It's not just air filling up the chambers of Select Comfort's (NASDAQ:SCSS) signature mattresses. There's a fair share of hope and optimism being blown in for good measure after another solid report out of the company.
The popularity of the Select Comfort beds continues. Sales soared 22% higher, but the sleepy slumber toward the bottom line was even dreamier. Thicker margins resulted in earnings of $0.19 per share during the fiscal second quarter. That was well ahead of the $0.13 a share it earned last year and the $0.17 per share that analysts had been sleeping on.
Select Comfort doesn't need to thank me, although I did become a new customer this year. After briefly considering a Tempur-Pedic (NYSE:TPX) mattress, and throwing out an ineffective foam mattress because our firmness preferences differed, my wife and I figured that Select Comfort's dual-chambered bed would provide the perfect compromise to our varying expectations of mattress firmness.
Life is funny that way. My wife and I thought that we were radically different, but it turns out that we both like pina coladas, getting caught in the rain, and 35 as a Sleep Number setting.
Select Comfort was coming off a strong 2005. It followed that up with a resilient first-quarter showing. This week's report marks the fifth straight quarter in which Select Comfort has bested Wall Street's profit targets. The company is also raising its guidance by a pair of pennies, with Select Comfort now poised to earn between $0.93 to $0.97 a share this year.
Those are inspiring numbers, but Select Comfort isn't exactly tickling new highs at the moment. The shares are trading nearly 30% off spring-time highs. Why are investors nervous? The market hasn't been kind lately, but you probably know that. These mattresses' lofty price tags aren't helping Select Comfort. We paid about $1,500 for our king-sized mattress, and it was a midline model. Higher gas prices have dried up discretionary income, and the steady ascent of prime lending rates makes financing these beauties on your credit card a costlier call.
Buy all that? I sure don't. Wake up, Wall Street! Comps at Select Comfort stores rose a staggering 16% this past quarter. Gas wasn't cheap then, either. One can even argue that if soaring prices at the pump make folks jittery about going out as much as they used to, having a great mattress to sleep on would be even more valuable.
Select Comfort isn't buying it, either. The company still expects to grow sales at a 15% to 20% clip this year. The only thing that Select Comfort is buying is its own shares, as it aggressively repurchases its outstanding stock. Trading at a little more than 20 times this year's profit targets is a bargain, given the company's clear path to grow the bottom line in the 20% to 25% range over the next few years.
You may find pina coladas too frosty, rainstorms too noisy, or 35 as a Sleep Number too wimpy, but give it some thought, and I think we can agree that Select Comfort is a good bargain right now.
Select Comfort was first recommended to Motley Fool Hidden Gems subscribers in the spring of 2004. Sign up today for a free 30-day trial so you can ask Tom Gardner how he feels about pina coladas.
Longtime Fool contributor Rick Munarriz thought that home was where the hard bed is, until he finally got a good night's sleep thanks to Select Comfort. He thinks he would make a much better spokesperson than Lindsay Wagner. He does not own shares in any of the companies mentioned in this story. Rick is also part of the Motley Fool Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
