Mattress Firm Announces Second Fiscal Quarter Financial Results

  • Net Sales Increased 61.2% Over Prior Year 
  • Eighth Consecutive Quarter of Positive Comparable-Store Sales Growth 
  • Adjusted EBITDA Increased Approximately 37.2% Over Prior Year 
  • Sleep Train Continues to Outperform Expectations and Chicago Improving 
  • Updates Full Year Adjusted EPS Guidance to $2.30 to $2.45 

HOUSTON - September 11, 2015 - (BUSINESS WIRE) - Mattress Firm Holding Corp. (the “Company”) (NASDAQ:MFRM) today announced its financial results for the second fiscal quarter (13 weeks) ended August 4, 2015. Net sales for the second fiscal quarter increased 61.2% over the prior year to $661.1 million, reflecting comparable-store sales growth of 2.8% and incremental sales from new and acquired stores. The Company reported second fiscal quarter earnings per diluted share (“EPS”) on a generally accepted accounting principles (“GAAP”) basis of $0.61, and EPS on a non-GAAP adjusted basis, excluding acquisition-related costs, secondary offering costs, and impairment and severance charges (“Adjusted”), of $0.67.

Expected diluted EPS on a GAAP basis and Adjusted basis are reconciled in the table below:

Second Fiscal Quarter Reconciliation of GAAP to Adjusted EPS and Adjusted Cash EPS**

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

             
      Thirteen Weeks Ended     Twenty-Six Weeks Ended
      July 29, 2014     August 4, 2015     July 29, 2014     August 4, 2015
GAAP EPS     $ 0.41     $ 0.61     $ 0.64     $ 0.77
Adjustments                        
Acquisition-related costs (1)       0.14       0.03       0.19       0.19
Secondary offering costs (2)       -       -       -       0.01
ERP system implementation costs (3)       0.03       -       0.05       0.01
Impairment charges and other expenses (4)(5)       0.03       0.01       0.04       0.01
Adjusted EPS*     $ 0.61     $ 0.67     $ 0.92     $ 1.00
Non-Cash Adjustments                        
Depreciation and amortization expense       0.20       0.29       0.36       0.56
Stock-based compensation expense       0.02       0.04       0.05       0.07
Adjusted Cash EPS*     $ 0.83     $ 0.99     $ 1.32     $ 1.63

 

*

   

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

**

   

Reported sales results and expected GAAP and Adjusted EPS are preliminary and remain subject to adjustment until the filing of the Company's Quarterly Report on Form 10-Q with the U.S. Securities and Exchange Commission.

       

We are pleased that we delivered 61% net sales growth and our eighth consecutive quarter of positive comps, against our most difficult comparison of the year,” stated Steve Stagner, Mattress Firm’s chief executive officer. “We saw strong results in the first half of the quarter, offset by softness in the second half of the quarter and renewed headwinds in our oil-affected markets. Our integration of multiple acquisitions is progressing, and we are excited about the continued outperformance of the Sleep Train business and the progress we are seeing in Chicago. Despite a solid Labor Day and recent positive sales trends, we still expect volatility in the oil-affected markets and have adjusted our guidance to reflect that. We continue to see results from our Relative Market Share model, and believe we can create long-term value for our shareholders as we integrate our acquisitions and execute our growth strategies.”

Preliminary Second Quarter Financial Summary

  • Net sales for the second fiscal quarter increased 61.2% to $661.1 million as compared with the comparable prior year period, reflecting incremental sales from acquired and new stores, and comparable-store sales growth of 2.8%. Comparable-store sales growth in the prior year period was 9.7%.
  • Opened 71 new stores and closed 11 bringing the total number of Company-operated stores to 2,223 as of the end of the second fiscal quarter.
  • Income from operations was $45.6 million. Excluding $3.0 million of acquisition-related costs, secondary offering costs, and impairment and severance charges, Adjusted income from operations was $48.6 million, as compared with $38.0 million for the comparable prior year period. Adjusted operating income margin was 7.4% of net sales as compared with 9.3% in fiscal 2014, and included a 30 basis-point increase from general and administrative expense leverage, offset by a 90 basis-point decline in gross margin, 120 basis-points of expense deleverage from sales and marketing expense, and 10 basis-points of combined operating margin declines in franchise fees. 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.
  • Net income was $21.9 million and GAAP EPS was $0.61. Excluding $1.9 million, net of income taxes, of acquisition-related costs, secondary offering costs, and impairment and severance charges, Adjusted net income was $23.8 million and Adjusted EPS was $0.67. 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.

For the full fiscal year-to-date:

  • Net sales increased $480.1 million, or 64.6%, to $1,223.6 million, for the two fiscal quarters (twenty-six weeks) ended August 4, 2015, from $743.5 million in the comparable year period, reflecting comparable store sales growth of 2.1% and incremental sales from new and acquired stores. Comparable-store sales growth in the prior year comparable period was 7.1%.
  • The Company opened 149 new stores and closed 20 during the first two fiscal quarters of fiscal 2015, adding 129 net store units.
  • Income from operations was $64.4 million, for the two fiscal quarters ended August 4, 2015. Excluding $13.2 million of acquisition-related costs, ERP system implementation costs, secondary offering costs, and impairment and severance charges, Adjusted income from operations was $77.6 million for the two fiscal quarters ended August 4, 2015, as compared with $58.0 million for the comparable prior year period. Adjusted operating income margin was 6.3% of net sales as compared with 7.8% in fiscal 2014, and included a 40 basis-point increase from general and administrative expense leverage, offset by a 70 basis-point decline in gross margin, 100 basis-points of expense deleverage from sales and marketing expense, and 20 basis-points of combined operating margin declines in franchise fees and from losses on store closings. 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.
  • Net income was $27.4 million for the two fiscal quarters ended August 4, 2015 and GAAP EPS was $0.77. Excluding $8.3 million, net of income taxes, of acquisition-related costs, ERP system implementation costs, secondary offering costs, and impairment and severance charges, Adjusted net income was $35.7 million for the two fiscal quarters and Adjusted EPS was $1.00. 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

In September 2014, the Company completed the acquisition of the mattress specialty retail assets and operations of Back to Bed Inc., M World Mattress LLC, MCStores LLC and TBE Orlando LLC, which collectively operate Back to Bed and Bedding Experts retail stores in Illinois, Indiana and Wisconsin and Bedding Experts and Mattress Barn retail stores in Florida. The acquisition included approximately 131 mattress specialty retail stores primarily in the Chicago and Orlando metropolitan areas, for an aggregate purchase price of approximately $64.5 million. The rebranding of the acquired retail stores in the Chicago market was substantially complete by the end of May 2015. The Chicago market sales growth year-over-year (“YOY”) from those stores both prior to and subsequent to their rebranding is demonstrated by the chart above.

Balance Sheet

The Company had cash and cash equivalents of approximately $10.6 million at the end of the second fiscal quarter. Net cash provided by operating activities was $89.4 million for the second fiscal quarter. During the second quarter, the Company repaid $55.1 million of long-term debt, and as of August 4, 2015, there were no borrowings outstanding under the revolving portion of the 2014 Senior Credit Facility (as defined in the Company’s filings with the Securities and Exchange Commission) and approximately $4.2 million in outstanding letters of credit, with additional borrowing capacity of $90.4 million.

Financial Guidance

The Company is increasing the midpoint of its sales guidance range by $30 million primarily as a result of the anticipation of 30 incremental net new stores and the outperformance at the Sleep Train brand. The Company is revising its Adjusted EPS financial guidance for the full fiscal year (52 weeks) ending February 2, 2016 (“fiscal 2015”) based on year-to-date results, continued volatility inside oil-affected markets, and the discontinuation of the Mattress Pro concept. These projections are forecasts and are intended solely to give investors an understanding of management’s expectations for the full fiscal year in light of the recent consumer environment and sales trends. The projections do not take into account, or give effect for, acquisitions that may be completed by the Company during the fiscal year or any other events that are beyond the Company’s reasonable control. As used in the guidance table below, “Adjusted Cash EPS” is defined as adjusted net income as presented in the “Reconciliation of Reported (GAAP) to Adjusted Statements of Operations Data”, plus tax effected stock compensation expense and depreciation and amortization, divided by the number of diluted shares. Please refer to “Reconciliation of Reported (GAAP) to Adjusted Statements of Operations Data” for a reconciliation of GAAP EPS to Adjusted Cash EPS and other information which is not calculated on a GAAP basis. Comparable-store sales growth for fiscal year 2014 excludes incremental sales related to the 53rd week of operations. Adjusted data for future periods reflects management’s reasonable estimates of appropriate adjustments based on historical experience. Percentage growth calculations in the table below represent the midpoints of the guidance range provided. Net capital expenditures in the table below represent gross purchases of property and equipment, offset by cash construction allowances received from landlords.


 
               
      Fifty-Three     Fifty-Two      
      Weeks Ended     Weeks Ended      
      February 3, 2015     February 2, 2016     % Growth
New Store Growth (net of closures)     201     250 - 270     --
Acquired Store Growth     668     --     --
Net Sales (in millions)     $1,806     $2,530 - $2,550     41%
Comparable-Store Sales Growth     6.1%     Low Single Digit     --
Adjusted EBITDA (in millions)     $190     $253 - $262     35%
GAAP EPS     $1.27     $2.03 - $2.15     65%
Adjustments (per share)     $0.76     $0.27 - $0.30     --
Adjusted EPS     $2.03     $2.30 - $2.45     17%
Adjusted Cash EPS     $2.99     $3.65 - $3.80     25%
                   
Diluted Share Count (in millions)     34.8     35.7     --
Adjusted Tax Rate     39.5%     38.2%     --
Depreciation and Amortization (in millions)     $47     $68     45%
Interest Expense (in millions)     $22     $40     82%
Stock-based Compensation Expense (in millions)     $8     $11     35%
Net Capital Expenditures (in millions)     $72     $110     52%
Ending Net Debt (in millions)     $757     $680     -10%
                   

Call Information

A conference call to discuss second fiscal quarter results is scheduled for today, September 11, 2015, at 8:30 a.m. Eastern Time. The call will be hosted by Steve Stagner, chief executive officer, Alex Weiss, chief financial officer and Scott McKinney, vice president of investor relations.

The conference call will be accessible by telephone and the internet. To access the call, participants from within the U.S. may dial (877) 705-6003, and participants from outside the U.S. may dial (201) 493-6725. Participants may also access the call via live webcast by visiting the Company’s investor relations web site at ir.mattressfirm.com.

The replay of the call will be available from approximately 11:30 a.m. Eastern Time on September 11, 2015 through midnight Eastern Time on September 25, 2015. 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 13618714. 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 and twenty-six weeks ended August 4, 2015 as compared to the corresponding prior year period were as follows (in millions):

      Progression in Net Sales
      Thirteen Weeks     Twenty-Six Weeks
      Ended     Ended
      August 4, 2015     August 4, 2015
Net sales for prior year period     $ 410.0       $ 743.5  

Increase (Decrease) in Net Sales

           
Comparable-store sales       11.2         15.2  
New stores       57.4         103.1  
Acquired stores       185.5         367.3  
Closed stores       (3.0 )       (5.5 )
Increase in net sales, net       251.1         480.1  
Net sales for current year period     $ 661.1       $ 1,223.6  
% increase       61.2 %       64.6 %
                     

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

      Thirteen Weeks Ended     Twenty-Six Weeks Ended
      July 29,     % of     August 4,     % of     July 29,     % of     August 4,     % of
      2014     Total     2015     Total     2014     Total     2015     Total
Conventional mattresses     $ 195.6     47.7%     $ 350.0     53.0%     $ 359.3     48.3%     $ 623.8     51.0%
Specialty mattresses     177.5     43.3%     256.6     38.8%     313.8     42.2%     491.1     40.2%
Furniture and accessories     28.7     7.0%     46.5     7.0%     55.7     7.5%     93.5     7.6%
Total product sales     401.8     98.0%     653.1     98.8%     728.8     98.0%     1,208.4     98.8%
Delivery service revenues     8.2     2.0%     8.0     1.2%     14.7     2.0%     15.2     1.2%
Total net sales     $ 410.0     100.0%     $ 661.1     100.0%     $ 743.5     100.0%     $ 1,223.6     100.0%
                                                 

The activity with respect to the number of Company-operated store units was as follows:

      Thirteen Weeks     Twenty-Six Weeks
      Ended     Ended
      August 4, 2015     August 4, 2015
Store units, beginning of period     2,163       2,094  
New stores     71       149  
Closed stores     (11 )     (20 )
Store units, end of period     2,223       2,223  
                 

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 2015 and any anticipated effects of any recent acquisitions, 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 primary 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 February 3, 2015 filed with the Securities and Exchange Commission (“SEC”) on April 3, 2015 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 2014 Senior Credit Facility, are calculated based on similar measures and differ from Adjusted EBITDA primarily by the inclusion of pro forma results for acquired businesses and new stores 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     Twenty-Six Weeks Ended
      July 29,     August 4,     July 29,     August 4,
      2014     2015     2014     2015
Net income     $ 14,299       $ 21,881     $ 22,019       $ 27,359
Income tax expense       9,194         13,678       14,085         16,778
Interest expense, net       3,469         10,046       6,285         20,299
Depreciation and amortization       9,509         14,752       18,201         28,746
Intangible assets and other amortization       848         1,366       1,611         2,703
EBITDA       37,319         61,723       62,201         95,885
Loss on store closings and impairment of store assets       648         1,173       906         1,468
Stock-based compensation       1,198         2,050       2,556         3,880
Secondary offering costs       -         169       -         480
Vendor new store funds (a)       (346 )       223       (443 )       611
Acquisition-related costs (b)       7,193         2,021       9,757         11,195
Other (c)       3,184         151       4,970         770
Adjusted EBITDA     $ 49,196       $ 67,510     $ 79,947       $ 114,289
                                     

 

(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 $1.6 million of ERP system implementation costs incurred during the thirteen weeks ended July 29, 2014, and $0.7 million and $2.9 million of ERP system implementation costs incurred during the twenty-six weeks ended August 4, 2015 and July 29, 2014, respectively.
       

Adjusted EPS and the other “Adjusted” data provided in this press release, including Adjusted Cash EPS, 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)
(unaudited)
             
      February 3,     August 4,
      2015     2015

Assets

           
Current assets:            
Cash and cash equivalents     $ 13,475       $ 10,637
Accounts receivable, net       51,193         54,604
Inventories       163,518         159,074
Deferred income tax asset       8,882         8,890
Prepaid expenses and other current assets       43,019         48,970
Total current assets       280,087         282,175
Property and equipment, net       267,602         296,847
Intangible assets, net       215,953         214,705
Goodwill       821,349         823,565
Debt issue costs and other, net       24,033         24,208
Total assets     $ 1,609,024       $ 1,641,500
             

Liabilities and Stockholders' Equity

           
Current liabilities:            
Notes payable and current maturities of long-term debt     $ 9,947       $ 10,150
Accounts payable       149,612         154,856
Accrued liabilities       98,250         108,496
Customer deposits       19,398         26,062
Total current liabilities       277,207         299,564
Long-term debt, net of current maturities       760,091         704,875
Deferred income tax liability       41,455         41,434
Other noncurrent liabilities       94,788         125,763
Total liabilities       1,173,541         1,171,636
             
Commitments and contingencies            
             
Stockholders' equity:            

Common stock, $0.01 par value; 120,000,000 shares authorized; 35,134,187 and 35,101,632 shares issued and outstanding at February 3, 2015; and 35,227,677 and 35,194,372 shares issued and outstanding at August 4, 2015, respectively

      351         352
Additional paid-in capital       435,882         442,903
Accumulated (deficit) retained earnings       (750 )       26,609
Total stockholders' equity       435,483         469,864
Total liabilities and stockholders' equity     $ 1,609,024       $ 1,641,500
             

 

MATTRESS FIRM HOLDING CORP.
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(unaudited)
       
      Thirteen Weeks Ended     Twenty-Six Weeks Ended
      July 29,     % of     August 4,     % of     July 29,     % of     August 4,     % of
      2014     Sales     2015     Sales     2014     Sales     2015     Sales
Net sales     $ 409,951     100.0 %     $ 661,064     100.0 %     $ 743,453     100.0 %     $ 1,223,618     100.0 %
Cost of sales       246,547     60.1 %       403,557     61.0 %       459,199     61.8 %       764,840     62.5 %
Gross profit from retail operations       163,404     39.9 %       257,507     39.0 %       284,254     38.2 %       458,778     37.5 %
Franchise fees and royalty income       1,092     0.2 %       1,285     0.1 %       2,278     0.3 %       2,400     0.2 %
Total gross profit       164,496     40.1 %       258,792     39.1 %       286,532     38.5 %       461,178     37.7 %
Operating expenses:                                                
Sales and marketing expenses       99,998     24.3 %       169,121     25.5 %       175,663     23.6 %       301,017     24.6 %
General and administrative expenses       36,888     9.0 %       42,893     6.5 %       67,574     9.1 %       94,257     7.7 %
Loss on store closings and impairment of store assets       648     0.2 %       1,173     0.2 %       906     0.1 %       1,468     0.1 %
Total operating expenses       137,534     33.5 %       213,187     32.2 %       244,143     32.8 %       396,742     32.4 %
Income from operations       26,962     6.6 %       45,605     6.9 %       42,389     5.7 %       64,436     5.3 %
Other expense:                                                
Interest expense, net       3,469     0.9 %       10,046     1.5 %       6,285     0.8 %       20,299     1.7 %
Income before income taxes       23,493     5.7 %       35,559     5.4 %       36,104     4.9 %       44,137     3.6 %
Income tax expense       9,194     2.2 %       13,678     2.1 %       14,085     1.9 %       16,778     1.4 %
Net income     $ 14,299     3.5 %     $ 21,881     3.3 %     $ 22,019     3.0 %     $ 27,359     2.2 %
                                                 
Basic net income per common share     $ 0.42           $ 0.62           $ 0.65           $ 0.78      
Diluted net income per common share     $ 0.41           $ 0.61           $ 0.64           $ 0.77      
                                                 
Reconciliation of weighted-average shares outstanding:                                                
Basic weighted average shares outstanding       34,135,060             35,188,368             34,081,500             35,167,565      
Effect of dilutive securities:                                                
Stock options       321,740             319,819             321,054             332,038      
Restricted shares       66,820             92,108             61,484             84,421      
Diluted weighted average shares outstanding       34,523,620             35,600,295             34,464,038             35,584,024      
                                                 

 

MATTRESS FIRM HOLDING CORP.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
       
      Twenty-Six Weeks Ended
      July 29,     August 4,

Cash flows from operating activities:

    2014     2015
Net income     $ 22,019       $ 27,359  
Adjustments to reconcile net income to cash flows            
provided by operating activities:            
Depreciation and amortization       18,201         28,746  
Loan fee and other amortization       2,239         3,797  
Deferred income tax expense       1,711         3,766  
Stock-based compensation       2,556         4,352  
Loss on store closings and impairment of store assets       906         1,468  
Construction allowances from landlords       2,988         5,913  
Excess tax benefits associated with stock-based awards       (761 )       (915 )
Effects of changes in operating assets and liabilities,            
excluding business acquisitions:            
Accounts receivable       (14,136 )       (3,515 )
Inventories       (14,784 )       4,400  
Prepaid expenses and other current assets       (9,497 )       (5,952 )
Other assets       (1,730 )       (2,307 )
Accounts payable       19,473         11,310  
Accrued liabilities       24,557         9,455  
Customer deposits       4,943         6,664  
Other noncurrent liabilities       (416 )       24,614  
Net cash provided by operating activities       58,269         119,155  

Cash flows from investing activities:

           
Purchases of property and equipment       (34,658 )       (68,480 )
Business acquisitions, net of cash acquired       (106,908 )       119  
Net cash used in investing activities       (141,566 )       (68,361 )

Cash flows from financing activities:

           
Proceeds from issuance of debt       169,000         58,000  
Principal payments of debt       (93,268 )       (114,302 )
Proceeds from exercise of common stock options       2,069         1,755  
Excess tax benefits associated with stock-based awards       761         915  
Net cash provided by (used in) financing activities       78,562         (53,632 )
Net decrease in cash and cash equivalents       (4,735 )       (2,838 )
Cash and cash equivalents, beginning of period       22,878         13,475  
Cash and cash equivalents, end of period     $ 18,143       $ 10,637  

Cash paid for:

           
Interest     $ 6,620       $ 20,070  
Income taxes     $ 2,175       $ 6,038  

Supplemental disclosure of noncash investing activity:

           
Capital expenditures included in accounts payable and accruals at end of period     $ 5,929       $ 6,933  
                     

 

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
      July 29, 2014     August 4, 2015
      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     $ 26,962       $ 23,493       $ 14,299       34,523,620     $ 0.41     $ 45,605       $ 35,559       $ 21,881       35,600,295     $ 0.61
% of sales       6.6 %       5.7 %       3.5 %                   6.9 %       5.4 %       3.3 %            
Adjustments                                                            
Acquisition-related costs (1)       7,691         7,691         4,695       -       0.14       2,021         2,021         1,246       -       0.03
Secondary offering costs (2)       -         -         -       -       -       169         169         169       -       0.00
ERP system implementation costs (3)       1,738         1,738         1,060       -       0.03       -         -         -       -       -
Impairment charges(4)       482         482         294       -       0.01       735         735         452       -       0.01
Other expenses (5)       1,154         1,154         705       -       0.02       116         116         71       -       0.00
Total adjustments       11,065         11,065         6,754       -       0.20       3,041         3,041         1,938       -       0.05
As Adjusted     $ 38,027       $ 34,558       $ 21,053       34,523,620     $ 0.61     $ 48,646       $ 38,600       $ 23,819       35,600,295     $ 0.67
% of sales       9.3 %       8.4 %       5.1 %                   7.4 %       5.8 %       3.6 %            
Non-Cash Adjustments                                                            
Depreciation and amortization       11,154         11,154         6,795       -       0.20       16,764         16,764         10,282       -       0.29
Stock-based compensation expense       1,198         1,198         729       -       0.02       2,050         2,050         1,257       -       0.04
Total adjustments       12,352         12,352         7,524       -       0.22       18,814         18,814         11,540       -       0.32
Adjusted Cash EPS     $ 50,379       $ 46,910       $ 28,578       34,523,620     $ 0.83     $ 67,460       $ 57,414       $ 35,358       35,600,295     $ 0.99
                                                             
      Twenty-Six Weeks Ended
      July 29, 2014     August 4, 2015
      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     $ 42,389       $ 36,104       $ 22,019       34,464,038     $ 0.64     $ 64,436       $ 44,137       $ 27,359       35,584,024     $ 0.77
% of sales       5.7 %       4.9 %       3.0 %                   5.3 %       3.6 %       2.2 %            
Adjustments                                                            
Acquisition-related costs (1)       10,701         10,701         6,540       -       0.19       11,195         11,195         6,885       -       0.19
Secondary offering costs (2)       -         -         -       -       -       480         480         480       -       0.01
ERP system implementation costs (3)       3,089         3,089         1,888       -       0.05       666         666         409       -       0.01
Impairment charges(4)       482         482         294       -       0.01       735         735         452       -       0.01
Other (5)       1,351         1,351         826       -       0.02       116         116         71       -       0.00
Total adjustments       15,623         15,623         9,548       -       0.28       13,192         13,192         8,297       -       0.23
As Adjusted     $ 58,012       $ 51,727       $ 31,567       34,464,038     $ 0.92     $ 77,628       $ 57,329       $ 35,656       35,584,024     $ 1.00
% of sales       7.8 %       7.0 %       4.2 %                   6.3 %       4.7 %       2.9 %            
Non-Cash Adjustments                                                            
Depreciation and amortization       20,440         20,440         12,487       -       0.36       32,543         32,543         19,981       -       0.56
Stock-based compensation expense       2,556         2,556         1,561       -       0.05       3,880         3,880         2,382       -       0.07
Total adjustments       22,996         22,996         14,048       -       0.41       36,423         36,423         22,364       -       0.63
Adjusted Cash EPS     $ 81,008       $ 74,723       $ 45,615       34,464,038     $ 1.32     $ 114,051       $ 93,752       $ 58,020       35,584,024     $ 1.63
                                                                                         

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

 

 

(1)     Acquisition-related costs, which are included in the “As Reported” results of operations, consist of acquisition-related costs as defined under U.S. GAAP, including advisory, legal, accounting, valuation, and other professional or consulting fees and, in addition, costs of integrating store and warehouse operations and corporate functions that are not expected to recur as acquisitions are absorbed. On March 3, 2014, we acquired the assets and operations of Yotes, Inc., including 34 mattress specialty retail stores. On March 3, 2014, we acquired the Virginia assets and operations of Southern Max LLC, including 3 mattress specialty retail stores. On April 3, 2014, we acquired the outstanding partnership interests in Sleep Experts Partners, L.P., including 55 mattress specialty retail stores. On June 4, 2014, we acquired substantially all of the mattress specialty retail assets and operations of Mattress Liquidators, Inc., including 67 mattress specialty retail stores, which operated Mattress King retail stores in Colorado and BedMart retail stores in Arizona. On September 8, 2014, we acquired substantially all of the mattress specialty retail assets and operations of Best Mattress Co., Inc., related to the operation of 15 mattress specialty retail stores under the brand Mattress Discounters in Pennsylvania. On September 30, 2014, we acquired substantially all of the mattress specialty retail assets and operations of Back to Bed Inc., M World Mattress LLC, MCStores LLC and TBE Orlando LLC, related to the operation of 131 mattress specialty retail stores under the brands Back to Bed and Bedding Experts in the Chicago metropolitan area and Mattress Barn in the Orlando metropolitan area. On October 20, 2014, we acquired 100% of the outstanding equity interests in The Sleep Train, Inc., related to the operation of 314 mattress specialty retail stores in California, Oregon, Washington, Nevada, Idaho and Hawaii. On January 6, 2015, we acquired substantially all of the mattress specialty retail assets and operations of Sleep America LLC, which operated approximately 45 Sleep America retail stores in Arizona. On January 13, 2015 we acquired substantially all of the mattress specialty retail assets and operations of Mattress World, Inc., related to the operation of 4 mattress specialty retail stores under the brand Mattress World in Pennsylvania. Acquisition-related costs, consisting of direct transaction costs and integration costs, are included in the results of operations as incurred. We incurred approximately $2.0 million and $7.7 million of acquisition-related costs during the thirteen weeks ended August 4, 2015 and July 29, 2014, respectively. We incurred approximately $11.2 million and $10.7 million of acquisition-related costs during the twenty-six weeks ended August 4, 2015 and July 29, 2014, respectively.
       
(2)     Reflects approximately $0.2 million and $0.5 million for the thirteen and twenty-six weeks ended August 4, 2015, respectively, of costs borne by us in connection with a secondary offering of common stock by certain of our selling shareholders which was completed in April 2015. No offering proceeds were received by the Company.
       
(3)     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 ERP system. During the thirteen weeks ended July 29, 2014, we incurred approximately $1.7 million of ERP system implementation costs which includes $0.1 million of accelerated depreciation expense on our legacy ERP system. During the twenty-six weeks ended August 4, 2015 and July 29, 2014, we incurred approximately $0.7 million and $3.1 million, respectively, of ERP system implementation costs which includes approximately none and $0.2 million , respectively, of accelerated depreciation expense on our legacy ERP system.
       
(4)     Reflects approximately $0.7 million and $0.5 million of impairment of store assets recorded in the thirteen and twenty-six weeks ended August 4, 2015 and July 29, 2014, respectively.
       
(5)     Reflects expensed legal fees related to our February 2014 debt amendment and extension recorded in the thirteen weeks ended April 29, 2014, and severance expense resulting from the Company’s realignment of its management structure at the beginning of the second fiscal quarter recorded in the thirteen weeks ended July 29, 2014. Reflects severance expense recorded in the thirteen weeks ended August 4, 2015
       

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 Holding Corp.

With more than 2,300 company-operated and franchised stores across 41 states, Mattress Firm Holding Corp. (MFRM) has the largest geographic footprint in the United States among multi-brand mattress retailers. Founded in 1986, Houston-based MFRM is the nation's leading specialty bedding retailer with over $2.2 billion in sales over the past 12 months. MFRM, through its family of brands, including Mattress Firm and Sleep Train, offers a broad selection of both traditional and specialty mattresses, bedding accessories and other related products from leading manufacturers, including Sealy, Tempur-Pedic, Serta, Simmons, Stearns & Foster, and Hampton & Rhodes. More information is available at www.mattressfirm.com. MFRM's website is not part of this press release.

SOURCE Mattress Firm Holding Corp.

Contacts: 

Scott McKinney
Mattress Firm Holding Corp.
Investor Relations 
713-343-3652
Vice President of Investor Relations
ir@mfrm.com

Kimberly Wise
Media Relations
214-646-1659
kwise@jacksonspalding.com

###

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