Select Comfort Corp. :SCSS-US: Earnings Analysis: Q3, 2016 By the Numbers : October 26, 2016

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

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

Highlights

  • Summary numbers: Revenues of USD 367.99 million, Net Earnings of USD 25.75 million.
  • Gross margins narrowed from 63.19% to 63.14% compared to the same period last year, operating (EBITDA) margins now 10.61% from 13.45%.
  • Year-on-year change in operating cash flow of 13.41% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings declined although operating margins improved from 10.30% to 10.61%.

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

2015-09-30 2015-12-31 2016-03-31 2016-06-30 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 373.92 214.68 352.98 276.88 367.99
Revenue Growth (%YOY) 15.63 -33.37 0.91 0.58 -1.59
Earnings (mil) 31.85 -21.17 12.97 1.42 25.75
Earnings Growth (%YOY) 35.24 -211.74 -54.97 -87.17 -19.18
Net Margin (%) 8.52 -9.86 3.67 0.51 7
EPS 0.62 -0.42 0.27 0.03 0.56
Return on Equity (%) 48.33 -34.27 25.33 3.14 58.79
Return on Assets (%) 24.47 -15.69 10.43 1.21 21.5

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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 -1.59% 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 32.91% and earnings by 1,718.15% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 63.19% to 63.14%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 13.45% to 10.61% in this time frame. For comparison, gross margins were 61.85% and EBITDA margins were 5.96% in the previous 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 13.41% 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 an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from 10.30% to 10.61%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from 12.16% to 10.54%.

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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