Why Mattress Firm Shares Sank

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 Firm Holding (Nasdaq: MFRM  ) plunged 17% on Tuesday after the specialty bedding retailer cut its current-quarter and full-year sales forecast.

So what: While management raised the lower end of its EPS guidance range for the current quarter, a cut to its top-line forecast (management now expects second-quarter sales of $260 million to $265 million, from $270 million to $275 million), coupled with a disappointing full-year outlook, reinforces fears over slowing growth. In fact, worries of declining demand in the industry even dragged down the stocks of rivals Select Comfort (Nasdaq: SCSS  ) and Tempur-Pedic (NYSE: TPX  ) , which are off 8% and 2%, respectively.

Now what: For the full year, management lowered its sales forecast from $1.03 billion-$1.06 billion to $1.01 billion-$1.03 billion, but also raised its adjusted EPS guidance from $1.63-$1.69 to $1.65-$1.71. "We believe our ability to reaffirm and raise our earnings expectations in light of the downward pressures on sales experienced during the second fiscal quarter reflects our ability to positively impact our cash flows and earnings through our flexible operating model," President and CEO Steve Stagner reassured investors. Given the worrisome headwinds of slowing consumer demand and rapidly increasing competition in the space, however, I'd be cautious about buying into that bullish talk.  

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