Tempur Sealy(TPX) - 2025 Q2 - Quarterly Report

Special Note Regarding Forward-Looking Statements This section outlines forward-looking statements, noting actual results may differ due to factors beyond the Company's control Forward-Looking Statements Disclosure This section details forward-looking statements, noting actual results may differ due to various factors and defining key terms - Forward-looking statements are based on current expectations and beliefs, but actual results could differ materially due to numerous factors beyond the Company's control[8][9] - Key risk factors include macroeconomic environment, inflationary trends, global events (Russia-Ukraine, Middle East), labor costs, tariffs, supply chain disruptions, competition, strategic investments (including Mattress Firm acquisition and integration), general economic conditions, product development, IT risks, interest rate changes, foreign exchange rates, regulatory compliance, tax changes, and debt levels[9] - The term 'Mattress Firm Acquisition' refers to the acquisition of Mattress Firm, finalized on February 5, 2025[12] PART I. FINANCIAL INFORMATION This part presents the Company's unaudited condensed consolidated financial statements and management's discussion and analysis ITEM 1. Financial Statements This section presents unaudited condensed consolidated financial statements, including income, comprehensive income, balance sheets, equity, and cash flows Condensed Consolidated Statements of Income Net sales significantly increased for the three months ended June 30, 2025, due to the Mattress Firm acquisition, but net income slightly decreased Three Months Ended June 30, 2025 vs 2024 | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | 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% | | Income before income taxes | 102.7 | 140.5 | (26.9)% | | Net income attributable to Somnigroup | 99.0 | 106.1 | (6.7)% | | Basic EPS | 0.47 | 0.61 | (22.9)% | | Diluted EPS | 0.47 | 0.60 | (21.7)% | | Weighted average common shares outstanding (Diluted) | 212.4 | 178.0 | 19.3% | Six Months Ended June 30, 2025 vs 2024 | Metric | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | Change (%) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------- | | Net sales | 3,485.5 | 2,423.0 | 43.8% | | Gross profit | 1,407.7 | 991.9 | 41.9% | | Operating income | 193.1 | 304.8 | (36.6)% | | Income before income taxes | 53.4 | 238.0 | (77.6)% | | Net income attributable to Somnigroup | 65.9 | 182.4 | (63.8)% | | Basic EPS | 0.33 | 1.05 | (68.6)% | | Diluted EPS | 0.32 | 1.02 | (68.6)% | | Weighted average common shares outstanding (Diluted) | 205.7 | 178.0 | 15.6% | Condensed Consolidated Statements of Comprehensive Income Comprehensive income increased for both periods ended June 30, 2025, driven by positive foreign currency translation adjustments Three Months Ended June 30, 2025 vs 2024 | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | | :------------------------------------------------ | :------------------------------------------------ | :------------------------------------------------ | | Net income before non-controlling interest | 99.5 | 106.5 | | Foreign currency translation adjustments | 68.8 | (7.5) | | Comprehensive income attributable to Somnigroup | 167.8 | 98.6 | Six Months Ended June 30, 2025 vs 2024 | Metric | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | | :------------------------------------------------ | :------------------------------------------------ | :------------------------------------------------ | | Net income before non-controlling interest | 66.7 | 183.3 | | Foreign currency translation adjustments | 98.5 | (23.0) | | Comprehensive income attributable to Somnigroup | 165.0 | 159.1 | Condensed Consolidated Balance Sheets Total assets significantly increased as of June 30, 2025, primarily due to the Mattress Firm Acquisition, impacting goodwill and lease assets As of June 30, 2025 vs December 31, 2024 | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------------------ | :-------------------------------- | :--------------------- | :--------- | | Total Current Assets | 1,388.0 | 1,065.4 | 322.6 | 30.3% | | Restricted cash | — | 1,592.3 | (1,592.3) | (100.0)% | | Property, plant and equipment, net | 1,021.1 | 811.1 | 210.0 | 25.9% | | Goodwill | 4,585.2 | 1,066.7 | 3,518.5 | 329.8% | | Trade name and other intangible assets, net | 2,373.2 | 700.5 | 1,672.7 | 238.8% | | Operating lease right-of-use assets | 1,840.3 | 598.8 | 1,241.5 | 207.3% | | Total Assets | 11,376.2 | 5,980.4 | 5,395.8 | 90.2% | | Total Current Liabilities | 1,682.5 | 960.3 | 722.2 | 75.2% | | Long-term debt, net | 4,803.3 | 3,740.4 | 1,062.9 | 28.4% | | Long-term operating lease obligations | 1,550.0 | 532.1 | 1,017.9 | 191.3% | | Total Liabilities | 8,526.2 | 5,412.1 | 3,114.1 | 57.5% | | Total Stockholders' Equity | 2,841.1 | 559.0 | 2,282.1 | 408.2% | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity significantly increased from December 31, 2024, to June 30, 2025, driven by share issuance for the Mattress Firm Acquisition and net income As of June 30, 2025 vs December 31, 2024 | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | | :----------------------------------- | :------------------------------ | :-------------------------------- | :--------------------- | | Total Stockholders' Equity | 2,841.1 | 559.0 | 2,282.1 | | Net income | 65.9 | N/A | N/A | | Foreign currency adjustments, net of tax | 98.5 | N/A | N/A | | Dividends declared on common stock | (63.2) | N/A | N/A | | Shares issued in connection with Mattress Firm Acquisition | 2,245.1 | N/A | N/A | | Treasury stock repurchased - PRSU/RSU releases | (125.0) | N/A | N/A | Condensed Consolidated Statements of Cash Flows Cash from operations slightly increased, while cash used in investing dramatically rose due to the Mattress Firm Acquisition Six Months Ended June 30, 2025 vs 2024 | Metric | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | Change ($ in millions) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------------------- | | Net cash provided by operating activities | 292.5 | 280.8 | 11.7 | | Net cash used in investing activities | (2,878.1) | (59.7) | (2,818.4) | | Net cash provided by (used in) financing activities | 940.2 | (195.0) | 1,135.2 | | (Decrease) increase in cash, cash equivalents and restricted cash | (1,611.6) | 20.9 | (1,632.5) | | Cash, cash equivalents and restricted cash, end of period | 98.1 | 95.8 | 2.3 | | Cash paid for Interest | 142.3 | 72.7 | 69.6 | | Treasury stock issued in connection with Mattress Firm Acquisition | 2,245.1 | — | 2,245.1 | Notes to Condensed Consolidated Financial Statements This section details financial statement explanations, covering accounting policies, the Mattress Firm acquisition, debt, equity, and segment performance (1) Summary of Significant Accounting Policies This note outlines the Company's business, key accounting policies, and reclassification of retail store occupancy costs - The Company designs, manufactures, distributes, and retails bedding products, including mattresses, foundations, adjustable bases, pillows, and accessories. It also earns royalties from licensing Sealy® and Stearns & Foster® brands[34] - On February 5, 2025, the Company completed the acquisition of Mattress Firm, the largest mattress specialty retailer in the U.S., operating over 2,200 retail locations and an e-commerce platform[35] Cash, Cash Equivalents and Restricted Cash | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | | :----------------------------------- | :------------------------------ | :-------------------------------- | | Cash and cash equivalents | 98.1 | 117.4 | | Restricted cash | — | 1,592.3 | | Total Cash, cash equivalents and restricted cash | 98.1 | 1,709.7 | - Retail store occupancy costs, previously in selling and marketing expenses, were reclassified to cost of sales for comparability following the Mattress Firm Acquisition. For the three and six months ended June 30, 2024, these reclassified costs were $36.7 million and $74.9 million, respectively[47] (2) Net Sales Net sales significantly increased for both periods ended June 30, 2025, primarily due to Mattress Firm sales Net Sales by Channel and Geographical Region (Three Months Ended June 30) | Channel/Region | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------------------- | :--------- | | Net Sales by Channel: | | | | | | Wholesale | 642.7 | 950.5 | (307.8) | (32.4)% | | Direct | 1,238.1 | 283.1 | 955.0 | 337.3% | | Total Net Sales | 1,880.8 | 1,233.6 | 647.2 | 52.5% | | Net Sales by Geographical Region: | | | | | | United States | 1,522.1 | 903.2 | 618.9 | 68.5% | | All other | 358.7 | 330.4 | 28.3 | 8.6% | Net Sales by Channel and Geographical Region (Six Months Ended June 30) | Channel/Region | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------------------- | :--------- | | Net Sales by Channel: | | | | | | Wholesale | 1,341.4 | 1,836.3 | (494.9) | (27.0)% | | Direct | 2,144.1 | 586.7 | 1,557.4 | 265.5% | | Total Net Sales | 3,485.5 | 2,423.0 | 1,062.5 | 43.8% | | Net Sales by Geographical Region: | | | | | | United States | 2,763.9 | 1,736.4 | 1,027.5 | 59.2% | | All other | 721.6 | 686.6 | 35.0 | 5.1% | - Mattress Firm contributed $948.8 million in net sales for the three months ended June 30, 2025, and $1,542.5 million for the six months ended June 30, 2025[51][52] (3) Acquisitions and Divestitures This note details the Mattress Firm Acquisition for $5.1 billion, its funding, preliminary purchase price allocation, and subsequent divestitures - The Company completed the Mattress Firm Acquisition on February 5, 2025, for an aggregate purchase price of approximately $5.1 billion, net of cash acquired. The consideration included $3.1 billion in cash and 34.2 million shares of common stock valued at $65.65 per share[53] - The acquisition was funded by borrowing $625.0 million on the Delayed Draw Term A Loan, $679.5 million from revolving commitments, and releasing $1,592.0 million from escrow for the Term B Loan[54] - On May 1, 2025, the Company divested 73 Mattress Firm retail locations and its Sleep Outfitters subsidiary, resulting in a $13.9 million loss on disposal of business[56] Pro Forma Net Sales and Net Income (Loss) (Three Months Ended June 30) | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Pro forma net sales | 1,880.8 | 1,994.4 | | Pro forma net income (loss) | 99.0 | 117.3 | Pro Forma Net Sales and Net Income (Loss) (Six Months Ended June 30) | Metric | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Pro forma net sales | 3,752.6 | 3,919.6 | | Pro forma net income (loss) | (129.8) | 83.6 | (4) Goodwill Goodwill significantly increased to $4,585.2 million at June 30, 2025, primarily due to the Mattress Firm Acquisition Goodwill by Segment | Segment | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | | :----------------------------------- | :------------------------------ | :-------------------------------- | | Tempur Sealy North America | 607.2 | 603.1 | | Tempur Sealy International | 502.0 | 463.6 | | Mattress Firm | 3,476.0 | — | | Consolidated Total Goodwill | 4,585.2 | 1,066.7 | - Goodwill from the Mattress Firm Acquisition is not deductible for income tax purposes and is included within the Mattress Firm business segment[63] (5) Debt Total debt increased to $4,951.6 million as of June 30, 2025, driven by Mattress Firm Acquisition borrowings, with covenant compliance maintained Debt Breakdown | Debt Type | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | | :----------------------------------- | :------------------------------ | :-------------------------------- | | Term A Facility | 1,071.9 | 475.0 | | Term B Facility | 1,492.3 | 1,600.0 | | Revolver | 481.5 | — | | 2031 Senior Notes | 800.0 | 800.0 | | 2029 Senior Notes | 800.0 | 800.0 | | Securitized debt | 110.9 | — | | Finance lease obligations | 96.2 | 88.7 | | Other | 98.8 | 80.8 | | Total debt | 4,951.6 | 3,844.5 | | Less: Deferred financing costs | 34.9 | 34.6 | | Less: Current portion | 113.4 | 69.5 | | Total long-term debt, net | 4,803.3 | 3,740.4 | - On February 5, 2025, the Company borrowed $625.0 million under the Delayed Draw Term A Loan and $679.5 million under the revolving credit facility, and $1,592.0 million from the Term B Loan escrow, to fund the Mattress Firm Acquisition and related expenses[78] - On June 24, 2025, Amendment No. 4 repriced the Term B Loan, reducing the applicable margin by 0.25%, and the Company prepaid $100.0 million of the Term B Loan[79][80][81] - As of June 30, 2025, the Company was in compliance with all applicable debt covenants[74] (6) Stockholders' Equity This note details changes in stockholders' equity, including treasury stock activity and Accumulated Other Comprehensive Loss components - As of June 30, 2025, the Company had approximately $774.5 million remaining under its share repurchase authorization, but no shares were repurchased under the program during the three or six months ended June 30, 2025 or 2024[85] - The Company acquired 1.4 million shares ($94.9 million) and 2.1 million shares ($132.4 million) during the three and six months ended June 30, 2025, respectively, to satisfy tax withholding obligations upon the vesting of equity awards[86] Accumulated Other Comprehensive Loss (AOCL) Components | AOCL Component | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | | :----------------------------------- | :------------------------------ | :-------------------------------- | | Foreign Currency Translation (end of period) | (88.7) | (187.2) | | Pensions (end of period) | 1.0 | 0.4 | | Total AOCL | (87.7) | (186.8) | (7) Other Items This section breaks down accrued expenses and other current liabilities, which significantly increased due to wages, unearned revenue, and sales returns Accrued Expenses and Other Current Liabilities | Category | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | | :----------------------------------- | :------------------------------ | :-------------------------------- | :--------------------- | | Wages and benefits | 145.7 | 81.7 | 64.0 | | Unearned revenue | 127.4 | 56.8 | 70.6 | | Sales returns | 93.9 | 30.3 | 63.6 | | Advertising | 88.1 | 59.3 | 28.8 | | Taxes | 17.2 | 18.4 | (1.2) | | Other | 219.7 | 147.4 | 72.3 | | Total Accrued expenses and other current liabilities | 692.0 | 393.9 | 298.1 | (8) Stock-Based Compensation Stock-based compensation expense remained stable year-over-year, primarily from PRSU, RSU, and option expenses Stock-Based Compensation Expense (Three Months Ended June 30) | Expense Type | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | PRSU expense | 4.9 | 4.5 | | RSU expense | 4.6 | 4.5 | | Option expense | 0.6 | 0.5 | | Total stock-based compensation expense | 10.1 | 9.5 | Stock-Based Compensation Expense (Six Months Ended June 30) | Expense Type | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | PRSU expense | 8.4 | 8.6 | | RSU expense | 8.9 | 9.0 | | Option expense | 1.2 | 1.1 | | Total stock-based compensation expense | 18.5 | 18.7 | - The Company granted PRSUs as part of its long-term incentive plan in Q1 2025 and recorded compensation expense as achievement of specified performance targets was probable[90] (9) Commitments and Contingencies The Company is involved in legal proceedings, but management expects no material adverse effect on financial position or operations - The Company is involved in various legal and administrative proceedings, but management believes the outcome will not have a material adverse effect on its business, financial condition, liquidity, or operating results[91] - No material reserves or ranges of possible loss have been established for these proceedings, as losses are not probable or reasonably estimable at this time[91] (10) Income Taxes Effective tax rates varied significantly, decreasing for both periods ended June 30, 2025, due to GILTI, foreign rate differentials, and stock compensation Effective Tax Rate (Three Months Ended June 30) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Effective tax rate | 3.1% | 24.2% | Effective Tax Rate (Six Months Ended June 30) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Effective tax rate | (24.9)% | 23.0% | - The effective tax rates differed from the U.S. federal statutory rate of 21.0% due to factors like global intangible low-taxed income (GILTI), foreign income tax rate differentials, state and local taxes, uncertain tax positions, and excess tax benefits from stock-based compensation[92] - The Company is evaluating the potential consequences of the OECD's Pillar 2 global minimum tax but does not expect a material impact on its financial results in 2025. The impact of the recently signed Tax Act (July 4, 2025) is also unclear pending further guidance[93][94] (11) Earnings Per Common Share Diluted EPS decreased for both periods ended June 30, 2025, due to lower net income and an increase in weighted average common shares outstanding Earnings Per Common Share (Three Months Ended June 30) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net income attributable to Somnigroup International Inc. ($ in millions) | 99.0 | 106.1 | | Basic EPS | 0.47 | 0.61 | | Diluted EPS | 0.47 | 0.60 | | Weighted average common shares outstanding (Diluted) | 212.4 | 178.0 | Earnings Per Common Share (Six Months Ended June 30) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net income attributable to Somnigroup International Inc. ($ in millions) | 65.9 | 182.4 | | Basic EPS | 0.33 | 1.05 | | Diluted EPS | 0.32 | 1.02 | | Weighted average common shares outstanding (Diluted) | 205.7 | 178.0 | (12) Business Segment Information The Company operates in three segments, with Mattress Firm significantly impacting total assets and operating lease right-of-use assets - The Company operates in three segments: Tempur Sealy North America, Tempur Sealy International, and Mattress Firm, which are managed separately[97] Total Assets by Segment | Segment | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | | :----------------------------------- | :------------------------------ | :-------------------------------- | | Tempur Sealy North America | 5,970.9 | 5,575.2 | | Tempur Sealy International | 1,491.1 | 1,477.6 | | Mattress Firm | 7,573.2 | — | | Corporate | 2,273.8 | 3,580.0 | | Inter-segment eliminations | (5,932.8) | (4,652.4) | | Total assets | 11,376.2 | 5,980.4 | Total Operating Lease Right-of-Use Assets by Segment | Segment | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | | :----------------------------------- | :------------------------------ | :-------------------------------- | | Tempur Sealy North America | 341.2 | 407.1 | | Tempur Sealy International | 220.5 | 188.6 | | Mattress Firm | 1,276.2 | — | | Corporate | 2.4 | 3.1 | | Total operating lease right-of-use assets | 1,840.3 | 598.8 | Segment Performance (Three Months Ended June 30, 2025) | Segment (3 Months Ended June 30, 2025) | Net Sales ($ in millions) | Gross Profit ($ in millions) | Operating Income (Loss) ($ in millions) | | :----------------------------------- | :------------------------ | :--------------------------- | :-------------------------------------- | | Tempur Sealy North America | 638.4 | 348.2 | 130.1 | | Tempur Sealy International | 293.6 | 141.6 | 39.8 | | Mattress Firm | 948.8 | 337.4 | 63.2 | | Corporate | — | — | (53.2) | | Consolidated | 1,880.8 | 827.2 | 179.9 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition and results, covering business, economic conditions, the Mattress Firm acquisition, and segment performance Business Overview Somnigroup is the world's largest bedding company, operating in three segments with recognized brands and an omni-channel distribution model - Somnigroup is the world's largest bedding company, operating in over 100 countries through Tempur Sealy, Mattress Firm, and Dreams[108] - The Company operates in three segments: Tempur Sealy North America, Tempur Sealy International, and Mattress Firm, evaluating performance based on net sales, gross profit, and operating income[109] - Key brands include Tempur-Pedic®, Sealy®, Stearns & Foster®, and Sleepy's®, distributed through wholesale (third-party retailers, hospitality, healthcare) and direct (company-owned stores, online, call centers) channels[110][111] General Business and Economic Conditions The bedding industry is poised for growth driven by innovation and health focus, with the Company expecting to outperform despite macroeconomic pressures - The bedding industry is structured for sustained growth, driven by product innovation, sleep technology advancements, consumer confidence, housing formations, and population growth[112] - Consumers are increasingly connecting good sleep with overall health, leading to higher investment in bedding products[114] - Macroeconomic pressures and geopolitical conflicts challenged the global bedding industry in 2024 and are expected to continue in 2025. The Company expects to outperform the industry through new product launches and investments[115] Acquisition of Mattress Firm The Mattress Firm Acquisition was completed on February 5, 2025, for $5.1 billion, funded by cash and stock, with subsequent divestitures - The Mattress Firm Acquisition was completed on February 5, 2025, for approximately $5.1 billion, net of cash acquired, consisting of $3.1 billion in cash and 34.2 million shares of common stock[116] - Funding for the acquisition included $625.0 million from the Delayed Draw Term A Loan, $679.5 million from revolving commitments, and $1,592.0 million from the Term B Loan escrow[117] - Mattress Firm operates as a separate business segment, with its financial results included in the Company's consolidated statements from February 5, 2025[118] - On May 1, 2025, the Company divested 73 Mattress Firm retail locations and its Sleep Outfitters subsidiary, incurring a $13.9 million loss on disposal of business[119] Product Launches In 2025, the Company launched a new Sealy Posturepedic collection in North America, aiming to revitalize growth in the mid-to-entry level market - In 2025, an all-new collection of Sealy Posturepedic products was launched in North America[120] - The new collection aims to reignite growth in the mid-to-entry level market and incorporates innovative technologies, including proprietary PrecisionFit™ coils[120] Results of Operations This section analyzes financial performance for both periods ended June 30, 2025, highlighting the Mattress Firm acquisition's impact on sales, profit, and income Three Months Ended June 30, 2025 vs 2024 | Metric | 2025 ($ in millions) | 2024 ($ in millions) | 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 attributable to Somnigroup | 99.0 | 106.1 | (6.7)% | | Diluted EPS | 0.47 | 0.60 | (21.7)% | - Total net sales increased 52.5% to $1,880.8 million in Q2 2025, primarily due to $948.8 million from Mattress Firm sales, offset by intercompany sales elimination[122] - Gross margin improved 200 basis points to 44.0% in Q2 2025, driven by the elimination of intercompany sales to Mattress Firm and operational efficiencies in Tempur Sealy North America[122][133] - Operating income increased 3.8% to $179.9 million in Q2 2025, but net income decreased 6.7% to $99.0 million, and diluted EPS decreased 21.7% to $0.47[122] THREE MONTHS ENDED JUNE 30, 2025 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2024 Net sales significantly increased for the three months ended June 30, 2025, due to the Mattress Firm acquisition, but net income and EPS declined NET SALES Consolidated net sales increased 52.5% for the three months ended June 30, 2025, primarily driven by Mattress Firm sales, despite a decrease in Tempur Sealy North America sales - Consolidated net sales increased 52.5% to $1,880.8 million (51.7% on a constant currency basis) for the three months ended June 30, 2025[128] - Mattress Firm contributed $948.8 million in net sales for the quarter[132] - Tempur Sealy North America net sales decreased 34.8% ($340.0 million), primarily due to a 30.8% decline from intercompany sales elimination to Mattress Firm and a 6.7% decrease from a customer's acquisition[132] - Tempur Sealy International net sales increased 15.0% ($38.4 million), driven by new product launches (10.0% on a constant currency basis)[132] GROSS PROFIT Consolidated gross margin improved by 200 basis points to 44.0% for the three months ended June 30, 2025, driven by Tempur Sealy North America's improvements Gross Profit and Margin by Segment (Three Months Ended June 30) | Segment | Gross Profit 2025 ($ in millions) | Gross Margin 2025 (%) | Gross Profit 2024 ($ in millions) | Gross Margin 2024 (%) | Margin Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------- | :-------------------------------- | :-------------------- | :---------------- | | Tempur Sealy North America | 348.2 | 54.5% | 393.7 | 40.2% | 14.3% | | Tempur Sealy International | 141.6 | 48.2% | 123.9 | 48.6% | (0.4)% | | Mattress Firm | 337.4 | 35.6% | — | —% | 35.6% | | Consolidated | 827.2 | 44.0% | 517.6 | 42.0% | 2.0% | - Tempur Sealy North America gross margin improved 1,430 basis points, primarily due to the elimination of sales to Mattress Firm (1,590 basis points) and operational efficiencies (60 basis points), partially offset by expense deleverage and product launch costs[133] - Mattress Firm gross margin was 35.6% for the three months ended June 30, 2025[133] OPERATING EXPENSES Consolidated operating expenses increased by $289.0 million (83.2%) for the three months ended June 30, 2025, primarily due to Mattress Firm's expenses and corporate charges Operating Expenses Breakdown (Three Months Ended June 30) | Expense Type | 2025 ($ in millions) | 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------- | :------------------- | :--------------------- | :--------- | | Advertising expenses | 189.5 | 119.3 | 70.2 | 58.8% | | Other selling and marketing expenses | 271.0 | 120.3 | 150.7 | 125.3% | | General, administrative and other expenses | 175.9 | 107.8 | 68.1 | 63.2% | | Total operating expenses | 636.4 | 347.4 | 289.0 | 83.2% | - Mattress Firm operating expenses were $270.1 million for the three months ended June 30, 2025[139] - Corporate operating expenses increased $14.3 million (36.8%), driven by business combination charges related to the Mattress Firm Acquisition[139] OPERATING INCOME Consolidated operating income increased by $6.6 million, but operating margin declined by 440 basis points, influenced by the Mattress Firm acquisition Operating Income and Margin by Segment (Three Months Ended June 30) | Segment | Operating Income 2025 ($ in millions) | Operating Margin 2025 (%) | Operating Income 2024 ($ in millions) | Operating Margin 2024 (%) | Margin Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------- | :-------------------------------- | :-------------------- | :---------------- | | Tempur Sealy North America | 130.1 | 20.4% | 180.4 | 18.4% | 2.0% | | Tempur Sealy International | 39.8 | 13.6% | 31.8 | 12.5% | 1.1% | | Mattress Firm | 63.2 | 6.7% | — | —% | 6.7% | | Corporate expenses | (53.2) | N/A | (38.9) | N/A | N/A | | Total operating income | 179.9 | 9.6% | 173.3 | 14.0% | (4.4)% | - Tempur Sealy North America operating income decreased $50.3 million, but operating margin improved 200 basis points, driven by gross margin improvement offset by operating expense deleverage and a $9.8 million loss on disposal of Sleep Outfitters[147] - Mattress Firm operating income was $63.2 million with an operating margin of 6.7%, including a $4.1 million loss on disposal of 73 retail stores[147] INTEREST EXPENSE, NET Net interest expense increased significantly by $39.1 million (117.1%) for the three months ended June 30, 2025, due to increased variable rate debt Interest Expense, Net (Three Months Ended June 30) | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------------------- | :--------- | | Interest expense, net | 72.5 | 33.4 | 39.1 | 117.1% | - The increase in interest expense was primarily driven by increased average levels of outstanding variable rate debt[143] INCOME TAX PROVISION The income tax provision decreased by $30.8 million, and the effective tax rate declined to 3.1% due to lower income and stock compensation benefits Income Tax Provision (Three Months Ended June 30) | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------------------- | :--------- | | Income tax provision | 3.2 | 34.0 | (30.8) | (90.6)% | | Effective tax rate | 3.1% | 24.2% | (21.1)% | N/A | - The decrease in income tax provision was driven by a decrease in income before income taxes and certain discrete items, including the favorable impact of stock compensation deductibility[146] SIX MONTHS ENDED JUNE 30, 2025 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2024 Net sales increased substantially for the six months ended June 30, 2025, due to the Mattress Firm acquisition, but operating income, net income, and EPS declined Six Months Ended June 30, 2025 vs 2024 | Metric | 2025 ($ in millions) | 2024 ($ in millions) | Change (%) | | :----------------------------------- | :------------------- | :------------------- | :--------- | | Net sales | 3,485.5 | 2,423.0 | 43.8% | | Gross profit | 1,407.7 | 991.9 | 41.9% | | Operating income | 193.1 | 304.8 | (36.6)% | | Net income attributable to Somnigroup | 65.9 | 182.4 | (63.8)% | | Diluted EPS | 0.32 | 1.02 | (68.6)% | NET SALES Consolidated net sales increased 43.9% for the six months ended June 30, 2025, primarily driven by Mattress Firm sales, despite a decrease in Tempur Sealy North America sales - Consolidated net sales increased 43.9% to $3,485.5 million (44.0% on a constant currency basis) for the six months ended June 30, 2025[151] - Mattress Firm contributed $1,542.5 million in net sales for the stub period[155] - Tempur Sealy North America net sales decreased 28.5% ($534.9 million), primarily due to a 24.2% decline from intercompany sales elimination to Mattress Firm and a 7.3% decrease from a customer's acquisition[155] - Tempur Sealy International net sales increased 10.1% ($54.9 million), driven by new product launches (8.8% on a constant currency basis)[155] GROSS PROFIT Consolidated gross margin declined by 50 basis points to 40.4% for the six months ended June 30, 2025, despite improvements in Tempur Sealy North America Gross Profit and Margin by Segment (Six Months Ended June 30) | Segment | Gross Profit 2025 ($ in millions) | Gross Margin 2025 (%) | Gross Profit 2024 ($ in millions) | Gross Margin 2024 (%) | Margin Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------- | :-------------------------------- | :-------------------- | :---------------- | | Tempur Sealy North America | 588.2 | 43.7% | 730.4 | 38.9% | 4.8% | | Tempur Sealy International | 290.9 | 48.6% | 261.5 | 48.1% | 0.5% | | Mattress Firm | 528.6 | 34.3% | — | —% | 34.3% | | Consolidated | 1,407.7 | 40.4% | 991.9 | 40.9% | (0.5)% | - Tempur Sealy North America gross margin improved 480 basis points, driven by intercompany sales elimination (990 basis points), operational efficiencies (90 basis points), and favorable mix, but offset by expense deleverage, commodity cost inflation, product launch costs, and $78.0 million of one-time business combination accounting adjustments[156] - Mattress Firm gross margin was 34.3% for the stub period[156] OPERATING EXPENSES Consolidated operating expenses increased by $513.4 million (73.9%) for the six months ended June 30, 2025, primarily due to Mattress Firm's expenses and corporate charges Operating Expenses Breakdown (Six Months Ended June 30) | Expense Type | 2025 ($ in millions) | 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------- | :------------------- | :--------------------- | :--------- | | Advertising expenses | 332.4 | 227.3 | 105.1 | 46.2% | | Other selling and marketing expenses | 490.7 | 239.0 | 251.7 | 105.3% | | General, administrative and other expenses | 385.4 | 228.8 | 156.6 | 68.4% | | Total operating expenses | 1,208.5 | 695.1 | 513.4 | 73.9% | - Mattress Firm operating expenses were $454.5 million for the stub period[162] - Corporate operating expenses increased $51.6 million (59.6%), driven by business combination charges related to the Mattress Firm Acquisition[162] OPERATING INCOME Consolidated operating income decreased by $111.7 million, and operating margin declined by 710 basis points due to expense deleverage Operating Income and Margin by Segment (Six Months Ended June 30) | Segment | Operating Income 2025 ($ in millions) | Operating Margin 2025 (%) | Operating Income 2024 ($ in millions) | Operating Margin 2024 (%) | Margin Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------- | :-------------------------------- | :-------------------- | :---------------- | | Tempur Sealy North America | 170.4 | 12.7% | 314.8 | 16.7% | (4.0)% | | Tempur Sealy International | 90.9 | 15.2% | 76.6 | 14.1% | 1.1% | | Mattress Firm | 70.0 | 4.5% | — | —% | 4.5% | | Corporate expenses | (138.2) | N/A | (86.6) | N/A | N/A | | Total operating income | 193.1 | 5.5% | 304.8 | 12.6% | (7.1)% | - Tempur Sealy North America operating income decreased $144.4 million, with operating margin declining 400 basis points due to operating expense deleverage offset by gross margin improvement, and a $9.8 million loss on disposal of Sleep Outfitters[169] - Mattress Firm operating income was $70.0 million with an operating margin of 4.5%, including a $4.1 million loss on disposal of 73 retail stores[169] INTEREST EXPENSE, NET Net interest expense increased substantially by $66.1 million (97.6%) for the six months ended June 30, 2025, driven by increased variable rate debt Interest Expense, Net (Six Months Ended June 30) | Metric | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------------------- | :--------- | | Interest expense, net | 133.8 | 67.7 | 66.1 | 97.6% | - The increase in interest expense was primarily driven by increased average levels of outstanding variable rate debt[166] INCOME TAX PROVISION The income tax provision decreased by $68.0 million, resulting in an effective tax benefit of (24.9)% for the six months ended June 30, 2025, due to lower income and stock compensation benefits Income Tax Provision (Six Months Ended June 30) | Metric | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------------------- | :--------- | | Income tax (benefit) provision | (13.3) | 54.7 | (68.0) | (124.3)% | | Effective tax rate | (24.9)% | 23.0% | (47.9)% | N/A | - The decrease in income tax provision was driven by a decrease in income before income taxes and certain discrete items, including the net favorable impact of stock compensation deductibility[168] Liquidity and Capital Resources The Company's liquidity is derived from operations and credit facilities, with the Mattress Firm Acquisition significantly impacting working capital and debt levels - Principal sources of funds are cash flows from operations, borrowings in capital markets and credit facilities, and cash on hand. Principal uses include debt payments, acquisitions, dividends, capital expenditures, and working capital[170] - Working capital shifted to a deficit of $294.5 million as of June 30, 2025, from a surplus of $105.1 million at December 31, 2024, primarily due to a $250.5 million increase in short-term operating lease obligations from the Mattress Firm Acquisition[171] - Cash used in investing activities increased by $2,818.4 million for the six months ended June 30, 2025, primarily due to the Mattress Firm Acquisition[174] - Total debt increased to $4,951.6 million as of June 30, 2025, from $3,844.5 million at December 31, 2024. The ratio of consolidated indebtedness less netted cash to adjusted EBITDA was 3.56 times, within the 2023 Credit Agreement covenant limit of 5.00 times[177][178] - The Company expects its target leverage ratio to return to 2.0 to 3.0 times in 2026, with a primary focus on debt repayment[183][186] Non-GAAP Financial Information This section reconciles non-GAAP financial measures like adjusted net income, EPS, EBITDA, and adjusted EBITDA for operational clarity and debt covenant compliance - Non-GAAP financial measures are provided to better reflect underlying operations and trends, excluding items that cause short-term fluctuations[188] - These measures are used for managing the business, evaluating performance, setting operational goals, and providing comparability for investors[189] Adjusted Net Income and Adjusted EPS Adjusted net income and EPS are presented to provide additional information by excluding specific non-recurring or non-operational items Adjusted Net Income and Adjusted EPS (Three Months Ended June 30) | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Net income | 99.0 | 106.1 | | Business combination charges | 17.6 | — | | Loss on disposal of business | 13.9 | — | | Disposition-related costs | 9.2 | — | | Transaction costs | 4.9 | 7.3 | | Supply chain transition costs | 1.3 | — | | Adjusted income tax provision | (32.8) | (1.7) | | Adjusted net income | 113.1 | 111.7 | | Adjusted earnings per common share, diluted | 0.53 | 0.63 | Adjusted Gross Profit, Adjusted Gross Margin, Adjusted Operating Income (Expense) and Adjusted Operating Margin These non-GAAP measures adjust gross profit and operating income for specific items, with adjusted gross margin at 44.2% and adjusted operating income at $224.4 million Adjusted Gross Profit and Operating Income (Consolidated, Three Months Ended June 30, 2025) | Metric | Consolidated (3 Months Ended June 30, 2025) ($ in millions) | Margin (%) | | :----------------------------------- | :---------------------------------------------------------- | :--------- | | Gross profit | 827.2 | 44.0% | | Adjustments (Disposition-related costs, Supply chain transition costs) | 4.4 | | | Adjusted gross profit | 831.6 | 44.2% | | Operating income (expense) | 179.9 | 9.6% | | Adjustments (Business combination charges, Loss on disposal of business, Disposition-related costs, Transaction costs, Supply chain transition costs) | 44.5 | | | Adjusted operating income (expense) | 224.4 | 11.9% | Adjusted Gross Profit and Operating Income (Consolidated, Three Months Ended June 30, 2024) | Metric | Consolidated (3 Months Ended June 30, 2024) ($ in millions) | Margin (%) | | :----------------------------------- | :---------------------------------------------------------- | :--------- | | Gross profit | 517.6 | 42.0% | | Operating income (expense) | 173.3 | 14.0% | | Adjustments (Transaction costs) | 7.3 | | | Adjusted operating income (expense) | 180.6 | 14.6% | EBITDA, Adjusted EBITDA and Consolidated Indebtedness less Netted Cash This section reconciles net income to EBITDA and adjusted EBITDA, and total debt to consolidated indebtedness less netted cash, for credit agreement compliance EBITDA and Adjusted EBITDA (Three Months Ended June 30) | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Net income | 99.0 | 106.1 | | Interest expense, net | 72.5 | 33.4 | | Income tax provision | 3.2 | 34.0 | | Depreciation and amortization | 69.1 | 50.6 | | EBITDA | 243.8 | 224.1 | | Adjustments (Business combination charges, Loss on disposal of business, Disposition-related costs, Transaction costs, Supply chain transition costs) | 47.0 | 7.3 | | Adjusted EBITDA | 290.7 | 231.4 | EBITDA, Adjusted EBITDA, and Consolidated Indebtedness (Trailing Twelve Months Ended June 30, 2025) | Metric | Trailing Twelve Months Ended June 30, 2025 ($ in millions) | | :----------------------------------- | :---------------------------------------------------------- | | Net income | 267.8 | | Interest expense, net | 184.3 | | Transaction-related interest expense, net | 16.6 | | Income tax provision | 50.6 | | Depreciation and amortization | 240.0 | | EBITDA | 759.3 | | Adjustments (Acquisition-related costs, Transaction costs, Customer-related transition charges, Business combination charges, Supply chain transition costs, Loss on disposal of business, Disposition-related costs, Cybersecurity event) | 273.5 | | Adjusted EBITDA | 1,032.8 | | Adjustments (Loss from unrestricted subsidiary, Earnings from Mattress Firm prior to acquisition, Future cost synergies) | 329.6 | | Adjusted EBITDA per credit facility | 1,362.4 | | Consolidated indebtedness less netted cash | 4,853.5 | | Ratio of consolidated indebtedness less netted cash to adjusted EBITDA | 3.56 times | - The 2023 Credit Agreement requires a ratio of consolidated indebtedness less netted cash to adjusted EBITDA of less than 5.00 times; the Company's ratio was 3.56 times as of June 30, 2025[208] Critical Accounting Policies and Estimates No material changes occurred in critical accounting policies during the period, except for business combinations, which require significant judgment in fair value determination - No material changes to critical accounting policies and estimates occurred during the six months ended June 30, 2025, except for business combinations[213] - Business combinations are accounted for using the acquisition method, requiring estimates and valuation techniques for fair values of acquired assets and assumed liabilities, particularly for intangible assets like the Mattress Firm trade name[214] - Goodwill is recorded as the excess of purchase price over net assets acquired. Adjustments to preliminary fair values can be made within a one-year measurement period[215] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk The Company's primary market risks are interest rate risk from variable-rate debt and foreign currency exchange risk, with hedging activities undertaken for net investments - The Company's primary exposure to interest rate risk is from variable-rate debt agreements (e.g., 2023 Credit Agreement) tied to SOFR[218] - As of June 30, 2025, variable-rate debt totaled $3,255.4 million. A 100 basis point increase in interest rates would reduce income before income taxes by an estimated $32.6 million[218] - The Company converted $25.0 million of its 4.00% fixed-rate USD-denominated 2029 Senior Notes to fixed-rate DKK-denominated debt in Q2 2025, designating these cross-currency swap agreements as net investment hedges. An additional $75.0 million was converted in July 2025[219][220] ITEM 4. Controls and Procedures Disclosure controls were effective as of June 30, 2025, with Mattress Firm's controls included, though its operations are excluded from the 2025 internal control assessment - Management concluded that disclosure controls and procedures were effective as of June 30, 2025[221] - The Mattress Firm Acquisition led to the inclusion of Mattress Firm's controls within the Company's internal controls over financial reporting[222] - Mattress Firm's operations will be excluded from the Company's assessment of internal control over financial reporting for the year ending December 31, 2025, in accordance with SEC guidance[222] PART II. OTHER INFORMATION This part provides other required information, including legal proceedings, risk factors, equity sales, defaults, and exhibits ITEM 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference, with no material adverse effect expected - Information on legal proceedings is incorporated by reference from Note 9, 'Commitments and Contingencies,' in the financial statements[223] ITEM 1A. Risk Factors No new material risk factors are reported for the period - No new material risk factors are reported for the period[224] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds No shares were purchased under public repurchase plans, but shares were acquired to satisfy tax withholding obligations for equity awards Share Purchases (Three Months Ended June 30, 2025) | Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares (or approximate dollar value of shares) that may yet be purchased under the plans or programs (in millions) | | :----------------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :----------------------------------------------------------------------------------------------------------------------------------- | | April 1, 2025 - April 30, 2025 | — | $— | — | $774.5 | | May 1, 2025 - May 31, 2025 | 1,449,006 | $65.51 | — | $774.5 | | June 1, 2025 - June 30, 2025 | 474 | $52.42 | — | $774.5 | | Total | 1,449,480 | | — | | - The shares purchased were primarily withheld upon the vesting of equity awards to satisfy tax withholding obligations[225] ITEM 3. Defaults upon Senior Securities No defaults upon senior securities were reported during the period - No defaults upon senior securities were reported[228] ITEM 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[229] ITEM 5. Other Information No directors or executive officers adopted 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No directors or executive officers adopted any 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025[231] ITEM 6. Exhibits This section provides an index of exhibits filed with the report, including corporate governance, debt instruments, and certifications - The exhibits include corporate governance documents (e.g., Certificate of Incorporation, By-laws), debt instruments (e.g., Indentures for 2029 and 2031 Senior Notes, 2023 Credit Agreement Amendment No. 4), employment agreements, and certifications (CEO, CFO)[233] - The report also includes financial statements formatted in Inline XBRL[233] Signatures This section contains the required signatures, certifying the submission of the report Report Signatures This section contains the required signatures, certifying the submission of the report on behalf of Somnigroup International Inc. - The report is signed by Bhaskar Rao, Executive Vice President and Chief Financial Officer, on August 8, 2025[237]