Sleep Number Corporation · NASDAQ:SNBR
Sleep Number — Select Comfort — Investor Day (August 2007)
78 slides from Sleep Number's investor day presentation, Aug 2, 2007
Slide 1: 2007 Analyst Day
2007 Analyst Day
Slide 2: Forward Looking Statements
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 trends; unce
Slide 3: Mark Kimball
Mark Kimball Senior Vice President, General Counsel
Slide 4: 2007 Analyst Day – Agenda
2007 Analyst Day – Agenda 12:00-12:25 p.m. Jim Raabe – Business Overview 12:30-12:55 p.m. Shelly Ibach – Retail Excellence 1:00-1:25 p.m. Kathy Roedel – Funding Growth 1:30-1:55 p.m. Bill McLaughlin – Taking Control 2:00-2:30 p.m. Q&A 3:00-5:30 p.m. Store Tour – Paradise Valley Mall 7:00-9:00 p.m. M
Slide 5: Jim Raabe
Jim Raabe Senior Vice President, Chief Financial Officer
Slide 6: Years of Growth and Innovation
20 Years of Growth and Innovation 2006 1987 0.3 0.6 $0.9
Slide 7: Significant Untapped Opportunity
Significant Untapped Opportunity Source: International Sleep Products Association (ISPA), 2006 Annual Report; Furniture Today $750 $900 $1,050 $1,200 2006 2004 $ales CAGR 5-year 8.1% 10-year 7.3% 20-year 6.5% U.S. Retail Market Other Specialty 16% Total $7.8B 2002 2005 SCSS 4% Total $11.7B SCSS 6% O
Slide 8: Long-Term Growth Potential
Long-Term Growth Potential 15%+ Sales, 20%+ Profit Net sales ($billions) $ Operating Profit Margin (%) 15% 7.5%
Slide 9: Focused Strategy
Leverage Awareness Distribution Innovation People & Systems Expand Focused Strategy
Slide 10: Transforming Retail
Retail 76% 2006 Direct - 9% eCommerce - 6% Other - 9% Transforming Retail Increasing Distribution 2002 FY07
Slide 11: Delivering Customer Loyalty & Competitive Advantage
Delivering Customer Loyalty & Competitive Advantage Complex product – history, scale JIT supply chain – quality, cash Integrated, company-owned service Direct to consumer Cost, Quality, Service – Difficult to Replicate Manufacturing Sourcing Product Design Logistics Home Delivery Customer Service
Slide 12: Product - Early Stages of New Innovation
Product - Early Stages of New Innovation
Slide 13: Sleep Number by Select Comfort
sleep bo number by SELECT COMFORT
Slide 14: Shelly Ibach
Shelly Ibach Senior Vice President U.S. Retail
Slide 15: Slide 15
Slide 16: Marketing Evolution
Marketing Evolution Retail Progression Market Development
Slide 17: Marketing Evolution
Marketing Evolution
Slide 18: Local Sunday Insert - Front / Back Cover
Local Sunday Insert- Front / Back Cover August Marketing Campaign
Slide 19: August Marketing Campaign
August Marketing Campaign Local Sunday Insert- Inside spread
Slide 20: August Marketing Campaign: National Newspaper
August Marketing Campaign National Newspaper
Slide 21: August Marketing Campaign: Direct Mail
August Marketing Campaign Direct Mail
Slide 22: August Marketing Campaign: Bed Owners
August Marketing Campaign Bed Owners
Slide 23: In-Store Marketing
In-Store Marketing August Marketing Campaign
Slide 24: April Marketing Campaign
April Marketing Campaign Magazine Direct Mail Bed Owner Newsletter
Slide 25: In-Store Marketing
In-Store Marketing April Marketing Campaign
Slide 26: Retail Progression
Retail Progression
Slide 27: | (Si Sleep ® number
| (Si Sleep ® number by SELECT Comrorr ———— ee,
Slide 28: In-Store Experience
In-Store Experience
Slide 29: Favorable Retail Store Model
Favorable Retail Store Model New Store Economics First-year sales: >$1,000K Capital investment: $280K Four-wall cash flow: $250K Payback: Approx. 1 year $700 $900 $1,100 $1,300 $1,500 $1,700 Average sales per store ($000) Existing Stores Expect to open 40 – 50 new stores in 2008 2002 2007E
Slide 30: Retail Progression – People
Program Design & Testing Store Roles (SM & SP) Market Manager Role Regional Director Role Q3 ’06 Q3 '07 Q3 and Beyond Timeline: Key Changes: Expected Benefits: Retail Progression – People Retail Organization: Optimize In-Store Experience Improve Selling Process Maximize Sales Results Attract Talent
Slide 31: Retail Progression – Planning Process
Combining the best of both approaches; in place for our Q3 and Q4 sales planning process. Retail Progression – Planning Process
Slide 32: Market Development
Market Development
Slide 33: Focused Approach - Example
Dallas Orlando Dallas Orlando Media Cost 2X 1X Share of Voice 2% 2% Competition (doors) Demographic Makeup Age 50+ 33% 45% Ethnic Mix 31% 21% Avg Household Income $77K $64K Untapped Potential 8X X Focused Approach - Example
Slide 34: Taking Control
Taking Control
Slide 35: Kathy Roedel
Kathy Roedel Senior Vice President, Global Operations
Slide 36: Delivering Customer Loyalty & Competitive Advantage
Delivering Customer Loyalty & Competitive Advantage Advantaged Business Model Complex Product – History, Scale JIT Supply Chain – Quality, Cost, Cash Integrated, Company-Owned Service People & Culture
Slide 37: Complex, Differentiated Product
Complex, Differentiated Product Air Control System User Interface – Controls Service 7 Days/Week 20 Year Durability Modularity More than a bed…a “sleep system”
Slide 38: Just In Time – Flexibility & Cash
Just In Time – Flexibility & Cash Select Comfort Manufacturing Customer’s Home Suppliers Build to Order Ship < 48 hours No warehouse …no inventory Short supply lines Hrs –> Days Mat’l Customer sees “out of box” quality
Slide 39: Care Specialists…Bed Owners
Care Specialists…Bed Owners All Channels, 7 Days/Week Metrics & Incentives Trained Company Techs White Glove Service Seals the Deal Company-Owned Services
Slide 40: Winning Team & Culture
Winning Team & Culture Passion for customers and results 100% bonus participation Innovation mindset Community commitment Proud of accomplishments Bullish on our future!
Slide 41: Competitiveness Engine
Competitiveness Engine Service – ‘Wow’ Every Customer Quality – Zero Defect Culture Our Mission…Transforming Competitive Advantage 50-100 bps Every Year All New Delivery Network Six Sigma Journey
Slide 42: Competitiveness Engine
Competitiveness Engine Service – ‘Wow’ Every Customer Quality – Zero Defect Culture Our Mission…Transforming Competitive Advantage 50-100 bps Every Year All New Delivery Network Six Sigma Journey
Slide 43: Fueling Growth with Efficiency
Fueling Growth with Efficiency Offset 210 bps Pressure - Economics - Regulatory 2Q07 up 80 bps Y / Y - Strategic Sourcing - Logistics - - Quality / Warranty - FR Roll-out Timing 61.2% 62.0% 60.9% 62.0% 60.4% 60.1% 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 Gross Margin
Slide 44: Sourcing
Sourcing / Value Engineering Material Cost / Unit Dual / Alternate Sources Value Engineering 50% Fewer SKUs Business Continuity / Terms Indirects Sourcing 2005 2006 2007 Est. 2005 Index Driving 160 bps Full Year Impact
Slide 45: Translating to Indirects
Translating to Indirects 20% 30% 40% 50% 60% 10% Office Supplies Travel Print Prof. Svcs. All Indirects Sourcing Process Discipline Usage Management Leveraging Scale Innovative Payment Processes Significant Savings Beginning in 2007…Bigger Savings in ‘08 Annual Savings Info Systems
Slide 46: Competitiveness Engine
Competitiveness Engine Service – ‘Wow’ Every Customer Quality – Zero Defect Culture Our Mission…Transforming Competitive Advantage 50-100 bps Every Year All New Delivery Network Six Sigma Journey
Slide 47: A Look Back at our Logistics
Irmo SC Salt Lake City UT Minneapolis 2 Manufacturing Locations + HQ (Partner Fulfillment) A Look Back at our Logistics Foundations Fabric Foam Foam Foam Foundations Foundations Foam Foundations Foundations Foundations Global & Local Suppliers Home Delivery thru >100 Cross Docks
Slide 48: All New 'Hub & Spoke' in 2007
All New ‘Hub & Spoke’ in 2007 Salt Lake City UT Irmo, SC Minneapolis 13 UPS Hubs + 90 Spokes 11 Done…on Track for 13 in 2007
Slide 49: All New Delivery Capability
All New Delivery Capability …a ‘Hub & Spoke’ Network Phase 2: 2008 Regional Inventory Speed to customers …”Next Day” on top 15 High velocity inventory Returns sort centers Plant capacity Phase 1: 2007 Build the Network Freight savings – full truck loads Reduced in-transit losses…<1% >99% inventory a
Slide 50: Competitiveness Engine
Competitiveness Engine Service – ‘Wow’ Every Customer Quality – Zero Defect Culture Our Mission…Transforming Competitive Advantage 50-100 bps Every Year All New Delivery Network Six Sigma Journey
Slide 51: Six Sigma – A Definition
Six Sigma – A Definition A methodology for using tools to reduce variation and defects to deliver products and services that meet customer expectations
Slide 52: Six Sigma Phases
DEFINE MEASURE ANALYZE IMPROVE CONTROL What Customer expectations are we not meeting? What is the frequency of the defects? Why, when, and where do defects occur? How can we fix the process/product? How can we make sure the process/product stays fixed? Six Sigma Phases
Slide 53: Customers feel the impact of a Six Sigma journey
Customers feel the impact of a Six Sigma journey… 1,000,000 100,000 10,000 1,000 0.1 Sigma level Defects Per Million IRS Tax Advice Bogie Golf Burglary Case Closure Baggage Handling Tech Center Wait Time Flight Delays Airline Fatality Defect Rate 69% 31% 7% 0.6% 0.02% 0.0003% Dramatic increase in Cu
Slide 54: Shareholders feel it too
0% 10% 20% 30% 40% 50% Sigma Level Near Term Goal Shareholders feel it too…
Slide 55: Targeting a Better Customer Experience
Targeting a Better Customer Experience Select Comfort Customer Loyalty Drivers 49% 18% 7% 24% 2% Customer Service Product Quality & Bed Benefits Information Source Trial Experience Purchase Experience
Slide 56: Improving Product Quality: 2007 Game Plan
1 st Year Warranty Claim Rates 2007 Game Plan Measure/Analyze Improve/Control Q2 Q3 Q4 Q1 Q2 Q3 Q4 (60%) Defects ------2006------- ------2007------- Improving Product Quality Product claims 40% YTD Not just for Manufacturing Returns & Exchanges Order Cycle Time Marketing Efficiency Delivering a bett
Slide 57: Transforming Competitive Advantage
Relentless cost attack …leveraging scale and innovation Transforming Service …an all-new delivery capability Incomparable quality … customer centric, every time Transforming Competitive Advantage
Slide 58: Bill McLaughlin
Bill McLaughlin President & Chief Executive Officer
Slide 59: Innovation, Brand, Summary
Innovation Brand Summary Agenda
Slide 60: Product Innovation
Product Innovation
Slide 61: Distinct Competitive Advantages
Distinct Competitive Advantages Investing 2007 Impact FR Cost & Quality Early Innovation Innovation Going Forward Innovation
Slide 62: Accelerating Innovation
Accelerating Innovation % of Net Sales R&D Spending ($M) People Research Tools & Equipment 2002 2004 2006 2007E 2008E 0.0% 0.3% 0.6% 0.9%
Slide 63: R&D Allocation
R&D Allocation 2002 2004 2006 2007 2008 New Product Innovation Incremental Improvements Cost & Quality Regulatory
Slide 64: Innovation Process
Innovation Process Concept Guiding Principles: Consumer-Driven Insights Science Based Proprietary and Advantages Feasibility Commercialization Launch Improve
Slide 65: Example: 2007 Line Upgrade
Example: 2007 Line Upgrade Consumer Operations Technical Temperature & Breathability Latex-Like Comfort Coordinated Design Fabrics Comfort Layers Component Testing Simplification FR-Compliant Process Engineering Concept: WOW Customers, Owners and Sales Team Accessories
Slide 66: 2007 Innovation / Proprietary Highlights
Enhanced Comfort Materials Improved Functionality Better Overall Design 2007 Innovation / Proprietary Highlights Converted all product to new FR standards Introduced new 7000 and 9000 models Introduce new 3000, 4000 and 5000 models Introduce new accessories End of Summer Event Labor Day Event June J
Slide 67: Distinct Competitive Advantages
Distinct Competitive Advantages Investing 2007 Impact FR Cost & Quality Early Innovation Innovation Going Forward Innovation
Slide 68: Find Your Sleep Number
Find Your Sleep Number
Slide 69: Building Strength in our Brand
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Mar-07 Sealy Serta Simmons SCSS TPX Building Strength in our Brand
Slide 70: Awareness Correlates with Growth
Awareness Correlates with Growth 0% 5% 10% 15% 20% Market Share (%)
Slide 71: The Innovation of the Bed
THE INNOVATION OF THE BED sleep @ number.
Slide 72: Plan Going Forward
Plan Going Forward Integrate Around Proven Core Original Sleep Number ® campaign nationally Fitch store design / research New retail activation, owners, etc. Develop New Creative – Address Learning Sleep Number ® evolution (not revolution) Advance past “what” to “why” and “where” One integrated look
Slide 73: Long-Term Opportunity Stronger than Ever
Long-Term Opportunity Stronger than Ever Proven Strategies, Proven Team Bold Actions Taken – and Continuing Summary – Building on Strengths
Slide 74: Proven Strategies
Leverage Awareness Distribution Innovation People & Systems Proven Strategies Expand
Slide 75: Global Opportunity
Domestic Domestic Domestic Global Opportunity 2006 Sales Mix Sealy Tempur-Pedic Int’l Int’l SCSS
Slide 76: Annual Net Sales Growth Rates
Annual Net Sales Growth Rates Source: International Sleep Products Association (ISPA), 2006 Annual Report -10% 0% 10% 20% 30% 40% 2000 2001 2002 2003 2004 2005 2006 SCSS ISPA
Slide 77: Building on Strengths
Building on Strengths 0.0 1.0 2.0 2002 2007E 2008E 2013E Net sales ($billions) $ $1.0B $2.0B
Slide 78: 2007 Analyst Day
2007 Analyst Day