Shares of mattress retailer, Select Comfort Corp. (SCSS), declined 19.1% after the company lowered its guidance for the fourth quarter of 2013. Failure to meet the sales target during the period from Cyber Monday till December-end compelled the company to trim its earnings expectations.
According to the company, its performance in November was in line with expectations. However, sales growth during the busy holiday season could not keep up with management’s anticipations and hence, the lower guidance.
Earnings are now projected to fall below the lower end of the guided range of 18–26 cents. The current Zacks Consensus Estimate is pegged at 21 cents and could be revised downward in the coming days.
Earlier, during the third-quarter results, Select Comfort projected its fourth-quarter 2013 earnings in the range of 18–26 cents and GAAP earnings in the band of $1.14–$1.22, as against $1.30–$1.45 forecasted earlier. Further, management expected total net sales to increase in low double-digits and comparable-store sales were anticipated to grow in mid single-digits.
Select Comfort also furnished preliminary sales data for the said quarter. Net sales increased 5% year over year to $231 million in the fourth quarter but fell short of the Zacks Consensus Estimate of $241 million. Company-controlled comparable sales remained stable from the prior-year quarter.
Select Comfort is slated to report its fourth-quarter results on Feb 5, 2014. However, our proven model does not conclusively show that the company is likely to beat the Zacks Consensus Estimate this quarter. This is because Select Comfort carries a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00% (as both the Zacks Consensus Estimate and the Most Accurate Estimate stand at 21 cents).
For a stock to outperform it needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3, but the components of Select Comfort do not suggest so.
We also observed that Select Comfort has missed the Zacks Consensus Estimate in the trailing four quarters with an average miss of 18%. Heightened macroeconomic challenges, higher costs and lower-than-expected sales primarily caused the dismal performance.
Not all retail stocks have been performing as poorly as Select Comfort. Better-ranked retail stocks include La-Z-Boy Inc. (LZB), Hooker Furniture Corp. (HOFT) and Virco Mfg. Corp. (VIRC). While Hooker Furniture and La-Z-Boy carry a Zacks Rank #1 (Strong Buy), Virco has a Zacks Rank #2 (Buy).