Mattress Firm Profit Tops Estimates; To Buy Sleep Train For $425 Mln - Update

(RTTNews) - Mattress Firm Holding Corp. (MFRM), a specialty retailer of mattresses and related products and accessories, reported Thursday a slight increase in second-quarter profit, with strong growth in net sales and comparable sales. Adjusted earnings per share topped analysts' estimates.

Separately, Mattress Firm announced that it has entered into an agreement to acquire Sleep Train, Inc., a West Coast based bedding specialty retailer, for an aggregate purchase price of $425 million. As further consideration, the company has agreed to assume certain additional liabilities totaling approximately $15 million.

Sleep Train operates approximately 310 specialty mattress retail stores, and reported net sales of $471 million for the 2013 fiscal year, according to Furniture Today.

The closing of the acquisition, which has been unanimously approved by the Boards of both companies, is expected to occur by the end of the fourth fiscal quarter of 2014. The company expects to achieve mid-single digit earnings per share percentage accretion in the first full year after closing.

Mattress Firm added that it expects to fund the cash requirements with cash reserves and the proceeds from the issuance of senior secured debt.

Following the deal, the company plans to continue to operate under both the Mattress Firm and Sleep Train's family of brands and will maintain a West Coast corporate headquarters near Sacramento, California.

Upon closing, Dale Carlsen, the chief executive officer of Sleep Train, will become president and chief strategy officer of Mattress Firm and will join the Mattress Firm Board of Directors as Vice Chairman.

Rob Killgore, chief operating officer of Sleep Train, will become co-chief operating officer of Mattress Firm with current Mattress Firm chief operating officer, Ken Murphy.

Steve Stagner, Mattress Firm's president and chief executive officer, said, "The acquisition of Sleep Train will establish Mattress Firm as the first border to border, coast to coast multi-brand mattress specialty retailer in the United States, with pro forma sales approaching $2 billion a year."

Regarding its second-quarter results, Mattress Firm reported that net income was $14.30 million, compared to $14.12 million last year. Earnings per share was $0.41, same as last year.

The latest results included $6.8 million of acquisition-related costs, ERP system implementation costs, and impairment and severance charges.

Adjusted net income, which excluded items, was $21.05 million or $0.61 per share, compared to $14.75 million or $0.43 per share a year ago. On average, 12 analysts polled by Thomson Reuters expected earnings of $0.60 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter increased 35.5 percent to $409.95 million from last year's $302.54 million, reflecting comparable-store sales growth of 9.7 percent and incremental sales from new and acquired stores. Analysts were looking for revenues of $409.99 million.

Adjusted operating income margin was 9.3 percent of net sales as compared to 8.9 percent in the second fiscal quarter of 2013, and included a ten basis-point increase in gross margin,

Stagner added, "As external economic factors, such as consumer confidence, continue to show improvement, we believe our Company is well-positioned to take advantage of the potential ahead."

Mattress Firm shares closed Wednesday's trading at $56.81, down $0.24 or 0.42 percent.