Sealy Corp. (ZZ) filed Quarterly Report for the period ended 2010-08-29.
Sealy Corp. has a market cap of $239.6 million; its shares were traded at around $2.46 with a P/E ratio of 20.4 and P/S ratio of 0.2. ZZ is in the portfolios of Richard Pzena of Pzena Investment Management LLC, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:Net Sales. Our consolidated net sales for the quarter ended August 29, 2010, were $346.2 million, a decrease of $3.4 million, or 1.0%, from the quarter ended August 30, 2009. Total Americas net sales were $321.2 million for the third quarter of fiscal 2010, a decrease of 0.2% from the third quarter of fiscal 2009. This decrease was primarily due to decreases in the U.S. business offset by increases in the Canada and Other Americas businesses. Total U.S. net sales were $251.0 million for the third quarter of fiscal 2010, a decrease of 2.2% from the third quarter of fiscal 2009. The U.S. net sales decrease of $5.7 million was attributable to a 0.3% decrease in wholesale unit volume, which excludes third party sales from our component plants, coupled with a 2.3% decrease in wholesale average unit selling price. The decrease in unit volume was primarily attributable to softness at themed price points in the market. The decrease in wholesale average unit selling price was due to our response to competitive pressures including a growing mix of our promotional priced bedding as we capture more sales with our new Sealy branded products. International net sales increased $2.3 million, or 2.5%, from the third quarter of fiscal 2009 to $95.1 million, primarily driven by unit volume growth in Canada. Excluding the effects of currency fluctuation, international net sales increased 2.6% from the third quarter of fiscal 2009. In Canada, local currency sales increases of 2.2% translated into increases of 8.5% in U.S. dollars due to an increase in the average value of the Canadian dollar versus the U.S. dollar. Local currency sales performance in Canada was driven by a 7.4% increase in unit volume, which was partially offset by a 4.9% decrease in average unit selling price. The increase in unit volume was driven by the strength of our new Stearns & Foster line and the success of our promotional products. The lower average unit selling price was driven primarily by strategic merchandising and promotional activity. In our Europe segment, local currency sales increases of 1.1% translated into decreases of 10.2% in U.S. dollars due to the decrease in the average value of the Euro versus the U.S. dollar. The increase in local currency sales resulted from a 3.4% increase in sales of latex cores. Finished goods sales in local currency decreased 2.0% from the prior year.
Gross Profit. Our consolidated gross profit for the quarter ended August 29, 2010 was $137.6 million, a decrease of $8.5 million from the comparable prior year period. As a percentage of net sales, gross profit decreased 2.1 percentage points to 39.7% due to a decrease in gross profit margins in both of our segments. Total Americas gross profit for the quarter ended August 29, 2010 was $132.3 million, a decrease of $6.3 million from the comparable prior year period. As a percentage of net sales, gross profit for the Americas decreased 1.9 percentage points to 41.2%. The decrease in percentage of net sales was primarily driven by decreases in the U.S. business. U.S. gross profit decreased $11.4 million to $101.4 million, which, as a percentage of net sales, represents a decrease of 3.5 percentage points to 40.4% of net sales. The decrease in percentage of net sales was driven primarily by higher discounting on products that are near the end of their life cycle as well as the impact of inflation on material costs. Partially offsetting these decreases were improvements in operations efficiencies and value engineering efforts. The gross profit margin in Canada was 45.6%, which is consistent with historical levels and was achieved through a reduction in material costs per unit, improved operating efficiencies and higher absorption of fixed costs on a 7.4% increase in unit volume. These increases have been partially offset by the lower average unit selling price discussed above. In our Europe segment, the local currency gross profit margin decreased 5.6 percentage points due to material cost increases and providing greater values on Sealy branded product.
Selling, General, Administrative. Our consolidated selling, general and administrative expense for the quarter ended August 29, 2010 decreased $2.8 million to $107.5 million compared to the same prior year period. As a percentage of net sales, this expense was 31.1% and 31.5% for the quarters ended August 29, 2010 and August 30, 2009, respectively, a decrease of 0.4 percentage points. The decrease as a percentage of net sales was primarily driven by a decrease in compensation costs. The decrease in absolute dollars is primarily due to a decrease in costs related to incentive compensation and expected defined contribution plan payments partially offset by an increase in cooperative advertising and promotional costs and less benefit related to foreign currency translation.
Interest Expense. Our consolidated interest expense for the third quarter of fiscal 2010 decreased $0.3 million to $21.8 million as compared with the prior year period. This decrease results from a decrease in cash interest expense of approximately $2.0 million due to the repurchase of $35 million of Senior Notes in the second quarter of fiscal 2010, offset by increases in non-cash interest expense as the Convertible Notes were not outstanding for the entire third quarter of fiscal 2009. Non-cash interest for the third quarter of fiscal 2010 was $5.9 million compared with $4.2 million for the third quarter of fiscal 2009. Non cash interest expense on our Convertible Notes was $4.3 million and $2.5 million for the third quarter of fiscal 2010 and 2009, respectively. The remaining portion of non-cash interest relates to the accretion or amortization of original issue discount and deferred debt issuance costs. Our net weighted average borrowing cost was 10.8% and 10.4% for the three months ended August 29, 2010 and August 30, 2009, respectively. Our borrowing cost was unfavorably impacted by the refinancing of our senior secured credit facilities in May 2009 (the "Refinancing") which resulted in increased interest rates and outstanding debt balances.
Income Tax. Our effective income tax rates regularly differ from the Federal statutory rate principally because of the effect of non-deductible paid in kind interest, non-deductible mark to market adjustments for derivatives associated with the Convertible Notes subscription rights, certain foreign tax rate differentials and state and local income taxes. Our effective tax rate for the three months ended August 29, 2010 was (62.8)% compared to 20.7% for the three months ended August 30, 2009. The effective rate for the fiscal 2010 period was lower than the fiscal 2009 period primarily due to the impairment of European assets.
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