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Select Comfort loses $57.4 million in fourth quarter

Auditors question airbed specialist's ability to continue

Larry Thomas -- Furniture Today, March 20, 2009

MINNEAPOLIS — Bedding manufacturer and retailer Select Comfort reported a fourth-quarter net loss of $57.4 million and said its auditor has issued a qualified opinion on its 2008 financial statement that questions the company's ability to continue as going concern.

The producer of airbeds and related accessories said its sales tumbled 31.3% in the fourth quarter.

Its 471 company-owned retail stores, which account for about 80% of total sales, had a same-store sales decline of 29% in the quarter.

"There is no doubt that we are operating in the most challenging environment in our company's history," said Bill McLaughlin, president and CEO. "While we have made good progress on reducing costs and stabilizing sales, it also is important for us to further enhance our financial flexibility."

Sales for the quarter ended Jan. 3 totaled $131.1 million, down from $190.7 million in the fourth quarter of 2007.

The most recent quarter's loss, which equals $1.30 per share, compares with net income of $2.17 million or 5 cents per share in the 2007 fourth quarter.

The latest quarter's results include one-time charges of $58.9 million, the largest of which was a $32.1 million asset impairment charge.

For the year ended Jan. 3, sales were down 23.9% to $608.5 million from $799.2 million the previous year.

Last year's net loss totaled $70.2 million or $1.59 per share, compared with income of $27.6 million or 57 cents per share in 2007.

In an effort to preserve cash, McLaughlin said Select Comfort is implementing a number of cost-cutting moves, including the closing of at least 55 stores. He said 29 already have been closed since the beginning of the year.

Select Comfort also will cut media spending by at least $30 million this year - roughly a 30% reduction from 2008 - and will virtually eliminate all capital expenditures, which totaled $30 million last year.

Plus, he said the company has revamped its product line to emphasize lower price points. In a conference call with securities analysts, he said the starting price point is now $699 in queen and several other models are below $1,500 in queen. Previously, nearly all Select Comfort sleep sets retailed for $1,000 and above in queen size.

The company acknowledged that its auditors have issued a "going concern" qualification because of doubts about its ability to adequately fund its operations.

"We are seeking to raise additional capital through the issuance of debt or equity securities or a combination thereof, which may adversely impact our profitability," the company said in a filing with the Securities and Exchange Commission. "If we are unable to obtain additional capital, we may not be able to fund our operating needs, we would face a risk of default under our credit agreement and we may not be able to continue as a going concern."

The company said it has not been in compliance with some covenants on its revolving credit agreement, but its lender has waived compliance through March 31.

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Select Comfort loses $57.4 million in quarter

Mar 23, 2009

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