Knobias Clip Report (10-23-2008) SCSS
Submitted By Knobias ClipReport
SCSS: Falls to Multi-Year Low on Q3 Sales and Q4 Outlook
By Fain Hughes, fhughes@knobias.com
Shares of Select Comfort Corporation (SCSS) fell to a multi-year low in Thursday’s session after the Company reported financial results for the third quarter ended September 27, 2008. Net sales for the quarter totaled $157.2 million, a decrease of 26 percent, compared to $213.1 million in the third quarter of 2007. The company reported a third-quarter net income of $1.0 million, or $0.02 per diluted share, compared to a net income of $11.9 million, or $0.26 per diluted share, in the third quarter of 2007.
Bill McLaughlin, President and CEO of Select Comfort, commented in a conference call, “We did what we said we would do this quarter. We said that we would return to profitability in the second half of the year, and we achieved that in Q3. We did this despite a sales environment that continued to deteriorate. We also did not receive the usual seasonal lift during the quarter. While important advances were made in new products and new marketing approaches, we have not stabilized sales and share trends. Our improved results were driven primarily by gains in gross margins and expense reductions. Gross margin has been an area of focus during these difficult times. Our costs decreased in the quarter by approximately $18 million from the prior year. These initiatives helped deliver $12 million more in profits than each of the previous two quarters, despite the weak sales.”
He added, “In general, we have no reason to believe that consumer sentiment will improve anytime soon. We expect Q4 will be more challenging than Q3.We are doing what we can do to adjust our cost base and have specific plans for what we can control and influence. We will be closing five stores in Q4 and anticipate closing 20 stores in Q1 of 2009. Our R&D teams have been instructed to focus on design opportunities and quality improvements of current products in an effort to counter inflationary pressures of commodities and deleverage. Our goal is to provide more flexibility in our pricing and promotions, while protecting operating margins. We will also decrease marketing expenses more aggressively. We believe that pulling back to lower levels of spending is absolutely prudent, as we brace for a slow holiday season and can prove that incremental spending can deliver sales and market share improvement.”
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