Can Mattress Firm Succeed Where Its Rivals Failed?

Mattress Firm (NASDAQ: MFRM) will release its quarterly report on Friday, and investors have remained enthusiastic about the mattress-seller's growth prospects. Yet with the company's main competitors having had less success in keeping their own businesses strong, will Mattress Firm really be able to buck the trend and deliver on its full potential?

Mattress Firm came public in late 2011 and roared out of the gate before giving up nearly all of its gains by the end of last year. During 2013, however, investors have once again found renewed confidence in the company's ability to earn growing profits even in a tough economic environment. Let's take an early look at what's been happening with Mattress Firm over the past quarter and what we're likely to see in its report.

Stats on Mattress Firm

Source: Yahoo! Finance.

Can Mattress Firm's earnings keep growing this fast?
In recent months, analysts haven't made much of a move on their views of Mattress Firm's earnings, choosing to cut just a single penny per share from their July quarter and current fiscal-year estimates. The stock has ignored those minor cuts, rising almost 15% since late May.

Mattress Firm started things off well this quarter, with its April-quarter earnings rising 24% from year-earlier levels. Moreover, the company announced guidance that included more favorable revenue growth than expected. Even as same-store sales fell 5.2%, Mattress Firm expects comps to turn positive for the full fiscal year.

Yet industry trends aren't all in Mattress Firm's favor. On one hand, the housing recovery would traditionally stoke demand for mattresses as more families start to consider home purchases. Yet recent results from Tempur Sealy (TPX 1.34%) and Select Comfort (SNBR -0.55%) haven't supported that hypothesis. Tempur recently had to cut its full-year earnings guidance in light of complications in reorienting the newly merged combination of Tempur-Pedic and Sealy toward higher growth. Select Comfort didn't have the big-acquisition excuse to explain its shortfall in earnings, as margins fell significantly on marketing miscues despite higher sales. Those poor trends led analyst Stifel Nicolaus to downgrade Mattress Firm in sympathy with weakness throughout the industry.

The question is whether those poor trends are finally starting to turn. Over the Labor Day weekend, reports of industrywide retail bedding sales were up by mid-single-digit percentages, raising hopes that a long-awaited turnaround for the industry could be coming.

In the Mattress Firm earnings report, watch to see if the company can once again defy its rivals' poor performances and surprise investors positively. If it can, then you'll have to conclude that Mattress Firm's strategy of favoring more modest bedding lines over ultra-premium mattresses is working well.

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