Management missteps, weaker big ticket spend and hot competition slow progress at the premium memory foam mattress seller  

A disappointing trading update (2 Jul) and the sacking of CEO Jas Bagniewski have turned premium memory foam mattresses seller Eve Sleep (EVE:AIM) from a dreamy growth stock into a near-term nightmare, judging by the share price reaction.

Weaker consumer spending and management missteps were blamed for slower growth, but investors also need to factor in hot competition from e-commerce mattress rivals.

Neil Woodford-backed Eve Sleep warned sales fell short of expectations in the half ended 30 June, thereby delaying UK profitability from Q4 2018 and triggering Bagniewski’s immediate departure.

Group sales grew 61% to £18.6m, tracking well behind full year expectations for 100%-plus growth, albeit Eve continues to outperform the broader big ticket market with UK & Ireland and international sales both up by roughly 60%.

WAKING UP TO COMPETITIVE THREATS

Eve attributed the growth slowdown to the challenging consumer spending backdrop and ‘the fact that key growth initiatives have been launched at the latter end of the half and as such are yet to generate a meaningful financial contribution’.

It also explained ‘management has made some strategic missteps, underestimating what is required to develop a meaningful footprint across Continental Europe, while losing focus on creating an aspirational sleep brand in its core markets.’

However, Eve Sleep will also be feeling the heat from disruptive direct online mattress competitors Simba, Casper, Emma and Leesa as well as traditional mattress brand Tempur.

Despite claiming first-mover advantage in Europe, e-commerce rivals threaten its ability to win market share against traditional mattress players, while many consumers may well have reached ‘peak stuff’.

Now on the hunt for a new CEO, Eve Sleep will refocus its strategy from scaling across multiple new countries to prioritising investment into core growth markets (principally the UK and France).

SWEET DREAMS

But it certainly isn’t all bad news. Eve has a net cash balance sheet and has bagged a major new partnership with bed retailer Dreams which should benefit the traditionally stronger second half.

A first for Dreams with a mattress in a box brand, the partnership will see the eve mattress sold nationwide in 193 Dreams stores and through its website.

It increases Eve’s retail presence across its three largest markets to 331 stores, building on partnerships with Next Home, Fenwick and Debenhams (DEB) in the UK, Karstadt in Germany and BUT in France.

Chairman Paul Pindar remains convinced ‘the sleep market will continue to transition online, that the opportunity to build a new brand of size and strength is significant and that eve is well placed to achieve this.’

That being said, Peel Hunt has placed its 135p price target under review and downgraded its recommendation from ‘buy’ to ‘hold’, also reducing its 2018 turnover forecast from £59.9m to £41.5m for an estimated EBITDA loss of £18.5m.

Competition can put a serious dent in a company’s long-term growth prospects and confidence in Eve Sleep has certainly been rocked by the unsettling update at 25.2p. (JC)

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