UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10‑K

Commission file number 001‑35354

MATTRESS FIRM HOLDING CORP.

(Exact Name of Registrant as Specified in Its Charter)

5815 Gulf Freeway

Houston, Texas 77023

(Address of Principal Executive Offices)(Zip Code)

(713) 923‑1090

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well‑known seasoned issuer as defined in Rule 405 of the Securities Act Yes ☒  No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐  No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes ☐  No ☒

On August 4, 2015, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the shares of common stock beneficially held by non‑affiliates of the registrant was approximately $1,277.0 million. (For purposes hereof, directors, executive officers and 10% or greater stockholders have been deemed affiliates).

As of March 31, 2016, 37,073,956 shares of common stock, par value $0.01 per share, of the registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Items 10 through 14 of Part III of this Annual Report on Form 10‑K incorporate by reference certain information from the registrant’s definitive proxy statement for the 2016 annual meeting of stockholders, which the registrant intends to file with the Securities and Exchange Commission no later than 120 days after February 2, 2016, the end of the registrant’s 2015 fiscal year. With the exception of the sections of the definitive proxy statement specifically incorporated herein by reference, the definitive proxy statement is not deemed to be filed as part of this Annual Report on Form 10‑K.

CAUTIONARY NOTE REGARDING FORWARD‑LOOKING STATEMENTS

This Annual Report on Form 10‑K contains forward‑looking statements within the meaning of federal securities laws that relate to future events or our future financial performance. In many cases, you can identify forward‑looking statements by terminology such as “may,” “would,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential” or “continue” or the negative of these terms or other comparable terminology. These forward‑looking statements are made based on our management’s expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. These uncertainties and other factors could cause our actual results to differ materially from those matters expressed or implied by these forward‑looking statements.

Although we believe that the expectations reflected in the forward‑looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Important factors that may cause actual results to differ materially from the results expressed or implied by these forward‑looking statements are set forth under “Risk Factors” in Item 1A. of Part I of this Annual Report on Form 10‑K. All forward‑looking statements in this Annual Report on Form 10‑K are based on information available to us as of the date of this report. We undertake no obligation to publicly update or revise any of the forward‑looking statements, whether as a result of new information, future events or otherwise.

Some of the important factors that could cause our actual results, performance or financial condition to differ materially from expectations include:

NOTE REGARDING TRADEMARKS AND SERVICE MARKS

We own or have rights to use the trademarks, service marks and trade names that we use in conjunction with the operation of our business. Some of the more important trademarks that we own that appear in this Annual Report on Form 10‑K include “Mattress Firm®,” “Comfort By Color®,” “Mattress Firm Red Carpet Delivery Service®,” “Hampton & Rhodes®,” “Mattress Firm SuperCenter®,” “Happiness Guarantee®,” “Sleep Train®,” “Sleep Country®,” “Sleepy’s®” and  “Mattress Discounters.®” Trademarks, trade names or service marks of other companies appearing in this Annual Report on Form 10‑K are, to our knowledge, the property of their respective owners 

NOTE REGARDING MARKET AND INDUSTRY DATA

Industry and market data included in this Annual Report on Form 10-K were obtained from our own internal data, data from industry trade publications and groups (primarily Furniture Today and the International Sleep Products Association, or “ISPA”), consumer research and marketing studies and, in some cases, are management estimates based on industry and other knowledge and experience in the markets in which we operate. Our estimates have been based on information obtained from our suppliers, customers, trade and business organizations and other contacts in the markets in which we operate. We believe these estimates and the third party information mentioned above to be accurate as of the date of this Annual Report on Form 10-K.

MATTRESS FIRM HOLDING CORP.

Table of Contents

Part I

Item 1.  Business

Unless the context otherwise requires, the terms “Mattress Firm,” “our company,” “the Company,” “we,” “us,” “our” and the like refer to Mattress Firm Holding Corp. and its consolidated subsidiaries. Unless otherwise indicated, (i) the term “our stores” refers to our company‑operated stores and our franchised stores and (ii) when used in relation to our company, the terms “market” and “markets” refer to the metropolitan statistical area or an aggregation of the metropolitan statistical areas in which we or our franchisees operate.

In this report, we refer to earnings before interest, taxes, depreciation and amortization as “EBITDA” and we refer to earnings before interest expense, taxes, depreciation and amortization and other adjustments (such as goodwill impairment charges, loss on store closings and acquisition expenses) as “Adjusted EBITDA.” EBITDA and Adjusted EBITDA are not performance measures under accounting principles generally accepted in the United States, or “U.S. GAAP.” See “Item 6. Selected Financial Data” below for a definition of EBITDA and Adjusted EBITDA and a reconciliation of Adjusted EBITDA to EBITDA and to net income.

We report on the basis of a 52‑ or 53‑week fiscal year, which ends on the Tuesday closest to January 31. Each fiscal year is described by the period of the calendar year that comprises the majority of the fiscal year period. For example, the fiscal year ended February 2, 2016 is described as “fiscal 2015.”Fiscal 2015 contained 52 weeks.

Our Company

Through one or more of our operating subsidiaries, we have been doing business under the Mattress Firm® brand name since 1986, and today we are a leading specialty retailer of mattresses and related products and accessories in the United States. We were formed as a Delaware corporation in 2007 and became a publicly held company on November 18, 2011 once shares of our common stock began trading on the NASDAQ Global Select Market under the trading symbol “MFRM”. As of February 2, 2016, the last day of our fiscal 2015, we and our franchisees operated over 2,400 stores, primarily under the Mattress Firm® and Sleep Train  ® brand names, in 105 markets across 41 states. On February 5, 2016, during the first week of our fiscal year ending January 31, 2017 (“fiscal 2016”), we completed the acquisition of all of the outstanding equity interests in HMK Mattress Holdings LLC, the holding company of Sleepy’s, LLC and related entities (collectively, “Sleepy’s”), pursuant to which we acquired over 1,050 additional stores operating primarily under the Sleepy’s ®  brand name in 17 states in the Northeast, New England, the Mid-Atlantic and Illinois. We also offer merchandise through several digital channels, including www.mattressfirm.com and www.sleepys.com, and at special events such as state fairs, pop-up events and similar expositions.  We are the #1 U.S. mattress specialty retailer by store count, sales, year‑over‑year sales growth and market share according to Furniture Today Top 25, September 2015. We carry an extensive assortment of conventional and specialty mattresses and bedding related products across a wide range of price points. For fiscal 2015, total mattress sales represented 90.9% of our total net sales.

We believe that in our markets, Mattress Firm®, Sleepy’s ®  and Sleep Train  ® are highly recognized brands known for broad selection, superior service and compelling value proposition. Based on our analysis of public store information, we believe that, within markets where we have operated for more than one year, more than 90% of our company‑operated stores are located in markets in which we had the number one market share position as of February 2, 2016. Since our founding in 1986 in Houston, Texas, we have expanded our operations to emerge as the only border-to-border and coast-to-coast multi‑brand specialty mattress retailer in the United States, with net sales of approximately $2.5 billion in fiscal 2015.

We believe our destination retail format provides our customers with a convenient, distinctive and enjoyable shopping experience. Our stores carry both a broad assortment of leading national mattress brands and our exclusive brands. With a wide range of styles, sizes, price points and unique features, we provide our customers with their choice of specialty and traditional mattresses from a variety of brands, including Tempur‑Pedic (for which we are the largest retailer in the United States according to Tempur‑Pedic’s public SEC filings), Sealy, Serta, Simmons and Stearns & Foster. We focus on higher average unit price (“AUP”) specialty mattresses that use premium support systems, such as latex and memory foam, rather than the steel innerspring coil systems found in traditional mattresses.

We focus on driving profitability in each of the markets in which we operate through a strategy of penetrating a market with stores and leveraging fixed and discretionary costs, such as occupancy, advertising and overhead, as we gain sales volume and scale. We have a proven track record of growing our store base through both organic new store openings and acquisitions. For example, since January 30, 2013 through February 5, 2016 – the day that we completed the Sleepy’s acquisition – we have almost tripled our store count by adding over 2,300 net new stores, which includes over 1,700 stores added through strategic acquisitions.

Our Industry

Overall Market

We operate in the large, fragmented and growing U.S. mattress retail market, in which retail sales were approximately $14 billion in 2014. Prior to Mattress Firm’s acquisition of Sleepy’s, the market was highly fragmented, with no single retailer holding more than an 8% market share in 2014. The top eight participants accounted for approximately one third of the total market in 2014. According to Furniture Today, in 2014, mattress specialty retailers had a market share of approximately 47%, which represented the largest share of the market, having more than doubled their percentage share over the past 15 years. According to the information released in October 2015 by ISPA, there is a 6.5% increase expected in the value of mattress shipments in 2016. 

We believe that several trends support the positive outlook for long‑term growth of the U.S. mattress retail market:

Overall, AUPs for a wholesale mattress and foundation increased by 3.6% in 2014 when compared with 2013, marking the fourth consecutive annual increase in unit prices since 2010. Industry‑wide AUPs are projected to increase by 2.5% in 2016. 

Our Competitive Strengths

Although the retail bedding industry in the United States is highly competitive, we believe the following competitive strengths differentiate us from our competitors and favorably position us to execute our growth strategy:

Leading specialty retailer.  We believe our proven and effective operating model combines a broad merchandise selection, superior customer service by educated, extensively‑trained associates, a compelling value proposition and highly visible and convenient store locations. The key attributes of the Mattress Firm® experience include:

Attractive new store economic model.  Mattress Firm has exceptional new store economics with average cash‑on‑cash store-level returns in year one in excess of 100% and store payback in less than 12 months due to high inventory turns, strong purchasing leverage and low build‑out costs. Given the national footprint of our vendors and the “showroom” nature of our stores, we are able to maintain limited inventory levels both at the store level and at our distribution centers. On average, our stores are fully “ramped” within the first year of opening.

Store 4‑wall profitability is measured using store revenues, store product costs and all direct costs of operating our store. We expect our store 4‑wall profitability to average approximately 22‑25% of net sales inclusive of funds received from vendors upon the opening of a new store.

Proven track record of driving profitability with our Relative Market Share (“RMS”) model.  We strive to grow our market‑level profitability by increasing our Relative Market Share (defined as our estimated market share relative to the estimated market share of the top competitor in such market) in a given market primarily through the addition of strategically‑located stores. Given that we are only able to estimate our market share and our competitors market share, we use average market penetration per population as a proxy for RMS. Typically as we increase our RMS in a market, we are able to leverage fixed and discretionary costs such as occupancy and advertising. By doing so, we increase our “share of voice,” as measured by per capita advertising spend. This drives increased traffic, higher customer conversion and comparable store net sales in the market. The RMS model also increases leverage over other market‑level costs such as recruiting, training, warehouse, delivery and overhead. We expect the RMS model to drive overall profitability as we continue to increase our store penetration across key markets, gain sales volume, grow brand presence and increase operational scale.

Scale benefits and strong market share position.  We believe our scale and strong market share positions provide us with a number of competitive advantages, including:

Ability to leverage national advertising and grow a national brand.  We have developed a footprint that is capable of allowing us to create a national brand, supported by national advertising.  We have developed excellent relationships with advertising personnel across the country and will be in position to leverage this capability once we convert our stores to one national brand. We believe that our multi-brand mattress specialty retailer competitors do not have the resources to advertise at the national level.

Experienced and invested management team.  Our experienced senior management team has extensive experience in the retail and mattress industries. Steve Stagner, our Executive Chairman and Chairman of our board of directors, has over 20 years of experience in the mattress industry and originally was a top‑performing Mattress Firm® franchisee before Mattress Firm purchased his company in December 2004. Our President and Chief Executive Officer, Ken Murphy, joined Mattress Firm 16 years ago from Sealy Corporation and brings experience managing multiple different areas of sales and operations of ours in his career. Our Chief Financial Officer, Alex Weiss, is an experienced finance professional who joined Mattress Firm in April 2013.

We believe our management’s breadth of experience in the industry has enabled us to anticipate and respond effectively to industry trends and competitive dynamics while driving superior customer service and cultivating long‑standing relationships with our vendors.

Our Growth Strategies

We seek to enhance our position as the #1 specialty retailer of mattresses and related products and accessories and drive profitable sales growth. To achieve these objectives, we plan on executing the following key strategies:

Expand our company‑operated store base.  The highly fragmented U.S. retail mattress market provides us with a significant opportunity to expand our store base through targeted growth. From January 30, 2013 to February 2, 2016, we added 1,302 new company‑operated stores, including 310 store openings in fiscal 2015 and 9 stores through acquisitions in fiscal 2015. Additionally, as noted above, we added over 1,050 stores to our company-operated store base during the first week of our fiscal 2016 when we completed our acquisition of Sleepy’s.  We plan to continue to expand our store base through a targeted combination of new stores and acquisition opportunities in both existing and new markets. As of the end of our fiscal 2015, we achieved an average market penetration rate across the United States of one Mattress Firm® store per approximately 89,000 in population. In our most established and profitable markets, we have a higher penetration rate of one Mattress Firm® store per 50,000 in population. We believe we could operate at least 4,500 store locations in both new and existing markets over time. We believe that attractive opportunities in the real estate market and strategic acquisitions will help us execute our expansion strategy.

Increase sales and profitability within our existing network of stores.  We have achieved positive comparable‑store net sales growth in 21 of the last 24 fiscal quarters. Our strategy is to continue to drive comparable‑store net sales growth within our existing portfolio of stores by:

Distribution

The overwhelming majority of our merchandise comes to us directly from manufacturers such as Tempur Sealy and Serta Simmons and, in the case of our private label products, Corsicana Bedding and Sherwood Bedding.  Manufacturers ship merchandise, based on our inventory needs, to our network of over 75 distribution centers.  The majority of our merchandise sold is then delivered from our distribution centers to consumers directly through our network of independent delivery contractors, and in limited markets, by our associates.  Customers may pick-up purchased merchandise directly from our stores, distribution centers or at special events, which reduces delivery costs.  For certain items purchased via our e-commerce channels or at special events, manufacturers may arrange for product delivery. 

Employees

As of February 2, 2016, the end of fiscal 2015, we had approximately 7,186 employees, substantially all of whom were employed by us on a full‑time basis. Immediately after we completed the Sleepy’s acquisition, on February 5, 2016, we employed approximately 10,552 employees.  We have not experienced any work stoppages and we consider our relations with our employees to be good.

Government Regulation

We believe that we are in compliance in all material respects with the laws to which we are subject. In particular, our business subjects us to regulation in the following areas:

Regulations relating to consumer protection and the bedding industry.  Our operations are subject to federal, state and local consumer protection regulations and other regulations relating specifically to the bedding industry. These regulations vary among the states where we operate, but generally impose requirements as to (i) the proper labeling of bedding merchandise, (ii) restrictions regarding the identification of merchandise as “new” or otherwise, (iii) controls as to hygiene and other aspects of product handling and disposal, and (iv) marketing language and promotions used in connection with the offer and sale of products and, in all cases, penalties for violations. We also are subject to a standard established by the U.S. Consumer Product Safety Commission, which sets mandatory national fire performance criteria for all mattresses sold in the United States on or after July 1, 2007, and to new legislation in California, Connecticut and Rhode Island which require the recycling of mattresses discarded in their states.

Franchise laws and regulations.  We are subject to Federal Trade Commission (the “FTC”) regulations and various state laws regulating the offer and sale of franchises. The FTC and various state laws require us to furnish to prospective franchisees a franchise disclosure document containing prescribed information. Unless an exemption applies, certain states require registration of a franchise offering circular or a filing with state authorities. Substantive

state laws that regulate the franchisor‑franchisee relationship presently exist in a substantial number of states, and bills have been introduced in the U.S. Congress from time to time which provide for federal regulation of the franchisor‑franchisee relationship in certain respects. The state laws often limit, among other things, the duration and scope of non‑competition provisions and the ability of a franchisor to terminate or refuse to renew a franchise. The failure to comply with these laws and regulations in any jurisdiction or to obtain required government approvals could result in a ban or temporary suspension on future franchise sales, fines, other penalties, or require us to make offers of rescission or restitution, any of which could adversely affect our business and operating results.

Segment Financial Information

We operate through two reportable segments—retail operations and franchise operations. Company-operated stores, our e-commerce website operations and multi-channel sales operations consisting primarily of special events comprise our retail operations segment. For our franchise operations segment, franchise fees and royalty income received from our franchisees fully represent results of operations. See Note 1 to our Consolidated Financial Statements for further information about our segments. Segment financial information can be found under “Results of Operations” within Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Seasonality

Our business is subject to seasonal fluctuations and we generally have experienced more sales and a greater portion of income during the second and third quarters of our fiscal year due to a concentration of summer season holidays, including Memorial Day, the Fourth of July and Labor Day, and other seasonal factors. While we expect this trend to continue for the foreseeable future, especially in light of our acquisition of the Sleepy’s business which historically has experienced more sales and greater portion of income during the second and third fiscal quarters, we also expect that the timing of new store openings and other acquisitions we have made or may make and the timing of those acquisitions may have some effect on the impact of these seasonal fluctuations.

Available Information

The Company maintains an internet website at http://ir.mattressfirm.com where our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, proxy statement and other documents and all amendments to those reports and documents are available without charge, as soon as reasonably practicable following the time they are filed with, or furnished to, the SEC. References to the Company’s website address do not constitute incorporation by reference of the information contained on the website, and the information contained on the website is not part of this document.

The public may read and copy any materials that the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1‑800‑SEC‑0330. Also, the SEC maintains an internet website that contains reports, proxy and information statements, and other information regarding issuers, including the Company, that file electronically with the SEC. The public can obtain any documents that the Company files with the SEC at http://www.sec.gov.

Item 1A.  Risk Factors

Our financial performance is subject to various risks and uncertainties. The risks described below are those which we believe are the material risks we face. Any of the risk factors described below could significantly and adversely affect our business, prospects, sales, gross profit, cash flows, financial condition and results of operations.

Risks Related to Our Business

Our business is dependent on general economic conditions in our markets.

Our sales depend, in part, on discretionary spending by our customers. Pressure on discretionary income brought on by economic downturns and slow recoveries, including housing market declines, financial market volatility, changing energy prices, fiscal uncertainty, political uncertainty and weak labor markets, may cause consumers to reduce the amount they spend on discretionary items. If recovery from any economic downturn is slow or prolonged, our growth, prospects, results of operations, cash flows and financial condition could be adversely impacted. General economic conditions and discretionary spending are beyond our control and are affected by, among other things:

Increasing volatility in financial markets may cause some of the above factors to change with an even greater degree of frequency and magnitude.

Our ability to grow and remain profitable may be limited by direct or indirect competition in the U.S. retail bedding industry, which is highly competitive.

The retail bedding industry in the United States is highly competitive. Participants in the bedding industry compete primarily based on store location, service, price, product selection, brand name recognition and advertising. There can be no assurance that we will be able to continue to compete favorably with our competitors in these areas. Our

store competitors include regional and local specialty retailers of bedding (such as Mattress1One and American Mattress), national and regional chains of retail furniture stores carrying bedding (such as Ashley Furniture, Haverty’s and Rooms‑To‑Go), department store chains with bedding departments (such as Macy’s, Sears and JC Penney), big box retailers (such as Wal‑Mart), warehouse clubs (such as Costco), factory direct stores (such as Original Mattress), non-traditional mattress retailers (such as P.C. Richards and Sons) and e-commerce retailers (such as amazon.com marketplace).  While a small percentage of the total, we also have experienced increased competition from online specialty mattress retailers (such as Casper, Tuft and Needle and us-mattress.com).  Additionally, retail furniture stores or bedding manufacturers may open retail locations specifically targeted for specialty bedding as a way to directly compete with us and other specialty retailers. In the past, we have faced periods of heightened competition that materially affected our results of operations. Certain of our competitors have substantially greater financial and other resources than us. Accordingly, we may face periods of intense competition in the future that could have a material adverse effect on our planned growth and future results of operations. In addition, the barriers to entry into the retail bedding industry are relatively low. New or existing bedding retailers could enter our markets and increase the competition we face. Competition in existing and new markets may also prevent or delay our ability to gain relative market share. Any of the developments described above could have a material adverse effect on our planned growth and future results of operations.

If we fail to successfully manage the challenges posed by our planned growth or encounter unexpected difficulties during our expansion, our net sales and profitability could be materially adversely affected.

One of our central long term objectives is to increase sales and profitability through market share leadership. Our ability to achieve market share leadership, however, is contingent upon our ability to (i) open and/or acquire stores in favorable locations, (ii) advertise our stores in an effective and cost‑efficient manner and (iii) achieve operating results in new stores at the same level as our similarly situated current stores. There can be no assurance, however, that we will be able to open and/or acquire stores in new markets as required to achieve market leadership in such markets, identify and obtain favorable store sites, identify and acquire acquisition targets, arrange favorable leases for stores or obtain governmental and other third‑party consents, permits and licenses needed to open or operate stores in a timely manner, train and hire a sufficient number of qualified managers for new stores, retain key personnel from acquired stores, attract a strong customer base and create brand familiarity in new markets, or successfully compete with established mattress stores in the new markets we enter. Moreover, if we are unable to open and/or acquire an adequate number of stores in a market, or if store‑level profitability is lower than expectations, we may be unable to achieve the market presence necessary to justify the considerable expense of radio or television advertising and could be forced to rely upon less effective advertising mediums. Failure to open and/or acquire stores in favorable locations or to advertise in an effective and cost‑efficient manner could place us at a competitive disadvantage as compared to retailers who were more adept than us at managing these challenges, which, in turn, could negatively affect our overall operating results.

Our comparable‑store sales and results of operations fluctuate due to a variety of economic, operating, industry and environmental factors and may not be fair indicators of our performance.

Our comparable‑store sales and operating results have experienced fluctuations, which can be expected to continue. Numerous factors affect our comparable‑store sales results, including among others, the timing of new and relocated store openings, the relative proportion of new and relocated stores to mature stores, cannibalization resulting from the opening of new stores in existing markets, the acquisition and rebranding of competitors’ stores in existing Mattress Firm markets (including the timing of such acquisitions), changes in advertising and other operating costs, the timing and level of markdowns, changes in our product mix, weather conditions, retail trends, the retail sales environment, economic conditions, inflation, the impact of competition, changes in consumer preferences and our ability to execute our business strategy efficiently. As a result, comparable‑store sales and operating results may fluctuate, and may cause the price of our common stock to fluctuate significantly. Therefore, we believe period‑to‑period comparisons of our results may not be a fair indicator of, and should not be relied upon as a measure of, our operating performance.

We intend to aggressively open additional stores in certain of our existing markets, which may diminish sales in our existing stores in those markets, strain our ability to find qualified personnel or divert resources from our existing stores, negatively affecting our overall operating results.

Pursuant to our expansion strategy, we intend to aggressively open additional stores in our existing markets until penetrated to an optimal level, whether through organic growth or acquisitions, including relocations of existing stores. Because our stores typically draw customers from their local areas, additional stores may draw customers away from nearby existing stores and may cause our comparable‑store sales performance and customer counts at those existing stores to decline, which may adversely affect our overall operating results. In addition, our ability to open additional stores or convert and maintain acquired stores will be dependent on our ability to promote, recruit and/or retain enough qualified field managers, store managers, assistant store managers and sales associates. The time and effort required to train and supervise a large number of new managers and associates and integrate them into our culture may divert resources from our existing stores. If we are unable to profitably open additional stores or convert and maintain acquired stores in existing markets and limit the adverse impact of those new or acquired stores on existing stores, it may reduce our comparable‑store sales and overall operating results during the implementation of our expansion strategy.

Our expansion strategy will be dependent upon, and limited by, the availability of adequate capital.

Our expansion strategy will require additional capital for, among other purposes, opening new stores and entering into new markets. Such capital expenditures will include (i) researching real estate and consumer markets, (ii) lease, inventory, property and equipment costs, (iii) integration of new stores and markets into company‑wide systems and programs, and (iv) other costs associated with new stores and market entry expenses and growth. If cash generated internally is insufficient to fund capital requirements, or if funds are not available under our existing credit facility, we will require additional debt or equity financing. Adequate financing may not be available or, if available, may only be available on unfavorable terms. In addition, our debt agreements provide a limit on the amount and nature of capital expenditures we may make. If we fail to obtain sufficient additional capital in the future or we are unable to make capital expenditures under our debt agreements, we could be forced to curtail our expansion strategies by reducing or delaying capital expenditures relating to new stores and new market entry. As a result, there can be no assurance that we will be able to fund our current plans for the opening of new stores or entry into new markets. Additionally, we expect to use cash generated internally to fund the purchase price of acquisitions that align with our expansion strategy. As a result, the available cash resources will be limited for other capital expenditures such as inventory, property and equipment costs. You may disagree with the purchase price we agree to pay or the use of cash for acquisitions. If we fail to obtain sufficient capital to offset the use of cash for acquisitions, or if we are unable to realize a value from an acquisition sufficient to justify the purchase price we paid, other capital expenditures could be delayed and our overall operating results could be adversely affected.

We may from time to time acquire complementary businesses, including operations of our franchisees, which will subject us to a number of risks.

Any acquisitions we may undertake involve a number of risks, including:

For example, during fiscal 2015, we began the process of integrating and managing the more than 650 stores, including the more than 300 operated by Sleep Train that we acquired in over 10 states in fiscal 2014. We also, during fiscal 2015 acquired the retail operations and assets for 9 stores formerly operated by one of our franchisees in Texas and Louisiana and committed to purchase 1,050 stores operating primarily under the Sleepy’s brand in the Northeast, New England, Mid-Atlantic and Illinois by agreeing to acquire all of the equity interests in HMK Mattress Holdings, LLC, the holding company of Sleepy’s, LLC and related entities (collectively, “Sleepy’s”).  We completed our acquisition of Sleepy’s in the first week of our fiscal 2016. If we are unable to fully integrate or successfully manage these acquired businesses or any other business that we acquire, we may not realize anticipated cost savings, improved efficiencies or revenue growth, which may result in reduced profitability or operating losses. In addition, we may face competition for acquisition candidates, which may limit the number of acquisition opportunities and may lead to higher acquisition prices. Moreover, acquisitions of businesses may require the incurrence of additional debt financing or the issuance of additional equity financing, which respectively, could affect our credit rating and ability to obtain financing on favorable terms, or would result in the dilution of our existing stockholder base. The realization of all or any of the risks described above could materially and adversely affect our reputation and our results of operations.

A deterioration in our relationships with, or a deterioration of the brand images of, our primary suppliers could adversely affect our brand and customer satisfaction and result in reduced sales and operating results.

We currently rely on Tempur Sealy and Serta Simmons as our primary suppliers of branded mattresses. Purchases of products from these manufacturers accounted for 79% of our mattress product costs for fiscal 2015. Because of the large volume of our business with these manufacturers and our use of their branding in our marketing initiatives, our success depends on the continued popularity and reputation of these manufacturers. Additionally, our continued focus on increasing market share may result in a reduction of retailers who hold stronger relationships with certain of these vendors than us, which could affect our relationship with these vendors. Any (i) deterioration of their brand image, (ii) reduction in vendor incentives, (iii) adverse change in our relationship with any of them, (iv) adverse change in their financial condition, production efficiency, product development or marketing capabilities, or (v) change in their management could adversely affect our own brand, our product assortment and the level of our customers’ satisfaction, among other things, which could result in reduced sales and operating results.

During fiscal 2015 we used Corsicana Bedding and Sherwood Bedding as the primary suppliers of our private label mattresses, which accounted for 8% and 3%, respectively, of our mattress product costs. If any of our relationships with Tempur Sealy and Simmons Serta or any of our private-label manufacturers like Sherwood or Corsicana is terminated or otherwise impaired, or if any of them materially increase their prices, it could have a material adverse effect on our business and financial condition.

We depend on a limited number of primary suppliers, and any failure by any of them to supply us with products either meeting our needs or at all may impair our inventory and adversely affect our ability to meet customer demands, which could result in a decrease in net sales.

Through our operating subsidiaries, we maintain supply agreements with two subsidiaries of Tempur Sealy and with Simmons, Serta, Sherwood Bedding and Corsicana, among others. Our current suppliers may not continue to sell products to us on acceptable terms or at all, and we may not be able to establish relationships with new suppliers to ensure delivery of products in a timely manner or on terms acceptable to us, as well as ensuring that such merchandise complies with applicable product safety laws and regulations. We may not be able to acquire desired merchandise in sufficient quantities on terms acceptable to us in the future. We are also dependent on suppliers for assuring the quality of merchandise supplied to us. Our inability to acquire suitable merchandise in the future or the loss of one or more of our suppliers and our failure to replace them may harm our relationship with our customers and our ability to attract new customers, resulting in a decrease in net sales.

Certain of our suppliers have recently undergone business combinations, which may reduce product offerings and increase pressures on pricing.

We rely on a limited number of primary suppliers. The consolidation of two or more of these suppliers may reduce the number of products offered as the combined entity re‑evaluates redundant product lines. Additionally,

business combinations may increase the prices that we pay for the products in order to offset costs or otherwise take advantage of the suppliers’ more significant position in the industry. We may not be able to pass any price increases on to our customers or identify and obtain additional products to supplement our product offerings, which may have an adverse effect on our results of operations.

If customers are unable to obtain third‑party financing at acceptable rates, sales of our products could be materially adversely affected.

We offer financing to consumers through third party consumer finance companies. In fiscal 2015, approximately 41% of our sales were financed through third party consumer finance companies. We plan to continue to offer such financing services, and in April 2016, we plan to offer such financing services through a new primary lending partner.  Our business is affected by the availability and terms of financing to customers. During much of the fourth quarter of fiscal 2008 and continuing into fiscal 2009, we experienced significantly lower credit approval rates for our customers. Sales results were negatively affected as a result. Another reduction of credit availability to our customers could have a material impact on our results of operations.  Likewise, our inability to successfully manage the transition of our financing program to our new primary lending partner could delay or reduce approval rates and negatively affect sales.

 We may not be able to successfully anticipate consumer trends and our failure to do so may lead to loss of consumer acceptance of the products we sell, resulting in reduced net sales.

Our success depends on our ability to anticipate and respond to changing trends and consumer demands in a timely manner. If we fail to identify and respond to emerging trends, consumer acceptance of the merchandise we sell and our image with current or potential customers may be harmed, which could reduce our net sales. For example, we responded to the trend in favor of specialty bedding products and innovative sleep systems, such as viscoelastic foam mattresses, by entering into new arrangements with suppliers and reallocating store display space without certainty of success or that existing relationships with conventional mattress suppliers will not be jeopardized. We have also started offering a bed-in-a-box product, the Dream Bed, which is a viscoelastic foam mattress that ships in compressed form directly to consumers. If we misjudge market trends, we may significantly overstock unpopular products and be forced to take significant inventory markdowns, which would have a negative impact on our gross profit and cash flow. Conversely, shortages of models that prove popular could also reduce our net sales.

We depend on a few key employees, and if we lose the services of certain of our principal executive officers, we may not be able to run our business effectively.

Our future success depends in part on our ability to attract and retain key executive, merchandising, marketing and sales personnel. Our executive officers include Steve Stagner, our Executive Chairman and Chairman of our board of directors, Ken Murphy, our President and Chief Executive Officer, and Alex Weiss, our Chief Financial Officer. We have an employment agreement with each of Messrs. Stagner, Murphy and Weiss. If any of these executive officers cease to be employed by us, we would have to hire additional qualified personnel. Our ability to successfully attract and hire other experienced and qualified executive officers cannot be assured and may be difficult because we face competition for these professionals from our competitors, our suppliers and other companies operating in our industry. As a result, the loss or unavailability of any of our executive officers could have a material adverse effect on us. 

Our substantial debt could adversely affect us, make us more vulnerable to adverse economic or industry conditions and prevent us from fulfilling our debt obligations or from funding our expansion strategy.

We have a substantial amount of debt outstanding. On February 5, 2016, our subsidiary, Mattress Holding Corp., entered into an amendment to its existing $125 million asset-backed loan credit agreement, dated October 20, 2014, among Mattress Holding Corp., as borrower, Mattress Holdco, Inc., the lenders party thereto, and Barclays Bank PLC, as administrative agent, collateral agent and issuer (as amended, the “ABL Credit Agreement”), which increased the revolving credit commitments thereunder by $75 million to $200 million. Additionally, on February 5, 2016, Mattress Holding Corp. entered into an amendment to its existing $720 million term loan credit agreement, dated October 20, 2014, among Mattress Holding Corp., as borrower, Mattress Holdco, Inc., the lenders party thereto, and Barclays Bank PLC, as administrative agent and collateral agent (as amended, the “Term Loan Credit Agreement”) to,

among other things, add a $665 million incremental term loan facility thereunder. The Term Loan Credit Agreement and the ABL Credit Agreement are collectively referred to in this Annual Report on Form 10-K as the “Senior Credit Facility”. As of February 2, 2016, we had $690.9 million of total indebtedness, consisting primarily of $685.1 million outstanding under the Senior Credit Facility. Upon completion of the Sleepy’s acquisition, on February 5, 2016, we had $1,468.2 million of total indebtedness, of which $1,413.7 million represented borrowings under our Senior Credit Facility. The February 5, 2016 debt balance includes the effect of Accounting Standard Update (“ASU”) No. 2015-03, Interest- Imputation of Interest- Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. We adopted this ASU the first day of our fiscal 2016 year.  Our substantial indebtedness could have serious consequences, such as:

The potential consequences of our substantial indebtedness make us more vulnerable to defaults and place us at a competitive disadvantage. A substantial or extended increase in interest rates could significantly affect our cash available to make scheduled payments on the Senior Credit Facility or to fund our expansion strategy.

We may be unable to generate sufficient cash to service all of our indebtedness and other liquidity requirements and may be forced to take other actions to satisfy such requirements, which may not be successful.

We will be required to repay borrowings under the ABL Credit Agreement on February 5, 2021 and term borrowings under the Term Loan Credit Agreement on October 20, 2021. Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

Our debt agreements contain restrictions that limit our flexibility in operating our business.

The Senior Credit Facility contains negative covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability and the ability of our restricted subsidiaries to, among other things:

The Term Loan Credit Agreement further has an affirmative financial covenant.  Commencing with the fiscal quarter ending on July 31, 2016, Mattress Holding Corp., the borrower, must not exceed a total net leverage ratio subject to specified stepdowns.

A breach of any of these covenants could result in an event of default under the Senior Credit Facility. Upon the occurrence of an event of default under the Senior Credit Facility, the lenders could elect to declare all amounts outstanding under such facility to be immediately due and payable and terminate all commitments to extend further credit, or seek amendments to our debt agreements that would provide for terms more favorable to such lenders and that we may have to accept under the circumstances. If we were unable to repay those amounts, the lenders under the Senior Credit Facility could proceed against the collateral granted to them to secure that indebtedness. We have pledged a significant portion of our assets as collateral under the Senior Credit Facility. If the lenders under the Senior Credit Facility accelerate the repayment of borrowings, we cannot guarantee that we will have sufficient assets to repay the Senior Credit Facility.

If we fail to hire, train and retain qualified managers, sales associates and other employees our superior customer service could be compromised and we could lose sales to our competitors.

A key element of our competitive strategy is to provide product expertise to our customers through our extensively trained, commissioned sales associates. If we are unable to attract and retain qualified personnel and managers as needed in the future, including qualified sales personnel, our level of customer service may decline, which may decrease our net sales and profitability.

Our future growth and profitability will be dependent in part on the effectiveness and efficiency of our advertising expenditures.

Our advertising expenditures, which are the largest component of our sales and marketing expenses, are expected to continue to increase for the foreseeable future. A significant portion of our advertising expenditures are made in the higher cost radio and television formats. We cannot assure you that our planned increases in advertising expenditures or the advertising message that we select will result in increased customer traffic, sales, levels of brand name awareness or market share or that we will be able to manage such advertising expenditures on a cost‑effective basis. Should we fail to realize the anticipated benefits of our advertising program, or should we fail to effectively manage advertising costs, this could have a material adverse effect on our growth prospects and profitability.

Our operating results are seasonal and subject to adverse weather and other circumstances, the occurrence of which during periods of expected higher sales may result in disproportionately reduced sales for the entire year.

We historically have experienced and expect to continue to experience seasonality in our net sales and net income. We generally have experienced more sales and a greater portion of income during the second and third quarters of our fiscal year due to a concentration of holidays such as Memorial Day, the Fourth of July and Labor Day occurring in the summer and a higher number of home sales occurring in autumn. Over the past five fiscal years, (i) the second fiscal quarter generated 25.0% of our net sales, (ii) the third fiscal quarter generated 26.8% of our net sales and (iii) the other fiscal quarters generated 48.2% of our net sales. We expect this seasonality trend to skew slightly further towards more sales during the second and third quarters as the slightly more seasonal Sleepy’s business enters the combined company. Any decrease in our second or third quarter sales, whether because of adverse economic conditions, adverse weather conditions, timing of holidays or acquisitions within our quarters or other unfavorable circumstances or prolonged atypical adverse weather conditions in our primary markets during any quarter, could have a disproportionately adverse effect on net sales and operating results for the entire fiscal year.

If we are unable to renew or replace our current store leases or if we are unable to enter into leases for additional stores on favorable terms, or if one or more of our current leases are terminated prior to expiration of their stated term and we cannot find suitable alternate locations, our growth and profitability could be negatively impacted.

We currently lease nearly all of our store locations. Many of our current leases provide for our unilateral option to renew for several additional rental periods at specific rental rates. Our ability to re‑negotiate favorable terms on an expiring lease or to negotiate favorable terms for a suitable alternate location, and our ability to negotiate favorable lease terms for additional store locations could depend on conditions in the real estate market, competition for desirable properties, our relationships with current and prospective landlords or on other factors that are not within our control. Any or all of these factors and conditions could negatively impact our growth and profitability.

Because we have a significant concentration of stores in several geographic regions of the United States, we are subject to regional risks.

We have a high concentration of stores in certain geographic regions such as the Gulf Coast, Northeast, Mid-Atlantic, Great Lakes and the Southeast. We therefore have exposure to these local economies as well as weather conditions and natural disasters occurring in these regions, including hurricanes, severe flooding, snowstorms, severe freezing conditions and other natural disasters. If these markets individually or collectively suffer an economic downturn or other significant adverse event, there could be an adverse impact on our comparable‑store sales, net sales and profitability and our ability to implement our planned expansion program. Any natural disaster or other serious disruption in these markets due to hurricanes, severe flooding, snowstorms, severe freezing conditions or any other calamity could damage inventory and could result in decreased sales.

Our results may be adversely affected by fluctuations in raw material and energy costs.

Our results may be affected by the prices of the components and raw materials used in the manufacture of the mattress products and accessories we sell. These prices may fluctuate based on a number of factors beyond our control, including: oil prices and other energy related costs, changes in supply and demand, general economic conditions, labor costs, competition, import duties, tariffs, currency exchange rates and government regulation. These fluctuations may result in an increase in our transportation costs for distribution, utility costs for our retail stores and overall costs to purchase products from our vendors.

We may not be able to adjust the prices of our products or other fees charged to our customers, especially in the short‑term, to recover these cost increases in raw materials and energy. A continual rise in raw material and energy costs could adversely affect consumer spending and demand for our products and increase our operating costs, both of which could have a material adverse effect on our financial condition and results of operations.

We are subject to government regulation and audits from various taxing authorities, which could impose substantial costs on our operations or reduce our operational flexibility.

Our products and our marketing and advertising programs are and will continue to be subject to regulation in the U.S. by various federal, state and local regulatory authorities, including the FTC. Compliance with these regulations may have an adverse effect on our business. In addition, our operations are subject to federal, state and local consumer protection regulations and other laws relating specifically to the bedding industry. For example, U.S. Consumer Product Safety Commission has adopted rules relating to fire retardancy standards for the mattress and pillow industry. Additionally, California, Rhode Island and Connecticut have all enacted laws requiring the recycling of mattresses discarded in their states.  State and local bedding industry regulations vary among the states in which we operate but generally impose requirements as to the proper labeling of bedding merchandise, restrictions regarding the identification of merchandise as “new” or otherwise, controls as to hygiene and other aspects of product handling, disposal, sales and resales and penalties for violations. We and/or our suppliers may be required to incur significant expense to the extent that these regulations change and require new and different compliance measures. For example, new legislation aimed at improving the fire retardancy of mattresses, regulating the handling of mattresses in connection with preventing or controlling the spread of bed bugs could be passed, or requires the recycling of the discarded mattresses that we pick up in connection with product deliveries, which could result in product recalls or in, as applicable, a significant increase in

the cost of operating our business. In addition, failure to comply with these various regulations may result in penalties, the inability to conduct business as previously conducted or at all, and/or adverse publicity, among other things.

We are also subject to FTC and state laws regarding the offering of franchises and their operations and management. State franchise laws may delay or prevent us from terminating a franchise or withholding consent to renew or transfer a franchise. We may, therefore, be required to retain an underperforming franchise and may be unable to replace the franchise, which could have an adverse effect on franchise revenues. Although we believe that we are in compliance with these bedding industry and franchise regulations, we may be required in the future to incur expense and/or modify our operations in order to ensure such compliance.

We are also subject to audits from various taxing authorities. Changes in tax laws in any of the multiple jurisdictions in which we operate, or adverse outcomes from tax audits that we may be subject to in any of the jurisdictions in which we operate, could result in an unfavorable change in our effective tax rate, which could have an adverse effect on our business and results of our operations.

We are subject to varying, inconsistent laws and regulations of state and local jurisdictions, which could result in penalties and other costs if we are unable to establish and maintain compliance efficiently.

We are subject to tax and employee‑related laws and regulations imposed by multiple state and local jurisdictions. Often these laws and regulations vary by jurisdiction and may not conform to our existing tax, payroll and other practices. If we are unable to efficiently identify, monitor and comply with these varying laws and regulations, penalties, fines and other costs may be imposed on the Company and our relationship with certain of our employees could be threatened, each of which could have an adverse effect on our business and results of operations.

Our success is highly dependent on our ability to provide timely delivery to our customers, and any disruption in our delivery capabilities or our related planning and control processes may adversely affect our operating results.

An important part of our success is due to our ability to deliver mattresses and bedding‑related products quickly to our customers. This in turn is due to our successful planning and distribution infrastructure, including merchandise ordering, transportation and receipt processing, the ability of our suppliers to meet our distribution requirements and the ability of our contractors to meet our delivery requirements. Our ability to maintain this success depends on the continued identification and implementation of improvements to our planning processes, distribution infrastructure and supply chain. We also need to ensure that our distribution infrastructure and supply chain keep pace with our anticipated growth and increased number of stores. The cost of these enhanced processes could be significant and any failure to maintain, grow or improve them could adversely affect our operating results. Our business could also be adversely affected if there are delays in product shipments to us due to freight difficulties, difficulties of our suppliers or contractors involving strikes or other difficulties at their principal transport providers or otherwise.

Our ability to control labor costs is limited, which may negatively affect our business.

Our ability to control labor costs is subject to numerous external factors, including (i) prevailing wage rates and overtime pay regulations, (ii) the impact of proposed legislation limiting the flexibility of employee schedules, (iii) the impact of legislation or regulations governing healthcare benefits, such as the Patient Protection and Affordable Care Act, (iv) labor relations, such as the Employee Free Choice Act, (v) health and other insurance costs and (vi) regulations concerning the proper classification of employees and independent contractors. If our labor and/or benefit costs increase, we may not be able to hire or maintain qualified personnel to the extent necessary to execute our competitive strategy, which could adversely affect our results of operations.

There can be no assurance that our warranty claims and comfort exchange return rates will remain within acceptable levels.

Under the terms of our supply agreements with some of our major suppliers of conventional mattress products, we are currently compensated to assume the risk for returns resulting from product defects. Generally, we also provide our customers with a 100‑day comfort satisfaction guarantee at Mattress Firm branded stores whereby, within 100 days from the date of original purchase, if the customer is not satisfied with the new mattress, we will exchange it for a mattress of equal or similar quality with an exchange fee, subject to standard transportation charges. Additionally, we provide our customers with a low price guarantee whereby if a customer finds the same or comparable sleep set

advertised for less than our displayed or advertised price within 100 days of purchase, we will beat our competitor’s advertised price on such comparable sleep set by 10% and refund the customer the difference. While we establish reserves at the time of sale for these exposures, there can be no assurance that our reserves adequately reflect this exposure and no assurance that warranty claims and comfort exchange return rates will remain within acceptable levels. An increase in warranty claims and comfort exchange return rates could have a material adverse effect on our business, financial condition and results of operations.

If we fail to successfully integrate Sleepy’s into our internal controls over financial reporting or if Sleepy’s’ internal controls are found to be ineffective, the integrity of our financial reporting could be compromised.

As a privately-held company prior to being acquired by the Company, neither HMK Mattress Holdings LLC, the holding company of Sleepy’s, LLC and related entities, nor any of its consolidated subsidiaries was subject to the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), with respect to internal control over financial reporting, and, for a period of time after the consummation of the Sleepy’s acquisition, the management evaluation and auditor attestation regarding the effectiveness of our internal controls over financial reporting may exclude the operations of HMK Mattress Holdings LLC and its consolidated subsidiaries. We expect that the integration of Sleepy’s into our internal controls over financial reporting will require significant time and resources from our management and other personnel and will increase our compliance costs. If we fail to successfully integrate the operations of Sleepy’s into our internal controls over financial reporting, our internal controls over financial reporting might not be effective. Failure to achieve and maintain an effective internal controls environment could have a material adverse effect on our ability to accurately report our financial results, the market’s perception of our business and our stock price. In addition, if Sleepy’s internal controls are found to be ineffective, the integrity of our and Sleepy’s financial statements for prior periods could be adversely impacted.

If we determine that our goodwill or other acquired intangible assets are impaired, we may have to write off all or a portion of the impaired assets.

As of February 2, 2016, we had goodwill and intangible assets, net of accumulated amortization, of $826.7 million and $214.9 million, respectively. Management is required to exercise significant judgment in identifying and assessing whether impairment indicators exist, or if events or changes in circumstances have occurred, including market conditions, operating results, competition and general economic conditions. Current accounting guidance requires that we test our goodwill and indefinite‑lived intangible assets for impairment on an annual basis, or more frequently if warranted by the circumstances. Any changes in key assumptions about the business units and their prospects or changes in market conditions or other external factors could result in an impairment charge, and such a charge could have a material adverse effect on our business, results of operations and financial condition. In addition, as we test goodwill impairment at the reporting unit level, which is at a regional level, we may be required to incur goodwill impairment charges based on adverse changes affecting a particular region, regardless of our overall performance. Such impairment charges may have a material adverse effect on our results of operations.

Historically, we have experienced losses on store closings and impairment of store assets. There can be no guarantee that we will not experience similar or greater losses of this kind in the future due to (i) general economic conditions, (ii) competitive or operating factors, or (iii) other reasons, which may have a material adverse effect on our results of operations.

We experienced losses on store closings and impairment of store assets of $1.5 million, $1.8 million and $7.5 million in fiscal 2013, fiscal 2014 and fiscal 2015, respectively. These amounts include a non‑cash impairment charge for long‑lived assets to reduce the carrying value to estimated fair value based on our periodic assessment of whether projected future cash flows of individual stores are sufficient to recover the carrying value of the related assets. This non‑cash impairment charge for long‑lived assets consists primarily of store leasehold costs and related equipment and was $0.5 million, $0.9 million and $5.5 million during fiscal 2013, fiscal 2014 and fiscal 2015, respectively. On March 21, 2016, we announced that we anticipate closing stores in fiscal 2016 as part of our efforts to optimize our store base.  We expect that, for some of these stores, we will incur payments to landlords to terminate or “buy out” leases that will not terminate concurrently with their natural expiration.  Even though we have allocated funds to aid us in this initiative, the financial impact of our efforts will vary depending on the terms of the applicable leases, the condition of local property markets, demand for the specific properties, our relationships with landlords and the availability of potential sub-lease tenants.   If we close additional or more stores in the future due to general economic conditions, competitive or operating factors or other reasons, the related losses may have a material adverse effect on our results of operations. In addition, if we are unsuccessful in our expansion strategy and are required to close more stores than we anticipate, or if we face unexpected costs associated with the stores that we plan to close, the risk of incurring losses on store closings may increase.

We are a holding company with no business operations of our own and depend on cash flow from our subsidiaries to meet our obligations.

We are a holding company with no business operations of our own or material assets other than the stock of our subsidiaries. Accordingly, all of our operations are conducted by our subsidiaries. As a holding company, we require dividends and other payments from our subsidiaries to meet cash requirements. The terms of the Senior Credit Facility restrict our subsidiaries from paying dividends and otherwise transferring cash or other assets to us. We currently have no obligations that require cash funding from our subsidiaries. If there is an insolvency, liquidation or other reorganization of any of our subsidiaries, our stockholders likely will have no right to proceed against the assets of those subsidiaries. Creditors of those subsidiaries will be entitled to payment in full from the sale or other disposal of the assets of those subsidiaries before we, as an equity holder, would be entitled to receive any distribution from that sale or disposal. If our subsidiaries are unable to pay us dividends or make other payments to us when needed, we will be unable to pay dividends or satisfy our obligations.

Product safety and quality control issues, including product recalls, could harm our reputation, divert resources, reduce sales and increase costs.

The products we sell in our stores are subject to regulation by the U. S. Consumer Product Safety Commission and similar state and international regulatory authorities. Such products could be subject to recalls and other actions by these authorities. Product safety concerns may require us to voluntarily remove selected products from our stores. Such recalls and voluntary removal of products can result in, among other things, lost sales, diverted resources, potential harm to our reputation and increased customer service costs, which could have a material adverse effect on our financial condition.

Our business exposes us to personal injury, property damage and product liability claims, which could result in adverse publicity and harm to our brands and our results of operations.

We are from time to time subject to claims due to the alleged injury of an individual in our stores or on our property. In addition, we may be subject to product liability claims for the products that we sell. We are also subject, from time to time, to property damage claims arising in connection with our product deliveries. Subject to certain exceptions, our purchase orders generally require the manufacturer to indemnify us against any product liability claims; however, if a manufacturer does not have insurance or becomes insolvent, there is a risk we would not be indemnified.  Similarly, our independent delivery contractor agreements require our independent delivery contractors to indemnify us, subject to certain exceptions, for any property damage or personal injury that may occur as a result of their actions. Our

ability to be made whole under these arrangements is conditioned on our delivery contractors’ financial condition as well as their maintaining appropriate insurance coverage. Any personal injury, property damage or product liability claim made against us, whether or not it has merit, could be time consuming and costly to defend, resulting in adverse publicity, or damage to our reputation, and have an adverse effect on our results of operations. In addition, any negative publicity involving our vendors, employees, delivery contractors and other parties who are not within our control could negatively impact us.

Our business operations could be disrupted if our information technology systems fail to perform adequately or we are unable to protect the integrity and security of our customers’ information.

We depend largely upon our information technology systems in the conduct of all aspects of our operations. If our information technology systems fail to perform as anticipated, we could experience difficulties in virtually any area of our operations, including but not limited to replenishing inventories or delivering our products to store locations in response to consumer demands. If we experience difficulties in implementing new or upgraded information systems or experience significant system failures, or if we are unable to successfully modify our information systems to respond to changes in our business needs, our ability to run our business could be adversely affected. It is also possible that our competitors could develop better e‑commerce platforms than ours, which could negatively impact our internet sales. Any of these or other systems‑related problems could, in turn, adversely affect our sales and profitability.

In addition, in the ordinary course of our business, we collect and store certain personal information from individuals, such as our customers and suppliers, and we process customer payment card and check information via our internet platform. Computer hackers may attempt to penetrate our computer system and, if successful, misappropriate personal information, payment card or check information or confidential Company business information. In addition, a Company employee, contractor or other third party with whom we do business may attempt to circumvent our security measures in order to obtain such information and may purposefully or inadvertently cause a breach involving such information. Any failure to maintain the security of our customers’ confidential information, or data belonging to us or our suppliers, could put us at a competitive disadvantage, result in deterioration in our customers’ confidence in us, subject us to potential litigation and liability, and subject us to fines and penalties, result in our breach of certain material agreements, resulting in a possible material adverse impact on our business, results of operations, cash flows and financial performance.

We may be responsible for theft and other liabilities at leased properties that we have vacated prior to the expiration of the lease term.

From time to time, we may vacate a leased facility prior to the expiration of the lease term. Unless otherwise agreed by the landlord, we will continue to be responsible as the tenant under any such lease, which may include liability for any theft or other damage to the leased property. Our current insurance policy does not cover our liability for theft or certain other damages at vacated properties, and we have not identified additional insurance policies at commercially reasonable rates that would cover this exposure.

Our strategy to expand our e-commerce business may be unsuccessful.

We offer mattresses, related bedding products and furniture for sale through our websites. As a result, we encounter risks and difficulties frequently experienced by internet-based businesses, including risks related to our ability to attract and retain customers on a cost-effective basis and our ability to operate, support, expand and develop our internet operations, website and software and other related operational systems. Although we believe that our participation in both e-commerce and physical store sales is a distinct advantage for us due to synergies and the potential for new customers, supporting product offerings through both of these channels could create issues that have the potential to adversely affect our results of operations. For example, if our e-commerce business successfully grows, it may do so in part by attracting existing customers, rather than new customers, who choose to purchase products from us online rather than from our physical stores, thereby reducing the financial performance of our stores. In addition, persons may use our website simply to research products that they intend to purchase from brick and mortar competitors and thereby reduce or eliminate the impact of funds spent on our e-commerce efforts. As we continue to grow our e-commerce business, the impact of attracting existing rather than new customers, of conflicts between product offerings

online and through our stores, and of opening up our channels to increased internet competition could have a material adverse impact on our business, results of operations, cash flows and financial performance.

Risks Related to Our Franchises

A portion of our income is generated from our franchisees and our income could decrease if our franchisees do not conduct their operations profitably.

As of February 2, 2016, approximately 5% of our stores were operated by franchisees. During fiscal 2013, fiscal 2014 and fiscal 2015 we derived $5.6 million, $4.6 million and $5.2 million, respectively, from franchise fees and royalties. Franchisees are independent contractors and are not our employees. We provide training and support to franchisees, but the quality of franchised store operations may be diminished by any number of factors beyond our control, including (i) the closing of franchised stores, (ii) the failure of franchisees to comply with our standard operating procedures, (iii) failure to honor our national advertising campaign offers, (iv) effectively run their operations, (v) the failure of franchisees to hire and adequately train qualified managers and other personnel, or (vi) the failure of franchisees to appropriately manage our brand could adversely affect our image and reputation, and the image and reputation of other franchisees, and could reduce the amount of our revenues and our franchise revenues, which could result in lower franchise fees and royalties to us. Additionally, from time to time, we are involved in legal proceedings instituted by third parties relating to actions or inactions of our franchisees, which divert resources away from other operations and may result in adverse publicity. These factors could have a material adverse effect on our financial condition and results of operations. In addition, litigation with franchisees that may arise from time to time could be costly and the outcome thereof would be difficult to predict.

We may be unable to audit or otherwise independently monitor the results of our franchisees, which could adversely affect our results of operations.

Franchisees pay us franchise fees and royalties as a percentage of their gross sales. Although the agreements with our franchisees give us the right to audit their books and records, we may not be able to audit or otherwise readily and independently monitor franchisee performance on a regular basis or at all. As a result, we may experience delays or failures in discovering and/or recouping underpayments. In addition, to the extent that we rely on the integrity of the financial and other information from our franchisees, we may experience difficulties with respect to internal control, measurement and reporting of our franchise fee and royalty receipts and receivables.

The existence of franchisees in some of our markets may restrict our ability to grow in those markets through acquisitions or organically.

We enter into franchise agreements with our franchisees which, among other things, limit our ability to compete with the franchisees in the markets in which they operate. If we determine at some point in the future that we would like to grow in those markets through acquisitions or organically, our ability to do so may be substantially restricted under the franchise agreements.

Risks Related To Our Common Stock

Our stock price could be extremely volatile and, as a result, you could lose all or a part of your investment.

Since our initial public offering in November 2011 through February 2, 2016, the price of our common stock, as reported by the NASDAQ Global Select Market, has ranged from a low of $21.03 on November 21, 2011 to a high of $71.82 on November 18, 2014. In addition, the stock market in general, and the market for stocks of some specialty retailers in particular, has been highly volatile in recent years. As a result, the market price of our common stock is likely to be similarly volatile, and investors in our common stock may experience a decrease, which could be substantial, in the value of their stock, including decreases unrelated to our operating performance or prospects, and could lose part or all of their investment. The price of our common stock could be subject to wide fluctuations in response to a number of factors, including those described elsewhere in this Item 1.A, and others such as:

Because we have no current plans to pay cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.

We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay any cash dividends for the foreseeable future.  Our Senior Credit Facility also restricts our ability to pay dividends on our common stock.  Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur. As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it.

You may experience future dilution as a result of future securities issuances.

On February 5, 2016, we issued an aggregate of 1,762,236 shares of our common stock in connection with our completion of the Sleepy’s acquisition.  A portion of the shares were issued to raise cash to pay part of the acquisition’s cash purchase price and a portion of the shares were issued, as partial payment of the purchase price, in exchange for equity interests in HMK Holdings, LLC, the holding company of Sleepy’s, LLC and related entities.  To the extent we issue securities in the future, including shares of our common stock or other securities convertible into or exchangeable for shares of our common stock, to raise capital, as consideration in future acquisitions or otherwise, our stockholders

may experience substantial dilution. In addition, you may experience additional dilution upon (i) the exercise of any outstanding and future grants of options and warrants to purchase our common stock and (ii) future grants of restricted stock or other equity awards under our stock incentive plans, including our 2011 Omnibus Incentive Plan. Furthermore, investors purchasing shares or other securities in the future could have rights, preferences or privileges senior to those of existing stockholders and you may experience dilution. Because our decision to issue additional equity or debt securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future issuances, if any.

J.W. Childs Associates, Inc. and its affiliates, whose interests may be different from yours, may be able to exert substantial influence over us.

According to publicly available information, investment funds associated with J.W. Childs Associates, Inc. (collectively, “J.W. Childs”) indirectly own approximately 36% of our outstanding common stock. Although J.W. Childs does not directly or indirectly own shares of common stock representing more than 50% of the voting power of our common stock, J.W. Childs could exercise significant influence over our business and affairs, including any determinations with respect to director nominees, mergers or other business combinations, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional common stock or other equity securities, the repurchase or redemption of common stock and the payment of dividends. Similarly, certain investment funds associated with J.W. Childs may be able to determine matters requiring stockholder approval.  The interests of J.W. Childs, which has investments in other companies, may from time to time differ from, or be opposed to, the interests of our other stockholders.

J.W. Childs is not subject to any contractual obligations to retain its ownership interest in the Company. There can be no assurance as to the period of time during which J.W. Childs will maintain its ownership of our common stock.

Recent volatility in our stock price, as well as the securities offering that we completed on February 5, 2016, may result in private litigation against us and/or certain of our directors and officers, that could result in significant financial losses, as well as reputational damage, to us.

Recently a securities litigation firm announced that it had commenced an investigation into the Company and certain of our officers and directors concerning possible violations of federal securities laws.  The Company is also aware of at least one other organization that is attempting to contact our stockholders for the purpose of discussing potential claims against the Company and/or management.  To the Company’s knowledge, the above matters appear to be related to our financial performance and the decline in our stock price over fiscal year 2015.  Additionally, one of our large stockholders recently publicly criticized a private securities offering that we completed on February 5, 2016, whereby we sold an aggregate of 699,300 shares of our common stock, at a purchase price of $35.75 per share (the price at which our common stock sold at the close of trading on February 2, 2016), to Mr. Stagner, our chief executive officer at the time, and certain investment fund affiliates of J.W. Childs.  If we become the subject of any litigation, especially private class actions, alleging that we or any of our directors or officers violated applicable securities laws, we may be forced to spend significant time and resources to defend such litigation and ultimately experience financial and reputational losses, regardless of whether we are successful on the merits of any such litigation.  If we or any of our officers or directors are found liable for violating any securities laws, we may experience significant financial losses in the form of damages and penalties (and may be further subject to government investigations and actions), that may not be covered by insurance, and we may be forced to make unanticipated organizational changes that could affect our ability to operate optimally.  These potential effects, alone or combined, if realized, could have an adverse effect on our stock price and as a result, you could lose some, if not all of your investment.

Item 1B.  Unresolved Staff Comments

None.

Item 2.  Properties

Our corporate headquarters are located in Houston, Texas and adjoins one of our Mattress Firm SuperCenter® stores. We lease nearly all of our company‑operated stores, which are located in 44 states, including Texas, California, Florida, Illinois, New York, and North Carolina. Initial lease terms are generally for five to ten years, and most leases contain multiple five‑year renewal options and rent escalation provisions. We have historically been able to renew or extend leases for our company‑operated stores. Our franchisees also lease their own space.

We also lease nearly all of the distribution centers that serve our company‑operated stores, generally subject to five year leases, most of which contain renewal options ranging from one to five years. As we expand our operations, we may need to find additional distribution center locations or replace existing distribution centers with larger locations to accommodate the increased level of operations. Additionally, from time to time, we may assume lease obligations for distribution centers in connection with our acquisitions, including in markets where we already operate a distribution center. In such an event, we expect to operate many of those acquired distribution centers for a limited time until our distribution operations can be consolidated. We believe that we would not have any difficulty replacing these facilities if we were required to do so. Our largest distribution centers are located in Texas, Florida and California.

Item 3.  Legal Proceedings

From time to time, we are involved in litigation relating to claims arising out of our operations in the normal course of business. We believe, however, that we are not a party to any legal proceedings which, if determined adversely to us, individually or in the aggregate, would have a material adverse effect on our financial position, results of operations or cash flows.

Item 4.  Mine Safety Disclosures

Not applicable.

Part II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information About Our Common Stock

Our common stock is traded on the NASDAQ Global Select Market under the symbol “MFRM.” The following table sets forth, for the period indicated, the high and low sales prices of our common stock as reported by the NASDAQ Global Select Market:

Stockholders

On March 31, 2016, the closing price reported on the NASDAQ Global Select Market of our common stock was $42.39 per share. As of March 31, 2016, we had approximately 70 holders of record of our common stock. This does not include persons whose stock is in nominee or “street name” accounts through brokers.

Dividends

No dividends were declared or paid in fiscal years 2014 or 2015. We anticipate that we will retain future earnings, if any, to finance the continued development and expansion of our business. We do not anticipate paying cash dividends in the foreseeable future. Additionally, because we are a holding company, our ability to pay dividends is limited by the ability of our subsidiaries to pay dividends or make distributions to us. We are also limited in our ability to pay dividends due to restrictions under the terms of the Senior Credit Facility and other agreements governing our indebtedness outstanding from time to time. Any future determination with respect to the payment of dividends will be at the discretion of our board of directors and will be dependent upon, among other things, our financial condition, results of operations, capital requirements, the terms of our then existing indebtedness, general economic conditions and other factors considered relevant by our board of directors.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information as of February 2, 2016 regarding the Company’s equity compensation plans. The only plan pursuant to which the Company may grant equity‑based awards is the Mattress Firm Holding Corp. 2011 Omnibus Incentive Plan (the “Omnibus Plan”), which was approved by the board of directors and the Company’s stockholders on November 3, 2011.

Performance Graph

The graph set forth below compares the cumulative total shareholder return on our common stock between November 18, 2011 (our first trading day on the NASDAQ Global Select Market) and February 2, 2016 to (i) the cumulative total return of companies listed on the NASDAQ Composite and (ii) the cumulative total return of a peer group selected by the Company. This graph assumes an initial investment of $100 on November 18, 2011, in our common stock, the market index and the peer group and assumes the reinvestment of dividends, if any. The graph also assumes that the price of our common stock on November 18, 2011 was equal to the closing price of $22.00. The historical information set forth below is not necessarily indicative of future price performance.

Item 6.  Selected Financial Data

The following table sets forth a summary of our selected consolidated financial data. We derived the selected balance sheet data as of February 3, 2015 and February 2, 2016 and the statement of operations data and per share data for the fiscal years ended January 28, 2014, February 3, 2015 and February 2, 2016, from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10‑K.

The selected balance sheet data as of January 31, 2012, January 29, 2013 and January 28, 2014, and the statement of operations data and per share data for the fiscal years ended January 31, 2012 and January 29, 2013, have been derived from our consolidated financial statements for such years, which are not included in this Annual Report on Form 10‑K.

Our fiscal year consists of 52 or 53 weeks, ending on the Tuesday nearest to January 31. Each fiscal year is described by the period of the year that comprises the majority of the fiscal year period. For example, the fiscal year ended February 2, 2016 is described as “fiscal 2015.” Each of the fiscal years ended January 31, 2012 (“Fiscal 2011”), January 29, 2013 (“Fiscal 2012”), January 28, 2014 (“Fiscal 2013”) and February 2, 2016 (“Fiscal 2015”) consisted of 52 weeks. The fiscal year ended February 3, 2015 (“Fiscal 2014”) consisted of 53 weeks.

The selected consolidated financial data set forth below is not necessarily indicative of results of future operations and should be read in conjunction with the discussion under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included elsewhere in this Annual Report on Form 10‑K. 

*Due to rounding to the nearest cent per diluted share, totals may not equal the sum of the line items in the tables above.

We compensate for these limitations by relying primarily on our U.S. GAAP results and using EBITDA only as a supplemental measure.

We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only as a supplemental measure. The following table contains a reconciliation of our net income (loss) determined in accordance with U.S. GAAP to EBITDA and Adjusted EBITDA for the periods indicated: