Select Comfort Keeps Aggressive Discounts On, Wedbush Downgrades

Wedbush’s Seth Basham believes Select Comfort Corp. SCSS will find it difficult to meet near-term expectations.

Basham downgraded the rating on the company from Outperform to Neutral, while lowering the price target from $25 to $22.

Intense Promotions

“We have witnessed intense promotional and advertising activity in recent weeks, which combined with our store checks, lead us to believe that the company is tracking below 4Q guidance and consensus expectations,” the analyst mentioned.

However, Basham also believes there still is significant opportunity for Select Comfort to drive meaningfully higher earnings in the medium term.

Select Comfort had increased promotions for the Black Friday weekend, following promotions being increased year-on-year by most traditional and large bed-in-a-box players.

Weak Sales Trends

“Even as sales traditionally lull following Black Friday, last week the company maintained aggressive promotions with the addition of free shipping offers on many mattress models, while this week the company added stackable 48 month 0 percent financing,” the analyst noted.

At the same time, Basham also pointed out that industry sales had softened from Labor Day through the Black Friday week.

Although the trends improved during the Black Friday week, the analyst does not expect the improvement to be sufficient to offset the weakness seen earlier in the quarter.

“For SCSS, we believe sales trends improved as comparisons eased in November due to the ERP implementation issues in the same period last year, but the company may be tracking below its plans for mid-40 percent comps in 4Q,” Basham added.

At last check, shares of Select Comfort were down 7.19 percent at $21.31.