What: Shares of Mattress Firm Holding Corp. (NASDAQ:MFRM) plunged as much as 19.1% early Friday, but partially recovered to trade down 14.6% as of 1:30 p.m. EDT, after the company released weaker-than-expected fiscal first-quarter 2016 results. So what: Quarterly revenue climbed rose 49.2% year over year, to $839.4 million, driven by a combination of acquired and new locations, and offset partially by a 1.1% decline in comparable-store sales. Based on generally accepted accounting principles (GAAP), that translated to a loss of $3.22 per diluted share. On an adjusted (non-GAAP) basis, which excludes items like acquisition, asset impairment, and severance costs, Mattress Firm's loss came in at $0.17 per share. Meanwhile, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) fell 10.3% year over year, to $46.8 million. By contrast, Mattress Firm's guidance provided last quarter called for a narrower GAAP loss per share of $0.32 to $0.25, and adjusted earnings between breakeven and a loss of $0.07 per share.
And analysts, on average, were predicting that higher revenue of $867.2 million would translate to an adjusted loss of $0.04 per share. "We are disappointed in our first-quarter results," said Mattress Firm executive chairman and chairman of the board, Steve Stagner, "as we experienced unrelated challenges in three primary areas." During the subsequent conference call, Stagner elaborated: those three areas included a systems upgrade that caused an "extended disruption to the business," an "elongated and painful new product rollout that resulted in back orders, lost sales, and frustrated consumers and sales associates alike," and challenges related to the ramp-up of a new primary financing provider in Mattress Firm's namesake stores. Stagner went on: "These issues have been resolved and are largely behind us; however, there was clearly an impact to sales in Q1 that continued early into Q2. Due to our results to date, we are revising our guidance for the full year." In addition, keeping in mind Mattress Firm only just completed its acquisition of Sleepy's in February, Mattress Firm announced plans to consolidate all stores under the Mattress Firm banner nationwide over the next 12 to 18 months.
Now what: In the meantime, Mattress Firm expects full-year revenue between $3.825 billion and $3.875 billion (down from $3.95 billion to $4 billion previously), comparable-store sales growth of 1% to 2% (down from 4% to 5.5%), adjusted EBITDA of $338 million to $343 million (down from $365 million to $370 million), and adjusted earnings per share of $2.25 to $2.35, which excludes a $0.27-per-share charge related to trade name amortization (down from adjusted EPS guidance of $2.50 to $2.60 In the end, Mattress Firm's business may be back on the right track. But given its trifecta of challenges and resulting underperformance this quarter, it's no surprise to see investors taking a big step back today. Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
The Motley Fool has a disclosure policy.Stock quotes in this article: It's no surprise Mattress Firm (MFRM) shareholders are growing restless after jumping into bed with a mountain of sub-investment-grade debt. The Houston-based company's goal has been to take on a pile of leveraged loans in order to purchase rival mattress maker Sleepy's, or rather their parent company HMK Mattress Holdings. And, as Real Money reported, soon after a waiting period governed by the Hart-Scott-Rodino Antitrust Improvements Act expired last month, Barclays (BCS) began shopping the leveraged-loan package to back the roughly $780 million acquisition. But, with shares down 23% on the year and total debt now doubled to about $1.4 billion in pricey leveraged loans (the latest slice will pay out roughly 6.25% in annual interest), investors are counting on how well they can merge with Sleepy's and HMK Mattress's other holdings. CEO Stephen Stagner's expects roughly $40 million in synergies and is confident that Mattress Firm has substantially reduced its debt load to make room for the speculative new debt (rated Ba3 by Moody's and B+ by S&P).
"We've been able to generate very strong free cash flow in the past two quarters," he said at an industry conference. "We've paid down $77 million in debt. That's because this business generates a lot of cash. And we anticipate that we're going to be able to generate a lot of cash approximately $100 million in cash this year in 2016." He also pointed to $11 million in tax deductions stemming from the Sleepy's acquisition and expects to boost Mattress Firm's roughly $2.5 billion in sales over the past four reported quarters by 44% through the merger. "So, we understand that we are taking on some more debt, but at the exact same time we'll have a very strong opportunity to pay down that debt, and we see that we'll be able to pay down quite a bit of debt within this first year," he said. "With over 2,400 locations before this Sleepy's acquisition, we have the largest footprint in the United States." Stagner's ability to pay down his newly-acquired leveraged loans will be crucial, especially as many such as Sprint (S), a member of Real Money's distressed watch list, have nearly been flattened under the weight of their sub-investment-grade debt.
And it appears Mattress Firm's ability to get out from under what may become a serious leverage problem will depend on how good a bedfellow newly-acquired Sleepy's can be.What: Shares of Mattress Firm Holding Corp. (NASDAQ:MFRM) fell as much as 15.3% early Monday after the company released weaker-than-expected fiscal fourth-quarter earnings and a new CEO. So what: Quarterly revenue climbed 3.4% year over year, to $618.6 million, helped by new locations and comparable-store sales growth of 0.7%. Based on generally accepted accounting principles (GAAP), that translated to earnings per share of $0.37. On an adjusted (non-GAAP) basis, which excludes items like acquisition, asset impairment, and severance costs, earnings per share climbed 29% year over year, to $0.53. Adjusted earnings before interest, taxes, depreciation and amortization came in at $255 million. Analysts, on average, were more optimistic on both the top and bottom lines, with consensus estimates predicting revenue of $623.2 million, and adjusted earnings of $0.56 per share.
Nonetheless, Mattress Firm CEO Steve Stagner insisted the company is "pleased" with its performance, which included a 90 basis expansion in adjusted EBITDA margin, and the company's 10th straight quarter of comparable-store sales growth. "Our Chicago business has turned market-level EBITDA positive," Stagner elaborated, "and our streamlined organizational structure is generating significant leverage. With the recently completed Sleepy's acquisition, we believe we are well positioned to realize meaningful synergies and leverage the benefits of national scale, driving continued growth, opportunities, and profitability over time." That said, Mattress Firm also announced Stagner will assume the role of executive chairman of the company, and chairman of the board, effective immediately. Stagner will be replaced as CEO by Ken Murphy, who joined Mattress Firm in 1998 and most recently served as president of the company. Murphy also spearheaded the company's current strategic framework, employee focused programs, and community-centric activities designed to resonate with customers on a local level.
This transition, according to the company, is "part of a long-term succession plan for the organization and will allow for better division of responsibilities for the two executives." Now what: In the meantime, Mattress Firm anticipates reporting a GAAP loss per share of $0.32 to $0.25 in the current quarter, primarily due to dilution related to financing the Sleepy's acquisition and the fact Sleepy's should continue operated at roughly breakeven at the adjusted EBITDA level. On an adjusted basis in the first quarter, Mattress Firm expects to be between breakeven and a loss of $0.07 per share -- well below analysts' expectations for adjusted earnings of $0.43 per share. In the second and third quarters, however, Mattress Firm expects "meaningful" year-over-year growth in adjusted earnings, as Sleepy's is strongest in these quarters and given the realization of synergies and other strategic initiatives as the year progresses. As such, Mattress Firm anticipates full-year revenue of $3.95 billion to $4 billion, comparable-sales growth of 4% to 5.5%, adjusted EBITDA of $365 million to $370 million, GAAP EPS of $2 to $2.05, and adjusted earnings per share of $2.50 to $2.60.