Select Comfort Corp. :SCSS-US: Earnings Analysis: Q2, 2016 By the Numbers : July 22, 2016

Select Comfort Corp. reports financial results for the quarter ended June 30, 2016.

We analyze the earnings along side the following peers of Select Comfort Corp. – LaZBoy Incorporated, Hooker Furniture Corporation and Restoration Hardware Holdings, Inc. (LZB-US, HOFT-US and RH-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 276.88 million, Net Earnings of USD 1.42 million.
  • Gross margins narrowed from 62.63% to 61.85% compared to the same period last year, operating (EBITDA) margins now 0.87% from 10.08%.
  • Year-on-year change in operating cash flow of -342.55% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

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

2015-06-30 2015-09-30 2015-12-31 2016-03-31 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 275.29 373.92 214.68 352.98 276.88
Revenue Growth (%YOY) 17.26 15.63 -33.37 0.91 0.58
Earnings (mil) 11.04 31.85 -21.17 12.97 1.42
Earnings Growth (%YOY) 30.15 35.24 -211.74 -54.97 -87.17
Net Margin (%) 4.01 8.52 -9.86 3.67 0.51
EPS 0.21 0.62 -0.42 0.27 0.03
Return on Equity (%) 16.8 48.33 -34.27 25.33 3.14
Return on Assets (%) 9.12 24.47 -15.69 10.43 1.21

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Market Share Versus Profits

Revenues History
Earnings History

SCSS-US‘s change in revenue this period compared to the same period last year of 0.58% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that SCSS-US is holding onto its market share. Also, for comparison purposes, revenues changed by -21.56% and earnings by -89.08% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 62.63% to 61.85%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 10.08% to 0.87% in this time frame. For comparison, gross margins were 59.23% and EBITDA margins were 9.56% in the previous period.

Gross Margin Versus EBITDA Margin

Cash Versus Earnings – Sustainable Performance?

SCSS-US‘s change in operating cash flow of -342.55% 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

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 6.04% to 0.87% and (2) one-time items that contributed to a decrease in pretax margins from 6.09% to 0.78%

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Select Comfort Corp.

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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