Q4 2023 Tempur Sealy International Inc Earnings Call

Yeah.

Speaker Change: Good day, ladies and gentlemen, thank you for standing by your conference will begin momentarily. We appreciate your patience.

Operator: And good day, ladies and gentlemen. Thank you for standing by.

Operator: Your conference will begin momentarily. We appreciate your patience. Good day, and thank you for standing by. Welcome to the Tempur-Sealy fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode.

Speaker Change: Good day, and thank you for standing by and welcome to the Tempur Sealy fourth quarter 2023 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 to ask a question. During this session you will need to press star one on your telephone you will then here in the automated message.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your question is. To withdraw your question, please press star 11 again.

Operator: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Aubrey Moore, Investor Relations. Please go ahead.

Speaker Change: Your hand is raised to withdraw your question. Please press star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker Aubrey Moore Investor Relations. Please go ahead.

Aubrey Moore: Thank you, operator. Good morning, everyone. And thank you for participating in today's call. Joining me today are Scott Thompson, Chairman, President, and CEO, and Bhaskar Rao, Executive Vice President and Chief Financial Officer. This call includes forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 company's SEC filings, including its annual reports on Form 10-K and quarterly reports on Form 10-Q, under the headings Special Note Regarding Forward-Looking Statements and Risk Factors. However, any forward-looking statement speaks only as of the date on which it is made. The company undertakes no obligation to update any forward-looking statement.

Aubrey Moore: Thank you operator.

Aubrey Moore: Good morning, everyone and thank you for participating in today's call joining.

Aubrey Moore: Joining me today are Scott Thompson, Chairman, President and CEO, and Bhaskar Rao Executive Vice President and Chief Financial Officer.

This call includes forward looking statements that are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Aubrey Moore: 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.

Bhaskar Rao: These factors are discussed in the Companys SEC filings, including its annual report on Form 10-K, and quarterly reports on Form 10-Q under the headings special note regarding forward looking statements and risk factors.

Bhaskar Rao: Any forward looking statements speak only as of the date on which has made the company undertakes no obligation to update any forward looking statements in this mornings commentary.

Scott Thompson: This morning's commentary will include non-GAAP financial information. Reconciliations of this non-GAAP financial information can be found in the accompanying press release, which has been posted on the company's investor website at investor.tempursealy.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, Au

Bhaskar Rao: Our commentary will include non-GAAP financial information reconciliations of this non-GAAP financial information can be found in the accompanying press release, which has been posted on the company's investor website at Investor Dot Tempur, Sealy Dot com and filed with the SEC.

Bhaskar Rao: Our comments will supplement the detailed information provided in the press release.

Bhaskar Rao: And now with that introduction, it's my pleasure to turn the call over to Scott.

Scott Thompson: Thank you Robert.

Scott Thompson: Good morning, everyone, and thank you for joining us on our 2023 fourth quarter and full year earnings call. I'll begin with some highlights from the quarter and full year and then turn the call over to Bhaskar to review our financial performance in more detail and discuss our 2024 guidance. After that, I'll provide an update on our proposed acquisition of Mattress Room before opening up the call for Q&A. In the fourth quarter of 2023, net sales were approximately $1.2 billion, and adjusted EPS was $0.53. Our results were in line with our expectation for the quarter, with sales and adjusted EPS approximately consistent with prior years. Now, turning to a few highlights for 2023.

Scott Thompson: Good morning, everyone and thank you for joining us on our 2023 fourth quarter and full year earnings call.

Scott Thompson: I'll begin with some highlights from the quarter and full year, and then turn the call over to basket to review our financial performance in more detail and discuss our 2020 for guidance.

Basket: After that I'll provide an update of our proposed acquisition of mattress firm before opening up the call for Q&A.

Basket: In the fourth quarter of 2023 net sales were approximately $1 2 billion and adjusted EPS was <unk> 53 cents. Our results were in line with our expectation for the quarter with sales and adjusted EPS approximately consistent with prior years.

Basket: Turning to a few highlights for 2023.

Scott Thompson: First, I'd like to highlight the resilience of our business model, our robust cash flow industry-leading balance, and our solid financial position has given us flexibility to capitalize on the industry's opportunity. We're delivering strong operating cash flow, investing in the business, and outperforming the broader betting market in North America and internationally. In the last three years, we've generated over $1.0 billion in cash flow after investing $1.3 billion in advertising and over $600 million in CapEx.

Basket: First I'd like to highlight a resilience of our business model are robust cash flow and industry leading balance sheet.

Basket: Our solid financial position has given us flexibility to capitalize on the industry's opportunities.

Basket: We are delivering strong operating cash flow investing in the business and outperforming the broader bedding market in North America and internationally.

Basket: And the last three years, we've generated over 1.0 billion in cash flow after investing $1 3 billion and advertising and over $600 million in Capex.

Scott Thompson: We believe that strategic investments in our brands, capabilities, and capacity enabled us and our retailers to succeed in a dynamic environment. Compared to the prior year, adjusted EBITDA to net debt leverage declined from 3.1 to 2.87. We expect to continue to reduce our leverage in the coming quarters as we prepare for the closing of the proposed Mattress Firm transaction. The U.S. betting industry, which is our largest market, was challenged in 2020. Based on preliminary figures, we believe the category units were down double digits versus the prior year, and U.S. produced mattress units were below the 20-year trough for the industry.

Basket: We believe the strategic investments in our brands capabilities and capacity enabled us and our retailers to succeed in a dynamic environment.

Basket: Versus the prior year.

Basket: Adjusted EBITDA to net debt leverage declined from 3.1 to 2.87.

Basket: We expect to continue to reduce our leverage in the coming quarters as we prepare for the closing of the proposed matches for transaction.

The U S bedding industry, which is our largest market was challenged in 2023.

Basket: Just on preliminary figures, we believe the category units were down double digits versus the prior year.

Basket: At U S produced mattress units to below the 20 year trough for the industry.

Scott Thompson: However, we have recently seen stabilization of category demand. The international markets we operate in have generally demonstrated similar trends on a consolidated basis. Over the prior two decades, the betting industry has consistently grown through both ASP and unit expansion over time. We anticipate that the category will return to its historical trends of consistent growth with our strong financial position, resilient operating model, and the recent investments we've made in the business. Tempur-Sealy is uniquely positioned to reap the benefits of an improving market.

Basket: We have recently seen stabilization of the category demand.

Basket: National markets, we operate in have generally demonstrated similar trends on a consolidated basis.

Basket: Over the prior two decades, the bedding industry has consistently grown through both ASP and unit expansion overtime.

Basket: We anticipate that the category will return to his historical trends of consistent growth.

Basket: With our strong financial position resilient operating model and the recent investments we've made in the business Tempur Sealy is uniquely positioned to reap the benefit of an improving market.

Scott Thompson: The second item I'd like to highlight is our successful rollout of our new iconic premium products and continued expansion of our extensive manufacturing capability. These actions in 2023 solidified our position as a leading vertically integrated global betting company. Internationally, we successfully launched an all new lineup of Tempur mattresses, pillows, and bedpaces in over 90 markets, introducing new innovation and expanding our total addressable market globally. The consumer-centric innovation and expanded price points in the new collections are driving positive traction among a broad range of customers, including our legacy ultra-premium consumers at mattress prices at $3,000 and above, as well as shoppers for mattresses starting at $2,000.

Basket: The second item I'd like to highlight is our successful rollout of our new iconic premium products and continued expansion of our extensive manufacturing capabilities.

Basket: These actions in 2023 solidified our position as a leading vertically integrated global bedding company.

Internationally, we successfully launch.

Basket: And all new lineup of Tempur mattresses, pillows and bed bases in over 90 markets.

Introducing new innovation and expanding our total addressable market globally.

Basket: The consumer centric innovation and expanded price points and a new collections for driving positive traction and broad range of customers, including our legacy ultra premium consumers.

Basket: At mattress prices at 3000 and above as well as consumer shopping for mattresses, starting at 2000.

Scott Thompson: The reaction to the new product has been positive. On the cost side, we have streamlined the construction of the new product to maximize manufacturing efficiency, and we have enhanced our ability to efficiently customize products to meet customers' needs in diverse markets and channels in the U.S. The new Tempur-Breeze and Stearns & Foster product portfolios completed their rollout in 2023 and realized notable year-over-year growth. The Tempur Breeze portfolio achieved double-digit sales growth and a 5% increase in mattress and foundation ASP, while Stearns & Foster's portfolio also delivered strong sales growth over the same period. These premium brands significantly outperformed the market and drove higher ASP for the entire category.

Basket: The reaction to the new products has been positive.

Basket: On the cost side, we have streamlined the construction of the new products to maximize manufacturing efficiencies enhance our ability to efficiently customize products to meet customers' needs and diverse markets and channels.

Basket: Yes.

Basket: In the U S. The.

Basket: The new Tempur Breeze, and Stearns <unk> Foster product portfolio completed their rollout in 2023 and realized notable year over year growth.

Basket: The Tempur breeze portfolio achieved double digit sales growth and a 5% increase in mattress and foundation ASP.

Basket: Mr. Jonathan Foster portfolio also delivered strong sales growth over the same period.

Basket: These premium brands significantly outperformed the market and drove higher asps for the entire category at.

Scott Thompson: At a time when retailers are dealing with reduced floor traffic, in 2024, we expect to complete the full refresh of our U.S. Tempur portfolio by introducing our next generation of ADAPT products. The new ADAPT products are focused on meeting one of the highest consumer needs in matchmaking, namely reduced aches and pains.

Basket: At a time when retailers are dealing with reduced store traffic.

Basket: In 2024, we expect to complete the refresh of our U S timber portfolio by introducing our next generation of adapt products.

Basket: Sure that products are focused on meeting one of the highest consumer needs and mattresses.

Basket: Reduced aches and pains.

Scott Thompson: This line, including our most advanced temper material, uniquely designed to deliver 20% more pressure relief than the standard Tempur- UDAP products, paired with our own proven line of innovative smart and adjustable basics, will build on the success of prior generations and Tempur Sealy's robust R&D track. We have over 60,000 new ADAPT matches ready as we prepare for the rollout to begin in the first quarter and expect to reach substantial completion before the Memorial Day holiday. In 2023, we also opened our newest and largest state-of-the-art plant in Crawfordsville, Indiana. This new facility, located in the Midwest, complements our existing manufacturing footprint and enhances our ability to serve Northeast customers. Our expanded U.S. manufacturing footprint will allow us to capture projected long-term demand for our products and to support our rapidly growing OEM business. The new facility has the capability to manufacture a wide variety of bedding products and components for branded and non-branded operations.

Basket: This line includes our most advanced Tempur material.

Basket: Uniquely designed to deliver 20% more pressure relief in the standard temporary material.

Basket: New debt products payer with our own proven line of innovative smart logistical basis will build on the success of prior generations and Tempur Sealy robust R&D track record.

Basket: We have over 60000, new adapt mattresses ready as we prepare for the rollout to begin in the first quarter.

Basket: And expect to reach substantial completion before.

Basket: Memorial Day holiday.

Basket: In 2023, we also opened our newest and largest state of the art client Crawfordsville, Indiana. This new facility located in the Midwest complements our existing manufacturing footprint enhances our ability to serve northeast customers.

Basket: Our expanded U S manufacturing footprint will allow us to capture.

Basket: The projected long term demand for our products and to support our rapidly growing OEM business.

Basket: The new facility has the capabilities to manufacture a wide variety of bedding products and components.

Basket: Branded and non branded operations.

Basket: Our third highlight is the diversification of our business model and go to market approach.

Scott Thompson: Our third highlight is the diversification of our business model and go-to-market approach. One of our long-term initiatives is to increase visibility with the consumer, wherever and however they choose to shop. We follow the customer's lead and aim to provide quality products at every price point, both on and offline. In support of our broader portfolio diversification strategy, we're pursuing growth initiatives through Innovation and Development of Industry-Leading Products. Growing Our Wholesale Business Through Existing and New Retail Relationships, and increasing our investments in Stearns and Foster Care, we will also look to expand further into the OEM market and grow our direct-to-consumer business through the expansion of our e-commerce channel and company-owned stores. All these initiatives are in line with our pursuit of Long-Term Sustainable Growth.

Basket: One of our long term initiatives is to increase the visibility with the consumer.

Basket: Wherever and however, they choose to shop.

Basket: We follow the customers' lead and aim to provide quality products at every price point.

Basket: On and offline.

Basket: In support of our broader portfolio diversification strategy, we are pursuing growth initiatives through innovation and development of industry leading products.

Basket: Growing our wholesale business through existing and new retail relationships.

Basket: And increasing our investments in Stearns <unk> Foster brands.

Basket: We will also look to expand further into the OEM market.

Basket: And grow our direct to consumer business with expansion of our e-commerce channels.

Basket: Company owned stores.

Basket: All of these initiatives are in line with our pursuit.

Basket: Long term sustainable growth.

Scott Thompson: For example, our direct-to-consumer channel increased from $150 million in 2015 to over $1.2 billion in 2023, a compound annual growth rate of 30%. This was in part thanks to the expansion into hundreds of new company-owned stores around the world and the successful launch of our Stearns and Foster and Sealy e-commerce websites. Additionally, we began offering OEM and private label products in 2020.

Basket: For example, our direct to consumer channel has increased from $150 million in 2015.

Basket: To over $1 2 billion in 2023.

Basket: Our compound annual growth rate of 30%.

Basket: This was in part thanks to the expansion into hundreds of new company owned stores around the world and the successful launch of our Stearns <unk> Foster and Sealy ecommerce websites.

Basket: Additionally, we began operating OEM and private label products in 2020.

Scott Thompson: And today, we generate hundreds of millions of dollars in profitable private label and OEM sales, with further opportunities for growth in 2024 and beyond. Lastly, our growth and wholesale have been broad-based across existing and new distributions. In fact, in April, we'll be expanding our products into additional big box stores with one of the largest U.S. betting retailers. Fourth, I'd like to highlight the significant expansion in our year-over-year consolidated gross margin. We delivered a year-over-year improvement of 260 basis points in our consolidated gross margin to 44.2% in the fourth quarter of 2000. This is a result of efforts from the team to drive profitability by leveraging our fixed cost structure over multiple growth initiatives. As mentioned, our new product innovation investment in manufacturing processes is in plan, and diversification of our go-to-market strategy have all contributed to improved gross margins. As we continue to drive greater efficiency, we increase our ability to invest in advertising. Product Development, NRP

Basket: We generate hundreds of millions of dollars in profitable private label and OEM sales with further opportunities for growth in 2024 and beyond.

Lastly, our growth in wholesale has been broad based across existing and new distribution.

Basket: In fact in April we'll be expanding our products into additional big box stores with one of the largest U S bedding retailers.

Speaker Change: Thank you.

Speaker Change: Fourth I'd like to highlight significant expansion in our year over year consolidated gross margin.

Speaker Change: We delivered year over year improvement of 260 basis points in our consolidated gross margin.

Speaker Change: 244, 2%.

Speaker Change: The fourth quarter of 2023.

Speaker Change: This is a result of efforts from the team to drive profitability by leveraging our fixed cost structure over multiple growth initiatives.

Speaker Change: As mentioned, our new product innovation investments in manufacturing processes and plants and.

Speaker Change: And diversification of our go to market strategy have all contributed to improved gross margin.

Speaker Change: As we continue to drive greater efficiency.

Speaker Change: Increase our ability to invest in advertising.

Speaker Change: Development and our people.

Speaker Change: We also benefit from a larger pool of free cash flow to drive EPS growth and reduce our net leverage.

Scott Thompson: We also benefit from a larger pool of free cash flow to drive EPS growth and reduce our Net Library. Furthermore, we expect the retail environment to remain dynamic. We have a track record of delivering results during challenging cycles. In fact, we generated $4.9 billion in sales and $2.2 billion in gross profit for the full year 2023, both of which were just shy of our highest ever annual sales and gross profit figure in 2024. We plan to stay focused on our long-term initiatives.

Speaker Change: While we expect the retail environment to remain dynamic.

Speaker Change: We have a track record of delivering results during challenging cycles.

Speaker Change: In fact, we generated $4 9 billion in sales and $2 2 billion in gross profit for the full year 2023.

Speaker Change: Both of which were just shy of our highest ever annual sales and gross profit figures.

Speaker Change: In 2024, we plan to stay focused on our long term initiatives.

Scott Thompson: Stay Agile to Capture Opportunities and Deliver Higher Sales and Profits. Our last highlight is our commitment to protect and improve our communities and the environment, as detailed in our recently published 2024 Corporate Social Value. The report is available on our IR website. We are proud of our achievements over the last year, including our zero waste to landfill status at our Canadian and Mexican manufacturing facilities and maintaining our zero waste to landfill status at our U.S. and European manufacturing facilities. This year, we contributed over $800,000 in charitable contributions through our Tempur-Sealy Foundation and donated more than 12,100 mattresses, worth approximately $16.9 million, bringing our cumulative 10-year donation total to over $100 million.

Speaker Change: Stay agile to capture opportunities and deliver higher sales and profits.

Speaker Change: Our last highlight is on our commitment to protect and improve our communities and the environment.

Speaker Change: As we detailed in our recently published 2020 for corporate social values report.

Speaker Change: The report is available.

Speaker Change: Our IR website, we are proud of our achievements over the last year, including our zero waste to landfill status at our Canadian and Mexican manufacturing facilities, and maintaining our zero waste to landfill status at our U S and European manufacturing operations.

Speaker Change: This year, we contributed over $800000 insured contributions through our Tempur Sealy Foundation has donated more than 12100 mattresses worth approximately $16 $9 million, bringing our cumulative 10 year <unk>.

Speaker Change: <unk> total to over 100 million.

Speaker Change: With that I'll turn the call over to Boston.

Bhaskar Rao: With that, I'll turn the call over to Bhaskar. Thank you, Scott. In the fourth quarter of 2023, consolidated sales were approximately $1.2 billion, and Adjusted Earnings Per Share was $0.53. We had $33 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility.

Boston: Thank you Scott.

Boston: In the fourth quarter of 2023 consolidated sales were approximately $1.2 billion.

Boston: And adjusted earnings per share was <unk> 53.

Boston: We have $33 million of pro forma adjustments in the quarter.

Boston: All of which are consistent with the terms of our senior credit facility.

Bhaskar Rao: These adjustments are primarily related to the cost incurred in connection with our planned acquisition of Mattress Firm. Turning to North America results, net sales decreased 4% in the fourth quarter.

Boston: These adjustments are primarily related to the cost incurred in connection with our planned acquisition of mattress firm.

Boston: Yeah.

Boston: Turning to North America resolved.

Boston: Net sales decreased 4% in the fourth quarter.

Bhaskar Rao: On a reported basis, the wholesale channel decreased 6% and the direct channel increased 11%. North America adjusted gross profit margin improved to 40.7%, primarily driven by favorable commodities and operational efficiencies, partially offset by unfavorable product mix. The product mix is primarily being driven by the continued growth of our OEM initiative. North American Adjusted Operating Margin improved to 15.9 percent, driven by improved gross margins, partially offset by investments in growth initiatives, now turning to international. Net sales increased 8% on a reported basis and 4% on a constant currency basis in the fourth quarter.

Boston: On a reported basis, the wholesale channel decreased 6% and the direct channel increased 11%.

Boston: North America, adjusted gross profit margin improved to 47%, primarily driven by favorable commodities and operational efficiencies.

Boston: <unk> offset by unfavorable product mix.

Boston: Product mix is primarily being driven by the continued growth of our OEM initiative.

Boston: North.

Boston: American adjusted operating margin improved to 15, 9% driven by improved gross margins, partially offset by investments in growth initiatives.

Now turning to international.

Boston: Net sales increased 8% on a reported basis and 4% on a constant currency basis in the fourth quarter.

Boston: As compared to the prior year, our international gross margin improved to 55, 7% driven by commodities, partially offset by unfavorable mix.

Bhaskar Rao: As compared to the prior year, our international gross margin improved to 55.7 percent, driven by commodities partially offset by an unfavorable mix. Our international operating margin decreased to 19.2%, driven by higher operating expenses from investments in growth initiatives, partially offset by improvements in gross margins. One of our growth initiatives is expanding our retail store footprint, and we now operate over 750 stores globally. Now the balance sheet and cash flow items. At the end of the fourth quarter, consolidated debt, less cash, was $2.5 billion, and our leverage ratio under our credit facility was 2.87 times, within our historical target range of two to three times. In the fourth quarter, we generated operating cash flow of $91 million.

Boston: Our international operating margin decreased to 19, 2% driven by higher operating expense from investments and growth initiatives, partially offset by improvements in gross margin.

Boston: One of our growth initiative is expanding our retail store footprint and we now operate over 750 stores globally.

Boston: Okay.

Boston: Now the balance sheet and cash flow items.

Boston: At the end of the fourth quarter consolidated debt less cash was $2 5 billion and our leverage ratio under our credit facility was 287 times.

Boston: Within our historical target range of two to three times.

Boston: In the fourth quarter, we generated operating cash flow of $91 million.

Bhaskar Rao: We're pleased to report that we have successfully entered into a $625 million delay-draw term loan and increased the availability of our existing revolver by $40 million. This is in connection with our financing plan for the anticipated acquisition of Mattress Firm in late 2024. Upon closing the acquisition, we plan to fund the cash portion of the transaction with a combination of cash on hand and existing and incremental borrowings. Our financing plan for this acquisition is consistent with our history of balancing financial flexibility, leverage, and the cost of capital. We have already executed on elements of this strategy by successfully refinancing our credit facilities in 2023 and now with the new delay-draw term loan. We anticipate raising incremental borrowings closer to the closing of the transaction and expect net leverage to be between 3 and 3.25 times, assuming a closing in the second half of 24. We expect to return to our target leverage ratio range of 2 to 3 in the first 12 months after closing. Now, turning to our 2024 guidance. We expect adjusted EPS to be in the range of $2.60 to $2.90.

Boston: We're pleased to report that we have successfully entered into a $625 million delayed draw term loan.

Boston: And increase the availability of our existing revolver by $40 million.

Boston: This is in connection with our financing plan for the anticipated acquisition of mattress firm in late 2024.

Boston: Upon closing the acquisition, we plan to fund the cash portion of the transaction with a combination of cash on hand and through existing and incremental borrowings.

Boston: Our financing plan for this acquisition is consistent with our historic history of balancing financial flexibility leverage and the cost of capital.

Boston: We have already executed on elements of this strategy by successfully refinancing our credit facilities in 2023, and now with the new delayed draw term loan.

Boston: We anticipate raising incremental borrowings closer to the closing of the transaction and expect net leverage to be between three and three five times, assuming a closing in the second half of 'twenty four.

Boston: We expect to return to our target leverage ratio range of two to three in the first 12 months after closing.

Boston: Now turning to our 2020 for guidance.

Boston: We expect adjusted EPS to be in the range of $2 60.

Boston: Two $2 and 90.

Boston: Our guidance is based on sales increasing low to mid single digits versus 2023.

Bhaskar Rao: Our guidance is based on sales increasing low to mid single digits versus 2023. This also considers our expectation that U.S. betting industry unit volumes are stable versus the prior year, which implies slight headwinds in the first half and recovery in the second half of 2024. Our sales are outperforming the industry due to new distribution wins in the U.S. and the continued success of new product launches overseas, and an advertising spend of about $500 million as we continue to support our leading brands and new products. All of this resulting in adjusted EBITDA of approximately $1 billion at the midpoint of the range.

Boston: This also considers our expectation that the U S bedding industry unit volumes are stable versus the prior year.

Boston: Which imply slight headwinds in the first half and recovery in the second half of 2024.

Boston: Our sales outperforming the industry due to new distribution wins in the U S and the continued success from the new product launches overseas.

Boston: And advertising spend of about $500 million as we continue to support our leading brands and new products.

Boston: All of this resulting in adjusted EBITDA of approximately $1 billion at the midpoint of the range.

Bhaskar Rao: I want to note two phasing items for 2024. First, we believe the year-over-year negative unit trends seen in the U.S. betting industry over the past year are diminishing. We believe industry units will likely be down high single digits through the end of 2023.

Speaker Change: I want to note two phasing items for 2024.

Speaker Change: First we believe the year over year negative unit trend seen in the U S bedding industry over the past year are mitigating.

Speaker Change: We believe industry units will likely be down high single digits through the end of 2023.

Bhaskar Rao: And while we expect the first quarter to be down some, we believe units for the industry will return to year-over-year growth later this year. Second, we recently opened our new Crawfordsville facility to provide us with incremental capacity to support our long-term growth. In April, we will start servicing our new distribution that Scott spoke about previously, which will mark the beginning of our growth into this capacity. The phasing between this capacity and our new volume will result in our historical seasonality being a bit off.

Speaker Change: And while we expect the first quarter will be downtime, we believe units for the industry will return to year over year growth later this year.

Speaker Change: Second we recently opened our new Crawfordsville facility to provide us with incremental capacity to support our long term growth.

Speaker Change: In April we will start servicing our new distribution that Scott spoke to previously which will mark the beginning of our growth into this capacity.

Speaker Change: The phasing between this capacity and our new volume will result in our historical seasonality being a bit off.

Speaker Change: Yes.

Bhaskar Rao: As we grow into Crawfordsville, the timing of the shipping of new distribution and our near-term category outlook, we expect this to pressure profits in the first quarter, likely resulting in EPS between $0.45 and $0.50. We expect to return to delivering year-over-year EPS growth starting in the second quarter of 2024. As we noted, we expect our full-year adjusted EPS to grow 15% at the midpoint of our guidance. Our guidance also considers the following allocations of capital in 2024. CapEx of approximately $150 million, down significantly from prior years as our major capital projects are complete. This is a more normalized level of spend driven by maintenance spend of $110 million and growth spend of approximately $40 million, and a quarterly dividend of $0.13, representing an increase of 18% relative to 2023. Lastly, I would like to flag a few modeling items.

Speaker Change: As we grow into crawfordsville, the timing of the shipping of new distribution.

Speaker Change: And our near term category outlook, we expect this to pressure profit in the first quarter likely resulting in EPS being between 45 and 50.

Speaker Change: We expect to return to delivering year over year EPS growth starting in the second quarter of 'twenty four.

As we noted we expect our full year adjusted EPS to grow 15% at the midpoint of our guidance.

Speaker Change: Our guidance also considers the following allocations of capital in 2024.

Speaker Change: Capex of approximately $150 million down significantly from prior years as our major capital projects are complete.

Speaker Change: This is a more normalized level of spend driven by maintenance spend of $110 million and gross spend of approximately $40 million.

Speaker Change: And a quarterly dividend of <unk> 13 cents rep.

Speaker Change: Representing an increase of 18% relative to 2023.

Speaker Change: Lastly, I would like to flag a few modeling items.

Scott Thompson: For the full year of 2024, we expect revenue of approximately $200 to $210 million, interest expense of approximately $135 million to $140 million, on a tax rate of 25% with a diluted share count of 179 million shares. With that, I'll turn the call back over to Scott. Thank you, Bhaskar. Nice job. Before opening up the call for questions, let me provide a brief update on our pending acquisition of mattress funds in the fourth quarter. We certified substantial completion with the FTC's second request.

Speaker Change: For the full year of 2024, we expect DNA of our approximately $200 million to $210 million.

Speaker Change: Interest expense of approximately $135 million to a $140 million.

Speaker Change: On a tax rate of 25%.

Speaker Change: With a diluted share count of 179 million shares.

Speaker Change: With that I'll turn the call back over to Scott.

Scott Thompson: Thank you Bosker nice job.

Scott Thompson: Before opening up the call for questions. Let me provide a brief update on our pending acquisition of mattress firm.

Scott Thompson: In the fourth quarter we.

Scott Thompson: We certified substantial completion with the FTC second request.

Scott Thompson: We continue to work with the FTC to advance the transaction approval process and anticipate these conversations will continue through the first quarter. As previously disclosed, we continue to expect the transaction to close in mid to late 2024, in connection with and contingent upon the acquisition. We are proactively pursuing a divestiture plan and engaging with mattress firm suppliers. In parallel, Tempur-Sealy and Mattress Firm continue to make joint progress on integration planning. Lastly, a brief comment on Mattress Firm's financial performance. Mattress Firm recently made its quarterly results available on its website, which were consistent with our expectations.

Scott Thompson: We continue to work with the FTC to advance the transaction approval process.

Scott Thompson: We anticipate these conversations will continue through the first quarter.

Scott Thompson: As previously disclosed we continue to expect the transaction to close in mid to late 2024.

Scott Thompson: In connection with contingent upon the acquisition we.

Scott Thompson: We are proactively pursuing a divestiture plan and engaging with mattress firm suppliers.

Scott Thompson: In parallel Tempur Sealy and mattress firm continued to make joint progress on integration planning.

Scott Thompson: Lastly.

Scott Thompson: A brief comment on mattress firm's financial performance.

Scott Thompson: Mattress firm recently made their quarterly results available on their website.

Scott Thompson: Which were consistent with our expectations.

Scott Thompson: We encourage you to review mattress firm's website for more information on our financial performance for the most recent quarter.

Scott Thompson: We encourage you to review Mattress Firm's website for more information on their financial performance for the most recent quarter. In summary, our progress towards the transaction close is on track, and we look forward to joining forces with the Matches Firm team. And with that, I'll open up the call for questions. Operator?

Scott Thompson: In summary, our progress towards the transaction close is on track and we look forward to joining with the mattress firm team.

Speaker Change: And with that I will open up the call for questions operator.

Operator: Certainly. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.

Speaker Change: Certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Operator: As a friendly reminder, please limit yourself to one question. Please rejoin the queue to ask a follow-up. One moment while we compile our Q&A raft. And our first question will be coming from Susan Maklari of Goldman Sachs. Your line is open. Thank you. Good morning, everyone. Good morning, Susan.

Speaker Change: Friendly reminder, please limit yourself to one question. Please rejoin the queue to ask a follow up.

Speaker Change: One moment, while we compile the Q&A roster.

Speaker Change: Sure.

Speaker Change: And our first question will be coming from Susan Mcclary of Goldman Sachs. Your line is open.

Susan Marie Maklari: Thank you good morning, everyone.

Susan Marie Maklari: Good morning, Susan Good morning, Scott maybe to start with why don't we talk a little bit about demand. You know you mentioned that it seems like we have bottomed out in the fourth quarter and that this year, we could see a sequential improvement as we move through how youre thinking about that I guess relative to the macro backdrop the potential for rates to come down.

Scott Thompson: Good morning, Scott. Maybe to start with, why don't we talk a little bit about demand? You know, you mentioned that it seems like we have bottomed out in the fourth quarter and that this year, we could see sequential improvement as we move through. How are you thinking about that, I guess, relative to the macro backdrop, the potential for rates to come down, and what else do you think is stimulating the consumer a bit, perhaps, to start to see some improvement on the unit side? Well, obviously, we have easier comps, which is probably the first thing that's got to be pointed out.

Susan Marie Maklari: And what else do you think is stimulating the consumer a bit perhaps two to start to see some improvement on the unit side.

Scott Thompson: Well, obviously, we have easier comps, which is probably the first thing thats got to be pointed out <unk>. Obviously, we are at an all time low when we're talking to the U S. In volume. So we are really at rock bottom from a historical standpoint.

Scott Thompson: Second thing, obviously, we're at an all-time low when it comes to talking to the U.S. in volume. So we are really at rock bottom from a historical standpoint. And as you mentioned, there are some green shoots. Obviously, we're in an environment where interest rates are trending down. We're also, if you look at the betting industry, and we just got back from the Vegas betting show, there's good innovation in the industry. We've got some new products coming out, and others have some new products coming out that's very interesting. We've also seen some of our larger retailers, I'm going to say, refocus on advertising. And we've got several of them increasing their advertising budgets going into 2020. In general, it feels like, I've used the term bouncing around the bottom, we're kind of bouncing around the bottom.

And as you mentioned there are some green shoots obviously, we're in an environment where interest rates are trending down.

Scott Thompson: We're also if you look at the bedding industry and we just got back from the Vegas Bedding show. There is good innovation in the industry, we've got some new product coming out and others have some new product coming out it's very interesting. We've also seen some of our larger retailers.

Scott Thompson: I'm going to say refocus on advertising.

Scott Thompson: And we've got several of them increasing their advertising budgets going into 2000.

Scott Thompson: In 'twenty four.

Speaker Change: Yes in general it feels like I've used the term bouncing around the bottom.

Speaker Change: We're kind of bouncing around the bottom if you go back and look at the fourth quarter.

Scott Thompson: If you go back and look at the fourth quarter and kind of look at it, parse it by month, October was not good in the U.S., and then it got better throughout the quarter. And then you get to the January period, and obviously, it's very difficult in this world to forecast. If we look at our own order book in January, it's positive. If I look at our online sales in January, they're up double digits. So it looks like some green shoots, but you have to dampen that when you look at some of the details.

Speaker Change: And kind of look at it parse it by month October was not good.

In the U S and then it got it got better.

Speaker Change: Throughout throughout the quarter.

Speaker Change: And then you get to the January period, and obviously, it's very difficult in this world to forecast if we look at our own order book.

Speaker Change: In January it's positive.

Speaker Change: If I look at our online sales in January it's up double digits.

Speaker Change: So it looks like some green shoots, but you have to dampen that.

Speaker Change: When you look at some of the details the order books positive, but its concentrated in some larger customers its not as broad based as we'd like to see.

Scott Thompson: The order book's positive, but it's concentrated in some larger customers, so it's not as broad-based as we'd like to see. If you go talk to retailers and listen to them, you know, the floor traffic is down double digits, and January, when you talk to retailers in general, they're talking about being down 10%. And when you think about January, it's only 30% of the quarter. So what I'm kind of saying, it's all mixed, and we continue to get some mixed signals. But clearly, bouncing around the bottom seems to be the best description currently.

Speaker Change: If you go talk to the retailers and look at it listen to them.

Speaker Change: Explore traffic is down double digits and their January when you look talk the retailers in general are talking about being down 10%.

Speaker Change: And you think about January to only 30% of the quarter. So what I'm kind of saying, it's all mixed and we continue to get some mixed signals, but clearly bouncing around the bottom seems to be the.

Speaker Change: The best description currently.

Speaker Change: Okay. That's helpful color. Thank you good luck.

Unnamed Caller: Okay, that's helpful, caller, thank you, good luck. In one moment for our next question, and our next question will be coming from Peter Keith of Piper Sandler. Your line's, Oh, hey, thanks. Good morning, everyone.

Speaker Change: And one moment for our next question.

Speaker Change: And our next question will be coming from Peter Keith of Piper Sandler Your line is open.

Peter Jacob Keith: Oh, Hey, thanks, good morning, everyone.

Unnamed Caller: Maybe it's a bit of a financial question for Bhaskar, but I was hoping you could quantify the EPS or EBITDA impact from these facility startup costs in Q1, and then also provide a little bit of color on how you guys are thinking about input costs year-on-year and launch costs year-on-year. Absolutely. So let me take those one at a time.

Peter Jacob Keith: Maybe it's a bit of a financial question for Boster, but I was hoping you could quantify the EPS or EBITDA impact from these.

Peter Jacob Keith: Facility startup costs in Q1, and then also provide a little bit of color on how you guys are thinking about input cost year on year and launch costs year on year, absolutely. So let me take those one at a time.

Boster: If you think about the first quarter, specifically a couple of things happening there we called out the phasing of revenue we called out our expectations on a category also is that we have some great news as we really excited about what's happening from a tempur adapt.

Bhaskar Rao: If you think about the first quarter specifically, there are a couple of things going on there. We called out the phasing of revenue; we called out our expectations for a category. Also, we have some great news. We're really excited about what's happening with Tempur Adapt. And also, good news is that the Adapt is going out earlier than where Debris did in the previous year. So that's a couple of pennies between the first and second quarter. Specifically, as it relates to the question you asked about Crawfordsville.

Boster: And also good news is is that the adapt as going out earlier than whereas debride did in prior year. So that's a couple of pennies between between the first and second quarter, specifically as it relates to the question you asked about crawfordsville.

Bhaskar Rao: As a whole, about $30 million in DNA increased on a year-over-year basis. So when you parse that out for the quarter, think of that at about a couple of three steps. As it relates to input costs from a full-year perspective, we still remain constructive. We've seen some tailwinds in 2023. It's very consistent with where we left it coming out of the third quarter as it relates to our input cost expectations. At that point, we called out, let's call it 20, 30 points, a bit of a benefit for 2024. So that's basically where we remain today.

Boster:

Boster: As a whole about $30 million of DNA increase on a year over year basis. So when you parse that out for the quarter think of that at about a couple of couple of three sets.

Boster: As it relates to input costs from a full year perspective, we still remain constructive we've seen some tail winds in 2023, it's.

Boster: It's very consistent with where we left it and coming out of the third quarter as our as it relates to our input cost expectations at that point, we called out let's call. It 2030 points bitch of benefit for 2024.

Boster: So that's basically where we remain today all of that said is that we are mindful of what's happening in the red seats, but our expectations are still positive as it relates to the commodity input costs and then closing it out with launch expenses on a full year basis is we would expect launch costs to be flat.

Bhaskar Rao: All that said is that we are mindful of what's happening in the Red Sea, but our expectations are still positive as it relates to the commodity input. And then closing it out with launch expenses on a full year basis, we would expect launch costs to be flat. However, as I called out, there is some phasing that happens between 1Q and 2Q, given the timing of the adaptation is a bit earlier than where it was with breeze and the prior year. I'll pile on that just a little bit, Bhaskar, and highlight Crawfordsville.

Boster: However, as I called out there is some phasing that happens between <unk> and <unk> given the timing of the adapt is a bit earlier than where it was with breeze and prior year.

Speaker Change: I'll pile on that just a little bit by Oscar and highlight crawfordsville.

Scott Thompson: Obviously, that's a huge investment for us, and while others in the industry are closing plants and reducing capacity, we're adding capacity. And what you're seeing in the first quarter is basically turning on the plant full.

Speaker Change: Obviously, that's a huge investment for us and while others in the industry are closing plants and reducing capacity.

Speaker Change: We're adding capacity and what youre seeing in the first quarter is this basically turning on the plant full and so you'll get the fixed cost of the plant coming through the income statement before you get the profits coming from the product.

Scott Thompson: And so you get the fixed cost of the plant coming through the income statement before you get the profits coming from the product, which will come in the second quarter. The good news is we've got orders. We need the plant, and it's busy. We've just got a timetable for the building of the product and when revenues show up. The cost of the products will show up in inventory, but the whole fixed cost of the plant has got to go through the income statement.

Speaker Change: Which will come in kind of in the second quarter. The good news is we've got orders if we need we need the plant and it's busy we've just got a timing on the building of the product and when revenues show up.

Speaker Change: The cost of the products will show up in inventory, but the whole fixed cost of the plant. That's got to go through the income statement. So.

Scott Thompson: So we're really excited about the future of that operation. Okay, thank you very much, guys, and we will have our next question from Bobby Griffin of Raymond James, the Illini. Hey, good morning, everybody.

Speaker Change: We're really excited about the future of that operations.

Speaker Change: Okay. Thank you very much guys.

Speaker Change: Okay.

Speaker Change: One moment for our next question.

Speaker Change: Thank you.

Speaker Change: And our next question will be coming from Bobby Griffin of Raymond James Your line is open.

Unnamed Caller: Thanks for taking my question. Scott or Bhaskar, I was just hoping, when we look at the 2024 sales guidance, flat industry units kind of as the starting point, and then maybe build a little bit to your guide of calling it maybe three to 4% at the midpoint, can you unpack the drivers to get there? Is it mostly market share gains, mix, and price? Is there anything to help put some context around what's assumed in the building blocks and the size of those building blocks to walk us from the industry to Tempur Sealy's performance? Sure, I'll let Bhaskar do the details.

Bobby Griffin: Good morning, Marty Thanks for taking my question.

So Scott or Bhaskar I was just hoping when we look at the 2024 sales guidance flat industry units kind of as the starting point and then maybe build a little bit to your guide of call. It maybe 3% to 4% at the midpoint can you unpack the drivers to get there is it mostly market share gains mix price just anything to help with some con.

Speaker Change: Text around what you assumed in the building blocks and the size of those building blocks to walk us from the industry to temporary healy's performance sure I'll, let bos can do the details but the.

Scott Thompson: But, you know, foundationally, we have two big distribution wins that have been executed, and those sales will show up in April. But you want to, you know, build it forward? Absolutely. So just starting with the category, as we indicated, our expectation is that it will be flat for the full year. However, as you call that as well, there will be a build. So let's call that big round numbers down in the low singles in the first half and up in the back half.

Bhaskar Rao: A foundation that we have two big.

Distribution wins that have been executed.

Speaker Change: And those sales will show up in in April that you want to yes.

Speaker Change: Absolutely. So just starting with the category as we indicated is that our expectation is is that it will be flat for the full year. However, as you called out as well there will be a bill so let's call that big round numbers down and they are down low singles in the first half and up in the back half. So when you think about the phasing of safe.

Bhaskar Rao: So when you think about the phasing of sales, and with the new distribution that Scott spoke about, it is a build as you go from one to two, and then you see the growth in three from a couple of different areas, the new products getting out there in DAP, the continual momentum that we're seeing in international and the improvement from a category standpoint. Specifically, disaggregating that a little bit, we're super excited about what we're seeing internationally. We would expect growth in our international new product launches. We saw the green suits in the third quarter.

Speaker Change: <unk>.

Speaker Change: And with the new distribution, that's got that Scott spoke to is that it is a build as you go from one to two and then you see the growth in three.

Speaker Change: From a couple of different areas, the new products getting out there and that the continued momentum that we're seeing in international and the improvement from it from a category standpoint, specifically disaggregate that a little bit we're super excited about what we're seeing internationally, we would expect to growth in our international new product launch we saw the green suits in the third quarter.

Bhaskar Rao: It continues to grow in the fourth quarter, and we're very excited about what that could do for us in 2024 and beyond. So the expectation is that we would see growth in international in all of the quarters. And then now bouncing back to the US, so what that would imply is that taking share international.

Speaker Change: It continues to grow in the fourth quarter and we're very excited about what that could do for us in 2024 and beyond so the expectation is is that we would see growth in international and in all of the quarters and then now bouncing back to the U S. So what that would imply is that taking share internationally when.

Bhaskar Rao: When we get into the U.S., the way that we think about this, is really that market share gains would be tied to the new distribution wins that we have in hand. Obviously, that's our expectation. That's what we've assumed in the guide.

Speaker Change: We get into the U S is that the way that we think about this it is really the market share gains would be tied.

Speaker Change: Tied to the new distributions of wins that we have in hand, obviously, that's our expectation is that's what we've assumed in the guide, but our expectation is always is to continue to outperform the market.

Bhaskar Rao: But our expectation, as always, is to continue to outperform the market. Very good. I appreciate the details.

Speaker Change: Very good I appreciate the details best of luck, you're executing this year.

Unnamed Caller: Best of luck executing this year. And one moment for our next question, which will be coming from Jason Hawes of Bank of America. Your line is open.

Speaker Change: And one moment for our next question.

Speaker Change: Yeah.

Speaker Change: And our next question will be coming from Jason Haas with Bank of America. Your line is open.

Jason Haas: Hey, good morning, and thanks for taking my questions I'm.

Unnamed Caller: Hey, good morning, and thanks for taking my questions. I'm curious if you could provide a little bit more color on the distribution gains that you cited. Was that really in reference to one big box retailer?

Jason Haas: I'm curious if you could provide a little bit more color on the distribution gains that you cited was that really in reference to one big box retailer, you're seeing some more broad distribution game. Thanks.

Speaker Change: We've we've got two large distribution games in house.

Scott Thompson: Are you seeing some more broad distribution gains? Thanks. We've got two large distribution gains in-house, https://www.youtube.com. A little more needle moving, I guess would be a fair way to say it. All right, that's helpful. Thank you. Our next question will be coming from Seth Basham of Wedbush. Your line is open. Thanks a lot, Ben. Good morning.

Speaker Change: That the revenues will come starting in call. It April.

Speaker Change: There's two big one and then like always there is hand to hand combat.

Speaker Change: On the smaller side, but there are two that are there.

Speaker Change: Little more needle moving I guess, it would be a fair way to say it.

Speaker Change: Okay.

Speaker Change: Got it that's helpful. Thank you.

Speaker Change: And one moment for our next question.

Speaker Change: Our next question will be coming from Seth Basham of Wedbush. Your line is open.

Seth Basham: Thanks, a lot and good morning. My question is on the margin outlook for 'twenty for hoping for some more color between expectations for gross margins and SG&A seems like you expect material gross margin improvement.

Unnamed Caller: My question is on the margin outlook for 2024, hoping for some more color between expectations for gross margins and SG&A. Seems like you expect material gross margin improvement, probably from commodities, but what about from improving operational efficiency? And on the SG&A side, seems like advertising growth is likely to be about in line with sales growth, but you're expecting deleverage and other costs. Scott, want me to take that up?

Seth Basham: Commodities, but what about from improved operational efficiency and on the SG&A side. It seems like advertising growth. So I can be about in line with sales growth, but are you expecting deleverage on other cost. Thank you.

Speaker Change: Scott, Let me take that so our gross profit perspective, good callouts that it would be our expectation is that we would see nice year on year improvement from gross margin. So a couple of big drivers I would call out where I spoke to commodities recently briefly in a prior question, we would expect that to be a tailwind we're very excited about the <unk>.

Scott Thompson: You go ahead. From a gross profit perspective, good call out, Seth. It would be our expectation that we would see nice year-on-year improvement in gross margin. So a couple of big drivers I would call out. I spoke to commodities briefly in the prior question. We would expect that to be a tailwind.

Bhaskar Rao: We're very excited about the continuing momentum that we see in our U.S. operations. Just to put a reference on that, we invested in customers and spilled some EBITDA historically. We started seeing the benefits of that starting to turn around in the back half of 2023, and the expectation is that it would continue to build momentum as we get into 2024. So that would be a tailwind for us as well. Previously, I think I mentioned something around $50 million to $60 million.

Speaker Change: Continued momentum that we see in our U S operations just to put a reference on that we invested in customers and spilled. Some EBITDA historically, we start seeing the benefits of that starting to turn around in the back half of 2023. The expectation is is that that would continue to build momentum as we get into 2024, so that would be it.

Speaker Change: Aylwin for us as well previously I think I mentioned something around 50 to 60 and $60 million it would be our expectation that that would that would continue.

Bhaskar Rao: It would be our expectation that that would continue. On a year-on-year basis, yes, there's some phasing between quarters as it relates to But, big picture, floor models should be a slight tailwind for us versus the prior year, and then Crawfordsville would be a headwind.

Speaker Change: On a year on year basis, yes, there is some phasing between quarters as it relates to launch, but big picture floor models should be a slight tailwind for us.

Speaker Change: Versus the prior year, and then profit sale would be would be a headwind. So when I think about that crawfordsville again, a headwind on rate. However, if crawford bill was not there it would be difficult for us to manage this new distribution wins that we would that we would have without incurring over time and.

Bhaskar Rao: So when I think about that, Crawfordsville, again, a headwind on rate. However, if Crawfordsville was not there, it would be difficult for us to manage this new distribution wind that we would have without incurring overtime and with our various other facilities. So that's really the gross profit story. As I think about from an operating expense perspective, a couple of things are we continue to manage this business for long-term growth. So we're going to invest in those things that will give us that growth and outlook perspective. When you think about OPEX on an overall basis, we would expect just a bit of deleverage. On the advertising perspective, just parsing that out, I would think of the North American business being flat on rate on a year-over-year basis.

Speaker Change: And with our various other facilities. So that's really the gross profit story as I think about from an operating expense perspective, a couple of things as we continue to manage this business for long term growth. So we're going to invest in those things that will give us that growth and outlook perspective that.

Speaker Change: When you think about Opex on an overall basis is that we would expect just a bit of deleverage on the advertising perspective, just parsing that out is I would think of the north American business being flat on rate on a year over year basis, and internationally, we're going to invest to really support that growing into that.

Bhaskar Rao: And internationally, we're going to invest to really support that growth into that new addressable market. So, what that blends together when you put all that together is we expect incremental investments on rate from advertising. Also, we continue to be very excited about the potential of our direct-to-consumer business, not only in the bricks and mortar, which is a global story. In fact, the doors, on a year-over-year basis from first quarter to first quarter have grown 40 million, sorry, have grown 40 stores.

Speaker Change: That new addressable market, so with that blends to when you put all that together, we expect incremental investments on rate from advertising also we continue to be very excited about the potential of our direct to consumer business not only in the bricks and mortar which is a global story in fact, our breakthrough RF the doors on a year over year basis from first.

Speaker Change: The first quarter have grown 40 million sorry at Brown 40 stores.

Bhaskar Rao: So we're going to continue to invest in that initiative, as well as e-com. As you know, we have a robust e-commerce business in the U.S., and now all of our brands are represented, CERN, Sealy, as well as Tempo. And then we spoke to international, but just parsing that a bit, China remains a big opportunity for us. So we're going to spend some money there. So really, what's again flat to slightly up as it relates to rate from an OpEx perspective, but really what's driving it is the investments we're making in future growth. One moment for our next question. Our next question will be coming from Brad Thomas of KeyBank Capital Markets. Your line is open, Brad. Good morning.

Speaker Change: So we're going to continue to invest in that initiative as well as the E. Com. As you know is we have a robust e-commerce business in the U S and now all of our brands are represented CERN Sealy as well as Tempur.

Speaker Change: And then we spoke to international but just parsing that a bit as China remains a big opportunity for us. So we're going to spend some money. There. So really whats again flat to slightly up as it relates to rate from an opex perspective, but really what's driving it is is the investments we're making in future growth.

Speaker Change: One moment for our next question.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Our next question will be coming from Brad Thomas of Keybanc capital markets. Your line is open Brad.

Bradley Thomas: Hi, Good morning, I was hoping we could talk a little bit more about the international segment, and and perhaps a bit more about the outlook for new product Rollouts.

Unnamed Caller: I was hoping we could talk a little bit more about the international segment and perhaps a bit more about the outlook for new product rollouts and some of the timing of some of the margin opportunities you have as we look forward. Thanks. I'll talk a little bit about the international rollout. It's gone really well. And I think it's just probably the beginning from the international standpoint. And you can see from, I think, Bhaskar's earlier comments about what we're doing from an advertising standpoint. We feel we've got the right product now at the right price point. We're spending a little more money on advertising because we think the returns are going to be good. But all that is a very bullish sign for International on what we'll call a multi-year strategy. It takes quite a while, quite a number of years to get the product, get it right, and get the manufacturing process right.

Bradley Thomas: And some of the timing of some of the margin opportunity you have as we look forward. Thanks.

Speaker Change: Sure I'll talk a little bit at the international rollout rollout.

Speaker Change: Really well.

Speaker Change: And I think it's just probably the beginning from the international standpoint.

Speaker Change: And you can see from I think Buskers earlier comments about what we're doing from an advertising standpoint.

Speaker Change: We've got the right product now at the right price points.

Speaker Change: We're spending a little more money in advertising because we think the returns are going to be good but all of that is a very bullish sign for international on a we'll call. It a multi year strategy has taken us quite a while quite a number of years to get the product get it right.

Speaker Change: Manufacturing process right, but we think we're in the early innings from an international growth standpoint.

Scott Thompson: But we think we're in the early innings from an international growth standpoint. What I would say from a timing of a margin view is, as I think about gross margin, we mentioned the typical seasonality, we're not going to see that necessarily this year, just given as we ramp into that new distribution and given Crawfordsville. From a gross margin expectation standpoint, again, overall up year on year, and then margins consistent with prior years, is that it would increase as we go throughout the year, really driven by a couple of different One is that we do expect, from a growth standpoint, sales growth more in the back half than we would in the first half, therefore giving us some leverage from a gross margin on the gross margin line, and as well as the operational improvements, that will gain momentum and continue to build on itself. Great, thank you very much.

Speaker Change: Chris do you want to add anything what I would say from timing of a margin.

Chris: Our view is as I think about gross margin is.

Chris: We mentioned the typical seasonality, we mean, we're not going to see that necessarily this year, just given as we ramp into that new distribution and given crawfordsville from a gross margin expectation standpoint, again overall up year on year and then margin.

Chris: Consistent with prior years is that it would increase as we as we go throughout the year really Bourbon dry a couple of different items. One is is that we do expect from a growth standpoint sales growth more in the back half than we would in the in the first half therefore, giving us some leverage from a gross margin on the gross margin line.

Chris: <unk>.

Speaker Change: And as well as those as the operational improvements is that will gain momentum and continue to build on itself.

Speaker Change: Great. Thank you very much.

Unnamed Caller: One moment for our next question. Our next question will be coming from Michael Lasser. WBS, Peer Alliance, open mic.

Speaker Change: One moment for our next question.

Speaker Change: Okay.

Speaker Change: Our next question will be coming from Michael Lasser.

Michael Lasser: UBS Your line is open Michael.

Unnamed Caller: Good morning. Thank you so much for taking my question. How do you think about the incremental margin on either sales upside or potential downside as the year unfolds and into next year, assuming that the betting recovery continues to gain steam? Thank you so much.

Michael Lasser: Good morning. Thank you so much for taking my question, how do you think about the incremental margin on either upside or potential downside.

Speaker Change: As the year unfolds.

Michael Lasser: And into next year, assuming that the bedding recovery continues to gain steam. Thank you. So much gameloft speak for a second I'm gonna, let bosker answer.

Unnamed Caller: Okay, I'm gonna speak for a second, then we'll let Bhaskar answer. You know, it's interesting. It's a really interesting question.

Bosker: It's interesting it's really interesting question.

Scott Thompson: You know, on the upside, it's obviously good. But I think the part I want to call out is on the downside, if, for some reason, we've missed our call on the industry, we've got a lot of flexibility in the system to take costs out. Because we've got the company positioned, I'm going to call it aggressively for growth. And when you position a company aggressively for growth, you're spending some money, as we talked about earlier in this call. And if, for some reason, there was a downside case someone was working on, we have the ability to take out a good bit of cost if we reposition the company for that kind of environment that we don't see. Do you want to talk about that a little bit, Bhaskar?

Bosker: On the upside.

Bosker: Its obviously good I think the part I want to call out is on the downside if for some reason we missed our call on the industry. We've got a lot of flexibility in the system to take cost out.

Bosker: Because we've got the company positioned I'm going call it aggressively for growth.

Bosker: And when you when you position accompany aggressively for growth there youre spending some money as we've talked about earlier in this call and if for some reason there was a downside case someone was working with.

Speaker Change: We have the ability to take out a good bit of cost if we repositioned the company for for that kind of environment. We don't see you want to talk about that a little bit bosker, absolutely what I would say on a blended basis the way I've historically thought about this business the incremental contribution profit call. It is somewhere between 30% to 35% as I sit.

Scott Thompson: Absolutely. What I would say on a blended basis, the way I've historically thought about this business, the incremental contribution profit, call it, is somewhere between 30 to 35%. As I sit here today, it feels closer to 35, maybe a bit above that, versus where we have been historically.

Bosker: Here today, it feels closer to 35 may be a bit maybe a bit above that.

Bosker: Versus where we had been historically and that in context is all things being equal.

Bhaskar Rao: And that, in context, is all things being equal. As we pointed out, we have expectations about the category. And as the consumer starts coming back, and they will, bedding is not going obsolete, mattresses are not going obsolete, there will be a mix of when those units come back. Again, positive from an EBITDA standpoint, positive from a contribution profit standpoint.

Bosker: As we pointed out we have expectations about the category.

Bosker: And.

Speaker Change: As the consumer starts coming back and they will better he is not going obsolete mattresses or not going obsolete there will be a mix of wind out windows. When those units come back again positive from an EBITDA standpoint positive from a contribution stock profit standpoint, however that mix would be something to think about <unk>.

Bhaskar Rao: However, that mix would be something to think about as this industry begins to recover. So, one moment for our next question. Our next question will be coming from Keith Hughes of Truist. Keep your line. Thank you. A question on the new facility in Indiana. Once you get up to full capacity... How much of your foam pouring will that represent, and will you actually hit full capacity?

Speaker Change: As this industry begins to recover.

Speaker Change: Thank you so much.

Speaker Change: One moment for our next question.

Speaker Change: Thank you.

Speaker Change: Our next question will be coming from Keith Hughes of Truest.

Keith Hughes: Your line is open.

Keith Hughes: Thank you.

Keith Hughes: Question on the new facility in Indiana, once you get up to full capacity how much of your phone boring will that represent and where you're actually at full capacity in the second quarter.

Unnamed Caller: A really complicated question. Let me put some words around it. No, we will not hit full capacity in the second quarter, and it depends on when you talk about capacity, whether you're running one shift, two shifts, all that kind of stuff. The way you should probably think about it is, look, first quarter: a little bit of a little bit of a drag to get it going.

Keith Hughes: <unk>.

Speaker Change: Really complicated question, let me put some words around it.

Speaker Change: No we will not hit full capacity in the second quarter and it depends on when you talk about capacity, where they run a one shift two shifts all that kind of that kind of stuff. The way you should probably think about it is look first quarter, a little bit of a little bit of a drag.

Speaker Change: To get it going by time here into the second and third quarter Crawfordsville is contributing okay.

Scott Thompson: By the time you're into the second and third quarter, Crawfordsville is contributing. OK, but you should think about optimizing, you know, optimizing. It's probably a couple of years out as far as being totally optimized, depending on what the betting market is.

Keith Hughes: But you should think about optimize optimized its probably a couple of years out as far as being totally optimized depending on what the bedding market is and it gives us great flexibility, but with.

Scott Thompson: And it gives us great flexibility. But we, you know, with Crawfordsville and the other plants we have and the ability to go to second shifts, you should think about Tempur has capacity for the foreseeable future, both in pouring OEM foam and regular foam. Okay, one long question about that. Go ahead. Do you think you're going to, in terms of like spring production, do you think you'll do some more backward integration on spring production in the future as well, particularly given the volume you're trying to move? You know, I don't know.

Keith Hughes: With the with Crawfordsville and the other plants, we have and the ability to go to second shifts.

Keith Hughes: You'd think about timber has.

Keith Hughes: <unk> for the foreseeable future.

Keith Hughes: Both <unk> and coring, OEM foam and regular regular phone.

Keith Hughes: Okay.

Keith Hughes: No that does.

Keith Hughes: To him.

Keith Hughes: Do you think youre going to in terms of what spring production.

Keith Hughes: Thank you will do some more backward integration on spring production.

Keith Hughes: Pizza as well, particularly.

Keith Hughes: Given the volume you're starting to maybe Neil Mitchell.

Neil Mitchell: Yes, I don't know that is something we've always looked at.

Scott Thompson: That's something we've always looked at. We've got a great partnership with Leggett for sure. They do a fabulous job for us.

Keith Hughes: We've got a great partnership.

Keith Hughes: With Leggett for sure they do a fabulous job for us.

Scott Thompson: We've got some other manufacturers that are doing a good job for us. And we make a good bit of our springs already. You know, we make our own springs. In the Asian market, JB, Mexico, we make our own springs. We make a few here in the U.S.

Keith Hughes: And we've got some other manufacturers who are doing a good job for us and we make a good bit of our springs already we make our own springs.

Keith Hughes: And the Asian market JV that JV in Mexico, we make our own springs will make a few here in the U S. So we will continue to use kind of what I'll call a blended strategy of best in class spring manufacturers and.

Scott Thompson: So we'll continue to use kind of what I'll call a blended strategy of the best-in-class spring manufacturers and build some of our own and continue to look at the economics and the pluses. But right now, I think we're very happy with the current relationships we have and the mix that's both, we'll call it, in-source and outsource from the spring standpoint. Thank you. And please wait one moment for our next question. Our next question will come from Laura Champine of Loop. Your line is open. Good morning.

Keith Hughes: Bill Tomorrow, one and continue to look at the economics and the pluses, but.

Keith Hughes: But right now I think we're very happy with the current relationships, we have and the mix. That's both we'll call it in source and outsource from spring standpoint.

Speaker Change: Okay. Thank you.

Speaker Change: Yes.

Speaker Change: And one moment our next question.

Keith Hughes: Yeah.

Keith Hughes: Okay.

Keith Hughes: Our next question will come from Laura Champine of loop. Your line is open.

Laura Champine: Good morning, Thanks for taking my question could we get any more context on how.

Unnamed Caller: Thanks for taking my question. Could we get any more context on how TPX formulated the divestiture plan related to the mattress firm acquisition and then just anything you're comfortable saying about next steps? Yeah, you're probably not going to get much there. The FTC lawyers will call me after the call and whip me like a dog.

Laura Champine: <unk> PX formulated the divestiture plan related to the mattress firm acquisition, and then just anything youre comfortable saying about next steps.

Speaker Change: Yes, you're probably not going to get much there. The FTC C lawyers will call me after the call and with me like a dog.

Scott Thompson: What I would tell you is there is a formal process that goes on in that area, and it's ongoing and flexible. But other than that, I really can't give you any color other than to tell you there's been good interest in the package and the activity. Thanks, Scott. I did not mean to put you in peril.

Speaker Change: What what I would what I would tell you is.

Speaker Change: There is a formal process.

Speaker Change: It's go it goes on in that area, and it's ongoing and flexible but other than that I really can't can't give you any any color other than to tell you theres been good interest.

Speaker Change: And in the package and the activity.

Speaker Change: Thanks, Scott I did not mean to cause your apparel maybe.

Unnamed Caller: Maybe we could talk a little bit about the expected AUR in mattresses this year, and that'll be a little less controversial. There you go. There you are. That'd be you, Bhaskar.

Speaker Change: Maybe we could talk a little bit about <unk>.

Speaker Change: Expected AUR in mattresses, this year and that'll be a little less controversial.

Scott Thompson: Hey, Joe AUR that'd be bosker, yeah, and that just to make sure that we're on the same pace or if thats a ASP.

Bhaskar Rao: Yep. And just to make sure that we're on the same page, Laura, that's ASP? EversalesPrice?

Scott Thompson: Average sales, Brian correct correct, absolutely so the way that we're thinking about it currently is.

Unnamed Caller: Correct. Correct. Absolutely. So the way that we're thinking about it currently is, again, very excited about what's happening with ADAPT. Breeze continues to have legs.

Scott Thompson: Again, very excited about what's happening with adapt breathe.

Scott Thompson: <unk> continues to have legs. So just to make sure. We're grounded adapt largely will be complete in the first quarter and then is out there. That's great. It's ahead of where we were from a brief standpoint, so the momentum will build build and what's what's very nice about that is our expectation is is that adapt and breeze will live harmoniously together.

Bhaskar Rao: So just to make sure we're grounded, ADAPT will be largely complete in the first quarter, and then it will be out there. This is great. It's ahead of where we were from a Breeze standpoint. So the momentum will build, and what's very nice about that is our expectation is that ADAPT and Breeze will live harmoniously together if you exclude the impact of four models. So what that would mean is we're not expecting that ASP will be materially one way or the other. Let's call it flattish.

Scott Thompson: If you exclude the impact of four models. So what that would mean is we're not expecting that.

Scott Thompson: We'll be materially one way or the other let's call it flattish.

Bhaskar Rao: On an overall basis, when you think about the U.S., our expectation is that there's not going to be a significant difference sitting here today as it relates to how we think about units and dollars. So the implication there is that ASP is going to be flattish broadly speaking across the world. Again, what I would call out, as I referenced this before, is that eventually, the consumer is going to come back. We feel like there's momentum that's happening from a consumer coming back a little bit as we think about the back half of the year and beyond. So as that consumer does come back, they will come back at all price points. However, it is that incremental EBITDA. But it is something to be mindful of as those units come back and where they come back to.

Scott Thompson: On an overall basis, when you think about the U S. Our expectation is is that they're not going to be a significant different sitting here today as it relates to how we think about units and dollars. So the implication there is that ASP is going to be flattish.

Scott Thompson: At broadly speaking across the world.

Scott Thompson: Again, what I would call out as I referenced this before is that eventually the consumer is going to come back we feel like there's momentum is happening from a consumer getting back a little bit as we think about the back half of the year and beyond so as that consumer does come back they will come back at all price points. However.

Scott Thompson: However is is that incremental EBITDA, but it is something to be mindful of as those units come back and where they come back to.

Unnamed Caller: Great, thank you very much. Thank you. And one moment for our next question. Our next question will be coming from William Reuter, of Bank of America. Your line is open. Hi, this kind of follows on that last question. But you mentioned you expect ASP to be flat. Are you seeing a trade down currently? Or are you currently seeing ASP flat? Or are you seeing greater strength at lower price points? I know you earned in foster rollout last year. So that may be contributing some to some greater success there. But any comments on the mix?

Speaker Change: Great. Thank you very much thank you and one moment our next question.

Scott Thompson: Okay.

Scott Thompson: Our next question will be coming from William Reuter.

William Michael Reuter: Of Bank of America. Your line is open.

William Michael Reuter: Hi.

William Michael Reuter: This kind of follows on that last question.

William Michael Reuter: But you mentioned you expect <unk> to be flat are you seeing a trade down currently are you currently seeing asps flat or are you seeing greater strength at lower price points I know you.

William Michael Reuter: Burns and foster rollout last year, so that may be contributing some to some greater success, there, but any comments on next year on.

Unnamed Caller: Yeah, on mix, we're generally seeing the higher priced units do better than the lower priced units. That's a trend that has been around for a year or so. I would say the gap is narrowed some, but we continue to see that mix. We haven't seen any deterioration in the strength of the higher end.

William Michael Reuter: On mix.

William Michael Reuter: We're generally seeing the higher.

William Michael Reuter: Price units do better than the lower priced units. That's a trend that has been around for a year or so I would say the gap is narrowed some but we continue to see.

William Michael Reuter: That that mix, we haven't seen any.

William Michael Reuter: Any deterioration in the strength of the higher higher end.

Scott Thompson: And I think in general, what I think Bhaskar is talking about, correct me if you're not, but on a like for like basis, we aren't expecting to see ASP increases as there's been quite a bit of pricing put in the market over the last few years due to commodity increases. And it feels like the commodity thing is behind us, and price on a like for like basis is stable. That's fair.

William Michael Reuter: And I think in general what I think Bosker stock, Matt Correct me, if not on a like for like basis.

Speaker Change: We aren't expecting to see ASP increases as there is quite a bit of pricing put in the market over the last few years due to commodity increases.

Speaker Change: <unk> like the commodity thing is.

William Michael Reuter: Behind us and prices price on a like for like basis has stabilized.

Matt: That's fair.

Unnamed Caller: Thanks so much. One moment for our next question. Our next question will come from Jonathan Matuszewski of Jeffrey's. Your line is open.

Speaker Change: Thanks, so much.

Speaker Change: One moment for our next question.

Speaker Change: Okay.

Speaker Change: Okay.

William Michael Reuter: Sure.

William Michael Reuter: Our next question will come from Jonathan <unk> of Jefferies. Your line is open.

Unnamed Caller: Great. Good morning, and thanks for taking my question. Scott and Bhaskar, I was hoping you could expand upon your recent conversations with retail partners. Sounds like you're hearing from them a little bit of a change in mindset regarding advertising spend, with them signaling to you some year-over-year increases in their budget for 2024. So, you know, any added color that could provide context for us in terms of what's changing their mindset to get a little bit more aggressive in their own ad spend. Thanks so much. Sure. When you look at the retail business model, it's got quite a bit of fixed costs. The retailers have absorbed quite a bit of sales decline. And so I think the obvious thing to do if you're a retailer and you're trying to get your sales going is look at your content, make sure you're advertising quality content, and see whether or not you can spend a little bit more and get a high return on investment because floor traffic has been down.

Jonathan Foster: Great Good morning, and thanks for taking my question.

Jonathan Foster: Scott and Bakr is hoping you could expand upon your recent conversations with retail partners sounds like you're hearing from them a little bit of a change in mindset regarding advertising spend.

Jonathan Foster: With them signaling to use them some year over year increases in their budgets for 2024. So any added color that can provide context for us in terms of what's what's changing their mindset to get a little bit more aggressive in in their own AD spend thanks, so much.

Jonathan Foster: Sure.

Speaker Change: Look when you look at the retail business model.

Speaker Change: It's got quite a bit of fixed cost.

Speaker Change: The retailers have absorbed quite a bit of sales decrease.

Speaker Change: And so I think the obvious thing to do if you're a retailer you are trying to get your sales going as you look at your content make sure your advertising quality content.

Speaker Change: And see whether or not you can spend a little bit more and get a high return on investment because.

Speaker Change: More traffic has been down clearly were waving the flag.

Scott Thompson: Clearly, we're waving the flag about the need for the industry, not just any individual retailer or manufacturer, to advertise. It takes a village, and we've been fairly aggressive about asking others to pony up. And we're, of course, doing our share by historical standards. We're leaning in heavy.

Speaker Change: About the need for the industry, not just any individual retailer or manufacturer to advertise but it takes a village and we've been fairly aggressive about asking others.

Speaker Change: To Pony up and we are of course doing our share by historical standards, we're leaning in heavy and I think the people that have invested in advertising.

Scott Thompson: And I think the people that have invested in advertising are getting good returns. And to the extent that that continues, hopefully, we'll get some other manufacturers and some more retailers leaning in. And like I said, we've got, I think, two off the top of my head that are leaning in. And I think that's going to be part of the turnaround story in 2024, the market people getting back to understanding the category, and the category is driven, sure, by consumer confidence, but you also have to have a good bit of advertising in the marketplace for the industry to succeed.

Speaker Change: Are getting good returns and to the extent that that continues hopefully we will get some other manufacturers and some some more retailers leaning in and like I said, we've got.

Speaker Change: Two off top my head that are lean.

Speaker Change: Leaned in and.

Speaker Change: I think that's going to be part of the turnaround story in 2024 is the market people getting back to understanding the category and the category has driven share on consumer confidence, but you also have to have a good bit of advertising in the marketplace for for the industry.

Speaker Change: To succeed.

Unnamed Caller: It's really helpful. Thank you. And I'm showing no further questions at this time. I would now like to turn the call back to Scott Thompson for closing remarks. Thank you. To our 12,000 employees all around the world, thank you for all you do every day 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's leadership team and its board of directors. This ends the call today, Operator. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect, rada In Canada As of 19 February 2021, Universit 10 University of Calic a United States The world is not any better than you.

Speaker Change: That's really helpful. Thank you.

Speaker Change: And Im showing no further questions at this time I would now like to turn the call back to Scott Thompson for closing remarks.

Scott Thompson: Thank you.

Scott Thompson: So our 12000 employees all around the world. Thank you for all you do every day 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.

Speaker Change: The call today operator. Thank you certainly this concludes today's conference call. Thank you for participating you may now disconnect.

Speaker Change: [music].

Unnamed Caller: Sure.

Unnamed Caller: [music].

Unnamed Caller: Yes.

Speaker Change: [music].