Mattress Firm has investors losing sleep

The big bedding retailer's latest report left Wall Street restless, but Friday's sell-off looks like an overreaction.

By Jonathan Berr Sep 9, 2013 9:46AM
Bedding retailer Mattress Firm (MFRM) prides itself on helping customers get a good night's sleep. Investors in the Houston-based company, however, aren't sleeping easy.

The largest seller of mattresses, which mostly operates under the Mattress Firm name, reported earnings Friday that greatly disappointed Wall Street. Net income rose to $14.1 million, or 41 cents per share, versus $10.1 million, or 30 cents per share, a year earlier. Revenue soared 16% to $302.5 million, helped by new stores and last year's acquisition of Mattress Giant.
Excluding one-time items, profit was 43 cents, lagging the 51 cents analysts had expected. Revenue missed forecasts of $323 million. Same-store sales, a key measure of activity of stores open at least a year, slumped 0.3%. And the shares plunged more than 14% in Friday trading.

Mattress Firm, which operates more than 1,000 stores and sells most major brands including Sealy, Serta and Tempur-Pedic, also slashed its earnings outlook for the year to between $1 and $1.75 per share versus an earlier projection of $1.90 to $1.98. It now sees sales of $1.19 billion to $1.21 billion, compared with its earlier forecast of $1.24 billion to $1.25 billion.

File photo a Sealy mattress (© Matthew Staver/Bloomberg via Getty Images)On the earnings conference call, CEO R. Stephen Sanger said the company was hurt by "the ongoing pressure in consumer spending trends" and less ad spending by manufacturers focused on higher-end products.

Nonetheless, Sanger said he's optimistic that better times lie ahead. Indeed, it does seem as though Wall Street is overreacting to the earnings report, which wasn't as bad as it seems. Specialty mattress sales rose 43% in the most recent quarter, while conventional mattresses jumped 40%.

Plus, a rebounding housing market may push more people to buy new bedding.

Still, investors have no pressing need to buy the shares, which trade at a price-to-earnings multiple of about 22.6, which is pricier than both Home Depot (HD) and Wal-Mart (WMT). And they're well above their average 52-week price target of $28.16.

Mattress Firm, though, is worth keeping an eye on and acquiring once the price pulls back more. The stock can't promise sweet dreams, but it may offer a decent potential for growth.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.
Tags: HDMFRMWMT
6Comments
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Mattresses are way over priced. Those memory foam ones are the prices of cars they sell to the masses in India and China (which should be the prices they charge for cars here in the US but that is another story).

 

Not sure how Mattress Firm is hiding the profits from investors but selling a $1,000 bed for $9,000 there is a lot of profit there even if you take out the brick and mortar store costs and having Americans instead of telemarketers from India selling your product.

Apr 1, 2014 10:43PM
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I haven't tried these mattresses myself. I wonder how they would compare to something like memory foam. My friend actually has a memory foam mattress. Maybe he will let me try it out. 
Jayden Eden | http://www.wcmattress.com/products/
Sep 9, 2013 11:28AM
avatar
Who needs a stupid mattress.  It is better on the back to sleep on some thin pad on the floor.  You'll get used to it.
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