Sleep Number Corporation · NASDAQ:SNBR
Sleep Number — Select Comfort — Investor Day (February 2006)
78 slides from Sleep Number's investor day presentation, Feb 3, 2006
Slide 1: 2006 Analyst Day Event: Realizing Our Dream
2006 Analyst Day Event Realizing Our Dream
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 our ability to continue to successfully ex
Slide 3: Chairman and Chief Executive Officer Bill McLaughlin
Chairman and Chief Executive Officer Bill McLaughlin
Slide 4: 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 Starbucks’ Story
Slide 5: 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 years Other Similari
Slide 6: Similar Financial Performance
Similar Financial Performance Net Operating Profit ($ in millions) $75 $(50) Revenue ($ in millions) $750 SBUX 1989 SCSS 1998 SBUX SCSS SBUX 1989 SCSS 1998 SBUX SCSS
Slide 7: SBUX Circa '96 Closely Resembles SCSS Circa '05
SBUX Circa ’96 Closely Resembles SCSS Circa ‘05 SBUX SCSS 11% 37% ~3% ~6% Sales Operating Income Net Income ROE U.S. Market Share
Slide 8: Select Comfort's Story: Essentially the Same Story!
Essentially the Same Story! Select Comfort’s Story Reinvented a commodity product, dramatically enhancing quality and service… Focused on company-owned stores to deliver a distinctive retail experience… Built a vertically integrated supply chain to ensure consistent quality… Created a brand experien
Slide 9: Consumer Loyalty Experience
Consumer Loyalty Experience
Slide 10: Starts with Differentiated Product/Service
Starts with Differentiated Product/Service
Slide 11: Why Our Business Model?
Why Our Business Model? Differentiated Product that’s Complex Air Control System Chambers Sewing Daily Use 10-20 Years Marketing and Sales Challenge Consumers—low interest, long purchase cycle, skeptical Selling—longer process, more Q&A, confidence High Cost of Customer Acquisition—“Razor Blade” for
Slide 12: Business Model
Business Model Industry Select Comfort Brand Sell Make Deliver Service Relationship Mfg 1 Mfg 2 Mfg 3 Retail 3 Retail 2 Retail 1 Retail Mfg Delivery Service Customer Customer
Slide 13: Awareness, Distribution, Innovation, Leverage, People & Systems, Expand
Awareness Distribution Innovation Leverage People & Systems Expand Strategies
Slide 14: Strategies / Competitive Advantages
Awareness Distribution Innovation Leverage People & Systems Expand Strategies/ Competitive Advantages 1. Product Design 2. Brand 3. Quality, Cost, Flexibility, Service 5. Balance Sheet and Cash 4. Controlled Distribution 6. People & Culture
Slide 15: Realizing Our Dream
Realizing Our Dream Revenue ($ in billions) $1.2 $150 $(50) Net Operating Profit ($ in millions) 2007E 2007E
Slide 16: Agenda
Doug Awareness Keith Distribution Doug Innovation Kathy Leverage People & Systems Expand Agenda
Slide 17: SVP, Chief Marketing Officer Doug Collier
Awareness Distribution Innovation Leverage People & Systems Expand SVP, Chief Marketing Officer Doug Collier
Slide 18: Chief Marketing Officer Doug Collier
Chief Marketing Officer Doug Collier
Slide 19: Agenda
Agenda Market Opportunity Strong Starting Platform Opportunities to Enhance and Advance
Slide 20: The Size of Our Opportunity
The Size of Our Opportunity 5.5% 1.6% 2005E U.S. Mattress Industry Source: International Sleep Products Association (ISPA) and company information. Wholesale $6.3 billion Units 22 million
Slide 21: The Size of Our Opportunity
2005E The Size of Our Opportunity 75% 40% $500+ Price Point Segment - Queen Sets 69% Source: International Sleep Products Association (ISPA) and company information.
Slide 22: The Size of Our Opportunity
2005E 2010E The Size of Our Opportunity $35B $40B U.S. Mattress U.S. Bedding Accessories Int’l Mattress Estimated Retail Market Source: International Sleep Products Association (ISPA), CSIL Milano and company information.
Slide 23: Situation in 2000
Situation in 2000 Low awareness… number one barrier to growth Air bed had negative connotations…and not proprietary Dominated by company’s direct-marketing heritage
Slide 24: Our Marketing Model
Our Marketing Model Broad appeal of Sleep Number ® concept and advertising campaign Focus on unique product feature of personalized comfort Message strongly integrated across all brand touchpoints Major investment in media to drive awareness
Slide 25: National Unaided Brand Awareness
National Unaided Brand Awareness Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Sealy Sealy Simmons SCSS TPX Source: Third-party research. 13% 60% 0%
Slide 26: Moving the Model Forward
Moving the Model Forward Compelling Creative Media Investment Differentiated Product In-Store Experience Consumer Loyalty
Slide 27: Moving the Model Forward
Moving the Model Forward Compelling Creative Media Investment Differentiated Product In-Store Experience Consumer Loyalty New Sleep Number® campaign…leverage across all touchpoints New web-site Communicate store experience
Slide 28: Select Comfort, Creator of the Sleep Number Bed
select @comfort. CREATOR OF THE SLEEP NUMBER BED
Slide 29: Moving the Model Forward
Moving the Model Forward Compelling Creative Media Investment Differentiated Product In-Store Experience Consumer Loyalty Continue increasing media investment…efficiently
Slide 30: Media Spending
2006E Media Spending $120 15% 7%
Slide 31: Moving the Model Forward
Moving the Model Forward Compelling Creative Media Investment Differentiated Product In-Store Experience Consumer Loyalty Continue increasing media investment…efficiently Increase on-line spending 4X Increased use of retail activation tools
Slide 32: New Tools – Sunday Inserts
New Tools – Sunday Inserts
Slide 33: Moving the Model Forward
Moving the Model Forward Compelling Creative Media Investment Differentiated Product In-Store Experience Consumer Loyalty R&D investment up 2X …build pipeline of innovation Accessories growth…new products, unique features
Slide 34: Moving the Model Forward
Moving the Model Forward Compelling Creative Media Investment Differentiated Product In-Store Experience Consumer Loyalty New in-store and lease line tools to drive traffic and brand Advance store design and in-store experience
Slide 35: Moving the Model Forward
Moving the Model Forward Compelling Creative Media Investment Differentiated Product In-Store Experience Consumer Loyalty Redesign loyalty program …drive referrals and repeat purchase Consumer insight…refine and customize message
Slide 36: Summary
Summary Strong and Expanding Market Opportunity Strong Starting Marketing Platform Opportunities to Enhance and Advance
Slide 37: Keith Spurgeon, SVP, GM - Consumer Channels
Awareness Distribution Innovation Leverage People & Systems Expand Keith Spurgeon SVP, GM - Consumer Channels
Slide 38: SVP and General Manager, Consumer Channels Keith Spurgeon
Senior Vice President and General Manager, Consumer Channels Keith Spurgeon
Slide 39: Integrating Sales and Marketing
Integrating Sales and Marketing Compelling Creative Media Investment Differentiated Product In-Store Experience Consumer Loyalty Differentiation and Sustainable Competitive Advantage Maximize Revenue and Operating Leverage Improve Distribution and Sales Experience Increase Awareness and Traffic
Slide 40: Advantaged Distribution
Advantaged Distribution Retail Direct eCommerce Retail Partners Other Total Retail Stores - 77% Direct – 11% eCommerce – 5% Retail Partners – 3% 2005 Revenue Mix Other – 4% 2000-2005 20% 9% 34% NM NM 20% CAGR
Slide 41: Advantaged Distribution
Advantaged Distribution Control Brand Distribution Selling Process Focus Personnel Product Customer Loyalty Be Where the Customer is Lifetime Customer Relationship Retail Stores - 77% Direct – 11% eCommerce – 5% Retail Partners – 3% 2005 Revenue Mix Other – 4%
Slide 42: Sustainable Growth
Sustainable Growth Same Store New Stores Retail Partners New Channels Continued Organic Growth 5% - 10% Annual Store Count Growth Increasing Share of Retail Partners’ Business Incremental Opportunities
Slide 43: The Store is the Core
The Store is the Core Growing Revenues Same Store Sales New Stores Consumer- Driven Mix Bedding Accessories Compelling Store Model 2006E 49% 64% 77% 90% 8% 14% 20% Stores >$2M Stores >$1M Stores <$1M Stores Open > 12 Months
Slide 44: Targeted New Store Economics ($000)
Targeted New Store Economics ($000) ~12 months Payback $200+ Store Investment 22% Profit Margin $200 First Year Profit $900 First Year Sales The Store is the Core
Slide 45: The Store is the Core
The Store is the Core 600-650 Stores Non-Mall 396 Stores Mall-Based Locations Mall-Based Locations Non-Mall
Slide 46: The Store is the Core
Store Locations Promotions People Compensation & Incentives In-Store Tools Store Experience The Store is the Core Retention / Stability Traffic / Higher Conversion Customer Satisfaction
Slide 47: Retail Partner Strategy
Retail Partner Strategy Objectives Principles Criteria Preferred Partners Healthy Back
Slide 48: Retail Partner Strategy
Retail Partner Strategy Objectives Leverage Advertising Increase Market Share First Choice of Retail Partners Pre-empt Competition Better Bedding
Slide 49: Retail Partner Strategy
Retail Partner Strategy Objectives Principles Semi-Exclusive Controlled Program Incremental Criteria Preferred Partners Sleep Train
Slide 50: Retail Partner Strategy
Retail Partner Strategy Objectives Principles Criteria Dominant Player Quality Success Brand Building Preferred Partners Mattress Firm
Slide 51: Retail Partner Strategy
Retail Partner Strategy Objectives Principles Criteria Preferred Partners Exclusivity Brand Strength Product Quality Service & Support Dedicated Trainers
Slide 52: Leading Bedding Retailers
Leading Bedding Retailers Source: Furniture|Today, Aug. 1, 2005 # Stores Select Comfort Sleepy’s Mattress Firm The Sleep Train Sales Rank # 1 # 2 # 3 # 8
Slide 53: Integrating Sales and Marketing
Integrating Sales and Marketing Compelling Creative Media Investment Differentiated Product In-Store Experience Consumer Loyalty Differentiation and Sustainable Competitive Advantage Maximize Revenue and Operating Leverage Improve Distribution and Sales Experience Increase Awareness and Traffic
Slide 54: SVP, Global Operations Kathy Roedel
Awareness Distribution Innovation Leverage People & Systems Expand SVP, Global Operations Kathy Roedel
Slide 55: Senior Vice President, Global Operations Kathy Roedel
Senior Vice President, Global Operations Kathy Roedel
Slide 56: Introducing Global Operations
Introducing Global Operations Sourcing Logistics Home Delivery Customer Service Manufacturing Product Design Secret Weapon… Delivering competitive advantage Driving customer loyalty
Slide 57: Keys to Advantage & Loyalty
Keys to Advantage & Loyalty Complex product – history and scale Flexible JIT supply chain – quality, cost, cash Integrated, company owned Service People & culture
Slide 58: Complex, Differentiated Product
Complex, Differentiated Product More than a bed…a “sleep system” User Interface - Controls Service 7 days/week 20 Year Durability Modularity Air Control System
Slide 59: Key Operations Locations
Salt Lake City UT Minneapolis Key Operations Locations Foundations Fabric Foam Foam Foam Foundations Foundations Foam Foundations Foundations Foundations 2 Manufacturing Locations + HQ (Partner Fulfillment) Global & Local Suppliers Home Delivery thru 100+ cross docks
Slide 60: Keys to Advantage & Loyalty
Keys to Advantage & Loyalty Complex product – history and scale Flexible JIT supply chain – quality, cost, cash Integrated, company owned Service People & culture
Slide 61: 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 Raw Mat’l Customer sees “out of box” quality
Slide 62: Quality…Zero Defect Culture
Quality…Zero Defect Culture Designed for manufacture & service-ability Suppliers… qualified, certified, audited, selectively exclusive Mistake Proofed Processes Quality Built In – “Do / Check” Rapid Response – daily customer pulse
Slide 63: Keys to Advantage & Loyalty
Keys to Advantage & Loyalty Complex product – history and scale Flexible JIT supply chain – quality, cost, cash Integrated, company owned Service People & culture
Slide 64: Select Customer Service
Select Customer Service Customer care specialists …Sleep Number bed owners! Continuous Improvement Closed loop process Rapid response Zero Defect Culture Customer Data Root Cause Analysis Design & Mfg Improvements Great Customer Service All Channels, 7 days/week Metrics & Incentives
Slide 65: Home Delivery Service
Home Delivery Service Select Comfort controls the entire customer experience …right into their bedroom! Centralized Scheduling White Glove Treatment Great Feedback Seals the deal…best bed buying decision!
Slide 66: Building on Success
Product Design Productivity “JIT” Supply Chain Flexibility & Cost Co.-owned Service Faster Order Delivery Building on Success People & Culture Even deeper bench Refined design for mfg Six Sigma pilots Dual sourcing strategy 2010 capacity plan Pilot new network design Continuous optimization Training
Slide 67: Keys to Advantage & Loyalty
Keys to Advantage & Loyalty Complex product – history and scale Flexible JIT supply chain – quality, cost, cash Integrated, company owned Service People & culture
Slide 68: Operations Leadership Team
Operations Leadership Team Kathy Roedel Global Operations 4/4/05 Joy Grant Administrative Support 3/31/92 Mark Sponsler Home Delivery 3/1/05 Darrell Olson Logistics 11/7/95 Kathleen Graber Supply Chain 5/31/95 Dave Menssen Cust. Service 8/3/98 Don Hancock Mfg – SLC, UT 5/24/99 Ron McCoy Mfg – Irmo,
Slide 69: 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 70: Global Operations
Global Operations Sourcing Logistics Home Delivery Customer Service Manufacturing Product Design Secret Weapon… Delivering competitive advantage Driving customer loyalty
Slide 71: Chief Financial Officer Jim Raabe
Chief Financial Officer Jim Raabe
Slide 72: Sustainable Growth
Sustainable Growth Multiple Sources of Growth Multiple Sources of Leverage Internally Funded
Slide 73: Realizing Our Dream
2006E 2007E $1.0B $0 15% -10% 12% *Note: Before stock option expense Realizing Our Dream
Slide 74: Multiple Sources of Growth
Multiple Sources of Growth Operating Margin G&A Media Selling Margin (Ex-Media) Gross Margin Sales Total Wholesale Company- owned *Including Radisson sales 92% 62% 31% 8% 34%* 26%* 100% 59% 31% 13% 8% 10%
Slide 75: Consistent Revenue Growth
Consistent Revenue Growth + Hospitality - year 2 Int’l - initial investment QVC/RV New Channels 15% - 20% 2 - 3% 100% more doors 10% 20% share of floor Retail Partner 4 - 6% 45 - 50 Stores New stores 9 - 11% 7-12% Target Media + 15% 30 store relocations e-Commerce/Direct Same store growth Consolidat
Slide 76: Consistent Margin Growth to '07
Consistent Margin Growth to ‘07 ~ 0.5 ppt G&A ~ 1.0 ppt Selling ~ 0.5 ppt Marketing - - Gross Margin
Slide 77: Cash from Operations: Funds Growth
Cash from Operations: Funds Growth 2006E 2007E Free Cash Flow Capital
Slide 78: Thank You!
THANK YOU! Demonstrated Performance Proven Strategies Multiple Sources of Growth Competitive Advantages Strong Culture Depth of Management