8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  April 21, 2010

SELECT COMFORT CORPORATION

(Exact name of registrant as specified in its charter)

Minnesota
(State or other jurisdiction of incorporation or organization)

0-25121	41-1597886
(Commission File No.)	(IRS Employer Identification No.)

9800 59^th Avenue North, Minneapolis, Minnesota 55442

(Address of principal executive offices)    (Zip Code)

(763) 551-7000

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

1

ITEM 2.02.  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On April 21, 2010, Select Comfort Corporation issued a press release announcing results for the fiscal first quarter ended April 3, 2010.  A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K. 

ITEM 9.01.  FINANCIAL STATEMENTS AND EXHIBITS

(c)           Exhibits.

                Exhibit 99.1      Press Release, dated April 21, 2010

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	SELECT COMFORT CORPORATION
	(Registrant)
Dated:  April 21, 2010	By:	/s/ Mark A. Kimball
		Mark A. Kimball
	Title:	Senior Vice President

INDEX TO EXHIBITS

The exhibit listed in this index is being furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed “filed” for purposes of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any document filed under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except as otherwise expressly stated in any such filing.

Exhibit No.Description of Exhibit

99.1                                        Press Release, dated April 21, 2010

2

EX-99.1

 

FOR IMMEDIATE RELEASE

Media Contact: Gabby Nelson (763) 551-7460 gabby.nelson@selectcomfort.com Investor Contact: Hunter Saklad (763) 551-7498 investorrelations@selectcomfort.com  

select comfort ANNOUNCES FIRST quarter results

Reports First Quarter Net Income of $0.14 Per Share, 13 Percent Increase in Net Sales and 29 Percent Increase in Same-store Sales; Increases 2010 Earnings Guidance

MINNEAPOLIS – (April 21, 2010) – Select Comfort Corporation (NASDAQ: SCSS) today reported results for the 2010 first quarter ended April 3, 2010. Net sales for the quarter totaled $158.0 million, an increase of 13 percent on same-store growth of 29 percent, compared to $139.6 million in the first quarter of 2009. The company reported net income of $7.8 million, or $0.14 per diluted share in the first quarter of 2010, compared to a net loss of $2.7 million, or $0.06 per diluted share, in the first quarter of 2009. 

“During the quarter, our solid execution resulted in improved performance, demonstrated by sustained same-store growth and strong operating margins,” said Bill McLaughlin, president and CEO, Select Comfort Corporation. “We took advantage of an improving consumer environment and positive in-market testing to increase media investments behind our proven value messaging. The result was sales growth across all company-owned channels.”

McLaughlin continued, “While still cautious about macro-trends for the balance of the year, we anticipate an improved outlook for 2010 based on our continuing momentum, and consequently are increasing our earnings guidance. We will continue to incrementally invest against our brand and customer experience, which represent key initiatives for the year.”

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Select Comfort Announces First Quarter Results – Page 2 of 10

First Quarter Summary

During the first quarter, net sales increased by 13.0 percent as compared to the year-ago period and operating margins improved to 9.0 percent.

The increase in sales was driven by a 29 percent increase in same-store sales, offset by the impact of the closure of 76 stores since the beginning of 2009 and the termination of retail partner relationships at the end of the third quarter 2009. The net decline in store count and retail partner terminations represented $12.8 million in sales in the first quarter of 2009. Direct marketing and internet sales increased by a combined 16 percent as compared to the year-ago period.

Gross profit margins were 62.1 percent of net sales, in line with company targets and 350 basis points higher than the 58.6 percent gross profit rate in the first quarter 2009.

Sales and marketing costs were 44.4 percent of net sales in the first quarter, a 380 basis point improvement compared to 48.2 percent of net sales in 2009. Sales and marketing costs increased year over year by $2.8 million to $70.1 million in 2010. Media investments in the first quarter totaled $18.2 million, $2.5 million higher than the year-ago period.

General and administrative (G&A) expenses equaled $13.1 million in the first quarter, or 8.3 percent of net sales. This compares to $13.3 million, or 9.6 percent of net sales, in the year-ago period. First-quarter G&A expenses included incentive compensation that was approximately $2.0 million higher than a normal run rate related to strong first-quarter earnings performance.

Cash flows from operating activities were $29.5 million for first quarter 2010 compared to $24.1 million, including a $23.0 million tax refund, in the year-ago period. Capital expenditures totaled $1.0 million, compared to $1.2 million in the year-ago period. As of the end of the quarter, cash and cash equivalents and restricted cash totaled $44.0 million and the company had no borrowings under its revolving credit agreement.

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Select Comfort Announces First Quarter Results – Page 3 of 10

The first quarter of 2009 included a valuation allowance adjustment for income taxes and asset impairment charges. Adjusting for these items, net loss would have been $0.02 per share. A reconciliation is provided at the end of this news release.

Fiscal 2010 Outlook

The company is increasing its previously announced guidance and now expects earnings per share in 2010 of between $0.45 and $0.50 per share. These earnings represent an increase in pre-tax earnings of more than 175 percent as compared to 2009. This outlook assumes a continuation of recent sales trends, adjusted for normal seasonality, for the balance of 2010. The company expects to generate positive same-store growth throughout the year, although it anticipates that the rate of growth will slow as year-over-year comparisons become more difficult, specifically in the back half of the year.

The company concluded the first quarter of 2010 with 399 stores and expects to end fiscal 2010 with between 380 and 390 stores after the consolidation of planned store openings and closings. The company expects that 2010 capital expenditures will be approximately $15.0 million.

Conference Call

            Management will host its regularly scheduled conference call to discuss the company’s results at 5 p.m. Eastern Time (4 p.m. Central; 2 p.m. Pacific) today. To listen to the call, please dial (800) 593-9959 (international participants dial (517) 308-9340) and reference the passcode “Sleep.”  To access the webcast, please visit the investor relations area of the Select Comfort Web site.

A webcast replay will remain available until midnight Central Time, April 30, 2010, by dialing (203) 369-1266. The webcast replay will remain available in the investor relations area of the company’s Web site for approximately 60 days.

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Select Comfort Announces First Quarter Results – Page 4 of 10

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 approximately 400 company-owned stores located across the United States; select bedding retailers; direct marketing operations; and online at www.sleepnumber.com. 

Forward-Looking Statements

Statements used in this news release relating to future plans, events, financial results or performance are forward-looking statements subject to certain risks and uncertainties including, among others, such factors as current general and industry economic trends; consumer confidence; the effectiveness of our marketing and sales programs, including advertising and promotional efforts; consumer acceptance of our products, product quality and brand image; our ability to continue to improve our product line and product quality; warranty obligations; availability of attractive and cost-effective consumer credit options; execution of our retail store distribution strategy; rising commodity costs and other inflationary pressures; our dependence on significant suppliers, including several sole-source suppliers and the vulnerability of suppliers to recessionary pressures; industry competition; risks of pending and potentially unforeseen litigation; our ability to fund our operations through cash flow from operations or availability under our bank line of credit or other sources; increasing government regulations; the adequacy of our management information systems to meet the evolving needs of our business and evolving regulatory standards; our ability to attract and retain key employees; and uncertainties arising from global events, such as terrorist attacks or a pandemic outbreak, or the threat of such events. Additional information concerning these and other risks and uncertainties is contained in our filings with the SEC, including our Annual Report on Form 10-K, and other periodic reports filed with the SEC. The company has no obligation to publicly update or revise any of the forward-looking statements in this news release.

# # #

Select Comfort Announces First Quarter Results – Page 5 of 10

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited – in thousands, except per share amounts)

	Three Months Ended
	April 3, 2010			% of Net Sale		April 4, 2009			% of Net Sales
Net sales	$	157,953		100.0%		$	139,614		100.0%
Cost of sales		59,869		37.9%			57,830		41.4%
Gross profit		98,084		62.1%			81,784		58.6%
Operating expenses:
Sales and marketing		70,092		44.4%			67,313		48.2%
General and administrative		13,149		8.3%			13,345		9.6%
Research and development		654		0.4%			486		0.3%
Asset impairment charges		–		0.0%			378		0.3%
Total operating expenses		83,895		53.1%			81,522		58.4%
Operating income		14,189		9.0%			262		0.2%
Interest expense / other		(1,720	)	(1.1%	)		(1,770	)	(1.3%	)
Income (loss) before income taxes		12,469		7.9%			(1,508	)	(1.1%	)
Income tax expense		4,709		3.0%			1,187		0.9%
Net income (loss)	$	7,760		4.9%		$	(2,695	)	(1.9%	)
Net income (loss) per share – basic	$	0.14				$	(0.06	)
Net income (loss) per share – diluted	$	0.14				$	(0.06	)
Reconciliation of weighted–average shares outstanding:
Basic weighted–average shares outstanding		53,615					44,692
Effect of dilutive securities:
Options		996					–
Restricted shares		470					–
Diluted weighted–average shares outstanding1		55,081					44,692

¹For the three months ended April 4, 2009, potentially dilutive securities have been excluded from the calculation of diluted weighted average shares outstanding, as their inclusion would have had an anti–dilutive effect on our net loss per diluted share.

Select Comfort Announces First Quarter Results – Page 6 of 10

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share amounts)

subject to reclassification

	(unaudited) April 3, 2010			January 2, 2010
Assets
Current assets:
Cash and cash equivalents	$	39,501		$	17,717
Restricted cash		4,515			–
Accounts receivable, net of allowance for doubtful accounts of $299 and $379, respectively		2,532			5,094
Inventories		15,452			15,646
Income taxes receivable		157			3,893
Prepaid expenses		7,788			5,879
Deferred income taxes		6,139			5,153
Other current assets		261			720
Total current assets		76,345			54,102
Property and equipment, net		35,023			37,682
Deferred income taxes		18,186			19,071
Other assets		4,234			7,385
Total assets	$	133,788		$	118,240
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	38,324		$	37,538
Customer prepayments		16,157			11,237
Accruals:
Sales returns		3,396			2,885
Compensation and benefits		17,097			15,518
Taxes and withholding		5,022			4,528
Other current liabilities		7,673			7,831
Total current liabilities		87,669			79,537
Non-current liabilities:
Warranty liabilities		5,016			5,286
Capital lease obligations		178			262
Other long-term liabilities		10,560			10,697
Total non-current liabilities		15,754			16,245
Total liabilities		103,423			95,782
Shareholders’ equity:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding		–			–
Common stock, $0.01 par value; 142,500 shares authorized, 54,623 and 54,310 shares issued and outstanding, respectively		546			543
Additional paid-in capital		33,004			32,860
Accumulated deficit		(3,185	)		(10,945	)
Total shareholders’ equity		30,365			22,458
Total liabilities and shareholders’ equity	$	133,788		$	118,240

Select Comfort Announces First Quarter Results – Page 7 of 10

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited – in thousands)

subject to reclassification

	Three Months Ended
	April 3, 2010			April 4, 2009
Cash flows from operating activities:
Net income (loss)	$	7,760		$	(2,695	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		4,898			4,824
Stock–based compensation		762			1,020
Disposals and impairments of assets		–			378
Excess tax benefits from stock–based compensation		(659	)		–
Changes in deferred income taxes		(606	)		1,691
Change in operating assets and liabilities:
Accounts receivable		2,562			(2,397	)
Inventories		194			1,603
Income taxes receivable		4,941			22,066
Prepaid expenses and other assets		261			(2,634	)
Accounts payable		2,321			2,170
Customer prepayments		4,920			(2,039	)
Accrued sales returns		511			1,456
Accrued compensation and benefits		1,579			(716	)
Accrued taxes and withholding		494			767
Warranty liabilities		19			(186	)
Other accruals and liabilities		(437	)		(1,205	)
Net cash provided by operating activities		29,520			24,103
Cash flows from investing activities:
Purchases of property and equipment		(999	)		(1,239	)
Investments in restricted cash		(4,515	)		(23,043	)
Net cash used in investing activities		(5,514	)		(24,282	)
Cash flows from financing activities:
Net decrease in short–term borrowings		(1,486	)		(9,849	)
Repurchases of common stock		(1,335	)		–
Proceeds from issuance of common stock		19			92
Excess tax benefits from stock–based compensation		659			–
Debt issuance costs		(79	)		–
Net cash used in financing activities		(2,222	)		(9,757	)
Increase (decrease) in cash and cash equivalents		21,784			(9,936	)
Cash and cash equivalents, at beginning of period		17,717			13,057
Cash and cash equivalents, at end of period	$	39,501		$	3,121

Select Comfort Announces First Quarter Results – Page 8 of 10

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Supplemental Financial Information

(unaudited)

	Three Months Ended
	April 3, 2010			April 4, 2009
Percent of sales:
Retail		83.4%			79.1%
Direct and E–Commerce		11.7%			11.5%
Wholesale		4.9%			9.4%
Total		100.0%			100.0%
Sales growth rates:
Retail same–store sales		29%			(14%	)
Direct and E–Commerce		16%			(34%	)
Company–Controlled same–store sales change		27%			(17%	)
Net closed stores/other		(9%	)		(2%	)
Total Company–Controlled Channels		19%			(19%	)
Wholesale		(42%	)		14%
Total		13%			(17%	)
Stores open:
Beginning of period		403			471
Opened		0			0
Closed		(4	)		(30	)
End of period		399			441
Retail partner doors1		148			838
Other metrics:
Average sales per store ($ in 000’s)2	$	1,123		$	965
Average sales per square foot ($s)2	$	762		$	671
Stores > $1 million net sales2		57%			44%
Average mattress sales per mattress unit (Company–controlled channels; $s)	$	1,726		$	1,666

¹On August 11, 2009 we announced our decision to discontinue distribution through non–company owned mattress retailers in the contiguous United States.

²Trailing twelve months for stores open at least one year.

Select Comfort Announces First Quarter Results – Page 9 of 10

SELECT COMFORT CORPORATION AND SUBSIDIARIES

Reported to Adjusted Statements of Operations Data Reconciliation

(in thousands, except per share amounts)

	Three Months Ended April 4, 2009
	As Reported			Impairments(1)		Tax Valuation(2)			As Adjusted
Operating income	$	262		$	378	$	–		$	640
Interest expense / other		(1,770	)		–		–			(1,770	)
Income (loss) before income taxes		(1,508	)		378		–			(1,130	)
Income tax expense (benefit)		1,187			144		(1,760	)		(429	)
Net income (loss)	$	(2,695	)	$	234	$	1,760		$	(701	)
Net income (loss) per share –
Basic	$	(0.06	)	$	0.01	$	0.04		$	(0.02	)
Diluted	$	(0.06	)	$	0.01	$	0.04		$	(0.02	)
Basic Shares		44,692			44,692		44,692			44,692
Diluted Shares		44,692			44,692		44,692			44,692

(1)	Period ended April 4, 2009 includes asset impairment charges for underperforming stores
(2)	During the first quarter of fiscal 2009 we adjusted the valuation allowance against deferred tax assets. As adjusted income tax expense for the period ended April 4, 2009 is presented on a normalized basis using an effective tax rate of 38.0%
	Note – Our “as adjusted” data is considered a non–GAAP financial measure and is not in accordance with, or preferable to, “as reported,” or GAAP financial data. However, we are providing this information as we believe it facilitates year–over–year comparisons for investors and financial analysts
	GAAP – generally accepted accounting principles

Select Comfort Announces First Quarter Results – Page 10 of  10

SELECT COMFORT CORPORATION AND SUBSIDIARIES

Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA)

(in thousands)

We define earnings before interest, taxes, depreciation and amortization (EBITDA) as net income plus: income tax expense, interest expense, depreciation and amortization, stock–based compensation and asset impairments. Management believes EBITDA is a useful indicator of the Company’s financial performance. EBITDA is also a measure of current financial performance used in our debt covenant calculations. Our definition of EBITDA may not be comparable to similarly titled definitions used by other companies. The tables below reconcile EBITDA, which is a non–GAAP financial measure, to comparable GAAP financial measures:

	Three Months Ended					Trailing–Twelve Months Ended
	April 3, 2010		April 4, 2009			April 3, 2010			April 4, 2009
Net income (loss)	$	7,760	$	(2,695	)	$	46,008		$	(65,739	)
Income tax expense (benefit)		4,709		1,187			(17,341	)		2,777
Interest expense		1,724		1,784			5,937			5,518
Depreciation and amortization		3,327		4,614			16,395			20,391
Stock–based compensation		762		1,020			2,977			3,909
Asset impairments		–		378			308			34,639
EBITDA	$	18,282	$	6,288		$	54,284		$	1,495

Note – Our EBITDA calculation is considered a non–GAAP financial measure and is not in accordance with, or preferable to, “as reported,” or GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company’s financial performance by investors and financial analysts.

GAAP – generally accepted accounting principles