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Why Select Comfort Corp's Shares Plunged 11% in October

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What happened 

Shares of mattress maker Select Comfort Corp. (NASDAQ: SCSS) fell 11.2% in October, according to data provided by S&P Global Market Intelligence, after the company released third quarter results that didn't please investors. 

So what 

Sales fell 1.6% to $368.0 million and net income fell 19.2% to $25.7 million, or $0.56 per share. Earnings were a penny behind expectations, and revenue was well short of the $392 million Wall Street expected. 

The sales per store trends were the main concern. Management said new stores added 7% of growth, but that was more than offset by an 8% decline in sales at existing stores. So new locations are taking sales from older locations, which isn't good for any business. 

Now what 

Retailers want to leverage the store base they have to grow earnings more than sales year after year. But when sales at each store are declining it leads to similar leverage on the bottom line. And we're seeing the downside of leverage right now. For the full-year, management still sees profits coming in at $1.15 to $1.25 per share, but if sales don't start to pick up the bottom line will be in trouble long-term. And expanding store count will only make the trend worse. 

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Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.