Mattress Firm Holding Corp (MFRM): A Trend to Watch in the Mattress Industry

Prior to 2012, Tempur Sealy International Inc (NYSE:TPX) had seen considerable margin improvements in the past three years. In 2013, profit margins fell to 7.5% from 15%. Select Comfort Corp. (NASDAQ:SCSS)’s margins have remained flat, but only because Select Comfort Corp. (NASDAQ:SCSS) transitioned to direct sales for much of its revenue. Thus, it doesn’t rely on distributors such as Mattress Firm, and it can control its own pricing and margins with its approach.

The fact that Tempur Sealy International Inc (NYSE:TPX) saw a 77.8% decline in net earnings to compliment 1.5% revenue growth during its last quarter is further evidence of the price cuts that are taking place in the mattress industry. Meanwhile, Select Comfort’s 4.7% net earnings growth compared to a 1.6% revenue decline during the same period is evidence that its business model is currently the most effective.

Final thoughts

My concern, moving forward, is if Mattress Firm is only seeing growth from new stores and acquisitions, and its suppliers have drastically cut prices in order to remain relevant, than how long will it be before mattress companies opt to consider a direct sales approach? Mattress Firm did say that volume increased in May, which is most likely why mattress companies are responding positively. However, I don’t see these trends as favorable for either Tempur Sealy or Mattress Firm, as margins continue to decline. Moreover, if I had to choose one company in a struggling space, there’s no doubt that it’d be Select Comfort.

Brian Nichols has no position in any stocks mentioned. The Motley Fool owns shares of Tempur-Pedic (NYSE:TPX) International. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article A Trend to Watch in the Mattress Industry originally appeared on Fool.com is written byBrian Nichols.

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