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Home furnishing and fixtures retailer Select Comfort Corporation (SCSS - Snapshot Report) has been in troubled waters for quite sometime now. The retailer lost significant momentum, given a disappointing run throughout 2013. Market cap eroded 22% in 2013 and for 2014 (year-to date) shares have lost roughly 15% of their value.
    
Clearly, investors are disappointed with the dismal performance. The company has missed the Zacks Consensus Estimate in the trailing 4 quarters by an average of 15.2%.

In the most recent quarter, earnings fell short of the estimate by 20%. Also, the company’s fourth-quarter earnings of 12 cents per share declined 45.5% year over. Though net sales rose 4.7% year over year to $230.9 million, it missed the Zacks Consensus Estimate of $233 million.

As per Select Comfort, aggressive discounting trends, a competitive retail landscape coupled with unfavorable weather and reduced mall traffic resulted in lower sales.   

Rising costs was another contributing factor. Operating expenses in 2013 have increased 7.2% year over year. Further, management expects costs to rise going forward.

Given the sluggishness in consumer spending, management provided a tempered outlook for 2014. Management expects sales to grow in mid- to high-single-digit in 2014. Further, Select Comfort’s bottom line in 2014 is expected to hover around the 2013 level. Moreover, management will keep capital expenditure in 2014 similar to 2013. In 2013, capex was $76.8 million.

This triggered a considerable southward revision in the Zacks Consensus Estimate. The estimate for 2014 has gone down by 13% to $ 1.07 per share whereas for 2015 it stands at $1.26 per share, down 15%, over the last 60 days.

To bail itself out, Select Comfort, which competes with Leggett & Platt, Incorporated (LEG - Analyst Report) and Hooker Furniture Corp. (HOFT - Snapshot Report), has resorted to product innovation and aggressive marketing techniques to regain lost momentum. The company has launched an advertising campaign "No Better Sleep" to promote brand awareness and penetrate deeply in the markets, where the company does not have a formidable presence. The company plans to launch some of its most advanced products in the coming months, which is likely to result in higher sales.

Though initiative looks promising, we believe it will take some time for the company to put itself back on the growth trajectory.

Currently, Select Comfort carries a Zacks Rank #5 (Strong Sell). We will not be constructive on the stock, until we see signs of improvement. Other better ranked retail stocks for investment purpose, include Norcraft Companies, Inc. (NCFT - Snapshot Report), which sports a Zacks Rank #2 (Buy).

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