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Select Comfort CEO Discusses Q3 2010 Results - Earnings Call Transcript

Select Comfort CEO Discusses Q3 2010 Results - Earnings Call Transcript

Select Comfort Corporation (



Q3 2010 Earnings Call Transcript

October 20, 2010 5:00 pm ET


Mark Kimball – SVP, Legal, General Counsel and Secretary

Bill McLaughlin – President and CEO

Jim Raabe – SVP and CFO


John Baugh – Stifel Nicolaus

Brad Thomas – KeyBanc Capital Markets

Mark Rupe – Longbow Research

Chad Bolen – Raymond James

Tony Gikas – Piper Jaffray


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Welcome to Select Comfort’s third quarter 2010 earnings conference call. All lines have been placed in a listen-only mode until the question-and-answer session. Today’s call is being recorded. If anyone has any objections, you may disconnect at this time. I would like to introduce Mr. Mark Kimball, General Counsel. Sir, you may begin.

Mark Kimball

Thank you, Sandra. Good afternoon and welcome to the Select Comfort Corporation third quarter 2010 earnings conference call. Thank you all for joining us. I’m Mark Kimball, Senior Vice President and General Counsel. With me on the call today are Bill McLaughlin, our President and Chief Executive Officer; Jim Raabe, our Senior Vice President and Chief Financial Officer; and Hunter Saklad, Vice President of Finance.

In a moment, I’ll turn the call over to Bill. Following our prepared remarks, we will open the call to your questions. Please be advised that this telephone conference is being recorded and will be available by telephone replay. It also will be archived on our website at Please refer to the details set forth in our news release to access the replay on our website. Please also refer to our new release for a reconciliation of certain non-GAAP financial measures included in the release or that may be discussed on this call.

The primary purpose of this call is to discuss the results of the fiscal period just ended. However, our commentary and responses to your questions may include certain forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties outlined in our earnings release and discussed in some detail in our Annual Report on Form 10-K and other periodic filings with the SEC. The company’s actual future results may vary materially.

I will now turn the call over to Bill for his comments.

Bill McLaughlin

Thanks, Mark. And good afternoon and thank you for joining us to discuss Select Comfort’s third quarter performance and long-term outlook. As we shared with you in our news release, Select Comfort’s third quarter was solid on all financial measures; top line, profit and cash. And our confidence in the long-term prospects of our business and company continues to build as we deliver sustained performance.

My remarks today will concentrate on our preparation to sustained growth by enhancing our unique core advantages and brands, distribution, and products. And Jim will focus on the third quarter and then balance of the year outlook.

Before looking ahead, I wanted to begin by emphasizing a couple of points from the third quarter. First is consistency of profit performance. Profit has now improved seven consecutive quarters despite a challenging environment. Second is sustained revenue growth. This past quarter was important as we lapped last year’s period of economic recovery and achieved absolute sales growth of 9% and comp growth of 16%. And third is continued value creation. In addition to top line growth, Select Comfort is expanding its operating margin and growing cash, which further accelerates the company’s value creation opportunities.

The third quarter not only marked an important transition in Select Comfort’s performance, but also it was a time when we advanced our focus on longer term strategies and priorities. As many of you know, our primary focus last year was to stabilize the business. Facing uncertain environment and the need to rebuild the balance sheet, we focused on our core basics. At the same time, we concentrated on better distinguishing our core points of difference in advantage in the marketplace. These efforts have positioned the company well for long-term growth.

Some of our significant advances include the repositioning of our product line to emphasize value. We have now renamed our nine bed models, which are presented across three families of good, better and best, and prices are featured in promotions that emphasize entry price points below $1,000 and values are clear to trade up through the line. Our goal and opportunity is to demonstrate the affordability and value of the Sleep Number bed to an increased number of consumers.

Another significant step was unifying our brand across key consumer touch points. And important example of this effort is our store marquees. After strategic investment, nearly all store marquees now feature the Sleep Number brand, having converted from the Select Comfort name in order to take full advantage of the Sleep Number advertising. And since early 2009, we have also successfully rationalized distribution on a market-by-market basis across the country.

We have closed 85 company stores and withdrawn from 740 specialty bedding stores. This has resulted in an increase in average sales per store of 27% to $1.25 million on a trailing 12-month basis. And this puts us well on our way towards attaining our history high of $1.5 million per store average and then will go beyond. We have also more effectively leveraged our advertising with one common campaign across the majority of our direct response and branded creative, including promotional advertising.

This combination of strong creative and the benefits from a singularly-focused brand have enabled to grow same-store sales by 24% year-to-date and 14% greater media spend. And this is in line with the strongest media productivity that we have earned in the past ten years. And we continue to improve employee engagement. Our company’s engagement scores have exceeded 70% with more 90% participation in the past two surveys, well above our historic measures and external norms. Motivated and empowered employees are critical to satisfied customers.

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