Sleep Number Corp (SNBR) 2006 Q2 法說會逐字稿

I’d like to welcome to Select Comfort’s Second Quarter 2006 Earnings Conference Call. [Operator Instructions]

I’d like to turn the call over to Mr. Mark Kimball. Thank you, sir.

Thank you. Good afternoon and welcome to the Select Comfort Corporation Second Quarter 2006 Earnings Conference Call. Thank you all for joining us. I’m Mark Kimball, Senior Vice President and General Counsel and with me on the call are Bill McLaughlin, our Chairman and CEO and Jim Raabe, our Senior Vice President and CFO.

In a moment, I’ll turn the call over to Bill, and following remarks from both Bill and Jim we will open the call to your questions.

Please be advised that this telephone conference is being recorded and will be available by telephone replay and will also be archived on our Website. Please refer to the details set forth in our press release to access the replay on our Website.

The primary purpose of this call is to discuss the results of the fiscal period just ended. However, our commentary includes and our responses to your questions may include certain forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties outlined in our earnings release and discussed in some detail in our annual report on Form 10-K and other periodic filings with the SEC. The Company’s actual future results may vary materially.

I will now turn the call over to Bill for his comments.

Thanks, Mark. On behalf of the entire Select Comfort team, I’m pleased to report a record second quarter performance characterized by excellent financials, growth significantly higher than the industry and our long term goals, and strong fundamental execution.

In the second quarter earnings per share growth was 46% including stock option expensing and 58% on a comparable accounting basis. Net income increased 37%. And sales increased by 22% including 10% growth in mattress units. Select Comfort has now achieved profitable growth for 20 consecutive quarters. Over those five years, our sales have grown at a compound annual rate of 27%. And earnings per share have grown at a compound annual rate of 53% per year. Over those five years, we have performed within a variety of industry and general economic environments and experiences numerous challenges. Just like any organization rarely hits on all eight cylinders at the same time, neither have we. Yet we consistently delivered strong results because of the depth and diversity of our business and our people.

We have expanded our business, strengthened our brand, developed multiple sources of growth, and improved the predictability of our performance. We have consistently emphasized our long term growth orientation and our commitment to invest to improve and develop our sustainable competitive advantages that will enable us to satisfy our customers and to stay well ahead of our competitors for years to come, much like Starbucks and Tiffany and Coach have done before us.

The second quarter exemplifies our bold commitment to invest in our future, while at the same time, balancing long term growth opportunities against short term execution requirements.

During the seasonably slow second quarter, a period that this year was also characterized a highly uncertain environment for consumer durables and retailing, we made several significant investments that challenged our people and presented incremental expenses to cover in the quarter. These events include our company-wide sales convention, the strategic planning process focused on the next five to ten years, refreshing the entire product line and filling two critical senior executive roles. The team responded magnificently with another great quarter of solid execution and productivity gains that more than offset the cost of these investments. This willingness to invest in the long term, in our business and in our people and our willingness to improve and to learn all focused on one important mission is what has and what will continue to make us successful. We have consistently demonstrated our ability to execute with tangible outcomes and the accumulative performance record is one that we are proud of.

As you know, a few years we set our annual long term sales growth goal to be between 15 and 20% and EPS growth goal was set to be between 20 and 25%. Our sales growth rate has now exceeded those aggressive targets each of the past six quarters and 17 of the past 18 quarters. Earnings growth has met or exceeded the high end of our range each of the past six quarters and 11 of the past 14 quarters. We expect this type of consistency of ourselves and strive to sustain this level of performance regardless of industry and economic conditions. Many people don’t understand how we’ve been able to achieve this level of performance. And despite our five year track record, they believe it must be coming to an end sometime soon. If those people slept on one of our Sleep Number Beds, they would have a much better idea of how we have been able so successfully to continue this trend. And they would be less likely to question our long term goals of becoming number one in consumer regard and emerging as a clear in the bedding industry.

For us at Select Comfort, it’s really quite simple. We have the best product in the industry and the product which does the best job of satisfying real customer needs at competitive value. The Sleep Number Bed is not a fad. It is not part of a niche. It is not something created by slick marketing. And it is not that can be easily knocked off. It is simply the best product, and in our minds, this is the way everyone will prefer to sleep in the future. In addition to the tremendous competitive advantage of having the best product, we have a vertically integrated cost structure, a brand increasing in recognition and regard, a highly educated and professional sales force, and a cash flow model second to none in the industry, and a management team capable and dedicated to winning and to be the industry leader.

We represent only 5 or 6% market share in the sleep industry in dollars and about half of that in units. With our compelling competitive advantages, we clearly have a realistic opportunity to continue to be a superior growth company and an important leader in the industry well into the future. In the short term, however, investor concerns appear to be focusing on what could go wrong rather than on our actual performance record and our competitive advantages and future opportunities. What we believe is underappreciated is that the awareness of the Sleep Number Bed and its benefits for owners continues to increase each and every quarter. And that we have the potential to increase this awareness for many years to come. The steady increase in awareness, an increase in the number of satisfied customers telling their friends and family members about the Sleep Number Bed is a powerful growth driver in all market conditions.

With this confidence in our long term outlook and the important milestone of a billion dollars in revenue and 12% operating margin targeted for 2007, we have a strong appreciation for the relative value of our stock. We’ll continue to take advantage of market opportunities to further enhance our long term shareholder’s investment returns through our $150 million three year stock repurchase authorization. Last year we demonstrated this confidence by repurchasing over 6% of our outstanding shares. We appreciate our board authorization to continue to be aggressive as opportunities present themselves.

Before I turn this call over to Jim to address the quarter and full year outlook in more detail, I would also address another question that seems to be top of mind recently, and that is of competition. With our share of the adjustable comfort mattress segment estimated to be 90% or more for over the past ten years now, we have encountered competitive threats many times in the past from named brands within the mattress industry and from startup companies. We are respectful and aware of competition, but we do not fear them. And what may surprise you is that we welcome the prospect of quality competitors who can help us create awareness and credibility for this new technology in sleep. The bottom line is that we are extremely confident in our competitive advantages and our ability to substantially outpace the industry in growth and innovation for years to come. Before looking ahead, let’s let Jim dive a bit deeper into the second quarter and provide an update on our outlook for the remainder of the year. Jim?

Thank you, Bill. As Bill indicated, we are extremely pleased with our strong second quarter results. Our ongoing efforts to diversify the sources of revenue growth are especially evident in the strength of our second quarter numbers. Net sales of $188.6 million an increase of 22%, same store sales growth or 16%, gross profit margin up 310 basis points to 61%, net income of 10.7 million an increase of 37%, and earnings per share of $0.19 per diluted share an increase of 46%.

On a year to date basis we have delivered net sales growth of 23%, net income growth of 36% and EPS growth of 43% after stock option expense. We continue to earn increased market share and remain on track to achieve the stated goal of $1 billion in revenue in 2007.

Our multiple channel approach to the consumer has contributed to the stability of our growth rate particularly important in times of consumer head length. The focus areas of revenue growth remain on track. Our company owned retail channel grew by 25%. Ecommerce revenues increased 41%. And retail partners sales increased by 53%. Direct marketing, QVC, and Radisson channel sales growth rates have slowed in line with expectations and continue to successfully support our awareness building activities through media and trial. Average selling prices in our company owned channels increased by 12% as compared to the prior year reflecting improved mix and pricing increases initiated during the second half last year. Unit growth in existing distribution slowed slightly in the second quarter due, in part, to consumer pressures and more significantly due to the accelerated expansion of new store and retail partner distribution over the last nine months.

Our experienced has shown that same store growth can be effected in the early stages of distribution expansion. Same store growth typically returns to normal or higher once the stores have adapted to the environment of new distribution and as retail partner advertising helps to increase total consumer awareness in a specific geographic market.

Overall sales growth of 22% along with operating margin improvement in the quarter demonstrates our ability to successfully manage this distribution expansion. We completed the quarter with 412 company owned stores and 492 retail partner doors. This represents and increase of 43 stores and 371 retail partner doors compared with the second quarter last year. Our average sales per retail store now exceeds $1.5 million per store with sales per square foot of $1,333.00, up 10% since last year.

Our rollout into Radisson Hotels and Resorts continues to successfully drive consumer interest and incremental sales with 48% deployment at the end of the quarter.

As noted, we continue to experience significant margin improvement. Second quarter operating margins of 8.7% or 80 basis points higher than the prior year is particularly impressive given the inclusion of stock option expense and our level of investment in the quarter.

Included in the second quarter operating expenses were a number of growth initiatives, including the company-wide sales conference in April, an event we held for the first time in five years, an investment in outside consulting services that is helping us to refine our strategic plan and prioritize our future growth opportunities, and support for our product line redesign and rollout.

Gross margin expansion was a core source of funding of our growth initiative. Gross margins improved 310 basis points to 61% in the second quarter with company owned gross margins improving 200 basis points from 60.3% to 62.3%. These improvements are due to price increases more than offsetting commodity increases, as well as, the excellent execution of our operations team which continues to drive productivity in advancements and also due to leverage in scales from volume growth we have built over the past five years with our infrastructure and suppliers.

Sales and marketing expenses as a percentage of sales increased to 41.7% from 41.4% in the second quarter last year. This increase reflects cost associated with our retail sales conference referred to earlier.

Media expenditures increased 18% to 22.8 million. This is an area where we believe we under invested in the quarter. We plan to increase our media investment on a year over year basis in the third quarter by approximately 25%. This awareness building activity is long term focus, and as we have stated in the past, will continue at an aggressive pace even in the face of broad economic concerns. We expect full year media expenditures to exceed $105 million in 2006.

General and administrative expenses totaled $20 million in the second quarter and increased as a percentage of sales to 10.6% from 8.6%. The increase reflects stock options expense of 1.7 million which equates to 9/10 of a point on an operating margin basis. In addition, we incurred consulting services referred to earlier and search fees and relocation cost as we continue to improve our team for the long term.

From a balance sheet perspective, our financial position remains strong with zero debt and a 38% return on equity over the past 12 months. Cash and marketable securities totaled 94.3 million at the end of the second quarter. From a working capital standpoint, our increases in current assets were related to wholesale expansion and seasonal factors. Accounts receivable increased $7 million due to timing of QVC shows and the increasing wholesale business. Inventories increased by $3 million since year end and in line with prior year Q2, as we prepare for the seasonally stronger third quarter. And prepaid expenses increased by $8 million primarily due to the methodology we’re estimating in paying income taxes. In addition, we took steps to improve our balance sheet flexibility this quarter through a $100 million syndicated line of credit facility. This credit agreement provides greater flexibility to pursue the company’s growth strategies. We have no plans at this time to draw on the line.

With respect to our share repurchase program, we have invested $9.3 million since the end of the first quarter to repurchase 431,000 shares for our company stock. Our repurchases over the quarter have been limited to provisions of our 10B51 program. We anticipating being much more active in the coming months and utilizing our $150 million three year repurchase authorization.

In closing, I wish to speak to our increased guidance outlook for 2006. We are confident in our ability to sustain revenue growth in line with, or above, our long term target of 15% to 20% because of our business model, competitive advantages, and low market share versus the potential.

We are also confident in our ability to expand operating margins on a year to year basis. Our increase in EPS guidance to between $0.93 cents and $0.97 cents reflects this outlook. We are also cognitive of the volatility of consumer sentiment and commodity prices. This volatility along with our focus on investing in our long term opportunities provides both risk and opportunity for these estimates.

We remain on track to achieving our 2007 target of $1 billion in sales and 12% operating margins pre-option expense. We look forward to the challenges ahead and to achieving the long term mission of being the leader in sleep.

With that, I’d like to turn the call back to Bill for a few closing remarks.

Thanks, Jim. The last perspective that I would like to offer up today is how I’ve personally evaluate our company’s performance on a quarter to quarter basis. You’ve seen our financial numbers, and they’re great. And that is certainly an important element of our short term scorecard.

For us to continue to excel in the future, however, we must be consistently making progress on a number of more subjective elements of our business as well. If we continually improve on these elements, then the probability that we will continually produce excellent growth and profitability will increase as well. For instance, in my opinion, Select Comfort is a better company today than we were six months ago in the following areas. Our product has improved as we refreshed all of our bed models with execution that insured a positive customer experience and no disruption of our sale process. Perhaps more important is the enhancements to our R&D infrastructure and process to drive long term product innovation and benefits.

Marketing and advertising advance is reflected by our new ad. Although it’s too early to evaluate these new ads quantitatively, results do indicate potential. We understand these ads capture consumer attention. And we believe we have insight into how to make them even more compelling for a more immediate consumer call to action.

Our website is markedly improved with design and content that creatively informs, educates and sells, and directs customers to our retail locations.

We continue to rollout market leading regional mattress retailers. And our launch into Canada is early stage, our first foreign penetration.

Logistics has improved which has the potential to me more convenient for our customers and with a potential to significantly reduce costs.

Perhaps the most significant accomplishments of the first half of the year were welcoming new leaders or R&D innovation and IT systems to our company. Doug [Sites] and Ernie Park are leading very aggressive agendas that we’ll report on as time progresses.

To summarize, sleep is a great consumer space. We all need more of it. Demographics are in our favor and demand remains relatively constant in all market conditions. We’ve now established a clear track record over the past five years and the past quarter was one of the most impressive, a clear indication of what we expect to come. And we will continue to invest aggressively in order to maximize our potential both to sustain business performance and to take full advantage of market opportunities that are beneficial to our long term shareholders.

I do encourage you to consider carefully all that this company has accomplished and the fact that we are favorably positioned to continue to deliver strong growth in the future. Thank you for listening. And, Mike, I’d like to now open the call to questions.

[Operator Instructions] Our first question comes from Jeff Stein. Go ahead.

Good afternoon, guys. Couple questions. First of all with regard to the comp store sales increase, when you provided mid quarter guidance you were kind of discussing the trend in terms of sales coming out at the higher end of the range. It looks like you did see a sharp acceleration in the back half of the quarter and I want to confirm. And secondly, can you talk a about the unit sales for comp stores? Should we just back out the 12% price increase and assume that units were up about 4% for comp stores?

Sure, Jeff, I think in response to the question on the quarter update I think in hind sight we were -- we were probably just simply too conservative in forecasting in light of the macro environment. I mean we, as we said, we’re seeing the trends that we’re seeing but we communicated certainly cautiously in that environment.

With respect to the comp growth, I think your characterization of that 4% comp is in line. And I think we feel pretty good about it given the economic environment, as well as, the distribution expansion that we’re initiating as well.

OK. And one follow-up question. I was under the impression that your non-company margins would typically be lower. And it looks like they actually helped raise the gross margin for the quarter. Wondering if you might delve into that a little bit?

Yeah. I think what you’re referring to is the 61% overall margin, but we had a 62.3% margin in our company owned stores. The gross margin expansion in company owned was a little bit smaller than the overall. And what you’re seeing is a mix of business. So as more business comes through company owned or through the non-company owned, that mix effects the gross margin growth rates in the respective pieces.

OK. So was there any specific factor or factors or items that accounted for the mix shift in the current quarter?

No, I don’t think so. I think the other factor is also Radisson that I’ll speak to with regard to the non-company owned channels. And it is a flatter growth rate where the retail partners are growing a little bit faster. And that Radisson gross margin is a much lower margin versus the retail partners. So that’s affecting that factor as well.

Got it. Thank you.

Our next question comes from Joel Havard. Thank you, go ahead.

Thanks. Good afternoon, everybody. First of all come back on -- back to the top line I guess. The shift in average pricing obviously was appealing. Was this a function more of the product revamps that you started going through toward yearend ’05 or were there some other elements in that?

The -- first of all, our average selling price is our total sales divided by our bed units. So as we do more accessory business or more home delivery or some of the other services, that will help raise our average selling price. The mix on our bed line after the product revamp and all has stayed about the same. And then so there has not been a significant shift in the mix of the product line impacting average selling price.

I see. And I probably would like some follow-up details on that, but my separate follow-up question would be the number of company stores now that are in an off-mall footprint? Then I’ll get back in cue.

I need to get back to you on the exact number, but it’s right in that pushing toward 30 stores now.

OK, Thank you. Good luck.

Our next question comes from Steve Denault.

Good afternoon, everybody, very impressive quarter. The new media campaign which you were testing in the second quarter obviously you don’t have anything quantitative to talk about. But it sounds like qualitatively it’s working well. Should we assume that you’ll roll forward then on a national basis?

Yeah, Steve, basically we will be rolling forward with it in the markets that it’s in which is about 19 of our most important markets right now anyway through the second half. And the marketing team is looking at making some tweaks to the campaign. And they’ll probably test that in a few separate markets on the side.

Any updates from an international perspective? Any new thoughts, Europe specifically?

No, we’re doing a lot work on the basics set information setup as we’ve shared, supply chain, business structure, and still just working our way through what our alternatives are for the go-to-market side of that strategy. But nothing immediate to factor in.

Is that the bulk of what the consultants are working on?

No, the consultants that we engaged in the second quarter were helping us work through our broader strategies for the next five years. We all know what we’re focused on through 2007 which is getting to that billion dollars and 12% ex-option expense. But just like five years ago, that seemed like a huge aggressive goal. We’re working our way through what the next goal, and more importantly, priorities should be for the following five years. And we had some very good insight challenged us. And we’ll be communicating more of that towards the end of the -- probably the end of this year as we get a further refined internal execution plan.

OK, Thank you.

Our next question comes from Bob Evans.

Bob Evans. Good afternoon, gentlemen, and congratulations on a strong quarter. Can you comment -- I think you gave a detail earlier that I may have missed as it relates to customer awareness. Did you give update numbers from what you’ve said in the past in terms of your current unaided customer awareness is?

No, I -- we’ll have to get back to confirm this. I think our next read on that is fourth quarter.

OK. Can you give us your last read on it?

14% unaided awareness on a national basis.

OK. Where do you think you can drive that?

Well, again I believe our data shows that ceiling is up around 50/60% type awareness. They built that over 100 years. But that’s a pretty good goal to shoot for.

OK. And can you also comment -- you’re going to have a higher media investment this year. Can you give us some sense of where we should think of sales and marketing as a percentage of sales given the higher media spend or the year or relative to last year?

Bob, I think our expectations remain where they have been which is in that 12 to 13% range.

OK. How about sale and marketing as a whole?

Sales and marketing a whole --

I would say, including the media spend, I’m just trying to get a sense of overall operating leverage on that line.

I need to get -- I would need to get back to you on that. But I think if you look at the balance of the year, the expectation on a sales and marketing sales point is you would see a similar trend to what we’ve seen in prior years. You know a flattening from Q2 to Q3 and then a little bit more leverage in Q4.

OK. Alright. Thank you.

Our next question comes from Steve Colberg.

Hey guys, thanks for taking the call. Obviously you saw some nice margin improvement in the quarter, but how do you see the inflationary environment going forward, particularly be it home deliveries or just commodity cost?

Basically, most of our major costs are locked in through the end of the year. Obviously the one wild card is what happens to oil and fuel prices and all the rest of that. But on the other side of it, our home delivery team and our whole logistics team is doing a great job on productivity and all. So we think we’ll have that fairly well reflected in our outlook.

OK. And then trends throughout the quarter? You mentioned they improved or, I guess, you’re being a bit conservative. Any comments you can make as to what you’re seeing out there right now?

You know we really can’t comment beyond what we’ve said about the quarter.

OK. Alright, that’s it for me. Thanks, guys. Congratulations.

Next question comes from Michael Cox.

Good afternoon, guys. Congratulations on the quarter.

Thanks, Michael.

First question on the wholesale partnerships. I was wondering if you’d give us some update or some performance metric around the wholesale partnership doors that opened just about a year ago, Mattress Firm, Sleep Ease, etcetera?

You know, Michael, they’re all still performing to plan, and more importantly, so is the concern around our company owned stores around them. Some are performing more strongly than others. Seems to be a direct relationship to how much support our retail partners are putting behind the program from a local advertising basis. But we’re please with the overall performance, obviously, with a 50% plus increase in that segment.

And importantly, it’s still fulfilling the important roll that we have for it strategically versifying our sources of growth and getting more and more people sleeping on the bed which just increases the amount of referrals to the overall market. So overall we’re pleased with the program. We’ve got some work to do with a couple of the different partners and then a lot of learning from the ones that are doing exceptionally well.

OK. In the past you’ve given us some metrics around some of your older wholesale partnerships and the store performance in those markets like in California and Phoenix. I was wondering if you have any update on that for some of your newer partnership arrangements. Or if at what point you might be providing that type of data?

Michael, I think we have in the past provided some information on a broad market basis. The more recent partners are a little bit more difficult to categorize. Mattress Firm, for instance, is across a broad variety of markets. And Sleep Ease is still really not fully deployed in New York. So I think it’s going to take a little bit more time to read and to come back to a more, kind of a more meaningful kind of communication on that.

OK. From my perspective, I think investors would appreciate that when you do have the data to get comfortable with those company owned channels.

But my next question is on the competitive environment as it relates to some of the new offering that are going to be out there. I was just wondering if you could kind of take us back and talk about a little bit about the training process of your associates in the call centers and the level or tenure and the experience in those call centers from an aftermarket service perspective. That would be very helpful, thanks.

Yeah, I think what you’re referring to, Michael, is our customer service department which is important for answering consumer questions given that this is a new technology and then there can be questions over time about either setup or how to get comfortable or even problem resolution.

We do have a fulltime call center that is company owned, operating seven days a week. And they have on an average, tenure I believe now it’s over four or five years. They’re all bed owners and have been working with us, on an average, four or five years. And we have a very extensive onboarding process for them that goes over three or four weeks of training and then a lot of work with our tenured veterans of the program. And our customer service scores from that group have continued to improve. They just get better and better over time.

OK, great. Thanks again.

Next call comes from Joan Storms.

Hi, good afternoon. Jim, could you walk us through when you talked about how your comps can shift or your unit volume can shift depending upon your expansion of your distribution and how that -- for just to give us an example or how that works.

Well, I think what we’ve said in the past is that over time we don’t see an effect on things same store growth over the -- in those first markets where we put in retail partners in San Francisco and Kansas City and in Arizona. Over that three year test we ran, the same store growth was very strong. What we do see though in some places is that we’ll see some initial impact when we first open that distribution.

I think what’s important to consider at this point is we’ve got somewhere in the range of three to four times as many stores that are in proximity to new distribution, either our own stores or retail partners. Three to four times more than what we had just 12 months ago. So there is a larger segment of our store base that is affected by it. So I think what we’re seeing a little bit is we’re certainly seeing overall very strong growth and with that strong margin expansion. But there’s been a little bit of a shift from a unit basis of how much is coming from new distribution versus how much is coming from our existing store base.

And how does that fall out on a unit basis? And what was the unit growth in the first quarter? It’s not in my notes.

The unit -- the total unit growth in the quarter in the second quarter was about 10%. The total in the first quarter, I believe, was about 11. So we’ve had little bit lower unit growth in our existing stores and more growth come from new distribution.

And then can could you quickly comment where you are with the Radisson and do you have any updated metrics on the occupancy rates?

Well the Radisson program continues to progress very well. We’re, I don’t know, I think it’s like 48% penetrated at this point. We continue to be strong partners, both parties committed to the program going forward. I can’t tell you what their occupancy rates have done, Joan, though I do know that their satisfaction with the program in terms of occupancy and price per room and customer satisfaction, all the measures they use is very good.

OK. Thank you very much.

Next question comes from Todd Schwartzman.

Good afternoon. The 65 partner doors added in the quarter was that a net number?

Yes.

And how many, roughly, were added and lost during the quarter.

I think partner doors, I don’t think there were any lost. They were all added.

Could you speak to the third quarter gross margin? Specifically whether you expect any seasonal and sequential improvement from 2Q?

What we would expect is to see, as we said last quarter, we would expect to see some sequential improvement in gross margin but not significant. But we do expect to see a little bit gross margin improvement next quarter.

OK. And lastly, has there been any change in your expectation of the media mix for the full year?

No, we continue -- I think the most important thing is we continue to put the pedal to the metal on our growth. Within that increasing amount of spending, our team is exploring a lot of different media types which take advantage of our multi-channel distribution system. But I don’t expect any major change between the balance between national, local, internet, and some of the other break ups.

Could you break out your forecast say by national cable, local broadcast TV, radio and such, Internet?

No. We’ve not shared that information. And I think the more important thing is that our total level of spending continues to stay strong. And it continues to deliver the results that you’ve seen.

Great, thanks.

Next question comes from Pauline Reader.

Hi, good afternoon. Questions just again on this comp transaction. Considering you’re going to the third and fourth quarter and then in ’07 you’re going to ramping up wholesale doors, what would your expectation be for unit growth in the comp relative to your guidance of 7 to 12%?

Well I think, Pauline, given the fact that we’re continuing to expand the retail partner doors to some degree but we are also lapping some first introductions of retail partner doors from last year in the third quarter. I guess I would say our expectation would be similar to what we saw in Q2. There’s certainly a lot of just uncertainty with regard to the consumer, but we are ramping up our advertising. And I think we feel good about our position overall from what we’re doing to drive units in what we’re seeing.

And what -- is it fair to say the second quarter was more impacted by this short term cannibalization in this first quarter based on the unit growth difference between the two?

More in the second quarter than in the first quarter, yeah, I think that that’s fair.

Great, Thank you very much.

Our next question comes from Chris Krueger.

Hi, good afternoon guys.

Good afternoon, Chris.

Your 16% same store sales, can you give an indication as to how your top three or four or five most mature markets performed versus, maybe, some newer markets that you maybe have been in recent years similar to that total number? Or is there anything you can comment on there?

Well we, Chris, we don’t typically provide market-specific information. But I think the other thing to remember is that it’s a -- our stores, our markets have been -- we have had stores in most markets for a long time. It’s, at this point, it’s a matter of more focusing on filling out the stores with our own stores and with retail partners so that we can leverage the advertising and continue to invest in that way.

OK. If you just look at the large markets, the New York, Chicago’s, those types, do you have an idea of what your market share may be at this point versus a couple years ago?

Boy, again, we don’t share that information. And in this industry, to be honest, there isn’t real specific data available on market shares. Everybody gets there by calculating population and beds sold and all the rest. But with that said, I would say that our market share in those large markets continues to be very small. You know on a national basis we have a 5 to 6% share of revenue. In those markets you’re probably down in the 2 to 3% at best. And that we see as just huge opportunity for us as we go forward.

Alright, very good. Thank you.

[Operator Instructions] Up next is Mark Rupe.

Hey guys, good quarter as well. Not that -- on the table down here on the retail partnership doors. But going forward would you assume that the majority of the doors that you’re going to add from the retail partnership are going to be in close proximity to current stores?

Yes, I think that’s a fair assumption, Mark. And in that, as Jim said, we’ve pretty much got stores in all markets and we’re continuing to fill those out. And the in the retail partners that we have chosen to work with and will continue to consider working with are usually the leaders in their market -- in their local market. And therefore, they have good real estate locations that tend to be in proximity to ours. And, as Jim said, that usually is a first year issue on same-store growth. And then once we lap that first year then we return pretty much to normal, at least, that’s pretty much what our past experience has proven.

OK. And then lastly on -- with the new competition coming in, do you feel comfortable with your coverage of the nation right now with your retail partnership doors and your current stores? Or is there any glaring holes in the distribution right now?

We feel very comfortable with our distribution where it is today. That said we’ve already identified that we believe we can support up to 650 company owned stores. So we’ve got a lot of growth in company owned stores. We talked about 1000 plus retail partners and we’re about half way there.

But we’ve got a lot of opportunity to grow. But that opportunity is more about just reaching our customers and giving them a great quality service. And it is not at all really impacted by competitive compartment. We see different competitors over time and believe that we’re well positioned with our competitive advantages to handle that.

Perfect. Thank you.

[Operator Instructions]

Is that it?

Showing no questions.

Great. Well, thank you for joining us to celebrate another strong quarter at Select Comfort. You know sleep is a great consumer space and we remain focused on our mission of improving people’s lives through better sleep. And with every passing quarter we are delivering results that realize our vision of becoming a world leader in the bedding industry. Sleep well and look forward to talking with you next quarter.

This concludes today’s conference call. Thank you for participating. You may disconnect at this time.