Select Comfort hit by higher costs, weak demand; shares plunge

Published October 16, 2013

| Reuters

Specialty mattress maker Select Comfort Corp reported third-quarter results well below analysts' estimates due to higher costs and sagging demand for its mattresses, sending its shares down 25 percent after the bell.

The company, which also warned on its current-quarter profit, has been struggling with higher marketing and sales costs after a botched marketing strategy earlier this year.

Select Comfort reverted to its earlier strategy of keeping multiple agencies for its marketing campaigns after a move to hire a single agency backfired.

Operating expenses rose about 5 percentage points in the quarter ended September 28 as sales and marketing costs spiked 16 percent from a year earlier.

The company was also hit by cautious shoppers who have been holding back on spending due to the U.S. budget crisis in Washington and slow job growth.

Mattress makers have not been able to reap the benefits of a recovering U.S. housing market as consumers defer the purchase of new mattresses when they move in to a new home.

Rival Tempur Sealy International Inc slashed its full-year profit forecast in July, while specialty bedding retailer Mattress Firm Holding Corp reported lower-than-expected second-quarter results in September.

Shares of Tempur and Mattress Firm also fell after Select Comfort's results and outlook on Wednesday.

Select Comfort said it expects current-quarter profit of 18-26 cents per share, which could miss the average analyst estimate by as much as 14 cents per share.

"We are providing a wider guidance range for the fourth quarter than in prior years, given the current level of uncertainty around the consumer environment," Chief Financial Officer Wendy Schoppert said.

Select Comfort, known for its Sleep Number adjustable-firmness mattresses, said revenue rose 7 percent to $264 million.

Net income fell to $20.2 million, or 36 cents per share, from $26.2 million, or 46 cents per share, a year earlier.

Analysts on average had expected earnings of 43 cents per share on revenue of $277.5 million, according to Thomson Reuters I/B/E/S.

"Our execution was muted by a progressively more challenged macro-economic environment, resulting in performance below expectations," Chief Executive Shelly Ibach said.

Minneapolis, Minnesota-based Select Comfort's shares fell to $18.25 in extended trading after closing at $24.20 on the Nasdaq on Wednesday.

(Reporting by Aditi Shrivastava and Devika Krishna Kumar; Editing by Saumyadeb Chakrabarty)

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