Select Comfort Reports 2004 Earnings up 16 Percent; Same-Store Sales Increase 16 Percent

Furniture World Magazine

Select Comfort Corporation aleading bed retailer and creator of the Sleep Number(R) bed, announced results for the fourth quarter and year ended January 1, 2005. For fiscal 2004, the company reported earnings of $32 million or $0.80 per diluted share, a 16 percent increase over net income of $0.69 per diluted share in 2003. Net sales in 2004 increased 22 percent to $558 million, compared to $458 million in 2003, with a 16 percent increase in same-store sales. Select Comfort reported net income in the fourth quarter of $10 million, or $0.27 per diluted share, which includes a $0.01 per share charge associated with the expected settlement of California wage and hour litigation, compared with net income of $0.28 per diluted share in the fourth quarter of 2003. Fourth quarter 2004 net sales increased 17 percent(1) on an equivalent-week basis to $149 million, versus 2003 net sales of $137 million.(1) In 2004, the company repurchased 1.1 million shares for $21 million. As of January 1, 2005, the company's cash and marketable securities totaled $92 million, with no debt. "2004 marks another year of growth and market share expansion at Select Comfort," said Bill McLaughlin, chairman and chief executive officer. "And while we acknowledge that we had the opportunity to expand even further, we are pleased to have completed our third consecutive year of sustained growth, making notable progress in strengthening our position in brand awareness, distribution, and product innovation across all price points." McLaughlin continued, "Select Comfort is still in the early stages of development. Although we more than doubled national unaided brand awareness in the past two years, it still remains at approximately one-quarter that of the nation's leading mattress brand, providing us growth opportunity going forward. We also grew market dollar share to an estimated five percent, all of which was led by the achievement of a number of milestones." Those milestones included: -Supplementing the national brand awareness campaign with comprehensive local campaigns in 34 markets, reaching 55 percent of the U.S. population. -Increasing company-owned stores to 370 with expansion in the past year focused on large metropolitan areas where market share is lowest. -Improving and enhancing the company's entire product line, giving it the most robust product offering to date. -Initiating the company's first hospitality agreement with Radisson Hotels and Resorts, designed to encourage awareness and growth through new consumer trials of the Sleep Number(R) bed. According to McLaughlin, in 2005 Select Comfort will build upon past investments to further capitalize on growth potential moving forward. "There remains significant opportunity ahead of us, as our penetration and brand awareness remain low, and nearly all markets have potential for distribution expansion," McLaughlin explained. "We will extend our media campaign, with a planned increase in media investment to $88 million from $79 million in 2004. We also plan to increase our store base by nearly 10 percent, while pursuing new retail partners to supplement our company-owned distribution. Additionally, we are committed to taking advantage of the significant operating leverage our business model gives us as we further invest in growth." Business Outlook Select Comfort's business outlook assumes continued performance of advertising and growth programs and no significant changes to U.S. economic trends, mattress industry growth rates, or competitive response to its products. The company's expectations over the long term are to sustain sales growth rates of at least 15 to 20 percent, with same-store growth between 7 and 12 percent, leveraging the business model with long-term earnings growth rates of at least 20 to 25 percent, and 2005 earnings growth rates of 20 to 30 percent. In 2005, Select Comfort expects sales growth of 18 to 20 percent, including sales to Radisson Hotels and assuming a same-store growth rate at the upper end of its target range. The company expects earnings per share of $0.96 to $1.04 (before the impact of expensing stock options, discussed below). Select Comfort is not providing specific quarterly guidance for 2005, but expects earnings growth rates to be lower in the first quarter, as it laps stronger same-store growth comparisons from a year ago, and to accelerate during the year. The company is evaluating the application and impact of new accounting regulations which will require it to expense stock options beginning in the third quarter of 2005. Financial expectations noted above do not reflect the impact of expensing these stock options. About Select Comfort: Founded in 1987, Select Comfort Corporation is the nation's leading bed retailer(2), holding 31 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 370 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, and 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, product quality, innovation and brand image; our ability to continue to expand and improve our product line; industry competition; warranty expenses; the outcome of pending litigation, including consumer class action litigation; our dependence on significant suppliers; rising regulatory and commodity costs; and the vulnerability of any suppliers to inflationary 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.