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Somnigroup, Int'l Reports Final Results for Fourth Quarter and Year End

February 20, 2025  by Karen Parrish in Business Strategy, Industry   

FOURTH QUARTER 2024 FINANCIAL SUMMARY

— Total net sales increased 3.2% to $1,207.9 million as compared to $1,170.5 million in the fourth quarter of 2023, with a decrease of 0.1% in the North America business segment and an increase of 14.1% in the International business segment. On a constant currency basis⁽¹⁾, total net sales increased 3.4%, with an increase of 0.5% in the North America business segment and an increase of 13.0% in the International business segment.

— Gross margin was 43.3% as compared to 43.8% in the fourth quarter of 2023. Adjusted gross margin⁽¹⁾ was 45.3% as compared to 44.2% in the fourth quarter of 2023.

— Operating income increased 4.7% to $127.6 million as compared to $121.9 million in the fourth quarter of 2023. Adjusted operating income⁽¹⁾ increased 8.0% to $167.6 as compared to $155.2 million in the fourth quarter of 2023.

— Net income decreased 6.7% to $71.9 million as compared to $77.1 million in the fourth quarter of 2023. Adjusted net income⁽¹⁾ increased 14.2% to $107.2 million as compared to $93.9 million in the fourth quarter of 2023.

— Earnings per diluted share ("EPS") decreased 7.0% to $0.40 as compared to $0.43 in the fourth quarter of 2023. Adjusted EPS⁽¹⁾ increased 13.2% to $0.60 as compared to $0.53 in the fourth quarter of 2023.

— Leverage based on the ratio of consolidated indebtedness less netted cash⁽¹⁾ to adjusted EBITDA⁽¹⁾ was 2.31 times for the twelve months ended December 31, 2024, compared to 2.87 times for the twelve months ended December 31, 2023.

KEY HIGHLIGHTS

Company Chairman and CEO Scott Thompson commented, "We are pleased to report another strong quarter with market leading sales growth and double digit adjusted EPS growth. Our 2024 results are reflective of the strong fundamentals of our business model as we delivered record sales and gross margins while the industry is experiencing trough volumes."

Thompson continued, "On February 5, 2025, we completed the acquisition of Mattress Firm, the nation's largest mattress specialty retailer. This is a significant milestone – with the acquisition of Mattress Firm we are now clearly the world's largest bedding company, with superior capabilities in design, manufacturing, distribution and retail, and a portfolio of the most highly recognized brands in the industry."

Business Segment Highlights: Fourth Quarter 2024
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 were consistent at $894.1 million as compared to $895.4 million in the fourth quarter of 2023, primarily driven by continued macroeconomic pressure impacting U.S. consumer behavior. Net sales through the wholesale channel increased $2.3 million, or 0.3%, to $765.1 million as compared to the fourth quarter of 2023. Net sales through the direct channel decreased $3.6 million, or 2.7%, to $129.0 million, as compared to the fourth quarter of 2023.

North America gross margin was 38.2% as compared to 40.2% in the fourth quarter of 2023. Adjusted gross margin⁽¹⁾ improved 10 basis points to 40.8% as compared to 40.7% in the fourth quarter of 2023. The improvement was primarily driven by operational efficiencies.

North America operating margin was 11.6% as compared to 15.4% in the fourth quarter of 2023. Adjusted operating margin⁽¹⁾ declined 110 basis points to 14.8% as compared to 15.9% in the fourth quarter of 2023. The decline was primarily driven by operating expense deleverage from investments in advertising and incremental bad debt expense.

International net sales increased a robust 14.1% to $313.8 million as compared to $275.1 million in the fourth quarter of 2023, primarily driven by the success of new product launches. On a constant currency basis⁽¹⁾, International net sales increased 13.0% as compared to the fourth quarter of 2023. International net sales through the wholesale channel increased $11.5 million, or 10.8%, to $118.4 million as compared to the fourth quarter of 2023. International net sales through the direct channel increased $27.2 million, or 16.2%, to $195.4 million as compared to the fourth quarter of 2023.

International gross margin improved 230 basis points to 58.0% as compared to 55.7% in the fourth quarter of 2023. The improvement was primarily driven by operational efficiencies and favorable mix.

International operating margin improved 200 basis points to 21.2% as compared to 19.2% in the fourth quarter of 2023. The improvement was primarily driven by the improvement in gross margin and operating expense leverage, partially offset by a decline in the Asia joint venture performance.

Corporate operating expense decreased to $43.0 million as compared to $68.4 million in the fourth quarter of 2023. Corporate adjusted operating expense⁽¹  was $31.0 million as compared to $39.6 million in the fourth quarter of 2023, primarily driven by decreased variable compensation expense.

Consolidated net income decreased 6.7% to $71.9 million as compared to $77.1 million in the fourth quarter of 2023. Adjusted net income⁽¹⁾ increased 14.2% to $107.2 million as compared to $93.9 million in the fourth quarter of 2023. EPS decreased 7.0% to $0.40 as compared to $0.43 in the fourth quarter of 2023. Adjusted EPS⁽¹⁾ increased 13.2% to $0.60 as compared to $0.53 in the fourth quarter of 2023.

The Company ended the fourth quarter of 2024 with total debt of $3.8 billion and consolidated indebtedness less netted cash⁽¹⁾ of $2.1 billion. Leverage based on the ratio of consolidated indebtedness less netted cash⁽¹⁾ to adjusted EBITDA⁽¹⁾ was 2.31 times for the year ended December 31, 2024.

Dividend Increase
Today, the Company announced that its Board of Directors increased the quarterly cash dividend by 15% to $0.15 per share. This is the fifth increase to the dividend in the last few years. The dividend is payable on March 20, 2025, to shareholders of record at the close of business on March 6, 2025.

Company 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 $0.15 per share based on the strength of the Company's market position and demonstrated ability to generate significant free cash flow. This marks the fifth increase to our dividend over the last four years, more than doubling the cash dividend since its initiation in 2021."

Financial Guidance
For the full year 2025, the Company currently expects adjusted EPS⁽¹⁾ between $2.60 to $3.00 which, at the midpoint, represents a 10 percent increase from the prior year. This contemplates the Company's current sales outlook, which includes approximately 11 months of expected Mattress Firm operations, net of intercompany sales, and the previously announced divestiture.

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 provide forward–looking EPS guidance for 2025 and for long-term guidance described below and the applicable reconciliation to adjusted EPS, 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 the future.

Long-Term Perspective
Company Chairman and CEO Scott Thompson commented, "Let me conclude by taking a step back to share longer-term perspectives. We have seen our markets performing below their historical trend line of growth and, despite this, our execution has led to adjusted earnings per share growth. We believe 2025 will benefit from continued execution and the Mattress Firm transaction. Looking beyond this year, we are planning for markets to return to growth, while simultaneously realizing incremental benefits from the Mattress Firm transaction and continued industry leading execution. We are internally targeting sales to grow at a compound annual rate of mid-single digits starting in 2026. This indicates Somnigroup adjusted EPS⁽¹⁾ would increase from the $2.80 mid-point for 2025 to approximately $4.85 by 2028, a compounded annual growth rate of 20%."

Conference Call Information
The webcast replay of the conference call will remain available on the investor relations section of the Company's website for 30 days.