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Form 8-K SELECT COMFORT CORP For: Apr 28

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April 28, 2016 4:39 PM EDT
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 28, 2016


SELECT COMFORT CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA
(State or other jurisdiction of incorporation or organization)
0-25121
41-1597886
(Commission File No.)
(IRS Employer Identification No.)


9800 59th Avenue North, Minneapolis, Minnesota 55442
(Address of principal executive offices)    (Zip Code)


(763) 551-7000
(Registrant's telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 
 


ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On April 28, 2016, Select Comfort Corporation issued a press release announcing results for the fiscal first quarter ended April 2, 2016. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(c)    Exhibits.
Exhibit 99.1    Press Release, dated April 28, 2016

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
 
SELECT COMFORT CORPORATION
 
 
(Registrant)
 
 
 
 
Dated:
April 28, 2016
By:
/s/ Mark A. Kimball
 
 
 
Mark A. Kimball
 
 
Title:
Senior Vice President


INDEX TO EXHIBITS

The exhibit listed in this index is being furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed “filed” for purposes of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any document filed under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except as otherwise expressly stated in any such filing.

Exhibit No.
Description of Exhibit
99.1
Press Release, dated April 28, 2016




Exhibit 99.1


FOR IMMEDIATE RELEASE


SELECT COMFORT ANNOUNCES FIRST QUARTER 2016 RESULTS

•
Reported net sales of $353 million and EPS of $0.27
•
Generated $52 million in operating free cash flow and repurchased $50 million of the company's common stock
•
Reiterates full-year 2016 EPS outlook of $1.25 to $1.45 per share

MINNEAPOLIS - (April 28, 2016) - Select Comfort Corporation (NASDAQ: SCSS) today reported first quarter 2016 results for the period ended April 2, 2016.

“We are pleased with our first quarter results, which were on track with our expectations. We have completed our ERP system implementation - the last piece of our transformation - and have returned to normalized customer service levels,” said Shelly Ibach, president and chief executive officer of Select Comfort. “The system is already improving our customer experience and we expect to realize operating efficiencies in the back half of this year. Our competitive advantages are stronger than they have ever been and we are now well positioned for accelerated long-term earnings growth.”

First Quarter Overview
•
Net sales increased 1% to $353 million, including a 4% comparable sales decline
•
Earnings per diluted share were $0.27, compared with $0.54 in the prior year’s quarter, including an estimated $0.25 impact from lost sales and inefficiencies related to our ERP implementation
•
Cash provided by operations of $64 million, up from $49 million in the prior year, funded the repurchase of $50 million of company stock (2.6 million shares) and $12 million of capital spending during the quarter

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, with low single-digit growth in the first half of the year. Our 2016 outlook includes an estimated $0.30 earnings per share reduction related to the ERP transition (primarily in the first quarter), including $40 to $50 million of estimated sales impact. The outlook assumes a 10% increase in store count in 2016 and anticipates 2016 capital expenditures will be approximately $70 million. The outlook does not contemplate a worsening consumer spending environment.

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.





Select Comfort Announces First-quarter 2016 Results – Page 2 of 8

Investor Presentation
The company has posted its updated Investor Presentation on the investor relations area of the Sleep Number website at http://www.sleepnumber.com/eng/aboutus/InvestorRelations.cfm.

About Select Comfort Corporation
Nearly 30 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” 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 490 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 will 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 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; [email protected]
Media Contact: Susan Eich; (763) 551-6934; [email protected]






Select Comfort Announces First-quarter 2016 Results – Page 3 of 8

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)

 
Three Months Ended
 
April 2,
2016
 
% of
Net Sales
 
April 4,
2015
 
% of
Net Sales
 
 
 
 
 
 
 
 
Net sales
$
352,980

 
100.0
%
 
$
349,809

 
100.0
%
Cost of sales
143,906

 
40.8
%
 
133,976

 
38.3
%
Gross profit
209,074

 
59.2
%
 
215,833

 
61.7
%
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 

 
 
Sales and marketing
150,668

 
42.7
%
 
140,503

 
40.2
%
General and administrative
30,906

 
8.8
%
 
28,254

 
8.1
%
Research and development
7,602

 
2.2
%
 
3,351

 
1.0
%
Total operating expenses
189,176

 
53.6
%
 
172,108

 
49.2
%
Operating income
19,898

 
5.6
%
 
43,725

 
12.5
%
Other (expense) income, net
(97
)
 
0.0
%
 
153

 
0.0
%
Income before income taxes
19,801

 
5.6
%
 
43,878

 
12.5
%
Income tax expense
6,832

 
1.9
%
 
15,079

 
4.3
%
Net income
$
12,969

 
3.7
%
 
$
28,799

 
8.2
%
 
 
 
 
 
 
 
 
Net income per share – basic
$
0.27

 
 
 
$
0.55

 
 
 
 
 
 
 
 
 
 
Net income per share – diluted
$
0.27

 
 
 
$
0.54

 
 
 
 
 
 
 
 
 
 
Reconciliation of weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
48,100

 
 
 
52,346

 
 
Dilutive effect of stock-based awards
745

 
 
 
980

 
 
Diluted weighted-average shares outstanding
48,845

 
 
 
53,326

 
 




Select Comfort Announces First-quarter 2016 Results – Page 4 of 8

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
subject to reclassification
 
(unaudited)
April 2,
2016
 
January 2,
2016
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
29,520

 
$
20,994

Marketable debt securities – current
—

 
6,567

Accounts receivable, net of allowance for doubtful accounts of $1,115 and $1,039, respectively
20,186

 
29,002

Inventories
80,967

 
86,600

Income taxes receivable
—

 
15,284

Prepaid expenses
12,019

 
10,207

Deferred income taxes
15,521

 
15,535

Other current assets
14,116

 
13,737

Total current assets
172,329

 
197,926

 
 
 
 
Non-current assets:
 

 
 
Marketable debt securities – non-current
—

 
8,553

Property and equipment, net
203,500

 
204,376

Goodwill and intangible assets, net
82,711

 
83,344

Other assets
22,463

 
19,197

Total assets
$
481,003

 
$
513,396

 
 
 
 
Liabilities and Shareholders’ Equity
 

 
 
Current liabilities:
 

 
 
Accounts payable
$
96,608

 
$
103,941

Customer prepayments
30,936

 
51,473

Accrued sales returns
22,910

 
20,562

Compensation and benefits
26,345

 
15,670

Taxes and withholding
19,294

 
9,856

Other current liabilities
24,124

 
23,447

Total current liabilities
220,217

 
224,949

 
 
 
 
Non-current liabilities:
 

 
 
Warranty liabilities
4,907

 
4,942

Deferred income taxes
14,116

 
12,499

Other long-term liabilities
54,579

 
48,667

Total non-current liabilities
73,602

 
66,108

Total liabilities
293,819

 
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, 46,686 and 49,402 shares issued and outstanding, respectively
467

 
494

Additional paid-in capital
—

 
—

Retained earnings
186,717

 
221,859

Accumulated other comprehensive loss
—

 
(14
)
Total shareholders’ equity
187,184

 
222,339

Total liabilities and shareholders’ equity
$
481,003

 
$
513,396





Select Comfort Announces First-quarter 2016 Results – Page 5 of 8

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited – in thousands)
subject to reclassification
 
Three Months Ended
 
April 2,
2016
 
April 4,
2015
Cash flows from operating activities:
 
 
 
Net income
$
12,969

 
$
28,799

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
13,854

 
10,783

Stock-based compensation
3,766

 
2,782

Net loss on disposals and impairments of assets
1

 
177

Excess tax benefits from stock-based compensation
(26
)
 
(858
)
Deferred income taxes
1,622

 
(3,415
)
Changes in operating assets and liabilities:

 


Accounts receivable
8,816

 
1,780

Inventories
5,633

 
(2,469
)
Income taxes
16,558

 
15,453

Prepaid expenses and other assets
(1,272
)
 
(1,661
)
Accounts payable
(495
)
 
7,458

Customer prepayments
(20,537
)
 
(2,591
)
Accrued compensation and benefits
10,677

 
(8,977
)
Other taxes and withholding
7,493

 
(58
)
Warranty liabilities
(261
)
 
900

Other accruals and liabilities
5,183

 
761

Net cash provided by operating activities
63,981

 
48,864

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(12,289
)
 
(17,796
)
Proceeds from sales of property and equipment
14

 
33

Investments in marketable debt securities
—

 
(18,195
)
Proceeds from marketable debt securities
15,090

 
16,244

Net cash provided by (used in) investing activities
2,815

 
(19,714
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Net decrease in short-term borrowings
(6,661
)
 
(16,530
)
Repurchases of common stock
(51,240
)
 
(20,475
)
Proceeds from issuance of common stock
6

 
1,353

Excess tax benefits from stock-based compensation
26

 
858

Debt issuance costs
(401
)
 
—

Net cash used in financing activities
(58,270
)
 
(34,794
)
Net increase (decrease) in cash and cash equivalents
8,526

 
(5,644
)
Cash and cash equivalents, at beginning of period
20,994

 
51,995

Cash and cash equivalents, at end of period
$
29,520

 
$
46,351




Select Comfort Announces First-quarter 2016 Results – Page 6 of 8

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)

 
Three Months Ended
 
April 2,
2016
 
April 4,
2015
Percent of sales:
 
 
 
Retail
91.0
%
 
91.6
%
Direct and E-Commerce
6.3
%
 
5.9
%
Wholesale/other
2.7
%
 
2.5
%
Total
100.0
%
 
100.0
%
 
 
 
 
Sales change rates:
 
 
 
Retail comparable-store sales
(4
%)
 
22
%
Direct and E-Commerce
8
%
 
17
%
Company-Controlled comparable sales change
(4
%)
 
22
%
Net opened/closed stores
5
%
 
6
%
Total Company-Controlled Channel
1
%
 
28
%
Wholesale/other
10
%
 
(19
%)
Total
1
%
 
27
%
 
 
 
 
Stores open:
 
 
 
Beginning of period
488

 
463

Opened
14

 
8

Closed
(5
)
 
(8
)
End of period
497

 
463

 
 
 
 
Other metrics:
 
 
 
Average sales per store ($ in 000's) 1, 3
$
2,363

 
$
2,424

Average sales per square foot 1, 3
$
960

 
$
1,038

Stores > $1 million net sales 1, 3
98
%
 
99
%
Stores > $2 million net sales 1, 3
61
%
 
63
%
Average revenue per mattress unit 2
$
3,978

 
$
3,923

 
 
 
 
1 Trailing twelve months for stores open at least one year.
2 Represents Company-Controlled Channel total net sales divided by Company-Controlled Channel mattress units.
3 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 Announces First-quarter 2016 Results – Page 7 of 8

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:
 
Three Months Ended
 
Trailing-Twelve Months Ended
 
April 2,
2016
 
April 4,
2015
 
April 2,
2016
 
April 4,
2015
Net income
$
12,969

 
$
28,799

 
$
34,689

 
$
79,781

Income tax expense
6,832

 
15,079

 
16,664

 
40,301

Interest expense
106

 
10

 
256

 
53

Depreciation and amortization
13,757

 
10,544

 
50,129

 
40,426

Stock-based compensation
3,766

 
2,782

 
11,274

 
9,688

Asset impairments
15

 
209

 
67

 
703

Adjusted EBITDA
$
37,445

 
$
57,423

 
$
113,079

 
$
170,952




Free Cash Flow
(in thousands)
 
Three Months Ended
 
Trailing-Twelve Months Ended
 
April 2,
2016
 
April 4,
2015
 
April 2,
2016
 
April 4,
2015
Net cash provided by operating activities
$
63,981

 
$
48,864

 
$
123,059

 
$
154,468

Subtract: Purchases of property and equipment
12,289

 
17,796

 
80,079

 
77,730

Free cash flow
$
51,692

 
$
31,068

 
$
42,980

 
$
76,738



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.




Select Comfort Announces First-quarter 2016 Results – Page 8 of 8

SELECT COMFORT CORPORATION AND SUBSIDIARIES
Calculation of Return on Invested Capital (ROIC)
(in thousands)

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:

 
 
Trailing-Twelve Months Ended
 
 
April 2,
2016
 
April 4,
2015
Net operating profit after taxes (NOPAT)
 
 
 
 
Operating income
 
$
51,270

 
$
119,669

Add: Rent expense 1
 
63,204

 
59,592

Add: Interest income
 
340

 
466

Less: Depreciation on capitalized operating leases 2
 
(16,501
)
 
(14,761
)
Less: Income taxes 3
 
(31,992
)
 
(55,697
)
NOPAT
 
$
66,321

 
$
109,269

 
 
 
 
 
Average invested capital
 
 
 
 
Total equity
 
$
187,184

 
$
270,254

Less: Cash greater than target 4
 
—

 
(36,125
)
Add: Long-term debt 5
 
—

 
—

Add: Capitalized operating lease obligations 6
 
505,632

 
476,736

Total invested capital at end of period
 
$
692,816

 
$
710,865

Average invested capital 7
 
$
729,234

 
$
661,708

Return on invested capital (ROIC) 8
 
9.1
%
 
16.5
%

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

2 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.

3 Reflects annual effective income tax rates, before discrete adjustments, of 32.5% and 33.8% for 2016 and 2015, respectively.

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

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

6 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.

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

8 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.

GAAP - generally accepted accounting principles in the U.S.



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