Market Overview

BofA Downgrades Mattress Firm To Underperform


Mattress Firm Holding Corp (NASDAQ: MFRM) reported a 1Q16 miss on comp and EPS; and reduced its FY16 guidance. BofA Merrill Lynch’s Curtis Nagle downgraded the rating for the company from Neutral to Underperform, while slashing the price objective from $42 to $28. The analyst commented that issues at the company were likely to continue.

Mattress Firm reported its EPS at $(0.10), missing the BofA estimate of $(0.02). Comps declined 1.1 percent, compared to the estimate of 2 percent growth. The comp decline was on account of declines in ticket and units. Total sales grew 49.2 percent to $839mn, backed by the acquisition of Sleepy’s, but EBIT margins contracted 322bp to 1.93 percent.

Management reduced full-year EPS guidance from $2.50-$2.60 to $2.25-$2.35. Total sales and adj. EBITDA projections were lowered from $3.95-$4.00bn to $3.825-$3.875bn and from $365-$370mn to $338-$343mn, respectively.

Analyst Curtis Nagle pointed out that continued margin pressure from Sleepy’s is likely to impact Q2 EPS. He lowered the EPS estimates for 2016, 2017 and 2018 from $2.53 to $2.19, from $3.01 to $2.64 and from $3.70 to $3.15, respectively.

More Risks To Earnings

Nagle said there were additional risks to Mattress Firm’s earnings from:

  1. Difficult integration of Sleepy’s
  2. Transitioning all 3,500 store chain to a single banner over the next 18 months
  3. Consolidation of overlapping stores in the network

“We also see heightened risk from rent-adjusted leverage…With so little visibility in the model, we cannot say with any certainty whether lowered earnings guidance is realistic or not,” the analyst added.

Latest Ratings for MFRM

Sep 2016MaintainsNeutral
Aug 2016DowngradesMarket PerformUnderperform
Aug 2016MaintainsNeutral

View More Analyst Ratings for MFRM
View the Latest Analyst Ratings

Posted-In: BofA Merrill Lynch Curtis NagleAnalyst Color Short Ideas Downgrades Price Target Analyst Ratings Trading Ideas


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