- Reported net sales of $368 million
and EPS of $0.56
- Reported record year-to-date
operating cash flows of $145 million
- Updated 2016 EPS outlook to $1.15 to
$1.25 per share
Select Comfort Corporation (NASDAQ: SCSS) today reported third
quarter 2016 results for the period ended October 1, 2016.
“We delivered record operating cash flows for the first nine
months of the year as our operational improvements exceeded our
expectations and offset the effects of a worsening consumer
environment,” said Shelly Ibach, president and chief executive
officer of Select Comfort. “Our investments have strengthened our
direct-to-consumer business model and we are making significant
progress toward delivering a more convenient customer
experience. We expect the digital capabilities we’re
developing to succeed in the hyper-competitive digital
marketplace.”
Third Quarter Review
- Net sales were $368 million,
including 7 percentage points of growth from stores opened in the
last twelve months, offset by an 8% comparable sales decline
- Gross profit rate increased by
60 basis points to 63.1% of net sales
- Earnings per diluted share were
$0.56, compared with $0.62 in the prior year’s quarter
Cash Flows and Balance Sheet Review
- Generated $145 million in net cash from
operating activities for the first nine months of 2016, compared
with $132 million for the same period last year
- Invested $39 million in capital
expenditures and returned $95 million of cash to shareholders
during the first nine months of 2016 compared with $61 million and
$69 million, respectively, for the same period last year
- Ended the quarter with $51 million of
cash and securities and no borrowings under our revolving credit
facility
Financial OutlookThe company updated its outlook for 2016
earnings per diluted share to $1.15 to $1.25 per share, compared
with full-year 2015 earnings per diluted share of $0.97. The
outlook assumes high single-digit sales growth for the full year.
The outlook also assumes an 11% increase in store count in 2016 and
capital expenditures of $65 million, compared with $86 million in
2015. Our outlook does not contemplate a further deterioration of
the consumer spending environment.
Conference Call InformationManagement 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 at
http://www.sleepnumber.com/eng/aboutus/InvestorRelations.cfm. The
webcast replay will remain available for approximately 60 days.
About Select Comfort CorporationNearly 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
500 U.S. Sleep Number® stores or SleepNumber.com.
Forward-looking StatementsStatements 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 may 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, political unrest 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 October 1, %
of October 3, % of 2016 Net Sales
2015 Net Sales Net sales $ 367,988 100.0 % $
373,919 100.0 % Cost of sales 135,645 36.9 %
140,283 37.5 % Gross profit 232,343 63.1 %
233,636 62.5 % Operating expenses: Sales and
marketing 158,024 42.9 % 156,899 42.0 % General and administrative
28,278 7.7 % 27,817 7.4 % Research and development 6,997
1.9 % 3,521 0.9 % Total operating expenses
193,299 52.5 % 188,237 50.3 % Operating
income 39,044 10.6 % 45,399 12.1 % Other (expense) income, net
(255 ) (0.1 %) 78 0.0 % Income before income
taxes 38,789 10.5 % 45,477 12.2 % Income tax expense 13,044
3.5 % 13,623 3.6 % Net income $ 25,745
7.0 % $ 31,854 8.5 % Net income per share – basic $
0.56 $ 0.63 Net income per share – diluted $
0.56 $ 0.62
Reconciliation of
weighted-average shares outstanding:
Basic weighted-average shares outstanding 45,621 50,945 Dilutive
effect of stock-based awards 729 756
Diluted weighted-average shares outstanding 46,350
51,701
SELECT COMFORT
CORPORATION AND SUBSIDIARIES Consolidated Statements
of Operations (unaudited – in thousands, except per share
amounts) Nine Months
Ended October 1, % of October 3, %
of 2016 Net Sales 2015 Net Sales
Net sales $ 997,846 100.0 % $ 999,017 100.0 % Cost of sales
385,168 38.6 % 379,009 37.9 % Gross
profit 612,678 61.4 % 620,008 62.1 %
Operating expenses: Sales and marketing 443,477 44.4 %
424,029 42.4 % General and administrative 86,202 8.6 % 79,951 8.0 %
Research and development 21,661 2.2 % 10,275
1.0 % Total operating expenses 551,340 55.3 %
514,255 51.5 % Operating income 61,338 6.1 % 105,753
10.6 % Other (expense) income, net (581 ) (0.1 %) 364
0.0 % Income before income taxes 60,757 6.1 % 106,117 10.6 %
Income tax expense 20,627 2.1 % 34,426
3.4 % Net income $ 40,130 4.0 % $ 71,691 7.2 %
Net income per share – basic $ 0.86 $ 1.39 Net
income per share – diluted $ 0.85 $ 1.36
Reconciliation of
weighted-average shares outstanding:
Basic weighted-average shares outstanding 46,705 51,654 Dilutive
effect of stock-based awards 708 870
Diluted weighted-average shares outstanding 47,413
52,524
SELECT COMFORT
CORPORATION AND SUBSIDIARIES Consolidated Balance
Sheets (unaudited – in thousands, except per share
amounts) subject to reclassification
October 1, January 2, 2016 2016
Assets Current assets: Cash and cash equivalents $ 45,383 $
20,994 Marketable debt securities – current 5,963 6,567
Accounts receivable, net of allowance for
doubtful accounts of $1,276 and $1,039, respectively
23,731 29,002 Inventories 70,609 86,600 Income taxes receivable -
15,284 Prepaid expenses 11,983 10,207 Deferred income taxes 15,537
15,535 Other current assets 17,525 13,737
Total current assets 190,731 197,926 Non-current
assets: Marketable debt securities – non-current - 8,553 Property
and equipment, net 203,660 204,376 Goodwill and intangible assets,
net 81,448 83,344 Other assets 27,156 19,197
Total assets $ 502,995 $ 513,396
Liabilities and Shareholders’ Equity Current liabilities:
Accounts payable $ 106,868 $ 103,941 Customer prepayments 28,348
51,473 Accrued sales returns 18,038 20,562 Compensation and
benefits 28,876 15,670 Taxes and withholding 33,234 9,856 Other
current liabilities 29,552 23,447 Total
current liabilities 244,916 224,949 Non-current liabilities:
Deferred income taxes 11,837 12,499 Other long-term liabilities
69,730 53,609 Total non-current
liabilities 81,567 66,108 Total
liabilities 326,483 291,057 Shareholders’ equity:
Undesignated preferred stock; 5,000 shares
authorized, no shares issued and outstanding
- -
Common stock, $0.01 par value; 142,500
shares authorized, 44,941 and 49,402 shares issued and
outstanding, respectively
449 494 Additional paid-in capital - - Retained earnings 176,063
221,859 Accumulated other comprehensive loss -
(14 ) Total shareholders’ equity 176,512
222,339 Total liabilities and shareholders’ equity $ 502,995
$ 513,396
SELECT COMFORT
CORPORATION AND SUBSIDIARIES Consolidated Statements
of Cash Flows (unaudited - in thousands) subject to
reclassification Nine Months Ended
October 1, October 3, 2016 2015
Cash flows from operating activities: Net income $ 40,130 $ 71,691
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 42,555 33,694 Stock-based
compensation 9,272 8,952 Net loss on disposals and impairments of
assets 9 202 Excess tax benefits from stock-based compensation (516
) (1,991 ) Deferred income taxes (673 ) (5,633 ) Gain on sale of
non-marketable equity securities - (6,891 ) Changes in operating
assets and liabilities, net of effect of acquisition: Accounts
receivable 5,271 (6,543 ) Inventories 15,991 (24,120 ) Income taxes
30,386 13,433 Prepaid expenses and other assets (3,458 ) 4,756
Accounts payable (1,043 ) 24,623 Customer prepayments (23,125 )
(3,351 ) Accrued compensation and benefits 12,441 (97 ) Other taxes
and withholding 7,494 3,569 Other accruals and liabilities
10,527 19,293 Net cash provided by operating
activities 145,261 131,587 Cash
flows from investing activities: Purchases of property and
equipment (38,769 ) (61,435 ) Proceeds from sales of property and
equipment 67 41 Investments in marketable debt securities (5,968 )
(29,299 ) Proceeds from marketable debt securities 15,090 101,087
Acquisition of business - (70,018 ) Proceeds from non-marketable
equity securities - 12,891 Net cash
used in investing activities (29,580 ) (46,733 )
Cash flows from financing activities: Net increase in
short-term borrowings 3,062 2,119 Repurchases of common stock
(96,410 ) (70,300 ) Proceeds from issuance of common stock 1,949
2,658 Excess tax benefits from stock-based compensation 516 1,991
Debt issuance costs (409 ) (639 ) Net cash used in
financing activities (91,292 ) (64,171 ) Net
increase in cash and cash equivalents 24,389 20,683 Cash and cash
equivalents, at beginning of period 20,994
51,995 Cash and cash equivalents, at end of period $ 45,383
$ 72,678
SELECT COMFORT
CORPORATION AND SUBSIDIARIES Supplemental Financial
Information (unaudited)
Three Months Ended Nine Months Ended
October 1, October 3, October 1, October
3, 2016 2015 2016 2015
Percent of sales: Retail 91.3 % 92.2 % 91.0 % 91.7 % Direct
and E-Commerce 6.5 % 5.2 % 6.3 % 5.7 % Wholesale/other 2.2 %
2.6 % 2.7 % 2.6 % Total 100.0 %
100.0 % 100.0 % 100.0 %
Sales change
rates: Retail comparable-store sales (10 %) 12 % (7 %) 15 %
Direct and E-Commerce 23 % 3 % 10 % 11
% Company-Controlled comparable sales change (8 %) 11 % (6 %) 15 %
Net opened/closed stores 7 % 4 % 6 % 5
% Total Company-Controlled Channel (1 %) 15 % 0 % 20 %
Wholesale/other (19 %) 51 % 3 % 2 %
Total (2 %) 16 % 0 % 20 %
Stores open:
Beginning of period 506 467 488 463 Opened 24 11 57 24 Closed
(3 ) (3 ) (18 ) (12 ) End of period
527 475 527 475
Other metrics: Average sales per store ($ in
000's) 1, 3 $ 2,248 $ 2,559 Average sales per square foot 1, 3 $
895 $ 1,063 Stores > $1 million net sales 1, 3 98 % 100 % Stores
> $2 million net sales 1, 3 54 % 69 % Average revenue per
mattress unit 2 $ 3,959 $ 3,992 $ 4,031 $ 3,991
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 October 1, October 3,
October 1, October 3, 2016 2015
2016 2015 Net income $ 25,745 $ 31,854 $
18,958 $ 90,638 Income tax expense 13,044 13,623 11,112 43,452
Interest expense 267 44 721 87 Depreciation and amortization 14,536
11,643 56,154
43,100 Stock-based compensation 1,666 3,125 10,609 11,457 Asset
impairments 2 17 51
619 Adjusted EBITDA $ 55,260 $ 60,306 $
97,605 $ 189,353
Free Cash Flow
(in thousands) Three Months Ended
Trailing-Twelve Months Ended October 1,
October 3, October 1, October 3, 2016
2015 2016 2015 Net cash provided by
operating activities $ 98,141 $ 86,533 $ 121,616 $ 140,220
Subtract: Purchases of property and equipment 15,005
22,497 62,920 79,652 Free
cash flow $ 83,136 $ 64,036 $ 58,696 $ 60,568
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
October 1, October 3, 2016 2015
Net operating profit
after taxes (NOPAT)
Operating income $ 30,681 $ 133,640 Add: Rent expense 1 64,994
63,078 Add: Interest income 109 537 Less: Depreciation on
capitalized operating leases 2 (16,953 ) (15,809 ) Less: Income
taxes 3 (29,805 ) (58,896 ) NOPAT $ 49,026 $ 122,550
Average invested
capital
Total equity $ 176,512 $ 271,923 Less: Cash greater than target 4 -
- Add: Long-term debt 5 - - Add: Capitalized operating lease
obligations 6 519,952 504,624 Total
invested capital at end of period $ 696,464 $ 776,547
Average invested capital 7 $ 714,956 $ 710,701 Return on
invested capital (ROIC) 8 6.9 % 17.2 %
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 37.8% and 32.5% 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161019006346/en/
Select Comfort CorporationInvestor Contact:Dave
Schwantes,
763-551-7498investorrelations@selectcomfort.comorMedia
Contact:Susan Eich,
763-551-6934Susan.Eich@selectcomfort.com
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