Sleep Country Canada Holdings

ZZZ-T

(Past Top Pick Nov. 30, 2017, Down 18%) It just hit 52-week lows, but its earnings from fallen from 18x to 13x. ZZZ had a few weak same-store sales in recent quarters, but not disastrous. The retail story isn't sexy compared to, say, cannabis where investors have poured in. They still dominate mattress sales in Canada. Their new ad campaign is pushing accessories which sees revenue growth. There are fears that the mattress-in- a-box companies will compete, but ZZZ also sells a box beds. It's a mystery to him why Sleep has been hammered. A few good quarters will turn it around. You can buy it now.

One of the better IPO's and had run up a lot, but it has been struggling lately. It's facing competition from new players offering cheap beds. They're good operators, and they dominate the Canadian market share, especially since Sears went out of business. The valuation is not expensive and has decreased. It could possibly get bought. He's monitoring the stock.

In general, he finds retail stocks hard to make money on, especially fashion-oriented ones. Sleep Country sells mattresses, not fashion goods, so it is more interesting to him. However, its market cap is too small for his investing approach. He has looked at it several times and has missed several good opportunities in the stock. The stock price has suffered over the past year after very strong growth in the years before that. There has been a proliferation of online providers of mattresses and they are competing effectively against companies like Sleep Country. Sleep Country has gone online as well, and he thinks they provide an excellent customer experience. However, he expects them to lose more share and he expects the stock price to go further down. At some point, the drop will be overdone and it will be a good company to buy. But not yet.

Combination of valuation, same store sales and growth. Ticks on all boxes. Trading at 15 times earnings. Leader in their field. Great entry point. Yield 2.4% (Analysts’ price target is $39.11)

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.

The underperformance in the near term has mostly been related to the last quarter they reported, where same-store sales performance was not as good as the analysts had expected. Over the last number of years, this has been a very, very well-run company, and the stock has done extremely well. Expectations may have gotten too high. They’ve been gaining share from Sears Canada, which should continue.

(Market Call Minute) It is relatively expensive. Good management, growth and earnings, however.

(A Top Pick July 27/16. Up 46.11%.) This continues to execute very well. It has pulled back of late, which is probably from rotation out of the sector. They will be reporting next week, and he expects pretty strong sales again. They’ll probably be helped by all the trouble at Sears, one of their big competitors.

In a good competitive landscape it is focused on the mattress landscape. Its biggest competitors like Sears, are not having a good time of it. Good advertising and refurbishment of their stores is really helping them. It is one he has owned for several months and will likely to continue to own.

It has a good run this year based on Sears mattresses. They also had good numbers. There is also a scarcity for consumer stocks in Canada. This is a stable name a decent long term hold. You want to go and test a mattress.

(A Top Pick June 6/16. Up 77.73%.) They’ve done very well in executing their marketing campaign. Have been pulling back and not advertising as much. They’ve been taking market share from Department stores as well as adding higher margin accessories.

(Top Pick Jun 30/16, Up 75%) They continued to execute very well and have grown business at the stores and got into accessories where they drive more business at a higher margin. Now they moved up because of recent announcements by Sears.

He used to be short it. It is an expensive shop. There are some short term benefits with Sears potentially getting out of the mattress business. There are regulatory and competitive changes on the landscape for this one.

This company has executed and continue to do so. They’ve built out a great franchise. In the meantime, all their competitors are shrinking away from the Canadian market. He would stick with this.

(A Top Pick March 1/16. Up 70%.) Not a cheap stock, but continues to be justified because some of the former competition is no longer in effect, which has left a lot of market share up for grabs.

(A Top Pick Sept 16/16. Up 6.37%.) Expanding into the higher margin accessories line, scented pillows, duvet covers, etc. They are also renovating 15-20 of their stores every year. The competitive profile favours them.

This is not just selling mattresses, but are also selling accessories, which are higher margin lines of products. It is doing very well, which is reflected in the charts. If the company is doing well, you will see investors appreciate that and adding value to the stock price, and we are seeing that. Dividend yield of 1.84%. (Analysts’ price target is $36.)

Has done a great job taking a huge market share away, from Sears in particular. It got to the $34-$35 range which was a little ahead of itself. Dips provide an opportunity. In Canada, there aren’t many choices in consumer that have the growth, but this is one of them. He has a Top Pick which is his choice. The company is well-managed and a good Hold here. Because of the multiple, you don’t get multiple expansion, you only get earnings growth. However, you could probably make 10%-20% profit on this. Dividend yield of just over 2%.

High single digit same store sales growth which is unknown by retailers in Canada. Growth in Accessories is close to 20% on a same store sales basis. (Analysts’ Target: $34.50).

He likes this company. There is a real scarcity of consumer stocks in Canada, and this one fits that bill. He was cautious on the IPO, because it was a private equity one, and he is always leery about private equity. Last year they did 11% same-store sales, and this year they are on track to do about 9.5%. Even if they can do 5% same-store sales, that is very impressive. A good name, and not particularly expensive.

During the downturn in the financial crisis, they cut back on spending, and the sales growth slowed down. Now they have started spending again, sales growth has started to pick up. They are taking market share away from Sears, the Bay, etc. They are also adding ancillary products of pillowcases, etc., which actually have higher margins than the mattresses themselves. There is a lot of upside remaining in this. Dividend yield of 2.14%. (Analysts’ price target is $34.50.)

He no longer owns this based on his technical tools. Saw that it was starting to break down technically. Fundamentally he loves the company. This is one you can tuck away in your portfolio and go to sleep.

(Top Pick Aug 9/16, Down 11.65%) He sold, although they released their most recent numbers and they were quite good.

It came back phenomenally with a second IPO. They are taking market share away from Sears. They have a lofty valuation. At some point there has to be saturation. Unless they go south of the boarder you will run into a wall. Execution has been flawless up until now.

A very well-run business, with a dominant position in the Canadian mattress retailing business. Have been benefiting over the last number of years from some of the larger mattress sellers like Sears Canada. Feels a lot of that market share gain has played out. There is some link to the housing market in Canada as new households are formed. He is a little more cautious on the overall outlook for a company like this because of the headwind on the housing side. There are a number of US mattress retailer’s being impacted by very small, but upstart competitors that are selling mattresses in a box online and delivering them to your door.

Has never owned this, and looking back that was a mistake. The valuation now is absolutely crazy. There is a company in the US that delivers extremely high quality mattresses to your door. Has always been a little sceptical that there have been new technologies that will push people away from traditional mattress purchases. Feels the industry might go through a bit of a change.

There is still a market for companies that are able to really focus on what they do, and do it better than anyone else. This type of product really doesn’t lend itself to e-commerce. It is getting its growth from redesigning, redeveloping and making their stores better. They sell the mattresses, but the real upsell is on the higher margin bedding. Dividend yield of 1.92%.

He recently added a small position. The company seems to have really delivered since the IPO. This is an interesting space.

Feels that everything is solid with this company. However, there is a question about housing and if we are experiencing a big bubble, which at some point would soften.

The Dollarama for the next 5 years in that they are growing their store numbers. Their penetration for population base is not where they want it to be, but want to bring it down so that there are more stores per 100,000 people than there are right now. They continue to grow their sales. Have had 12 consecutive same-store sales growth. The last quarter was double digits, which is really unheard of. They are focusing on their sales process and on accessories. Accessories are higher margin than just the street mattresses. The stock is not cheap, so if you can get it when it pulls back, that would be a great time. Dividend yield of 1.75%.

This sounds gimmicky, but they are doing very well. 80% of their sales are mattresses, but they are now getting into duvets, covers and pillowcases, etc. Valuation is a little high, but profits and revenues are both growing at very healthy rates. Their competition is Sears Canada and Bay Canada, where you can go in and have a nap before anybody comes to help you.

What is really going for them, since they have come back to the public market, is that the consumer is more and more aware of health benefits of having a good night sleep. Traditionally, you can buy a lot of mattresses, from major retailers, but they are slowly declining and haven’t done really well, and are retrenching which gives this company a good opening. The company is also adding high margin things like pillows, covers, accessories, etc. Dividend yield of 1.92%.

The dominant name in this space. They have built a great niche for themselves. People will always need mattresses. His sense is that they tend to provide mattresses for an upscale clientele, so you may not see much of a decline. Thinks you will be fine.

Continues to execute exactly as he anticipated. They continue to grow same-store sales by increasing store numbers and increasing the dollar spend with people coming into their stores. The recent quarter was the 12^th consecutive same-store sales growth quarter. They’ve also been working on improving margins by selling accessories including higher end pillows and beddings. Still a lot of runway left for them to grow. Dividend yield of 1.94%.