Tempur Sealy(TPX) - 2025 Q2 - Quarterly Results

Q2 2025 Financial Performance Overview Somnigroup's Q2 2025 saw significant net sales growth driven by the Mattress Firm acquisition, despite a decline in GAAP net income and diluted EPS Second Quarter 2025 Financial Summary In Q2 2025, Somnigroup reported a significant 52.5% increase in net sales to $1,880.8 million, primarily driven by the inclusion of Mattress Firm sales, while GAAP net income decreased by 6.7% to $99.0 million and diluted EPS fell 21.7% to $0.47 Q2 2025 Financial Highlights vs. Q2 2024 | (in millions, except per share amounts) | June 30, 2025 | June 30, 2024 | % Reported Change | | :--- | :--- | :--- | :--- | | Net sales | $1,880.8 | $1,233.6 | 52.5% | | Net income | $99.0 | $106.1 | (6.7)% | | Adjusted net income | $113.1 | $111.7 | 1.3% | | EPS | $0.47 | $0.60 | (21.7)% | | Adjusted EPS | $0.53 | $0.63 | (15.9)% | - The 52.5% increase in total net sales was primarily driven by the inclusion of $948.8 million from Mattress Firm sales, offset by the accounting elimination of $263.5 million in intercompany sales[7] - Gross margin improved to 44.0% from 42.0% in Q2 2024, with adjusted gross margin also increasing to 44.2%[7] Key Highlights & Management Commentary Management attributes strong quarterly performance to the successful Mattress Firm combination, new Sealy line launch, and robust international sales growth, with direct sales now comprising 66% of net sales - The successful combination with Mattress Firm is a key driver of market outperformance, with synergy realization ahead of plan[5] - Other growth drivers include the North American launch of the new Sealy product line and continued strong sales growth in the international business[5] - Direct sales as a percentage of total net sales increased significantly to 66% from 23% in the prior year, reflecting the structural shift from the Mattress Firm acquisition[1] Business Segment Performance Analysis of segment performance reveals the significant impact of the Mattress Firm acquisition on sales channels and profitability, alongside strong international growth Mattress Firm The newly acquired Mattress Firm segment contributed $948.8 million in net sales for Q2 2025, all through the direct sales channel, recording a gross margin of 35.6% and an operating margin of 6.7% Mattress Firm Q2 2025 Performance | Metric | Value | | :--- | :--- | | Net Sales | $948.8 million | | Gross Margin | 35.6% | | Adjusted Gross Margin | 35.7% | | Operating Margin | 6.7% | | Adjusted Operating Margin | 7.8% | Tempur Sealy North America Tempur Sealy North America's net sales decreased by $340.0 million to $638.4 million, primarily due to the accounting elimination of $263.5 million in intercompany sales to Mattress Firm, yet adjusted gross and operating margins significantly improved - Net sales decreased to $638.4 million, primarily impacted by the accounting elimination of $263.5 million in sales to Mattress Firm[9] - Wholesale channel sales decreased by $320.8 million, driven by the intercompany elimination and a 6.7% decrease from a customer's acquisition that foreclosed distribution[9] - Adjusted gross margin improved by 1480 basis points to 55.0%, and adjusted operating margin improved by 430 basis points to 22.7%, mainly due to the elimination of lower-margin sales to Mattress Firm and operational efficiencies[10] Tempur Sealy International The Tempur Sealy International segment delivered robust performance with net sales increasing 15.0% to $293.6 million, driven by successful new product launches and operating expense leverage International Net Sales Growth (Q2 2025) | Metric | Growth Rate | | :--- | :--- | | Reported Net Sales | +15.0% | | Constant Currency Net Sales | +10.0% | | Wholesale Channel Sales | +13.6% | | Direct Channel Sales | +15.9% | - Operating margin improved by 110 basis points to 13.6%, primarily driven by operating expense leverage[11] Corporate Expenses Corporate operating expenses increased to $53.2 million from $38.9 million in the prior year, mainly due to business combination charges related to the Mattress Firm acquisition - Corporate operating expenses rose to $53.2 million, primarily driven by charges related to the Mattress Firm acquisition[11] Financial Position and Outlook The company's financial position reflects the impact of the Mattress Firm acquisition on debt and assets, while management provides an optimistic outlook with raised full-year adjusted EPS guidance Consolidated Financial Position The company's consolidated net income for Q2 2025 decreased by 6.7% to $99.0 million, with total debt reaching $5.0 billion and a leverage ratio of 3.56 times adjusted EBITDA as of June 30, 2025 - The decrease in EPS was primarily driven by launch costs for the new Sealy® product line and a customer's acquisition which foreclosed distribution, offset by accretion from the Mattress Firm acquisition[12] Debt and Leverage as of June 30, 2025 | Metric | Value | | :--- | :--- | | Total Debt | $5.0 billion | | Consolidated Indebtedness less Netted Cash | $4.9 billion | | Leverage Ratio (to adjusted EBITDA) | 3.56 times | Full Year 2025 Financial Guidance Somnigroup has raised its financial guidance for the full year 2025, now expecting adjusted EPS to be in the range of $2.40 to $2.70, incorporating approximately 11 months of Mattress Firm operations and recent divestitures - The company raised its full-year 2025 adjusted EPS guidance to a new range of $2.40 to $2.70[13] - The guidance accounts for about 11 months of Mattress Firm operations and the divestiture of Sleep Outfitters and 73 Mattress Firm stores[13] Capital Allocation The Board of Directors declared a quarterly cash dividend of $0.15 per share, demonstrating a continued commitment to returning capital to shareholders - A quarterly cash dividend of $0.15 per share was declared, payable on September 5, 2025, to shareholders of record on August 21, 2025[14] Consolidated Financial Statements A detailed review of the consolidated financial statements reveals the significant impact of the Mattress Firm acquisition on the income statement, balance sheet, and cash flows Condensed Consolidated Statements of Income For the three months ended June 30, 2025, net sales grew 52.5% to $1,880.8 million, while operating income increased 3.8% to $179.9 million, though higher interest expense contributed to a 6.7% decline in net income Income Statement Summary (Three Months Ended June 30) | (in millions) | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $1,880.8 | $1,233.6 | 52.5% | | Gross profit | $827.2 | $517.6 | 59.8% | | Operating income | $179.9 | $173.3 | 3.8% | | Net income | $99.0 | $106.1 | (6.7)% | Condensed Consolidated Balance Sheets As of June 30, 2025, total assets significantly increased to $11.38 billion from $5.98 billion at year-end 2024, primarily due to the Mattress Firm acquisition, leading to substantial increases in goodwill, intangible assets, and operating lease right-of-use assets, alongside a rise in total liabilities to $8.53 billion Balance Sheet Highlights (as of June 30, 2025) | (in millions) | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Assets | $11,376.2 | $5,980.4 | | Goodwill | $4,585.2 | $1,066.7 | | Total Liabilities | $8,526.2 | $5,412.1 | | Long-term debt, net | $4,803.3 | $3,740.4 | | Total Stockholders' Equity | $2,841.1 | $559.0 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash provided by operating activities was $292.5 million, while net cash used in investing activities was substantial at $2.88 billion, dominated by $2.82 billion for acquisitions, funded by $940.2 million from financing activities Cash Flow Summary (Six Months Ended June 30) | (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $292.5 | $280.8 | | Net cash used in investing activities | $(2,878.1) | $(59.7) | | Net cash provided by (used in) financing activities | $940.2 | $(195.0) | Supplementary Financial Information This section provides additional financial details, including a summary of channel sales and reconciliations of non-GAAP financial measures to provide a clearer view of underlying business performance Summary of Channel Sales The acquisition of Mattress Firm fundamentally shifted the company's sales mix, with direct channel sales surging to $1,238.1 million and representing 66% of consolidated sales in Q2 2025, while wholesale sales decreased due to reclassification Consolidated Net Sales by Channel (Q2 2025 vs Q2 2024) | (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Wholesale | $642.7 | $950.5 | | Direct | $1,238.1 | $283.1 | | Total | $1,880.8 | $1,233.6 | Reconciliation of Non-GAAP Financial Measures This section provides detailed reconciliations of GAAP measures to non-GAAP measures such as adjusted net income, adjusted EPS, adjusted EBITDA, and adjusted operating income, excluding items like business combination charges and transaction costs Adjusted Net Income and Adjusted EPS For Q2 2025, reported net income of $99.0 million was adjusted for items including $17.6 million in business combination charges and a $13.9 million loss on business disposal, resulting in an adjusted net income of $113.1 million and an adjusted EPS of $0.53 Reconciliation of Net Income to Adjusted Net Income (Q2 2025) | (in millions) | Amount | | :--- | :--- | | Net income | $99.0 | | Business combination charges | $17.6 | | Loss on disposal of business | $13.9 | | Disposition-related costs | $9.2 | | Transaction costs | $4.9 | | Supply chain transition costs | $1.3 | | Adjusted income tax provision | $(32.8) | | Adjusted net income | $113.1 | Adjusted Gross Profit and Operating Income In Q2 2025, consolidated operating income of $179.9 million was adjusted by $44.5 million for items like business combination charges and loss on business disposal, resulting in an adjusted operating income of $224.4 million, or an 11.9% margin - Consolidated adjusted operating income for Q2 2025 was $224.4 million, representing a margin of 11.9%, compared to reported operating income of $179.9 million (9.6% margin)[43] EBITDA, Adjusted EBITDA, and Leverage For the trailing twelve months ended June 30, 2025, the company calculated an Adjusted EBITDA per its credit facility of $1,362.4 million, resulting in a leverage ratio of 3.56 times, which is below the credit agreement's covenant of less than 5.00 times Leverage Ratio Calculation (TTM ended June 30, 2025) | (in millions, except ratio) | Amount | | :--- | :--- | | Adjusted EBITDA per credit facility | $1,362.4 | | Consolidated indebtedness less netted cash | $4,853.5 | | Leverage Ratio | 3.56 times | - The company's leverage ratio of 3.56x is in compliance with its 2023 Credit Agreement covenant, which requires the ratio to be below 5.00x[50]