TPX - Earnings call transcript Q1 2018 | Tempur Sealy International, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Tempur Sealy First Quarter 2018 Earnings Conference Call. I would now like to introduce your host for today's conference call, Ms. Aubrey Moore.

You may begin, ma'am.

Aubrey Moore

Thank you, operator. thank participating and today's everyone, morning, you in for call. Good

Chief are in Rao, Chairman, and questions. prepared our call me open Scott we Executive Officer. will remarks, Lexington President Bhaskar Joining for and headquarters Thompson, the After CEO; President Vice Financial and

constant as statements. to, the the limited most contains otherwise release including any which used morning's will financial Special information on the it well directly commentary under forward-looking as Regarding to expectations the information, update and This cautioned these that Any statements company's presentations. Litigation information periods, EBITDA, company income, factors no Factors. headings our GAAP materially methodology except including include the identified of regulatory, Investors may are to that Reform company's of these net factors results during The filings, and/or provisions business. discussed forward-looking reconciliations release of the from are differ release obligation competitive, made of affect non-GAAP this undertakes economic, on for on other factors regarding Act forward-looking These today. operating, press sales, adversely Forward-looking the in Statements Reports to The Harbor comparable call press to a press Quarterly as are Risk results the the the company's but currency that and statements, anticipated variety Forward-Looking also SEC as make and could include XX-Q non-GAAP involve pursuant the XXXX in we Form financial earnings, Safe not information. discussed differ speaks uncertainties. statement the regarding Reports could only issued that Note in in The those company's Private Securities date the XXXX. due subsequent and Actual factors adjusted discussed and to XX-K, actual Annual performance cause of is made.

have We it have the company's the and SEC. also filed release at investor.tempursealy.com press posted with the on investor website

will supplement it to is the provided in over Scott. release. with comments pleasure Our information turn And the the that to now, detailed call introduction, my press

Scott L. Thompson

for team Good quarter XXXX our morning, earnings on accomplished few and would call. proud has face a Mattress a following made you, agreement on as resetting quarterly of with been detail. thank the unexpected with the will approximately in our challenge. minutes review of you like Aubrey. organization company you reflect joining I Firm what's In an in us Thank the very to I'm first ago. financial performance foundation the supply progress the in an the of termination our Bhaskar year of

work more key to to done, highlight be still there's four I'd While items. like

our progress distribution are balancing is First making we highlight that model.

distribution third-party Our in focus retail before mattresses will out primary still try be majority purchasing. vast as well-run stores the of to consumers always prefer local

However, leaving termination with declined retail Mattress our of locations, doors our in by X,XXX network. Firm, our agreement with us supply domestic gaps the

to address in issue We two have worked this ways.

supportive strong with retailers success ASP are higher with and closing retail relationship bolstered First, and partners our we've those rates. enjoying

begun our we've opening own in selectively stores. more network retail Second, by of gaps fill the to our significant some

awareness performing of on in total North we And our This count local XX the XX ahead Tempur-Pedic's believe bringing end brand analysis, should new all quarter, which expectations. Tempur-Pedic generating we sales early stores, and to These based likely at of quarter. the retailers. opened market, are our the up aid they American increasing are incremental store stores

designed as same have to Firm each economics customer-focused As these I have us the to stores. mentioned high-touch before, Mattress are of XX about stores

customers business to want shop focused to on be Additionally, everywhere enhancing shop. to continue to us we home, as online from be prefer our certain to consumers enable

have Bhaskar XX the partners highlight we diversified direct-to-consumer in balanced footprint growth minute, Today, drove led by business. rate in will we America in months support our more ago, retail of a a growing business. group than XX% North strong and by of As did America efforts our a a result North a distribution in direct

While on with doesn't to managing our I'm have overnight this happen this approach, go. initial and balanced pleased progress omni-channel transformation ways still we

we in in portfolio our The elevating the second brands marketplace. have product highlight is our America, further that enhanced North meaningfully

very retail our Hybrid weeks, performing refreshed of adjustable entirely home and our recent Our partners. been ProAdapt is pillows, the to of new roll system, well have Tempur-Pedic bedding Adapt received Sealy out expectations. the new In It and and including and successfully has line a line above bases. family we launched our by begun mattresses, a

received orders As to-date, XXXX ProAdapt new expectation. partners represent by models first strong be new and been Tempur-Pedic all a and phase models Adapt line of in well products reminder, early The and with in late retail or have new the rollout, with mattress set Tempur the our our have the introduced our been XXXX. premium to

international currency The in realized grew we X%. have Latin business. basis, third our the growth XX%, We sales Europe, areas: Asia-Pacific, and growth America. a three on and geographic in highlight currency solid on International basis major seen constant is all a constant

products launched As new we reminder, internationally. a in XXXX, Tempur-Pedic

final success fourth resilience the of this and cover, the growth highlight been like margin. driven XXXX has to the by gross of rollout. I'd our year The Our

Firm meaningfully year the margins operating with This quarter, last our products. impacted, heavily by Tempur-Pedic gross compared deleverage Mattress quarter weighted of towards first associated higher-margin which as was the termination to business, were

our Despite price not were consistent significant gross the our margins We year. also did headwinds, these until with quarter absorbed last $XX the first cost during mid-March. million of increase effect take as commodity inflation quarter

us, and new Mattress drive future our to period launching, product growth the behind Firm expect With quarters. comparison we Tempur-Pedic in EBITDA

portfolio. XX properly over to effectively, stronger With base, manufacturing products, meaningful servicing creating product significant We the innovative us available our a enhanced supporting While to put that, diversified walk with a where direct-to-consumer launching we on advertising for that growing strong business, through months results. brands spend, believe team, a of the the customers, financial a a third-party call I'll first it's with quarter challenging and our strategy the been making company shareholder want footing to have retailer rapidly them consumers the over turn long them term. the path Bhaskar and to shop value is winning and portfolio

Bhaskar Rao

Thank you, Scott.

versus financial Earnings million, margin Before was into lastly, the key quarter. year. $XXX a prior going was prior $XX pro-forma Operating margin XX.X%. few sales to of Gross consistent the there million. details, were year, with per $XX quarter quarter. Global decrease first from were net highlights pleased million a no this of for the net sales, report and $X.XX. EBITDA And adjustments share was I'm the X.X% was

Our leverage was ratio X.X times.

we to be call, range leverage our earnings of last our on communicated ratio slightly X to X target we expected over times. As

shifted revenue capital, earnings to expenses, corresponding million resulting should the pay-down change classification Going by had $X the of to recognition Then time during increase comments to no sales our will our being within with including accounting be and impact program. going I My by EBITDA. low-single from that resumption a to income in low-single a Mattress expect forward, prior that increasing in consider and standard in quarter we sales accounting standard in we mention revenue XXXX. debt new other the each the ratio allocations expect the required On basis, down back This royalty target digits to share net Tempur sales prior be will year. Sealy to change through consistent North this segment we in digits. forward the impact growth our and the Firm with also in increasing a repurchase of year. were comparisons with over America excluding position alternatives year, line, on net lower the range in be

the disclosed solid. This It bases our in products Two, follies counts. department some North retail strategy was the but not Day out quarter. slow to Mattress low As impacted of partners. a quarter, discounting little growth. orders adjustable sales weakness continued America the earlier, drive promotional our short-term including Firm. And a unfavorably profitability in were us in weakened. legacy bit by highly of certain Subsequently, three transition follow units we sell-off costs trends at unit One, was planned the with the heavy in started weekend factors. Presidents' including environment three, January orders to store

noise As of previously amount this expect we a temporary during a and to launches be discussed, we as ship new start certain is believe we headwind products.

mix. quarter. to the North the wholesale XX.X% declined prior decreased X% XX% a points American channel Our the North year. in margin product gross offset XX mix, increased to compared unit channel by This on cost as and volume, basis fixed operational robust was direct inflation, American by driven were These and deleverage headwinds cost channel improved partially and lower improvements, unfavorable favorable brand mix. commodity

America. change in mix declined headwind the second store to start-up American new with products expenses the gross quarter and in to This starting expect as We expense North points associated in was year. operating Tempur the XXX driven North compared basis XX.X% as brand operating by prior deleverage margins including lessen to ship margin. openings the

a opened reminder, a both XX which and operating to a bit As have of are during period, we ramp-up of margin. which stores headwinds the short-term start-up expenses some have quarter,

XX%, reported increased and reported our On a on to a basis, and sales XX%; sales a basis, increased constant basis, on the direct wholesale robust X%. channel Turning channel XX%. very the International net a increased a segment, currency increased solid

margin to XX.X%, all XX.X%. in change Scott the with basis. from the declined similar significant the geographies accounting due as impact in mentioned, the first well points operating a standard. XXX Asia-Pacific, modest were XXXX. investment up as margin quarter basis a year-over-year was in and International primarily to advertising was As This Germany International on gross of

performance, last commodity EBITDA by million interest in $X.XX. XX%, $XX offset favorable essentially rate after company-owned by was Mattress accounting global one-time I'm for the year. EBITDA investments $XX in as down by advertising and mix Firm $X.X reclassification the cost Now, pleased was change the EPS the turning cost, prior to mentioned operating payment was the year, lapping increased expense around expenses and was million as operating The prior the normalizing was of and tax well million, partially were impacted stores year. $XX the to report, was included the operational was fixed expansion in costs our for $XX This improvements. our from termination quarter and million, back deleverage, channel and flat. in income the earlier, company's million world.

Now, balance flow and moving cash the sheet on items. to

operating to inventory new versus support Tempur-Pedic the first Cash four the products used by This principally million the As we days planned, unfavorable driven flow by higher in quarter in cycle our of levels North of was was cash $XX first XXXX. launch of quarter. America.

the of was The first our reaffirm quarter, for debt Today, normally watermark net adjusted to $XXX billion. high of the end debt year. is XXXX we million. million And our EBITDA the first during guidance quarter $XXX at $X.X

flag Scott, Before I turn to for back the to purposes. I call items modeling a few over want

XXXX, $XX million. the expense of $XX of $XXX million, For of we million million, $XX $XX to to CapEx full-year expect currently to $XXX D&A and million interest million

to We expect back and XX over the million. to now, call the tax count share the XX% turn to be rate and be between I'll XX%, And Scott.

Scott L. Thompson

Thank you, Bhaskar. Great job.

corporate long-term our to initiatives. turning Now,

the innovative products serve. all developing we in First, most the bedding markets

line-up marketplace. foam, and offering, to As improved an APR, introduced new to America, started deliver the for both North drive Hybrid Tempur-Pedic retailers final improved The The advanced customers. a process piece previously Sealy our in launch pressure lines, memory technology, a our both the third and improved components bases. and over are and our higher delivers pressure quality on Sealy relief year for aesthetics, Tempur full product feature also resonating times true is from of product quality broader masterbrand launch in the which new new years. The of and new and new in which invested formulation for and with pillows Tempur R&D efficiency. Sealy three of simplify heavily is America April and new customer. material quality these that two in mentioned selling the breakthrough working has standpoint substantially to we've while mattresses, last We benefits currently been I feels improved have Tempur launched This unlocking we North just was Hybrid and range of a ordinary to launching retailers product terms and feel line the of relief product

at consider response company's has Tempur-Pedic retail is rollout in history. the been floored, initial Although still Many the new ongoing, products been the the it our be best outstanding. of retail where to product Tempur-Pedic have partners

worldwide our is initiative long-term to significant dollars second to The promote brands. marketing invest

Our the we retailers. time, of in to products latter the year be faced and the direct new we available. towards support our advertising into of customers the part was the At advertising spend up have market. worldwide, America, year spend weighting will our as order Tempur-Pedic brands North drive our in widely same This

We the XXXX, long the versus total up will be commitment for spend expect for full-year direct demonstrating advertising term. our

The are not need want distribution all third channel. optimize where every sure choose influence worldwide through to long-term shop trying distribution to initiative: customers channels. make and We're products our channel choose. they to they to in means available represented are properly our which products That to be letting

as that our the a relationships our our be able are we in mentioned to a We'll premium progress to As have the and positioned focused company-owned as story more experience brand be call, our well is our on This company online third-party better retail advancing shopping through we earlier customers. with are offering on future. making growing diverse strategy but also presence. and will in closer relationship control omni-channel succeed create better stores,

last is drive EBITDA. increased Our initiative to

talented products of will value. brands, some we to the in and up expect Mattress begin and worldwide and lives to Tempur termination the Operator, most the forward. you questions? anniversary call exciting iconic of open suite improve a the for mattress customers' EBITDA increasing of please new a is significant going innovative create Firm With products, full Sealy well-positioned shareholder to industry, report workforce, With

Operator

Bobby Griffin Raymond Our James. first question from comes with

Bhaskar Rao

Bobby. morning, Good

Operator

One moment.

Bobby Griffin

comparison quarter. getting on the year-over-year through last challenging congrats And

Bhaskar Rao

you. Thank

Bobby Griffin

think Presidents' curious. during off Is played maybe it how you mentioned how tailed I was that some soft, is clear off better how or then quarter was progression up through the Day? it Presidents' after comments the that the about quarter? we the of January that you – after started kind that. ended Can should and of just or about Day

Scott L. Thompson

ground Kind of Yeah. everybody.

April, said, on and that other then and into industry soft, And what As call and we've the at participants it earnings solid and January think I said it hit kind of heard we towards said it heard went And you the And and then Then pockets think things have before, other me – this or into up. consistent with about I we end, if some talk tailed weekend call, year end we air participants. more the picked the that's Day look, on have slow. from year-end with of was consistent towards quarter I've it's sales. was industry really Presidents' also off. was what on

don't So, yeah. I know.

probably was Some it of in activity the marketplace. promotional

clearly it call very the quarter. bank quarter. have solid the always of Some in But was which weather, second second you first looks some order into quarter, out that we hate the to going

Operator

Thank you.

Our next Drbul with comes question Guggenheim from Securities. Bob

Robert Drbul

store the plans, I morning. guys guess the on ex-Mattress about the Hi. talked those Firm, distribution department out Good being of just with channel. you equation,

relationship terms with door Mattress that various to department trying for the lie You've about the and you of in Can talk had of have two some where the replace you like just the those. issues stores, with count opportunities at of those one just Firm, or you? today

Scott L. Thompson

issues department with standpoint, in pressure a has of some a you let some stores, sales important They're issues, their out I on couple a see and and they're I them. relationship-wise, is, customers. stores. the very and and first, me with that our that department reality, having There's very the from a of the feeling, of they're we but if say very relationship mean and stores questions can us. all very strong And numbers. have They're kind closing are we're address some the good created relationship stores, dealing in some Sure. what to just department some I there, numbers What pointing in were good relationship. traffic would

just what call So, issue. that's call, that a not a brick-and-mortar relationship That's issue. retail we'll I'll

our Tempur-Pedic some setting We the We call sure doing that those increase up where stores. but slots everywhere brick-and-mortar there looking are from, They're are our some closed look our to opening is other the following obviously second is doors. was department them online, replace stores, we're we direct-to-customer up we're we're up customers we customer shop. migrating velocity we're to to see those also who it online, some working through who opening with the wants business properly that customer are stores. distribution. making some of question do call Your – retailers what presented as of with and Consistent product in have to own our greenfielders. new we'll strategy embedded is and some where the But going. really new doing is We're people

Operator

Thank you.

comes question Keith Peter next from Jaffray. with Our Piper

Peter Jacob Keith

morning, Thanks. everyone. Hey. Good

the a question two-part Just product launches. on some of

on mentioned, EBITDA into up of be. actually QX you there'd Tempur Memorial So you issues some could you color frame last secondly, is slight some shift there some having And that can $XX Could chatter million app a cause to very quarter that you dynamic? Wondering into minor that had Day. if QX. delays out thought some be out going what flooring then around give turned us just the

Scott L. Thompson

Sure.

expectation. You the into me the is completed Hybrid to let had launches. I'm Sealy It's to had very But We Hybrid well first a the two one-question and over within the launch. two Bhaskar obviously launches. were talk performing do about squeeze That quarter. able was We our Sealy launch, let call. gone our the numbers. questions going

from the launches. of difficult Tempur A, more called Where America. to is launch, this at in kind a our give my work me, we complex, a while complete The the little the Tempur large, and of is end for us out Sealy Again, serves be North modeling I the and it B. the it of standpoint launch, try launch that going On would a as of be Tempur all if the complicated and memory product Tempur, probably I was would other launch through quarter, to I'd point. give at as replacing one an third

a by just capacity Day, and XX% probably Memorial slow a mentioned, out I'd by a bit issue and Memorial you we'd And disrupted had it of call we'll supplier of little launch where Day. bit. floored planned little But like in and there's frame it, more be we minor, did chatter to to to As somewhat floored XX% XX% the there. be think originally down I Tempur kind that

going cost who've out bit I outstanding. think be of second a has And from to bought the the in focus why it frankly probably important this activity complicated how third of the it. it's there's is more importantly, little yeah, So from to I very launch and little sales how big But quarter, good. honest, The indigestion. response us who is in a product, probably bit would the the but perspective been And really called retailers of thing not in on quarter the to our which the customers launch unexpected. But that's quality be. have

going on $XX now I'm earlier? you give Tempur the to talked B us a million to question was overall, the on So go launch. that want And the about on Bhaskar,

Bhaskar Rao

Absolutely.

is a into amount you the of discussion. and have there a Just noise certain building be that another launch, from Any off launch quarter. significant happens time going to a quarter

the transition. impact the experience associated in So, the did quarter experienced with is first we what we

the impact Now of get I full as from we not until back step the I out quarter. will understand second is it,

communicated, to However of out into I a previously larger magnitude what $XX than QX million QX. EBITDA not from any it's that going said, standpoint, of was be

Operator

you. Thank

Champine Capital comes from with Our next Loop question Laura Markets.

Laura Champine

morning. Good

Macy's year? what's that you happening Is It the rest a Just of like Tempur their about help in for wanted retail channel. that? pulled out if could us ask the And line-up. impact negative so, the to looks of quantify

Scott L. Thompson

No.

Macy's will And what accurate frankly you're in productive be would slots at more very immaterial all, be not some company. And which did are that currently. – XX:XX) to much honest. they include comment, of is to (XX:XX with, First SKUs, those your that selling not They they're Tempur, and the insignificant sell replacing are Tempur

Aubrey Moore

Operator?

Operator

with Thomas KeyBanc Brad from Markets. comes question Capital next Our

Scott L. Thompson

you. Thank

Bradley B. Thomas

guys Yeah. you Hi. hear Good Can me? morning.

Scott L. Thompson

Yeah.

Bradley B. Thomas

Sorry.

died bit, question guys You the think, on out I last a there.

Scott L. Thompson

me. answer an Excuse did I or give I on go Did in question silent? that

Bradley B. Thomas

through halfway about silent went it. You

So...

Scott L. Thompson

Okay.

me... Let

Bradley B. Thomas

first. want question to ...maybe answer you that

Scott L. Thompson

Yeah.

Let first don't me that answer we that that question. lose question so

Bradley B. Thomas

Perfect.

Scott L. Thompson

Tempur. us. which didn't They is and some question The their for productivity in have and of include from Tempur. direction, going to slots, will That moved looking for Tempur related at they're to sell Macy's in insignificant beds. relatively Macy's them away move Sealy And the much historically. another

don't the So, we're material what they're doing that Tempur I very Sealy. in other supportive to way again, one it's think area. or of And,

Bradley B. Thomas

Thanks, Great. Scott.

question the just as just those thinking the of could Sealy brands, And give color about performed we're into those little so, you back move each how how you XQ? about a was the year? XQ on and brands more half bit my Tempur the us we in if the and of And trajectory of

Scott L. Thompson

was probably a on probably We retailer. heavy bit spent a but first had there the quarter heavy we promotional We there. leaned into to little probably leaned digital wounded and the in lot television. a numbers a out probably all Obviously, little Sure. mix, lean quarter. we frankly, more a still digital need into money, of Firm little driven the noise between, by media of first kind in our environment Quite had Mattress we highly

good just general, the launched, on. the So, products the Sealy Sealy one And about there's have best Hybrid a probably we a brand of lot and launch course, But we been of of has feel stuff. overall. going has ever in Sealy

we've below in the the Sealy $X,XXX. is brand. about As a talked pressure there on past, It's

We that, at and and very moving feel we're up, that price working area. in working end, high to the and successfully continue so far point we're

to would X% America number, on International the you focused constant international is out product, I I group. give call product, joint big are growth if growth touch a our and a and were do we're you revenue rate again venture, line Sealy take comments is Sealy and wanted were to if on North which because America, of mainly our to Asian primarily about Just have currency North on our my Asian but is you the briefly, kind out brand, consolidate which be point joint to to XX%. asking venture,

if – question answer kind gees, worldwide, that's So, I look broadly strong. of more your

feel And so, there. very we good

light again, I the of we're at On and the environment numbers side product We first a out the pretty there. quarter, internationally, little growth mix floors house, the look, a the talking ago. but XX% get revenue Tempur the changing, from we're quarter, it's called wholesale, internationally, were We read changing, then, hard on the the rate obviously, a with slow. about came a international and launch little the Tempur the again, second-year promotional merchant, in just the a the of with it's second much benefiting in fourth in and and of new off to

we is from between very more next probably Tempur story brands. I think the the to in years But to in Tempur made general, for of Sealy solid. So, going going two that because of but significant expect going would is on, I forward new the we've that be couple feel second good, the And product. I quarter investment story, expect think probably a will be big be I

Operator

Thank you.

question next Carla JPMorgan. from with Our Casella comes

Carla Casella

Hi.

what in terms my can mentioned takes give you just But about and and are of materials? of or from just cost. versus steel increased or COGS the any already margins the puts you us coming transportation have a materials, answered. of how gross transportation or barometers, talk increases your of questions the us cost in – of of give any the Can sense for the Some U.S. gross been percentage you much key are kind the

Scott L. Thompson

headwinds we help I'll Bhaskar for in costs the had down to and in them. performance, eat increase commodities. of our it Bhaskar, price those And the quarter them, help margin couple came to before kind her really really But you bit? on drill we you with and little offset a Sure. in sure the that a go let of to had gross detail. that look, kind want we But happy mentioned through of considering were transportation

Bhaskar Rao

Sure. Sure.

line, think quarter and inflation well is we And quarter as called very Sealy, we $XX cost commodity the called of as us, out from to out, digress gross price with in put million Tempur as impact were we about along that in think bit and So, did about commodity at commodities. margin We cost if commodities, the form on the rest experienced from a been has pressure increases moment, that passing approximately I on International. as, lag. we the in successful the the industry for as of of the year, a a typically a both

– we're commodities about going more have the here we we we talked million. commodity And for back full-year as turning now as into – we cost As it we inflation. And the sit thinking year, about $XX around seen quantified range. the in today, it in $XX million

led face we this of off when turning to back that, as always with we bit of we conditions, now, are an we've type is a But price. seen what I So, increase. evaluating do

Scott L. Thompson

is Yeah. that increase very in right kind in to of now we're need seeing there. before all a on add end What little the going industry price I another it's the I'd the areas, the of really, think just likely bit and, commodities year.

Operator

you. Thank

Baugh Stifel. Our with question from comes next John

John Allen Baugh

And that morning. I maybe Good Scott, inflation following guess, on up question.

you've So, and through guess Sealy and, mistaken, forecast. I capture launch guess, pricing, guess, raised seen of and million plan the Tempur, input not I inflation an to margin that. escalation, the I'm in prices or think, the if with now of I there's $XX I March

going how you've as Sealy I but easy, doing difficult? how just so to if gone? seen right, far you. it's a not SSB I'm what is the hear. with never or I easy increase well clarification that Thank know well has just So, pricing understand we price curious year-to-date. from be is prospectively what

Scott L. Thompson

Sure.

a me and First confirm. pricing What embedded pricing said not launched on basis then new the basically some like-for-like that in normal there's is strategy. which off, product, Sealy let Tempur, you with accurate is took inconsistent

you remember, And before You everywhere. go. well. it price look, come you're retailers with Look, a we a asked is, went some to passed costs right, through. in as ate position industry, never component price increase also them Sealy Others And got through prices – But offset pushed the We bit but the will them very through, there the efficiencies. went is to our at commodity through. quite we how and the when commodity it's we try did about from pricing pricing easy, standpoint, need we increases. to pass point,

And fine. went I so, that think

familiar their pricing issues their or far So, or a say and our you strategy really But not I very with well. on I but increase in went is, easy what pricing As very not went their went, how speaking, relatively price mentioned would are? what went, well I'm as and from that. can't competitor how standpoint, probably comment pricing their

other size to the thing probably the is our it with best not the position tell in point this on about think our and Tempur deal we're industry suppliers, commodity on with I'd and we're having that you and although, will thrilled it. I having it, in deal issue The that, in contracts our out our Sealy, based with I area expertise to

our certainly the positioned And we're critical manufacturers smaller think companies, a and mass. of because from nature so, I competitive better certainly and of analysis standpoint, bed-in-a-box

Bhaskar Rao

into to highlight is effect I the like the The one on side, specifically went increase in Sealy the price would later thing quarter.

a year. of price to we'd progress we expect as benefit bigger a through see the So, better –

Operator

you. Thank

from comes with Securities. Our Basham Wedbush next question Seth

Seth M. Basham

morning. lot, a Thanks good and

Scott L. Thompson

morning. Good

Seth M. Basham

we I you're volume you outlook. America think specific North the year? Firm, ex-Mattress of flattish. know as to the to don't drive should provide for it sales. about your ability on In drive My question the quarter, and this guidance is relates sales balance top-line How

Scott L. Thompson

all I information. background first Yeah. of mean, as just

because sales don't it's up be people literally a given the that I is sales of at or XX% in kind through of that guidance times reason walk to very give XX% can volatile One down we week. and

it's then So, standpoint. is it's contribution which that with difficult from strategy, a manage to little our And inconsistent profit.

with really top strategy. not difficult. discounting to want just And is you our promotion. and that's It's If called consistent just that line, generate it not

sales got pricing. the pretty world, below But I that some clearly coming. with asset here America closely. main over-perform product will in Sealy those when was expect top $X,XXX year. a worldwide, on that products, We've last product we've Having that the be some would having the international we've to then We've it net feels have lose talked that with to the business. And of we'd times new irrational a call across framework contribution a units all we product strategy, going in I'll might which year's promotional watching so feels got said go well performing we're we words, opposed that, that said the in pressure the North our is expect we're And if So, good. Tempur to with the which consumer to out the is highly what of at okay, kind group people growth. new some pretty focus as Tempur we line. about. worldwide hedge to and environment, tendency got again, The general, in in generally not a launched last And good. there and do buy Hybrid. want country or There's hot economy But look

pricing because promotional people's that's you at large don't retailer know So, very some I going to going what been really forward, really I are who's policies a and this can't pointed year. be tell primarily more

Operator

you. Thank

of Our next Lynch. Nagle Curtis comes from with Merrill America question Bank

Curtis Nagle

question. on for wanted Thanks little margin. North Great. to I a gross America very more much just taking the follow-up

as pricing going think see So, I I you'd it have mentioned, to you're offsetting commodities. going forward,

Hybrid, stuff on unit all at gross the year through basis is to which You accretive significantly Firm why leverage and the that business, direct no should comments your be a and margins comparisons, Tempur, then, longer of that by have beyond? leverage or in I extremely launches with pillows, or the why couldn't this better shouldn't and, own a lead guess is profitable. the much least larger should store

Scott L. Thompson

Okay.

Let me help clean Bhaskar it me. those one let I'll up for on of

okay. first, As one. I launching agree, I on ticked to we're I I your end Tempur for yeah brand, the them agree, agree, list, listened I low Remember, off, except the

breeze because so the the get talked be extent going because we're quarter, the low out Those low-end on a until got late will margin. should the – quarter. what new And from as some Then, call be we into mix the a to lower is launching merchandising, new the end about would product lower-end we've product there the that that Tempur natural X before, early one of be successful, merchandising to have there's pull-down the higher-end coming fourth we the floor. products product suite and Tier first you've cannibalization full so,

So, Anything the Bhaskar? you're because bit else rollout. of going of merchandising the mix the Tempur to pacing brand have in a little of pressure

Bhaskar Rao

to grows therefore, that standpoint, would some from like positivity Sealy. North American versus item expect profile. Sealy gross across other highlight is brand only We would a than faster mix get The margin Tempur I the Tempur No. and

Scott L. Thompson

a possibly have hits. And you'd price adjustments of lag little on and bit commodity time

Bhaskar Rao

correct. That's

Scott L. Thompson

he what to be margin. positive that, than said other So, would

Bhaskar Rao

Correct.

Operator

Thank you.

Keith Our SunTrust next with comes from question Hughes

Keith Hughes

some a that commentary number? moving as want I think a stand what gave price a do of you on just the all cost quarter sort forward. mix you? materials couple is And of negative you good where today clarify raw that Bhaskar, will you out $XX you. items, Thank for million, peak

Scott L. Thompson

question, of you're is think, that's negative wrong, And impact if believe I this me the I asking understood million. if I'm EBITDA. $XX Bhaskar, I kind year's the correct the on what

Bhaskar Rao

Correct, commodities.

Scott L. Thompson

not That's pricing number. it's gross right? adjustments, a net any a before number And

Bhaskar Rao

a we as pointed out, we $XX in thereafter. that about off expect it's increase and thought Correct. we about tail would Correct. originally the as it would see What million we quarter first would it. peak the is And

then expect we that sometime However, the is thereafter. during flatten the today to where and sitting would summer at peak out we're happen

Keith Hughes

Thank you.

Operator

Casella from moment. with One Our next Carla JPMorgan. question comes

line open, Your is Carla. now

Carla Casella

additional their given expense, are in inventories some could worked Sorry about way inventory you or stores, the the worked inventories you that. closing store – And channel. I question we had just have as debt, through to adjustments the bad the or see that department retailers' on levels a up/down?

Scott L. Thompson

to I'll kind as their have And sell got Yeah. it, call, of in through. would the are our see here off have debt as retailers delay The I Bhaskar floor natural some models to any are work I'll significant new Tempur off call, launch relative not – be bad I'll That sit closing let Bhaskar? but I'm floor the expecting the that do have who work are models significant would what floor through, can inventory some they've though, to right me a of generally old retailers stores issue line. naturally help in, any worldwide retailers product now. to as old usually I Anything with not Tempur what we and else, near inventory having that issue what sales to, sell of term. only inventory

Bhaskar Rao

would I agree.

about. generally me to job that as at exposure Let credit don't I your – overly concerned risk. managing our I'm a we our just reiterating inventory retailers. good on point do And relates out at it there anything see

there. add to more nothing So,

Operator

with Our Michael next from Lasser question comes UBS.

Atul Maheswari

Good questions. lot morning. Lasser. Thanks in Maheswari filling Atul Michael is taking for This a for our

be you store quarter. this cadence store significantly few the going rest your And term, evolving wondering for likely where accelerated So, year? new see the I'm next longer over the of openings just what's to more the count your do years?

Scott L. Thompson

Yeah. Thank for question. Great. the you

locations. I on I'm and here. devised stores done XX proper are year. to was few probably stores Pause, is, job news two the think we cannibalize stores the ground store the incremental just other about the this see kind XX, not things that detailed more stores stores, look, of when are stores probably carefully to a XX through than as To quarter, is Probably performing good that's the an those and and we our frankly today in importantly it's to our coming where performed – EBITDA open the make this are where have and not the we is selected retailers one, team's pro open in but as stores. as other sure a everybody, to finding open performing but when seeing course sales of EBITDA, our have and But carefully of sit we I look had excited plan be based I for And as expected. also also, about stores opened we we've go they quite right. the say the expected we from, better think You're and to other and to the And look the at areas and a are where I the are performing are sales business than that forma. expected, and probably sales customers. plan sites markets sold how of basis sales above those sales you the retailers. probably impactful on And The have

all something the issues I've some be about that watch. giving these probably talked cannibalization, that locations, So, of that's personnel, said continue are as will to anything we're not in short else. cannibalizing, and incremental that because to or pause XX-store probably us more the is not sales relative seeing and past, pretty confidence Having that, any we'll finding pause, good

continue iconic that some look looking north performing like of again, we're we're will us particular our well But, we'll year, stores. think markets we'd give stores end as huge as of number we'll I of So, probably footprints in don't some is for What XX-store at some that and not awareness then drive brand the a to. it. channel this by and to is opening the

XX numbers, dependent where XX the think is the another of the year, and maybe something the from. I on EBITDA But both the very stores, so, believe next sales or end of the coming standpoint from again, by those maybe we'll are number year. maybe do and And soft we performance maybe stores, an are

Bhaskar Rao

the that ramps a then, – $X And bit The see would it before type of cost, to during start-up the the quarter, with second out. impact up as but we get we thing I quarter, only also incremental itself in to start-up would as be get-up-and-go associated pointed associated stores with to we'll of did sales normalize approximately I incur and speed. that. open that and highlight full million the they just expenses anticipate that thereafter, like characterize you of would did is, there I out, will XX

Scott L. Thompson

call Good out, Bhaskar.

Operator

to call and Ladies conclude closing for that I'd portion today's to does remarks. like Q&A over conference. of back turn the gentlemen, Scott the

Scott L. Thompson

and brands. do company in lenders, you every retail representation of the thank for shareholders its management almost of Operator, what To worldwide, your To you directors. employees Sealy X,XXX for Tempur our day. Thank you to your partners, thank the for day board and our ends you outstanding make confidence To successful. our the thank call you, operator. for the that

Operator

presentation. this does conclude and today's Ladies gentlemen,

You may and now wonderful a disconnect have day.

Tempur Sealy International (TPX) 3 May 182018 Q1 Earnings call transcript