SOMNIGROUP INTERNATIONAL INC. Q1 FY2025 earnings call

• First quarter 2025 net sales ~$1.6 billion, adjusted EPS $0.49. Focus on like-for-like numbers adjusted for acquisitions. - Strong international business with mid-single-digit sales growth (excluding FX, high single-digit), Tempur products driving growth. - Tempur Sealy North America and Mattress Firm outperformed market; Sealy Posturepedic launch encouraged. - Mitigated tariff impact: ~$750M COGS exposed to tariffs, mitigated half, passing through 2% price increase. - Progress on synergy initiatives post-Mattress Firm acquisition, aiming for $100M+ annual run rate synergies by 2028, now expecting $15M in 2025.

In the first quarter of 2025, consolidated sales were $1.6 billion. For Tempur Sealy North America: Like-for-like net sales through wholesale declined approximately 8% in the quarter, excluding mid-single-digit headwind from foreclosed distribution, wholesale declined 3%; net sales through direct channel declined 2%. North American adjusted gross margin increased 760 basis points to 45.3%, adjusted operating margin improved 190 basis points to 17.2% but like-for-like, down 70 basis points. For Tempur Sealy International: Net sales grew 6% on a reported basis and 8% on a constant currency basis. International gross margin improved 130 basis points to 49%, adjusted operating margin 130 basis points to 16.8%. For Mattress Firm: Net sales were $594 million in the first quarter (partial quarter post-acquisition), like-for-like sales declined 1%. Mattress Firm's adjusted gross margin was 35.1% and reported adjusted operating margin was 7.2%.

• Revised adjusted EPS range $2.30-$2.65, sales between ~$7.3B-$7.5B. - Bedding industry expected down mid-single digits, improving in second half. - Like-for-like Tempur Sealy sales down low single digits, international growth mid-single digits constant currency. - Mattress Firm like-for-like sales down low single digits, gross margins slightly above 44%. - 2025 CapEx ~$225M, including $25M for Mattress Firm store refreshes.

• Tariff uncertainties with potential impact on costs. - Volatility in consumer confidence affecting demand.

Q: I want to talk a bit about demand. Can you give us some color on how things trended through the quarter, what you saw coming into the second quarter? And then when you talk about a modest second half improvement this year, how should we think about what that means and what the drivers are of that?

A: Sure. The first quarter was a little bit challenged. After President's Day, it gotten better and stable. Second half improvement driven by Sealy launch transition, price increase in third quarter, and reimagining of Mattress Firm's advertising.

Q: Scott, I wanted to touch on -- I think it was in your prepared remarks, just some comments on Mattress Firm merchandising and kind of letting the brands compete against themselves. I think you called out the potential of Tempur Sealy-related products in the high 40s as their sales by the end of this year. Can you put that in context of that versus maybe balance of share in some of your other accounts where we can get a sense of what the ceiling is or what normal is now that some of the restrictions on kind of the brands competing freely on the floor are going to be taken off?

A: In general, balance of share would be probably the average in specialty shop.

Q: In the presentation, the investor presentation, it shows that you're kind of keeping that 2028 target of $485 million, but off of a lower base for 2025. Can you just talk about the confidence in sort of hitting that run rate kind of, sort of a higher growth rate going forward? And now that you've had a little bit of time of actually owning Mattress Firm, has anything sort of changed from your initial expectations, either positively or negatively in terms of hitting those longer-term targets?

A: It has nothing to do with anything we've seen in Mattress Firm or really what I'd even call the real economy where consumers continue to seem very solid financing conveyable, buyers are buying. It's simply a consumer confidence. So we didn't see this particular market that we find ourselves in as being any kind of structural or long-term issue.

Q: On the commodity costs that you're flagging, could you unpack that a little bit and help us understand what the key pressure points are within your COGS? And then on that gross margin outlook, because there's some comparability issues to last year, is 44% still flat year-on-year? Or are you now taking gross margin down as well?

A: Previously, our perspective was call it, 45% gross margin on a full year. Where we sit here today is down versus that expectation, call it, somewhere in the 44% to 44.5% range. Driven by deleverage and transitory impact of tariffs.

Q: It's really on the shape of the year, and I appreciate all the details on your outlook. It's going to be kind of a rarity this earnings season. But you do expect improvement as the year progresses in industry demand, I think. And I'd love to hear kind of more what that's predicated on?

A: Momentum from new products launching in U.S. around Sealy, continuing momentum in international with new products, and improvement from industry as comps get easier.

Q: I also was hoping to follow up on Mattress Firm. And I was wondering if you could talk, Scott, a little bit about some of these partnerships, Purple, Leggett, Resident that you mentioned. For some of them, you're helping with the manufacturing for these products. And if you could just talk about how this fits into your merchandising strategy. And I'm wondering if there's any other changes that you're making operationally at Mattress Firm around employee training, commissions, et cetera, that might be worth highlighting?

A: When we think about merchandising at Mattress Firm, we take more of a broader look at it including financial strength and risk of various suppliers, and we look at the full profit picture. There's not any changes in commissions or anything like that.

Q: Could you talk about the dispersion in performance across the different brands, Sealy, Tempur, Stearns & Foster this quarter? Obviously, you have the Sealy kind of new product launch getting floored, so that kind of impacts results. But just any nuances across the brands and how you're thinking about any relative performance as we go throughout the year?

A: Starting with international, dominated by Tempur brand. In U.S., Tempur was strongest, then Stearns & Foster and then Sealy. Sealy brand is choppy during launch.

Q: Just a question on the $750 million of COGS for the Tempur Sealy products -- or sorry, the Tempur products that are from other countries. What countries is this exposure to? I guess I'm curious whether there is some from China and where it is in the rest of the world. And then you mentioned ways to offset it half price and half other items. Are those other items moving the sourcing of the product? Or how have you been able to find ways to offset that?

A: $750 million of COGS associated with Tempur Sealy is exposed to tariffs, principally in Asia and a bit from Mexico. Mitigated by moving supply and working with suppliers, taking price to fully offset impact except for second quarter headwind.