MINNEAPOLIS-Although sales posted a strong gain, Select Comfort’s first-quarter net income dropped 27.6 percent to $17 million.
Significant increases in costs hurt the mattress manufacturer/retailer’s bottom in the quarter, which ended on March 29. Total operating expenses increased 13.6 percent in dollars and 310 basis points as a percentage of sales. During a conference call to financial analysts yesterday, Shelly Ibach, Select Comfort’s president and CEO, said selling and marketing expenses rose due to added costs related to store growth and the production costs associated with the company’s new advertising campaign, “No Better Sleep.”
In addition, gross margin declined by 130 basis points to 62 percent. Margins suffered from Select Comfort’s more generous return policies, including the 100-night sleep guarantee, which took hold in last year’s second quarter, Ibach said.
Net sales grew 7 percent to $276.4 million, including a 2 percent increase in same-store sales. Sales in company-controlled channels climbed 9 percent, 8 percent of which consisted of increases in average selling price and 1 percent from unit growth.
Ibach told the analysts that Select Comfort is committed to a growth strategy based on three drivers: product innovation, marketing effectiveness and local market development. On the innovation side, she cited the February launch of the Sleep Number x12.
In terms of marketing effectiveness and local market development, Ibach said Select Comfort will expand the “No Better Sleep” campaign by shifting investments into more productive media, including advertising on television, radio, digital and print. Ibach said the company will broaden its testing of overall mix and aligning its media buy in the second quarter.