Select Comfort Lets the Bed Bugs Bite (SCSS)

Select Comfort Lets the Bed Bugs Bite

Is it possible to squeeze any more air out of Sleep Number Bed maker Select Comfort (Nasdaq: SCSS ) ?

Fitful sales find the company withdrawing its guidance for both the current quarter and the year ahead, warning only that the company will come up short relative to its initial guidance.

The company points to macroeconomic factors weighing down results, but who are we kidding here? As Select Comfort has spent the past year hosing down its projections, rival Tempur-Pedic (NYSE: TPX ) is growing at Select Comfort's expense.

It's a tough thing to admit, but I can accept it, and I'm both a satisfied Sleep Number Bed owner and dissatisfied shareholder.

The company is hoping that a new chief marketing officer, and a new ad campaign that will kick in next quarter, will help revive the brand that was doing so well when the Hidden Gems newsletter singled out the stock three years ago. The company has had initial success with remodeled test stores, but if that were a magic elixir, the company wouldn't be flashing amber lights now as it warns of a difficult 2008.

In a bold move, Select Comfort will increase prices on a few models next month. With year-over-year sales falling and store-level comps plummeting even more, stirring up sticker shock seems like a losing strategy.

However, the company's aiming to stabilize profits in 2008. If Select Comfort becomes a killer premium brand again, eventually it will have the pricing elasticity it covets. Sealy (NYSE: ZZ ) isn't doing too well, yet it also bumped up its wholesale prices two months ago.

Actual fourth-quarter results won't be disclosed until early February. Investors, while tossing and turning until then, know there are more than macro factors at play. Sure, the housing market is weak, but not every company that furnishes depressed homesteads is suffering.

Hardwood flooring discounter Lumber Liquidators (NYSE: LL ) has posted positive comps for 23 consecutive quarters. Bed Bath & Beyond (Nasdaq: BBBY ) has topped analyst expectations in each of the past three quarters.

The world isn't that bad. Select Comfort's peers aren't seeing their shares hit fresh four-year lows. If Select thinks that macro factors are at play, it better learn not to limit its universe to the space between its four walls.

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Select Comfort has been recommended toHidden Gems subscribers since the spring of 2004. Bed Bath & Beyond is a pick in both theMotley Fool Stock Advisor andInside Value newsletters. Sleep on any of the newsletters for free over the next 30 nights.

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, which seeks out tomorrow's ultimate growth stocks a day early. The Fool has a comfy disclosure policy.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Report this Comment On December 13, 2007, at 3:21 PM, AnalystBuster wrote:

From over 2 years of following Select Comfort, and regardless of the market's reactions, I must say this is NOT my idea of a great mangement team skillfully steering a business in its market.
Report this Comment On December 13, 2007, at 5:04 PM, DSPMachine wrote:

Management (correctly) identified the tie to new housing sales at the very beginning of the company's slow down. Not long after that, they made the decision not to enter a price war with competitors. Then they went on a ridiculous string of claiming that the only thing wrong was marketing, which they continued to "adjust" with no results.
I see no way out of the tie to housing except perhaps, working the low end (but if I had good judgement on things like that, I'd be an executive). They've decided to protect margins, and now raise prices -- seems dumb, not Foolish.
They claimed long ago that expiring patents (now imminent) wouldn't be a problem. That was comforting, back when I thought they had good judgement.
Foolish lesson for you: I got out of this stock when management kept claiming that marketing was the solution.

updated 19 minutes ago Sponsored by:
	DOW	12,878.28	4.24	0.03%
	S&P 500	1,350.50	-1.27	-0.09%
	NASD	2,931.83	0.44	0.02%

SCSS	$28.62		-0.39	-1.34%
Select Comfort Cor…		CAPS Rating:

ZZ	$1.59		+0.03	+1.92%
Sealy Corp		CAPS Rating:

TPX	$74.08		+0.01	+0.01%
Tempur-Pedic Inter…		CAPS Rating:

BBBY	$59.76		+0.39	+0.65%
Bed Bath & Beyond		CAPS Rating:

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Select Comfort Lets the Bed Bugs Bite

Comments from our Foolish Readers

Report this Comment On December 13, 2007, at 3:21 PM, AnalystBuster wrote:

Report this Comment On December 13, 2007, at 5:04 PM, DSPMachine wrote:

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