NASDAQ: MFRM Investor Presentation June 2016 Forward Looking - - PowerPoint PPT Presentation

Investor Presentation June 2016

NASDAQ: MFRM

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

• f performance or results. They involve risks, such as those stated in "Item 1A. Risk Factors" of our Annual Report on Form

10-K for the fiscal year ended February 2, 2016, filed with the Securities and Exchange Commission on April 4, 2016, 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

• f, 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 in our press release issued on June 9, 2016 and the tables at the end of this presentation for a reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures.

2

The #1 Mattress Specialty Retailer

3

#1

Mattress specialty retailer in the U.S.

Largest Footprint Best-in-Class Leading Market Share

• Customer experience
• Marketing reach
• Product offerings
• Distribution capabilities
• Real estate
• Omni-channel opportunities

3,594 locations(1)

Significant Scale Pro Forma for February 2016 Sleepy’s Acquisition

(1)

Includes 124 franchise locations; as of May 3, 2016.

$3.8+ bn 3,500+ 48

Fiscal 2016 projected sales of approximately $3.825-$3.875 billion Over 3,500 locations… …in 48 states with 75 distribution centers

MFRM: Key Investment Highlights

4

Compelling Industry Dynamics Best-in-Class Specialty Retailer Proven Track Record of Driving Growth Building a Truly National Chain Strong Free Cash Flow Supports Growth Experienced & Aligned Management

• Industry has shown long-term stability and consistent growth
• Specialty retailers continue to take share
• Highly fragmented industry
• Unique selling proposition, training and culture drive store productivity
• Less than one year cash on cash payback with new Mattress Firm stores
• Distribution network is a competitive advantage in an evolving omni-

channel world

• History of developing markets through organic growth and acquisitions
• Proven ability to capture synergies through acquisitions
• Converting all acquired banners to Mattress Firm over the next ~12-18 months
• Expect to realize cost savings and efficiencies in advertising, operations and

merchandising over time

• Management team is invested and aligned with shareholders
• Top executives have 10+ years of relevant experience
• Strong free cash flow driven by low maintenance capex and working capital

needs

• Supports growth capex and deleveraging
• Proven ability to integrate acquisitions and reduce leverage

1 2 3 4 5 6

Compelling Industry Dynamics

1

6

Compelling Industry Trends

YOY Growth

U.S. Wholesale Bedding Sales Significantly Rebound After Prior Recessions(1)

($ in billions)

Recession Recovery

9% 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% 8% 9%

2% 8% 7% 4% 7% 1% 5% 6% 5% 0% 4% 5% 4% 6% 2%

• 2% 1% 2%

3% 6%

• 1% -2% -11% -9% 6% 0% 4%

1% 4% 5% 2% 4% 2% 2% 2% 5% 5% 2% 3% 7% 3% 3% 2% 3% 5% 9% 6% 6% 4% 2% -1% -2% 8% 5% 1% 4% 2% 2% 3% Dollar Value Units

• Avg. Unit Price (AUP)
• Quick bounce back following recessions, as bedding sales are most correlated

with Consumer Sentiment and Gross Domestic Product growth

• Replacement nature of bedding has also shielded specialty retailers from

volatility experienced in the housing market

• Historical 5% long-term growth rate, with projected industry total sales growth
• f 3.5% 2016 and 6.5% 2017(1) (2)

Source: ISPA – Mattress Industry U.S. Market Forecast issued May 2016; mattress and foundation sales.

Source: ISPA – 2009 and 2015 Mattress Industry Report of Sales & Trends. Long-term growth rate from 1980-2015.

0.327 0.377 0.386 0.280 0.313 0.250 0.270 0.290 0.310 0.330 0.350 0.370 0.390 0.410 1995 2000 2005 2010 2015

(Units)

$93.7 $215.6 $75 $95 $115 $135 $155 $175 $195 $215 1994 1998 2002 2006 2010 2014

(Dollars)

Wholesale Mattress Shipments per Household(2) Wholesale Mattress and Foundation AUP(2) (3)

Source: Better Sleep Council Study – January 2007.

Source: ISPA – 2015 Mattress Industry Report of Sales & Trends.

Source: ISPA – Mattress Industry U.S. Market Forecast issued May 2016.

• A product everyone needs
• Sales primarily replacement in nature with an approximately 10 year average

purchase cycle(1)

• Units per household are increasing but remain below peak; average unit

prices have shown steady increases

Continued Price Growth with Unit Growth Potential

2017F

7

Specialty Retailers Taking Market Share

8

• Consumers demand expertise and prefer destination shopping
• Mass merchants not meaningful industry participants

Furniture Retailers 34%

47%

Department Stores 5% Other 14% Furniture Retailers 56%

19%

Department Stores 11% Other 14%

1993 2014

Mattress Specialty Retailers Mattress Specialty Retailers

Mattress specialty retailers have continued to take share from furniture retailers and department stores

(1)

Source: Furniture Today, September 21, 2015.

9

2015 2015 Pro Forma Top Mattress Specialty Retailers(1)

• Sleepy’s acquisition further strengthens position as the #1 Mattress

Specialty Retailer

• Over 25% pro forma market share in fragmented category

Leading Position in Very Fragmented Category

($ in millions) ($ in millions)

Source: Furniture Today Top 100, May 2016. Mattress Firm store count includes franchised locations.

Reflects net sales of the respective retailers divided by the estimated size of the U.S. mattress retail market in 2014; Furniture Today 2015 Bedding Yearbook.

Pro forma for the February 5, 2016 Sleepy’s acquisition.

Rank Company 2015 Stores 2015 Sales YoY Growth Market Share (2) 1 Mattress Firm 2,481 $2,680 38.6% 17.8% 2 Sleep Number 488 1,184 5.8% 7.8% 3 Sleepy's 1,065 1,130 7.4% 7.5% 4 Mattress1One 248 178 41.3% 1.2% 5 America's Mattress 309 174 14.6% 1.1% 6 Sit'n Sleep 33 124 9.0% 0.8% 7 Mattress Warehouse 192 120 7.1% 0.8% 8 Innovative Mattress Solutions 156 109 3.8% 0.7% 9 American Mattress 105 71 4.4% 0.5% Top 9 5,077 $5,770 20.7% 38.2%

Rank Company 2015 Stores 2015 Sales(3) YoY Growth Market Share (2) 1 Mattress Firm 3,546 $3,808 27.5% 25.2% 2 Sleep Number 488 1,184 5.8% 7.8% 3 Mattress1One 248 178 41.3% 1.2% 4 America's Mattress 309 174 14.6% 1.1% 5 Sit'n Sleep 33 124 9.0% 0.8% 6 Mattress Warehouse 192 120 7.1% 0.8% 7 Innovative Mattress Solutions 156 109 3.8% 0.7% 8 American Mattress 105 71 4.4% 0.5% Top 8 5,077 $5,768 20.6% 38.2%

Best-in-Class Specialty Retailer

10

2

• Focus on a consumer’s buying process, not a sales process, using our trademarked

Comfort by ColorTM process

• Empowers customers to control process, creating a better experience
• Increases conversion and average sales ticket

Buying Process Creates a Differentiated Customer Experience

FIRM PLUSH PILLOWTOP CONTOURED PERSONALIZED

Leading Talent Development and Retention Capabilities

12

• Investments in training, culture and career development drive associate success and

decrease turnover

Focus on Training and Career Development… …and Culture… …Reduces Employee Turnover

First Year Training

260+

hours Ongoing Training

85+

hours

Overall Rating

Note: Turnover is an annualized metric for Mattress Firm. Source: Glassdoor.com as of June 8, 2016.

<40%

Total Employee Turnover

4.1 3.6 3.2 3.8 3.9

Strong New Store Economics

13

Note: Analysis applies only to Mattress Firm branded, company-operated stores based on historical averages. (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.

Store 4-wall profitability drives improving leverage over market-level costs as store penetration increases

Stores Typically Generate Cash on Cash Payback <1 Year

Representative New Store Investment

($ in thousands) Average Investment Buildout and Equipping Cost $202 Floor Sample Inventory 25 227 Less: Tenant Reimbursement (41) Cash Requirement, Net $186

New Store Results(1)

($ in thousands)

Year 1 Year 2 Sales $900 - 950 $950 - 1,000

% Growth 0% - 10%

Store 4-Wall Profitability(2) $217 $229

% of Sales 22-25% % 22-25%

Annual Cash on Cash Return(3) 117% 123%

Distribution Network is a Competitive Advantage

14

Distribution Centers

75+

Same Day Capacity

80% 35%

Best-in-Class Distribution Capabilities Same Day or Next Day Delivery Capability Nearly Anywhere in the Continental U.S. and Hawaii

Delivery Window

~3 hours

Transactions Delivered

Note: Includes Mattress Firm , Sleepy’s, Sleep Train and third party distribution centers.

Proven Track Record of Driving Growth

15

3

Deep Experience Integrating Acquisitions

16

Note: Back to Bed includes Bedding Experts and Mattress Barn. Sleep Train includes Sleep Train, Sleep Country, America’s Mattress

• f Hawaii and Got Sleep? Excludes acquisitions prior to 2007 and acquisitions of fewer than 10 stores. Dates based on fiscal year

acquired.

Austin, Dallas, Houston, San Antonio, Las Vegas

36 stores 2007 14 stores

Las Vegas

2007 10 stores

• St. Louis

2007

Yotes Franchise

40 stores

Atlanta, Miami, SW Florida, Tampa

2012 27 stores

Charleston, Charlotte, Columbia, Greensboro, Greenville, Raleigh

2012 236 stores

• St. Louis | Houston, Dallas,

2011, 2012 39 stores

Green Bay, Madison, Milwaukee, Wausau

2013

Perfect Mattress Franchise

Online Retailer 2013

Nationwide

55 stores

Dallas, Austin

2014 67 stores

Colorado Springs, Denver, Phoenix, Tucson

2014 15 stores

Pittsburgh

2014 131 stores

Chicago Orlando

2014 314 stores

California, Hawaii, Idaho, Nevada and Washington

2014 25 stores

Virginia Beach

2010 45 stores

Phoenix, Tucson

2014 1,065 stores

Northeast, New England, Mid-Atlantic, Midwest

2016 34 stores

Colorado Springs, Denver, Wichita

2014

Yotes Franchise

Houston 13 stores 2007

Note: Market Level EBITDA is based on an estimate prepared by the Company. See appendix for details of actual EBITDA for the latest twelve months.

• Strong sales growth and market-level

EBITDA margin expansion since acquisition

• Sleep Train market-level margins have

improved to approximately the company- wide average

• Synergies achieved to date are ahead of

targets through:

• Purchasing
• Contracts
• Advertising (Mattress Discounters

conversions)

• Overhead savings
• Based on synergies realized to date ($15

million in year one) we increased our year three Sleep Train synergy target from $20 million to $25 million 17

Sleep Train Sleep Train Synergies – Year 1 Sleep Train Synergies – Year 3 Target

$20 $25 $0 $10 $20 $30 Initial Year 3 Target Current Year 3 Target

($ in millions)

$10 $15 $0 $10 $20 Year 1 Target Year 1 Actual

($ in millions)

Sleep Train Integration Progressing Ahead of Plan

$87.5 $121.0 $140.0 $190.2 $254.6 $249.8

2011 2012 2013 2014 2015 LTM Q1'16

Strong Historical Growth Rate

18

Note: Fiscal year ended January of the following year. Note: Not pro forma for Sleepy’s acquisition. (1) Reflects Adjusted EBITDA; excludes expenses referenced in June 9, 2016 press release.

Strong historical sales growth through new store openings, same store sales growth and acquisitions (prior to Sleepy’s acquisition) Annual Adjusted EBITDA Performance(1)

($ in millions)

Annual Net Sales Performance

($ in millions)

Building a Truly National Chain

19

4

Border-to-Border, Coast-to-Coast Footprint

20

Note: Includes 124 franchise locations, as of May 3, 2016.

Consolidating Under One Single National Brand

21

• Consolidating under one single national banner (Mattress Firm) is expected to

provide significant benefits in operations, advertising, merchandising and sourcing

FY18 FY17 Q4’16 Q3’16 Q2’16 Q1’16 Select National Banner Convert Overlapping Markets Store Optimization System Conversions Align Processes in Stores National Advertising Campaigns

1

Consolidate Banners

COMPLETE IN PROCESS IN PROCESS

Brand Selection Process and Outcome

22

Economics Customers Employees

• Name appeal
• Digital / social

presence

• Appeal to key

demographics

• Customer reaction
• Local brand equity
• Name preference
• Name appeal
• Estimated impact
• n customers
• Turnover
• Productivity
• Cost to re-banner
• Disruption costs
• Conversion benefits
• Engaged third party to research brand selection through multiple lenses
• All lenses clearly pointed to Mattress Firm for the national brand name

Benefits of a National Chain

23

Financials Benefits

National advertising Overhead efficiencies Private label and exclusive products Store base optimization Sourcing / purchasing

Customer Benefits

Customer experience and recognition Product selection Omni-channel National distribution

Cultural Benefits

Operational simplicity and focus Increased speed to market Unified culture Eliminates distraction of multiple banners Operating under one national banner will provide an unmatched experience to our guests and enhance our leading market position

Meaningful Private Label Growth Opportunity

24

Pillows & Other Accessories Mattresses

Long-term private label potential ~25% to 30% of retail sales

15%

Estimated FY16 Private Label Volume

~$500 million

Headboards & Footboards

• Leverages buying power
• Global sourcing opportunities
• Enables margin expansion

Distribution Network is an Omni-channel Advantage

25

Endless Aisles & “Wish List” Future Initiatives Store Reviews

• Opportunity to increase store sales with

accessories

• Drive expanded opportunities for customer

engagement

• Rolled out to all Mattress Firm stores with first

product category

• Focused on increasing the number of store

reviews

• Increases natural search relevancy
• Stores with more reviews see higher same store

sales

• Buy-online, pick-up in-store (BOPIS)
• Expand endless aisle assortment and training to

all banners

• Roll out Dream Bed to additional markets

95% 4+ stars

(1) Source: Mattress Firm BazaarVoice rating data; based on over 50,000 reviews as of 5/31/16.

(1)

• Nationwide distribution network of over 3,500 stores and 75 distribution centers

creates a unique competitive advantage

• Rolling out new capabilities and using reviews to drive traffic and natural searches

Significant Future Growth Potential

26 Omni- channel Increase Store Volumes and Margins Reposition Lower Volume Stores Expand Store Base

 Drive store volumes and margins through: accessories, foundations, private label / exclusives  Supported by national advertising and branding  Real estate optimization review in process  Relocations upon lease maturity  Expand store base into new markets and grow in underpenetrated markets  4,500 store U.S. potential  Distribution network is a unique competitive advantage  Leverage multiple unique eCommerce properties  Integrate with store network and sales associates

• Multiple drivers of continued growth through unlocking the potential of a

national chain

Strong Free Cash Flow Supports Growth

5

Free Cash Flow Supports Growth and Deleveraging

28

• Low maintenance capex requirements:

‒

FY2015 maintenance capex: $25 million

‒

FY2016E maintenance capex: $35 million

• Negative working capital model:

‒

Typical cash conversion cycle provides a negative working capital business model

• Cash tax deductions:

‒

Anticipate future annual cash tax deduction of over $25 million from completed acquisitions for over 10 years

• Expect to de-lever through:

‒

Free cash flow generation and Adjusted EBITDA growth

‒

Sale-leaseback of owned Sleepy’s properties

Free Cash Flow Drivers Strong Recurring Free Cash Flow

$66 $55 $25 $0 $50 $100 $150 $200 FY2015

$146

($ in millions)

Note: Free cash flow (FCF) defined as cash flow from operations less capex.

One-time Acquisition Capex Growth Capex Free Cash Flow

Experienced and Aligned Management Team

6

Experienced and Aligned Management Team

30

Adam Blank President, Sleepy’s Steve Stagner Executive Chairman & Chairman of the Board Ken Murphy President & Chief Executive Officer Karrie Forbes Chief Business Officer Alex Weiss Chief Financial Officer

MFRM: Key Investment Highlights

Proven Track Record of Driving Growth Compelling Industry Dynamics Best-in-Class Specialty Retailer Building a Truly National Chain Strong Free Cash Flow Supports Growth

31

Appendix

32

Mattress Firm EBITDA Reconciliation

Source: Page 33 of 2013 10-K, page 34 of 2014 10-K, and press release dated June 9, 2016 (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

• ther 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

• ur 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 2013 10-K, page 34 of 2014 10-K, and press release dated June 9, 2016 for more detail

($ in millions)

LTM FYE January of the following year 2011 2012 2013 2014 2015 5/3/16 Net Income (loss) $34.4 $39.9 $52.9 $44.3 $64.5 ($55.4) Income tax (benefit) expense (8.8) 26.7 33.2 29.2 39.1 (34.2) Interest expense, net 29.3 9.2 10.9 20.1 40.1 53.7 Depreciation and amortization 17.5 23.5 29.5 41.7 62.2 69.0 Intangible assets and other amortization 1.7 1.5 2.5 5.6 5.0 8.9 EBITDA $74.0 $100.8 $128.9 $140.9 $211.0 $41.9 Goodwill impairment charge 0.0 0.0 0.0 0.0 0.0 0.0 Intangible asset impairment charge 0.0 2.1 0.0 0.0 0.0 138.7 Loss on store closings and impairment of assets 0.8 1.1 1.5 1.8 7.5 17.9 Loss (gain) from debt extinguishment 5.7 0.0 0.0 2.3 0.0 (0.5) Financial sponsor fees and expenses 0.6 0.1 0.0 0.0 0.0 0.0 Stock-based compensation 0.5 2.9 4.8 8.1 8.8 8.5 Secondary offering costs 0.0 1.9 0.0 0.6 0.5 0.2 Vendor new store funds (1) 3.2 1.0 0.8 (1.2) 1.9 2.1 Acquisition related expenses (2) 0.9 12.0 1.7 30.1 22.8 37.2 Other (3) 1.8 (0.8) 2.1 7.6 2.2 3.8 Adjusted EBITDA $87.5 $121.0 $140.0 $190.2 $254.6 $249.8