In recent months, Select Comfort
First, the good news. Same-store sales increased 15% in the quarter, while net sales were $144.3 million, 23% higher than the 2003 total. The company also forecast earnings per share of $0.32 to $0.35 for the fourth quarter, along with same-store sales increases of 15% to 20%. And despite a brief spike in August, warranty claims have returned to normal levels. Finally, the company boosted its stash of cash to $95 million, even after it spent $14.6 million on a share repurchase plan.
Yet there are some clouds on the horizon, and whether they'll bring rain remains to be seen. The company announced that it might be a target of a possible class-action lawsuit for alleged deceptive trade practices and breach of warranty. While the lawsuit is still in its early stages and has not yet received class-action certification, it is nevertheless testament that the pesky mold issue may not go away as quickly as investors wish. The company admitted that negative publicity in Minneapolis and hurricanes in the South dragged down net income by 2% to 3%. While we can count on hurricanes being one-time events, the effects of mold concerns may linger.
Still, Select Comfort remains a compelling investment at current valuation levels. For a company that's growing sales at more than 20% a clip, plans to increase its total number of stores by 16%, and has 16% of its total market capitalization in cold, hard cash, a forward price-to-earnings ratio of 14 on 2005 predicted earnings seems a small price to pay. Add to this management's strong focus on a quality line of products -- think Middleby
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Fool contributor Marko Djuranovic sleeps on a Select Comfort bed but does not cook with a Middleby oven. He does, however, own shares in both companies.