Tempur Sealy Reports Record Second Quarter Results

Tempur Sealy International, Inc. (the “Company”) announced financial results for the second quarter ended June 30, 2021. The Company issued updated financial guidance for the full year 2021 that reflects the improved business trends and the acquisition of Dreams, which is scheduled to close in early August.

Second Quarter 2021 Financial Summary

– Total net sales increased 75.8% to $1,169.1 million as compared to $665.2 million in the second quarter of 2020. On a constant currency basis(1), total net sales increased 72.6%, with an increase of 73.8% in the North America business segment and an increase of 64.5% in the International business segment.
– Gross margin was 44.3% as compared to 40.0% in the second quarter of 2020. Adjusted gross margin(1) was 40.6% in the second quarter of 2020. There were no adjustments to gross margin in the second quarter of 2021.
– Operating income increased 318.2% to $223.3 million as compared to $53.4 million in the second quarter of 2020. Adjusted operating income(1) increased 191.7% to $227.2 million as compared to $77.9 million in the second quarter of 2020.
– Net income increased 512.2% to $140.8 million as compared to $23.0 million in the second quarter of 2020. Adjusted net income(1) increased 294.9% to $161.5 million as compared to $40.9 million in the second quarter of 2020.
– Earnings before interest, tax, depreciation and amortization (“EBITDA”)(1) increased 212.3% to $266.1 million as compared to $85.2 million in the second quarter of 2020. Adjusted EBITDA per credit facility(1) increased 146.6% to $270.3 million as compared to $109.6 million in the second quarter of 2020.
– Earnings per diluted share (“EPS”) increased 527.3% to $0.69 as compared to $0.11 in the second quarter of 2020. Adjusted EPS(1) increased 295.0% to $0.79 as compared to $0.20 in the second quarter of 2020.
– Net cash provided by operating activities increased to a record $226.7 million as compared to $155.4 million in the second quarter of 2020.

Company Chairman and CEO Scott Thompson commented, “Our strong performance in the quarter was broad-based across geographies and channels. Our investments and strategies to strengthen the long-term growth potential of Tempur Sealy continue to enhance our competitive position. This quarter we were pleased to report global sales growth of 62% compared to 2019, a base year unaffected by COVID. We were especially pleased with our double-digit global web sales growth this quarter verses second quarter 2020 which grew over 125% versus the prior year when traditional retail stores were impacted by COVID. The strength of our brands and products combined with the acquisition of Dreams resulted in increasing our full year guidance for 2021. At the midpoint of our updated 2021 adjusted EPS(1) range, we expect to deliver full year growth of over 200% compared to 2019, again a base year unaffected by COVID.

“While the strong industry and healthy consumer have been tailwinds for us recently, our sales and earnings growth has been significantly outpacing the overall market. Our performance is linked to our company initiatives, with new distribution driving approximately 50% of our expected 2-year sales growth. Another approximately 35% of our expected growth is from strategic mergers and acquisitions as well as sales from previously untapped markets, including the direct to consumer and OEM markets. This leaves only 15% of our 2-year growth coming from the underlying strength of the market. This broader foundation, combined with significant cash flow, gives us confidence in our ability to deliver double-digit earnings growth in 2022 and beyond.”

Business Segment Highlights

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 increased 75.2% to $1,013.8 million as compared to $578.6 million in the second quarter of 2020. On a constant currency basis(1), North America net sales increased 73.8% as compared to the second quarter of 2020. Gross margin was 42.0% as compared to 37.7% in the second quarter of 2020. Adjusted gross margin(1) was 38.4% in the second quarter of 2020. There were no adjustments to gross margin in the second quarter of 2021. Operating margin was 21.4% as compared to 11.7% in the second quarter of 2020. Adjusted operating margin(1) was 15.0% in the second quarter of 2020. There were no adjustments to operating margin in the second quarter of 2021.

North America net sales through the wholesale channel increased $388.0 million, or 77.2%, to $890.8 million, as compared to the second quarter of 2020. North America net sales through the direct channel increased $47.2 million, or 62.3%, to $123.0 million, as compared to the second quarter of 2020. The increase in net sales across all channels was driven by higher sales volume compared to the prior year period, which was impacted by COVID-19.

North America gross margin improved 360 basis points as compared to adjusted gross margin(1) in the second quarter of 2020. The improvement was driven by leverage from higher sales volume compared to the prior year period, which was impacted by COVID-19. North America operating margin improved 640 basis points as compared to adjusted operating margin(1) in the second quarter of 2020. The improvement was primarily driven by gross margin and operating expense leverage.

International net sales increased 79.3% to $155.3 million as compared to $86.6 million in the second quarter of 2020. On a constant currency basis(1), International net sales increased 64.5% as compared to the second quarter of 2020. Gross margin was 59.8% as compared to 54.8% in the second quarter of 2020. Adjusted gross margin(1) was 55.4% in the second quarter of 2020. There were no adjustments to gross margin in the second quarter of 2021. Operating margin was 27.9% as compared to 13.0% in the second quarter of 2020. Adjusted operating margin(1) was 19.5% in the second quarter of 2020. There were no adjustments to operating margin in the second quarter of 2021.

International net sales through the wholesale channel increased $53.7 million, or 88.2%, to $114.6 million as compared to the second quarter of 2020. International net sales through the direct channel increased $15.0 million, or 58.4%, to $40.7 million as compared to the second quarter of 2020.

International gross margin improved 440 basis points as compared to adjusted gross margin(1) in the second quarter of 2020. The improvement was driven by leverage from higher sales volume compared to the prior year period, which was impacted by COVID-19. International operating margin improved 840 basis points as compared to adjusted operating margin(1) in the second quarter of 2020. The improvement was primarily driven by operating expense leverage and the improvement in gross margin. The previously announced Dreams acquisition is expected to generate annual sales of approximately $450 million in the first year post-acquisition.

Company Chairman and CEO Scott Thompson commented, “We look forward to officially welcoming the Dreams organization to the Tempur Sealy family. With the closing of the Dreams acquisition, we estimate our annualized worldwide direct-to-consumer business will reach nearly $1 billion in sales and will represent approximately 25% of consolidated sales on a trailing twelve month basis.

Corporate operating expense increased to $37.5 million as compared to $25.6 million in the second quarter of 2020. The increase in operating expense was primarily driven by the low level of variable compensation expense in the prior year when the full-year outlook included worldwide shutdowns and significant retailer door closures due to COVID-19.

Consolidated net income increased 512.2% to $140.8 million as compared to $23.0 million in the second quarter of 2020. Adjusted net income(1) increased 294.9% to $161.5 million as compared to $40.9 million in the second quarter of 2020. EPS increased 527.3% to $0.69 as compared to $0.11 in the second quarter of 2020. Adjusted EPS(1) increased 295.0% to $0.79 as compared to $0.20 in the second quarter of 2020.

The Company ended the second quarter of 2021 with total debt and consolidated indebtedness less netted cash(1) of $1.5 billion. Leverage based on the ratio of consolidated indebtedness less netted cash(1) to adjusted EBITDA per credit facility(1) was 1.44 times for the trailing twelve months ended June 30, 2021, a significant reduction from prior year. The Company expects leverage will be approximately 1.80 times after the closing of the acquisition of Dreams in early August. Additionally, in the second quarter of 2021, the Company incurred $18.0 million of loss on extinguishment of debt associated with the early redemption of the 2026 Senior Notes as the Company refinanced its long-term debt at a lower interest cost. The Company expects an annual interest savings of $15 million from the actions it has taken to optimize its debt structure since the start of 2021.

During the second quarter of 2021, the Company repurchased 1.6 million shares of its common stock for a total cost of $62.4 million. Over the last twelve months, the Company has repurchased 15.6 million shares of its common stock for a total cost of $507.8 million. As of June 30, 2021, the Company had approximately $376.8 million available under its existing share repurchase authorization.

Additionally, today the Company announced that its Board of Directors declared a quarterly cash dividend of 9 cents per share payable on August 26, 2021, to shareholders of record at the close of business on August 12, 2021. This represents a 29% increase over the Company’s previous quarterly dividend of 7 cents per share.

Company Chairman and CEO Scott Thompson commented, “I am pleased to report that our Board of Directors have declared a nearly 30% increase to our quarterly dividend while still maintaining a conservative payout ratio. The significant increase to our quarterly dividend demonstrates the confidence we have in our outlook, which includes the impact of the acquisition of Dreams as well as our expanded direct to consumer and OEM businesses, all of which have diversified our sales and significantly improved our operating cash flow. With this backdrop, the Board of Directors decided to significantly increase the quarterly dividend, aligning closer to the Company’s previously announced annual dividend payout target of 15% of net income. We expect to evaluate future increases each year on an annual basis.”

Financial Guidance

The Company updated its financial guidance for 2021 to reflect the improved business trends and the acquisition of Dreams, which is expected to close in early August. For the full year, the Company currently expects net sales growth to exceed 35% over prior year, with adjusted EPS(1) between $3.10 and $3.25. The midpoint of this guidance implies an increase of 64% from the Company’s prior year adjusted EPS(1) of $1.94 and a 2021 adjusted EBITDA(1) of approximately $1.1 billion.

The Company noted that its expectations are based on information available at the time of this release, and are subject to changing conditions, many of which are outside the Company’s control.

For the full second quarter results, click here.

About Tempur Sealy

Tempur Sealy is committed to improving the sleep of more people, every night, all around the world. As a global leader in the design, manufacture and distribution of bedding products, we know how crucial a good night of sleep is to overall health and wellness. Utilizing over a century of knowledge and industry-leading innovation, we deliver award-winning products that provide breakthrough sleep solutions to consumers in over 100 countries. Our highly recognized brands include Tempur-Pedic®, Sealy® and Stearns & Foster® and our non-branded offerings include value-focused private label and OEM products. Our distinct brands allow for complementary merchandising strategies and are sold through third-party retailers, our Company-owned stores and e-commerce channels. This omni-channel strategy ensures our products are offered wherever and however customers want to shop. Lastly, we accept our global responsibility to serve all stakeholders, our community and environment. We have and are implementing programs consistent with our responsibilities.

Contact:

Aubrey Moore – Investor Relations – (800) 805-3635 – investor.relations@tempursealy.com

Source: Tempur Sealy International, Inc.