Select Comfort Corporation
), a retailer of bed mattresses and other sleep related goods,
recently posted lower-than-expected fourth quarter financial
results. Quarterly earnings of 22 cents per share lagged the
Zacks Consensus Estimate by 10 cents and declined 8.3% from 24
cents earned in the comparable prior-year quarter. The decrease
was mainly attributable to a significant fall in operating
Let's Unveil Further
Minneapolis based Select Comfort witnessed a substantial
increase of 16.7% in net revenue, reaching a level of $220.6
million compared with $189.1 million in the comparable prior-year
quarter. The double-digit growth in revenue was mainly due to 11%
increase in comparable-store sales and a benefit of 6 points
coming from net new store growth. However, revenues missed the
Zacks Consensus Estimate of $231.0 million.
Gross profit increased 17.6% to $139.9 million, versus $119.0
million in the fourth quarter of 2011. Consequently, gross margin
improved 60 basis points (bps) to 63.5% from 62.9%. The
improvement was attributable 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.
Operating expenses increased 21.7% year over year to $120.5
million primarily due to a rise of 23.3% in sales and marketing
expenses. Consequently, operating income declined 2.8% to $19.4
million, reflecting a contraction of 180 bps in operating margin
Other Financial Aspects
Select Comfort ended the fiscal with cash and cash equivalents
of $139.2 million (including the current marketable debt
securities). During the period, Select Comfort generated $100.6
million from operating activities compared with $91.0 million in
the previous fiscal. This will enable the company to make capital
investments, pay dividends and repurchase shares.
The company incurred $51.6 million towards capital
expenditure, attributable to funds invested in opening new stores
and improving IT systems.
During the quarter, the company spends $10 million to buy back
0.4 million shares. Year-to-date the company has deployed $30
million to buy back around 1.1 million shares of its common
stock. This demonstrates that it is committed to return value to
Fiscal 2013 Outlook
Select Comfort provided its outlook for the year 2013. The
company expects earnings to be in the range of $1.65-$1.80 per
share, representing a year-over-year growth of 15%-26%. The new
earnings guidance range is anticipated to result in at least 10%
hike in comparable store sales and 25-35 new stores.
Moreover, the company is anticipating capital expenditure in
between $70.0 million and $80.0 million, mainly for new store
openings, renovations and remodels along with improvement in IT
systems. Further, Select Comfort is likely to continue share
repurchase activity in 2013 with an aim of maintaining its share
Other Recent Events
In an effort to expand its product portfolio, on Jan 17, 2013,
this Zacks Rank #3 (Buy) company acquired Comfortaire Corporation
for $15.5 million. The deal was funded through its available cash
and reserves. Comfortaire -the second largest manufacture and
market adjustable air-supported sleep systems - is expected to
further strengthen Select Comfort's competitive advantage against
Flexsteel Industries Inc.
Furniture Brands International Inc.
Kimball International Inc.
). All these companies carry Zacks Rank #3 (Buy).
Apart from this, Select Comfort also made an equity investment
of $4.5 million in one of its product development partners, which
complies with its planned product launch over the next 12 to 24
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