Investors continue to hammer Select Comfort stock

  • Article by: DEE DEPASS , Star Tribune
  • Updated: October 21, 2013 - 10:16 PM

Earnings misses take their toll as the Plymouth-based bedmaker’s share price dives.

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Bob Berg and Liz Thompsen, both of St. Paul, check out a Sleep Number bed at the Twin Cities Bridal Association Wedding Fair at the Minneapolis Convention Center Sunday afternoon.

 

Select Comfort’s shares fell another 3 percent Monday as investors signaled continued disappointment with last week’s news that the bedmaker had once again failed to meet quarterly expectations.

The stock is down nearly 30 percent from a week ago.

Late Wednesday, the Plymouth-based maker and retailer of adjustable air beds announced that it missed third quarter revenue and earnings expectations. The company slashed its full-year earnings forecast to $1.14 to $1.22 a share. That’s down from the prior guidance of $1.30 to $1.45 a share. It was the fourth consecutive quarter the company had fallen short of earnings expectations.

On Thursday, analysts at KeyBanc and Piper Jaffray cut their recommendations from ‘‘buys’’ to “holds.” As of Monday, among the 10 analysts covering the company, four have buys and six have holds. A week ago, shares traded at $25.75. At the close Monday, the share price was down to $18.04.

“We are balancing our continued innovation with strong financial ­discipline, managing near-term investments while also supporting long-term growth,” CEO Shelly Ibach told the Star Tribune in an e-mail Monday.

Last week, Select Comfort officials blamed the economy for the surprise lackluster results. Ibach noted that store sales for the Labor Day holiday and September in general were weak.

“We believe our execution was muted by [a] progressively more challenged macroeconomic and consumer environment than anticipated,’’ Ibach told analysts during last week’s conference call.

While bed sales grew nearly 7 percent during the quarter, that wasn’t enough to offset rising costs associated with a 27 percent bump in advertising, 16 new store openings and new product introductions.

The earnings misses caused equity research analysts, such as Peter Keith at Piper Jaffray Cos., to question whether Select Comfort’s advertising program is no longer working as well as it had in the past. Others questioned the company’s overall expenses.

This month’s disappointment follows earnings gaffs disclosed in January, March and July. In January, officials said 2012 fourth-quarter earnings fell 19 percent and missed analysts’ expectations by a dime because of costs for new store openings, advertising and product research.

In March officials announced that first quarter 2013 sales would be off because of problems caused by switching advertising purchasing vendors. In July, officials reported that second-quarter earnings fell 41 percent while promotional expenses rose.

This recent wave of earnings challenges is not the company’s first. In November 2008, the stock sold for as little as 38 cents a share. Select Comfort battled through a fierce recession, high rents and an unfocused marketing plan that targeted customers with bad backs instead of those who simply wanted a good night’s sleep (and the ability to customize the firmness of their mattress).

After a restructuring led by longtime CEO William McLaughlin and Ibach, the once-troubled company revived its standing to become a Wall Street darling. But that was last year. Recent events have caused investors to pause again.

Ibach, who took the CEO job in June of 2012 after serving in senior executive positions including chief operating officer, is pushing new product introductions that cater to women and people who want to customize both mattress firmness and temperature.

Ibach told analysts last Wednesday: “We are operating with a strong cost-control discipline in this challenged consumer environment. We’re committed to short-term profitability and are pulling back on discretionary expenses for the fourth quarter, while continuing to leverage our supply chain for efficiency.”

 

Dee DePass • 612-673-7725

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  • A couple of customers found their sleep number with the help of a pressure graph with manager Dan Patton at the Edina Sleep Number Store. Select Comfort has missed analysts’ earnings expectations for four straight quarters.

  • New Select Comfort CEO Shelly Ibach

  • Select Comfort’s earnings have been held back by the cost of opening new stores and introducing new models, as well as a 27 percent increase in advertising expenses.Caption here MIN2012091418420684

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