Slide 1: Driving long-term profitable growth
Driving long-term profitable growth July 2013 ®
Slide 2: Forward looking statements
Forward looking statements Statements used in this presentation relating to future plans, events, financial results or performance are forward- looking statements subject to certain risks and uncertainties including, among others, such factors as current general and industry economic trends; consume
Slide 3: Our Mission and Vision
Our Mission …to improve lives by Individualizing Sleep Experiences Our Vision …to become the world’s most beloved brand by delivering an Unparalleled Sleep Experience
Slide 4: Sleep Number competitive advantages
Sleep Number® competitive advantages End-to-end customer experience Proprietary products • Adjustable air leadership • Benefit-driven and individualized • Difficult to replicate • Vertical – retailer and manufacturer • Customer feedback informs strategy • Lifetime customer relationships • Extraordin
Slide 5: Consistent profitable growth
Consistent profitable growth EPS Net Sales Growth Operating Margin $ 0.24* $ 0.57 $ 1.07 $ 1.43* 2009 2010 2011 2012 (11%) 11% 23% 26% 2009 2010 2011 2012 (4%) 19% 26% 23% (30%) 15% 45% 49% 1-yr comp‡ 2-yr stacked comp‡ ‡ Company-Controlled comparable sales 4.4%^ 8.6% 12.2% 13.4%^ 2009 2010 2011 201
Slide 6: Size of the opportunity
$5.8 $6.5 $6.8 $6.9 $6.2 $5.7 $5.9 $6.3 $6.8 $7.2 $7.7 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F Size of the opportunity US wholesale mattress sales $ in billions Industry sales $M Premium segment (>$1,000) percent of total Non-innerspring percent of total Source: Industry report (ISP
Slide 7: Integrated growth formula
$743M $400M+ $400M+ $1.5B 2011 Optimize existing stores Add new stores Target 7 Integrated growth formula Net sales growth Key drivers • Brand awareness • Local market development • Breakthrough product innovation ®
Slide 8: Brand awareness
8 Brand awareness Broadened target customer Media investment & effectiveness Redefined target customer • Younger, more affluent & aspirational • Includes prime mattress buying years Advertising migration towards broader customer • Creative approach • Media execution • 30-54 yrs. old • $75K+ income •
Slide 9: Awareness opportunity
54% 30% 21% 9 Brand awareness Awareness opportunity Awareness correlates to market share • Leading markets illustrate opportunity through local market development • Sleep Number unaided brand awareness below industry leaders – significant opportunity Leading Innerspring Sleep Number Leading Non-inne
Slide 10: Local market development: optimize stores
$1.0M $1.3M $1.7M $2.2M $3.0M 2009 2010 2011 2012 Target 10 Local market development Optimize stores Location • format • design • Relocate mall to non-mall - Increased flexibility and billboard for brand - 2 times square footage with similar fixed costs • Mall remodels/expansions • New design: 50% 9
Slide 11: Local market development: grow stores
11 Local market development Grow stores Fill-in national footprint • New store economics - Capital investment ~$350K - Inventory $30K - Payback 12-18 months - Average year 1 sales ~$2M 403 386 381 410 >500 2009 2010 2011 2012 2015E 2% 3% 8% 19% % Non-Mall Ending store count ® $3M Store $1.2+ $2.2M S
Slide 12: Local market development: initial markets
12 Local market development Initial 7 markets Aggressive growth strategy • Strategy - 13 underdeveloped markets – 1/3 of U.S. bedding sales - Objective: double market share in 3 years - Heavy-up local media and real estate optimization - Launched 4 in 2011 and 3 in 2012; 6 remain for 2013-2015 • Res
Slide 13: Breakthrough product innovation
13 Breakthrough product innovation DualTemp™ Layer New m & i series • Temperature balancing layer can be used on all mattress brands • Proprietary active air technology evenly distributes each sleeper’s desired temperature • Queen DualTemp™ layer: $1,699 • Advanced DualAir™ technology achieves ideal
Slide 14: Advantaged business model: operating margin
4.4%^ 8.6% 12.2% 13.4%^ 15% 2009 2010 2011 2012 Target 14 Advantaged business model Operating margin Key drivers ^Pro forma Operating Margin • Gross margin rate improvement - Product innovation - Operational efficiency • Modest SG&A leverage as we invest in growth - New stores/occupancy - Marketing
Slide 15: Advantaged business model: cash and EBITDA
$52 $24 $7 $178 $146 $76 201220112010 Capital expenditures Cash & marketable securities 15 Advantaged business model Adjusted EBITDA Cash balance $ in millions, trailing-twelve months $ in millions • Operate with strong cash reserves • Self-funding growth ... #1 priority for cash • Maintain share co
Slide 16: Sleep Well and Dream Big
16 Sleep Well and Dream Big
Slide 17: Sleep Number Bed Series Pricing
17 Appendix Sleep Number® Bed Series Pricing (Queen Sets): c3 c4 p5 p6 c2 Classic Performance Memory Foam m7 m9 $1,399 $1,699 $2,099 $2,599 $999 $3,299 $4,699 Innovation i8 i10 $3,299 $4,699 ®
Slide 18: Management team
Andy Carlin SVP & Chief Sales Officer Sleep Number since 2008 Other experience: Gander Mountain, Kohl’s, Target 18 Kathy Roedel EVP & Chief Services & Fulfillment Officer Sleep Number since 2005 Other experience: GE Healthcare Shelly Ibach President & CEO Sleep Number since 2007 Other experience: Ma
Slide 19: Financial footnotes
19 (1) Reflects annual effective tax rate, before discrete adjustments, of 38.0% for 2009 and 34.7% for 2012 (2) In 2009, we expensed direct, incremental costs incurred in connection with a terminated equity financing transaction (3) In 2008, we established a $26.8 million valuation allowance agains
Slide 20: Adjusted EBITDA reconciliation
20 (trailing-twelve month basis) Adjusted EBITDA for 2009, 2010, 2011, and 2012 SELECT COMFORT CORPORATION AND SUBSIDIARIES Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) (in millions) We define earnings before interest, taxes, depreciation and amortization (Adjuste