Attached files
| file | filename |
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| 8-K - SELECT COMFORT 8-K 1-13-2010 - Sleep Number Corp | form8k.htm |
Exhibit 99.1
Select
Comfort
12th Annual ICR
XChange
January 13, 2010
2
Forward
Looking Statements
Statements used in
this presentation that relate to future plans, events, financial results or
performance are
forward-looking statements that are subject to certain risks and uncertainties including, among others, such
factors as general and industry economic trends; uncertainties arising from global events; consumer
confidence; effectiveness of our advertising and promotional efforts; our ability to fund our operations through
cash flow from operations or availability under our bank line of credit or other sources, and the cost of credit or
other capital resources necessary to finance operations; the risk of non-compliance with financial covenants
under our bank line of credit, and the potential need to obtain additional capital through the issuance of debt
or equity securities; our ability to attract and retain qualified sales professionals and other key employees;
consumer acceptance of our products, product quality, innovation and brand image; our ability to continue to
expand and improve our product line; industry competition; warranty expenses; risks of pending or potential
litigation; our dependence on significant suppliers, and the vulnerability of any suppliers to commodity
shortages, inflationary pressures, labor negotiations, liquidity concerns or other factors; rising commodity
costs; the capability of our information systems to meet our business requirements and our ability to upgrade
our systems on a cost-effective basis without disruptions to our business; and increasing government
regulations, including new flammability standards for the bedding industry, which have added product cost
pressures and have required implementation of systems and manufacturing process changes to ensure
compliance. Additional information concerning these and other risks and uncertainties is contained in our
filings with the Securities and Exchange Commission, 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 that may be in today’s presentation.
forward-looking statements that are subject to certain risks and uncertainties including, among others, such
factors as general and industry economic trends; uncertainties arising from global events; consumer
confidence; effectiveness of our advertising and promotional efforts; our ability to fund our operations through
cash flow from operations or availability under our bank line of credit or other sources, and the cost of credit or
other capital resources necessary to finance operations; the risk of non-compliance with financial covenants
under our bank line of credit, and the potential need to obtain additional capital through the issuance of debt
or equity securities; our ability to attract and retain qualified sales professionals and other key employees;
consumer acceptance of our products, product quality, innovation and brand image; our ability to continue to
expand and improve our product line; industry competition; warranty expenses; risks of pending or potential
litigation; our dependence on significant suppliers, and the vulnerability of any suppliers to commodity
shortages, inflationary pressures, labor negotiations, liquidity concerns or other factors; rising commodity
costs; the capability of our information systems to meet our business requirements and our ability to upgrade
our systems on a cost-effective basis without disruptions to our business; and increasing government
regulations, including new flammability standards for the bedding industry, which have added product cost
pressures and have required implementation of systems and manufacturing process changes to ensure
compliance. Additional information concerning these and other risks and uncertainties is contained in our
filings with the Securities and Exchange Commission, 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 that may be in today’s presentation.
3
Second largest
U.S. mattress retailer and specialty bedding
company, with clear competitive advantages.
company, with clear competitive advantages.
5% market share
(revenue) with 10%-15% share in lead markets
Restructuring of
business substantially complete - significant
improvement in cash flow and profitability achieved and projected
improvement in cash flow and profitability achieved and projected
Ø Restored positive
cash flow
Ø Debt free compared
to $79 million outstanding just 12 months ago
Ø Growth in gross
margin through efficiencies, in-store “trade up”
Ø Returned to
positive same store growth in Q3 2009 (9%)
Highly
leverageable profit model that has produced strong cash flow
Ø Excellent gross
margins
Ø Minimal
inventory
Ø Self-fund growth,
negative working capital
Leader in
personalized comfort air segment and positioned for
market share gains and operating margin improvement
market share gains and operating margin improvement
Ø 2010 emphasis
shifts back to growth
Ø Economic recovery
at some point important opportunity
Investment
Highlights
4
– Ability to
customize to sleep partners’
individual sleep numbers
individual sleep numbers
– Dynamic system can
be adjusted for life
changes (pregnancy, weight change, etc.)
changes (pregnancy, weight change, etc.)
Proven
benefits
– 20+ years proven
technology
– Third-party
studies show improved sleep
quality and reduced back pain
quality and reduced back pain
– 9 out of 10
couples prefer different
firmness settings
firmness settings
Innerspring
Mattress
Sleep
Number Bed
Differentiated
Product that Satisfies Consumer Needs
Sleep
Number Bed Series & Models
Classic
Series
c2
$999
c3
$1,249
c4
$1,499
Performance
Series
p5
$1,999
p6
$2,499
p7
$2,599
Innovation
Series
i8
$2,999
i9
$3,999
i10
$4,299
Clinically
proven product, affordable for a broad range of consumers
Durable and
competitive value
– Queen-sized sets
list from $999
to $4,299
to $4,299
– 20-year limited
warranty
– Promotional
activity features
$699 mattress-only value
$699 mattress-only value
5
Strong
“Sleep Number” Brand Equity…Young Brand With
Opportunity to Grow
Opportunity to Grow
Sleep
Number Brand Awareness
Marketing
has historically driven awareness and consideration of new
technology
Sleep
Number →
individualized comfort
Couples
no longer need to compromise
Multi-channel
call to action: 800#,
web, retail stores
6
Customer contact
at
sale, delivery, and
service
sale, delivery, and
service
Advantaged
Business Model
Design
Selling
Referral
Cash-Advantaged
Full control of
the
customer experience
customer experience
Immediate input
into
quality and product
design
quality and product
design
Air segment
experience
and share, along with
vertical integration, are
significant barriers to
entry
and share, along with
vertical integration, are
significant barriers to
entry
Minimal
inventory
requirements
requirements
Negative
working
capital model
capital model
New store payback
<
2 years
2 years
Significant
leverage
potential
potential
Cash
and profit leverage, provides direct customer feedback
7
YoY
Growth
7%
5%
(2%)
16%
6%
7%
9%
8%
2%
0%
3%
8%
8%
9%
5%
5%
8%
11%
9%
5%
0%
4%
8%
12%
12%
5%
1%
(9%)
(13%)
7%
10%
Consistent
Industry Growth until 2008
Source:
ISPA reports
Recession
The
mattress industry has shown consistent long-term revenue growth,
particularly during post-recessionary periods
particularly during post-recessionary periods
Recession
Recession
Recession
8
Cost
Restructuring Substantially Complete Following Period of
Industry Contraction…Positioned for Margin Expansion
Industry Contraction…Positioned for Margin Expansion
$130 million of
aggregate annualized
cost reductions realized from
initiatives executed in 2008 and 2009
cost reductions realized from
initiatives executed in 2008 and 2009
– Manufacturing:
4 Product redesign
($10M*)
4 Shift/staffing
reductions ($6M*)
4 Closure of a
warehouse and 3
hubs ($3M)
hubs ($3M)
– Selling and
Marketing:
4 Store closures: 25
in 2008, 70 in
2009 ($26M), 408 total stores in
2009
2009 ($26M), 408 total stores in
2009
4 Media reduced:
$18M in 2008,
$30M in 2009
$30M in 2009
4 Other fixed and
discretionary
>$20M
>$20M
– General and
Administrative:
4 Headcount
reduction: 16% in
2008, 22% in 2009 ($17M)
2008, 22% in 2009 ($17M)
Summary
P&L (Q3 YTD)
$30 million profit improvement on 14% revenue
decline, breakeven lowered 30%
*Based on 2009
sales levels
9
Solid
Balance Sheet
to Support Operations and Future Growth
Summary
Balance Sheet
*Includes net
proceeds from Sterling Partners investment and net proceeds from a $20 million
equity raise
Cost
Structure aligned with no significant
need to add costs with growth
need to add costs with growth
— Leverage stores
as showrooms.
Stores
draw from larger trade area,
sales/store
increases with reduced
store
count
— More efficient
media to drive sales and
leverage
bottom line
Cash
needs limited
— New store -
$300,000/store, <24 month
payback
— Negative working
capital model generates
cash in
growth environment
*Store profit
excluding depreciation, national media and
field
support
Business
Model Supports Strong Margin and Cash Expansion
on Modest Sales Growth
on Modest Sales Growth
11
Macro
Headwinds Led to Lower Mattress Demand - Recent
Months Indicate Return to Industry Growth
Months Indicate Return to Industry Growth
Source: ISPA
sales trends based on reporting company results (approximately 56% of U.S.
mattress industry sales)
*Through November
2009
Housing
Decline
Banking
Crisis
2007
Mattress
industry started declining in Q4 2007 - rate of decline has
improved
in each sequential quarter of 2009
2009
2008
12
(1)
Adjusted for deferred tax impairments in 2001 and 2002. Tax rate of 38%
used in 2001 and 2002.
used in 2001 and 2002.
(1)
(1)
Net
Sales
($ in mm)
($ in mm)
|
Operating
Profit % |
(1%)
|
6.3%
|
9.3%
|
8.9%
|
9.9%
|
9.0%
|
From
2002 to 2006, Select Comfort achieved significant organic growth
and
earnings leverage
*EBITDA
- CapEx
Earnings Per
Share/Free Cash Flow*
Select
Comfort Delivered Profitable Growth Coming Out of The
Last Recession
Last Recession
13
Product
and Marketing Strategies Refined to Manage Economic
Downturn and Take Advantage of Economic Recovery and Restore Growth
Downturn and Take Advantage of Economic Recovery and Restore Growth
Value
messaging
– Entry level queen
sets below $1,000
– Promotion
structure with entry level draw plus incentive to trade-up
– Renamed product
line positioned around key price points
Back to
Basics
– Focused on Sleep
Number unique personal and dual comfort benefit
– 80% baseline,
every day message (Product Benefits)
– 20% create urgency
during key shopping periods (Value Message)
Product
– Introduced memory
foam with Sleep Number
– Pillowology and
other accessories to drive traffic (accessories 10% of sales and
growing)
growing)
Selling
– Quality experience
and increased conversion of traffic
14
Increase operating
margin while assuming continued macro
challenges - opportunity to accelerate as recovery materializes
challenges - opportunity to accelerate as recovery materializes
– Zero
infrastructure growth, savings from annualization of cost takeouts
– Same store growth
offset by annualization of 2009 store closures (68), 2010
planned closures (20-25) and Q3 2009 exit of retail partner locations
planned closures (20-25) and Q3 2009 exit of retail partner locations
– Elimination of
one-time consulting and financing costs ($6M) and interest expense
Advance core
advantages, prepare to accelerate growth
– Continue value and
media refinement and testing
– Product,
personalization and customer experience
– Integrated sales
process, digital strategy
– Market development
program; profit maximization and sales growth
Debt free with
positive cash balance for flexibility and future
expansion
expansion
2010
Initiatives
Improve
Profitability, Position for Growth and Economic
Recovery
15
Diverse,
Experienced Management Team - Demonstrated
Turnaround and Growth Track Record
Turnaround and Growth Track Record
|
Name
|
Position
|
Previous
Experience
|
#
of Years with
Select Comfort |
|
Bill
McLaughlin
|
President
& CEO
|
PepsiCo/Frito
Lay,
Pillsbury
|
9
|
|
Jim
Raabe
|
CFO
|
ValueRx,
KPMG
|
12
|
|
Shelly
Ibach
|
Sales
|
Macy’s/Marshall
Fields
|
2
|
|
Tim
Werner
|
Marketing
|
L. L.
Bean
|
13
|
|
Kathy
Roedel
|
Global
Operations
|
General
Electric
|
4
|
|
Wendy
Schoppert
|
IT
|
US
Bancorp,
America West
Airlines
|
4
|
|
Karen
Richard
|
Human
Resources
|
TCF
Mortgage
|
13
|
|
Mark
Kimball
|
Legal &
Tax
|
Oppenheimer
Wolff &
Donnelly |
10
|
16
Proven success with
key strategic assets
– Unique
product
– Strong
brand
– Advantaged business
model
– Growing
industry
Unique time and
opportunity for the company
– Restructured to
essential core
– Raised
capital
– Now able to build on
2009 success and refocus on accelerating profit
growth
growth
– Positioned to take
advantage of recovery when it comes
Summary
Positioned
to Perform in New Economy
Q4
Release February 10, 2010
17