QUOTE AND NEWS
StreetInsider.com  Oct 23  Comment 
52-Week High: Infinera Corporation (Nasdaq: INFN) $13.66. Infinera gaining today after it reported Q3 EPS of $0.11, $0.04 better than the analyst estimate of $0.07. Revenue for the quarter came in at $173.6 million versus the consensus estimate...
TheStreet.com  Oct 23  Comment 
NEW YORK (TheStreet) -- Select Comfort shares are up 3.5% to $25.10 on Wednesday after the bed manufacturer and retailer reported third quarter financial results that topped the Street's expectations for the period, and raised its current...
Market Intelligence Center  Oct 23  Comment 
Option-trade picking algorithms patented by MarketIntelligenceCenter.com found a trading opportunity with Select Comfort (SCSS) that should provide a 4.82% return in just 86 days. Sell one Jan. '15 call at the $20.00 level for each 100 shares of...
Benzinga  Oct 23  Comment 
Select Comfort Corp. (NASDAQ: SCSS) shares jumped in Wednesday's extended session after the mattress company posted third-quarter results and a full year outlook well ahead of Wall Street's expectations. Select gained more than 13 percent...
Market Intelligence Center  Oct 22  Comment 
A covered call identified by MarketIntelligececenter.com's patented algorithms on Select Comfort (SCSS) could yield about 8.81% (21.58% annualized, for comparison purposes only) in 149 days. Pair a long position in the stock with the Mar. '15...
Market Intelligence Center  Oct 3  Comment 
A covered call identified by MarketIntelligececenter.com's patented algorithms on Select Comfort (SCSS) could yield about 9.17% (19.92% annualized, for comparison purposes only) in 168 days. Pair a long position in the stock with the Mar. '15...
Benzinga  Oct 2  Comment 
Synchrony Financial (NYSE: SYF), a premier consumer financial services company with 80 years of retail heritage, has signed a multi-year agreement with Select Comfort Corporation (NYSE: SCSS), a sleep innovation leader whose mission is to improve...




 

Select Comfort (NASDAQ: SCSS) makes and sells premium mattresses and pillows. Their "Sleep Number" mattresses differentiate themselves from the competition by allowing customers to customize the firmness of their beds. This features allows the company to charge nearly double the price on average ($1,700) compared to a traditional innerspring mattress ($900). Select Comfort is the fifth largest mattress manufacturer in the world with 4.9% market share of industry revenue and 1.5% of industry units.[1]

Select Comfort is vertically integrated, meaning that it has a hand in manufacturing and selling its mattresses. In fact, 90% of its sales are made directly to consumers,[2] most of which come through 400 stores in the U.S. and Canada.

The company will likely benefit from the aging of baby boomers, many of whom are willing to pay premiums to ease the pains of growing older and sleep more comfortably. Already, consumers such as these have made the specialty sleep market the fastest growing segment of the $6 billion U.S. bedding market. However, a slowdown in the U.S. housing market could decrease the number of upgrades to larger homes (with more bedrooms) and second home purchases, both which directly drive mattress sales.

Company Overview

Select Comfort operates a mostly vertically integrated business, meaning that it does everything from manufacturing to distributing and selling its mattresses (the company does rely on a few raw materials suppliers). Select comfort owns 403 stores and has partnerships with 11 home furnishing retailing and specialty bedding retailers, which gives them access to more than 700 retail locations.

The bedding company distributes its Sleep Number beds and accessories through four channels:

  • Retail - 81.2% of net sales
  • Direct - 6.2% of net sales
  • E-Commerce - 5.3% of net sales
  • Wholesale - 7.3% of net sales

Business Growth

FY 2009 (ended January 2, 2010)[3]

  • Net sales fell 10.6% to $544 million. Comparable store sales improved to 0% growth after a 25% decrease in sales last year. Net sales fell in all of the company's business channels with direct sales being hurt the most at a 29% decrease. Total sales of mattress units decreased 11% for the year.
  • Net income improved to $35.6 million compared to a net loss of $70.2 million in the prior year. Sales and marketing expenses decreased 700 bps to 47.6% of net sales.
  • The company reduced its number of stores by 68 stores to finish at 403 retail stores.

Trends and Forces

  • Specialty Sleep is the fastest growing segment of the estimated $6 billion bedding retail market. An increasing number of consumers are looking for products to help them get a good night's sleep, and as a result, looking to buy specialty sleep products, which range from water, foam, air, and visco-elastic bedding (Select Comfort uses air in its mattresses). A complementary trend is affecting the pillow segment as well. Should this move away from traditional innerspring mattresses and feather pillows continue, Select Comfort will likely experience an increase in sales.
  • Aging Baby Boomers have increasing demands for Select Comfort's mattresses and pillows. As baby boomers age, they will likely experience increases in pain in joints and muscles, and buy products that diminish the pain. Moreover, they may experience more difficulty sleeping. Select Comfort's mattresses have been clinically tested to prove that they can help someone fall asleep quicker and experience deeper sleep compared to traditional innerspring mattresses.
  • Dependence on a single product-line, its Sleep Number beds, may make the company highly susceptible to changes in the specialty sleeping market. For instance, the major traditional mattress players, Select Comfort (SCSS), Sealy (ZZ), Simmons, and Serta, could develop a product that rivals or copies the Select Comfort mattress, thus weakening Select Comfort sales. Sealy (ZZ) and Simmons already offer air bed mattresses.
  • A Sluggish Economy could adversely affect Select Comfort sales. With the majority of revenue being generated in the United States, weak consumer spending could hurt Select Comfort sales. The average Select Comfort mattress sells for roughly $1,700, while innerspring mattresses cost around $900 on average. If consumer is overextended, they may opt to withhold renewing their mattress or buy the cheaper traditional one.
  • The U.S. Housing Market could affect the overall market for mattresses. If Americans add second homes and buy larger houses, this would likely increase mattress demand. This increased demand would result from a need to buy bedding for a secondary home and an increase in space leads to buying bigger mattresses.

Competitors

The mattress industry consists a few large national players, Serta, Sealy (ZZ), Select Comfort (SCSS), Simmons, Tempur-pedic International (TPX), and Spring Air. These six leaders account for more than 60% of the industry's sales and lead approximately 500 U.S. bedding manufacturers. According to International Sleep Products Association, industry wholesale shipments of mattresses and foundations were estimated to be $5.7 billion in 2009, a 9.0% decline compared to $6.2 billion in 2008.[4]

Bedding products fall in either traditional and/or specialty sleep products and most companies have developed products in recent years to address the faster growing specialty segment. Sealy (ZZ), the largest bedding manufacturer in the world, and Simmons Bedding offer air mattresses that directly compete with Select Comfort's Sleep Number Beds.

References

  1. SCSS 2009 10-K "Vision and Strategy" pg. 3
  2. SCSS 2009 10-K "Controlled Selling Environment" pg. 3
  3. SCSS 2009 10-K "Selected Financial Data" pg. 23
  4. SCSS 2009 10-K pg. 8
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