Mattress Firm Announces Fourth Fiscal Quarter and Full Fiscal Year Financial Results

  • Net Sales Increased 37.0% in the Fourth Fiscal Quarter 
  • Fourth Fiscal Quarter Earnings per Diluted Share of $0.30 on an Adjusted Basis, $0.22 on a GAAP Basis
  • Provides Financial Guidance for Fiscal Year 2013 

HOUSTON - March 26, 2013 - (BUSINESS WIRE) - Mattress Firm Holding Corp. (NASDAQ: MFRM) today announced its financial results for the fourth fiscal quarter (13 weeks) and full fiscal year (52 weeks) ended January 29, 2013. Net sales for the fourth fiscal quarter increased 37.0% to $258.2 million, reflecting incremental sales from new and acquired stores, offset by a comparable-store sales decline of 1.6%. For the full fiscal year, net sales increased 43.1% to $1,007.3 million and comparable-store sales increased 6.1%. The Company reported fourth fiscal quarter earnings per diluted share (“EPS”) on a generally accepted accounting principles (“GAAP”) basis of $0.22, and EPS on a non-GAAP adjusted basis, excluding acquisition-related, noncash impairment and other costs (“Adjusted”), of $0.30. Diluted EPS on a GAAP basis and Adjusted basis are reconciled in the table below:

Fourth Fiscal Quarter Reconciliation of GAAP to Adjusted EPS

See “Reconciliation of Reported (GAAP) to Adjusted Statements of Operations Data” for Notes

                                                Thirteen Weeks               Fifty-Two Weeks

                                                           Ended                             Ended

                                                 January 29, 2013           January 29, 2013

GAAP EPS                                              $0.22                             $1.18

Acquisition-related costs (2)                    0.03                               0.23

Secondary offering costs (3)                    0.00                               0.04

Impairment and other expenses (4)(5)    0.04                               0.04

Adjusted EPS *                                      $0.30                             $1.49

 

* Due to rounding to the nearest cent, totals may not equal the sum of the lines in the table above.

“We achieved significant growth in 2012, unprecedented in our industry, as we drove net sales by 43.1% to above the $1 billion mark and increased our store base by 45.0% to over 1,000 store units. We also delivered meaningful year-over-year increases across key financial metrics, including a 50.6% increase in Adjusted operating income and 6.1% comparable-store sales growth during our first full year as a public company,” remarked Steve Stagner, Mattress Firm’s president and chief executive officer. “Overall, fiscal 2012 was a record year for Mattress Firm; an impressive accomplishment in light of the challenges associated with adding 328 stores, including 242 stores through accretive acquisitions. Looking to 2013, with the integration of the acquired stores substantially complete, we expect to drive sales and operating margin expansion from the ongoing sales growth of acquired stores, which will be enhanced as we pass the anniversary dates of our 2012 acquisitions. We envision that this growth, combined with a third consecutive year of opening more than 100 organic new stores in line with the continued execution of our relative market share strategy of penetrating markets, will further strengthen and fortify our leadership positions. We are extremely excited about our potential for fiscal 2013 and believe we are well positioned to drive additional value for our shareholders as we move through the year.”

Fourth Quarter Financial Summary

  • Net sales for the fourth fiscal quarter increased 37.0% to $258.2 million, reflecting incremental sales from new and acquired stores, offset by a comparable-store sales decline of 1.6%.
  • Opened 30 new stores, closed 11, and acquired 27 former Mattress Source stores in December 2012, bringing the total number of Company-operated stores to 1,057 as of the end of the fiscal year.
  • Income from operations was $17.2 million. Excluding $4.3 million of acquisition-related costs, impairment charges and debt amendment expenses, Adjusted income from operations was $21.5 million, representing an increase of $5.8 million, or 37.0%, 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 remained unchanged at 8.3% of net sales as compared to the same quarter of fiscal 2011, and consisted of a 230 basis-point improvement in general and administrative expense leverage, offset by a 200 basis-point decrease in gross margin from lower sales productivity of acquired stores, a 20 basis point decline in franchise fees due to the Company growing its sales at a rate faster than the franchise base, and 10 basis-points of deleverage in other expense categories.
  • Net income was $7.6 million and GAAP EPS was $0.22. Excluding $2.4 million, net of income taxes, of acquisition-related costs and impairment charges and other costs, Adjusted net income was $10.0 million and Adjusted EPS was $0.30, representing increases of approximately 43.0% over Adjusted net income and Adjusted EPS for the comparable prior year period. Please refer to “Reconciliation of Reported (GAAP) to Adjusted Statements of Operations Data” for a reconciliation net income and GAAP EPS to Adjusted net income and Adjusted EPS, respectively, and other information.

Acquisitions

In December 2012, the Company completed the acquisition of the assets and operations of Factory Mattress & Water Bed Outlet of Charlotte, Inc. (dba “Mattress Source”), including 27 mattress specialty stores in North Carolina and South Carolina, for approximately $11.4 million. The Company has commenced rebranding of the former Mattress Source stores as Mattress Firm, with completion anticipated to occur in the first half of fiscal 2013.

Consistent with our core relative market share strategy, the Mattress Source acquisition added stores in markets where Company-operated Mattress Firm stores were already established. The addition of the acquired stores, once rebranded, is expected to drive advertising efficiency and improve market-level profitability in those markets.

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 both prior to and subsequent to their rebranding is demonstrated by the charts accompanying this release.

Full Fiscal Year Financial Summary (52 weeks ended January 29, 2013)

  • Net sales increased $303.4 million, or 43.1%, to $1,007.3 million as a result of incremental sales from new and acquired stores and comparable-store sales growth of 6.1%.
  • Company-operated stores increased 328, or 45.0%, to 1,057 at year end, as a result of opening 118 new stores, while closing 32 stores, and acquisitions that added 242 stores.
  • Net income for fiscal 2012 was $39.9 million and GAAP EPS was $1.18. Excluding $10.5 million, net of income taxes, of acquisition-related costs, secondary offering costs and impairment charges and other costs, Adjusted net income was $50.4 million and Adjusted EPS was $1.49, representing an increase of approximately 60.0% over prior year Adjusted net income and 58.5% over prior year Adjusted EPS, respectively. Please refer to “Reconciliation of Reported (GAAP) to Adjusted Statements of Operations Data” for a reconciliation net income and GAAP EPS to Adjusted net income and Adjusted EPS, respectively, and other information.
  • The Company had cash and cash equivalents of $14.6 million at the end of fiscal 2012. Net cash provided by operating activities was $78.7 million for fiscal 2012. As of January 29, 2013, there was $21.0 million of borrowings under the revolving portion of the 2012 Senior Credit Facility and approximately $1.4 million in outstanding letters of credit, with additional borrowing capacity of $77.6 million.

Senior Credit Facility Amendment

On November 5, 2012, the Company completed a restatement amendment of its senior credit facility (“2012 Senior Credit Facility”). As a result of the restatement amendment, the maturity of term loan borrowings in the aggregate amount of $200 million was extended by two years to January 18, 2016, the maturity of the revolving loan facility was extended by two years to January 18, 2015 and the revolving loan commitment was increased from $35 million to $100 million. The interest rate on the extended term loan borrowings was revised to LIBOR plus a margin of 3.5%, representing a 1.25% increase over the previous interest rate. Furthermore, the annual amount of permitted capital expenditures was increased to $80 million from the previous annual amount of $40 million, beginning with fiscal 2012.

Financial Guidance

The Company is issuing guidance for the fiscal year (52 weeks) ending January 28, 2014 (“fiscal year 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                                        $0.01

ERP system implementation costs                   $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 fourth fiscal quarter and full fiscal year results is scheduled for today, March 26, 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 March 26, 2013 through midnight Eastern Time on April 9, 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 410722. 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 were as follows (in millions):

     

Increase (Decrease) in Net Sales

      Thirteen Weeks     Fifty-Two Weeks
      Ended     Ended
      January 29, 2013     January 29, 2013
Comparable-store sales     $ (2.9 )     $ 41.9  
New stores       27.0         120.8  
Acquired stores       47.5         148.8  
Closed stores       (1.9 )       (8.1 )
      $ 69.7       $ 303.4  
                     

The composition of net sales by major category of product and services were as follows (in millions):

      Thirteen Weeks Ended     Fifty-Two Weeks Ended
      January 31,     % of     January 29,     % of     January 31,     % of     January 29,     % of
      2012     Total     2013     Total     2012     Total     2013     Total
Specialty mattresses     $ 93.8     49.7 %     $ 126.2     48.9 %     $ 318.9     45.3 %     $ 504.9     50.1 %
Conventional mattresses       78.4     41.6 %       110.8     42.9 %       323.4     45.9 %       418.0     41.5 %
Furniture and accessories       12.6     6.7 %       16.5     6.4 %       46.4     6.6 %       65.7     6.5 %
Total product sales       184.8     98.0 %       253.5     98.2 %       688.7     97.8 %       988.6     98.1 %
Delivery service revenues       3.8     2.0 %       4.7     1.8 %       15.2     2.2 %       18.7     1.9 %
Total net sales     $ 188.6     100.0 %     $ 258.2     100.0 %     $ 703.9     100.0 %     $ 1,007.3     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     Fifty-Two Weeks
      Ended     Ended
      January 29, 2013     January 29, 2013
Store units, beginning of period     1,011       729  
New stores     30       118  
Acquired stores     27       242  
Closed stores     (11 )     (32 )
Store units, end of period     1,057       1,057  
                 

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 31, 2012 filed with the Securities and Exchange Commission (“SEC”) on April 20, 2012 (as amended on May 30, 2012) 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 and bookrunner and a lender, are calculated based on similar measures, which 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     Fifty-Two Weeks Ended
      January 31,     January 29,     January 31,     January 29,
      2012     2013     2012     2013
Net income     $ 17,372       $ 7,594       $ 34,351       $ 39,871  
Income tax expense       (9,685 )       6,726         (8,815 )       26,698  
Interest income       (5 )       (10 )       (9 )       (11 )
Interest expense       3,831         2,872         29,310         9,258  
Depreciation and amortization       4,499         7,075         17,450         23,507  
Intangible assets and other amortization       464         534         1,718         1,506  
EBITDA       16,476         24,791         74,005         100,829  
Intangible asset impairment charge       -         2,100         -         2,100  
Loss on store closings and impairment of store assets       435         783         759         1,050  
Loss from debt extinguishment       3,831         -         5,704         -  
Financial sponsor fees and expenses       350         11         644         74  
Stock-based compensation       465         1,203         523         2,856  
Secondary offering costs       -         (20 )       -         1,915  
Vendor new store funds (a)       2,396         16         3,169         953  
Acquisition-related costs (b)       708         1,906         886         11,980  
Other (c)       873         107         1,797         (789 )
Adjusted EBITDA     $ 25,534       $ 30,897       $ 87,487       $ 120,968  
                         

(a)

     

Adjustment to recognize vendor funds received upon the opening of a new store in the period opened, rather than over 36-months as presented in our financial statements, which is consistent with how management has historically reviewed our results of operations.

         

(b)

     

Consists of noncash purchase accounting adjustments made to inventories resulting from acquisitions and other acquisition-related cash costs included in net income, such as direct acquisition costs and costs related to training and integration of acquired businesses.

         

(c)

     

Consists of various items that management excludes in reviewing the results of operations.

         

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 31,     January 29,
        2012     2013

Assets

           
Current assets:            
Cash and cash equivalents     $ 47,946       $ 14,556  
Accounts receivable, net       18,607         26,246  
Inventories       40,961         63,228  
Deferred income taxes       12,574         3,710  
Prepaid expenses and other current assets       12,054         18,855  
Total current assets       132,142         126,595  
Property and equipment, net       95,674         144,612  
Intangible assets, net       84,795         82,479  
Goodwill       291,141         358,978  
Debt issue costs and other, net       9,729         12,015  
Total assets     $ 613,481       $ 724,679  
               

Liabilities and Stockholders' Equity

           
Current liabilities:            
Notes payable and current maturities of long-term debt     $ 2,414       $ 33,930  
Accounts payable       42,396         64,642  
Accrued liabilities       31,780         41,106  
Customer deposits       6,294         8,012  
Total current liabilities       82,884         147,690  
Long-term debt, net of current maturities       225,940         219,069  
Deferred income taxes       31,045         26,800  
Other noncurrent liabilities       49,353         63,624  
Total liabilities       389,222         457,183  
               
Commitments and contingencies            
               
Stockholders' equity:            
Common stock, $0.01 par value; 120,000,000 shares authorized;            
33,768,828 and 33,795,630 shares issued and outstanding at            
January 31, 2012 and January 29, 2013, respectively       338         338  
Additional paid-in capital       361,717         365,083  
Accumulated deficit       (137,796 )       (97,925 )
Total stockholders' equity       224,259         267,496  
Total liabilities and stockholders' equity     $ 613,481       $ 724,679  
                     
                                     

MATTRESS FIRM HOLDING CORP.

Consolidated Statements of Operations

(In thousands, except share and per share amounts)

                                     
                  Thirteen Weeks Ended     Fifty-Two Weeks Ended
                  January 31,     % of     January 29,     % of     January 31,     % of     January 29,     % of
                  2012     Sales     2013     Sales     2012     Sales     2013     Sales
Net sales     $ 188,558       100 %     $ 258,246       100 %     $ 703,910       100 %     $ 1,007,337       100 %
Cost of sales       112,685       59.8 %       160,273       62.1 %       428,018       60.8 %       614,572       61.0 %
Gross profit from retail operations       75,873       40.2 %       97,973       37.9 %       275,892       39.2 %       392,765       39.0 %
Franchise fees and royalty income       1,296       0.7 %       1,374       0.6 %       4,697       0.7 %       5,396       0.5 %
                    77,169       40.9 %       99,347       38.5 %       280,589       39.9 %       398,161       39.5 %
Operating expenses:                                              
Sales and marketing expenses       45,471       24.2 %       62,388       24.2 %       167,605       23.9 %       245,555       24.4 %
General and administrative expenses       15,919       8.4 %       16,894       6.5 %       51,684       7.3 %       73,640       7.3 %
Intangible asset impairment charge       -       0.0 %       2,100       0.8 %       -       0.0 %       2,100       0.2 %
Loss on store closings and impairment of store assets       435       0.2 %       783       0.3 %       759       0.1 %       1,050       0.1 %
Total operating expenses       61,825       32.8 %       82,165       31.8 %       220,048       31.3 %       322,345       32.0 %
Income from operations       15,344       8.1 %       17,182       6.7 %       60,541       8.6 %       75,816       7.5 %
Other expense (income):                                              
Interest income       (5 )     0.0 %       (10 )     0.1 %       (9 )     0.0 %       (11 )     0.0 %
Interest expense       3,831       2.0 %       2,872       1.1 %       29,310       4.2 %       9,258       0.9 %
Loss from debt extinguishment       3,831       2.0 %       -       0.0 %       5,704       0.8 %       -       0.0 %
                    7,657       4.0 %       2,862       1.2 %       35,005       5.0 %       9,247       0.9 %
Income before income taxes       7,687       4.1 %       14,320       5.5 %       25,536       3.6 %       66,569       6.6 %
Income tax expense (benefit)       (9,685 )     -5.1 %       6,726       2.6 %       (8,815 )     -1.3 %       26,698       2.6 %
Net income     $ 17,372       9.2 %     $ 7,594       2.9 %     $ 34,351       4.9 %     $ 39,871       4.0 %
                                                           
Basic net income per common share     $ 0.56             $ 0.22             $ 1.40             $ 1.18        
Diluted net income per common share     $ 0.56             $ 0.22             $ 1.40             $ 1.18        
                                                             
Reconciliation of weighted-average shares outstanding:                                                
Basic weighted average shares outstanding       31,145,241               33,776,630               24,586,274               33,770,779        
Effect of dilutive securities:                                                
Stock options       -               17,999               -               76,669        
Restricted shares       -               3,361               -               5,828        
Diluted weighted average shares outstanding       31,145,241               33,797,990               24,586,274               33,853,276        
                                                                 
                         

MATTRESS FIRM HOLDING CORP.

Consolidated Statements of Cash Flows

(In thousands)

                         
                  Fiscal     Fiscal

Cash flows from operating activities:

    2011     2012
Net income     $ 34,351       $ 39,871  
Adjustments to reconcile net income to cash flows            
provided by operating activities:            
Depreciation and amortization       17,450         23,507  
Interest expense accrued and paid-in-kind       20,575         -  
Loan fee and other amortization       2,530         2,361  
Loss from debt extinguishment       5,704         -  
Deferred income tax expense (benefit)       (11,271 )       17,131  
Stock-based compensation       523         2,856  

Intangible asset impairment charge

      -         2,100  
Loss on store closings and impairment of store assets       324         894  
Effects of changes in operating assets and liabilities,            
excluding business acquisitions:            
Accounts receivable       (6,574 )       (4,947 )
Inventories       (10,555 )       (15,714 )
Prepaid expenses and other current assets       (1,306 )       (3,616 )
Other assets       (2,914 )       (3,219 )
Accounts payable       13,159         9,324  
Accrued liabilities       9,333         1,389  
Customer deposits       1,518         (218 )
Other noncurrent liabilities       8,828         7,019  
Net cash provided by operating activities       81,675         78,738  

Cash flows from investing activities:

           
Purchases of property and equipment       (34,356 )       (68,604 )
Business acquisitions, net of cash acquired       (7,958 )       (63,051 )
Net cash used in investing activities       (42,314 )       (131,655 )

Cash flows from financing activities:

           
Proceeds from issuance of debt       40,198         56,000  
Principal payments of debt       (145,231 )       (36,983 )
Proceeds from issuance of common stock, net of costs       110,446         -  
Proceeds from exercise of common stock options       -         510  
Debt issuance costs       (1,273 )       -  
Net cash provided by financing activities       4,140         19,527  
Net increase (decrease) in cash and cash equivalents       43,501         (33,390 )
Cash and cash equivalents, beginning of period       4,445         47,946  
Cash and cash equivalents, end of period     $ 47,946       $ 14,556  
                     

 

                                                             

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
      January 31, 2012     January 29, 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     $ 15,344       $ 7,687       $ 17,372       31,145,241     $ 0.56       $ 17,182       $ 14,320       $ 7,594       33,797,990     $ 0.22  
% of sales       8.1 %       4.1 %       9.2 %                   6.7 %       5.5 %       2.9 %            

IPO Pro Forma Adjustments (1)

                                                           
Diluted share count adjustment                       2,623,587       (0.04 )                              
Management fees       350         350         220               0.01         -         -         -               -  
Interest expense       -         1,746         1,098               0.03         -         -         -               -  
Loss from debt extinguishment       -         3,831         2,410               0.07         -         -         -               -  

Other Adjustments

                                                           
Acquisition-related costs (2)       -         -         -               -         1,906         1,906         937               0.03  
Secondary offering costs (3)       -         -         -               -         (20 )       (20 )       (40 )             (0.00 )
Impairment charges (4)       -         -         -               -         2,256         2,256         1,386               0.04  
Other expenses (5)       -         -         -               -         180         180         111               0.00  
Release of valuation allowance                                                            
on deferred tax assets (6)       -         -         (14,107 )             (0.42 )       -         -         -               -  
Total adjustments       350         5,927         (10,379 )     2,623,587       (0.35 )       4,322         4,322         2,394       -       0.07  
As Adjusted     $ 15,694       $ 13,614       $ 6,993       33,768,828     $ 0.21       $ 21,504       $ 18,642       $ 9,988       33,797,990     $ 0.30  
% of sales       8.3 %       7.2 %       3.7 %                   8.3 %       7.2 %       3.9 %            
                                                             
       
      Fiscal Year (Fifty-Two Weeks) Ended
      January 31, 2012     January 29, 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     $ 60,541       $ 25,536       $ 34,351       24,586,274     $ 1.40       $ 75,816       $ 66,569       $ 39,871       33,853,276     $ 1.18  
% of sales       8.6 %       3.6 %       4.9 %                   7.5 %       6.6 %       4.0 %            

IPO Pro Forma Adjustments (1)

                                                           
Diluted share count adjustment                       9,182,554       (0.38 )                              
Management fees       644         644         405               0.01         -         -         -               -  
Interest expense       -         21,131         13,291               0.39         -         -         -               -  
Loss from debt extinguishment       -         5,688         3,578               0.11         -         -         -               -  

Other Adjustments

                                                           
Acquisition-related costs (2)       -         -         -               -         11,980         11,980         7,616               0.23  
Secondary offering costs (3)       -         -         -               -         1,915         1,915         1,403               0.04  
Impairment charges (4)       -         -         -               -         2,256         2,256         1,386               0.04  
Other expenses (5)       -         -         -               -         180         180         111               0.00  
Release of valuation allowance                                                 -              
on deferred tax assets (6)       -         -         (20,050 )             (0.59 )       -         -         -               -  
Total adjustments       644         27,463         (2,776 )     9,182,554       (0.46 )       16,331         16,331         10,516       -       0.31  
As Adjusted     $ 61,185       $ 52,999       $ 31,575       33,768,828     $ 0.94       $ 92,147       $ 82,900       $ 50,387       33,853,276     $ 1.49  
% of sales       8.7 %       7.5 %       4.5 %                   9.1 %       8.2 %       5.0 %            
                                                                                     

* Due to rounding to the nearest cent per diluted share, totals may not equal the sum of the line items in the table above.

(1) IPO Pro Forma Adjustments give effect to the initial public offering that was completed on November 23, 2011, as if the offering had occurred at the beginning of fiscal 2011 (February 2, 2011). These pro forma adjustments reflect the following assumptions: (i) the application of the net proceeds from the initial public offering to repay debt resulting in a decrease to interest expense and a loss from debt extinguishment, (ii) the conversion of a significant portion of convertible debt for which such conversion was elected into shares of our common stock, resulting in a decrease to interest expense, a loss from debt extinguishment, (iii) the reduction in management fee expense in connection with the termination of the management agreement between J.W. Childs Associates, L.P. and the Company that became effective with the completion of the initial public offering, and (iv) the effect on diluted EPS as if the common stock shares outstanding at the completion of the offering had been outstanding for the entire period presented.

(2) 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 stores. Acquisition-related costs, consisting of direct transaction costs and integration costs, are included in the results of operations as incurred. During the thirteen and fifty-two weeks ended January 29, 2013, we incurred $1.9 million and $12.0 million of acquisition-related costs, respectively.

(3) Reflects $1.9 million of costs that we incurred in connection with a secondary offering of shares of common stock by certain of our selling stockholders, which was completed in October 2012.

(4) Reflects an intangible trade name impairment charge in the amount of $2.1 million related to the Mattress Discounters trade name and a $0.2 million impairment of store assets recorded during the thirteen weeks ended January 29, 2013.

(5) Reflects $0.2 million in expensed legal fees related to our November 2012 debt amendment and extension recorded during the thirteen weeks ended January 29, 2013.

(6) The release of the valuation allowance on deferred tax assets reflects utilization of net operating loss carryforwards throughout fiscal 2011 and an expectation of increased future taxable income effective with the completion of our initial public offering and the resulting elimination of interest expense, which provided sufficient evidence that it was more-likely-than-not that deferred tax assets would be realized in future periods and supported the release of the remaining valuation allowance in the fiscal fourth quarter of 2011.

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 one of the nation’s leading specialty bedding retailers, offering a broad selection of both traditional and specialty mattresses from leading manufacturers, including Sealy, Serta, Simmons, Stearns & Foster and Tempur-Pedic.

Contacts

Mattress Firm

Investor Relations
Brad Cohen, 713-343-3652
ir@mattressfirm.com

Media
Sari Martin, 203-682-8345
mattressfirm@icrinc.com

###

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