What: Shares of Mattress Firm Holding Corp. (NASDAQ: MFRM) plunged as much as 19.1% early Friday, but partially recovered to trade down 14.6% as of 1:30 p.m. EDT, after the company released weaker-than-expected fiscal first-quarter 2016 results.
So what: Quarterly revenue climbed rose 49.2% year over year, to $839.4 million, driven by a combination of acquired and new locations, and offset partially by a 1.1% decline in comparable-store sales. Based on generally accepted accounting principles (GAAP), that translated to a loss of $3.22 per diluted share. On an adjusted (non-GAAP) basis, which excludes items like acquisition, asset impairment, and severance costs, Mattress Firm's loss came in at $0.17 per share. Meanwhile, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) fell 10.3% year over year, to $46.8 million.
By contrast, Mattress Firm's guidance provided last quarter called for a narrower GAAP loss per share of $0.32 to $0.25, and adjusted earnings between breakeven and a loss of $0.07 per share. And analysts, on average, were predicting that higher revenue of $867.2 million would translate to an adjusted loss of $0.04 per share.
"We are disappointed in our first-quarter results," said Mattress Firm executive chairman and chairman of the board, Steve Stagner, "as we experienced unrelated challenges in three primary areas."
During the subsequent conference call, Stagner elaborated: those three areas included a systems upgrade that caused an "extended disruption to the business," an "elongated and painful new product rollout that resulted in back orders, lost sales, and frustrated consumers and sales associates alike," and challenges related to the ramp-up of a new primary financing provider in Mattress Firm's namesake stores.
Stagner went on: "These issues have been resolved and are largely behind us; however, there was clearly an impact to sales in Q1 that continued early into Q2. Due to our results to date, we are revising our guidance for the full year."
In addition, keeping in mind Mattress Firm only just completed its acquisition of Sleepy's in February, Mattress Firm announced plans to consolidate all stores under the Mattress Firm banner nationwide over the next 12 to 18 months.
Now what: In the meantime, Mattress Firm expects full-year revenue between $3.825 billion and $3.875 billion (down from $3.95 billion to $4 billion previously), comparable-store sales growth of 1% to 2% (down from 4% to 5.5%), adjusted EBITDA of $338 million to $343 million (down from $365 million to $370 million), and adjusted earnings per share of $2.25 to $2.35, which excludes a $0.27-per-share charge related to trade name amortization (down from adjusted EPS guidance of $2.50 to $2.60 previously).
In the end, Mattress Firm's business may be back on the right track. But given its trifecta of challenges and resulting underperformance this quarter, it's no surprise to see investors taking a big step back today.