EXHIBIT 99.1
FOR IMMEDIATE RELEASE CONTACT: Mark Kimball (763) 551-7070
Select Comfort Corporation
mark.kimball@selectcomfort.com
SELECT COMFORT CORPORATION REPORTS
RECORD FOURTH QUARTER AND FULL-YEAR EARNINGS
2003 REVENUES UP 36 PERCENT
SAME-STORE SALES INCREASE 31 PERCENT
COMPANY ESTABLISHES Q1 GUIDANCE AND UPDATES FULL-YEAR 2004 FINANCIAL OUTLOOK
MINNEAPOLIS, MINN. (February 10, 2004) - Select Comfort Corporation (NASDAQ:
SCSS), the nation's leading bed retailer and creator of the Sleep Number(R) bed,
today announced results for the fourth quarter and year ended January 3, 2004.
The company reported its tenth consecutive quarterly profit with net income of
$11.1 million, or $0.28 per diluted share, compared with pro forma (after tax)
net income of $0.15 per share in the fourth quarter of 2002. Fourth quarter 2003
net sales increased 49 percent to $137 million, versus 2002 net sales of $92
million.(1)
For fiscal 2003, Select Comfort reported earnings of $27 million or $0.69
per diluted share on net sales of $458 million. As of January 3, 2004, the
Company's cash and marketable securities increased 83 percent to $75 million
from $41 million a year ago.
"2003 was another exceptional year for Select Comfort in terms of executing
our core growth initiatives in sales, profit and innovation," said Bill
McLaughlin, president and chief executive officer. "Revenue increased 36
percent, anchored by same-store sales growth of 31 percent, on top of 27 percent
growth a year ago.(1) The company generated operating free cash flow (2) of $31
million during 2003, strengthening our debt-free balance sheet and allowing us
to invest in building awareness and distribution. In 2003, we spent $60 million
in advertising and opened 27 stores. The leverage in our vertically integrated
operating model is demonstrated by our 103 percent increase in operating income
in 2003."
McLaughlin continued, "2004 will be about continued execution of our core
initiatives for further sales growth and margin leverage. We plan to increase
our advertising investment by more than 30 percent and expand our store base,
with both strategies focused on strengthening our position in major metropolitan
markets. Product innovation remains an important strategy, elevating mix and
margin, and allowing us great leverage from our business model."
1
The company's earnings under Generally Accepted Accounting Principles (GAAP)
for 2003 are being compared to 2002 earnings on a pro forma, after-tax basis to
improve comparability between the periods. GAAP did not allow the company to
reduce its earnings for income tax expense in 2002, while 2003 results reflect a
reduction in earnings for income taxes. In the fourth quarter of 2002, pro forma
earnings per diluted share were $0.15 and reported earnings per diluted share
under GAAP were $0.21. In 2002, pro forma earnings per diluted share were $.37
and reported earnings per diluted share under GAAP were $1.09. A full
reconciliation of the company's pro forma, after-tax earnings per diluted share
for 2002 to treatment under GAAP can be found at the end of this release.
2004 BUSINESS OUTLOOK
In 2004, Select Comfort will focus on sustaining growth through execution
of high-impact initiatives that follow the company's four strategic priorities.
The company plans to:
o Increase brand and product awareness
- Increase advertising investment by more than 30 percent to $80
million, including a 25 percent increase in national advertising.
- Expand the local Sleep Number(R) retail advertising campaign into 13
new markets, for a total of 34 markets, representing approximately 55
percent of the United States population.
o Expand profitable distribution
- Open 25-30 new stores in major metropolitan markets and other areas
where Select Comfort is understored.
- Upgrade marquee and design of approximately 150 stores, providing a
consistent national brand image.
o Accelerate development and introduction of proprietary product offerings
- Upgrade product offerings through new bed and accessory introductions
throughout the year.
- Test launch in pilot markets the nation's first sofa sleeper featuring
a Sleep Number(R) bed inside.
o Strengthen financial position
- Continue to leverage our vertically integrated business model of
just-in-time inventory and make-to-order bed production.
- Improve 2003 operating margin of nine percent by one to two percentage
points in 2004, while generating operating free cash flow of greater
than $20 million.
2
Assuming continued performance of advertising and growth programs, no
significant changes to the U.S. economic recovery, mattress industry growth
rates, or competitive reaction to the company's recent success, estimated EPS
for full-year 2004 is expected to be $0.90 to $0.93. The company anticipates
revenue to be in the range of $550 million to $580 million with same-store sales
growth between 15 percent and 22 percent.
For the first quarter of 2004, the company expects to generate revenue of
$127 million to $133 million and earnings per share in the range of $0.14 to
$0.16, with same-store sales growth of 15 to 20 percent.
Select Comfort is forecasting quarterly earnings contributing to full-year
results in the following manner: 17 to 19 percent of full-year earnings
occurring in the first quarter; 15 to 17 percent in the second quarter; 27 to 29
percent in the third quarter; and 36 to 39 percent in the fourth quarter. This
breakdown does not follow historical patterns due to an expected shift in QVC
programming into the third quarter of 2004 versus the second quarter of 2003.
Select Comfort's updated guidance ranges are in line with the company's
goal to sustain annual sales growth rates in excess of 15 to 25 percent and an
earnings growth rate of 30 percent.
CONFERENCE CALL ANNOUNCEMENT
Select Comfort will hold a conference call to discuss its fourth quarter
and year-end results on February 10, 2004, at 4:00 p.m. Central Time. A
simultaneous webcast of the call will be available in the Investor Relations
section of www.selectcomfort.com. A digital replay of the conference call will
be accessible beginning at approximately 6:00 p.m. Central Time on February 10,
2004, through 5:00 p.m. Central Time on February 17, 2004. To access the replay,
please call 402-220-3572 (U.S. and International). An archived replay of the
conference call may also be accessed after approximately 7:00 p.m. Central Time
on February 10, 2004 at www.selectcomfort.com.
ABOUT SELECT COMFORT
Founded in 1987, Select Comfort Corporation is the nation's leading bed
retailer(3), holding 26 U.S. issued or pending patents for its personalized
sleep products. The company designs, manufactures and markets a line of
adjustable-firmness mattresses featuring air-chamber technology, branded the
Sleep Number(R) bed, as well as foundations and sleep accessories.
3
Select Comfort's products are sold through its 343 retail stores located
nationwide, including 13 leased departments in Bed Bath & Beyond stores; through
selected bedding retailers; through its national direct marketing operations;
and on the Internet at www.selectcomfort.com.
###
Statements used in this press 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, consumer
acceptance of our products and product innovation, our ability to continue to
expand and improve our product line, industry competition, warranty expenses,
California wage and hour litigation, our dependence on significant suppliers,
and the vulnerability of any suppliers to recessionary pressures, labor
negotiations, liquidity concerns or other factors, increasing government
regulations, including possible new flammability standards for the bedding
industry, as well as the risk factors listed from time to time in the company's
filings with the SEC, including the company's 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.
(1) FISCAL 2003 INCLUDES 53 WEEKS, AS COMPARED TO 52 WEEKS IN FISCAL 2002.
THE ADDITIONAL WEEK IN 2003 WAS IN THE FOURTH QUARTER. SAME-STORE SALES
HAVE BEEN ADJUSTED AND REPORTED AS IF BOTH YEARS HAD THE SAME NUMBER OF
WEEKS.
(2) NET CASH PROVIDED BY OPERATING ACTIVITY LESS PURCHASES OF PROPERTY AND
EQUIPMENT.
(3) TOP 25 BEDDING RETAILERS, FURNITURE TODAY, MAY 26, 2003
4
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED (UNAUDITED) TWELVE MONTHS ENDED
--------------------------------- ----------------------------------
JANUARY 3, DECEMBER 28, JANUARY 3, DECEMBER 28,
2004 2002 2004 2002
---------------- ---------------- ---------------- ----------------
Net sales $ 137,138 $ 92,263 $ 458,489 $ 335,795
Cost of sales 51,739 34,584 171,163 125,796
---------------- ---------------- ---------------- ----------------
Gross profit 85,399 57,679 287,326 209,999
---------------- ---------------- ---------------- ----------------
Operating expenses:
Sales and marketing 57,649 40,309 206,129 155,890
General and administrative 10,769 8,534 38,423 32,854
Store closings and asset impairments 4 - 71 233
---------------- ---------------- ---------------- ----------------
Total operating expenses 68,422 48,843 244,623 188,977
---------------- ---------------- ---------------- ----------------
Operating income 16,977 8,836 42,703 21,022
---------------- ---------------- ---------------- ----------------
Other income (expense):
Interest income 214 164 612 571
Interest expense (14) (254) (170) (1,655)
Other, net (26) (178) - (198)
---------------- ---------------- ---------------- ----------------
Other income (expense), net 174 (268) 442 (1,282)
---------------- ---------------- ---------------- ----------------
Income before income taxes 17,151 8,568 43,145 19,740
Income tax (expense) benefit (6,095) 477 (15,973) 17,762
---------------- ---------------- ---------------- ----------------
Income before extraordinary loss 11,056 8,091 27,172 37,502
Extraordinary loss from early extinguishment
of debt, net of tax - (380) - (380)
---------------- ---------------- ---------------- ----------------
Net income $ 11,056 $ 7,711 $ 27,172 $ 37,122
================ ================ ================ ================
Net income per share - basic $ 0.32 $ 0.25 $ 0.83 $ 1.51
================ ================ ================ ================
Weighted average shares - basic 34,843 30,488 32,856 24,549
================ ================ ================ ================
Net income per share - diluted $ 0.28 $ 0.21 $ 0.69 $ 1.09
================ ================ ================ ================
Weighted average shares - diluted 39,881 36,636 39,277 34,532
================ ================ ================ ================
RECONCILIATION OF EPS INFORMATION:
Net income $ 11,056 $ 7,771 $ 27,172 $ 37,122
Add: Interest expense on convertible debt - 54 81 563
---------------- ---------------- ---------------- ----------------
Net income available to common shareholders $ 11,056 $ 7,765 $ 27,253 $ 37,685
================ ================ ================ ================
Weighted average shares outstanding 34,843 30,488 32,856 24,549
Effect of dilutive securities:
Options 2,919 2,629 2,823 1,884
Warrants 2,119 2,792 3,331 2,885
Convertible debt - 727 267 5,214
---------------- ---------------- ---------------- ----------------
Dilutive weighted average shares outstanding 39,881 36,636 39,277 34,532
================ ================ ================ ================
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SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JANUARY 3, DECEMBER 28,
2004 2002
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 24,725 $ 27,176
Marketable securities - current 49,322 12,146
Accounts receivable, net of allowance for doubtful accounts
of $619 and $340, respectively 6,823 3,270
Inventories 12,381 8,980
Prepaid expenses 5,244 5,467
Deferred tax assets 6,039 12,955
----------------- -----------------
Total current assets 104,534 69,994
Marketable securities - non-current 1,071 1,502
Property and equipment, net 36,134 28,977
Deferred tax assets 5,620 4,352
Other assets 3,343 3,506
----------------- -----------------
Total assets $ 150,702 $ 108,331
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ - $ 11
Accounts payable 14,773 16,508
Accruals:
Sales returns 3,469 3,181
Compensation and benefits 16,579 13,666
Taxes and withholding 3,661 2,779
Consumer prepayments 5,970 1,964
Other 6,110 5,120
----------------- -----------------
Total current liabilities 50,562 43,229
Long-term debt, less current maturities - 2,991
Accrued warranty costs 2,557 3,626
Other liabilities 4,821 3,970
----------------- -----------------
Total liabilities 57,940 53,816
----------------- -----------------
Shareholders' equity:
Undesignated preferred stock; 5,000,000 shares authorized, no
shares issued and outstanding - -
Common stock, $.01 par value; 95,000,000 shares authorized,
35,769,606 and 30,727,101 shares issued and outstanding,
respectively 358 307
Additional paid-in capital 104,085 92,184
Unearned compensation (877) -
Accumulated deficit (10,804) (37,976)
----------------- -----------------
Total shareholders' equity 92,762 54,515
----------------- -----------------
Total liabilities and shareholders' equity $ 150,702 $ 108,331
================= =================
6
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
TWELVE MONTHS ENDED
-------------------------------------
JANUARY 3, DECEMBER 28,
2004 2002
------------------ ------------------
Cash flows from operating activities:
Net income $ 27,172 $ 37,122
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 11,145 9,194
Amortization of debt discount and deferred finance fees 130 1,279
Non-cash compensation expense 75 -
Loss on disposal of assets and impaired assets 96 548
Deferred tax assets 5,648 (17,307)
Change in operating assets and liabilities:
Accounts receivable, net (3,553) (647)
Inventories (3,401) (894)
Prepaid expenses 223 (1,879)
Other assets 129 1,441
Accounts payable (1,735) 1,292
Accrued compensation and benefits 2,913 6,487
Accrued taxes and withholding 5,295 (253)
Customer prepayments 4,006 701
Other accruals and liabilities 1,060 (940)
------------------ ------------------
Net cash provided by operating activities 49,203 36,144
------------------ ------------------
Cash flows from investing activities:
Purchases of property and equipment (18,364) (7,802)
Investments in marketable securities (55,717) (24,780)
Proceeds from maturity of marketable securities 18,972 11,132
------------------ ------------------
Net cash used in investing activities (55,109) (21,450)
------------------ ------------------
Cash flows from financing activities:
Principal payments on debt (11) (5,022)
Repurchase of common stock (1,834) -
Proceeds from issuance of common stock 5,300 1,129
------------------ ------------------
Net cash provided by (used in) financing activities 3,455 (3,893)
------------------ ------------------
(Decrease) increase in cash and cash equivalents (2,451) 10,801
Cash and cash equivalents, at beginning of period 27,176 16,375
------------------ ------------------
Cash and cash equivalents, at end of period $ 24,725 $ 27,176
================== ==================
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SELECT COMFORT CORPORATION
AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
SELECT COMFORT PRO FORMA NET INCOME AND EARNINGS PER DILUTED
SHARE RECONCILIATION
The reconciliation of net income and earnings per diluted share as reported
under Generally Accepted Accounting Principles (GAAP) to the company's estimates
of pro forma net income and pro forma earnings per diluted share for the fourth
quarter of 2002 and full-year 2002 are as follows:
THREE TWELVE
MONTHS MONTHS
ENDED ENDED
--------------- ---------------
RECONCILIATION OF GAAP NET INCOME TO PRO FORMA NET INCOME:
12/28/02 12/28/02
--------------- ---------------
GAAP net income $7,711 $37,122
Effect of:
Income tax provision at 38% of income before tax (3,256) (7,501)
Charges from early repayment of debt 614 614
Restoration of deferred tax asset and other income
tax items 243 (17,996)
--------------- ---------------
Pro forma net income $5,312 $12,239
=============== ===============
THREE TWELVE
MONTHS MONTHS
ENDED ENDED
--------------- ---------------
RECONCILIATION OF GAAP EARNINGS PER DILUTED SHARE TO PRO
FORMA EARNINGS PER DILUTED SHARE 12/28/02 12/28/02
--------------- ---------------
GAAP earnings per diluted share $ 0.21 $ 1.09
Effect of:
Income tax provision at 38% of income before tax (0.09) (0.22)
Charges from early repayment of debt 0.02 0.02
Restoration of deferred tax asset and other income
tax items 0.01 (0.52)
--------------- ---------------
Pro forma earnings per diluted share $ 0.15 $ 0.37
=============== ===============
8