Fourth quarter gross profit margin of 55.9 percent declined 2.6 percentage points from 58.5 percent in the prior year period. The decline reflects a more aggressive pricing and promotion strategy to generate store traffic and drive sales. Sales and marketing costs in the fourth quarter of 2008 decreased by 19 percent to $74.0 million, representing 56.5 percent of net sales. This compares to $91.8 million, or 48.2 percent of net sales in the prior-year period.
General and administrative expenses were $16.1 million in the fourth quarter, or 12.3 percent of net sales. This compares to $15.2 million, or 8.0 percent of net sales, in the fourth quarter of 2007. The year-over-year variance would have been positive without approximately $2.0 million of fourth quarter 2008 expenses associated with SAP project termination costs and financing-related consulting fees.
Cash flows from operating activities were $3.0 million for full-year 2008, compared to $44.0 million for full-year 2007. The company reduced 2008 capital expenditures to $32.2 million, compared to $43.5 million in the prior year. As of January 3, 2009, cash and cash equivalents totaled $13.1 million and outstanding debt totaled $80.3 million.
Net sales for 2008 totaled $608.5 million, a decrease of 24 percent compared to $799.2 million in 2007. The company reported a 2008 net loss of $70.2 million, or $1.59 per diluted share, compared to net income of $27.6 million or $0.57 per diluted share, in 2007. Asset impairments and the deferred tax valuation allowance totaled $61.4 million for the year. Excluding these charges, the company would have reported a net loss of $22.6 million or $0.51 per diluted share.
Fiscal 2009 Outlook
The company does not provide specific earnings guidance. However, it expects that macro-economic trends and consumer confidence will remain weak throughout the year, and that its sales will decline commensurate with its peer group. As a result of the significant actions taken to reduce costs, the company expects to achieve positive free cash flow and moderately improved profitability in 2009 compared to 2008, before the impact of one-time charges and asset impairments in 2008. These improved trends are already being realized on a first quarter-to-date basis.
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Select Comfort Corporation
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