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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 (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 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 (800) 753-3768.

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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