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Select Comfort shares up despite weak 1Q

The Associated Press

Select Comfort Corp.'s shares jumped Thursday as some investors saw the company's disappointing first quarter as a temporary setback and opportunity to buy.

THE SPARK: The mattress retailer reported late Wednesday first-quarter profit and revenue that fell short of market expectations due to changes in its advertising strategy, which hurt traffic in stores and sales. It also lowered its full-year earnings forecast on the results.

THE BIG PICTURE: Select Comfort warned investors in March that its sales might suffer due to the change in strategy but said it has since corrected the issue. The company also plans to introduce a number of new products in the second quarter in an attempt to draw more shoppers.

The Minneapolis-based company makes Sleep Number-brand mattresses, as well as pillows and sheets. Mattress makers overall have been struggling with intense competition as they battle to get consumers to make big-ticket purchases.

THE ANALYSIS: Stifel analyst John A. Baugh said that while the quarter provided "bad news" on many fronts, the company is making slow and steady improvements in its business since the advertising issue was tackled. The analyst said management was clear that the weak sales were due to the advertising issue and not tough competition. Baugh reiterated a "Buy" rating on its shares.

Raymond James analyst Budd Bugatch reinstated an "Outperform" rating on the company's stock, saying that while it has traded like a "broken stock" he does not believe Select Comfort is running a broken business model. He said that while the company's first-quarter results were disappointing, the catalyst behind the miss has been corrected and there's an opportunity to buy.

SHARE ACTION: After stumbling in after-hours trading Wednesday, Select Comfort's stock was up 54 cents, or 3 percent, at $18.10 by late afternoon Thursday. The stock is still down nearly 50 from this time last year.