Select Comfort Announces First-quarter 2013 Results *Reports First-quarter EPS of $0.42 on a GAAP Basis and $0.41 on an Adjusted Basis *Generates Net Sales of $258 Million, a 2% Year-over-year Decrease *Updates Full-year 2013 Outlook Business Wire MINNEAPOLIS -- April 17, 2013 Select Comfort Corporation (NASDAQ: SCSS) today reported first-quarter 2013 results for the period ended March 30, 2013. First-quarter Financial Summary *Net sales decreased 2% to $258 million, compared to $262 million in the first quarter of 2012. *Company-controlled comparable sales declined 9% year-over-year. *Operating income, adjusted both years for the non-cash impact of the 2012 chief executive officer (CEO) transition, decreased to $34.8 million, compared with $39.9 million in the first quarter of 2012. As a percentage of net sales, adjusted operating income was 13.5% compared to 15.2% in the first quarter of 2012. *The 170 basis-point, year-over-year decrease in adjusted operating margin included a 200 basis-point increase in sales and marketing expenses and a 50 basis-point increase in research and development expenses, partially offset by a 70 basis-point improvement in gross margin and a 20 basis-point decrease in general and administrative (G&A) expenses. *Earnings per diluted share on a GAAP basis were $0.42, compared with $0.39 in the first quarter of 2012. Adjusted earnings per diluted share (excluding CEO transition charges) were $0.41 per share, a 9% decrease compared to $0.45 in the first quarter of 2012. *During the quarter, the company opened 10 stores and closed nine, ending the quarter with 411 stores. “As reported in early March, changes to our media buying negatively impacted traffic and sales, resulting in first-quarter underperformance. We took decisive action to correct the issue and are making steady progress against a backdrop of soft industry performance,” said Shelly Ibach, president and CEO, Select Comfort. “During the quarter, we progressed as planned in the other key areas of our customer-focused growth strategy, specifically exclusive distribution and product innovation.” Ibach continued, “In the second quarter, we are introducing the first in a series of break-through sleep innovations that have been in development for the past 15 months. We are excited to expand our offering of individualized air products that provide meaningful benefits for our customers.” Cash flows from operating activities were $45 million in the first quarter, which was consistent with the prior year. Capital expenditures increased to $14.3 million as compared to $9.3 million in 2012, driven by increased investment in stores, information systems and product innovation. During the first quarter, the company repurchased 0.5 million shares of its common stock for a total cost of $10 million. As of the end of the quarter, cash, cash equivalents and marketable-debt securities totaled $181 million, and the company had no borrowings under its revolving credit facility. Financial Outlook The company is lowering its outlook for full-year 2013 GAAP earnings per diluted share from between $1.65 and $1.80 to between $1.30 and $1.45. This outlook reflects the impact of the media-buying issue and slowing industry trends, and assumes a company-controlled comparable sales increase for the remainder of the year of low- to mid-single digits. This outlook also reflects 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 continued investment in new stores, relocated and remodeled stores, and customer-management systems, along with new investments in product innovation. While the company’s first priority for capital deployment is to invest in its high-return growth programs, it currently plans to continue repurchasing shares in 2013, with the objective of maintaining share count at or slightly below current levels. Conference Call Information Management will host its regularly scheduled conference call to discuss the company’s results at 5 p.m. EDT (4 p.m. CDT; 2 p.m. PDT) 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. 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 March 30, % of March 31, % of 2013 Net Sales 2012 Net Sales Net sales $ 258,237 100.0 % $ 262,383 100.0 % Cost of sales 94,821 36.7 % 98,084 37.4 % Gross profit 163,416 63.3 % 164,299 62.6 % Operating expenses: Sales and marketing 109,813 42.5 % 106,185 40.5 % General and 16,181 6.3 % 16,929 6.5 % administrative Research and 2,556 1.0 % 1,290 0.5 % development CEO transition (391 ) (0.2 %) 5,595 2.1 % (benefit) costs Asset impairment 30 0.0 % 4 0.0 % charges Total operating 128,189 49.6 % 130,003 49.5 % expenses Operating income 35,227 13.6 % 34,296 13.1 % Other income, net 91 0.0 % 7 0.0 % Income before income taxes 35,318 13.7 % 34,303 13.1 % Income tax expense 11,847 4.6 % 11,886 4.5 % Net income $ 23,471 9.1 % $ 22,417 8.5 % Net income per share – basic $ 0.43 $ 0.40 Net income per share – $ 0.42 $ 0.39 diluted Reconciliation of weighted-average shares outstanding: Basic weighted-average 55,095 55,640 shares outstanding Effect of dilutive securities: Options 690 1,156 Restricted shares 466 644 Diluted weighted-average 56,251 57,440 shares outstanding SELECT COMFORT CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except per share amounts) subject to reclassification (unaudited) March 30, December 29, 2013 2012 Assets Current assets: Cash and cash equivalents $ 84,815 $ 87,915 Marketable debt securities – current 57,856 51,264 Accounts receivable, net of allowance for doubtful accounts of $455 and $348, 14,526 16,613 respectively Inventories 30,973 35,564 Prepaid expenses 7,035 4,299 Deferred income taxes 5,403 5,401 Other current assets 8,466 9,522 Total current assets 209,074 210,578 Marketable debt securities – non-current 38,700 38,642 Property and equipment, net 91,362 79,356 Goodwill and intangible assets, net 17,552 2,881 Deferred income taxes 7,928 8,511 Other assets 2,973 2,053 Total assets $ 367,589 $ 342,021 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 80,084 $ 67,703 Customer prepayments 17,489 15,194 Compensation and benefits 11,965 21,597 Taxes and withholding 14,735 9,282 Other current liabilities 17,097 19,285 Total current liabilities 141,370 133,061 Non-current liabilities: Warranty liabilities 1,641 1,457 Other long-term liabilities 14,209 13,806 Total non-current liabilities 15,850 15,263 Total liabilities 157,220 148,324 Shareholders’ equity: Undesignated preferred stock; 5,000 shares - - authorized, no shares issued and outstanding Common stock, $0.01 par value; 142,500 shares authorized, 55,650 and 55,903 shares issued and 556 559 outstanding, respectively Additional paid-in capital 27,134 33,923 Retained earnings 182,666 159,195 Accumulated other comprehensive income 13 20 Total shareholders’ equity 210,369 193,697 Total liabilities and shareholders’ $ 367,589 $ 342,021 equity SELECT COMFORT CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited - in thousands) subject to reclassification Three Months Ended March 30, March 31, 2013 2012 Cash flows from operating activities: Net income $ 23,471 $ 22,417 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,661 4,245 Stock-based compensation 432 6,964 Net loss on disposals and impairments of 27 4 assets Excess tax benefits from stock-based (2,401 ) (2,372 ) compensation Deferred income taxes 585 (2,610 ) Changes in operating assets and liabilities, net of effect of acquisition: Accounts receivable 2,454 1,390 Inventories 5,269 (33 ) Income taxes 7,534 10,388 Prepaid expenses and other assets (889 ) 186 Accounts payable 12,955 6,591 Customer prepayments 2,302 6,348 Accrued compensation and benefits (9,165 ) (12,449 ) Other taxes and withholding (1,443 ) 1,160 Warranty liabilities (239 ) 569 Other accruals and liabilities (2,531 ) 1,720 Net cash provided by 45,022 44,518 operating activities Cash flows from investing activities: Purchases of property and equipment (14,309 ) (9,281 ) Proceeds from sales of property and equipment 3 9 Investments in marketable debt securities (12,883 ) - Proceeds from maturities of marketable debt 5,898 - securities Acquisition of business (15,500 ) - Investment in non-marketable equity securities (1,500 ) - Net cash used in investing (38,291 ) (9,272 ) activities Cash flows from financing activities: Net decrease in short-term borrowings (4,370 ) (3,371 ) Repurchases of common stock (10,144 ) (1,214 ) Proceeds from issuance of common stock 2,282 1,655 Excess tax benefits from stock-based 2,401 2,372 compensation Net cash used in financing (9,831 ) (558 ) activities Net (decrease) increase in cash and cash (3,100 ) 34,688 equivalents Cash and cash equivalents, at beginning of period 87,915 116,255 Cash and cash equivalents, at end of period $ 84,815 $ 150,943 SELECT COMFORT CORPORATION AND SUBSIDIARIES Supplemental Financial Information (unaudited) Three Months Ended March 30, March 31, 2013 2012 Percent of sales: Retail 88.1 % 88.2 % Direct and E-Commerce 6.7 % 8.0 % Wholesale/other 5.2 % 3.8 % Total 100.0 % 100.0 % Sales growth rates: Retail comparable-store sales (8 %) 36 % Direct and E-Commerce (18 %) 17 % Company-Controlled comparable sales change (9 %) 34 % Net new/(closed) stores 6 % 2 % Total Company-Controlled Channel (3 %) 36 % Wholesale/other 35 % 26 % Total (2 %) 36 % Stores open: Beginning of period 410 381 Opened 10 10 Closed (9 ) (11 ) End of period 411 380 Other metrics: Average sales per store ($ in 000's)^1 $ 2,118 $ 1,897 Average sales per square foot^1 $ 1,256 $ 1,229 Stores > $1 million net sales^1 98 % 97 % Stores > $2 million net sales^1 46 % 36 % Average net sales per mattress unit - $ 3,132 $ 2,751 Company Controlled Channel^2 ^1Trailing twelve months for stores open at least one year. ^2Represents ^ 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 from operating activities. Our definition of Adjusted EBITDA may not be comparable to similarly titled definitions used by other companies. The table below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to the comparable GAAP financial measure: Three Months Ended Trailing-Twelve Months Ended March 30, March 31, March 30, March 31, 2013 2012 2013 2012 Net income $ 23,471 $ 22,417 $ 79,148 $ 66,312 Income tax 11,847 11,886 41,872 32,043 expense Interest expense 14 43 62 173 Depreciation and 6,333 4,230 21,838 14,574 amortization Stock-based 432 6,964 3,774 10,801 compensation Asset 30 4 174 35 impairments Adjusted EBITDA $ 42,127 $ 45,544 $ 146,868 $ 123,938 Our Adjusted EBITDA calculation is considered a non-GAAP financial Note - measure and is not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts. GAAP - generally accepted accounting principles SELECT COMFORT CORPORATION AND SUBSIDIARIES Reported to Adjusted Statements of Operations Data Reconciliation (in thousands, except per share amounts) Three Months Ended March 30, 2013 March 31, 2012 CEO CEO Transition Transition As Benefit^(1) As As Costs^(1) As Reported Adjusted Reported Adjusted Operating $ 35,227 $ (391 ) $ 34,836 $ 34,296 $ 5,595 $ 39,891 income Other 91 - 91 7 - 7 income, net Income before 35,318 (391 ) 34,927 34,303 5,595 39,898 income taxes Income tax 11,847 (134 ) 11,713 11,886 1,941 13,827 expense^(2) Net income $ 23,471 $ (257 ) $ 23,214 $ 22,417 $ 3,654 $ 26,071 Net income per share – Basic $ 0.43 $ 0.00 $ 0.42 $ 0.40 $ 0.07 $ 0.47 Diluted $ 0.42 $ 0.00 $ 0.41 $ 0.39 $ 0.06 $ 0.45 Basic 55,095 55,095 55,095 55,640 55,640 55,640 Shares Diluted 56,251 56,251 56,251 57,440 57,440 57,440 Shares In February 2012, we announced that William R. McLaughlin, then President and CEO, would retire from the Company effective June 1, 2012. In recognition of Mr. McLaughlin’s contributions, the Compensation Committee approved the modification of Mr. McLaughlin’s currently unvested stock awards, including performance-based stock ^(1) awards. As a result of these modifications, we recorded incremental non-cash compensation of $5.6 million in the first three months of 2012. The performance-based stock awards are subject to applicable adjustments through 2014 based on actual performance versus performance targets. In the first three months of 2013, we recorded a non-cash compensation benefit of $0.4 million resulting from performance-based stock award adjustments. ^(2) Reflects effective income tax rate, before discrete adjustments, of 34.3% for 2013 and 34.7% for 2012. Note - Our "as adjusted" data is considered a non-GAAP financial measure and is not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates year-over-year comparisons for investors and financial analysts. GAAP - generally accepted accounting principles Contact: Select Comfort Corporation Media Contact: Gabby Nelson, 763-551-7460 email@example.com or Investor Contact: Dave Schwantes, 763-551-7498 firstname.lastname@example.org
Select Comfort Announces First-quarter 2013 Results
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