Mattress Firm Announces First Fiscal Quarter Financial Results

  Mattress Firm Announces First Fiscal Quarter Financial Results

                        — Net Sales Increased 31.5% —

           — EPS Grew 22.3% to $0.38 on an Adjusted Diluted Basis —

 — Mattress Firm Named Largest and Fastest Growing Bedding Specialty Retailer
                             by Furniture Today —

            — Reaffirms Financial Guidance for Fiscal Year 2013 —

Business Wire

HOUSTON -- June 4, 2013

Mattress Firm Holding Corp. (“the Company”) (NASDAQ: MFRM) today announced its
financial results for the first fiscal quarter (13 weeks) ended April 30,
2013. Net sales for the first fiscal quarter increased 31.5% to $276.0
million, reflecting incremental sales from new and acquired stores, offset by
a comparable-store sales decline of 5.2%. The Company reported first fiscal
quarter earnings per diluted share (“EPS”) on a generally accepted accounting
principles (“GAAP”) basis of $0.35, and EPS on a non-GAAP adjusted basis,
excluding acquisition-related and ERP system implementation costs
(“Adjusted”), of $0.38. Diluted EPS on a GAAP basis and Adjusted basis are
reconciled in the table below:

First Fiscal Quarter Reconciliation of GAAP to Adjusted EPS

See “Reconciliation of Reported (GAAP) to Adjusted Statements of Operations
Data” for Notes
                                          Thirteen Weeks Ended
                                          May 1, 2012          April 30, 2013
GAAP EPS                                  $     0.29           $      0.35
Acquisition-related costs (1)                   0.02                  0.01
ERP system implementation costs                -                    0.02
Adjusted EPS                              $     0.31           $      0.38

“As the leading bedding specialty retailer in the country, we continued to
achieve strong results in the first quarter, evidenced by our 31.5% revenue
growth over the prior year, despite the challenging industry consumer traffic
and average unit price trends that we previously referenced,” stated Steve
Stagner, Mattress Firm’s president and chief executive officer. “With the
opening of 46 new stores during the first quarter, we are well on our way to
reaching our goal of opening more than 100 new stores for the third
consecutive year and growing our company-operated store base above 1,100
during 2013.We are pleased with the ongoing sales and operating margin growth
in the acquired Mattress Giant stores and that comparable-store sales growth
turned positive in May now that those stores are included in our
comparable-store sales results. As we look ahead, we are excited by the new
and innovative products now on our floors supported with national advertising
and anticipate consistent sales and profitability growth over the remainder of

First Quarter Financial Summary

  *Net sales for the first fiscal quarter increased 31.5% to $276.0 million,
    reflecting incremental sales from new and acquired stores, offset by a
    comparable-store sales decline of 5.2%.
  *Opened 46 new stores and closed 7 stores bringing the total number of
    Company-operated stores to 1,096 as of the end of the fiscal quarter.
  *Income from operations was $22.5 million. Excluding $1.3 million of
    acquisition-related costs and ERP system implementation costs, Adjusted
    income from operations was $23.8 million, representing an increase of $4.7
    million, or 24.3%, over Adjusted income from operations for the comparable
    prior year period. Please refer to “Reconciliation of Reported (GAAP) to
    Adjusted Statements of Operations Data” for a reconciliation of income
    from operations to Adjusted income from operations and other information.
  *Adjusted operating margin decreased 50 basis points to 8.6% of net sales
    as compared to 9.1% in the same quarter of fiscal 2012, and consisted of a
    140 basis-point decrease in gross margin, a 30 basis-point improvement in
    sales and marketing expense leverage, an 80 basis-point improvement in
    general and administrative expense leverage and an aggregate 20
    basis-point operating margin decline in other categories.
  *Net income was $12.0 million and GAAP EPS was $0.35. Excluding $0.8
    million, net of income taxes, of acquisition-related and ERP system
    implementation costs, Adjusted net income was $12.8 million and Adjusted
    EPS was $0.38, an increase of 22.3% over Adjusted EPS for the comparable
    prior year period. Please refer to “Reconciliation of Reported (GAAP) to
    Adjusted Statements of Operations Data” for a reconciliation of net income
    and GAAP EPS to Adjusted net income and Adjusted EPS, respectively, and
    other information.


With respect to the acquisitions of former Mattress Giant stores in November
2011 and May 2012, the rebranding of the acquired stores was substantially
complete by the end of fiscal 2012. The per store sales results of those
stores for the months since the date of rebranding and for one year thereafter
are demonstrated by the charts accompanying this release.

Liquidity and Capital Resources

The Company had cash and cash equivalents of $1.6 million at the end of the
first fiscal quarter. Net cash provided by operating activities was $16.0
million for the first fiscal quarter. As of April 30, 2013, there was $8.0
million of borrowings under the revolving portion of the 2012 Senior Credit
Facility (as defined in the Company’s filings with the SEC) and approximately
$1.4 million in outstanding letters of credit, with additional borrowing
capacity of $90.6 million.

Financial Guidance

The Company is reaffirming its guidance for the fiscal year (52 weeks) ending
January 28, 2014 (“fiscal year 2013”), which was originally issued in March

Full Fiscal Year Ending January 28, 2014      Range
Net sales (in billions)                           $1.237 to $1.250
New stores                                        110 to 120
Net store unit increase                           90 to 95
GAAP EPS                                          $1.81 to $1.89
Acquisition-related costs per share               $0.01
ERP system implementation costs per share         $0.07 to $0.09
Adjusted EPS                                      $1.90 to $1.98
Comparable-store sales growth                     low single digit

Call Information

A conference call to discuss first fiscal quarter results is scheduled for
today, June 4, 2013, at 5:00 p.m. Eastern Time. The call will be hosted by
Steve Stagner, president and chief executive officer, and Jim Black, chief
financial officer.

The conference call will be accessible by telephone and the internet. To
access the call, participants from within the U.S. may dial (877) 407-3982,
and participants from outside the U.S. may dial (201) 493-6780. Participants
may also access the call via live webcast by visiting the Company’s investor
relations web site at

The replay of the call will be available from approximately 8:00 p.m. Eastern
Time on June 4, 2013 through midnight Eastern Time on June 18, 2013. To access
the replay, the domestic dial-in number is (877) 870-5176, the international
dial-in number is (858) 384-5517, and the passcode is 414720. The archive of
the webcast will be available on the Company’s web site for a limited time.

Net Sales and Store Unit Information

The components of the net sales increase for the thirteen weeks ended April
30, 2013 as compared to the corresponding prior year period were as follows
(in millions):

                         (Decrease) in
                         Net Sales
Comparable-store sales   $   (10.8  )
New stores                   28.9
Acquired stores              50.3
Closed stores               (2.2   )
                         $   66.2   

The composition of net sales by major category of product and services were as
follows (in millions):

                              Thirteen Weeks Ended
                              May 1,      % of        April 30,     % of
                              2012        Total       2013          Total
Specialty mattresses          $ 106.3     50.7  %     $  129.8      47.0  %
Conventional mattresses         85.5      40.7  %        121.6      44.0  %
Furniture and accessories      14.0      6.7   %       19.2       7.0   %
Total product sales             205.8     98.1  %        270.6      98.0  %
Delivery service revenues      4.0       1.9   %       5.4        2.0   %
Total net sales               $ 209.8     100.0 %     $  276.0      100.0 %

Prior-year components of the Company’s net sales have been reallocated between
specialty mattresses and conventional mattresses to be consistent with
current-year presentation.

The activity with respect to the number of Company-operated store units was as

                                     Thirteen Weeks
                                     April 30, 2013
Store units, beginning of period     1,057
New stores                           46
Closed stores                        (7        )
Store units, end of period           1,096     

Forward-Looking Statements

Certain statements contained in this press release are not based on historical
fact and are “forward-looking statements” within the meaning of applicable
federal securities laws and regulations. In many cases, you can identify
forward-looking statements by terminology such as “may,” “would,” “should,”
“could,” “forecast,” “feel,” “project,” “expect,” “plan,” “anticipate,”
“believe,” “estimate,” “predict,” “intend,” “potential,” “continue” or the
negative of these terms or other comparable terminology; however, not all
forward-looking statements contain these identifying words. The
forward-looking statements contained in this press release, such as those
relating to our net sales, GAAP and Adjusted EPS and net store unit change for
fiscal year 2013, are subject to various risks and uncertainties, including
but not limited to downturns in the economy; reduction in discretionary
spending by consumers; our ability to execute our key business strategies and
advance our market-level profitability; our ability to profitably open and
operate new stores and capture additional market share; our relationship with
our primary mattress suppliers; our dependence on a few key employees; the
possible impairment of our goodwill or other acquired intangible assets; the
effect of our planned growth and the integration of our acquisitions on our
business infrastructure; the impact of seasonality on our financial results
and comparable-store sales; our ability to raise adequate capital to support
our expansion strategy; our success in pursuing and completing strategic
acquisitions; the effectiveness and efficiency of our advertising
expenditures; our success in keeping warranty claims and comfort exchange
return rates within acceptable levels; our ability to deliver our products in
a timely manner; our status as a holding company with no business operations;
our ability to anticipate consumer trends; risks related to our controlling
stockholder, J.W. Childs Associates, L.P.; heightened competition; changes in
applicable regulations; risks related to our franchises, including our lack of
control over their operation and our liabilities if they default on note or
lease obligations; risks related to our stock and other factors set forth
under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year
ended January 29, 2013 filed with the Securities and Exchange Commission
(“SEC”) on April 1, 2013 and our other SEC filings. Forward-looking statements
relate to future events or our future financial performance and reflect
management’s expectations or beliefs concerning future events as of the date
of this press release. Actual results of operations may differ materially from
those set forth in any forward-looking statements, and the inclusion of a
projection or forward-looking statement in this press release should not be
regarded as a representation by us that our plans or objectives will be
achieved. We do not undertake to publicly update or revise any of these
forward-looking statements, whether as a result of new information, future
events or otherwise.

Non-GAAP Financial Measures

Adjusted EBITDA is defined as net income before income tax expense, interest
income, interest expense, depreciation and amortization (“EBITDA”), without
giving effect to non-cash goodwill and intangible asset impairment charges,
gains or losses on store closings and impairment of store assets, gains or
losses related to the early extinguishment of debt, financial sponsor fees and
expenses, non-cash charges related to stock based awards and other items that
are excluded by management in reviewing the results of operations. We have
presented Adjusted EBITDA because we believe that the exclusion of these items
is appropriate to provide additional information to investors about our
ongoing operating performance excluding certain non-cash and other items and
to provide additional information with respect to our ability to comply with
various covenants in documents governing our indebtedness and as a means to
evaluate our period-to-period results. In evaluating Adjusted EBITDA, you
should be aware that in the future we may incur expenses that are the same as
or similar to some of the adjustments in this presentation. Our presentation
of Adjusted EBITDA should not be construed to imply that our future results
will be unaffected by any such adjustments. We have provided this information
to analysts, investors and other third parties to enable them to perform more
meaningful comparisons of past, present and future operating results and as a
means to evaluate the results of our ongoing operations. Management also uses
Adjusted EBITDA to determine executive incentive compensation payment levels.
In addition, our compliance with certain covenants under the credit agreement
between our indirect wholly owned subsidiary, Mattress Holding Corp., certain
lenders, and UBS Securities LLC, as sole arranger, bookrunner, and a lender,
are calculated based on similar measures and differ from Adjusted EBITDA
primarily by the inclusion of pro forma results for acquired businesses in
those similar measures. Other companies in our industry may calculate Adjusted
EBITDA differently than we do. Adjusted EBITDA is not a measure of performance
under U.S. GAAP and should not be considered as a substitute for net income
prepared in accordance with U.S. GAAP. Adjusted EBITDA has significant
limitations as an analytical tool, and you should not consider it in isolation
or as a substitute for analysis of our results as reported under U.S. GAAP.

The following table contains a reconciliation of our net income determined in
accordance with U.S.GAAP to EBITDA and Adjusted EBITDA for the periods
indicated (in thousands):

                                                     Thirteen Weeks Ended
                                                     May 1,       April 30,
                                                     2012           2013
Net income                                           $ 9,736        $ 12,009
Income tax expense                                     6,162          7,674
Interest income                                        (1     )       (2     )
Interest expense                                       2,075          2,849
Depreciation and amortization                          4,704          6,210
Intangible assets and other amortization              580          541    
EBITDA                                                23,256       29,281 
Loss on store closings and impairment of store         17             261
Financial sponsor fees and expenses                    -              12
Stock-based compensation                               509            887
Vendor new store funds (a)                             383            887
Acquisition-related costs (b)                          1,179          326
Other (c)                                             69           569    
Adjusted EBITDA                                      $ 25,413      $ 32,223 

          We receive cash payments from certain vendors for each new
          incremental store that we open (“new store funds”). New store funds
          are initially recorded in other noncurrent liabilities when received
          and are then amortized as a reduction of cost of sales over 36
(a)    months in our financial statements. Historically, we have considered
          new store funds as a component of Adjusted EBITDA when received
          since new store funds are included in cash provided from operations.
          The adjustment includes the amount of new store funds received
          during the period presented and eliminates the non-cash reduction in
          cost of sales included in our results of operations.
          Reflects both non-cash effects included in net income related to
          acquisition accounting adjustments made to inventories and other
(b)       acquisition-related cash costs included in net income, such as
          direct acquisition costs and costs related to integration of
          acquired businesses.
          Consists of various items that management excludes in reviewing the
(c)       results of operations, including $0.7 million of ERP system
          implementation costs incurred during the thirteen weeks ended April
          30, 2013.

Adjusted EPS and the other “Adjusted” data provided in this press release are
also considered non-GAAP financial measures. We report our financial results
in accordance with GAAP; however, management believes evaluating our ongoing
operating results may be enhanced if investors have additional non-GAAP basis
financial measures to facilitate year-over-year comparisons. Management
reviews non-GAAP financial measures to assess ongoing operations and considers
them to be effective indicators, for both management and investors, of our
financial performance over time. Our management does not advocate that
investors consider such non-GAAP financial measures in isolation from, or as a
substitute for, financial information prepared in accordance with GAAP. For
more information, please refer to “Reconciliation of Reported (GAAP) to
Adjusted Statements of Operations Data” below.


Consolidated Balance Sheets

(In thousands, except share amounts)
                                                   January 29,     April 30,
                                                    2013          2013    
Assets                                                             (unaudited)
Current assets:
Cash and cash equivalents                          $ 14,556        $ 1,645
Accounts receivable, net                             26,246          30,831
Inventories                                          63,228          71,738
Deferred income tax asset                            3,710           3,755
Prepaid expenses and other current assets           18,855        19,897  
Total current assets                                 126,595         127,866
Property and equipment, net                          144,612         152,711
Intangible assets, net                               82,479          82,345
Goodwill                                             358,978         358,671
Debt issue costs and other, net                     12,015        11,778  
Total assets                                       $ 724,679      $ 733,371 
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current maturities of            $ 33,930        $ 31,505
long-term debt
Accounts payable                                     64,642          74,708
Accrued liabilities                                  41,106          35,685
Customer deposits                                   8,012         8,733   
Total current liabilities                            147,690         150,631
Long-term debt, net of current maturities            219,069         206,061
Deferred income tax liability                        26,800          27,527
Other noncurrent liabilities                        63,624        67,782  
Total liabilities                                   457,183       452,001 
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value; 120,000,000
shares authorized;
33,795,630 and 33,844,140 shares issued and
outstanding at
January 29, 2013 and April 30, 2013,                 338             338
Additional paid-in capital                           365,083         366,948
Accumulated deficit                                 (97,925 )      (85,916 )
Total stockholders' equity                          267,496       281,370 
Total liabilities and stockholders' equity         $ 724,679      $ 733,371 


Consolidated Statements of Operations

(In thousands, except share and per share amounts)

                       Thirteen Weeks Ended
                       May 1,           % of     April 30,          % of
                        2012            Sales       2013            Sales
Net sales              $ 209,814          100  %     $ 275,957          100  %
Cost of sales           127,272         60.7 %      171,515         62.2 %
Gross profit from        82,542           39.3 %       104,442          37.8 %
retail operations
Franchise fees and      1,205           0.6  %      1,249           0.5  %
royalty income
                        83,747          39.9 %      105,691         38.3 %
Sales and                49,128           23.4 %       63,731           23.1 %
marketing expenses
General and
administrative           16,630           7.9  %       19,169           6.9  %
Loss on store
closings and            17              0.0  %      261             0.1  %
impairment of
store assets
Total operating         65,775          31.3 %      83,161          30.1 %
Income from             17,972          8.6  %      22,530          8.2  %
Other expense
Interest income          (1         )     0.0  %       (2         )     0.0  %
Interest expense        2,075           1.0  %      2,849           1.1  %
                        2,074           1.0  %      2,847           1.1  %
Income before            15,898           7.6  %       19,683           7.1  %
income taxes
Income tax expense      6,162           2.8  %      7,674           2.7  %
Net income             $ 9,736           4.6  %     $ 12,009          4.4  %
Basic net income       $ 0.29                        $ 0.36
per common share
Diluted net income     $ 0.29                        $ 0.35
per common share
Reconciliation of
Basic weighted
average shares           33,768,828                    33,812,123
Effect of dilutive
Stock options            156,385                       116,396
Restricted shares       710                         24,165     
Diluted weighted
average shares          33,925,923                  33,952,684 



Consolidated Statements of Cash Flows

(In thousands)

                                                   Thirteen Weeks Ended
                                                   May 1,        April 30,
Cash flows from operating activities:               2012          2013    
Net income                                         $ 9,736         $ 12,009
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization                        4,704           6,210
Loan fee and other amortization                      586             503
Deferred income tax expense                          2,293           712
Stock-based compensation                             509             887
Loss on store closings and impairment of store       17              261
Effects of changes in operating assets and
Accounts receivable                                  3,212           (4,585  )
Inventories                                          (6,018  )       (8,510  )
Prepaid expenses and other current assets            (864    )       (1,042  )
Other assets                                         (151    )       187
Accounts payable                                     1,113           10,066
Accrued liabilities                                  118             (5,421  )
Customer deposits                                    551             721
Other noncurrent liabilities                        2,324         3,965   
Net cash provided by operating activities           18,130        15,963  
Cash flows from investing activities:
Purchases of property and equipment                 (13,854 )      (14,377 )
Net cash used in investing activities               (13,854 )      (14,377 )
Cash flows from financing activities:
Proceeds from issuance of debt                       -               3,000
Principal payments of debt                           (600    )       (18,476 )
Proceeds from exercise of common stock options       -               862
Excess tax benefits associated with                 -             117     
stock-based awards
Net cash used in financing activities               (600    )      (14,497 )
Net increase (decrease) in cash and cash             3,676           (12,911 )
Cash and cash equivalents, beginning of period      47,946        14,556  
Cash and cash equivalents, end of period           $ 51,622       $ 1,645   


Reconciliation of Reported (GAAP) to Adjusted Statements of Operations Data

(In thousands, except share and per share amounts)
                        Thirteen Weeks Ended
                        May 1, 2012                                                     April 30, 2013
                        Income         Income                Diluted                    Income         Income                Diluted
                        From           Before     Net        Weighted       Diluted     From           Before     Net        Weighted       Diluted
                                       In-                                                             In-
                        Operations     come       Income     Shares         EPS         Operations     come       Income     Shares         EPS
                                       Taxes                                                           Taxes
As Reported             $ 17,972       $          $          33,925,923     $ 0.29      $ 22,530       $          $          33,952,684     $ 0.35
                                       15,898     9,736                                                19,683     12,009
% of sales              8.6%           7.6%       4.6%                                  8.2%           7.1%       4.4%
Acquisition-related     1,179          1,179      722                       0.02        326            326        201                       0.01
costs (1)
ERP system
implementation          -              -          -                        -           951            951        584                      0.02
costs (2)
Total adjustments       1,179          1,179      722        -              0.02        1,277          1,277      785        -              0.03
As Adjusted             $ 19,151       $          $          33,925,923     $ 0.31      $ 23,807       $          $          33,952,684     $ 0.38
                                       17,077     10,458                                               20,960     12,794
% of sales              9.1%           8.1%       5.0%                                  8.6%           7.6%       4.6%


(1)On May 2, 2012, we acquired all of the equity interests of MGHC Holding
Corporation (“Mattress Giant”), including 181 specialty retail stores. On
September 25, 2012, we acquired the leasehold interests, store assets,
distribution center assets and related inventories, and assumption of certain
liabilities of Mattress XPress,Inc. and Mattress XPress of Georgia,Inc.
(collectively, “Mattress X-Press”), including 34 mattress specialty retail
stores. On December 11, 2012, we acquired the assets and operations of Factory
Mattress & Water Bed Outlet of Charlotte, Inc. (“Mattress Source”), including
27 mattress specialty retail stores. Acquisition-related costs, consisting of
direct transaction costs and integration costs, are included in the results of
operations as incurred. During the thirteen weeks ended May 1, 2012 and April
30, 2013, we incurred approximately $1.2 million and $0.3 million of
acquisition-related costs, respectively.

(2) Reflects implementation costs included in the results of operations as
incurred, consisting primarily of training-related costs, related to the
roll-out of the Microsoft Dynamics AX for Retail Enterprise Resource Planning
system (“ERP system”). During the thirteen weeks ended April 30, 2013, we
incurred approximately $1.0 million of ERP system implementation costs.

Our “As Adjusted” data is considered a non-U.S. 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.

About Mattress Firm

Houston-based Mattress Firm is a high growth specialty retailer, recognized as
the nation's leading bedding specialty retailer, offering a broad selection of
both traditional and specialty mattresses, bedding accessories and related
products from leading manufacturers. With more than 1,200 company-operated and
franchisee stores across 29 states, Mattress Firm has the largest geographic
footprint in the United States among multi-brand mattress specialty retailers.
Mattress Firm offers customers comfortable store environments, guarantees on
price, comfort and service, and highly-trained sales professionals. More
information is available at Mattress Firm’s
website is not part of this press release.

Photos/Multimedia Gallery Available:



Investor Relations:
Brad Cohen,  713-343-3652
Sari Martin, 203-682-8345
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