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Why Mattress Firm Holding Corp. Stock Plunged More Than 20% on Friday

By Steve Symington - Sep 11, 2015 at 1:34PM

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The mattress retailer dropped hard after a disappointing quarter. Here's what investors need to know.

What: Shares of Mattress Firm Holding Corp. (NASDAQ: MFRM) were down 21% as of 1:30 p.m. Friday after the mattress retail chain reported weaker-than-expected fiscal-second-quarter results and mixed forward guidance.

So what: Quarterly revenue climbed 61.2% year over year to $661.1 million, bolstered by a combination of comparable-store sales growth of 2.8%, and incremental sales from acquired and new locations. Meanwhile, adjusted net income rose a much more modest 13.1% year over year to $23.8 million, or $0.67 per share.  For perspective on the top line, Mattress firm opened 71 new locations and closed 11 during the quarter, bringing its total to 2,223. And in September 2014, Mattress Firm completed its $64.5 million acquisition of the 131 retail locations including the Back to Bed and Bedding Experts retail stores in Illinois, Indiana, and Wisconsin, as well as Bedding Experts and Mattress Barn retail stores in Florida. 

Unfortunately, analysts were anticipating higher revenue and earnings of $663.6 million and $0.72 per share, respectively.

"Despite a solid Labor Day and recent positive sales trends," explained Mattress Firm CEO Steve Stagner, "we still expect volatility in the oil-affected markets and have adjusted our guidance to reflect that. We continue to see results from our Relative Market Share model, and believe we can create long-term value for our shareholders as we integrate our acquisitions and execute our growth strategies."

Now what: On one hand, Mattress Firm updated its revenue guidance for the full fiscal year to a range of $2.53 million to $2.55 million, an increase from its previous range of $2.485 million to $2.535 million. On the other hand, that's expected to translate to adjusted net income per share of $2.30 to $2.45, down from previous expectations for EPS in the range of $2.50 to $2.70. Analysts' consensus estimates were predicting lower-full-year revenue of $2.50 billion, but significantly higher earnings of $2.59 per share.

To be fair, the volatility Mattress firm is experiencing in oil-affected markets should ultimately prove temporary. But for now, considering revenue guidance was effectively the only item to exceed expectations as the rest of the results fell short, it's no surprise the market is bidding down Mattress Firm stock today.

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