Select Comfort Reports Fourth-quarter and Full-year 2012 Results
Select Comfort Reports Fourth-quarter and Full-year 2012 Results
* Reports 17% Increase in Fourth-quarter Sales to Record $221 Million,
Fourth-quarter EPS of $0.22
* Achieves 26% Increase in Full-year Sales to Record $935 Million, Annual
Adjusted EPS of $1.43
* Announces Acquisition of Comfortaire Corporation and an Additional
Strategic Investment
Business Wire
MINNEAPOLIS -- January 24, 2013
Select Comfort Corporation (NASDAQ: SCSS) today reported fourth-quarter and
full-year 2012 results for the period ended Dec. 29, 2012. Select Comfort also
announced the purchase of the business and assets of Comfortaire Corporation
and an additional strategic investment to support innovation and further
strengthen the company’s competitive advantages.
Fourth-quarter Financial Summary
* Net sales increased 17% to a fourth-quarter record of $221 million, up
from $189 million in the fourth quarter of 2011.
* Company-controlled comparable sales grew 11%, representing the 13^th
consecutive quarter of double-digit comparable-sales growth.
* Operating income decreased 3% to $19.4 million, and, as a percentage of
net sales, was 8.8% compared to 10.6% in the fourth quarter of 2011.
Operating margin decreased 180 basis points year-over-year, which included
a 250 basis-point increase in sales and marketing expenses and a 30
basis-point increase in research and development expenses. This was
partially offset by a 60 basis-point improvement in gross margin and a 50
basis-point decrease in general and administrative (G&A) expenses.
* Earnings per diluted share for the quarter were $0.22, a 19% decrease vs.
$0.27 per diluted share in the fourth quarter of 2011. Fourth-quarter 2011
results included a $1.9 million, or $0.03 per diluted share, non-recurring
net decrease to income-tax expense related to the favorable resolution of
prior-years’ tax matters.
* During the quarter, the company opened 20 new stores and closed four,
ending the year at 410 stores, 19% of which were in the non-mall format.
* Average retail sales per comparable store on a trailing 12-month basis
reached a record $2.2 million, 26% higher than prior-year.
Full-year 2012 Financial Summary
* Net sales increased 26% to a record $935 million, up from $743 million in
2011.
* Company-controlled comparable sales grew 23%.
* Results included a $5.6 million, or $0.06 per diluted share,
non-recurring, non-cash charge in the first quarter associated with the
June 1, 2012 chief executive officer (CEO) transition.
* Adjusted operating income increased 39% to a record $125.4 million
(excluding the CEO transition charge), and, as a percentage of net sales,
was a record 13.4% compared to 12.2% for 2011.
* The 120 basis-point, year-over-year increase in adjusted operating margin
included a 70 basis-point decrease in G&A expenses and a 50 basis-point
improvement in gross margin.
* Earnings per diluted share on a GAAP basis were a record $1.37, a 28%
increase vs. $1.07 per diluted share in 2011. Adjusted earnings per
diluted share were $1.43 (excluding the CEO transition charge), which were
34% higher than 2011.
* The company opened 57 new stores and closed 28 in 2012; year-end store
count of 410 was 8% higher than year-end 2011.
“We are extremely pleased with our record 2012 annual performance and the
progress we’ve made toward our long-term goals. That said, fourth-quarter
results were negatively impacted by a significant sales slow-down the last two
weeks of December. We also invested in marketing production and testing, as
well as product and service innovation, from which we expect to benefit in the
current year and beyond,” said Shelly Ibach, president and CEO, Select
Comfort.
“In the first few weeks of 2013, sales trends have quickly normalized. We will
execute our growth strategy with operational discipline as we advance
marketing, product innovation and market development. We remain committed to
delivering an unparalleled sleep experience for our customers as we continue
progressing toward our goal of at least $1.5 billion in sales and 15 percent
operating margin by 2015.”
Cash from operating activities was $101 million for full-year 2012 compared to
$91 million in 2011. Capital expenditures for full-year 2012 increased to $52
million as compared to $24 million in 2011, driven by increased investment in
stores and information systems. During the fourth quarter, the company
returned $10 million to shareholders through the repurchase of 0.4 million
shares of its common stock, bringing the total share repurchases year-to-date
to $30 million, or 1.1 million shares. As of the end of the quarter, cash,
cash equivalents and marketable-debt securities totaled $178 million, and the
company had no borrowings under its revolving credit facility.
Financial Outlook
The company expects to generate full-year 2013 earnings per diluted share of
between $1.65 and $1.80, a 15% to 26% increase vs. full-year 2012 adjusted
earnings per diluted share of $1.43. This outlook reflects a
company-controlled comparable sales growth target of at least 10 percent and a
net increase in store count from 410 at year-end 2012 to between 435 and 445
by year-end 2013.
The company currently anticipates that 2013 capital expenditures will be
$70-$80 million, reflecting new stores, relocated and remodeled stores, along
with continued investment in customer-management systems. While the company’s
first priority for capital deployment is to invest in sustained profitable
growth, it currently plans to continue repurchasing shares in 2013, with the
objective of maintaining share count at current levels.
Acquisition and Additional Strategic Investment
The company also today announced the purchase of the business and assets of
Comfortaire Corporation, a manufacturer and marketer of adjustable
air-supported sleep systems, in a $15.5 million transaction that closed on
Jan. 17, 2013.
“This investment progresses our role as the leader in delivering innovative
products as part of an individualized sleep experience, while also
strengthening our company’s competitive advantages. Specifically, with
Comfortaire, we anticipate benefits from the convergence of intellectual
property,” explained Ibach. “We also are pleased that the second-largest
adjustable air-bed company – with its experienced team and shared commitment
to quality, innovation and individualization – is now part of Select Comfort.”
Select Comfort purchased the business and assets of Comfortaire from mattress
manufacturer, Park Place Corporation. Comfortaire is a privately held company
with 2012 revenues of $10.5 million that manufactures and markets adjustable
air-supported sleep systems. Founded in 1981, the company is headquartered in
Greenville, S.C., and employs 24 professionals. Select Comfort will continue
to operate the Comfortaire business through an independent subsidiary.
The company also committed $4.5 million for a minority equity investment in
one of its strategic product-development partners. This investment complements
the company’s current R&D capabilities and is associated with products
scheduled to launch during the next 12-24 months.
Both transactions are being funded solely through the company’s internally
generated cash reserves.
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 personalization through its
solutions-focused line of Sleep Number pillows, sheets and other bedding
products. And as the only national specialty-mattress retailer, consumers can
take advantage of an enhanced mattress-buying experience at one of more than
400 Sleep Number stores across the country, online at SleepNumber.com, or via
phone at (800) Sleep Number or (800) 753-3768.
About Comfortaire Corporation
Headquartered in Greenville, S.C., Comfortaire has been delivering
Individualized Sleep Experiences™ for over 30 years. The company started by
inventing an air bed that provided an independently adjustable surface
utilizing latex-cotton air chambers. While Comfortaire’s original product
designs have been the industry standard for over 30 years, the company’s
mission today is to continue developing innovative sleep solutions designed to
provide the ultimate levels of individual sleep comfort. For additional
information, visit the company’s website at Comfortaire.com.
About Park Place Corporation
Park Place Corporation, founded in 1931 as Orders Mattress Company, is
headquartered in Greenville, S.C., on a 40-acre campus in a Century 2000,
state-of-the-art designed facility. Park Place has manufactured mattresses
primarily under the Park Place, King Koil and Comfortaire brands. For more
information, visit ParkPlaceCorp.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
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 % of December % of
29, 31,
2012 Net Sales 2011 Net Sales
Net sales $ 220,559 100.0 % $ 189,073 100.0 %
Cost of sales 80,612 36.5 % 70,095 37.1 %
Gross profit 139,947 63.5 % 118,978 62.9 %
Operating
expenses:
Sales and 102,062 46.3 % 82,778 43.8 %
marketing
General and 16,532 7.5 % 15,032 8.0 %
administrative
Research and 1,906 0.9 % 1,192 0.6 %
development
Asset impairment 33 0.0 % 6 0.0 %
charges
Total operating 120,533 54.6 % 99,008 52.4 %
expenses
Operating income 19,414 8.8 % 19,970 10.6 %
Other income, net 90 0.0 % 4 0.0 %
Income before 19,504 8.8 % 19,974 10.6 %
income taxes
Income tax expense 7,009 3.2 % 4,604 2.4 %
Net income $ 12,495 5.7 % $ 15,370 8.1 %
Net income per $ 0.23 $ 0.28
share – basic
Net income per $ 0.22 $ 0.27
share – diluted
Reconciliation of
weighted-average
shares
outstanding:
Basic
weighted-average 55,261 55,424
shares outstanding
Effect of dilutive
securities:
Options 1,050 873
Restricted shares 449 566
Diluted
weighted-average 56,760 56,863
shares outstanding
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
Twelve Months Ended
December % of December 31, % of
29,
2012 Net Sales 2011 Net
Sales
Net sales $ 934,978 100.0 % $ 743,203 100.0 %
Cost of sales 338,432 36.2 % 272,858 36.7 %
Gross profit 596,546 63.8 % 470,345 63.3 %
Operating
expenses:
Sales and 398,205 42.6 % 317,502 42.7 %
marketing
General and 66,617 7.1 % 58,106 7.8 %
administrative
Research and 6,194 0.7 % 4,175 0.6 %
development
CEO transition 5,595 0.6 % - 0.0 %
costs
Asset impairment 148 0.0 % 109 0.0 %
charges
Total operating 476,759 51.0 % 379,892 51.1 %
expenses
Operating income 119,787 12.8 % 90,453 12.2 %
Other income 218 0.0 % (33 ) 0.0 %
(expense), net
Income before 120,005 12.8 % 90,420 12.2 %
income taxes
Income tax expense 41,911 4.5 % 29,942 4.0 %
Net income $ 78,094 8.4 % $ 60,478 8.1 %
Net income per $ 1.41 $ 1.10
share – basic
Net income per $ 1.37 $ 1.07
share – diluted
Reconciliation of
weighted-average
shares
outstanding:
Basic
weighted-average 55,516 55,081
shares outstanding
Effect of dilutive
securities:
Options 1,059 821
Restricted shares 501 530
Diluted
weighted-average 57,076 56,432
shares outstanding
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
subject to reclassification
December 29, December 31,
2012 2011
Assets
Current assets:
Cash and cash equivalents $ 87,915 $ 116,255
Marketable debt securities – current 51,264 20,020
Accounts receivable, net of allowance for
doubtful accounts
of $348 and $397, respectively 16,613 13,844
Inventories 35,564 24,851
Prepaid expenses 4,299 5,778
Deferred income taxes 5,401 4,443
Other current assets 9,522 6,004
Total current assets 210,578 191,195
Marketable debt securities – non-current 38,642 10,042
Property and equipment, net 79,356 43,850
Deferred income taxes 8,511 12,964
Other assets 4,934 4,606
Total assets $ 342,021 $ 262,657
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 67,703 $ 50,141
Customer prepayments 15,194 13,529
Compensation and benefits 21,597 29,806
Taxes and withholding 9,282 9,883
Other current liabilities 19,285 15,691
Total current liabilities 133,061 119,050
Non-current liabilities:
Warranty liabilities 1,457 2,714
Other long-term liabilities 13,806 11,502
Total non-current liabilities 15,263 14,216
Total liabilities 148,324 133,266
Shareholders’ equity:
Undesignated preferred stock; 5,000 shares
authorized,
no shares issued and outstanding - -
Common stock, $0.01 par value; 142,500
shares authorized,
55,903 and 56,397 shares issued and 559 564
outstanding, respectively
Additional paid-in capital 33,923 47,701
Retained earnings 159,195 81,101
Accumulated other comprehensive income 20 25
Total shareholders’ equity 193,697 129,391
Total liabilities and shareholders’ equity $ 342,021 $ 262,657
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
subject to reclassification
Twelve Months Ended
December 29, December 31,
2012 2011
Cash flows from operating activities:
Net income $ 78,094 $ 60,478
Adjustments to reconcile net income to net
cash provided by
operating activities:
Depreciation and amortization 20,401 13,543
Stock-based compensation 10,306 4,971
Net loss on disposals and impairments of 115 98
assets
Excess tax benefits from stock-based (6,446 ) (2,190 )
compensation
Deferred income taxes 3,499 2,839
Changes in operating assets and liabilities:
Accounts receivable (2,705 ) (3,935 )
Inventories (10,713 ) (5,204 )
Income taxes 4,299 4,445
Prepaid expenses and other assets (2,382 ) (1,976 )
Accounts payable 7,114 6,913
Customer prepayments 1,665 585
Accrued compensation and benefits (8,108 ) 5,167
Other taxes and withholding 765 1,944
Warranty liabilities (1,454 ) 566
Other accruals and liabilities 6,176 2,802
Net cash provided by operating activities 100,626 91,046
Cash flows from investing activities:
Purchases of property and equipment (51,593 ) (23,527 )
Proceeds from sales of property and 45 11
equipment
Investments in marketable debt securities (86,803 ) (40,021 )
Proceeds from maturities of marketable debt 26,249 10,000
securities
Increase in restricted cash - (2,650 )
Net cash used in investing activities (112,102 ) (56,187 )
Cash flows from financing activities:
Net increase (decrease) in short-term 6,494 (795 )
borrowings
Repurchases of common stock (34,892 ) (371 )
Proceeds from issuance of common stock 5,138 4,356
Excess tax benefits from stock-based 6,446 2,190
compensation
Debt issuance costs (50 ) -
Net cash (used in) provided by financing (16,864 ) 5,380
activities
Net (decrease) increase in cash and cash (28,340 ) 40,239
equivalents
Cash and cash equivalents, at beginning of 116,255 76,016
period
Cash and cash equivalents, at end of period $ 87,915 $ 116,255
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
Three Months Ended Twelve Months Ended
December December December December
29, 31, 29, 31,
2012 2011 2012 2011
Percent of sales:
Retail 88.7 % 87.1 % 89.2 % 87.5 %
Direct and 7.8 % 9.3 % 7.5 % 8.7 %
E-Commerce
Wholesale 3.5 % 3.6 % 3.3 % 3.8 %
Total 100.0 % 100.0 % 100.0 % 100.0 %
Sales growth rates:
Retail
comparable-store 12 % 33 % 24 % 29 %
sales
Direct and (3 %) 14 % 9 % (1 %)
E-Commerce
Company-Controlled
comparable sales 11 % 31 % 23 % 26 %
change
Net new/(closed) 6 % (1 %) 3 % (1 %)
stores
Total
Company-Controlled 17 % 30 % 26 % 25 %
Channel
Wholesale 13 % (24 %) 10 % (11 %)
Total 17 % 27 % 26 % 23 %
Stores open:
Beginning of period 394 374 381 386
Opened 20 10 57 19
Closed (4 ) (3 ) (28 ) (24 )
End of period 410 381 410 381
Other metrics:
Average sales per
store ($ in $ 2,164 $ 1,721
000's)^1
Average sales per $ 1,324 $ 1,135
square foot^1
Stores > $1 million 98 % 93 %
net sales^1
Stores > $2 million 49 % 24 %
net sales^1
Average net sales
per mattress unit - $ 3,249 $ 2,809 $ 3,050 $ 2,694
Company Controlled
Channel^2
^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. The previously reported metric "Average
mattress sales per mattress unit - Company Controlled Channel" included only
net sales from mattresses and mattress bases. Previously reported amounts have
been reclassified to conform to the current-year presentation.
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 flows from operations. Our
definition of Adjusted EBITDA may not be comparable to similarly titled
definitions used by other companies. The tables below reconcile Adjusted
EBITDA, which is a non-GAAP financial measure, to comparable GAAP financial
measures:
Three Months Ended Twelve Months Ended
December December December December
29, 31, 29, 31,
2012 2011 2012 2011
Net income $ 12,495 $ 15,370 $ 78,094 $ 60,478
Income tax 7,009 4,604 41,911 29,942
expense
Interest 12 43 91 187
expense
Depreciation
and 5,653 3,744 19,735 13,493
amortization
Stock-based 737 1,297 10,306 4,971
compensation
Asset 33 6 148 109
impairments
Adjusted $ 25,939 $ 25,064 $ 150,285 $ 109,180
EBITDA
Our Adjusted EBITDA calculation is considered a non-GAAP financial
measure and is not in accordance with, or preferable to, "as
Note - 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 29, 2012 December 31,
2011
CEO
Transition
As Reported Costs^(1) As Adjusted As Reported
Operating $ 119,787 $ 5,595 $ 125,382 $ 90,453
income
Other income
(expense), 218 - 218 (33 )
net
Income before 120,005 5,595 125,600 90,420
income taxes
Income tax 41,911 1,941 43,852 29,942
expense^(2)
Net income $ 78,094 $ 3,654 $ 81,748 $ 60,478
Net income
per share –
Basic $ 1.41 $ 0.07 $ 1.47 $ 1.10
Diluted $ 1.37 $ 0.06 $ 1.43 $ 1.07
Basic Shares 55,516 55,516 55,516 55,081
Diluted 57,076 57,076 57,076 56,432
Shares
In February 2012, we announced that William R. McLaughlin, then
President and CEO, would retire from the Company effective June 1,
^(1) 2012. In recognition of Mr. McLaughlin’s contributions, the
Compensation Committee approved the modification of Mr. McLaughlin’s
currently unvested stock awards. As a result of these modifications, we
recorded incremental non-cash compensation of $5.6 million.
^(2) Reflects effective income tax rate, before discrete adjustments, of
34.7% for 2012.
Our "as adjusted" data is considered a non-GAAP financial
measure and is not in accordance with, or preferable to, "as
Note - 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
Contact:
Select Comfort Corporation
Media Contact:
Gabby Nelson, 763-551-7460
publicrelations@selectcomfort.com
or
Investor Contact:
Dave Schwantes, 763-551-7498
investorrelations@selectcomfort.com
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