Select Comfort Reports 13% Net Sales Increase For First Quarter

"During the quarter, our solid execution resulted in improved performance, demonstrated by sustained same-store growth and strong operating margins," said Bill McLaughlin, president and CEO, Select Comfort Corporation. "We took advantage of an improving consumer environment and positive in-market testing to increase media investments behind our proven value messaging. The result was sales growth across all company-owned channels."

McLaughlin continued, "While still cautious about macro-trends for the balance of the year, we anticipate an improved outlook for 2010 based on our continuing momentum, and consequently are increasing our earnings guidance. We will continue to incrementally invest against our brand and customer experience, which represent key initiatives for the year."

First Quarter Summary
During the first quarter, net sales increased by 13.0 percent as compared to the year-ago period and operating margins improved to 9.0 percent.

The increase in sales was driven by a 29 percent increase in same-store sales, offset by the impact of the closure of 76 stores since the beginning of 2009 and the termination of retail partner relationships at the end of the third quarter 2009. The net decline in store count and retail partner terminations represented $12.8 million in sales in the first quarter of 2009. Direct marketing and internet sales increased by a combined 16 percent as compared to the year-ago period.

Gross profit margins were 62.1 percent of net sales, in line with company targets and 350 basis points higher than the 58.6 percent gross profit rate in the first quarter 2009.

Sales and marketing costs were 44.4 percent of net sales in the first quarter, a 380 basis point improvement compared to 48.2 percent of net sales in 2009. Sales and marketing costs increased year over year by $2.8 million to $70.1 million in 2010. Media investments in the first quarter totaled $18.2 million, $2.5 million higher than the year-ago period.

General and administrative (G&A) expenses equaled $13.1 million in the first quarter, or 8.3 percent of net sales. This compares to $13.3 million, or 9.6 percent of net sales, in the year-ago period. First-quarter G&A expenses included incentive compensation that was approximately $2.0 million higher than a normal run rate related to strong first-quarter earnings performance.

Cash flows from operating activities were $29.5 million for first quarter 2010 compared to $24.1 million, including a $23.0 million tax refund, in the year-ago period. Capital expenditures totaled $1.0 million, compared to $1.2 million in the year-ago period. As of the end of the quarter, cash and cash equivalents and restricted cash totaled $44.0 million and the company had no borrowings under its revolving credit agreement.

The first quarter of 2009 included a valuation allowance adjustment for income taxes and asset impairment charges. Adjusting for these items, net loss would have been $0.02 per share. A reconciliation is provided at the end of this news release.

Fiscal 2010 Outlook
The company is increasing its previously announced guidance and now expects earnings per share in 2010 of between $0.45 and $0.50 per share. These earnings represent an increase in pre-tax earnings of more than 175 percent as compared to 2009. This outlook assumes a continuation of recent sales trends, adjusted for normal seasonality, for the balance of 2010. The company expects to generate positive same-store growth throughout the year, although it anticipates that the rate of growth will slow as year-over-year comparisons become more difficult, specifically in the back half of the year.

The company concluded the first quarter of 2010 with 399 stores and expects to end fiscal 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 $15.0 million.