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Select Comfort (SCSS) Gains on Q1 Earnings Beat, Raises View

Zacks

Select Comfort Corp. SCSS reported positive earnings surprise in the first quarter of 2017 after missing the estimate in the trailing two quarters. Moreover, the company also posted better-than-expected top-line. The sturdy performance prompted management to provide an upbeat outlook. Following the results, the company’s shares jumped over 13% in after-hour trading session on Apr 19. In fact, the stock has gained 28.5% in the past three months, comfortably outperforming the Zacks categorized Furniture industry’s gain of 9.9%.

The company delivered earnings per share of 56 cents that outpaced Zacks Consensus Estimate of 46 cents and surged more than twofold year over year primarily on the back of initiatives and investment made over the past few years.



Quarter in Detail

Net sales rose 12% year over year to $393.9 million, surpassing the Zacks Consensus Estimate of $370 million. Comparable-store sales (comps) in the quarter rose 3%. Increase in sales was driven by higher comps, 10% growth from net new stores and steady mall traffic.

Gross profit came in at $246.5 million, up 17.9% from the year-ago period. Moreover, gross profit margin expanded 340 basis points (bps) to 62.6%.

Total operational expenses rose 11.3% to $210.6 million in the quarter, mainly owing to increase in sales and marketing costs as well as general and administrative expenses.

Select Comfort’s operating income soared 80% from the prior-year period to $35.8 million, while operating margin as a percentage of net sales expanded 350 bps to 9.1%.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter was $55.7 million, increasing 48.8% year over year, while adjusted EBITDA margin as a percentage of net sales were up 350 bps to 14.1%.

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 year with cash, cash equivalents and marketable-debt securities of $36.5 million. During the quarter, the company generated $86.9 million in cash from operations. Further, it bought back shares worth approximately $50 million during the quarter.

Store Update

Select Comfort opened 16 stores while shuttering 10 outlets during the quarter. As of Apr 1, 2017, the company had 546 outlets.

Guidance

Select Comfort raised earnings outlook for 2017. The company now anticipates 2017 earnings per share in the range of $1.25–$1.50 up from the previous estimate of $1.20–$1.40. The Zacks Consensus Estimate for 2017 is currently pegged at $1.31. Sales for the full year are projected to grow by high-single digit, while comps are expected to increase by low-single digit. The company anticipates 2017 capital expenditure to be nearly $55 million.

Select Comfort currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks in the retail sector that warrant a look include Burlington Stores, Inc. BURL, The Children's Place, Inc. PLCE and Foot Locker, Inc. FL. Children's Place sports a Zacks Rank #1 (Strong Buy) while both Kate Spade & Company and Foot Locker carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores delivered an average positive earnings surprise of 26.3% in the trailing four quarters and has a long-term earnings growth rate of 15.9%.

Children's Place delivered an average positive earnings surprise of 39% in the trailing four quarters and has a long-term earnings growth rate of 8%.

Foot Locker delivered an average positive earnings surprise of 2.2% in the trailing four quarters and has a long-term earnings growth rate of 9.7%.

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