Select Comfort Announces Second Quarter Results

Company Reports More Stabilized Performance; Positioned for
Profitability in Second Half
MINNEAPOLIS--(Business Wire)--
Select Comfort Corporation (NASDAQ: SCSS), the nation's leading
bed retailer and creator of the SLEEP NUMBER(R) bed, today announced
results for the fiscal second quarter ended June 28, 2008. Net sales
for the quarter totaled $152.1 million, a decrease of 15 percent,
compared to $179.0 million in the second quarter of 2007. The company
reported a second-quarter net loss of $6.6 million, or $0.15 per
diluted share, compared to net income of $2.9 million, or $0.06 per
diluted share, in the second quarter of 2007.

"We made important progress in the second quarter in reducing
costs, stabilizing sales and laying the groundwork for a return to
profitability in the second half of the year, even with growing
inflationary pressures and weak macro-economic conditions," said Bill
McLaughlin, chief executive officer. "We were encouraged by
stabilizing sales trends and improved bottom-line performance compared
with the first quarter, despite the fact that second quarter is
historically our seasonal low point. Our priorities continue to be
reducing costs, protecting margins and preserving cash to selectively
invest in initiatives to improve the business."

Second-quarter sales generally are 10 to 15 percent lower than
sales generated during other quarters. For the second quarter of 2008,
revenue was 10 percent - or $16 million - less than the first quarter
of 2008. An improved cost structure enabled the company to reduce its
second-quarter operating loss to $10.3 million, compared with a loss
of $11.0 million in the first quarter of 2008, despite lower sales.

Cost reduction and profitability improvement initiatives begun in
the first quarter were supplemented with additional actions identified
during the second quarter, which are outlined below. The combination
of these actions is expected to achieve approximately $36 million in
cumulative benefits during 2008 and approximately $54 million on an
annualized basis.

Second Quarter Summary

Retail revenue was down 15 percent, driven by same-store sales
comps of negative 20 percent, offset by 18 net new company-owned
stores opened during the past 12 months. Second quarter e-commerce and
direct-marketing sales were lower, with revenues in these channels
declining 27 percent and 13 percent, respectively. Wholesale sales
declined 12 percent, primarily due to slowing retail partner orders as
sluggish consumer spending continued.

Second quarter gross profit margin of 59.6 percent was 160 basis
points below prior year at 61.2 percent, mainly due to lower sales and
higher commodity costs. Gross profit margin increased by 200 basis
points from the 57.6 rate in the first quarter of this year, based on
the company's implementation of price increases and cost-reduction
activities, along with an improved sales mix following the
introduction of the new Sleep Number 6000 bed model.

Sales and marketing costs in the second quarter of 2008 decreased
to $85.4 million, representing 56.2 percent of net sales, compared to
48.5 percent in the prior-year period. General and administrative
expenses in the quarter decreased to $14.1 million and were 9.3
percent of sales, equal to the percent of sales reported in the second
quarter of 2007.

Cash flows from operating activities totaled $10.4 million for the
first six months, compared to $19.9 million for the same period last
year. Capital expenditures totaled $20.9 million for the first six
months of 2008, compared to $19.3 million in the first six months of
2007. As of June 28, 2008, cash and cash equivalents totaled $6.8
million and outstanding debt totaled $58.1 million. During the
quarter, the company amended its credit facility to provide increased
financial flexibility as it executes its operating plans.

Second Half 2008 Priorities and Outlook

"We are looking forward to the coming months, which historically
represent our strongest selling season," said McLaughlin. "Barring
further deterioration of the macro-economic environment, the continued
execution of our plan and benefits from higher seasonal demand
position us to return to profitability in the second half of 2008."

The company continues to implement further cost-saving initiatives
to help offset the impact of growing inflationary pressures. These
include:

-- Reductions to discretionary spending across all functions of
the company, which are expected to achieve $3 million in
savings during the second half of the year;

-- The decision to close 10 additional stores before year-end,
bringing the total number of anticipated store closings for
the year to 25 stores; and

-- Select price increases in July, which are expected to yield an
incremental $3 million during 2008.

To support revenue and maintain market share, the company pursued
several other initiatives to improve the top- and bottom-line results
during the back half of the year. These include:

-- Refinement of the new marketing campaign;

-- Implementation of a more aggressive accessories program, which
includes the introduction of the "Create Your Perfect Pillow"
program, launching in August; and

-- The planned launch of a new bed model in the third quarter.

The company expects operating cash flow for the remainder of the
year to be positive. The company continues to forecast capital
expenditures of $30 million in fiscal 2008 compared with $44 million
in fiscal 2007. The company now expects to have approximately 477
retail locations at the end of fiscal 2008. Results for 2008 will
benefit from a fifty-third week in the fourth quarter.

Conference Call

Management will host its regularly scheduled conference call to
discuss the company's results at 5 p.m. Eastern Time (4 p.m. Central;
2 p.m. Pacific) today. To listen to the call, please dial (888)
972-6711 (international participants dial (210) 234-0123) and
reference the passcode "Sleep." In advance of the call, a presentation
will be available at www.selectcomfort.com/investors. To access the
Webcast, please also visit the investor relations area of the Select
Comfort Web site.

A replay will remain available until midnight Eastern Time,
Friday, August 1, 2008, by dialing (402) 220-3525. The Webcast replay
will remain available in the investor relations area of the company's
Web site for approximately 60 days.

About Select Comfort Corporation

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(R) bed, as well as foundations and bedding
accessories. SELECT COMFORT(R) products are sold through its more than
470 company-owned stores located across the United States; select
bedding retailers; direct marketing operations; and online at
www.sleepnumber.com.

Forward-Looking Statements

Statements used in this news release relating to future plans,
events, financial results or performance are forward-looking
statements subject to certain risks and uncertainties including, among
others, such factors as general and industry economic trends;
uncertainties arising from global events; consumer confidence;
effectiveness of our advertising and promotional efforts; our ability
to fund our operations through cash flow from operations or
availability under our bank line of credit or other sources, and the
cost of credit or other capital resources necessary to finance
operations; the risk of non-compliance with financial covenants under
our bank line of credit, and the potential need to obtain additional
capital through the issuance of debt or equity securities; our ability
to attract and retain qualified sales professionals and other key
employees; consumer acceptance of our products, product quality,
innovation and brand image; our ability to continue to expand and
improve our product line; industry competition; warranty expenses;
risks of pending litigation; our dependence on significant suppliers,
and the vulnerability of any suppliers to commodity shortages,
inflationary pressures, labor negotiations, liquidity concerns or
other factors; rising commodity costs; the capability of our
information systems to meet our business requirements and our ability
to upgrade our systems on a cost-effective basis without disruptions
to our business; and increasing government regulations, including new
flammability standards for the bedding industry, which have added
product cost pressures and have required implementation of systems and
manufacturing process changes to ensure compliance. Additional
information concerning these and other risks and uncertainties is
contained in our filings with the Securities and Exchange Commission,
including our Annual Report on Form 10-K, and other periodic reports
filed with the SEC. The company has no obligation to publicly update
or revise any of the forward-looking statements in this news release.

(1) Top 25 Bedding Retailers, Furniture/Today, August 2007.

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*T
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited - in thousands, except per share amounts)

Three Months Ended
--------------------------------------
June 28, % of June 30, % of
2008 Net Sales 2007 Net Sales
--------- ------------------ ---------

Net sales $152,055 100.0% $178,991 100.0%
Cost of sales 61,411 40.4% 69,464 38.8%
--------- --------- -------- ---------
Gross profit 90,644 59.6% 109,527 61.2%
--------- --------- -------- ---------
Operating expenses:
Sales and marketing 85,427 56.2% 86,756 48.5%
General and administrative 14,101 9.3% 16,611 9.3%
Research and development 643 0.4% 1,357 0.8%
Asset impairment charges 724 0.5% - -
--------- --------- -------- ---------
Total operating expenses 100,895 66.4% 104,724 58.5%
--------- --------- -------- ---------
Operating (loss) income (10,251) (6.7%) 4,803 2.7%
Other (expense) income, net (633) (0.4%) 36 0.0%
--------- --------- -------- ---------
(Loss) income before income
taxes (10,884) (7.2%) 4,839 2.7%
Income tax (benefit) expense (4,293) (2.8%) 1,927 1.1%
--------- --------- -------- ---------
Net (loss) income $ (6,591) (4.3%) $ 2,912 1.6%
========= ========= ======== =========

Net (loss) income per share -
basic $ (0.15) $ 0.06
========= ========

Net (loss) income per share -
diluted $ (0.15) $ 0.06
========= ========

Reconciliation of weighted-
average
shares outstanding:
Basic weighted-average shares
outstanding 44,138 47,980
Effect of dilutive securities:
Options - 1,649
Restricted shares - 229
--------- --------
Diluted weighted-average shares
outstanding(1) 44,138 49,858
========= ========
*T

(1) For the second quarter of fiscal 2008, potentially dilutive
securities have been excluded from the calculation of diluted weighted
average shares outstanding, as their inclusion would have had an
anti-dilutive effect on our net loss per diluted share.

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SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited - in thousands, except per share amounts)

Six Months Ended
--------------------------------------
June 28, % of June 30, % of
2008 Net Sales 2007 Net Sales
--------- ------------------ ---------

Net sales $320,220 100.0% $395,500 100.0%
Cost of sales 132,650 41.4% 151,805 38.4%
--------- --------- -------- ---------
Gross profit 187,570 58.6% 243,695 61.6%
--------- --------- -------- ---------
Operating expenses:
Sales and marketing 176,027 55.0% 184,894 46.7%
General and administrative 30,262 9.5% 34,230 8.7%
Research and development 1,517 0.5% 2,941 0.7%
Asset impairment charges 1,057 0.3% - -
--------- --------- -------- ---------
Total operating expenses 208,863 65.2% 222,065 56.1%
--------- --------- -------- ---------
Operating (loss) income (21,293) (6.6%) 21,630 5.5%
Other (expense) income, net (879) (0.3%) 430 0.1%
--------- --------- -------- ---------
(Loss) income before income
taxes (22,172) (6.9%) 22,060 5.6%
Income tax (benefit) expense (8,448) (2.6%) 8,471 2.1%
--------- --------- -------- ---------
Net (loss) income $(13,724) (4.3%) $ 13,589 3.4%
========= ========= ======== =========

Net (loss) income per share -
basic $ (0.31) $ 0.28
========= ========

Net (loss) income per share -
diluted $ (0.31) $ 0.27
========= ========

Reconciliation of weighted
average
shares outstanding:
Basic weighted-average shares
outstanding 44,098 48,848
Effect of dilutive securities:
Options - 1,761
Restricted shares - 224
--------- --------
Diluted weighted-average shares
outstanding(1) 44,098 50,833
========= ========
*T

(1) For the first six months of fiscal 2008, potentially dilutive
securities have been excluded from the calculation of diluted weighted
average shares outstanding, as their inclusion would have had an
anti-dilutive effect on our net loss per diluted share.

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SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
subject to reclassification
(unaudited)
June 28, December 29,
2008 2007
----------- ------------
Assets
Current assets:
Cash and cash equivalents $ 6,802 $ 7,279
Accounts receivable, net of allowance for
doubtful accounts of $857 and $876,
respectively 5,566 18,902
Inventories 20,276 32,517
Prepaid expenses 16,894 9,816
Deferred income taxes 6,015 6,796
Other current assets 2,759 3,833
----------- ------------
Total current assets 58,312 79,143
Property and equipment, net 87,094 80,409
Deferred income taxes 28,690 25,543
Other assets 3,741 5,394
----------- ------------
Total assets $177,837 $190,489
=========== ============

Liabilities and Shareholders' Equity
Current liabilities:
Borrowings under revolving credit facility $ 57,600 $ 37,890
Accounts payable 50,944 69,775
Customer prepayments 9,154 8,327
Accruals:
Sales returns 2,881 3,751
Compensation and benefits 15,442 14,865
Taxes and withholding 3,271 4,812
Other current liabilities 6,930 9,723
----------- ------------
Total current liabilities 146,222 149,143

Non-current liabilities:
Warranty liabilities 6,192 6,747
Capital lease obligations 376 -
Other long-term liabilities 12,106 10,473
----------- ------------
Total non-current liabilities 18,674 17,220
----------- ------------
Total liabilities 164,896 166,363

Shareholders' equity:
Undesignated preferred stock; 5,000 shares
authorized, no shares issued and
outstanding - -
Common stock, $0.01 par value; 142,500
shares authorized, 44,929 and 44,597
shares issued and outstanding,
respectively 449 446
Additional paid-in capital 2,536 -
Retained earnings 9,956 23,680
----------- ------------
Total shareholders' equity 12,941 24,126
----------- ------------
Total liabilities and shareholders' equity $177,837 $190,489
=========== ============
*T

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SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited - in thousands)
subject to reclassification

Six Months Ended
-------------------
June 28, June 30,
2008 2007
--------- ---------

Cash flows from operating activities:
Net (loss) income $(13,724) $ 13,589
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 11,933 12,753
Stock-based compensation 2,126 4,067
Excess tax benefits from stock-based
compensation (15) (1,284)
Disposals and impairments of assets 1,062 45
Changes in deferred income taxes (2,366) (1,437)
Other, net - 255
Change in operating assets and liabilities:
Accounts receivable 13,336 (6)
Inventories 12,241 (2,132)
Prepaid expenses and other assets (3,088) (3,037)
Accounts payable (8,268) 3,835
Customer prepayments 827 38
Accrued sales returns (870) 339
Accrued compensation and benefits 589 (4,316)
Accrued taxes and withholding (1,518) (907)
Warranty liabilities (782) (959)
Other accruals and liabilities (1,048) (959)
--------- ---------
Net cash provided by operating activities 10,435 19,884
--------- ---------

Cash flows from investing activities:
Purchases of property and equipment (20,886) (19,285)
Proceeds from sales and maturity of marketable
debt securities - 78,188
--------- ---------
Net cash (used in) provided by investing
activities (20,886) 58,903
--------- ---------

Cash flows from financing activities:
Net increase in short-term borrowings 10,982 9,927
Repurchases of common stock - (92,662)
Proceeds from issuance of common stock 377 3,675
Excess tax benefits from stock-based
compensation 15 1,284
Issuance costs related to debt (1,400) -
--------- ---------
Net cash provided by (used in) financing
activities 9,974 (77,776)
--------- ---------

(Decrease) increase in cash and cash equivalents (477) 1,011
Cash and cash equivalents, at beginning of period 7,279 8,819
--------- ---------
Cash and cash equivalents, at end of period $ 6,802 $ 9,830
========= =========
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SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)

Three Months Ended Six Months Ended
------------------ ----------------
June 28, June 30, June 28, June
30,
2008 2007 2008 2007
--------- -------- -------- -------

Percent of sales:
Retail 74.5% 74.1% 76.7% 75.2%
Direct 8.7% 8.5% 8.1% 8.6%
E-Commerce 6.1% 7.1% 6.5% 6.8%
Wholesale 10.7% 10.3% 8.7% 9.4%
--------- -------- -------- -------
Total 100.0% 100.0% 100.0% 100.0%
--------- -------- -------- -------

Sales growth rates:
Comparable-store sales (20%) (14%) (23%) (12%)
Net new stores 5% 8% 6% 9%
------------------ ----------------
Retail total (15%) (6%) (17%) (3%)
Direct (13%) (23%) (24%) (17%)
E-Commerce (27%) 20% (23%) 24%
Wholesale (12%) 12% (25%) 23%
------------------ -------- -------
Total (15%) (5%) (19%) (1%)

Stores open:
Beginning of period 481 447 478 442
Opened 6 16 13 23
Closed (9) (3) (13) (5)
--------- -------- -------- -------
End of period 478 460 478 460
--------- -------- -------- -------

Retail partner doors 778 752 778 752
--------- -------- -------- -------

Other metrics:
Average sales per store ($ in
000's)(a) $1,171 $1,408
Average sales per square foot
($s)(a) $ 878 $1,144
Stores greater than $1 million
net sales(a) 62% 77%
Average mattress sales per
mattress unit
(Q2 Company-owned channels;
$s) $1,831 $1,688
*T

(a) trailing twelve months for stores open at least one year

Select Comfort Corporation
Media Contact:
Gabby Nelson, 763-551-7460
gabby.nelson@selectcomfort.com
or
Investor Contact:
Jim Stoffel, 763-551-7498
investorrelations@selectcomfort.com

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