SEC Investor - Sleepless Investors Demand Change (SCSS) - The Insider's Guide to SEC Filings

Monday, March 10, 2008

Sleepless Investors Demand Change (SCSS)

SCSS Logo

Select Comfort Corp. (NDAQ: SCSS) may help its customers sleep well at night, but many of its shareholders are definitely losing sleep on with stock’s performance. The mattress-maker saw its shares drop over eight percent today after one of its largest shareholders sent a letter to the board demanding changes in a Schedule 13D filing with the SEC. So, will the company respond with shares trading at their 52-week low?

The Clinton Group, which owns a 5.07% stake in Select Comfort, requested a meeting with the board to address its concerns about missteps they believe the company has taken that have resulted in a deterioration of performance and that has obscured its strong growth prospects. The activist hedge fund joins many other dissident shareholders created as a result of a shocking 80% decline in market value over the past 52 weeks.

The Clinton Group believes that the board and management should immediately implement several initiatives designed to give Select Comfort strategic direction and restore its operational performance:

Revise marketing strategy to refocus on direct marketing.
Disband the “Quality of Life Advisory Board” as a wasteful use of company resources.
Review its store portfolio to eliminate underperforming stores.
Immediately cease all new store openings and spending on unnecessary capital expenditures until sales results improve.
Eliminate stores in regions where the Company does not have the critical mass to justify its advertising and the overhead for that region, and then eliminate the excess regional and corporate overhead.
Freeze spending on the SAP system installation until it is evaluated by an independent consultant.
Consider subleasing or disposing of the costly new corporate headquarters and conduct a study on the future needs of the Company in light of its anticipated growth.
Revise new Chief Executive Officer performance metrics to earn 2008 base salary to align with shareholders interests.
Consider outsourcing its call center operations.

“The dramatic declines cannot be blamed on a difficult macroeconomic environment alone, as the declines in the broader consumer discretionary indices and overall market declines have not been nearly as severe,” said Clinton Group Vice Chairman Jerry W. Levin in a letter to the board. “Even in a difficult market, we believe that the Company should be able to capture market share if it effectively communicates the value of its mattress products with respect to comfort, sleep quality, and price.”

In the end, Select Comfort is a solid company trading at just 6x earnings because of investor concerns about its future. Luckily, simple solutions are available that can be implemented in order to alleviate these concerns and restore investor confidence. The Clinton Group has clearly outlined these steps and it will be interesting to see whether or not the company embraces them. Combined, these factors make SCSS a stock worth watching!