Tempur Sealy Reports Third Quarter Results

Tempur Sealy International, Inc. (NYSE: TPX) announced financial results for the third quarter ended September 30, 2023 and revised financial guidance for the full year 2023.

Third Quarter 2023 Financial Summary

• Total net sales decreased 0.5% to $1,277.1 million as compared to $1,283.3 million in the third quarter of 2022, with a decrease of 3.2% in the North America business segment and and increase of 12.3% in the International business segment. On a constant currency basis⁽¹⁾, total net sales decreased 1.7%, with a decrease of 3.5% in the North America business segment and an increase of 6.7% in the International business segment.
• Gross margin was 44.9% as compared to 42.2% in the third quarter of 2022. Adjusted gross margin⁽¹⁾ was 45.9% as compared to 42.5% in the third quarter of 2022.
• Operating income decreased 8.9% to $183.2 million as compared to $201.0 million in the third quarter of 2022. Adjusted operating income⁽¹⁾ increased 3.9% to $214.7 million as compared to $206.7 million in the third quarter of 2022.
• Net income decreased 14.6% to $113.3 million as compared to $132.7 million in the third quarter of 2022. Adjusted net income⁽¹⁾ decreased 0.7% to $136.8 million as compared to $137.8 million in the third quarter of 2022.
• Earnings per diluted share (“EPS”) decreased 14.7% to $0.64 as compared to $0.75 in the third quarter of 2022. Adjusted EPS⁽¹⁾ decreased 1.3% to $0.77 as compared to $0.78 in the third quarter of 2022.

KEY HIGHLIGHTS
(in millions, except percentages and per common share amounts)	Three Months Ended	Three Months Ended	% Reported Change
	September 30, 2023	September 30, 2022
Net sales	$1,277.1	$1,283.3	(0.5) %
Net income	$113.3	$132.7	(14.6) %
Adjusted net income (1)	$136.8	$137.8	(0.7) %
EPS	$0.64	$0.75	(14.7) %
Adjusted EPS (1)	$0.77	$0.78	(1.3) %

Company Chairman and CEO Scott Thompson commented, “We realized robust third quarter operating cash flows and expanding gross margins while our sales and earnings were solid against a challenged operating environment. We believe the Company outperformed the broader bedding market. This outperformance and double-digit growth in international sales partially mitigated a challenged U.S. bedding market, which was softer than anticipated in the quarter.

“Similar to the second quarter, we demonstrated the strength of our business model and its ability to produce reasonable returns, even in a less robust market. Improvements in operations and supply contracts, combined with the impact of consumer-specific strategies drove significant gross margin expansion, positioning the Company well for the future.

“Regarding the pending Mattress Firm transaction, we continue to expect to formally respond to the Federal Trade Commission’s second request in the fourth quarter and to close the transaction in mid to late 2024. I am pleased to share that Tempur Sealy and Mattress Firm continue to make joint progress in synergies planning. In addition, Tempur Sealy has signed post-closing supply agreements with numerous companies providing Mattress Firm with access to certain consumer-desired products, solidifying important supplier relationships ahead of the expected close. Additional discussions regarding supplier relationships are ongoing.”

Business Segment Highlights

The Company’s business segments include North America and International. Corporate operating expenses are not included in either of the business segments and are presented separately as a reconciling item to consolidated results. 

North America net sales decreased 3.2% to $1,023.7 million as compared to $1,057.7 million in the third quarter of 2022. On a constant currency basis⁽¹⁾, North America net sales decreased 3.5% as compared to the third quarter of 2022. Gross margin was 42.0% as compared to 39.8% in the third quarter of 2022. Adjusted gross margin⁽¹⁾ was 43.2% as compared to 40.2% in the third quarter of 2022. Operating margin was 19.1% as compared to 19.4% in the third quarter of 2022. Adjusted operating margin⁽¹⁾ was 20.3% as compared to 19.8% in the third quarter of 2022.

North America net sales through the wholesale channel decreased $33.0 million, or 3.6%, to $885.1 million as compared to the third quarter of 2022, primarily driven by macroeconomic pressures impacting U.S. consumer behavior. North America net sales through the direct channel decreased $1.0 million, or 0.7%, to $138.6 million as compared to the third quarter of 2022.

North America adjusted gross margin⁽¹⁾ improved 300 basis points as compared to the third quarter of 2022. The improvement was primarily driven by normalizing commodity costs, partially offset by expense deleverage, net of operational efficiencies. North America adjusted operating margin⁽¹⁾ improved 50 basis points as compared to the third quarter of 2022. The improvement was primarily driven by the improvement in gross margin, partially offset by operating expense deleverage to support growth initiatives.

International net sales increased 12.3% to $253.4 million as compared to $225.6 million in the third quarter of 2022. On a constant currency basis⁽¹⁾, International net sales increased 6.7% as compared to the third quarter of 2022. Gross margin was 56.6% as compared to 53.4% in the third quarter of 2022. Operating margin was 15.8% as compared to 14.5% in the third quarter of 2022. Adjusted operating margin⁽¹⁾ was 16.2% as compared to 14.7% in the third quarter of 2022.

International net sales through the wholesale channel increased $4.4 million, or 5.2%, to $89.5 million as compared to the third quarter of 2022. International net sales through the direct channel increased $23.4 million, or 16.7%, to $163.9 million as compared to the third quarter of 2022.

International gross margin improved 320 basis points as compared to the third quarter of 2022. The improvement was primarily driven by normalizing commodity costs, favorable mix and expense leverage. International adjusted operating margin⁽¹⁾ improved 150 basis points as compared to the third quarter of 2022. The improvement was primarily driven by the improvement in gross margin, partially offset by operating expense deleverage to support product launch initiatives.

Corporate operating expense increased to $52.3 million as compared to $36.6 million in the third quarter of 2022, primarily driven by transaction costs of $15.7 million related to the pending acquisition of Mattress Firm. Corporate adjusted operating expense⁽¹⁾ was $34.2 million as compared to $36.0 million in the third quarter of 2022.

Consolidated net income decreased 14.6% to $113.3 million as compared to $132.7 million in the third quarter of 2022. Adjusted net income⁽¹⁾ decreased 0.7% to $136.8 million as compared to $137.8 million in the third quarter of 2022. EPS decreased 14.7% to $0.64 as compared to $0.75 in the third quarter of 2022. Adjusted EPS⁽¹⁾ decreased 1.3% to $0.77 as compared to $0.78 in the third quarter of 2022.

The Company ended the third quarter of 2023 with total debt of $2.6 billion and consolidated indebtedness less netted cash⁽¹⁾ of $2.5 billion. Leverage based on the ratio of consolidated indebtedness less netted cash⁽¹⁾ to adjusted EBITDA⁽¹⁾ was 2.89 times for the trailing twelve months ended September 30, 2023.

Additionally, today the Company announced that its Board of Directors declared a quarterly cash dividend of $0.11 per share, payable on December 4, 2023, to shareholders of record at the close of business on November 16, 2023.

Cybersecurity Event

As previously disclosed, the Company identified a cybersecurity event on July 23, 2023, involving certain of the Company’s information technology (“IT”) systems. The Company incurred $13.5 million of costs in connection with this event primarily consisting of $9.6 million of manufacturing and network disruption costs incurred to ensure business continuity and $3.9 million primarily related to professional fees incurred for incident response, containment measures and stabilization of the Company’s information systems. Following the forensic investigation, the Company concluded there was no material impact to its financial results in the third quarter of 2023.

Financial Guidance

For the full year 2023, the Company revised its expectations to an adjusted EPS⁽¹⁾ range of $2.30 to $2.50. This contemplates the Company’s current outlook that 2023 sales will be consistent versus prior year.

The Company noted that its expectations are based on information available at the time of this release, and are subject to changing conditions and risks, many of which are outside the Company’s control. The Company is unable to reconcile forward–looking adjusted EPS, a non–GAAP financial measure, to EPS, its most directly comparable forward–looking GAAP financial measure, without unreasonable efforts, because the Company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact EPS in 2023.

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About Tempur Sealy International, Inc.

Tempur Sealy (NYSE: TPX) is committed to improving the sleep of more people, every night, all around the world. As a global leader in the design, manufacture and distribution of bedding products, we know how crucial a good night of sleep is to overall health and wellness. Utilizing over a century of knowledge and industry-leading innovation, we deliver award-winning products that provide breakthrough sleep solutions to consumers in over 100 countries. Our highly recognized brands include Tempur-Pedic®, Sealy® featuring Posturepedic® Technology and Stearns & Foster® and our non-branded offerings include value-focused private label and OEM products. Our distinct brands allow for complimentary merchandising strategies and are sold through third-party retailers, our Company-owned stores and e-commerce channels. This omni-channel strategy ensures our products are offered where ever and how ever customers want to shop. Lastly, we accept our global responsibility to serve all stakeholders, our community and environment. We have and are implementing programs consistent with our responsibilities.

Source: Tempur Sealy International, Inc.