Mattresses are a pivotal part of getting a good night's sleep. Therefore, mattress companies are constantly doing R&D to provide better mattresses. A great player in this industry is Mattress Firm Holding Corp. (MFRM, Financial).
The company has posted excellent quarterly results, including a 50.7% increase in revenue. During the third quarter, Mattress Firm opened 87 new stores and closed 15 stores. Total company-operated store count at the end of the quarter was 2,295.
Founded in 1986, Mattress Firm (a holding company) with more than 2,400 company-operated and franchised stores across 41 states. It has the largest geographic footprint in the U.S. among multi-brand mattress retailers. Mattress Firm, through its family of brands, including Mattress Firm and Sleep Train, offers a broad selection of both traditional and specialty mattresses, bedding accessories and other related products from leading manufacturers, including Sealy, Tempur-Pedic, Serta, Simmons, Stearns & Foster, and Hampton & Rhodes. Its operational segments are retail operations and franchise operations.
Strong third-quarter results
On Dec. 7, 2015, the Houston-based company reported financial results for the third fiscal quarter ended Nov. 3, 2015. The company’s total revenue increased 50.7% year over year to $699.5 million. In the reported quarter, comparable-store sales growth was 3.8%.
Income from operations was $47.8 million and adjusted income from operations excluding $8.4 million of acquisition-related costs, secondary offering costs, and severance charges was $56.2 million compared to $43.7 million for the comparable prior year period. The adjusted operating income margin was 8.0% of net sales compared to 9.4% in the prior year period. Mattress Firm’s net income and GAAP EPS were $23.9 million and 67 cents. Further, adjusted net income and adjusted EPS was $29.1 million and 82 cents.
The company ended the quarter with cash and cash equivalents of $10.282 million and long-term debt, net of current maturities of $688.145 million. Net cash provided by operating activities for the third quarter was $45.5 million. Further, during the quarter, Mattress Firm repaid approximately $17.5 million of debt.
Full year 2015 results
Mattress Firm provided results for the three fiscal quarters (39 weeks) ended Nov. 3, 2015. Net sales in the reported period increased 59.2% to $1,923 million compared to $1,207 million in the previous year period. For the full year 2015, comparable store sales growth was 2.8%.
Income from operations was $112.2 million and adjusted income from operations excluding $21.6 million of acquisition-related costs, ERP system implementation costs, secondary offering costs, and impairment and severance charges was $133.8 million compared to $101.7 million for the comparable prior year period. The adjusted operating income margin was 7.0% of net sales compared to 8.4% in the prior year period. Further, adjusted net income and adjusted EPS was $51.2 million and $1.82 respectively. Mattress Firm during the reported period opened 236 new stores and closed 35 stores, adding 201 net store units.
Projections for fiscal 2015
Mattress Firm expects the following for its full fiscal 2015 (52 weeks) ending on Feb. 2, 2016:
- Net sales are expected in the range of $2530 million to $2550 million
- Low single digit is expected for comparable-store sales
- Adjusted EBITDA in the range of $255 million to $260 million
- GAAP EPS and adjusted EPS are expected in the range of $1.88 to $1.94 and $2.33 to $2.42 respectively
- Interest expense in the range of $40 million
- Net debt is expected to be $680 million, a 10% decrease compared to the same period previous year
Acquisitions and growth
Since 2007, Mattress Firm has acquired 17 mattress retailers and the acquisitions are progressing as expected. On Nov. 30, 2015, the company has announced that it has entered into an agreement to acquire Sleepy’s. This acquisition will help Mattress Firm to strengthen its position as largest border-to-border, coast-to-coast mattress specialty retailer. Mattress Firm combined with Sleepy’s will operate nearly 3,500 retail stores and 80 distribution centers across 48 states and expects to generate annual synergies of approximately $40 million by the third year post-closing.
The relative market share is Mattress Firm’s core growth strategy which drives profit. The company has long-term private label potential of approximately 25%-30% of retail sales and is emerging omni-channel platform. From 2010 to Last Twelve Months (LTM) 3Q 2015, annual net sales and annual adjusted EBITDA grew at a CAGR of 41% and 36%. Further, Mattress Firm has a history of strong cash flow generation and deleveraging. The company expects to generate approximately $77 million of free cash flow in the fiscal 2015.
A peek into the bedding industry
Until 2007, the global mattress industry has achieved positive results, and during 2008 to 2009, it had experienced a decrease in overall sales. The main reasons behind the decrease were economic pressures, decline in consumers' wealth, and weak housing market. Then, in 2010, the industry started to show signs of recovering, and is now expected to experience healthy growth in the upcoming years. As per Global Industry Analysts, the global mattress market will reach $24.65 billion by 2017. People are now ready to spend more for mattresses as sound sleep is one of the most important necessities of life. Therefore, Mattress Firm has enough room to strengthen its position.
(Source: Company website)
On a concluding note
Overall, Mattress Firm is a rock-solid company with compelling industry dynamics, best-in-class specialty retailer, highly achievable growth plans, and experienced and invested management team. Over the past twelve months, it has reported more than $2.5 billion in sales. Further, Mattress Firm has a strong balance sheet with strong revenue growth, growth in earnings per share, an increase in net income, good cash flow from operations, and expanding profit margins. Therefore, I am pretty bullish that this bedding retailer won’t let its valued customers as well as investors down in the future.
Disclosure: I do not hold any position in the company.
