Somnigroup International Inc Q1 FY2026 earnings call

Highlights in Q1: Net sales up 12% to $1.8B, adjusted EBITDA up 20% to $297M, adjusted EPS up 20% to 59 cents. North American Tempur-Sealy business performed well with mid-single digit wholesale sales growth. International business capitalized on long-term growth opportunities with double-digit reported growth and single-digit constant currency growth. Mattress Firm outperformed the broader US market. Commodity inflation: Historical industry practice to adjust pricing for input costs rise, expected commodity inflation won't impact Tempur-Sealy 2026 full year earnings, Q2 has approx $10M headwind to Tempur-Silly profits, offset in Q3 and Q4. Sales and cost synergy targets: Achieved $15M net benefit adjusted EBITDA from sales synergies and $15M from cost synergies in Q1. Balance sheet and cash flow: End of Q1, consolidated debt less cash $4.5B, leverage ratio 3.1 times, record first quarter operating cash flow $247M and free cash flow $186M

In the first quarter of 2026, net sales increased 12% to $1.8 billion. Adjusted EBITDA increased 20% to $297 million, and adjusted EPS increased 20% to 59 cents per share. North American Tempur-Sealy business had mid-single digit wholesale sales growth on a like-for-like basis. International business had double-digit growth on a reported basis and single-digit growth on a constant currency basis. Mattress Firm outperformed the broader US market. North American Tempur-Sealy: Sales grew 5% on a like-for-like basis, wholesale channel like-for-like net sales up ~8% in Q1, third-party retailers sales down 4%, direct channel sales down 12% in Q1, adjusted gross margins increased 1300 basis points to 58.3%, adjusted operating margin improved 710 basis points to 24.3%. International: Net sales grew 16% on a reported basis and 7% on a constant currency basis, gross margins increased 140 basis points to 50.4%, operating margin increased 160 basis points to 18.4%. Mattress Firm: Net sales ~$886 million, same store sales flat, adjusted gross margins decreased 360 basis points to 31.5%, adjusted operating margins declined approximately 230 basis points to 4.9%

2026 adjusted EPS expected between $3 and $3.40, sales midpoint ~$7.8B after intercompany eliminations. Global betting industry expected flat to slightly down year over year. Tempur-Sealy North America like-for-like sales mid-single digits growth, international business mid-single digits growth, Mattress Firm like-for-like sales low single digits growth. Reported gross margin slightly above 45%, net margin expansion nearly 100 basis points from operational efficiencies partially offset by pricing actions. 2026 CapEx approx $225M including $75M mattress firm store refreshes and brand wall installation, at least 50% free cash flow in 2026 to go toward quarterly dividends and share repurchases. Expect transaction with Leggett and Platt to be accretive to adjusted earnings per share, midpoint guidance assumes consumer confidence normalizes, if pressures continue track closer to low end of guidance

Commodity inflation may cause transitory impact in Q2, consumer confidence pressured by geopolitical conflict may affect guidance if continues, uncertainty regarding regulatory review and approval for transaction with Leggett and Platt

Q: Susan McClary with Goldman Sachs asks about price elasticity and outperformance despite headwinds.

A: Scott responds on closing rates improving, advertising share voice top of class, cash flows and balance sheet as competitive advantages, expecting to outperform once geopolitical issues normalize.

Q: Bobby Griffin with Raymond James asks about Stearns and Foster launch in 2H.

A: Scott talks about pricing architecture alignment, hybrids upgrade, Mattress Firm support with advertising, slot commitment, training.

Q: Rafe Jedrosik with Bank of America asks about input cost inflation.

A: Bhaskar talks about annualized inflation ~$100 million, second quarter transitory impact ~$10 million, second quarter EPS growth expected 5%-10% despite headwind, annual number not changed by commodities.

Q: Peter Keith with Piper Sandler asks about full year revenue outlook.

A: Peter mentions industry backdrop headwind, price increases in back half as uplift, net-net guidance midpoint at $7.8 billion.

Q: Daniel Silverstein with UBS asks about Mattress Firm's performance, store traffic, ticket, margins, promotional investments.

A: Scott talks about same store sales flat, April slightly up, promotional, ASP strong, traffic down single digits, relative performance outperforming industry perception.

Q: Jonathan Matuszewski with Jefferies asks about upper funnel vs bottom funnel marketing.

A: Scott says mattress firm moving up funnel, some large advertisers rebalancing, tough quarter for retailers making share of voice stronger.

Q: Brad Thomas with KeyBank Capital Markets asks about non-mattress firm third party channels in North America.

A: Scott says other retailers focused on business success, excited for Stearns and Foster launch, some incremental slots in new launch, no deterioration in positions, velocity driven by sales force, advertising, competitors.

Q: Keith Hughes with Truist asks about Mattress Firm's gross margin compression.

A: Bhaskar says majority decline due to Mattress Firm increasing share of Tempur-Sealy family, volume rebates and cooperative advertising credits impact, business viewed in total as part of family.

Q: Jeff Lick with Stevens asks about pricing architecture and Mattress Firm's role.

A: Scott says Mattress Firm honoring UPP structure, healthy for industry, net positive, good pricing discipline.

Q: Peter Keith with Piper Sandler asks about chemical inventory and shortage.

A: Scott says worst case scenario mitigated, industry not expecting shortages, Tempur-Sealy has safety stock of 3-4 months, pricing impact rolled through industry