Select Comfort Corporation (ticker: SCSS, exchange: NASDAQ Global Market (.O))
News Release -
19-Oct-2004
Select Comfort Reports Third Quarter Results; Net Income is $8.0 Million on Sales of $144.3 Million MINNEAPOLIS--(BUSINESS WIRE)--Oct. 19, 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
third quarter ended October 2, 2004. The company reported its 11th
consecutive quarter of sales growth in excess of 20 percent, and
reported net income of $8.0 million, or $0.20 per diluted share,
compared to net income of $7.2 million, or $0.18 per diluted share, in
the third quarter of 2003. As previously announced, third quarter
results include an after-tax charge of $0.7 million or $0.02 per
share, resulting from an increase to the company's warranty reserves.
Third quarter 2004 net sales were $144.3 million, 23 percent higher
than third quarter 2003 net sales of $117.4 million. Same-store sales
increased 15 percent.
For the nine months ended October 2, 2004, the company reported
net income of $21.3 million, or $0.53 per diluted share, on net sales
of $409.0 million, compared to net income of $16.1 million, or $0.42
per diluted share, on net sales of $321.4 million for the nine months
ended September 27, 2003.
"We are pleased once again to report double-digit growth in both
total sales and same-store sales," said Bill McLaughlin, president and
chief executive officer. "Our ability to deliver strong sales growth
in the face of difficult conditions for retailers nationwide bolsters
our confidence in our ability to sustain revenue and market share
growth for the long term."
In the third quarter, the company opened two new stores and signed
agreements with two mattress retailers to distribute Sleep Number(R)
beds in Alaska and Hawaii. The company also increased its media
investment by 22 percent and refreshed its Sleep Number(R) advertising
campaign with four new television ads. In addition, Select Comfort
continued its ongoing product line upgrade with the introduction of an
updated version of the Sleep Number(R) 5000 bed model. The product
line upgrade was completed in October with the introduction of the
enhanced entry-level Sleep Number(R) 3000 bed model.
The company's balance sheet was strengthened again in the third
quarter, with cash and cash investments growing to $95 million. The
growth in cash was after the repurchase of approximately 794,000
shares for $14.6 million.
Outlook
For the fourth quarter 2004, the company expects to generate
revenue of $153 million to $158 million and earnings per share in the
range of $0.32 to $0.35, with same-store sales growth of 15 to 20
percent. Fourth quarter of 2003 included 14 weeks, while fourth
quarter of 2004 will include 13 weeks. Same-store growth targets are
reported as if the fourth quarter had 13 weeks in each year.
In the fourth quarter, Select Comfort expects to open six new
stores, bringing the total number of Select Comfort retail stores to
368; raise its investment in media spending by 20 percent or more; and
boost sales on entry-level products with the new Sleep Number(R) 3000
model. The company also will launch integrated gift-giving initiatives
with expanded accessory offerings and a new holiday advertising
campaign.
"The fourth quarter is typically the strongest for our company,"
McLaughlin explained. "Renewed focus on our entry and mid-priced bed
models, combined with an integrated holiday advertising and
promotional campaign, should help us continue our double-digit pace of
growth and capitalize on holiday traffic and the interest in unique
and meaningful gifts."
McLaughlin reiterated that Select Comfort's long-term goal is to
continue to outpace industry sales growth by sustaining annual sales
increases in excess of 15 percent, while continuing to grow annual
earnings at an even higher pace.
The company also reported that it learned late yesterday that a
lawsuit had been filed in state district court in Minneapolis,
alleging deceptive trade practices and breach of warranty and seeking
class certification. Although the company has not had an opportunity
to fully investigate and evaluate the complaint, Mark Kimball, senior
vice president and general counsel, said, "We believe the asserted
claims are unwarranted and without merit. Select Comfort offers a
world-class customer experience and maintains high levels of customer
satisfaction, which is confirmed by the feedback we get from our
customers every day."
Select Comfort will hold a conference call to discuss its third
quarter results and outlook on October 19, 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 October 19, 2004, through 5:00 p.m. Central
Time on October 26, 2004. To access the replay, please call
402-998-1541 (U.S. and International). An archived replay of the
conference call may also be accessed after approximately 7:00 p.m.
Central Time on October 19, 2004 at www.selectcomfort.com.
About Select Comfort
Founded in 1987, Select Comfort Corporation is the nation's
leading bed retailer(1), 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. Select Comfort's products are sold through its
365 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; the outcome of pending litigation, including
consumer claims; 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 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) Top 25 Bedding Retailers, Furniture Today, May 24, 2004
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
------------------- -------------------
Oct. 2, Sept. 27, Oct. 2, Sept. 27,
2004 2003 2004 2003
--------- --------- --------- ---------
Net sales $144,348 $117,400 $409,031 $321,351
Cost of sales 57,366 42,447 159,101 119,424
--------- --------- --------- ---------
Gross profit 86,982 74,953 249,930 201,927
--------- --------- --------- ---------
Operating expenses:
Sales and marketing 63,848 53,279 185,206 148,480
General and administrative 10,425 10,144 31,109 27,654
Store closings and asset
impairments - 8 - 67
--------- --------- --------- ---------
Total operating expenses 74,273 63,431 216,315 176,201
--------- --------- --------- ---------
Operating income 12,709 11,522 33,615 25,726
--------- --------- --------- ---------
Other income (expense):
Interest income 351 148 1,003 398
Interest expense - (15) - (156)
Other, net - 2 - 26
--------- --------- --------- ---------
Other income (expense), net 351 135 1,003 268
--------- --------- --------- ---------
Income before income taxes 13,060 11,657 34,618 25,994
Income tax expense 5,028 4,430 13,328 9,878
--------- --------- --------- ---------
Net income $8,032 $7,227 $21,290 $16,116
========= ========= ========= =========
Net income per share - basic $0.22 $0.22 $0.59 $0.50
========= ========= ========= =========
Weighted average shares - basic 36,123 33,528 36,243 32,142
========= ========= ========= =========
Net income per share - diluted $0.20 $0.18 $0.53 $0.42
========= ========= ========= =========
Weighted average shares -
diluted 39,313 39,576 39,880 38,929
========= ========= ========= =========
Reconciliation of EPS
Information:
Net income $8,032 $7,227 $21,290 $16,116
Add: Interest expense on
convertible debt - - - 131
--------- --------- --------- ---------
Net income available to common
shareholders $8,032 $7,227 $21,290 $16,247
========= ========= ========= =========
Weighted average shares
outstanding 36,123 33,528 36,243 32,142
Effect of dilutive securities:
Options 1,882 3,001 2,285 2,693
Warrants 1,308 3,047 1,352 3,733
Convertible debt - - - 361
--------- --------- --------- ---------
Dilutive weighted average
shares outstanding 39,313 39,576 39,880 38,929
========= ========= ========= =========
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(Unaudited)
Oct. 2, Jan. 3,
2004 2004
----------- ---------
Assets
Current assets:
Cash and cash equivalents $29,662 $24,725
Marketable securities - current 26,320 49,322
Accounts receivable, net of allowance for
doubtful accounts of $662 and $619,
respectively 7,621 6,823
Inventories 15,128 12,381
Prepaid expenses 7,229 5,968
Deferred tax assets 7,387 6,039
----------- ---------
Total current assets 93,347 105,258
Marketable securities - non-current 38,725 1,071
Property and equipment, net 41,014 36,134
Deferred tax assets 7,603 5,620
Other assets 3,624 3,343
----------- ---------
Total assets $184,313 $151,426
=========== =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $24,691 $14,773
Customer prepayments 5,861 5,970
Accruals:
Sales returns 4,635 3,469
Compensation and benefits 16,291 17,303
Taxes and withholding 8,935 3,661
Other 6,640 6,110
----------- ---------
Total current liabilities 67,053 51,286
Accrued warranty costs 2,403 2,557
Other liabilities 5,237 4,821
----------- ---------
Total liabilities 74,693 58,664
----------- ---------
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, 35,965,520 and 35,769,606 shares
issued and outstanding, respectively 360 358
Additional paid-in capital 100,637 104,085
Unearned compensation (1,863) (877)
Retained earnings (accumulated deficit) 10,486 (10,804)
----------- ---------
Total shareholders' equity 109,620 92,762
----------- ---------
Total liabilities and shareholders' equity $184,313 $151,426
=========== =========
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Nine Months Ended
-------------------
Oct. 2, Sept. 27,
2004 2003
--------- ---------
Cash flows from operating activities:
Net income $21,290 $16,116
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,084 8,251
Amortization of debt discount and deferred
finance fees - 130
Non-cash compensation 294 52
Loss on disposal of assets and impaired assets - 69
Deferred tax (benefit) expense (3,331) 6,263
Change in operating assets and liabilities:
Accounts receivable (798) (2,932)
Inventories (2,747) (2,396)
Prepaid expenses (1,261) 479
Other assets (307) 129
Accounts payable 9,918 6,559
Accrued sales returns 1,166 964
Accrued compensation and benefits (1,012) 176
Accrued taxes and withholding 10,054 1,997
Customer prepayments (109) 4,338
Other accruals and liabilities 792 1,472
--------- ---------
Net cash provided by operating activities 44,033 41,667
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (14,938) (14,915)
Investments in marketable securities (60,908) (19,117)
Proceeds from maturity of marketable securities 46,256 16,732
--------- ---------
Net cash used in investing activities (29,590) (17,300)
--------- ---------
Cash flows from financing activities:
Principal payments on long-term debt - (11)
Repurchase of common stock (14,886) (1,834)
Proceeds from issuance of common stock 5,380 3,590
--------- ---------
Net cash (used in) provided by financing
activities (9,506) 1,745
--------- ---------
Increase in cash and cash equivalents 4,937 26,112
Cash and cash equivalents, at beginning of period 24,725 27,176
--------- ---------
Cash and cash equivalents, at end of period $29,662 $53,288
========= =========
CONTACT: Select Comfort Corporation, Minneapolis
Tammy Nystuen, 763-551-7496
tamara.nystuen@selectcomfort.com
SOURCE: Select Comfort Corporation
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Select Comfort Corporation
