“We have continued to drive strong performance as evidenced by our 6.6% and 8.8% comparable-store sales growth in the third fiscal quarter and the first nine months of fiscal 2012, respectively, while adding more than 280 net stores through accretive acquisitions and new store openings since the beginning of this fiscal year,” stated Steve Stagner, Mattress Firm’s president and chief executive officer. “Our core strategy of further penetrating our existing and new markets continues to result in increased market share and profitability, and the acquired stores continue to generate total sales above our initial expectations. We believe we are well positioned to drive revenue and earnings in the coming years through store growth and our relative market share strategy. However, our expectations for the balance of this fiscal year are now below our previous plan in light of recent sales trends that continue to be impacted by ticket pressures and, beginning in early November, lower traffic growth. We expect that targeted initiatives being deployed internally will address many of our sales challenges. It is important to keep in context that in fiscal 2012, even after giving effect to our updated guidance, we expect to achieve impressive full year revenue and operating earnings growth in excess of 40% over the prior year. As we look to fiscal 2013, we remain confident that the execution of our growth strategy and improving operating efficiencies will drive market share and EPS gains.”
Third Quarter Financial Summary
- Net sales increased 51.1% to $277.3 million in the third fiscal quarter of 2012, reflecting comparable-store sales growth of 6.6% and growth in store units from new store openings and acquisitions.
- Company-operated stores increased to 1,011 as of the end of the third fiscal quarter. During the quarter, the Company opened 31 new stores, closed 11, and added 34 from the acquisition of Mattress X-Press in September 2012.
- Income from operations for the third fiscal quarter was $23.0 million. Excluding $5.0 million of acquisition-related and secondary offering costs, adjusted income from operations was $28.0 million, representing an increase of $6.6 million, or 30.9%, over the prior year.
- Adjusted operating margin in the third fiscal quarter increased 112 basis-points over the second fiscal quarter of fiscal 2012, and such improvement included a 40 basis-point improvement in gross margin, a 107 basis-point decrease in selling and marketing expense, offset by a 35 basis-point increase in general and administrative expense and other items. Adjusted operating margin in the third fiscal quarter was 10.1% as compared to 11.7% in the same quarter of 2011, and such decrease included a 177 basis-point increase in selling and marketing expense, a 20 basis-point increase in other expense categories, offset by a 41 basis-point decrease in general and administrative expense.
- Acquisition-related costs included in income from operations related to the Mattress Giant and Mattress X-Press acquisitions totaled $3.0 million during the third fiscal quarter and consisted of $0.5 million classified as cost of sales attributable to duplicate warehouse facilities and costs of remerchandising the acquired stores, and $2.5 million classified as general and administrative expenses related to direct costs of the transactions, costs of retraining personnel and duplicate costs of the Mattress Giant corporate office.
- The Company completed the public offering of 5,435,684 shares of its common stock by certain of its shareholders on October 10, 2012. The Company did not sell any shares of common stock in the offering and did not receive any proceeds from the sale. The Company incurred approximately $1.9 million in costs related to the offering.
In September 2012, the Company completed the acquisition of the assets and operations of Mattress XPress, Inc. and Mattress XPress of Georgia, Inc. (collectively “Mattress X-Press”), including 29 mattress specialty stores located primarily in South Florida and five stores in Georgia, for approximately $13.2 million. The Company has commenced rebranding of the Mattress X-Press stores as Mattress Firm, with completion anticipated to occur by the end of fiscal 2012.Subsequent to the end of the third fiscal quarter, in November 2012, the Company entered into an agreement to acquire the assets and operations of Factory Mattress & Water Bed Outlet of Charlotte, Inc. (dba “Mattress Source”), including 28 mattress specialty stores in North Carolina and South Carolina, for approximately $11.2 million, subject to customary adjustments. The closing of the acquisition, which is conditioned on the prior satisfaction of customary closing conditions, is expected to occur by the end of the fourth fiscal quarter of 2012 and will be funded by cash reserves and revolver borrowings. The Company intends to rebrand the stores as Mattress Firm subsequent to the closing of the transaction. Consistent with our core relative market share strategy, the Mattress X-Press and pending Mattress Source acquisitions will add stores in markets where Mattress Firm currently has company-operated stores. The addition of the acquired stores, once rebranded, is expected to drive advertising efficiency and improved market-level profitability in those markets.