Select Comfort Corp. :SCSS-US: Earnings Analysis: 2016 By the Numbers : February 10, 2017

Select Comfort Corp. reports financial results for the year ended December 31, 2016.

We analyze the earnings along side the following peers of Select Comfort Corp. – Leggett & Platt, Incorporated, Ethan Allen Interiors Inc. and Flexsteel Industries, Inc. (LEG-US, ETH-US and FLXS-US) that have also reported for this period.

Highlights

  • Gross margins narrowed from 61.80% to 61.78% compared to the same period last year, operating (EBITDA) margins now 10.21% from 9.82%.
  • Year-on-year change in operating cash flow of 40.49% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 1311.29 1213.7 1156.76 960.17 934.98
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 51.42 50.52 67.97 60.08 78.09
Earnings Growth (YOY) 1.78 -25.68 13.14 -23.07 29.13
Net Margin 3.92 4.16 5.88 6.26 8.35
EPS 1.1 0.97 1.25 1.08 1.37
Return on Equity 26.87 21.08 28.2 28.68 48.34
Return on Assets 10.6 10.23 15.88 16.6 25.83

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Earnings Growth Analysis

The company’s gross margins showed no year-on-year improvement. In spite of this, the company’s earnings rose, influenced primarily by the improvement in operating margins (EBITDA margins) from 9.82% to 10.21%. For comparison, gross margins were 61.80% and EBITDA margins were 9.82% in the last period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Cash Versus Earnings – Sustainable Performance?

SCSS-US‘s change in operating cash flow of 40.49% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Select Comfort Corp. designs, manufactures, markets, and distributes beds, proprietary beds, and other sleep-related accessory products. It offers beds under the brand name Sleep Number. The company was founded by Robert Walker and JoAnn Walker in 1987 and is headquartered in Minneapolis, MN.

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