Investor Presentation Q3 2014

Transcription

1 1 Investor Presentation Q3 2014

2 Forward Looking Statements and Non-GAAP Information This presentation contains forward-looking statements within the meaning of federal securities laws, that are subject to risks and uncertainties. All statements other than statements of historical fact included in this presentation are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "anticipate," "estimate," "expect," "project," "plan, "intend," "believe" and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. These forward-looking statements are based on assumptions that we have made in light of our industry experience and on our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you consider this presentation, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. Such factors include the risk factors discussed in the Company s annual report on Form 10-K for the year ended January 28, 2014 and quarterly report on Form 10-Q for the period ended October 28, 2014, each as filed with the Securities and Exchange Commission (the "SEC"). Because of these factors, we caution that you should not place undue reliance on any of our forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this presentation after the date of this presentation. Non-GAAP Financial Measures While the Company reports financial results in accordance with accounting principles generally accepted in the U.S., this presentation includes the non- GAAP measure Adjusted EBITDA for the Company which is not in accordance with or a substitute for GAAP measures. Mattress Firm considers Adjusted EBITDA an important supplemental measure of performance and ability to service debt. Adjusted EBITDA is often used to assess performance because it allows comparison of operating performance on a consistent basis across periods by removing the effects of various items. Adjusted EBITDA has various limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of results as reported under GAAP. For a reconciliation of Net Income to EBITDA and Adjusted EBITDA, see Mattress Firm EBITDA Reconciliation in the appendix. Certain of the Non- GAAP financial measures included herein presents prospective financial information. The Company has not provided a quantitative reconciliation between such financial measures to the most comparable financial measure or measures calculated and presented in accordance with GAAP because it is not reasonably practicable to produce such reconciliation for this prospective financial information. 2

3 Leading Mattress Specialty Retailer High Growth Specialty Retailer Largest Footprint Market Share #1 More than tripled store count since IPO in November 2011 (1) Nearly 2,100 locations (2) Only national multi-brand retailer >90% of stores in markets where we have #1 market share (3) Store Unit Growth (2) Net Sales Growth (4) Adj. EBITDA Growth (4)(5) 2,097 $1,520mm $165mm 674 $494mm $57mm Q LTM 14Q LTM 14Q3 3 (1) Reflects company-operated units only; as of October 28, 2014 (2) Includes franchise locations; 2014 Q3 as of October 28, 2014 (3) Per internal study completed in August 2014; does not include markets open less than one year or franchise locations (4) Does not include pro forma adjustments for recent acquisitions and annualization of new store EBITDA (5) Reflects Adjusted EBITDA; excludes expenses referenced on pages 33 of K and 34 of Q3 10-Q; see reconciliation in appendix

4 Key Investment Highlights Compelling Industry Dynamics Leading Specialty Retailer Driving Profitability Through Our Relative Market Share (RMS) Model Highly Achievable Growth Plan Experienced and Invested Management Team Large, fragmented and growing industry Specialty retailers taking share Replacement nature of product pentup demand during recessionary periods Clear #1 market share in the U.S. Only border-toborder and coastto-coast operator Distribution network a competitive advantage Proven track record Continued development and profit growth in our fortress markets Integration of recent acquisitions is expected to eliminate temporary profit margin drag Opportunity for at least 3,500 stores across the U.S. Expect to exceed 2,600 stores within the next three fiscal years Growth within existing and new markets The right team in place to drive profitable growth into the future Multi-brand 4 Multi-channel approach

5 Compelling Industry Dynamics Rosenberg, TX 5

6 Attractive Industry Dynamics Long-term historical industry growth CAGR of 5.2% (1) Bounces back following recessions 4.0% expected industry growth in 2014 and 4.5% in 2015 (2) ($ in billions) Mattress Specialty Retailers Taking Market Share (3) Department Stores 11% Mattress Specialty Retailers Other 14% 19% Furniture Retailers 56% Department Stores 5% Other 14% 46% Mattress Specialty Retailers Furniture Retailers 35% U.S. Wholesale Bedding Sales Significantly Rebound After Prior Recessions (2) Recession Recovery YOY Sales Growth 5% 2% 16% 7% 6% 7% 9% 8% 2% 0% 3% 8% 8% 9% 5% 5% 8% 11% 9% 5% 0% 4% 8% 12% 12% 5% 1% 9% 9% 4% 7% 9% 2% 4% 5% 5% 6 (1) Per ISPA since 1980 through 2014F (2) Source: ISPA Mattress Industry U.S. Market Forecast issued October 2014; mattress and foundation sales (3) Source: Furniture Today, September 2013

7 Industry Growth Drivers Pent-up demand provides continued opportunity since last recession Consistent historical average unit price ( AUP ) growth Mattress sales are primarily replacement in nature Approximately 60% of beds are more than eight years old (1) Wholesale Mattress Shipments per Household (2) Wholesale Mattress and Foundation AUP (2) (3) (Units) (Dollars) $215 $195 $175 $155 $ $135 $115 $ $ $ F (1) Source: Ideaology Ipsos DuraTrend Findings for Mattress Firm, January 2014 (2) Source: ISPA 2013 Mattress Industry Report of Sales & Trends (3) Source: ISPA Mattress Industry U.S. Market Forecast issued October

8 Leading Retailer 8 Santee, CA

9 Market Leading Position Sleep Train and Back to Bed acquisitions strengthen Mattress Firm s position as the #1 Mattress Specialty Retailer in the fragmented retail bedding environment Top Mattress Specialty Retailers (1) ($ in millions) Rank Company 2013 Stores 2013 Sales Year-Over- Year Sales Growth Market Share (3) 1 Mattress Firm (2) 1,791 $1, % 14.2% 2 Sleepy s 939 1, % 7.2% 3 Sleep Number % 6.6% 4 America s Mattress % 2.3% 5 Sit n Sleep % 0.7% 6 Innovative Mattress Solutions (3.1%) 0.7% 7 Mattress Warehouse % 0.7% 8 American Mattress (4.3%) 0.5% Total 4,003 $4, % 32.7% (1) Source: Furniture Today Top 100, May 2014 (2) 2012 and 2013 net sales for Mattress Firm assume that The Sleep Train, Inc. and the Back to Bed and Bedding Experts retail operations, all recent acquisitions by Mattress Firm, were owned by Mattress Firm for the full 2012 and 2013 fiscal years and include Mattress Firm franchisee net sales. For financial reporting purposes, in accordance with generally accepted accounting principles in the United States, we do not include franchisee net sales in our total net sales. In 2013, Mattress Firm net sales exclusive of franchisee net sales accounted for $1.21 billion, Mattress Firm franchisee net sales accounted for $169.8 million, Sleep Train net sales accounted for $471.2 million, Back to Bed and Bedding Experts net sales accounted for $106.0 of the Mattress Firm sales reported in the chart above. See our pro forma financial statements, filed with our Current Report on Form 8-K/A filed with the SEC on December 3, 2014 for more information on the pro forma impact of the Sleep Train Acquisition (3) Reflects net sales of the respective retailers divided by the estimated size of the U.S. mattress retail market in 2013; Furniture Today 2014 Retail Planning Guide 9

10 Competitive Real Estate Platform Tripled Store Count Since Nov IPO (1) Convenient and Prominent Locations 2,000 Company-Operated Franchisee-Operated 2, ,500 1, , , , ,057 1, At IPO (Nov. 2011) Q3 Average size: 4,800sf 80% Freestanding/End Cap; 20% In-line Complementary, Multi-Brand Portfolio Data Driven Analysis 10 (1) Reflects company-operated units only Source: Xspan

11 Logistics & Distribution Strategy Building an agile and service-oriented national network Leveraging stores, distribution centers, and strategic partnerships to meet customer demand hr 24% Distribution Centers (including 3 rd party DCs in Northeast & LA) Customer-friendly delivery window options Current Delivery Capability Unit mix of customer pickup (vs. in-home delivery) 1-2 Day Delivery 3-5 Day Delivery 6-10 Day Delivery Goal: same day delivery capacity in 95% of U.S. in

12 Driving Profitability Through our RMS Model Hamilton, OH 12

13 Relative Market Share (RMS) Model Case Study: Houston Market Penetration Store Count Stores per Capita 105 stores 65 stores Market Profitability Adj. EBITDA Adj. EBITDA Margin $14.3mm $29.6mm 19.4% 20.5% :98k 1:62k Driving Profitability Model Incremental Advertising ADV Spend ADV per Capita $5.6mm $12.5mm $0.88 $ Relative Market Share Comp Sales Sales per Store Fortress $1.2mm $1.5mm Leadership Developmental Leadership Developmental

14 Market Penetration Highly Correlated to Profitability FY 2013 (1) Market Level Adjusted EBITDA (2) Sales per Store (2) Advertising $ Per Capita (2) 4.8% $0.9mm Occupancy 21.0% 13.2% $1.0mm Occupancy 14.6% $0.41 $ % $1.0mm Occupancy 14.5% $ % $1.3mm Occupancy 12.0% $1.58 % of Sales: 12.7% % of Sales: 9.7% % of Sales: 8.8% % of Sales: 8.5% Developmental Leadership Fortress Recent Acq. Fortress Penetration level 1:>170k 1:90k 170k 1:<90k 1:<90k (stores per capita) % of Store Base 4% 27% 47% 22% 14 (1) Based on fiscal year 2013 results, including 91% of total stores (excluding markets not branded as Mattress Firm and markets open less than one year) (2) Annualized weighted average of stores in each category

15 RMS Drives EBITDA (1) Represents all markets in the chain that were open for a full year as of 2013 Relationship between store penetration and market level EBITDA 30.0% 20.0% EBITDA 10.0% 0.0% (thousands) -10.0% -20.0% Store Penetration 15 (1) Circle size represents market level EBITDA dollars

16 Highly Achievable Growth Plan 16 Gilbert, AZ

17 Organic Growth Plan Through 2017 Expansion primarily through new stores in existing and surrounding markets Focus on new markets that lack dominant specialty mattress retailer Long-term potential for at least 3,500 stores in the United States Growth Plan (% of Store Units) 3500 Anticipated Store Unit Growth 3, ,600+ New Markets 30% Existing Markets 70% , Store Count 2014 Q3 Sleep America Existing Markets New Markets Closed/ Relocated Potential Store Count FY2017 Potential Store Count 17

18 Continued Store Growth Constant growth nationwide without entering competition rich areas 75 WA 36 OR 28 NV 184 CA 17 ID 20 UT 84 AZ 60 CO 18 NM 1 ND 4 SD 7 NE 18 KS 22 OK 389 TX 1 26 MN 40 6 WI 11 NY 14 MI 30 IA PA IL IN OH 3 51 WV VA MO KY TN 51 NC AR SC AL GA MS 27 LA 286 NH 4 ME 10 FL HI Opportunity for at least another 1,400 new units 18 Note: Includes franchise locations, as of October 28, 2014; does not include pending Q4 acquisition of Sleep America retail operations

19 With Scale-Driven Margin Expansion Opportunity Fortress 1:<90k Leadership 1:90k 170k Development 1:>170k 19 Note: Includes franchise locations, as of October 28, 2014; does not include pending Q4 acquisition of Sleep America retail operations; penetration defined as total units (including franchise locations) divided by the population of the respective states

20 Multi-Brand Opportunity Additional store banners allow Mattress Firm to both extend and defend our competitive positions in our markets Opportunity to open incremental stores Increases customer choice and savings opportunities Provides suppliers an alternate distribution point Mattress Firm s Current Brand Portfolio Approach Emotional (Experiential) National Brand (Mattress Firm) Accentuate selection and savings Leverage scale to drive profitability National advertising and distribution Value (Savings) Prestige (Brand) Experiential Brand (Sleep ) Accentuate full sleep system Emphasis on customer service Heavily involved in local community Fighter Brand (Mattress Pro) Accentuate value with bulk buys Limited selection limited time Draft off advertising of National Brand Rational (Logical) 20

21 Omni-Channel Development Currently executing multi-channel strategy that leverages our national brands Actively developing omni-channel capabilities to provide integrated and seamless retail experience Traditional Multi- Channel Digital Omni-Channel 2,000+ retail locations 70+ distribution centers In-home delivery and/or in-store customer pickup 200+ pop up retail events nationwide Multiple ecommerce sites now operational; driving modest incremental sales 18+ months experience with virtual inventory/drop shipped operations Multi-year project to overhaul website platform Enhances overall brand awareness and digital touch points Foundation established for integrating brick & mortar with online to drive incremental store volume Leveraging newly created digital division to capture and enhance new opportunities Building on web foundation for endless aisle integration Creating seamless experience across brands and purchase avenues 21

22 Opportunistic Acquisitions Key Driver of Growth Yotes Franchise 26 stores 13 stores 14 stores 10 stores 36 stores 25 stores Phoenix Houston Las Vegas St. Louis Austin, Dallas, Houston, San Antonio, Las Vegas Virginia Beach Perfect Mattress Franchise Yotes Franchise 236 stores 40 stores 27 stores Online Retailer 39 stores 34 stores Atlanta, Minneapolis, St. Louis Houston, Dallas, Jacksonville, Miami, Orlando, SW Florida, Tampa 2011, 2012 Atlanta, Miami, SW Florida, Tampa 2012 Charleston, Charlotte, Columbia, Greensboro, Greenville, Raleigh 2012 Nationwide 2013 Green Bay, Madison, Milwaukee, Wausau 2013 Colorado Springs, Denver, Wichita stores 75 stores 15 stores 131 stores 314 stores 47 stores Dallas, Austin 2014 Colorado Springs, Denver, Phoenix, Tucson 2014 Pittsburgh 2014 Chicago Orlando 2014 California, Hawaii, Idaho, Nevada and Washington 2014 Phoenix, Tucson Pending 22 Note: Back to Bed includes Bedding Experts and Mattress Barn. Sleep Train includes Sleep Train, Sleep Country, America s Mattress of Hawaii and Got Sleep? Does not include acquisitions prior to Does not include acquisitions of fewer than 10 stores

23 Case Study of Performance Uplift Post Acquisition Mattress Giant transaction is a relevant case study for acquisitions where we convert the brand to Mattress Firm Significant sales lift for the acquired stores achieved following the rebranding Mattress Giant Monthly Store Average Post Rebranding November 2011 ( MG 54 ) May 2012 ( MG 180 ) $100,000 $90,000 Post Rebranding +56% Post Rebranding + 34% Current Year Sales per Store $110,000 Prior Year Sales per Store $100,000 Current Year Sales per Store (1) Prior Year Sales per Store $80,000 $90,000 Monthly Store Average $70,000 $60,000 $50,000 Monthly Store Average $80,000 $70,000 $60,000 $50,000 $40,000 $40,000 $30,000 Mar Apr May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul $30,000 Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Fiscal 2012 Fiscal 2013 Fiscal 2012 Fiscal

24 Sleep Train Acquisition 24 Napa, CA

25 Strategic Rationale for Sleep Train Overview #1 mattress specialty retailer on the West Coast #4 mattress specialty retailer in the U.S. Operates 314 stores in 6 major Western markets California, Washington, Oregon, Nevada, Idaho and Hawaii >90% of stores in markets with #1 market share Industry leading average ticket size and sales per store Investment Highlights Established leading footprint in the West Coast, including key strategic markets Added 314 retail store locations from a leading market share player with limited market overlap Fortifies Mattress Firm as the leading mattress specialty retailer in the United States Generates significant synergistic opportunities Provides a platform to implement our RMS model on the West Coast Creates opportunity to begin leveraging national scale benefits Allows for enhanced nationwide delivery and distribution, advertising efficiencies and exclusive partnership opportunities Adds high-volume, established locations with a strong and experienced leadership team 29 year history of well-positioned, long-term leases in hard to enter trade areas Immediate scale with a sustained and profitable multi-brand organization Experienced and disciplined culture that is highly aligned with Mattress Firm 25

26 Significant Synergies Expected Estimated Potential Synergies Cost Sourcing & Procurement Distribution & Logistics Advertising SG&A Professional Services Other Sales Exclusive and Tertiary Products Multi-Channel / Omni-Channel Sales Strategic Partnerships Enhanced use of Customer Financing Other Approximately $20 million of estimated synergies by Year 3 26.

27 Experienced and Invested Management Team 27 Conroe, TX

28 Experienced and Invested Management Team Steve Stagner Chief Executive Officer Dale Carlsen President & Chief Strategy Officer Ken Murphy Co-Chief Operating Officer Rob Killgore Co-Chief Operating Officer Alex Weiss Chief Financial Officer Karrie Forbes Chief Marketing Officer Craig McAndrews Chief Learning Officer Bruce Levy EVP of Real Estate & Construction Kindel Elam EVP & General Counsel Cathy Hauslein SVP & Chief Accounting Officer Years at Mattress Firm/Sleep Train Years of Relevant Experience <1 30 Franchise Owner Franchise Owner Experience Sam Woods SVP of Sales & Operations Brian Baxter SVP of Merchandising Franchise Owner 28

29 Financial Update 29Florence, KY

30 EBITDA Continues to Grow Acquisitions and New Markets, as customary with our historical performance, have an initial ramp-up period before they are able to perform at the rate of the Core business Q3 Market Level EBITDA Disaggregation (1) Q Core Markets New Markets Acquisitions Total Market EBITDA Contribution (% of Total) 69% 10% 21% 100% Market EBITDA Growth (%) 22% 64% 125% 39% Market EBITDA Margin (%) 20% 12% 11% 16% Margin Comparison vs. Core Markets (bps) (860) (920) Change in Margin from Q (bps) +130 (10) (40) Months 0-3 Typical Acquisition Timeline (2) (2) (2) Largest drag* period Store construction / remodeling Re-merchandise with comfort by color Sell down of existing inventory Re-training existing sales staff Months 3-6 Lessening drag* Months 6-12 Switch to Mattress Firm signage Ramp-up advertising Focus on implementation of our full market level strategy with enhanced market profitability 30 (1) Market level EBITDA disaggregation is based on an estimate prepared by the Company. See appendix for details of actual EBITDA for the twelve months ended October 28, 2014 and for fiscal year 2013 (2) New markets include all stores opened in non-existing markets since the beginning of Acquisitions include all acquired stores since the beginning of Core markets include all other stores * Drag defined as EBITDA margin of acquired stores as compared to Core Markets EBITDA margin

31 Highly Attractive New Store Economic Model Stores Generate Cash on Cash Payback <1 Year Representative New Store Investment (1) ($ in thousands) Average Investment Buildout and Equipping Cost $220 Floor Sample Inventory Less: Tenant Reimbursement (30) Cash Requirement, Net $216 Representative New Store Results (1)(2) ($ in thousands) Year 1 Year 2 Sales $1,000 $1,050 % Growth 0% - 10% Store 4-Wall Profitability (3) $245 $268 % of Sales 23-26% 24-27% Annual Cash on Cash Return (4) 113% 124% Store 4-wall profitability drives improving leverage over market-level costs as store penetration increases 31 Note: Analysis applies only to Mattress Firm stores (1) Reflects results achieved from stores opened in the time period (2) Includes approximately $40,000 in Year 1 for vendor funds collected upon store opening (3) Store 4-wall profitability divided by net store investment (4) Reflects midpoint of respective ranges

32 Sales Momentum Driving Increasing EBITDA Strong historical sales growth through new store openings, same store sales growth and acquisitions Annual Net Sales Performance ($ in millions) ($ in millions) $240 $220 $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 Actual Annual Adjusted EBITDA Performance (1) $165.0 $140.0 $121.0 $87.5 $ LTM 14Q3 32 Note: Fiscal year ended January of the following year; figures do not include pro forma adjustments for recent acquisitions and annualization of new store EBITDA (1) Reflects Adjusted EBITDA; excludes expenses referenced on pages 33 of K and 34 of 2014 Q3 10-Q; see reconciliation in appendix

33 Appendix Westchester, OH 33

34 Mattress Firm EBITDA Reconciliation ($ in millions) LTM Q3 FYE January of the following year Net Income (loss) $0.3 $34.4 $39.9 $52.9 $46.3 Income tax (benefit) expense 0.8 (8.8) Interest expense, net Depreciation and amortization Intangible assets and other amortization EBITDA $49.0 $74.0 $100.8 $128.9 $128.4 Goodwill impairment charge Intangible asset impairment charge Loss on store closings and impairment of assets Loss (gain) from debt extinguishment Financial sponsor fees and expenses Stock-based compensation (0.5) Secondary offering costs Vendor new store funds (1) (1.2) Acquisition related expenses (2) Other (3) (0.8) Adjusted EBITDA $57.1 $87.5 $121.0 $140.0 $165.0 Source: Pages 33 of K and 34 of Q Q (1) 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 (2) 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 (3) See. pages 33 of K and 34 of Q3 10-Q for further detail 34

35 Key Investment Highlights Compelling Industry Dynamics Leading Specialty Retailer Driving Profitability Through Our Relative Market Share (RMS) Model Highly Achievable Growth Plan Experienced and Invested Management Team 35