Select Comfort Corp. SCSS reported positive earnings surprise for the second straight quarter, as it posted Q2 2017 results. However, the top line came in below the estimate after beating in the preceding quarter.

Following the mixed quarterly numbers, the company’s shares decreased nearly 4% in after-hour trading session on Jul 17. We note that the stock has declined 1.5% in the past month, underperforming the Zacks categorized Furniture industry’s increase of 2.4%.

The company delivered adjusted earnings per share of 10 cents that outpaced the Zacks Consensus Estimate of 5 cents and surged over threefold from the prior-year period, primarily on the back of initiatives and investment made in the past few years. However, on a GAAP basis the company reported a loss of 2 cents, against earnings of 3 cents in the year-ago quarter.

Quarter in Detail

Net sales rose 3% year over year to $284.7 million but missed the Zacks Consensus Estimate of $301 million. Net sales in the second quarter were impacted by $25 million due to shift in sales to the third quarter on account of inventory shortage from one of the company’s suppliers.

Retail comparable-store sales (comps) declined 6% during the quarter, while online and phone witnessed a sharp gain of 26%. However, company-controlled comps declined 4% year over year. Select Comfort stated that demand in the second quarter was ahead of the company’s expectation and store traffic was also steady throughout the quarter.

Gross profit came in at $176.6 million, up 3% from the year-ago period. Moreover, gross profit margin expanded 10 basis points (bps) to 62%.

Total operational expenses rose 6.4% to $179.7 million in the quarter, mainly owing to increase in sales and marketing costs as well as general and administrative expenses.

Select Comfort posted operating loss of $3.1 million, as against operating income of $2.4 million reported in the prior-year quarter.
 
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter was $16 million, down 21.1% year over year, while adjusted EBITDA margin as a percentage of net sales shriveled 170 bps to 5.6%.

Select Comfort Corporation Price, Consensus and EPS Surprise

Select Comfort Corporation Price, Consensus and EPS Surprise | Select Comfort Corporation Quote

Balance Sheet and Cash Flow

Select Comfort ended the quarter with cash, cash equivalents of $2.1 million. During the first six months of 2017, the company generated $89 million in cash from operations. Further, it bought back shares worth approximately $75 million during the same time frame.

Store Update

Select Comfort opened eight stores, while shuttering five outlets during the quarter. As of Jul 1, 2017, the company had 549 outlets.

Guidance

Select Comfort reiterated 2017 guidance. The company anticipates 2017 earnings per share in the range of $1.25–$1.50. The Zacks Consensus Estimate for 2017 is currently pegged at $1.41. Sales for the full year are projected to increase by high-single digits, while comps are expected to rise by low-single digits. The company anticipates 2017 capital expenditure to be nearly $55 million.

Select Comfort currently carries a Zacks Rank #4 (Sell).

Key Picks

Better-ranked stocks worth considering in the retail space include G-III Apparel Group, Ltd. GIII, Tilly's, Inc. TLYS and Guess?, Inc. GES. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel Group has an impressive long-term earnings growth rate of 15%.

Tilly's has long-term earnings growth rate of 13% and also surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average earnings beat of 120.4%.

Guess? has an impressive long-term earnings growth rate of 17.5%.

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Select Comfort Corporation (SCSS) : Free Stock Analysis Report
 
Tilly's, Inc. (TLYS) : Free Stock Analysis Report
 
Guess?, Inc. (GES) : Free Stock Analysis Report
 
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