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Capitalize on Housing Market Strength With This Solid Stock

The U.S. housing market still seems to be in recovery mode, although the heady price gains that we saw over the last few years are evening out. The recovery benefits various industries that include homebuilders, home improvement stores, and appliance makers. Naturally, the recovery also benefits furniture stores. In an industry that appears to be delivering solid growth, one name in particular stands out due to its huge growth. Mattress Firm (NASDAQ: MFRM  ) is easily outpacing the home furnishing industry, beating out competitors such as Select Comfort (NASDAQ: SCSS  ) as well as its main supplier, Tempur Sealy (NYSE: TPX  ) .

Source: Mattress Firm.

Recent results
Mattress Firm recently delivered an excellent fourth-quarter report. The main highlight was probably the 6.5% spike in same-store sales, which is an excellent figure for almost any retailer. Net sales rose a healthy 20.8% year over year, which met the analyst consensus. Adjusted EPS of $0.30 beat by $0.01, but the number remained flat year over year. On the back of these strong figures, the company raised its current fiscal-year revenue guidance from $1.38 billion-$1.43 billion to $1.46 billion-$1.52 billion, which easily came in ahead of the $1.41 billion consensus. 

Overall, Mattress Firm doesn't seem to have suffered as much from the extreme winter weather as other companies did, perhaps because consumers just wanted warm beds to curl up in. According to management, acquired stores served as a prime factor in driving the high comp-store sales growth, as acquired locations rose 16% and they contributed some 290 basis points to the chain's overall comp-store sales gains. 

Let's put these numbers in perspective. Select Comfort, a prime competitor in the mattress business, recently delivered disappointing fourth-quarter results. EPS of $0.12 declined more than 45% year over year to miss the consensus by about $0.03. Net sales rose 4.7%, which missed the consensus as well, while comp-store sales stayed flat for the period. For the full year, adjusted earnings dropped around 25%.

Not losing any sleep?
Mattress Firm is becoming more reliant on its specialty mattress business, which now comprises 43.8% of its net sales versus 40.9% in the prior year's quarter. Tempur is one of the main suppliers of these high-end mattresses, and this company has also fared quite well lately. However, it has not posted growth anywhere near as high as that of Mattress Firm.

Tempur, now called Tempur Sealy following the acquisition of Sealy in 2013, delivered fourth-quarter EPS of $0.66, which was up from $0.60 a year ago. The acquisition of Sealy has had a huge impact on the company's results, as the incorporation of Sealy's net sales of $333.5 million for the quarter nearly doubled the company's overall sales. However, gross margin dipped to around 40% from 50% due to the acquisition, as Sealy generally has lower margins. Tempur North America sales stayed more or less stable with a drop of 0.7% for the quarter, while international sales of the highly regarded mattresses rose 4.5%. 

Interestingly, Tempur's distributors seem to be doing better than the company itself. Haverty Furniture, another company that sells these mattresses, reported some fairly impressive growth for the fourth quarter that came in more or less in line with Mattress Firm's results. Net sales rose 7.6% for the quarter on a huge 9.5% same-store sales increase, although according to analysts pricing drove these figures more than did traffic. The outlook disappointed investors, as the company expects comp-store sales to slow to 3.6% for the coming quarter. 

The bottom line
With the housing recovery still in full swing, several industries stand to benefit, including home-furnishing chains. Mattress Firm in particular stands out due to its impressive growth figures. Generally outpacing its rivals on several metrics, the company looks like a good bet going forward for investors who look to get in on U.S. housing market strength. 

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Daniel James

I'm primarily a value and fixed-income investor with a background in cultural anthropology. As a writer for the Fool, I focus mainly on the consumer goods sector, also dabbling in technology occaisionally. When not pouring over the world's stock markets, I like to read, travel and make music.

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