Why Select Comfort Corp. Shares Plummeted

Is this meaningful? Or just another movement?

Jan 6, 2014 at 12:51PM

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 specialty mattress retailer Select Comfort Corp. (NASDAQ:SCSS) plunged 19% today after warning that its fourth-quarter earnings will likely miss expectations.

So what: The stock had been recovering nicely from its Q3-related beating, but today's preliminary Q4 results -- revenue grew just 5% to $231 million -- reignites concerns over its growth going forward. In fact, Select Comfort's same-store sales remained pretty flat during the quarter, suggesting that the company's competitive position is weakening.

Now what: Management expects Q4 EPS to come in below its guidance range of $0.18-$0.26. "The sales slowdown following the Thanksgiving holiday reflected a tepid retail holiday shopping season," noted president and CEO Shelly Ibach. "We expect this challenging environment to continue in 2014 and are planning accordingly." Of course, with Select Comfort shares off about 40% from its 52-week highs once again, and trading at a forward P/E of 12, many of those challenges might already be baked into the valuation.  

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