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• | Net sales of $415 million grew 3% versus prior year; adjusted net sales increased 12% |
• | Reiterates full-year 2018 earnings outlook midpoint of $1.85 per diluted share |
• | Net sales increased 3% to $415 million, with flat comparable sales; one week of deliveries ($24 million) shifted into the fourth quarter due to the timing of accelerated sales order growth; adjusted net sales increased 12% (see page 10: Reconciliation of Non-GAAP Financial Measures tables) |
• | Earnings per diluted share (EPS) were $0.52 compared with $0.62 for the prior year; adjusted EPS for the third quarter increased 34% compared to the adjusted prior year EPS (see page 10: Reconciliation of Non-GAAP Financial Measures tables) |
• | Generated $134 million in net cash from operating activities year-to-date while investing $34 million in capital expenditures and returning $195 million to shareholders through share repurchases |
• | Ended the quarter with a $165 million net liquidity cushion against our credit facility compared with $183 million at the end of the prior year’s third quarter (excluding approximately $3 million letters of credit from both periods) |
• | Return on invested capital (ROIC) was 13.7% for the trailing twelve-month period compared with our high single-digit weighted average cost of capital |
Three Months Ended | |||||||||||||
September 29, 2018 | % of Net Sales | September 30, 2017 | % of Net Sales | ||||||||||
Net sales | $ | 414,779 | 100.0 | % | $ | 402,646 | 100.0 | % | |||||
Cost of sales | 164,262 | 39.6 | % | 149,181 | 37.1 | % | |||||||
Gross profit | 250,517 | 60.4 | % | 253,465 | 62.9 | % | |||||||
Operating expenses: | |||||||||||||
Sales and marketing | 188,458 | 45.4 | % | 174,800 | 43.4 | % | |||||||
General and administrative | 29,385 | 7.1 | % | 32,645 | 8.1 | % | |||||||
Research and development | 7,353 | 1.8 | % | 6,991 | 1.7 | % | |||||||
Total operating expenses | 225,196 | 54.3 | % | 214,436 | 53.3 | % | |||||||
Operating income | 25,321 | 6.1 | % | 39,029 | 9.7 | % | |||||||
Other expense, net | 1,836 | 0.4 | % | 248 | 0.1 | % | |||||||
Income before income taxes | 23,485 | 5.7 | % | 38,781 | 9.6 | % | |||||||
Income tax expense | 5,228 | 1.3 | % | 13,178 | 3.3 | % | |||||||
Net income | $ | 18,257 | 4.4 | % | $ | 25,603 | 6.4 | % | |||||
Net income per share – basic | $ | 0.53 | $ | 0.63 | |||||||||
Net income per share – diluted | $ | 0.52 | $ | 0.62 | |||||||||
Reconciliation of weighted-average shares outstanding: | |||||||||||||
Basic weighted-average shares outstanding | 34,231 | 40,755 | |||||||||||
Dilutive effect of stock-based awards | 808 | 760 | |||||||||||
Diluted weighted-average shares outstanding | 35,039 | 41,515 |
Nine Months Ended | |||||||||||||
September 29, 2018 | % of Net Sales | September 30, 2017 | % of Net Sales | ||||||||||
Net sales | $ | 1,119,750 | 100.0 | % | $ | 1,081,218 | 100.0 | % | |||||
Cost of sales | 442,868 | 39.6 | % | 404,675 | 37.4 | % | |||||||
Gross profit | 676,882 | 60.4 | % | 676,543 | 62.6 | % | |||||||
Operating expenses: | |||||||||||||
Sales and marketing | 511,481 | 45.7 | % | 488,564 | 45.2 | % | |||||||
General and administrative | 89,947 | 8.0 | % | 95,233 | 8.8 | % | |||||||
Research and development | 21,146 | 1.9 | % | 20,950 | 1.9 | % | |||||||
Total operating expenses | 622,574 | 55.6 | % | 604,747 | 55.9 | % | |||||||
Operating income | 54,308 | 4.9 | % | 71,796 | 6.6 | % | |||||||
Other expense, net | 3,814 | 0.3 | % | 668 | 0.1 | % | |||||||
Income before income taxes | 50,494 | 4.5 | % | 71,128 | 6.6 | % | |||||||
Income tax expense | 7,945 | 0.7 | % | 21,842 | 2.0 | % | |||||||
Net income | $ | 42,549 | 3.8 | % | $ | 49,286 | 4.6 | % | |||||
Net income per share – basic | $ | 1.18 | $ | 1.18 | |||||||||
Net income per share – diluted | $ | 1.15 | $ | 1.16 | |||||||||
Reconciliation of weighted-average shares outstanding: | |||||||||||||
Basic weighted-average shares outstanding | 36,204 | 41,740 | |||||||||||
Dilutive effect of stock-based awards | 873 | 819 | |||||||||||
Diluted weighted-average shares outstanding | 37,077 | 42,559 |
September 29, 2018 | December 30, 2017 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 1,241 | $ | 3,651 | |||
Accounts receivable, net of allowance for doubtful accounts of $579 and $714, respectively | 24,128 | 19,312 | |||||
Inventories | 90,980 | 84,298 | |||||
Income taxes receivable | 1,229 | — | |||||
Prepaid expenses | 9,772 | 17,565 | |||||
Other current assets | 31,007 | 27,665 | |||||
Total current assets | 158,357 | 152,491 | |||||
Non-current assets: | |||||||
Property and equipment, net | 199,452 | 208,646 | |||||
Goodwill and intangible assets, net | 75,952 | 77,588 | |||||
Deferred income taxes | — | 2,625 | |||||
Other non-current assets | 36,307 | 30,484 | |||||
Total assets | $ | 470,068 | $ | 471,834 | |||
Liabilities and Shareholders’ (Deficit) Equity | |||||||
Current liabilities: | |||||||
Borrowings under revolving credit facility | $ | 135,800 | $ | 24,500 | |||
Accounts payable | 138,735 | 129,194 | |||||
Customer prepayments | 46,118 | 27,767 | |||||
Accrued sales returns | 20,535 | 19,270 | |||||
Compensation and benefits | 31,988 | 34,602 | |||||
Taxes and withholding | 15,951 | 24,234 | |||||
Other current liabilities | 49,858 | 46,822 | |||||
Total current liabilities | 438,985 | 306,389 | |||||
Non-current liabilities: | |||||||
Deferred income taxes | 4,638 | — | |||||
Other non-current liabilities | 80,797 | 76,289 | |||||
Total non-current liabilities | 85,435 | 76,289 | |||||
Total liabilities | 524,420 | 382,678 | |||||
Shareholders’ (deficit) equity: | |||||||
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding | — | — | |||||
Common stock, $0.01 par value; 142,500 shares authorized, 33,216 and 38,813 shares issued and outstanding, respectively | 332 | 388 | |||||
Additional paid-in capital | — | — | |||||
(Accumulated deficit) retained earnings | (54,684 | ) | 88,768 | ||||
Total shareholders’ (deficit) equity | (54,352 | ) | 89,156 | ||||
Total liabilities and shareholders’ (deficit) equity | $ | 470,068 | $ | 471,834 |
Nine Months Ended | |||||||
September 29, 2018 | September 30, 2017 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 42,549 | $ | 49,286 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 46,655 | 46,000 | |||||
Stock-based compensation | 10,098 | 11,809 | |||||
Net (gain) loss on disposals and impairments of assets | (17 | ) | 229 | ||||
Deferred income taxes | 7,263 | 3,729 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (4,816 | ) | (1,402 | ) | |||
Inventories | (6,682 | ) | (4,191 | ) | |||
Income taxes | (13,777 | ) | (147 | ) | |||
Prepaid expenses and other assets | 5,195 | (1,713 | ) | ||||
Accounts payable | 26,007 | 33,325 | |||||
Customer prepayments | 18,351 | 13,722 | |||||
Accrued compensation and benefits | (2,685 | ) | 15,277 | ||||
Other taxes and withholding | 4,265 | 758 | |||||
Other accruals and liabilities | 2,044 | 9,372 | |||||
Net cash provided by operating activities | 134,450 | 176,054 | |||||
Cash flows from investing activities: | |||||||
Purchases of property and equipment | (34,012 | ) | (37,613 | ) | |||
Proceeds from sales of property and equipment | 174 | 36 | |||||
Net cash used in investing activities | (33,838 | ) | (37,577 | ) | |||
Cash flows from financing activities: | |||||||
Net increase in short-term borrowings | 94,147 | (6,194 | ) | ||||
Repurchases of common stock | (198,239 | ) | (120,158 | ) | |||
Proceeds from issuance of common stock | 2,084 | 3,040 | |||||
Debt issuance costs | (1,014 | ) | (10 | ) | |||
Net cash used in financing activities | (103,022 | ) | (123,322 | ) | |||
Net (decrease) increase in cash, cash equivalents and restricted cash | (2,410 | ) | 15,155 | ||||
Cash, cash equivalents and restricted cash, at beginning of period | 3,651 | 14,759 | |||||
Cash, cash equivalents and restricted cash, at end of period | $ | 1,241 | $ | 29,914 |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 29, 2018 | September 30, 2017 | September 29, 2018 | September 30, 2017 | ||||||||||||
Percent of sales: | |||||||||||||||
Retail | 92.6 | % | 92.8 | % | 91.7 | % | 91.7 | % | |||||||
Online and phone | 6.9 | % | 6.5 | % | 7.3 | % | 6.8 | % | |||||||
Wholesale/other | 0.5 | % | 0.7 | % | 1.0 | % | 1.5 | % | |||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||
Sales change rates: | |||||||||||||||
Retail comparable-store sales | (1 | %) | 5 | % | 0 | % | 1 | % | |||||||
Online and phone | 10 | % | 9 | % | 11 | % | 17 | % | |||||||
Company-Controlled comparable sales change | 0 | % | 5 | % | 1 | % | 2 | % | |||||||
Net opened/closed stores | 3 | % | 6 | % | 3 | % | 8 | % | |||||||
Total Company-Controlled Channel | 3 | % | 11 | % | 4 | % | 10 | % | |||||||
Wholesale/other | (21 | %) | (65 | %) | (31 | %) | (38 | %) | |||||||
Total | 3 | % | 9 | % | 4 | % | 8 | % | |||||||
Stores open: | |||||||||||||||
Beginning of period | 565 | 549 | 556 | 540 | |||||||||||
Opened | 9 | 6 | 33 | 30 | |||||||||||
Closed | (5 | ) | (2 | ) | (20 | ) | (17 | ) | |||||||
End of period | 569 | 553 | 569 | 553 | |||||||||||
Other metrics: | |||||||||||||||
Average sales per store ($ in 000's) 1 | $ | 2,635 | $ | 2,567 | |||||||||||
Average sales per square foot 1 | $ | 977 | $ | 985 | |||||||||||
Stores > $1 million net sales 2 | 98 | % | 98 | % | |||||||||||
Stores > $2 million net sales 2 | 62 | % | 59 | % | |||||||||||
Average revenue per mattress unit 3 | $ | 4,387 | $ | 4,385 | $ | 4,432 | $ | 4,239 | |||||||
Three Months Ended | Trailing-Twelve Months Ended | ||||||||||||||
September 29, 2018 | September 30, 2017 | September 29, 2018 | September 30, 2017 | ||||||||||||
Net income | $ | 18,257 | $ | 25,603 | $ | 58,340 | $ | 60,573 | |||||||
Income tax expense | 5,228 | 13,178 | 12,064 | 25,731 | |||||||||||
Interest expense | 1,836 | 278 | 4,044 | 935 | |||||||||||
Depreciation and amortization | 15,483 | 14,770 | 61,658 | 60,404 | |||||||||||
Stock-based compensation | 3,356 | 3,933 | 14,052 | 14,498 | |||||||||||
Asset impairments | 30 | 222 | 135 | 267 | |||||||||||
Adjusted EBITDA | $ | 44,190 | $ | 57,984 | $ | 150,293 | $ | 162,408 |
Three Months Ended | Trailing-Twelve Months Ended | ||||||||||||||
September 29, 2018 | September 30, 2017 | September 29, 2018 | September 30, 2017 | ||||||||||||
Net cash provided by operating activities | $ | 105,319 | $ | 87,247 | $ | 131,003 | $ | 182,438 | |||||||
Subtract: Purchases of property and equipment | 12,671 | 10,481 | 56,228 | 56,696 | |||||||||||
Free cash flow | $ | 92,648 | $ | 76,766 | $ | 74,775 | $ | 125,742 |
Trailing-Twelve Months Ended | ||||||||
September 29, 2018 | September 30, 2017 | |||||||
Net operating profit after taxes (NOPAT) | ||||||||
Operating income | $ | 74,427 | $ | 87,108 | ||||
Add: Rent expense 1 | 77,797 | 72,260 | ||||||
Add: Interest income | 21 | 129 | ||||||
Less: Depreciation on capitalized operating leases 2 | (20,012 | ) | (18,384 | ) | ||||
Less: Income taxes 3 | (34,751 | ) | (46,004 | ) | ||||
NOPAT | $ | 97,482 | $ | 95,109 | ||||
Average invested capital | ||||||||
Total (deficit) equity | $ | (54,352 | ) | $ | 104,297 | |||
Add: Long-term debt 4 | 136,683 | — | ||||||
Add: Capitalized operating lease obligations 5 | 622,376 | 578,080 | ||||||
Total invested capital at end of period | $ | 704,707 | $ | 682,377 | ||||
Average invested capital 6 | $ | 710,325 | $ | 689,467 | ||||
Return on invested capital (ROIC) 7 | 13.7 | % | 13.8 | % |
Net sales | |||||||||||||||||||||
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter (E) | Full-Year (E) | |||||||||||||||||
2018 | As Reported | $ | 389 | $ | 316 | $ | 415 | $ | 408 | 6 | $ | 1,528 | 6 | ||||||||
Backlog shift1 | — | — | 24 | (24 | ) | — | |||||||||||||||
As-Adjusted | $ | 389 | $ | 316 | $ | 439 | $ | 384 | $ | 1,528 | |||||||||||
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | Full-Year | |||||||||||||||||
2017 | As Reported | $ | 394 | $ | 285 | $ | 403 | $ | 363 | $ | 1,444 | ||||||||||
Backlog shift2 | — | 25 | (25 | ) | — | — | |||||||||||||||
Hurricane impact3 | — | — | 13.5 | (13.5 | ) | — | |||||||||||||||
As-Adjusted | $ | 394 | $ | 310 | $ | 391 | $ | 350 | $ | 1,444 | |||||||||||
Earnings per diluted share | |||||||||||||||||||||
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter (E) | Full-Year (E) | |||||||||||||||||
2018 | As Reported | $ | 0.52 | $ | 0.10 | $ | 0.52 | $ | 0.73 | 6 | $ | 1.85 | 6 | ||||||||
Backlog shift1,4 | — | — | 0.23 | (0.23 | ) | — | |||||||||||||||
As-Adjusted | $ | 0.52 | $ | 0.10 | $ | 0.75 | $ | 0.50 | $ | 1.85 | |||||||||||
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | Full-Year | |||||||||||||||||
2017 | As Reported | $ | 0.56 | $ | (0.02 | ) | $ | 0.62 | $ | 0.39 | $ | 1.55 | |||||||||
Backlog shift2,5 | — | 0.12 | (0.12 | ) | — | — | |||||||||||||||
Hurricane impact3,5 | — | — | 0.06 | (0.06 | ) | — | |||||||||||||||
As-Adjusted | $ | 0.56 | $ | 0.10 | $ | 0.56 | $ | 0.33 | $ | 1.55 |
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