The Urethane Blog

Tempur Sealy Q1 Results

Tempur Sealy Reports First Quarter 2018 Results

|PR Newswire|About: TPX
Q1: 04-29-18 Earnings Summary
EPS of $0.42 misses by $-0.06
Revenue of $648M (- 10.3% Y/Y) beats by $13.67M

– North American Direct Sales Increased Approximately 30%

– International Sales Increased 17%

PR NewswireLEXINGTON, Ky., May 3, 2018 /PRNewswire/ — Tempur Sealy International, Inc. (TPX) today announced financial results for the first quarter ended March 31, 2018. The Company also reaffirmed its financial guidance for the full year 2018.

FIRST QUARTER 2018 FINANCIAL SUMMARY

  • Total net sales decreased 10.3% to $648.0 million from $722.1 million in the first quarter of 2017. On a constant currency basis, total net sales decreased 12.2%, with a decrease of 17.1% in the North America business segment and an increase of 8.2% in the International business segment. Total net sales in the first quarter of 2017 included $94.5 million in sales to Mattress Firm Inc. (“Mattress Firm”).
  • Gross margin under U.S. generally accepted accounting principles (“GAAP”) was 41.3% as compared to 39.7% in the first quarter of 2017, which included $11.5 million of charges associated with the termination of the relationship with Mattress Firm. Gross margin was 41.3% as compared to adjusted gross margin(1) of 41.3% in the first quarter of 2017.
  • GAAP operating income decreased to $53.9 million as compared to $59.5 million in the first quarter of 2017, which included $25.9 million of net charges associated with the Mattress Firm termination. GAAP operating income decreased to $53.9 million as compared to adjusted operating income(1) of $85.4 million in the first quarter of 2017.
  • GAAP net income decreased to $23.1 million as compared to $33.9 million in the first quarter of 2017. GAAP net income decreased to $23.1 million as compared to adjusted net income(1) of $52.2 million in the first quarter of 2017.
  • Earnings before interest, tax, depreciation and amortization (“EBITDA”)(1) decreased to $83.2 million as compared to $86.8 million for the first quarter of 2017, which includes $34.3 million of charges related to the Mattress Firm termination. EBITDA(1) decreased to $83.2 million as compared to adjusted EBITDA(1) of $121.1 million in the first quarter of 2017.
  • GAAP earnings per diluted share (“EPS”) decreased to $0.42 as compared to $0.62 in the first quarter of 2017. EPS decreased to $0.42 as compared to adjusted EPS(1) of $0.96 in the first quarter of 2017.

KEY HIGHLIGHTS

(in millions, except percentages and per common
share amounts)
Three Months Ended % Change % Change Constant
Currency (1)
March 31, 2018 March 31, 2017
Net sales $ 648.0 $ 722.1 (10.3)% (12.2)%
EBITDA (1) 83.2 86.8 (4.1)% (8.9)%
Adjusted EBITDA (1) 83.2 121.1 (31.3)% (34.7)%

Tempur Sealy International, Inc. Chairman and CEO Scott Thompson commented, “Over the last twelve months, the team has made considerable progress towards resetting the foundation of our Company. We have enhanced our relationships with a diversified base of retail partners, we have expanded our owned store footprint and online presence, we are in the process of meaningfully enhancing our product portfolio, and we continue to be laser-focused on shareholder value. Our flexible operating model and productivity initiatives were on full display in the first quarter, as we maintained our gross margins despite planned sales declines after the termination with our largest account last year and cost pressures from commodities.  With a new suite of bedding products and an intense focus on execution, Tempur Sealy is well positioned to increase earnings and create long-term shareholder value.”

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  to $485.0 million from $582.3 million in the first quarter of 2017, driven primarily by the Mattress Firm termination. On a constant currency basis(1), North America net sales decreased 17.1% compared to the first quarter of 2017. GAAP gross margin was 37.9% as compared to 36.8% in the first quarter of 2017. GAAP operating margin was 11.1% as compared to 8.8% in the first quarter of 2017.

At the beginning of the second quarter of 2017, the Company terminated its contracts with Mattress Firm, a wholly owned subsidiary of Steinhoff International Holdings N.V. In the first quarter of 2017, net sales to Mattress Firm were $94.5 million. Excluding Mattress Firm sales in the prior year, North America net sales were flat in the first quarter of 2018.

North America net sales through the wholesale channel decreased to $454.0 million. North America net sales through the direct channel increased $6.9 million, or 28.6%, to $31.0 million, primarily driven by growth from expanded retail stores and increased web sales, as compared to the first quarter of 2017.

North America gross margin declined 90 basis points as compared to adjusted gross margin(1) for the first quarter of 2017. The decline was driven primarily by commodity cost inflation, fixed cost deleverage on lower unit volume and unfavorable brand mix. These were partially offset by improved channel mix, operational improvements and favorable product mix. North America operating margin declined 330 basis points as compared to adjusted operating margin(1) for the first quarter of 2017. The decline in adjusted operating margin was driven by operating expense deleverage and the decline in gross margin. The Company implemented a price increase in March 2018 to partially offset the expected commodity inflation.

International net sales increased 16.6% to $163.0 million from $139.8 million in the first quarter of 2017. On a constant currency basis(1), International net sales increased 8.2% compared to the first quarter of 2017. Gross margin was 51.5% as compared to 51.6% in the first quarter of 2017. Operating margin was 16.5% as compared to 18.5% in the first quarter of 2017.

International net sales through the wholesale channel increased $20.1 million or 17.6% to $134.2 million and sales through the direct channel increased $3.1 million or 12.1% to $28.8 million as compared to the first quarter of 2017.

International gross margin declined 10 basis points as compared to adjusted gross margin(1) for the first quarter of 2017. International operating margin declined 260 basis points as compared to adjusted operating margin(1) for the first quarter of 2017, primarily driven by unfavorable operating expense leverage from significant investments in advertising, as well as the change in classification of royalty income due to the adoption of new revenue recognition guidance.

https://seekingalpha.com/pr/17150911-tempur-sealy-reports-first-quarter-2018-results