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Another Thinking Investor's Housing Play Goes Bust

Successful investors tend to stay ahead of the pack, so when the housing market began to bounce back, the astute market watchers didn't stick to the homebuilders, lenders, and construction companies.There was money to be made in the home improvement and housewares markets as sympathy plays -- but that's been a minefield this week.

Shares of Mattress Firm (NASDAQ: MFRM  ) opened nearly 17% lower this morning after posting disappointing quarterly results. The leading bedding retailer saw its sales climb 16%, to $302.5 million. That may not seem too shabby, but it's entirely the handiwork of acquisitions and new-store openings. Comparable-store sales actually dipped 0.3% during the period. Analysts were holding out for $323.4 million in revenue.

Things get worse on the way down to the bottom line as Mattress Firm's adjusted profit of $0.43 a share was marginally ahead of last year's $0.42 a share, and well off the $0.51 a share that Wall Street was expecting.

It wouldn't be a total disaster without the ritualistic hosing down of guidance, and Mattress Firm may be raising the number of new stores it plans to open this year, but it's taking sales, earnings, and comps targets all lower for the entire fiscal year.

If folks are moving around, don't they often spring for new mattresses? When the economy's showing signs of life, isn't a bedding upgrade a logical growth market? Mattress Firm's plan to consolidate this highly fragmented retailing niche should be resulting in sourcing and pricing advantages. Why are margins going the wrong way?

Mattress Firm isn't the only one that will be keeping investors tossing and turning this weekend.

Shares of Conn's (NASDAQ: CONN  ) plunged 12% yesterday after coming up short on the bottom line. At least Conn's can point to healthy growth in the consumer electronics chains' housing-related categories. Furniture unit sales soared 47% during the period, and mattress unit volume rose 38%, with average selling prices climbing 11%. Take that, Mattress Firm! However, appliance sales rose by a mere 10%.

We will continue to get mixed pictures here. 

Trex (NYSE: TREX  ) also stumbled last month when the leading provider of wood-alternative decking missed its own quarterly projections. Revenue grew at half the pace that it was forecasting three months earlier, and its guidance for the current quarter calls for a mere 2% year-over-year uptick in sales. 

Thankfully, there are still plenty of big winners here. Both of the leading home-improvement superstore chains offered up rosy outlooks this summer. There's also Lumber Liquidators (NYSE: LL  ) rewarding investors who were buying into related housing plays. The largest stand-alone retailer of hardwood flooring has seen its shares more than double over the past year as new homeowners, and those taking advantage of low refinancing rates, are sprucing up their floors.

Thursday's Conn's debacle, and today's Mattress Firm slide, show that there is no such thing as a sure thing if you only invest in themes. Every niche has its winners and, this week, we have no shortage of losers.

This could be bigger than the housing rebound
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  • Report this Comment On September 08, 2013, at 11:45 PM, turb0kat wrote:

    My housing recovery play was PHM in 2011. If only I had bought more.

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