“Path Forward”
2008 Annual Meeting
of Shareholders
of Shareholders
2
Mark Kimball
General Counsel
General Counsel
3
Introductions
Board of Directors
Senior Management
KPMG
The Carideo Group/Broadridge
4
Meeting Agenda
Present Matters for Shareholder Vote
Voting
Adjourn Formal Portion of the Meeting
Management Presentations
Q & A
Vote Results
5
Shareholder Business
Election of Directors
§ Christopher P. Kirchen
§ Brenda J. Lauderback
§ Michael A. Peel
§ Jean-Michel Valette
Approval of Selection of KPMG as
Independent Auditors
Independent Auditors
6
Statements used in this presentation 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 obtain sufficient liquidity and capital resources to fund our operations and the
increasing cost of credit; 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 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 and our ability to successfully implement systems and manufacturing process
changes to ensure compliance with these requirements. Additional information concerning these and
other risks and uncertainties is contained in our filings with the Securities and Exchange
Commission, 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 today’s presentation.
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 obtain sufficient liquidity and capital resources to fund our operations and the
increasing cost of credit; 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 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 and our ability to successfully implement systems and manufacturing process
changes to ensure compliance with these requirements. Additional information concerning these and
other risks and uncertainties is contained in our filings with the Securities and Exchange
Commission, 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 today’s presentation.
Forward Looking Statements
“Path Forward”
Bill McLaughlin
Chief Executive Officer
Chief Executive Officer
8
Agenda
Perspective
Plan and Actions
Path Forward
§ Brand Development
§ Customer Experience
Q & A
9
Leader in affordable luxury sleep products and
innovation
innovation
Vision:
Strategy:
Awareness
People &
Systems
Systems
Distribution
Innovation
Excellence
& Leverage
& Leverage
Destination
10
($ in millions)
($ in millions)
Journey
11
Recent Challenge - External & Internal
2007-08 Development
Senior Leadership
§ Sales
§ Marketing
Product Development
Store Design
Brand & Media Development
12
Stabilization/Recovery Plan
Preserve Cash
Rightsize Costs (preserve, strengthen
advantages)
advantages)
Disciplined Growth
13
($ in millions)
* Please refer to slide 42 of this presentation for a definition of “Free Cash Flow” which
is a non-GAAP financial measure.
is a non-GAAP financial measure.
*
Q1 Cash Management
14
$45 Million Annual Impact
Cost & Margin
Headcount and Overhead -20%
§ HQ
§ Plants
§ Sales
Price and Discounts
15
Disciplined Growth
Product innovation
§ Beds
§ Accessories
Marketing
Sales leadership and process
16
Journey remains challenging; but worthwhile
Known
Product
Owner Endorsement
Business Model
People
2008 Agenda
Unknown
Economy
Financial Markets
Commodity Costs
17
Aware
Consider
Attract
Close
C. Hall
S. Ibach
Experience
Countering Recession
18
Cathy Hall
Chief Marketing Officer
Chief Marketing Officer
19
Retail Awareness
Source: Brand Tracker
(Unaided)
Total Unaided Awareness October 2007 | |
Sleep Number/Select Comfort Net | 4% |
2008 Marketing Objectives:
20
Strategies:
1. Target active mattress shoppers and
those motivated and capable of
purchasing in a difficult economy
those motivated and capable of
purchasing in a difficult economy
2. Increase efficiency by integrating
campaign across all channels
campaign across all channels
3. Leverage unique product benefit:
personalized comfort
personalized comfort
21
Broad Reach
:30 TV engages consumer
attention; drives awareness and
consideration
attention; drives awareness and
consideration
Direct Response
:60s and :120s, direct response
print, and digital deliver the depth of
product information consumers
seek for what is a considered
purchase
print, and digital deliver the depth of
product information consumers
seek for what is a considered
purchase
Aware
Consider
1. Strategy: Target active mattress shoppers and
those motivated and capable of purchasing in a
difficult economy
those motivated and capable of purchasing in a
difficult economy
22
2. Strategy: Increase efficiency by integrating
campaign across all channels
campaign across all channels
Retail, Direct and E-Commerce
Align media spend to reach more target consumers and to provide
motivation to learn more
motivation to learn more
23
Purchase Consideration
Source: Purchase Process Study; Quantitative
Concept Research
Concept Research
3. Strategy: Leverage unique product benefit:
personalized comfort
personalized comfort
Quality
Comfort
Provides Good Support
Good for Your Back
Price
Durability/Long-lasting
Most important purchase consideration
Other considerations
Concept research also confirms personalized comfort drives consideration
Comfort is #1 driver of purchase consideration among consumers actively
shopping for a mattress
shopping for a mattress
24
3. Strategy: Leverage unique product benefit:
personalized comfort
personalized comfort
New brand campaign levers product’s unique
point of difference and acknowledges
macroeconomic environment
point of difference and acknowledges
macroeconomic environment
§ Consumer Insight: The tougher your day, the more
you deserve a Sleep Number night
you deserve a Sleep Number night
§ Main Message: The most comfortable sleep is the one
you control yourself
you control yourself
25
Source: Quantitative Creative Research
Personalized comfort comes through loud and clear, as
does store awareness
does store awareness
Key attributes | Top 2 Box Agreement (% Strongly/Very Strongly Agree) |
Adjust to my own level of firmness | 3-spot av. 91% |
Are available at Sleep Number stores | 85% |
Are unlike any other mattress | 79% |
Testing demonstrates strength of new
brand creative
brand creative
26
Initial in-market results are in line with
our expectations
our expectations
Markets with dedicated campaign elements
consistently outperforming balance of chain
consistently outperforming balance of chain
Still very early in the campaign. Expect to build on
results over time
results over time
Will communicate more after Q2
27
Shelly Ibach
Senior Vice President
US Sales
Senior Vice President
US Sales
28
Aware
Consider
Attract
Experience
Close
Consumer Experience
29
Multiple
Channels
Channels
Team
Leadership Changes
Mission Driven
Attract
Experience
Close
Consumer
Centric
Centric
Proven Model
Promotions
Store Design
Bedding accessories
��
30
Attract
Experience
Close
Building on Proven Model: Leveraging multi-channel approach
to optimizing our investment and store count
to optimizing our investment and store count
Stores, E-Comm and Direct
§ Convenience
§ Experience / Product knowledge
Select Comfort Sales Force
§ Sleep Expertise
§ Direct to consumer, immediate product feedback
Superior Store Economics
§ High end, high traffic malls
§ Sales, 2x national average per square foot
§ Small footprint < 2,000 square feet
§ Low inventory, low cash investment
Multiple Channels
31
Attract
Experience
Close
Promotions:
Leverage Market Share Periods
Drive traffic with urgent, value
orientated message
orientated message
Profitable Growth
Example: Sleep Number Special
Edition Bed for the Memorial Day
Event
Edition Bed for the Memorial Day
Event
§ Queen set price $1399, comparable
value $1899
value $1899
§ While supplies last
Multiple Channels
32
Attract
Experience
Close
Consumer Centric
New store design: Attracts, engages, orients and inspires
33
Attract
Experience
Close
Consumer Centric
Experience: About both the product and the service
34
Attract
Experience
Close
Consumer Centric
Re-brand to Sleep Number® : Eliminate brand confusion; optimize
investments in raising awareness for Sleep Number brand
investments in raising awareness for Sleep Number brand
35
Attract
Experience
Close
Enhance consumer experience
Lead industry in innovation
Bedding Accessories: Accelerate Profitable Growth
Consumer Centric
36
Attract
Experience
Close
Team
High-performance Teams: Drive profitable growth
Leadership changes
Leadership development
Selling process - skill development
Lead management best practices
Excellence in execution
37
Attract
Experience
Close
Team - - Mission Driven
To improve people’s lives by improving their
sleep
sleep
38
Bill McLaughlin
Chief Executive Officer
Chief Executive Officer
39
Summary
Clear “Path Forward”
Have a plan and are executing
Know you have our full commitment
Thank you for your support
40
Q & A
41
Shareholder Business
Vote Results
42
Non-GAAP Financial Measures
Slide 13 of this presentation refers to "free cash flow" which is a
non-GAAP financial measure. This measure should not be
considered in isolation, or a substitute for, the corresponding
GAAP measure. This measure as calculated by the company, may
not be comparable to similar calculations of other companies. We
calculate "free cash flow" as cash flows provided by operating
activities less capital expenditures. We believe free cash flow
provides insight into the amount of cash that the company has
available for discretionary uses after expenditures for interest and
sustaining capital expenditures. In addition, it is a measure
frequently used by securities analysts, investors and others in the
evaluation of companies in our industry.
non-GAAP financial measure. This measure should not be
considered in isolation, or a substitute for, the corresponding
GAAP measure. This measure as calculated by the company, may
not be comparable to similar calculations of other companies. We
calculate "free cash flow" as cash flows provided by operating
activities less capital expenditures. We believe free cash flow
provides insight into the amount of cash that the company has
available for discretionary uses after expenditures for interest and
sustaining capital expenditures. In addition, it is a measure
frequently used by securities analysts, investors and others in the
evaluation of companies in our industry.