- Reported net sales increase of 3% to
$285 million
- While demand exceeded expectations,
inventory shortage shifted a week of deliveries ($25 million) to
third quarter
- Year-to-date net sales increased 8%
and EPS 83%
- Generated record operating cash flow
of $89 million for the first six months of the year
- Reiterates full-year 2017 EPS
outlook of $1.25 to $1.50 per share
Select Comfort Corporation (NASDAQ: SCSS) today reported second
quarter 2017 results for the period ended July 1, 2017.
“We are pleased with traffic and sales in the second quarter,
including strong demand for our revolutionary new innovation, the
Sleep Number 360™ smart bed,” said Shelly Ibach, president and
chief executive officer of Select Comfort. “As we worked through an
inventory shortage from one of our new suppliers during the
quarter, about a week’s worth of deliveries shifted into the third
quarter. Our underlying demand trends in the second quarter
exceeded our expectations. With our growth initiatives delivering
consistent traffic and sales performance, we are reiterating our
full-year EPS outlook.”
Second Quarter Review
- Net sales increased 3% to $285 million.
Second quarter net sales reflected a $25 million net sales shift to
the third quarter as a result of an inventory shortage from one of
our suppliers that is now resolved
- Gross profit increased 3% to $177
million, with our gross margin rate of 62.0% up 10 basis points
versus the prior year
- Loss per diluted share of $0.02,
compared with earnings per share of $0.03 in the prior year’s
quarter; second quarter earnings per share included an estimated 12
cent per share negative impact related to the shift of deliveries
to the third quarter
Cash Flows and Balance Sheet Review
- Generated $89 million in net cash from
operating activities for the first six months of 2017, compared
with $47 million for the same period last year
- Invested $27 million in capital
expenditures and returned $75 million of cash to shareholders
through share repurchases during the first six months of 2017
compared with $24 million and $70 million, respectively, for the
same period last year
- Ended the quarter with $14 million of
borrowings against the $153 million revolving credit facility, as
planned
- Return on invested capital (ROIC) was
13.6% for the trailing-twelve month period, well above our cost of
capital
Financial OutlookThe company reiterates its outlook for
2017 earnings per diluted share of $1.25 to $1.50. 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 evolution of our supply chain. The outlook
assumes high single-digit sales growth, including 4 to 6 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, including
the potential for shortages in supply of key components; 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
July 1, % of July 2, % of 2017
Net Sales 2016 Net Sales Net
sales $ 284,673 100.0 % $ 276,878 100.0 % Cost of sales
108,054 38.0 % 105,617 38.1 % Gross profit
176,619 62.0 % 171,261 61.9 % Operating
expenses: Sales and marketing 144,498 50.8 % 134,785 48.7 % General
and administrative 28,819 10.1 % 27,018 9.8 % Research and
development 6,363 2.2 % 7,062 2.6 %
Total operating expenses 179,680 63.1 %
168,865 61.0 % Operating (loss) income (3,061 ) (1.1 %)
2,396 0.9 % Other expense, net (282 ) (0.1 %) (229 )
(0.1 %) (Loss) income before income taxes (3,343 ) (1.2 %) 2,167
0.8 % Income tax (benefit) expense (2,565 ) (0.9 %)
751 0.3 % Net (loss) income $ (778 ) (0.3 %) $ 1,416
0.5 % Net (loss) income per share – basic $ (0.02 ) $ 0.03
Net (loss) income per share – diluted $ (0.02 ) $
0.03
Reconciliation of weighted-average
shares outstanding:
Basic weighted-average shares outstanding 41,716 46,394 Dilutive
effect of stock-based awards 1 - 650
Diluted weighted-average shares outstanding 1 41,716
47,044
1 For the three months ended July 1, 2017,
potentially dilutive stock-based awards 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
CORPORATION AND SUBSIDIARIES Consolidated Statements
of Operations (unaudited – in thousands, except per share
amounts)
Six Months Ended July 1, % of
July 2, % of 2017 Net
Sales 2016 Net Sales
Net sales $ 678,572 100.0 % $ 629,858 100.0 % Cost of sales
255,494 37.7 % 249,523 39.6 % Gross
profit 423,078 62.3 % 380,335 60.4 %
Operating expenses: Sales and marketing 313,764 46.2 % 285,453 45.3
% General and administrative 62,588 9.2 % 57,924 9.2 % Research and
development 13,959 2.1 % 14,664 2.3 %
Total operating expenses 390,311 57.5 %
358,041 56.8 % Operating income 32,767 4.8 % 22,294 3.5 %
Other expense, net (420 ) (0.1 %) (326 ) (0.1 %)
Income before income taxes 32,347 4.8 % 21,968 3.5 % Income tax
expense 8,664 1.3 % 7,583 1.2 % Net
income $ 23,683 3.5 % $ 14,385 2.3 % Net
income per share – basic $ 0.56 $ 0.30 Net
income per share – diluted $ 0.55 $ 0.30
Reconciliation of weighted-average
shares outstanding:
Basic weighted-average shares outstanding 42,233 47,247 Dilutive
effect of stock-based awards 847 698
Diluted weighted-average shares outstanding 43,080
47,945
SELECT COMFORT
CORPORATION AND SUBSIDIARIES Consolidated Balance
Sheets (unaudited – in thousands, except per share
amounts) subject to reclassification
July 1, December 31, 2017
2016 Assets Current assets: Cash and cash equivalents
$ 2,082 $ 11,609
Accounts receivable, net of allowance for
doubtful accounts of $856 and $884, respectively
24,486 19,705 Inventories 69,856 75,026 Income taxes receivable
3,681 - Prepaid expenses 10,686 8,705 Other current assets
18,397 23,282 Total current assets 129,188 138,327
Non-current assets: Property and equipment, net 205,621 208,367
Goodwill and intangible assets, net 78,678 80,817 Deferred income
taxes - 4,667 Other non-current assets 27,243 24,988
Total assets $ 440,730 $ 457,166
Liabilities and
Shareholders’ Equity Current liabilities: Borrowings under
revolving credit facility $ 13,950 $ - Accounts payable 105,593
105,375 Customer prepayments 45,725 26,207 Accrued sales returns
12,602 15,222 Compensation and benefits 29,051 19,455 Taxes and
withholding 6,547 23,430 Other current liabilities 39,195
35,628 Total current liabilities 252,663 225,317
Non-current liabilities: Deferred income taxes 307 - Other
non-current liabilities 73,321 71,529
Total liabilities
326,291 296,846 Shareholders’ equity:
Undesignated preferred stock; 5,000 shares
authorized, no shares issued and outstanding
- -
Common stock, $0.01 par value; 142,500
shares authorized, 41,066 and 43,569 shares issued and outstanding,
respectively
411 436 Additional paid-in capital - - Retained earnings
114,028 159,884 Total shareholders’ equity 114,439
160,320 Total liabilities and shareholders’ equity $ 440,730
$ 457,166
SELECT COMFORT CORPORATION AND
SUBSIDIARIES Consolidated Statements of Cash Flows
(unaudited - in thousands) subject to
reclassification Six Months
Ended July 1, July 2, 2017 2016
Cash flows from operating activities: Net income $ 23,683 $
14,385
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 31,177 27,960 Stock-based
compensation 7,876 7,606 Net loss on disposals and impairments of
assets 2 7 Excess tax benefits from stock-based compensation - (472
) Deferred income taxes 4,974 985 Changes in operating assets and
liabilities: Accounts receivable (4,781 ) 5,489 Inventories 5,170
12,904 Income taxes (14,532 ) 15,324 Prepaid expenses and other
assets 2,110 (6,838 ) Accounts payable 11,858 (15,282 ) Customer
prepayments 19,518 (26,885 ) Accrued compensation and benefits
9,834 9,249 Other taxes and withholding (6,032 ) 1,654 Other
accruals and liabilities (2,050 ) 1,034 Net
cash provided by operating activities 88,807
47,120 Cash flows from investing activities:
Purchases of property and equipment (27,132 ) (23,764 ) Proceeds
from sales of property and equipment - 67 Proceeds from marketable
debt securities - 15,090 Decrease in restricted cash 3,150
- Net cash used in investing activities
(23,982 ) (8,607 ) Cash flows from financing
activities: Net increase in short-term borrowings 3,098 12,574
Repurchases of common stock (80,094 ) (71,366 ) Proceeds from
issuance of common stock 2,654 1,623 Excess tax benefits from
stock-based compensation - 472 Debt issuance costs (10 )
(409 ) Net cash used in financing activities (74,352
) (57,106 ) Net decrease in cash and cash equivalents
(9,527 ) (18,593 ) Cash and cash equivalents, at beginning of
period 11,609 20,994 Cash and cash
equivalents, at end of period $ 2,082 $ 2,401
SELECT COMFORT CORPORATION AND SUBSIDIARIES
Supplemental Financial Information (unaudited)
Three
Months Ended Six Months Ended July 1, July
2, July 1, July 2, 2017 2016
2017 2016 Percent of sales: Retail 90.4
% 90.6 % 91.0 % 90.8 % Online and phone 7.3 % 6.0 % 7.0 % 6.2 %
Wholesale/other 2.3 % 3.4 % 2.0 % 3.0 %
Total 100.0 % 100.0 % 100.0 % 100.0 %
Sales change rates: Retail comparable-store sales (6
%) (7 %) (1 %) (5 %) Online and phone 26 % (2 %)
22 % 3 % Company-Controlled comparable sales change
(4 %) (6 %) 0 % (5 %) Net opened/closed stores 8 % 6
% 9 % 5 % Total Company-Controlled Channel 4 % 0 % 9
% 0 % Wholesale/other (31 %) 21 % (27 %)
15 % Total 3 % 1 % 8 % 1 %
Stores open: Beginning of period 546 497 540 488
Opened 8 19 24 33 Closed (5 ) (10 ) (15 )
(15 ) End of period 549 506
549 506
Other metrics:
Average sales per store ($ in 000's) 1 $ 2,335 $ 2,333 Average
sales per square foot 1 $ 906 $ 937 Stores > $1 million net
sales 1 97 % 98 % Stores > $2 million net sales 1 58 % 59 %
Average revenue per mattress unit 2 $ 4,306 $ 4,206 $ 4,155 $ 4,074
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 July 1, July 2, July
1, July 2, 2017 2016 2017
2016 Net (loss) income $ (778 ) $ 1,416 $ 60,715 $
25,067 Income tax (benefit) expense (2,565 ) 751 25,597 11,691
Interest expense 288 251 924 497 Depreciation and amortization
14,918 14,053 60,170 53,261 Stock-based compensation 4,172 3,840
12,231 12,068 Asset impairments 2 14 47 66
Adjusted EBITDA $ 16,037 $ 20,325 $ 159,684 $
102,650
Free Cash Flow (in thousands)
Three Months Ended Trailing-Twelve
Months Ended July 1, July 2, July
1, July 2, 2017 2016 2017
2016 Net cash provided by (used in) operating
activities $ 1,938 $ (16,861 ) $ 193,332 $ 110,008 Subtract:
Purchases of property and equipment 13,921 11,475 61,220 70,412
Free cash flow $ (11,983 ) $ (28,336 )
$ 132,112 $ 39,596 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
July 1, July 2, 2017 2016
Net operating profit
after taxes (NOPAT)
Operating income $ 87,124 $ 37,035 Add: Rent expense 1 70,815
64,232 Add: Interest income 112 219 Less: Depreciation on
capitalized operating leases 2 (17,956 ) (16,749 ) Less: Income
taxes 3 (46,095 ) (27,055 ) NOPAT $ 94,000 $ 57,682
Average invested
capital
Total equity $ 114,439 $ 173,807 Less: Cash greater than target 4 -
- Add: Long-term debt 5 - - Add: Capitalized operating lease
obligations 6 566,520 513,856 Total
invested capital at end of period $ 680,959 $ 687,663
Average invested capital 7 $ 690,524 $ 724,593
Return on invested capital (ROIC) 8
13.6 % 8.0 % 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 32.9% and 31.9% 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/20170717006092/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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