Select Comfort Corporation (SCSS), the home furnishing and fixtures retailer, is set to report its third-quarter 2014 results on Oct 22, 2014. Last quarter, it posted a positive surprise of 14.3%. Let us see how things are shaping up for this announcement.
Factors Influencing this Quarter
After concluding 2013 on a soft note, Select Comfort has been gaining momentum from its turnaround initiatives, such as marketing and launch of new products, which is evident from its performance in the last two quarters. The company’s first-quarter 2014 earnings were in-line with the Zacks Consensus Estimate while its second-quarter earnings beat the estimates. We believe that, Select Comfort will continue to perform well in the upcoming quarter driven by its growth strategies.
The company has been using a new technology called SleepIQ in its mattresses, which has been much appreciated by customers. Moreover, Select Comfort, which is used to rely on infomercials to advertise its products, is now using Television, internet and print media to give its top-line a boost. Furthermore, we presume that Select Comfort remains well positioned to benefit from the gradually recovering housing market
However, aggressive discounting trends, a competitive retail landscape along with reducing mall traffics are some of the factors which may affect its upcoming quarterly results. Therefore, we remain skeptical about the company’s performance.
Earnings Whispers
Our proven model does not conclusively project Select Comfort as likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below.
Zacks ESP: ESP for Select Comfort is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 40 cents.
Zacks Rank: Select Comfort’s Zacks Rank #3 lowers the predictive power of ESP because this Zacks Rank when combined with a 0.00% ESP makes surprise prediction difficult. We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into an earnings announcement, especially when the company is witnessing negative estimate revisions.
Stocks that Warrant a Look
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat:
The New York Times Company (NYT) has an Earnings ESP of +100% and a Zacks Rank #1.
Under Armour, Inc.'s (UA) Earnings ESP stands at +2.50% and it carries a Zacks Rank #2.
Jarden Corp. (JAH) with an Earnings ESP of +0.86% holds a Zacks Rank #2.
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