Mattress Firm Holding Corp. announced its financial results for the first fiscal quarter (13 weeks) ended April 29, 2014. Net sales for the first fiscal quarter increased 20.9% to $333.5 million, reflecting comparable-store sales growth of 4.3% and incremental sales from new and acquired stores. The Company reported first 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 ERP system implementation costs, acquisition-related costs and debt amendment costs (“Adjusted”), of $0.31.
“Our strategy of driving sales during our first fiscal quarter resulted in approximately 21% total sales growth and a 4.3% comparable-store increase, which represented our third straight quarter of positive same store sales,” commented Steve Stagner, Mattress Firm’s president and chief executive officer. “With an accelerated infrastructure build up to support additional store growth and the recent unprecedented level of condensed product changes to our floor materially behind us, we are focused on improving our EPS performance as we move through the year. Initial consumer acceptance of the new products, coupled with a focused and well-prepared sales team, helped generate strong sales momentum over the Memorial Day holiday. Furthermore, we are excited to have added 148 stores through organic growth and acquisitions during the first quarter, which fortifies our presence in key markets. We believe that our steady growth, together with an increasingly streamlined organization, will continue to enhance our operations and drive margin improvement; further solidifying our position as the nation’s leading bedding specialty retailer.”
First Quarter Financial Summary
Acquisitions Completed During the First Fiscal Quarter
- Net sales for the first fiscal quarter increased 20.9% to $333.5 million, reflecting comparable-store sales growth of 4.3% and incremental sales from new and acquired stores.
- Opened 56 new stores, closed eight, and acquired 92 bringing the total number of Company-operated stores to 1,365 as of the end of the fiscal quarter.
- Income from operations was $15.4 million. Excluding $4.6 million of ERP system implementation costs, acquisition-related costs and debt amendment costs, Adjusted income from operations was $20.0 million, as compared with $23.8 million for the comparable prior year period. Adjusted operating income margin was 6.0% of net sales as compared to 8.6% in the first fiscal quarter of 2013, and included a 170 basis-point decline in gross profit margin, a 130 basis-point decrease from general and administration expense deleverage, offset by a 40 basis-point improvement in sales and marketing expense leverage. 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 $7.7 million and GAAP EPS was $0.22. Excluding $2.8 million, net of income taxes, of ERP system implementation costs, acquisition-related costs and debt amendment costs, Adjusted net income was $10.5 million and Adjusted EPS was $0.31. 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.
In March 2014, the Company completed the acquisition of the assets and operations of Yotes, Inc., one of the Company’s franchisees, relating to the operation of 34 mattress specialty retail stores located in Colorado and Kansas for a total purchase price of approximately $15 million, subject to customary purchase price adjustments.
In March 2014, the Company completed the acquisition of the Virginia assets and operations of Southern Max LLC, another of the Company’s franchisees, relating to the operations of three mattress specialty retail stores located in Virginia for a total purchase price of approximately $0.5 million.
In April 2014, the Company completed the acquisition of one hundred percent of the outstanding partnership interests in Sleep Experts Partners, L.P., which operates 55 mattress specialty retail stores in Texas under the brand Sleep Experts, for a total purchase price of approximately $65 million, subject to customary purchase price adjustments. Of the total purchase price, $3.25 million was delivered in the form of 71,619 shares of common stock, par value $0.01 per share, of the Company, calculated in accordance with the terms of the purchase agreement.
The Company funded the cash requirements of the franchise acquisitions using cash reserves and revolver borrowings. The Company raised $100 million of incremental term borrowings under the amended 2012 Senior Credit Facility (as defined in the Company’s filings with the Securities and Exchange Commission), to fund the cash requirements of the Sleep Experts acquisition and to pay down outstanding revolver borrowings. The incremental term borrowings mature in January 2016 concurrently with the Company’s other borrowings under the 2012 Senior Credit Facility, as amended, and are subject to the same interest rate as the existing term borrowings.
Recently Announced Acquisitions
In April 2014, the Company entered into an agreement to acquire substantially all of the mattress specialty retail assets and operations of Mattress Liquidators, Inc., which operates Mattress King retail stores in Colorado and BedMart retail stores in Arizona. This acquisition will add approximately 75 mattress specialty retail stores to the Mattress Firm company-operated store base in markets where the Company currently operates, primarily Denver, Colorado, Phoenix, Arizona and Tucson, Arizona, for an aggregate purchase price of approximately $35 million, subject to customary adjustments. The closing of the acquisition, which is conditioned on the prior satisfaction of customary closing conditions, is expected to occur by the end of the second fiscal quarter of 2014 and will be funded by cash reserves and revolver borrowings, as well as a $3.5 million seller note that is payable in quarterly installments over two years.
The Company had cash and cash equivalents of $11.7 million at the end of the first fiscal quarter of 2014. Net cash provided by operating activities was $7.1 million for the first fiscal quarter of 2014. As of April 29, 2014, there were no borrowings outstanding under the revolving portion of the 2012 Senior Credit Facility, as amended, and approximately $1.6 million in outstanding letters of credit, with additional borrowing capacity of $98.4 million.
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 1,400 company-operated and franchised stores across 36 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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