Sleep Country Canada (ZZZ.TO)

There are some US competitors who recently reported poor earnings. The mattress-in-a-box is a real threat to the industry. The recent earnings report showed same store sales growth of only 4.4%, from over 7% previously. He thinks there is an opportunity right now and would begin to step in as a buyer.

(A Top Pick November 30/17 Up 2%) Concerns about the Canadian economy are weighing on this. Shoppers were given bargains following the Sears closure. Mattress in a box competition is growing, which they plan to roll out their own product to combat it.

One of the stronger retailers in Canada. They meet his criteria for high return on equity. He thinks it is a good entry point. They are more reasonably priced this year than last because of higher earnings. They are adding stores and are an incredibly well run company. Possibly add to the position.

They've introduced sheets and pillowcases which enjoy wider margins than mattresses, so they've been doing well. However, they face competition from Casper. Sure, they will grab Sears' market share, but Sears is now liquidating their beds at a discount. Three to five years this will be a buy, but not this year. Rather, own it for the longer term, like three years.

(A Top Pick Oct 20/17. Down 13%.) Sold this, because revenues have been coming off and the costs are rising. One of the short-term catalysts was Sears going bankrupt, and putting their mattresses on fire sale.

They are a Canadian retail success story and there aren’t many of them. They dominate the space they are in. Their net income has been growing lately. They are taking their business model to on-line retailing. He is going to take another hard look at them.

Chart shows this is coming back to its formal level of around $32 and has been sort of basing. It looks like the market really likes that level, and some of the indicators are starting to turn up. If not sure about the story, the easiest thing to do is to look at the bases the chart shows, and anything below around $32.25, there may be another leg down. Pretty attractive yield. If it breaks down, there is going to be a lot of buying between $32 and $26. Dividend yield of 2%+.

It is a good entry point at these levels with the demise of Sears, who were liquidating everything they could. It hurt ZZZ-T temporarily. They have a great runway to open 12 or more stores for the next two years. They are back down to 18 times earnings. It is a great entry point. (Analysts’ target: $41.00).

The stock had gotten a bit too expensive, and is still reasonably expensive at north of 20X earnings, but at the same time it is a very dependable business model, as most people would want to try a mattress before they bought it. A brick and mortar business that should live on. There is nothing not to like about this, other than the valuation.

(A Top Pick March 8/17. Up 4%.) Had a weak quarter with lower than expected sales and higher than expected costs in accessories, their high margin stuff. Sears bankruptcy should be good, but Sears is now liquidating their holdings which will create problems. Sold this at $33.79. It needs to be retesting the $37-$38 level before getting in.

It has been a position of his for some time. But margins are under pressure. They have been increasing their adverting budget. He thinks there will be pressure on margins for some time. He recently sold it. It was a darling for such a long time and it made a high and then made a lower high. There are better opportunities in the Canadian market.

(A Top Pick Sept 16/16. Up 27%.) Just added to his holdings recently. They had very good execution. Salespeople are very helpful and knowledgeable, unlike the Bay or other big department stores. They’ve also branched out into accessories such as pillowcases, duvets and headboards. Improving about 15 to 20 stores a year. Strong balance sheet and good execution.

This is executing very well. Very strong balance sheet and a good cash position. Management is keeping an eye on the ball, renovating the stores. Staff are well-trained. (Analysts’ price target is $44.)

(A Top Pick Sept 21/16. 0% return.) This has gone up and has come back down. Growth continues to be really strong. Same-store sales growth was 7% and the multiple probably got a little ahead of itself. Also, there is more talk about the online “Bed in a Box”.

Hasn’t been spending a lot of time working on this, but what is impeding its progress lately probably has more to do with encroaching competition in that industry. There have been more Internet mattress sellers coming on stream lately. Also, they are facing some cost escalations. Feels they are generally facing some fundamental shifts in retail. He would be very sensitive to the valuation you pay on this.