Select Comfort Corporation reported fourth quarter and fiscal 2009 results for the period ended Jan. 2, 2010. Net sales for the quarter totaled $136.5 million, an increase of 4 percent on same-store growth of 23 percent, compared to $131.1 million in the fourth quarter of 2008, which included a 14-week selling period as compared to 13 weeks in 2009. The company reported fourth quarter net income of $35.3 million, or $0.69 per diluted share, compared to a net loss of $57.4 million, or $1.30 per diluted share, in the fourth quarter of 2008.
Both 2008 and 2009 periods included valuation allowance adjustments for income taxes and asset impairment charges. Adjusting for these items, net income would have been $0.08 per share in the fourth quarter of 2009, as compared to a net loss of $0.26 per share in the same period a year ago. A reconciliation is provided at the end of this news release.
“Our fourth quarter and full-year performance reflects strong execution against a set of initiatives that focused on controlling costs, building our brand for improved sales and preserving cash. The result is significantly improved profitability, with the company experiencing two consecutive quarters of same-store sales growth,” said Bill McLaughlin, president and CEO, Select Comfort Corporation. “The strategic focus and our improved business performance positions us well for continued same-store sales growth and improved profitability throughout 2010.”
“The company’s consistent cash generation in 2009, along with efforts to restructure our balance sheet, has allowed us to eliminate our debt,” said Jim Raabe, chief financial officer, Select Comfort Corporation. “This return to a positive cash position provides the flexibility to balance cash preservation with prospects for investments in growth.”
Fourth Quarter and Full-Year Summary
During the fourth quarter, net sales increased by 4 percent as compared to the year-ago period, and were up 9 percent after adjusting for the additional week in 2008. The increase in sales was driven by a 23 percent increase in same-store sales, offset by the impact of the closure of 72 stores since the beginning of 2009 and the termination of retail partner relationships totaling approximately 700 doors at the end of the third quarter 2009. These closed stores and retail partner terminations contributed $12.0 million in sales in the fourth quarter of 2008.
Gross profit margins increased 700 basis points from 55.9 percent of net sales in the prior-year period to 62.9 percent in fourth quarter 2009. The increase reflects improved product mix and cost restructuring initiatives completed during 2009.
Sales and marketing costs in the fourth quarter of 2009 decreased by 12 percent to $64.8 million, representing 47.5 percent of net sales, an improvement of 900 basis points versus the prior year. This compares to $74.0 million, or 56.5 percent of net sales in the prior-year period. Media investments in the fourth quarter totaled $16.1 million, 17 percent lower and more effective than the year-ago period. General and administrative expenses equaled $12.7 million in the fourth quarter, or 9.3 percent of net sales. This compares to $16.1 million, or 12.3 percent of net sales, in the fourth quarter of 2008.
Cash flows from operating activities were $66.6 million for full-year 2009, which includes $26.1 million in tax refunds associated with prior-year losses. This compares to $3.0 million of cash flows from operating activities for full-year 2008. The company reduced 2009 capital expenditures to $2.5 million, compared to $32.2 million in the prior year. As of year-end 2009, cash and cash equivalents totaled $17.7 million and the company had no borrowings under its revolving credit agreement as compared to outstanding debt of $79.2 million at 2008 year-end. The company is in compliance with all bank covenants.
Net sales for 2009 totaled $544.2 million, a decrease of 11 percent as compared to $608.5 million in 2008. The company reported a net profit of $35.6 million, or $0.77 per diluted share in 2009, compared to a net loss of $70.2 million, or $1.59 per diluted share in 2008.
Both 2008 and 2009 periods included valuation allowance adjustments for income taxes and asset impairment charges while 2009 also included costs associated with a terminated financing transaction. Adjusting for these items, net income would have been $0.25 per share in fiscal 2009 as compared to a net loss of $0.51 per share in the same period a year ago. A reconciliation is provided at the end of this news release.
Fiscal 2010 Outlook
The company expects to increase earnings per share in 2010 by 30 percent to 50 percent to between $0.32 and $0.38 per share, as compared to adjusted earnings of $0.25 per share in 2009. This outlook reflects the improved cost structure of the business and a cautious outlook about economic trends for 2010. The company is pleased with early 2010 sales trends and expects to generate positive same-store growth throughout the year. The comparison of 2010 and 2009 sales levels will be impacted by store closures and retail partner terminations in 2009, which together generated approximately $35.0 million in sales in 2009.
The company ended 2009 with 403 stores and expects to end 2010 with between 380 and 390 stores after the consolidation of planned store openings and closings. The company expects that 2010 capital expenditures will be approximately $10.0 million.
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 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