Select Comfort Corp. Reports Operating Results (10-Q)

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Oct 26, 2012
Select Comfort Corp. (SCSS, Financial) filed Quarterly Report for the period ended 2012-09-29.

Select Comfort Corporation has a market cap of $1.73 billion; its shares were traded at around $26.95 with a P/E ratio of 21.2 and P/S ratio of 2.3.

Highlight of Business Operations:

Net sales increased 24% to $246.8 million for the three months ended September 29, 2012, compared with $199.6 million for the same period one year ago. The sales increase was primarily driven by a 21% comparable sales increase in our Company-Controlled channel and the sales from 20 net new stores opened in the past 12 months. Company-Controlled mattress units increased 6% compared to the prior-year period. Average mattress sales per mattress unit in our Company-Controlled channel increased by 20%. Sales of other products and services increased by 14%.

Sales and marketing expenses for the three months ended September 29, 2012 increased 21% to $101.7 million, or 41.2% of net sales, compared with $83.9 million, or 42.1% of net sales, for the same period one year ago. The $17.8 million increase was primarily due to an $8.0 million, or 33%, increase in media spending, an increase in variable selling expenses due to the higher sales volume and the additional costs associated with operating 20 net new stores. The sales and marketing expense rate declined 0.9 ppt. compared with the same period one year ago due to the leveraging impact of the 24% net sales increase.

General and administrative (“G&A”) expenses increased $2.6 million to $16.9 million for the three months ended September 29, 2012, compared with $14.3 million in the prior year, but decreased to 6.9% of net sales, compared with 7.2% of net sales one year ago. The $2.6 million increase in G&A expenses was primarily due to (i) a $0.9 million increase in employee compensation expenses resulting from an increase in employee headcount to support the growth of the business, and salary and wage rate increases that were in line with inflation; (ii) a $0.9 million increase in outside consulting expenses; (iii) $0.7 million of additional depreciation expense resulting from the increase in capital expenditures to support the growth of the business; and (iv) a $0.1 million net increase in miscellaneous other expenses. The G&A expense rate decreased by 0.3 ppt. in the current period compared with the same period one year ago due to the leveraging impact of the 24% net sales increase.

Sales and marketing expenses for the nine months ended September 29, 2012 increased 26% to $296.1 million, or 41.5% of net sales, compared with $234.7 million, or 42.4% of net sales, for the same period one year ago. The $61.4 million increase was primarily due to a $26.7 million, or 39%, increase in media spending, an increase in variable selling expenses due to the higher sales volume, and an increase in customer financing expenses as a larger percentage of our customers took advantage of promotional financing offers. The sales and marketing expense rate declined 0.9 ppt. compared with the same period one year ago due to the leveraging impact of the 29% net sales increase.

General and administrative (“G&A”) expenses increased $7.0 million to $50.1 million for the nine months ended September 29, 2012, compared with $43.1 million in the prior year, but decreased to 7.0% of net sales, compared with 7.8% of net sales one year ago. The $7.0 million increase in G&A expenses was primarily due to (i) a $2.8 million increase in outside consulting expenses and year-over-year changes in contingent liabilities; (ii) a $2.3 million increase in employee compensation expenses resulting from an increase in employee headcount to support the growth of the business, salary and wage rate increases that were in line with inflation, and increased stock-based compensation expense; (iii) $1.5 million of additional depreciation expense resulting from the increase in capital expenditures to support the growth of the business; and (iv) a $0.4 million net increase in miscellaneous other expenses. The G&A expense rate decreased by 0.8 ppt. in the current period compared with the same period one year ago due to the leveraging impact of the 29% net sales increase.

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