Select Comfort Urges All Shareholders to Protect the Value of Their
Investment By Voting on the WHITE Proxy Card
MINNEAPOLIS--(BUSINESS WIRE)--Apr. 16, 2015--
Select Comfort Corporation (NASDAQ:SCSS) today sent a letter to its
shareholders highlighting its strong financial performance and superior
shareholder returns being generated by executing its focused strategy.
The letter also underscores the risks to the Company’s continued success
inherent in the poorly conceived changes being advocated by Blue Clay
Capital Partners CO III LP.
The full text of the letter is below:
April 16, 2015
Dear Fellow Shareholder,
At Select Comfort’s May 22, 2015 Annual Meeting, you will have the
opportunity to vote the WHITE proxy card in support of our strong
financial performance and the superior shareholder returns being
delivered by your Board and management team.
SHAREHOLDER VALUE CREATION IS BEING DRIVEN BY STRATEGIC ACTIONS TAKEN
BY SELECT COMFORT’S BOARD AND MANAGEMENT TEAM
Select Comfort is successfully executing a carefully considered and
transformational consumer-driven innovation strategy to deliver
long-term value to shareholders. This strategy has already begun to
demonstrate excellent financial results.
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:
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Build Sleep Number® as a consumer lifestyle brand with technology as
our differentiator;
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Invest to strengthen our core consumer-benefit driven innovation,
which has led to industry-leading growth;
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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;
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Provide a significantly differentiated retail experience while
improving and growing our store portfolio to drive retail-leading
productivity;
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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
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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 Blue Clay Capital Partners CO III LP (together with its
affiliates and related parties, “Blue Clay”) and their silence on the
Company’s superior performance under the current Board and management
team. Shareholders who invested in Select Comfort have been rewarded
with outperformance in the short and long-term versus the S&P 400
Specialty Store Index and our peers. Total shareholder returns for one
and five years were 27% and 312% respectively and, when extended through
the end of the first fiscal quarter of 2015, were 60% and 420%
respectively.
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5-Year TSR
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3-Year TSR
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1-Year TSR
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1/2/10 -
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12/31/11 -
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12/31/13 -
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1/3/15
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Extended
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1/3/15
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Extended
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1/3/15
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Extended
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SCSS
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312%
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420%
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24%
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56%
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27%
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60%
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S&P 400 Specialty Stores Index
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278%
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315%
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125%
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147%
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24%
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36%
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Peer* Median
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133%
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146%
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41%
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66%
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(7%)
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(6%)
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* 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 4/3/15
Our strategy is delivering significant revenue and profit growth. We
expect to more than double 2014 EPS over the next five years to $2.75 in
2019 (17% CAGR) as we advance our growth initiatives and as the
investments made in the Company’s consumer-driven innovation strategy
mature in the coming years.
Select Comfort will release first quarter 2015 results on April 22,
2015.
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 Select Comfort
directors with its own nominees in order to advance Blue Clay’s poorly
conceived and risky changes to Select Comfort’s business. Blue Clay’s
demands to “immediately” and “aggressively” expand the store base would
have a significant adverse impact on Select Comfort’s business and
shareholder value. Blue Clay’s fundamental lack of understanding of our
business model and growth and profitability drivers led them to simply
apply a competitor’s approach to a company unlike any other in the
industry. Specifically:
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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.
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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.
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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.
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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.
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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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Select Comfort has built an agile exclusive distribution
strategy that can adapt cost-effectively to changing consumer
behavior, such as the shift to mobile and digital purchasing — a
shift that is leading other national retailers to close stores.2
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An exclusive distribution strategy requires a ‘destination’
approach to store count and store locations. Our proprietary
sleep products and differentiated offering are available ‘Only
at a Sleep Number Store,’ a key message that we underscore in
our national advertising strategy.
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New store growth is an integral part of Select Comfort’s market
development strategy and we consistently target annual new store
growth of 5-7% resulting in cannibalization of less than 20%.
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Blue Clay declares concern over sales cannibalization
“unwarranted”
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Select Comfort consistently tests its market development
assumptions and the ever-changing retail landscape. We have
continued to test store proximity in several markets across the
nation. These tests consistently indicate that stores in close
proximity result in high cannibalization, doubled occupancy
expenses and lower profits.
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The Company is executing a proven market development strategy
generally targeting one store per trade area population of 350 –
500 thousand people. Our target customer is between 30 and 54
years old with a household income of more than $75,000 per year.
With 463 stores in 47 states today, we have stores within 20
minutes of 80% of our target customers.
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Our long-term guidance contemplates annual new store growth of
5-7% to 590 – 650 stores over the next five years.
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Blue Clay mischaracterizes investments in store relocations as
low return
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With 20-25% of our leases expiring each year, Select Comfort
seized an opportunity beginning in 2011 to re-set our store
portfolio and related cost structure for the future with store
relocations (relocating from a mall to a non-mall). The
economics of store relocations provide benefits, such as:
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No contingent rent,
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Lower fixed minimum rent structure
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Landlord participation in store build-out costs, and
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Larger square footage with similar occupancy costs
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Most importantly, customers are responding to our store
relocations and productive store design with an average increase
of over 20% in sales per store in the first 12 months.
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Blue Clay denies its plans to cut advertising expenses and
eliminate TV advertising
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Blue Clay has stated in writing its plans to cut advertising
spend as a percent of net sales by over 25%3 in order
to fund aggressive expansion in store count.
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Our national approach to advertising drives growth throughout
our national distribution, benefitting all markets and stores.
Our key growth driver is advertising, as illustrated by our
‘Aggressive Growth’ local market development program where we
are doubling market share and profit in a sustainable manner.
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Blue Clay began to deny its plans to cut advertising after the
Company pointed out that in 2014, a 9% increase in media helped
to drive a 20% increase in sales, while providing 140 basis
points of leverage.
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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 Select Comfort.
Sincerely,
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/s/
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/s/
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Jean-Michel Valette
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Shelly Ibach
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Chairman of the Board
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President & Chief Executive Officer
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SLEEP NUMBER® setting 35
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SLEEP NUMBER® setting 40
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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 Select Comfort Corporation
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 Securities and Exchange Commission (“SEC”)
in connection with the solicitation of proxies for its 2015 Annual
Meeting of Shareholders or any adjournment or postponement thereof (the
“2015 Annual Meeting”) and has mailed a definitive proxy statement and a
WHITE proxy card to each shareholder of record entitled to vote at the
2015 Annual Meeting. SHAREHOLDERS ARE STRONGLY ADVISED TO READ THE
COMPANY’S 2015 PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS
THERETO) AND ANY OTHER DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME
AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Shareholders
may obtain a free copy of the 2015 proxy statement, any amendments or
supplements to the proxy statement and other documents that the Company
files with the SEC from the SEC’s website at www.sec.gov
or the Company’s website at http://www.sleepnumber.com/investor-relations
as soon as reasonably practicable after such materials are
electronically filed with, or furnished to, the SEC.
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 SEC, be considered
participants in the solicitation of Company shareholders in connection
with the 2015 Annual Meeting, and their direct or indirect interests, by
security holdings or otherwise, which may be different from those of the
Company’s shareholders generally, are set forth in the Company’s
definitive proxy statement for the 2015 Annual Meeting on Schedule 14A
that has been filed with the SEC and the other relevant documents filed
with the SEC.
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 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.
1 As disclosed in the company's Form 10-K for the fiscal year
ended January 3, 2015, the company's 2014 ROIC was 15.1% compared to the
company's internally calculated weighted average cost of capital of 10%.
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 $158.5 million represented 13.7% of
2014 net sales
Source: Select Comfort Corporation
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