Select Comfort Has a Lot to Prove on Wednesday

By Rick Munarriz Markets

There's one day every three months when Select Comfort (NASDAQ: SCSS) owners don't get a good night's sleep. The company behind the Sleep Number air-chambered mattress reports fresh financials after Wednesday's market close, and after seeing shares of Tempur Sealy (NYSE: TPX)suffer a 31% plunge last week, there will be a lot of investors eyeing how Select Comfort holds up.

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Things can only get better after its brutal showing during 2015's holiday quarter. Select Comfort saw its net sales plummet 33% during the fourth quarter of 2015, with comparable-store sales taking a 30% slide. Select Comfort posted a quarterly loss for the first time since mid-2009, when the global recession was giving potential buyers more to worry about than replacing their lumpy mattresses. Select Comfort pinned most of the blame on the rocky integration of an enterprise software platform that created technical and operating issues.

Knowing what happened a year earlier will be important when Select Comfort plays up what should be some big growth numbers. Analysts see net sales soaring 47% to $315 million in Wednesday's fourth-quarter report, and profitability bouncing back with net income of $0.32 a share. It's a big step up, but it will actually be less than the $0.35 a share profit on $322.2 million in net sales that it rang up during the fourth quarter of 2014.

Image source: Select Comfort.

Pleasant dreams

Tempur Sealy's big hit last week didn't weigh on Select Comfort's stock, and rightfully so. Tempur Sealy plunged after announcing that its products will no longer be sold through Mattress Firm, the country's largest retailer of bedding products.

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Several analysts including SunTrust, Nomura, Stifel, and Piper Jaffray downgraded Tempur Sealy's stock on the news, fearing that the hits to sales volumes, earnings, and brand power will be a challenge to overcome. All hope isn't lost, though. Wedbushanalyst Seth Basham issued a note this morning suggesting that Tempu Sealy and Mattress Firm may find their way back to the negotiating table, but even if that were to happen, it's hard to see how Tempur Sealy would have any kind of leverage in the talks to adjust pricing given the way its stock reacted last week.

Select Comfort's stock didn't move on the news because its Sleep Number beds aren't sold at Mattress Firm. It won't be a beneficiary as Mattress Firm shoppers simply pick another mattress in stock.

Shares of Select Comfort can be volatile, particularly around earnings announcements. The stock took a 12% hit the day after posting disappointing third-quarter results. Select Comfort stock declined 6% three months earlier following its second-quarter report, but it soared 22% the day after posting its first-quarter financials.

Select Comfort's stock has a habit of making big moves on earnings, and Wednesday afternoon's announcement is likely to shake things up during Thursday's trading session. With the threat of online-only mattress providers growing in favor, and even Tempur Sealy losing leverage as a retail brand, Select Comfort will definitely have a lot to prove this week.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.