Sleep Number (SNBR) 8-K Select Comfort Announces Third-quarter 2013 Results

Exhibit 99.1

FOR IMMEDIATE RELEASE

Select Comfort Announces Third-quarter 2013 Results

• Generates Net Sales of $264 Million, a 7% Year-over-year Increase

• Reports Third-quarter EPS of $0.36

• Updates Full-year 2013 Outlook

MINNEAPOLIS - (Oct. 16, 2013) - Select Comfort Corporation (NASDAQ: SCSS) today reported third-quarter 2013 results for the period ended Sept. 28, 2013.

Third-quarter Financial Summary

• Net sales increased 7% to $264 million, compared to $247 million in the third quarter of 2012.

• Company-controlled comparable sales declined 1% year-over-year.

• Operating income was $30.7 million, compared with $40.2 million in the third quarter of 2012. As a percentage of net sales, operating income was 11.6% compared to 16.3% in the third quarter of 2012.

• Earnings per diluted share were $0.36, compared to $0.46 in the third quarter of 2012.

• In the quarter, the company opened 16 stores and closed six, ending the quarter with 423 stores.

“The consumer responded positively to our product innovations and exclusive retail experience as evidenced by market-share gains along with favorable operational and customer-focused metrics,” said Shelly Ibach, president and CEO, Select Comfort. “However, our execution was muted by a progressively more challenged macro-economic environment, resulting in performance below expectations.”

Ibach continued, “Given the ongoing economic uncertainty, we are actively managing costs across the company, while continuing to support priorities important to long-term growth and profitability.”

Cash flows from operating activities were $90 million for the first nine months of 2013, compared with $98 million in the prior year. Capital expenditures for the first nine months of 2013 increased to $57.8 million as compared to $36.8 million in 2012, driven by increased investment in stores, technology and product innovation. During the third quarter, the company repurchased 0.4 million shares of its common stock for a total cost of $10 million. As of the end of the quarter, cash, cash equivalents and marketable-debt securities totaled $164 million, and the company had no borrowings under its revolving credit facility.

Financial Outlook

The company is updating its outlook for full-year 2013 GAAP earnings per diluted share from between $1.30 and $1.45 to between $1.14 and $1.22. This updated guidance includes fourth-quarter earnings per diluted share of $0.18 to $0.26, compared to $0.22 in the fourth quarter of 2012. The midpoint of the fourth-quarter outlook assumes low double-digit growth in total net sales and a net increase in store count from 410 at year-end 2012 to between 435 and 445 by year-end 2013.

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.

Select Comfort Announces Third-quarter 2013 Results – Page 2 of 9

About Select Comfort Corporation

Select Comfort Corporation is leading the industry in delivering an unparalleled sleep experience by offering consumers high-quality, innovative and individualized sleep solutions and services, which include a complete line of SLEEP NUMBER^® beds and bedding. The company is the exclusive manufacturer, marketer, retailer and servicer of the revolutionary Sleep Number bed, which allows individuals to adjust the firmness and support of each side at the touch of a button. The company offers further individualization through its solutions-focused line of Sleep Number pillows, sheets and other bedding products. And as the only national specialty-mattress retailer, consumers can take advantage of an enhanced mattress-buying experience at one of more than 400 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 evolving regulatory standards applicable to data privacy and security; 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.

# # #

Media Contact: Gabby Nelson; (763) 551-7460; publicrelations@selectcomfort.com

Investor Contact: Dave Schwantes; (763) 551-7498; investorrelations@selectcomfort.com

Select Comfort Announces Third-quarter 2013 Results – Page 3 of 9

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited - in thousands, except per share amounts)

	Three Months Ended
	September 28, 2013			% of Net Sales		September 29, 2012		% of Net Sales
Net sales	$	263,689		100.0	%	$	246,817	100.0	%
Cost of sales	97,269			36.9	%	86,088		34.9	%
Gross profit	166,420			63.1	%	160,729		65.1	%
Operating expenses:
Sales and marketing	118,307			44.9	%	101,718		41.2	%
General and administrative	15,150			5.7	%	16,936		6.9	%
Research and development	2,359			0.9	%	1,742		0.7	%
CEO transition benefit	(143		)	(0.1	%)	—		0.0	%
Asset impairment charges	48			0.0	%	108		0.0	%
Total operating expenses	135,721			51.5	%	120,504		48.8	%
Operating income	30,699			11.6	%	40,225		16.3	%
Other income, net	74			0.0	%	73		0.0	%
Income before income taxes	30,773			11.7	%	40,298		16.3	%
Income tax expense	10,514			4.0	%	14,089		5.7	%
Net income	$	20,259		7.7	%	$	26,209	10.6	%
Net income per share – basic	$	0.37				$	0.47
Net income per share – diluted	$	0.36				$	0.46
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding	54,854					55,444
Effect of dilutive securities:
Options	531					1,121
Restricted shares	363					421
Diluted weighted-average shares outstanding	55,748					56,986

Select Comfort Announces Third-quarter 2013 Results – Page 4 of 9

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited - in thousands, except per share amounts)

	Nine Months Ended
	September 28, 2013			% of Net Sales		September 29, 2012		% of Net Sales
Net sales	$	729,317		100.0	%	$	714,419	100.0	%
Cost of sales	268,083			36.8	%	257,820		36.1	%
Gross profit	461,234			63.2	%	456,599		63.9	%
Operating expenses:
Sales and marketing	326,477			44.8	%	296,143		41.5	%
General and administrative	46,690			6.4	%	50,085		7.0	%
Research and development	7,475			1.0	%	4,288		0.6	%
CEO transition (benefit) costs	(534		)	(0.1	)%	5,595		0.8	%
Asset impairment charges	93			0.0	%	115		0.0	%
Total operating expenses	380,201			52.1	%	356,226		49.9	%
Operating income	81,033			11.1	%	100,373		14.0	%
Other income, net	243			0.0	%	128		0.0	%
Income before income taxes	81,276			11.1	%	100,501		14.1	%
Income tax expense	27,620			3.8	%	34,902		4.9	%
Net income	$	53,656		7.4	%	$	65,599	9.2	%
Net income per share – basic	$	0.98				$	1.18
Net income per share – diluted	$	0.96				$	1.15
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding	54,992					55,601
Effect of dilutive securities:
Options	589					1,085
Restricted shares	409					516
Diluted weighted-average shares outstanding	55,990					57,202

Select Comfort Announces Third-quarter 2013 Results – Page 5 of 9

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share amounts)

subject to reclassification

	(unaudited) September 28, 2013		December 29, 2012
Assets
Current assets:
Cash and cash equivalents	$	81,301	$	87,915
Marketable debt securities – current	57,407		51,264
Accounts receivable, net of allowance for doubtful accounts of $448 and $348, respectively	15,245		16,613
Inventories	41,311		35,564
Prepaid expenses	8,894		4,299
Deferred income taxes	5,373		5,401
Other current assets	10,935		9,522
Total current assets	220,466		210,578
Non-current assets:
Marketable debt securities – non-current	25,683		38,642
Property and equipment, net	117,793		79,356
Goodwill and intangible assets, net	17,034		2,881
Deferred income taxes	4,249		8,511
Other assets	4,621		2,053
Total assets	$	389,846	$	342,021
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	75,744	$	67,703
Customer prepayments	15,291		15,194
Accrued sales returns	9,872		5,330
Compensation and benefits	14,960		21,597
Taxes and withholding	17,179		9,282
Other current liabilities	12,266		13,955
Total current liabilities	145,312		133,061
Non-current liabilities:
Warranty liabilities	1,608		1,457
Other long-term liabilities	16,738		13,806
Total non-current liabilities	18,346		15,263
Total liabilities	163,658		148,324
Shareholders’ equity:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.01 par value; 142,500 shares authorized, 55,242 and 55,903 shares issued and outstanding, respectively	552		559
Additional paid-in capital	12,763		33,923
Retained earnings	212,851		159,195
Accumulated other comprehensive income	22		20
Total shareholders’ equity	226,188		193,697
Total liabilities and shareholders’ equity	$	389,846	$	342,021

Select Comfort Announces Third-quarter 2013 Results – Page 6 of 9

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited - in thousands)

subject to reclassification

	Nine Months Ended
	September 28, 2013			September 29, 2012
Cash flows from operating activities:
Net income	$	53,656		$	65,599
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	22,199			14,411
Stock-based compensation	3,058			9,570
Net (gain) loss on disposals and impairments of assets	(10		)	86
Excess tax benefits from stock-based compensation	(3,088		)	(4,947		)
Deferred income taxes	4,288			(737		)
Changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable	1,717			(1,237		)
Inventories	(5,069		)	(4,146		)
Income taxes	7,114			10,715
Prepaid expenses and other assets	(5,144		)	(6,031		)
Accounts payable	11,029			10,565
Customer prepayments	97			1,882
Accrued compensation and benefits	(5,607		)	(6,588		)
Other taxes and withholding	1,504			2,291
Warranty liabilities	(1,218		)	(1,247		)
Other accruals and liabilities	5,556			7,450
Net cash provided by operating activities	90,082			97,636
Cash flows from investing activities:
Purchases of property and equipment	(57,820		)	(36,816		)
Proceeds from sales of property and equipment	117			42
Investments in marketable debt securities	(26,041		)	(63,240		)
Proceeds from maturities of marketable debt securities	31,973			10,103
Acquisition of business	(15,500		)	—
Investment in non-marketable equity securities	(3,000		)	—
Net cash used in investing activities	(70,271		)	(89,911		)
Cash flows from financing activities:
Net (decrease) increase in short-term borrowings	(4,567		)	2,323
Repurchases of common stock	(32,054		)	(24,071		)
Proceeds from issuance of common stock	7,108			3,279
Excess tax benefits from stock-based compensation	3,088			4,947
Debt issuance costs	—			(50		)
Net cash used in financing activities	(26,425		)	(13,572		)
Net decrease in cash and cash equivalents	(6,614		)	(5,847		)
Cash and cash equivalents, at beginning of period	87,915			116,255
Cash and cash equivalents, at end of period	$	81,301		$	110,408

Select Comfort Announces Third-quarter 2013 Results – Page 7 of 9

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Supplemental Financial Information

(unaudited)

	Three Months Ended						Nine Months Ended
	September 28, 2013			September 29, 2012			September 28, 2013			September 29, 2012
Percent of sales:
Retail	90.7		%	90.9		%	89.2		%	89.3		%
Direct and E-Commerce	6.1		%	6.9		%	6.7		%	7.5		%
Wholesale/other	3.2		%	2.2		%	4.1		%	3.2		%
Total	100.0		%	100.0		%	100.0		%	100.0		%
Sales growth rates:
Retail comparable-store sales	(1		%)	21		%	(5		%)	28		%
Direct and E-Commerce	(6		%)	14		%	(8		%)	13		%
Company-Controlled comparable sales change	(1		%)	21		%	(5		%)	27		%
Net new/(closed) stores	7		%	4		%	6		%	3		%
Total Company-Controlled Channel	6		%	25		%	1		%	30		%
Wholesale/other	55		%	(15		%)	31		%	9		%
Total	7		%	24		%	2		%	29		%
Stores open:
Beginning of period	413			381			410			381
Opened	16			15			43			37
Closed	(6		)	(2		)	(30		)	(24		)
End of period	423			394			423			394
Other metrics:
Average sales per store ($ in 000's)1	$	2,102		$	2,108
Average sales per square foot1	$	1,131		$	1,314
Stores > $1 million net sales1	97		%	98		%
Stores > $2 million net sales1	47		%	48		%
Average net sales per mattress unit -   Company-Controlled Channel2	$	3,304		$	3,208		$	3,207		$	2,993
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. The previously reported metric "Average mattress sales per mattress unit – Company-Controlled Channel" included only net sales from mattresses and mattress bases. Previously reported amounts have been reclassified to conform to the current-year presentation.

Select Comfort Announces Third-quarter 2013 Results – Page 8 of 9

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
	September 28, 2013		September 29, 2012		September 28, 2013		September 29, 2012
Net income	$	20,259	$	26,209	$	66,151	$	80,969
Income tax expense	10,514		14,089		34,629		39,506
Interest expense	14		16		53		122
Depreciation and amortization	7,774		5,126		26,932		17,826
Stock-based compensation	1,067		1,200		3,796		10,866
Asset impairments	48		108		126		121
Adjusted EBITDA	$	39,676	$	46,748	$	131,687	$	149,410

Note - Our Adjusted EBITDA calculation 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 analysis of the Company's financial performance by investors and financial analysts.

GAAP - generally accepted accounting principles

Select Comfort Announces Third-quarter 2013 Results – Page 9 of 9

SELECT COMFORT CORPORATION AND SUBSIDIARIES

Reported to Adjusted Statements of Operations Data Reconciliation

(in thousands, except per share amounts)

	Three Months Ended
	September 28, 2013							September 29, 2012
	As Reported		CEO Transition Benefit(1)			As Adjusted		As Reported
Operating income	$	30,699	$	(143	)	$	30,556	$	40,225
Other income, net	74		—			74		73
Income before income taxes	30,773		(143		)	30,630		40,298
Income tax expense(2)	10,514		(49		)	10,465		14,089
Net income	$	20,259	$	(94	)	$	20,165	$	26,209
Net income per share –
Basic	$	0.37	$	0.00		$	0.37	$	0.47
Diluted	$	0.36	$	0.00		$	0.36	$	0.46
Basic Shares	54,854		54,854			54,854		55,444
Diluted Shares	55,748		55,748			55,748		56,986

	Nine Months Ended
	September 28, 2013							September 29, 2012
	As Reported		CEO Transition Benefit(1)			As Adjusted		As Reported		CEO Transition Costs(1)		As Adjusted
Operating income	$	81,033	$	(534	)	$	80,499	$	100,373	$	5,595	$	105,968
Other income, net	243		—			243		128		—		128
Income before income taxes	81,276		(534		)	80,742		100,501		5,595		106,096
Income tax expense(2)	27,620		(183		)	27,437		34,902		1,925		36,827
Net income	$	53,656	$	(351	)	$	53,305	$	65,599	$	3,670	$	69,269
Net income per share –
Basic	$	0.98	$	(0.01	)	$	0.97	$	1.18	$	0.07	$	1.25
Diluted	$	0.96	$	(0.01	)	$	0.95	$	1.15	$	0.06	$	1.21
Basic Shares	54,992		54,992			54,992		55,601		55,601		55,601
Diluted Shares	55,990		55,990			55,990		57,202		57,202		57,202

___________________

⁽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. As a result of these modifications, we recorded incremental non-cash compensation of $5.6 million in the first nine months of 2012. The performance-based stock awards are subject to applicable adjustments through 2014 based on actual performance versus performance targets. In the three and nine months ended September 28, 2013, we recorded a non-cash compensation benefit of $0.1 million and $0.5 million, respectively, resulting from performance-based stock award adjustments.

⁽²⁾ Reflects effective income tax rates, before discrete adjustments, of 34.3% for 2013 and 34.4% for 2012.

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