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Why Mattress Firm Shares Fell

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 retailer Mattress Firm Holding (NASDAQ: MFRM  )  have plunged 16% so far today after its quarterly results and outlook disappointed Wall Street.

So what: The stock has rallied nicely in 2013 on a string of better-than-expected quarters, but today's second-quarter miss -- EPS of $0.41 on revenue of $302.5 million versus Wall Street at $0.51 and $323 million -- coupled with downbeat guidance is forcing Mr. Market to sober up a bit. While the company continues to grow both earnings and revenue at a solid rate -- 40% and 16%, respectively -- the results suggest that it isn't growing fast enough to justify its seemingly lofty valuation.

Now what: Management now sees full-year adjusted EPS of $1.75-$1.83 on revenue of $1.19 billion-$1.21 billion, down from its prior view of $1.90-$1.98 on revenue of $1.24 billion-$1.25 billion. "We expect that the second half of the year will benefit from a return to higher industry-level advertising media spend relative to recent quarters that we anticipate will drive improvement in customer traffic and sales trends in our business," CEO Steve Stagner reassured investors. Given the company's still-hefty debt load and relatively high P/E even with today's pullback, however, I wouldn't be so quick to bet on that bull talk.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

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Related Tickers

12/31/1969 7:00 PM
MFRM $0.00 Down +0.00 +0.00%
Mattress Firm Hold… CAPS Rating: *