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Select Comfort reports more stabilized performance in Second Half
Jul '08
Select Comfort Corporation, the nation's leading bed retailer and creator of the SLEEP NUMBER bed, announced results for the fiscal second quarter ended June 28, 2008. Net sales for the quarter totaled $152.1 million, a decrease of 15 percent, compared to $179.0 million in the second quarter of 2007. The company reported a second-quarter net loss of $6.6 million, or $0.15 per diluted share, compared to net income of $2.9 million, or $0.06 per diluted share, in the second quarter of 2007.

"We made important progress in the second quarter in reducing costs, stabilizing sales and laying the groundwork for a return to profitability in the second half of the year, even with growing inflationary pressures and weak macro-economic conditions," said Bill McLaughlin, chief executive officer.

"We were encouraged by stabilizing sales trends and improved bottom-line performance compared with the first quarter, despite the fact that second quarter is historically our seasonal low point. Our priorities continue to be reducing costs, protecting margins and preserving cash to selectively invest in initiatives to improve the business."

Second-quarter sales generally are 10 to 15 percent lower than sales generated during other quarters. For the second quarter of 2008, revenue was 10 percent - or $16 million - less than the first quarter of 2008. An improved cost structure enabled the company to reduce its second-quarter operating loss to $10.3 million, compared with a loss of $11.0 million in the first quarter of 2008, despite lower sales.

Cost reduction and profitability improvement initiatives begun in the first quarter were supplemented with additional actions identified during the second quarter, which are outlined below. The combination of these actions is expected to achieve approximately $36 million in cumulative benefits during 2008 and approximately $54 million on an annualized basis.

Second Quarter Summary:
Retail revenue was down 15 percent, driven by same-store sales comps of negative 20 percent, offset by 18 net new company-owned stores opened during the past 12 months. Second quarter e-commerce and direct-marketing sales were lower, with revenues in these channels declining 27 percent and 13 percent, respectively. Wholesale sales declined 12 percent, primarily due to slowing retail partner orders as sluggish consumer spending continued.

Second quarter gross profit margin of 59.6 percent was 160 basis points below prior year at 61.2 percent, mainly due to lower sales and higher commodity costs. Gross profit margin increased by 200 basis points from the 57.6 rate in the first quarter of this year, based on the company's implementation of price increases and cost-reduction activities, along with an improved sales mix following the introduction of the new Sleep Number 6000 bed model.

Sales and marketing costs in the second quarter of 2008 decreased to $85.4 million, representing 56.2 percent of net sales, compared to 48.5 percent in the prior-year period. General and administrative expenses in the quarter decreased to $14.1 million and were 9.3 percent of sales, equal to the percent of sales reported in the second quarter of 2007.

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