SCSS - Select Comfort

[Buddy0807]

anyone out there looked at this business? 

 

trades at ~5-6x EBITDA compared to peers that are ~10-11x

it's an asset light business and doesn't require a whole lot of working capital, returns on capital are solid

selling margins are industry-leading at >60%

they have net cash on the balance sheet, an inefficient balance sheet frankly, which might stem from bad memories of 08/09

industry has grown ~5% since forever, that's slowed down some but arguably implies pent-up demand

the industry appears to be consolidating, tpx just bought sealy, think Einhorn owns it, albeit it's a small position

mgmt at select comfort seems inept at forecasting their business, they perpetually can't seem to meet their guidance

stock's been a wild ride over time and the last 12 months on account of continuous sales guidance misses

 

anyway, seems like an interest business on the surface, attractive economics, consolidating industry, inefficient balance sheet, etc. so was curious if anyone had taken a look.

 

-Buddy0807

 

[jm25]

At first glance this seems very interesting. Any thoughts as to why they are trading at the steep discount to its peers? Has anyone purchased a Select mattress? What makes them different than competing brands?

[Buddy0807]

the recent sell-off has to do with a pre-announced q4 earnings shortfall relative to their guidance.  doesn't help that they've also missed their guidance five consecutive times.  for q4, they were expecting modest company-controlled comparable sales in the low single digits and announced a "flat" performance.  the announcement was sort of vague which appears to be normal course for mgmt at select.  also, retail in general has also been a bloodbath in the front part of 2014 with quite a few earnings misses/negative pre-announcements. 

 

although i don't own one, their beds and associated products are the premium variety.  sales/unit average ~$3k.  this compares to a $200-300/unit average industry-wide.  ~70% of the market is innerspring/low end stuff.  select plays in the high end, like tempur-pedic (pre-sealy acquisition). 

[ohnobananas]

Notice how the sell-offs predictably occur every quarter like clockwork.

 

Also, the last time that insiders were net-buyers in the stock was during Q2 2013, when during much of the time the stock was languishing in the $17-20 range.  Seeing as how the U.S. mattressing industry a year ago looks about the same today, the current stock price does look very cheap compared to LTM and going long right now could very well be a good bet (buying at bottom of cycle).

 

However, I haven't done enough research yet... will keep researching.