SCSS Beats, Raises Outlook - Analyst Blog
18 Octobre 2012 - 11:15AM
Zacks
Headquartered in Minneapolis,
Select Comfort Corporation (SCSS) – a retailer of
bed mattresses and other sleep related goods – recently posted
better-than-expected third quarter 2012 financial results. Both the
top line and bottom line of the company were above the Zacks
Consensus Estimates.
Quarterly earnings of 46 cents per
share surpassed the Zacks Consensus Estimate of 40 cents and jumped
48% from 31 cents earned in the comparable prior-year quarter. The
increase in earnings is mainly attributable to double-digit
top-line growth and significant improvement in margins.
Quarter in
Detail
Select Comfort witnessed a
substantial increase of 24% in net revenue, reaching a level of
$247 million compared with $200 million in the prior-year quarter.
The double digit growth in revenue was mainly due to 21% increase
in comparable store sales cushioned by a growth of 31% in retail
sales-per-comparable store over the previous one year. Moreover,
revenue exceeded the Zacks Consensus Estimate of $246 million.
Gross profit increased 27.8% to
$160.7 million, versus $125.8 million in the third quarter of 2011.
Consequently, gross margin improved 210 basis points (bps) to 65.1%
in the quarter. The improvement was noticed due to contraction of
cost of goods sold as a percentage of sales along with the positive
impact of pricing and mix related to new product innovations.
Improvement in gross margin,
leverage on marketing and sales expenses, led to a double fold
increase in operating income to $40.2 million, reflecting an
expansion of 300 bps in operating margin to 16.3%. Moreover, it is
witnessed that the company has been achieving double digit growth
in operating income since the last 15 consecutive quarters.
Other Financial
Aspects
Select Comfort, which faces stiff
competition from Sealy Corporation (ZZ), ended the
third quarter with cash and cash equivalents of $157.6 million
(including the current marketable debt securities). During the
first nine months of 2012, Select Comfort generated $98 million
from operating activities compared with $75 million in the last
year quarter. This will enable the company to make capital
investments, pay dividends and repurchase shares.
The company incurred $37 million
towards capital expenditure, attributable to funds invested in
opening new stores and improving IT systems.
During the quarter the company
bought back 0.4 million shares worth of $10 million. Year-to-date
the company has deployed $20 million to buy back around 0.8 million
shares of its common stock. This demonstrates that the company
remains committed to return value to its shareholders.
Raised
Outlook
Based on better-than-expected and
strong quarterly results, the company raised its outlook for the
year 2012. Select Comfort now expects earnings to be in the range
of $1.51–$1.53 per share, representing a year-over-year growth of
41%–43%. Earlier, the company has guided earnings range of
$1.41–$1.47, an increase of 32%–37% compared with the prior-year
quarter. The new earnings guidance range anticipates a 20% increase
in net revenue for the fourth quarter 2012.
The company maintained its capital
expenditure guidance at $50 million, to be used mainly for new
store openings, renovations and remodels along with improvement in
IT systems. Further, Select Comfort estimates to continue the share
repurchase activity for the rest of 2012 with an aim of maintaining
its share count.
Stores
Update
Management believes that the
increase in sales was also attributable to 20 new store openings
year-to-date, comprising 13 new stores launched in the third
quarter. At the quarter-end the company operated 394 stores and
plans a total store count of 408–412 by the end of 2012. This
represents an increase of 7%–8% compared with 381 stores at the end
of 2011.
Zacks Rank &
Recommendation
Select Comfort currently carries a
Zacks #1 Rank, implying short-term Strong Buy rating on the back of
continued positive earnings surprise over the last four quarters.
However, we maintain our long-term ‘Neutral’ recommendation on the
stock.
SELECT COMFORT (SCSS): Free Stock Analysis Report
SEALY CORP (ZZ): Free Stock Analysis Report
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