Sealy's Sluggish Earnings Put Investors to Sleep
Sealy (NYSE: ZZ) posted a big drop in sales as the firm continues to face tough competition from Tempurpedic (NYSE: TPX) and other memory foam mattress producers. For Q4 2011, Sealy's gross profits fell to $98.1 million, a drop of 20% from the previous year. As a result, the company posted a net loss of $14 million due to a lower gross margin of 36.4%.
Operations cost the company more than it could take in, with selling, general, and administrative expenses staying nearly flat at $98.9 million for Q4 2011. To tackle lower sales, Sealy's CEO Larry Rogers announced that his company is "making operational changes to improve our future business results." This may translate to layoffs in the near term.
In its press release, the bed manufacturer is pointing the finger at "higher raw material and other inflation, especially related to foam and steel," which cut the firm's domestic profit margin by 5.8 percentage points. However, heightened competition in the industry is also a factor. Tempurpedic rose its guidance twice in 2011 as strong sales pushed the stock above $60 per share, and the company is likely to report growing revenues when it releases earnings on January 24th. Analysts have a target price on TPX of $68 to $70 thanks to the company's broad international presence and strong consumer demand, even though Tempur-Pedic raised prices on its mattresses in 2010.
Sealy seems unable to keep up, with net sales falling to $269.3 million for Q4 2011 while the company's cost of goods fell slightly from $173.7 million to 171.1 million. As a result, the company's previously paltry earnings per share (4 cents) fell to a loss of 14 cents. The stock has fallen over 17% in after hours trading and is flirting with the $1.5 threshold previously crossed at the beginning of November.
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