Sealy (NYSE: ZZ) investors must have been quivering in their bedsheets heading into last night's quarterly report. After watching premium mattress makers Select Comfort (Nasdaq: SCSS) and Tempur-Pedic (NYSE: TPX) come up short recently, they had to be braced for the worst.
Truth be told, it was an ugly report. Net sales shrank by 5% to $391.9 million, with a steeper shortfall domestically. Margins fell, smacked by the double whammy of higher material costs and lower average unit selling prices. Earnings came in at $0.17 a share for the period, well below the $0.26 a share it produced a year earlier.
However, Wall Street is all about pricing expectations, and investors were discounting a nightmare. Analyst estimates were calling for the company to earn just $0.10 a share on $383.3 million in revenue.
Shares ticked higher initially on the news, but that move created more a quiet sigh of relief than a bullish exultation. We're talking about a company with nearly $800 million in debt and negative book value. The world's leading mattress maker also decided to suspend its quarterly dividend, a move that effectively slashes its 3.5% yield to nothing.
These aren't the best of times for big-ticket sellers, especially when it comes to items tied to housing. Housewear chains Bed Bath & Beyond (Nasdaq: BBBY), Cost Plus (Nasdaq: CPWM), Williams-Sonoma (NYSE: WSM), and Pier 1 Imports (NYSE: PIR) all have impulse items and low-priced home enhancements they can rely on in tough times. But Sealy needs to move big, expensive mattresses.
Maybe some of the upcoming economic-stimulus rebate checks will go toward upgrading lumpy mattresses, but until sales begin moving higher for the industry, sleepy days are ahead.
That doesn't mean that I won't cheer on the company's success relative to its expectations. Way to go, Sealy. However, I'm concerned about the company in the near term, given what I believe are unrealistic expectations. Some of the initiatives noted during last night's conference call include moves to bump up average unit selling prices, improve gross margins, and place a greater marketing emphasis on its high-end Posturepedic mattresses. These would be ambitious goals in any environment, but they seem somewhat delusional in the company's current economic state.
Then again, Sealy makes the mattresses. It has the right to dream.
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