Monday 06/20/2011 – Momentum Stocks $CROX (SCSS)

New 52w highs with positive sales growth:
CBOU ONTY ECHO CROX GNC CNS CASY BGS LQDT VVTV

Biggest Daily gainers with positive sales growth:
CBOU ONTY GNK SCSS DANG ECHO ABG SMRT CROX DMAN

The top 10 “growthiest” companies are:
ONTY DANG ECHO CROX CNS CASY SCSS LQDT ABG VVTV

Out of the top 10 growthiest today, 2 stocks interested me the most. $SCSS (Select Comfort Corp) and $LQDT (Liquidity Services Inc). With their constant advertisements, many of us are familiar with Select Comfort and their sleep number beds. They sell beds with mattresses that have adjustable firmness on each side of the bed, Pillows & Beddings, and Mattress Bases and Frames.

Liquidity Services, on the other hand, operates an online auction marketplace for surplus and salvage assets. In other words, they are the enterprise version of Ebay. When corporations or government agencies need to sell industrial machinery, and old fleet of school buses, or even things that the Department of Defense no longer needs, they can go to Liquidity Services and find “professional buyers” to whom they can unload their stuff on.

Both charts look absolutely amazing on $SCSS and $LQDT. I would even say that LQDT has a slightly better looking price chart; however, as a general rule of thumb when comparing 2 stocks, I favor trading the company that is a house-hold name. Why? Because of familiarity and because people are far more likely to buy the stock of a company whose products they have personally used themselves. In other words, a significantly higher number of people have actually used sleep number beds, way more than will ever use LQDT’s services. Think back to all the hottest stocks out there, they are usually “consumer” stocks like AAPL, NFLX, LULU, CMG, CROX, TZOO, GMCR etc. All of these are companies that make products that the vast majority of people have either used personally, or know someone who uses them. Based on that thesis I choose SCSS over LQDT as a better investment / trading opportunity.

Notes from Q4 Earnings announcement on 02/09/2011

Company Reports Fourth Quarter Net Income per Share of $0.13; Operating Income Increases 53 percent; Same-store Sales Up 12 percent; Provides 2011 Earnings Guidance

Fiscal 2011 Outlook
The company expects to increase net income per share in 2011 by 20 to 30 percent to between $0.68 and $0.74 per diluted share. This outlook assumes modest improvement in macro-economic trends and same-store growth in the upper single digits as the company increases investments against programs designed to expand market share. The company’s long-term expectation is for net income per share growth of between 15 and 20 percent per year.

The company ended 2010 with 386 stores, and expects to end 2011 with approximately 380 stores after the consolidation of planned store openings and closings. The company anticipates that 2011 capital expenditures will be approximately $25 million to $30 million, reflecting a total of 40 to 50 store actions, mainly relating to remodels and relocations, along with an initial investment to upgrade marketing and customer-management systems.

Notes from Q1 Earnings announcement on 04/20/2011

Reports Record First Quarter Net Income per Share of $0.30; Company-owned Comparable Sales Up 26 Percent; Increases 2011 Earnings Guidance to $0.85 to $0.93 per Share ((From the previous guidance of 0.71 to now 0.89, raising guidance by 25.3% WOW!))

“Our first quarter performance demonstrates the earnings potential of our business when we achieve solid sales growth and increased market share,” said Bill McLaughlin, president and CEO, Select Comfort Corporation. “During the quarter, we remained focused on leveraging our core business, executing against our growth-driving programs and controlling costs, making solid progress against our goals of profitable growth and margin expansion.”

McLaughlin continued, “The momentum of the first quarter allowed us to advance initiatives designed to continue to broaden awareness and consideration for the Sleep Number brand and enhance customers’ store experience in order to drive long-term growth. We expect our efforts to generate strong earnings growth over the balance of the year as well as provide for continued investment in growth opportunities.”

First Quarter Summary
During the first quarter, net sales increased by 22 percent as compared to the year-ago period. The increase in sales was driven by a company-owned comparable sales growth of 26 percent, with the average sales-per-store over the past 12 months reaching $1.4 million, a 26 percent improvement over the prior-year period. Operating income improved by 86 percent to $26.4 million and operating margin improved 469 basis points to 13.7 percent

Gross profit margins increased 166 basis points from 62.1 percent in the prior-year period to 63.8 percent in the first quarter of 2011. The increase reflects strong product mix offset somewhat by modest commodity-cost increases.

Sales and marketing costs in the first quarter of 2011 increased by 15 percent to $80.3 million, representing 41.6% of net sales ((a decrease of 280 bps, means they are spending less in S&M relative to their sales)). This compares to $70.1 million, or 44.4% of net sales in the prior-year period. Media investments in the first quarter totaled $23.7 million, 30 percent higher than a year ago.

General and administrative (G&A) expenses were $15.6 million in the first quarter, or 8.1% of net sales ((G&A was smaller relative to sales)). This compares to $13.1 million, or 8.3% of net sales, in the year-ago period. In the quarter, G&A expenses included incentive compensation related to strong quarterly earnings performance.

Cash flows from operating activities were $32.2 million in the first quarter as compared to $30.4 million during the same period last year. Capital expenditures increased to $2.7 million, compared to $1.0 million in the year-ago period. As of the end of the quarter, cash and cash equivalents totaled $102 million ((or $1.82 cash per share, which is currently 10.6% of the stock price @ $17.09)) and the company had no borrowings under its revolving credit agreement.

Fiscal 2011 Outlook
Based on continued solid performance, the company is increasing its fiscal 2011 outlook and now anticipates net income per share in 2011 of between $0.85 and $0.93 per diluted share. The revised outlook assumes stability in consumer-spending patterns, company-owned comparable sales growth in the mid-teens, and net-income growth of approximately 30% to 45% for the duration of the year. The company noted that increasing inflationary pressures could adversely impact consumer demand through the balance of the year. The company’s long-term expectation for net-income-per-share growth remains between 15 and 20 percent per year.

The company expects to end 2011 with approximately 380 stores after planned store openings and closings. The company anticipates that total 2011 capital expenditures will be approximately $25 million to $30 million, reflecting a total of 40 to 50 store actions (remodels and relocations), along with continued investments in marketing and information systems.

Here are some beautiful looking price charts: SCSS/TPX ; SCSS/ETH ; SCSS/ZZ.

SCSS is set to report earnings on 07/20/11 AMC
TPX is set to report earnings on 07/20/11 AMC
ETH is set to report earnings on 08/03/11 AMC
ZZ is set to report earnings on 06/28/11 AMC

http://www.sleepnumber.com/eng/aboutus/InvestorRelations.cfm

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