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Tempur Sealy Q1 Results

Tempur Sealy Reports Record First Quarter 2020 results

|PR Newswire|About: TPX

– Net Income Increased 110%, EPS Increased 118%

– Leverage Ratio Declined by Over 20% Compared to Prior Year

PR NewswireLEXINGTON, Ky., April 30, 2020 /PRNewswire/ — Tempur Sealy International, Inc. (TPX) announced financial results for the first quarter ended March 31, 2020. As previously announced, the Company has withdrawn its previously-issued full-year financial guidance for 2020 and will not provide updated full-year financial guidance until the operating environment becomes clear.

FIRST QUARTER 2020 FINANCIAL SUMMARY

  • Total net sales increased 19.0% to $822.4 million as compared to $690.9 million in the first quarter of 2019. On a constant currency basis(1), total net sales increased 19.8%, with an increase of 24.5% in the North America business segment and an increase of 2.0% in the International business segment.
  • Gross margin was 43.4% as compared to 40.8% in the first quarter of 2019.
  • Operating income increased 74.0% to $105.3 million as compared to $60.5 million in the first quarter of 2019. Operating income in the first quarter of 2020 included $11.7 million of charges associated with a wholesale customer bankruptcy. Adjusted operating income(1) increased 89.3% to $120.8 million as compared to $63.8 million in the first quarter of 2019.
  • Net income increased 110.2% to $59.7 million as compared to $28.4 million in the first quarter of 2019. Adjusted net income(1) increased 143.3% to $72.5 million as compared to $29.8 million in the first quarter of 2019.
  • Earnings before interest, tax, depreciation and amortization (“EBITDA”)(1) increased 39.7% to $134.5 million as compared to $96.3 million for the first quarter of 2019. Adjusted EBITDA(1) increased 62.9% to $151.2 million as compared to $92.8 million in the first quarter of 2019.
  • Earnings per diluted share (“EPS”) increased 117.6% to $1.11 as compared to $0.51 in the first quarter of 2019. Adjusted EPS(1) increased 148.1% to $1.34 as compared to $0.54 in the first quarter of 2019.
  • For the trailing twelve months ended March 31, 2020, leverage based on the ratio of consolidated indebtedness less netted cash(1) to adjusted EBITDA(1) was 3.03 times as compared to 3.84 times in the corresponding prior year period.

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 increased a robust 24.5% to $677.2 million as compared to $544.0 million in the first quarter of 2019. On a constant currency basis(1), North America net sales increased 24.5% as compared to the first quarter of 2019. Gross margin was 40.9% as compared to 37.6% in the first quarter of 2019. Operating margin was 15.0% as compared to 11.8% in the first quarter of 2019. Adjusted operating margin(1) was 16.9% in the first quarter of 2020.

North America net sales through the wholesale channel increased $107.8 million, or 21.5%, to $609.6 million as compared to the first quarter of 2019, primarily driven by the expansion of our retail distribution network. North America net sales through the direct channel increased $25.4 million, or 60.2%, to $67.6 million, as compared to the first quarter of 2019, primarily driven by growth from company-owned stores, which includes the acquisition of Sleep Outfitters. North America net sales through the direct channel, excluding Sleep Outfitters, increased approximately 20% as compared to the first quarter of 2019.

Company Chairman and CEO Scott Thompson commented, “We are very pleased with the way our online business has performed in response to market changes post COVID-19 with growth exceeding 100% in April in the U.S. market.  This again points out the strength of our go-to-market strategy of being wherever the customer wants to shop.”

North America gross margin improved 330 basis points as compared to the first quarter of 2019. The improvement was primarily driven by favorable fixed cost leverage on higher unit volume, lower commodity costs and decreased floor model expenses. North America adjusted operating margin(1) improved 510 basis points as compared to the first quarter of 2019. The improvement in adjusted operating margin(1) was primarily driven by the improvement in gross margin and operating expense leverage.

International net sales decreased 1.2% to $145.2 million as compared to $146.9 million in the first quarter of 2019. On a constant currency basis(1), International net sales increased 2.0% as compared to the first quarter of 2019. Gross margin was 55.0% as compared to 52.7% in the first quarter of 2019. Operating margin was 18.3% as compared to 17.2% in the first quarter of 2019. Adjusted operating margin(1) was 19.9%  as compared to 17.4% in the first quarter of 2019.

International net sales through the wholesale channel decreased $1.3 million, or 1.1%, to $112.8 million as compared to the first quarter of 2019. International net sales through the direct channel decreased $0.4 million, or 1.2%, to $32.4 million as compared to the first quarter of 2019.

International gross margin improved 230 basis points as compared to the first quarter of 2019. The improvement was primarily driven by operational improvements, favorable country mix and lower commodity costs. International adjusted operating margin(1) improved 250 basis points as compared to the first quarter of 2019. The improvement was primarily driven by the improvement in gross margin and favorable operating expense leverage, partially offset by the performance of the Asia joint venture as a result of the reduction in contributions from its operations in China.

Corporate operating expense decreased to $22.7 million as compared to $29.0 million in the first quarter of 2019. Corporate adjusted operating expense(1) was $26.0 million in the first quarter of 2019.

The Company ended the first quarter of 2020 with total debt of $1.9 billion and consolidated indebtedness less netted cash(1) of $1.7 billion. Leverage based on the ratio of consolidated indebtedness less netted cash(1) to adjusted EBITDA(1) was 3.03 times for the trailing twelve months ended March 31, 2020. During the first quarter of 2020, the Company repurchased 2.6 million shares of its common stock for a total cost of $187.5 million, under its share repurchase program. On March 27, 2020, the Company announced that it had ceased all share repurchase activity. As of March 31, 2020, the Company had approximately $131.3 million available under its existing share repurchase authorization.

Consolidated net income increased 110.2% to $59.7 million as compared to $28.4 million in the first quarter of 2019. Adjusted net income(1) increased 143.3% to $72.5 million as compared to $29.8 million in the first quarter of 2019. EPS increased 117.6% to $1.11 as compared to $0.51 in the first quarter of 2019. Adjusted EPS(1) increased 148.1% to $1.34 as compared to $0.54 in the first quarter of 2019.

COVID-19 Business Update

The Company is studying, responding, and optimizing its operations related to the challenges from the novel coronavirus (“COVID-19”) crisis. The Company has taken and continues to take precautionary measures to mitigate health risks during the evolving situation resulting from COVID-19. In addition, the Company is working with various government and healthcare organizations to provide products and services in this time of crisis.

The Company has experienced a major reduction in total net sales since COVID-19 began materially impacting our business in mid-March. Order trends were down 80% for a few days in early April with second quarter to date 2020 orders down approximately 55% as compared to the same period in 2019. The business has a highly variable cost structure that naturally adjusts with changes in sales. However, given the sudden and significant change in volume, actions were quickly implemented to further mitigate the financial impact. These actions included reducing expenses by approximately $300 million on an annualized basis. Additionally, the Company ceased share repurchases, began supporting medical relief efforts and increased support for charitable organizations.

The Company has no significant debt maturities until 2023 and has approximately $300 million of liquidity, including $197 million of cash on hand as of March 31, 2020 and approximately $100 million available under its revolving credit facility. The Company does not see material issues with any debt agreements based on current known facts and circumstances. However, given the uncertainty of this crisis, the Company has initiated discussions with commercial banks to secure additional short-term liquidity.

Company Chairman and CEO Scott Thompson commented, “These are truly unprecedented times as we move from a record first quarter to a very challenging second quarter. The negative impact from COVID-19 is expected to result in an operating loss and negative EBITDA in the second quarter. Despite this challenging environment, we believe that our consumer-preferred products and brands, our compelling marketing, and our powerful omni-channel distribution platform make Tempur Sealy uniquely well-positioned to withstand these headwinds. We feel confident that our strong position in the industry and our resilient workforce will ensure that we emerge from the current challenge in an even stronger competitive position within the global market.”

https://seekingalpha.com/pr/17854001-tempur-sealy-reports-record-first-quarter-2020-results