- Reported 12% net sales growth to a
record $394 million and first quarter EPS of $0.56
- Generated record operating free cash
flow of $74 million and repurchased $50 million of the company's
common stock
- Increases full-year 2017 earnings
outlook to a range of $1.25 to $1.50 per diluted share
Select Comfort Corporation (NASDAQ: SCSS) today reported first
quarter 2017 results for the period ended April 1, 2017.
“Consumers are responding enthusiastically to our brand and
differentiated products. Our investments over the past few years
have made us a stronger competitor and this is evident in our first
quarter results,” said Shelly Ibach, President and CEO of Select
Comfort. “In the second quarter, we will begin the phased
introduction of the revolutionary Sleep Number 360 smart beds. This
innovation will set a new standard for what people should expect
from their bed.”
First Quarter Overview
- Net sales increased 12% to $394
million, including a 3% comparable sales increase
- Earnings per diluted share
increased 107% to $0.56, compared with $0.27 in the prior year’s
quarter
- Operating income increased 80%
to $36 million, or 9.1% of net sales (up 350 basis points versus
prior year), with our gross margin rate increasing 340 basis points
to 62.6% of net sales
- Cash provided by operations was
$87 million, up from $64 million in the prior year
- Return on invested capital
(ROIC) was 13.9% for the trailing-twelve month period, well
above our cost of capital
Financial OutlookThe company has increased its full-year
2017 earnings per diluted share outlook to $1.25 to $1.50, compared
with the previous outlook of $1.20 to $1.40 per share. The outlook
continues to include an estimated $0.15 to $0.22 EPS impact from
incremental costs related to the launch of the Sleep Number 360™
smart bed line and the redesign of our logistics network. The
outlook assumes high single-digit sales growth, including 4 to 5
percentage points from net new store openings and low single-digit
comp store growth. The company anticipates 2017 capital
expenditures to be approximately $55 million.
Conference Call InformationManagement 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.
About Select Comfort CorporationThirty years ago, Sleep
Number transformed the mattress industry with the idea that ‘one
size does not fit all’ when it comes to sleep. Today, the company
is the leader in sleep innovation and ranked “Highest in Customer
Satisfaction with Mattresses” by J.D. Power in 2015 and 2016. As
the pioneer in biometric sleep tracking and adjustability, Sleep
Number is proving the connection between quality sleep and health
and wellbeing. Dedicated to individualizing sleep experiences, the
company’s 3,800 employees are improving lives with innovative sleep
solutions. To find better quality sleep visit one of the more than
540 Sleep Number® stores located in 49 states or
SleepNumber.com.
Forward-looking StatementsStatements 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 current
and future general and industry economic trends and consumer
confidence; the effectiveness of our marketing messages; the
efficiency of our advertising and promotional efforts; our ability
to execute our company-controlled distribution strategy; our
ability to achieve and maintain acceptable levels of product and
service quality, and acceptable product return and warranty claims
rates; our ability to continue to improve and expand our product
line; consumer acceptance of our products, product quality,
innovation and brand image; industry competition, the emergence of
additional competitive products, and the adequacy of our
intellectual property rights to protect our products and brand from
competitive or infringing activities; the potential for claims that
our products, processes or trademarks infringe the intellectual
property rights of others; availability of attractive and
cost-effective consumer credit options; pending and unforeseen
litigation and the potential for adverse publicity associated with
litigation; our “just-in-time” manufacturing processes with minimal
levels of inventory, which may leave us vulnerable to shortages in
supply; our dependence on significant suppliers and our 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; risks inherent in global sourcing activities; risks of
disruption in the operation of either of our two primary
manufacturing facilities; increasing government regulations, which
have added or may add cost pressures and process changes to ensure
compliance; the adequacy of our management information systems to
meet the evolving needs of our business and to protect sensitive
data from potential cyber threats; the costs, distractions and
potential disruptions to our business related to upgrading our
management information systems; our ability to attract, retain and
motivate qualified management, executive and other key employees,
including qualified retail sales professionals and managers; and
uncertainties arising from global events, such as terrorist
attacks, political unrest 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.
SELECT COMFORT CORPORATION
AND SUBSIDIARIES Consolidated Statements of
Operations (unaudited – in thousands, except per share
amounts)
Three Months Ended April 1, % of
April 2, % of 2017 Net Sales
2016 Net Sales Net sales $ 393,899 100.0 % $
352,980 100.0 % Cost of sales 147,440 37.4 %
143,906 40.8 % Gross profit 246,459 62.6 %
209,074 59.2 % Operating expenses: Sales and
marketing 169,266 43.0 % 150,668 42.7 % General and administrative
33,769 8.6 % 30,906 8.8 % Research and development 7,596
1.9 % 7,602 2.2 % Total operating expenses
210,631 53.5 % 189,176 53.6 % Operating
income 35,828 9.1 % 19,898 5.6 % Other expense, net (138 )
0.0 % (97 ) 0.0 % Income before income taxes 35,690 9.1 %
19,801 5.6 % Income tax expense 11,229 2.9 %
6,832 1.9 % Net income $ 24,461 6.2 % $ 12,969
3.7 % Net income per share – basic $ 0.57 $ 0.27
Net income per share – diluted $ 0.56 $ 0.27
Reconciliation of weighted-average
shares outstanding:
Basic weighted-average shares outstanding 42,750 48,100 Dilutive
effect of stock-based awards 962 745
Diluted weighted-average shares outstanding 43,712
48,845
SELECT COMFORT
CORPORATION AND SUBSIDIARIES Consolidated Balance
Sheets (unaudited – in thousands, except per share
amounts) subject to reclassification
April
1,
December 31, 2017 2016 Assets Current
assets: Cash and cash equivalents $ 36,452 $ 11,609
Accounts receivable, net of allowance for
doubtful accounts of $967 and $884, respectively
18,227 19,705 Inventories 66,858 75,026 Prepaid expenses 10,673
8,705 Other current assets 16,812 23,282 Total
current assets 149,022 138,327 Non-current assets: Property
and equipment, net 207,192 208,367 Goodwill and intangible assets,
net 79,223 80,817 Deferred income taxes - 4,667 Other non-current
assets 27,308 24,988 Total assets $ 462,745 $ 457,166
Liabilities and Shareholders’ Equity Current
liabilities: Accounts payable $ 106,661 $ 105,375 Customer
prepayments 30,650 26,207 Accrued sales returns 18,201 15,222
Compensation and benefits 31,058 19,455 Taxes and withholding
28,068 23,430 Other current liabilities 37,551 35,628
Total current liabilities 252,189 225,317 Non-current
liabilities: Deferred income taxes 996 - Other non-current
liabilities 75,409 71,529 Total liabilities 328,594
296,846 Shareholders’ equity:
Undesignated preferred stock; 5,000 shares
authorized, no shares issued and outstanding
- -
Common stock, $0.01 par value; 142,500
shares authorized, 41,676 and 43,569 shares issued and outstanding,
respectively
417 436 Additional paid-in capital - - Retained earnings
133,734 159,884 Total shareholders’ equity 134,151
160,320 Total liabilities and shareholders’ equity $ 462,745
$ 457,166
SELECT COMFORT CORPORATION AND
SUBSIDIARIES Consolidated Statements of Cash Flows
(unaudited - in thousands) subject to
reclassification Three Months
Ended April 1, April 2, 2017 2016
Cash flows from operating activities: Net income $ 24,461 $
12,969
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 16,205 13,854 Stock-based
compensation 3,704 3,766 Net loss on disposals and impairments of
assets - 1 Excess tax benefits from stock-based compensation - (26
) Deferred income taxes 5,663 1,622 Changes in operating assets and
liabilities: Accounts receivable 1,478 8,816 Inventories 8,168
5,633 Income taxes 5,541 16,558 Prepaid expenses and other assets
2,880 (1,272 ) Accounts payable (1,394 ) (495 ) Customer
prepayments 4,443 (20,537 ) Accrued compensation and benefits
11,693 10,677 Other taxes and withholding (903 ) 7,493 Other
accruals and liabilities 4,930 4,922
Net cash provided by operating activities 86,869
63,981 Cash flows from investing activities:
Purchases of property and equipment (13,211 ) (12,289 ) Proceeds
from sales of property and equipment - 14 Proceeds from marketable
debt securities - 15,090 Decrease in restricted cash 3,150
- Net cash (used in) provided by investing
activities (10,061 ) 2,815 Cash flows
from financing activities: Net increase (decrease) in short-term
borrowings 2,369 (6,661 ) Repurchases of common stock (54,794 )
(51,240 ) Proceeds from issuance of common stock 460 6 Excess tax
benefits from stock-based compensation - 26 Debt issuance costs
- (401 ) Net cash used in financing activities
(51,965 ) (58,270 ) Net increase in cash and
cash equivalents 24,843 8,526 Cash and cash equivalents, at
beginning of period 11,609 20,994 Cash
and cash equivalents, at end of period $ 36,452 $ 29,520
SELECT COMFORT CORPORATION AND
SUBSIDIARIES Supplemental Financial Information
(unaudited) Three Months
Ended April 1, April 2, 2017 2016
Percent of sales: Retail 91.5 % 91.0 % Online and
phone 6.7 % 6.3 % Wholesale/other 1.8 % 2.7 % Total
100.0 % 100.0 %
Sales change rates:
Retail comparable-store sales 2 % (4 %) Online and phone 18
% 8 % Company-Controlled comparable sales change 3 % (4 %)
Net opened/closed stores 10 % 5 % Total
Company-Controlled Channel 13 % 1 % Wholesale/other (23 %)
10 % Total 12 % 1 %
Stores open:
Beginning of period 540 488 Opened 16 14 Closed (10 )
(5 ) End of period 546 497
Other metrics: Average sales per store ($ in 000's) 1 $
2,365 $ 2,363 Average sales per square foot 1 $ 926 $ 960 Stores
> $1 million net sales 1 97 % 98 % Stores > $2 million net
sales 1 59 % 61 % Average revenue per mattress unit 2 $ 4,053 $
3,978 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.
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 April 1, April 2, April
1, April 2, 2017 2016 2017
2016 Net income $ 24,461 $ 12,969 $ 62,909 $ 34,689
Income tax expense 11,229 6,832 28,913 16,664 Interest expense 182
106 887 256 Depreciation and amortization 16,152 13,757 59,305
50,129 Stock-based compensation 3,704 3,766 11,899 11,274 Asset
impairments - 15 59 67 Adjusted EBITDA
$ 55,728 $ 37,445 $ 163,972 $ 113,079
Free Cash Flow
(in thousands) Three Months Ended
Trailing-Twelve Months Ended April 1,
April 2, April 1, April 2,
2017
2016
2017
2016 Net cash provided by operating activities $
86,869 $ 63,981 $ 174,533 $ 123,059 Subtract: Purchases of property
and equipment 13,211 12,289 58,774
80,079 Free cash flow $ 73,658 $ 51,692 $ 115,759 $ 42,980
Note - Our Adjusted EBITDA calculation and
our "free cash flow" data are considered non-GAAP financial
measures and are 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 in the U.S.
SELECT COMFORT CORPORATION AND SUBSIDIARIES
Calculation of Return on Invested Capital (ROIC) (in
thousands) ROIC is a financial
measure we use to determine how efficiently we deploy our capital.
It quantifies the return we earn on our invested capital.
Management believes ROIC is also a useful metric for investors and
financial analysts. We compute ROIC as outlined below. Our
definition and calculation of ROIC may not be comparable to
similarly titled definitions and calculations used by other
companies. The tables below reconcile net operating profit after
taxes (NOPAT) and total invested capital, which are non-GAAP
financial measures, to the comparable GAAP financial measures:
Trailing-Twelve Months Ended April 1, April
2, 2017 2016
Net operating profit
after taxes (NOPAT)
Operating income $ 92,580 $ 51,270 Add: Rent expense 1 69,217
63,204 Add: Interest income 128 340 Less: Depreciation on
capitalized operating leases 2 (17,550 ) (16,501 ) Less: Income
taxes 3 (48,050 ) (31,992 ) NOPAT $ 96,325 $ 66,321
Average invested
capital
Total equity $ 134,151 $ 187,184 Less: Cash greater than target 4 -
- Add: Long-term debt 5 - - Add: Capitalized operating lease
obligations 6 553,736 505,632 Total
invested capital at end of period $ 687,887 $ 692,816
Average invested capital 7 $ 692,896 $ 729,234 Return on
invested capital (ROIC) 8 13.9 % 9.1 %
1 Rent expense is added back to operating
income to show the impact of owning versus leasing the related
assets.
2 Depreciation is based on the average of
the last five fiscal quarters' ending capitalized operating lease
obligations (see note 6) for the respective reporting periods with
an assumed thirty-year useful life. This is subtracted from
operating income to illustrate the impact of owning versus leasing
the related assets.
3 Reflects annual effective income tax
rates, before discrete adjustments, of 33.3% and 32.5% for 2017 and
2016, respectively.
4 Cash greater than target is defined as
cash, cash equivalents and marketable debt securities less customer
prepayments in excess of $100 million.
5 Long-term debt includes existing capital
lease obligations, if applicable.
6 A multiple of eight times annual rent
expense is used as an estimate of capitalizing our operating lease
obligations. The methodology utilized aligns with the methodology
of a nationally recognized credit rating agency.
7 Average invested capital represents the
average of the last five fiscal quarters' ending invested capital
balances.
8 ROIC equals NOPAT divided by average
invested capital.
Note - Our ROIC calculation and data are
considered non-GAAP financial measures and are not in accordance
with, or preferable to, 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 in the U.S.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170419006427/en/
Select Comfort CorporationInvestor Contact:Dave
Schwantes,
763-551-7498investorrelations@selectcomfort.comorMedia
Contact:Susan Eich,
763-551-6934Susan.Eich@selectcomfort.com
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