Exhibit 99.1
FOR IMMEDIATE RELEASE
Media Contact: Gabby Nelson (763) 551-7460 gabby.nelson@selectcomfort.com | Investor Contact: Jim Raabe (763) 551-7498 investorrelations@selectcomfort.com |
SELECT COMFORT ANNOUNCES THIRD QUARTER RESULTS
Company Reports Third Quarter Profit; Expects Economy to Remain Weak
MINNEAPOLIS – (October 22, 2008) – Select Comfort Corporation (NASDAQ: SCSS), the nation’s leading bed retailer and creator of the SLEEP NUMBER® bed, today announced results for the fiscal third quarter ended September 27, 2008. Net sales for the quarter totaled $157.2 million, a decrease of 26 percent, compared to $213.1 million in the third quarter of 2007. The company reported a third-quarter net income of $1.0 million, or $0.02 per diluted share, compared to a net income of $11.9 million, or $0.26 per diluted share, in the third quarter of 2007.
“Following a difficult first half and continued declining revenue, we achieved a significant goal during the third quarter by returning to profitability,” said Bill McLaughlin, chief executive officer. “During the quarter, we took aggressive action to reduce costs, improve operating efficiencies, and preserve cash, while selectively investing in those initiatives that will help improve business results.”
McLaughlin added, “We expect difficult conditions to persist for the remainder of the year and through 2009, as the economy and consumer buying continue to weaken. We have been proactive and aggressive in reducing costs and protecting margins. Given this challenging business environment, we are focused on improving our cost structure while implementing programs designed to stabilize sales and market share.”
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Select Comfort Announces Third Quarter Results – Page 2 of 10
Third Quarter Summary
During the third quarter, retail revenue was down 24 percent, driven by a 27 percent decline in same-store sales, offset by the opening of four net new stores over the past 12 months. During the third quarter, the company closed eight stores.
Third quarter e-commerce and direct-marketing sales were lower, with revenues in these channels declining 42 percent and 20 percent, respectively. Wholesale sales declined 37 percent.
The company improved its gross margin during the third quarter, despite sustained inflationary pressures. Third quarter gross profit margin of 62.2 percent was 60 basis points higher than prior year at 61.6 percent. Gross profit margin increased by 260 basis points from the 59.6 percent rate in the second quarter of this year as a result of select price increases and cost-reduction activities, along with a strong average selling price and improved sales mix due to reduced promotional activities and the introduction of new and enhanced products.
During the third quarter, the company reduced marketing expenditures as a result of lower sales trends. Sales and marketing costs in the third quarter of 2008 decreased by 14 percent to $82.0 million, representing 52.2 percent of net sales, compared to $95.7 million or 44.9 percent of net sales in the prior-year period.
The company benefited from reductions in general and administrative expenses, which declined to $11.6 million and were 7.4 percent of sales, compared to $14.9 million or 7.0 percent of sales reported in the third quarter of 2007.
Cash flows from operating activities remained positive, totaling $12.2 million for the first nine months, compared to $56.2 million for the same period last year. Cash outlays for capital expenditures totaled $28.1 million for the first nine months of 2008, compared to $30.4 million in the first nine months of 2007. As of September 27, 2008, cash and cash equivalents totaled $6.2 million and outstanding debt totaled $60.8 million. The company is in compliance with all bank covenants and commitments.
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Select Comfort Announces Third Quarter Results – Page 3 of 10
Fourth Quarter and 2009 Priorities and Outlook
Macro-economic trends and consumer confidence continue to deteriorate, and the company expects both will remain weak in the fourth quarter and throughout 2009. In response to the challenging economic outlook, the company continues to take actions to reduce costs while allowing for continued investment in programs to stabilize sales and market share.
The company will focus on several key areas in the fourth quarter and into 2009, which include:
| • | Product costs and pricing – Focus will be on reducing product costs and creating price flexibility within the product line to better enable the company to respond to increased price sensitivity of consumers in the current environment. |
| • | Infrastructure costs – The company will close an additional five stores during the fourth quarter of 2008, bringing the total number of anticipated store closings for the year to 26 stores. In 2009, the company expects to be more aggressive in reducing its store base, and has identified approximately 20 stores it plans to close in the first quarter of 2009. The company also will continue to align general and administrative costs with projected sales trends while preserving core strategic capabilities. |
| • | Media and marketing – During fourth quarter and into 2009, the company will continue to work towards improving the effectiveness and efficiency of both sales and marketing. Media spend will be lower in fourth quarter, and will remain flexible in 2009 based on sales trends. |
| • | Cash – The company’s focus remains on preserving cash. The company anticipates operating cash flows for 2008 to be positive. The company will reduce capital expenditures as it begins 2009 and as commitments for store openings and its SAP project are fulfilled. |
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Select Comfort Announces Third Quarter Results – Page 4 of 10
The company expects to have approximately 471 retail locations at the end of fiscal 2008. Results for 2008 will benefit from a fifty-third week in the fourth quarter.
“Despite the difficulties of the past year and the uncertainty of the year ahead, our core value proposition continues to be our high-quality products that provide real benefit for the consumer,” explained McLaughlin. “Our opportunity is communicating these benefits in a compelling way during a time when consumers are less likely to spend money.”
Conference Call
Management will host its regularly scheduled conference call to discuss the company’s results at 5 p.m. Eastern Time (4 p.m. Central; 2 p.m. Pacific) Wednesday, October 22, 2008. To listen to the call, please dial (888) 972-6711 (international participants dial (210) 234-0123) and reference the passcode “Sleep.” To access the Webcast, please visit the investor relations area of the Select Comfort Web site.
A replay will remain available until midnight Eastern Time, Thursday, October 30, 2008 by dialing (402) 998-0517. The Webcast replay will remain available in the investor relations area of the company’s Web site for approximately 60 days.
About Select Comfort Corporation
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 bedding accessories. SELECT COMFORT® products are sold through its more than 470 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 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; uncertainties arising from
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Select Comfort Announces Third Quarter Results – Page 5 of 10
global events; consumer confidence; effectiveness of our advertising and promotional efforts; our ability to fund our operations through cash flow from operations or availability under our bank line of credit or other sources, and the availability and cost of credit or other capital resources necessary to finance operations; the risk of non-compliance with financial covenants under our bank line of credit, and the potential need to obtain additional capital through the issuance of debt or equity securities; our ability to attract and retain qualified sales professionals and other key employees; consumer acceptance of our products, product quality, innovation and brand image; our ability to continue to expand and improve our product line; industry competition; warranty expenses; risks of pending litigation; our dependence on significant suppliers, and the vulnerability of any suppliers to commodity shortages, inflationary pressures, labor negotiations, liquidity concerns or other factors; the impact of higher product costs from rising commodity and component costs and the deleveraging effects of lower unit volumes; 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 have added product cost pressures and have required 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 in this news release.
# # #
(1) Top 25 Bedding Retailers, Furniture/Today, August 2008.
Select Comfort Announces Third Quarter Results – Page 6 of 10
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
| | Three Months Ended | |
| | September 27,
2008 | | % of
Net Sales | | September 29,
2007 | | % of
Net Sales | |
| | | | | | | | | | | |
Net sales | | $ | 157,231 | | 100.0% | | $ | 213,070 | | 100.0% | |
Cost of sales | | | 59,475 | | 37.8% | | | 81,892 | | 38.4% | |
Gross profit | | | 97,756 | | 62.2% | | | 131,178 | | 61.6% | |
Operating expenses: | | | | | | | | | | | |
Sales and marketing | | | 82,047 | | 52.2% | | | 95,741 | | 44.9% | |
General and administrative | | | 11,618 | | 7.4% | | | 14,872 | | 7.0% | |
Research and development | | | 562 | | 0.4% | | | 1,290 | | 0.6% | |
Asset impairment charges | | | 1,477 | | 0.9% | | | 198 | | 0.1% | |
Total operating expenses | | | 95,704 | | 60.9% | | | 112,101 | | 52.6% | |
Operating income | | | 2,052 | | 1.3% | | | 19,077 | | 9.0% | |
Other (expense) income, net | | | (1,117 | ) | (0.7% | ) | | (261 | ) | (0.1% | ) |
Income before income taxes | | | 935 | | 0.6% | | | 18,816 | | 8.8% | |
Income tax (benefit) expense | | | (48 | ) | 0.0% | | | 6,953 | | 3.3% | |
Net income | | $ | 983 | | 0.6% | | $ | 11,863 | | 5.6% | |
| | | | | | | | | | | |
Net income per share – basic | | $ | 0.02 | | | | $ | 0.27 | | | |
| | | | | | | | | | | |
Net income per share – diluted | | $ | 0.02 | | | | $ | 0.26 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Reconciliation of weighted-average shares outstanding: | | | | | | | | | | | |
Basic weighted-average shares outstanding | | | 44,232 | | | | | 44,447 | | | |
Effect of dilutive securities: | | | | | | | | | | | |
Options | | | 114 | | | | | 1,443 | | | |
Restricted shares | | | 305 | | | | | 247 | | | |
Diluted weighted-average shares outstanding | | | 44,651 | | | | | 46,137 | | | |
Select Comfort Announces Third Quarter Results – Page 7 of 10
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
| | Nine Months Ended | |
| | September 27,
2008 | | % of
Net Sales | | September 29,
2007 | | % of
Net Sales | |
| | | | | | | | | | | |
Net sales | | $ | 477,451 | | 100.0% | | $ | 608,570 | | 100.0% | |
Cost of sales | | | 192,125 | | 40.2% | | | 233,697 | | 38.4% | |
Gross profit | | | 285,326 | | 59.8% | | | 374,873 | | 61.6% | |
Operating expenses: | | | | | | | | | | | |
Sales and marketing | | | 258,074 | | 54.1% | | | 280,635 | | 46.1% | |
General and administrative | | | 41,880 | | 8.8% | | | 49,102 | | 8.1% | |
Research and development | | | 2,079 | | 0.4% | | | 4,231 | | 0.7% | |
Asset impairment charges | | | 2,534 | | 0.5% | | | 198 | | 0.0% | |
Total operating expenses | | | 304,567 | | 63.8% | | | 334,166 | | 54.9% | |
Operating (loss) income | | | (19,241 | ) | (4.0% | ) | | 40,707 | | 6.7% | |
Other (expense) income, net | | | (1,996 | ) | (0.4% | ) | | 169 | | 0.0% | |
(Loss) income before income taxes | | | (21,237 | ) | (4.4% | ) | | 40,876 | | 6.7% | |
Income tax (benefit) expense | | | (8,496 | ) | (1.8% | ) | | 15,424 | | 2.5% | |
Net (loss) income | | $ | (12,741 | ) | (2.7% | ) | $ | 25,452 | | 4.2% | |
| | | | | | | | | | | |
Net (loss) income per share – basic | | $ | (0.29 | ) | | | $ | 0.54 | | | |
| | | | | | | | | | | |
Net (loss) income per share – diluted | | $ | (0.29 | ) | | | $ | 0.52 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Reconciliation of weighted-average shares outstanding: | | | | | | | | | | | |
Basic weighted-average shares outstanding | | | 44,143 | | | | | 47,381 | | | |
Effect of dilutive securities: | | | | | | | | | | | |
Options | | | — | | | | | 1,614 | | | |
Restricted shares | | | — | | | | | 269 | | | |
Diluted weighted-average shares outstanding1 | | | 44,143 | | | | | 49,264 | | | |
1For the nine months ended September 27, 2008, potentially dilutive securities 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 Announces Third Quarter Results – Page 8 of 10
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
subject to reclassification
| | (unaudited)
September 27,
2008 | | December 29,
2007 | |
Assets | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 6,205 | | $ | 7,279 | |
Accounts receivable, net of allowance for doubtful accounts of $737 and $876, respectively | | | 7,680 | | | 18,902 | |
Inventories | | | 19,961 | | | 32,517 | |
Prepaid expenses | | | 18,487 | | | 9,816 | |
Deferred income taxes | | | 6,254 | | | 6,796 | |
Other current assets | | | 1,488 | | | 3,833 | |
Total current assets | | | 60,075 | | | 79,143 | |
Property and equipment, net | | | 86,760 | | | 80,409 | |
Deferred income taxes | | | 27,062 | | | 25,543 | |
Other assets | | | 6,179 | | | 5,394 | |
Total assets | | $ | 180,076 | | $ | 190,489 | |
| | | | | | | |
Liabilities and Shareholders’ Equity | | | | | | | |
Current liabilities: | | | | | | | |
Borrowings under revolving credit facility | | $ | 60,000 | | $ | 37,890 | |
Accounts payable | | | 43,620 | | | 69,775 | |
Customer prepayments | | | 9,236 | | | 8,327 | |
Accruals: | | | | | | | |
Sales returns | | | 3,304 | | | 3,751 | |
Compensation and benefits | | | 15,345 | | | 14,865 | |
Taxes and withholding | | | 4,473 | | | 4,812 | |
Other current liabilities | | | 8,727 | | | 9,723 | |
Total current liabilities | | | 144,705 | | | 149,143 | |
| | | | | | | |
Non-current liabilities: | | | | | | | |
Warranty liabilities | | | 5,436 | | | 6,747 | |
Capital lease obligations | | | 579 | | | — | |
Other long-term liabilities | | | 14,062 | | | 10,473 | |
Total non-current liabilities | | | 20,077 | | | 17,220 | |
Total liabilities | | | 164,782 | | | 166,363 | |
| | | | | | | |
Shareholders’ equity: | | | | | | | |
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding | | | — | | | — | |
Common stock, $0.01 par value; 142,500 shares authorized, 45,003 and 44,597 shares issued and outstanding, respectively | | | 450 | | | 446 | |
Additional paid-in capital | | | 3,905 | | | — | |
Retained earnings | | | 10,939 | | | 23,680 | |
Total shareholders’ equity | | | 15,294 | | | 24,126 | |
Total liabilities and shareholders’ equity | | $ | 180,076 | | $ | 190,489 | |
Select Comfort Announces Third Quarter Results – Page 9 of 10
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited – in thousands)
subject to reclassification
| | Nine Months Ended | |
| | September 27,
2008 | | September 29,
2007 | |
Cash flows from operating activities: | | | | | | | |
Net (loss) income | | $ | (12,741 | ) | $ | 25,452 | |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | | | 17,183 | | | 18,869 | |
Stock-based compensation | | | 3,337 | | | 5,560 | |
Excess tax benefits from stock-based compensation | | | (17 | ) | | (1,389 | ) |
Disposals and impairments of assets | | | 2,508 | | | 391 | |
Changes in deferred income taxes | | | (977 | ) | | (3,262 | ) |
Other, net | | | — | | | 270 | |
Change in operating assets and liabilities: | | | | | | | |
Accounts receivable | | | 11,222 | | | (4,461 | ) |
Inventories | | | 12,556 | | | (5,863 | ) |
Prepaid expenses and other assets | | | (5,972 | ) | | 286 | |
Accounts payable | | | (16,612 | ) | | 18,174 | |
Customer prepayments | | | 909 | | | 862 | |
Accrued sales returns | | | (447 | ) | | 156 | |
Accrued compensation and benefits | | | 492 | | | (3,996 | ) |
Accrued taxes and withholding | | | (313 | ) | | 5,612 | |
Warranty liabilities | | | (1,847 | ) | | (682 | ) |
Other accruals and liabilities | | | 2,884 | | | 265 | |
Net cash provided by operating activities | | | 12,165 | | | 56,244 | |
| | | | | | | |
Cash flows from investing activities: | | | | | | | |
Purchases of property and equipment | | | (28,141 | ) | | (30,393 | ) |
Proceeds from sales and maturity of marketable debt securities | | | — | | | 81,086 | |
Net cash (used in) provided by investing activities | | | (28,141 | ) | | 50,693 | |
| | | | | | | |
Cash flows from financing activities: | | | | | | | |
Net increase in short-term borrowings | | | 15,823 | | | 21,564 | |
Repurchases of common stock | | | — | | | (134,452 | ) |
Proceeds from issuance of common stock | | | 534 | | | 4,265 | |
Excess tax benefits from stock-based compensation | | | 17 | | | 1,389 | |
Issuance costs related to debt | | | (1,472 | ) | | — | |
Net cash provided by (used in) financing activities | | | 14,902 | | | (107,234 | ) |
| | | | | | | |
Decrease in cash and cash equivalents | | | (1,074 | ) | | (297 | ) |
Cash and cash equivalents, at beginning of period | | | 7,279 | | | 8,819 | |
Cash and cash equivalents, at end of period | | $ | 6,205 | | $ | 8,522 | |
Select Comfort Announces Third Quarter Results – Page 10 of 10
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
| | Three Months Ended | | Nine Months Ended | |
| | September 27,
2008 | | September 29,
2007 | | September 27,
2008 | | September 29,
2007 | |
Percent of sales: | | | | | | | | | | | |
Retail | | | 78.9% | | | 76.6% | | 77.4% | | 75.7% | |
Direct | | | 7.7% | | | 7.2% | | 8.0% | | 8.1% | |
E-Commerce | | | 5.3% | | | 6.7% | | 6.1% | | 6.8% | |
Wholesale | | | 8.1% | | | 9.5% | | 8.5% | | 9.4% | |
Total | | | 100.0% | | | 100.0% | | 100.0% | | 100.0% | |
| | | | | | | | | | | |
Sales growth rates: | | | | | | | | | | | |
Comparable-store sales | | | (27% | ) | | (6% | ) | (24% | ) | (10% | ) |
Net new stores | | | 3% | | | 9% | | 4% | | 9% | |
Retail total | | | (24% | ) | | 3% | | (20% | ) | (1% | ) |
Direct | | | (20% | ) | | (15% | ) | (23% | ) | (16% | ) |
E-Commerce | | | (42% | ) | | 30% | | (29% | ) | 26% | |
Wholesale | | | (37% | ) | | (1% | ) | (29% | ) | 14% | |
Total | | | (26% | ) | | 3% | | (22% | ) | 0% | |
| | | | | | | | | | | |
Stores open: | | | | | | | | | | | |
Beginning of period | | | 478 | | | 460 | | 478 | | 442 | |
Opened | | | 5 | | | 14 | | 18 | | 37 | |
Closed | | | (8 | ) | | (3 | ) | (21 | ) | (8 | ) |
End of period | | | 475 | | | 471 | | 475 | | 471 | |
| | | | | | | | | | | |
Retail partner doors | | | 794 | | | 770 | | 794 | | 770 | |
| | | | | | | | | | | |
Other metrics: | | | | | | | | | | | |
Average sales per store ($ in 000’s) * | | $ | 1,074 | | $ | 1,377 | | | | | |
Average sales per square foot ($s) * | | $ | 784 | | $ | 1,104 | | | | | |
Stores > $1 million net sales * | | | 53% | | | 77% | | | | | |
Average mattress sales per mattress unit
(Q3 Company-owned channels; $s) | | $ | 1,917 | | $ | 1,726 | | | | | |
| | | | | | | | | | | |
* trailing twelve months for stores open at least one year | | | | | | | | | | | |
