Tempur Sealy Reports Third Quarter Results

LEXINGTON, Ky., Nov. 2, 2023

THIRD QUARTER 2023 FINANCIAL SUMMARY

• Total net sales decreased 0.5% to $1,277.1 million as compared to $1,283.3 million in the third quarter of 2022, with a decrease of 3.2% in the North America business segment and and increase of 12.3% in the International business segment. On a constant currency basis⁽¹⁾, total net sales decreased 1.7%, with a decrease of 3.5% in the North America business segment and an increase of 6.7% in the International business segment.
• Gross margin was 44.9% as compared to 42.2% in the third quarter of 2022. Adjusted gross margin⁽¹⁾ was 45.9% as compared to 42.5% in the third quarter of 2022.
• Operating income decreased 8.9% to $183.2 million as compared to $201.0 million in the third quarter of 2022. Adjusted operating income⁽¹⁾ increased 3.9% to $214.7 million as compared to $206.7 million in the third quarter of 2022.
• Net income decreased 14.6% to $113.3 million as compared to $132.7 million in the third quarter of 2022. Adjusted net income⁽¹⁾ decreased 0.7% to $136.8 million as compared to $137.8 million in the third quarter of 2022.
• Earnings per diluted share ("EPS") decreased 14.7% to $0.64 as compared to $0.75 in the third quarter of 2022. Adjusted EPS⁽¹⁾ decreased 1.3% to $0.77 as compared to $0.78 in the third quarter of 2022.

KEY HIGHLIGHTS
(in millions, except percentages and per common share amounts)	Three Months Ended				% Reported Change
	September 30, 2023 ARIVA.DE Börsen-Geflüster Kurse Tempur Sealy International 48,33 $ -2,80%		September 30, 2022
Net sales	$                      1,277.1		$                      1,283.3		(0.5) %
Net income	$                         113.3		$                         132.7		(14.6) %
Adjusted net income (1)	$                         136.8		$                         137.8		(0.7) %
EPS	$                           0.64		$                           0.75		(14.7) %
Adjusted EPS (1)	$                           0.77		$                           0.78		(1.3) %

Company Chairman and CEO Scott Thompson commented, "We realized robust third quarter operating cash flows and expanding gross margins while our sales and earnings were solid against a challenged operating environment. We believe the Company outperformed the broader bedding market. This outperformance and double-digit growth in international sales partially mitigated a challenged U.S. bedding market, which was softer than anticipated in the quarter.

"Similar to the second quarter, we demonstrated the strength of our business model and its ability to produce reasonable returns, even in a less robust market. Improvements in operations and supply contracts, combined with the impact of consumer-specific strategies drove significant gross margin expansion, positioning the Company well for the future.

"Regarding the pending Mattress Firm transaction, we continue to expect to formally respond to the Federal Trade Commission's second request in the fourth quarter and to close the transaction in mid to late 2024. I am pleased to share that Tempur Sealy and Mattress Firm continue to make joint progress in synergies planning. In addition, Tempur Sealy has signed post-closing supply agreements with numerous companies providing Mattress Firm with access to certain consumer-desired products, solidifying important supplier relationships ahead of the expected close. Additional discussions regarding supplier relationships are ongoing."

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 3.2% to $1,023.7 million as compared to $1,057.7 million in the third quarter of 2022. On a constant currency basis⁽¹⁾, North America net sales decreased 3.5% as compared to the third quarter of 2022. Gross margin was 42.0% as compared to 39.8% in the third quarter of 2022. Adjusted gross margin⁽¹⁾ was 43.2% as compared to 40.2% in the third quarter of 2022. Operating margin was 19.1% as compared to 19.4% in the third quarter of 2022. Adjusted operating margin⁽¹⁾ was 20.3% as compared to 19.8% in the third quarter of 2022.

North America net sales through the wholesale channel decreased $33.0 million, or 3.6%, to $885.1 million as compared to the third quarter of 2022, primarily driven by macroeconomic pressures impacting U.S. consumer behavior. North America net sales through the direct channel decreased $1.0 million, or 0.7%, to $138.6 million as compared to the third quarter of 2022.

North America adjusted gross margin⁽¹⁾ improved 300 basis points as compared to the third quarter of 2022. The improvement was primarily driven by normalizing commodity costs, partially offset by expense deleverage, net of operational efficiencies. North America adjusted operating margin⁽¹⁾ improved 50 basis points as compared to the third quarter of 2022. The improvement was primarily driven by the improvement in gross margin, partially offset by operating expense deleverage to support growth initiatives.

International net sales increased 12.3% to $253.4 million as compared to $225.6 million in the third quarter of 2022. On a constant currency basis⁽¹⁾, International net sales increased 6.7% as compared to the third quarter of 2022. Gross margin was 56.6% as compared to 53.4% in the third quarter of 2022. Operating margin was 15.8% as compared to 14.5% in the third quarter of 2022. Adjusted operating margin⁽¹⁾ was 16.2% as compared to 14.7% in the third quarter of 2022.

International net sales through the wholesale channel increased $4.4 million, or 5.2%, to $89.5 million as compared to the third quarter of 2022. International net sales through the direct channel increased $23.4 million, or 16.7%, to $163.9 million as compared to the third quarter of 2022.

International gross margin improved 320 basis points as compared to the third quarter of 2022. The improvement was primarily driven by normalizing commodity costs, favorable mix and expense leverage. International adjusted operating margin⁽¹⁾ improved 150 basis points as compared to the third quarter of 2022. The improvement was primarily driven by the improvement in gross margin, partially offset by operating expense deleverage to support product launch initiatives.

Corporate operating expense increased to $52.3 million as compared to $36.6 million in the third quarter of 2022, primarily driven by transaction costs of $15.7 million related to the pending acquisition of Mattress Firm. Corporate adjusted operating expense⁽¹⁾ was $34.2 million as compared to $36.0 million in the third quarter of 2022.

Consolidated net income decreased 14.6% to $113.3 million as compared to $132.7 million in the third quarter of 2022. Adjusted net income⁽¹⁾ decreased 0.7% to $136.8 million as compared to $137.8 million in the third quarter of 2022. EPS decreased 14.7% to $0.64 as compared to $0.75 in the third quarter of 2022. Adjusted EPS⁽¹⁾ decreased 1.3% to $0.77 as compared to $0.78 in the third quarter of 2022.

The Company ended the third quarter of 2023 with total debt of $2.6 billion and consolidated indebtedness less netted cash⁽¹⁾ of $2.5 billion. Leverage based on the ratio of consolidated indebtedness less netted cash⁽¹⁾ to adjusted EBITDA⁽¹⁾ was 2.89 times for the trailing twelve months ended September 30, 2023.

Additionally, today the Company announced that its Board of Directors declared a quarterly cash dividend of $0.11 per share, payable on December 4, 2023, to shareholders of record at the close of business on November 16, 2023.

Cybersecurity Event

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 incurred $13.5 million of costs in connection with this event primarily consisting of $9.6 million of manufacturing and network disruption costs incurred to ensure business continuity and $3.9 million primarily related to professional fees incurred for incident response, containment measures and stabilization of the Company's information systems. Following the forensic investigation, the Company concluded there was no material impact to its financial results in the third quarter of 2023.

Financial Guidance

For the full year 2023, the Company revised its expectations to an adjusted EPS⁽¹⁾ range of $2.30 to $2.50. This contemplates the Company's current outlook that 2023 sales will be consistent 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, November 2, 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 announced Mattress Firm acquisition, the Company's expected quarterly results, full year guidance and outperformance relative to the broader industry, the Company's quarterly cash dividend, 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. 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 quarters ended March 31, 2023 and June 30, 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
Investor.relations@tempursealy.com 

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Income (in millions, except percentages and per common share amounts) (unaudited)
	Three Months Ended						Nine Months Ended
	September 30,				Chg %		September 30,				Chg %
	2023		2022				2023		2022
Net sales	$     1,277.1		$     1,283.3		(0.5) %		$     3,754.9		$     3,733.8		0.6 %
Cost of sales	703.4		742.2				2,139.0		2,173.4
Gross profit	573.7		541.1		6.0 %		1,615.9		1,560.4		3.6 %
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