Select Comfort Corp (SCSS), a provider of sleep solutions and services, has posted a 27.60 percent decrease in profit for the quarter ended Mar. 29, 2014, due to sharp contraction in the operating margins.
The company earned $16.99 million or $0.31 a share in the first-quarter, compared with $23.47 million or $0.42 a share a year ago. Analysts on average had predicted net income of $0.41 a share.
Revenue during the first-quarter grew 7.04 percent to $276.41 million from $258.24 million in the last year period.
Gross margin contracted by 128 basis points over the previous year period to 62 percent. Total expenses as a percentage of revenues increased to 90.67 percent from 86.36 percent in the same period last year. That resulted in contraction of 431 basis points in operating margin to 9.33 percent.
The company disclosed operating income of $25.80 million, compared with an operating income of $35.23 million in the last year period.
''We are pleased with our results, which were in line with internal expectations. We continue to make progress and are on track with our three important growth strategies: product innovation, marketing effectiveness and local market development. During the quarter, we introduced the most significant product innovations and marketing advancements in our company's history. Customer reaction has been strong and we remain cautiously optimistic in an ongoing challenging consumer environment,'' said Shelly Ibach, president and CEO, Select Comfort.
The company continues to expect full-year 2014 earnings per diluted share to approximate full-year 2013 adjusted earnings per diluted share of $1.07. This outlook assumes mid- to high-single-digit total revenue growth and the addition of 20 to 30 net new stores during the year.
Cash flow
Select Comfort has generated cash of $38.86 million from operating activities during the quarter, down 13.68 percent or $6.16 million when compared with the last year period. It has generated 14.06 cents of operating cash flow in every sales dollar for the quarter, down from 17.43 cents for the same period last year.
The company has spent $20.78 million in cash to meet investing activities during the quarter, as against cash outgo of $38.29 million in the year period.
The company has made net capital expenditure of $16.66 million during the quarter, which was higher by 16.44 percent or $2.35 million from a year ago. It currently anticipates that 2014 capital expenditures will be $70-$80 million, including investments in systems infrastructure; new, relocated and remodeled stores; and in support of product innovations.
The company's free cash flow accounted for 57.12 percent of operating cash flow for the quarter, compared with 68.21 percent in the last year period.
The company has spent $15.90 million in cash to meet financing activities during the quarter, as against cash outgo of $9.83 million in the last year period. It has spent net of $9.82 million on common stock repurchases.
As on Mar. 29, 2014, Select Comfort's cash balance stood at $60.41 million, down 28.78 percent or $24.41 million from Mar. 30, 2013.
Working Capital
Select Comfort witnessed reduction in the working capital over the last year. It stood at $55.47 million as at Mar. 29, 2014, down $12.23 million or 18.07 percent from $67.70 million on Mar. 30, 2013. The company's current ratio decreased to 1.39 as at Mar. 29, 2014 from 1.48 on Mar. 30, 2013.
The company's cash conversion cycle (CCC) was negative 17 days for first-quarter from negative 34 days for the last year. CCC is a liquidity metric which expresses the length of time (in days) that a company uses to sell inventory, collect receivables and pay its accounts payable. Decreasing or steady CCCs are good for business.
Days' sales outstanding was almost flat at 5 days for first-quarter, when compared with the last year period.
Days' inventory outstanding increased to 37 days for first-quarter compared with 32 days for previous year. This suggests the company took more time to convert the inventory into sales.
While days' payable outstanding went down to 59 days for first-quarter from 71 days for the last year. This reflects that the company has made early payment to vendors compared to prior year period.
Shares of Select Comfort fell $0.11 or 0.62 percent to close at $17.75 on Thursday.
