Why Select Comfort Corporation (SCSS) Is Down Today

NEW YORK (TheStreet) -- Select Comfort Corporation  (SCSS) ended the trading day Monday at a $17.28 a share, a 19.06% and $4.07 decrease from its previous closing price of $21.35.

The company reported that its preliminary fourth-quarter net sales in 2013 grew 5% year-over-year to $231 million vs. the Capital IQ consensus of $242.6 million. The company had been performing on par with its EPS guidance range through Nov. 2013 with strong sales and controlled expenses. But the sales trends came in below the internal goals from Cyber Monday until the end of December.

"The sales slowdown following the Thanksgiving holiday reflected a tepid retail holiday shopping season," said Shelly Ibach, the president and CEO of Select Comfort. "We expect this challenging environment to continue in 2014 and are planning accordingly." 

The company also expects its fourth-quarter EPS to come in on the low end of its guidance range of $0.18 to $0.26 versus the consensus of $0.22.

Select Comfort has also named Kevin Brown as its senior vice president and chief marketing officer. His last job was as group vice president and chief marketing officer for Meijer, a privately-owner retailer. He also worked as an executive marketer at Sears Holding Corporation (SHLD), Jo-Ann Stores and Accenture (ACN).

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, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

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

  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.2%. Since the same quarter one year prior, revenues slightly increased by 6.8%. 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. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.06, which illustrates the ability to avoid short-term cash problems.
  • The gross profit margin for SELECT COMFORT CORP is rather high; currently it is at 66.16%. 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, SCSS's net profit margin of 7.68% compares favorably to 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.

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