Sleep Number Corporation · NASDAQ:SNBR
Sleep Number — Select Comfort — Investor Day (September 2003)
63 slides from Sleep Number's investor day presentation, Sep 10, 2003
Slide 1: Analyst Day September 10, 2003
Analyst Day September 10, 2003
Slide 2: Bill McLaughlin, President and Chief Executive Officer
Bill McLaughlin President and Chief Executive Officer
Slide 3: Forward Looking Statements
Forward Looking Statements Staterrents 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 athers, such factors as general and industry economic trends, un
Slide 4: Vision, Mission and Values
Vision Revolutionize Sleep Leader Mission Improve peoples lives, by providing best sleep possible with innovative products Values Consumer Quality Performance Positive Culture Profitable Growth
Slide 5: Strategic Opportunity
select @comfort CREATOR OF THE SLEEP NUMBER BED Strategic Opportunity
Slide 6: Icon Companies
Icon Companies CONSUMER TREND PRODUCT BUSINESS MODEL PEOPLE SELECT COMFORT Controlled Distribution/ Low Working Capital Sleep Number(r) Bed Sleep Mission Driven
Slide 7: Commonly Expressed Concerns about Select Comfort's Potential
Commonly Expressed Concerns about Select Comfort's Potential Niche - Consumer Demand? Capacity - Stores and Plants? Marketing - Limits? Repeat - How many beds do people need? Competition - Defense? Benchmarks?
Slide 8: Limited consumer demand for revolutionary, premium products?
Limited consumer demand for revolutionary, premium products? Radial Tires CD's Nike Starbucks
Slide 9: Demonstrating Break-Through Potential
Select Comfort Demonstrating Break-Through Potential <5% 5-10% 10-15% 15-20% >20% East 141 38 16 9 6 12 month market share growth of 1 ppt. or 21%
Slide 10: Small Store Size No Barrier to Growth
Outpace infrastructure? Small Store Size No Barrier to Growth Opportunity to double or triple average sales/store <$1MM $1-2MM $2-3MM $3MM+ '01 281 32 1 0 TTM 195 104 6 3 '01 '02 '03E Average $ sq. ft. 666 841 946 Average Sq. Ft. 939 972 977
Slide 11: Potential Distribution Points
Potential Distribution Points Sealy 7,000+ # A and B Malls 1,290 1 store per 200K pop. (metro) 922 stores Select Comfort today With Partners 416 Retail only 342 Opportunity to double or triple points of distribution Select Comfort Goal 600 - 800
Slide 12: Will Marketing Limit Growth?
Will Marketing Limit Growth? '00 '01 '02 '03 Media 31 29 39 60 Marketing % NS 0.236 0.223 0.196 0.21
Slide 13: How many beds do people need?
How many beds do people need? 2nd Qtr 3rd Qtr 4th Qtr East 0.05 0.95 Everyone needs a Sleep Number(r) Bed 5% 2nd Qtr 3rd Qtr 4th Qtr East 0.1 0.9 10% Replacement/Upgrade Innovate Expansion Product Channel Geography
Slide 14: Select Comfort's Strong Offense
Select Comfort's Strong Offense... Competition's dilemma Product Brand Controlled Distribution Customer Experience & Satisfaction Competition's Strategic Challenges Fixed assets, infrastructure Distribution
Slide 15: Starbucks' Story
Starbucks' Story Reinvented a commodity product, dramatically enhancing quality and service... Built a vertically integrated supply chain to ensure consistent quality... Focused on company-owned stores to deliver a distinctive retail experience... Created a brand experience worthy of a premium price
Slide 16: Select Comfort's Story
Select Comfort's Story Reinvented a commodity product, dramatically enhancing quality and service... Built a vertically integrated supply chain to ensure consistent quality... Focused on company-owned stores to deliver a distinctive retail experience... Created a brand experience worthy of a premium
Slide 17: Other Similarities
Other Similarities Old line industry leaders, highly recognizable brand names, but not strong brand Premium price of mass market products Huge markets, growth only in premium segments Strong gross margins Growth accelerated by word of mouth Strong management teams Industry skepticism high in early y
Slide 18: Starbucks and Select Comfort Have Followed Similar Trajectories
Starbucks and Select Comfort Have Followed Fairly Similar Trajectories Sales Pretax Income SCSS SBUX SBUX SCSS 1988 1989 1990 1991 1992 1993 1994 1995 SBUX 1994 1995 1996 1997 1998 1999- 2001 2002 2003 SCSS 1988 1989 1990 1991 1992 1993 1994 1995 SBUX 1994 1995 1996 1997 1998 1999- 2001 2002 2003 SC
Slide 19: SBUX Circa '95 Closely Resembles SCSS Circa '03
SBUX Circa '95 Closely Resembles SCSS Circa '03 Sales Pretax Income Net Income ROE U.S. Market Share 465.2 40.1 26.1 12.4% ~3% 429 - 438 36 - 40 22 - 25 ~35% ~ 5% SBUX 1995 SCSS 2003E
Slide 20: Select Comfort... the next Icon Company?
Select Comfort... the next Icon Company? Tipping Point 2003? nike
Slide 21: Marketing: Noel Schenker
Marketing Noel Schenker Sr. Vice President, Marketing & New Business Development
Slide 22: Integrated Growth: Consumer Product Company and Retailer
Integrated Growth Consumer Product Company and Retailer
Slide 23: Multi-Channel Structure with Synergistic Media
Integrated Growth Multi-Channel Structure with Synergistic Media Direct Nat'l Retail Local Ecom Nat'l
Slide 24: Coordinated Program Elements for Surround-Sound Impact
Integrated Growth Coordinated Program Elements for Surround-Sound Impact TV DJs Email Newspaper New In-Store Financing Direct Mail Product Promos Offers
Slide 25: Common Focus
Common Focus
Slide 26: Integrated Brand Building
Integrated Brand Building All brand marketing communications integrated to build the Sleep Number(r) brand 135+ Local DJs
Slide 27: Integrated Advertising Campaign
Integrated Advertising Campaign Sleep Number(r) local retail campaign debuted 2001 Expanded as more markets media-ready New Sleep Number(r) national cable campaign introduced 2003 Capitalizes on DR rates; raises awareness everywhere Lindsay Wagner hosts :60, :120 and 1/2 hour spots
Slide 28: Total Media Spending by Year
2000 2001 2002 2003 Est. 2004 Total Media 30.3 29.4 39.5 60.9 79 Total Media Spending by Year ($MMs)
Slide 29: Media Spending Growth
Media Spending Growth ($MMs) National Print 7.3 8.0 10% Television 11.4 21.0 84% Radio 4.8 5.6 17% Local Media Markets 10.0 17.7 77% DJs 4.1 6.1 49% Other/Internet 1.8 2.6 44% Total 39.4 61.0 55% Total Mktg % GS 27.4% 27.9% ----- % +/-? 2002 2003
Slide 30: National Awareness and Retail Market Share
National Awareness and Retail Market Share 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr East 20.4 27.4 90 20.4 West 30.6 38.6 34.6 31.6 North 45.9 46.9 45 43.9 Dec. 01 Jun. 03 Unaided Awareness (SN & SC) 2 5 Est. Market Share 3.8 4.6
Slide 31: Minneapolis Awareness and Retail Market Share
Minneapolis Awareness and Retail Market Share 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr East 20.4 27.4 90 20.4 West 30.6 38.6 34.6 31.6 North 45.9 46.9 45 43.9 Dec. 01 Jun. 03 Unaided Awareness (Sleep Number) 16 25 Est. Market Share 17.5 21.9
Slide 32: Q2 Comp-Sales Trends
Q2 Comp-Sales Trends 2003 2002 Markets w/Nat'l +26% +18% Media Only Markets w/Supplemental +31% +26% Local Media
Slide 33: Media Has Cumulative Impact
Media Has Cumulative Impact 2001 2002 2003 Media Spending SN Campaign $761,000* $709,000 $718,000* Comp-Store Sales gains 18.5% 30.2% 33.9% Unaided Awareness ---- 17.0% 21.0% *Annualized Retail Media Market "A" YTD
Slide 34: Large Future Growth Opportunity
Large Future Growth Opportunity Still a moderate advertiser Significant room to increase Nat'l cable Lifts all markets Stronger awareness and sales qualify more markets for local media Existing local campaigns expand through "Farm League" approach Local DJ program expands to 2-3/market
Slide 35: Media Spending Growth in Top Categories
Media Spending Growth in Top Categories ($MMs) 2002 2003 Est. 2004 Local Mkts 10 17.7 29.8 Natl TV 11.4 20.9 28.2 DJs 4.1 6.1 8.4
Slide 36: Top Megabrands
Top 200 Megabrands ($MMs) Measured Media includes: Network TV Magazines Newspaper Spot TV Cable TV Network Radio Internet Yellow Pages Does not include: Spot Cable Local Radio Direct Mail Infomercial Co-op Source: 2003 Ad Age Megabrand Report 2003 Sleep Number Bed 61.1* 54.2 Rank *Includes all media
Slide 37: Top National Cable TV Advertisers: 2002
Top 50 National Cable TV Advertisers: 2002 Select Comfort $7,404.6 (2002) $15,569.9 (2003) Source: Cable Television Advertising Bureau Does not include: Infomercial Spending
Slide 38: Sleep Number Local Market Growth
Sleep Number Local Market Growth 2001 8 23.2 8.9 14.0 2002 16 36.5 20.2 28.0 2003 21 48.3 29.6 42.0 2004 Est. 35 70.5 55.3 62.0 # of Markets Select Comfort % Sales % US Pop % Select Comfort Stores
Slide 39: Major Metro Market Focus
Major Metro Market Focus Top Six Markets Start Type New York 2004-5 TBD LA 2004-5 TBD Chicago 2003 Radio Philadelphia 2002 DRTV San Francisco 2002 TV/Radio/Newspaper Boston 2003 TV/Radio/Newspaper Local Media Plans
Slide 40: Boston (8/2003)
Boston (8/2003) Combined real estate and market development Opened 4 new stores Total 10 Added 2 new local DJs Total 3 Began TV/Radio/Newspaper Ad campaign Began PR events and appearances More stores to be added as needed
Slide 41: Momentum Focus
Momentum Focus Awareness Traffic Product News Sales Process Tiered Promos Finance Design High-Mix Sale Added Service Improved Store Design
Slide 42: Distribution Growth Strategy: Keith Spurgeon
Distribution Growth Strategy Keith Spurgeon Senior Vice President, Sales
Slide 43: Channel Mix - Leveraging Retail Power
Channel Mix - Leveraging Retail Power 2003 ttm % Growth Company Controlled Retail 78% 35% Direct 14% 14% E-commerce 4% 35% Total 96% Wholesale 4% 4%
Slide 44: Sales Growth Metrics
Sales Growth Metrics Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 0.07 0.03 0.15 0.21 0.32 0.38 0.3 0.34 2001 2002 2003
Slide 45: Sales Growth Metrics
Sales Growth Metrics 2001 2002 2003E 0.098 0.241 0.45 31 74 154
Slide 46: Compelling Store Model
Compelling Store Model New Store Year 3 Avg. Sales/Store $800,000 $1,000,000 Profit/Bed* $196 $328 Four wall cash flow margin* 12% 20% *Includes advertising costs 800 to 1,200 square feet $140,000 initial investment 18 - 24 month payback, > 50% IRR Breakeven with $525,000 sales Sales per sq. ft. of
Slide 47: Store Selection Process
Store Selection Process Internal Success Model Marketing Support Model Rifle vs. Shotgun
Slide 48: New Store Openings by Market
SFO-2 LA-2 Minn-1 KC-1 St. Louis-2 Richmond-1 Atl-1 Tampa-1 Indianapolis-1 Boston-4 Columbus-1 Phoenix-2 Clev.-2 Houston-1 Dallas-1 Chicago-1 Pitts.-1 WDC-1
Slide 49: Population per Store by Market Advertising Type
Advertising Advertising Pop per Store Pop per Store Market Local Supplement National Only Before After Houston X 328 287 Cleveland X 406 271 DC X 383 298 Dallas X 301 271 Pittsburgh X 233 195 Chicago X 406 338 Phoenix X 243 189 Columbus X 462 308 Boston X 455 273 LA X 354 321 Indianapolis X 371 278
Slide 50: Store Expansion: Renewed Source of Growth in 2003
Store Expansion: Renewed Source of Growth in 2003 # of Stores 2001 2002 2003E East 328 322 343 2003: add 20 to 30 new stores Increase store base by 5-10% annually beyond 2003 Remodel 100 stores
Slide 51: Wholesale: QVC, OEM, Institutional, International
Wholesale QVC OEM Future Institutional Hospitality International
Slide 52: Retail Partners
Retail Partners Current Partners Gabberts Benchmark Sleep Train Sleep America 1+1 > 2
Slide 53: Retail Partner Growth
Retail Partner Growth - ttm 30% Market Growth Combined SC Retail Combined Retail Partner Markets Markets
Slide 54: Disciplined Growth Strategy
Disciplined Growth Strategy Stores Wholesale Retail Partners
Slide 55: Jim Raabe, Chief Financial Officer
Jim Raabe Chief Financial Officer
Slide 56: Q3 - Continuing Strong Growth
Q3 - Continuing Strong Growth Guidance vs 2002 Sales $113M - $116M +32% Earnings per Share $0.16 - $0.17 +60% Media $16M +55% Investing profits for long term growth
Slide 57: Sustainable Growth Objectives
Sustainable Growth Objectives Sales 15% - 25% Same store growth New stores Earnings 30% Sales Operating margins
Slide 58: Stores Growing... No Mature Stores
Stores Growing... No "Mature" Stores <$500 $500-$1,000 $1,000-$2,000 >$2,000 6/1/2001 125 156 32 1 6/1/2003 34 161 104 9 30% YTD Comp 37% of Stores
Slide 59: More Mature Markets, Growing Opportunity in Undeveloped Markets
More Mature Markets Growing Opportunity in Undeveloped Markets 5%-10% Share >10% Share 5% Share 0.3 0.12 0.58 58% of U.S. Population 28% Comp % of U.S. Population by Select Comfort Market Share
Slide 60: New Stores Provide Additional Growth
New Stores Provide Additional Growth No markets are currently fully stored Generate 7%-10% annual sales growth 25 to 35 new stores in 2004 Earnings positive first twelve months
Slide 61: Operating Margins to 11%-12% by 2005
Operating Margins - to 11%-12% by 2005 Operating Profit Cost of Goods Marketing Selling G&A East 0.076 0.374 0.202 0.256 0.092 Operating margin: +8% in '03 Gross margin: stable at 63% Selling expense 2.1ppts leverage in 2003 Primary contributor to margin improvement in '04 G&A - up to 1ppt leverage
Slide 62: Margins Improve with Leverage
Margins Improve with Leverage - Upside with Sustaining Media Years Media % of Sales Sales Growth Investing in media for growth Margin Improvement
Slide 63: Advantaged Model Supports Internal Funding of Growth Priorities
Advantaged Model... Supports Internal Funding of Growth Priorities Growth Productivity Stock Repurchase Dividend '00 '01 '02 June '03 5.4 16.4 39.3 47.4 '00 '01 '02 June '03 (ttm) East -22.4 -4.4 28.3 26.9