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TheStreet Open House

Select Comfort (SCSS) Stock Gains After Mixed First-Quarter Results

NEW YORK (TheStreet) -- Select Comfort (SCSS) was gaining 4.2% to $18.50 in after-hours trading Thursday after beating analysts' estimates for revenue in the first quarter.

Select Comfort posted earnings of 31 cents a share for the first quarter, missing analysts' expectations of 32 cents a share by 1 cent. Revenue grew 7% from the year-ago quarter to $276.41 million. Analysts surveyed by Thomson Reuters expected revenue of $$274.27 million.

Looking forward to full-year 2014 the company expects earnings close to 2013's $1/07 a share. Select Comfort expects mid- to high-single-digit revenue growth, and 20 to 30 new stores during the year.

"We are pleased with our results, which were in line with internal expectations," president and CEO Shelly Ibach said in a press release. "We continue to make progress and are on track with our three important growth strategies: product innovation, marketing effectiveness and local market development. During the quarter, we introduced the most significant product innovations and marketing advancements in our company's history. Customer reaction has been strong and we remain cautiously optimistic in an ongoing challenging consumer environment."

Must read: Warren Buffett's 10 Favorite Growth Stocks

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TheStreet Ratings team rates SELECT COMFORT CORP as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate SELECT COMFORT CORP (SCSS) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 6.3%. Since the same quarter one year prior, revenues slightly increased by 4.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • SCSS has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.91 is somewhat weak and could be cause for future problems.
  • The gross profit margin for SELECT COMFORT CORP is rather high; currently it is at 64.60%. Regardless of SCSS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 2.78% trails the industry average.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. When compared to other companies in the Specialty Retail industry and the overall market, SELECT COMFORT CORP's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • You can view the full analysis from the report here: SCSS Ratings Report

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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