Select Comfort Lets the Bed Bugs Bite

The clock is ticking on Select Comfort (NASDAQ: SCSS), and not just because it's changing its name and ticker symbol in two weeks. The company behind the Sleep Number adjustable air-chambered mattress fell short of expectations in its latest quarterly report after Tuesday's market close.

Net sales rose 9% to $402.6 million as expansion and a 5% uptick in comps combined to drive Select Comfort's top-line results. Net income dipped slightly as costs outpaced sales growth, though aggressive share buybacks pushed earnings on a per-share basis up to $0.62 a share. Analysts were holding out for a profit of $0.68 a share on $413.9 million in net sales.

Investors know the drill. This is the second time in a row that top- and bottom-line results have fallen short of Wall Street expectations.

Slumber liquidators

Select Comfort's performance may not seem as rough as its second-quarter showing, when net sales only rose 3%, and it clocked in with a small quarterly deficit. However, the third quarter has historically been its biggest quarter. Falling short in this seasonally potent period is a pretty big deal.

The good news is that Select Comfort -- which, come Nov. 1, will officially change its name to Sleep Number and embrace the new ticker symbol SNBR -- is narrowing its profit per share target for all of 2017 to between $1.30 and $1.45, in line with its earlier range of $1.25 to $1.50. Select Comfort is also sticking to its seemingly ambitious forecast of earning $2.75 a share come 2019.

An important disclaimer here is that Select Comfort has been a voracious eater of its own stock. Its fully diluted share count has decreased by 10.4% over the past year, explaining why net income per share rose despite a small decline in actual earnings. Select Comfort's board approved an increase in its outstanding share repurchase authorization according to Tuesday afternoon's earnings release. In short, that $2.75 a share profit goal for 2019 and narrowing its current year target are less impressive feats from the perspective of actual earnings growth.

The big wild card in all of this is Sleep Number 360, a mattress that Select Comfort is billing as the first "smart bed" on the market. The mattress uses intelligent biometrics to adjust firmness and elevation when it senses factors that may disrupt sleep. It hit the market in late May, so falling short in the third quarter -- the new platform's first full period of availability -- is problematic. The miss is also rough because a new supplier's inventory shortage during the second quarter had pushed $25 million of net sales into the third quarter.

We're now far removed from Select Comfort's blowout first quarter, but we can't throw in the towel when it comes to Sleep Number 360. The high-tech bed may take time to catch on as the market is educated on the merits of a self-adjusting bed that could potentially nip snoring and restlessness in the bud.

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