How low can this Sleep Number mattress go?
Select Comfort (Nasdaq: SCSS) keeps testing new lows, and it has definitely earned the air-chambered deflation given last night's horrendous first-quarter report.
As bad as the financial numbers got in recent quarters -- including a doozy of a letdown to close out 2007 -- at least Select Comfort was profitable. No more. The troubled mattress maker reversed last year's $0.21 a share profit by posting a loss of $0.16 a share. Net sales fell by 22% to $168.2 million, dragged down by a mind-boggling 25% drop in comps during the period.
And that's stacked on top -- or make that below -- an 11% drop in comps during last year's first quarter. In other words, the typical namesake store is ringing up one-third fewer sales than it did two years ago.
Ouch. Weren't mattresses supposed to be recession-resistant? Good times or bad, isn't the gradual wear on a mattress enough to make it a reliable big-ticket purchase? Apparently not, given the weakness at Select Comfort peers Tempur-Pedic (NYSE: TPX) and Sealy (NYSE: ZZ) these days.
Select Comfort has been the biggest loser, missing Wall Street's profit expectations by wide margins in three of the past four quarters.
The niche is out of favor, but Select Comfort's beds are losing market share within the sinking sector. The company is responding by slashing payroll, hacking away at its store expansion strategy, and introducing new models at new price points -- but only that last step has a shot at growing sales again. Everything else is about reversing the hemorrhaging margin that has plagued the company on the way down.
It's not easy to get excited about the home furnishings industry, and not only because the hits keep coming from the homebuilder space. Last night's duds out of developers Pulte (NYSE: PHM) and Ryland (NYSE: RYL) are becoming too predictable.
No, the real hurdle here is that consumers who used to spruce up their homes -- with a fresh coat of paint or by upgrading that lumpy mattress -- can't find the money to make it happen. Distressed lenders certainly won't lend a hand. Home furnishing chains such as Bed Bath & Beyond (Nasdaq: BBBY) and Pier 1 (NYSE: PIR) are getting by thanks to an assortment of low-ticket items. Select Comfort doesn't have that kind of luxury.
I'm a believer in Select Comfort's product. Dump Lindsay Wagner as a spokesperson and the poorly targeted SHeDAISY ads. I'll sing my Sleep Number bed's praises for free! However, I now realize that I offset a great nighttime decision with the brutal one of buying shares just because I'm fond of the product.
The timing is terrible for any mattress maker, but especially for one trying to get its point across in the premium bedding niche.
I realize that Sleep Number settings can go to zero. Let's hope that the stock doesn't follow suit.
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