Management Presentation

A Confidential Presentation

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,
National 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
Companys 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 forwardlooking 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 managements current good faith belief with respect to future strategies, prospects, events, performance
and results, 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 Companys 2015 annual information form (the AIF) filed on February 24, 2016. A copy of the AIF can be accessed under the
Companys profile on the System for Electronic Document Analysis and Retrieval (SEDAR) at 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 International Financial Reporting Standards ("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 presentation certain non-IFRS measures, including "Same Store
Sales Growth" or "SSSG", "EBITDA", "Operating EBITDA", "Operating EBITDA Margin" and "Conversion", each as defined under the heading entitled
"Description of Non-IFRS Measures and Retail Industry Metrics" at the end of this presentation. These measures are provided as additional information to
complement IFRS measures by providing further understanding of the Company's results of 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. For further details concerning how the Company calculates
these non-IFRS measures and for reconciliations to the most comparable IFRS measures, please see the Company's most recent management's discussion and
analysis of financial condition and results of operation filed with Canadian securities regulatory authorities and available on SEDAR at www.sedar.com.

Sleep Country

David Friesema

Robert Masson

Chief Executive Officer

Chief Financial Officer

and Corporate
Secretary

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

Compelling Industry Fundamentals

Stable, long-term growth

U.S. Mattress and Foundation Wholesale Sales (US$ billions) (1)
Recession

$7.5
$6.5

$6.8 $7.0

$6.8 $6.9
$6.2

$5.8

$5.9

$6.3

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

$5.2

2003

2002

2001

$4.6 $4.6 $4.8

2000

1999

$4.0

1998

$3.6

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

1980

1979

1978

1977

1976

1975

1974

$1.2 $1.3 $1.4 $1.4

$0.8 $0.9 $0.9 $1.0 $1.1

$2.6 $2.8
$2.3 $2.4
$2.1 $2.3 $2.3
$1.9
$1.6 $1.7 $1.8

$3.3
$3.0 $3.2

$4.4

$5.7

Necessity purchase not a fashion item; even during an economic downturn sales are typically deferred and not
lost

Recurring demand driven by 10-12 year replacement cycle

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

Similar trends experienced in the Canadian market

(1)

Source: ISPA.

Shift in consumer shopping preferences

North American retail mattress industry has undergone a fundamental shift in consumer preference toward
specialty mattress retailers like Sleep Country

U.S. Specialty Mattress Retailers Taking Share (1)

2013

2000

Department
Stores
7%

Department
Stores
13%

Others
9%

Others
13%

Furniture
Retailers
26%

Furniture
Retailers
42%
Specialty
Mattress
Retailers
58%

Specialty
Mattress
Retailers
32%
2000

(1)

2014

Source: Furniture Today.

The Leading Specialty Mattress

Retailer in Canada

Largest mattress retailer in Canada

(1)

225 stores and 17 distribution centres across 8 provinces

Has opened 88 stores since the beginning of 2007

Only specialty mattress retailer with a national and regionally diverse footprint

LTM

(2)

(C$ millions)

Sales

$456.2

Operating EBITDA

$69.1

Sleep Country's National Footprint (# of stores)

NL
BC
AB
39
SK
27

MB
ON

6
7

88

QC
PE
50

NB

8
NS

(1)
(2)

Store count as of February 1, 2016.

LTM as of December 31, 2015.

10

Leading market share

Canadian Mattress Industry Share of Consumer Transactions (1)

Sleep Country
Canada
24%
Others 33%

Dormez-vous?
17%

Others 38%
BMTC 13%
Sears Canada
15%

Hudson's
Bay 4%

The Brick
12%

Leon's
4%

Sears Canada
11%
Hudson's
Bay 2%
Leon's
2%

IKEA 8%

IKEA
7%
Matelas
Bonheur
5%

The Brick
5%

Leading specialty mattress retailer with an estimated national market share of 23%
(1)

Source: Market Survey, September 2014. Purchase data based on six months ended September 2014.
Note: Leons Furniture Ltd. owns both Leons and The Brick banners.

11

Best-in-Class Retailer Driven by

Superior Strategy and Execution

Highly focused strategy with exceptional execution

Unrivalled In-Store Customer

Experience

Strong Brand Recognition

Best-in-Class Retailer

Highly Trained and Dedicated

Workforce with a Strong
Culture of Customer Service

Superior Home Delivery

Experience and Ongoing
Customer Relationships

13

Leading brand recognition and traffic

Customer Traffic (% of Shoppers Who Visited Store) (1) (3)

"Top-of-Mind" Unaided Brand Awareness (1) (2)

41%

36%

34%

30%

30%

27%

27%

26%

18%

16%

16%
15%

14%
13%

13%

12%

9%
8%

6%

5%

5%

3%

Sleep Sears The Brick IKEA

Country Canada
Canada

Leon's Hudson's
Bay

Dormezvous?

BMTC

Sears
Canada

Matelas The Brick

Bonheur

Sleep Sears
Country Canada
Canada

The
Brick

IKEA

Leon's Hudson's
Bay

Dormez- Sears
vous? Canada

BMTC The Brick Matelas

Bonheur

Advertising strategy driving top-of-mind unaided brand awareness

and leading share of customer visits
(1)
(2)
(3)

Source: Market Survey, September 2014.

Participants polled were asked: Thinking about stores that sell mattresses, that you would shop at if you were buying a mattress, please tell me the name of the store that
comes to mind first.
Traffic data based on six months ended September 2014.
Note: Leons Furniture Ltd. owns both Leons and The Brick banners.

14

Unrivalled in-store customer experience

Customers Need Assistance

Infrequent purchase

Big-ticket item

Highly personalized tastes, preferences, needs

and budgets

Constantly evolving, difficult to compare product

landscape
Sleep Country Offering

Effective sales force

Differentiated, multi-vendor product mix

Customer-oriented policies

15

Leading shopper to buyer conversion

Shopper to Buyer Conversion (% of Shoppers that Purchase) (1) and
Canadian Mattress Industry Share of Consumer Transactions (2)

Share of Consumer
Transactions

Share of Consumer
Transactions

Shopper to Buyer Conversion

Sleep
59% Country
Canada

24%

Shopper to Buyer Conversion

57%

17%

13%
15%

44%

40%

12%

8%

50%

Sears
Canada

The Brick

IKEA

7%

5%

31%

70%

31%

31%

(1)
(2)

IKEA

The Brick

50%

Matelas
Bonheur

Leon's

2%
4%

Sears
Canada

41%

5%
4%

BMTC

50%

11%

Dormezvous?

Hudson's
Bay

Source: Market Survey, September 2014. Conversion data based on six months ended September 2014.
Source: Market Survey, September 2014. Purchase data based on six months ended September 2014.
Note: Leons Furniture Ltd. owns both Leons and The Brick banners.

2%

33%

40%

Leon's

Hudson's
Bay

16

Superior home delivery experience and ongoing customer relationships

Customers Sensitive to Service

Home delivery is critical

Customers are sensitive about home

delivery

Final impression left with customers

Sleep Country Offers Superior Execution

Better people, better trained

Uniformed delivery personnel

Shoe covers to protect floors

Efficient delivery logistics

Enterprise-wide IT system supports

delivery logistics

Three-hour delivery time window

Recycle/donation of picked-up mattress sets

Creates high customer satisfaction and word-of-mouth marketing benefits

17

Strong Team focused on customer service

Sleep Countrys Award Wining Corporate Culture
Low turnover rate (2)
Sleep Country at 16%
Retail industry average of 44%

(1)
(2)

Source: WOW! Retailer Ranking by Sector by Leger Metrics Inc.

Mercer Retail Industry Compensation and Benefits Survey, August 2014.
Note: Ontario survey based on 113 Ontario retailers. Over 500 recent customers 15 years of age or older were asked to respond to 16
dimensions. Qubec survey based on 148 Qubec retailers. Over 400 recent customers 15 years of age or older were asked to respond to 10 to
16 dimensions.

18

Clear Growth Strategy

Differentiated strategy has delivered strong results and momentum

Sleep Country Quarterly Same Store Sales Growth (1)

(1)

Source: Company report. See Non-IFRS Measures and Retail Industry Metrics.

20

Key drivers of SSS growth

Increase Traffic

Increase Conversion
of Shoppers to Buyers

Higher AUSP

Expand Accessory
Sales

Enhanced Store
Design

Increased marketing investment

Expand messaging

Continued focus on hiring the best people

Additional training initiatives

Continued shift to higher quality mattresses

Larger sizes are increasing in popularity

Expand and improve product lines

Additional marketing messaging

Enhanced training

Contemporary design creates bright and welcoming atmosphere

Greater emphasis on accessory displays

21

Roadmap to growth Increase accessories sales

Key Accessories

Sleep Country Accessories Revenue (1) (C$ millions)

13.9% CAGR

Bedframes

Sheets

Pillows

Duvets

Mattress pads

Headboards and
Footboards

Opportunity to capture market share in an estimated $830 million

highly fragmented yet addressable market in Canada
(1)

Source: Company report.

22

Roadmap to growth Continued implementation of enhanced store design

Results for the thirteen stores renovated to date show an increase in revenues above our national SSSG

23

Roadmap to growth Add stores in existing, satellite and new markets

Leading U.S. Specialty Mattress Retailer
Population Per Store (thousand) (1)

Population Per Store (thousand) (3)

162
(2)

140

84
60

Today

5-7 Years

All Markets

High Density Markets

Modest net new store cost of approximately $325,000 comprising of capex and working capital investment

Typically, new in-fill and satellite stores are cash flow positive within 6 and 12 months, respectively
Significant white space is available given its low store density
Target to open 50 70 new stores
(1)
(2)
(3)

Source: Based on Statistic Canadas total 2014 population in each province.

Note: Store Count as of March 31, 2015.
Assuming a 2% population growth per year for seven years.
Source: Company filings.

24

In-Fill Store Opportunity Demonstrated Success

B.C. Case Study

New In-Fill Stores Continue to Drive Sales Growth in

Longstanding Richmond Market

Sleep Countrys most tenured market

Legend
19 Existing Stores

Results

8 In-Fill Stores

Added eight new stores from 2012 to 2015,

growing the regional store footprint from 19 to 27
stores

Cities

Expanded View (2)

Total sales in region increased by 53%

Existing stores achieved compound same
(1)
store sales growth of 5% over the 4 years
New stores contributed 31%

Scale: 20 km
(1)
(2)

See Non-IFRS Measures and Retail Industry Metrics.

Inner blue circle indicates 3 km radius; outer blue circle indicates 10km radius

25

Attractive Financial Model with

Strong Cash Flow Conversion

Attractive financial model results in strong cash flow conversion

Attractive Financial Model

1

National Scale Creates Economic Advantages

Regional Scale Optimizes Economics on a Per-Store Basis

Working Capital Funds Growth

Low Capital Expenditure Requirements

27

National scale has economic benefits

Sleep Countrys Economic Advantages

Leading Suppliers to Sleep Country

Vendor relationships
Buying Power

Advertising efficiency
National buys

Leveraging centralized corporate overheads

28

Regional store density adds profitability and barrier to entry

High barrier to entry

for competition

Build leadership
position quickly

Regional
Store
Density

Leverage regional
fixed costs

Add in-fill stores

over time

29

Working capital funds growth

Sleep Country Working Capital Cycle

Day 1:

Mattress Ordered

Day 0

Day 4:

Mattress Delivered
to Customer

Day 3

Day 1

Day 0:

Customer Purchase

Customer Payment

Day 33

Day 4

Day 48

Day 33-48:

Pay Supplier

Day 3:

Mattress Delivered
to Warehouse

30-45 Day Payment Terms from Supplier

Just-in-time inventory relationship with mattress suppliers results in

cash flow generated from working capital to fund growth

30

Low capital expenditure model

Sleep Country Maintenance and Growth Capital Expenditures (% of sales) (1)

Maintenance capital expenditures have averaged 1.0% of revenue from 2008 to 2015
(1)

Source: Company report.

31

Select Financial Highlights and Growth Targets

(C$ million unless otherwise stated)

Revenue
Same Store Sales Growth
Net New Stores
Gross Profit
Gross Margin
SG&A(2)
% of sales
Operating EBITDA
Operating EBITDA Margin

(1)
(2)

(1)

2012

2013

2014

2015

5-7 Year Targets

$332.6

$353.9

$396.1

$456.2

$575 to $640

(4.2%)

1.0%

8.3%

11.3%

3-6%

10

13

12

$80.9

$88.1

$103.4

$126.8

24.3%

24.9%

26.1%

27.8%

$42.5

$48.7

$52.8

$57.7

12.8%

13.8%

13.3%

12.6%

$38.4

$39.4

$50.6

$69.1

11.5%

11.1%

12.8%

15.2%

50-70 Total

$80 to $90

See Non-IFRS Measures and Retail Industry Metrics.

Excludes SG&A expenses added back in the reconciliation of EBITDA to Operating EBITDA.

32

Capitalization
As at December 31, 2015
(C$ millions)
Revolving Credit Facility
Finance Leases
Total Long Term Debt
Cash on Hand
Net Debt

$124.0
$0.8
$124.8
$16.6
$108.2

Net Debt / LTM Operating EBITDA

Outstanding Lease Liabilities
Net Debt / EBITDAR

1.57x
$157.0
2.48x

Capital structure provides financial flexibility to grow the business

33

Experienced and Committed

Management Team

Proven management team committed to growing the business and

shareholder value
Member
Dave Friesema
Chief Executive Officer

Years at
Sleep Country

Relevant
Experience

20+

20+

Biography

Held numerous senior positions at Sleep Country including Head of Sales, General
Manager and Chief Operating Officer
Chairman of the Better Sleep Council Canada
Helped establish and manage mattress retail organizations in the United States

Robert Masson
Chief Financial Officer and
Corporate Secretary

20+

Chief Financial Officer of Second Cup from 2009 to 2013

Prior to joining Sleep Country, Robert had extensive management experience with several
other public and private companies including, IBM Canada, Manchuwok, Ernst & Young,
Deloitte & Touche and Sappi

Stewart Schaefer
President, Dormez-vous?
Chief Business Development
Officer

10

20+

Founded Dormez-vous? in 1994; grew the business to five stores before being acquired by
Sleep Country in 2006
In 1992, co-founded Heritage Classic Beds, a distributor of metal beds
Commodity Broker in Chicago from 1986 to 1992, later returning to Montreal to work at
Dean Witter Reynolds and Refco Futures

Dave Howcroft
Senior Vice President, Sales

20+

20+

Created programs to consistently build, develop and motivate a first-class sales team
Instrumental in developing and implementing various sales workshops, training programs
and sales processes

Sieg Will
Senior Vice President, Operations

14

20+

Instrumental in development and implementation of standard operating policies and

procedures across organization
Held senior positions with Canadian Tire and PepsiCo in the sales, operations and account
management areas

Eric Solomon
Senior Vice President,
Merchandising and Marketing

20+

20+

Instrumental in growing the business by increasing "top-of-mind" brand awareness

Provides oversight to the marketing department

Stephen Gunn
Founder & Executive Co-Chair

20+

20+

Co-founded Sleep Country in 1994

Co-founded and was President of Kenrick Capital, a private equity firm
Management Consultant at McKinsey and Company from 1981 to 1987
Serves on the Board of Directors of Dollarama, Golfsmith International, Cara and
Mastermind Toys

Christine Magee
Founder & Executive Co-Chair

20+

20+

Co-founded Sleep Country in 1994

Senior Manager of Corporate and Commercial Lending with National Bank from 1985 to
1994
Serves on the Board of Directors of Sirius XM Canada, Trillium Health Partners and the
Advisory Board of the Ivey School of Business

35

Investment Highlights

Compelling
Industry
Fundamentals

The Leading
Specialty Mattress
Retailer in Canada

Best-in-Class
Retailer Driven by
Superior Strategy
and Execution

North American mattress and foundation industry is characterized by stable, long-term growth and a high degree of resiliency to economic
swings
Industry demand driven by essential nature of product and replacement cycle of 10-12 years
Shift in consumer preference towards larger size mattresses and premium quality products
Consumers have shifted preference towards specialty mattress retailers due to big-ticket nature of mattress purchase and lack of consumer
product knowledge
Low vulnerability to online competition and showrooming due to highly tactile purchase decision,

Only specialty mattress retailer in Canada with a national and regionally diverse footprint
National footprint of 225 stores and 17 distribution centres across 8 provinces
Leading specialty mattress retailer with an estimated national market share of 23%

Largest share of customer visits across Canada driven by top-of-mind unaided brand awareness and 20-year advertising investment
Unrivalled in-store customer experience drives high conversion of sales, repeat business and superior sales per associate metrics
Superior home delivery experience and ongoing customer relationships drives high customer satisfaction, repeat sales and word-of-mouth
advertising
Highly trained and dedicated workforce with a strong culture of customer service
Convenient and highly visible locations

Opportunity to grow Revenue and Operating EBITDA to $575-$640 million and $80-$90 million, respectively, in 5-7 years
Strong same store sales growth(1) potential driven by increased mattress and accessories sales growth and continued implementation of
enhanced store design
Opportunity to open 50-70 net new stores in the next 5-7 years in existing, satellite and new markets
Operating leverage on sales growth through highly scalable centralized support infrastructure
Selectively consider strategic acquisitions that are accretive and enhance market opportunities

Attractive Financial
Model with Strong
Cash Flow
Conversion

National scale creates economic advantages

Regional scale optimizes economics on a per-store basis
Negative working capital operating model facilitated by "just in time" inventory relationship with suppliers, funds growth
Low capital expenditure requirements due to asset-light business model (~1.0% maintenance capex requirements)
Compelling new store economics with in-fill locations typically becoming cash flow positive within 6 months of opening

Experienced and
Committed
Management Team

Highly experienced management team with proven track record

On average 15+ years of experience with Sleep Country and 20+ years of relevant industry experience
Proven track record of success as a public company
Co-founders remain committed to the business and its long-term success

Clear Growth
Strategy

(1)

See Non-IFRS Measures and Retail Industry Metrics.

36

Description of Non-IFRS Measures and Retail Industry Metrics

This presentation makes reference to certain non-IFRS measures including:
AUSP is defined as the average unit selling price of a mattress or foundation.
EBITDA is defined as net earnings (loss) from continuing operations before: (i) net interest expense and other financing charges; (ii) income taxes; (iii)
depreciation of property, plant and equipment; and (iv) amortization of other assets.
Conversion is defined as the number of customers who entered a store and made a purchase divided by the total number of customers who entered the store
(expressed as a percentage).
Operating EBITDA is defined as EBITDA adjusted for: (i) reduction in management bonuses; (ii) reduction in management compensation; (iii) certain nonrecurring items (shareholder reorganization, professional fees and customer deposit breakages and other provision); and (iv) share based compensation.
Same Store Sales Growth or SSSG is a retail industry metric used to compare sales derived from the established stores of certain period over the same
period in prior year. SSSG helps to explain what portion of sales growth can be attributed to growth in established stores and what portion can be attributed to the
opening of the new stores. Sleep Country calculates SSSG as the percentage increase or decrease in sales of stores opened for at least 12 complete months
relative to the same period in the prior year.
These measures are not recognized measures 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 Companys financial information reported under IFRS. For further details concerning how the Company calculates these non-IFRS measures
and for reconciliations to the most comparable IFRS measures, please see the Company's most recent management's discussion and analysis of financial
condition and results of operation filed with Canadian securities regulatory authorities and available on SEDAR at www.sedar.com.

37