ii
This Annual Report on Form 10-K contains or incorporates by reference certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in or incorporated by reference into this Annual Report on Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements, including but not limited to projections of revenues, results of operations, financial condition or other financial items; any statements of plans, strategies and objectives of management for future operations; any statements regarding proposed new products, services or developments; any statements regarding future economic conditions, prospects or performance; statements of belief and any statement or assumptions underlying any of the foregoing. In addition, we or others on our behalf may make forward-looking statements from time to time in oral presentations, including telephone conferences and/or Web casts open to the public, in press releases or reports, on our Internet Web site or otherwise. We try to identify forward-looking statements in this report and elsewhere by using words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “predict,” “intend,” “potential,” “continue” or the negative of these or similar terms.
Our forward-looking statements speak only as of the date made and by their nature involve substantial risks and uncertainties. Our actual results may differ materially depending on a variety of factors, including the items discussed in greater detail below under the caption “Risk Factors.” These risks and uncertainties are not exclusive and further information concerning the Company and our business, including factors that potentially could materially affect our financial results or condition, may emerge from time to time, including factors that we may consider immaterial or do not anticipate at this time.
We wish to caution readers not to place undue reliance on any forward-looking statement and to recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. We assume no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to review and consider any further disclosures we make on related subjects in our quarterly reports on Form 10-Q and current reports on Form 8-K that we file with or furnish to the Securities and Exchange Commission.
Our Business
Overview
Select Comfort Corporation, based in Minneapolis, Minnesota, was founded in 1987 and is now one of the nation’s leading bed manufacturers and retailers. We design, manufacture, market and distribute the proprietary SLEEP NUMBER® bed, a premium quality, adjustable-firmness mattress, and other sleep-related products. Select Comfort has evolved from a specialty, niche direct marketer, to a nationwide multi-channel business with fiscal 2011 net sales of $743 million.
Our mission is to improve lives by individualizing sleep experiences. From the revolutionary Sleep Number bed to our exclusive SLEEP NUMBER® Bedding Collection, our vision is to set a new standard in sleep through product innovation and integrated experiences delivered by our sales professionals who have been trained to be knowledgeable in sleep and sleep-related products.
The Sleep Number bed features DualAir™ technology, which allows couples to adjust each side of the mattress to his or her ideal level of firmness. The Sleep Number bed is clinically proven to provide better sleep quality compared to a traditional innerspring mattress. In addition, the Sleep Number Bedding Collection offers personalized comfort to complement the Sleep Number bed for a better night’s sleep.
In 1998, Select Comfort became a publicly traded company and is listed on The NASDAQ Stock Market LLC (NASDAQ Global Select Market) under the symbol “SCSS.” When used herein, the terms “Select Comfort,” “Company,” “we,” “us” and “our” refer to Select Comfort Corporation, including consolidated subsidiaries.
Management Transition
On February 27, 2012, we announced that William R. McLaughlin, President and Chief Executive Officer and a member of the Board of Directors of Select Comfort, will retire from Select Comfort effective June 1, 2012. We also announced that Shelly R. Ibach will succeed Mr. McLaughlin as President and Chief Executive Officer, effective June 1, 2012. The Board also elected Ms. Ibach as a director, effective immediately for a term expiring at our 2013 annual meeting of shareholders.
2
Competitive Strengths
Differentiated, Superior Product
Unlike the “one-size-fits-all” solution offered by other mattress brands, the Sleep Number bed offers personalized comfort that is adjustable on each side. Our proprietary DualAir™ technology, which features two independent air chambers, allows couples to adjust firmness to their own individual preference at the touch of a button.
The unique benefits of our proprietary Sleep Number bed have been validated through clinical sleep research which has shown that people who sleep on a Sleep Number bed generally fall asleep faster, experience deeper sleep with fewer disturbances and experience greater relief from back pain than those sleeping on a traditional innerspring mattress.
Distinctive Brand
In 2001, we created the Sleep Number brand. This branding strategy allows our marketing communications to focus on our bed’s distinguishing and proprietary features – adjustable firmness and support for personalized comfort. This is represented by the digital Sleep Number setting displayed on the bed remote, with a brand message hierarchy as follows:
·
It is a bed that is adjustable to your ideal level of comfort
Perfect for couples because you can adjust firmness on each side
Clinically proven to improve the quality of your sleep
Company-Controlled Selling Environment
Over 95% of our sales are generated through our Company-Controlled distribution channel – Retail, Direct Marketing and E-Commerce. Our nationwide chain of retail stores provides a unique mattress shopping experience and offers a relaxed environment designed to provide education on the importance of sleep and the products that best fit customers’ needs.
The SLEEP NUMBER® store is a consumer-centric, interactive shopping environment. A visually stunning storefront, a floor plan with a comfortable, residential feel, and the opportunity to find your Sleep Number setting with the help of a Sleep Professional establishes an emotional connection that elevates the Sleep Number experience to the full potential of the brand.
Controlling the selling process enables us to ensure that the unique benefits of our products are effectively communicated to customers. Our multiple touch-points of service, including sales, delivery and post-sale service, provide several opportunities to communicate with our customers, reinforcing the sale and enabling us to understand and respond quickly to consumer trends and preferences.
Integrated Business Process
We are a vertically integrated business from production through sales and delivery of our products, which enables us to control quality, cost, price and presentation, as well as the unique opportunity to establish ongoing relationships with our customers. The modular design of our Sleep Number bed allows a just-in-time, build-to-order production process which requires minimal inventory in our manufacturing plants and stores, resulting in reduced working capital requirements. Our build-to-order production process also enables our stores to serve primarily as showrooms, without requiring significant product storage capacity, and provides us significant flexibility in changing our product models.
3
Vision and Strategy
Our vision is to become the new standard in sleep by providing individualized sleep experiences and elevating people’s expectations above the “one-size-fits-all” solutions offered by other mattress brands.
We are executing against a defined strategy which focuses on the following key components:
•
Know our customers as no one else can…use that insight to set new standards in end-to-end customer experience;
Broaden awareness and consideration…to take share; earn leadership in premium sleep; and
Leverage our core business to achieve new levels of margin…to fund acceleration and innovation.
Know Our Customers as No One Else Can
As the only major mattress brand that is both a manufacturer and a multi-channel retailer, we have the opportunity to know our customers and the capability to enhance their entire customer experience from researching products, to the sale, delivery, set-up and post-sales follow-up. Our sales professionals and customer service specialists are trained to be knowledgeable in sleep and sleep-related products, and their mission is to assist each customer to individualize their sleep experiences through fast, friendly and accessible service.
We regularly introduce new features and benefits to our Sleep Number beds, through a pipeline of research and development activities. We continually focus on improving the reliability and quality of all the products that we sell. Our latest models emphasize enhanced comfort-layer materials, and several feature advancements in temperature balancing technology. We believe our current line represents the most technologically advanced beds we have ever produced and provides ideal comfort and quality sleep for each individual.
Broaden Awareness and Consideration
Our most significant growth driver has been building brand awareness. The Sleep Number brand has been integrated into both of our sales channels and throughout our internal and external communication programs. We utilize a media mix that includes television, radio and print advertising in support of our Sleep Number marketing campaign, with increasing use of digital advertising in our media mix.
As of December 31, 2011 we operated 381 stores in the U.S., and expect to end 2012 with approximately 400 to 410 stores. In 2010, we migrated from a mix of Sleep Number and Select Comfort store marquees to 100% branded as Sleep Number. We are taking both a national and local market-based approach to our growth — increasing our national advertising and focusing on local marketing, real estate optimization and sales execution. We believe that through marketing and sales execution we can continue to increase average sales per store to further leverage the profitability of our fixed cost store base. Beyond 2012, we plan to continue expanding our retail store base to drive sales and profit growth.