Select Comfort Corporation (NDAQ: SCSS) shares may be well off of their $19/share 52-week highs, but at several professional investors are giving this stock a second look. The depressed levels have led to several analyst upgrades as well as at least one activist hedge fund that has taken a positive stance. The Clinton Group not only commended management, but also increased its stake to 6.1% in recent days.

The Clinton Group previously expressed disappointment with Select Comfort in a series of letters, but is now convinced that the company is moving in the right direction. The activist hedge fund met with Chairman Ervin Shames and CEO William McLaughlin regarding the prospects and strategy of the company and liked what they saw. In particular, the two executives told the hedge fund that the company was improving operating practices by focusing on driving sales through new marketing strategies and implementing appropriate cost reductions where necessary.

The two parties also discussed implementing changes that the Clinton Group proposed during their last letter to the board, which included:

1. Revise marketing strategy to refocus on direct marketing.
2. Disband the "Quality of Life Advisory Board" as a wasteful use of company resources.
3. Review its store portfolio to eliminate underperforming stores.
4. Immediately cease all new store openings and spending on unnecessary capital expenditures until sales results improve.
5. 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.
6. Freeze spending on the SAP system installation until it is evaluated by an independent consultant.
7. 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.
8. Revise new Chief Executive Officer performance metrics to earn 2008 base salary to align with shareholders interests.
9. Consider outsourcing its call center operations.

It is clear that Select Comfort has been experiencing difficulty due to a weak macroeconomic environment, but the Clinton Group now believes management and the board is now cognizant of its previous missteps and focused on improving the company's performance in 2008 and beyond. Even assuming a difficult environment for consumer spending, the company is trading at historically low multiples and at a valuation discount to its comparable peers.

The Clinton Group believes that this valuation gap between Select Comfort and its peers will close as its new initiatives begin to bear fruit and the company will soon return to historical levels of profitability and valuation. As a result, their conviction is stronger than ever that the company has exceptional long-term growth prospects. In fact, they even recently purchased 461,244 more shares in a vote of confidence.

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