Companies To Watch In 2016: Select Comfort

The company is struggling with a software overhaul that's affecting shipments, but the mattress maker is poised to grow.
Companies To Watch In 2016: Select Comfort

Which Minnesota companies should you keep your eye on in 2016? TCB talked to several analysts who provided their insights. Over the next few weeks, we’ll share with you what we heard.

Select Comfort’s executives should be able to sleep soundly at some point in 2016. But that time hasn’t come.
The Plymouth-based maker of Sleep Number mattresses is coming off of a strong 2015 with new products and growth expected from the company in the new year. But a botched upgrade of the company’s enterprise resource planning software—which helps the company track customers and logistics—has resulted in canceled, delayed or partial shipments of mattresses, according to Peter Keith, a senior research analyst at Piper Jaffray.
Though the issue should have cleared up by the end of the year, Keith said, there’s been a number social media posts from customers that indicate otherwise. Still, he believes it will be resolved by the first half of the year.
“At some point, system conversion issues will resolve themselves and deliveries will get back on track,” Keith said. “What’s not clear is if there’s been any meaningful brand damage.” With mattresses being a business that relies heavily on word-of-mouth, a negative experience could hinder sales for the expensive mattresses (most start far north of $1,000).
Still, if Select Comfort can jump that hurdle, it should be a good year. The company is broadening its customer base with advertising that highlights its benefits for couples (individual adjustability, anti-snore technology), released a new bed for kids and has been plowing more money into research and development.
In 2015, the company acquired BAM Labs (it previously held a minority stake), which created sleep-monitoring software—now branded as SleepIQ—that is built into some of Select Comfort’s mattresses. Though the company will take a 10 percent hit on earnings in 2016 due to the acquisition, it’s expected to accretive to the bottom line by 2017.
Overall, Keith said that Select Comfort’s strong 2015 makes them well poised for 2016 and beyond. “Their performance in the first three quarters of 2015 (before the software implementation issues) in 2015 was very strong both in sales growth and earnings growth,” he said. “They’ve got a strong brand in Sleep Number.”

TCB's editor in chief, Dale Kurschner, talked about Select Comfort's future during an on-air chat with KARE11's Cory Hepola.