Investor Presentation January 2016

Transcription

1 Investor Presentation January 2016

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" or the negative of these terms, 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. 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. This presentation includes As Adjusted data, which excludes non-recurring charges relating to our ERP system implementation costs, acquisition-related costs and impairment charges. Such As Adjusted data is considered a financial measure not in accordance with the accounting principles generally accepted in the United States, or GAAP, and is not in lieu of, 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. Please refer to the reconciliation footnotes below for a reconciliation of such non-gaap financial measures to the most directly comparable GAAP measures. 2

3 Leader in a Growing Market 3

4 The #1 Mattress Specialty Retailer Best-in-Class Real estate Marketing strategy Product offering Customer experience National distribution Omni-channel Largest Footprint 2,420 locations (1) Market Share #1 Over 90% of stores in markets where we have #1 market share (2) Store Unit Growth (1) Sales Growth ($ in millions) ($ in millions) Adj. EBITDA Growth (3) 2,420 $2,521 $139mm $ Q3 $ LTM 15Q3 $57mm $ LTM 15Q3 4 (1) Includes 125 franchise locations; as of November 3, 2015 (2) Per internal study as of Q Excludes markets open less than one year and franchise locations (3) Reflects Adjusted EBITDA; excludes expenses referenced in December 7, 2015 press release

5 Specialty Retailers Taking Market Share Consumers demand expertise and prefer destination shopping Mass merchants not meaningful industry participants Mattress specialty retailers continue to take share from furniture retailers and department stores (1) Department Stores 11% Mattress Specialty Retailers 19% Other 14% Furniture Retailers 56% Department Stores 5% Mattress Specialty Retailers Other 14% 47% Furniture Retailers 34% (1) Source: Furniture Today, September 21, 2015

6 Long-Term Industry Expansion Everyone sleeps Mattress sales are primarily replacement in nature with an ~10 year average purchase cycle (1) 35 year industry dollar value CAGR of approximately 5% (2)(3) Wholesale Mattress Shipments per Household (2) Wholesale Mattress and Foundation AUP (3) (4) (Units) (Dollars) $220 $ $ $ $ $ $120 $100 $ $ F 6 (1) Source: Better Sleep Council Study January 2007 (2) Source: ISPA 2009 Mattress Industry Report of Sales & Trends (3) Source: ISPA 2014 Mattress Industry Report of Sales & Trends (4) Source: ISPA Mattress Industry U.S. Market Forecast issued October 2015

7 Fragmented Landscape Mattress Firm (MFRM) is the nation s largest mattress specialty retailer, with over 2,400 stores in 41 states as of November 3, 2015 ($ in millions) 2014 Top Mattress Specialty Retailers (1) 2014 Stores 2014 Sales YoY Growth Market Share (2) Rank Company 1 Mattress Firm 2,208 $1, % 13.6% 2 Sleep Number 463 1, % 7.9% 3 Sleepy's 1,024 1, % 7.6% 4 America's Mattress % 2.3% 5 Sit 'n Sleep % 0.8% 6 Innovative Mattress Solutions % 0.7% 7 Mattress Warehouse % 0.7% 8 American Mattress % 0.5% Top 8 4,561 $4, % 34.1% 7 (1) Source: Furniture Today Top 100, May Mattress Firm store count includes franchised locations (2) Reflects net sales of the respective retailers divided by the estimated size of the U.S. mattress retail market in Source: Furniture Today 2014 Retail Planning Guide

8 MFRM: Key Investment Highlights Compelling Industry Dynamics Best-in-Class Specialty Retailer Proven Track Record of Driving Profitability Highly Achievable Growth Plan Experienced and Invested Management Team Long-term stability and consistent growth Highly fragmented industry Specialty retailers continue to take share Pent-up demand with ~80% replacement Largest and only national footprint with significant scale Over 90% of stores in markets where Company is #1 Unique selling proposition Strong and established distribution network Less than one year cash on cash payback with new Mattress Firm stores High correlation between penetration and profitability History of developing markets through increasing Relative Market Share (RMS) Significant store growth runway in existing and acquisition markets Balance between organic and acquisition growth Track record of successfully integrating acquisitions Management aligned with shareholders Top executives have 10+ years of relevant experience Mix between retail and industry experience 8

9 Proven Growth Strategy 9

10 Relative Market Share (RMS) is Our Core Growth Strategy Case Study: Southeast Market A Market Penetration Store Count Stores per Capita 29 stores Market Profitability Adj. EBITDA $ Adj. EBITDA Margin % $1.9mm $6.7mm 16.9% 20.4% stores 1:112k 1:51k Driving Profitability Model Incremental Advertising ADV Spend ADV per Capita $0.6mm $2.2mm $0.38 $ Relative Market Share Comp Sales Sales per Store Fortress $0.9mm $1.2mm Leadership Leadership 10 Note: Internal estimates Developmental Developmental

11 Market Penetration Highly Correlated to Profitability (1) FY % Market Level Adjusted EBITDA (2) Sales per Store (2) Advertising $ Per Capita (2) Penetration level (stores per capita) 6.6% $0.9mm Occupancy 19.7% $ % $1.0mm Occupancy 15.5% $0.82 $1.2mm Occupancy 13.3% $1.55 % of Sales: 11.3% % of Sales: 9.4% % of Sales: 8.3% Developmental Leadership Fortress 1:>170k 1:90k 170k 1:<90k % of Store Base 7% 20% 73% 11 Note: Internal estimates (1) Based on fiscal year 2014 results, includes approximately 76% of total stores (excluding new and acquired markets open less than one year) (2) Annualized weighted average of stores in each category

12 Market Level EBITDA % Relative Market Share (RMS) Drives Profits 20% 15% Scale: Key ingredient to profitability Case Study: Southeast Market B +$13.6m 10% 5% +$4.7m 0% 2010YE YE YE YE YE % -10% -$1.7m x x -$1.6m Mattress Xpress (20 stores; Acquired Sept 2012) Mattress Giant (45 stores; Acquired May 2012) -15% Ending Store Count Sales per Store $0.7m $0.8m $0.9m $1.1m Stores per Capita 1:232k 1:73k 1:72k 1:67k Advertising per Capita $0.23 $1.00 $1.32 $1.32 Advertising as % of Sales 8.7% 11.8% 10.0% 8.6% 12 Note: Internal estimates

13 Strong New Store Economics Stores Generate Cash on Cash Payback <1 Year Representative New Store Investment ($ in thousands) Average Investment Buildout and Equipping Cost $232 Floor Sample Inventory Less: Tenant Reimbursement (43) Cash Requirement, Net $213 New Store Results (1) ($ in thousands) Year 1 Year 2 Sales $950 $1,000 % Growth 0% - 10% Store 4-Wall Profitability (2) $233 $245 % of Sales 23-26% 23-26% Annual Cash on Cash Return (3) 109% 115% Store 4-wall profitability drives improving leverage over market-level costs as store penetration increases 13 Note: Analysis applies only to Mattress Firm branded, company-operated stores (1) Includes approximately $40,000 in Year 1 for vendor funds collected upon store opening (2) Store 4-wall profitability divided by net store investment (3) Reflects midpoint of respective ranges and does not include additional market level costs or cannibalization

14 Track Record of Integrating Acquisitions 1,066 stores 45 stores 314 stores 131 stores 15 stores 67 stores Northeast, New England, Mid-Atlantic, Midwest Announced Phoenix, Tucson 2014 California, Hawaii, Idaho, Nevada and Washington 2014 Chicago Orlando 2014 Pittsburgh 2014 Colorado Springs, Denver, Phoenix, Tucson 2014 Yotes Franchise Perfect Mattress Franchise 55 stores 34 stores 39 stores Online Retailer 27 stores 40 stores Dallas, Austin 2014 Colorado Springs, Denver, Wichita 2014 Green Bay, Madison, Milwaukee, Wausau 2013 Nationwide 2013 Charleston, Charlotte, Columbia, Greensboro, Greenville, Raleigh 2012 Atlanta, Miami, SW Florida, Tampa 2012 Yotes Franchise 236 stores Atlanta, Minneapolis, St. Louis Houston, Dallas, Jacksonville, Miami, Orlando, SW Florida, Tampa 2011, stores Virginia Beach stores Austin, Dallas, Houston, San Antonio, Las Vegas stores St. Louis stores Las Vegas stores Houston 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? Excludes acquisitions prior to 2007 and acquisitions of fewer than 10 stores. Dates based on fiscal year acquired

15 Recent Acquisitions Progressing as Expected Strong Sleep Train Performance Sleep Train business continued to perform extremely well with Q3 implied comps showing double-digit same store sales growth (Sleep Train enters MFRM s comp base beginning in Q4) Mattress Discounters conversions showed accelerated sales growth Chicago Market Continuing to Improve Chicago market continued to improve in Q3 with approximately breakeven profitability at the market EBITDA level Mattress Discounters: YOY Sales Growth Pre and Post Rebranding to Sleep Train Chicago Market: YOY Sales Growth Pre and Post Rebranding to Mattress Firm 40% 25% 10% Pre Rebranding Post Rebranding +7.3% +25.2% Rebranding commenced YOY Sales Variance % Pre Conversion Baseline 70% Completed 95% Completed 60% 40% 20% 0% Pre Rebranding Post Rebranding -0.7% +32.7% Rebranding completed for ~90% of stores YOY Sales Variance % Pre Conversion Baseline -5% -20% FY 2014 FY Note: Market Level EBITDA is based on an estimate prepared by the Company.

16 The Growth Story Continues

17 Sleepy s Overview: #1 Northeast Retailer Banners #1 Northeast Retailer Market Share WI MI 89 5 OH IL IN KY TN WV VA SC MS AL GA FL PA NC VT 8 NY 23 NH ME DC MD MA RI CT NJ DE #1 Leading market share in the majority of Sleepy s core markets (1) Store Unit Growth 1,066 ($ in millions) Sales Growth $1,135 $ Q3 (1) Per internal Sleepy s study completed in August 2014 Note: Q3 data as of Sleepy s third quarter ended September 30, LTM 2015 Q3

18 Compelling Strategic Rationale #1 Creates First Truly National Mattress Specialty Retailer Opportunity to Leverage National Scale Benefits Acquires Attractive Store Base and Team in Key Markets Generates Significant Synergy Opportunities Creates the nation s first border-to-border, coast-to-coast specialty mattress retailer Combined company will operate approximately 3,500 stores in 48 states Pro forma sales of over $3.6 billion over the last twelve months Provides customers with greater value, convenience and choice Allows combined company to leverage the benefits of national scale: Nationwide distribution and delivery National advertising Sourcing, procurement and contract scale efficiencies Exclusive partnership opportunities Operating expense leverage Over 1,050 stores with strong penetration in difficult to enter markets in the Northeast and Mid-Atlantic Over 3,000 talented employees Strong leadership team with unmatched experience operating in the Northeast and Mid-Atlantic markets Approximately $40 million of identifiable cost synergies by the third year post-closing Cost efficiencies in distribution and logistics, advertising, sourcing and procurement, professional services and operating expenses, as well as additional revenue potential 18 Earnings Accretion and Cash Flow Generation Anticipate low single-digit EPS accretion in year one growing to double-digit EPS accretion by the third year post-closing, excluding one-time costs The combined company anticipates it can generate significant free cash flow, which can be used primarily to pay down debt and/or undertake future organic growth or potential acquisitions

19 Market Leading Position Sleepy s acquisition further strengthens Mattress Firm s position as the #1 Mattress Specialty Retailer in the fragmented retail bedding environment Top Mattress Specialty Retailers (1) Current Pro Forma ($ in millions) ($ in millions) Rank Company 2014 Stores 2014 Sales YoY Growth Market Share (2) 1 Mattress Firm 2,208 $1, % 13.6% 2 Sleep Number 463 1, % 7.9% 3 Sleepy's 1,024 1, % 7.6% 4 America's Mattress % 2.3% 5 Sit 'n Sleep % 0.8% 6 Innovative Mattress Solutions % 0.7% 7 Mattress Warehouse % 0.7% 8 American Mattress % 0.5% Top 8 Mattress Specialty Retailers 4,561 $4, % 34.1% Rank Company 2014 Stores 2014 Sales YoY Growth Market Share (2) 1 Mattress Firm 3,232 $3, % 21.3% 2 Sleep Number 463 1, % 7.9% 3 America's Mattress % 2.3% 4 Sit 'n Sleep % 0.8% 5 Innovative Mattress Solutions % 0.7% 6 Mattress Warehouse % 0.7% 7 American Mattress % 0.5% Top 7 Mattress Specialty Retailers 4,561 $4, % 34.1% 19 (1) Source: Furniture Today Top 100, May Mattress Firm store count includes franchised locations (2) 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

20 Border-to-Border, Coast-to-Coast Footprint 20 Note: Includes 125 Mattress Firm franchise locations, as of November 3, Sleepy s store count as of September 30, 2015

21 Significant Synergy Potential Estimated Potential Synergies from Sleepy s Acquisition Cost Revenue Distribution and Logistics Advertising Sourcing and Procurement Operating Expenses Professional Services Other Exclusive Products Strategic Partnerships Streamlined Financing Approach Accessories Multi-Channel / Omni-Channel Sales Other Approximately $40 million of Estimated Synergies by Year Three 21

22 Scale Drives Unique Opportunities 22

23 Meaningful Private Label Growth Opportunity Long-term private label potential ~25% 30% of retail sales Leverages buying power Global sourcing opportunities Enables margin expansion Pillows/ Accessories 79% Mattresses 15% Headboard/ Footboard 23 Estimated FY15 Private Label Volume +$330 million (~13% of sales) (1) (1) Based on midpoint of 2015 MFRM sales guidance referenced in December 7, 2015 press release

24 Emerging Omni-Channel Platform MFRM uniquely positioned to capitalize on consumer demand for integrated retail experience Connecting online and offline touchpoints allows for evolution of true customer lifetime value model Logistics Rapidly expanding national same-day delivery footprint Digital (1) 2015 YTD Web Traffic Growth: +73% Pop Up Retail Channel exposes +30mm consumers to MFRM brands annually Brick & Mortar Convenient locations to try before buy & pickup in store 24 (1) 2015 YTD revenue and web traffic growth through first eight months of fiscal year (2) Includes franchised locations

25 Financials

26 Sales Momentum Driving Increasing EBITDA Strong historical sales growth through new store openings, same store sales growth and acquisitions ($ in millions) Annual Net Sales Performance $1,806 $2,521 $494 $704 $1,007 $1,217 ($ in millions) LTM Q3'15 $57.1 Annual Adjusted EBITDA Performance (1) $247.2 $190.2 $140.0 $121.0 $ LTM Q3'15 26 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 in December 7, 2015 press release

27 History of Strong Free Cash Flow Generation & Deleveraging Repaid $72 million of borrowings year-to-date, and expect to generate approximately $77 million of FCF in fiscal year E capex includes approximately $25 million for conversions of acquired stores Annual tax deduction of over $11 million from completed acquisitions Cash flow typically declines in heavy acquisition periods and then bounces back the next year Expect to delever approximately 90 basis points from time of Sleep Train acquisition through the end of fiscal year 2015 (In millions) $80 Free Cash Flow (1)(2) $77 $60 $40 $20 $47 Significant Acquisitions $10 $48 Significant Acquisitions $25 $0 5.0x 4.0x 3.0x 2.0x 1.0x E 2.1x 2.0x Net Debt / Adjusted EBITDA (3) 1.4x 4.0x Pro forma leverage of ~3.5x at time of acquisitions 2.6x x E (1) Free cash flow (FCF) defined as cash flow from operations less capex (2) Minimal taxes paid in 2011 due to NOLs (3) 2015E FCF, year end net debt, FCF and Adj. EBITDA (midpoint) based on guidance provided on December 7, 2015

28 Guidance 53 Weeks Ended Feb. 3, Weeks Ended Feb. 2, 2016 % Growth (2) New Store Growth (Net of closures) Acquired Store Growth Net Sales (in millions) $1,806 $2,530 - $2,550 41% Comparable-Store Sales Growth 6.1% Low Single Digit -- Adjusted EBITDA (in millions) (1) $190 $255 - $260 35% GAAP EPS $1.27 $ $ % Adjustments (per share) $0.76 $ $ Adjusted EPS $2.03 $ $ % Adjusted Cash EPS $2.99 $ $ % Diluted Share Count (in millions) Adjusted Tax Rate 39.5% 37.7% -- 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% 28 Note: Reflects financial guidance provided on December 7, Although business conditions are subject to change, in accordance with the Company s policy, this earnings guidance was effective at the date given and is not being updated or reaffirmed until the Company publicly announces updates or reaffirms guidance (1) Reflects Adjusted EBITDA; excludes expenses referenced in December 7, 2015 press release (2) Percentage growth calculations in the table represent the midpoints of the guidance range provided

29 Experienced and Invested Management Team Steve Stagner Chief Executive Officer Years at Mattress Firm/Sleep Train Years of Relevant Experience Franchise Owner Experience Ken Murphy President Rob Killgore Chief Operating Officer Alex Weiss Chief Financial Officer Karrie Forbes Chief Business Officer Craig McAndrews Chief Merchandising Officer Jody Putnam SVP of Human Capital Bruce Levy SVP of Real Estate Development Kindel Elam General Counsel Sam Woods SVP of Sales & Operations Matt Forbes SVP, Logistics & Distribution Franchise Owner Franchise Owner 29

30 Key Investment Highlights Compelling Industry Dynamics Best-in-Class Specialty Retailer Proven Track Record of Driving Profitability Highly Achievable Growth Plan Experienced and Invested Management Team 30

31 Appendix 31

32 Mattress Firm EBITDA Reconciliation ($ in millions) LTM Q3 FYE January of the following year Net Income (loss) $34.4 $39.9 $52.9 $44.3 $57.9 Income tax (benefit) expense (8.8) Interest expense, net Depreciation and amortization Intangible assets and other amortization EBITDA $74.0 $100.8 $128.9 $140.9 $199.8 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 Secondary offering costs Vendor new store funds (1) (1.2) 1.1 Acquisition related expenses (2) Other (3) 1.8 (0.8) Adjusted EBITDA $87.5 $121.0 $140.0 $190.2 $247.2 Source: Page 33 of K, page 34 of K, and page 30 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 page 33 of K, page 34 of K, and page 30 of Q Q for more detail