– Net Sales in North America Declined, Tempur-Pedic Sales Increased 26% Excluding Mattress Firm

– Increased Financial Guidance to $435 to $450 Million of Adjusted EBITDA in 2017

LEXINGTON, Ky., Nov. 2, 2017 /PRNewswire/ — Tempur Sealy International, Inc. (NYSE:TPX) today announced financial results for the third quarter ended September 30, 2017. The Company also increased its financial guidance for the full year 2017.

Tempur Sealy International, Inc. Chairman and CEO Scott Thompson commented, “The team generated one of the highest cash flow quarters in our company’s history despite several challenges including a significant change in our distribution network, three hurricanes, and commodity inflation. Looking ahead, our robust pipeline of innovation provides the foundation for new products next year, especially an exciting new Tempur-Pedic line in North America. These products, combined with our new multi-channel advertising campaigns will reinforce our leadership position in premium bedding, provide our retailer partners with a competitive advantage to grow their revenue and earnings, and simplify the consumers’ retail experience.”

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 16.9% to $580.6 million from $698.5 million in the third quarter of 2016. On a constant currency basis⁽¹⁾, North America net sales decreased 17.2% compared to the third quarter of 2016. Gross margin was 41.1% as compared to 41.5% in the third quarter of 2016. Operating margin was 17.2% as compared to 18.4% in the third quarter of 2016.

During the third quarter, hurricanes impacted operations in two of the Company’s largest markets, Texas and Florida. The Company estimates that the hurricanes impacted our sales in the quarter by approximately $10 to $15 million, and the flow-through of those sales to EBITDA would be in the range of $3 to $5 million. The Company noted that its adjusted EBITDA does not include this impact from lost sales related to hurricanes.

At the beginning of the second quarter, the Company terminated its contract with Mattress Firm, Inc. (“Mattress Firm”). In the third quarter of 2016, net sales to Mattress Firm were $171.5 million. Excluding Mattress Firm sales in the prior year, North America net sales increased 10% in the third quarter of 2017 driven by growth by Tempur-Pedic which increased 26% in the period.

North America net sales through the wholesale channel decreased $137.8 million or 20.1% to $547.3 million and excluding Mattress Firm sales in the prior year, the wholesale channel increased 7% as compared to the third quarter of 2016. North America net sales through the direct channel increased $19.9 million or 148.5% to $33.3 million, primarily driven by increased web sales of over 200%, as compared to the third quarter of 2016.

North America adjusted gross margin⁽¹⁾ declined 30 basis points as compared to the third quarter of 2016. The decline was driven primarily by fixed cost deleverage on lower unit volume, significant commodity cost inflation and unfavorable brand mix. This was offset by operational improvements, channel mix and product mix. North America adjusted operating margin⁽¹⁾ declined 100 basis points as compared to the third quarter of 2016. The decline in adjusted operating margin was driven by the gross margin decline, as well as unfavorable operating expense leverage.

International net sales increased 7.7% to $144.2 million from $133.9 million in the third quarter of 2016. On a constant currency basis⁽¹⁾, International net sales increased 7.0% compared to the third quarter of 2016. Gross margin was 51.2% as compared to 53.8% in the third quarter of 2016. Operating margin was 14.4% as compared to 19.1% in the third quarter of 2016.

International net sales through the wholesale channel increased $10.5 million or 9.9% to $116.7 million and sales through the direct channel decreased $0.2 million or 0.7% to $27.5 million as compared to the third quarter of 2016.

International adjusted gross margin⁽¹⁾ declined 260 basis points as compared to the third quarter of 2016. The decline was primarily driven by product launch costs, as well as unfavorable channel and brand mix. International adjusted operating margin⁽¹⁾ declined 160 basis points as compared to the third quarter of 2016, primarily driven by gross margin.

Corporate operating expense increased to $25.9 million from $22.8 million in the third quarter of 2016.

http://www.nasdaq.com/press-release/tempur-sealy-reports-third-quarter-2017-results-20171102-00496