Select Comfort (SCSS)

Q3 2011 Earnings Call

October 19, 2011 7:00 pm ET


Mark A. Kimball - Chief Administrative Officer, Senior Vice President of Legal, Secretary and General Counsel

Wendy L. Schoppert - Chief Financial Officer

William R. McLaughlin - Chief Executive Officer, President and Executive Director

Shelly R. Ibach - Chief Operating Officer


Budd Bugatch - Raymond James & Associates, Inc., Research Division

Mark Rupe - Longbow Research LLC

Jason Campbell - KeyBanc Capital Markets Inc., Research Division

Todd A. Schwartzman - Sidoti & Company, LLC

John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division

Eric Hollowaty - Stephens Inc., Research Division



Good afternoon. Welcome to Select Comfort's Third Quarter 2011 Earnings Conference Call. [Operator Instructions] I would like to introduce Mr. Mark Kimball, General Counsel. Sir, you may begin.

Mark A. Kimball

Thank you, Angie. Good afternoon, and welcome to the Select Comfort Corporation's Third Quarter 2011 Earnings Conference Call. Thank you 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; as well as Shelly Ibach, Executive Vice President and Chief Operating Officer; and Wendy Schoppert, Executive Vice President and Chief Financial Officer.

This telephone conference is being recorded and will be available on our website at Please refer to the details set forth in our news release to access the replay on our website. We also have posted an updated version of our investor presentation on the Investor Relations section of our website, which provides helpful information for investors and which management may refer to in the Q&A sessions of this afternoon's call. Please also refer to our news release for a reconciliation of certain non-GAAP financial measures included in the news 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 news 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.

William R. McLaughlin

Thanks, Mark, and welcome to Select Comfort's discussion of our terrific third quarter performance and exciting plans for the future. Before I begin, I'd like to thank Shelly Ibach for joining us today.

Given the importance of understanding our growth formula and its sustainability, I thought it's helpful for you to hear from the architect and leader of this position within our business. Shelly recently assumed the role of Chief Operating Officer, which includes consumer insights, marketing, sales and product direction. During her more than 4 years with the company, she has played a key role in developing and driving sales and marketing strategies that helped stabilize the company and are now sustaining a high level of profitable growth.

Today, we've organized our presentation as follows. I'll start with a high-level perspective of the business. Shelly will provide a more in-depth review of our growth formula year-to-date with emphasis on the third quarter and on sales drivers going forward. Wendy will follow with the financial highlights of the recent quarter, our outlook for the remainder of the year and updated long-term expectations. I'll then return for a quick summary and to open the call to your comments and questions.

We were thrilled with our third quarter and are increasingly confident in Select Comfort's ability to consistently advance our leadership position both in the industry and as an investment opportunity. In 2011, we prioritized sustainable earnings growth with goals to expand margin and to build our balance sheet. We've also focused on our growth formula, narrowing to a few core strategies and refining key tactics for greater consistency of performance.

Three highlights from the quarter include net sales of $200 million, 25% greater than prior year with company-controlled channel comp growth of 26%; earnings per share of $0.31, 63% greater than prior year and annual operating margin tracking to exceed our first milestone of 12%, which is more than 200 basis points greater than our previous average annual high; and a cash balance at the end of the quarter of $136 million while remaining debt-free.

We've been lapping relatively strong prior-year performance all year, particularly in the third quarter. The third quarter has historically been the industry's and our most developed sales period. Achieving a 26% comp during this quarter confirms the progress of our growth programs.

Margin expansion and cash generation further accelerated shareholder value creation. We achieved record profit margin by focusing on our core business and leveraging our fixed cost. Looking ahead, we believe we are well positioned to continue building long-term shareholder value in an uncertain environment.

As for industry outlook, we remain relatively positive. After 30 years of steady growth, our industry was reset at the end of 2007 and through to 2009, dropping approximately 20% with little recovery since. The industry association to outlook for mid single-digit revenue growth led by premium and non-spring segments seems reasonable. The industry is not likely to see another major pullback and should benefit from any economic stabilization or recovery. SLEEP NUMBER's opportunity is to increase consumers understanding of the value of personalized comfort as well as the value of our unique store experience, and our focus on brand and store awareness is clearly working.

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