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 firstname.lastname@example.org or Investor Contact: Dave Schwantes, 763-551-7498 email@example.com
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Select Comfort Reports Fourth-quarter and Full-year 2012 Results
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