It's said that putting money under your mattress is a safe place, but the same thing can't be said for investors in mattress makers last week. Shares of Tempur Sealy (NYSE:TPX) and Select Comfort (NASDAQ:SNBR) plummeted 26% and 15%, respectively, last week. The culprit behind the slide was an unsettling sales update out of Tempur Sealy.
The mattress giant announced that it expects net sales for this year to decline by 1% to 3%. That may not seem so bad, but keep in mind that net sales had risen 1.4% through the first half of 2016. That means Tempur Sealy's top line will decline by roughly 5% during the second half of this year to hit its full-year outlook. Its earlier outlook was for sales growth in the mid-single digits.
Tempur Sealy still sees growth on the bottom line for the entire year as cost savings and share buybacks pay off. The midpoint of its refreshed guidance calls for adjusted EBITDA to grow by 12% and adjusted earnings per share to climb by 20%, but that's still less than it was forecasting earlier. It is lowering its adjusted EBITDA guidance by $25 million at both ends of its range.
Tempur Sealy won't be reporting its actual quarterly results until Oct. 27, but with a financial presentation slated for the Deutsche Bank Annual Leveraged Finance Conference last Tuesday afternoon, it figured it would go public with the revision so it could discuss the numbers openly at the conference.
A bad night's sleep
Wall Street obviously doesn't like it when numbers are revised lower. Longbow downgraded Tempur Sealy stock to Neutral from Buy after the business update. Piper Jaffray slashed its price target from $84 to $63. Stifel also hosed down its goal for the stock price from $80 to $72.
Select Comfort fell in sympathy at first. If folks aren't buying Tempur-Pedic memory foam mattresses, traditional Sealy boxsprings, or other Tempur Sealy products they're probably not snapping up Select Comfort's air-chambered Sleep Number beds either. Things only got worse on Thursday when UBS analyst Michael Lasser initiated coverage of Select Comfort with a Sell rating and a $20 price target.
Lasser's fear -- and something that should have every Tempur Sealy and Select Comfort investor gnawing at his or her fingernails -- is that the new breed of online only mattress providers is eating into the traditional brands. Scroll through Amazon and you'll see top sellers include Signature Sleep, Sleep Innovations, and Lucid. On the higher end, Casper ads are all over cyberspace. It's hard to compete in this climate.
The investors that got lucky are those in Mattress Firm (NASDAQ: MFRM). The leading retailer of bedding products was carving out a cozy living by gobbling up smaller rivals in a highly fragmented sector. Mattress Firm accepted a buyout offer in August, taking public investors out at $64 a share a few weeks later. Steinhoff International Holdings completed the purchase on Sept. 16, just 11 days before Tempur Sealy's bombshell that could've given Steinhoff cold feet and the stock a hard jolt.
Select Comfort won't report until early next month, and we already know that Tempur Sealy is hurting. It's going to be a tough road for both stocks unless they have some good news to report in a few weeks.