SCSS

Select Comfort Corporation (SCSS)

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

Q3 2012 Earnings Call

October 17, 2012 5:00 pm ET

Executives

Mark A. Kimball - Chief Legal & Risk Officer, Senior Vice President and Secretary

Shelly R. Ibach - Chief Executive Officer, President and Director

Wendy L. Schoppert - Chief Financial Officer and Executive Vice President

Analysts

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Peter J. Keith - Piper Jaffray Companies, Research Division

Budd Bugatch - Raymond James & Associates, Inc., Research Division

John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division

Keith B. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

Eric Hollowaty - Stephens Inc., Research Division

Todd A. Schwartzman - Sidoti & Company, LLC

Jessica Schoen - Barclays Capital, Research Division

David S. MacGregor - Longbow Research LLC

Presentation

Operator

Welcome to Select Comfort's Third Quarter 2012 Earnings Conference Call. [Operator Instructions] Today's call is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to introduce Mark -- Mr. Mark Kimball, General Counsel. Sir, you may begin.

Mark A. Kimball

Thank you, Jared. Good afternoon, and welcome to the Select Comfort Corporation Third Quarter 2012 Earnings Conference Call. Thank you for joining us. I'm Mark Kimball, Senior Vice President and General Counsel. With me on the call today are Shelly Ibach, our President and CEO; and Wendy Schoppert, our Executive Vice President and CFO.

This telephone conference is being recorded and will be available on our website at sleepnumber.com. Please refer to the details set forth in our news release to access the replay. You also can access the latest version of our investor presentation in the Investor Section of our website. In addition, please refer to our news release for a reconciliation of certain non-GAAP financial measures included in the news release or that may be discussed on this call.

The primary purpose of this call is to discuss the results of the 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 news 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 Shelly for her comments.

Shelly R. Ibach

Good afternoon, everyone. Thank you for joining our call. Today, I will discuss the benefits of our differentiated business models and share highlights from the third quarter. I will then discuss how we plan to progress our strategy in the fourth quarter and beyond.

It is an exciting time for us as we are just starting to unleash the potential of the Sleep Number experience. There are 3 unique attributes of our vertical business model that position us competitively for sustainable, profitable growth.

First, as a manufacturer and retailer, we are able to lead on both product innovation and the overall brand experience because we control every customer touch point. This gives us the unique ability to hear directly from our customers each day, which keeps us grounded and focused on what is relevant to them. And our customers continue to respond enthusiastically to their Sleep Number experience as evidenced by our record third quarter sales of $247 million, a 24% increase over prior year and company-controlled comparable sales growth of 21%.

Second, our model produces leverage to fund innovation and growth while expanding margin. This is apparent in the record 16.3% operating margin and 48% increase in earnings per share during the quarter, as well as strong quarter-end cash and securities balance of $193 million with no debt.

Third, our growth formula is agile and integrated. The steadiness and progression of this formula have resulted in 12 consecutive quarters of double-digit comparable sales growth and 15 consecutive quarters of double-digit operating income growth.

I'll now discuss third and fourth quarter within the context of 3 of our 5 long-term goals. Our first long-term goal is ensure everyone will know Sleep Number and how it will improve their lives. During the quarter, we continue to invest in our national and local advertising strategy to improve awareness. Specifically, we increased media investment by 33% over prior year, while testing and migrating spend to better reach our redefined target customer. Awareness is a key metric to measure this goal, and it remains our number one opportunity as we seek to increase our 20% unaided brand awareness.

In the fourth quarter, we are advancing the scope of our media migration and testing. In addition, we plan to launch a new advertising campaign, just in time for the holiday season. This new creative was developed to more effectively communicate our unique brand experience and better reach our customer. The second long-term goal is Sleep Number will be easy to find, and customers will interact with us when and how they want.

In the third quarter, we advanced our distribution strategy by opening 13 net new stores and executing remodel, expansions and relocations to further develop existing market. We continue to be pleased with how the new store design complements our product offering, resulting in a superior individualized customer experience.

In fact, our average sales per comparable stores is now over $2.1 million on a trailing 12-month basis. This metric illustrates the exceptional productivity of our stores. And as reported earlier this year by retailsales.com, our average sales per square foot ranked number five behind iconic brands Apple, Tiffany, lululemon and Coach.

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