol from SCSS to SNBR.

Third Quarter Review

  • Net sales increased 9% to a quarterly record of $403 million, including 6 percentage points of growth from stores opened in the last twelve months and a 5% comparable sales increase
  • Gross profit increased 9% to $253 million, with a gross margin rate of 62.9%
  • Earnings per diluted share increased 11% to $0.62, compared with $0.56 in the prior year’s quarter

Cash Flows and Balance Sheet Review

  • Generated a record $176 million in net cash from operating activities for the first nine months of 2017, compared with $145 million for the same period last year
  • Invested $38 million in capital expenditures and returned $115 million of cash to shareholders through share repurchases during the first nine months of 2017 compared with $39 million and $95 million, respectively, for the same period last year
  • Return on invested capital (ROIC) was 13.8% for the trailing twelve-month period, well above our cost of capital

Share Repurchase Authorization
The company also announced an increase in the outstanding share repurchase authorization to $500 million, effective at the beginning of the fiscal fourth quarter. The company is committed to delivering superior shareholder returns, including returning cash to shareholders through share repurchases. Since the beginning of 2012, Select Comfort has invested $465 million in capital spending and acquisitions, while also returning $453 million in cash to shareholders through share repurchases.

Financial Outlook
The company updated its outlook for 2017 earnings per diluted share to a range of $1.30 to $1.45 per share. The outlook includes an estimated $0.18 EPS impact from incremental costs related to the launch of the Sleep Number 360™ smart bed line and the evolution of our supply chain. The outlook assumes high single-digit sales growth, including 5 to 6 percentage points from net new store openings and low single-digit comp store growth. The company anticipates 2017 capital expenditures to be approximately $55 million.

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
Thirty years ago, Sleep Number transformed the mattress industry with the idea that ‘one size does not fit all’ when it comes to sleep. Today, the company is the leader in sleep innovation and ranked “Highest in Customer Satisfaction with Mattresses” by J.D. Power in 2015 and 2016. As the pioneer in biometric sleep tracking and adjustability, Sleep Number is proving the connection between quality sleep and health and wellbeing. Dedicated to individualizing sleep experiences, the company’s 4,000 employees are improving lives with innovative sleep solutions. To find better quality sleep visit one of the more than 550 Sleep Number® stores located in 49 states or SleepNumber.com.

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 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; the potential for claims that our products, processes or trademarks infringe the intellectual property rights of others; 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, including the potential for shortages in supply of key components; risks of disruption in the operation of either of our two primary manufacturing facilities; increasing government regulations, which have added or may 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, political unrest 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.

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
           
 
Three Months Ended
September 30, % of October 1, % of
2017 Net Sales 2016 Net Sales
 
Net sales $ 402,646 100.0 % $ 367,988 100.0 %
Cost of sales   149,181   37.1 %   135,645   36.9 %
Gross profit   253,465   62.9 %   232,343   63.1 %
Operating expenses:
Sales and marketing 174,800 43.4 % 158,024 42.9 %
General and administrative 32,645 8.1 % 28,278 7.7 %
Research and development   6,991   1.7 %   6,997   1.9 %
Total operating expenses   214,436   53.3 %   193,299   52.5 %
Operating income 39,029 9.7 % 39,044 10.6 %
Other expense, net   (248 ) (0.1 %)   (255 ) (0.1 %)
Income before income taxes 38,781 9.6 % 38,789 10.5 %
Income tax expense   13,178   3.3 %   13,044   3.5 %
Net income $ 25,603   6.4 % $ 25,745   7.0 %
 
Net income per share – basic $ 0.63   $ 0.56  
 
Net income per share – diluted $ 0.62   $ 0.56  
 
 

Reconciliation of weighted-average shares outstanding:

Basic weighted-average shares outstanding 40,755 45,621
Dilutive effect of stock-based awards   760     729  
Diluted weighted-average shares outstanding   41,515     46,350  
 
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
           
 
Nine Months Ended
September 30, % of October 1, % of
2017 Net Sales 2016 Net Sales
 
Net sales $ 1,081,218 100.0 % $ 997,846 100.0 %
Cost of sales   404,675   37.4 %   385,168   38.6 %
Gross profit   676,543   62.6 %   612,678   61.4 %
Operating expenses:
Sales and marketing 488,564 45.2 % 443,477 44.4 %
General and administrative 95,233 8.8 % 86,202 8.6 %
Research and development   20,950   1.9 %   21,661   2.2 %
Total operating expenses   604,747   55.9 %   551,340   55.3 %
Operating income 71,796 6.6 % 61,338 6.1 %
Other expense, net   (668 ) (0.1 %)   (581 ) (0.1 %)
Income before income taxes 71,128 6.6 % 60,757 6.1 %
Income tax expense   21,842   2.0 %   20,627   2.1 %
Net income $ 49,286   4.6 % $ 40,130   4.0 %
 
Net income per share – basic $ 1.18   $ 0.86  
 
Net income per share – diluted $ 1.16   $ 0.85  
 
 

Reconciliation of weighted-average shares outstanding:

Basic weighted-average shares outstanding 41,740 46,705
Dilutive effect of stock-based awards   819     708  
Diluted weighted-average shares outstanding   42,559     47,413  
 
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited – in thousands, except per share amounts)
subject to reclassification
       
September 30, December 31,
2017 2016
Assets
Current assets:
Cash and cash equivalents $ 29,914 $ 11,609

Accounts receivable, net of allowance for doubtful accounts of $694 and $884, respectively

21,107 19,705
Inventories 79,217 75,026
Prepaid expenses 10,208 8,705
Other current assets   23,803   23,282
Total current assets 164,249 138,327
 
Non-current assets:
Property and equipment, net 206,690 208,367
Goodwill and intangible assets, net 78,133 80,817
Deferred income taxes 938 4,667
Other non-current assets   28,898   24,988
Total assets $ 478,908 $ 457,166
 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 136,628 $ 105,375
Customer prepayments 39,929 26,207
Accrued sales returns 18,448 15,222
Compensation and benefits 34,683 19,455
Taxes and withholding 24,041 23,430
Other current liabilities   44,708   35,628
Total current liabilities 298,437 225,317
 
Non-current liabilities:
Other non-current liabilities   76,174   71,529
Total liabilities 374,611 296,846
 
Shareholders’ equity:

Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding

- -

Common stock, $0.01 par value; 142,500 shares authorized, 39,819 and 43,569 shares issued and outstanding, respectively

398 436
Additional paid-in capital - -
Retained earnings   103,899   159,884
Total shareholders’ equity   104,297   160,320
Total liabilities and shareholders’ equity $ 478,908 $ 457,166
 
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited - in thousands)
subject to reclassification
           
Nine Months Ended
September 30, October 1,
2017 2016
 
Cash flows from operating activities:
Net income $ 49,286 $ 40,130

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 46,000 42,555
Stock-based compensation 11,809 9,272
Net loss on disposals and impairments of assets 229 9
Excess tax benefits from stock-based compensation - (516 )
Deferred income taxes 3,729 (673 )
Changes in operating assets and liabilities:
Accounts receivable (1,402 ) 5,271
Inventories (4,191 ) 15,991
Income taxes (147 ) 30,386
Prepaid expenses and other assets (1,713 ) (3,458 )
Accounts payable 33,325 (1,043 )
Customer prepayments 13,722 (23,125 )
Accrued compensation and benefits 15,277 12,441
Other taxes and withholding 758 7,494
Other accruals and liabilities   9,372     10,527  
Net cash provided by operating activities   176,054     145,261  
 
Cash flows from investing activities:
Purchases of property and equipment (37,613 ) (38,769 )
Proceeds from sales of property and equipment 36 67
Investments in marketable debt securities - (5,968 )
Proceeds from marketable debt securities - 15,090
Decrease in restricted cash   3,150     -  
Net cash used in investing activities   (34,427 )   (29,580 )
 
Cash flows from financing activities:
Net (decrease) increase in short-term borrowings (6,194 ) 3,062
Repurchases of common stock (120,158 ) (96,410 )
Proceeds from issuance of common stock 3,040 1,949
Excess tax benefits from stock-based compensation - 516
Debt issuance costs   (10 )   (409 )
Net cash used in financing activities   (123,322 )   (91,292 )
 
Net increase in cash and cash equivalents 18,305 24,389
Cash and cash equivalents, at beginning of period   11,609     20,994  
Cash and cash equivalents, at end of period $ 29,914   $ 45,383  
 
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
           
 
Three Months Ended Nine Months Ended
September 30, October 1, September 30, October 1,
2017 2016 2017 2016
 
Percent of sales:
Retail 92.8 % 91.3 % 91.7 % 91.0 %
Online and phone 6.5 % 6.5 % 6.8 % 6.3 %
Wholesale/other   0.7 %   2.2 %   1.5 %   2.7 %
Total   100.0 %   100.0 %   100.0 %   100.0 %
 
Sales change rates:
Retail comparable-store sales 5 % (10 %) 1 % (7 %)
Online and phone   9 %   23 %   17 %   10 %
Company-Controlled comparable sales change 5 % (8 %) 2 % (6 %)
Net opened/closed stores   6 %   7 %   8 %   6 %
Total Company-Controlled Channel 11 % (1 %) 10 % 0 %
Wholesale/other   (65 %)   (19 %)   (38 %)   3 %
Total   9 %   (2 %)   8 %   0 %
 
Stores open:
Beginning of period 549 506 540 488
Opened 6 24 30 57
Closed   (2 )   (3 )   (17 )   (18 )
End of period   553     527     553     527  
 
Other metrics:
Average sales per store ($ in 000's) 1 $ 2,369 $ 2,248
Average sales per square foot 1 $ 909 $ 895
Stores > $1 million net sales 1 98 % 98 %
Stores > $2 million net sales 1 59 % 54 %
Average revenue per mattress unit 2 $ 4,385 $ 3,959 $ 4,239 $ 4,031
 

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.

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
September 30,   October 1, September 30,   October 1,
2017 2016 2017 2016
 
Net income $ 25,603 $ 25,745 $ 60,573 $ 18,958
Income tax expense 13,178 13,044 25,731 11,112
Interest expense 278 267 935 721
Depreciation and amortization 14,770 14,536 60,404 56,154
Stock-based compensation 3,933 1,666 14,498 10,609
Asset impairments 222 2 267 51
       
Adjusted EBITDA $ 57,984 $ 55,260 $ 162,408 $ 97,605
 
Free Cash Flow
(in thousands)
 
Three Months Ended Trailing-Twelve Months Ended
September 30, October 1, September 30, October 1,
2017 2016 2017 2016
 
Net cash provided by operating activities $ 87,247 $ 98,141 $ 182,438 $ 121,616
Subtract: Purchases of property and equipment 10,481 15,005 56,696 62,920
       
Free cash flow $ 76,766 $ 83,136 $ 125,742 $ 58,696

 

Note -   Our Adjusted EBITDA calculation and our "free cash flow" data are considered non-GAAP financial measures and are 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 in the U.S.
 

SELECT COMFORT CORPORATION AND SUBSIDIARIES
Calculation of Return on Invested Capital (ROIC)
(in thousands)

ROIC is a financial measure we use to determine how efficiently we deploy our capital. It quantifies the return we earn on our invested capital. Management believes ROIC is also a useful metric for investors and financial analysts. We compute ROIC as outlined below. Our definition and calculation of ROIC may not be comparable to similarly titled definitions and calculations used by other companies. The tables below reconcile net operating profit after taxes (NOPAT) and total invested capital, which are non-GAAP financial measures, to the comparable GAAP financial measures:

  Trailing-Twelve Months Ended
September 30,   October 1,
2017 2016

Net operating profit after taxes (NOPAT)

Operating income $ 87,108 $ 30,681
Add: Rent expense 1 72,260 64,994
Add: Interest income 129 109
Less: Depreciation on capitalized operating leases 2 (18,384 ) (16,953 )
Less: Income taxes 3   (46,004 )   (29,805 )
NOPAT $ 95,109 $ 49,026
 

Average invested capital

Total equity $ 104,297 $ 176,512
Less: Cash greater than target 4 - -
Add: Long-term debt 5 - -
Add: Capitalized operating lease obligations 6   578,080     519,952  
Total invested capital at end of period $ 682,377 $ 696,464
 
Average invested capital 7 $ 689,467 $ 714,956
 
Return on invested capital (ROIC) 8   13.8 %   6.9 %
 
1   Rent expense is added back to operating income to show the impact of owning versus leasing the related assets.
 
2 Depreciation is based on the average of the last five fiscal quarters' ending capitalized operating lease obligations (see note 6) for the respective reporting periods with an assumed thirty-year useful life. This is subtracted from operating income to illustrate the impact of owning versus leasing the related assets.
 
3 Reflects annual effective income tax rates, before discrete adjustments, of 32.6% and 37.8% for 2017 and 2016, respectively.
 
4 Cash greater than target is defined as cash, cash equivalents and marketable debt securities less customer prepayments in excess of $100 million.
 
5 Long-term debt includes existing capital lease obligations, if applicable.
 
6 A multiple of eight times annual rent expense is used as an estimate of capitalizing our operating lease obligations. The methodology utilized aligns with the methodology of a nationally recognized credit rating agency.
 
7 Average invested capital represents the average of the last five fiscal quarters' ending invested capital balances.
 
8 ROIC equals NOPAT divided by average invested capital.
 

Note -

 

Our ROIC calculation and data are considered non-GAAP financial measures and are not in accordance with, or preferable to, 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 in the U.S.

Source: Select Comfort Corporation

Select Comfort Corporation
Investor Contact:
Dave Schwantes, 763-551-7498
investorrelations@selectcomfort.com


Search Investor Relations