Slide 1: Sleep Number: Transforming a large, undifferentiated industry
August 2011 Sleep Number . . . Transforming a large, undifferentiated industry
Slide 2: Forward Looking Statements
Forward Looking Statements Statements used in this news release 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; consumer
Slide 3: Large industry, new advances
Large industry . . . “one-size-fits-all” New advances . . . brand/distribution/product
Slide 4: A unique and highly profitable growth opportunity
Sleep Number . . . A unique and highly profitable growth opportunity • Sustained Growth – Demonstrated ability to deliver compelling top line growth – Clear upside potential . . . mid to high teens comp expected balance of 2011 • Robust Profitability – Model driving profit growth in excess of top li
Slide 5: Differentiated & affordable products that deliver real consumer benefits
Differentiated & affordable products that deliver real consumer benefits Scientifically proven benefits than traditional mattresses Classic Series c2 $999 c3 $1,299 c4 $1,599 p5 $2,099 p6 $2,599 p7 $2,899 i8 $3,199 i10 $4,699
Slide 6: Revolutionary product within a large, one-size-fits-all industry
Revolutionary product within a large, “one-size-fits-all” industry $6 Billion U.S. Wholesale Industry 1 Sleep Number competes in the industry sweet spot • 30 years consistent industry growth, reset in ’08/’09 . . . 6% CAGR • 7-8% industry growth in 2011 projected by ISPA • Premium (>$1,000) outpacin
Slide 7: Unique, vertically-integrated business model
Unique, vertically-integrated business model Differentiated end-to-end brand experience • 375 stores nationwide, supported by sleepnumber.com and call center • Knowledgeable, tenured “Sleep Experts” deliver best in class store experience • National customer service and “white glove” home delivery Fl
Slide 8: Sales and profit growth
Sales and profit growth .. . . proven and better positioned than ever NOP Rate (4.9%) 5.5% 8.6% 8.0% 9.2% 9.7% 5.4% (5.9%) 4.4% 8.6% 10.9% 1 Q2-11 represents trailing 12 months
Slide 9: Sales growth driven by integrated top line strategy
Sales growth driven by integrated top line strategy • Awareness and Consideration – Superior product, but too few know about it or where to find it • Product – Steady pipeline of innovative products for new and existing customers • Marketing – Optimizing creative, media levels, media mix and digital
Slide 10: New advances to continue profitably building a national iconic brand
New advances to continue profitably building a national iconic brand • 100% Sleep Number brand - leverage • Advertising focused on unique product & consumer benefits, only at Sleep Number • Value and urgency proven in consumer events • Digital and social media advancing • Local marketing, with natio
Slide 11: Sales growth and leverage just getting started
Sales growth and leverage . . . just getting started Today, every $100,000 increase in average sales per store • $38 million total sales (+1 bed/store/week) • ~ $11 million operating profit • ~ $0.13 incremental EPS Net Sales
Slide 12: Profit margin growth accelerates earnings
2009 1 2011 1 Potential by 2015 Drivers Gross margin 60% 63% # 2-3 pts • Supply chain leverage & efficiencies • Product innovation & pricing Selling & Marketing % 52% 43% $ 2-5 pts • Store base leverage • Media mix & efficiency G&A/other % 10% 9% $ 0-1 pts • Focus on core business Operating margin (
Slide 13: Strong cash flow to self-fund organic growth
Strong cash flow to self-fund organic growth Robust cash generation Rock solid balance sheet
Slide 14: Investment Summary why now?
Investment Summary . . . why now? • Succeeding in the current macro-economic environment – Market share opportunity, regardless of total industry growth – Product delivers real consumer benefits and value – Ability to be nimble with short lead-time media and promotions – Strong balance sheet - $100+
Slide 15: A unique and highly profitable growth opportunity
Sleep Number . . . A unique and highly profitable growth opportunity • Sustained Growth • Robust Profitability • Strong Cash Flow • New advances = opportune time
Slide 16: Appendix
Appendix
Slide 17: Experienced Management Team
Name Age Title # yrs w/ SCSS Previous experience Bill McLaughlin 55 President & CEO 11 PepsiCo/Frito-Lay Shelly Ibach 52 COO 4 Macy’s, Target Corporation Kathy Roedel 50 EVP, Chief Technology & Services 6 GE Health Care Wendy Schoppert 44 EVP & CFO 6 U.S. Bank, America West, Northwest, AMR Mark Kimb
Slide 18: #1 Growth Opportunity
#1 Growth Opportunity . . . Awareness & Consideration Growth Drivers • Marketing: Creative, media mix, media levels, digital • Distribution: Location, format and number of stores; store design • Products: Steady pipeline of innovative products for new and existing customers Unaided Brand Awareness U
Slide 19: Market performance demonstrates tight correlation of awareness and market share growth
Market performance demonstrates tight correlation of awareness and market share growth
Slide 20: Three year market level goals: What and How
What • Three year market level goals – Double market share to >10% – Achieve above average market profit rate How • Aggressive media investment – Compete on share of voice • Real estate – Reposition existing stores to align to target customer and eliminate trade area overlap – Add stores • Other tes
Slide 21: Solid execution has returned company to growth
Solid execution has returned company to growth *As adjusted for one time items in 2008/2009 Significant Returns in 2010: ROA 21%, ROE 72% Solid Sales Growth (1 Year & 2 Year Comps) (TTM$ in mm)
Slide 22: Favorable store economics provide margin upside
Favorable store economics provide margin upside * Excluding national media and customer support