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Can Select Comfort Stock Wake Up After Last Week's 24% Drop?

By Rick Munarriz - Feb 16, 2016 at 9:06AM

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The mattress maker falls short again this holiday season.

Image source: Select Comfort.   

If stock prices are Sleep Numbers, it's been years since Select Comfort (SNBR -1.26%) has been this soft. Shares of the maker of air-chambered beds plunged 24% last week, hitting a fresh four-year low after posting brutal financial results for the holiday quarter. 

Net sales plummeted 33% since the prior year to $215 million, weighed down by a 30% plunge in comps. That's a pretty steep store-level free fall in sales, but Select Comfort insists that hiccups in its enterprise software implementation accounted for the lion's share of that decline. It is pegging $84 million in lost sales on the bumpy migration to its new enterprise resource planning -- or ERP -- platform, a sum that would explain away 26 percentage points of the slide in net sales.  

Select Comfort isn't the first company to warn that it lost on a ton of sales because the shift to a new enterprise software system resulted in inventory shortfalls of what customers wanted to buy. However, the move is sometimes a sign of worse things yet to come. Lumber Liquidators (LL -2.85%) had an ERP failure in late 2010. The hardwood flooring retailer blamed its lack of productivity on the move. Lumber Liquidators eventually bounced back, but today the stock has a deeper sales problem. Lumber Liquidators stock is now trading lower than it was after the initial ERP failure fallout.

You know who else has botched an ERP shift? Select Comfort. It also happened to the company behind the Sleep Number beds and stores in 2008. Fool me twice?

Naturally things got even uglier on the way down to Select Comfort's bottom line. It posted a larger-than-expected quarterly loss. This explains why the stock hasn't traded this low since late 2011.

This shouldn't come as a surprise to investors watching Select Comfort. This is the third time in the past four years that Select Comfort stock suffered a double-digit percentage decline after posting poorly received holiday quarter results. The software disruption may have had a starring role this time, but it seems to be a mostly recurring event. 

Select Comfort sees healthy top-line growth in fiscal 2016, as well as a big rebound in profitability off of last year's depressed results. The low end of the projected profit range may be what it earned in 2014, but the stock is also trading a lot lower than it is right now. If Select Comfort can live up to those forecasts -- a tall order for a company with a product that would've suffered a holiday sales decline anyway -- it will bounce back. The stock is fetching just 11 to 12 times Select Comfort's year-ahead profit outlook, making it a bargain unless there's a larger consumer trend shifting away from Sleep Number as a bedding product of choice. 

Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Lumber Liquidators. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Sleep Comfort Corporation Stock Quote
Sleep Comfort Corporation
$47.92 (-1.26%) $0.61
LL Flooring Holdings, Inc. Stock Quote
LL Flooring Holdings, Inc.
$10.21 (-2.85%) $0.30

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