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TempurPedic International Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: April 26, 2011 04:21PM

TempurPedic International Inc. (TPX) filed Quarterly Report for the period ended 2011-03-31. Tempurpedic International Inc. has a market cap of $4.19 billion; its shares were traded at around $61.08 with a P/E ratio of 25.2 and P/S ratio of 3.8. Tempurpedic International Inc. had an annual average earning growth of 12.7% over the past 10 years.



Highlight of Business Operations:

Net sales. Net sales for the three months ended March 31, 2011 increased to $325.8 million from $253.9 million for the same period in 2010, an increase of $71.9 million, or 28.3%. During the three months ended March 31, 2011 we experienced a significant improvement in Net sales. We believe our revenues have continued gaining momentum primarily as a result of investments made in marketing and the success of new product introductions. Consolidated Mattress sales increased $48.3 million, or 28.5%, compared to the first quarter of 2010. The increase in Mattress sales occurred primarily in our Retail channel with Net sales increasing to $284.4 million from $211.9 million for the same period in 2010, an increase of $72.5 million, or 34.2%. Consolidated Pillow sales increased approximately $4.0 million, or 12.9%, compared to the first quarter of 2010. Consolidated Other, which includes adjustable bed bases, foundations and other related products, increased $19.7 million, or 36.5%. Many of our Pillows and Other products are sold with mattress purchases. Therefore, when Mattress sales increase, Pillows and Other products are also impacted. The principal factors that impacted Net sales for each segment are discussed below, in the respective segment discussion.

North America. North American Net sales for the three months ended March 31, 2011 increased to $229.0 million from $166.6 million for the same period in 2010, an increase of $62.5 million, or 37.5%. Our North American Retail channel contributed $208.1 million in Net sales for the three months ended March 31, 2011 for an increase of $64.9 million, or 45.3%. The introduction of our product line, the TEMPUR-CloudTM collection, has been well received by retailers and consumers. This latest generation of proprietary TEMPUR® material was developed for consumers who want a soft sleep surface with the underlying support provided by a Tempur-Pedic mattress. The TEMPUR-CloudTM collection has been extremely successful, and by appealing to a different group of consumers, has greatly increased our target market and accordingly was a significant driver of our Net sales during the first quarter of 2011. Additionally, we believe that our “Ask Me” advertising campaign has had a positive impact on our performance. As a result, North American Mattress sales increased $42.1 million, or 35.8%, over the same period in 2010. Net sales in the Direct channel increased by $3.4 million, or 23.4%. We believe increased sales in the Direct channel are a result of our focus on building brand awareness and encouraging consumers to visit our website through our advertisements. The Third Party channel Net Sales decrease is attributable to our April 1, 2010 acquisition of our third-party distributor in Canada. Pillow Net sales increased $3.5 million, or 24.5%, compared to the same period in 2010. Other Net sales increased $16.9 million, or 48.3%, compared to the same period in 2010. Many of our Pillows and Other products are sold with mattress purchases. Therefore, when Mattress sales increase, Pillows and Other products are also impacted. Additionally, we have emphasized and are experiencing improved attach rates on adjustable bed bases which are sold at a higher price point than traditional foundations.

International. International Net sales for the three months ended March 31, 2011 increased to $96.8 million from $87.3 million for the same period in 2010, an increase of $9.5 million, or 10.9%. On a constant currency basis, our International Net sales increased approximately 8.5%. We continue to experience some stabilization of the global economic slowdown which impacted our international markets. The International Retail channel increased $7.6 million, or 11.1%, compared to the same period in 2010. International Retail Net sales increased primarily because of growth in certain key customers and investing in our brand awareness. As a result, International Mattress sales in the first quarter of 2011 increased $6.2 million, or 12.0%, over the same period in 2010. Pillow sales for the first quarter of 2011 increased $0.5 million, or 3.0%, compared to the same period in 2010. Other product Net sales increased $2.8 million, or 14.6%, compared to the same period in 2010. Many of our Pillows and Other products are sold with mattress purchases. Therefore, when Mattress sales increase, Pillows and other products are also impacted.

North America. North American Gross profit for the three months ended March 31, 2011 increased to $111.8 million from $74.0 million for the same period in 2010, an increase of $37.8 million, or 51.2%. The Gross profit margin in our North American segment was 48.8% and 44.4% for the three months ended March 31, 2011 and 2010, respectively. Improvements in our North American Gross profit margin were primarily driven by improved efficiencies in manufacturing, favorable product mix and fixed cost leverage related to higher production volumes. Additionally, the North American segment pays a royalty to our International segment based on its production volume, which has the effect of lowering the segment s reported Gross profit margin. Our North American Cost of sales for the three months ended March 31, 2011 increased to $117.2 million from $92.6 million for the same period in 2010, an increase of $24.6 million, or 26.6%.

International. International Gross profit for the three months ended March 31, 2011 increased to $58.5 million from $50.8 million for the same period in 2010, an increase of $7.7 million, or 15.1%. The Gross profit margin in our International segment was 60.4% and 58.2% for the three months ended March 31, 2011 and 2010, respectively. Improvements in our International Gross profit margin were primarily driven by improved efficiencies in manufacturing, favorable product mix and fixed cost leverage related to higher production volumes. Additionally, the International segment receives a royalty from our North American segment based on the North American production volume, which has the effect of increasing the segment s reported Gross profit margin. Our International Cost of sales for the three months ended March 31, 2011 increased to $38.3 million from $36.5 million for the same period in 2010, an increase of $1.8 million, or 5.1%.

Selling and marketing expenses. Selling and marketing expenses include advertising and media production associated with our Direct channel, other marketing materials such as catalogs, brochures, videos, product samples, direct customer mailings and point of purchase materials and sales force compensation. We also include in Selling and marketing expenses for certain new product development costs, including market research and new product testing. Selling and marketing expenses increased to $64.4 million for the three months ended March 31, 2011 as compared to $46.2 million for the three months ended March 31, 2010, an increase of $18.1 million, or 39.2%. Selling and marketing expenses as a percentage of Net sales were 19.8% and 18.2% for the three months ended March 31, 2011 and 2010, respectively. Our advertising expense for the three months ended March 31, 2011 was $34.5 million, or 10.6% of Net sales, compared to $21.6 million, or 8.5%, an increase of $12.8 million, or 59.3%. Our objective is to align advertising costs to reflect our sales expectations. However, during the three months ended March 31, 2011, we made additional investments to increase our brand awareness in certain international markets. Additionally, to continue to drive consumers to our Retail channel, we continue to invest in our “Ask Me” advertising campaign and have introduced an integrated advertising program in partnership with our retailers. All other selling and marketing expenses increased $5.3 million primarily as a result of increased salaries and associated expenses and investments in our website infrastructure to enhance the customer experience.

Read the The complete Report



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