Select Comfort Announces Second-quarter 2013 Results

  Select Comfort Announces Second-quarter 2013 Results

  *Generates Net Sales of $207 Million, a 1% Year-over-year Increase
  *Reports Second-quarter EPS of $0.18
  *Reaffirms Full-year 2013 Outlook

Business Wire

MINNEAPOLIS -- July 17, 2013

Select Comfort Corporation (NASDAQ: SCSS) today reported second-quarter 2013
results for the period ended June 29, 2013.

Second-quarter Financial Summary

  *Net sales increased 1% to $207 million, compared to $205 million in the
    second quarter of 2012.
  *Company-controlled comparable sales declined 6% year-over-year.
  *Operating income was $15.1 million, compared with $25.9 million in the
    second quarter of 2012. As a percentage of net sales, operating income was
    7.3% compared to 12.6% in the second quarter of 2012.
  *Earnings per diluted share were $0.18, compared to $0.30 in the second
    quarter of 2012.
  *During the quarter, the company opened 17 stores and closed 15, ending the
    quarter with 413 stores.

“During the quarter, we experienced sequential monthly sales improvement and
strengthened performance as we re-established our proven media-buying
formula,” said Shelly Ibach, president and CEO, Select Comfort. “We also made
progress on our top priorities, product innovation and local-market
development, as we position the company for short- and long-term growth.”

Ibach continued, “Specifically in June, we launched the Sleep Number DualTemp
layer, which solves temperature balancing – one of consumers’ most common
sleep issues. This product can be used with any mattress brand, which is
bringing new customers into our Sleep Number stores.”

Cash flows from operating activities were $36 million for the first six months
of 2013, compared with $43 million in the prior year. Capital expenditures for
the first six months of 2013 increased to $37.1 million as compared to $22.5
million in 2012, driven by increased investment in stores, technology and
product innovation. During the second 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 $140 million, and the company had no borrowings under its revolving
credit facility.

Financial Outlook
The company is maintaining its outlook for full-year 2013 GAAP earnings per
diluted share of between $1.30 and $1.45. This outlook assumes high-teens
growth in total net sales for the remainder of the year, with 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 stores, technology and
product innovation. While its first priority for capital deployment is
investment in its high-return growth programs, the company currently plans to
continue repurchasing shares in 2013 with the objective of maintaining share
count at or 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 individualization 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
                           June 29,      % of          June 30,      % of
                           2013          Net Sales     2012          Net Sales
                                                                     
Net sales                  $ 207,391     100.0  %      $ 205,219     100.0  %
Cost of sales               75,993      36.6   %       73,648      35.9   %
Gross profit                131,398     63.4   %       131,571     64.1   %
Operating expenses:
Sales and marketing          98,357      47.4   %        88,240      43.0   %
General and                  15,359      7.4    %        16,220      7.9    %
administrative
Research and development     2,560       1.2    %        1,256       0.6    %
Asset impairment charges    15          0.0    %       3           0.0    %
Total operating expenses    116,291     56.1   %       105,719     51.5   %
Operating income             15,107      7.3    %        25,852      12.6   %
Other income, net           78          0.0    %       48          0.0    %
Income before income         15,185      7.3    %        25,900      12.6   %
taxes
Income tax expense          5,259       2.5    %       8,927       4.3    %
Net income                 $ 9,926       4.8    %      $ 16,973      8.3    %
                                                                     
Net income per share –     $ 0.18                      $ 0.30
basic
                                                                     
Net income per share –     $ 0.18                      $ 0.30
diluted
                                                                     
                                                                     
Reconciliation of
weighted-average
shares outstanding:
Basic weighted-average       55,029                      55,719
shares outstanding
Effect of dilutive
securities:
Options                      539                         1,129
Restricted shares           419                        546
Diluted weighted-average    55,987                     57,394
shares outstanding
                                                                     


SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited - in thousands, except per share amounts)
                                                            
                         Six Months Ended
                         June 29,        % of          June 30,      % of
                         2013            Net Sales     2012          Net Sales
                                                                     
Net sales                $ 465,628       100.0  %      $ 467,602     100.0  %
Cost of sales             170,814      36.7   %       171,732     36.7   %
Gross profit              294,814      63.3   %       295,870     63.3   %
Operating expenses:
Sales and marketing        208,170       44.7   %        194,425     41.6   %
General and                31,540        6.8    %        33,149      7.1    %
administrative
Research and               5,116         1.1    %        2,546       0.5    %
development
CEO transition             (391    )     (0.1   %)       5,595       1.2    %
(benefit) costs
Asset impairment          45           0.0    %       7           0.0    %
charges
Total operating           244,480      52.5   %       235,722     50.4   %
expenses
Operating income           50,334        10.8   %        60,148      12.9   %
Other income, net         169          0.0    %       55          0.0    %
Income before income       50,503        10.8   %        60,203      12.9   %
taxes
Income tax expense        17,106       3.7    %       20,813      4.5    %
Net income               $ 33,397       7.2    %      $ 39,390      8.4    %
                                                                     
Net income per share     $ 0.61                       $ 0.71
– basic
                                                                     
Net income per share     $ 0.60                       $ 0.69
– diluted
                                                                     
                                                                     
Reconciliation of
weighted-average
shares outstanding:
Basic
weighted-average           55,062                        55,680
shares outstanding
Effect of dilutive
securities:
Options                    613                           1,099
Restricted shares         426                         588
Diluted
weighted-average          56,101                      57,367
shares outstanding
                                                                     


SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
subject to reclassification
                                                             
                                                  (unaudited)
                                                  June 29,        December 29,
                                                  2013            2012
Assets
Current assets:
Cash and cash equivalents                         $ 58,189        $   87,915
Marketable debt securities – current                53,787            51,264
Accounts receivable, net of allowance for
doubtful accounts of $459 and $348,                 14,385            16,613
respectively
Inventories                                         34,473            35,564
Prepaid expenses                                    9,052             4,299
Deferred income taxes                               5,398             5,401
Other current assets                               10,904          9,522
Total current assets                                186,188           210,578
                                                                  
Non-current assets:
Marketable debt securities – non-current            28,502            38,642
Property and equipment, net                         105,539           79,356
Goodwill and intangible assets, net                 17,288            2,881
Deferred income taxes                               4,470             8,511
Other assets                                       4,573           2,053
Total assets                                      $ 346,560      $   342,021
                                                                  
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable                                  $ 63,335        $   67,703
Customer prepayments                                12,330            15,194
Compensation and benefits                           15,990            21,597
Taxes and withholding                               6,134             9,282
Other current liabilities                          17,716          19,285
Total current liabilities                           115,505           133,061
                                                                  
Non-current liabilities:
Warranty liabilities                                1,673             1,457
Other long-term liabilities                        15,293          13,806
Total non-current liabilities                      16,966          15,263
Total liabilities                                   132,471           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, 55,603 and 55,903 shares issued         556               559
and outstanding, respectively
Additional paid-in capital                          20,966            33,923
Retained earnings                                   192,592           159,195
Accumulated other comprehensive (loss) income      (25     )        20
Total shareholders’ equity                         214,089         193,697
Total liabilities and shareholders’ equity        $ 346,560      $   342,021
                                                                      


SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited - in thousands)
subject to reclassification
                                                              
                                                   Six Months Ended
                                                   June 29,        June 30,
                                                   2013            2012
                                                                   
Cash flows from operating activities:
Net income                                         $ 33,397        $ 39,390
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization                        14,153          9,049
Stock-based compensation                             1,992           8,370
Net gain on disposals and impairments of             (58     )       (12     )
assets
Excess tax benefits from stock-based                 (2,837  )       (4,120  )
compensation
Deferred income taxes                                4,072           (2,431  )
Changes in operating assets and liabilities,
net of effect of acquisition:
Accounts receivable                                  2,541           3,055
Inventories                                          1,769           (2,450  )
Income taxes                                         (3,084  )       3,614
Prepaid expenses and other assets                    (3,933  )       (2,474  )
Accounts payable                                     (1,708  )       202
Customer prepayments                                 (2,857  )       (1,892  )
Accrued compensation and benefits                    (4,802  )       (9,085  )
Other taxes and withholding                          (1,156  )       (920    )
Warranty liabilities                                 (571    )       (453    )
Other accruals and liabilities                      (775    )      3,390   
Net cash provided by operating activities           36,143        43,233  
                                                                   
Cash flows from investing activities:
Purchases of property and equipment                  (37,096 )       (22,499 )
Proceeds from sales of property and equipment        117             30
Investments in marketable debt securities            (16,504 )       (45,351 )
Proceeds from maturities of marketable debt          23,463          10,018
securities
Acquisition of business                              (15,500 )       -
Investment in non-marketable equity securities      (3,000  )      -       
Net cash used in investing activities               (48,520 )      (57,802 )
                                                                   
Cash flows from financing activities:
Net decrease in short-term borrowings                (4,750  )       (3,349  )
Repurchases of common stock                          (22,031 )       (14,023 )
Proceeds from issuance of common stock               6,595           1,937
Excess tax benefits from stock-based                 2,837           4,120
compensation
Debt issuance costs                                 -             (47     )
Net cash used in financing activities               (17,349 )      (11,362 )
                                                                   
Net decrease in cash and cash equivalents            (29,726 )       (25,931 )
Cash and cash equivalents, at beginning of          87,915        116,255 
period
Cash and cash equivalents, at end of period        $ 58,189       $ 90,324  
                                                                             


SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
                                                            
                         Three Months Ended           Six Months Ended
                         June 29,       June 30,      June 29,       June 30,
                         2013           2012          2013           2012
Percent of sales:
Retail                     88.5  %        88.9  %       88.3  %        88.5  %
Direct and                 7.6   %        7.5   %       7.1   %        7.8   %
E-Commerce
Wholesale/other           3.9   %       3.6   %      4.6   %       3.7   %
Total                     100.0 %       100.0 %      100.0 %       100.0 %
                                                                     
Sales growth rates:
Retail
comparable-store           (7    %)       27    %       (7    %)       32    %
sales
Direct and                4     %       8     %      (9    %)      13    %
E-Commerce
Company-Controlled
comparable sales           (6    %)       25    %       (8    %)       30    %
change
Net new/(closed)          7     %       3     %      7     %       2     %
stores
Total
Company-Controlled         1     %        28    %       (1    %)       32    %
Channel
Wholesale/other           7     %       11    %      23    %       19    %
Total                     1     %       27    %      0     %       32    %
                                                                     
Stores open:
Beginning of period        411            380           410            381
Opened                     17             12            27             22
Closed                    (15   )       (11   )      (24   )       (22   )
End of period             413          381         413          381   
                                                                     
Other metrics:
Average sales per        $ 2,094        $ 2,012
store ($ in 000's)^1
Average sales per        $ 1,197        $ 1,281
square foot^1
Stores > $1 million        98    %        98    %
net sales^1
Stores > $2 million        46    %        42    %
net sales^1
Average net sales
per mattress unit -      $ 3,182        $ 3,087       $ 3,154        $ 2,889
Company-Controlled
Channel^2


^1  Trailing twelve months for stores open at least one year.
     Represents Company-Controlled Channel total net sales divided by
     Company-Controlled Channel mattress units. The previously reported metric
^2   "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
                        June 29,   June 30,     June 29,        June 30,
                        2013         2012         2013              2012
                                                                    
Net income              $ 9,926      $ 16,973     $  72,101         $  71,996
Income tax expense        5,259        8,927         38,204            34,663
Interest expense          13           20            55                130
Depreciation and          7,172        4,726         24,284            16,090
amortization
Stock-based               1,560        1,405         3,929             11,084
compensation
Asset impairments         15           3             186               19
                                                                 
Adjusted EBITDA         $ 23,945     $ 32,054     $  138,759        $  133,982
                                                                       

         Our Adjusted EBITDA calculation is considered a non-GAAP financial
         measure and is not in accordance with, or

Note -  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)
                                                                         
                Six Months Ended
                June 29, 2013                             June 30, 2012
                             CEO                                       CEO
                             Transition                                Transition
                As           Benefit^(1)     As           As           Costs^(1)      As
                Reported                     Adjusted     Reported                    Adjusted
Operating       $ 50,334     $  (391   )     $ 49,943     $ 60,148     $  5,595       $ 65,743
income
Other            169          -            169         55           -            55
income, net
Income
before            50,503        (391   )       50,112       60,203        5,595         65,798
income
taxes
Income tax       17,106       (135   )      16,971      20,813       1,919        22,732
expense^(2)
Net income      $ 33,397     $  (256   )     $ 33,141     $ 39,390     $  3,676       $ 43,066
                                                                                      
Net income
per share –
Basic           $ 0.61       $  0.00         $ 0.60       $ 0.71       $  0.07        $ 0.77
Diluted         $ 0.60       $  0.00         $ 0.59       $ 0.69       $  0.06        $ 0.75
                                                                                      
Basic             55,062        55,062         55,062       55,680        55,680        55,680
Shares
Diluted           56,101        56,101         56,101       57,367        57,367        57,367
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 six 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 six 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
       34.4% for 2013 and 34.3% 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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