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Select Comfort Corporation Announces Record Sales and Earnings

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Select Comfort Corporation a leading bed retailer and creator of the Sleep NumberĀ® bed, announced results for the third quarter ended October 1, 2005. The company reported record net income of $11.4 million, or $0.30 per diluted share, compared to net income of $8.0 million, or $0.20 per diluted share, in the third quarter of 2004. Third quarter 2005 net sales increased 22 percent to a record $175.8 million, compared to third quarter 2004 net sales of $144.3 million. Same-store sales increased 15 percent during the third quarter. "We are extremely pleased with our third quarter performance, with sales and earnings growth exceeding our long-term targets," said Bill McLaughlin, chairman and chief executive officer. "Sales growth stemmed from strong unit trends across all channels and product lines, while earnings benefited from manufacturing and logistics productivity programs and the selling and marketing leverage inherent in our unique, vertically-integrated operating model." McLaughlin continued, "Though we are mindful of recent consumer trends, we expect to achieve our annual guidance, which reflects earnings growth of 30 percent or more. With market share of less than six percent nationally and negligible international presence, there remains tremendous opportunity to grow as we increase brand awareness and expand distribution. Earnings growth should continue to outpace our sales increases as we gain further leverage from our vertically integrated business model, which affords us control over the design, manufacturing, marketing and distribution of our products and positions us to efficiently and effectively respond to external factors." Third quarter results were highlighted by a number of key accomplishments: -- Demonstrated operating leverage with net income improvement of 42 percent on sales growth of 22 percent -- Achieved same-store sales growth of 15 percent in the third quarter, 14 percent year-to-date -Celebrated a single day sales record in retail stores on Labor Day -Nominated for QVC's Q-Star award for operational excellence -Increased Radisson bed installations to 27 percent of total Radisson beds -Opened 19 new stores, ending the quarter with a total of 388 retail stores -Added 143 new retail partner doors, ending the quarter with a total of 264 doors -Donated and delivered 370 beds and 9,500 pillows to hurricane victims and Ronald McDonald House Charities Operating margins improved 150 basis points to 10.3 percent from 8.8 percent in the third quarter last year. Cash flow from operating activities for the nine-month period ending October 1, 2005 totaled $55.8 million while capital expenditures were $19.9 million. The company expects to continue to self-fund its growth in both the near- and long-term. Select Comfort's balance sheet remains debt free with cash and investments at the end of the third quarter totaling $88.4 million. In the third quarter the company repurchased 1.7 million shares for $33.8 million. During the first nine months of 2005 the company repurchased 2.3 million shares, representing approximately six percent of outstanding shares, for $46.2 million. For the nine-month period ending October 1, 2005, the company reported net income of $28.0 million, or $0.72 per diluted share, which represents a 36 percent increase, compared to net income of $21.1 million, or $0.53 per diluted share, during the nine-month period ending October 1, 2004. During this nine-month period net sales increased 23 percent to $503.2 million, compared to net sales of $409.0 million during the same period in 2004. Same-store sales growth was 14 percent for the nine months ended October 1, 2005. Outlook: The company reiterated its expectations to sustain long-term sales growth rates of at least 15 to 20 percent, with same-store growth between 7 and 12 percent, leveraging the business model with long-term earnings growth rates of at least 20 to 25 percent. The company believes that in 2005 it will exceed its long-term target ranges for same-store growth, total sales and earnings growth rate targets. The company expects to open at least five stores in the fourth quarter with no store closures planned. Accordingly, the company is updating its EPS guidance for full-year 2005 to a range of $1.05 to $1.08 from $1.00 to $1.08. The company announced that its outlook for 2006 is to sustain earnings growth in line with its long-term expectations of at least 20 to 25 percent. Earnings growth expectations are exclusive of the impact of new accounting regulations requiring the expensing of stock options. Select Comfort will hold a conference call to discuss its third quarter results on October 25, 2005, at 4:00 p.m. Central Time. A simultaneous webcast of the call will be available in the Investor Relations section of www.selectcomfort.com. A digital replay of the conference call will be accessible beginning at approximately 6:00 p.m. Central Time on October 25, 2005, through 5:00 p.m. Central Time on November 1, 2005. To access the replay, please call 402-998-1239. An archived replay of the conference call may also be accessed after approximately 7:00 p.m. Central Time on October 25, 2005, at www.selectcomfort.com. About Select Comfort: Founded in 1987, Select Comfort Corporation is the nation's leading bed retailer(1), holding 32 U.S. issued or pending patents for its personalized sleep products. The company designs, manufactures and markets a line of adjustable-firmness mattresses featuring air-chamber technology, branded the Sleep Number(R) bed, as well as foundations and sleep accessories. Select Comfort's products are sold through its 388 retail stores located nationwide, through selected bedding retailers; through its national direct marketing operations; and on the Internet at www.selectcomfort.com.

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