Why Mattress Firm Shares Got Crushed

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 specialty bedding retailer Mattress Firm (Nasdaq: MFRM  ) plummeted 22% today after management slashed its full-year outlook.

So what: Mattress Firm's third-quarter results managed to top estimates -- adjusted EPS of $0.47 on sales of $277.3 million versus the consensus of $0.47 and $271.6 million -- but downbeat guidance for the full year reinforces serious concerns over slowing growth. In fact, worries of declining sales in the space even dragged down the stocks of rivals Tempur-Pedic International (NYSE: TPX  ) and Select Comfort (Nasdaq: SCSS  ) , which are down 5% and 10%, respectively.

Now what: Management now sees adjusted 2012 EPS of $1.49-$1.52 on revenue of $1.01 billion-$1.02 billion, versus Wall Street's view of $1.69 and $1.02 billion. "We believe we are well positioned to drive revenue and earnings in the coming years," said CEO Steve Stagner. "However, our expectations for the balance of this fiscal year are now below our previous plan in light of recent sales trends that continue to be affected by ticket pressures and, beginning in early November, lower traffic growth." When you couple those worrisome demand headwinds with Mattress Firm's still very hefty debt load, I'd wait for even more of a pullback before jumping.

Interested in more info on Mattress Firm? Add it to your watchlist.


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