SCSS
$31.16
Select Comfort Cp
($1.09)
(3.38%)
Earnings Details
2nd Quarter June 2017
Monday, July 17, 2017 4:05:01 PM
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Summary

Select Comfort Cp Beats

Select Comfort Cp (SCSS) reported 2nd Quarter June 2017 earnings of $0.10 per share on revenue of $284.7 million. The consensus earnings estimate was $0.05 per share on revenue of $302.5 million. The Earnings Whisper number was $0.07 per share. Revenue grew 2.8% on a year-over-year basis.

The company said it continues to expect 2017 earnings of $1.25 to $1.50 per share. The current consensus earnings estimate is $1.41 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
$0.10
Earnings Whisper
$0.07
Consensus Estimate
$0.05
Reported Revenue
$284.7 Mil
Revenue Estimate
$302.5 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Select Comfort Announces Second Quarter 2017 Results

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 (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(TM) 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 Outlook The 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(TM) 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 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, 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
24,486
19,705
Accounts receivable, net of allowance for doubtful accounts of
$856 and $884, respectively
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
326,291
296,846
Total liabilities
Shareholders’ equity:
-
-
Undesignated preferred stock; 5,000 shares authorized, no shares
issued and outstanding
411
436
Common stock, $0.01 par value; 142,500 shares authorized, 41,066
and 43,569 shares issued and outstanding, respectively
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.

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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