Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to Tempur Sealy third quarter 2019 earnings Conference call.
At this time all participants' lines.
So to speak as presentation, there will be a question answer session to ask the question doing session you wouldn't surprise start wine telecom.
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Now, let's see conference over to your speaker today.
People are with Investor Relations. Please go ahead.
Thank you operator.
Good morning, everyone and thank you for participating in today's call.
Joining me in or Lexington headquarters, or Scott Thomson, Chairman, President and CEO , and both square Executive Vice President and Chief Financial Officer.
After prepared remarks, we will open the call for QNX.
Forward looking statements that we make during this call are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Investors are cautioned that these forward looking statements.
Including the company's expectations regarding sales, earning net income in adjusted EBITDA in anticipated performance between 15 and subsequent periods involve uncertainties.
Actual results may differ due to a variety of factors that could adversely affect the company's business.
The factors that could cause actual results to differ materially from those identified include economic regulatory competitive operating and other factors discussed in the press release issued today.
These factors are also discussed in the company's FCC filings, including but not limited to an annual report on Form 10-K , and the company's quarterly reports on Form 10-Q under the heading especially note regarding forward looking statements and or risk.
Any forward looking statements speak only as of the date on what you just need to.
The company undertakes no obligation to update any forward looking statements.
This morning's commentary will include non-GAAP financial information.
The press release contains reconciliations of non-GAAP financial information to the most directly comparable GAAP information, except otherwise discussed in the press release.
As well as information regarding the methodology used in our constant currency presentation.
We posted a press release on the company's Investor website at Investor Dot Tempur Sealy Dot com.
Also filed it would be FCC.
Our comments will supplement the detailed information provided in the press release.
Now that introduction.
It's my pleasure to turn the call over to Scott.
Thank you Albert.
Good morning, and thank you for joining us on our 2019 third quarter earnings call.
I'll start with comments on the quarters operating performance.
Oscar will review our financial performance in detail.
Finally, I will conclude with an overview of our long term corporate initiatives and some thoughts on capital allocation and current trends.
The third quarter 2019 with outstanding.
Both across all three of our regions North America, Europe and Asia Pacific.
In fact, this quarter was the best quarter in the company's history.
We're pleased to report as compared to last year sales and earnings grew double digit our leverage ratio declined and we repurchased 50 million common stock during the quarter.
We had a strong conversion to cash and there were no onetime adjustment in EBITDA.
Turning to the reported results for the quarter net sales increased 13%.
Adjusted EBITDA increased 17% and adjusted EPS increased a very robust 28%.
This marks the sixth consecutive quarter of adjusted EPS growth.
The positive results were broad based brand channel and geographic perspective, demonstrating the strength of the company's competitive position around the world.
The last few quarters demonstrate our ability to navigate regional economic uncertainty and take advantage of the changing bedding market.
In North America, we're excited to start a new relationship with big blocks and mattress cover during this quarter, we completed the rollout of Sealy products at Big walk and subsequent to the ended the quarter, we began shipping products to mattress firm.
During the third quarter. These accounts did not contribute to earnings and in fact, we experienced 5 million of inefficiencies as we ramped up staffing for our new business and expanded our quality control procedures.
Both new accounts are expected to positively impact our operations starting in the fourth quarter of 2019.
I'd like to highlight three items from our third quarter results.
First as I mentioned global net sales grew 13% for the third quarter versus the prior period with broad based increases in demand above our expectations for both Tempur Pedic and Sealy all around the world.
Looking internationally net sales grew 8% on a constant currency basis.
We experienced a degree of market uncertainty.
UK, France, Hong Kong, and China, which created choppy business conditions. Despite these country specific issues the international team delivered solid performance.
In North America, we grew sales are robust, 15% in the quarter with both Tempur pedic and sealy growing double digits.
As a reminder, this quarter had no new products and no significant changes in distribution for the Tempur Pedic brand.
Roll out at the new Tempur Pedic product lines were completing the second quarter and new significant distribution gains for Tempur Pedic start shipping in the fourth quarter 2019.
We believe Tempur Pedic continues to take market share in the premium price band I should also note that we improved our product mix as our high end Tempur Breeze products continue to gain momentum.
Turning to see lease performance in North America.
We're very pleased to see continued sales momentum while at the same time, we also successfully expanded our distribution.
The combination resulted in outstanding sales growth in the quarter.
Our focus on internal initiatives to deliver the highest quality product and the highest level of manufacturing reliability and customer service continues to be the reason that existing retailers lean into our portfolio of products.
We also believe the recently enacted anti dumping case duties against China manufacturing benefit all U.S. bedding manufacturers.
Our North America operation team has evaluated our near and long term opportunities with Sealy and Stearns <unk> Foster.
Results of which are that we expect to open one new state of the art Sealy plant in Texas in late 2020.
Although we currently have adequate capacity to serve the market. We believe we have long term upside and these brands and this plant will support our higher volume of units, we expect across the U.S. network.
The second highlight from the quarter was the over 60% growth and our global direct channel.
International direct grew 21% on a constant currency basis.
Growth both in E Commerce business and our company owned stores.
In North America, the direct channel almost doubled year over year.
And grew over 30%, excluding the acquired sleep outfitter stores.
We opened our Fiftyth tempur pedic retail store during the quarter and we expect opened a handful more by the end of the year.
As we said previously we can see the Tempur pedic retail stores over the long term being 125 to 150 store opportunity.
Stores open more than a year had very strong same store sales at over 20%.
It's worth noting that the same store sales growth does not include our ecommerce channel.
Our direct to consumer online channel also had solid double digit growth.
It is clear that our direct to consumer business is significantly outperforming the average disruptor brand in the U.S. market.
Oh and sales growth and more importantly in real sustainable profits and cash flow.
The third highlight for the quarter, Here's the reported the highest quarterly gross profit in the company's history at 361 million.
The cumulative growth from our direct channel.
Higher product mix due to the success of our premium price Tempur, Pedic and Stearns <unk> Foster products.
And unit volume increases resulted in gross margin leverage.
This quarter reported gross profit is greater than the gross profit we generated back in 2016, when we had higher total sales and are betting products were sold through a greater number of third party retail doors.
Including mattress firm.
Over the past few years, we've developed a new innovative products invested in our operations and diversify our go to market strategy all to live deliberate healthy gross margin expansion and broad based sales growth.
Our competitive position has never been stronger.
On top of this momentum we're thrilled to have improved our wholesale distribution in North America I recently entering into a new when when supply agreement that matters for which we believe will benefit both companies and the U.S. bedding business as a whole.
Before turning the call over to BOSC or I want to mentioned two members who are executive team will be taking on new reduced rolled starting 2020 as they transition towards retirement.
Brick Anderson, NBP, President North America, and Carmen to Barrow SVP of human resource.
Want to thank them for many years of contribution to Tempur Sealy, we've been preparing for these transitions for several years and I'm very confident in our secession plan.
With executives have built a strong team and internal leadership is in place to ensure continued performance with that I'll turn the call over to BOSC or to walk you through the financial results in more detail.
Thank you Scott.
Before going into the details of the quarter I would like to call out a few highlights outside of those previously mentioned.
As compared to the prior year adjusted gross margin increased 160 basis points to 43.9%.
Adjusted operating margin improved 130 basis points to 14.7%.
Adjusted EBITDA increased 17% $250 million.
And adjusted earnings per share for the quarter was $1.30 cents, an increase of 28% versus the prior year.
This was driven entirely from operating performance versus share buybacks.
Turning to North America.
First I would like to discuss some financial reporting reclassification.
As previously announced we have acquired sleep outfitters, which was fully integrated into our North American direct channel during the second quarter.
[noise] sleep Outfitters had historically been part of our wholesale channel since they were previously third party retailer.
Accordingly, this impacts our growth rates within both channels.
North America net sales increased 15%.
On a reported basis, the north American wholesale channel increased 9%.
In the direct channel increased 89%.
Excluding sleep outfitters, the wholesale channel increased 11%.
And the direct channel increased 37%.
The sell in a big lots contributed several points of growth to our sealy business in the quarter.
Eric and gross profit margin improved 220 basis points to 42.1% as compared to the prior year.
This was primarily driven by improved Tempur merchandising mix.
Jason benefits and favorable commodities.
As expected our gross profit margin was impacted during the quarter.
We took incremental steps to ensure the highest product quality and great customer service to all ahead of the expected higher volumes from the new distribution.
And as Scott mentioned this resulted in inefficiencies of about $5 million in the third quarter and was not treated as an adjustment to our reported results.
North American operating margin improved 170 basis points to 17.6% as compared to adjusted operating margin in the prior year.
This is primarily driven by improved gross margins, partially offset by higher variable compensation.
Turning to international.
Net sales increased 4% on a reported basis.
On a constant currency basis international net sales increased 8% the direct channel increased a robust 21%.
In the wholesale channel increased slightly.
As Scott noted earlier, we experienced a degree of market uncertainty and specific geography, and thus we expect sales growth to decelerate in the fourth quarter.
As compared to the prior year, our international gross margin improved 10 basis points to 53.1% an operating margin was stable to prior year at 19.6%.
Turning to the company's global performance.
Operating income was 121 million and adjusted EBITDA was 150 million.
22 million from last year.
The increase in EBITDA was primarily driven by pricing benefit.
Higher volume and favorable commodities.
This was partially offset by higher variable compensation as we're performing a good bit over target.
Inefficiencies as we ramp up the new distribution and innovation investments.
Regarding commodities.
Input costs were in line with expectations for the third quarter.
However, we have seen those trends approved and now stabilized.
We now expect a few million dollars of incremental benefit in the fourth quarter.
The tax rate was 26% down for 28% in the prior year and interest expense was 21 million also down from the prior year.
All of this resulted in adjusted EPS for the quarter of $1.30 cents up 28%.
Now moving to the balance sheet and cash flow items.
We generated record operating cash flows from continuing operations of $156 million and the third quarter.
Cash cycle was unfavorable by 11 days compared to the third quarter of 18.
This was principally driven by higher inventory levels to support our launch with new distribution.
I'm pleased to highlight that we recently completed the amendment of our credit facilities.
This refinancing reflects our success in strengthening our global competitive position.
Our successful expansion into direct to consumer business and recent market share gains in North America.
This transaction increases our operating flexibility.
Extends our debt maturities.
Represent the lowest interest rate spread on a like for like basis in the company's history.
This is a direct will flexion of our powerful omnichannel strategy and our disciplined capital allocation approach.
At the end of the third quarter net debt was 1.5 billion down from the second quarter of 19.
Our leverage ratio under a new facilities came in at 3.2 times down from four time reported for the third quarter of last year.
I'm pleased to highlight that we lowered our financial leverage a good bit while also buying back stock.
Turning to guidance.
We have raised our 2019 guidance, we now estimate our adjusted EBITDA to be between 485 million and $500 million.
This raises the midpoint by $28 million.
This increase of the midpoint is driven by.
The over performance of our North American business during the third quarter and the more favorable outlook and the timing of or launch and back stock Sunland with mattress firm.
This will be partially offset by increases in variable compensation.
The launch with mattress firm is ahead of our initial expectations and is expected to result in a sales lift in the fourth quarter, partly from discounted floor models.
In the first quarter of 2020, we anticipate seeing initial signs of what the steady state business would look like related to volume and product mix.
Lastly, I would like to flag a few items for modeling purposes.
For the full year 19, we currently expect DNA to be between 115 and $120 million.
Total capex to be about $80 million.
Which include maintenance Capex of 60 and investments in ERP upgrades.
Interest expense of 85 to on $90 million.
Attach rate to be between 27 and 28%.
And a diluted share count of 56 million.
Please note the above items consider the impact of our announced share repurchase plan.
With that I'll turn the call back over to Scott.
Thank you Bossier great job.
Now turning to the company's long term initiatives.
I'll start with.
Optimizing our powerful omni distribution platform to be where customers want to shop.
Earlier this year, we announced two material wins in distribution with big lots and a new agreement the mattress firm.
Third quarter was the largest expansion of doors in a single quarter in the company's history, which we expect to talk with even more doors during the fourth quarter with the launch of mattress firm.
The integration in coordination with both of these organizations people has been phenomenal.
As we look forward, we continue to expect these expansions in distribution to generate in excess of 400 million, an incremental sales and 75 to 100 million an incremental EBITDA.
As a complement to our material wind and our wholesale distribution.
Our direct channel continues to expand rapidly.
We continue to see robust year over year sales growth through online sales growth.
Same store sales growth and expansion of our company owned doors.
Let me add a few comments about the online marketplace in general.
We find that consumers are more digitally savvy than ever.
The majority of customers want to visit stores to touch and feel the product the frequently start their shopping experience online before entering a retail store.
We've made adjustments to our strategy and expanded our reach online in for ways to complement our presence in the market.
First is our own Tempur Pedic dot com side, we identified this is a strategic opportunity in 2016.
Which we then grew an expanded sales on Tempur pedic dot com by over 300%.
These sales have driven incremental profit and support material online advertising.
The fact that more consumers are willing to purchase a bit online has been a positive trend for this segment of our business.
Second is our focus on a web based third party retailers.
We have a dedicated sales team who focus on E marketplace sales growth.
While still in the very early stages, we've experienced significant growth well maintained stable profit margins similar to the fleet average.
Third is helping our traditional third party retailers expand their brand presence online.
Our retail edge program has been a key initiative for our sales organization to connect the findings from new billions of hours of consumer research into actionable insights for a dedicated retail partners. These investments are not insignificant and are consistent with our passion to help our third party retailers be success.
Hello.
And finally for our expanded offerings that can be easily shift and delivered to consumers doors no matter, what price 0.4 channel a customer wants to shop, we have a compressed product that meets their needs.
We do not direct customers towards any particular channel, we just want to be wherever the customer wants to shop.
My last comment on our omni channel approach relates to sleep outfitters.
I'm pleased to report sleep Outfitters, which was acquired earlier. This year has made significant progress in revitalizing their business and are ahead of plan.
In summary, our direct channel is outperforming the market.
Now our next long term initiative developed the highest quality bedding product in all the markets we serve.
Our premium products in North America have gone through a transformation over the last two years.
We have new product lines in our Tempur pedic enter Stearns and foster brands, which have significantly grown our market share in the most profitable segment of the industry.
I'd like to highlight the breadth and depth of our worldwide research development and quality testing departments. We've combined these assets with a modern insight department that mines consumer data to keep Tempur sealy at the forefront of innovation.
Our commitment to relentless focusing on what matters. The most to consumers has been recognized.
As disclosed yesterday Tempur Pedic was awarded number one and customer satisfaction retail mattress segment.
In JD powers 2019, mattress satisfaction report.
Evidencing the success of our products and delivery on our commitment of exceptional sleep.
Turning to our next initiative promote our worldwide brands with compelling marketing.
We invested significant marketing dollars in the third quarter as we supported our retailers and our new product portfolio.
In 2020, we anticipate significantly increasing our advertising on a dollar basis.
In fact, we expect a record amount of advertising spend for Tempur, Pedic and Stearns <unk> Foster brands in 2020.
More important than the total spend though we continue to strive for efficiency in reaching customers with the right message.
At the right time and in the way they want to engage media.
I'm sure I'll get a question on this so let me go ahead address it now.
As previously announced we extended our 2019 labor day promotion by one week. This.
Extension enable all mattress shoppers nationally and take advantage of our promotion.
But was targeted at those who were planning to purchase a mattress over the years largest holiday weekend and were impacted by the weather challenges along a significant portion of the east coast, preventing them from successfully shopping and benefiting from labor day promotion.
While the result of this extension was immaterial to our business we were happy to successfully support retailers in this unique circumstance hurricane during the industry's largest promotional period of the year.
Our last long term initiative is drive increased EBITDA over the past several years, we've been resetting the foundation of the company by investing in many areas of our business, including product innovation manufacturing optimization marketing building, our direct channel and most importantly investing in our team.
We're seeing the benefits of these efforts, which we believe we'll continue to deliver above market performance.
Turning to capital allocation.
We remain committed to investing capital and opportunities with the highest return on invested capital while balancing our leverage ratio.
Currently we expect to generate cash in excess of our businesses need.
Thus, we expect based on current conditions to repurchase approximately 50 million of our shares each quarter.
In the near term.
Based on today's stock price that is about a 4% return.
Based on our market capitalization.
Capital allocation as a topic at every board meeting.
We recognize we have the ability to repurchase stock they more rapid pace.
Currently believe are consistent measured repurchase pace is appropriate as we maintain future optionality.
We expect to update you are thinking during future calls.
Lastly, before opening the call up for questions I'll turn to current trends.
North America. Its current trends are in line with our expectation guidance with both brands expected to grow significantly during the fourth quarter.
As a reminder, tempur pedic U.S. sales had strong growth in the back half. The 2018, so we have a difficult comp, but we expect to benefit from new distribution in both Tempur Pedic and Sealy brands.
We're in the process of flooring selling in back stock both of which will impact the fourth quarter.
International has started the quarter inline with our expectations, although slightly less robust than the third quarter reporting today.
With that operator, please open the call up for questions.
Sure.
As a reminder to ask a question you want me to press Star one on your telephone to withdraw your question press the pound key please standby well we've compiled the Q in a roster.
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Our first question is from Michael Lasser from you've yes. Your line is now fan.
Good morning. This is a little nice way filling in for Mike lesser Thanks for taking your questions.
So you beat consensus EBITDA by $9 million in third quarter, but the full year guidance by 28 billion. So is it fair to assume that the 22 million or soft delta is being driven entirely by favorable expectations on the mattress firm launch and with regards to the timing of launch can you provide a sense of what's baked into guidance.
Well speak into the guidance or your versus what is baked into guidance now.
Thanks.
Scott Let me start then I'll pass it off to boss Kara.
No answer your first question no the raising guidance has.
A lot more to do with the underlying demand that were seen in the core business. There is some change in the thinking of it launch timing.
Mattress firm in that were a little bit up ahead of our expectations originally.
But the majority of the raise has to do with the broad base.
Improvement were seen in the in the business primarily in the U.S. and as we mentioned before we got double digit growth in tempur double digit growth in Sealy.
And we are doing well in wholesale and we're doing well in direct.
He has some of the question.
Sure. That's that's that that is a fair way to think about its got just reiterating some of those yes underlying business, both tempur and Sealy very strong mattress firm originally had contemplated for models now we see a bit of channel fill happening or backstop happening in the fourth quarter and then we did call out that so those are the tailwinds that we're seeing and then from a.
A headwind standpoint is that we do have international and then some variable compensation.
Thank you.
Our next question is from Bobby Griffin from Raymond James Your line is now fan.
Good morning, everybody I appreciate you taking my questions and congrats on good third quarter. Thank you. So my first question was just around North America gross margin off pretty pretty impressive performance in the quarter, especially with light of or the big lots rollout on can you maybe just unpack a little bit of the drivers about what surprised you versus your original expectations.
What drove the the upside and then how should we frame gross margin in the fourth quarter, given the master some roll out in some more selling a big lots.
Great question, So if I deal with the third quarter. Initially is from the upside standpoint is the volumes came in both on Tempur and Sealy ahead of our expectations. So when we do get more units going through each of those plants, we do leverage our fixed costs and we get more productive et cetera, so that would be the primary driver as.
We mentioned is that we continue to see product mix favorability pricing. We continue to see commodities were in line with our expectations and then that was offset by the investment that we made.
To ensure good customer service as I think about the fourth quarter.
If I put it all together the way I think about it as those those trends that we saw in the third they should continue just unpacking that though a bit is do have as mattress firm for models are going in those will become at a discounted rate.
We did also call out the fact that we will have some commodities favorability a few million versus where we were previously thinking about and good call out Bobby is that we will have the big not big lots coming in which will be at a lower margin, but you put all that together what you'll see is consistent with the third quarter, but you probably also because I know we've talked about.
Earlier busker, that's probably one of the toughest quarters to estimate the gross margin could you got so many moving parts and a lot of that has to do with also the product mix that we don't have good numbers, yet on product mix from mattress firm and we're still working through exactly how big lots works through the system. So it is it's difficult to estimate well done.
Thank you.
Our next question is from William Reuter from Bank of America. Your line is now fan.
Hi, I just had a question around the turnaround of sleep outfitters. It sounds like that's doing better I guess is your plan there to ultimately sell that business and I guess, so what should the proceeds or do you want to continue to operate it yourself yeah.
First of all you're right the turnaround at a a sleep outfitters has gone better than we originally estimated.
In fact, there are approximately breakeven in the third quarter. Our strategy would that particular entity has not changed which was we're going to turn around.
Look at the operations and figure out what the long term plan is for the company. We've we may keep it.
We may do something else with it but right now the most important thing is to get it turned around and the team over there is doing a great job.
Thank you. Our next question is from Brad Thomas from Keybanc Capital markets. Your line is now open.
Thanks, Good morning.
Add my congratulations as well here on some nice trends.
I wanted to ask about the outlook for North America, maybe squeeze two pieces into my question I'm, hoping we could address.
The outlook for North America for for Q.
Obviously it Martin.
Comparison, but by the same token mattress firm, obviously holds the potential to be.
Pretty significant driver of sales so just how you're thinking about the outlook for North America, and sort of the underlying trends in the industry ex some of these new partners. If you could and then if you step back you know as we think about 22000 2021, Scott just maybe your latest thoughts on what the North America business should be growing at ex some of these big account wins.
Yeah.
I'll try to unpack some of that I'm sure all mess it up and then let Bob to clean it up.
You know I think I think first of all I tried to sit in the prepared remarks. The you know not exclude the new distribution wins, because that's actually the part of the business and I'm watching.
The fundamentals ex the new distribution are very strong.
And we would expect them to continue to be strong in the fourth quarter and would expect them certainly to be positive next year and I think that was kind of the first part of your question as it relates to matches from you know, we're not going to do individually revenue guidance by by customer or have a lot of comments on individual customers out of respect for private companies.
Other than agreed to you look there, they're very large and their performance will impact our performance right. Now our team is just focused 100% on providing products for him quality service and I think over the next few quarters.
We'll learn what the right product mixes in volume mix is.
And it will blend into our numbers, but right now we're just in the very early stages.
As it relates to 2020.
As I've said before based on everything we see today and what we know today.
We would expect 2022 clearly be the best.
Financial performance in the company's history.
We've got a lot of good tailwinds, whether it be new distribution, whether it be commodities, whether it be the performance of our direct quite frankly, our international team is dealing with some some interesting markets in doing very well.
We just have a lot of momentum right now.
Thank you. Our next question comes from large campaign from lifts capital. Your line is now fan.
Thanks for taking my question on the mattress firm transition, which is moving ahead faster than them. We in it sounds like you would have expected what's driving that how are you getting that business up and running faster than you previously anticipated.
The mattress firm team is driving.
That that.
When it when it comes to launching products, obviously, we've got to make the product, but who has the heavy lift is actually the retailer.
In the macros team mesh from team is performing very well.
And quite frankly, they've exceeded our expectations and that's resulted in the timing.
The products moving up some.
Thank you. Our next question I have some karru martinson from Jefferies. Your line is now fan.
Good morning.
This doesn't really affect you guys on the high end, but what has been the impact on China imports with the antidumping duties in place are you seeing prices rising across the board.
Yeah, It does affect it affect us although it's not a major driver to profitability. If you look at entry level pricing beds.
Entry level.
That pricing is up.
And continues to feel like it's firming up at the very low in and that does help us at the low end Sealy, if I unpack the products by price band.
And exclude new distribution.
Then we are we're feeling growth at sealy below $1000.
Which we were before the tariffs that was a pressure point for us. So we are we are gaining some volume I think it has to do with the tariffs and as I said in my prepared remarks, I think all U.S. bedding manufacturers have been benefited some but again, it's not a big.
Profit driver.
For us down at that price point.
The other side of that is we do have some of our product that comes in from overseas, which is subject to tariff. So you take that that that a headwind against the the tailwind that we get from the income from the below 1000, and I would think about it as a net neutral.
Thank you as a reminder, ladies and gentlemen, if you have a question. Please press Star then the number one key when you're Touchtone telephoned. We ask that you. Please only ask one question and to freeze meet your line. Once finished speaking. Our next question is from Curtis Nagle from Bank of America. Your line is now fan.
Good morning, Thanks for taking my question.
A quick one on.
How.
Feedback has been on on the active Breeze and I guess, what's your expectation too.
Rolled out out to a other distributors besides your own stores.
Going forward.
Thank you.
Obviously, we got we got two major.
Product lines.
You know passive breeze, which is which is distributed to all retailers and then we've got an active breeze product.
That is in limited distribution now only to our stores.
Look the sales have been good.
The customer acceptance of the product has been outstanding.
And we're continuing to to study the product.
And we'll consider rolling it out.
More broadly in the future, but right now that looks like a winning product from everything we see right now is it kind of in test market.
Thank you. Our next question comes from Peter Keith from Piper Jaffray. Your line is now fan.
Hey, good morning, guys. It Bobby free non for Peter Thanks for taking your question nice results.
Yes, that's a direct business.
Accelerating nicely.
Just give a little more color in terms of how much that growth actually doctors is coming from new stores versus online and then.
Related what's the balance between higher transactions and higher ASP.
Temperaments continues to improve with more presales.
Kevin we work on some of that.
The stores themselves I think the first number that I think I would I would point you towards is that we mentioned in the prepared call call.
Same store sales stores opened more than a year.
Were up 20%.
Which is an outstanding performance and continues to confirm.
That concept has some legs.
Without sleep outfitters.
The business grew in excess of 30% I remember correctly.
And the web itself grew double digits, so the direct business.
Broad base growth in stores and the web business on sleep outfitters.
Yeah, its sales were more or less focused on the actual dollars on sleep outfitters sale and more on driving profitability.
So we were not want monitoring those as much on the same store sales, but the direct businesses is doing very well.
And we continue to be very bullish on call. It 125 to 150 store.
Business model ultimately.
Thank you. Our next question is from John Baugh from Stifel. Your line is now fan.
Thanks, and congratulations most curious if you could comment around advertising spend on marketing spend than 2020.
Sadly the record in terms of percentage as well as gross and I think you were targeting.
Yes, Stearns <unk> foster as well as Tempur brands, but a comment internationally as to which may be doing with marketing and why the weak conditions. Thank you.
It it's definitely going to be a record in gross dollars I probably have to do some homework on percentages because I'd have to go back to the early Tempur days.
And I don't know that off the top my head, but on a gross dollar basis, it will be up significantly.
We do expect some more support into the Sealy and primarily the Stearns <unk> Foster brand than Weve brand than we've done historically.
And then on international basis, it really varies by market.
I will be some markets that will be leaning into heavily.
Like Japan, right and there maybe some other markets were a little more conservative, but it really varies by market I think the key point is that we paused a little bit on advertising as we work through the district the disruption we had with.
The change in mattress firm and so we're a little bit conservative and I think the message for you today is that we're back on with our put on the accelerator.
And expect to increase the Tempur, pedic, and Stearns and fostering sealy share of voice.
Throughout all markets.
Thank you. Our next question comes from Carla Casella from JP Morgan. Your line is now fan.
Hi, I'm just wondering on the competitive frying, if you're seeing any change in either type of competition or online.
Discounting given all of the news and transition to Casper.
I'm also wondering why that line crosses over as well, where do you cross ever most directly with Kasbar and is that changing.
Upfront and pardon me if you hear some background noise, we're kind of the middle of a thunderstorm here in Lexington. So.
There's a little bit of thunderstorm coming through.
First of all let me point out that when we look at customer acquisition costs.
Our customer acquisition cost went down again.
This quarter.
So thats either the of the efficiency of our advertising or less competitive marketplace online I'm not sure, which it is but.
Again, we saw acquisition cost going down.
Kasper is really not very big player.
In the marketplace and so we don't really field them anywhere.
Obviously, we bump into them a little bit online and they've got a few stores, but they're relatively immaterial to our business. Our primary competitor is sort of segments.
In North America, and we see them.
Everywhere we go.
Thank you Sir our next question comes from Bob Jones from Guggenheim airline is now open.
Hi, guys. Good morning, just wondering as you roll out more stores I think you used to give us a metric or you'd given at one point, just the productivity and profitability of your stores versus wholesale accounts you not like 30 wholesale accounts for once you can you give us an update on how that's trending for you.
Yeah, I haven't run the numbers lately.
I remember at about 20 to one.
Off the top of my head you're going to be in that range is probably better than that now because of stores have outperformed track time, when we were kind of studying it that way more importantly, then the individual store economics.
What we're watching closely as when we put a store to in the marketplace, but the whole marketplace is doing.
And where we put stores and these are a couple of stores in large cities.
We are seeing.
We're not taking business from our wholesalers, but in fact, the wholesalers or at least doing as well or doing better than they were doing before we open the stores.
So we think we're raising the whole market when we're just putting a couple of stores in the marketplace and these really are.
Somewhat marketing assets.
Helped drive the brand in the marketplace.
Thank you Sir our next question asked from Judy Merrick from Suntrust. Your line is now fan.
Thanks. This is Judy in for Keith Hughes, just quickly on international you talked about all that topline kind environmental challenges.
Going on different regions, there and everything else you had kind of flattish margins is there anything else going on with the margins or anything kind of add on that.
No I can't beginning in the margins from a margin standpoint, they are relatively stable to big driver. When you think about international is you do see some country mix from time to time, but when I think about international broadly speaking is is that there does remain an opportunity out there specifically in Asia Pacific whether that be through our own subsidiary are working through our Asian JV, but there are certain.
And economies right now there are challenged whether it be Hong Kong or what's happening from a Brexit standpoint.
Thank you at this time I'm showing no further questions I would like to turn the call back over to Scott Thompson for closing remarks.
Thank you.
To the over 6000 employees worldwide.
Thank you for what you do everyday to make the company successful to our retail partners. Thank you for your outstanding representation of our brands to our shareholders and lenders. Thank you for your confidence in Tempur Sealy leadership team and its board of directors.
This into the call for today.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.