Mattress Firm 'Too Squishy' For Wedbush Analysts; Downgraded To Neutral

Seth Basham of Wedbush had mixed,”squishy,” feelings about Mattress Firm Holding Corp MFRM as he downgraded the holding company from Market Outperform to Neutral alongside a price target slip from $71 down to $60. Shares of the company closed at $58.45 on Friday and decelerated to $56.71 in Monday’s session.

Basham noted that Mattress has much potential, but is fearful of the escalating risk associated with the company. The fear is due to weaker than expected unit growth, margins, and “rocky integration in some markets.” Basham specified that the holding company had weak April sales, down 6.4 percent but rebounded in May.

He also mentioned that mass merchants such as Wal-Mart, Sears, and Macy’s are focusing intensively on mattresses with sharp price points. Basham is not certain if MFRM can gain much market share. He quoted that “mattresses are highly discretionary purchases in the near-term, making MFRM very susceptible to interest rate increases and likely one of the earliest of early-cycle stocks.”

Basham referred to the risks associated with the company, stating “The largest risk to attainment of our share price target is competitive intrusion. While MFRM continues to increase its market share, mattress retailing has low barriers to entry(given significant manufacturer support from advertising to storage to floor models, cash-on-cash payback can be less than two years). Online players from Wayfair to Bed, Bath & Beyond now offer mattresses, and there have been a number of recent upstart purveyors of their own brands that “cut out the middlemen.”

The mattress holding company has been struggling, down nearly 10 percent in the past three months.