Dueling Fools: Select Comfort Bull

I don't need to sugarcoat my passion when it comes to Select Comfort (Nasdaq: SCSS  ) .

I bought one of its air-chambered mattresses earlier this year, and it has changed my life. My wife and I were having problems sleeping through the night, and just about everything that Lindsay Wagner promised during her Select Comfort DVD infomercial proved true. That Bionic Woman's hearing may be astute, but clearly she has great vision, too.

Naturally, Select Comfort's story wouldn't be much of a sell if it ended with just a merrier and more productive me. I am clearly not the only person smitten with the product. Five years ago, a new vision at the top sought to transform the company from a niche luxury retailer into a powerful consumer products company. The Sleep Number concept was introduced in 2001 and Select Comfort hasn't looked back since.

Comps have risen by 15% or better over four consecutive years. The streak is likely to continue, with same-store sales soaring 17% higher through the first six months of 2006. In other words, we're talking about a company that was generating $600,000 a year in sales at its stores a few years ago. It is now averaging $1.5 million per store, with some stores cracking the $3 million and $4 million mark.

When you're a company reaching out directly to the consumer -- as 90% of the company's sales do -- it's important to be successful at the store level. The heady comps bear that out. The company has just over 400 stores open at the moment and expects that to grow to more than 600 over the next five years.

This doesn't mean that the company is riding exclusively on its in-store action. The company recently partnered with leading mattress retailers like Berkshire Hathaway's (NYSE: BRK-A  ) (NYSE: BRK-B  ) Nebraska Furniture Mart to sell its popular lines. It is tiptoeing into Canada, with a deeper international push likely in the future. It has turned to Liberty Media's (NYSE: LCAPA  ) QVC to help move more beds to captive shoppers on television. It also has a great ambassador in Radisson, winning over converts one good hotel night's sleep at a time.

Select Comfort has also been aggressive with its online presence. The company has clocked in with 25% or better e-commerce growth for seven consecutive quarters.

A hot product and smart expansion? Good looks and a great personality? Pinch me. Maybe I'm dreaming (an activity I'm prone to since I met the Select Comfort 5000).

Oh, I'm not dreaming. And all of these favorable signs have created amazing fundamentals for this dynamic company. Last year, Select Comfort generated 43% bottom-line improvement -- to $0.76 a share on a split-adjusted basis -- as sales climbed 24% higher. This isn't a fluke. Through the first six months of 2006, sales and earnings are up 23% and 43%, respectively.

Analysts expect Select Comfort to earn $0.97 a share this year and $1.23 a share next year. With the company targeting long-term profit growth of 20% to 25% a year, I could make a case for Select Comfort being a relative bargain at less than 19 times forward earnings. I could, but I would also be cheating you of the real reason why the shares have been a 20-bagger over the past five years.

Select Comfort isn't just providing worry-free sleep to its shareholders and mattress owners. It seems as if it has caught Wall Street napping, too. The company has handily beaten analyst estimates in each of the past six quarters. Analysts thought that Select Comfort was going to be earning far less than $0.76 a share last year. What are the chances that they are aiming too low here? Pretty good, I would think.

Where are the flaws in Select Comfort? I can't wait to see what my friend Chuck is seeing that I'm apparently missing. The company commands a whopping 90% share of the adjustable-firmness mattress market. That comes despite some pretty big competition, like Simmons in the past and Sealy (NYSE: ZZ  ) in the present.

I believe in Select Comfort. I respect a company that can make me and my portfolio more productive. That's right. After my first few dreamy nights, I did the sensible thing and bought shares in the company. If I have any regret, it's that I didn't follow the initial recommendation to Hidden Gems subscribers in the spring of 2004. I wasted a year of profits and tossing and turning. No more. You had me at 35, my little Sleep Number mattress.

So don't put money under your mattress, Fools. Put your money on the mattress maker instead.

Think you're done with the Duel? You're not! Go back and read the other three arguments, and then vote for a winner and share your opinion atMotley Fool CAPS.

Longtime Fool contributor Rick Munarriz thinks that a good night's sleep is better than a balanced breakfast to start the day off right. He does own shares in Select Comfort. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool's disclosure policy is light as a feather.


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