Don't Go Soft on Mattress Firm
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Looking back on my life, I can't remember a time when I thought that I'd be excited about a mattress store. Not that I had anything against mattress stores, of course; they just seemed a bit... boring. I was recently reading about the Mattress Firm Holding Corporation (NASDAQ: MFRM), however, and I started to realize exactly how exciting mattress stores could be.
Behind its plush pillowtops and Sealy (NYSE: ZZ) Posturepedic mattress sets, Mattress Firm hides an earnings powerhouse that managed to increase same-store sales by nearly 25% in its Q4 earnings report and a 56 cent per share increase overall. On top of that, Mattress Firm topped all expectations with its full-year outlook, indicating that it expects to see profits increase by between $1.40 and $1.48 per share in the coming year while experiencing continued same-store sales growth of around 10-12%. CEO Stephen Stagner attributes some of the success to the fact that customers are less likely to buy mattresses online than they are other goods; people want to actually see and try out mattresses before they buy them, so Mattress Firm has an easier time getting customers into its stores than it might if it sold other products.
Solid profits aren't all that Mattress Firm has going for it, either. The company announced this past week that it's made a deal to purchase rival mattress company Mattress Giant, adding the competitor's stores to its existing 800 stores. The purchase should be complete prior to the end of Q2 on July 31st, giving Mattress Firm plenty of time to capitalize on its new acquisitions to increase profits even further in Q3 and Q4. Not a bad start for a company that just went public last November.
Of course, the sleep industry is booming all over. Sealy reported a surprise profit for Q1 while most analysts were expecting a 2 cent loss per share, and Select Comfort (NASDAQ: SCSS) has increased its stock prices by an astounding 177% in the last year. Tempur-Pedic (NYSE: TPX) has experienced growth in the past year as well, with a 28% increase so far and more growth likely as the company only recently introduced a new mattress line at a more consumer-friendly price point.
Investors should take note of these trends in the sleep industry, especially with the potential for growth that exists in both Mattress Firm and some of the mattress producers that create its products. Before you know it, Mattress Firm's $44 shares could very well look like a bargain - just like the $19 price point of the company's shares did five months ago.
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