Select Comfort Corporation (NASDAQ:SCSS) today reported second-quarter 2014 results for the period ended June 28, 2014.
Second-quarter Financial Summary
- Net sales increased 13% to $235 million, compared to $207 million in the second quarter of 2013.
- Company-controlled comparable sales increased 7% year-over-year.
- Operating income totaled $12.7 million, or 5.4% of net sales.
- Earnings per diluted share were $0.16.
“Our second quarter results reflect the important role of product innovation in our strategy. Customers responded positively to our introductions, including our breakthrough SleepIQ technology,” said Shelly Ibach, president and CEO of Select Comfort. “We remain dedicated to our customer as we continue to transition the business through our growth initiatives. We know that when we focus on our customer, we deliver value for them and for our shareholders.”
Cash flows from operating activities were $50 million for the first six months of the year, compared with $36 million for the same period last year. Capital expenditures for the first six months of 2014 increased to $40 million as compared to $37 million in 2013. During the second quarter, the company repurchased 0.5 million shares of its common stock at a total cost of $10 million. As of the end of the quarter, cash, cash equivalents and marketable-debt securities totaled $121 million, inventories totaled $43 million and the company had no borrowings under its revolving credit facility.
Financial Outlook
The company reiterates its outlook for
2014 earnings per diluted share of $1.07. The company also plans to add
20 to 30 net new stores during 2014, ending the year with between 460
and 470 stores. It continues to expect full-year 2014 capital
expenditures of $70-$80 million, with approximately one-half related to
systems infrastructure, one-third related to market development and the
remainder to support product innovations and other initiatives.
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 at http://www.sleepnumber.com/eng/aboutus/InvestorRelations.cfm.
The webcast replay will remain available for approximately 60 days.
About Select Comfort Corporation
SLEEP NUMBER, a sleep
innovation leader, delivers unparalleled sleep experiences by offering
high-quality, innovative sleep products and services. The company is the
exclusive designer, manufacturer, marketer, retailer and servicer of a
complete line of Sleep Number® beds. Only the Sleep Number
bed offers SleepIQ™
technology – proprietary sensor technology that works directly with
the bed’s DualAir™ feature to track and monitor each individual’s sleep.
SleepIQ technology communicates how you slept and what adjustments you
can make to optimize your sleep and improve your daily life. Sleep
Number also offers a full line of exclusive sleep products including
FlextFit™ adjustable bases and Sleep Number® pillows, sheets
and other bedding products. Consumers also benefit from a unique,
value-added retail experience at one of the more than 450 Sleep Number®
stores across the country, online at SleepNumber.com, or via phone at
(800) Sleep Number or (800) 753-3768.
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 general and
industry economic trends; consumer confidence; the effectiveness of the
company’s marketing messages; the efficiency of its advertising and
promotional efforts; consumer acceptance of its products, product
quality, innovation and brand image; availability of attractive and
cost-effective consumer credit options; execution of the company’s
retail store distribution strategy; the company’s dependence on
significant suppliers, and its 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; industry competition; the
company’s ability to continue to improve its product line; warranty
expenses; risks of pending and potentially unforeseen litigation;
increasing government regulations, which have added or will add cost
pressures and process changes to ensure compliance; the adequacy of the
company’s management information systems to meet the evolving needs of
its business and to protect sensitive data from potential cyber threats;
the costs, distractions and potential disruptions to the company’s
business that may result from the implementation of upgrades and
improvements to the company’s management information systems; the
company’s ability to attract and retain senior leadership and other key
employees, including qualified sales professionals; 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 | ||||||||||||||
June 28, | % of | June 29, | % of | |||||||||||
2014 | Net Sales | 2013 | Net Sales | |||||||||||
Net sales | $ | 234,763 | 100.0 | % | $ | 207,391 | 100.0 | % | ||||||
Cost of sales | 92,366 | 39.3 | % | 75,993 | 36.6 | % | ||||||||
Gross profit | 142,397 | 60.7 | % | 131,398 | 63.4 | % | ||||||||
Operating expenses: | ||||||||||||||
Sales and marketing | 106,712 | 45.5 | % | 98,357 | 47.4 | % | ||||||||
General and administrative | 21,265 | 9.1 | % | 15,374 | 7.4 | % | ||||||||
Research and development | 1,709 | 0.7 | % | 2,560 | 1.2 | % | ||||||||
Total operating expenses | 129,686 | 55.2 | % | 116,291 | 56.1 | % | ||||||||
Operating income | 12,711 | 5.4 | % | 15,107 | 7.3 | % | ||||||||
Other income, net | 78 | 0.0 | % | 78 | 0.0 | % | ||||||||
Income before income taxes | 12,789 | 5.4 | % | 15,185 | 7.3 | % | ||||||||
Income tax expense | 4,308 | 1.8 | % | 5,259 | 2.5 | % | ||||||||
Net income | $ | 8,481 | 3.6 | % | $ | 9,926 | 4.8 | % | ||||||
Net income per share – basic | $ | 0.16 | $ | 0.18 | ||||||||||
Net income per share – diluted | $ | 0.16 | $ | 0.18 | ||||||||||
Reconciliation of weighted-average shares outstanding: | ||||||||||||||
Basic weighted-average shares outstanding | 53,648 | 55,029 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||
Options | 365 | 539 | ||||||||||||
Restricted shares | 311 | 419 | ||||||||||||
Diluted weighted-average shares outstanding | 54,324 | 55,987 | ||||||||||||
SELECT COMFORT CORPORATION | ||||||||||||||
AND SUBSIDIARIES | ||||||||||||||
Consolidated Statements of Operations | ||||||||||||||
(unaudited – in thousands, except per share amounts) | ||||||||||||||
Six Months Ended | ||||||||||||||
June 28, | % of | June 29, | % of | |||||||||||
2014 | Net Sales | 2013 | Net Sales | |||||||||||
Net sales | $ | 511,175 | 100.0 | % | $ | 465,628 | 100.0 | % | ||||||
Cost of sales | 197,395 | 38.6 | % | 170,814 | 36.7 | % | ||||||||
Gross profit | 313,780 | 61.4 | % | 294,814 | 63.3 | % | ||||||||
Operating expenses: | ||||||||||||||
Sales and marketing | 231,734 | 45.3 | % | 208,170 | 44.7 | % | ||||||||
General and administrative | 40,161 | 7.9 | % | 31,194 | 6.7 | % | ||||||||
Research and development | 3,372 | 0.7 | % | 5,116 | 1.1 | % | ||||||||
Total operating expenses | 275,267 | 53.8 | % | 244,480 | 52.5 | % | ||||||||
Operating income | 38,513 | 7.5 | % | 50,334 | 10.8 | % | ||||||||
Other income, net | 180 | 0.0 | % | 169 | 0.0 | % | ||||||||
Income before income taxes | 38,693 | 7.6 | % | 50,503 | 10.8 | % | ||||||||
Income tax expense | 13,220 | 2.6 | % | 17,106 | 3.7 | % | ||||||||
Net income | $ | 25,473 | 5.0 | % | $ | 33,397 | 7.2 | % | ||||||
Net income per share – basic | $ | 0.47 | $ | 0.61 | ||||||||||
Net income per share – diluted | $ | 0.47 | $ | 0.60 | ||||||||||
Reconciliation of weighted-average shares outstanding: | ||||||||||||||
Basic weighted-average shares outstanding | 53,880 | 55,062 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||
Options | 359 | 613 | ||||||||||||
Restricted shares | 331 | 426 | ||||||||||||
Diluted weighted-average shares outstanding | 54,570 | 56,101 | ||||||||||||
SELECT COMFORT CORPORATION | ||||||||
AND SUBSIDIARIES | ||||||||
Consolidated Balance Sheets | ||||||||
(in thousands, except per share amounts) | ||||||||
subject to reclassification | ||||||||
(unaudited) | ||||||||
June 28, | December 28, | |||||||
2014 | 2013 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 37,107 | $ | 58,223 | ||||
Marketable debt securities – current | 45,831 | 52,159 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $478 and $425, respectively | 14,334 | 14,979 | ||||||
Inventories | 43,156 | 40,152 | ||||||
Prepaid expenses | 12,097 | 9,216 | ||||||
Deferred income taxes | 6,910 | 6,936 | ||||||
Other current assets | 9,494 | 7,874 | ||||||
Total current assets | 168,929 | 189,539 | ||||||
Non-current assets: | ||||||||
Marketable debt securities – non-current | 37,822 | 34,632 | ||||||
Property and equipment, net | 151,479 | 129,542 | ||||||
Goodwill and intangible assets, net | 16,403 | 16,823 | ||||||
Deferred income taxes | 6,953 | 4,943 | ||||||
Other assets | 6,831 | 6,286 | ||||||
Total assets | $ | 388,417 | $ | 381,765 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 59,368 | $ | 73,391 | ||||
Customer prepayments | 18,087 | 15,392 | ||||||
Accrued sales returns | 9,194 | 9,433 | ||||||
Compensation and benefits | 24,632 | 15,242 | ||||||
Taxes and withholding | 11,281 | 12,517 | ||||||
Other current liabilities | 11,103 | 11,207 | ||||||
Total current liabilities | 133,665 | 137,182 | ||||||
Non-current liabilities: | ||||||||
Warranty liabilities | 1,822 | 1,567 | ||||||
Other long-term liabilities | 19,963 | 17,796 | ||||||
Total non-current liabilities | 21,785 | 19,363 | ||||||
Total liabilities | 155,450 | 156,545 | ||||||
Shareholders’ equity: | ||||||||
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding | - | - | ||||||
Common stock, $0.01 par value; 142,500 shares authorized, 53,743 and 54,901 shares issued and outstanding, respectively | 537 | 549 | ||||||
Additional paid-in capital | - | 5,382 | ||||||
Retained earnings | 232,387 | 219,276 | ||||||
Accumulated other comprehensive income | 43 | 13 | ||||||
Total shareholders’ equity | 232,967 | 225,220 | ||||||
Total liabilities and shareholders’ equity | $ | 388,417 | $ | 381,765 | ||||
SELECT COMFORT CORPORATION | ||||||||||||
AND SUBSIDIARIES | ||||||||||||
Consolidated Statements of Cash Flows | ||||||||||||
(unaudited - in thousands) | ||||||||||||
subject to reclassification | ||||||||||||
Six Months Ended | ||||||||||||
June 28, | June 29, | |||||||||||
2014 | 2013 | |||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 25,473 | $ | 33,397 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 19,213 | 14,153 | ||||||||||
Stock-based compensation | 2,035 | 1,992 | ||||||||||
Net loss (gain) on disposals and impairments of assets | 87 | (58 | ) | |||||||||
Excess tax benefits from stock-based compensation | (720 | ) | (2,837 | ) | ||||||||
Deferred income taxes | (2,003 | ) | 4,072 | |||||||||
Changes in operating assets and liabilities, net of effect of acquisition: | ||||||||||||
Accounts receivable | 651 | 2,541 | ||||||||||
Inventories | (3,004 | ) | 1,769 | |||||||||
Income taxes | (394 | ) | (3,084 | ) | ||||||||
Prepaid expenses and other assets | (4,355 | ) | (3,933 | ) | ||||||||
Accounts payable | (1,042 | ) | (1,708 | ) | ||||||||
Customer prepayments | 2,695 | (2,857 | ) | |||||||||
Accrued compensation and benefits | 9,724 | (4,802 | ) | |||||||||
Other taxes and withholding | (529 | ) | (1,156 | ) | ||||||||
Warranty liabilities | 281 | (571 | ) | |||||||||
Other accruals and liabilities | 1,466 | (775 | ) | |||||||||
Net cash provided by operating activities | 49,578 | 36,143 | ||||||||||
Cash flows from investing activities: | ||||||||||||
Purchases of property and equipment | (39,766 | ) | (37,096 | ) | ||||||||
Proceeds from sales of property and equipment | 5 | 117 | ||||||||||
Investments in marketable debt securities | (28,405 | ) | (16,504 | ) | ||||||||
Proceeds from maturities of marketable debt securities | 23,548 | 23,463 | ||||||||||
Acquisition of business | - | (15,500 | ) | |||||||||
Investment in non-marketable equity securities | - | (3,000 | ) | |||||||||
Increase in restricted cash | (500 | ) | - | |||||||||
Net cash used in investing activities | (45,118 | ) | (48,520 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||
Net decrease in short-term borrowings | (6,192 | ) | (4,750 | ) | ||||||||
Repurchases of common stock | (21,470 | ) | (22,031 | ) | ||||||||
Proceeds from issuance of common stock | 1,366 | 6,595 | ||||||||||
Excess tax benefits from stock-based compensation | 720 | 2,837 | ||||||||||
Net cash used in financing activities | (25,576 | ) | (17,349 | ) | ||||||||
Net decrease in cash and cash equivalents | (21,116 | ) | (29,726 | ) | ||||||||
Cash and cash equivalents, at beginning of period | 58,223 | 87,915 | ||||||||||
Cash and cash equivalents, at end of period | $ | 37,107 | $ | 58,189 | ||||||||
SELECT COMFORT CORPORATION | ||||||||||||||
AND SUBSIDIARIES | ||||||||||||||
Supplemental Financial Information | ||||||||||||||
(unaudited) | ||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||
June 28, | June 29, | June 28, | June 29, | |||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||
Percent of sales: | ||||||||||||||
Retail | 90.0% | 88.5% | 89.9% | 88.3% | ||||||||||
Direct and E-Commerce | 6.4% | 7.6% | 6.4% | 7.1% | ||||||||||
Wholesale/other | 3.6% | 3.9% | 3.7% | 4.6% | ||||||||||
Total | 100.0% | 100.0% | 100.0% | 100.0% | ||||||||||
Sales change rates: | ||||||||||||||
Retail comparable-store sales | 8% | (7%) | 5% | (7%) | ||||||||||
Direct and E-Commerce | (5%) | 4% | (2%) | (9%) | ||||||||||
Company-Controlled comparable sales change | 7% | (6%) | 4% | (8%) | ||||||||||
Net opened/closed stores | 6% | 7% | 7% | 7% | ||||||||||
Total Company-Controlled Channel | 13% | 1% | 11% | (1%) | ||||||||||
Wholesale/other | 6% | 7% | (11%) | 23% | ||||||||||
Total | 13% | 1% | 10% | 0% | ||||||||||
Stores open: | ||||||||||||||
Beginning of period | 443 | 411 | 440 | 410 | ||||||||||
Opened | 16 | 17 | 33 | 27 | ||||||||||
Closed | (8) | (15) | (22) | (24) | ||||||||||
End of period | 451 | 413 | 451 | 413 | ||||||||||
Other metrics: | ||||||||||||||
Average sales per store ($ in 000's) 1 | $ | 2,144 | $ | 2,094 | ||||||||||
Average sales per square foot 1 | $ | 1,009 | $ | 1,197 | ||||||||||
Stores > $1 million net sales 1 | 97% | 98% | ||||||||||||
Stores > $2 million net sales 1 | 46% | 46% | ||||||||||||
Average revenue per mattress unit2 | $ | 3,709 | $ | 3,182 | $ | 3,520 | $ | 3,154 | ||||||
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. | ||||||||||||||
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 | |||||||||||||
June 28, | June 29, | June 28, | June 29, | |||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||
Net income | $ | 8,481 | $ | 9,926 | $ | 52,157 | $ | 72,101 | ||||||
Income tax expense | 4,308 | 5,259 | 27,044 | 38,204 | ||||||||||
Interest expense | 10 | 13 | 44 | 55 | ||||||||||
Depreciation and amortization | 9,765 | 7,172 | 34,744 | 24,284 | ||||||||||
Stock-based compensation | 2,143 | 1,560 | 4,275 | 3,929 | ||||||||||
Asset impairments | 88 | 15 | 173 | 186 | ||||||||||
Adjusted EBITDA | $ | 24,795 | $ | 23,945 | $ | 118,437 | $ | 138,759 | ||||||
Free Cash Flow | ||||||||||||||
(in thousands) | ||||||||||||||
Three Months Ended | Trailing-Twelve Months Ended | |||||||||||||
June 28, | June 29, | June 28, | June 29, | |||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||
Net cash provided by (used in) operating activities | $ | 10,714 | $ | (8,879 | ) | $ | 101,540 | $ | 93,536 | |||||
Subtract: Purchases of property and equipment | 23,106 | 22,787 | 79,481 | 66,190 | ||||||||||
Free cash flow | $ | (12,392 | ) | $ | (31,666 | ) | $ | 22,059 | $ | 27,346 | ||||
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 | ||
SELECT COMFORT CORPORATION AND SUBSIDIARIES | |||||||||||||
Reported to Adjusted Statements of Operations Data Reconciliation | |||||||||||||
(in thousands, except per share amounts) | |||||||||||||
Six Months Ended | |||||||||||||
June 28, 2014 | June 29, 2013 | ||||||||||||
CEO | |||||||||||||
Transition | |||||||||||||
As Reported | As Reported | Benefit(1) | As Adjusted | ||||||||||
Operating income | $ | 38,513 | $ | 50,334 | $ | (391 | ) | $ | 49,943 | ||||
Other income, net | 180 | 169 | - | 169 | |||||||||
Income before income taxes | 38,693 | 50,503 | (391 | ) | 50,112 | ||||||||
Income tax expense(2) | 13,220 | 17,106 | (135 | ) | 16,971 | ||||||||
Net income | $ | 25,473 | $ | 33,397 | $ | (256 | ) | $ | 33,141 | ||||
Net income per share – | |||||||||||||
Basic | $ | 0.47 | $ | 0.61 | $ | 0.00 | $ | 0.60 | |||||
Diluted | $ | 0.47 | $ | 0.60 | $ | 0.00 | $ | 0.59 | |||||
Basic Shares | 53,880 | 55,062 | 55,062 | 55,062 | |||||||||
Diluted Shares | 54,570 | 56,101 | 56,101 | 56,101 | |||||||||
(1) | In February 2012, we announced that William R. McLaughlin, then President and CEO, would retire from the Company effective June 1, 2012. In recognition of Mr. McLaughlin’s contributions, the Compensation Committee approved the modification of Mr. McLaughlin’s currently unvested stock awards, including performance-based stock awards. The performance-based stock awards are subject to applicable adjustments through 2014 based on actual performance versus performance targets. In the first six months of 2013, we recorded a non-cash compensation benefit of $0.4 million resulting from performance-based stock award adjustments. | |
(2) | Reflects effective income tax rate, before discrete adjustments of 34.4% for 2013. | |
Note - | Our "as adjusted" data is considered a non-GAAP financial measure and is not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates year-over-year comparisons for investors and financial analysts. | |
GAAP - generally accepted accounting principles |
Contacts:
Investor Contact:
Dave
Schwantes, 763-551-7498
investorrelations@selectcomfort.com
or
Media
Contact:
Becky Dvorak, 763-551-6862
publicrelations@selectcomfort.com