When companies issue guidance, investors tend to rely upon those projections, believing that management has a keener insight into the drivers of its business. Barring unforeseen events, management is usually expected to at least come close to the mark.
Such has not been the case with Motley Fool Hidden Gems recommendation Select Comfort
What Select Comfort does now is provide yearly earnings and sales guidance and offer mid-quarter updates that indicate whether those numbers are in line with expectations. Yesterday, it reported that sales growth was on target, still at the higher end of the 15% to 20% range it anticipates, and reaffirmed that it expects to earn between $0.98 and $1.06 per share for the year. That's a pretty wide mark, which means management has certainly given itself room for error. Let's not forget that it also represents a 20% to 30% increase over last year's numbers.
What's driving those sales are Select Comfort's low-end beds -- what the company calls its "entry-level" beds. But don't be fooled by the term. These high-tech beds can be pricey. A Sleep Number 3000 queen mattress with the most basic features can run almost $1,000. At the premium end, its state-of-the-art Sleep Number 9000 twin starts at $3,000, while a queen-size can run upwards of $3,500. A California King with amenities can set you back some $4,300.
That compares to competitor Tempur-Pedic
Apparently, sleeping well doesn't come cheap.
Not surprisingly, customers are reluctant to part with thousands of dollars for a top-of-the-line model. Last year, the company introduced its high-end bed upgrades first, and customers who could not afford such luxury simply waited for the upgrades to trickle down to the lower-end beds. Sales declined as a result of this marketing snafu. But with those lower-end upgrades now in place, it appears sales are finally picking up.
Investors, however, can't be completely assured these sales trends will continue. Management provided itself with a little caveat, noting that since sales traditionally start building toward the last month of the first quarter, they really won't know what the results will be until the end of this month. Perhaps that's why they've mapped out such a wide target to shoot at.
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