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Select Comfort Reports 16 Percent Same Store Growth

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Select Comfort Corporation reported third-quarter results for the period ended Oct. 2, 2010. Net sales for the quarter totaled $160 million, an increase of 9 percent on same-store growth of 16 percent, compared to $147 million in net sales in the third quarter of 2009. The company reported net income of $10.5 million, or $0.19 per diluted share in the third quarter of 2010, compared to net income of $6.9 million, or $0.15 per diluted share, during the same quarter last year.

“We continue to demonstrate strong sales growth and operating margin expansion, despite an uncertain environment. And we are particularly pleased with our same-store growth as we lapped more difficult comparisons from the third quarter a year ago,” said Bill McLaughlin, president and CEO, Select Comfort Corporation. “The consistency of our results in these market conditions, as well as our strong cash position, reinforces our confidence in our ability to leverage our unique advantages, invest opportunistically and grow market share.”

McLaughlin continued, “As we look forward to the fourth quarter and 2011, we will continue to advance our growth strategies by investing incrementally in media, stores and product development with the goal of sustaining above-market sales growth into next year.”

Third-quarter Summary
During the third quarter, net sales increased by 9 percent as compared to a year ago and operating margin improved to 10.5 percent. Year-to-date, net sales increased by 12 percent and operating margin improved to 9.0 percent.

Sales growth was driven by a 16 percent increase in same-store sales. Same-store growth was offset by the closure of 28 stores since the beginning of the third quarter of 2009 and the termination of retail partner relationships during the third quarter of 2009. Sales-per-store increased to $1.25 million, 27 percent higher than the prior-year twelve-month period.

Gross profit margins were 62.5 percent of net sales, 90 basis points lower than the 63.4 percent gross profit rate experienced in the third quarter of 2009. This decline reflects higher product and promotional costs.

Sales and marketing costs were 42.6 percent of net sales in the third quarter compared to 44.8 percent in the third quarter of 2009, a 220 basis-point improvement due to the leverage of higher sales over a smaller store base. Sales and marketing costs increased year-over-year by $2.3 million to $68 million in 2010. Media investments in the third quarter totaled $17.4 million, 12 percent higher than the prior-year period.

General and administrative expenses equaled $14.3 million in the third quarter, or 8.9 percent of net sales. This compares to $11.8 million, or 8.0 percent of net sales, in the same period last year. The rise in expenses reflects increased incentive compensation as well as costs to support growth initiatives.

Cash flows from operating activities were $68 million for the first nine months of 2010 compared to $53 million in the year-ago period (which included a $26 million tax refund). Capital expenditures totaled $3.5 million year-to-date in 2010. As of the end of the quarter, cash and cash equivalents totaled $82 million and the company had no borrowings under its revolving credit agreement.

The third quarter of 2009 included a valuation allowance adjustment for income taxes and a one-time charge for terminated financing charges. Adjusting for these items, net income would have been $0.18 per share. A reconciliation of these items is provided at the end of this news release.

Fiscal 2010 Outlook
Based on third-quarter performance, the company has increased its previous guidance and now expects to report full-year 2010 earnings per share of between $0.52 and $0.55. The company’s fourth-quarter outlook anticipates year-over-year profit improvement and positive same-store growth, although at a slower pace, as year-over-year comparisons now are more difficult and the company’s outlook for the macro-environment anticipates slow growth and continued volatility.

The company concluded the third quarter of 2010 with 392 stores and expects to end fiscal 2010 with a comparable number of stores after netting planned store openings and closings. The company anticipates 2010 capital expenditures of approximately $8 million.

Conference Call
Management will host its regularly scheduled conference call to discuss the company’s results at 5 p.m. Eastern Time today (4 p.m. Central; 2 p.m. Pacific). 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 Select Comfort website.

A replay will remain available until midnight Central Time, Oct. 29, 2010, by dialing (203) 369-1117. The webcast replay will remain available in the investor relations area of the company’s website for approximately 60 days.

About Select Comfort Corporation: Founded more than 20 years ago and based in Minneapolis, Select Comfort Corporation designs, manufactures, markets and supports a line of adjustable-firmness mattresses featuring air-chamber technology, branded the Sleep Number® bed, as well as foundations and bedding collection accessories. SELECT COMFORT® products are sold through its approximately 400 company-owned stores located across the United States; select bedding retailers; direct marketing operations; and online at www.sleepnumber.com.

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