NEW YORK (TheStreet) -- Select Comfort (SCSS) rose Monday after the Sleep Number bed manufacturer reported first-quarter earnings that beat analysts' expectations. The company reported the earnings after the market closed on Thursday.
Net sales climbed 7% year over year to $276.4 million, which beat the Zacks consensus estimate of $275 million. Comparable-store sales increased 2%. Gross profit increased 4.9% to $171.3 million, though gross profit margin narrowed 130 basis points (bps) to 62%.
Total operational expenses climbed 13.6% to $145.6 million due mostly sales and marketing cost increases. Operating income dropped 25.9% year over year to $25.8 million, while operating margin narrowed 420 bps to 9.3%. Adjusted EBITDA was $34.7 million, a 17.6% year-over-year decrease. Adjusted EBITDA margin as a percentage of net sales dipped 380 bps to 12.6%.
Select Comfort also reiterated its guidance for 2014 and expects revenue growth in the mid-to-high single-digits range. The company also expects 20 to 30 additional net new stores by the end of the year. Select Comfort anticipates full-year earnings in line with 2013 adjusted earnings of $1.07 per share, which is also in line with the Zacks consensus estimate. The company also plans to spend $70 million to $80 million in 2014 to open new stores, relocate and remodel existing establishments and enhance its information technology.
The stock was up 11.04% to $19.71 at 11:56 a.m. Nearly 1.5 million shares had changed hands, which surpassed the average volume of 976,332.
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Separately, 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 some important positives, 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 6.5%. 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