The Mattress Firm (NASDAQ:MFRM) IPO might not be as sexy a company as Pandora (NYSE:P) or LinkedIn (NYSE:LNKD), but it still has been able to capture the attention of IPO investors. The company priced its offering at the top of its $17-$19 range, and MFRM stock finished up 16% in Friday trading. Underwriters included Barclays and UBS.
Founded in 1986, Mattress Firm has become a top specialty retailer of mattresses, boasting 757 stores across 25 states, with a typical location size of 4,300 square feet. However, the company also has been rolling out Supercenter storefronts, which have roughly 6,300 square feet of space.
Mattress Firm has a unique in-store experience called “Comfort by Color.” That is beds’ comfort levels are actually sorted by a color system — for instance, red for “pillow top mattress” and yellow for “firm.” The system makes it easier to find a specific comfort level and continue shopping by style and price point.
The company offers a broad selection for consumers in several areas. Prices range from $48 to $8,100, and brands include Tempur-Pedic, Sealy and Simmons. The company also offers YuMe, which is a temperature-controlled mattress (it uses ambient air to heat and cool the surface).
A key part of the Mattress Firm strategy is achieving top shares in its markets. This allows for more efficient marketing expenditures as well as logistics. As a result, the cash-on-cash payback for a typical store is less than a year.
Mattress Firm also has been creative with its marketing programs. For example, the company leverages social media platforms like Facebook, Twitter and Google’s (NASDAQ:GOOG) YouTube to hock its wares. The company also has taken out promotions with Groupon (NASDAQ:GRPN).
Mattress Firm’s financial performance has been outstanding. The company has posted 24 consecutive months of positive comparable-store sales growth. And for the first half of this year, revenues increased by 41% to $331.8 million while net income came to $4.7 million. Mattress Firm also is optimistic about its growth potential, with the company stating it has room to grow its business to 2,500 locations across the U.S.
True, the mattress market is somewhat dull, but the field has some positive dynamics. The U.S. market is $11.6 billion, and no single retailer has more than 7% of the market. What’s more, mattress sales have proven resilient during recessions. We all have to sleep, right?
The mattress business also has seen average price increases of 5% per year since 1990 — a byproduct of both little foreign competition (because of shipping costs) and the industry’s high level of innovation.
All in all, Mattress Firm is a solid company with strong long-term growth prospects.
Tom Taulli runs the InvestorPlace blog “IPOPlaybook,” a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.