James Deweese, Dow Jones News Service
NEW YORK – Select Comfort Corp. shares fell 17 percent Wednesday, reflecting investor concern about
a post-Labor Day sales drop-off and the potential for an expanding number of retail partners to draw sales away from the company’s stores.
The Plymouth maker of specially designed air-chamber mattresses said Tuesday that third-quarter earnings rose 22 percent, to $13.9 million, or 25 cents a share, as it narrowed its full-year earnings estimate to the upper end of its previous range. But the company said sales slowed considerably during the last few weeks of the period.
“The shortfall in sales following Labor Day was disappointing, specifically in existing retail stores. Because of our direct consumer business model, we may see consumer buying behavior sooner than others,” Chairman and Chief Executive Bill McLaughlin said Tuesday, according to a transcript of a conference call provided by Thomson StreetEvents.
But McLaughlin expressed confidence about reaching the company’s full-year targets, adding that Select Comfort would continue to open new stores and identify new retail partners, while working to expand other distribution channels, including e-commerce.
McLaughlin also said the company was reviewing its advertising strategy and would likely begin testing new material by the beginning of next year.
Select Comfort shares were recently changing hands at $20.77, down $4.29, or 17.1 percent, with 4.1 million shares traded, more than six times average daily volume.
Analyst John Baugh of Stifel, Nicolaus & Co. said investors seemed worried about the potential for newly minted retail partners to draw business from company stores.
“We don’t share these concerns, providing retail margins stay somewhat similar to those of company-operated stores,” Baugh wrote Wednesday in a research note.
“There is essentially no incremental cost in selling retail partners,” he said.
“Nonetheless, it is clear that the pace of cannibalization in certain markets has been more rapid than management anticipated.”
