Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Tempur-Pedic International Inc. (TPX), Select Comfort Corp. (SCSS): Will Its Earnings Keep You Up at Night?

On Wednesday, Select Comfort (NASDAQ:SCSS) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they’ll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you’ll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Mattress makers have seen tough times over the past year as overly optimistic views of their potential growth succumbed to the harsh reality of a tough economic climate. Can a rebounding housing market finally pull Select Comfort out of its recent downward spiral? Let’s take an early look at what’s been happening with Select Comfort over the past quarter and what we’re likely to see in its quarterly report.

Stats on Select Comfort Corp. (NASDAQ:SCSS)

Analyst EPS Estimate $0.43
Change From Year-Ago EPS (4.4%)
Revenue Estimate $287.95 million
Change From Year-Ago Revenue 9.7%
Earnings Beats in Past 4 Quarters 3

Source: Yahoo! Finance.

Will Select Comfort bounce higher?
Analysts have been none too excited about Select Comfort’s earnings prospects recently, having dropped their earnings-per-share call for the just-ended quarter by $0.13 and cut their full-year 2013 estimates by nearly $0.40 per share. The stock has also performed terribly, falling more than 30% since early January.

Select Comfort has disappointed investors not once but twice during the first three months of 2013. In its previous earnings report, the stock dropped 20% as the company reduced its 2013 guidance and had to boost its marketing expenses in order to support its strong sales. Then in early March, Select Comfort followed up with a revenue warning about February, citing changes to its media-buying strategy as causing below-plan sales. Although the company didn’t mention additional factors, it’s possible that heavy competition from Tempur-Pedic (NYSE:TPX) and Mattress Firm (NASDAQ:MFRM) also contributed to the decline, as well as sluggish spending from consumers generally on discretionary items.

Yet Select Comfort still has plenty of opportunities for growth. The company expects to increase its store count by 35 by the end of the year, and with strong same-store sales projections, the key will be converting that business into more profits.

The challenge Select Comfort faces comes from the lower end of the competitive landscape. Mattress Firm’s non-premium brands represent a lower-cost alternative for customers, and Tempur-Pedic’s recent buyout of Sealy shows that even Select Comfort’s rival is gravitating toward that end of the cost spectrum.

In Select Comfort’s quarterly report, be sure to look not just at how its results compare with previous periods but also to whether they’re in line with what Mattress Firm reported last month. With better guidance from its rival, Select Comfort needs to give its investors the same assurances in order to avoid even further disappointment.

The article Will Select Comfort’s Earnings Keep You Up at Night? originally appeared on

Editor’s note: A previous version of this article erroneously attributed assertions about the impact of competition and consumer spending trends to Select Comfort itself. The Fool and the author regret the error.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool owns shares of Tempur-Pedic International.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.