Uncomfortable earnings guidance aside, Select Comfort (NASDAQ:SCSS) has succeeded in exceeding analyst expectations in each of the last two quarters. So once again, we ask: Tic-tac-toe, can this company make it three in a row when it reports Q2 2007 results tomorrow afternoon?

What analysts say:

  • Buy, sell, or waffle? Sixteen analysts now follow Select Comfort, giving it six buy ratings and 10 holds.
  • Revenues. On average, they're looking for a 5% decline in sales to $178.8 million.
  • Earnings. Profits are predicted to fall by more than half to $0.09 per share.

What management says:
The most important news out of Select Comfort this quarter -- well, we've already covered that, haven't we? Last month, management warned that weak sales over the preceding 10 weeks had convinced it of the need to lower guidance for the entire fiscal year. Select Comfort now expects to book no more than $860 million in sales (which would be less than 7% year-over-year growth, far below its long-term target of 15% to 20%), and no more than $0.93 per share in profits (9% growth). Quite a contrast to the results that Tempur-Pedic (NYSE: TPX) just reported, and to that firm's prediction of 15% sales growth and 30% earnings growth for the year.

(And yet, fellow Fool David Meier still thinks Select Comfort's a buy. Find out why.)

What management does:
One reason for optimism may be found in Select Comfort's consistently rising gross margins -- it's just the operating and net results that are keeping investors up nights.

Margins

12/05

4/06

7/06

9/06

12/06

3/07

Gross

58.9%

59.2%

60.0%

60.6%

60.9%

61.4%

Operating

10.1%

10.2%

10.5%

11.0%

10.8%

10.6%

Net

6.3%

6.4%

6.5%

6.6%

5.9%

5.7%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Foolish minds can differ, however -- and often do. For example, while encouraged by the fact that "Select Comfort continues to be an aggressive purchaser of its shares," fellow Fool Bill Barker, of our Motley Fool Hidden Gems team, voiced some less than encouraging thoughts about the company in his recent edition of HG Weekly. (If you're a member, you can click this link to review his analysis in full. If you're not a member, why not? 30-day trials are free!)

Briefly, though, here's what Bill is thinking:

Based on today's price, Select Comfort is at a roughly average market multiple on a price-to-earnings basis, currently experiencing roughly average market earnings per share growth rates. It has designs on superior growth rates, but the current reality is that it isn't coming close to achieving those goals. It offsets having truly spectacular return on equity figures with an extremely lofty price-to-book ratio, even after seeing its price cut nearly in half over the past 14 months.

Of course, it's been a little more than a month since Bill penned those thoughts. Perhaps today's lower stock price offers a more attractive entry point? Check out Tom Gardner's most recent semiannual checkup on all of his Hidden Gems picks and find out whether he agrees with Bill, or with Dave, on Select Comfort's buy-worthiness. (Again, members and free trial-takers only, please.)

Fool contributor Rich Smith does not own shares of any company named above.