Select Comfort Corporation reported third-quarter results for the period ended Sept. 29, 2012. Net sales for the quarter increased 24 percent to a third-quarter record of $247 million, compared to $200 million in the third quarter of 2011. Results were driven by company-controlled comparable sales growth of 21 percent. The company reported record third-quarter earnings per diluted share of $0.46, a 48 percent increase versus $0.31 per diluted share in the third quarter of 2011.
“Customers continue to enthusiastically respond to the Sleep Number brand experience, including our proprietary products and exclusive store experience, which drove record third-quarter sales,” said Shelly Ibach, president and CEO, Select Comfort. “And the strength of our business model resulted in record operating margin as well as record earnings per share.”
“In the fourth quarter, we’ll accelerate investments in our consumer-focused growth strategies to build brand awareness and advance product innovation while also developing markets with more convenient locations and enhanced store experiences,” continued Ibach. “We remain committed to our goal of delivering greater than 20 percent annual earnings-per-share growth while exceeding $1.5 billion in sales and 15 percent operating margin by 2015.”
Third-quarter Summary
In the third quarter, net sales increased by 24 percent as compared to the prior-year period. The increase was driven by company-controlled comparable sales growth of 21 percent, with average retail sales-per-comparable-store during the past 12 months reaching a record $2.1 million, a 31 percent increase over the prior-year period. The sales increase also was driven by 20 net new stores opened during the past 12 months, including 13 net new stores opened during the third quarter. There were 394 stores open as of Sept. 29, 2012.
Operating income for the third quarter was $40.2 million, and operating margin during the quarter was 16.3 percent of net sales, a 300 basis-point improvement from 13.3 percent in 2011. Operating income and operating margin were both quarterly records for the company. The 300 basis-point operating margin growth was primarily driven by a 210 basis-point increase in gross-profit margin and a 90 basis-point improvement in the sales and marketing expense rate.
Gross-profit margin in the third quarter of 2012 was 65.1 percent of net sales, an increase of 210 basis points versus 63.0 percent in the prior-year period. The year-over-year increase was primarily driven by pricing and mix associated with new product innovation. In addition, the prior-year period was impacted by a $1.6 million increase to customer-service reserves.
Sales and marketing costs were $101.7 million in the third quarter, or 41.2 percent of net sales. This compares to $83.9 million, or 42.1 percent of net sales in the prior-year period, reflecting continued leverage from the company’s sales growth. Media spending during the quarter was $32 million, a 33 percent increase versus the prior-year period.General and administrative expenses were $16.9 million in the third quarter, or 6.9 percent of net sales. This compares to $14.3 million, or 7.2 percent of net sales, during the same period last year, again reflecting continued leverage of the company’s fixed-cost base.
Cash from operating activities was $98 million for the first nine months of 2012 compared to $75 million in the same period one year ago. Capital expenditures for the first nine months of 2012 increased to $37 million as compared to $14 million in 2011, driven by increased investment in stores and information systems. During the third quarter, the company returned $10 million to shareholders through the repurchase of 0.4 million shares of its common stock, bringing the total share repurchases year-to-date to $20 million, or 0.8 million shares. As of the end of the quarter, cash, cash equivalents and marketable-debt securities totaled $193 million, and the company had no borrowings under its revolving credit facility.
Fiscal 2012 Outlook
The company is raising its outlook for 2012 GAAP earnings per diluted share, including the $5.6 million non-recurring charge in the first quarter of 2012, from between $1.35 and $1.41 to between $1.45 and $1.47, a 36 to 37 percent increase versus the prior year. Excluding the charge, this represents non-GAAP guidance of between $1.51 and $1.53, a 41 to 43 percent increase versus prior year. This outlook assumes total sales growth during the fourth quarter of at least 20 percent.
The company expects year-end 2012 store count to be between 408 and 412 stores, a 7 to 8 percent increase from the 381 stores at year-end 2011. Capital expenditures for 2012 are estimated to be approximately $50 million, reflecting new stores, repositioned stores and remodels, along with continued investment in information systems. The company also plans to continue repurchasing shares for the remainder of 2012, with the objective of maintaining share count.
Select Comfort Corporation is leading the industry in delivering an unparalleled sleep experience by offering consumers high-quality, innovative and individualized sleep solutions and services, which include a complete line of SLEEP NUMBER beds and bedding.
