Category: Consumer Goods

Select Comfort Announces First Quarter 2016 Results

Reported net sales of $353 million and EPS of $0.27
Generated $52 million in operating free cash flow and repurchased $50 million of the company's common stock
Reiterates full-year 2016 EPS outlook of $1.25 to $1.45 per share
 
MINNEAPOLIS-- Select Comfort Corporation (SCSS) today reported first quarter 2016 results for the period ended April 2, 2016.
 
“We are pleased with our first quarter results, which were on track with our expectations. We have completed our ERP system implementation – the last piece of our transformation – and have returned to normalized customer service levels,” said Shelly Ibach, president and chief executive officer of Select Comfort. “The system is already improving our customer experience and we expect to realize operating efficiencies in the back half of this year. Our competitive advantages are stronger than they have ever been and we are now well positioned for accelerated long-term earnings growth.”First Quarter Overview
Net sales increased 1% to $353 million, including a 4% comparable sales decline
Earnings per diluted share were $0.27, compared with $0.54 in the prior year’s quarter, including an estimated $0.25 impact from lost sales and inefficiencies related to our ERP implementation
Cash provided by operations of $64 million, up from $49 million in the prior year, funded the repurchase of $50 million of company stock (2.6 million shares) and $12 million of capital spending during the quarter
Financial Outlook
The company reiterates its outlook for 2016 earnings per diluted share of $1.25 to $1.45, compared with full-year 2015 earnings per diluted share of $0.97. The outlook assumes low-teen sales growth for the full year, with low single-digit growth in the first half of the year. Our 2016 outlook includes an estimated $0.30 earnings per share reduction related to the ERP transition (primarily in the first quarter), including $40 to $50 million of estimated sales impact. The outlook assumes a 10% increase in store count in 2016 and anticipates 2016 capital expenditures will be approximately $70 million. The outlook does not contemplate a worsening consumer spending environment.
 
Conference Call Information
Management 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 athttp://www.sleepnumber.com/eng/aboutus/InvestorRelations.cfm. The webcast replay will remain available for approximately 60 days.
 
Investor Presentation
The company has posted its updated Investor Presentation on the investor relations area of the Sleep Number website at http://www.sleepnumber.com/eng/aboutus/InvestorRelations.cfm.
 
About Select Comfort Corporation
 
Nearly 30 years ago, Sleep Number transformed the mattress industry with the idea that ‘one size does not fit all’ when it comes to sleep. Today, the company is the leader in sleep innovation and ranked “Highest in Customer Satisfaction with Mattresses” in 2015 by J.D. Power. As the pioneer in biometric sleep monitoring and adjustability, Sleep Number is proving the connection between quality sleep and health and wellbeing. Dedicated to individualizing sleep experiences, the company’s more than 3,400 employees are improving lives with innovative sleep solutions. To find better quality sleep visit one of our more than 490 U.S. Sleep Number® stores or SleepNumber.com.Forward-looking Statements
 

Statements 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 current and future general and industry economic trends and consumer confidence; the effectiveness of our marketing messages; the efficiency of our advertising and promotional efforts; our ability to execute our company-controlled distribution strategy; our ability to achieve and maintain acceptable levels of product and service quality, and acceptable product return and warranty claims rates; our ability to continue to improve and expand our product line; consumer acceptance of our products, product quality, innovation and brand image; industry competition, the emergence of additional competitive products, and the adequacy of our intellectual property rights to protect our products and brand from competitive or infringing activities; availability of attractive and cost-effective consumer credit options; pending and unforeseen litigation and the potential for adverse publicity associated with litigation; our “just-in-time” manufacturing processes with minimal levels of inventory, which may leave us vulnerable to shortages in supply; our dependence on significant suppliers and our 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; risks inherent in global sourcing activities; risks of disruption in the operation of either of our two primary manufacturing facilities; increasing government regulations, which have added or will add cost pressures and process changes to ensure compliance; the adequacy of our management information systems to meet the evolving needs of our business and to protect sensitive data from potential cyber threats; the costs, distractions and potential disruptions to our business related to upgrading our management information systems; our ability to attract, retain and motivate qualified management, executive and other key employees, including qualified retail sales professionals and managers; 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
        April 2,   % of   April 4,   % of
        2016   Net Sales   2015   Net Sales
                     
Net sales   $ 352,980     100.0 %   $ 349,809   100.0 %
Cost of sales     143,906     40.8 %     133,976   38.3 %
  Gross profit     209,074     59.2 %     215,833   61.7 %
                 
Operating expenses:                
  Sales and marketing     150,668     42.7 %     140,503   40.2 %
  General and administrative     30,906     8.8 %     28,254   8.1 %
  Research and development     7,602     2.2 %     3,351   1.0 %
    Total operating expenses     189,176     53.6 %     172,108   49.2 %
Operating income     19,898     5.6 %     43,725   12.5 %
Other (expense) income, net     (97 )   0.0 %     153   0.0 %
Income before income taxes     19,801     5.6 %     43,878   12.5 %
Income tax expense     6,832     1.9 %     15,079   4.3 %
Net income   $ 12,969     3.7 %   $ 28,799   8.2 %
                     
Net income per share – basic   $ 0.27         $ 0.55    
                     
Net income per share – diluted   $ 0.27         $ 0.54    
                     
                     

Reconciliation of weighted-average shares outstanding:

               
Basic weighted-average shares outstanding     48,100           52,346    
  Dilutive effect of stock-based awards     745           980    
Diluted weighted-average shares outstanding     48,845           53,326    
                 
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
subject to reclassification
        (unaudited)    
        April 2,   January 2,
        2016   2016
Assets        
Current assets:        
  Cash and cash equivalents   $ 29,520   $ 20,994  
  Marketable debt securities – current     -     6,567  
 

Accounts receivable, net of allowance for doubtful accounts of $1,115 and $1,039, respectively

    20,186     29,002  
  Inventories     80,967     86,600  
  Income taxes receivable     -     15,284  
  Prepaid expenses     12,019     10,207  
  Deferred income taxes     15,521     15,535  
  Other current assets     14,116     13,737  
    Total current assets     172,329     197,926  
             
Non-current assets:        
  Marketable debt securities – non-current     -     8,553  
  Property and equipment, net     203,500     204,376  
  Goodwill and intangible assets, net     82,711     83,344  
  Other assets     22,463     19,197  
    Total assets   $ 481,003   $ 513,396  
             
Liabilities and Shareholders’ Equity        
Current liabilities:        
  Accounts payable   $ 96,608   $ 103,941  
  Customer prepayments     30,936     51,473  
  Accrued sales returns     22,910     20,562  
  Compensation and benefits     26,345     15,670  
  Taxes and withholding     19,294     9,856  
  Other current liabilities     24,124     23,447  
    Total current liabilities     220,217     224,949  
             
Non-current liabilities:        
  Warranty liabilities     4,907     4,942  
  Deferred income taxes     14,116     12,499  
  Other long-term liabilities     54,579     48,667  
    Total non-current liabilities     73,602     66,108  
    Total liabilities     293,819     291,057  
             
Shareholders’ equity:        
 

Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding

    -     -  
 

Common stock, $0.01 par value; 142,500 shares authorized, 46,686 and 49,402 shares issued and outstanding, respectively

    467     494  
  Additional paid-in capital     -     -  
  Retained earnings     186,717     221,859  
  Accumulated other comprehensive loss     -     (14 )
    Total shareholders’ equity     187,184     222,339  
    Total liabilities and shareholders’ equity   $ 481,003   $ 513,396  
             
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited - in thousands)
subject to reclassification
                 
            Three Months Ended
            April 2,   April 4,
            2016   2015
                 
Cash flows from operating activities:        
  Net income   $ 12,969     $ 28,799  
 

Adjustments to reconcile net income to net cash provided by operating activities:

       
    Depreciation and amortization     13,854       10,783  
    Stock-based compensation     3,766       2,782  
    Net loss on disposals and impairments of assets     1       177  
    Excess tax benefits from stock-based compensation     (26 )     (858 )
    Deferred income taxes     1,622       (3,415 )
    Changes in operating assets and liabilities:        
      Accounts receivable     8,816       1,780  
      Inventories     5,633       (2,469 )
      Income taxes     16,558       15,453  
      Prepaid expenses and other assets     (1,272 )     (1,661 )
      Accounts payable     (495 )     7,458  
      Customer prepayments     (20,537 )     (2,591 )
      Accrued compensation and benefits     10,677       (8,977 )
      Other taxes and withholding     7,493       (58 )
      Warranty liabilities     (261 )     900  
      Other accruals and liabilities     5,183       761  
        Net cash provided by operating activities     63,981       48,864  
                 
Cash flows from investing activities:        
  Purchases of property and equipment     (12,289 )     (17,796 )
  Proceeds from sales of property and equipment     14       33  
  Investments in marketable debt securities     -       (18,195 )
  Proceeds from marketable debt securities     15,090       16,244  
        Net cash provided by (used in) investing activities     2,815       (19,714 )
                 
Cash flows from financing activities:        
  Net decrease in short-term borrowings     (6,661 )     (16,530 )
  Repurchases of common stock     (51,240 )     (20,475 )
  Proceeds from issuance of common stock     6       1,353  
  Excess tax benefits from stock-based compensation     26       858  
  Debt issuance costs     (401 )     -  
        Net cash used in financing activities     (58,270 )     (34,794 )
                 
Net increase (decrease) in cash and cash equivalents     8,526       (5,644 )
Cash and cash equivalents, at beginning of period     20,994       51,995  
Cash and cash equivalents, at end of period   $ 29,520     $ 46,351  
         
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
             
             
        Three Months Ended
        April 2,   April 4,
        2016   2015
             
Percent of sales:        
  Retail     91.0 %     91.6 %
  Direct and E-Commerce     6.3 %     5.9 %
  Wholesale/other     2.7 %     2.5 %
    Total     100.0 %     100.0 %
             
Sales change rates:        
  Retail comparable-store sales     (4 %)     22 %
  Direct and E-Commerce     8 %     17 %
    Company-Controlled comparable sales change     (4 %)     22 %
  Net opened/closed stores     5 %     6 %
    Total Company-Controlled Channel     1 %     28 %
  Wholesale/other     10 %     (19 %)
    Total     1 %     27 %
             
Stores open:        
  Beginning of period     488       463  
  Opened     14       8  
  Closed     (5 )     (8 )
  End of period     497       463  
             
Other metrics:        
  Average sales per store ($ in 000's) 1, 3   $ 2,363     $ 2,424  
  Average sales per square foot 1, 3   $ 960     $ 1,038  
  Stores > $1 million net sales 1, 3     98 %     99 %
  Stores > $2 million net sales 1, 3     61 %     63 %
  Average revenue per mattress unit 2   $ 3,978     $ 3,923  
   
 

1

  Trailing twelve months for stores open at least one year.
 

2

  Represents Company-Controlled Channel total net sales divided by Company-Controlled Channel mattress units.
 

3

  Fiscal 2014 included 53 weeks, as compared to 52 weeks in fiscal 2016 and 2015. The additional week in 2014 was in the fiscal fourth quarter. Company-Controlled comparable sales metrics have been adjusted to remove the estimated impact of the additional week on those metrics.
       

SELECT COMFORT CORPORATION AND SUBSIDIARIES
Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)
(in thousands)

We define earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation and asset impairments. Management believes Adjusted EBITDA is a useful indicator of our financial performance and our ability to generate cash from operating activities. Our definition of Adjusted EBITDA may not be comparable to similarly titled definitions used by other companies. The table below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to the comparable GAAP financial measure:

    Three Months Ended   Trailing-Twelve Months Ended
    April 2,   April 4,   April 2,   April 4,
    2016   2015   2016   2015
                 
Net income   $ 12,969   $ 28,799   $ 34,689   $ 79,781
Income tax expense     6,832     15,079     16,664     40,301
Interest expense     106     10     256     53
Depreciation and amortization     13,757     10,544     50,129     40,426
Stock-based compensation     3,766     2,782     11,274     9,688
Asset impairments     15     209     67     703
Adjusted EBITDA   $ 37,445   $ 57,423   $ 113,079   $ 170,952
                 
                 
Free Cash Flow
(in thousands)
                 
    Three Months Ended   Trailing-Twelve Months Ended
    April 2,   April 4,   April 2,   April 4,
    2016   2015   2016   2015
                 
Net cash provided by operating activities   $ 63,981   $ 48,864   $ 123,059   $ 154,468
Subtract: Purchases of property and equipment     12,289     17,796     80,079     77,730
Free cash flow   $ 51,692   $ 31,068   $ 42,980   $ 76,738
                         
Note -   Our Adjusted EBITDA calculation and our "free cash flow" data are considered non-GAAP financial measures and are not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts.
     

GAAP - generally accepted accounting principles in the U.S.

 

SELECT COMFORT CORPORATION AND SUBSIDIARIES
Calculation of Return on Invested Capital (ROIC)
(in thousands)

ROIC is a financial measure we use to determine how efficiently we deploy our capital. It quantifies the return we earn on our invested capital. Management believes ROIC is also a useful metric for investors and financial analysts. We compute ROIC as outlined below. Our definition and calculation of ROIC may not be comparable to similarly titled definitions and calculations used by other companies. The tables below reconcile net operating profit after taxes (NOPAT) and total invested capital, which are non-GAAP financial measures, to the comparable GAAP financial measures:

    Trailing-Twelve Months Ended
    April 2,   April 4,
    2016   2015

Net operating profit after taxes (NOPAT)

       
Operating income   $ 51,270     $ 119,669  
Add: Rent expense 1     63,204       59,592  
Add: Interest income     340       466  
Less: Depreciation on capitalized operating leases 2     (16,501 )     (14,761 )
Less: Income taxes 3     (31,992 )     (55,697 )
NOPAT   $ 66,321     $ 109,269  
         

Average invested capital

       
Total equity   $ 187,184     $ 270,254  
Less: Cash greater than target 4     -       (36,125 )
Add: Long-term debt 5     -       -  
Add: Capitalized operating lease obligations 6     505,632       476,736  
Total invested capital at end of period   $ 692,816     $ 710,865  
         
Average invested capital 7   $ 729,234     $ 661,708  
         
Return on invested capital (ROIC) 8     9.1 %     16.5 %
         
1   Rent expense is added back to operating income to show the impact of owning versus leasing the related assets.
     
2   Depreciation is based on the average of the last five fiscal quarters' ending capitalized operating lease obligations (see note 6) for the respective reporting periods with an assumed thirty-year useful life. This is subtracted from operating income to illustrate the impact of owning versus leasing the related assets.
     
3   Reflects annual effective income tax rates, before discrete adjustments, of 32.5% and 33.8% for 2016 and 2015, respectively.
     
4   Cash greater than target is defined as cash, cash equivalents and marketable debt securities less customer prepayments in excess of $100 million.
     
5   Long-term debt includes existing capital lease obligations, if applicable.
     
6   A multiple of eight times annual rent expense is used as an estimate of capitalizing our operating lease obligations. The methodology utilized aligns with the methodology of a nationally recognized credit rating agency.
     
7   Average invested capital represents the average of the last five fiscal quarters' ending invested capital balances.
     
8   ROIC equals NOPAT divided by average invested capital.
     

Note -

 

Our ROIC calculation and data are considered non-GAAP financial measures and are not in accordance with, or preferable to, GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts.

     
GAAP - generally accepted accounting principles in the U.S.

 

 

Contact:
Select Comfort Corporation
Investor Contact:
Dave Schwantes, 763-551-7498
This email address is being protected from spambots. You need JavaScript enabled to view it.
or
Media Contact:
Susan Eich, 763-551-6934
This email address is being protected from spambots. You need JavaScript enabled to view it.