Why Tempur-Pedic Shares Got Slammed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of mattress maker Tempur-Pedic International (NYSE: TPX  ) plunged a whopping 47% on Wednesday after management slashed its current-quarter and full-year guidance.

So what: Tempur-Pedic was one of the market's hottest stocks over the first three months of 2012, but the gloomy outlook reinforces recent fears over rapidly intensifying competition in North America. Unfortunately, those concerns are being compounded by disappointing results today from rival Mattress Firm Holding (Nasdaq: MFRM  ) , all of which are working to push down the shares of Sealy (NYSE: ZZ  ) as well.

Now what: Tempur-Pedic now expects full-year EPS of $2.70 on revenue of $1.43 billion, well below Wall Street's view of $3.93 and $1.64 billion, respectively. "We are projecting lower sales than previously anticipated for the rest of the year and are taking actions to realign our expense structure appropriately," said CEO Mark Sarvary. "However, we remain very confident in our Company's growth potential and our strong brand, and as a result remain committed to our long-term strategic plan." With the stock now down a staggering 75% from its April highs, brave bargain-hunters might want to consider buying into that optimism.

Interested in more info on Tempur-Pedic? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool owns shares of Tempur-Pedic. Try any of our Foolish newsletter services free for 30 days.

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Read/Post Comments (4) | Recommend This Article (8)

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  • Report this Comment On June 06, 2012, at 2:41 PM, DSmod wrote:

    Interesting thesis. But I think I know the REAL reason these shares got slammed today. It's because the market found out that I bought some shares yesterday! Ooof...

  • Report this Comment On June 06, 2012, at 3:26 PM, TMFTheDoctor wrote:

    This move seems a little overblown. Even with the new guidance, $22.51 gives the stock an 8.3 Forward P/E. On the other hand, as the owner of a perfectly good knockoff mattress that cost a third of the price of a Tempur Pedic, I've long wondered what competitive advantage the company had that was fueling the recent earnings growth.

  • Report this Comment On June 06, 2012, at 10:01 PM, chopchop0 wrote:

    @TMFTheDoctor, as a TPX mattress owner, I've been very happy with my celebrity mattress. Reading reviews from the knockoffs (Therapedic, iComfort etc.), from various sources, it seems there's been a problem with people having a great showroom feel with some of the knockoffs and then having issues with loss of support and sag when it comes to 6-12 mos later.

  • Report this Comment On June 07, 2012, at 2:07 PM, SkepikI wrote:

    I am wondering if the 97.7 % institutional ownership (maybe a bit old considering the selling) and the 10% shorts (also now old) had more to do with this than anything else....

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