- Reported net sales increase of 9% to
$403 million
- Generated record operating cash flow
of $176 million for the first nine months of the year
- Increased share repurchase
authorization to $500 million
- Maintained midpoint of EPS outlook,
while narrowing range to $1.30 to $1.45 per share
Select Comfort Corporation (NASDAQ: SCSS) today reported third
quarter 2017 results for the period ended September 30, 2017.
“Strong demand in the quarter for our revolutionary Sleep Number
360™ smart beds, higher than expected gross margins, and
disciplined expense controls partially offset unexpected hurricane
impacts,” said Shelly Ibach, president and chief executive officer
of Select Comfort. “We are excited with how the consumer continues
to respond to our innovations focused on quality sleep and
wellness. With cash flow generation at record levels and the
underlying strength of our business, we are increasing our share
repurchase authorization to $500 million and are reaffirming the
midpoint of our 2017 EPS guidance.”
The company also announced that effective November 1st, it will
officially change the corporate name to Sleep Number Corporation
and will also change the Nasdaq ticker symbol from SCSS to
SNBR.
Third Quarter Review
- Net sales increased 9% to a quarterly
record of $403 million, including 6 percentage points of growth
from stores opened in the last twelve months and a 5% comparable
sales increase
- Gross profit increased 9% to $253
million, with a gross margin rate of 62.9%
- Earnings per diluted share increased
11% to $0.62, compared with $0.56 in the prior year’s quarter
Cash Flows and Balance Sheet Review
- Generated a record $176 million in net
cash from operating activities for the first nine months of 2017,
compared with $145 million for the same period last year
- Invested $38 million in capital
expenditures and returned $115 million of cash to shareholders
through share repurchases during the first nine months of 2017
compared with $39 million and $95 million, respectively, for the
same period last year
- Return on invested capital (ROIC) was
13.8% for the trailing twelve-month period, well above our cost of
capital
Share Repurchase AuthorizationThe company also announced
an increase in the outstanding share repurchase authorization to
$500 million, effective at the beginning of the fiscal fourth
quarter. The company is committed to delivering superior
shareholder returns, including returning cash to shareholders
through share repurchases. Since the beginning of 2012, Select
Comfort has invested $465 million in capital spending and
acquisitions, while also returning $453 million in cash to
shareholders through share repurchases.
Financial OutlookThe company updated its outlook for 2017
earnings per diluted share to a range of $1.30 to $1.45 per share.
The outlook includes an estimated $0.18 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 5 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 4,000 employees are improving lives with innovative sleep
solutions. To find better quality sleep visit one of the more than
550 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 September
30, % of October 1, % of 2017
Net Sales 2016 Net Sales Net sales $
402,646 100.0 % $ 367,988 100.0 % Cost of sales 149,181
37.1 % 135,645 36.9 % Gross profit
253,465 62.9 % 232,343 63.1 % Operating
expenses: Sales and marketing 174,800 43.4 % 158,024 42.9 % General
and administrative 32,645 8.1 % 28,278 7.7 % Research and
development 6,991 1.7 % 6,997 1.9 %
Total operating expenses 214,436 53.3 %
193,299 52.5 % Operating income 39,029 9.7 % 39,044 10.6 %
Other expense, net (248 ) (0.1 %) (255 ) (0.1 %)
Income before income taxes 38,781 9.6 % 38,789 10.5 % Income tax
expense 13,178 3.3 % 13,044 3.5 % Net
income $ 25,603 6.4 % $ 25,745 7.0 % Net
income per share – basic $ 0.63 $ 0.56 Net
income per share – diluted $ 0.62 $ 0.56
Reconciliation of weighted-average
shares outstanding:
Basic weighted-average shares outstanding 40,755 45,621 Dilutive
effect of stock-based awards 760 729
Diluted weighted-average shares outstanding 41,515
46,350
SELECT COMFORT CORPORATION
AND SUBSIDIARIES Consolidated Statements of
Operations (unaudited – in thousands, except per share
amounts)
Nine Months Ended September 30, % of
October 1, % of 2017 Net Sales
2016 Net Sales Net sales $ 1,081,218 100.0 % $
997,846 100.0 % Cost of sales 404,675 37.4 %
385,168 38.6 % Gross profit 676,543 62.6 %
612,678 61.4 % Operating expenses: Sales and
marketing 488,564 45.2 % 443,477 44.4 % General and administrative
95,233 8.8 % 86,202 8.6 % Research and development 20,950
1.9 % 21,661 2.2 % Total operating expenses
604,747 55.9 % 551,340 55.3 % Operating
income 71,796 6.6 % 61,338 6.1 % Other expense, net (668 )
(0.1 %) (581 ) (0.1 %) Income before income taxes 71,128 6.6
% 60,757 6.1 % Income tax expense 21,842 2.0 %
20,627 2.1 % Net income $ 49,286 4.6 % $ 40,130
4.0 % Net income per share – basic $ 1.18 $
0.86 Net income per share – diluted $ 1.16 $
0.85
Reconciliation of weighted-average
shares outstanding:
Basic weighted-average shares outstanding 41,740 46,705 Dilutive
effect of stock-based awards 819 708
Diluted weighted-average shares outstanding 42,559
47,413
SELECT COMFORT CORPORATION
AND SUBSIDIARIES Consolidated Balance Sheets
(unaudited – in thousands, except per share amounts)
subject to reclassification
September 30, December 31, 2017 2016
Assets Current assets: Cash and cash equivalents $ 29,914 $
11,609
Accounts receivable, net of allowance for
doubtful accounts of $694 and $884, respectively
21,107 19,705 Inventories 79,217 75,026 Prepaid expenses 10,208
8,705 Other current assets 23,803 23,282 Total
current assets 164,249 138,327 Non-current assets: Property
and equipment, net 206,690 208,367 Goodwill and intangible assets,
net 78,133 80,817 Deferred income taxes 938 4,667 Other non-current
assets 28,898 24,988 Total assets $ 478,908 $ 457,166
Liabilities and Shareholders’ Equity Current
liabilities: Accounts payable $ 136,628 $ 105,375 Customer
prepayments 39,929 26,207 Accrued sales returns 18,448 15,222
Compensation and benefits 34,683 19,455 Taxes and withholding
24,041 23,430 Other current liabilities 44,708 35,628
Total current liabilities 298,437 225,317 Non-current
liabilities: Other non-current liabilities 76,174
71,529 Total liabilities 374,611 296,846 Shareholders’
equity:
Undesignated preferred stock; 5,000 shares
authorized, no shares issued and outstanding
- -
Common stock, $0.01 par value; 142,500
shares authorized, 39,819 and 43,569 shares issued and outstanding,
respectively
398 436 Additional paid-in capital - - Retained earnings
103,899 159,884 Total shareholders’ equity 104,297
160,320 Total liabilities and shareholders’ equity $ 478,908
$ 457,166
SELECT COMFORT CORPORATION AND
SUBSIDIARIES Consolidated Statements of Cash Flows
(unaudited - in thousands) subject to
reclassification
Nine Months Ended September 30, October 1,
2017 2016 Cash flows from operating
activities: Net income $ 49,286 $ 40,130
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 46,000 42,555 Stock-based
compensation 11,809 9,272 Net loss on disposals and impairments of
assets 229 9 Excess tax benefits from stock-based compensation -
(516 ) Deferred income taxes 3,729 (673 ) Changes in operating
assets and liabilities: Accounts receivable (1,402 ) 5,271
Inventories (4,191 ) 15,991 Income taxes (147 ) 30,386 Prepaid
expenses and other assets (1,713 ) (3,458 ) Accounts payable 33,325
(1,043 ) Customer prepayments 13,722 (23,125 ) Accrued compensation
and benefits 15,277 12,441 Other taxes and withholding 758 7,494
Other accruals and liabilities 9,372 10,527
Net cash provided by operating activities 176,054
145,261 Cash flows from investing
activities: Purchases of property and equipment (37,613 ) (38,769 )
Proceeds from sales of property and equipment 36 67 Investments in
marketable debt securities - (5,968 ) Proceeds from marketable debt
securities - 15,090 Decrease in restricted cash 3,150
- Net cash used in investing activities
(34,427 ) (29,580 ) Cash flows from financing
activities: Net (decrease) increase in short-term borrowings (6,194
) 3,062 Repurchases of common stock (120,158 ) (96,410 ) Proceeds
from issuance of common stock 3,040 1,949 Excess tax benefits from
stock-based compensation - 516 Debt issuance costs (10 )
(409 ) Net cash used in financing activities (123,322
) (91,292 ) Net increase in cash and cash equivalents
18,305 24,389 Cash and cash equivalents, at beginning of period
11,609 20,994 Cash and cash
equivalents, at end of period $ 29,914 $ 45,383
SELECT COMFORT CORPORATION AND SUBSIDIARIES
Supplemental Financial Information (unaudited)
Three Months Ended
Nine Months Ended September 30, October 1,
September 30, October 1, 2017 2016
2017 2016 Percent of sales: Retail 92.8
% 91.3 % 91.7 % 91.0 % Online and phone 6.5 % 6.5 % 6.8 % 6.3 %
Wholesale/other 0.7 % 2.2 % 1.5 % 2.7 %
Total 100.0 % 100.0 % 100.0 % 100.0 %
Sales change rates: Retail comparable-store sales 5 %
(10 %) 1 % (7 %) Online and phone 9 % 23 % 17
% 10 % Company-Controlled comparable sales change 5 % (8 %)
2 % (6 %) Net opened/closed stores 6 % 7 % 8 %
6 % Total Company-Controlled Channel 11 % (1 %) 10 % 0 %
Wholesale/other (65 %) (19 %) (38 %) 3
% Total 9 % (2 %) 8 % 0 %
Stores open: Beginning of period 549 506 540 488 Opened 6 24
30 57 Closed (2 ) (3 ) (17 ) (18 ) End
of period 553 527 553
527
Other metrics: Average sales per
store ($ in 000's) 1 $ 2,369 $ 2,248 Average sales per square foot
1 $ 909 $ 895 Stores > $1 million net sales 1 98 % 98 % Stores
> $2 million net sales 1 59 % 54 % Average revenue per mattress
unit 2 $ 4,385 $ 3,959 $ 4,239 $ 4,031
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
SUBSIDIARIESEarnings 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 September
30, October 1, September 30,
October 1, 2017 2016 2017 2016
Net income $ 25,603 $ 25,745 $ 60,573 $ 18,958 Income tax
expense 13,178 13,044 25,731 11,112 Interest expense 278 267 935
721 Depreciation and amortization 14,770 14,536 60,404 56,154
Stock-based compensation 3,933 1,666 14,498 10,609 Asset
impairments 222 2 267 51 Adjusted
EBITDA $ 57,984 $ 55,260 $ 162,408 $ 97,605
Free Cash
Flow (in thousands) Three Months
Ended Trailing-Twelve Months Ended
September 30, October 1, September 30,
October 1, 2017 2016 2017 2016
Net cash provided by operating activities $ 87,247 $ 98,141
$ 182,438 $ 121,616 Subtract: Purchases of property and equipment
10,481 15,005 56,696 62,920 Free cash
flow $ 76,766 $ 83,136 $ 125,742 $ 58,696
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
SUBSIDIARIESCalculation 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 September 30,
October 1, 2017 2016
Net operating profit
after taxes (NOPAT)
Operating income $ 87,108 $ 30,681 Add: Rent expense 1 72,260
64,994 Add: Interest income 129 109 Less: Depreciation on
capitalized operating leases 2 (18,384 ) (16,953 ) Less: Income
taxes 3 (46,004 ) (29,805 ) NOPAT $ 95,109 $ 49,026
Average invested
capital
Total equity $ 104,297 $ 176,512 Less: Cash greater than target 4 -
- Add: Long-term debt 5 - - Add: Capitalized operating lease
obligations 6 578,080 519,952 Total
invested capital at end of period $ 682,377 $ 696,464
Average invested capital 7 $ 689,467 $ 714,956 Return on
invested capital (ROIC) 8 13.8 % 6.9 % 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 32.6% and 37.8% 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/20171017006637/en/
Select Comfort CorporationInvestor Contact:Dave Schwantes,
763-551-7498investorrelations@selectcomfort.com
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