Tuesday was a trading day of redemption for Select Comfort (NASDAQ:SNBR) shareholders. Shares of the company behind the Sleep Number adjustable air-chambered mattress opened nearly 3% lower, only to close out the session 1.4% higher. That's a big turnaround for a stock that was trading as much as 10% lower in after-hours trading on Monday, after the company posted mixed financial results.
Select Comfort saw net sales climb 3% to $284.7 million, well short of the 8% analysts were expecting. It also posted a net loss of $0.02 a share; Wall Street pros were holding out for a small profit. Falling short on both ends of the income statement is never pretty, but the results come with some asterisks. A new supplier's inventory shortage caused a week's worth of deliveries to be delayed, pushing $25 million of net sales into the third quarter. The shipment hiccup resulted in a an estimated $0.12 hit to earnings. Adjust results for the delayed deliveries, and Select Comfort's profit of $0.10 a share and net sales of nearly $310 million would've been well ahead of analyst targets.
Airing things out
It took a few hours for Wall Street's opinion to turn on Select Comfort, and it only helps that Stifel analyst John Baugh reiterated his bullish rating on Tuesday morning, as he raised his price target from $32 to $36. He sees strong demand for the recently introduced Sleep Number 360, billed as the industry's first smart bed. He thinks the supplier issue is isolated and not a long-term distraction.
Sleep Number 360 is a potential game changer. The new mattress uses intelligent biometrics that can adjust the bed's firmness and elevation if someone is snoring or tossing and turning. The first two models hit Select Comfort stores by the end of May.
Select Comfort still expects earnings per share this year to clock in between $1.25 and $1.50, including a $0.15 to $0.22 hit for one-time costs related to the launch of Sleep Number 360 and tweaks to its supply chain. It's also sticking to its goal of $2.75 a share in earnings come 2019.
The quarter wasn't perfect. The company didn't raise its full-year guidance the way it did during its blowout first quarter three months earlier. There also wasn't any reason to believe that the rumored combination with Tempur Sealy International (NYSE:TPX) -- chatter that propelled both stocks higher -- is legit. Select Comfort wasn't going to mention it, and analysts didn't bring Tempur Sealy up during the call. The only big change in plans appears to be Select Comfort's planned name change to Sleep Number later this year,
Select Comfort is typically a big mover the day after it posts quarterly results, so yesterday's 1.4% gain on Tuesday may seem anticlimactic. However, the market's quick turn on the numbers -- going from brutally bearish to mildly optimistic -- shows that volatility is still alive and well here.