Mattress Firm Holding Corp. (“the Company”)
(NASDAQ: MFRM) today announced its financial results for the first
fiscal quarter (13 weeks) ended April 30, 2013. Net sales for the
first fiscal quarter increased 31.5% to $276.0 million, reflecting
incremental sales from new and acquired stores, offset by a
comparable-store sales decline of 5.2%. The Company reported first
fiscal quarter earnings per diluted share (“EPS”) on a generally
accepted accounting principles (“GAAP”) basis of $0.35, and EPS on
a non-GAAP adjusted basis, excluding acquisition-related and ERP
system implementation costs (“Adjusted”), of $0.38. Diluted EPS on
a GAAP basis and Adjusted basis are reconciled in the table
below:
First Fiscal Quarter Reconciliation of
GAAP to Adjusted EPS
See “Reconciliation of Reported (GAAP) to
Adjusted Statements of Operations Data” for Notes
Thirteen Weeks Ended May 1, 2012
April 30, 2013 GAAP EPS $ 0.29 $ 0.35 Acquisition-related
costs (1) 0.02 0.01 ERP system implementation costs (2)
- 0.02 Adjusted EPS
$
0.31 $ 0.38
“As the leading bedding specialty retailer in the country, we
continued to achieve strong results in the first quarter, evidenced
by our 31.5% revenue growth over the prior year, despite the
challenging industry consumer traffic and average unit price trends
that we previously referenced,” stated Steve Stagner, Mattress
Firm’s president and chief executive officer. “With the opening of
46 new stores during the first quarter, we are well on our way to
reaching our goal of opening more than 100 new stores for the third
consecutive year and growing our company-operated store base above
1,100 during 2013. We are pleased with the ongoing sales and
operating margin growth in the acquired Mattress Giant stores and
that comparable-store sales growth turned positive in May now that
those stores are included in our comparable-store sales results. As
we look ahead, we are excited by the new and innovative products
now on our floors supported with national advertising and
anticipate consistent sales and profitability growth over the
remainder of 2013.”
First Quarter Financial Summary
- Net sales for the first fiscal quarter
increased 31.5% to $276.0 million, reflecting incremental sales
from new and acquired stores, offset by a comparable-store sales
decline of 5.2%.
- Opened 46 new stores and closed 7
stores bringing the total number of Company-operated stores to
1,096 as of the end of the fiscal quarter.
- Income from operations was $22.5
million. Excluding $1.3 million of acquisition-related costs and
ERP system implementation costs, Adjusted income from operations
was $23.8 million, representing an increase of $4.7 million, or
24.3%, over Adjusted income from operations for the comparable
prior year period. Please refer to “Reconciliation of Reported
(GAAP) to Adjusted Statements of Operations Data” for a
reconciliation of income from operations to Adjusted income from
operations and other information.
- Adjusted operating margin decreased 50
basis points to 8.6% of net sales as compared to 9.1% in the same
quarter of fiscal 2012, and consisted of a 140 basis-point decrease
in gross margin, a 30 basis-point improvement in sales and
marketing expense leverage, an 80 basis-point improvement in
general and administrative expense leverage and an aggregate 20
basis-point operating margin decline in other categories.
- Net income was $12.0 million and GAAP
EPS was $0.35. Excluding $0.8 million, net of income taxes, of
acquisition-related and ERP system implementation costs, Adjusted
net income was $12.8 million and Adjusted EPS was $0.38, an
increase of 22.3% over Adjusted EPS for the comparable prior year
period. Please refer to “Reconciliation of Reported (GAAP) to
Adjusted Statements of Operations Data” for a reconciliation of net
income and GAAP EPS to Adjusted net income and Adjusted EPS,
respectively, and other information.
Acquisitions
With respect to the acquisitions of former Mattress Giant stores
in November 2011 and May 2012, the rebranding of the acquired
stores was substantially complete by the end of fiscal 2012. The
per store sales results of those stores for the months since the
date of rebranding and for one year thereafter are demonstrated by
the charts accompanying this release.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $1.6 million at the
end of the first fiscal quarter. Net cash provided by operating
activities was $16.0 million for the first fiscal quarter. As of
April 30, 2013, there was $8.0 million of borrowings under the
revolving portion of the 2012 Senior Credit Facility (as defined in
the Company’s filings with the SEC) and approximately $1.4 million
in outstanding letters of credit, with additional borrowing
capacity of $90.6 million.
Financial Guidance
The Company is reaffirming its guidance for the fiscal year (52
weeks) ending January 28, 2014 (“fiscal year 2013”), which was
originally issued in March 2013.
Full Fiscal Year
Ending January 28, 2014
Range
Net sales (in billions)
$1.237 to $1.250
New stores
110 to 120
Net store unit increase
90 to 95
GAAP EPS
$1.81 to $1.89
Acquisition-related costs per share
$0.01
ERP system implementation costs per
share
$0.07 to $0.09
Adjusted EPS
$1.90 to $1.98
Comparable-store sales growth
low single digit
Call Information
A conference call to discuss first fiscal quarter results is
scheduled for today, June 4, 2013, at 5:00 p.m. Eastern Time. The
call will be hosted by Steve Stagner, president and chief executive
officer, and Jim Black, chief financial officer.
The conference call will be accessible by telephone and the
internet. To access the call, participants from within the U.S. may
dial (877) 407-3982, and participants from outside the U.S. may
dial (201) 493-6780. Participants may also access the call via live
webcast by visiting the Company’s investor relations web site at
http://www.mattressfirm.com.
The replay of the call will be available from approximately 8:00
p.m. Eastern Time on June 4, 2013 through midnight Eastern Time on
June 18, 2013. To access the replay, the domestic dial-in number is
(877) 870-5176, the international dial-in number is (858) 384-5517,
and the passcode is 414720. The archive of the webcast will be
available on the Company’s web site for a limited time.
Net Sales and Store Unit Information
The components of the net sales increase for the thirteen weeks
ended April 30, 2013 as compared to the corresponding prior year
period were as follows (in millions):
Increase (Decrease) in Net Sales
Comparable-store sales $ (10.8 ) New stores 28.9 Acquired stores
50.3 Closed stores (2.2 ) $ 66.2
The composition of net sales by major category of product and
services were as follows (in millions):
Thirteen Weeks Ended May 1, % of
April 30, % of 2012
Total 2013
Total Specialty mattresses $ 106.3 50.7 % $
129.8 47.0 % Conventional mattresses 85.5 40.7 % 121.6 44.0 %
Furniture and accessories
14.0 6.7 %
19.2 7.0 % Total product sales 205.8 98.1 % 270.6 98.0
% Delivery service revenues
4.0 1.9 %
5.4 2.0 % Total net sales
$
209.8 100.0 %
$ 276.0 100.0
%
Prior-year components of the Company’s net sales have been
reallocated between specialty mattresses and conventional
mattresses to be consistent with current-year presentation.
The activity with respect to the number of Company-operated
store units was as follows:
Thirteen Weeks Ended April 30,
2013 Store units, beginning of period 1,057 New stores 46
Closed stores (7 ) Store units, end of period 1,096
Forward-Looking Statements
Certain statements contained in this press release are not based
on historical fact and are “forward-looking statements” within the
meaning of applicable federal securities laws and regulations. In
many cases, you can identify forward-looking statements by
terminology such as “may,” “would,” “should,” “could,” “forecast,”
“feel,” “project,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “predict,” “intend,” “potential,” “continue” or the
negative of these terms or other comparable terminology; however,
not all forward-looking statements contain these identifying words.
The forward-looking statements contained in this press release,
such as those relating to our net sales, GAAP and Adjusted EPS and
net store unit change for fiscal year 2013, are subject to various
risks and uncertainties, including but not limited to downturns in
the economy; reduction in discretionary spending by consumers; our
ability to execute our key business strategies and advance our
market-level profitability; our ability to profitably open and
operate new stores and capture additional market share; our
relationship with our primary mattress suppliers; our dependence on
a few key employees; the possible impairment of our goodwill or
other acquired intangible assets; the effect of our planned growth
and the integration of our acquisitions on our business
infrastructure; the impact of seasonality on our financial results
and comparable-store sales; our ability to raise adequate capital
to support our expansion strategy; our success in pursuing and
completing strategic acquisitions; the effectiveness and efficiency
of our advertising expenditures; our success in keeping warranty
claims and comfort exchange return rates within acceptable levels;
our ability to deliver our products in a timely manner; our status
as a holding company with no business operations; our ability to
anticipate consumer trends; risks related to our controlling
stockholder, J.W. Childs Associates, L.P.; heightened competition;
changes in applicable regulations; risks related to our franchises,
including our lack of control over their operation and our
liabilities if they default on note or lease obligations; risks
related to our stock and other factors set forth under “Risk
Factors” in our Annual Report on Form 10-K for the fiscal year
ended January 29, 2013 filed with the Securities and Exchange
Commission (“SEC”) on April 1, 2013 and our other SEC filings.
Forward-looking statements relate to future events or our future
financial performance and reflect management’s expectations or
beliefs concerning future events as of the date of this press
release. Actual results of operations may differ materially from
those set forth in any forward-looking statements, and the
inclusion of a projection or forward-looking statement in this
press release should not be regarded as a representation by us that
our plans or objectives will be achieved. We do not undertake to
publicly update or revise any of these forward-looking statements,
whether as a result of new information, future events or
otherwise.
Non-GAAP Financial Measures
Adjusted EBITDA is defined as net income before income tax
expense, interest income, interest expense, depreciation and
amortization (“EBITDA”), without giving effect to non-cash goodwill
and intangible asset impairment charges, gains or losses on store
closings and impairment of store assets, gains or losses related to
the early extinguishment of debt, financial sponsor fees and
expenses, non-cash charges related to stock based awards and other
items that are excluded by management in reviewing the results of
operations. We have presented Adjusted EBITDA because we believe
that the exclusion of these items is appropriate to provide
additional information to investors about our ongoing operating
performance excluding certain non-cash and other items and to
provide additional information with respect to our ability to
comply with various covenants in documents governing our
indebtedness and as a means to evaluate our period-to-period
results. In evaluating Adjusted EBITDA, you should be aware that in
the future we may incur expenses that are the same as or similar to
some of the adjustments in this presentation. Our presentation of
Adjusted EBITDA should not be construed to imply that our future
results will be unaffected by any such adjustments. We have
provided this information to analysts, investors and other third
parties to enable them to perform more meaningful comparisons of
past, present and future operating results and as a means to
evaluate the results of our ongoing operations. Management also
uses Adjusted EBITDA to determine executive incentive compensation
payment levels. In addition, our compliance with certain covenants
under the credit agreement between our indirect wholly owned
subsidiary, Mattress Holding Corp., certain lenders, and UBS
Securities LLC, as sole arranger, bookrunner, and a lender, are
calculated based on similar measures and differ from Adjusted
EBITDA primarily by the inclusion of pro forma results for acquired
businesses in those similar measures. Other companies in our
industry may calculate Adjusted EBITDA differently than we do.
Adjusted EBITDA is not a measure of performance under U.S. GAAP and
should not be considered as a substitute for net income prepared in
accordance with U.S. GAAP. Adjusted EBITDA has significant
limitations as an analytical tool, and you should not consider it
in isolation or as a substitute for analysis of our results as
reported under U.S. GAAP.
The following table contains a reconciliation of our net income
determined in accordance with U.S. GAAP to EBITDA and Adjusted
EBITDA for the periods indicated (in thousands):
Thirteen Weeks Ended May
1, April 30, 2012
2013 Net income $ 9,736 $ 12,009 Income tax
expense 6,162 7,674 Interest income (1 ) (2 ) Interest expense
2,075 2,849 Depreciation and amortization 4,704 6,210 Intangible
assets and other amortization
580
541 EBITDA
23,256
29,281 Loss on store closings and
impairment of store assets 17 261 Financial sponsor fees and
expenses - 12 Stock-based compensation 509 887 Vendor new store
funds (a) 383 887 Acquisition-related costs (b) 1,179 326 Other (c)
69 569
Adjusted EBITDA
$ 25,413
$ 32,223
(a)
We receive cash payments from certain
vendors for each new incremental store that we open (“new store
funds”). New store funds are initially recorded in other noncurrent
liabilities when received and are then amortized as a reduction of
cost of sales over 36 months in our financial statements.
Historically, we have considered new store funds as a component of
Adjusted EBITDA when received since new store funds are included in
cash provided from operations. The adjustment includes the amount
of new store funds received during the period presented and
eliminates the non-cash reduction in cost of sales included in our
results of operations.
(b)
Reflects both non-cash effects included in
net income related to acquisition accounting adjustments made to
inventories and other acquisition-related cash costs included in
net income, such as direct acquisition costs and costs related to
integration of acquired businesses.
(c)
Consists of various items that management
excludes in reviewing the results of operations, including $0.7
million of ERP system implementation costs incurred during the
thirteen weeks ended April 30, 2013.
Adjusted EPS and the other “Adjusted” data provided in this
press release are also considered non-GAAP financial measures. We
report our financial results in accordance with GAAP; however,
management believes evaluating our ongoing operating results may be
enhanced if investors have additional non-GAAP basis financial
measures to facilitate year-over-year comparisons. Management
reviews non-GAAP financial measures to assess ongoing operations
and considers them to be effective indicators, for both management
and investors, of our financial performance over time. Our
management does not advocate that investors consider such non-GAAP
financial measures in isolation from, or as a substitute for,
financial information prepared in accordance with GAAP. For more
information, please refer to “Reconciliation of Reported (GAAP) to
Adjusted Statements of Operations Data” below.
MATTRESS FIRM HOLDING CORP.
Consolidated Balance Sheets
(In thousands, except share
amounts)
January 29, April 30,
2013 2013
Assets
(unaudited) Current assets: Cash and cash equivalents $ 14,556 $
1,645 Accounts receivable, net 26,246 30,831 Inventories 63,228
71,738 Deferred income tax asset 3,710 3,755 Prepaid expenses and
other current assets
18,855
19,897 Total current assets 126,595 127,866
Property and equipment, net 144,612 152,711 Intangible assets, net
82,479 82,345 Goodwill 358,978 358,671 Debt issue costs and other,
net
12,015 11,778
Total assets
$ 724,679
$ 733,371
Liabilities and
Stockholders' Equity
Current liabilities: Notes payable and current maturities of
long-term debt $ 33,930 $ 31,505 Accounts payable 64,642 74,708
Accrued liabilities 41,106 35,685 Customer deposits
8,012 8,733 Total
current liabilities 147,690 150,631 Long-term debt, net of current
maturities 219,069 206,061 Deferred income tax liability 26,800
27,527 Other noncurrent liabilities
63,624
67,782 Total liabilities
457,183 452,001
Commitments and contingencies Stockholders' equity:
Common stock, $0.01 par value; 120,000,000 shares authorized;
33,795,630 and 33,844,140 shares issued and outstanding at January
29, 2013 and April 30, 2013, respectively 338 338 Additional
paid-in capital 365,083 366,948 Accumulated deficit
(97,925 ) (85,916
) Total stockholders' equity
267,496 281,370
Total liabilities and stockholders' equity
$
724,679 $ 733,371
MATTRESS FIRM HOLDING CORP.
Consolidated Statements of
Operations
(In thousands, except share and per
share amounts)
(Unaudited)
Thirteen Weeks Ended May 1,
% of April 30, %
of 2012
Sales 2013
Sales Net sales $ 209,814 100 % $ 275,957 100 %
Cost of sales
127,272 60.7 %
171,515 62.2 % Gross profit from retail
operations 82,542 39.3 % 104,442 37.8 % Franchise fees and royalty
income
1,205 0.6 %
1,249 0.5 %
83,747
39.9 %
105,691 38.3 %
Operating
expenses: Sales and marketing expenses 49,128 23.4 % 63,731
23.1 % General and administrative expenses 16,630 7.9 % 19,169 6.9
% Loss on store closings and impairment of store assets
17 0.0 %
261 0.1 %
Total operating expenses
65,775 31.3 %
83,161 30.1 % Income from operations
17,972 8.6 %
22,530
8.2 %
Other expense (income): Interest income (1 )
0.0 % (2 ) 0.0 % Interest expense
2,075
1.0 %
2,849 1.1 %
2,074 1.0 %
2,847
1.1 % Income before income taxes 15,898 7.6 % 19,683 7.1 % Income
tax expense
6,162 2.8 %
7,674 2.7 % Net income
$
9,736 4.6 %
$ 12,009
4.4 % Basic net income per common share $ 0.29 $ 0.36
Diluted net income per common share $ 0.29 $ 0.35
Reconciliation of weighted-average shares outstanding: Basic
weighted average shares outstanding 33,768,828 33,812,123 Effect of
dilutive securities: Stock options 156,385 116,396 Restricted
shares
710 24,165
Diluted weighted average shares outstanding
33,925,923 33,952,684
MATTRESS FIRM HOLDING CORP.
Consolidated Statements of Cash
Flows
(In thousands)
(Unaudited)
Thirteen Weeks Ended May 1,
April 30,
Cash flows from
operating activities:
2012
2013 Net income $ 9,736 $ 12,009
Adjustments to reconcile net income to cash flows provided by
operating activities: Depreciation and amortization 4,704 6,210
Loan fee and other amortization 586 503 Deferred income tax expense
2,293 712 Stock-based compensation 509 887 Loss on store closings
and impairment of store assets 17 261 Effects of changes in
operating assets and liabilities: Accounts receivable 3,212 (4,585
) Inventories (6,018 ) (8,510 ) Prepaid expenses and other current
assets (864 ) (1,042 ) Other assets (151 ) 187 Accounts payable
1,113 10,066 Accrued liabilities 118 (5,421 ) Customer deposits 551
721 Other noncurrent liabilities
2,324
3,965 Net cash provided by operating
activities
18,130
15,963
Cash flows from
investing activities:
Purchases of property and equipment
(13,854
) (14,377 ) Net cash
used in investing activities
(13,854
) (14,377 )
Cash flows from
financing activities:
Proceeds from issuance of debt - 3,000 Principal payments of debt
(600 ) (18,476 ) Proceeds from exercise of common stock options -
862 Excess tax benefits associated with stock-based awards
- 117 Net cash used
in financing activities
(600 )
(14,497 ) Net increase (decrease)
in cash and cash equivalents 3,676 (12,911 ) Cash and cash
equivalents, beginning of period
47,946
14,556 Cash and cash equivalents, end of
period
$ 51,622 $
1,645
MATTRESS FIRM HOLDING CORP.
Reconciliation of Reported (GAAP) to
Adjusted Statements of Operations Data
(In thousands, except share and per
share amounts)
Thirteen Weeks Ended May 1,
2012 April 30, 2013 Income
Income Diluted Income Income
Diluted From Before In- Net
Weighted Diluted From Before In-
Net Weighted Diluted
Operations come Taxes
Income Shares
EPS Operations
come Taxes Income
Shares EPS As Reported $
17,972 $ 15,898 $ 9,736 33,925,923 $ 0.29 $ 22,530 $ 19,683 $
12,009 33,952,684 $ 0.35 % of sales 8.6% 7.6% 4.6% 8.2% 7.1% 4.4%
Acquisition-related costs (1) 1,179 1,179 722 0.02 326 326 201 0.01
ERP system implementation costs (2)
- -
- - 951
951 584 0.02 Total
adjustments
1,179 1,179 722
- 0.02 1,277
1,277 785 -
0.03 As Adjusted
$ 19,151 $
17,077 $ 10,458 33,925,923 $
0.31 $ 23,807 $ 20,960 $
12,794 33,952,684 $ 0.38 % of
sales 9.1% 8.1% 5.0% 8.6% 7.6% 4.6%
______________________
(1) On May 2, 2012, we acquired all of the equity interests
of MGHC Holding Corporation (“Mattress Giant”), including 181
specialty retail stores. On September 25, 2012, we acquired the
leasehold interests, store assets, distribution center assets and
related inventories, and assumption of certain liabilities of
Mattress XPress, Inc. and Mattress XPress of
Georgia, Inc. (collectively, “Mattress X-Press”), including 34
mattress specialty retail stores. On December 11, 2012, we acquired
the assets and operations of Factory Mattress & Water Bed
Outlet of Charlotte, Inc. (“Mattress Source”), including 27
mattress specialty retail stores. Acquisition-related costs,
consisting of direct transaction costs and integration costs, are
included in the results of operations as incurred. During the
thirteen weeks ended May 1, 2012 and April 30, 2013, we incurred
approximately $1.2 million and $0.3 million of acquisition-related
costs, respectively.
(2) Reflects implementation costs included in the results of
operations as incurred, consisting primarily of training-related
costs, related to the roll-out of the Microsoft Dynamics AX for
Retail Enterprise Resource Planning system (“ERP system”). During
the thirteen weeks ended April 30, 2013, we incurred approximately
$1.0 million of ERP system implementation costs.
Our “As Adjusted” data is considered a non-U.S. GAAP financial
measure and is not in accordance with, or preferable to, “As
Reported,” or GAAP financial data. However, we are providing this
information as we believe it facilitates year-over-year comparisons
for investors and financial analysts.
About Mattress Firm
Houston-based Mattress Firm is a high growth specialty retailer,
recognized as the nation's leading bedding specialty retailer,
offering a broad selection of both traditional and specialty
mattresses, bedding accessories and related products from leading
manufacturers. With more than 1,200 company-operated and franchisee
stores across 29 states, Mattress Firm has the largest geographic
footprint in the United States among multi-brand mattress specialty
retailers. Mattress Firm offers customers comfortable store
environments, guarantees on price, comfort and service, and
highly-trained sales professionals. More information is available
at http://www.mattressfirm.com. Mattress Firm’s website is not part
of this press release.
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