An "unprecedented" number of rival products supported by aggressive marketing and promotion have hit sales in North America, CEO Mark Sarvary said in a statement, prompting selling that wiped out nearly $1.5 billion of market value.

"Right now, you have everybody in the industry going after the specialty space," Sarvary said later on a call with analysts. "We did not expect the competitive environment to change this fast."

Tempur-Pedic, which sells higher-priced foam-based and other specialty mattresses, now expects flat sales of about $1.43 billion in 2012, down from its previous forecast of $1.6 billion to $1.65 billion.

The weak forecast marks a dramatic downturn at the company, which revolutionized the mattress industry with its foam-based technology, originally developed by NASA.

Tempur-Pedic practically created the specialty market that now accounts for over 25 percent of overall mattress sales.

Sales grew more than 27 percent in each of the past two years, helping the company take market share from privately held Serta Inc and Simmons Bedding Co, as well as long-term market leader Sealy Corp, all of which get a majority of their sales from the traditional beds containing coil springs.

Simmons and Serta have now launched successful foam-based mattresses, while Sealy has increased its presence in that fast-growing market.

"Serta's iComfort product (has) been building momentum for the last 12 months and there are now other products that are gaining traction as well," Gilford Securities analyst Robert Straus said.

Increased marketing and promotions, including discounts and incentives to retailers, have allowed rivals to get a firmer foothold in the specialty business, mostly at Tempur-Pedic's expense, Straus said.

Tempur-Pedic, which is also cutting advertising and other costs, said on Wednesday it now expected to earn $2.70 per share for the year, down from its previous forecast of $3.80 to $3.95.

Analysts on average were expecting full-year earnings of $3.93 per share on revenue of $1.64 billion, according to Thomson Reuters I/B/E/S.

Tempur-Pedic shares, which were trading as high as $87 less than two months ago, were down 48 percent at a more than two-year low of $22.39 late Wednesday on the New York Stock Exchange.

The stock has been plunging since the company first disappointed investors with a lower-than-expected outlook on April 19.

Shares of fellow specialty mattress maker Select Comfort Corp tumbled 22 percent to $20.19.

As of March 31, Tempur-Pedic's top shareholders included mutual fund companies Fidelity Management, Wellington Management Co. and Vanguard Group as well as hedge fund JAT Capital Management, according to Thomson Reuters data.