The following excerpt is from the company's SEC filing.

Reported net sales of $277 million and EPS of $0.03

Share repurchase authorization increased to $300 million

Reiterates full-year 2016 EPS outlook of $1.25 to $1.45 per share

MINNEAPOLIS

- (July 20, 2016) - Select Comfort Corporation (NASDAQ: SCSS) today reported second quarter 2016 results for the period ended July 2, 2016.

“Our second quarter results were in line with our expectations and reflect the recovery from our ERP implementation. We were pleased with the improvement in our customer metrics and sales trends, despite the sluggish consumer environment,” said Shelly Ibach, president and chief executive officer of Select Comfort. “Our investments have strengthened our competitive position as we meet the expectations of a rapidly changing consumer. We are focused on leveraging these investments to deliver strong returns for our shareholders.”

Second Quarter Review

Net sales

increased 1% to $277 million, including 6 percentage points of growth from stores opened in the last twelve months, partially offset by a 6% comparable sales decline; sales were impacted by an estimated $5-$10 million due to residual effects of the ERP implementation completed in the first quarter

Gross profit

of $171 million and gross margin of 61.9% were consistent with the prior year

Earnings per diluted share

of $0.03, compared with $0.21 in the prior year’s quarter; earnings per share were impacted by an estimated 3 to 5 cents due to residual effects of the ERP implementation

Cash Flows and Balance Sheet Review

Generated $47 million in net cash from operating activities for the first six months of 2016, compared with $45 million for the same period last year, demonstrating the strength of our business model

Invested $24 million in capital expenditures and returned $70 million of cash to shareholders during the first six months of 2016 compared with $39 million and $50 million, respectively, for the same period last year

Ended the quarter with $16 million of borrowings against the $150 million revolving credit facility as planned

Share Repurchase Authorization

The company also announced an increase in the outstanding share repurchase authorization to $300 million, effective at the beginning of the fiscal third quarter. The company expects to generate more than $750 million in cash from operations from 2016 through 2019 by executing its consumer innovation strategy. The company is committed to delivering superior shareholder returns, including returning cash to shareholders through share repurchases. Over the past five years, Select Comfort has invested more than $400 million in capital spending and acquisitions, while returning nearly $300 million in cash to shareholders through share repurchases.

Financial Outlook

The company reiterates its outlook for 2016 earnings per diluted share of $1.25 to $1.45, compared with full-year 2015 earnings per diluted share of $0.97. The outlook assumes low-teen sales growth for the full year. The outlook assumes a 10% increase in store count in 2016 and capital expenditures of approximately $65 million, compared with $86 million in 2015. The outlook does not contemplate a worsening consumer spending environment.

Select Comfort Announces Second-quarter 2016 Results – Page

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

Nearly 30 years ago, Sleep Number transformed the mattress industry with the idea that ‘one size does

fit all’ when it comes to sleep. Today, the company is the leader in sleep innovation and ranked “Highest in Customer Satisfaction with Mattresses” in 2015 by J.D. Power. As the pioneer in biometric sleep monitoring and adjustability, Sleep Number is proving the connection between quality sleep and health and wellbeing. Dedicated to individualizing sleep experiences, the company’s more than 3,400 employees are improving lives with innovative sleep solutions. To find better quality sleep visit one of our more than 500 U.S. Sleep Number

stores 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; 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.

Investor Contact:

Dave Schwantes; (763) 551-7498;

investorrelations@selectcomfort.com

Media Contact:

Susan Eich; (763) 551-6934;

Susan.Eich@selectcomfort.com

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited – in thousands, except per share amounts)

Three Months Ended

July 2,

Net Sales

July 4,

276,878

275,289

Cost of sales

105,617

104,750

171,261

170,539

Operating expenses:

Sales and marketing

134,785

126,627

General and administrative

27,018

23,880

Research and development

Total operating expenses

168,865

153,910

Operating income

16,629

Other (expense) income, net

Income before income taxes

16,762

Income tax expense

Net income

11,038

Net income per share – basic

Net income per share – diluted

Reconciliation of weighted-average shares outstanding:

Basic weighted-average shares outstanding

46,394

51,672

Dilutive effect of stock-based awards

Diluted weighted-average shares outstanding

47,044

52,544

Six Months Ended

629,858

625,098

249,523

238,726

380,335

386,372

285,453

267,130

57,924

52,134

14,664

358,041

326,018

22,294

60,354

21,968

60,640

20,803

14,385

39,837

47,247

52,009

47,945

52,935

Consolidated Balance Sheets

(unaudited - in thousands, except per share amounts)

subject to reclassification

January 2,

Assets

Current assets:

Cash and cash equivalents

20,994

Marketable debt securities – current

Accounts receivable, net of allowance for doubtful accounts of $1,001 and $1,039, respectively

23,513

29,002

Inventories

73,696

86,600

Income taxes receivable

15,284

Prepaid expenses

16,415

10,207

Deferred income taxes

15,527

15,535

Other current assets

15,785

13,737

Total current assets

147,337

197,926

Non-current assets:

Marketable debt securities – non-current

Property and equipment, net

202,082

204,376

Goodwill and intangible assets, net

82,079

83,344

Other assets

23,244

19,197

Total assets

454,742

513,396

Liabilities and Shareholders’ Equity

Current liabilities:

Borrowings under revolving credit facility

16,000

Accounts payable

85,814

103,941

Customer prepayments

24,588

51,473

Accrued sales returns

15,755

20,562

Compensation and benefits

25,683

15,670

Taxes and withholding

12,344

Other current liabilities

25,854

23,447

Total current liabilities

206,038

224,949

Non-current liabilities:

13,485

12,499

Other long-term liabilities

61,412

53,609

Total non-current liabilities

74,897

66,108

Total liabilities

280,935

291,057

Shareholders’ equity:

Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding

Common stock, $0.01 par value; 142,500 shares authorized, 45,929 and 49,402 shares issued and outstanding, respectively

Additional paid-in capital

Retained earnings

173,348

221,859

Accumulated other comprehensive loss

Total shareholders’ equity

173,807

222,339

Total liabilities and shareholders’ equity

Consolidated Statements of Cash Flows

(unaudited – in thousands)

Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

27,960

21,903

Stock-based compensation

Net loss on disposals and impairments of assets

Excess tax benefits from stock-based compensation

(1,945

(4,515

Changes in operating assets and liabilities:

12,904

(14,842

15,324

Prepaid expenses and other assets

(6,838

(15,282

(26,885

(3,066

Accrued compensation and benefits

(8,121

Other taxes and withholding

(2,622

Other accruals and liabilities

Net cash provided by operating activities

47,120

45,054

Cash flows from investing activities:

Purchases of property and equipment

(23,764

(38,938

Proceeds from sales of property and equipment

Investments in marketable debt securities

(19,306

Proceeds from marketable debt securities

15,090

41,932

Net cash used in investing activities

(8,607

(16,271

Cash flows from financing activities:

Net increase (decrease) in short-term borrowings

12,574

(7,478

Repurchases of common stock

(71,366

(51,629

Proceeds from issuance of common stock

Debt issuance costs

Net cash used in financing activities

(57,106

(54,704

Net decrease in cash and cash equivalents

(18,593

(25,921

Cash and cash equivalents, at beginning of period

51,995

Cash and cash equivalents, at end of period

26,074

Supplemental Financial Information

(unaudited)

Percent of sales:

Retail

Direct and E-Commerce

Wholesale/other

Sales change rates:

Retail comparable-store sales

Company-Controlled comparable sales change

Net opened/closed stores

Total Company-Controlled Channel

Stores open:

Beginning of period

Opened

Closed

End of period

Other metrics:

Average sales per store ($ in 000's)

Average sales per square foot

Stores > $1 million net sales

Stores > $2 million net sales

Average revenue per mattress unit

Trailing twelve months for stores open at least one year.

Represents Company-Controlled Channel total net sales divided by Company-Controlled Channel mattress units.

Fiscal 2014 included 53 weeks, as compared to 52 weeks in fiscal 2016 and 2015. The additional week in 2014 was in the fiscal fourth quarter. Company-Controlled comparable sales metrics have been adjusted to remove the estimated impact of the additional week on those metrics.

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:

Trailing-Twelve Months Ended

25,067

82,338

11,691

41,717

Interest expense

14,053

10,921

53,261

41,582

12,068

10,591

Asset impairments

20,325

30,754

102,650

176,911

Free Cash Flow

Net cash (used in) provided by operating activities

(16,861

(3,810

110,008

139,944

Subtract: Purchases of property and equipment

11,475

21,142

70,412

75,766

Free cash flow

(28,336

(24,952

39,596

64,178

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.

Calculation of Return on Invested Capital (ROIC)

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:

Net operating profit after taxes (NOPAT)

37,035

123,587

Add: Rent expense

64,232

61,157

Add: Interest income

Less: Depreciation on capitalized operating leases

(16,749

(15,280

Less: Income taxes

(27,055

(57,496

57,682

112,489

Average invested capital

Total equity

255,392

Less: Cash greater than target

Add: Long-term debt

Add: Capitalized operating lease obligations

513,856

489,256

Total invested capital at end of period

687,663

744,648

Average invested capital

724,593

686,514

Return on invested capital (ROIC)

Rent expense is added back to operating income to show the impact of owning versus leasing the related assets.

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.

Reflects annual effective income tax rates, before discrete adjustments, of

for 2016 and 2015, respectively.

Cash greater than target is defined as cash, cash equivalents and marketable debt securities less customer prepayments in excess of $100 million.

Long-term debt includes existing capital lease obligations, if applicable.

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.

Average invested capital represents the average of the last five fiscal quarters' ending invested capital balances.

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.

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

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