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Select Comfort Announces First-quarter 2013 Results



  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
publicrelations@selectcomfort.com
or
Investor Contact:
Dave Schwantes, 763-551-7498
investorrelations@selectcomfort.com
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