- 2016 net sales grew 8% to a record
$1.3 billion
- Reported 2016 EPS growth of 13% to
$1.10, including fourth-quarter EPS of $0.25
- Generated 40% increase in cash from
operations in 2016 to $152 million
- Provides 2017 earnings outlook of
$1.20 to $1.40 per diluted share
Select Comfort Corporation (NASDAQ: SCSS) today reported fourth
quarter and full-year 2016 results for the period ended December
31, 2016.
“While our fourth quarter sales and earnings were below our
expectations, we begin 2017 well positioned to accelerate earnings
growth, cash generation and returns to shareholders. Thus far in
2017 traffic and sales are on target, which we attribute to a
steadier consumer environment and improved marketing
effectiveness,” said Shelly Ibach, president and chief executive
officer of Select Comfort. “All of the investments we have made
over the past five years are coming together with the roll out of
our revolutionary new Sleep Number 360™ smart beds, which will
enable both continued market share growth and greater business
leverage.”
Fourth Quarter Statement of Operations Review
- Net sales increased 46% to $313
million, including a comparable sales increase of 34% and 12
percentage points (ppt) of growth from net new stores; Q4 of 2015
was impacted by our ERP system implementation
- Earnings per diluted share were
$0.25, compared with a loss per diluted share of $0.42 for the
prior year’s fourth quarter
Full-year Statement of Operations Review
- Net sales increased 8% to $1.31
billion in 2016, including a 1% comparable sales gain and 7 ppt of
growth from new stores
- Gross margin increased 80 basis
points to 61.8% through manufacturing and logistics
efficiencies
- Earnings per diluted share
increased 13% to $1.10, compared to $0.97 in 2015
Cash Flows and Balance Sheet Review
- Generated a record $152 million in
operating cash flows in 2016 compared with $108 million in
2015
- Invested $58 million in capital
expenditures, down 32% from 2015, bringing the total transformative
investments in the business over the last five years to $427
million
- Increased share repurchases 27% to $125
million in 2016, bringing total returns to shareholders to $338
million over the past five years; $245 million remains under our
current share repurchase authorization
- Delivered a 12.2% ROIC for the year,
54% above our 2016 weighted average cost of capital of 7.9%
Financial OutlookThe company expects to generate
full-year 2017 earnings per diluted share of between $1.20 and
$1.40, including $0.15 to $0.22 of incremental costs related to the
launch of our new Sleep Number 360 smart bed line and the redesign
of our logistics network. The outlook assumes mid- to high-single
digit sales growth for the full year and a 3% to 4% increase in
store count in 2017, building on 11% store count growth in 2016.
The company anticipates 2016 capital expenditures to be
approximately $50 to $55 million. The 2017 outlook does not
contemplate a further worsening 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. EST (4 p.m. CST; 2 p.m. PST) 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 CorporationThirty 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” by J.D. Power in 2015 and 2016. As
the pioneer in biometric sleep tracking and adjustability, Sleep
Number is proving the connection between quality sleep and health
and wellbeing. Dedicated to individualizing sleep experiences, the
company’s 3,700 employees are improving lives with innovative sleep
solutions. To find better quality sleep visit one of the more than
540 Sleep Number® stores located in 49 states 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 December 31,
% of January 2, % of 2016 Net
Sales 2016 Net Sales Net sales $ 313,445
100.0% $ 214,682 100.0% Cost of sales 115,963 37.0%
93,939 43.8% Gross profit 197,482 63.0%
120,743 56.2% Operating expenses: Sales and marketing
152,368 48.6% 126,446 58.9% General and administrative 23,472 7.5%
19,258 9.0% Research and development 6,330 2.0%
5,696 2.7% Total operating expenses 182,170
58.1% 151,400 70.5% Operating income (loss)
15,312 4.9% (30,657 ) (14.3%) Other expense, net (136 ) 0.0%
(30 ) 0.0% Income (loss) before income taxes 15,176 4.8%
(30,687 ) (14.3%) Income tax expense (benefit) 3,889
1.2% (9,515 ) (4.4%) Net income (loss) $ 11,287 3.6%
$ (21,172 ) (9.9%) Net income (loss) per share – basic $
0.25 $ (0.42 ) Net income (loss) per share – diluted
$ 0.25 $ (0.42 )
Reconciliation of
weighted-average shares outstanding: Basic
weighted-average shares outstanding 44,501 50,045 Dilutive effect
of stock-based awards 1 869 - Diluted
weighted-average shares outstanding 1 45,370
50,045
1
For the three months ended January 2, 2016, potentially
dilutive stock-based awards have been excluded from the calculation
of diluted weighted-average shares outstanding, as their inclusion
would have had an anti-dilutive effect on our net loss per diluted
share.
SELECT COMFORT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (unaudited – in
thousands, except per share amounts)
Twelve Months Ended December
31, % of January 2, % of 2016
Net Sales 2016 Net Sales Net sales $
1,311,291 100.0% $ 1,213,699 100.0% Cost of sales 501,131
38.2% 472,948 39.0% Gross profit 810,160
61.8% 740,751 61.0% Operating expenses: Sales and
marketing
595,845 45.4% 550,475 45.4% General and administrative 109,674 8.4%
99,209 8.2% Research and development 27,991 2.1%
15,971 1.3% Total operating expenses 733,510
55.9% 665,655 54.8% Operating income 76,650 5.8% 75,096 6.2%
Other (expense) income, net (717 ) (0.1%) 334 0.0%
Income before income taxes 75,933 5.8% 75,430 6.2% Income tax
expense 24,516 1.9% 24,911 2.1% Net income $
51,417 3.9% $ 50,519 4.2% Net income per share –
basic $ 1.11 $ 0.99 Net income per share – diluted $
1.10 $ 0.97
Reconciliation of
weighted-average shares outstanding: Basic
weighted-average shares outstanding 46,154 51,252 Dilutive effect
of stock-based awards 748 849 Diluted
weighted-average shares outstanding 46,902
52,101
SELECT COMFORT CORPORATION AND
SUBSIDIARIES Consolidated Balance Sheets (unaudited –
in thousands, except per share amounts) subject to
reclassification December
31, January 2, 2016 2016 Assets
Current assets: Cash and cash equivalents $ 11,609 $ 20,994
Marketable debt securities – current - 6,567
Accounts receivable, net of allowance for
doubtful accounts of $884 and $1,039, respectively
19,705 29,002 Inventories 75,026 86,600 Income taxes receivable -
15,284 Prepaid expenses 8,705 10,207 Other current assets
23,282 13,737 Total current assets 138,327 182,391
Non-current assets: Marketable debt securities – non-current
- 8,553 Property and equipment, net 208,367 204,376 Goodwill and
intangible assets, net 80,817 83,344 Deferred income taxes 4,667
3,036 Other assets 24,988 19,197 Total assets
$ 457,166 $ 500,897
Liabilities and Shareholders’
Equity Current liabilities: Accounts payable $ 105,375 $
103,941 Customer prepayments 26,207 51,473 Accrued sales returns
15,222 20,562 Compensation and benefits 19,455 15,670 Taxes and
withholding 23,430 9,856 Other current liabilities 35,628
23,447 Total current liabilities 225,317 224,949
Non-current liabilities: Other long-term liabilities
71,529 53,609 Total liabilities 296,846 278,558
Shareholders’ equity:
Undesignated preferred stock; 5,000 shares
authorized, no shares issued and outstanding
- -
Common stock, $0.01 par value; 142,500
shares authorized, 43,569 and 49,402 shares issued and outstanding,
respectively
436 494 Additional paid-in capital - - Retained earnings 159,884
221,859 Accumulated other comprehensive loss - (14 )
Total shareholders’ equity 160,320 222,339
Total liabilities and shareholders’ equity $ 457,166 $ 500,897
SELECT COMFORT CORPORATION AND
SUBSIDIARIES Consolidated Statements of Cash Flows
(unaudited - in thousands) subject to
reclassification
Twelve Months Ended December 31, January 2,
2016 2016 Cash flows from operating
activities: Net income $ 51,417 $ 50,519
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 57,172 47,630 Stock-based
compensation 11,961 10,290 Net loss on disposals and impairments of
assets 27 190 Excess tax benefits from stock-based compensation
(517 ) (2,182 ) Deferred income taxes (1,640 ) 11,924 Gain on sale
of non-marketable equity securities - (6,891 ) Changes in operating
assets and liabilities, net of effect of acquisition: Accounts
receivable 9,297 (9,259 ) Inventories 11,574 (33,065 ) Income taxes
25,119 (13,943 ) Prepaid expenses and other assets (2,195 ) 8,680
Accounts payable (4,965 ) 19,130 Customer prepayments (25,266 )
22,735 Accrued compensation and benefits 2,808 (17,493 ) Other
taxes and withholding 2,723 135 Other accruals and liabilities
14,130 19,542 Net cash provided by
operating activities 151,645 107,942
Cash flows from investing activities: Purchases of property
and equipment (57,852 ) (85,586 ) Proceeds from sales of property
and equipment 92 72 Investments in marketable debt securities
(5,968 ) (29,299 ) Proceeds from marketable debt securities 21,053
127,664 Acquisition of business - (70,018 ) Proceeds from
non-marketable equity securities - 12,891
Net cash used in investing activities (42,675 )
(44,276 ) Cash flows from financing activities: Net
increase in short-term borrowings 5,932 1,097 Repurchases of common
stock (126,693 ) (100,201 ) Proceeds from issuance of common stock
2,298 2,976 Excess tax benefits from stock-based compensation 517
2,182 Debt issuance costs (409 ) (721 ) Net cash used
in financing activities (118,355 ) (94,667 )
Net decrease in cash and cash equivalents (9,385 ) (31,001 ) Cash
and cash equivalents, at beginning of period 20,994
51,995 Cash and cash equivalents, at end of period $
11,609 $ 20,994
SELECT COMFORT
CORPORATION AND SUBSIDIARIES Supplemental Financial
Information (unaudited)
Three Months Ended Twelve Months Ended
December 31, January 2, December 31,
January 2, 2016 2016 2016 2016
Percent of sales: Retail 91.0 % 92.8 % 91.0 % 91.8 %
Online and phone 7.9 % 6.0 % 6.7 % 5.8 % Wholesale/other 1.1
% 1.2 % 2.3 % 2.4 % Total 100.0 %
100.0 % 100.0 % 100.0 %
Sales change
rates: Retail comparable-store sales 3 30 % (29 %) 0 % 3 %
Online and phone 3 91 % (40 %) 25 % (4
%) Company-Controlled comparable sales change 3 34 % (30 %) 1 % 3 %
Net opened/closed stores and 53rd week 12 % (3 %)
7 % 2 % Total Company-Controlled Channel 46 % (33 %)
8 % 5 % Wholesale/other 29 % (55 %) 5 %
(9 %) Total 46 % (33 %) 8 % 5 %
Stores open: Beginning of period 527 475 488 463 Opened 15
14 72 38 Closed (2 ) (1 ) (20 ) (13 )
End of period 540 488 540
488
Other metrics: Average sales per
store ($ in 000's) 1 $ 2,364 $ 2,377 Average sales per square foot
1 $ 937 $ 980 Stores > $1 million net sales 1 98 % 99 % Stores
> $2 million net sales 1 61 % 62 % Average revenue per mattress
unit 2 $ 4,093 $ 4,204 $ 4,046 $ 4,028
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
SUBSIDIARIESEarnings 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 December
31, January 2, December 31,
January 2, 2016 2016 2016 2016
Net income (loss) $ 11,287 $ (21,172 ) $ 51,417 $ 50,519
Income tax expense (benefit) 3,889 (9,515 ) 24,516 24,911 Interest
expense 186 96 811 160 Depreciation and amortization 14,564 13,808
56,910 46,916 Stock-based compensation 2,689 1,337 11,961 10,290
Asset impairments 43 20 74 261 Adjusted
EBITDA $ 32,658 $ (15,426 ) $ 145,689 $ 133,057
Free Cash Flow (in thousands) Three
Months Ended Trailing-Twelve Months
Ended December 31, January 2, December
31, January 2, 2016 2016 2016
2016 Net cash provided by (used in) operating
activities $ 6,384 $ (23,645 ) $ 151,645 $ 107,942 Subtract:
Purchases of property and equipment 19,083 24,151 57,852 85,586
Free cash flow $ (12,699 ) $ (47,796 )
$ 93,793 $ 22,356
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
SUBSIDIARIESCalculation 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 December 31,
January 2, 2016 2016
Net operating profit
after taxes (NOPAT)
Operating income $ 76,650 $ 75,096 Add: Rent expense 1 67,416
62,369 Add: Interest income 94 494 Less: Depreciation on
capitalized operating leases 2 (17,185 ) (16,203 ) Less: Income
taxes 3 (41,933 ) (40,384 ) NOPAT $ 85,042 $ 81,372
Average invested
capital
Total equity $ 160,320 $ 222,339 Less: Cash greater than target 4 -
- Add: Long-term debt 5 - - Add: Capitalized operating lease
obligations 6 539,328 498,952 Total
invested capital at end of period $ 699,648 $ 721,291
Average invested capital 7 $ 699,576 $ 726,756 Return on
invested capital (ROIC) 8 12.2 % 11.2 % 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
33.0% and 33.2% 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/20170208006086/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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