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Select Comfort Announces 25% Net Sales Increase In Third Quarter

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Select Comfort Corporation reported third-quarter results for the period ended Oct. 1, 2011. Net sales for the quarter increased 25 percent to $200 million, compared to $160 million in the third quarter of 2010, driven by company-controlled comparable sales growth of 26 percent and retail comparable sales growth of 29 percent. The company reported net income of $17.2 million, a 64 percent increase versus $10.5 million in the third quarter of 2010. Earnings per diluted share for the quarter increased 63 percent to $0.31, compared to $0.19 per diluted share in the third quarter of 2010.

“Our outstanding performance in the third quarter further demonstrates the strength of our unique product, our advantaged business model, and the success our strategic initiatives are having in driving profitable growth and increased share,” said Bill McLaughlin, president and CEO, Select Comfort Corporation. “We’re especially pleased with the quality and sustainability of our earnings, driven by continued double-digit revenue growth and record operating margins.”

McLaughlin added, “Given our low brand awareness and underpenetrated distribution in major markets, we believe we are still early in our growth curve. Our plan calls for continued share and earnings growth, fueled by sustained focus on executing our proven, consumer-driven product, marketing and distribution initiatives.”

Third-quarter Summary

In the third quarter, net sales increased by 25 percent as compared to the prior-year period. The increase in sales was driven by company-controlled comparable sales growth of 26 percent, with average retail sales-per-store during the past 12 months reaching a record $1.6 million, a 29 percent improvement over the prior-year period.

Gross-profit margin in the third quarter of 2011 increased 50 basis points to 63.0 percent of net sales, compared with 62.5 percent in the prior-year period. The increase reflects manufacturing efficiencies and pricing actions, partially offset by $1.6 million of additional customer-service reserves during the quarter.

Sales and marketing costs in the third quarter of 2011 increased by 23 percent to $83.9 million, representing 42.1 percent of net sales. This compares to $68.3 million, or 42.6 percent of net sales in the prior-year period, reflecting continued leverage of sales and marketing. Media investments in the third quarter totaled $24 million, 38 percent higher than a year ago.

General and administrative expenses were $14.3 million in the third quarter, or 7.2 percent of net sales. This compares to $14.3 million, or 8.9 percent of net sales during the same period last year, again reflecting continued leverage of the company’s fixed-cost base.

Operating income of $26.5 million and operating margin of 13.3 percent each represented the best third-quarter performance in company history. This record operating performance resulted in earnings per diluted share of $0.31, a 63 percent improvement versus prior-year.

Cash flows from operating activities were $75 million for the first nine months of 2011 compared to $71 million in the year-ago period. Capital expenditures for the first nine months of 2011 increased to $14.5 million as compared to $3.5 million during the same time period last year, driven by increased investment in stores and information systems. As of the end of the quarter, cash, cash equivalents and marketable-debt securities totaled $136 million and the company had no borrowings under its revolving credit agreement.

Outlook

Based on its robust third-quarter performance, the company is increasing its fiscal 2011 outlook for earnings per diluted share from between $0.90 and $0.96 to between $0.99 and $1.01. Outlook for the fourth quarter of 2011 assumes company-controlled comparable sales growth of between 20 and 25 percent and earnings per diluted share of between $0.19 and $0.21, a 46 to 62 percent increase over prior year. The company expects to end 2011 with approximately 380 stores after netting planned store openings and closings. Full-year 2011 capital expenditures are expected to be approximately $25 million.

The company also is communicating new annualized growth goals for the next three years, including company-controlled comparable sales growth of at least 10 to 12 percent, net store growth of between 5 and 7 percent, and earnings-per-diluted-share growth of at least 20 percent per year. The company added that it believes there may be opportunity to surpass these levels of growth in the near term.

About Select Comfort Corporation: Select Comfort Corporation is leading the industry in setting a new standard in sleep by offering consumers high-quality, innovative and individualized sleep solutions, which includes a complete line of SLEEP NUMBER® beds and bedding. The company is the exclusive manufacturer, seller and servicer of the revolutionary Sleep Number bed, which allows individuals to adjust the firmness and support of each side at the touch of a button. The company offers further personalization through its solutions-focused line of Sleep Number pillows, sheets and other bedding products. And as the country’s only national specialty mattress retailer, consumers can take advantage of an enhanced mattress-buying experience at one of the approximately 374 Sleep Number stores across the country as well as online at www.sleepnumber.com or via phone at (800) Sleep Number or (800) 753-3768.

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