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Select Comfort 2Q net income drops 72.8%

By Furniture Today Staff -- Furniture Today, August 12, 2007

Minneapolis — Select Comfort's net income plunged 72.8% in the second quarter as sales declined 5% from the comparable 2006 quarter, the airbed manufacturer and retailer reported last week.

A same-store sales decline of 14% offset sales growth from a net 48 new company-owned stores added in the past 12 months.

Earnings of $2.9 million or 6 cents per share in the latest quarter were down from $10.7 million or 19 cents per share a year ago. Sales declined to $179 million from $188.1 million.

Chairman and CEO Bill McLaughlin said profits were in line with expectations the company outlined earlier. "And we continue to make productivity gains and leverage the cash advantages of our business model, which allow us to invest in growth initiatives," he said.

Despite the sales declines, McLaughlin said the company "has experienced an improving trend in retail sales during the second quarter and into the third quarter as we implement the core elements of our 2007 plan."

Select Comfort said its gross margin improved in the quarter, to 61.2% of sales from 60.4% in the same period a year ago. However, higher sales and marketing expenses because of the new stores — and a 12% hike in media spending to $25.2 million — sent the operating profit margin down to 2.7%, compared with 8.8% in last year's second quarter.

The company said it also spent an additional $300,000 on research and development during the quarter, reflecting its commitment to accelerate the pace of innovation.

For the first six months of the year, sales were down 1.2% to $395.5 million and earnings fell 39.5% to $13.6 million or 27 cents per share, compared with $22.5 million or 40 cents per share in the 2006 first half.

During a conference call with securities analysts, McLaughlin reaffirmed earlier sales and earnings estimates that project full-year sales increasing 10% to 15% and full-year earnings per share jumping 33% to 47%.

He said the sales numbers are achievable as long as the company continues its pace of store openings and records flat same-store sales figures from existing retail stores in the second half of the year.

Her told analysts that second-half sales will be driven by a revamped product line the company is now rolling out to its stores. Two of the new models already are in the stores and three others will be launched by early August.

Several models feature a new latex-like foam cushioning, and one includes a thermal material that regulates body temperature, he said.

The rollout will be supported by an extensive newspaper, radio and national television advertising campaign. And for the first time, the TV ads will urge consumers to visit a Select Comfort store.

"Our research has shown that most consumers have heard of the Sleep Number bed ... but they don't know we have retail stores," McLaughlin said.

He said the company expects to spend about $110 million on advertising this year.

Select Comfort
Earnings per share are fully diluted, and all figures in parentheses are losses or declines.
Quarter ended 6/30	2007	2006	Change
(a) Based on average shares outstanding of 49.9 million in the 2007 quarter, 56.2 million in the 2006 quarter, 50.8 million in the 2007 six months and 56.4 million in the 2006 six months.
Sales	$178,991,000	$188,086,000	(4.8%)
Operating income	6,160,000	17,497,000	(64.8%)
Net income	2,912,000	10,741,000	(72.9%)
Earnings per share (a)	0.06	0.19	(68.4%)
6 months ended 6/30	2007	2006	Change
Sales	$395,500,000	$400,364,000	(1.2%)
Operating income	24,571,000	36,532,000	(32.7%)
Net income	13,589,000	22,475,000	(39.5%)
Earnings per share (a)	0.27	0.40	(32.5%)

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