When Box Springs No Longer Spring

By Rick Aristotle Munarriz
July 10, 2008 | Comments (1)

Recs

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It's been a rough week for mattress maker Sealy (NYSE: ZZ). Investors took a hit on Tuesday, even as most of the market rallied. Then the company cranked out a troublesome quarterly report, sending its stock down another 8% yesterday.

Sealy's fiscal second-quarter numbers are nightmares on Wall Street. Sales fell by 6.6% to $375.4 million, spanked by a 16% decline in domestic unit sales. Earnings fell to $0.13 a share, after last year's showing of $0.17, but would have actually clocked in at $0.08 if not for a one-time reserves-related benefit. Business may be healthy abroad, but the end result is still a bottom-line disaster. Higher material costs are tough to pass on to penny-pinching consumers.

Sealy's numbers are even worse than the company's first-quarter financials, and they seemed so bleak that the company suspended its dividend.

Sealy isn't alone. Niche bedding makers Tempur-Pedic (NYSE: TPX) and Select Comfort (Nasdaq: SCSS) have taken their lumps, too. We're just not in a rush to upgrade our mattresses, and apparently the economic stimulus checks that have been going out since May are tackling lumpier issues.

Other companies that rely on residential furnishings, like Leggett & Platt (NYSE: LEG), La-Z-Boy (NYSE: LZB), and Ethan Allen Interiors (NYSE: ETH) -- especially big-ticket items -- will be pressed to perform in this very difficult environment.

Whatever you do, just don't tell Sealy investors to "sleep on it," because they already have. It's a bed of nails that apparently isn't going to get smoother until the economy rights its wrongs.

Other ways that the bedbugs bite:

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Longtime Fool contributor Rick Munarriz has been a Select Comfort investor almost as long as he's been a Select Comfort Sleep Number bed customer. Yes, he's in pain, but still loves his bed. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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  • Report this Comment On July 10, 2008, at 3:21 PM, CharlieBombay wrote:

    On their call, Sealy pointed out that the market environment is getting worse.

    They are implementing a price increase July 21, while there competitors announced price reductions this week.

    Last quarter's results were propped up by sales on floor items making way for their new line of $2000+ mattresses. International units sales have held up, but pricing there hasn't. And, they say units sales are starting to drop off in the second half.

    Sealy is heavily levered (please see their balance sheet). Their accounts payable have increased significantly while their receivables have declined. (i.e., they have more bills and let cash left to collect.) I beleive next quarter's numbers will really shock the street.

    Go read the conference call transcript.

    I bought some puts.

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