Will This Mattress Business Hold Firm?

Mattress companies and their respective stocks are bouncy and unpredictable. Though mattress demand may appear to be relatively constant, these stocks are incredibly volatile -- the slightest inkling toward lower sales can send them down double digits. Just take a look at multiyear stock charts for Select Comfort or Tempur Pedic International. Another big-time player, Mattress Firm (NASDAQ: MFRM  ) , is no exception. Over the past two years, the stock has topped $45 per share and dipped under $25, only to climb back up (with a few stumbles) to its current $35 per share range. The company released its latest earnings last Wednesday to a cautious market that has for some time held trepidation regarding sales health in the ultracompetitive business. Luckily for investors, the numbers put to rest those doubts and sent the stock soaring.

Earnings recap
The top and bottom lines grew well into the double digits during Mattress Firm's third fiscal quarter. Sales grew 18% to $326.2 million. Driving the sales growth was a combination of attractive same-store sales -- up 2.9% for the quarter -- as well as new store openings: 40 in just three months.

Mattress Firm management pushed for aggressive sales tactics during the quarter to counteract the macroeconomic tepidity, and margins reflected the added pressure. Still, the bottom line grew in line with net sales at 18% over the prior year's $0.47 per share. The company hauled in $0.53 per share on $18.3 million in net income.

Year to date, Mattress firm has grown sales by more than 20% and opened a net of 98 new stores -- in addition to dozens of acquired stores throughout the Midwest via two regional chain buyouts.

Further delighting the market, management bumped up its full-year net-sales guidance (now $1.217 billion-$1.224 billion), its new-store count (140-150 stores), and same-store-sales growth (flat to low single digits). Adjusted EPS estimates remain unchanged at $1.75-$1.83 per share. The EPS numbers may have drifted higher as well if it hadn't been more a greater-than-expected acquisition-related expense of $0.03 per share.

Sleep well
Thus far, Mattress Firm management has done a stellar job of expanding its relative market share while maintaining profitability. Even throughout this tricky retail environment, the company found ways of keeping costs controlled enough to allow top-line-sales growth to drift down the income statement.

Existing investors in Mattress Firm should sleep comfortably at night since skilled capital allocators are running the company, and the industry, in general, should continue to grow along with housing numbers. For investors intrigued by the company's recent successes, though, exercise some caution.

Mattress Firm is the most expensive of all the companies mentioned in this article. Tempur Pedic International trades at a slight discount (17.7 times) to the former's 18 times. Select Comfort is by far the cheapest (and perhaps most volatile) at just 14.7 times forward earnings. But if price is not a type criterion for stock picking -- here's to you, growth lovers -- then Mattress Firm may yet warrant a closer look considering its potential.

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