Yesterday afternoon, after the markets were safely closed and trading was dependably light, cutting-edge airbed maker and Motley Fool Hidden Gems re-re-re-recommendation Select Comfort
Reviewing "actual business results for the 10-weeks ended Saturday," and with just three weeks left to go in the quarter, CFO Jim Raabe advised that sales for the quarter are trending towards a 5% decline versus last year's Q2. Management's efforts to boost sales through a costly new marketing campaign (marketing costs were up 7% last quarter, versus just a 2% rise in sales) "have not driven incremental traffic." As a result, Select Comfort felt compelled to lower guidance for the current fiscal year. (Meanwhile, archrival Tempur-Pedic
Also gone by the wayside is the firm's previous prediction of $1.05 in per-share profits this year. In its place, Raabe promised just $0.87 to $0.93 -- and even that will only be achieved by dint of the firm buying back stock to concentrate profits among fewer shares. Again, this is not at all what investors, promised long-term annualized profits growth of 20% to 25%, had been led to expect.
The good news
Considering the tepid sales and profits outlook, you may be surprised to learn that there is any good news. But it's there -- and it's the bad news that's the good news. Or rather, the fact that management didn't try to spin the bad news, instead taking full responsibility for this disaster in the making. Said Raabe: "We are not at all satisfied with our performance, particularly our marketing." Moreover: "Our key challenges of marketing and sales are largely within our control."
Noticeably absent from the call were any attempts to blame rain, a weak housing environment, rising interest rates, or a generally "challenging" business environment in the furniture industry for Select Comfort's problems. No, Select Comfort did this to itself. They know it. We know it. You know it. The only surprising thing is ... they admit it.
Cold comfort to investors who are watching their shares plunge in value as they read this, I know. But from the looks of things, it's the only comfort we're going to get between now and 2008.
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Fool contributor Rich Smith does not own shares of any company named above.