Will Mattress Firm Bounce Like Tempur Sealy or Sag Like Select Comfort?

Mattress Firm (NASDAQ: MFRM) will release its quarterly report on Wednesday, and investors have been gun-shy over the past few months in light of some troubling results in its previous earnings report. The stock has followed a middlecourse between Tempur Sealy (TPX 0.42%) and its soaring share price and Select Comfort's (SNBR -7.05%) poor performance, but will Mattress Firm finally break out of its funk and get back to its highs from earlier in the summer?

Mattress Firm is a relatively new player in the bedding area, having come public just two years ago amid a hot market for Select Comfort and Tempur Sealy. Since then, investors in the two more mature companies in the space have been largely disappointed, but Mattress Firm has managed to produce a reasonable total return despite giving its shareholders some sleepless nights along the way. 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 bounce back this quarter?
In recent months, analysts have gotten much less excited about Mattress Firm's earnings prospects, cutting their October-quarter estimates by $0.08 per share and their views for the current and next fiscal year by 10%. The stock has reflected those concerns, falling 12% since late August.

Just about all of Mattress Firm's woes came right after the company reported July quarter earnings. The stock plunged despite Mattress Firm's 16% jump in sales producing a 40% rise in earnings, as investors weren't happy with the mattress-seller's past results as well as its downward revisions on its future guidance. Company CEO Steve Stagner tried to reassure shareholders that the company would see customers bounce back from sluggish traffic trends, but that didn't seem to provide much support for the share price.

Mattress Firm's rivals have had mixed success in taking advantage of Mattress Firm's tough times. In October, Select Comfort reported similarly ugly results in its quarterly numbers, with earnings per share falling 27% and missing estimates badly enough to cause the stock to lose more than a quarter of its value immediately after the announcement. Select Comfort's costs rose substantially, with lower-margin sales weighing on profitability even though overall revenue climbed slightly. By contrast, Tempur Sealy has held up quite well, as North American sales rose even taking the company's recent merger into account, helping to offset some of the weakness in its European results.

What's clear from watching the industry is that consolidation is the name of the game. Mattress Firm bought two other chains last year, while Select Comfort completed its acquisition of Comfortaire earlier this year. The combination of Tempur-Pedic and Sealy obviously is a much bigger move than these small buyouts, but Mattress Firm should recognize the potential value of its business as a building block, either playing the role of acquirer for smaller companies or as a target for Select Comfort to compete more strongly against Tempur Sealy.

In the Mattress Firm earnings report, the company needs to reestablish itself as a growth player in the industry, keeping revenue and profits moving higher. Otherwise, further disappointment could shake long-term confidence among investors who already feel like Mattress Firm has already been burned them once.

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