Select Comfort Corporation (NASDAQ:SCSS) today reported fourth-quarter and full-year 2013 results for the period ended Dec. 28, 2013.
Fourth-quarter Financial Summary
- Net sales increased 5% to $231 million, compared to $221 million in the fourth quarter of 2012.
- Company-controlled comparable sales were flat year-over-year.
- Operating income was $9.7 million, compared with $19.4 million in the fourth quarter of 2012.
- Earnings per diluted share were $0.12, compared with $0.22 in the prior year.
- During the quarter, the company opened 28 new stores and closed 11.
Full-year 2013 Financial Summary
- Net sales increased 3% to $960 million, up from $935 million in 2012.
- Company-controlled comparable sales declined 4% year-over-year.
- Earnings per diluted share on a GAAP basis were $1.08, compared to $1.37 per diluted share in 2012. Adjusted earnings per diluted share (excluding CEO transition benefit/costs) were $1.07 compared with $1.43 for the prior year.
- The company opened 71 new stores and closed 41 in 2013, ending the year at 440 stores, a 7% increase versus year-end 2012.
“While we made important progress on strengthening our strategic differentiators and delivered five percent year-over-year sales growth, our financial performance in the fourth quarter did not meet our expectations,” said Shelly Ibach, president and CEO, Select Comfort. “As we look to 2014, we are cautiously optimistic about the combined impact of what we believe are fundamental product innovations and the most-tested, new advertising campaign in our history.”
Cash from operating activities was $88 million for full-year 2013 compared to $101 million in 2012. Capital expenditures for full-year 2013 increased to $77 million as compared to $52 million in 2012, driven by increased investment in stores and information systems. During the fourth quarter, the company returned $10 million to shareholders through the repurchase of 0.5 million shares of its common stock, bringing full-year share repurchases to $40 million, or 1.8 million shares. As of the end of the quarter, cash, cash equivalents and marketable-debt securities totaled $145 million, and the company had no borrowings under its revolving credit facility.
Financial Outlook
The company expects full-year 2014
earnings per diluted share to approximate full-year 2013 adjusted
earnings per diluted share of $1.07. This outlook assumes mid- to
high-single-digit total revenue growth and the addition of 20 to 30 net
new stores during the year.
The company currently anticipates that 2014 capital expenditures will be $70-$80 million, including investments in new, relocated and remodeled stores, as well as information technology.
Conference Call Information
Management will host its
regularly scheduled conference call to discuss the company’s results at
5 p.m. EST (4 p.m. CST; 2 p.m. PST) 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 Corporation
Select Comfort Corporation
is leading the industry in delivering an unparalleled sleep experience
by offering consumers high-quality, innovative and individualized sleep
solutions and services, which include a complete line of SLEEP NUMBER®
beds and bedding. The company is the exclusive manufacturer, marketer,
retailer and servicer of the revolutionary Sleep Number bed, which
allows individuals to adjust the firmness and support of each side at
the touch of a button. The company offers further individualization
through its solutions-focused line of Sleep Number pillows, sheets and
other bedding products. As the only national specialty-mattress
retailer, consumers can take advantage of an enhanced mattress-buying
experience at one of the 440 SLEEP NUMBER® stores across the
country, online at SleepNumber.com,
or via phone at (800) Sleep Number or (800) 753-3768.
Forward-looking Statements
Statements 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 general and
industry economic trends; consumer confidence; the effectiveness of the
company’s marketing messages; the efficiency of its advertising and
promotional efforts; consumer acceptance of its products, product
quality, innovation and brand image; availability of attractive and
cost-effective consumer credit options; execution of the company’s
retail store distribution strategy; the company’s dependence on
significant suppliers, and its 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; industry competition; the
company’s ability to continue to improve its product line; warranty
expenses; risks of pending and potentially unforeseen litigation;
increasing government regulations, which have added or will add cost
pressures and process changes to ensure compliance; the adequacy of the
company’s management information systems to meet the evolving needs of
its business and evolving regulatory standards applicable to data
privacy and security; the company’s ability to attract and retain senior
leadership and other key employees, including qualified sales
professionals; and uncertainties arising from global events, such as
terrorist attacks 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 | ||||||||||||||||
December 28, | % of | December 29, | % of | |||||||||||||
2013 | Net Sales | 2012 | Net Sales | |||||||||||||
Net sales | $ | 230,854 | 100.0 | % | $ | 220,559 | 100.0 | % | ||||||||
Cost of sales | 90,333 | 39.1 | % | 80,612 | 36.5 | % | ||||||||||
Gross profit | 140,521 | 60.9 | % | 139,947 | 63.5 | % | ||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 112,679 | 48.8 | % | 102,062 | 46.3 | % | ||||||||||
General and administrative | 16,150 | 7.0 | % | 16,532 | 7.5 | % | ||||||||||
Research and development | 2,003 | 0.9 | % | 1,906 | 0.9 | % | ||||||||||
Asset impairment charges | 34 | 0.0 | % | 33 | 0.0 | % | ||||||||||
Total operating expenses | 130,866 | 56.7 | % | 120,533 | 54.6 | % | ||||||||||
Operating income | 9,655 | 4.2 | % | 19,414 | 8.8 | % | ||||||||||
Other income, net | 80 | 0.0 | % | 90 | 0.0 | % | ||||||||||
Income before income taxes | 9,735 | 4.2 | % | 19,504 | 8.8 | % | ||||||||||
Income tax expense | 3,310 | 1.4 | % | 7,009 | 3.2 | % | ||||||||||
Net income | $ | 6,425 | 2.8 | % | $ | 12,495 | 5.7 | % | ||||||||
Net income per share – basic | $ | 0.12 | $ | 0.23 | ||||||||||||
Net income per share – diluted | $ | 0.12 | $ | 0.22 | ||||||||||||
Reconciliation of weighted-average shares outstanding: | ||||||||||||||||
Basic weighted-average shares outstanding | 54,497 | 55,261 | ||||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Options | 452 | 1,050 | ||||||||||||||
Restricted shares | 371 | 449 | ||||||||||||||
Diluted weighted-average shares outstanding | 55,320 | 56,760 | ||||||||||||||
SELECT COMFORT CORPORATION | |||||||||||||||||
AND SUBSIDIARIES | |||||||||||||||||
Consolidated Statements of Operations | |||||||||||||||||
(in thousands, except per share amounts) | |||||||||||||||||
Twelve Months Ended | |||||||||||||||||
December 28, | % of | December 29, | % of | ||||||||||||||
2013 | Net Sales | 2012 | Net Sales | ||||||||||||||
Net sales | $ | 960,171 | 100.0 | % | $ | 934,978 | 100.0 | % | |||||||||
Cost of sales | 358,416 | 37.3 | % | 338,432 | 36.2 | % | |||||||||||
Gross profit | 601,755 | 62.7 | % | 596,546 | 63.8 | % | |||||||||||
Operating expenses: | |||||||||||||||||
Sales and marketing | 439,156 | 45.7 | % | 398,205 | 42.6 | % | |||||||||||
General and administrative | 62,840 | 6.5 | % | 66,617 | 7.1 | % | |||||||||||
Research and development | 9,478 | 1.0 | % | 6,194 | 0.7 | % | |||||||||||
CEO transition (benefit) costs | (534 | ) | (0.1 | %) | 5,595 | 0.6 | % | ||||||||||
Asset impairment charges | 127 | 0.0 | % | 148 | 0.0 | % | |||||||||||
Total operating expenses | 511,067 | 53.2 | % | 476,759 | 51.0 | % | |||||||||||
Operating income | 90,688 | 9.4 | % | 119,787 | 12.8 | % | |||||||||||
Other income, net | 323 | 0.0 | % | 218 | 0.0 | % | |||||||||||
Income before income taxes | 91,011 | 9.5 | % | 120,005 | 12.8 | % | |||||||||||
Income tax expense | 30,930 | 3.2 | % | 41,911 | 4.5 | % | |||||||||||
Net income | $ | 60,081 | 6.3 | % | $ | 78,094 | 8.4 | % | |||||||||
Net income per share – basic | $ | 1.10 | $ | 1.41 | |||||||||||||
Net income per share – diluted | $ | 1.08 | $ | 1.37 | |||||||||||||
Reconciliation of weighted-average shares outstanding: | |||||||||||||||||
Basic weighted-average shares outstanding | 54,866 | 55,516 | |||||||||||||||
Effect of dilutive securities: | |||||||||||||||||
Options | 554 | 1,059 | |||||||||||||||
Restricted shares | 383 | 501 | |||||||||||||||
Diluted weighted-average shares outstanding | 55,803 | 57,076 | |||||||||||||||
SELECT COMFORT CORPORATION | ||||||||
AND SUBSIDIARIES | ||||||||
Consolidated Balance Sheets | ||||||||
(in thousands, except per share amounts) | ||||||||
subject to reclassification | ||||||||
December 28, | December 29, | |||||||
2013 | 2012 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 58,223 | $ | 87,915 | ||||
Marketable debt securities – current | 52,159 | 51,264 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $425 and $348, respectively | 14,979 | 16,613 | ||||||
Inventories | 40,152 | 35,564 | ||||||
Prepaid expenses | 9,216 | 4,299 | ||||||
Deferred income taxes | 6,936 | 5,401 | ||||||
Other current assets | 7,874 | 9,522 | ||||||
Total current assets | 189,539 | 210,578 | ||||||
Non-current assets: | ||||||||
Marketable debt securities – non-current | 34,632 | 38,642 | ||||||
Property and equipment, net | 129,542 | 79,356 | ||||||
Goodwill and intangible assets, net | 16,823 | 2,881 | ||||||
Deferred income taxes | 4,943 | 8,511 | ||||||
Other assets | 6,286 | 2,053 | ||||||
Total assets | $ | 381,765 | $ | 342,021 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 73,391 | $ | 67,703 | ||||
Customer prepayments | 15,392 | 15,194 | ||||||
Accrued sales returns | 9,433 | 5,330 | ||||||
Compensation and benefits | 15,242 | 21,597 | ||||||
Taxes and withholding | 12,517 | 9,282 | ||||||
Other current liabilities | 11,207 | 13,955 | ||||||
Total current liabilities | 137,182 | 133,061 | ||||||
Non-current liabilities: | ||||||||
Warranty liabilities | 1,567 | 1,457 | ||||||
Other long-term liabilities | 17,796 | 13,806 | ||||||
Total non-current liabilities | 19,363 | 15,263 | ||||||
Total liabilities | 156,545 | 148,324 | ||||||
Shareholders’ equity: | ||||||||
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding | - | - | ||||||
Common stock, $0.01 par value; 142,500 shares authorized, 54,901 and 55,903 shares issued and outstanding, respectively | 549 | 559 | ||||||
Additional paid-in capital | 5,382 | 33,923 | ||||||
Retained earnings | 219,276 | 159,195 | ||||||
Accumulated other comprehensive income | 13 | 20 | ||||||
Total shareholders’ equity | 225,220 | 193,697 | ||||||
Total liabilities and shareholders’ equity | $ | 381,765 | $ | 342,021 | ||||
SELECT COMFORT CORPORATION | ||||||||||
AND SUBSIDIARIES | ||||||||||
Consolidated Statements of Cash Flows | ||||||||||
(in thousands) | ||||||||||
subject to reclassification | ||||||||||
Twelve Months Ended | ||||||||||
December 28, | December 29, | |||||||||
2013 | 2012 | |||||||||
Cash flows from operating activities: | ||||||||||
Net income | $ | 60,081 | $ | 78,094 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
Depreciation and amortization | 30,811 | 20,401 | ||||||||
Stock-based compensation | 4,232 | 10,306 | ||||||||
Net loss on disposals and impairments of assets | 24 | 115 | ||||||||
Excess tax benefits from stock-based compensation | (3,831 | ) | (6,446 | ) | ||||||
Deferred income taxes | 2,037 | 3,499 | ||||||||
Changes in operating assets and liabilities, net of effect of acquisition: | ||||||||||
Accounts receivable | 1,993 | (2,705 | ) | |||||||
Inventories | (3,910 | ) | (10,713 | ) | ||||||
Income taxes | 4,395 | 4,299 | ||||||||
Prepaid expenses and other assets | (3,169 | ) | (2,382 | ) | ||||||
Accounts payable | (3,477 | ) | 7,114 | |||||||
Customer prepayments | 198 | 1,665 | ||||||||
Accrued compensation and benefits | (5,202 | ) | (8,108 | ) | ||||||
Other taxes and withholding | (153 | ) | 765 | |||||||
Warranty liabilities | (1,236 | ) | (1,454 | ) | ||||||
Other accruals and liabilities | 5,312 | 6,176 | ||||||||
Net cash provided by operating activities | 88,105 | 100,626 | ||||||||
Cash flows from investing activities: | ||||||||||
Purchases of property and equipment | (76,811 | ) | (51,593 | ) | ||||||
Proceeds from sales of property and equipment | 117 | 45 | ||||||||
Investments in marketable debt securities | (44,170 | ) | (86,803 | ) | ||||||
Proceeds from maturities of marketable debt securities | 53,565 | 26,249 | ||||||||
Acquisition of business | (15,500 | ) | - | |||||||
Investment in non-marketable equity securities | (4,500 | ) | - | |||||||
Net cash used in investing activities | (87,299 | ) | (112,102 | ) | ||||||
Cash flows from financing activities: | ||||||||||
Net (decrease) increase in short-term borrowings | (223 | ) | 6,494 | |||||||
Repurchases of common stock | (42,072 | ) | (34,892 | ) | ||||||
Proceeds from issuance of common stock | 7,966 | 5,138 | ||||||||
Excess tax benefits from stock-based compensation | 3,831 | 6,446 | ||||||||
Debt issuance costs | - | (50 | ) | |||||||
Net cash used in financing activities | (30,498 | ) | (16,864 | ) | ||||||
Net decrease in cash and cash equivalents | (29,692 | ) | (28,340 | ) | ||||||
Cash and cash equivalents, at beginning of period | 87,915 | 116,255 | ||||||||
Cash and cash equivalents, at end of period | $ | 58,223 | $ | 87,915 | ||||||
SELECT COMFORT CORPORATION | ||||||||||||||||||||
AND SUBSIDIARIES | ||||||||||||||||||||
Supplemental Financial Information | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||
Three Months Ended | Twelve Months Ended | |||||||||||||||||||
December 28, | December 29, | December 28, | December 29, | |||||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||||||
Percent of sales: | ||||||||||||||||||||
Retail | 89.5 | % | 88.7 | % | 89.2 | % | 89.2 | % | ||||||||||||
Direct and E-Commerce | 7.8 | % | 7.8 | % | 7.0 | % | 7.5 | % | ||||||||||||
Wholesale/other | 2.7 | % | 3.5 | % | 3.8 | % | 3.3 | % | ||||||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||
Sales growth rates: | ||||||||||||||||||||
Retail comparable-store sales | 0 | % | 12 | % | (4 | %) | 24 | % | ||||||||||||
Direct and E-Commerce | 6 | % | (3 | %) | (5 | %) | 9 | % | ||||||||||||
Company-Controlled comparable sales change | 0 | % | 11 | % | (4 | %) | 23 | % | ||||||||||||
Net open/closed stores | 6 | % | 6 | % | 6 | % | 3 | % | ||||||||||||
Total Company-Controlled Channel | 6 | % | 17 | % | 2 | % | 26 | % | ||||||||||||
Wholesale/other | (20 | %) | 13 | % | 18 | % | 10 | % | ||||||||||||
Total | 5 | % | 17 | % | 3 | % | 26 | % | ||||||||||||
Stores open: | ||||||||||||||||||||
Beginning of period | 423 | 394 | 410 | 381 | ||||||||||||||||
Opened | 28 | 20 | 71 | 57 | ||||||||||||||||
Closed | (11 | ) | (4 | ) | (41 | ) | (28 | ) | ||||||||||||
End of period | 440 | 410 | 440 | 410 | ||||||||||||||||
Other metrics: | ||||||||||||||||||||
Average sales per store ($ in 000's) 1 | $ | 2,093 | $ | 2,164 | ||||||||||||||||
Average sales per square foot 1 | $ | 1,077 | $ | 1,324 | ||||||||||||||||
Stores > $1 million net sales 1 | 96 | % | 98 | % | ||||||||||||||||
Stores > $2 million net sales 1 | 46 | % | 49 | % | ||||||||||||||||
Average net sales per mattress unit - Company-Controlled Channel 2 | $ | 3,369 | $ | 3,249 | $ | 3,245 | $ | 3,050 | ||||||||||||
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 | |||||||||||||||
December 28, | December 29, | December 28, | December 29, | |||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Net income | $ | 6,425 | $ | 12,495 | $ | 60,081 | $ | 78,094 | ||||||||
Income tax expense | 3,310 | 7,009 | 30,930 | 41,911 | ||||||||||||
Interest expense | 10 | 12 | 51 | 91 | ||||||||||||
Depreciation and amortization | 8,320 | 5,653 | 29,599 | 19,735 | ||||||||||||
Stock-based compensation | 1,173 | 737 | 4,232 | 10,306 | ||||||||||||
Asset impairments | 34 | 33 | 127 | 148 | ||||||||||||
Adjusted EBITDA | $ | 19,272 | $ | 25,939 | $ | 125,020 | $ | 150,285 | ||||||||
Note - Our Adjusted EBITDA calculation is considered a non-GAAP financial measure and is 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
SELECT COMFORT CORPORATION AND SUBSIDIARIES | |||||||||||||||||||||||||
Reported to Adjusted Statements of Operations Data Reconciliation | |||||||||||||||||||||||||
(in thousands, except per share amounts) | |||||||||||||||||||||||||
Twelve Months Ended | |||||||||||||||||||||||||
December 28, 2013 | December 29, 2012 | ||||||||||||||||||||||||
CEO | CEO | ||||||||||||||||||||||||
Transition | Transition | ||||||||||||||||||||||||
As Reported | Benefit(1) | As Adjusted | As Reported | Costs(1) | As Adjusted | ||||||||||||||||||||
Operating income | $ | 90,688 | $ | (534 | ) | $ | 90,154 | $ | 119,787 | $ | 5,595 | $ | 125,382 | ||||||||||||
Other income, net | 323 | - | 323 | 218 | - | 218 | |||||||||||||||||||
Income before income taxes | 91,011 | (534 | ) | 90,477 | 120,005 | 5,595 | 125,600 | ||||||||||||||||||
Income tax expense(2) | 30,930 | (183 | ) | 30,747 | 41,911 | 1,941 | 43,852 | ||||||||||||||||||
Net income | $ | 60,081 | $ | (351 | ) | $ | 59,730 | $ | 78,094 | $ | 3,654 | $ | 81,748 | ||||||||||||
Net income per share – | |||||||||||||||||||||||||
Basic | $ | 1.10 | $ | (0.01 | ) | $ | 1.09 | $ | 1.41 | $ | 0.07 | $ | 1.47 | ||||||||||||
Diluted | $ | 1.08 | $ | (0.01 | ) | $ | 1.07 | $ | 1.37 | $ | 0.06 | $ | 1.43 | ||||||||||||
Basic Shares | 54,866 | 54,866 | 54,866 | 55,516 | 55,516 | 55,516 | |||||||||||||||||||
Diluted Shares | 55,803 | 55,803 | 55,803 | 57,076 | 57,076 | 57,076 | |||||||||||||||||||
(1) In February 2012, we announced that William R. McLaughlin, then President and CEO, would retire from the Company effective June 1, 2012. In recognition of Mr. McLaughlin’s contributions, the Compensation Committee approved the modification of Mr. McLaughlin’s currently unvested stock awards, including performance-based stock awards. As a result of these modifications, we recorded incremental non-cash compensation of $5.6 million in fiscal year 2012. The performance-based stock awards are subject to applicable adjustments through 2014 based on actual performance versus performance targets. During the fiscal year ended December 28, 2013, we recorded a non-cash compensation benefit of $0.5 million resulting from performance-based stock award adjustments.
(2) Reflects effective income tax rate, before discrete adjustments, of 34.2% for 2013 and 34.7% for 2012.
Note - Our "as adjusted" data is considered a non-GAAP financial measure and is not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates year-over-year comparisons for investors and financial analysts.
GAAP - generally accepted accounting principles
Contacts:
Investor Contact:
Dave
Schwantes, 763-551-7498
investorrelations@selectcomfort.com
or
Media
Contact:
Becky Dvorak, 763-551-6862
publicrelations@selectcomfort.com