Select Comfort Q1 Earnings in Line - Analyst Blog

Select Comfort Corp.'s SCSS first-quarter 2014 earnings of 31 cents per share came in line with the Zacks Consensus Estimate, but declined 24.4% year over year. Investors' seemed bullish with the company meeting the expectations as the shares rose 3.3% in the post-market trading session. Today's trading will give a better sense about investors' acceptance of the results.

The year-over-year decline was primarily due to unfavorable weather and challenging macroeconomic environment.  However, management continues to focus on its three growth strategies namely product innovation, marketing effectiveness and local market development to drive its momentum.

Quarter in Detail

Net sales rose 7% year over year to $276.4 million, ahead of the Zacks Consensus Estimate of $275 million, primarily driven by product innovation and pricing action. Comparable-store sales in the quarter rose 2%.

Gross profit came in at $171.3 million up 4.9% from the year-ago period. However, Select Comfort's gross profit margin contracted 130 basis points (bps) to 62.0%, primarily due to comparatively generous return policies.

Total operational expenses rose 13.6% to $145.6 million in the quarter, mainly due to increase in sales and marketing costs as well as general and administrative expenses.

Select Comfort's operating income decreased 25.9% from the prior-year period to $25.8 million, while operating margin as a percentage of net sales contracted 420 bps to 9.3%.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter was $34.7 million, decreasing 17.6% year over year, while adjusted EBITDA margin as a percentage of net sales fell 380 bps to 12.6%.

Balance Sheet and Cash Flow

Select Comfort, which competes with Leggett & Platt, Inc. LEG and Hooker Furniture Corp. HOFT ended the year with cash, cash equivalents and marketable-debt securities of $60.4 million. During the first quarter of 2014, Select Comfort generated $38.9 million in cash from operations.

Capital expenditures for the period were $16.7 million as against $14.3 million recorded in the first quarter of 2013. The rise was due to increased investment in stores, technology and product innovation. During the quarter, the company bought back 0.6 million of shares for about $10 million.

Store Update

Select Comfort opened 17 stores while shuttering 14 outlets during the first quarter. As of Mar 29, 2014, the company had 443 outlets.

Guidance

Select Comfort reiterated its outlook for 2014. Anticipating revenue growth in the range of mid-to-high single-digits range and 20–30 additional net new stores by the end of 2014, the company expects earnings for the year to be at par with 2013 adjusted earnings of $1.07 per share. The Zacks Consensus Estimate for the full year 2014 stands at $1.07 per share.

Furthermore, Select Comfort intends to make a capital expenditure of $70–$80 million in 2014 toward opening stores, relocating and remodeling outlets and enhancing information technology.

Other Stocks to Consider

Currently, Select Comfort carries a Zacks Rank #3 (Hold). Another stock worth investment is Norcraft Companies, Inc. NCFT, which has a Zacks Rank #2 (Buy).