Select Comfort Corp. reported negative earnings surprise after beating the Zacks Consensus Estimate in the trailing two quarters. Moreover, the top line also came in below the consensus mark for the second straight quarter. Following the results, the company’s shares decreased nearly 4% in after-hour trading session on Oct 17. We note that the stock has declined 7.9% in the past three months, wider than the industry’s decrease of 7.3%.
The company delivered adjusted earnings per share of 62 cents, missed the Zacks Consensus Estimate of 68 cents but surged 10.7% year over year driven by robust demand for revolutionary Sleep Number 360 smart beds.
The company stated that its name will be changed to Sleep Number Corporation and ticker to SNBR, effective from Nov 1.
Quarter in Detail
Net sales rose 9% year over year to $402.6 million but missed the Zacks Consensus Estimate of $415 million. Retail comparable-store sales (comps) rose 5% during the quarter, while online and phone witnessed a sharp gain of 9%. Moreover, company-controlled comps jumped 5% year over year.
Gross profit came in at $253.5 million, up 9% from the year-ago period. Moreover, gross profit margin contracted 20 basis points (bps) to 62.9%.
Total operational expenses rose 11% to $214.4 million in the quarter, mainly owing to increase in sales and marketing costs as well as general and administrative expenses. Select Comfort posted operating income of $39 million, almost flat year over year.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter was $58 million, up 4.9% year over year, while adjusted EBITDA margin as a percentage of net sales shriveled 60 bps to 14.4%.
Balance Sheet and Cash Flow
Select Comfort ended the quarter with cash, cash equivalents of $29.9 million. During the first nine months of 2017, the company generated $176 million in cash from operations. Further, it bought back shares worth approximately $115 million during the same time frame.
Select Comfort opened six stores, while shuttering two outlets during the quarter. As of Sep 30, 2017, the company had 553 outlets.
Select Comfort updated 2017 earnings guidance. The company anticipates 2017 earnings per share in the range of $1.30-$1.45, compared with its earlier estimate of $1.25-$1.50. The Zacks Consensus Estimate for 2017 is currently pegged at $1.40. Sales for the full year are projected to increase by high-single digit, while comps are expected to rise by low-single digit. The company anticipates 2017 capital expenditure to be nearly $55 million.
Select Comfort currently carries a Zacks Rank #3 (Hold).
3 Stocks Occupying Retail’s Centerstage
Better-ranked stocks, which warrant a look in the retail sector includes, Big Lots, Inc. (BIG - Free Report) , Dollar Tree, Inc. (DLTR - Free Report) and Ross Stores, Inc. (ROST - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Big Lots has an impressive long-term earnings growth rate of 13.5%.
Dollar Tree has delivered an average positive earnings surprise of 5% in the trailing four quarters.
Ross Stores has delivered an average positive earnings surprise of 6.3% in the trailing three quarters and has a long-term earnings growth rate of 10%.
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