TPX - Earnings call transcript Q3 2018 | Tempur Sealy International, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Tempur Sealy Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. I'd now like to introduce your host for conference call, Ms. Aubrey Moore, Investor Relations.

ma'am, begin, may You

Aubrey Moore

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

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

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

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

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

Scott L. Thompson

Good call. third start positioning comments growth. Thank review foundation in and will and Then resetting for earnings with our earnings regarding financial with quarter performance in Aubrey. morning of joining thank our XXXX will I our on long-term detail. some us us you, progress you Bhaskar the quarterly the you for company

corporate of a Finally, I'll long-term our up wrap with initiatives. review

rapid to the product two dealing improving we're portfolio would to the company positioning While with our highlighting progress value and our business: network. the aspects over key continues change start to our in create like on quickly on shareholder distribution progress I team industry, by our to our long-term.

the in band. And recently talk I the ProAdapt XX%. These Tempur's solidify our have results also collection, the as products of pillow category. $X,XXX robust introduction Tempur America, These of America revamp initial about entry take new products let's should dominant the position grew grew in sales brand a our expectations. bedding further exceeded pillow North that mattress Overall, units mention XX% Tempur our product in quarter. a following which our product. what premium phase to North They done our First, in the do, were Adapt share designed include and models. they to have the $X,XXX completed price We've of level

price help development successful year the sales understand we're and foundation team to in continues With world-class Tempur all to expectation have point launches Sealy ever with set we partners we competitive best In two three our products, will having is outperform retail and In bestselling of one our believe Hybrid at high short, say to come. growing premium record cylinders. has and the In for in environment, for new the our over addition profitability. mattress can big their with our the the new that real products challenged to quarter. now success hybrids is our years internal highly become this been of and firing retail essential research experience, well-positioned on our success. category, traffic some value a By providing of decades that

expect models in lineup momentum continue all-new to We introduce Tempur months. an & the high-end this coming Foster as new we the and Stearns

distribution. to turning Now,

working hard the As our them. identified we've network and past, in we've in to mentioned distribution gaps address we're

method need shop. our to partners, will third-party we distribution always retail preferred be our the be of wants While to customer loyal wherever

the building direct has growing out of been In our continue America and North XX%. focus direct one channel to success with XX% International business. our we our direct-to-consumer key quarter, our So, areas growing early see

consultants. the was with special Our to and retail Customer own largest both customers pressure very non-commissioned environment continues in Tempur America are North store high. sweep with performance experience low engagement offering a score shopping brand high-end driver We believe well. attracting perform these satisfaction knowledgeable, our by which are in showrooms incremental

the three stores North sizing bringing XXX to the We're American about stores. have XX stores end to we opened stores, of additional envision over the During long-term Tempur up total XX We count we opportunity. store quarter, stores. still XXXX XX and to by opened plan the our currently

the exhibited analysis, In results, well in after regions careful our increasing the Our company-owned pie the partners our that based the our wholesale products. seem for presence existing Tempur-Pedic by some awareness our actually grow other for to of third-party found on retail local third-party we've Tempur-Pedic stores have early words, complement with strongest largest market. of stores Tempur And retailers. brand company-owned stores growth

various of be distribution shop. another in our within stores, to we prong share retail our strength wherever effort addition channels. own alternative wants grew customer to is to This also the the In

online, are with through As Tempur, the also only consumers but e-commerce their own become our platform third-party more preferences of through comfortable purchasing adapting expansion we retailers. not to for online expansion

growth through retailers third-party sales significant low still very our online While of the experienced balance our quarter. the share is in

from the we had standpoint, had our of the we a we quarter While impacted distribution and adversely several product proud that face headwinds in significant results. are successes

the experience new than Adapt unfavorable expected Tempur to the models. within our mix greater during quarter, ProAdapt and into we First, brand continued

product Tempur previously $X,XXX of band with band this the were price the recent $X,XXX where because we rollout entry price to Our was under-represented. started level

pleased quarter. with our $X,XXX yet performance incredible refreshed we're have as expected While were of above than cannibalization we higher our of we products success the own be which victims new to this of product, experienced our the

We subside roll over priced in expect headwind the of both Luxe and in XXXX, fourth to are early quarter as out we model the the which Breeze model this $X,XXX.

move environment to U.S., retail heavy including we product business. impacted bedding promotion consider actions largest retailers Successful and need around activities to average traffic retailers all Mattress brick-and-mortar where particularly the our have well be this Low volume the Second, high and end premium, at unprofitable the a continues work price, to that maximize in premium ticket Firm, what world. generally retail. does In the high in discounts bedding see free product. is We Sealy These means offerings. retailer high cost low-end product an not offerings.

to reporting ASP. or of XX Firm negative end, filed operating That losing $XXX subsequent of sold equates to about after about mattress protection bankruptcy Chapter quarter every to million a on close XX% In Mattress $XXX for income. fact,

difficult player behavior Our reorganize successfully they're believe Firm healthier of recent elimination able we're bedding thoughts all benefit Firm's Mattress this and the participants. the are to as industry Mattress time industry. families and promotional the that employees a in hopeful with emerge and their We during would

influx Third, end import mattresses. an we had low of to face

products U.S. from in Commission which and that imports increase alleging we've supply/demand participants cost. industry and are of China these our seen a put dumped industry. and for the September, below market many balances headwind major imports the Trade filed points U.S. a at of Sealy Department International significant other price with the in being Specifically, In been on a pressure has into petition prices Commerce U.S. we low the Chinese

As large passing pricing to a all We've realized we a which we've North be having net headwind months to a is increases are America. XX X this and months be process, commenced on goods in to of categories. yet the significant of investigation take the quarter. are to Fourth, Input experiencing announced months petition, expected pricing the last of complete. of this actions price a demonstrated of to costs and commodities, increases continue result Commission in four announced commodity percentage sold started cost history in these already increases across XX an

However, which to these pass earnings in take temporary increases on pressure. result time

X but receivable the through department customer a well-publicized of expect account related quarter. quarter commodity Fifth, year store This reserved not top was third a rate. account to fourth our their level continue we much this retail fully to a increased balance. expense bad reduced at debt during We headwinds the bankruptcy. of We

and we items believe in Although impacted abate these are our discussed in performance quarter, that of many I've nature over should headwinds time. these various the temporary

mentioned we've the As be a to transitional XXXX in continues year. past,

this encouraged complex, will strengthen as competitive our position take that some the time, transition the are While throughout we by we and is we're making progress world.

over to and XXXX, our to Tempur value mentioned. shareholders. complete benefit changing our deliver the now I'm statements. the confident market we I ability entire the launch, high-end performance rapidly walk financial proud call team's as some factors pricing we move in and the through announced of to temporary Bhaskar enter of long-term the As us third earnings to feel of past we conditions, grow product Tempur realize face actions, Sealy in turn expect just I'll to full the significant quarter our the of that

Bhaskar Rao

Scott. you, Thank

the declined points XXXX. was into million sales increase third margin and to million, $XXX North the XX going million basis, quarter XX.X%. EBITDA segment basis from XX.X% On net the Before gross to declined for margin earnings Adjusted a Adjusted third points slightly. Adjusted of sales share details, increased financial Global net the per $XXX quarter operating of was key highlights XXX $X.XX. from sales. adjusted quarter. few a were $XX America an basis in of

consistent very and prior sales wholesale direct Within American quarter. sales with year, robust in a XX% the channel were in the in the North the the segment, channel increased

North our entry points to footprint. as and items our reported than was integration increases XXX pricing related operating income the following faster as impacted Revolution and in grew items. previously are This operating quarter, headwinds declined transitions for basis the and the operational Sealy, to to items profit one-time by were prior manufacturing offset year. million to brand. America profit impacted gross offset mentioned some In North the of related restructuring income favorable total, adjusted by reported unfavorable gross Tempur During by temporary pricing our profit The Tempur mix these GAAP improvements. these within $X American by million results These to partially level adversely by $XX mix compared improved were gross and and margin to products brand XX.X% prior the compared commodity announced gross as driven our actions, significant yet by year. adjusted Comfort not

commodities margin the the a improvements. Excluding North in our pure compared as from are from improved to year. quarter, American we million Therefore, gross the unfavorable standpoint, prior realizing operating $XX

forward, to launch Tempur-Pedic lessen as we within XXXX. begin we in the the fourth the further new cannibalization Tempur as the higher models, quarter ultra-premium point to impact to and launch complete Moving within Luxe our Breeze expect in dissipate we price

in commodity year. discussed commodities, effect Regarding own in first our That we pass along in late to previously XXXX. able increase inflation, announced price historically significant cost this increase response commodity we increases. mid-March have In to through we price our went been into of – increases

As price mid-October. announced went commodity effect continue in into to prices rise, which second a increase we

effect to those due to and a for addition, ProAdapt launched mattresses that announced mid-October. newly our TEMPUR-Adapt specific into the in we demand also price separate In went robust increase products,

cost further effect issues, will bases address actions our into in we the quarter announced on of to Additionally, go adjustable first recently pricing that XXXX.

offset do the on fully we to these in pressures Once we adjustable the products announced cost on to import increases the manufacture aggregate in order mattresses to expect non-mattress consumer. import few our we such pricing We tariffs. bases. sell inflationary adjustable from tariffs the and bases pass took price as to we actions cost U.S., While implemented, recently a the

margin. to a to and net increased on average increased and International On basis, challenges to a quarter decline currency X% up. us six-month decreased basis was driven XX%. the X% basis. X% margin wholesale a for the on Germany. on reported channel our a performance increased a reported gross third was the adjusted expectations by American about direct This catch declined lag XXX compared in primarily below constant North due points robust XXXX. is Europe, operating basis to in in channel of primarily the ongoing sales as there However, International fully XX.X%

Asia continues to perform well.

sales a X% If quarter the currency International increased Asian on you the constant basis. consolidate venture, for joint

initiative into significant licensee on targeted quarter, we certain markets. relationships to our made in During progress the enter

of intend and and operations these of impact a difficult line operational relationships low and with third has into reminder, comparison XXXX the international presence accordingly. This evaluation adjusted on reclassified the parties. A purposes. those with financial have income is discontinued one Relations licensee operation markets our our statements recast website with As completed certain we prior higher an dating to operating available as in risk returns, on beginning quarters back the to for convert of classified solely have our environment our In Investor statement. been we actions, markets connection into

organization streamline the compete associated nimble reductions our lean the head activities structure. As the in fourth we our bedding international having necessary to market. believe with We restructuring keeping we've global anticipate in primarily Europe. operations, and count further look in to is quarter that overhead We opportunities forward with identified

driven third margin improved by adjusted by quarter as unfavorable International our improvements compared partially margin XX.X%. and the royalty the and operational gross of to mix, third offset XX% During offset XX was reclassification. was XX the reclassification XXXX. improved points that leverage partially driven margin quarter, This points mainly royalty basis operating by commodities. and the productivity, operating foreign International in was gross expense This exchange basis to to by

partially rate was adjusted and slightly in was for interest EPS was year, was Now was This The $X.XX. expense debt from quarter and pricing which the million, inflation Adjusted Tempur expense. in product turning income by EBITDA driven reductions the Adjusted offset benefit. by was volume, including to increases unfavorable $XX last increases performance. million. compensation XX%, down company's mix, was management commodity tax $XXX incentive back adjusted expense and million in global operating bad $XX

previous modestly Our $XX most $XX of to for our full estimate from million recent outlook for million commodity has year headwinds the increased XXXX. of

approximately As we of $XX million. the year, a coming reminder, into headwinds expected had

So been incrementally clearly, commodities have unfavorable.

In imported China. to adjustable bases from addition expect tariffs to commodities, now from headwinds experience on we

we reached Tax with the the the pleased Danish agreement we to IRS moving are Before to to balance for announce an U.S. years authorities have XXXX. sheet, XXXX and

position, old into have it We're a on impact contingency negotiations and appropriate removes which from or While is does process settlement impact have not a the the does the resolve material a decade company. for on loss company. in expected financial our for a entering royalty the matter to liquidity the significant material XXXX, of the rates years after not

billion, in support was million XXXX. driven from third Now, $X.X moving flow quarter decrease a We by North cash continuing levels principally third quarter. the Tempur unfavorable debt the products the XXXX. third by the flow new days the generated $XX operations quarter, sheet third higher America. to This to of on inventory cash operating to million of the was required the launch of five end cycle in of items. compared At and net of balance $XXX the our quarter of from Cash was

of Our target leverage above X.XX to ratio times. times times, slightly was the X is which X range

yet is million be in We the of primarily to items $XXX year I target debt our end for guidance We XXXX.Lastly, bad increase be new actions modeling tariffs and commodity than we This America flag for which cannibalization Tempur-Pedic the the full expect North a wanted are guidance related to EBITDA to set primarily million. adjusted to purposes. internationally by within due expect incremental XXXX. updated by in pricing for the in higher few underperformance of expense, to currently the expected not range in our offset change and of Europe, range XXXX. financial line, headwinds $XXX within to

and rate of the year the of For count expense tax of D&A maintenance $XXX And total a share now, full XX diluted XX% a to XXXX, over shares. CapEx Scott. of expect back I'll million million, CapEx we call including of million, $XX million, million $XX of $XX turn currently interest

Scott L. Thompson

great Thank you, job. Bhaskar,

we in innovative new the provides launch had products Tempur-Pedic We're suite experience. second our our the products Turning initiatives, in the flooring design to the phase markets Tempur-Pedic all bedding long-term process of the of of LuxeAdapt mattresses. The LuxeAdapt developing corporate first, our premium serve. ultimate with

Tempur is that Our ever highest and APR plus we've relief features provides density technology material the best the pressure highest developed. comfort

piece excited Breeze the While the product which launch history. of cooling cooler be strongest it's system early, all-new in for in two about our are Breeze results than the the final the initial of early XXXX, be will collection encouraging. times more we're will current Tempur Tempur complete which our market, most beds our This industry-leading the the In LuxeAdapt product, model. new will launch the of rollout, than very innovative company's

prominent One story built incremental each we've is of step-up the collection of the this as features products. value most of the compelling tier progressive into between models

all-new addition our our launch, also craftsmanship lineup. material in leading beautiful, by legendary first premium the early finest & foam all-new timeless the In shape. Tempur-Pedic, features The Stearns Foster the Tempur for personal and This proprietary & be unique final This launching IntelliCoil offering without also Stearns we'll ultimate sacrificing provides featured engineered utilizes size XXXX, and phase to of Foster and technology exclusively for your durability. work. memory comfort the for design time support lineup

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

highly learn the that new area to future. have Marketing and three-year them our reality brands considered Our the are advertising and of to the level are elevated the is concerning And some most support area an with average. marketplace. an in spend brands Tempur-Pedic, to that & in Foster rapidly on relative in Sealy, of well-known continue Stearns we'll customers we where products, adjusting about we our more changing

optimize The sure properly and not distribution they long-term initiative make third we're relating trying choose our they choose. is to where want products all which in to are channels, shop to to channel influence represented worldwide customers to

You as grown we follow our might our has note that of the in last from in X% ever-changing three channel X% direct-to-consumer years, business to habits. customers the purchase

of beds shows purchase making test before want clearly the the vast research store decisions. to Our in majority consumers

to is priority retail partners. third-party top our So our support

to However, is of who growing bedding segment there online. prefer products customers this purchase

with building as more such made other investment out we are channels, online e-commerce platform, in an have closely marketplaces. alternative our We and own working large

near-term Our products, growth last of our lives drive in XXXX to flexible long-term channels, focus EBITDA. new beyond. and increased and call Sealy retail the we the expansion initiatives value. customers' earnings well-positioned questions. products, you shareholder our Tempur please will is brands, headwinds, price distribution Despite believe operating open productivity initiative alternative stores, the industry-leading to and increases, omni-channel on ongoing groundwork recently With laying are increased inactive Operator, several and improve platform, model up Tempur iconic for is for create our

Operator

with Seth Securities. comes Our first question from Wedbush Basham

Seth M. Basham

Thanks morning. a and lot good

Scott L. Thompson

Good morning.

Seth M. Basham

Tempur-Pedic My first question is quarter. on line product this the

expected. talked expectations? try You for quantify us you to Can higher that being how your to about much cost you relative than cannibalizations

Scott L. Thompson

than out impact, and more then called expect, couple a what, delta called and we that we was second. the was biggest the be It commodities of cannibalization was would out things, Commodities and cannibalization? we

Operator

Thank you.

with Piper next Peter Our question from Keith Jaffray. comes

Robert A. Friedner

for morning. Thanks Hi, Peter. it's Friedner actually my for taking Bobby question. Good on

Scott L. Thompson

Good morning.

Robert A. Friedner

There's now. a lot of margin cross-currents clearly on right

can thinking and was through XXXX. on through margin, level, takes walk puts you just wondering, like I out Just various the high if (XX:XX)

what ongoing tailwind see as you terms a might detail, Thank or you. of neutral? become might In be what headwind, what

Scott L. Thompson

start clean then up. that, help want and to I'll to You Bhaskar,

Bhaskar Rao

sure. Sure,

of – will as that quarter. that material, perspective the XXXX complete by side our the from things, a about in products Tempur have think the I be mentioned margin prepared first As we will the we be in a couple from new

get positive So mix. we'll

continuing productivity for In tailwind addition, perspective from and is us. what the we'd should expect a manufacturing that ops a be

In grow we Tempur think is as about to it Sealy. would addition, than I expect faster

well. we let's get would mix positive see we into it, XXXX So as positive, brand as call

Scott L. Thompson

Yeah.

issue. and negative us price about, we're when but the we launches marketplace thought increases, the then and then you're to through And we've which addressed issue, of normal from issue back talking working new going we've that that between doing at that the – I time all have got get us. had through designed That than have when the think we dealing It's correct the the product think look we Tempur. operationally the we the stepping that been cost the for is that's hitting we're to you same hit kind commodities you margin about known we're the net greater but about price that. mix clearly positive. the we're to flows time lag savings the trade-down something really that are time product I and mix the or issue with. increases, number hit those And stuff got We've just and planned

the appear expected. as that and work been have we nature in headwinds you in to feel temporary than see to me greater numbers So clearly be the but we through,

Bhaskar Rao

The mention than like item I'd business... expect the to other is only grow direct to would we faster

Scott L. Thompson

channel... a from Yeah,

Bhaskar Rao

perspective. ...channel

Scott L. Thompson

– some should we We channel should yeah, favorability. get

Operator

you. Thank

Our next comes with Curtis Nagle BAML. from question

Curtis Nagle

quarter? very be there of performance but I guys to lot issues control, then the just lot and Thanks what you in guess your that rest two things out much. a guys top-line conservative Great. break been are you gives transitory the basis being for America appropriately and out see after of year on have A And you another look, confidence of as for downs, disappointing quick to a not the of guide understand North here. going follow-up, Tempur? able I Sealy Would we're

Scott L. Thompson

the the sometimes. that's nature Well, predicting of future

have that been guidance. exactly right. the a We've has And get doing done year can we our on been that not have don't dynamic job best some control. control, with some it within You things been our in it things the

confident when it the we're about, product call of we'll at one we'll we and the talk think look Tempur is trends. I current reasons

growth of doubled some driven in what, with revenue that North If challenges standpoint. standpoint was has you a in being double north unit XX%? Tempur look a from basically is by growth at And on has Sealy. Bhaskar, still like October Tempur rate in From a grown, acceleration growth unit standpoint, standpoint on October, an what America the up

Bhaskar Rao

Correct.

Scott L. Thompson

the the the are near third a basically But we growth continued same that could that robust, trends we you current are So rate current term trends in quarter trend growth When rate the look robust. in into on they certainly change. reported October. International,

Operator

you. Thank

Our next question Raymond from comes Bobby James. Griffin with

Bobby Griffin

Good in my you, went onetime onetime taking guess color manufacturing to how little guys, was North bit charges get going think during should of the about on the morning. type Thank and that and questions. for footprint America the changes I I more items forward hoping a quarter and what segment? exactly in we charges into

Scott L. Thompson

Sure.

around had the a America, North items Comfort Revolution. in So specifically happening, couple of we

So we the during and effectively together. is we brought as entity XXX% just operations of did third acquire we've we what those quarter reminder, did two a separate – as that done

And So final then we with into well associated our had one. people restructuring cost be optimization. would associated two supply with as the those it one the as organizations chain cost just

associated manufacturing ourselves our footprint, cost as a that. associated unwound pension with optimized people we So with getting primarily from as well

International, did going costs quarter. Bhaskar, would like costs primarily the As fourth some are International count one you And restructuring expect in payback? operations item pro think what those about we XX-month I at you looking got and we head as we forward, do our restructuring when formas the indicate

Bhaskar Rao

correct. That's

Scott L. Thompson

That numbers. the through flowing

Bhaskar Rao

correct. That's

Operator

you. Thank

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

Bradley B. Thomas

Yeah. Thanks. morning. Good

Scott L. Thompson

morning. Good

Bradley B. Thomas

help products trend I'm the couple will profit out. with just next Adapt, how new North pricing actions results connecting of and could sales here, you and out of think guess, taking. that hoping the products in the America, over ProAdapt, I the about seeing the quarters new sort was rollout dollars if I you're of – here us rolling has margins very with just dots gross good I

guess Thanks. would like the as still think down I into get XQ be how that – I these should me move gross are the sales expecting ahead you but margins help still P&L you in quarters. few to America trend margin all XQ imagine better, we next So North do here, to and and the quarters moves just please? expecting accelerate, you

Scott L. Thompson

little Okay, let some if me while, a of talk that, let see kick I'll can then with in. and kind of for help I Bhaskar and

own all, margin, I obviously it pace into quarter on expect The you because the yes, Breeze would about in to of the from there has don't there designed no in Tempur is of sales product question increased the in market it of it's on-budget, America we have been lot best data but it we marketplace, it's yet, accelerate the lot have is the standpoint. as or doubled just now. XXXX. stores X% longest, own well. with don't today data stores, and our Luxe it Luxe model from the place to fourth the gave mean on-time, have out right obviously quarter, on we on and trends When probably to sales with what think that floored but has look The hitting launch we only that you First a in a I said I on-schedule, sit X% do North maybe is is October, talk because do. Luxe fourth here the product a ASP which is I at early market our later in We to the floored, so where done has has

the you then increase and to feeling quantification of in have on feel Bhaskar, but would from it me been early. recollection give it's in is we effect in quarter third place would some if my and of have $XX the quarter, fourth had helped negative the there in with beginning price that. price you other the The offset the incremental increase quarter, we for but about the the entire out EBITDA number, picked I million and headwind commodities that, that good we're is again So And up stuff. the know, what

what number impact on price actions product you I've was, we've got So new given and a hitting.

So feel actually we good in feel look, general, we about pretty – very Tempur. yeah,

the October. said, volumes were up XX% I in unit As

revenue a below obviously, bit of we a a what to would from because losing lower challenged got generally we've Sealy probably the on standpoint end we're a product headwind, Now, standpoint margin is and Sealy little be challenged not expect $X,XXX.

So it. that items in think (XX:XX) I I've helped other any the reconcile

Bhaskar Rao

that's of think of the from hit I just about a specifically fair. we If in full it think full quarter, commodities cannibalization. the would effect I the got macro effect third perspective and with

as As we get do the the increases the think of the quarter, rolling out. as benefit I about fourth Luxe price well

and I So is what, third as products would would as is, I to tough we coming well the mentioned, from that think that us anticipation from standpoint. things standpoint, think us help or those for mix an a items with get quarter new better

Operator

you. Thank

next Michael Our UBS. from comes Lasser with question

Michael Lasser

products. a Thanks you price the my price by lower in that lot only taking the morning. saw the you close but you're point much. also stores closed? from – Mattress see that cheaper the from question. your very you not of impacted how what optimism XXX clearly And versus then going be and your environment from already anticipation increases activity business forward? a category And follow-up, what's have the reconcile poor is for as benefit bed, moving stores cannibalization, intense to the promotional How contribution Good so competitive do the you benefit Firm the a Thank to they you have expect have that the that seen much from

Scott L. Thompson

and competition, through of but a look to that we'll wherever is a like that question draw it, Good of into at more markets. up market split the web going over and Great. the more call coming you two mention XXX%. very would points the There's to call below our I'm is want of kind and it alternative level, I channel More bedding questions. line. stuff should part pages – is business market interesting and challenged no It's high distribution, business $X,XXX

a moving we've clearly mean I I area. So lot Like where in a But and – to going said, they're they're alternative customers buy what got on of working that's a channels. growth around our channel XXX% challenged use we're it. beds look, to

pick that So take topics there. market, or Chinese imports

high-end, items. bedding If those by does is not to be public impacted you customer move being There the appear company. another high-end

last they the reported think had seven pretty I sales they've over weeks. robust

doing well is and very clearly product Our performing. Tempur

do the as America, the quite that particular our product that not we as feel But North If we're of dealing that Now, issue frankly robust. freshening a customer of challenged. brand does high-end feels mix far strength relates have the segment with. just that anything, in to

different So say guess, two it's up. it's showing really I'm the I markets way, to is going

on walked Firm – the a I'd of sector. end of the on have Now lower really for item Mattress premium update away that from they more market us a probably and the is stress

really don't much see premium we retailer. a So them as

are least way stores a, firm some through that too Now, in kind slight question. don't those estate issues or indications get obviously stuff. quantify some sales but significant call, really you early own would when to that which and close you other might closing are a to what benefit far in of Early real our a seeing from other what but and closings, a flow our small about it's you through are stores, it size. so have the indications that try store guide a think get enough sample to stores that asked early to retailers, tell because benefit fascinating it's at we're I data conclusion. is they have area, of retailers seen they working and They're I some very early we've slight I that to that

good weren't of over other. to would amount expect to flow to other they that close and when I the would would time. that So they're think next I each we're on themselves. bit it. other would stores, a that's watch expect the we'll those study But they that would continuing across I large that estimate recapture revenues business marketplace. right street from like stores the But each they through one of person's be there right that a

Operator

you. Thank

Our next from Baugh question with comes Stifel. John

John Allen Baugh

was could, Good bad you quantify morning the and as of Sealy performance where a sense internationally you talk about revenue wondering earnings we into on the maybe debt from little more XXXX. you. Sealy expect numerically A, and what the is how thank that where to go if I some number, numbers out it contribution give And these the domestically and not maybe influence be? us is,

Scott L. Thompson

to going come to I'm Yeah, that. (XX:XX)

out you debt flow you there's would the bad if figure million... about that a eventually through statement $X look of what think reserve cash I

Bhaskar Rao

correct. Incremental,

Scott L. Thompson

quarter. the incremental ... in

been been a a that restructuring and issues the and about. that customers customers $X call I'll hope million in their hit there's with about relative hope we'll time unanticipated. and we've we those asked guy So for bad what to, credit long they've call, to dollar very working you same At time, But quarter the good successful. continue $X goes a million

to integrated to because you're contribution out disaggregate we've impossible I operations. trying when profit Sealy from think Tempur figure the it's

are that So integrated the From digits. I revenue I low can't so operations because down answer a that single difficult. it's standpoint, really think

Bhaskar Rao

Correct.

Scott L. Thompson

all And I what going feel we're to call, coming from, It's I'll continue suspect $X,XXX. on Sealy. that some to below headwinds

overall the ASP is company and up moving look you're just both getting, very the but is ASP low for seeing you end Sealy at is some. what worldwide around certainly up, because and is up – If ASP, it's

brand which is working the on we're think is now, you. have alternative some But the America, are channels we'll and and brand, who for XXXX to in is success news Sealy hopefully open channels very right and I we're aggressively opportunity have biggest really Sealy working it. in pointed question the very North in where with the some your those

Operator

Thank you.

Merrill Our from next comes William Lynch. America Reuter Bank with question of

William Michael Reuter

you guess, that Hi. I competitive that at taking Multiple and of are Thanks. And they changing in the prices. see? been much think bed-in-the-box share? is continuing product seeing the lower have to times of change China you morning. something guess I guys, which the you're Good referenced secondarily, dynamics are in do that then terms bedding guys, still you've terms dumping

Scott L. Thompson

Sure.

at which about. in bed-in-the-box talk an end. imports in to to as America a talking of guys, of or Interestingly, the Chinese North coming in department and it the Mattress don't there's Chinese lot be it people First imports, and all, North They headline the group, of issue the be low yeah, still stores, and of the yes, some it America, as are change whether sure, issues here, and still whether the Firm contraction, be – be whether in to distribution that we're bankruptcy the there're impactful related used and industry. appear a to wanted kind Sears be

think anybody. the than Chinese them I quite hitting imports are harder frankly

a group as and You in that of actually lot a America can't comes probably much units get as were in the that group some surprise if is in a the segment good numbers they're mattresses puffery out growing growing if and of business. stuff in of of particular declining. that they're in there's obviously North it My feeling me wouldn't mattresses that that North very not America gut

as like are again, I think be sure, is quality bed-in-the-box their with rate revenues but for the in that keep growth rate. call behind rapid to and try growth what international and to might beds can't bases them in I'll feels it dog industry's, numbers. growing total they other a gut you me those my feel, But things get days

Operator

you. Thank

Our from Bob Drbul next question with Guggenheim. comes

Robert Drbul

third coming please? Hi, just could of the going I out sales was especially growth the fourth against inventory good you quarter talk morning. quarter, into wondering the if about levels, the

Scott L. Thompson

ahead. go Bhaskar, Sure,

Bhaskar Rao

Sure.

days basis, an think preparation you Luxe think in our prior our to see about launch. primarily I that's with days a year if associated did inventory it we the So increase for our relative on levels compared inventory and year-over-year in about inventory

an as it gets there, – or launches should So launch the from it should anticipation as out days standpoint that Luxe is improve.

Robert Drbul

Yeah.

there bit You've in also inventory planning for of tariffs? got a little

Bhaskar Rao

Absolutely.

adjustables. the with associated primarily So

Scott L. Thompson

Yes. correct. That's

Bhaskar Rao

clean, that's not not an But issue. even in it's total, is an inventory –

Scott L. Thompson

to Correct. fair that's Yeah, say.

Operator

you. Thank

JPMorgan. next with comes from Our question Casella Carla

Carla Casella

items tariff tariff impact any The under guess purview that not Hi. some you're were the of One that on issue. cost yet, tariff, on lower they're because not that the have follow-up imports, is under correct? seeing the the I

Scott L. Thompson

as correct. of That on I tariff is had impact Yeah, don't slowing any has now. the think down China imports

Bhaskar Rao

(XX:XX).

Scott L. Thompson

That correct. is

Bhaskar Rao

(XX:XX).

Scott L. Thompson

think sit as I imports. on may significant, It today, down become any don't impact it's slowing we Correct. had China here but

Operator

Thank you.

Our Curtis with Nagle next question BAML. from comes

Curtis Nagle

Yeah.

Just on to quick guidance? that an if I currently re-floor I were say follow-up, with, my that guidance your would a impact you're guess hypothetically business retailer on doing not guys have guess, a question. you large

Scott L. Thompson

lawyers you don't level, I me beds not imagine a always I to very sold listen it's high thinking hypothetical, what Yeah, I look, about but with to think tell Firm, would go saying do up. Mattress supposed I'm sometimes go guidance but hypothetically, if to our sales retailer at But about, business Yeah, I can't which look, would again talk we you're more yeah, a look, expect were if them. we mean to sure, up.

no of would floor I have have so and in But work they're You'd they're know market a expect the through. of the whether segment large XX% don't of and investments of they're to the market business which the EBITDA to to going of market, North I'm are, or contracting, but of a some probably where matter bedding zero. go POP, XX% models you – they say look, balance that's share we where up, they're American have XX% you

in incrementally right if done the certainly increase balance company way. would that any share positive in So be it's particular for the segment of in

Operator

Thank you.

Our next JPMorgan. from follow-up a with Carla question is Casella question

Carla Casella

Hi.

– today versus your versus overhead of costs? breakout – percentage a other your some the costs cost gave how information on also can transportation of key are increases. much kind raw any You Have us materials give you you – what of

Scott L. Thompson

bucket. it probably XX%? could was Bhaskar, XX%, do You a big

Bhaskar Rao

raw majority are materials. with vast of The associated Sure. costs our

that way Scott, the of, think So XX% I the fair, to would in vicinity is about is XX% raw it's associated. material

Operator

Thank you.

follow-up Michael a UBS. is Lasser with question question next from Our

Michael Lasser

morning. breakdown put ability that had give again achieve segment some of sales Scott, and a Good from taking bed those long-term over targets by index the in you of in the out do there? market think sub a Thanks that about question. perspective? you And – their do for to you then, Can $X,XXX aspirational the lot previously beds your my do us how the on a profitability EBITDA that

Scott L. Thompson

that. Yeah. help I can some with of

below is indexed up below significant. to $X,XXX detail from I $X,XXX from For may standpoint, fixed really it significantly cost. product revenue a just is I cover helping There we're don't mean some not word in under even the break probably which is down going but use be a right? competitive reasons, standpoint a profitability

– that So the from answer that of question. standpoint can I if part can I

clearly, aspirational into headwinds. run we've targets, some far As as

Firm. Mattress being ones biggest the of One

doesn't I currently us we our aspirational referring as any that those current any But to would you're sit, think that. guidance trigger to. close through work that we'll of So targets get certainly plans

Operator

to not for any Scott time. further turn to closing. at the over I'd back And questions call showing like I'm this

Scott L. Thompson

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

Operator

gentlemen, concludes today's this presentation. Ladies and

You disconnect have and wonderful a may now day.

Tempur Sealy International (TPX) 1 Nov 182018 Q3 Earnings call transcript