– Direct Sales Increased 29%, Net Sales Increased 2.5%

PR NewswireLEXINGTON, Ky., Nov. 1, 2018 /PRNewswire/ — Tempur Sealy International, Inc. (TPX) announced financial results for the third quarter ended September 30, 2018. The Company also updated its financial guidance for the full year 2018.

THIRD QUARTER 2018 FINANCIAL SUMMARY⁽¹⁾

• Total net sales increased 2.5% to $729.5 million as compared to $711.5 million in the third quarter of 2017. On a constant currency basis⁽²⁾, total net sales increased 3.4%, with an increase of 3.0% in the North America business segment and an increase of 4.9% in the International business segment.
• Gross margin under U.S. generally accepted accounting principles (“GAAP”) was 41.1% as compared to 43.1% in the third quarter of 2017. Gross margin in the third quarter of 2018 included $4.9 million of restructuring charges and $3.7 million of supply chain transition costs. Adjusted gross margin⁽²⁾ was 42.3% as compared to 43.3% in the third quarter of 2017.
• GAAP operating income decreased 12.9% to $84.7 million as compared to $97.3 million in the third quarter of 2017. Operating income in the third quarter of 2018 included $9.4 million of restructuring charges and $3.7 million of supply chain transition costs. Adjusted operating income⁽²⁾ decreased 2.5% to $97.8 million as compared to $100.3 million in the third quarter of 2017.
• GAAP net income decreased 5.2% to $42.3 million as compared to $44.6 million in the third quarter of 2017.Adjusted net income⁽²⁾ increased 0.9% to $56.1 million as compared to $55.6 million in the third quarter of 2017.
• Earnings before interest, tax, depreciation and amortization (“EBITDA”)⁽²⁾ decreased 1.5% to $112.7 million as compared to $114.4 million for the third quarter of 2017. Adjusted EBITDA⁽²⁾ decreased 1.3% to $127.7 million as compared to $129.4 million in the third quarter of 2017.
• GAAP earnings per diluted share (“EPS”) decreased 4.9% to $0.77 as compared to $0.81 in the third quarter of 2017. Adjusted EPS⁽²⁾ increased 1.0% to $1.02 as compared to $1.01 in the third quarter of 2017.

KEY HIGHLIGHTS

Tempur Sealy International, Inc. Chairman and CEO Scott Thompson commented, “Our recent Tempur-Pedic and Sealy Hybrid product introductions have been the best-received in the company’s history, and have gained significant share in the marketplace.  Tempur-Pedic mattress units accelerated during the quarter, with growth of 29% in North America.  In North America, we are currently rolling out our higher-end Tempur LuxeAdapt product, and in early 2019 our Breeze products will be launched, rounding out our completely new line of Tempur-Pedic mattresses. The team is confident that the combination of these innovative new products, our expanding direct to consumer business, and our ongoing productivity initiatives will continue to enhance our world wide competitive position.”

(1) All amounts presented for 2017 reflect reclassifications to previously reported amounts to adjust for discontinued operations.
(2) This is a non-GAAP financial measure. Please refer to “Non-GAAP Financial Measures and Constant Currency Information” below.

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 2.6% to $595.8 million as compared to $580.6 million in the third quarter of 2017. On a constant currency basis⁽²⁾, North America net sales increased 3.0% as compared to the third quarter of 2017. GAAP gross margin was 38.5% as compared to 41.1% in the third quarter of 2017. GAAP operating margin was 13.7% as compared to 17.2% in the third quarter of 2017.

North America net sales through the wholesale channel increased $6.3 million to $553.6 million. North America net sales through the direct channel increased $8.9 million, or 26.7%, to $42.2 million, as compared to the third quarter of 2017, driven primarily by growth from expanded retail stores.

North America adjusted gross margin⁽²⁾ declined 130 basis points as compared to the third quarter of 2017. The decline was driven primarily by commodity cost inflation and unfavorable Tempur product mix. These were partially offset by favorable brand mix, pricing and operational improvements. North America adjusted operating margin⁽²⁾ declined 150 basis points as compared to the third quarter of 2017. The decline in adjusted operating margin⁽²⁾ was primarily driven by the decline in adjusted gross margin⁽²⁾.

International net sales increased 2.1% to $133.7 million as compared to $130.9 million in the third quarter of 2017. On a constant currency basis⁽²⁾, International net sales increased 4.9% as compared to the third quarter of 2017. Gross margin was 53.0% as compared to 52.4% in the third quarter of 2017. GAAP operating margin was 19.3% as compared to 18.0% in the third quarter of 2017.

International net sales through the wholesale channel decreased $3.6 million to $107.3 million and net sales through the direct channel increased $6.4 million, or 32.0%, to $26.4 million as compared to the third quarter of 2017.

International gross margin improved 60 basis points as compared to gross margin for the third quarter of 2017. The improvement in gross margin was driven primarily by the change in classification of royalty income due to the adoption of new revenue recognition guidance and operational improvements. These were partially offset by unfavorable mix, foreign exchange and commodity cost inflation. International adjusted operating margin⁽²⁾ improved 20 basis points as compared to the third quarter of 2017. The improvement was driven by favorable operating expense leverage and the improvement in gross margin, offset by the change in classification of royalty income due to the adoption of new revenue recognition guidance.

Corporate operating expense decreased to $23.0 million as compared to $25.9 million in the third quarter of 2017.

https://seekingalpha.com/pr/17319002-tempur-sealy-reports-third-quarter-2018-results