Q2 2021 Tempur Sealy International Inc Earnings Call
[music].
Good day and thank you for standing by welcome to the Tempur Sealy second quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
And to ask the question during the session you will need to press star 1 on your telephone. Please be advised the today's conference is being recorded if you require any further assistance. Please press star zero.
I'd now like to hand, the conference over to your speaker today I'll share more Investor Relations. Please go ahead.
Thank you operator.
Morning, everyone and thank you for participating in today's call joining.
Joining me today are Scott Thompson, Chairman, President and CEO, and Bhaskar Rao Executive Vice President and Chief Financial Officer. After prepared remarks, we will open the call for Q&A.
This call includes forward looking statements other subject.
Subject to the Safe Harbor provisions of the private Securities Litigation Reform Act of 1095 of.
These forward looking statements.
Involve uncertainties and actual results may differ materially due to a variety of factors that could adversely affect the company's business.
These factors are discussed in the Companys SEC filings, including its annual.
It's on form 10-K, and quarterly reports on form 10-Q under the headings special note regarding forward looking statements and risk factors any forward looking statement speaks only as of the date on which of his name. The company undertakes no obligation to update any forward looking statements.
This morning's commentary will include non-GAAP financial.
Youll repletion reconciliations of this non-GAAP financial information can be found in the accompanying press release, which is posted on the company's investor website at Investor Dot Tempur Sealy Dot com and filed with the SEC. Our comments will supplement the detailed information provided in the press release.
And now with that introduction.
It's my pleasure to turn the call over to Scott.
Thank you Albert.
Good morning, everyone and thank you for joining us on our 2021 second quarter earnings call.
I'll begin with a few highlights of our record second quarter financial performance.
Oscar will then review our financial performance in more detail.
Finally, I'll conclude with the comments on the health of the industry and our current robust order trend.
With this quarter's report the team has now grown sales and adjusted EPS by double digits for 8 of the last 9 quarters.
Specifically for the second.
2021 sales grew 76% year over year more notable sales grew very robust a very robust 62% as compared to the second quarter of 2019 of period not impacted by the pandemic.
We delivered strong.
Quarter inch across North America, and international segments with growth across all brands.
Panels and price points.
Our strong sales performance was driven by successful company initiatives record demand for Tempur, Pedic and the U S and of solid industry backdrop.
As a result, we generated record second quarter, adjusted EBITDA of 270 million and.
The increase of 147% versus the same period last year.
Adjusted EPS was <unk> 79, an increase of 295% versus the same per.
Performance of the year.
Second quarter, GAAP EPS was up 527%.
We achieved these.
<unk>.
Despite significant supply chain issues that are constraining the entire bedding industry.
These issues limited our ability to fully meet.
Strong demand for our products and are expected to continue to impact our sales potential through the third quarter of 2021.
Oscar will discuss the this point in more detail in a moment.
I'd like to highlight a few items from the quarter.
First our focus on a comprehensive.
For utilizes omni channel strategy continues to drive growth and profitability.
Our direct channel.
The company owned stores and E Commerce had a standout performance compared to both 2020 and 2019.
We saw strong foot traffic at our retail locations the small customers.
<unk> returned to shopping in store.
We also saw an uptick in conversion and strong ASP growth of our web sales generated strong double digit growth a remarkable performance considering the difficult comp from the second quarter 2020.
Our online business was up over 125.
<unk> from 2019.
Like our third party retailers and our direct channel and company owned stores also had to navigate the current quarter supply issues, which are equally impacting all channels of distribution.
Second I want to highlight the numerous investments we're making.
For spanned our north American manufacturing capacity to service the long term demand outlook, we see for our brands and products.
As previously announced we have selected location in central Indiana as the site, what we expect will be the largest to perceive the manufacturing facility.
The first.
First phase is planned for approximately 700000 square feet with the ability to expand over time to approximately of 1 million square feet.
We plan to begin construction on the site later this quarter and expect the plant will be operational in 2023.
Additionally, we're opening.
The 2 new facilities this quarter, our fifth Sherwood facility in the northeast United States will support OEM initiatives and a new mixed use assembly facility on the West coast, which will support the west coast retailers.
<unk> to shorten order to delivery times.
As you can see.
We are positioning the company for long term organic growth.
Turning to the final item I want to highlight as previously announced we recently executed an agreement to acquire dreams.
The uk's, leading bedding retailer.
The operate through a successful multichannel retail strategy.
Comprised of over 200 brick and mortar locations and industry, leading digital capabilities across the U K.
In addition to the retail presence they are vertically integrated with manufacturing and distribution assets. We're very pleased to report that we received all regulatory approvals and the transaction is scheduled.
To close in early August.
We expect this transaction to be immediately accretive to earnings.
Mike low the CEO of dreams will be joining the T X.
Ex executive team.
We're thrilled to have all of the dreams management employees join our organization.
We believe the acquisition of establishing.
Bush's Tempur Sealy is a market share leader in the UK.
Moving to operate on a standalone basis, there'll be reported within our direct channel, which over the last 5 years has grown at a compound annual growth rate of 40%.
After the dreams acquisition, our direct to consumer business will represent.
25% of our global sales on a trailing 12 month basis up from only 4% 5 years ago.
Okay.
Before I hand, the call out of the basket.
Let me step back for a moment and reflect on our journey over the last 2 years.
Clearly.
Our sales have been and continue to be strong.
We're expecting 2021 sales growth for them.
60% over 2019 of period not impacted by the pandemic.
I wanted to provide some perspective on the key drivers of this growth.
While.
While market strength has been a tailwind for us during this period, our sales and earnings growth has been had been significantly higher than the overall industry and can be linked to our company initiatives.
We estimate our new distribution drove approximately 50% of our 2 year growth.
To be clear this is not change in balance of share on the retail floor.
These are new customers.
Another approximately 35% of our growth is from M&A and share gains from previously untapped addressable markets.
This includes projects like expanding our direct to consumer and OEM.
Businesses.
That leaves approximately 15% of our 2 year growth that can be attributed to the growth in the industry overall.
We have clear long term initiatives robust free cash flow and a solid balance sheet, which we believe position us well to deliver double digit earnings growth in.
Sales and in 'twenty 2.
And beyond.
With that I'll turn it over basket of walk you through the financial statements in more detail.
Thank you Scott.
For going into the details I would like to highlight a few items as compared to the prior year.
Adjusted gross margin.
In 2370 basis points to 44, 3%.
Adjusted operating margin improved 770 basis points to 19, 4%.
Adjusted EBITDA increased to 147% to $270 million.
And adjusted earnings per.
Can improve increased 295% to 79.
I would like to start by discussing the industry wide supply chain constraints.
As Scott mentioned the record demand for our brands and products has resulted in supply chain disruptions across several categories.
<unk>.
While the availability of certain commodities improved throughout the quarter the availability of other key components as well as inbound and outbound freight worsened.
We continue to turn away, new North American customers and have our existing customers on allocation.
Per share, earning our own online and retail operations.
The supply chain issues.
Continue to impact our North American Sealy in the OEM businesses.
Resulting in our backlog of expanding and remaining elevated throughout the second quarter and into the third quarter.
And while our supply of these products has improved in line with our expectations. We now anticipate the record demand for our products most likely we will exceed supply into the fourth quarter.
Our Tempur operations had previously been largely unaffected by the supply chain constraints due to.
Our robust inventory of finished goods and raw materials, including chemicals.
The record demand for Tempur products in North America created favorable brand mix for the second quarter.
However, the limitation in supply chain resulted in Tempur working down of inventory to a sub optimal level.
As a result of decreased inventory and continued record demand in the third quarter.
The the order to delivery time on Tempur is temporarily extended by several weeks.
We expect our North America, Tempur backlog to peak in the third quarter and reduce in the fourth quarter.
Across our entire North American business, we estimate sales would've been $150 million higher than the second quarter had we not experienced supply chain constraints.
This is in addition to the backlog increase I just discussed.
Due to these constrained sales.
<unk>, we do not expect the normal seasonality of our business for the back half of this year.
We would expect the fourth quarter will be unusually strong as we work off of a large backlog from the third quarter and hopefully take customers of allocation.
We expect this variation in the <unk> seasonality.
As a result of net sales and profits being higher in the fourth quarter than in the third quarter.
Based on our current outlook, we anticipate these constraints will largely be resolved by the end of the year and we expect to be unconstrained heading into 2022.
The team has.
<unk> been managing a highly inflationary commodity environment.
As expected our gross margin was negatively impacted during the second quarter from the timing of price increases to retailers compared to the timing of commodity inflation.
We're feeling a bit of this again in the third quarter.
As all the news is we have taken pricing actions in North America that will benefit the fourth quarter and beyond.
While we have neutralized the dollar impact of commodities in North America through our pricing actions. Our gross margin rate is impacted as sales increase with no change in profit dollars.
In 2022, assuming no change in commodity costs, we expect to pick up some profit dollars and margin from our pricing actions. This year as we realize the full year of new pricing.
Turning to North American results.
Net sales increased 75% in.
In the second quarter.
On a reported basis, the wholesale channel increased 77% in the direct channel increased 62%.
North America gross profit margin improved 360 basis points to 42%.
North America second quarter operating margin was a record 21.
1, 4% an improvement of 640 basis points as compared to the prior year.
These improvements were driven by the leverage as well as prior year was significantly impacted by Covid.
International.
Net sales increased 79% on a reported basis and on a constant currency.
It has increased 65%.
The strong sales performance internationally was broad based across both Europe and Asia Pac.
As compared to the prior year of international gross margin improved 440 basis points to 59, 8%.
International operating margin was 27, 9%.
An improvement of 840 basis points as compared to the prior year.
These improvements were driven by leverage as prior year was significantly impacted by Covid.
Now moving to the balance sheet and cash flow items.
We generated a record second quarter operating cash flow of 227 million.
As noted earlier, we are running very light on inventory and I would expect that our inventory days would increase back to a normalized level by the end of the year.
Yes.
At the end of the second quarter consolidated debt less cash was $1.5 billion and our leverage ratio under our credit facility.
1.4 times.
Down significantly from 2.8 times at the end of the second quarter of 2020.
Once we close on the Dreams acquisition, we expect our leverage ratio will be about 1.8 times.
For the last 12 months, we have allocated over $1 billion in capital.
He was the acquisition of dreams.
Share repurchases and dividends.
We repurchased $62 million of shares in the second quarter, bringing our total share repurchases in the first half of $2000.21 million to $376 million.
And over the last 12 months to about <unk>.
For the <unk>.
As we have stated previously for the full year of 2021, we expect to repurchase at least 6% of shares outstanding.
I am pleased to report that our board of directors have declared a nearly 30% increase in our quarterly dividend while.
Half of bill maintaining a conservative payout ratio.
This significant increase to our quarterly dividend demonstrates the confidence we have in our outlook.
Which includes the impact of the acquisition of dreams as well as our expanded direct to consumer and OEM businesses.
All of which have diversified our.
Sales and significantly improved our operating cash flow.
With this backdrop the board decided to increase the quarterly dividend aligning it closer to the company's previously announced annual dividend payout target of 15% of net income.
Going forward, we would expect the board.
<unk>, our quarterly dividend strategy on an annual basis.
Now turning to 2021 guidance.
We have updated our full year guidance to reflect our second quarter performance the.
Of the inclusion of 5 months of dreams.
Our fourth round of pricing actions.
2 of band our update of supply chain outlook.
We currently expect sales growth to exceed 35%.
Adjusted EPS to be between $3.10, and $3.25.
A growth rate of 64% at the midpoint.
This implies EBITDA to be approximately $1.1 billion at the midpoint.
Lastly, I would like to flag a few modeling items.
For the full year 2021, we currently expect total capex to be between 150% of $165 million.
<unk>.
Capex was increased to reflect the latest estimate for the previously discussed capacity expansions.
D&A to be between 175% of $185 million.
Interest expense of about $55 million.
The tax rate of 25%.
<unk>.
With the diluted share count of 204 million shares.
And with that I'll turn the call back over to Scott.
Thank you Bosker next job.
Good morning. Thank you for you moments to discuss the health of the bedding industry and recent consumer.
Trends.
As I mentioned last quarter, we have never felt better about the bedding industry.
For the past few years, certainly has been a transformative period that created a healthier operating environment for all bedding players.
This transformation.
Driven by the rationale.
Utilization of retail store footprint.
Expanding digital marketing and retail capabilities.
Our customer centric focus.
Anti dumping dumping actions Kirby and the sale of import mattresses into the U S market net.
The box startups shifting their focus.
Towards profitability and industry stabilization, resulting from a reconciliation with the largest U S bedding retailer.
Also we see shift in consumer discretionary spending patterns.
Over the past decade, we see the consumers have been consistently under investing your discretionary income.
Income in home and furnishing.
And the last year of consumers have invested a slightly larger portion of their discretionary income and the category, although theyre spending as a percentage of the share of wallet.
It has not returned to the pre great recession levels, we expect consumer spending to.
To be strong.
Okay.
Before the pandemic, we were already starting to see strong trends towards greater focus on health and wellness and.
And the trend has accelerated over the past year.
<unk> are increasingly enacting the goodnight sleep with their overall health and are more willing.
To invest and of high quality innovative mattress and can help them achieve just that.
This has resulted in strong demand increased asps.
Kind of potentially shortening of the replacement cycle across the industry.
We also see an overall macro consumer environment continuing.
Continued strong.
The bedding market performance has historically been positively correlated to various macroeconomic metrics key economic indicators such as consumer confidence.
Tumor spending.
Tumor savings unemployment trends and housing metrics all continue to be strong.
This indicates to us the consumer spending on health and wellness will likely continue to be robust going forward.
We expect that the health conscious consumer robust consumer spending and a strong bedding industry will provide an attractive backdrop for us to continue our track record of growing our market.
Market share in the $50 billion global battery market.
We expect to achieve sustained long term growth through our commitment to driving our 4 key initiatives first.
Develop the highest quality bedding product of all of the markets that we serve.
The second promote worldwide brands with compelling market.
<unk> third optimize our powerful omni channel distribution platform and fourth drive increased EBITDA and prudently deploy the capital.
We're taking the following actions to deliver on these initiatives.
We will continue to leverage our century of knowledge and our industry leading development capability.
<unk> by delivering award winning products that provide breakthrough sleep solutions to consumers around the world for April rich legacy of delivering innovative products that resonate with consumers.
For example, more than 2 thirds of our second quarter sales were from products that did not exist 5 years ago.
We have about 900 patents on our products and other patents pending in numerous areas.
We have a robust.
The pipeline products currently being developed the integrate cutting edge technologies capabilities and construction.
To continuously bring an improved sleep.
The market.
These innovative products from our highly recognized brands are supported by compelling marketing designed to drive increased brand awareness and purchase intent.
Have a track record of success here in.
And currently our research indicates that consumers show record level of purchase intent.
Inspiration of our products.
In fact, Sealy and Tempur were ranked as number 1 and number 2 best selling mattress brands in the U S by furniture today in 2020.
Not only with Sealy able to extend its lead in the top position the Tempur Pedic leapfrog to.
And the competitors to claim the number 2 spot furniture today also estimated that temp repeat it had the greatest growth of any of the U S bedding producers last year.
<unk> in 2020 for the second year in a row Tempur Pedic ranked number 1 in the U S mattress satisfaction report by J.
<unk>.
While we are broadly distributed with our branded product. We recognize there is 1 portion of the U S market, we were not participating the OEM market a year ago, we began expanding our reach into the segment of the market and generated 150 million of net.
J D power in 2020, we.
We believe we can reach 600 million of OEM sales over the next 5 years as we utilize our best in class manufacturing and logistic capability to sell of non branded product.
This will allow us to earn our fair share of the OEM bedding market, which makes up.
Say, 20% of total domestic Betty.
This is the expansion has the added benefit of <unk>.
Driving down our cost per unit of our branded product as we spread fixed cost and drive more advantageous supply agreements.
We.
About half of a plan in place to accelerate our market share gains in the $30 billion international retail betting market, we plan to unlock organic sales growth through.
Expanding the distribution of our brand and product and the rapidly growing Asian market.
We're broadening our international total addressable market via.
We also.
Our new line of Tempur Pedic mattresses, beginning of 2022.
We're repositioning the Sealy brand in the U K to fill high in consumer unmet needs and lastly, we expect over time to leverage dreams retail core competency to drive additional international.
National growth.
We will continue to leverage our robust cash flow and balance sheet as we prudently deploy capital. This includes making operational investments pursuing compelling M&A opportunities and returning capital to investors through dividends and share repurchase.
Turning to ESG.
I think we all know success is about more than just sales and profit.
Take a moment and highlight a few of our recent ESG initiatives. These ongoing initiatives reflect our commitment to our community and environment.
During the quarter Tempur.
Tempur Sealy Foundation contributed its largest gift today in the form of a $2 million donation to support the establishment of the Tempur Sealy pediatric sleep center at the Kentucky Children's Hospital located in Lexington, Kentucky, The home of our global headquarters during the quarter.
We also made progress toward our goal towards achieving carbon neutrality for our global operations.
Happy to share that we have completed the installation of solar panels at our largest manufacturing facility in Albuquerque, New Mexico.
These panels will generate enough clean energy to power all of its mattresses.
Interest Assembly lines.
Additionally, we have recently approved the installation of solar panels at our European Tempur manufacturing facility.
Now before turning the call over for Q&A.
Briefly comment on current order trends.
As <unk> indicated demand for our.
Brand and products remain robust.
In fact, we are seeing third quarter order trends up about 20% year over year with Tempur, North America, especially robust.
This robust demand for our brand and products give us confidence in our ability to continue to deliver.
Strong growth in the future.
With that operator will you. Please open the call up for questions.
How does that reminder, cast for the question you will need to press star 1 on your telephone.
[noise] withdraw your question press the pound King we ask that you please limit yourselves to 1.
The question. Please standby, while we compile the Q&A roster.
Our first question comes from the line of Curtis Nagle from Bank of America. Your line is now open.
Good morning, guys. Thank you very much for taking my question.
So for.
Follow up on.
1 quick comment Scott on the quarter.
Demand is awesome right clearly of the model of in fantastic shape.
But could you kind of provide just a little more detail in terms of the actual I guess expected sales growth for 3 or 4 Q a lot of moving pieces here or is it just kind of 1 of those instances of at least I think where I think we can just use a little bit.
Youre holding in terms of the model just so we can yes.
I guess our expectations.
Alright.
Sure and good morning, I always appreciate the opportunity to hold your hand. So thank you. Thank you for the question.
Look the.
The second quarter as you described was neither.
More head of them.
Banning of whatever terminology you want to use clear.
Clearly it was it was over our expectations.
The Tempur North America was especially strong in the second quarter and as you know, we build inventory and the retailers successfully depleted our.
Ask torry to a level that was sub optimal I think it's the term term.
So when you go into the third quarter, although the the orders are very robust and that was what I was pointing out at the end of the prepared remarks.
The inventory that you can take into the third quarter in North America with Tempur is somewhat lower than we normally.
Wood and Thats going to create some some backlog issues in tempur at the end of the third quarter.
That particular issue creates some unnatural seasonality and I think the Boston was pointing out in his area. So the orders.
The 20% worldwide so far.
This quarter North America stronger in Tempur specifically.
But some of what will be natural third quarter business, where it was going to move into the fourth quarter.
And then I think we've given you some guidance on the full year that'd be the the first thing I would tell you of the second thing I would point out that way.
Pointed out in the prepared remarks.
As you remember last year Sealy was highly constrained.
Due to the spring shortage that we were spring shortage that we were dealing with quite frankly, the worldwide, but specifically in North America. So we had unusually rich brand mix.
This year the springs are in great shape and factors.
Senior Springs.
The world and in North America, and there won't be any constraint on springs, and there will be some still some constrained.
On the foam issue, but we would expect.
During the third quarter to work off some of the Sealy backlog that we're taking into the into the quarter and we expect.
Hopefully all of the issues related to the supply chain to clean up.
During the fourth quarter.
That's a naturally lower volume quarter for us.
We see good trends both in chemicals and other component issues. So we think we cleaned it up and we go into.
The.
<unk> unconstrained hopefully that helps some.
Thank you. Our next question comes from the line of Seth Basham from Wedbush Securities. Your line is now open.
And good luck.
I'm wondering my question also revolves around the near term just making sure that we have.
Visibility and confidence that will be all of placebos backlog resolved in the fourth quarter is there any evidence that you can share with us that leads you to believe that you will be able to get through this backlog in the fourth quarter.
Sure sure.
First the natural seasonality.
It's certainly a good guy for us when you are talking about that.
Plus we have I think the.
The biggest issue right now of chemicals and Thats of domestic issue that is not of worldwide issue. It's the chemical issue here domestically.
Everybody, including us.
Morning.
Ordered chemicals from the from oversees all of those chemicals or on the water.
In some cases they are in the port and so we've got good visibility as to solving the chemical problem.
More than just relying on the domestic manufacturers, but thats kind of thats going to take some time and I'm sure.
From your other customers and clients.
The logistics and the world arent quite as crisp as they normally are.
We're dealing with a little bit of the logistics issue.
But youre talking about months.
Months not quarters, 2 to probably get some of those chemicals onshore and take some of the pressure.
Of that particular situation.
Thank you. Our next question comes from the line of Peter Keith from Piper Sandler. Your line is now open.
Hey, good morning, Great results guys. Some of the ask break the rules of the 2 questions.
The <unk> question, just with the Q3 Q for I guess my concern is.
We could model of revenue is too high in Q3, if youre, having a delay with the timing of labor day. It seems like sales could shift out of Q3 end of Q4, so any any concern of quantification there and then separately what is the total size of the backlog.
For the back half of the year that you expect to work down.
Sure let me see the.
Maybe Boston, even give you some more detail.
And look this is an imprecise science and we're doing guessing, but if I would guess today I would guess that at the end of <unk> will go into the thick of tempur as having relatively.
No or limited backlog the into the third quarter I think exiting the third quarter, you should think about probably a backlog of tempur of about $100 million right. It would then move into the into the fourth quarter.
When you talk about total sales for the third quarter, we don't really give up we don't like talking.
In the quarters.
But you would expect the sales to be more in the third quarter than the second quarter gross new.
The set grow correct growth, but it's going to be muted by the tempur backlog the.
The other thing I'd point out that we pointed out in the script that it wont be very clear in addition to the backlog.
As we've talked about in the second quarter, we have.
Major customers on allocation.
Yes.
It's just a matter of fact.
And we probably at least.
Deferred of $150 million of sales in the second quarter.
So when you really look at the demand. This is of this is a big demand.
We're working through.
We have customers in the third quarter, our continued on allocation and hopefully when we get to the fourth quarter, we're expecting that we'll be taking customers off of the allocation and get.
More to 2 of normal flow.
Because of anything you can think of the help them the model.
I think in another way to think about it Peter is think about our 2 year stack that we quoted in the second quarter, we came in and in and around what we thought at about 62% the.
Implied 35 in excess of 35% a way to do.
That if you think about the rest of the year, it's going to get you something a little bit north of that 62, so an acceleration.
And think about more of that in the fourth quarter than in the third quarter as Scott and we do think of it about $100 million of backlog will flip in the fourth quarter the.
Hopefully that will.
That will assist.
And Boston I'm glad you brought up at 62% because quite frankly of all of the numbers maybe other than EPS.
I was pleased with is when you look at the 2 year stack, it's a 2% increase so.
We're going to be a lot of companies that have a big eye popping growth because you've got an easy compare last year.
The pandemic, but the number of its really.
Makes you feel good about the teams the 2 year stack of 62%.
Thank you. Our next question comes from the line of Atul Maheshwari from UBS. Your line is now open.
Good morning.
Thanks, a lot for taking my questions Scott.
In the press release, you highlighted that 15% of yard of revenue growth over the last 2 years all of its driven by the strong market backdrop.
And I know youre expecting that the market is going to be fairly good going forward, but to the extent that it does.
The.
The current trend to reverse and you kind of see some pressure going forward. What how can you do you have to offset this market pressure and still meet the consensus expectations of mid to high single digit growth for the next few years. Thank you sure sure I think first thing I'd point out of the reason I kind of dissect it our growth.
It's my perception.
The most people think the industry is more robust from the actual industry is.
The public company sales numbers the public companies that you see are taking share and some of the private companies are.
Donating share so.
Growth I don't think the industry to actually realize the growth rate that most investors Inc.
Because of the industry has been constrained and I don't think we've been pulling forward sales I think we can pushing off savings and so that was the main reason pulled kind of dissected. It so the the.
Asian of your question is it's by the booming market and what happens when it's not a booming market settlement push it back a little bit of I don't think it's been that big of a booming market because we haven't been able to build the beds as an industry the.
The second point is okay. So it does slow down a little bit.
We've got lots of drivers.
<unk> when you look at our direct business.
But look the web business alone in the second quarter, even though it had triple digit growth last year.
We got we had double digit growth on top of the.
We're doing great on the web business, we've got our own stores, you'll get expansion in our Tempur stores.
Flagship stores, we've got expansion sleep Outfitters, we've got new initiative in Europe, and will all of our international in Tempur as we go for larger addressable market.
And per product.
Asia, where the.
I think the question is mainly focused on the use of the agents continued to grow.
So even if it slows back down to what would be normal trend.
It looks like for me, we've got good growth of the top line, but we also got a lot of opportunity on the bottom line look this disruption from a component standpoint of plants from floppy foster.
Foster's called that out of several quarters, I'm going to call it $5 million to $10 million of quarter of sloppy.
Because of the supply chain, we get significant free cash flow that we've got to invest somewhere.
Whether that'd be the share buyback of whether it be in highly accretive acquisitions I'm not sure yet, but it certainly got the invested in somewhere.
<unk> because of that our debt leverage pay down to 1.4 times at the end of the quarter when 8 after <unk>, we've got a very accretive acquisition debt.
Gets layered into the.
The next year and we get the full benefit of pricing increases that we took this year.
The benefit benefit next year.
So.
It looks it looks like it's.
Good day Lane I'm going to say for.
For quite a quite a while but again I think the main main point I want to make is the foundation of sales overall in the industry are extremely robust I think orders and demand is very robust but.
I think the industry sales are lower.
And some people perceive right. Let me just do that math is 15% the <unk>.
Growth that would equate to about 5% and if you just think about the industry over the last 2030 years, that's not far off ramp, yes, I guess I forgot to mention we have customers all of them.
On allocation correct.
We're not accepting new customers.
And so I guess all of that combined although we haven't done our budgeting for.
For next year, yet I think we're going into the budget season, feeling good about next year.
Thank you. Our next question comes from the line of.
Chairman Chen from Goldman Sachs. Your line is now open.
Hi, there. Thanks for taking my question I guess the first 1 is really just time.
The backlog with some of the customers on allocation of potentially having to share from new ones. The way I guess, a few things has that put any sort of pressure.
Sure on the relationships there our satisfaction or is it understood that this is just the general industry.
Headwind and also I guess is there of risk that they potentially go elsewhere to get product and the.
Then just finally has there been any resistance to increases in pricing. Thanks, so much.
Okay, very artfully got 12 questions in Hawaii, and I'm going to try to remember busters right in very quickly.
First of all of this is an industry issue.
It's not of company specific issue, it's an industry issue is for.
Far as constraints so.
I think everybody understands that and not only is it just the bedding.
Bedding industry issue I think we all know what you try to order of or try to order furniture, we tried to offer of boat or would you try to order anything right.
Right now the worlds of little different and so not that people are particularly wonderfully happy about having to wait.
Think of that helps and were not seen.
Any issues, both in our own stores or with retailers as far as from cancellations.
As long as you can tell the customer when they're going to get the product.
Hold the the delivery time and communicate with them.
No no issues so from that simple.
Put pressure on relationships, yes sure.
So I'm going to say.
I have some customers that arent happy because they think they could sell more and they probably could.
We can build more faster.
But it kind of comes with the territory..1 thing we're doing is we're treating all channels.
And so you could you could argue.
Argue that if you just wanted to optimize our EPS for this quarter last quarter anything else.
Benefit our direct channel over the other panels.
We're not doing that we're constraining our direct business in the same way that we are constraining the rest of the channel for treating everybody what we believe.
It's fairly and and again, we also see in into this and the relatively short period of time, but we are we as a company are disappointed that we're not able to deliver.
As quickly as we have in the in the past.
The link any pushback on price.
But.
On the price glad you asked look over the last 12 months or so the industry has pushed more pricing through the system than it ever has in the history of bedding by a large amount.
The pricing has gone through crisply.
Industry has accepted it and quite frankly customers.
<unk> have accepted it.
For us push pricing through we don't put margin on it so our sales go up but.
Our gross profit percentage can go down so it cant put some pressure on the percentage, but it offsets the cost for the retailer quite frankly to the extent customers.
<unk>, except the pricing.
There's margin in there and the retailers have.
Had.
It's been good for the retailers that the pricing move.
Move through the system, but again pull industry moved it.
Based in commodities.
And no resistance and I don't I don't see any resistance of quite frankly of the commodities go up again.
To push pricing again.
But right now it feels like it's probably we've probably done enough domestically might have to do some more internationally being that things scale.
Thank you as a reminder, cash flow question, you will need to price.
Pardon.
We have the next question comes from the line of Bobby Griffin from Raymond James Your line is now open.
Good morning, everybody.
For the switch the conversation to international a little bit and Scott or box here can you give us maybe an update on the 2022 launch as any of the supply chain issues, maybe impact of that and then I guess more importantly, now.
That you'll own dreams by the hottest dreams come into play for the.
The big International launch of any potential benefit you see there that might not of.
The invisible before you acquired dreams sure.
The launch and the products in development are in great shape.
It's tracked.
<unk> to plan.
As I've mentioned before.
The biggest chemical issue and constraints are really domestically not internationally. So we're not we're not have any significant infuse internationally realm.
Relative to the constraint.
The little Pandemics of little bit more challenging getting people together.
That kind of stuff, but we're working through that but right now I'd tell you. The large international launch is on on plan on time on budget, yes.
Everything. So then you asked about how does the dreams kind of fit into that and let's talk about dreams for for a minute.
Dreams.
It's a <unk>.
Retail it can be run stand alone.
But certainly it helps.
We will get a very focused dreams on the new product.
But I don't I think the for them to be successful they have to decide what their merchandising plan is and what the delta.
Of the cycle, but.
But we are expecting.
The big things launching quite frankly, we're expecting big things from dreams, and although nobody asked I guess I can tell you the U K betting market of dreams is performing very well, even though we havent quite closed it yet and I think that that acquisition is the sum.
A skill set that we didn't have.
Before.
And I think over time and we're talking here.
<unk> I think that that would be a good foundation for growth.
International.
Thank you. Our next question comes from the line of Jonathan Matt.
Hum.
Your line is now open.
Great. Thanks for taking my question and nice results.
A question around.
Some of your key retail distribution partners are it seems like the revamping their own marketing campaigns recently around the importance of sleep.
Jeffrey <unk> see it on a national basis across advertising medium period.
How much do you think this kind of raised the awareness.
And how it could benefit the industry sales in the back half and beyond.
Sure and I'm not going to talk about any individual customer, but it's of great question.
Kind of step back because it's more than just really this quarter.
If you look at the index the quality of the industry's advertising both in content and how they go to market whether it be online it has improved.
Our major customers have really done an outstanding job in the marketing Department.
And I think the debt as part of the underlying demand at the whole industries.
<unk>.
But I continue to be impressed by the major retailers' new ad campaigns.
More professional.
More customer focused.
And I guess I can really just not just go through the through the advertising the industry in total and especially the large customers have become so so much more focused on the customer customer experience.
Customer service.
Yes.
I can't Couldnt be prouder of our large customers in the way they have.
Weighted over the last 5 years.
From a from a go to market standpoint.
Thank you. Our next question comes from the line of Carla Castella from J P. Morgan. Your line is now open.
Hi, I'm wondering.
2 questions I wanted to wrap in here, but.
The I'm wondering if you think that the supply chain disruption has been picked up any sales actually from that from competitors, who may have had even greater supply chain disruption and then you mentioned your order to delivery times can you just give a sense of where they are in terms of.
The ads in the worst markets today.
To put into context of 1 of the.
The expansion you're doing on the West coast sure from the.
The supply chain standpoint, I don't know, it's pretty hard to I don't think we picked up any particular share relative to supply chain.
Because here's the challenge.
Because.
Of the battery and growing so much faster than everybody else.
We have great relationships with our suppliers, but we have to get more components not just what we got last year some of our competitors who are not growing.
We're not growing very fast they are there challenges might have been less because theyre not asking for more.
Does.
Components of that makes sense to you, but as I said, we grew 62% on a 2 year stack. So we're having to go out and get more accounts.
So I'm going to say on total we're probably it was neutral from a from a market share of standpoint.
As far as the order to delivery of <unk>.
For by brand.
I'm going to say normally sealy order to delivery 3 days bosker give or take in a normal world order delivery 3 days of the Sealy products.
And we're probably how many weeks do you think in Sealy now a few 3.3% to 4 I'll call. It 3 to 4 it's going to.
A byproduct by plant.
Kind of thing, but that kind of gives you an idea.
The Tempur is build to inventory so inventory in D. C is all of the United States.
And that is normally you just the order it and youre going to get it.
A week within a week.
Very.
And probably some of our large menu.
Retailers have have obviously their own DC.
And now tempered probably 3 or 4 weeks, yes, 3 or 4 weeks out yes.
Depending on product.
And location, we think the.
The sealy backlog might come down a little bit in the third quarter, but still be there.
Tempur backlog should probably peak at the end of the third quarter and we should be able work at all all of hopefully in the fourth quarter and unconstrained or customers.
Thank you.
The next question comes from the line of Brad Thomas from Keybanc. Your line is now open.
Hi, Thanks for taking my question and congrats on a great quarter here.
A question for Scott in Boston for each if I could.
Got you mentioned, the 20% growth in orders that Youre.
Yes.
I Wonder if you could maybe speak to some of the data points, you're getting from your own <unk>.
The business.
Just to make sure we're pulling out any extra orders that youre seeing maybe as retailers are trying to fill inventories.
And then <unk> I was hoping you could just talk a little bit about your latest.
Expectations for raw material.
We're seeing an impact on EBITDA through the balance of the year and for the year on the whole.
Yes the.
Number I gave you is what I'll call of clean number for orders.
We don't let the retailers quarter for buy up or or do things like that to try to kind of.
Game the system.
So.
That would be that'd be a solid worldwide order.
Correct and then I would tell you in North America is stronger and then within North America I would say Tempur is really strong.
That's right.
As it relates to.
Cereal aerial if I just go backwards the debt in the second quarter, we had an expectation about what wed see let's call that $20 to $25 million and we did anticipate at that time that some of that with the.
Dissipate as we get into the back half.
Good news Bad News Bad news is is that sitting here today is that that did not happen.
Over as part of the contemplation during the second quarters that we did indicate if pricing was more sustained or inflation laborious day, we put in the price increase so we have done the at the price increase does go into our fourth round. It will go into place in the third quarter.
And.
We haven't specifically talked about the size of raw materials. However, what I would say to that is that is it is significant.
And the.
<unk> of the strength of our brands and products. What we had been able to do is we have put in pricing debt fully offsets all of the pricing of the inflation that we see.
And the anticipated inflation that we see for the balance of the year and then as you think about 2022 as Scott said is that we will get the wrap around effect.
So pricing will be a help for a tailwind as we get into 'twenty 2 and beyond.
Thank you our next question comes.
Sign of Judy Merrick from true with your line is now open.
Okay. Thank you. This is judy in for Keith Hughes most of our customers have been asked but just a follow up on the international question on the dreams.
So the.
Net.
It hasn't changed anything about your temperature.
The next year.
Europe for either of the pace of how you're going to do that is that right.
That's correct I mean dreams is already an outstanding customer of ours.
So I don't think it really changes much for the Tempur rollout.
There is some possibly incremental opportunity is on the sealy.
The rollout of <unk>.
Sealy is there not a big Sealy retailer at this point.
And we just recently acquired our Sealy rights back.
And so we'll work through that over the next year and see what the opportunity is for the Sealy brand on the dreams.
But from a 10%.
Standpoint, theyre already great timber customers.
Already.
Okay.
Thank you arent in the next question comes from the line of Bob <unk> from Guggenheim. Your line is now open.
Hi, good morning.
Just a quick question following on the the discussion around.
Advertising and marketing when you think about sort of the strong demand that youre seeing in some of the supply chain challenges. How are you guys of managing your own advertising investments in marketing expenses.
And I guess the plans for the remainder of the year that would be helpful. Thanks, Yeah. No very good question look we could.
Good.
The manage the business.
And optimize earnings per share and maybe that's what we.
We shouldnt do maybe there are some people who think thats, what we should do but that is not what we're doing okay.
Even though the demand is great we are not.
Trying to optimize EPS for a particular quarter.
This is going to be the biggest year of advertising the history of the company and we have not pulled back.
Advertising.
During this period because of the advertising brand building for the long term and we're setting ourselves up for for next year from 22.
Especially over over in.
Yes.
No.
It's really quite good we debated internally.
And you wonder like Okay, Sujit should you try to optimize and now we look at it as a long term commitment of our retailers expect us to be in the market to continue to drive business in the network. So we're not really turning on and turning off advertising.
<unk>.
Trying to manage it we're committed to the brand and the good news is when we do our brand tracker and we look at customer intent.
We continue to see building strength in our brands.
Relative to other people in the market. So we think this long term consist.
And Europe commitment.
To drive advertising and <unk>.
<unk>.
Is the right for the long term so.
That's what we're doing into it's an interesting question that we debated several times this year within the group, but we're in it for the long term.
Thank you.
Of the allocated time for questions have come to an end I would like to turn the call back over to Scott Thompson for closing remarks.
Thank you operator.
For the over 9000 employees around the world. Thank you for what you do every day to make the company successful to our retail partners. Thank you for your outstanding representation of our.
Our brands.
Our shareholders and lenders. Thank you for your confidence in Tempur Sealy leadership team and its board of directors.
Since the call today.
Operator.
This concludes today's conference call. Thank you for participating you may now disconnect.
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