Is Now the Time to Buy Select Comfort Corp. (SCSS)? – Tempur-Pedic International Inc. (TPX), Mattress Firm Holding Corp (MFRM)

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Volatility can affect any stock, but typically, it’s reserved for the high-tech, the micro cap, and sometimes, just the subject of market hysteria. You wouldn’t think mattress makers would be wildly swinging stocks from month to month, or even day to day, but some are. For premium mattress manufacturer Select Comfort Corp. (NASDAQ:SCSS) , a look at the one-year chart would suggest the mattress market is completely unhinged, with people binge buying beds for months followed by periods of nationwide sleep-abstinence. The company recently announced a largely encouraging earnings report and tepid guidance, sending the stock sliding down from over $28 per share, to just $17 — a 35% drop in a matter of a month. But, with top-line sales up double digits, and valuable acquisitions in process, is the company oversold?

Select Comfort Corp. (NASDAQ:SCSS)Mixed plate
Select Comfort Corp. (NASDAQ:SCSS)’s fourth quarter results seemed strong in some ways, but ultimately disappointed investors and analysts. On the top line, net sales grew an impressive 17%, to a record $221 million. That compares to $189 million in the prior year’s fourth quarter. In company-owned stores, comps were up a remarkable 11%, which marks 13 consecutive quarters of double-digit comp growth.

On the downside, operating income sank 3%, to $19.4 million, based on weaker margins. Further down the income statement is where things really set off the bear roars — bottom line earnings were down 19%, to $0.22 per share, from $0.27 per share the year before. Investors should note, though, that in the prior year’s quarter, the company had a favorable interest expense change worth $0.03 per share in the quarter.

In the fourth quarter alone, the company opened twenty stores, ending the year with 410 total outlets for the mattresses, 19% of which are company-owned stand-alone stores.

For the full year, things were much brighter, and contradictory to the massive drop-off in stock price. Top-line results came in 26% higher than the year ago, to $935 million. Company-controlled comps grew 23%. Without the $5.6 million CEO-transition charge, results would have been even higher. Operating margins were up 1.5%, to contribute to a bottom line adjusted EPS of $1.43 (excluding the CEO charge).

At the end of December, the company held $178 million in cash with no debt on the books.

With the exception of the final two weeks of December, Select Comfort had a banner, record-breaking year.

So why has more than one-third of its market value vanished since the earnings release?

The why
The Street demands that companies hit a certain number on that bottom line. If it’s not up to snuff, the stock gets a temporary smackdown. But Select Comfort Corp. (NASDAQ:SCSS) Comfort didn’t exactly have a bad year, to put it mildly.

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