Select Comfort Announces Fourth-quarter and Full-year 2011 Results

• Reports Fourth-quarter Earnings per Diluted Share of $0.27
• Achieves Fourth-quarter Comparable Sales Growth of 31 Percent
• Reports 12th Consecutive Quarter of Double-digit Year-over-year Operating Income Growth
• Provides 2012 Earnings Guidance

MINNEAPOLIS--(BUSINESS WIRE)--Select Comfort Corporation (NASDAQ: SCSS) today reported fourth-quarter and fiscal 2011 results for the period ended Dec. 31, 2011. Net sales for the quarter increased 27 percent to $189 million, compared to $149 million in the fourth quarter of 2010, driven by company-controlled comparable sales growth of 31 percent. The company reported fourth-quarter earnings per diluted share of $0.27, a 108 percent increase versus $0.13 per diluted share in the fourth quarter of 2010. Fourth-quarter 2011 results included a $1.9 million, or $0.03 per diluted share, non-recurring net decrease to income-tax expense related to the favorable resolution of prior-years’ tax matters.

“The success and predictability of our profitable growth formula in 2011 gives us confidence as we enter 2012”

Net sales for the full-year 2011 increased 23 percent to $743 million, compared to $606 million in 2010, driven by company-controlled comparable sales growth of 26 percent. The company reported earnings per diluted share of $1.07 in 2011, an 88 percent increase versus $0.57 per diluted share in 2010. Full-year 2011 results included a $1.5 million, or $0.03 per diluted share, non-recurring net decrease to income-tax expense related to the favorable resolution of prior-years’ tax matters.

“Our outstanding financial results in 2011 mark a year of significant progress for our company as we refined our top-line growth formula and achieved record bottom-line leverage and profitability,” said Bill McLaughlin, president and CEO, Select Comfort Corporation. “Building on a strong 2010, we continued to attain top-tier comparable sales increases through our integrated and customer-focused approach to marketing, distribution and product innovation.”

McLaughlin added, “Our team enters 2012 with confidence in our proven growth drivers as we continue to broaden our target consumer, increase brand awareness and develop our under-penetrated major markets. We remain focused on delivering sustained growth in market share and earnings for our shareholders, while also maintaining flexibility to effectively manage through continued market uncertainty.”

Fourth-quarter and Full-year Summary
In the fourth quarter, net sales increased by 27 percent as compared to the prior-year period. The increase in sales was driven by company-controlled comparable sales growth of 31 percent, with average retail sales-per-store during the past 12 months reaching a record $1.7 million, a 33 percent improvement over the prior-year period.

Gross-profit margin in the fourth quarter of 2011 was 62.9 percent of net sales, compared with 63.0 percent in the prior-year period. On a full-year basis, gross-profit margin improved 80 basis points from 62.5 percent in 2010 to 63.3 percent in 2011, driven by favorable product mix, pricing actions and manufacturing efficiencies.

Sales and marketing costs were $82.8 million in the fourth quarter, or 43.8 percent of net sales. This compares to $68.6 million, or 46.1 percent of net sales in the prior-year period, reflecting continued leverage from our sales growth. Media investments in the fourth quarter totaled $24 million, 29 percent higher than a year ago.

General and administrative expenses were $15.0 million in the fourth quarter, or 8.0 percent of net sales. This compares to $13.2 million, or 8.9 percent of net sales during the same period last year, again reflecting continued leverage of the company’s fixed-cost base.

Operating income was $20.0 million during the fourth quarter, and operating margin during the quarter improved 290 basis points from 7.7 percent in 2010 to 10.6 percent in 2011. This operating performance resulted in earnings per diluted share of $0.27, a 108 percent year-over-year improvement, which included a $1.9 million non-recurring net decrease to income-tax expense related to the favorable resolution of prior-years’ tax matters.

Cash flows from operating activities were $91 million for full-year 2011 compared to $71 million in the prior year. Capital expenditures for full-year 2011 increased to $23.5 million as compared to $7.3 million in 2010, driven by increased investment in stores and information systems. As of year-end 2011, cash, cash equivalents and marketable-debt securities totaled $146 million, and the company had no borrowings under its revolving credit agreement.

Fiscal 2012 Outlook
The company expects to increase earnings per diluted share by 23 to 31 percent in 2012 to between $1.32 and $1.40. This outlook assumes company-controlled comparable sales growth of at least 15 percent and a net increase in store count from 381 at year-end 2011 to between 400 and 410 by year-end 2012. It also assumes a year-over-year increase in operating margin of at least 100 basis points.

The company currently anticipates that 2012 capital expenditures will be approximately $50 million, reflecting new stores, repositioned stores and remodels, along with continued investment in customer-management systems. The company also announced today that while its first priority for capital deployment is to invest in continued profitable growth, it currently plans to reinitiate a modest share repurchase in 2012 under a previously approved repurchase program, with the objective to maintain share count at current levels.

“The success and predictability of our profitable growth formula in 2011 gives us confidence as we enter 2012,” said Wendy Schoppert, executive vice president and CFO, Select Comfort Corporation. “We expect sustained revenue growth to come from a combination of new stores and higher average sales per store, while we continue to achieve growth in both operating margins and operating cash flow.”

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 [phone] (international participants dial [phone]) and reference the passcode “Sleep.” To access the webcast, please visit the investor relations area of the Sleep Number website at http://www.sleepnumber.com/eng/aboutus/InvestorRelations.cfm. The webcast replay will remain available in the investor relations area of the company’s website for approximately 60 days.

About Select Comfort Corporation
Select Comfort Corporation (NASDAQ: SCSS) is leading the industry in setting a new standard in sleep by offering consumers high-quality, innovative and individualized sleep solutions, which includes a complete line of SLEEP NUMBER® beds and bedding. The company is the exclusive manufacturer, retailer and servicer of the revolutionary Sleep Number bed, which allows individuals to adjust the firmness and support of each side at the touch of a button. The company offers further personalization through its solutions-focused line of Sleep Number pillows, sheets and other bedding products. And as the only national specialty-mattress retailer, consumers can take advantage of an enhanced mattress-buying experience at one of the approximately 380 Sleep Number stores across the country, online at sleepnumber.com or via phone at (800) Sleep Number or [phone].

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 general and industry economic trends; consumer confidence; the effectiveness of our marketing messages; the efficiency of our advertising and promotional efforts; consumer acceptance of our products, product quality, innovation and brand image; availability of attractive and cost-effective consumer credit options; execution of our retail store distribution strategy; our dependence on significant suppliers, and our ability to maintain relationships with key suppliers, including several sole-source suppliers; the vulnerability of key suppliers to recessionary pressures, labor negotiations, liquidity concerns or other factors; rising commodity costs and other inflationary pressures; industry competition; our ability to continue to improve our product line; warranty expenses; risks of pending and potentially unforeseen litigation; increasing government regulations, which have added or will add cost pressures and process changes to ensure compliance; the adequacy of our management information systems to meet the evolving needs of our business and evolving regulatory standards applicable to data privacy and security; our ability to attract and retain senior leadership and other key employees, including qualified sales professionals; 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 Securities and Exchange Commission (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 CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
			Three Months Ended
			December 31,		% of		January 1,			% of
			2011		Net Sales		2011			Net Sales
Net sales			$	189,073	100.0	%	$	148,668		100.0	%
Cost of sales				70,095	37.1	%		54,943		37.0	%
	Gross profit			118,978	62.9	%		93,725		63.0	%
Operating expenses:
	Sales and marketing			82,778	43.8	%		68,576		46.1	%
	General and administrative			15,032	8.0	%		13,203		8.9	%
	Research and development			1,192	0.6	%		426		0.3	%
	Asset impairment charges			6	0.0	%		43		0.0	%
		Total operating expenses		99,008	52.4	%		82,248		55.3	%
Operating income				19,970	10.6	%		11,477		7.7	%
Other income (expense), net				4	0.0	%		(67	)	0.0	%
Income before income taxes				19,974	10.6	%		11,410		7.7	%
Income tax expense				4,604	2.4	%		4,292		2.9	%
Net income			$	15,370	8.1	%	$	7,118		4.8	%
Net income per share – basic			$	0.28			$	0.13
Net income per share – diluted			$	0.27			$	0.13
Reconciliation of weighted-average
	shares outstanding:
Basic weighted-average shares outstanding				55,424				54,367
Effect of dilutive securities:
	Options			873				656
	Restricted shares			566				465
Diluted weighted-average shares outstanding				56,863				55,488

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
			Twelve Months Ended
			December 31,			% of		January 1,			% of
			2011			Net Sales		2011			Net Sales
Net sales			$	743,203		100.0	%	$	605,676		100.0	%
Cost of sales				272,858		36.7	%		227,413		37.5	%
	Gross profit			470,345		63.3	%		378,263		62.5	%
Operating expenses:
	Sales and marketing			317,502		42.7	%		269,901		44.6	%
	General and administrative			58,106		7.8	%		53,572		8.8	%
	Research and development			4,175		0.6	%		2,147		0.4	%
	Asset impairment charges			109		0.0	%		260		0.0	%
		Total operating expenses		379,892		51.1	%		325,880		53.8	%
Operating income				90,453		12.2	%		52,383		8.6	%
Other expense, net				(33	)	0.0	%		(1,893	)	(0.3	%)
Income before income taxes				90,420		12.2	%		50,490		8.3	%
Income tax expense				29,942		4.0	%		18,922		3.1	%
Net income			$	60,478		8.1	%	$	31,568		5.2	%
Net income per share – basic			$	1.10				$	0.58
Net income per share – diluted			$	1.07				$	0.57
Reconciliation of weighted-average
	shares outstanding:
Basic weighted-average shares outstanding				55,081					54,005
Effect of dilutive securities:
	Options			821					817
	Restricted shares			530					442
Diluted weighted-average shares outstanding				56,432					55,264

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
subject to reclassification
	December 31,		January 1,
	2011		2011
Assets
Current assets:
Cash and cash equivalents	$	116,255	$	76,016
Marketable debt securities – current		20,020		-
Accounts receivable, net of allowance for doubtful accounts
of $397 and $302, respectively		13,844		9,909
Inventories		24,851		19,647
Prepaid expenses		5,778		6,388
Deferred income taxes		4,443		4,297
Other current assets		6,004		652
Total current assets		191,195		116,909
Marketable debt securities – non-current		10,042		-
Property and equipment, net		43,850		32,953
Deferred income taxes		12,964		15,965
Other assets		4,606		4,130
Total assets	$	262,657	$	169,957
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	50,141	$	42,025
Customer prepayments		13,529		12,944
Compensation and benefits		29,806		24,857
Taxes and withholding		9,883		5,359
Other current liabilities		15,691		11,671
Total current liabilities		119,050		96,856
Non-current liabilities:
Warranty liabilities		2,714		2,815
Other long-term liabilities		11,502		12,309
Total non-current liabilities		14,216		15,124
Total liabilities		133,266		111,980
Shareholders’ equity:
Undesignated preferred stock; 5,000 shares authorized,
no shares issued and outstanding		-		-
Common stock, $0.01 par value; 142,500 shares authorized,
56,397 and 55,455 shares issued and outstanding, respectively		564		555
Additional paid-in capital		47,701		36,799
Retained earnings		81,101		20,623
Accumulated other comprehensive income		25		-
Total shareholders’ equity		129,391		57,977
Total liabilities and shareholders’ equity	$	262,657	$	169,957

NOTE: In the first quarter of fiscal 2011 we began reporting cash resulting from credit and debit card transactions when received, rather than on an in-transit basis. To maintain consistency and comparability, previously reported amounts have been reclassified to conform to the current-year presentation.

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
subject to reclassification
	Twelve Months Ended
	December 31,			January 1,
	2011			2011
Cash flows from operating activities:
Net income	$	60,478		$	31,568
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		13,543			14,626
Stock-based compensation		4,971			3,962
Net disposals and impairments of assets		98			251
Excess tax benefits from stock-based compensation		(2,190	)		(1,358	)
Deferred income taxes		2,839			2,352
Changes in operating assets and liabilities:
Accounts receivable		(3,935	)		718
Inventories		(5,204	)		(4,001	)
Income taxes		4,445			6,647
Prepaid expenses and other assets		(1,976	)		1,579
Accounts payable		6,913			3,995
Customer prepayments		585			1,707
Accrued compensation and benefits		5,167			11,471
Other taxes and withholding		1,944			53
Warranty liabilities		566			(1,398	)
Other accruals and liabilities		2,802			(765	)
Net cash provided by operating activities		91,046			71,407
Cash flows from investing activities:
Purchases of property and equipment		(23,527	)		(7,349	)
Proceeds from sales of property and equipment		11			10
Investments in marketable debt securities		(40,021	)		-
Proceeds from sales and maturity of marketable debt securities		10,000			-
Increase in restricted cash		(2,650	)		-
Net cash used in investing activities		(56,187	)		(7,339	)
Cash flows from financing activities:
Net decrease in short-term borrowings		(795	)		(1,074	)
Repurchases of common stock		(371	)		(1,391	)
Proceeds from issuance of common stock		4,356			1,014
Excess tax benefits from stock-based compensation		2,190			1,358
Debt issuance costs		-			(143	)
Net cash provided by (used in) financing activities		5,380			(236	)
Net increase in cash and cash equivalents		40,239			63,832
Cash and cash equivalents, at beginning of period		76,016			12,184
Cash and cash equivalents, at end of period	$	116,255		$	76,016

NOTE: To maintain consistency and comparability, certain amounts from previously reported financial statements have been reclassified to conform to the current-year presentation. See Note on page 7.

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
	Three Months Ended						Twelve Months Ended
	December 31,			January 1,			December 31,			January 1,
	2011			2011			2011			2011
Percent of sales:
Retail		87.1	%		83.7	%		87.5	%		84.0	%
Direct and E-Commerce		9.3	%		10.3	%		8.7	%		10.8	%
Wholesale		3.6	%		6.0	%		3.8	%		5.2	%
Total		100.0	%		100.0	%		100.0	%		100.0	%
Sales growth rates:
Retail comparable-store sales		33	%		12	%		29	%		21	%
Direct and E-Commerce		14	%		(6	%)		(1	%)		5	%
Company-Controlled comparable sales change		31	%		10	%		26	%		19	%
Net closed stores/other		(1	%)		(2	%)		(1	%)		(5	%)
Total Company-Controlled Channels		30	%		8	%		25	%		14	%
Wholesale		(24	%)		32	%		(11	%)		(21	%)
Total		27	%		9	%		23	%		11	%
Stores open:
Beginning of period		374			392			386			403
Opened		10			5			19			7
Closed		(3	)		(11	)		(24	)		(24	)
End of period		381			386			381			386
Other metrics:
Average sales per store ($ in 000's)^1	$	1,721		$	1,295
Average sales per square foot^1	$	1,135		$	873
Stores > $1 million net sales^1		93	%		70	%
Stores > $2 million net sales^1		24	%		7	%
Average mattress sales per mattress unit - Company Controlled Channels^2	$	2,262		$	2,035		$	2,208		$	2,010

¹Trailing twelve months for stores open at least one year.
²Includes revenue from adjustable foundations which has become a more significant part of the mattress mix. The prior definition excluded revenue from adjustable foundations. Previously reported amounts have been reclassified to conform to the current-year presentation.

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 consistent with the definition used in our debt covenant calculations. Management believes EBITDA is a useful indicator of the Company's financial performance. 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
		December 31,		January 1,		December 31,		January 1,
		2011		2011		2011		2011
	Net income	$	15,370	$	7,118	$	60,478	$	31,568
	Income tax expense		4,604		4,292		29,942		18,922
	Interest expense		43		87		187		1,951
	Depreciation and amortization		3,744		3,295		13,493		13,012
	Stock-based compensation		1,297		1,201		4,971		3,962
	Asset impairments		6		43		109		260
	EBITDA	$	25,064	$	16,036	$	109,180	$	69,675
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