The following excerpt is from the company's SEC filing.
Reported net sales increase of 3% to $285 million
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
- (July 17, 2017) - Select Comfort Corporation (NASDAQ: SCSS) today reported second quarter 2017 results for the period ended July 1, 2017.
“We are pleased with traffic and sales in the seco nd quarter, including strong demand for our revolutionary new innovation, the Sleep Number 360
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
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™ 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.
Select Comfort Announces Second-quarter 2017 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
. 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® stores located in 49 states or
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.
Dave Schwantes; (763) 551-7498;
Susan Eich; (763) 551-6934;
SELECT COMFORT CORPORATION
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
Three Months Ended
Cost of sales
Sales and marketing
General and administrative
Research and development
Total operating expenses
Operating (loss) income
Other expense, net
(Loss) income before income taxes
Income tax (benefit) expense
Net (loss) income
Net (loss) income per share – basic
Net (loss) income per share – diluted
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding
Dilutive effect of stock-based awards
Diluted weighted-average shares outstanding
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.
Six Months Ended
Income before income taxes
Income tax expense
Net income per share – basic
Net income per share – diluted
Consolidated Balance Sheets
(unaudited - in thousands, except per share amounts)
subject to reclassification
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $856 and $884, respectively
Income taxes receivable
Other current assets
Total current assets
Property and equipment, net
Goodwill and intangible assets, net
Deferred income taxes
Other non-current assets
Liabilities and Shareholders’ Equity
Borrowings under revolving credit facility
Accrued sales returns
Compensation and benefits
Taxes and withholding
Other current liabilities
Total current liabilities
Other non-current liabilities
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding
Common stock, $0.01 par value; 142,500 shares authorized, 41,066 and 43,569 shares issued and outstanding, respectively
Additional paid-in capital
Total shareholders’ equity
Total liabilities and shareholders’ equity
Consolidated Statements of Cash Flows
(unaudited – in thousands)
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Net loss on disposals and impairments of assets
Excess tax benefits from stock-based compensation
Changes in operating assets and liabilities:
Prepaid expenses and other assets
Accrued compensation and benefits
Other taxes and withholding
Other accruals and liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from sales of property and equipment
Proceeds from marketable debt securities
Decrease in restricted cash
Net cash used in investing activities
Cash flows from financing activities:
Net increase in short-term borrowings
Repurchases of common stock
Proceeds from issuance of common stock
Debt issuance costs
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents, at beginning of period
Cash and cash equivalents, at end of period
Supplemental Financial Information
Percent of sales:
Online and phone
Sales change rates:
Retail comparable-store sales
Online and phone
Company-Controlled comparable sales change
Net opened/closed stores
Total Company-Controlled Channel
Beginning of period
End of period
Average sales per store ($ 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.
SELECT COMFORT CORPORATION AND SUBSIDIARIES
Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)
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
Free Cash Flow
Net cash provided by (used in) operating activities
Subtract: Purchases of property and equipment
Free cash flow
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)
Add: Rent expense
Add: Interest income
Less: Depreciation on capitalized operating leases
Less: Income taxes
Average invested capital
Less: Cash greater than target
Add: Long-term debt
Add: Capitalized operating lease obligations
Total invested capital at end of period
Average invested capital
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 2017 and 2016, 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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