by Tom Taulli | June 7, 2012 1:16 pm
From November until April, momentum investors piled into a seemingly odd lot of stocks — mattress companies. Names like Tempur-Pedic (NYSE:TPX), Mattress Firm (NASDAQ:MFRM) and Select Comfort (NASDAQ:SCSS) saw substantial gains, with shares climbing 60% to 100% in just a few short months.
But on Wednesday, the mattress bubble burst.
Tempur-Pedic plunged by 48%, Mattress Firm was clubbed by 21% and Select Comfort was taken along for the ride, shedding 21%. MFRM and SCSS were rebounding by single digits Thursday, but investors continued to sell off TPX by another 4%.
So why all the carnage? Simply put, investors got too aggressive with their growth expectations, and news out Wednesday didn’t keep up.
Take a look at Tempur-Pedic. The company announced that it expects second-quarter profits to drop 50% from last year’s 76 cents per share, and it also expects a 3% to 5% decline in revenue from last year’s $342 million. Considering analysts are expecting EPS of 85 cents and revenues of $394 million, that’s a huge miss.
What’s more, TPX projected full-year EPS of $2.70 and revenues of $1.43 billion, again falling shy of consensus estimates for $3.93 per share and $1.64 billion, respectively.
One of the biggest problems out there is increased competition, specifically in the specialty market. With mattresses costing easily more than $3,000 a pop, there’s plenty of room to price-cut in the hunt for more customers.
What’s more, the mattress industry itself might be facing headwinds from a slowing economy.
An indication of this came from yesterday’s earnings from Mattress Firm, a large retailer of mattresses with more than 850 locations in 27 states. The company projected sales of $270 million to $275 million, falling shy of Street hopes for $278.3 million.
After this kind of beating, the shares of these mattress operators might look attractive again. But if you’re thinking about buying in, don’t feel the need to rush.
Whenever momentum plays break, it takes a while for investors to warm up again to the stocks. And concerning these mattress stocks — the price wars still might be in the early stages, which could mean even more pressure on revenues for the rest of the year.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.
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