Management Presentation A Confidential Presentation March 2018 - PowerPoint PPT Presentation

Management Presentation A Confidential Presentation March 2018

Disclaimers Forward-looking Information This presentation, including, in particular, under the headings entitled “Stable, long - term growth”, “Key drivers of SSS growth”, “Roadmap to growth – Increase accessories sales”, “Roadmap to growth – Add stores in existing, satellite and new markets”, “Attractive financial model results in strong cash flow conversion”, “Nat i onal scale has economic benefits”, “Regional store density adds profitability and barrier to entry”, Select Financial Highlights and Growth Targets” and “Investment Highlights”, contains forward-looking information and forward-looking statements which reflect the current view of management with respect to the Company’s objectives, plans, goals, strategies, outlook, results of operations, financial and operating performance, prospects and opportunities. Wherever used, the words “may”, “will”, “anticipate”, “intend”, “estimate”, “expect”, “plan”, “believe” and similar expressions identify forward -looking information and forward-looking statements. Forward-looking information and forward-looking statements should not be reads as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved. All of the information in this presentation containing forward-looking information or forward-looking statements is qualified by these cautionary statements. Forward-looking information and forward-looking statements are based on information available to management at the time they are made, underlying estimates, opinions and assumptions made by management and management’s current good faith belief with respect to future strategies, prospects, events, performance and r esults, and are subject to inherent risks and uncertainties surrounding future expectations generally. Such risks and uncertainties include, but are not limited to, those described in the Company’s 20 16 annual information form (the “ AIF ”) filed on February 28, 2017. A copy of the AIF can be accessed under the Company’s profile on the System for Electronic Document Analysis and Retrieval (SEDAR) a t www.sedar.com. Additional risks and uncertainties not presently known to the Company or that the Company currently believes to be less significant may also adversely affect the Company. The Company cautions that the list of risk factors and uncertainties described in the AIF is not exhaustive and that should certain risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual strategies, prospects, events, performance and results may vary significantly from those expected. There can be no assurance that the actual strategies, prospects, results, performance, events or activities anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating the forward-looking information and forward-looking statements and are cautioned not to place undue reliance on such information and statements. The Company does not undertake to update any such forward-looking information or forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable laws. Non-IFRS Measures and Retail Industry Metrics The Company prepares its financial statements in accordance with IFRS. In order to provide additional insight into the business, to provide investors with supplemental measures of its operating performance and to highlight trends in its business that may not otherwise be apparent when relying solely on IFRS financial measures, the Company has also provided in this MD&A certain non-IFRS measures, including “Same Store Sales” or “SSS”, “EBITDA”, “Operating EBITDA”, “Operating EBITDA Margin”, “Adjusted Net Income” and “Adjusted EPS” each as defined below. These measures are provided as additional information to complement IFRS measures by providing further understanding of the Company’s result s o f operations from management’s perspective. Management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation. The Company also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Readers are cautioned that these non-IFRS measures are not recognized under IFRS and do not have a standardized meaning prescribed by IFRS. They are therefore unlikely to be comparable to similarly titled measures presented by other publicly traded companies. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS. See below for further details concerning how the Company calculates these non-IFRS measures and for reconciliations to the most comparable IFRS measures. 2

Sleep Country David Friesema Robert Masson Stewart Schaefer Chief Financial Officer Chief Business Chief Executive Officer & Corporate Secretary Development Officer 3

Investment Highlights Compelling Industry Fundamentals The Leading Specialty Mattress Retailer in Canada Best-in-Class Retailer Driven by Superior Strategy and Execution Clear Growth Strategy Attractive Financial Model with Strong Cash Flow Conversion Experienced and Committed Management Team 4

Industry Fundamentals Stable Growth – Canadian Market Canada Mattress and Foundation Wholesale Sales (1) Wholesale Average Unit Price 350 279.7 300 Avg Wholesale Selling Price ($CAD) 258.8 247.1 229.2 229.9 221 250 217.7 217.1 216 214.6 212.6 213.1 212.7 206.8 200 150 100 50 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 INCREASE 6.1% 4.1% 4.8% 0.0% -12.9% 4.4% 4.2% 2.2% 2.2% 0.3% -2.5% 2.0% -5.5% INCREASE 2.8% 2.4% -0.8% -1.3% 1.9% -1.2% -0.9% 3.9% 3.7% 0.3% 7.5% 4.7% 8.1% Wholesale Gross Dollar Value 761.0 744.9 800 697.5 665.2 661.5 700 629.8 621.7 623.8 605.6 587.7 568.1 569.1 551.5 600 525.9 $ CAD (Millions) 500 400 300 200 100 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 INCREASE 8.0% 6.6% 4.0% -1.3% -11.3% 3.2% 3.3% 6.1% 6.0% 0.6% 4.9% 6.8% 2.2%  Unit demand in Canada has grown at only 0.6% CAGR over the past 13 years. AUSP has driven most of the growth.  Unit demand in Canada has grown at only 0.9% CAGR since 2009.  Necessity purchase not a fashion item; Recurring demand driven by 10-12 year replacement cycle, so even during an economic downturn sales are typically deferred and not lost  Consumer preferences evolving toward premium quality, larger mattresses given growing health awareness and preference for high-quality sleep  Price increases due to inflation are typically passed through to consumers (1) Source: Based on survey of the 10 largest mattress manufacturers in Canada. 5

The Leading Specialty Mattress Retailer in Canada 247 stores and 16 distribution centres across 9 provinces (1)  LTM (C$ millions)  Sales $588 Has opened 109 stores since the beginning of 2007  Only specialty mattress retailer with a national and regionally diverse footprint Operating EBITDA $99.8  Estimated national market share of approx. 25% Sleep Country's National Footprint (# of stores) NL BC AB 41 SK 30 MB QC ON PE 6 7 NB 100 53 10 NS (1) Store count as of December 31, 2017. 6

Best-in-Class Retailer Driven by Superior Strategy and Execution 1 2 Unrivalled In-Store Customer Strong Brand Recognition Experience “Best -in- Class” Retailer 4 3 Highly Trained and Dedicated Superior Home Delivery Workforce with a Strong Experience and Ongoing Culture of Customer Service Customer Relationships 7

Differentiated strategy has delivered strong results and momentum Sleep Country Quarterly Sales Growth (1) 20.0% Same Store Sales Growth Total Sales Growth 18.3% 17.7% 18.0% 17.3% 17.1% 15.8% 16.0% 14.7% 13.7% 14.0% 13.4% 13.4% 13.1% 13.1% 12.9% 12.6% 12.5% 12.2% 11.9% 11.7% 12.0% 11.1% 10.7% 10.6% 10.5% 10.2% 10.1% 10.0% 9.6% 9.3% 9.1% 7.7% 7.7% 7.5% 8.0% 7.3% 5.5% 6.0% 4.0% 2.0% 1.3% 0.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2015 2016 2017 Source: Company report. See ‘‘Non - IFRS Measures and Retail Industry Metrics”. (1) 8

Roadmap to Growth - SSS Growth  Increased marketing investment  Increase Traffic Expand messaging  Increase market share  Continued focus on hiring the best people Increase Conversion of Shoppers to Buyers  Additional training initiatives  Continued shift to higher quality mattresses Higher AUSP  Larger sizes are increasing in popularity  Expand and improve product lines  Additional marketing messaging Expand Accessory  Enhanced training Sales  Launch of eCommerce channel in May 2017  More details on page 11  Contemporary design creates bright and welcoming atmosphere Enhanced Store  Greater emphasis on accessory displays Design  More details on page 14 9