PR Newswire
LEXINGTON, Ky., Aug. 3, 2023
- Consolidated Net Sales Increases 4.8% to Approximately $1.3 Billion
- Expands Consolidated Gross Margins and Operating Margins
- Realizes Robust Cash Flow from Operations of Approximately $150 Million
- Declares Third Quarter Dividend of $0.11 per share
LEXINGTON, Ky., Aug. 3, 2023 /PRNewswire/ -- Tempur Sealy International, Inc. (NYSE: TPX) announced financial results for the second quarter ended June 30, 2023 and updated financial guidance for the full year 2023.
SECOND QUARTER 2023 FINANCIAL SUMMARY
- Total net sales increased 4.8% to $1,269.7 million as compared to $1,211.0 million in the second quarter of 2022. On a constant currency basis(1), total net sales increased 5.0%, with an increase of 5.3% in the North America business segment and an increase of 3.9% in the International business segment.
- Gross margin was 42.7% as compared to 41.0% in the second quarter of 2022. Adjusted gross margin(1) was 42.9% as compared to 41.7% in the second quarter of 2022.
- Operating income increased 10.4% to $158.8 million as compared to $143.9 million in the second quarter of 2022. Adjusted operating income(1) was $171.8 million as compared to $159.9 million in the second quarter of 2022.
- Net income increased 2.0% to $92.4 million as compared to $90.6 million in the second quarter of 2022. Adjusted net income(1) was $102.0 million as compared to $103.2 million in the second quarter of 2022.
- Earnings per diluted share ("EPS") increased 2.0% to $0.52 as compared to $0.51 in the second quarter of 2022. Adjusted EPS(1) was $0.58 in the second quarter of 2023 and 2022.
KEY HIGHLIGHTS | |||||
(in millions, except percentages and per common share amounts) | Three Months Ended | % Reported Change | |||
June 30, 2023 | June 30, 2022 | ||||
Net sales | $ 1,269.7 | $ 1,211.0 | 4.8 % | ||
Net income | $ 92.4 | $ 90.6 | 2.0 % | ||
Adjusted net income (1) | $ 102.0 | $ 103.2 | (1.2) % | ||
EPS | $ 0.52 | $ 0.51 | 2.0 % | ||
Adjusted EPS (1) | $ 0.58 | $ 0.58 | — % | ||
Company Chairman and CEO Scott Thompson commented, "Our continued market outperformance in the second quarter reflects the momentum we are driving through our execution of our long term initiatives. All three of our leading U.S. brands - Tempur, Sealy and Stearns & Foster - performed well in the quarter, significantly ahead of where we believe the U.S. industry trended. We were also pleased with the second quarter performance of our International business. The successful Tempur international launch, combined with Dreams' crisp retail execution, is driving continued share gains worldwide and positioning us well for the future. This quarter's results were delivered in markets that were a bit less robust than we expected. Our global industry outperformance partially mitigated the negative impact of these headwinds. While we look forward to a recovering market, this challenged environment has allowed us to demonstrate the strength of our global business model as we realized solid earnings and strong operating cash flows.
"Regarding the pending Mattress Firm acquisition, we are currently responding to the Federal Trade Commission's second request. Mattress Firm's recent quarterly results, which it reported yesterday, were consistent with our expectations. We continue to expect to close the transaction in 2024 and look forward to bringing the Mattress Firm team onboard."
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 5.4% to $1,016.8 million as compared to $964.7 million in the second quarter of 2022, primarily driven by the success of new product launches for Tempur and Stearns & Foster. On a constant currency basis(1), North America net sales increased 5.3% as compared to the second quarter of 2022. Gross margin was 39.7% as compared to 37.9% in the second quarter of 2022. Adjusted gross margin(1) was 39.9% as compared to 38.7% in the second quarter of 2022. Operating margin was 17.1% as compared to 15.1% in the second quarter of 2022. Adjusted operating margin(1) was 17.4% as compared to 16.5% in the second quarter of 2022.
North America net sales through the wholesale channel increased $48.2 million, or 5.7%, to $896.0 million, as compared to the second quarter of 2022. North America net sales through the direct channel increased $3.9 million, or 3.3%, to $120.8 million, as compared to the second quarter of 2022.
North America adjusted gross margin(1) improved 120 basis points as compared to the second quarter of 2022. The improvement was primarily driven by pricing actions and normalizing commodity costs, partially offset by product launch costs and operational headwinds. North America adjusted operating margin(1) improved 90 basis points as compared to the second quarter of 2022. The improvement was primarily driven by the improvement in gross margin.
International net sales increased 2.7% to $252.9 million as compared to $246.3 million in the second quarter of 2022. On a constant currency basis(1), International net sales increased 3.9% as compared to the second quarter of 2022. Gross margin was 54.9% as compared to 53.1% in the second quarter of 2022. Operating margin was 13.4% as compared to 14.5% in the second quarter of 2022.
International net sales through the wholesale channel increased $1.9 million, or 2.1%, to $93.2 million as compared to the second quarter of 2022. International net sales through the direct channel increased $4.7 million, or 3.0%, to $159.7 million as compared to the second quarter of 2022.
International gross margin improved 180 basis points as compared to the second quarter of 2022. The improvement was primarily driven by favorable mix and pricing actions. International operating margin declined 110 basis points as compared to the second quarter of 2022. The decline was primarily driven by operating expense deleverage to support product launch initiatives, partially offset by the improvement in gross margin.
Corporate operating expense increased to $49.2 million as compared to $38.0 million in the second quarter of 2022, primarily driven by transaction costs of $10.6 million related to the pending acquisition of Mattress Firm. Corporate adjusted operating expense(1) was $38.6 million as compared to $34.7 million in the second quarter of 2022.
Consolidated net income increased 2.0% to $92.4 million as compared to $90.6 million in the second quarter of 2022. Adjusted net income(1) decreased 1.2% to $102.0 million as compared to $103.2 million in the second quarter of 2022. EPS increased 2.0% to $0.52 as compared to $0.51 in the second quarter of 2022. Adjusted EPS(1) was $0.58 in the second quarter of 2023 and 2022.
The Company ended the second quarter of 2023 with total debt of $2.8 billion and consolidated indebtedness less netted cash(1) of $2.7 billion. Leverage based on the ratio of consolidated indebtedness less netted cash(1) to adjusted EBITDA(1) was 3.10 times for the trailing twelve months ended June 30, 2023.
Additionally, today the Company announced that its Board of Directors declared a quarterly cash dividend of $0.11 per share, payable on August 31, 2023, to shareholders of record at the close of business on August 17, 2023.
Recent Events
As previously disclosed, the Company identified a cybersecurity event on July 23, 2023, involving certain of the Company's information technology ("IT") systems. The Company has begun the process to bring certain of its critical IT systems back online and has resumed operations. The forensic investigation remains ongoing and the Company continues to assess the impact of this event on its business, operations, and financial results.
Financial Guidance
For the full year 2023, the Company updated its expectations for an adjusted EPS(1) range of $2.50 to $2.70. This contemplates the Company's current outlook that sales will be flat to slightly up versus prior year.
The Company noted that its expectations are based on information available at the time of this release, and are subject to changing conditions and risks, many of which are outside the Company's control. The Company is unable to reconcile forward–looking adjusted EPS, a non–GAAP financial measure, to EPS, its most directly comparable forward–looking GAAP financial measure, without unreasonable efforts, because the Company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact EPS in 2023.
Conference Call Information
Tempur Sealy International, Inc. will host a live conference call to discuss financial results today, August 3, 2023, at 8:00 a.m. Eastern Time. The call will be webcast and can be accessed on the Company's investor relations website at investor.tempursealy.com. After the conference call, a webcast replay will remain available on the investor relations section of the Company's website for 30 days.
Non-GAAP Financial Measures and Constant Currency Information
For additional information regarding EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS, adjusted gross profit, adjusted gross margin, adjusted operating income (expense), adjusted operating margin, consolidated indebtedness and consolidated indebtedness less netted cash (all of which are non-GAAP financial measures), please refer to the reconciliations and other information included in the attached schedules. For information on the methodology used to present information on a constant currency basis, please refer to "Constant Currency Information" included in the attached schedules.
Forward-Looking Statements
This press release contains statements that may be characterized as "forward-looking," within the meaning of the federal securities laws. Such statements might include information concerning one or more of the Company's plans, guidance, objectives, goals, strategies, and other information that is not historical information. When used in this release, the words "assumes," "estimates," "expects," "guidance," "anticipates," "might," "projects," "plans," "proposed," "targets," "intends," "believes," "will," "contemplates" and variations of such words or similar expressions are intended to identify forward-looking statements. These forward-looking statements include, without limitation, statements relating to the Company's expectations regarding the impact of the cybersecurity incident on its business, operations and financial results, the announced Mattress Firm acquisition, the Company's expected quarterly results and full year guidance, the Company's quarterly cash dividend, the Company's share repurchase targets, the Company's expectations regarding geopolitical events including the war in Ukraine, the macroeconomic environment including its impact on consumer behavior, foreign exchange rates and fluctuations in such rates, the bedding industry, financial infrastructure, adjusted EPS for 2023 and subsequent periods and the Company's expectations for increasing sales and adjusted EPS growth, product launches, expected hiring and advertising, capital project timelines, channel growth, acquisitions and commodities outlook. Any forward-looking statements contained herein are based upon current expectations and beliefs and various assumptions. There can be no assurance that the Company will realize these expectations, meet its guidance, or that these beliefs will prove correct.
Numerous factors, many of which are beyond the Company's control, could cause actual results to differ materially from any that may be expressed herein as forward-looking statements including, among others, the ongoing forensic investigation of the cybersecurity incident, the effectiveness of the Company's incident response and the business continuity plans and the ongoing assessment of the impact of the cybersecurity event on its business, operations and financial results. These potential risks include the factors discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 and in the Company's Quarterly Reports on Form 10-Q for the quarter ended March 31, 2023. There may be other factors that may cause the Company's actual results to differ materially from the forward-looking statements. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.
About Tempur Sealy International, Inc.
Tempur Sealy is committed to improving the sleep of more people, every night, all around the world. As a leading designer, manufacturer, distributor and retailer of bedding products worldwide, we know how crucial a good night of sleep is to overall health and wellness. Utilizing over a century of knowledge and industry-leading innovation, we deliver award-winning products that provide breakthrough sleep solutions to consumers in over 100 countries.
Our highly recognized brands include Tempur-Pedic®, Sealy® and Stearns & Foster® and our popular non-branded offerings consist of value-focused private label and OEM products. At Tempur Sealy we understand the importance of meeting our customers wherever and however they want to shop and have developed a powerful omni-channel retail strategy. Our products allow for complementary merchandising strategies and are sold through third-party retailers, our over 700 Company-owned stores worldwide and our e-commerce channels. With the range of our offerings and variety of purchasing options, we are dedicated to continuing to turn our mission to improve the sleep of more people, every night, all around the world into a reality.
Importantly, we are committed to carrying out our global responsibility to protect the environment and the communities in which we operate. As part of that commitment, we have established the goal of achieving carbon neutrality for our global wholly owned operations by 2040.
Investor Relations Contact:
Aubrey Moore
Investor Relations
Tempur Sealy International, Inc.
800-805-3635
[email protected]
(1) This is a non-GAAP financial measure. Please refer to "Non-GAAP Financial Measures and Constant Currency Information" below.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Income (in millions, except percentages and per common share amounts) (unaudited) | |||||||||||
Three Months Ended | Six Months Ended | ||||||||||
June 30, | Chg % | June 30, | Chg % | ||||||||
2023 | 2022 | 2023 | 2022 | ||||||||
Net sales | $ 1,269.7 | $ 1,211.0 | 4.8 % | $ 2,477.8 | $ 2,450.5 | 1.1 % | |||||
Cost of sales | 727.4 | 714.5 | 1,435.6 | 1,431.2 | |||||||
Gross profit | 542.3 | 496.5 | 9.2 % | 1,042.2 | 1,019.3 | 2.2 % | |||||
Selling and marketing expenses | 270.2 | 252.9 | 526.9 | 496.4 | |||||||
General, administrative and other expenses | 117.5 | 102.3 | 222.0 | 199.9 | |||||||
Equity income in earnings of unconsolidated affiliates | (4.2) | (2.6) | (8.8) | (9.5) | |||||||
Operating income | 158.8 | 143.9 | 10.4 % | 302.1 | 332.5 | (9.1) % | |||||
Other expense, net: | |||||||||||
Interest expense, net | 33.6 | 23.7 | 66.4 | 44.6 | |||||||
Other (income) expense, net | (0.2) | 0.7 | (0.1) | (0.6) | |||||||
Total other expense, net | 33.4 | 24.4 | 66.3 | 44.0 | |||||||
Income before income taxes | 125.4 | 119.5 | 4.9 % | 235.8 | 288.5 | (18.3) % | |||||
Income tax provision | (32.2) | (28.3) | (56.7) | (66.4) | |||||||
Net income before non-controlling interest | 93.2 | 91.2 | 2.2 % | 179.1 | 222.1 | (19.4) % | |||||
Less: Net income attributable to non-controlling interest | 0.8 | 0.6 | 1.4 | 0.8 | |||||||
Net income attributable to Tempur Sealy International, Inc. | $ 92.4 | $ 90.6 | 2.0 % | $ 177.7 | $ 221.3 | (19.7) % | |||||
Earnings per common share: | |||||||||||
Basic | $ 0.54 | $ 0.52 | 3.8 % | $ 1.03 | $ 1.24 | (16.9) % | |||||
Diluted | $ 0.52 | $ 0.51 | 2.0 % | $ 1.01 | $ 1.20 | (15.8) % | |||||
Weighted average common shares outstanding: | |||||||||||
Basic | 172.1 | 174.1 | 172.1 | 178.3 | |||||||
Diluted | 176.8 | 178.8 | 176.8 | 183.7 | |||||||
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in millions) | |||
June 30, 2023 | December 31, 2022 | ||
ASSETS | (unaudited) | ||
Current Assets: | |||
Cash and cash equivalents | $ 101.8 | $ 69.4 | |
Accounts receivable, net | 476.1 | 422.6 | |
Inventories | 529.3 | 555.0 | |
Prepaid expenses and other current assets | 146.9 | 148.2 | |
Total Current Assets | 1,254.1 | 1,195.2 | |
Property, plant and equipment, net | 850.9 | 791.1 | |
Goodwill | 1,080.9 | 1,062.3 | |
Other intangible assets, net | 717.6 | 715.8 | |
Operating lease right-of-use assets | 568.0 | 506.8 | |
Deferred income taxes | 12.7 | 11.3 | |
Other non-current assets | 86.6 | 77.3 | |
Total Assets | $ 4,570.8 | $ 4,359.8 | |
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | |||
Current Liabilities: | |||
Accounts payable | $ 362.6 | $ 359.8 | |
Accrued expenses and other current liabilities | 452.8 | 432.7 | |
Short-term operating lease obligations | 114.8 | 105.5 | |
Current portion of long-term debt | 73.6 | 70.4 | |
Income taxes payable | 2.9 | 12.8 | |
Total Current Liabilities | 1,006.7 | 981.2 | |
Long-term debt, net | 2,707.5 | 2,739.9 | |
Long-term operating lease obligations | 507.3 | 453.5 | |
Deferred income taxes | 117.6 | 114.0 | |
Other non-current liabilities | 84.2 | 83.5 | |
Total Liabilities | 4,423.3 | 4,372.1 | |
Redeemable non-controlling interest | 9.4 | 9.8 | |
Total Stockholders' Equity (Deficit) | 138.1 | (22.1) | |
Total Liabilities, Redeemable Non-Controlling Interest and Stockholders' Equity (Deficit) | $ 4,570.8 | $ 4,359.8 | |
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (in millions) (unaudited) | |||
Six Months Ended | |||
June 30, | |||
2023 | 2022 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||
Net income before non-controlling interest | $ 179.1 | $ 222.1 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |||
Depreciation and amortization | 66.4 | 61.3 | |
Amortization of stock-based compensation | 24.2 | 26.9 | |
Amortization of deferred financing costs | 1.9 | 1.9 | |
Bad debt expense | 4.2 | 3.8 | |
Deferred income taxes | 0.8 | (6.7) | |
Dividends received from unconsolidated affiliates | 3.4 | 3.9 | |
Equity income in earnings of unconsolidated affiliates | (8.8) | (9.5) | |
Foreign currency adjustments and other | (1.1) | 0.2 | |
Changes in operating assets and liabilities | (19.6) | (237.4) | |
Net cash provided by operating activities | 250.5 | 66.5 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |||
Purchases of property, plant and equipment | (112.7) | (130.2) | |
Other | 0.4 | 1.1 | |
Net cash used in investing activities | (112.3) | (129.1) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |||
Proceeds from borrowings under long-term debt obligations | 1,005.7 | 1,317.9 | |
Repayments of borrowings under long-term debt obligations | (1,033.3) | (771.7) | |
