Tempur Sealy Results by Segment

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 2.4% to $580.0 million from $594.1 million in the first quarter of 2015. On a constant currency basis, North America net sales decreased 1.6%. GAAP gross margin was 37.0% as compared to 34.2% in the first quarter of 2015. GAAP operating margin was 13.3% as compared to 9.7% in the first quarter of 2015. In the first quarter, net sales declined as the North American bedding market performed below expectations and the scope of our product launch transitions impacted sales.

North America adjusted gross margin(1) improved 190 basis points to 37.0% as compared to 35.1% in the first quarter of 2015, primarily driven by improved operations, pricing actions, and a decrease in commodity costs, partially offset by product mix and new product launches. The increase in North America adjusted gross margin⁽¹⁾ as well as an improvement in the Company's selling and marketing leverage drove a 220 basis point increase in the Company's North America adjusted operating margin⁽¹⁾ to 13.4% as compared to 11.2% in the first quarter of 2015.

International net sales decreased 3.0% to $141.0 million from $145.4 million in the first quarter of 2015. On a constant currency basis, International net sales increased 5.9%. GAAP gross margin was 54.3% as compared to 52.0% in the first quarter of 2015. GAAP operating margin was 19.4% as compared to 17.4% in the first quarter 2015. In the first quarter, net sales declined due to the negative effects of foreign exchange on a year over year basis.

International adjusted gross margin⁽¹⁾ improved 190 basis points to 54.3% as compared to 52.4% in the first quarter of 2015, primarily driven by channel mix, improvements in plant efficiency and a decrease in commodity costs, partially offset by an increase in sales of Sealy products relative to sales of Tempur products. The increase in International adjusted gross margin⁽¹⁾ drove a 110 basis point increase in the Company's International adjusted operating margin⁽¹⁾ to 19.4% as compared to 18.3% in the first quarter of 2015.

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