SOMNIGROUP INTERNATIONAL INC. Q3 FY2025 earnings call

• Somnigroup delivered record net sales, adjusted EBITDA, and adjusted EPS in Q3 2025 despite a flat U.S. bedding market and challenges in international markets.
• Like-for-like sales growth was 5%, led by strong international operations. Tempur Sealy North America had 5% like-for-like sales growth, broad-based across portfolio.
• Mattress Firm outperformed the market with 5% same-store sales growth, focusing on in-store execution and store refresh program.
• Tempur Sealy International had 11% net sales growth, refining customization process for specific markets.
• Progress on sales and cost synergy initiatives from Mattress Firm combination, expecting $60 million EBITDA benefit in 2025 and $100 million run rate by 2026.

In the third quarter of 2025, Somnigroup International achieved record net sales of $2.1 billion, up approximately 63% compared to the prior year. Adjusted EBITDA was $419 million, up approximately 52%, and adjusted EPS was $0.95 per share, up approximately 16%. For Tempur Sealy North America, like-for-like sales growth was 5%, with the wholesale channel up ~10% (normalized) and direct channel down 4%. North American adjusted gross margin was 58.6% and adjusted operating margin was 29.5%. Mattress Firm had net sales of ~$1.1 billion, with like-for-like sales growth of 5%, adjusted gross margin of 35.6% and adjusted operating margin of 9.4%. Tempur Sealy International had net sales growth of 11% reported and 7% constant currency, with gross margins down 40 basis points and operating margin at 18.1%.

• Revised 2025 adjusted EPS guidance to $2.60-$2.75, with sales midpoint ~$7.5 billion after intercompany eliminations.
• Expect continued like-for-like sales growth in Q4 with stable demand environment.
• Leverage expected to return to target range of 2-3x early in 2026.
• 2025 CapEx includes ~$150 million recurring and $25 million for Mattress Firm stores, with additional $125 million over next years for store refreshes.

• U.S. bedding market remains flat, housing market yet to recover, international markets face numerous challenges.
• Tariff changes pose ~$20 million incremental cost exposure, leading to small price increase in early 2026.

Q: Talk about demand divergence in bedding vs housing market and sustainability of efforts.

A: Bedding industry can be successful without housing market recovery. Driven by innovation (new Sealy Posturepedic), advertising retooling at Mattress Firm. Sequentially industry improved, momentum seen with sales growth and synergies from Mattress Firm combo.

Q: Opportunities for growth among brands and enterprise optimization.

A: Sealy Posturepedic has growth potential, Tempur continues to take share. Mattress Firm changes in advertising and merchandising strategy offer long-term opportunities. Cost synergies from logistics, warehousing, etc., provide multiyear benefits. International operations have double-digit growth for 10 quarters.

Q: Guidance changes and fourth quarter outlook.

A: Industry expectation improved from mid-single digits down to low-mid single digits. Balance of share at Mattress Firm moved to mid-50s. Fourth quarter expected to have continued like-for-like growth, with seasonality and tougher compares from last year's election impact considered.

Q: Fourth quarter compares and outlook.

A: Fourth quarter last year had a bump from peaceful transition, but data now shows more accurate comparison. Fourth quarter expected to have continued like-for-like growth, with seasonality and normal step down from third quarter.

Q: Balance of share at Mattress Firm and Kingsdown placement.

A: Reasonable balance of share for family brands at Mattress Firm is low 60s, expected to reach mid-50s. Kingsdown is underrepresented at Mattress Firm, so Somnigroup has a passive equity investment to expand its presence, particularly in high end and spring areas.

Q: 2026 earnings shape and interest rate impact.

A: Earnings have flow-through from minimum sales growth. Interest rate changes have significant impact, with 100 basis point change equating to $0.18-$0.20 per share impact on EPS. Benefits of falling interest rates are more robust than perceived.

Q: Potential for acquisitions.

A: Constantly looking at opportunities for other manufacturers, retailers. Will continue to be disciplined, look for right acquisition at right price, with possibility of future acquisitions.