Tempur-Pedic gives shareholders nightmares

The mattress maker has been sleepwalking while smaller, aggressive rivals have jumped into the market.

By Kim Peterson Jun 6, 2012 2:59PM
Updated June 7, 3 p.m. ET

Tempur-Pedic
(TPX) used to be the king of the specialty mattress market. But the company snoozed while smaller rivals jumped in, and now shareholders are paying the price.

The mattress maker's stock plunged nearly 50% Wednesday after executives said its per-share earnings will fall by half in the second quarter from a year earlier. Sales are expected to drop by as much as 5% from $342 million a year earlier. The stock dropped again Thursday morning, but by midday had clawed back to a slight gain over Wednesday's close.

Post continues below.
Other mattress stocks also rebounded Thursday after seeing big drops Wednesday. Sealy (ZZ) was up 4% to $1.68, Select Comfort (SCSS) rose 7% to $22.10 and Mattress Firm Holding (MFRM) was up 3% to $28.86. Tempur-Pedic was up 1% to $22.62.

The problem? Traditional mattress companies are being hit by a wave of rivals and are finding it harder to compete.

"Everyone is in it at once," Tempur-Pedic CFO Dale Williams said on a conference call with analysts, according to The Wall Street Journal. "Everyone is engaged in a land grab at the same time."

And these upstart mattress companies aren't just going after customers. They're also wooing mattress retailers, making deals to get better promotion on the showroom floor.

One analyst told the Journal that Serta in particular is doing a great job of getting valuable showroom space and appealing to retailers. As a result, the company's iComfort mattress is doing very well.

What's extraordinary is how clueless analysts were about this unfolding disaster. Analysts were expecting Tempur-Pedic's earnings to rise 12% to 85 cents a share for the quarter. They also expected sales to jump by 15%. As a result, many had to admit Wednesday that they were caught dozing.

"It appears that competition caught up to Tempur-Pedic much faster than we expected in the specialty bedding segment, which calls into question the company's brand," noted Jim Yin of S&P Capital IQ in a note Wednesday, according to Barron's. Yin cut his rating on the stock to "hold."

Image: Woman asleep (© Tom Grill/Corbis)The signs were there. Tempur-Pedic did not raise its full-year outlook in April, causing the stock to drop as investors fled. Still, just about every analyst covering the stock had a "buy" or "hold" rating on it, perhaps because they were looking at strong overall sales in the mattress market.

Those strong sales just didn't hold up for Tempur-Pedic.

"While we feared expectations for the 2Q were too high, we were not expecting anything as dramatic as (this) announcement," noted KeyBanc's Bradley Thomas, according to the Journal.

It's a new day for the mattress industry. With aggressive rivals coming in, Tempur-Pedic and other big names can't afford to be sleepy. And their margins may never be the same again.

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Tags: SCSSTPX
68Comments
Jun 7, 2012 4:50AM
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Tempu pedic is so far overpriced it's ridiculous, they need to drastically lower their pricing.
Jun 7, 2012 2:15AM
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We spent $2,000 on a Tempurpedic when first came out, LOVED IT, I lost bed in divorce, bought a knockoff for under $500, love it just as much...  Why buy Tempurpedic when you can get same comfort for 1/4th the cost?
Jun 7, 2012 7:59AM
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"What's extraordinary is how clueless analysts were about this unfolding disaster. "

 

Like we've never heard this before.

Jun 7, 2012 4:30AM
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"Everyone is in it at once," Tempur-Pedic CFO Dale Williams said on a conference call with analysts, according to The Wall Street Journal. "Everyone is engaged in a land grab at the same time."

 

Welcome to the wonderful world of competition.  I think you've been using your product too much...you snooze, you lose.

Jun 7, 2012 11:45AM
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I have had my lower back replaced and my neck also has metal in it.  We had a pillow top before all the surgerys and it seemed to be ok, but since the surgeries the pillow top gave me the worst nights sleep I've ever had.  I shopped around and bought and tried different beds and slept on them for a couple weeks at a time and I never found a bed i could get a good nite's sleep until I bought a tempur pedic.  To me a good nites sleep is worth any amount of money.  People will spend more money on a high dollar vehicle that has really no benefit and complain about the price of a bed that provides you sleep which in return helps you make the amount of money you need to pay for your overpriced vehicle.  I am a constrcution worker that doesn't make a lot of money, but I will spend the money on a high priced bed, rather than a high priced vehicle any day.  Thats just an opinion

Jun 7, 2012 10:22AM
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IF THEY WEREN'T SO GREEDY AND SO DAMN EXPENSIVE(LIKE EVERYTHING ELSE PEOPLE WOULD BUY THEY.  make things more affordable for everyone not just the choosen few.
Jun 6, 2012 7:33PM
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so 5% drop in sales results in 50% drop in stock?  what kind of math is that?  the stock market is such a scam
Jun 7, 2012 10:04AM
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The Kardassssians have a lot of experience with mattresses.
Jun 6, 2012 7:40PM
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Sleep Cheap,

 

I still have a waterbed that I bought in the late 80s, and have had to replace the 'mattress' a couple times at about $230.00 each ... it's comfortable, has no 'waves', is temperature adjustable and it is far cheaper than some of these super foam money pits that people pay thousands for. Keep it simple.

 

Peace

Jun 6, 2012 10:43PM
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You can get EXCELLENT memory foam (queen) mattresses at Costco and Sam's Club for $400.-$500. 12" thick. Why spend more?

 

Jun 6, 2012 8:32PM
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Stock market biggest scam out there!
Jun 7, 2012 1:21AM
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We bought a Simmons Natural Care Latex Mattress for a third of the price of a Tempur Pedic three years ago and have been totally happy with it.  I tried the Tempur-Pedics in the store and actually prefered the feel of the cheaper Simmons Latex.  It still feels the same as it did new (which is awesome considering before we had it, we had bought a traditional pillow top mattress that was $650 on sale and only lasted about 5 years before it became really uncomfortable and actually I could tell it wasn't going to last very long after only a year.)  The problem with Tempur Pedic is their price.  You can get a good latex mattress that gives a very comfortable sleep for much cheaper than even the Tempur Pedic "economy" models.  Plus the natural latex is not made with synthetic chemicals unlike Tempur Pedic and is environmentally friendly.    
Jun 7, 2012 3:34AM
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Have a latex mattress at fraction of cost, great sleep.
Jun 7, 2012 1:46PM
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I hope anyone reading these comments realizes how incredibly subjective mattress purchasing can be. What works for one person doesn't always deliver the same results to another. And for anyone to tell someone what they should or should not get is laughable. Unless of course that person is your sleeping partner. Different strokes and all that jazz. Take your time, shop around, and find what works for YOU. Not what works for your neighbor, mother, cousin, etc etc. And above all else, don't buy based on what some random person says on the internet.

Jun 7, 2012 2:04AM
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I just bought a Temperpedic 2 weeks ago.  After a few days getting used to the bed, I am having the best sleep of my life.  6 years ago my husband and I bought a select comfort...the most horrible piece of crap mattress ever..you want to talk about rip off, that's a rip off...buying an air mattress for thousands of dollars.  After that failed we bought a Serta perfect sleeper (Grandis model) at half the price of the select comfort.  Great sleep for the first year, then the bed started falling apart, and we ended up sleeping in a whole with a big hump in the middle section between us.  My husband and I both started waking up with major back pain and then eventually losing hours of sleep because of it.  Alas the temperpedic.  So far we are both sleeping through the night, no back pain in the middle of the night or the morning, and the platform frame it came with is rock solid, unlike select comfort or my Serta box springs.  I spend a $500 more on this bed than I did my Select comfort but it comes with a much better guarantee.  I don't care about the cost, because I have 4 young kids and a job, so I a good nights sleep is priceless to me.  It may be foam but it's no ordinary foam, my serta had foam pillowtop and that degraded very fast, to where it didn't even bounce back.  My husband gets up 3 hours before me and I don't feel the bed move or get woken up like I did in my last 2 beds, which is another bonus for the Temper pedic. It might not be for everyone but so far I am a very happy customer.
Jun 7, 2012 2:19PM
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 The biggest reason the Tempur Pedic stock is falling is the product is not selling at the pace and price that  it once did those of us who've tried the product weren't happy. The return procedure is very hard regardless oif what the commercial may say. Our Tempure pedic mattress is in the guest bedroom. Were were very unhappy with the heat and long term comfort of mushing down into the mattress. People just aren't buying the overpriced  product. We for example were originally planning to buy 4 of them but now,  we're one and done.  They're waaaay overpriced!!!  There are several companies who'll sell you the same foam mattress for hundreds less. the economy along with the pricing is killing them.
Jun 6, 2012 10:35PM
Jun 7, 2012 12:35PM
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we bought a $1,600 name brand matress (Serta) at Matress Firm about a year ago and we hat it. One thing I questioned was why the matress coule not be flipped. They told they are made better these days and flipping was not needed anymore. Just rotate! NOT! The matress shows where we lay and there is a hump in the middle where the matrees does not get used (original surface). The whole matress market is a game. The last Serta we had cost $1,000 and could be flipped. lasted 10 years. This current one is already shot, but can't afford to get another one yet.
Jun 7, 2012 3:07PM
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Had a Tempur-Pedic. Paid almost $4,000 for it. Nasty off gassing that (finally) dissipated after almost 2 years (during which time my wife had headaches due to the fumes).

 

After approximately 3 years, my wife and I started waking up with back and neck aches, the mattress sagged where we slept, no "memory foam" recovery as advertised. When we finally realized something was amiss, we contacted the company to utilize the return warranty (which was honored with no problem), but had to get another mattress (rather than a refund-which we understood). We sold the mattress and used the $$$ to buy a latex mattress. No off gassing, sleeps great, and the "bounce" is back when we ...well, you know.

 

Tempur-Pedics are vastly overrated. Check carefully before purchasing.

Jun 6, 2012 4:33PM
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Biggest gain for the year today but watch out for tomorrow, it will be the biggest plunge of the year. 

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