Select Comfort Corporation reported fourth quarter and fiscal 2010 results for the period ended Jan. 1, 2011. Net sales for the quarter totaled $148.7 million, an increase of 9 percent on same-store growth of 12 percent, compared to $136.5 million in the prior-year period. The company reported fourth quarter net income of $7.1 million, or $0.13 per diluted share, compared to net income of $35.3 million, or $0.69 per diluted share, in the prior-year period. On a comparable basis, excluding a valuation adjustment for income taxes, net income per diluted share would have been $0.08 in the fourth quarter of 2009.
Net sales for 2010 totaled $606 million, an increase of 11 percent as compared to $544 million in the prior-year period. The company reported net income of $31.6 million, or $0.57 per diluted share in 2010, compared to net income of $35.6 million, or $0.77 per diluted share, in the prior-year period. On a comparable basis, excluding a valuation adjustment for income taxes and costs associated with a terminated financing transaction, net income per diluted share would have been $0.24 in 2009.
“Our fourth quarter and full-year performance demonstrate consistent execution against a focused set of priorities as well as solid progress against our profit and sales-growth goals,” said Bill McLaughlin, president and CEO, Select Comfort Corporation. “We are particularly pleased we have continued to increase profit margins and grow faster than the industry as we lapped tougher year-over-year comparisons.”
“As we move into 2011, we’re confident we’ve built a solid financial and operational platform from which to accelerate growth and improve market share,” McLaughlin continued. “Our strategies reflect this position as we increase investments to drive greater awareness and consideration for the Sleep Number brand and stores.”
Fourth Quarter and Full-year Summary
During the fourth quarter, net sales increased by 9 percent as compared to the year-ago period. The increase in sales was driven by a 12 percent increase in same-store sales, offset by the impact of the closure of 24 stores during 2010. Operating income improved by 53 percent to $11.5 million and the operating margin improved 220 basis points to 7.7 percent.
Gross profit margins increased 10 basis points from 62.9 percent in the prior-year period to 63 percent in fourth-quarter 2010. The increase reflects a relatively stable cost structure and channel mix versus 2009.
Sales and marketing costs in the fourth quarter of 2010 increased by 6 percent to $68.6 million, representing 46.1 percent of net sales. This compares to $64.8 million, or 47.5 percent of net sales in the prior-year period. Media investments in the fourth quarter totaled $18.5 million, 15 percent higher than a year ago. General and administrative expenses equaled $13.2 million, or 8.9 percent of net sales. This compares to $12.7 million, or 9.3 percent of net sales, in the fourth quarter of 2009.
Cash flows from operating activities were $71 million for full-year 2010. This compares to $67 million, including a $26 million tax refund, for full-year 2009. As of year-end 2010, cash and cash equivalents totaled $81 million as compared to $18 million at 2009 year-end. During the year, the company had no borrowings under its revolving credit agreement.
Fiscal 2011 Outlook
The company expects to increase net income per share in 2011 by 20 to 30 percent to between $0.68 and $0.74 per diluted share. This outlook assumes modest improvement in macro-economic trends and same-store growth in the upper single digits as the company increases investments against programs designed to expand market share. The company’s long-term expectation is for net income per share growth of between 15 and 20 percent per year.
The company ended 2010 with 386 stores, and expects to end 2011 with approximately 380 stores after the consolidation of planned store openings and closings. The company anticipates that 2011 capital expenditures will be approximately $25 million to $30 million, reflecting a total of 40 to 50 store actions, mainly relating to remodels and relocations, along with an initial investment to upgrade marketing and customer-management systems.
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 386 company-owned stores located across the United States; select bedding retailers; direct-marketing operations; and online at www.sleepnumber.com.