Sleep Number Corporation · NASDAQ:SNBR
Sleep Number — Select Comfort — Investor Day (May 2004)
61 slides from Sleep Number's investor day presentation, May 11, 2004
Slide 1: Select Comfort Analyst Day
select @comfort. CREATOR OF THE SLEEP NUMBER BED ¢ Revolutionizing an Industry ¢ Leadership Opportunity Select Comfort Analyst Day May 10, 2004 Hote! Marlowe
Slide 2: Bill McLaughlin, President and CEO
@@~ Bill McLaughlin President and Chief Executive Officer
Slide 3: Forward Looking Statements
e@e-» Forward Looking Statements Statements used in this presentation that relate to future plans, events, financial results or performance are forward- looking statements that are subject to certain risks and uncertainties including, among others, such factors as general and industry economic trend
Slide 4: Revenue and pretax income: strong start
Revenue $458 $336 $262 oot ame 2m CAGR 37% 32% dyr 2yr Pretax Income (ilior) What -- Strong Start Margin % 2003 2002 2001 93 6.3 (4.0) = coshoete $50 i io 2 30 21 20 : Is | L $0 aH oO an 2 Bo 2 a aor ames ct@comfort
Slide 5: How -- Fundamental Building Blocks
@@~ How -- Fundamental Building Blocks Product Brand Distribution Supply Chain Systems People Governance 5 select @comfort
Slide 6: Investment Opportunity
@e- Investment Opportunity Revenue Growth Profit Growth Business expansion People 15% - 25% +30% - Product - Channel - Geographic/International
Slide 7: Assessing Relative Risk
Assessing Relative Risk Cash - Balance - Free Cash Flow Business expansion - Product - Distribution - Supply chain/inventory Growth potential - Revenue - Margin
Slide 8: Agenda
@e- Agenda Introduction Financial Model Distribution Marketing/Product Innovation Summary Q&A
Slide 9: Jim Raabe, Chief Financial Officer
@@- Jim Raabe Chief Financial Officer
Slide 10: Opportunities for Long-term Success
@@~© Opportunities for Long-term Success © Long-term sales growth potential © Margin expansion — leveraging fixed store investment © Cash to invest in growth 10 select@
Slide 11: Significant growth potential
Significant growth potential... * ® “ Largest markets, greatest share potential 25 22% 20 . 15 * 40 wn 95% % i h & 0+ T T 1 11-15 6-10 1-5 15 Largest U.S. Markets — 40% of U.S. Population = % US Pop. m SCSS Share 4 select @comfort
Slide 12: Developed Markets confirm leadership potential
@ @ » Developed Markets confirm leadership potential Market Share* Unaided ‘Stores per 2001 2004 Awareness 1MM Pop Minneapolis am [ae | 26% ae Denver 12% | 18% | ae 34 chicago [8% [| 5% New York APA 2% National |/ 3% in| 5% 6% 12 2% 06 8% Bed % a 10% 12 *Company Estimates 15% 20% = 2% 30% select @co
Slide 13: Investing in Awareness - Disciplined Expansion
@ @ © Investing in Awareness - Disciplined Expansion Media growtt Sustained Rollout of Sleep Number Marketing paced with sales Campaign 385 Si 16% 14% 220 ast . 5 2 3 12% 2 seo poe 2 40 = 3 § 10% 2 =s 2 P ra = S 38% B ss0 im BOB 7 3 = 8 owt . a 520 10% Bs 2% o w 2001 2002 2003 2004 0% 2000 2001 2002
Slide 14: Store Leverage — Drives Margin
ee Store Leverage — Drives Margin Sales per Store <$1MM $1-$2MM >$2MM 4 Wall Cash* 25% 34% 40% 00 @ 0 20 ay 8 Growth Trend a 2 JI £ 9 (% of Stores) 7 ° 2 =i 2001 2003 2001 2003 2001 2003 2003 Same Store 28% 34% 34% Sales Increase 14 *Excluding media select @ comfort
Slide 15: Cash from Operations Funding Growth
@ @ © Cash from Operations... Funding Growth 50 40 $31 Million operating free 2 30 cash flow Ss = = 2 10 0 2001 2002 2003 Cash from Capital Spendin: Operations Hi copia! spenaing 16 select @comfort
Slide 16: Keith Spurgeon, Senior Vice President, Sales
@@~ Keith Spurgeon Senior Vice President, Sales 16
Slide 17: Retail Growth
Retail Growth Store Count Potential © Store potential = (population) (store/pop) (discount) © (250mm) (1/250K) (25%-40%) e 600-750 stores e Annual store growth e 10 percent per year (i.e., 35-40 in 2005) © Disciplined approach e Rifle vs. shotgun 7 °e
Slide 18: Major Metro Market Focus: Boston 2002
18 ooo 0 0 0 Major Metro Market Focus Boston - 2002 Natick Mall Pheasant Lane Mall Solomon Pond South Shore Plaza Mall of New Hampshire Fox Run Mall
Slide 19: Major Metro Market Focus
Major Metro Market Focus Boston - 2002 Natick Mall Pheasant Lane Mall Solomon Pond South Shore Plaza Mall of New Hampshire Fox Run Mall ooo 0 0 0 2002 Pop/Store = 1 million 19
Slide 20: Major Metro Market Focus: Boston 2004
o Natick Mall o Pheasant Lane Mall o Solomon Pond o South Shore Plaza o Mall of New Hampshire o Fox Run Mall o Square One o Mall at Rockingham o Cape Cod Mall o Burlington Mall o CambridgeSide Galleria 2002 Pop/Store = 1 million 2004 Pop/Store = 560,000 20 Major Metro Market Focus Boston - 2004 BOST
Slide 21: Major Metro Market Focus: New York 2002
21 e©0200000000000 Major Metro Market Focus New York - 2002 Willowbrook Freehold Raceway New York BBB Huntington Station Rockaway Danbury Fair SmithHaven Sunrise Mall Bridgewater Commons Roosevelt Field Garden State Plaza Woodbridge Mall at Short Hills 2002 Pop/Store = 1.5 million
Slide 22: Major Metro Market Focus: New York 2004
Major Metro Market Focus ee” New York - 2004 Freehold Raceway Rockaway Danbury Fair SmithHaven Sunrise Mall Bridgewater Commons Roosevelt Field Garden State Plaza Woodbridge Mall at Short Hills Totowa BEB Monmouth Mall Staten Island Jefferson Valley Menlo Park Broadway (Manhattan) Trump (Manhattan)
Slide 23: New store performance
New store performance First-Year Sales New Store Sales Progress Year 1 23 1,200,000 § seo.c00 aor eto eal ® 400000 7 |——2003| & 200000 3 0 45 8 7 8 8 mM 4 42 Months Since Open
Slide 24: 2004 Store Locations
@e- 2004 Store Locations © Targeted in strongest markets e 90 percent in markets with supplemental advertising e 73 percent in top 15 major metro markets 24 °
Slide 25: Non-Mall Opportunities
Non-Mall Opportunities
Slide 26: Non-Mall vs. Mall Comparisons
26 Non-Mall vs. Mall Comparisons © Size of store © Rent/sq. ft. © Build out © Staffing © Site potential © Sales potential © Financial advantage Larger Lower Higher Higher TBD TBD TBD
Slide 27: Other distribution opportunities for growth and brand building
a7 Other distribution opportunities for growth and brand building © QVC © Hospitality © Retail partners © Healthcare © RV Industry © International © Commercial sales
Slide 28: Noel Schenker, SVP Marketing and New Business Development
ee Noel Schenker Senior Vice President Marketing and New Business Development 28
Slide 29: Building Brand Mass
ee Building Brand Mass Consumer Product Company and Retailer
Slide 30: Building Brand Mass: Multi-Channel Structure
30 Building Brand Mass Multi-Channel Structure with Synergistic Media Direct Ecom Natl \ Retail a Nat'l Local select @comfort
Slide 31: Worthy Focus
31 Worthy Focus SLEEP NUMBER ° o Differentiated o Proprietary o High Quality o Real Benefits o On Trend o Low Awareness
Slide 32: Brand Repositioning in 2001
ee» Brand Repositioning in 2001 © Broadened appeal with memorable brand, campaign e Brand: Sleep Number Bed by Select Comfort™ e Focus: Proprietary Sleep Number® feature e Benefit: Sleep-Quality Improvement, Personalized Comfort e Target: Adults 25+ (25-54) Reach: Broad Media: — First Prime-time TV
Slide 33: Sleep Number Introductory TV
select@comfort CREATOR OF THE SLEEP NUMBER BED Sleep Number Introductory TV Cornerstone for Change Local Markets Spot Network 30 Seconds Store Locations 33
Slide 34: Brand Integration
ee Brand Integration ° All elements, all channels, multi-layered © Unique business model provides hard-to-replicate advantages
Slide 35: National Television Campaign
ee» National Television Campaign o New Sleep Number® national cable campaign e Capitalizes on DR rates e Provides national umbrella Raises awareness everywhere e Lindsay Wagner hosts :60, :120 and 1/2 hour spots 35
Slide 36: Media Spending Growth in Top Categories
Media Spending Growth in Top Categories ($MMs) $30 $25 $20 B Local Mts $15 ¥ Natl TV $10 eDJs $5 $0 National Media $.08 $2 $5 Per Capita 36 select @comf
Slide 37: Media Strategy and Structure
@e* Media Strategy and Structure National Cable TV Magazine Radio Personalities Holiday Newspaper ° 000 Local Markets o DJ Radio Select Local Markets © Customized Plans e Network TV e Drive-Time Radio e Newspaper a7 Channel Geography Content Payback Supported Supported Customization Expectation All
Slide 38: National & Local Radio Personalities
ee National & Local Radio Personalities All “talking” Sleep Number®: o 13 National DJs g o Over 135 Local DJs San Francisco Py 38
Slide 39: Custom Local Retail Campaign
ee» Custom Local Retail Campaign © Horizontal expansion to new qualified geographies o As sales increase, add next media layer Select # of Comfort % US Markets % Sales Pop 2001 8 23 9 2002 16 36 20 2003 21 48 30 2004 34 71 55 39 select@
Slide 40: Full Plan (TV and Radio): Boston Example
Full Plan (TV and Radio) “s Boston Example o Turned on media in Q3 2003 o Q1 2004 results e Highest comp-sales growth in nation 3X faster growth than national average e Highest market sales growth in nation o On track for payback goal 40
Slide 41: Starter Plan (Radio Only): Chicago Example
Starter Plan (Radio Only) Chicago Example o Financial modeling qualified market for tadio-only plan o Turned on media in Q1 2003 o 2003 Results e 35% faster sales growth than nat’l average e Met close-in payback goal e With store adds, on track for full plan (TV and radio) in 2005 a e
Slide 42: Per-Capita Media
42 Per-Capita Media Boston (New Full TV/Radio) 2003 Local $0.26* National $0.12 Total $0.38 *Mid-year start Chicago (New Radio Only) Local $0.13 National $0.12 Total $0.25 2004 $0.46 $0.15 $0.61 $0.12 $0.15 $0.27
Slide 43: Per-Capita Media
43 Per-Capita Media Minneapolis (L-T Full TV/Radio) 2001 2002 2003 2004 Local $0.37* $0.49 $0.52 $0.54 Nat'l $0.05 $0.08 $0.12 $0.15 Total $0.42 $0.57 $0.64 $0.69 *Partial Year
Slide 44: Minneapolis Awareness and Market Share
Minneapolis Awareness and ee Market Share 30 —-Unaided 25 Awareness (Sleep 20 Number) —— Est. Market Share $ 15 10 r Dec. 01 Jan. 04 44 °
Slide 45: Sleep Number Momentum TV
select @comfort CREATOR OF THE SLEEP NUMBER BED Sleep Number® Momentum TV Keeping Creative Fresh Local Aware Markets “Everybody’s Talking About It” 30 Seconds Store Location 45
Slide 46: Momentum Focus
46 Momentum Focus Sales Process Tiered Promos Finance Design Job #2
Slide 47: Product Innovation
47 Product Innovation o Leverages brand awareness e New customers e Owners o Cements sleep-innovation turf o Drives ASP improvement o Drives add-on sales o Provides competitive firewall e Difficult to mimic a moving target
Slide 48: Product Innovation
eee Product Innovation Innovation SofaBed New New Firmness Control 9000 Model System Competitive/ New , New Productivity Bceessories Incremental Advantage Improved 7000 Model Appearance . Upgrades Grand King Size Evolution 48
Slide 49: Continuous Product Innovation
ee Continuous Product Innovation EN All-New _ Sleep Number® 9000 — 2004 49
Slide 50: Continuous Product Enhancement
@@~»© Continuous Product Enhancement Accessories Line Personal Comfort Head to Toe 50 select @comfort
Slide 51: New Product Extension: Sleep Number SofaBed
ee New Product Extension Sleep Number® SofaBed 2004 Pilot Roll The sofa with the Sleep Number® bed inside ver @euntert 51
Slide 52: New Product Extension: Grand King Big & Tall Bed
New Product Extension ee Grand King™ Big & Tall Bed - 2003 "Finally, a bed that fits me." “Thave to slegp diagonally to keep my whole body on a standard-sized ynattress. Twill also toss and tum at night and often experience aches, pains and muscle soreness when I wake up But onthe Grand King Steop M
Slide 53: Grand King Advertising
ee Grand King Advertising 7 a | E 53
Slide 54: Building Brand Mass
Building Brand Mass Differentiated, HQ Product + Low Awareness Growth Opportunity
Slide 55: Bill McLaughlin, President and CEO
@@~ Bill McLaughlin President and Chief Executive Officer 55
Slide 56: Summary
ee Summary 56 select @comfort
Slide 57: Strong Start — Early in Journey
@e@~© Strong Start — Early in Journey 1. US Consumer Leadership + Marketing Evolution Major Metro Development Distribution Evolution Role of Mall versus Non-mall Role of Wholesale 2. Expansion Product Channel Geography a7 °e
Slide 58: Exciting Opportunity For All
ee Exciting Opportunity For All v Consumer Trend v Differentiated, advantaged product v Differentiated, advantaged business model v Internal growth opportunities v Self-sufficient resources v Capable, dedicated people 58 °e
Slide 59: Building an Icon Company
@e- Building an lcon Company select @comfort CREATOR OF THE SLEEP NUMBER BED Bei & 59 select @comfort
Slide 60: Q&A
60 Q&A select
Slide 61: Mission: Improving Lives; Vision: Leader in Sleep
select @comfort CREATOR OF THE SLEEP NUMBER BED Mission: Improving Lives Vision: Leader in Sleep