Somnigroup International Inc Q2 FY2025 earnings call

• Mattress Firm reported like-for-like sales down just 1% from prior period, with the team focusing on in-store execution and new merchandising plan.
• Progress made on synergy initiatives post-Mattress Firm acquisition, including refining Mattress Firm's multi-branded merchandising strategy, achieving Tempur Sealy representing low 50% of Mattress Firm's total sales, and progress on cost synergies.
• International business performed well with robust double-digit sales growth and margin expansion, marking 9 consecutive quarters of meaningful sales expansion on a constant currency basis.
• Tempur Sealy North America's market performance with like-for-like net sales down 2% (excluding foreclosed distribution), driven by successful launch of Sealy Posturepedic collection.
• Partnership with Fullpower, with Tempur Sealy making a $25M equity investment and signing a multiyear extension for Sleeptracker technology.

In the second quarter of 2025, Mattress Firm had net sales of $949 million. On a like-for-like basis, Mattress Firm sales declined 1% over prior year, with adjusted gross margin at 35.7% and adjusted operating margin at 7.8%. For Tempur Sealy North America, like-for-like wholesale sales declined approximately 2% in the second quarter (excluding mid-single-digit headwind from foreclosed distribution) and like-for-like net sales to the direct channel declined 4%. North American adjusted gross margin increased approximately 1,500 basis points to 55%, and adjusted operating margin improved 430 basis points to 22.7%. Tempur Sealy International net sales grew 15% on a reported basis and 10% on a constant currency basis, with international gross margin at 48.2% and international operating margin improved 110 basis points to 13.6%.

• Adjusted earnings per share raised to range of $2.40 to $2.70, with sales midpoint ~$7.4B after intercompany elimination.
• Like-for-like Tempur Sealy sales expected to be down low single digits, reported sales impacted by intercompany elimination.
• Mattress Firm like-for-like sales expected to decline low single digits, supported by in-store initiatives.
• Gross margins slightly above 44%.
• 2025 CapEx expected at ~$200M, including $25M for Mattress Firm store refreshes, with cumulative $150M over 3 years for store refreshes.

• Industry trends: North American bedding market down high single digits, international markets down mid-single digits; timing of market recovery uncertain.
• Tariff impacts: Potential impact on costs, though actions taken to mitigate.
• Consumer confidence: Changes in consumer confidence could affect sales.

Q: On the demand side, quarter started soft and improved, what changed?

A: Consumer confidence stabilized, Sealy Posturepedic launch with strong velocity and momentum into third quarter.

Q: On revenue synergies, unpack contribution margin and source?

A: Balance of share shift from high 40s to low 50s, resulting in revenue synergies with flow-through from Tempur and other brands.

Q: On sales mix between Tempur and Sealy, mix pressure on gross margin?

A: Sealy may grow faster than Tempur for a couple quarters, slightly headwind to gross margin but incremental EBITDA positive.

Q: On tariff exposure, components and mitigating actions?

A: Primarily steel (adjustables) and textiles, with industry moving supplier stuff and small price increases to mitigate tariff impact.