For companies that carry a huge load
of debt, there is no room for error. Cash-flow targets need to be met simply to assure investors that funds will be in place to meet future bond
redemptions. If that fails to happen, then look out below...
For mattress maker Sealy (NYSE: ZZ), a recently-released quarterly report has highlighted that business simply stinks. As short-sellers see it, the company's debt burden may eventually push this company into bankruptcy.
Short sellers have been targeting Sealy for nearly a year. And though they've scored gains already, they're sticking around because they see even more downside. The number of shares held short rose by 300,000 to 13.3 million shares from the end of December to the middle of January. That's had a crushing effect on the stock, as you can see from the chart below.
Chances are short interest -- which currently represents a whopping 45 day's worth of daily trading volume -- will rise even higher. That's because Sealy came out with quarterly results on Jan. 18, a few days after the most recent short data were released, that were simply lousy.
Fourth-quarter sales fell roughly 10% from a year earlier to $269 million.
It's not that people are buying fewer mattresses. It's just that they prefer to buy mattresses from Sealy's rivals. For example, Mattress Firm Holding Corp. (Nasdaq: MFRM) is expected to boost sales 25% this year (to $860 million), while Tempur Pedic (NYSE: TPX) is expecting sales growth of at least 10% (to $1.8 billion).