Select Comfort riding high

The once terribly troubled Select Comfort Corp. is emerging as a rising star.

Its stock has shot up 24 percent since last week, when the maker of adjustable air beds trounced earnings expectations and defied concerns that it would stumble like competitor Tempur-Pedic.

Last month Tempur-Pedic stunned the industry when it suddenly slashed its forecast, citing intense competition in the specialty bed market. Its stock plummeted 50 percent in one day, but the entire industry took a beating as Tempur-Pedic's news spooked investors.

Select Comfort shares plunged 14 percent. Sealy fell 5 percent.

But Select Comfort's stock has roared back. It closed Friday at $26.94 a share, up from $21.12 on July 17. The next day, Select Comfort reported strong second-quarter earnings and raised its forecast for the year.

The Plymouth-based bedmaker has come a long way. In February 2009 the stock sold for 28 cents a share. Some analysts predicted the company's demise after an aggressive store expansion smacked against a brutal recession. Specialty beds with pricetags of $1,000 to $2,000 turned off consumers.

But with a recovering economy and an aging population, Select Comfort has made a comeback. The company has fewer stores and smarter marketing, which has drawn customers, profits and investors.

"It's quite a turnaround. But if you are looking for an expression of surprise, you are talking to the right person," said Stephens Inc. Vice President and research analyst Eric Hollowaty. "They were close to going out of business."

Hollowaty recently raised his 2012 earnings forecast and separately expects the stock to hit $29 a share. He still rates the stock as "hold," but said that has more to do with the economy than the Select Comfort's execution.

Select Comfort spokeswoman Gabby Nelson, said that the company turned to "a vertically integrated business model and this very customer centric growth formula. We are very pleased."

Fewer stores, stronger brand marketing and pulling its beds out of 800 third-party retailers helped strengthen the company's brand in customer's minds.

Second-quarter sales grew 27 percent to $205 million. Earnings rose 50 percent to $17 million and marked the company's 14th consecutive quarter of profits.

"This validates our differentiated strategy that goes beyond selling mattresses to offering consumers a complete, individualized, value-added sleep experience," Ibach said.