Sleep Number (SNBR) 8-K Results of Operations and Financial Condition

Exhibit 99.1

FOR IMMEDIATE RELEASE

Media Contact: Gabby Nelson (763) 551-7460 gabby.nelson@selectcomfort.com Investor Relations Contact: Frank Milano (763) 551-6908 frank.milano@selectcomfort.com

SELECT COMFORT REPORTS SECOND QUARTER RESULTS

Results in line with June update; Company reiterates full-year outlook

MINNEAPOLIS –(July 25, 2007) – Select Comfort Corporation (NASDAQ: SCSS), the nation’s leading bed retailer and creator of the Sleep Number^® bed, today announced results for the fiscal second quarter ended June 30, 2007. Net sales decreased 5 percent to $179.0 million, compared to $188.1 million in the second quarter of 2006. Net income totaled $2.9 million, or $0.06 per diluted share, compared to $10.7 million, or $0.19 per diluted share, in the second quarter of 2006.

“Second quarter sales were in line with expectations outlined in the quarterly update communicated in mid-June,” said Bill McLaughlin, Select Comfort chairman and chief executive officer. “Profits also were in line with our full-year expectations. And we continue to make productivity gains and leverage the cash advantages of our business model, which allow us to invest in our growth initiatives.”

Sales growth from new company-owned stores, which totaled 48 net new stores in the past 12 months, and growth through the company’s e-commerce channel were offset by a 14 percent decrease in comparable-store sales. “The company has experienced an improving trend in retail sales during the second quarter and into the third quarter as we implement the core elements of our 2007 plan,” explained McLaughlin.

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Select Comfort Reports Second Quarter Results – Page 2 of 9

The gross profit percentage increased to 61.2 percent of net sales, an improvement of 80 basis points, compared to 60.4 percent in the second quarter of last year. The gross profit margin improvement reflects solid execution in achieving compliance with mandatory national fire retardant requirements, which took effect July 1, 2007. In addition, the company continues to benefit from significant gains realized in manufacturing and logistics, which include global sourcing initiatives and the implementation of a hub-and-spoke logistics network. At the end of the second quarter, Select Comfort was operating nine of its planned 13 U.S. hubs.

The operating profit margin was 2.7 percent of net sales in the second quarter, compared to 8.8 percent in the second quarter of last year. Sales and marketing expenses increased $8.1 million compared to the second quarter of last year, reflecting the increased store base and a 12 percent increase in media spending, which totaled $25.2 million. Research and development expenses increased $0.3 million, reflecting the company’s continued commitment to accelerate the pace of innovation.

Cash and marketable securities totaled $12.7 million as of June 30, 2007, compared to $90.2 million at year-end 2006, largely reflecting the company’s ongoing share repurchase program. In the second quarter, the company returned an additional $51.5 million to shareholders through the repurchase of 3.0 million shares, increasing its repurchases through June 30, 2007 to $94.3 million and 5.4 million shares. Select Comfort currently has $225 million available under its share repurchase program.

Net sales for the first six months of 2007 totaled $395.5 million, compared to $400.4 million in the first six months of 2006. Net income totaled $13.6 million in the first half of 2007, compared to $22.5 million in the first half of 2006. Earnings per diluted share for the first six months of 2007 totaled $0.27, compared to $0.40 per diluted share for the first six months of 2006.

Outlook

The company reiterated its full-year 2007 outlook for net sales of between $840 million and $860 million, and earnings of between $0.87 and $0.93 per diluted share. The company remains confident in its long-term growth targets for net sales growth of 15 percent or higher, and earnings growth of 20 percent or higher.

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Select Comfort Reports Second Quarter Results – Page 3 of 9

Conference Call

Management will host its regularly scheduled conference call to discuss the company’s results at 5:00 p.m. Eastern Time (4:00 p.m. Central; 2:00 p.m. Pacific) today. To listen to the call, please dial (888) 323-2711 (international participants dial (210) 839-8751) and reference the passcode “Sleep.” To listen to the webcast, please access the investor relations area of the company’s Web site at www.selectcomfort.com/investors.

A replay will remain available until 6:00 p.m. Eastern Time August 10, 2007, by dialing (203) 369-3407. The webcast replay will remain available in the investor relations area of the company’s Web site for approximately 60 days.

About Select Comfort

Founded more than 20 years ago, Select Comfort Corporation is the nation’s leading bed retailer⁽¹⁾. Based in Minneapolis, the company designs, manufactures, markets and supports a line of adjustable-firmness mattresses featuring air-chamber technology, branded the Sleep Number^® bed, as well as foundations and sleep accessories. SELECT COMFORT^® products are sold through its more than 460 company-owned stores located across the United States; select bedding retailers; direct marketing operations; and online at www.sleepnumber.com.

Forward-Looking Statements

Statements used in this news release that relate to future plans, events, financial results or performance are forward-looking statements that are subject to certain risks and uncertainties including, among others, such factors as general and industry economic trends; uncertainties arising from global events; consumer confidence; effectiveness of our advertising and promotional efforts; our ability to secure suitable retail locations; our ability to attract and retain qualified sales professionals and other key employees; our ability to successfully expand distribution through independent retailers; consumer acceptance of our products, product quality, innovation and brand image; our ability to continue to expand and improve our product line;

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Select Comfort Reports Second Quarter Results – Page 4 of 9

industry competition; warranty expenses; risks of potential litigation; our dependence on significant suppliers, and the vulnerability of any suppliers to commodity shortages, inflationary pressures, labor negotiations, liquidity concerns or other factors; rising commodity costs; the capability of our information systems to meet our business requirements and our ability to upgrade our systems on a cost-effective basis without disruptions to our business; and increasing government regulations, including new flammability standards for the bedding industry which bring product cost pressures and will require implementation of systems and manufacturing process changes to ensure compliance. Additional information concerning these and other risks and uncertainties is contained in our filings with the Securities and Exchange Commission (SEC), including our 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 that may be in this news release.

 

¹Top 25 Bedding Retailers, Furniture/Today, August 14, 2006.

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Select Comfort Reports Second Quarter Results – Page 5 of 9

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited – in thousands, except per share amounts)

	Three Months Ended
	June 30, 2007		% of Net Sales		July 1, 2006		% of Net Sales
Net sales	$	178,991	100.0	%	$	188,086	100.0	%
Cost of sales		69,464	38.8	%		74,444	39.6	%
Gross profit		109,527	61.2	%		113,642	60.4	%
Operating expenses:
Sales and marketing		86,756	48.5	%		78,627	41.8	%
General and administrative		16,611	9.3	%		17,518	9.3	%
Research and development		1,357	0.8	%		1,035	0.6	%
Operating income		4,803	2.7	%		16,462	8.8	%
Interest income, net		36	0.0	%		761	0.4	%
Income before income taxes		4,839	2.7	%		17,223	9.2	%
Income tax expense		1,927	1.1	%		6,482	3.4	%
Net income	$	2,912	1.6	%	$	10,741	5.7	%
Net income per share – basic	$	0.06			$	0.20
Net income per share – diluted	$	0.06			$	0.19
Reconciliation of weighted average shares outstanding:
Basic weighted average shares outstanding		47,980				53,405
Effect of dilutive securities:
Options		1,649				2,618
Warrants		—				25
Restricted shares		229				197
Diluted weighted average shares outstanding		49,858				56,245

Select Comfort Reports Second Quarter Results – Page 6 of 9

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited – in thousands, except per share amounts)

	Six Months Ended
	June 30, 2007		% of Net Sales		July 1, 2006		% of Net Sales
Net sales	$	395,500	100.0	%	$	400,364	100.0	%
Cost of sales		151,805	38.4	%		159,200	39.8	%
Gross profit		243,695	61.6	%		241,164	60.2	%
Operating expenses:
Sales and marketing		184,894	46.7	%		170,382	42.6	%
General and administrative		34,230	8.7	%		34,250	8.6	%
Research and development		2,941	0.7	%		1,765	0.4	%
Operating income		21,630	5.5	%		34,767	8.7	%
Interest income, net		430	0.1	%		1,630	0.4	%
Income before income taxes		22,060	5.6	%		36,397	9.1	%
Income tax expense		8,471	2.1	%		13,922	3.5	%
Net income	$	13,589	3.4	%	$	22,475	5.6	%
Net income per share – basic	$	0.28			$	0.42
Net income per share – diluted	$	0.27			$	0.40
Reconciliation of weighted average shares outstanding:
Basic weighted average shares outstanding		48,848				53,418
Effect of dilutive securities:
Options		1,761				2,740
Warrants		—				51
Restricted shares		224				187
Diluted weighted average shares outstanding		50,833				56,396

Select Comfort Reports Second Quarter Results – Page 7 of 9

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share amounts)

subject to reclassification

	June 30, 2007			December 30, 2006
Assets
Current assets:
Cash and cash equivalents	$	9,830		$	8,819
Marketable debt securities – current		1,301			37,748
Accounts receivable, net of allowance for doubtful accounts of $795 and $529, respectively		12,170			12,164
Inventories		26,252			24,120
Prepaid expenses		16,573			10,227
Deferred income taxes		6,021			5,785
Other current assets		2,612			4,305
Total current assets		74,759			103,168
Marketable debt securities – non-current		1,575			43,608
Property and equipment, net		65,890			59,384
Deferred income taxes		20,476			19,275
Other assets		3,518			3,526
Total assets	$	166,218		$	228,961
Liabilities and Shareholders’ Equity
Current liabilities:
Borrowings under revolving credit facility	$	10,000		$	—
Accounts payable		51,124			46,061
Customer prepayments		9,590			9,552
Accruals:
Sales returns		4,246			3,907
Compensation and benefits		15,741			20,057
Taxes and withholding		4,146			5,053
Other current liabilities		11,483			12,901
Total current liabilities		106,330			97,531
Warranty liabilities		7,040			7,769
Other long-term liabilities		8,528			7,967
Total liabilities		121,898			113,267
Shareholders’ equity:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $0.01 par value; 142,500 shares authorized, 46,825 and 51,544 shares issued and outstanding, respectively		468			515
Additional paid-in capital		—			4,039
Retained earnings		43,889			111,140
Accumulated other comprehensive loss		(37	)		—
Total shareholders’ equity		44,320			115,694
Total liabilities and shareholders’ equity	$	166,218		$	228,961

The consolidated balance sheet as of June 30, 2007 is unaudited.

Select Comfort Reports Second Quarter Results – Page 8 of 9

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited – in thousands)

subject to reclassification

	Six Months Ended
	June 30, 2007			July 1, 2006
Cash flows from operating activities:
Net income	$	13,589		$	22,475
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,798			9,247
Stock-based compensation		4,067			3,972
Excess tax benefits from stock-based compensation		(1,284	)		(6,336	)
Changes in deferred income taxes		(1,437	)		(3,630	)
Change in operating assets and liabilities:
Accounts receivable		(6	)		(8,161	)
Inventories		(2,132	)		(3,200	)
Prepaid expenses and other assets		(3,037	)		269
Accounts payable		3,835			3,764
Customer prepayments		38			(5,184	)
Accrued sales returns		339			(870	)
Accrued compensation and benefits		(4,316	)		(3,935	)
Accrued taxes and withholding		(907	)		(5,261	)
Warranty liabilities		(959	)		3,401
Other accruals and liabilities		(959	)		543
Net cash provided by operating activities		19,629			7,094
Cash flows from investing activities:
Purchases of property and equipment		(19,285	)		(13,958	)
Investments in marketable debt securities		—			(28,718	)
Proceeds from sales and maturity of marketable debt securities		78,443			13,665
Net cash provided by (used in) investing activities		59,158			(29,011	)
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings		9,927			(110	)
Repurchases of common stock		(92,662	)		(23,750	)
Proceeds from issuance of common stock		3,675			6,468
Excess tax benefits from stock-based compensation		1,284			6,336
Net cash used in financing activities		(77,776	)		(11,056	)
Increase (decrease) in cash and cash equivalents		1,011			(32,973	)
Cash and cash equivalents, at beginning of period		8,819			43,867
Cash and cash equivalents, at end of period	$	9,830		$	10,894

Reclassifications – Certain reclassifications were made to the consolidated statement of cash flows for the six months ended July 1, 2006 in order to conform to the current-year presentation.

Select Comfort Reports Second Quarter Results – Page 9 of 9

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Supplemental Financial Information

(unaudited – in thousands)

	Three Months Ended						Six Months Ended
	June 30, 2007			July 1, 2006			June 30, 2007		July 1, 2006
Percent of sales:
Retail		74.1	%		75.1	%	75.2	%	76.8	%
Direct		8.5	%		10.5	%	8.6	%	10.2	%
E-Commerce		7.1	%		5.6	%	6.8	%	5.5	%
Wholesale		10.3	%		8.8	%	9.4	%	7.5	%
Total		100.0	%		100.0	%	100.0	%	100.0	%
Sales growth rates:
Comparable-store sales		(14	%)		16	%	(12	%)	17	%
Net new stores		8	%		9	%	9	%	8	%
Retail total		(6	%)		25	%	(3	%)	25	%
Direct		(23	%)		5	%	(17	%)	3	%
E-Commerce		20	%		41	%	24	%	40	%
Wholesale		12	%		12	%	23	%	16	%
Total		(5	%)		22	%	(1	%)	23	%
Stores open:
Beginning of period		447			402		442		396
Opened		16			10		23		18
Closed		(3	)		—		(5	)	(2	)
End of period		460			412		460		412
Retail partner doors		752			608		752		608
Other metrics:
Average sales per store ($000s) *	$	1,408		$	1,532
Average sales per square foot ($s) *	$	1,144		$	1,333
Stores > $1 million sales *		77	%		83	%
Average mattress sales per mattress unit (Q2 Company-owned channels; $s)	$	1,688		$	1,689
Return on equity (trailing twelve months)		42	%		38	%
Cash and marketable debt securities	$	12,706		$	105,171

* trailing twelve months for stores open at least one year