Losing a major customer is bad for business. In the world of bedding, good contracts are hard to come by. So when Tempur Sealy made the surprise announcement Monday morning that Mattress Firm has terminated ALL contracts with the Kentucky bed maker, all hell broke loose. Shares of $TPX were off by -30% premarket.
According to the newswire, Mattress Firm Holdings was demanding considerable changes to their agreement, including significant concessions.
An accord could not be reached. A formal termination of the contract was delivered to Temper on Friday, January 27th.
The news sent analysts into action, doing their part to add insult to injury. Stifel, Raymond James, SunTrust, Nomura, and PiperJaffray all downgraded Temper Monday morning.
Bedding is a tough business where the core objective is to occupy as much showroom space as possible, thus improving the likelihood that a consumer will choose your product. Losing a major contract means way less floor space. Mattress Firm is the biggest bedding retailer in the United States by far.
Meanwhile, companies like Tuft & Needle are offering a comparable product at significantly lower prices, using an online format—effectively challenging Temper in what is essentially a commoditized space—and operating in a manner that is far less reliant upon contracts with brick-and-mortar retailers.
Shares of $TPX are trading at levels unseen since November 2013, effectively wiping out more than three years of capital appreciation in one fell swoop.
BEARISH
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Wow, It’s not everyday you see a $3 billion company lose a third of its market cap.
Wow, I had been stalking this one. Brutal.