Select Comfort (SCSS)

Q2 2012 Earnings Call

July 18, 2012 5:00 pm ET


Mark A. Kimball - Chief Legal & Risk Officer, Senior Vice President and Secretary

Shelly R. Ibach - Chief Executive Officer, President and Director

Wendy L. Schoppert - Chief Financial Officer and Executive Vice President


Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Peter J. Keith - Piper Jaffray Companies, Research Division

Chad Bolen

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

Eric Hollowaty - Stephens Inc., Research Division

Todd A. Schwartzman - Sidoti & Company, LLC

David S. MacGregor - Longbow Research LLC

G. Michael Novak - Frontier Capital Management Co., LLC



Welcome to the Select Comfort Second Quarter 2012 Earnings Conference Call. [Operator Instructions] I would like to introduce Mr. Mark Kimball, General Counsel. Sir, you may begin.

Mark A. Kimball

Thank you, Matt. Good afternoon, and welcome to the Select Comfort Corporation Second Quarter 2012 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 Shelly Ibach, our President and CEO; and Wendy Schoppert, our Executive Vice President and CFO. 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. You also can access the latest version of our investor presentation in the Investor Section of our website.

In addition, please 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 Shelly for her comments.

Shelly R. Ibach

Thank you, Mark. Good afternoon, and thank you for joining our earnings call today. We're very pleased with our second quarter financial performance. Earnings per share increased 50% from a year ago to a second quarter record of $0.30. Sales increased 27% from a year ago to a second quarter record of $205 million. These results demonstrate the strength of our unique business model and integrated growth formula.

Our vertically-integrated model as a manufacturer and retailer provides multiple points of leverage to maximize operating margin, which was also a second quarter record of 12.6%. Strong cash flow allows us to self fund growth, and we remain committed to achieving the appropriate balance between seizing investment opportunities and managing risks.

Our integrated growth formula supports our long-term strategy, focused on delivering an unparalleled customer experience. We are driving traffic and conversion through our brand advertising, exclusive distribution, relationship-based selling experience and proprietary benefit-driven suite of products and services.

Again, in the second quarter, we experienced strong units in ASP growth. This validates our differentiated strategy that goes beyond selling mattresses to offering consumers a complete individualized value-added sleep experience. Therefore, we are confident in our ability to drive performance in the short and long term.

As we have previously discussed, our strategy has delivered top and bottom line growth regardless of the economic environment or changes in the competitive landscape.

In the second quarter, we increased media investment as planned by 37% over prior year. At the same time, we continued to shift media buys to more effectively reach our expanded target consumer and develop local markets. As expected, these actions resulted in the following: improved brand and store awareness; increased traffic, driving a 13% unit increase in our company-controlled channels; and advancement of our local market development strategy, including the launch of our seventh aggressive growth market at the end of the quarter.

Our #1 growth opportunity is increasing unaided awareness of Sleep Number. As we've continued to invest in marketing, we've increased unaided brand awareness from 15% to 20%, a high point for our brand. We also have seen a notable increase in unaided store awareness over the past 6 months from 6% to 8%. These awareness improvements indicate our strategies are working as planned and are important to the sustainability of Sleep Number's future growth.

Second quarter results validated the advantage of our exclusive distribution strategy. Marketing dollars are focused on increasing awareness and consideration for our brand and products, while driving traffic to our Sleep Number stores, where sleep professionals individualize our customers' sleep experience with proprietary benefit-driven products.

Our customers continue to respond positively, as indicated by record-high average sales per mattress unit in the quarter. Company-controlled ASP was also up 13% over prior year. Our average sales per comp store exceeded $2 million for the trailing 12-months in the second quarter, a 35% increase over the prior year. And our new stores average $2 million in year 1.

As we have communicated, our national distribution strategy involves local market development by optimizing existing stores and filling in current markets with new stores. In the quarter, we continued to invest in our stores by expanding and remodeling 7 mall stores and relocating another 7 stores from mall to non-mall locations.

In addition, we executed a brand refresh in 15 existing locations. We also opened 5 new non-mall Sleep Number stores. And after closing 4 mall stores, we ended the quarter with 1 net new store for a total of 381. We are on track to open 27 to 31 total net new stores for 2012.

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