By David Urani
Back in May Tempur Pedic (TPX) gave the mattress world nightmares by offering a big discount on its products. TPX itself fell from more than $85 at the time to $27 currently, and fears of a price war also clobbered shares of Select Comfort (SCSS) and Mattress Firm (MFRM). The stocks had been high-fliers previously as memory foam products devour market share from traditional spring mattresses. Now it appears the premium mattress makers have finally had to turn on one another.
Select Comfort proved to the world on Thursday that it remains top dog in the mattress market, having reiterated that it does not need to compete on price, and showing the numbers to back it up. As it turns out, perhaps the reason Tempur Pedic needed to slash prices was that Select Comfort was stealing away customers. Consequentially, SCSS reported record sales (up 27%), operating margin and earnings. Not only did average selling price not go down, it increased by 13%.
One thing that may be shielding SCSS is the fact that it virtually rests alone in its specialized market niche. It is the pioneer of adjustable firmness "Sleep Number" beds. It is a premium product, and customers remain willing to pay up for top-quality slumber. Furthermore, whereas TPX beds are widely sold in stores alongside competing products, SCSS products are largely sold through an advertising strategy that diverts customers to their own website or hotline.
After a devastating drop from more than $30 in early May to as low as $19 last month, SCSS is back up to $27, including a huge 26% surge on Thursday.
SCSS - 6 month
I'm still not entirely sure that SCSS doesn't discount at least somewhat in 3Q, and a look at their website does show a few discounts. That being said, inventories show no signs of demand pullback, having increased only 10% versus the much larger increase in sales. Unfortunately, SCSS management holds a policy of not giving forward guidance, and when asked about it during their conference call management skirted the question and asked analysts to refer back to their record 2Q. Nevertheless, after this result I think you can say that SCSS is no TPX twin, it's king.