Select Comfort Announces Second-quarter 2012 Results

Conference CallManagement 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 [phone] (international participants dial [phone]) 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 in the investor relations area of the company’s website for approximately 60 days.

About Select Comfort CorporationSelect Comfort Corporation (NASDAQ: SCSS) 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, 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 the approximately 400 Sleep Number stores across the country, online at sleepnumber.com, or via phone at (800) Sleep Number or [phone].

Forward-looking StatementsStatements 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 30,				% of			July 2,				% of
			2012				Net Sales			2011				Net Sales
Net sales			$	205,219			100.0%			$	161,462			100.0%
Cost of sales				73,648			35.9%				58,958			36.5%
Gross profit				131,571			64.1%				102,504			63.5%
Operating expenses:
Sales and marketing				88,240			43.0%				70,517			43.7%
General and administrative				16,220			7.9%				13,120			8.1%
Research and development				1,256			0.6%				1,223			0.8%
Asset impairment charges				3			0.0%				18			0.0%
Total operating expenses				105,719			51.5%				84,878			52.6%
Operating income				25,852			12.6%				17,626			10.9%
Other income (expense), net				48			0.0%				(30	)		0.0%
Income before income taxes				25,900			12.6%				17,596			10.9%
Income tax expense				8,927			4.3%				6,307			3.9%
Net income			$	16,973			8.3%			$	11,289			7.0%
Net income per share – basic			$	0.30						$	0.21
Net income per share – diluted			$	0.30						$	0.20
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding				55,719							54,958
Effect of dilutive securities:
Options				1,129							911
Restricted shares				546							538
Diluted weighted-average shares outstanding				57,394							56,407

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
			Six Months Ended
			June 30,				% of			July 2,				% of
			2012				Net Sales			2011				Net Sales
Net sales			$	467,602			100.0%			$	354,530			100.0%
Cost of sales				171,732			36.7%				128,925			36.4%
Gross profit				295,870			63.3%				225,605			63.6%
Operating expenses:
Sales and marketing				194,425			41.6%				150,788			42.5%
General and administrative				33,149			7.1%				28,743			8.1%
Research and development				2,546			0.5%				1,954			0.6%
CEO transition costs				5,595			1.2%				-			0.0%
Asset impairment charges				7			0.0%				96			0.0%
Total operating expenses				235,722			50.4%				181,581			51.2%
Operating income				60,148			12.9%				44,024			12.4%
Other income (expense), net				55			0.0%				(60	)		0.0%
Income before income taxes				60,203			12.9%				43,964			12.4%
Income tax expense				20,813			4.5%				16,092			4.5%
Net income			$	39,390			8.4%			$	27,872			7.9%
Net income per share – basic			$	0.71						$	0.51
Net income per share – diluted			$	0.69						$	0.50
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding				55,680							54,842
Effect of dilutive securities:
Options				1,099							762
Restricted shares				588							553
Diluted weighted-average shares outstanding				57,367							56,157

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
subject to reclassification
			(unaudited)
			June 30,					December 31,
			2012					2011
Assets
Current assets:
Cash and cash equivalents			$	90,324				$	116,255
Marketable debt securities – current				32,772					20,020
Accounts receivable, net of allowance for doubtful accounts of $391 and $397, respectively				10,908					13,844
Inventories				27,301					24,851
Prepaid expenses				6,905					5,778
Deferred income taxes				4,489					4,443
Other current assets				7,008					6,004
Total current assets				179,707					191,195
Marketable debt securities – non-current				32,367					10,042
Property and equipment, net				60,311					43,850
Deferred income taxes				15,373					12,964
Other assets				4,583					4,606
Total assets			$	292,341				$	262,657
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable			$	49,644				$	50,141
Customer prepayments				11,637					13,529
Compensation and benefits				20,470					29,806
Taxes and withholding				8,596					9,883
Other current liabilities				18,315					15,691
Total current liabilities				108,662					119,050
Non-current liabilities:
Warranty liabilities				2,343					2,714
Other long-term liabilities				12,328					11,502
Total non-current liabilities				14,671					14,216
Total liabilities				123,333					133,266
Shareholders’ equity:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding				-					-
Common stock, $0.01 par value; 142,500 shares authorized, 56,263 and 56,397 shares issued and outstanding, respectively				563					564
Additional paid-in capital				47,967					47,701
Retained earnings				120,491					81,101
Accumulated other comprehensive (loss) income				(13	)				25
Total shareholders’ equity				169,008					129,391
Total liabilities and shareholders’ equity			$	292,341				$	262,657

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited - in thousands)
subject to reclassification
			Six Months Ended
			June 30,				July 2,
			2012				2011
Cash flows from operating activities:
Net income			$	39,390			$	27,872
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization				9,049				6,386
Stock-based compensation				8,370				2,256
Net (gain) loss on disposals and impairments of assets				(12	)			89
Excess tax benefits from stock-based compensation				(4,120	)			(1,132	)
Deferred income taxes				(2,431	)			2,819
Changes in operating assets and liabilities:
Accounts receivable				3,055				2,775
Inventories				(2,450	)			(932	)
Income taxes				3,614				1,181
Prepaid expenses and other assets				(2,474	)			(3,212	)
Accounts payable				202				(682	)
Customer prepayments				(1,892	)			(2,451	)
Accrued compensation and benefits				(9,085	)			(2,716	)
Other taxes and withholding				(920	)			(320	)
Warranty liabilities				(453	)			(314	)
Other accruals and liabilities				3,390				2,066
Net cash provided by operating activities				43,233				33,685
Cash flows from investing activities:
Purchases of property and equipment				(22,499	)			(9,585	)
Proceeds from sales of property and equipment				30				7
Investments in marketable debt securities				(45,351	)			(40,021	)
Proceeds from maturities of marketable debt securities				10,018				-
Increase in restricted cash				-				(2,650	)
Net cash used in investing activities				(57,802	)			(52,249	)
Cash flows from financing activities:
Net decrease in short-term borrowings				(3,349	)			(1,500	)
Repurchases of common stock				(14,023	)			(309	)
Proceeds from issuance of common stock				1,937				870
Excess tax benefits from stock-based compensation				4,120				1,132
Debt issuance costs				(47	)			-
Net cash (used in) provided by financing activities				(11,362	)			193
Net decrease in cash and cash equivalents				(25,931	)			(18,371	)
Cash and cash equivalents, at beginning of period				116,255				76,016
Cash and cash equivalents, at end of period			$	90,324			$	57,645

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
			Three Months Ended							Six Months Ended
			June 30,			July 2,				June 30,			July 2,
			2012			2011				2012			2011
Percent of sales:
Retail				88.9%			87.1%				88.5%			86.8%
Direct and E-Commerce				7.5%			8.7%				7.8%			9.1%
Wholesale				3.6%			4.2%				3.7%			4.1%
Total				100.0%			100.0%				100.0%			100.0%
Sales growth rates:
Retail comparable-store sales				27%			25%				32%			28%
Direct and E-Commerce				8%			(13%)				13%			(8%)
Company-Controlled comparable sales change				25%			20%				30%			23%
Net new/(closed) stores				3%			(2%)				2%			(2%)
Total Company-Controlled Channels				28%			18%				32%			21%
Wholesale				11%			(19%)				19%			(8%)
Total				27%			16%				32%			19%
Stores open:
Beginning of period				380			375				381			386
Opened				12			5				22			6
Closed				(11)			(5)				(22)			(17)
End of period				381			375				381			375
Other metrics:
Average sales per store ($ in 000's) 1			$	2,012		$	1,492
Average sales per square foot 1			$	1,281		$	998
Stores > $1 million net sales 1				98%			85%
Stores > $2 million net sales 1				42%			13%
Average mattress sales per mattress unit - Company Controlled Channels			$	2,540		$	2,223			$	2,397		$	2,157
1Trailing twelve months for stores open at least one year.

SELECT COMFORT CORPORATION AND SUBSIDIARIES
Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA)
(in thousands)
The Company defines earnings before interest, taxes, depreciation and amortization (EBITDA) as net income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation and asset impairments. Management believes EBITDA is a useful indicator of the Company's financial performance. Our definition of EBITDA may not be comparable to similarly titled definitions used by other companies. The tables below reconcile EBITDA, which is a non-GAAP financial measure, to comparable GAAP financial measures:
			Three Months Ended									Trailing-Twelve Months Ended
			June 30,				July 2,					June 30,				July 2,
			2012				2011					2012				2011
Net income			$	16,973			$	11,289				$	71,996			$	45,478
Income tax expense				8,927				6,307					34,663				26,625
Interest expense				20				64					130				279
Depreciation and amortization				4,726				3,210					16,090				12,815
Stock-based compensation				1,405				1,122					11,084				4,727
Asset impairments				3				18					19				356
EBITDA			$	32,054			$	22,010				$	133,982			$	90,280
Note - Our EBITDA calculation is considered a non-GAAP financial measure and is not in accordance with, or preferable to, "as reported," or GAAP financial data. However, the Company is providing this information as they 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 30, 2012													July 2, 2011
									CEO
									Transition
					As Reported				Costs (1)				As Adjusted					As Reported
Operating income					$	60,148			$	5,595			$	65,743				$	44,024
Other income (expense), net						55				-				55					(60	)
Income before income taxes						60,203				5,595				65,798					43,964
Income tax expense (2)						20,813				1,919				22,732					16,092
Net income					$	39,390			$	3,676			$	43,066				$	27,872
Net income per share –
Basic					$	0.71			$	0.07			$	0.77				$	0.51
Diluted					$	0.69			$	0.06			$	0.75				$	0.50
Basic Shares						55,680				55,680				55,680					54,842
Diluted Shares						57,367				57,367				57,367					56,157
(1)		In February 2012, the Company 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. As a result of these modifications, the company recorded incremental non-cash compensation of $5.6 million.
(2)		Reflects effective income tax rate, before discrete adjustments, of 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, the Company is providing this information as they believe it facilitates year-over-year comparisons for investors and financial analysts.
GAAP - generally accepted accounting principles

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