Select Comfort Tosses and Turns

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Let's hope that Select Comfort (Nasdaq: SCSS) shareholders slept well on their air-chambered mattresses last night, because this morning brought a rude awakening. The company announced that it will miss its current-quarter target -- badly -- on a steep 9% slide in comps through the first eight weeks of the reporting period.

The company is now looking to earn between $0.80 and $0.87 a share for all of fiscal 2006. In other words, after earning $0.65 a share through the first nine months of the year, Select Comfort is looking to cap things off by earning just $0.15 to $0.22 a share in the seasonally perky holiday quarter. Analysts had been perched at the $0.31-per-share mark of expectations.

The decline in comps is problematic. Until now, Select Comfort had managed to clock in with 15% or better in store-level growth for four consecutive years. The company is pointing to a publicized late November price hike last year as the catalyst for last year's sales surge, with buyers looking to get in before the increase, but that tells only part of the story.

Last month, Select Comfort's shares took a hit after posting disappointing third-quarter results. After six straight quarters of obliterating market projections, Select Comfort proved mortal. This morning's debacle is just a sad continuation of that unwelcome trend.

So what's going on here? Is Select Comfort losing out to rivals like Tempur-Pedic (NYSE: TPX) and Sealy (NYSE: ZZ), or is the sector just another casualty of the housing slump? The latter would be a surprise, because the niche has prided itself on its lack of cyclicality. The International Sleep Products Association claims that the bedding market has risen at an annualized clip of 6.3% since 1984, with just one down year in 2001. The industry estimates that 70% of the sector is powered by replacement mattresses, so slower home sales shouldn't be much of a factor.

As someone so impressed with the company's product that I bought into the company earlier this year, watching the stock dive 18% at the open today hurts. It also is leaving a bit of a sting in the Motley Fool Hidden Gems scorecard. Thankfully, the average pick -- Select Comfort included -- is still smoking the market averages by a wide margin. That still won't make me sleep any better if this is less of a blip and more of a prolonged downturn at Select Comfort. Like one of its signature Sleep Number beds being programmed to be less firm, let's hope that Select Comfort isn't being deflated, either. Until comps resume their growing ways, there may not be a whole lot of life to these shares.

For more on companies that help us get a good night's sleep, check out:

• Dueling Fools: Select Comfort
• Sealy's No Sleeper Yet
• A Dreamy Quarter for Tempur-Pedic

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 the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.