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Select Comfort Reports First Quarter Results

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Select Comfort Corporation, a leading bed retailer and creator of the Sleep Number® bed, announced results for the fiscal first quarter ended March 31, 2007. Net sales increased 2 percent to $216.5 million, compared to $212.3 million in the first quarter of 2006. Net income totaled $10.7 million, compared to $11.7 million in the first quarter of 2006, and first quarter earnings totaled $0.21 per diluted share, unchanged from the year-ago period. “The year started much like we expected, with solid execution and continued operating improvement offsetting challenged revenue growth,” said Bill McLaughlin, Select Comfort chairman and chief executive officer. “In keeping with our long-term focus, we protected margins and preserved brand integrity despite a highly competitive pricing and promotional environment.” “We have outlined a broad set of corporate growth initiatives for 2007, and investments against these initiatives will build in the second quarter. In the second half of the year, we expect to begin realizing results from these investments and we anticipate the challenging macro-economic pressures will begin to stabilize,” McLaughlin added. Net sales growth from new store openings and the company’s retail partner program more than offset the 11 percent decrease in comparable-store sales during the first quarter. Select Comfort added five net new stores in the first quarter, increasing the store base to 447 company-owned stores, compared to 402 stores a year ago. Improvements in sourcing and manufacturing productivity, along with the company’s ongoing implementation of a hub-and-spoke logistics network, improved the gross margin percentage 190 basis points to 62.0 percent, compared to 60.1 percent in the first quarter of 2006. The company continues to expect full-year gross margins to be approximately equal to the 60.9 percent realized in 2006. Costs from implementing mandatory national fire retardant requirements will reduce gross margins below last year’s level in the second and third quarters of 2007. The company’s operating profit margin was 7.8 percent of net sales, compared to 8.6 percent in the first quarter of 2006. Selling and marketing expenses increased $6.4 million, partially reflecting the company’s increased retail store base. Media spending essentially was flat compared to year-ago levels at $32.0 million and 14.8 percent of net sales. Research and development expense more than doubled to $1.6 million, compared to $0.7 million in the first quarter of 2006. Cash and investments totaled $66.8 million as of March 31, 2007. Cash flows from operating activities totaled $27.5 million during the first quarter; year-to-date through April, the company returned 49.0 million to shareholders through the repurchase of 2.7 million shares, reducing its remaining repurchase authorization to $39.7 million. On April 20, 2007, the Board of Directors authorized the company to repurchase up to an additional $250 million of its common stock, providing a total of $290 million of repurchase authority. Outlook The company reiterated its full-year 2007 outlook for net sales of between $900 million and $925 million, and earnings of between $1.02 and $1.09 per diluted share. The company expects second quarter earnings will be below year-ago levels, reflecting a continuation of first quarter sales trends, investments in long-term growth initiatives, and costs associated with new flammability standards. The company reiterated its long-term growth targets for net sales growth of 15 percent or higher, and earnings growth of 20 percent or higher. About Select Comfort: Founded more than 20 years ago, Select Comfort Corporation is the nation's leading bed retailer(1). Based in Minneapolis, the company designs, manufactures, markets and supports a line of adjustable-firmness mattresses featuring air-chamber technology, branded the Sleep Number bed, as well as foundations and sleep accessories. SELECT COMFORT® products are sold through its more than 440 company-owned stores located across the United States; select bedding retailers; direct marketing operations; and online at www.sleepnumber.com.

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