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8-K
SLEEP NUMBER CORP filed this Form 8-K on 10/17/2017
Entire Document
 
Exhibit

Exhibit 99.1

http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11842342&doc=3
FOR IMMEDIATE RELEASE

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 - (October 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.




Select Comfort Announces Third-quarter 2017 Results – Page 2 of 9

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.

# # #

Investor Contact: Dave Schwantes; (763) 551-7498; investorrelations@selectcomfort.com







Select Comfort Announces Third-quarter 2017 Results – Page 3 of 9

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

 
Three Months Ended
 
September 30,
2017
 
% of
Net Sales
 
October 1,
2016
 
% of
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 Announces Third-quarter 2017 Results – Page 4 of 9

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

 
Nine Months Ended
 
September 30,
2017
 
% of
Net Sales
 
October 1,
2016
 
% of
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 Announces Third-quarter 2017 Results – Page 5 of 9

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited - in thousands, except per share amounts)
subject to reclassification
 
September 30,
2017
 
December 31,
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 Announces Third-quarter 2017 Results – Page 6 of 9

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited – in thousands)
subject to reclassification
 
Nine Months Ended
 
September 30,
2017
 
October 1,
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 Announces Third-quarter 2017 Results – Page 7 of 9

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
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 Announces Third-quarter 2017 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
 
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
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,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
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 Announces Third-quarter 2017 Results – Page 9 of 9

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,
2017
 
October 1,
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.