Sleep Country Canada (ZZZ) is Canada’s leading omnichannel specialty retailer that sells products through brick-and-mortar and e-commerce channels.
The company operates under three banners: Sleep Country Canada (pmnichannel operations all over Canada), Dormez-vous (omnichannel operations in Quebec), and Endy (Canada’s leading online mattress-in-a-box retailer).
As of December 2020, Sleep Country had 281 stores and 17 distribution centes across Canada. The stores have Canada’s largest selection of mattresses (including bases and metal frames), and accessories such as pillows, pillowcases, sheets, and blankets.
In 2020, 79.3% of revenues were from mattresses, with the remaining 20.7% from accessories. Sleep Country has demonstrated the ability to undergo market share expansion pre-pandemic.
From 2015-18, mattress market share expanded consistently every year at a 12% compound annual growth rate (CAGR) from 22% to 31% in 2018.
Furthermore, Sleep Country has a market share of 5%-8% in the accessories market. I am bullish on the stock. (See Insiders’ Hot Stocks on TipRanks)
Attractive Industry Fundamentals
The mattress industry in Canada is a $1.8-billion market that is growing across the nation. In the industry, the demand is driven by replacement cycles of 8-10 years.
During economic downturns, these sales are typically delayed but not lost, creating pent up demand. Similarly, Sleep Country also operates in a large sleep accessories market, which is estimated to be worth $1.5 billion.
Growth of E-Commerce Platform
Sleep Country launched a new website in Q4 of 2019 to provide customers with a way to shop online which creates a full omnichannel experience.
This positioned the company well going into the pandemic, where it had to shift its entire business to e-commerce platforms for a period of time as stores were closed.
The strategy proved to be a very successful endeavor, as the company achieved its highest revenues in history with a high gross profit margin of 32.3% in 2020. In 2020, e-commerce sales represented 21.4% of total revenues.
Strong Brick-and-Mortar Track Record
The company has a strong track record with brick-and-mortar stores in Canada.
In the June 2019 management presentation, the company outlined that its new stores cost ~$400,000 of capital expenditures and working capital investment.
These stores are typically cash flow positive within 12 months of opening. From 2015-18, Sleep Country opened around 13 stores a year on average, with 12 stores in 2019, and six stores in 2020 due to the pandemic.
In 2021, the company has outlined that it continues to believe in the brick-and-mortar store format, and will open a minimum of six new stores in 2021.
In addition to opening new stores, the company has also outlined a plan to renovate existing stores to the “enhanced store design” which has higher same-store sales (SSS) growth, relative to its legacy stores.
As of December 2020, 78% of its stores had been renovated, and it plans to renovate another 20-30 stores in 2021.
Strong Retail Partnerships
Sleep Country has demonstrated the ability to develop strong exclusive retail partnerships with mattress manufacturers and other retailers to sell its products.
The company currently has a partnership with Simba, a leading mattress-in-a-box retailers in the U.K. to sell mattresses in Canada. In 2020, It entered into a partnership with Purple Innovation, a U.S. mattress and bedding company, and Malouf, another U.S. company that had bedding and furniture products.
In September of 2021, Sleep Country signed an exclusive retail and digital partnership with Casper, to make the brand more accessible to Canadians.
On the retail front, Sleep Country recently expanded its relationship with Walmart Canada (WMT) with the launch of 10 new locations in Walmart Canada’s licensee spaces.
Earlier this year, Sleep Country announced a partnership with Best Buy Marketplace (BBY), to exclusively supply traditional mattresses on the platform.
On July 2021, Sleep Country appointed Stewart Schaefer as president and CEO of the company, after Dave Friesema announced his retirement in 2021. Mr. Schaefer has been a part of the executive leadership team since 2006.
Mr. Schaefer founded Dormez-vous in 1994, and joined forces with Sleep Country in 2006. He has extensive industry experience, both as a founder, and as a strategic operator of a company with an omnichannel focus.
This leadership transition should be a positive move for the company, as it continues to grow its omnichannel strategy.
What Analysts are Saying about ZZZ Stock
From Wall Street analysts, ZZZ earns a Moderate Buy consensus rating, based on three Buy ratings and two Hold ratings. Additionally, the average ZZZ price target of C$40 puts the upside potential at 9.2%.
With a leadership position in the Canadian market, the continued success of the brick-and-mortar strategy post-renovation, and the re-opening of existing stores, the legacy business is well-positioned for success.
In addition, the transition to an omni-channel strategy will provide further growth opportunities for the company.
This in-turn helps Sleep Country continue to develop strong retail partnerships across Canada, to both maintain and grow its leadership position, as it has over the last few years.
Disclosure: The author works as a manager at National Bank Financial and had no position in any of the companies discussed in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk.