SCSS
$31.84
Select Comfort Cp
$.44
1.40%
Earnings Details
1st Quarter March 2017
Wednesday, April 19, 2017 4:05:03 PM
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Summary

Select Comfort Cp Beats

Select Comfort Cp (SCSS) reported 1st Quarter March 2017 earnings of $0.56 per share on revenue of $393.9 million. The consensus earnings estimate was $0.46 per share on revenue of $370.2 million. The Earnings Whisper number was $0.46 per share. Revenue grew 11.6% on a year-over-year basis.

The company said it expects 2017 earnings of $1.25 to $1.50 per share, excluding items. The company's previous guidance was earnings of $1.20 to $1.40 per share and the current consensus earnings estimate is $1.31 per share for the year ending December 31, 2017.

Select Comfort Corp develops, manufactures, markets and distributes adjustable-firmness beds and other sleep-related accessory products.

Results
Reported Earnings
$0.56
Earnings Whisper
$0.46
Consensus Estimate
$0.46
Reported Revenue
$393.9 Mil
Revenue Estimate
$370.2 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Select Comfort Announces First Quarter 2017 Results

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 (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 Outlook The 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(TM) 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 Information Management 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 Corporation Thirty 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(R) stores located in 49 states or SleepNumber.com.

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 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
18,227
19,705
Accounts receivable, net of allowance for doubtful accounts of
$967 and $884, respectively
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
417
436
Common stock, $0.01 par value; 142,500 shares authorized, 41,676
and 43,569 shares issued and outstanding, respectively
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.

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SOURCE: Select Comfort Corporation

Select Comfort Corporation
Investor Contact:
Dave Schwantes, 763-551-7498
investorrelations@selectcomfort.com
or
Media Contact:
Susan Eich, 763-551-6934
Susan.Eich@selectcomfort.com