Tempur Sealy Announces Fourth Quarter Financial Results and Guidance for 2024

February 8, 2024  by HFBusiness Staff in Business Strategy, Industry   

FOURTH QUARTER 2023 KEY HIGHLIGHTS

Total net sales decreased 1.4% to $1,170.5 million as compared to $1,187.4 million in the fourth quarter of 2022, with a decrease of 4.0% in the North America business segment and an increase of 7.8% in the International business segment. On a constant currency basis⁽¹⁾, total net sales decreased 2.6%, with a decrease of 4.3% in the North America business segment and an increase of 3.5% in the International business segment.

Gross margin was 43.8% as compared to 41.2% in the fourth quarter of 2022. Adjusted gross margin⁽¹⁾ was 44.2% as compared to 41.6% in the fourth quarter of 2022.

Operating income decreased 17.1% to $121.9 million as compared to $147.1 million in the fourth quarter of 2022. Adjusted operating income⁽¹⁾ decreased 1.0% to $155.2 as compared to $156.8 million in the fourth quarter of 2022.

Net income decreased 24.2% to $77.1 million as compared to $101.7 million in the fourth quarter of 2022. Adjusted net income⁽¹⁾ decreased 2.4% to $93.9 million as compared to $96.2 million in the fourth quarter of 2022.

Earnings per diluted share ("EPS") decreased 24.6% to $0.43 as compared to $0.57 in the fourth quarter of 2022. Adjusted EPS⁽¹⁾ decreased 1.9% to $0.53 as compared to $0.54 in the fourth quarter of 2022.

Company Chairman and CEO Scott Thompson commented, "We are pleased with our fourth quarter and full year 2023 financial performance, especially in light of the soft demand within the bedding category. We believe the Company outperformed the category.”

“Our competitive advantages of developing and marketing differentiated products through consumer-centric innovation; world-class manufacturing capabilities; successful omni-distribution platform; and vertical integration enabled the Company to deliver solid financial results. The Company is uniquely positioned to realize significant sales growth once the bedding category returns to growth."

Business Segment Highlights: Fourth Quarter 2023

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 4.0% to $895.4 million as compared to $932.3 million in the fourth quarter of 2022, primarily driven by macroeconomic pressures impacting U.S. consumer behavior. On a constant currency basis⁽¹⁾, North America net sales decreased 4.3% as compared to the fourth quarter of 2022. Gross margin was 40.2% as compared to 37.4% in the fourth quarter of 2022.

Adjusted gross margin⁽¹⁾ was 40.7% as compared to 37.9% in the fourth quarter of 2022. Operating margin was 15.4% as compared to 14.6% in the fourth quarter of 2022. Adjusted operating margin⁽¹⁾ was 15.9% as compared to 15.1% in the fourth quarter of 2022.

North America net sales through the wholesale channel decreased $50.1 million, or 6.2%, to $762.8 million as compared to the fourth quarter of 2022. North America net sales through the direct channel increased $13.2 million, or 11.1%, to $132.6 million, as compared to the fourth quarter of 2022.

North America adjusted gross margin⁽¹⁾ improved 280 basis points as compared to the fourth quarter of 2022. The improvement was primarily driven by favorable commodity costs and operational efficiencies, partially offset by unfavorable product mix. North America adjusted operating margin⁽¹⁾ improved 80 basis points as compared to the fourth quarter of 2022. The improvement was primarily driven by the improvement in gross margin, partially offset by investments in growth initiatives.

International net sales increased 7.8% to $275.1 million as compared to $255.1 million in the fourth quarter of 2022. On a constant currency basis⁽¹⁾, International net sales increased 3.5% as compared to the fourth quarter of 2022. Gross margin was 55.7% as compared to 55.2% in the fourth quarter of 2022. Operating margin was 19.2% as compared to 20.4% in the fourth quarter of 2022. Adjusted operating margin⁽¹⁾ was 20.7% in the fourth quarter of 2022. There were no adjustments to operating margin in the fourth quarter of 2023.A

International net sales through the wholesale channel increased $13.7 million, or 14.7%, to $106.9 million as compared to the fourth quarter of 2022, primarily driven by the success of new Tempur® product introductions. International net sales through the direct channel increased $6.3 million, or 3.9%, to $168.2 million, as compared to the fourth quarter of 2022.

International gross margin improved 50 basis points as compared to the fourth quarter of 2022. The improvement was primarily driven by favorable commodity costs, partially offset by unfavorable mix. International operating margin declined 150 basis points as compared to adjusted operating margin⁽¹⁾ in the fourth quarter of 2022. The decline was primarily driven by operating expense deleverage to support growth initiatives, partially offset by the improvement in gross margin.

Corporate operating expense increased to $68.4 million as compared to $40.8 million in the fourth quarter of 2022, primarily driven by transaction costs of $17.5 million related to the pending acquisition of Mattress Firm and a $11.0 million fair value remeasurement, related to a strategic investment in a product innovation initiative. Corporate adjusted operating expense⁽¹⁾ was $39.6 million as compared to $36.8 million in the fourth quarter of 2022.

Consolidated net income decreased 24.2% to $77.1 million as compared to $101.7 million in the fourth quarter of 2022. Adjusted net income⁽¹⁾ decreased 2.4% to $93.9 million as compared to $96.2 million in the fourth quarter of 2022. EPS decreased 24.6% to $0.43 as compared to $0.57 in the fourth quarter of 2022. Adjusted EPS⁽¹⁾ decreased 1.9% to $0.53 as compared to $0.54 in the fourth quarter of 2022.

The Company ended the fourth 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 2.87 times for the year ended December 31, 2023. Additionally, in the fourth quarter of 2023, the Company recognized $3.2 million of loss on extinguishment of debt associated with the refinancing of its 2023 Credit Agreement.

Dividend Increase

Today, the Company announced that its Board of Directors increased the quarterly cash dividend by 18% to $0.13 per share. This is the fourth increase to the dividend in the last few years. The dividend is payable on March 7 to shareholders of record at the close of business on February 22.ompany Chairman and CEO Scott Thompson commented, "We are pleased to announce this increase to our quarterly dividend. Our Board of Directors increased the quarterly dividend to $0.13 per share based on the strength of the Company's market position and demonstrated ability to generate significant free cash flow. This marks the fourth increase to our dividend over the last three years, approximately doubling the cash dividend
since it's initiation in 2021.

Mattress Firm Update

Company Chairman and CEO Scott Thompson commented, "Regarding the pending Mattress Firm transaction, we certified compliance with the Federal Trade Commission's second request in the fourth quarter of 2023 and expect the transaction to close in the second half of 2024. Both Tempur Sealy and Mattress Firm continue to make joint progress in integration planning, including the signing of post-closing supply agreements with numerous companies providing Mattress Firm product. These agreements provide access post-closing to certain consumer-desired products, solidifying important supplier relationships. Additional discussions regarding post-closing supplier relationships are ongoing. Overall, we are optimistic about Tempur Sealy's future and look forward to welcoming Mattress Firm into the organization later this year."

Financial Guidance

For the full year 2024, the Company currently expects adjusted EPS⁽¹⁾ between $2.60 to $2.90. This contemplates the Company's current sales outlook for low to mid-single digit year-over-year growth. At the midpoint, this adjusted EPS⁽¹⁾ guidance represents a 15 percent increase from the prior year.

Company Chairman and CEO Scott Thompson commented, "We are pleased to issue 2024 guidance that targets growth in both adjusted earnings per share⁽¹⁾ and sales. Underpinning our guidance is recent distribution gains and a belief that category demand is stabilizing around the world from negative year-over-year industry units. We expect full year 2024 industry units to be consistent with 2023 levels.

"With our strong financial position, resilient operating model and the recent investments made in our brands, products and expanded capacity, Tempur Sealy is positioned to grow adjusted earnings per share⁽¹⁾ and sales. As we grow into our new foam-pouring plant in the U.S. and given our near-term category outlook, we expect pressure on our profits in the first quarter of 2024 with adjusted EPS⁽¹⁾ likely being between $0.45 and $0.50 then returning to year-over-year growth in subsequent quarters."

The Company noted that its expectations are based on information available at the time of this release, and are subject to changing conditions, many of which are outside the Company's control. The Company is unable to provide forward–looking EPS guidance and the applicable reconciliation to adjusted EPS⁽¹⁾, 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 2024.

Conference Call Information

After the conference call, on Feb 8, a webcast replay will remain available on the investor relations section of the Company's website for 30 days at investor.tempursealy.com.