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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