Select Comfort Sees Improvement In Third Quarter

Furniture World Magazine

Select Comfort Corporation, a leading bed retailer and creator of the SLEEP NUMBER® bed, announced results for the fiscal 2009 third quarter ended October 3, 2009. Net sales for the quarter totaled $147.5 million, a decrease of 6 percent compared to $157.2 million in the third quarter of 2008. The company reported third-quarter net income of $6.9 million, or $0.15 per diluted share, compared to net income of $1.0 million, or $0.02 per diluted share, in the third quarter of 2008. The company generated $17.4 million in cash flow from operating activities during the quarter. Third-quarter results include a one-time charge of $3.3 million, or $0.05 per share, associated with the terminated financing activities year-to-date. “Third-quarter results improved significantly as our focus on controlling costs, building our brand for improved sales, and preserving cash helped mitigate the impact of ongoing market volatility,” said Bill McLaughlin, president and CEO, Select Comfort Corporation. “While our business has begun to stabilize and we’re beginning to experience its longer-term potential, economic and market conditions remain uncertain. Therefore, we are planning and managing conservatively, while prepared to capitalize on growth as we see opportunities.” Third-Quarter Summary With 14 percent fewer stores than the previous year, total sales declined 6 percent compared to the prior-year period, with positive same-store growth of 9 percent in the quarter. The company closed 14 stores during the third quarter and 65 stores year-to-date, with plans to close an additional six stores by the end of 2009. Third-quarter gross profit margin was 63.4 percent, up 120 basis points from 62.2 percent in the prior-year period and 180 basis points on a sequential basis from 61.6 percent in the second quarter. The year-over-year improvement reflects efficiencies in manufacturing, partially offset by a more aggressive promotion strategy to generate store traffic and drive sales. Sales and marketing costs in the third quarter of 2009 decreased by 20 percent to $66.0 million or 44.8 percent of net sales. This compares to $82.0 million, or 52.2 percent of net sales, in the prior-year period. The reduction in costs in 2009 reflects the lower store base and a 32-percent reduction in media spend to $15.6 million in 2009. General and administrative expenses were $11.8 million in the third quarter, or 8 percent of net sales. This compares to $11.6 million, or 7.4 percent of net sales, in the third quarter of 2008. For the first nine months of 2009, net sales totaled $407.7 million, a decrease of 14.6 percent compared to $477.5 million for the first nine months of 2008. Net income totaled $0.2 million, or $0.01 per diluted share, compared to a net loss of $12.7 million, or $0.29 per diluted share, for the first nine months of 2008. Cash flows from operating activities for the nine-month period were $53.0 million, which includes $26.1 million in tax refunds associated with prior-year losses. This compares to $12.2 million of operating cash flow for the first nine months of 2008. The company reduced capital expenditures to $2.0 million for the first nine months of 2009, compared to $28.1 million in the first nine months of 2008. As of October 3, 2009, cash and cash equivalents totaled $4.8 million; and outstanding borrowings and letters of credit under the company’s revolving credit facility totaled $30.8 million. Outlook Select Comfort has not recently provided full-year estimates about performance. However, because of the continued volatility of macro-economic trends coupled with the state of the company’s turn-around, Select Comfort reports that it expects full-year 2009 earnings of between $0.02 and $0.08 per diluted share. The company also anticipates recent sales trends to continue into early 2010, with same-store growth largely offset by reductions in retail stores and the discontinuation of retail-partner distribution. The company is prepared to take advantage of increases in consumer demand as the economic environment improves and its sales and marketing programs continue to take effect. Financing Update The company continues to operate under short-term waivers to comply with certain ongoing loan covenants associated with the $50 million available under its revolving credit facility and is negotiating with its lenders to secure a longer-term financing agreement. The company also continues to evaluate financing alternatives beyond the recently announced Sterling Partners agreement in order to increase its financial flexibility. About Select Comfort Corporation Founded more than 20 years ago, Select Comfort was ranked the no. 1 bedding retailer in the United States for nine years runningi. Based in Minneapolis, the company designs, manufactures, markets and supports a line of adjustable-firmness mattresses featuring air-chamber technology, branded the Sleep Number® bed, as well as foundations and bedding accessories. SELECT COMFORT® products are sold through its approximately 400 company-owned stores located across the United States; select bedding retailers; direct marketing operations; and online at www.sleepnumber.com.