Select Comfort Corporation (NASDAQ: SCSS) today reported first quarter 2015 results for the period ended Apr. 4, 2015. Net sales increased 27% in the quarter, with 22% comparable sales growth, while earnings per share increased 74% compared to the prior year.
“Continued strong consumer response to the combination of our advertising, benefit-driven products and differentiated retail experience delivered performance ahead of expectations,” said Shelly Ibach, president and CEO of Select Comfort. “Our investments in innovation, technology and distribution are growing the business in a sustainable, profitable manner and creating value for our shareholders.”
First Quarter Statement of Operations Overview
- Net sales increased 27% to a record $350 million, with comparable sales up 22% and 6 points of growth from net new store additions
- Gross profit increased 26% to $216 million; gross margin of 61.7% reflected a higher mix of our new FlexFit™ adjustable bases, partially offset by product mix and efficiency gains
- Operating expenses totaled $172 million, or 49.2% of net sales, a 350 basis point rate improvement versus prior year. The year-over-year increase in expenses included variable expenses related to higher sales, and planned spending increases in G&A and R&D to support growth initiatives
- Operating income increased 69% to $44 million, or 12.5% of net sales, a 320 basis point rate improvement versus the prior year’s first quarter
- Earnings per diluted share grew 74% to a record $0.54
Cash Flows and Balance Sheet Review
- Net cash provided by operating activities was $49 million for the first quarter of 2015, compared with $39 million last year
- Capital expenditures for the first quarter of 2015 were $18 million
- Repurchased $20 million, or 0.6 million shares, in the first quarter with $135 million cumulative cash returned to shareholders through repurchases since April 2012 (5.8 million shares at an average cost of $23.40 per share) or 109% of free cash flows
Financial Outlook
The company has increased its full-year
2015 earnings per diluted share outlook to $1.35, compared with the
previous outlook of $1.30 per share. The outlook continues to include
$11 million (pre-tax), or $0.13 per diluted share, of estimated launch
costs related to the company’s ERP (Enterprise Resource Planning) system
planned for implementation in the fourth quarter of 2015. The outlook
implies earnings per share growth of 24% excluding the impacts of the
extra week in 2014 ($0.06 favorable impact to the fourth quarter of 2014
earnings per share) and the estimated 2015 ERP launch costs. The outlook
assumes high-single-digit total net sales growth for the balance of the
year and a 6% increase in store count in 2015.
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 including our newest
addition, the SleepIQ Kids™ bed. Only the Sleep Number bed offers SleepIQ®
technology – proprietary sensor technology that works directly with
the bed’s DualAir™ system 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
FlexFit™ 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 460 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 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 4, | % of | March 29, | % of | |||||||||
2015 | Net Sales | 2014 | Net Sales | |||||||||
Net sales | $ | 349,809 | 100.0 | % | $ | 276,412 | 100.0 | % | ||||
Cost of sales | 133,976 | 38.3 | % | 105,029 | 38.0 | % | ||||||
Gross profit | 215,833 | 61.7 | % | 171,383 | 62.0 | % | ||||||
Operating expenses: | ||||||||||||
Sales and marketing | 140,503 | 40.2 | % | 125,022 | 45.2 | % | ||||||
General and administrative | 28,254 | 8.1 | % | 18,896 | 6.8 | % | ||||||
Research and development | 3,351 | 1.0 | % | 1,663 | 0.6 | % | ||||||
Total operating expenses | 172,108 | 49.2 | % | 145,581 | 52.7 | % | ||||||
Operating income | 43,725 | 12.5 | % | 25,802 | 9.3 | % | ||||||
Other income, net | 153 | 0.0 | % | 102 | 0.0 | % | ||||||
Income before income taxes | 43,878 | 12.5 | % | 25,904 | 9.4 | % | ||||||
Income tax expense | 15,079 | 4.3 | % | 8,912 | 3.2 | % | ||||||
Net income | $ | 28,799 | 8.2 | % | $ | 16,992 | 6.1 | % | ||||
Net income per share – basic | $ | 0.55 | $ | 0.31 | ||||||||
Net income per share – diluted | $ | 0.54 | $ | 0.31 | ||||||||
Reconciliation of weighted-average | ||||||||||||
shares outstanding: | ||||||||||||
Basic weighted-average shares outstanding | 52,346 | 54,113 | ||||||||||
Dilutive effect of stock-based awards | 980 | 731 | ||||||||||
Diluted weighted-average shares outstanding | 53,326 | 54,844 | ||||||||||
SELECT COMFORT CORPORATION | ||||||||
AND SUBSIDIARIES | ||||||||
Consolidated Balance Sheets | ||||||||
(in thousands, except per share amounts) | ||||||||
subject to reclassification | ||||||||
(unaudited) | ||||||||
April 4, | January 3, | |||||||
2015 | 2015 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 46,351 | $ | 51,995 | ||||
Marketable debt securities – current | 75,035 | 69,609 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $732 and $739, respectively | 17,886 | 19,693 | ||||||
Inventories | 56,004 | 53,535 | ||||||
Prepaid expenses | 17,670 | 17,792 | ||||||
Deferred income taxes | 8,745 | 8,786 | ||||||
Other current assets | 13,807 | 11,185 | ||||||
Total current assets | 235,498 | 232,595 | ||||||
Non-current assets: | ||||||||
Marketable debt securities – non-current | 40,874 | 44,441 | ||||||
Property and equipment, net | 177,734 | 165,453 | ||||||
Goodwill and intangible assets, net | 15,777 | 15,986 | ||||||
Deferred income taxes | 6,844 | 3,433 | ||||||
Other assets | 15,735 | 12,279 | ||||||
Total assets | $ | 492,462 | $ | 474,187 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 80,170 | $ | 84,197 | ||||
Customer prepayments | 26,135 | 28,726 | ||||||
Accrued sales returns | 15,165 | 15,262 | ||||||
Compensation and benefits | 23,941 | 33,066 | ||||||
Taxes and withholding | 24,785 | 10,207 | ||||||
Other current liabilities | 16,128 | 15,594 | ||||||
Total current liabilities | 186,324 | 187,052 | ||||||
Non-current liabilities: | ||||||||
Warranty liabilities | 3,360 | 2,722 | ||||||
Other long-term liabilities | 32,524 | 27,506 | ||||||
Total non-current liabilities | 35,884 | 30,228 | ||||||
Total liabilities | 222,208 | 217,280 | ||||||
Shareholders’ equity: | ||||||||
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding | - | - | ||||||
Common stock, $0.01 par value; 142,500 shares authorized, 52,299 and 52,798 shares issued and outstanding, respectively | 523 | 528 | ||||||
Additional paid-in capital | - | - | ||||||
Retained earnings | 269,693 | 256,413 | ||||||
Accumulated other comprehensive income (loss) | 38 | (34 | ) | |||||
Total shareholders’ equity | 270,254 | 256,907 | ||||||
Total liabilities and shareholders’ equity | $ | 492,462 | $ | 474,187 | ||||
SELECT COMFORT CORPORATION | ||||||||
AND SUBSIDIARIES | ||||||||
Consolidated Statements of Cash Flows | ||||||||
(unaudited - in thousands) | ||||||||
subject to reclassification | ||||||||
Three Months Ended | ||||||||
April 4, | March 29, | |||||||
2015 | 2014 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 28,799 | $ | 16,992 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 10,783 | 9,176 | ||||||
Stock-based compensation | 2,782 | (108 | ) | |||||
Net loss (gain) on disposals and impairments of assets | 177 | (2 | ) | |||||
Excess tax benefits from stock-based compensation | (858 | ) | (19 | ) | ||||
Deferred income taxes | (3,415 | ) | (1,450 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 1,780 | (552 | ) | |||||
Inventories | (2,469 | ) | (4,438 | ) | ||||
Income taxes | 15,453 | 3,795 | ||||||
Prepaid expenses and other assets | (1,661 | ) | 1,030 | |||||
Accounts payable | 7,458 | 3,600 | ||||||
Customer prepayments | (2,591 | ) | 4,785 | |||||
Accrued compensation and benefits | (8,977 | ) | 4,080 | |||||
Other taxes and withholding | (58 | ) | 36 | |||||
Warranty liabilities | 900 | 185 | ||||||
Other accruals and liabilities | 761 | 1,754 | ||||||
Net cash provided by operating activities | 48,864 | 38,864 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (17,796 | ) | (16,660 | ) | ||||
Proceeds from sales of property and equipment | 33 | 5 | ||||||
Investments in marketable debt securities | (18,195 | ) | (13,623 | ) | ||||
Proceeds from maturities of marketable debt securities | 16,244 | 10,000 | ||||||
Increase in restricted cash | - | (500 | ) | |||||
Net cash used in investing activities | (19,714 | ) | (20,778 | ) | ||||
Cash flows from financing activities: | ||||||||
Net decrease in short-term borrowings | (16,530 | ) | (6,094 | ) | ||||
Repurchases of common stock | (20,475 | ) | (10,236 | ) | ||||
Proceeds from issuance of common stock | 1,353 | 411 | ||||||
Excess tax benefits from stock-based compensation | 858 | 19 | ||||||
Net cash used in financing activities | (34,794 | ) | (15,900 | ) | ||||
Net (decrease) increase in cash and cash equivalents | (5,644 | ) | 2,186 | |||||
Cash and cash equivalents, at beginning of period | 51,995 | 58,223 | ||||||
Cash and cash equivalents, at end of period | $ | 46,351 | $ | 60,409 | ||||
SELECT COMFORT CORPORATION | ||||||||
AND SUBSIDIARIES | ||||||||
Supplemental Financial Information | ||||||||
(unaudited) | ||||||||
Three Months Ended | ||||||||
April 4, | March 29, | |||||||
2015 | 2014 | |||||||
Percent of sales: | ||||||||
Retail | 91.6 | % | 89.7 | % | ||||
Direct and E-Commerce | 5.9 | % | 6.4 | % | ||||
Wholesale/other | 2.5 | % | 3.9 | % | ||||
Total | 100.0 | % | 100.0 | % | ||||
Sales change rates: | ||||||||
Retail comparable-store sales | 22 | % | 2 | % | ||||
Direct and E-Commerce | 17 | % | 2 | % | ||||
Company-Controlled comparable sales change | 22 | % | 2 | % | ||||
Net opened/closed stores | 6 | % | 7 | % | ||||
Total Company-Controlled Channel | 28 | % | 9 | % | ||||
Wholesale/other | (19 | %) | (21 | %) | ||||
Total | 27 | % | 7 | % | ||||
Stores open: | ||||||||
Beginning of period | 463 | 440 | ||||||
Opened | 8 | 17 | ||||||
Closed | (8 | ) | (14 | ) | ||||
End of period | 463 | 443 | ||||||
Other metrics: | ||||||||
Average sales per store ($ in 000's) 1, 3 | $ | 2,424 | $ | 2,120 | ||||
Average sales per square foot 1, 3 | $ | 1,038 | $ | 1,042 | ||||
Stores > $1 million net sales 1, 3 | 99 | % | 97 | % | ||||
Stores > $2 million net sales 1, 3 | 63 | % | 47 | % | ||||
Average revenue per mattress unit 2 | $ | 3,923 | $ | 3,373 | ||||
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 2015 and 2013. 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 4, | March 29, | April 4, | March 29, | |||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Net income | $ | 28,799 | $ | 16,992 | $ | 79,781 | $ | 53,602 | ||||||||
Income tax expense | 15,079 | 8,912 | 40,301 | 27,995 | ||||||||||||
Interest expense | 10 | 10 | 53 | 47 | ||||||||||||
Depreciation and amortization | 10,544 | 8,885 | 40,426 | 32,151 | ||||||||||||
Stock-based compensation | 2,782 | (108 | ) | 9,688 | 3,692 | |||||||||||
Asset impairments | 209 | 3 | 703 | 100 | ||||||||||||
Adjusted EBITDA | $ | 57,423 | $ | 34,694 | $ | 170,952 | $ | 117,587 | ||||||||
Free Cash Flow | ||||||||||||||||
(in thousands) | ||||||||||||||||
Three Months Ended | Trailing-Twelve Months Ended | |||||||||||||||
April 4, | March 29, | April 4, | March 29, | |||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Net cash provided by operating activities | $ | 48,864 | $ | 38,864 | $ | 154,468 | $ | 81,947 | ||||||||
Subtract: Purchases of property and equipment | 17,796 | 16,660 | 77,730 | 79,162 | ||||||||||||
Free cash flow | $ | 31,068 | $ | 22,204 | $ | 76,738 | $ | 2,785 | ||||||||
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 that we use which quantifies the return we earn on our invested capital. We compute ROIC as outlined below. Management believes ROIC is a useful metric for investors and financial analysts. 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 4, | March 29, | |||||||
Net operating profit after taxes (NOPAT) | ||||||||
Operating income | $ | 119,669 | $ | 81,263 | ||||
Add: Rent expense 1 | 59,592 | 51,418 | ||||||
Add: Interest income | 466 | 383 | ||||||
Less: Depreciation on capitalized operating leases 2 | (14,761 | ) | (13,248 | ) | ||||
Less: Income taxes 3 | (55,697 | ) | (40,963 | ) | ||||
NOPAT | $ | 109,269 | $ | 78,853 | ||||
Average invested capital | ||||||||
Total equity | $ | 270,254 | $ | 232,123 | ||||
Less: Cash greater than target 4 | (36,125 | ) | (22,848 | ) | ||||
Add: Long-term debt 5 | - | - | ||||||
Add: Capitalized operating lease obligations 6 | 476,736 | 411,344 | ||||||
Total invested capital at end of period | $ | 710,865 | $ | 620,619 | ||||
Average invested capital 7 | $ | 661,708 | $ | 580,352 | ||||
Return on invested capital (ROIC) 8 | 16.5 | % | 13.6 | % | ||||
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 of 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 33.8% and 34.2% for 2015 and 2014, 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. | ||||||||
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. | ||||||||
Contacts:
Select Comfort Corporation
Dave
Schwantes, 763-551-7498
investorrelations@selectcomfort.com
or
Media
Contact:
Joele Frank, Wilkinson Brimmer Katcher
Tim Lynch
/ Scott Bisang, 212-355-4449