SCSS

Select Comfort Corporation (SCSS)

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Exchange: NASDAQ
Industry: Consumer Durables
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Select Comfort Corporation (SCSS)

Q4 2009 Earnings Call

February 10, 2010 5:00 pm ET

Executives

Mark Kimball – Senior Vice President, General Council

William McLaughlin – President, Chief Executive Officer

James Rabbe – Senior Vice President, Chief Financial Officer

Analysts

Budd Bugatch – Raymond James

John Baugh – Stifel Nicolaus

Bradley Thomas – Keybanc Capital Markets

Joan Storms – Wedbush Morgan Securities

Joel Havard – Hilliard Lyons

Evan for Anthony Gikas – Piper Jaffray

Presentation

Operator

Welcome to the Select Comfort Corporation’s fourth quarter 2009 earnings conference call. (Operator Instructions) I would now like to introduce Mr. Mark Kimball, General Council.

Mark Kimball

Good afternoon and welcome to Select Comfort fourth quarter and year end 2009 earnings conference call. Thank you all for joining us. I’m Mark Kimball, Senior Vice President and General Council. With me on the call today are Bill McLaughlin, our President and Chief Executive Officer and Jim Rabbe, our Senior Vice President and Chief Financial Officer.

In a moment I’ll turn the call over to Bill. Following our prepared remarks, we will open the call to your questions. Please be advised this telephone conference is being recorded and will be available by telephone replay. It will also be archived on our website at selectcomfort.com.

Please refer to the details set forth in our news release to access the replay on our website.

Please also refer to our news release for a reconciliation of certain non-GAAP financial measures included in the release or that may be discussed on this call. The primary purpose of this call is to discuss the results of fiscal period just ended.

However, our commentary and responses to your questions may include certain forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties outlined in our earnings release and discussed in some detail in our annual report on Form 10-K and other periodic filings with the SEC. The company’s actual future results may vary materially.

I will now turn the call over to Bill for his comments.

William McLaughlin

Good afternoon and than you for your time and interest in Select Comfort. As you can see from today’s news release the quality of our fourth quarter achievements represent a fitting end to a remarkable year and a new base upon which to project an exciting future.

Without a doubt 2009 was a year of significant challenge and substantial progress at Select Comfort. Specifically, costs were restructured allowing us to be profitable on lower sales. New messaging around the Sleep Number brand’s uniqueness and value was developed which restored consistent growth in units, revenue and share. And, we addressed our capital structure for increased flexibility and business continuity.

Not only do our fourth quarter results demonstrate the progress that we’ve made against these strategic priorities but they also underscore the significant leverage that exists in our business. In the fourth quarter total company revenue was up 4% versus prior year, and increased 9% when adjusted for the incremental week in last year’s quarter.

This sales growth was achieved with 14% fewer company owned stores and approximately 700 fewer wholesale partner doors as we repositioned our distribution to our core strength. On a same store basis, revenue increased 23% and units were up more than 22%. This strong performance built upon third quarter same store revenue comps of 9%.

Margins improved due to our restructuring efforts. Gross margin was 62.9%, up 700 basis points versus prior year and cash from operations in the quarter was $14 million, and we raised $26 million in equity financing. This completed a year long effort to strengthen our balance sheet and improve our capital structure.

Within the context of a more restrictive credit environment, we successfully paid off close to $80 million in debt and ended the year debt free with a positive cash balance.

In 2009 we established a base of learning to build upon in 2010 for continued profit improvement and preparation for growth. Specifically, as it relates to the brand, we proved the importance and the power of our core brand message, media and distribution strategies.

The Sleep Number brand has a distinct competitive advantage that consumers find important; the ability to experience truly individualized comfort. Sleep Number beds are uniquely designed and clinically proven to provide people with better, pain free sleep that is personalized to meet each individual’s unique needs.

Also important to today’s consumer is value which we stressed in 2009, re-launching our entire bed line and adopting new promotional strategies in an effort to help our customers to understand the affordability of our products.

As we refined the message, we also took steady and more efficient approach to our media plan, consistently supporting consumer awareness throughout the year with incremental spending around key consumer shopping periods emphasizing value and urgency.

Lastly, we focused on our company owned distribution channels. Select Comfort sales professionals are best able to demonstrate the unique value of our products to consumers. We also reset the density and spacing our stores within markets to drive higher same store sales, profits, productivity while reducing capital deployed.

Next, we re-established the leverage potential of our business model both in margin and in cash. In 2009 we realigned our distribution to the most productive core. In doing so, we demonstrated the ability to drive significantly higher sales at existing stores, increasing average annual sales per store to just over $1 million, still with room to grow and surpass our historic sales productivity peak of $1.500 million per store.

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