The Return of Bed Bugs for Mattress Makers

24/7 Wall St.

By now you have probably noticed a series of big hits and really bad misses by the mattress makers when they report earnings and offer guidance. It is almost as if a bed bug invasion has come back into the fray at the companies when you see just how bad the earnings report was from Select Comfort Corp. (SCSS). The concerns were bad enough if that its peers are getting slaughtered with it.

Select Comfort had a poor report, and its guidance was lackluster at best. Earnings came in at $0.36 per share, versus a $0.43 per share estimate from analysts, and revenue was soft as well. Where the real issue came up is that the mattress maker lowered earnings guidance to a range of $1.14 to $1.22 per share from a prior range of $1.30 to $1.45. In short, it is coming nowhere close to its lower-end guesstimate from the summer. The consensus estimate was up at $1.33 in earnings per share.

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Select Comfort shares were down 24% at $18.23 in active trading of more than 3 million shares, even after only the first 20 minutes or so of trading Thursday. The 52-week range is $16.62 to $31.20, and the average volume is only about 1.2 million shares. The two factors were higher input costs and weaker demand, which is almost always more of a problem for companies than rising costs. Unfortunately, even after the drop, this now still values Select Comfort at about 15 times expected earnings. That is not exactly cheap for declining expectations and an at-market multiple, particularly in a bull market.

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Rival mattress-maker Tempur Sealy International Inc. (TPX) has a market cap of more than $2.2 billion, which is more than twice that of Select Comfort. Its shares were down almost 6% at $37.65, against a 52-week trading range of $24.02 to $51.02.

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The spillover is even delivering bed bugs to Mattress Firm Holding Corp. (MFRM). This bedding player is simply the retail outlet that sells all the mattresses and beds, but higher materials costs and weaker demand will crimp its ability to have higher margin sales as well. This retailer's shares were down almost 4% at $32.04, against a 52-week trading range of $22.62 to $46.85, and its market cap is barely above Select Comfort's at $1.1 billion.

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Bed bugs never were cited by Select Comfort as one of the problems, but they might as well have been.

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