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

MINNEAPOLIS

- (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

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™ 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

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® 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.

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 1,

Net Sales

July 2,

284,673

276,878

Cost of sales

108,054

105,617

176,619

171,261

Operating expenses:

Sales and marketing

144,498

134,785

General and administrative

28,819

27,018

Research and development

Total operating expenses

179,680

168,865

Operating (loss) income

(3,061

Other expense, net

(Loss) income before income taxes

(3,343

Income tax (benefit) expense

(2,565

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

41,716

46,394

Dilutive effect of stock-based awards

Diluted weighted-average shares outstanding

47,044

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

678,572

629,858

255,494

249,523

423,078

380,335

313,764

285,453

62,588

57,924

13,959

14,664

390,311

358,041

Operating income

32,767

22,294

Income before income taxes

32,347

21,968

Income tax expense

Net income

23,683

14,385

Net income per share – basic

Net income per share – diluted

42,233

47,247

43,080

47,945

Consolidated Balance Sheets

(unaudited - in thousands, except per share amounts)

subject to reclassification

December 31,

Assets

Current assets:

Cash and cash equivalents

11,609

Accounts receivable, net of allowance for doubtful accounts of $856 and $884, respectively

24,486

19,705

Inventories

69,856

75,026

Income taxes receivable

Prepaid expenses

10,686

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

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

23,430

Other current liabilities

39,195

35,628

Total current liabilities

252,663

225,317

Non-current liabilities:

Other non-current liabilities

73,321

71,529

Total liabilities

326,291

296,846

Shareholders’ equity:

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

Retained earnings

114,028

159,884

Total shareholders’ equity

114,439

160,320

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

31,177

27,960

Stock-based compensation

Net loss on disposals and impairments of assets

Excess tax benefits from stock-based compensation

Changes in operating assets and liabilities:

(4,781

12,904

(14,532

15,324

Prepaid expenses and other assets

(6,838

11,858

(15,282

19,518

(26,885

Accrued compensation and benefits

Other taxes and withholding

(6,032

Other accruals and liabilities

(2,050

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

Proceeds from marketable debt securities

15,090

Decrease in restricted cash

Net cash used in investing activities

(23,982

(8,607

Cash flows from financing activities:

Net increase in short-term borrowings

12,574

Repurchases of common stock

(80,094

(71,366

Proceeds from issuance of common stock

Debt issuance costs

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

20,994

Cash and cash equivalents, at end of period

Supplemental Financial Information

(unaudited)

Percent of sales:

Retail

Online and phone

Wholesale/other

Sales change rates:

Retail comparable-store sales

Online and phone

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.

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

60,715

25,067

25,597

11,691

Interest expense

14,918

14,053

60,170

53,261

12,231

12,068

Asset impairments

16,037

20,325

159,684

102,650

Free Cash Flow

Net cash provided by (used in) operating activities

(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.

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)

87,124

37,035

Add: Rent expense

70,815

64,232

Add: Interest income

Less: Depreciation on capitalized operating leases

(17,956

(16,749

Less: Income taxes

(46,095

(27,055

94,000

57,682

Average invested capital

Total equity

173,807

Less: Cash greater than target

Add: Long-term debt

Add: Capitalized operating lease obligations

566,520

513,856

Total invested capital at end of period

680,959

687,663

Average invested capital

690,524

724,593

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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Other recent filings from the company include the following:

Select Comfort Corporation's SVP & Chief H.C. Officer just disposed of 8,560 shares - Nov. 20, 2017
Select Comfort Corporation's SVP & Chief H.C. Officer just disposed of 1,000 shares - Nov. 3, 2017
Select Comfort Corporation's SVP Chief Legal & Risk Officer just disposed of 8,000 shares - Nov. 3, 2017
Select Comfort Changes Name To Sleep Number - Nov. 1, 2017
Select Comfort Corporation Just Filed Its Quarterly Report: Net Income per Commo... - Oct. 27, 2017

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