On Thursday, BMO Capital Markets adjusted its outlook on Sleep Country Canada Holdings Inc. (ZZZ:CN) (OTC: SCCAF), reducing the stock price target to Cdn$32.00 from the previous Cdn$35.00. Despite the downward revision, the firm maintained an Outperform rating on the company's shares. The change follows the company's first-quarter earnings, which fell short of expectations.
Sleep Country's same-store sales (SSSG) decline of 1.6% was less severe than the forecasted 5.0% drop, and gross margins (GM) exceeded predictions. Yet, selling, general, and administrative expenses (SG&A) increased due to the company's decision to advance its floor product refresh schedule.
BMO Capital Markets highlighted that while the 2024 economic outlook is anticipated to be volatile, Sleep Country is in a strong position to navigate the uncertainty and gain market share while continuing to invest in its sleep ecosystem.
The analyst from BMO Capital Markets noted that Sleep Country's strategic acquisitions and initiatives are expected to drive accelerated sales growth once consumer spending picks up in 2024 and beyond.
The firm's analysis suggests that Sleep Country presents an attractive risk-reward profile, with a projected 5.8 times 2025 enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) and an estimated 15% free cash flow yield.
Sleep Country Canada Holdings Inc. is a retailer specializing in sleep products and accessories in Canada. The company's strategy includes expanding its product offerings and enhancing customer experience as part of its sleep ecosystem. Despite the near-term headwinds faced in the first quarter, BMO Capital Markets remains optimistic about Sleep Country's long-term prospects and market positioning.
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