Select Comfort Corp. SCSS succumbed to a negative earnings surprise in third-quarter 2016 after beating the Zacks Consensus Estimate in the trailing nine quarters. The company reported earnings per share of 56 cents, missing the estimate by a penny. Further, the company’s earnings declined 9.7% year over year.
The company’s earnings in the reported quarter were primarily marred by lower-than-expected sales.
Quarter in Detail
Net sales dipped 1.6% year over year to $368 million, missing the Zacks Consensus Estimate of $393 million. Comparable-store sales in the quarter slumped 8%.
Gross profit came in at $232.3 million, down 0.6% from the year-ago period. However, Select Comfort’s gross profit margin expanded 60 basis points (bps) to 63.1%.
SELECT COMFORT Price and EPS Surprise
SELECT COMFORT Price and EPS Surprise | SELECT COMFORT Quote
Total operational expenses rose 2.7% to $193.3 million in the quarter, mainly owing to increase in sales and marketing costs as well as general and administrative expenses.
Select Comfort’s operating income plunged 14% from the prior-year period to $39 million, while operating margin as a percentage of net sales contracted 150 bps to 10.6%.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter was $55.3 million, decreasing 8.4% year over year, while adjusted EBITDA margin as a percentage of net sales declined 110 bps to 15%.
Balance Sheet and Cash Flow
Select Comfort ended the year with cash, cash equivalents and marketable-debt securities of $51.3 million. During the first nine months of 2016, Select Comfort generated $145.3 million in cash from operations.
Capital expenditures for the first nine months of 2016 were $39 million against $61 million recorded in the first nine months of 2015. During the quarter, the company bought back shares worth $95 million.
Select Comfort opened 24 stores while shuttering 3 outlets during the quarter. As of Oct 1, 2016, the company had 527 outlets.
Select Comfort lowered its earnings outlook for 2016. The company now anticipates 2016 earnings per share in the range of $1.15–$1.25, down from the previous estimate of $1.25–$1.45 per share. However, the 2016 earnings projection is still well above the 2015 earnings of 97 cents per share. The Zacks Consensus Estimate for 2016 is currently pegged at $1.24. Sales for the full year are projected to grow by low-teens.
Furthermore, Select Comfort intends to make a capital expenditure of $65 million in 2016 toward opening stores, relocating and remodeling outlets as well as enhancing information technology.
Stocks to Consider
Better-ranked stocks worth considering in the retail sector include DSW Inc. DSW, Foot Locker, Inc. FL and L Brands, Inc. LB. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
DSW has surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average earnings surprise of 24%.
Shares of Foot Locker have gained more than 16% in the past three months.
L Brands has a long-term earnings growth rate of 11.3%.
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