Headquartered in Minneapolis,
Select Comfort Corporation
) - a retailer of bed mattresses and other sleep related goods -
recently posted better-than-expected third quarter 2012 financial
results. Both the top line and bottom line of the company were
above the Zacks Consensus Estimates.
Quarterly earnings of 46 cents per share surpassed the Zacks
Consensus Estimate of 40 cents and jumped 48% from 31 cents
earned in the comparable prior-year quarter. The increase in
earnings is mainly attributable to double-digit top-line growth
and significant improvement in margins.
Quarter in Detail
Select Comfort witnessed a substantial increase of 24% in net
revenue, reaching a level of $247 million compared with $200
million in the prior-year quarter. The double digit growth in
revenue was mainly due to 21% increase in comparable store sales
cushioned by a growth of 31% in retail sales-per-comparable store
over the previous one year. Moreover, revenue exceeded the Zacks
Consensus Estimate of $246 million.
Gross profit increased 27.8% to $160.7 million, versus $125.8
million in the third quarter of 2011. Consequently, gross margin
improved 210 basis points (bps) to 65.1% in the quarter. The
improvement was noticed due to contraction of cost of goods sold
as a percentage of sales along with the positive impact of
pricing and mix related to new product innovations.
Improvement in gross margin, leverage on marketing and sales
expenses, led to a double fold increase in operating income to
$40.2 million, reflecting an expansion of 300 bps in operating
margin to 16.3%. Moreover, it is witnessed that the company has
been achieving double digit growth in operating income since the
last 15 consecutive quarters.
Other Financial Aspects
Select Comfort, which faces stiff competition from
), ended the third quarter with cash and cash equivalents of
$157.6 million (including the current marketable debt
securities). During the first nine months of 2012, Select Comfort
generated $98 million from operating activities compared with $75
million in the last year quarter. This will enable the company to
make capital investments, pay dividends and repurchase
The company incurred $37 million towards capital expenditure,
attributable to funds invested in opening new stores and
improving IT systems.
During the quarter the company bought back 0.4 million shares
worth of $10 million. Year-to-date the company has deployed $20
million to buy back around 0.8 million shares of its common
stock. This demonstrates that the company remains committed to
return value to its shareholders.
Based on better-than-expected and strong quarterly results,
the company raised its outlook for the year 2012. Select Comfort
now expects earnings to be in the range of $1.51-$1.53 per share,
representing a year-over-year growth of 41%-43%. Earlier, the
company has guided earnings range of $1.41-$1.47, an increase of
32%-37% compared with the prior-year quarter. The new earnings
guidance range anticipates a 20% increase in net revenue for the
fourth quarter 2012.
The company maintained its capital expenditure guidance at $50
million, to be used mainly for new store openings, renovations
and remodels along with improvement in IT systems. Further,
Select Comfort estimates to continue the share repurchase
activity for the rest of 2012 with an aim of maintaining its
Management believes that the increase in sales was also
attributable to 20 new store openings year-to-date, comprising 13
new stores launched in the third quarter. At the quarter-end the
company operated 394 stores and plans a total store count of
408-412 by the end of 2012. This represents an increase of 7%-8%
compared with 381 stores at the end of 2011.
Zacks Rank & Recommendation
Select Comfort currently carries a Zacks #1 Rank, implying
short-term Strong Buy rating on the back of continued positive
earnings surprise over the last four quarters. However, we
maintain our long-term 'Neutral' recommendation on the stock.
SELECT COMFORT (SCSS): Free Stock Analysis
SEALY CORP (ZZ): Free Stock Analysis Report
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