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Select Comfort Reports Fourth-Quarter and Full-Year 2013 Results

February 5, 2014
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  • Generates Fourth-quarter Net Sales of $231 Million, a 5% Year-over-year increase
  • Reports Fourth-quarter EPS of $0.12 and Full-year EPS of $1.08 on a GAAP basis
  • Provides 2014 outlook

MINNEAPOLIS--(BUSINESS WIRE)--Feb. 5, 2014-- Select Comfort Corporation (NASDAQ:SCSS) today reported fourth-quarter and full-year 2013 results for the period ended Dec. 28, 2013.

Fourth-quarter Financial Summary

  • Net sales increased 5% to $231 million, compared to $221 million in the fourth quarter of 2012.
  • Company-controlled comparable sales were flat year-over-year.
  • Operating income was $9.7 million, compared with $19.4 million in the fourth quarter of 2012.
  • Earnings per diluted share were $0.12, compared with $0.22 in the prior year.
  • During the quarter, the company opened 28 new stores and closed 11.

Full-year 2013 Financial Summary

  • Net sales increased 3% to $960 million, up from $935 million in 2012.
  • Company-controlled comparable sales declined 4% year-over-year.
  • Earnings per diluted share on a GAAP basis were $1.08, compared to $1.37 per diluted share in 2012. Adjusted earnings per diluted share (excluding CEO transition benefit/costs) were $1.07 compared with $1.43 for the prior year.
  • The company opened 71 new stores and closed 41 in 2013, ending the year at 440 stores, a 7% increase versus year-end 2012.

“While we made important progress on strengthening our strategic differentiators and delivered five percent year-over-year sales growth, our financial performance in the fourth quarter did not meet our expectations,” said Shelly Ibach, president and CEO, Select Comfort. “As we look to 2014, we are cautiously optimistic about the combined impact of what we believe are fundamental product innovations and the most-tested, new advertising campaign in our history.”

Cash from operating activities was $88 million for full-year 2013 compared to $101 million in 2012. Capital expenditures for full-year 2013 increased to $77 million as compared to $52 million in 2012, driven by increased investment in stores and information systems. During the fourth quarter, the company returned $10 million to shareholders through the repurchase of 0.5 million shares of its common stock, bringing full-year share repurchases to $40 million, or 1.8 million shares. As of the end of the quarter, cash, cash equivalents and marketable-debt securities totaled $145 million, and the company had no borrowings under its revolving credit facility.

Financial Outlook
The company expects full-year 2014 earnings per diluted share to approximate full-year 2013 adjusted earnings per diluted share of $1.07. This outlook assumes mid- to high-single-digit total revenue growth and the addition of 20 to 30 net new stores during the year.

The company currently anticipates that 2014 capital expenditures will be $70-$80 million, including investments in new, relocated and remodeled stores, as well as information technology.

Conference Call Information
Management will host its regularly scheduled conference call to discuss the company’s results at 5 p.m. EST (4 p.m. CST; 2 p.m. PST) 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
Select Comfort Corporation is leading the industry in delivering an unparalleled sleep experience by offering consumers high-quality, innovative and individualized sleep solutions and services, which include a complete line of SLEEP NUMBER® beds and bedding. The company is the exclusive manufacturer, marketer, retailer 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 individualization through its solutions-focused line of Sleep Number pillows, sheets and other bedding products. As the only national specialty-mattress retailer, consumers can take advantage of an enhanced mattress-buying experience at one of the 440 SLEEP NUMBER® stores across the country, online at 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 the company’s marketing messages; the efficiency of its advertising and promotional efforts; consumer acceptance of its products, product quality, innovation and brand image; availability of attractive and cost-effective consumer credit options; execution of the company’s retail store distribution strategy; the company’s dependence on significant suppliers, and its 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; the company’s ability to continue to improve its 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 the company’s management information systems to meet the evolving needs of its business and evolving regulatory standards applicable to data privacy and security; the company’s 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 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
December 28, % of December 29, % of
2013 Net Sales 2012 Net Sales
 
Net sales $ 230,854 100.0 % $ 220,559 100.0 %
Cost of sales   90,333 39.1 %   80,612 36.5 %
Gross profit   140,521 60.9 %   139,947 63.5 %
 
Operating expenses:
Sales and marketing 112,679 48.8 % 102,062 46.3 %
General and administrative 16,150 7.0 % 16,532 7.5 %
Research and development 2,003 0.9 % 1,906 0.9 %
Asset impairment charges   34 0.0 %   33 0.0 %
Total operating expenses   130,866 56.7 %   120,533 54.6 %
Operating income 9,655 4.2 % 19,414 8.8 %
Other income, net   80 0.0 %   90 0.0 %
Income before income taxes 9,735 4.2 % 19,504 8.8 %
Income tax expense   3,310 1.4 %   7,009 3.2 %
Net income $ 6,425 2.8 % $ 12,495 5.7 %
 
Net income per share – basic $ 0.12 $ 0.23
 
Net income per share – diluted $ 0.12 $ 0.22
 

 

Reconciliation of weighted-average shares outstanding:

Basic weighted-average shares outstanding 54,497 55,261
Effect of dilutive securities:
Options 452 1,050
Restricted shares   371   449
Diluted weighted-average shares outstanding   55,320   56,760
 
 
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
               
Twelve Months Ended
December 28, % of December 29, % of
2013 Net Sales 2012 Net Sales
 
Net sales $ 960,171 100.0 % $ 934,978 100.0 %
Cost of sales   358,416   37.3 %   338,432 36.2 %
Gross profit   601,755   62.7 %   596,546 63.8 %
 
Operating expenses:
Sales and marketing 439,156 45.7 % 398,205 42.6 %
General and administrative 62,840 6.5 % 66,617 7.1 %
Research and development 9,478 1.0 % 6,194 0.7 %
CEO transition (benefit) costs (534 ) (0.1 %) 5,595 0.6 %
Asset impairment charges   127   0.0 %   148 0.0 %
Total operating expenses   511,067   53.2 %   476,759 51.0 %
Operating income 90,688 9.4 % 119,787 12.8 %
Other income, net   323   0.0 %   218 0.0 %
Income before income taxes 91,011 9.5 % 120,005 12.8 %
Income tax expense   30,930   3.2 %   41,911 4.5 %
Net income $ 60,081   6.3 % $ 78,094 8.4 %
 
Net income per share – basic $ 1.10   $ 1.41
 
Net income per share – diluted $ 1.08   $ 1.37
 

 

Reconciliation of weighted-average shares outstanding:

Basic weighted-average shares outstanding 54,866 55,516
Effect of dilutive securities:
Options 554 1,059
Restricted shares   383     501
Diluted weighted-average shares outstanding   55,803     57,076
 
 
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
subject to reclassification
       
December 28, December 29,
2013 2012
Assets
Current assets:
Cash and cash equivalents $ 58,223 $ 87,915
Marketable debt securities – current 52,159 51,264

Accounts receivable, net of allowance for doubtful accounts of $425 and $348, respectively

14,979 16,613
Inventories 40,152 35,564
Prepaid expenses 9,216 4,299
Deferred income taxes 6,936 5,401
Other current assets   7,874   9,522
Total current assets 189,539 210,578
 
Non-current assets:
Marketable debt securities – non-current 34,632 38,642
Property and equipment, net 129,542 79,356
Goodwill and intangible assets, net 16,823 2,881
Deferred income taxes 4,943 8,511
Other assets   6,286   2,053
Total assets $ 381,765 $ 342,021
 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 73,391 $ 67,703
Customer prepayments 15,392 15,194
Accrued sales returns 9,433 5,330
Compensation and benefits 15,242 21,597
Taxes and withholding 12,517 9,282
Other current liabilities   11,207   13,955
Total current liabilities 137,182 133,061
 
Non-current liabilities:
Warranty liabilities 1,567 1,457
Other long-term liabilities   17,796   13,806
Total non-current liabilities   19,363   15,263
Total liabilities 156,545 148,324
 
Shareholders’ equity:

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

- -

Common stock, $0.01 par value; 142,500 shares authorized, 54,901 and 55,903 shares issued and outstanding, respectively

549 559
Additional paid-in capital 5,382 33,923
Retained earnings 219,276 159,195
Accumulated other comprehensive income   13   20
Total shareholders’ equity   225,220   193,697
Total liabilities and shareholders’ equity $ 381,765 $ 342,021
 
 
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
subject to reclassification
       
Twelve Months Ended
December 28, December 29,
2013 2012
 
Cash flows from operating activities:
Net income $ 60,081 $ 78,094

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

Depreciation and amortization 30,811 20,401
Stock-based compensation 4,232 10,306
Net loss on disposals and impairments of assets 24 115
Excess tax benefits from stock-based compensation (3,831 ) (6,446 )
Deferred income taxes 2,037 3,499
Changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable 1,993 (2,705 )
Inventories (3,910 ) (10,713 )
Income taxes 4,395 4,299
Prepaid expenses and other assets (3,169 ) (2,382 )
Accounts payable (3,477 ) 7,114
Customer prepayments 198 1,665
Accrued compensation and benefits (5,202 ) (8,108 )
Other taxes and withholding (153 ) 765
Warranty liabilities (1,236 ) (1,454 )
Other accruals and liabilities   5,312     6,176  
Net cash provided by operating activities   88,105     100,626  
 
Cash flows from investing activities:
Purchases of property and equipment (76,811 ) (51,593 )
Proceeds from sales of property and equipment 117 45
Investments in marketable debt securities (44,170 ) (86,803 )
Proceeds from maturities of marketable debt securities 53,565 26,249
Acquisition of business (15,500 ) -
Investment in non-marketable equity securities   (4,500 )   -  
Net cash used in investing activities   (87,299 )   (112,102 )
 
Cash flows from financing activities:
Net (decrease) increase in short-term borrowings (223 ) 6,494
Repurchases of common stock (42,072 ) (34,892 )
Proceeds from issuance of common stock 7,966 5,138
Excess tax benefits from stock-based compensation 3,831 6,446
Debt issuance costs   -     (50 )

Net cash used in financing activities

  (30,498 )   (16,864 )
 
Net decrease in cash and cash equivalents (29,692 ) (28,340 )
Cash and cash equivalents, at beginning of period   87,915     116,255  
Cash and cash equivalents, at end of period $ 58,223   $ 87,915  
 
 
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
               
Three Months Ended Twelve Months Ended
December 28, December 29, December 28, December 29,
2013 2012 2013 2012
 
Percent of sales:
Retail 89.5 % 88.7 % 89.2 % 89.2 %
Direct and E-Commerce 7.8 % 7.8 % 7.0 % 7.5 %
Wholesale/other   2.7 %   3.5 %   3.8 %   3.3 %
Total   100.0 %   100.0 %   100.0 %   100.0 %
 
Sales growth rates:
Retail comparable-store sales 0 % 12 % (4 %) 24 %
Direct and E-Commerce   6 %   (3 %)   (5 %)   9 %
Company-Controlled comparable sales change 0 % 11 % (4 %) 23 %
Net open/closed stores   6 %   6 %   6 %   3 %
Total Company-Controlled Channel 6 % 17 % 2 % 26 %
Wholesale/other   (20 %)   13 %   18 %   10 %
Total   5 %   17 %   3 %   26 %
 
Stores open:
Beginning of period 423 394 410 381
Opened 28 20 71 57
Closed   (11 )   (4 )   (41 )   (28 )
End of period   440     410     440     410  
 
Other metrics:
Average sales per store ($ in 000's) 1 $ 2,093 $ 2,164
Average sales per square foot 1 $ 1,077 $ 1,324
Stores > $1 million net sales 1 96 % 98 %
Stores > $2 million net sales 1 46 % 49 %
Average net sales per mattress unit - Company-Controlled Channel 2 $ 3,369 $ 3,249 $ 3,245 $ 3,050
 
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
December 28, December 29, December 28, December 29,
2013 2012 2013 2012
 
Net income $ 6,425 $ 12,495 $ 60,081 $ 78,094
Income tax expense 3,310 7,009 30,930 41,911
Interest expense 10 12 51 91
Depreciation and amortization 8,320 5,653 29,599 19,735
Stock-based compensation 1,173 737 4,232 10,306
Asset impairments   34   33   127   148
Adjusted EBITDA $ 19,272 $ 25,939 $ 125,020 $ 150,285
 

Note - Our Adjusted 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

 
SELECT COMFORT CORPORATION AND SUBSIDIARIES
Reported to Adjusted Statements of Operations Data Reconciliation
(in thousands, except per share amounts)
                       
Twelve Months Ended
December 28, 2013 December 29, 2012
CEO CEO
Transition Transition
As Reported Benefit(1) As Adjusted As Reported Costs(1) As Adjusted
Operating income $ 90,688 $ (534 ) $ 90,154 $ 119,787 $ 5,595 $ 125,382
Other income, net   323   -     323   218   -   218
 
Income before income taxes 91,011 (534 ) 90,477 120,005 5,595 125,600
Income tax expense(2)   30,930   (183 )   30,747   41,911   1,941   43,852
Net income $ 60,081 $ (351 ) $ 59,730 $ 78,094 $ 3,654 $ 81,748
 
Net income per share –
Basic $ 1.10 $ (0.01 ) $ 1.09 $ 1.41 $ 0.07 $ 1.47
Diluted $ 1.08 $ (0.01 ) $ 1.07 $ 1.37 $ 0.06 $ 1.43
 
Basic Shares 54,866 54,866 54,866 55,516 55,516 55,516
Diluted Shares 55,803 55,803 55,803 57,076 57,076 57,076
 

(1) In February 2012, we announced that William R. McLaughlin, then President and CEO, would retire from the Company effective June 1, 2012. In recognition of Mr. McLaughlin’s contributions, the Compensation Committee approved the modification of Mr. McLaughlin’s currently unvested stock awards, including performance-based stock awards. As a result of these modifications, we recorded incremental non-cash compensation of $5.6 million in fiscal year 2012. The performance-based stock awards are subject to applicable adjustments through 2014 based on actual performance versus performance targets. During the fiscal year ended December 28, 2013, we recorded a non-cash compensation benefit of $0.5 million resulting from performance-based stock award adjustments.

(2) Reflects effective income tax rate, before discrete adjustments, of 34.2% for 2013 and 34.7% for 2012.

Note - Our "as adjusted" data 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 year-over-year comparisons for investors and financial analysts.

GAAP - generally accepted accounting principles

Source: Select Comfort Corporation

Select Comfort Corporation
Investor Contact:
Dave Schwantes, 763-551-7498
investorrelations@selectcomfort.com
or
Media Contact:
Becky Dvorak, 763-551-6862
publicrelations@selectcomfort.com

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