Select Comfort's Earnings Disappoint

Zacks

Lower sales and increased promotional expenses took a toll on Select Comfort Corporation’s (SCSS) first-quarter fiscal 2013 results. The mattress retailer posted adjusted quarterly earnings of 41 cents a share that missed the Zacks Consensus Estimate by a penny and decreased 9% year over year. Including one time items, earnings came in at 42 cents compared with 39 cents earned in the year-ago quarter.

Net sales for this Zacks Rank #5 (Strong Sell) stock waned 2% year over year to $258 million and came well below the Zacks Consensus Estimate of $291 million. Moreover, comparable store sales plunged 9% year over year at company-controlled stores. Change in its advertising strategy backfired for the company, leading to reduced traffic and in turn lower sales. 

Gross profit inched down 0.5% to $163.4 million, while gross margin expanded 70 basis points to 63.3%. The improvement was attributable to contraction in cost of goods sold as a percentage of sales.

Select Comfort’s adjusted operating income decreased 12.7% year over year to $34.8 million, whereas the company’s adjusted operating margin decreased 170 basis points to 13.5%, reflecting rise in sales and marketing expenses coupled with an increase in research and development costs.

Other Details

Select Comfort ended the quarter with cash and cash equivalents of $84.8 million and generated cash flow from operating activities of $45 million. Moreover, the company incurred capital expenditures of $14.3 million during the first quarter and repurchased $10 million worth of shares. The company had no borrowings under its revolving credit facility. 

During the quarter, the company opened 10 stores and closed 9, bringing the total store count to 411. 

Outlook Trimmed

Following sluggish results, Select Comfort trimmed its fiscal 2013 outlook. The company now forecasts GAAP earnings per share to be in the range of $1.30 – $1.45, down from the previous guidance range of $1.65–$1.80. It expects company-controlled comparable store sales to increase in the low to mid single digits range.

Moreover, the company is anticipating capital expenditure in the range of $70.0 million – $80.0 million, mainly for new store openings, renovations and remodels along with improvement in IT systems. Further, Select Comfort is likely to continue with its share repurchase activity.

Other Stocks to Consider

Until any further upward revision in Select Comfort’s rating, other stocks in the home furnishings & fixtures industry worth considering include American Woodmark Corp. (AMWD),Tempur-Pedic International Inc. (TPX) and La-Z-Boy Incorporated (LZB), all carrying a favorable Zacks Rank #1 (Strong Buy).

Read the Full Research Report on SCSS

Read the Full Research Report on TPX

Read the Full Research Report on AMWD

Read the Full Research Report on LZB

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