Buoyed by positive consumer response to both core product line and new innovations, Select Comfort Corp. (SCSS) posted fourth-quarter 2014 earnings of 31 cents per share that increased over two fold from the year-ago quarter and also came ahead of the Zacks Consensus Estimate of 23 cents.
Including one-time items, the company reported earnings per share of 35 cents that more than doubled from the year-ago period figure.
Quarter in Detail
Net sales advanced 40% year over year to $322.2 million, exceeding the Zacks Consensus Estimate of $284 million. Moreover, comparable-store sales in the quarter increased 22% on a year-over-year basis.
The company’s results mainly benefited from its strategy focused on product innovations like SleepIQ technology, successful marketing campaign and exclusive distribution.
Driven by robust sales, the company’s gross profit climbed 38% to $194.5 million. However, Select Comfort’s gross profit margin contracted 50 basis points (bps) to 60.4%, adversely affected by demand leading to higher logistics costs and higher mix of the new FlexFit adjustable bases.
Total operating expenses rose 27.3% to $166.6 million in the quarter, mainly due to higher sales and marketing costs as well as general and administrative expenses.
Operating income surged to $27.9 million from $9.7 million, while operating margin increased 450 bps to 8.7%.
Balance Sheet and Cash Flow
Select Comfort ended the year with cash, cash equivalents and marketable-debt securities of $121.6 million, inventories of $53.5 million and total shareholders’ equity of nearly $256.9 million. At the year-end, the company’s total liabilities were at $217.3 million.
During 2014, Select Comfort generated $144.5 million in net cash from operations versus $88.1 million in 2013. Additionally, capital expenditures during the year were in line with the prior year at $77 million. Further, during the quarter, the company bought back 0.6 million of shares for about $15 million.
Since the recommencement of the stock repurchase program in Apr 2012, the company has bought back shares worth $115 million.
Store Update
Select Comfort opened 11 stores and shuttered 8 outlets during the fourth quarter. In 2014, the company opened 57 stores and closed 34 stores, thereby bringing the total store count at the end of the year to 463. Going forward, the company expects a 6% increase in store count in 2015.
Guidance
Following the strong fourth quarter, Select Comfort initiated its outlook for 2015. The company expects full-year earnings to be $1.30 per share, which includes 13 cents of Enterprise Resource Planning launch cost in the year. Moreover, management projects high-single digit growth in total net sales.
The company also established its long-term goal to more than double its EPS from the 2014 level to $2.75 by fiscal 2019.
Furthermore, Select Comfort envisions capital expenditure of $80 million in 2015, allocated toward investments in information technology and developments in the company’s new, relocated and remodeled outlets.
Zacks Rank
Currently, Select Comfort carries a Zacks Rank #1 (Strong Buy). Other stocks worth considering include Build-A-Bear Workshop Inc. (BBW), CST Brands, Inc. (CST) and Marinemax Inc. (HZO) all carrying the same Zacks Rank as Select Comfort.
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