Q1 2024 Tempur Sealy International Inc Earnings Call and Business Update

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Operator: Good day, everyone, and welcome to today's Tempur-Sealy International Inc. call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star and 2. Please note this call is being recorded. I will be standing by if you should need any assistance. And it's now my pleasure to turn the conference over to Aubrey Moore, Investor Relations.

Speaker Change: Good day, everyone and welcome to today's Tempur Sealy International incorporate to call at this time all participants are in a listen only mode.

Speaker Change: You will have the opportunity to ask questions. During the question and answer session. You May Register to ask a question at any time by pressing the star and one on your telephone keypad you may withdraw yourself from the queue by pressing star and two. Please note. This call is being recorded I will be standing by if you should need any assistance and it is now.

Speaker Change: My pleasure to turn the conference over to you offering more investor relations.

Please go ahead, thank you operator.

Aubrey Moore: Please go ahead. Thank you, operator. Good morning, everybody, 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.

Investor Relations: Good morning, everybody 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.

Investor Relations: These forward looking statements involve uncertainties and actual results may differ materially due to a variety of factors that could adversely affect the companys business. Please.

Investor Relations: These factors are discussed in the company's SEC filings, including its annual report on Form 10-K, and quarterly reports on Form 10-Q.

Investor Relations: Any forward looking statements speak only as of the date on which it is made the company undertakes no obligation to update any forward looking statements.

Investor Relations: This morning's commentary will also include non-GAAP financial information reconciliations of this non-GAAP financial information can be found on the accompanying press release, which is posted on the company's investor website, Investor Dot Tempur Sealy Dot com and filed with the SEC. Our comments will supplement the detailed information provided in the press release.

Aubrey Moore: 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. 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. This morning's commentary will also include non-GAAP financial information. Reconciliations of this non-GAAP financial information can be found in the accompanying press release, which is posted on the company's investor website at investor.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 is my pleasure to turn the call over to Scott.

Investor Relations: And now with that introduction it is my pleasure to turn the call over to Scott.

Scott Thompson: Thank you, Aubrey. Good morning, everyone, and thank you for joining us on our first quarter 2024 earnings call. I'll begin with some highlights from the quarter and then turn the call over to Bhaskar to review our financial performance in more detail. After that, I'll provide an update on a proposed acquisition of mattresses, which we expect to close by the end of the year. Lastly, I'll open up the call for Q&A. In the first quarter, net sales were approximately $1.2 billion, and adjusted EPS was $0.50. Our adjusted dividend DOF was $198 million, consistent with the same period last year.

Scott Thompson: Thank you all very good.

Scott Thompson: Thank you for joining us on our first quarter 2024 earnings call.

Scott Thompson: I'll begin with some highlights from the quarter and then turn the call over to Oscar to review, our financial performance in more detail.

Scott Thompson: After that I'll provide an update on our proposed acquisition of mattress firm, which we expect to close by the end of the year.

Speaker Change: Lastly, I'll open up the call for Q&A.

Oscar: In the first quarter net sales were approximately $1 2 billion.

Oscar: And adjusted EPS was <unk> 50.

Oscar: Our adjusted EBITDA was $198 million consistent with the same period last year.

Scott Thompson: These results are evidence of our strong competitive position in the market. Turning to a few highlights, first

Oscar: These results are evidence of our strong competitive position in the market.

Oscar: Turning to a few highlights.

Oscar: First.

Scott Thompson: We continue to develop and launch high-quality bedding products in all the markets we serve; we are actively refreshing our U.S. Tempur portfolio with our latest ADAPT products. These products are designed to address the fundamental consumer need, alleviating aches and pain. They feature our most innovative Tempur material and are engineered to provide an impressive 20% improvement in pressure relief compared to standard materials.

Oscar: We continue to develop and launch high quality bedding products in all the markets we serve.

We are actively refreshing our U S tempur portfolio with our latest products. These products are designed to address the fundamental consumer need alleviating aches and pains.

Feature our most innovative tempur material.

Oscar: Our engineered to provide an impressive 20% improvement in pressure relief compared to standard material.

Scott Thompson: When our mattresses are combined with our proven range of smart, adjustable bases, the result is a comprehensive advanced sleep system. A rollout of over 60,000 ADAPT mattresses to retailers is on schedule, and we expect to be substantially rolling them out by Memorial Day. Early reports from our third-party retailers and our direct consumer operations are strong. We have also recently rolled out ActiveBreeze, our most customizable heating and cooling sleep system, priced at approximately $10,000 for a queen and base set.

Oscar: When our mattresses are combined with our proven range of smart adjustable basis. The result is a comprehensive advance sleep system.

Oscar: Rollout of over 60000 adapt mattresses to retailers is on schedule and we expect to be substantially rolled out by memorial day.

Oscar: Early reports from our third party retailers and our direct to consumer operations are strong.

Oscar: We also to select national retailers recently rolled out active breeze.

Customizable heating and cooling sleep system.

Oscar: At approximately $10000 for a queen and base.

Scott Thompson: This system caters to the discerning ultra-luxury consumer seeking cutting-edge sleep solutions, offering both active climate management and the benefits of SleepTracker AI. Third-party retailers and our company-owned Tempur stores are reporting that the presence of this product on the showroom floor generates a halo effect, propelling interest toward the top-tier offerings of our Tempur lineup. Although still early in the rollout, when bundled with additional products, the active breeze is driving some tickets upward of $20,000.

Oscar: This system caters to discerning ultra luxury consumer seeking a cutting edge sleep solutions offering both active climate management and the benefits of sleep tracker AI.

Oscar: Our third party retailers and our company owned Tempur stores are reporting with the <unk>.

Oscar: Presence of this product from a showroom floors generates a halo effect.

Oscar: <unk> interest towards the top tier offering of our Tempur lineup.

Oscar: Although still early in the rollout with bundled with additional products. The active breeze is driving some tickets upward of 2012.

Oscar: Yeah.

Scott Thompson: While we anticipate modest sales volume for this ultra-premium product, its significance lies in elevating the brand perception and foreshadowing the future of bedding innovation. Please note that even with challenges like reduced brick-and-mortar retail traffic, our innovative products are driving momentum in the category. Including the impact of floor models, our U.S. average mattress sales price across all brand products increased by mid-single digits, and our attach rate increased double digits year over year, demonstrating the consumer's willingness to spend on innovative, quality products designed to provide a better night's sleep.

Oscar: While we anticipate modest sales volume, but it's ultra premium product.

Oscar: Slide <unk>.

Oscar: Elevating the brand perception and foreshadowing future of betting innovation.

Oscar: Please note that even with challenges like reduced brick and mortar retail traffic our innovative products are driving momentum in the category.

Oscar: Excluding the impact of floor models, our U S average mattress sales process across all brand products increased mid single digits and our attach rate increased double digits year over year, demonstrating the consumers' willingness to spend on innovative quality products.

Oscar: Designed to provide better night sleep.

Scott Thompson: New products are also building momentum in our international business. Our new product collection features consumer-centric innovation and an expanded price range that meets the needs of a broader spectrum of customers. In the first quarter, we executed the launch of our all-new Tempur mattresses, bed bases, and pillows in the UK, and they are now fully rolled out worldwide. We also optimized the new Tempur mattress construction to facilitate a higher level of customization while streamlining the manufacturing process, allowing us to effectively meet the unique demands of consumers across various markets and channels. Second highlight:

Oscar: New products are also building momentum in our international business, our new product collection features consumer centric innovation.

Oscar: Expanded price range.

Oscar: Need a broader spectrum of customers.

Oscar: In the first quarter, we executed the launch of our all new Tempur mattresses bed bases and pillows in the UK and are now fully rolled out worldwide.

Oscar: We also optimized the new Tempur mattresses bed construction to facilitate a higher level of customization.

Oscar: Streamlining the manufacturing process, allowing us to effectively meet the unique demands of consumers across various markets and channels.

Oscar: Second highlight.

Scott Thompson: We invested in compelling marketing to support our brands and products. We continue to be balanced with our media strategy, focusing both on broad-based and targeted digital outlets to meet consumers throughout their purchase journey. In North America, we developed a new creative design to drive consumers' interest in the category and our recently launched Tempur product. In the first quarter, we introduced a new ad focused on the Tempur-Pedic Ergo ProSmart base and its exclusive Soundscape mode feature, which delivers an immersive relaxation experience designed to help people who have trouble falling asleep.

Oscar: We invested and compelling marketing to support our brands and products.

Oscar: We continue to be balanced with our media strategy.

Oscar: <unk>, both on broad based and targeted digital outlets to meet consumers throughout the purchase journey.

In North America, we developed new creative design to drive consumer interest in the category and our recently launched Tempur products.

In the first quarter, we introduced a new AD focused on the Tempur Pedic Argo Pro Smart base and its exclusive soundscape mode feature which delivers an immersive relaxation experience designed to help people who have trouble. Following suite. These ads are already resonating.

Scott Thompson: These ads are already resonating with consumers in driving a catch rate and APS and ASP expansion for our retail partners. In the second quarter, we continue to support these lineups with our new targeted TV spots and digital assets focused on illustrating how the ADAPT collection provides a solution to one of the leading barriers to quality sleep, aches and pains. Our consumer research shows that these new assets are our highest-scoring ads to date, and we're excited to put this new content into the market.

Oscar: With consumers and driving attach rate and Ats ESP expansion for our retail partners.

Oscar: In the second quarter, we continue to support these lineups with our new targeted television spots and digital assets focused on illustrated how the debt collection provides a solution to one of the leading barriers to quality sleep aches and pains.

Oscar: Our consumer research shows that these new assets are highest scoring ads to date.

Oscar: Sighted.

Oscar: New content into the market.

Scott Thompson: We also continue to invest in advertising to support our Stearns and Foster products, with engaging messages that reinforce the superior comfort, quality, and craftsmanship that have been the hallmark of the brand for over 175 years. As has been the case with our successful Tempur-Pedic advertising, our recent investments in Stearns and Foster have also been successful. Helping the brand to achieve successive year-over-year growth in consumer traffic to StearnsandFoster.com every year since we first introduced television advertising in 2021, and in 2023, helping the brand to achieve the industry's highest year-over-year growth in Google search volume.

Oscar: We also continued to invest in advertising to support our Stearns <unk> Foster products.

Oscar: With engaging messages that reinforces the superior comfort quality and craftsmanship.

Oscar: I'll Mark of the brand for over 175 years.

Oscar: As has been the case with our successful Tempur Pedic advertising, our recent investments in Stearns <unk> Foster have also been successful.

Oscar: <unk> the brand to achieve success with year over year growth in consumer traffic to Stearns <unk> Foster dot com every year since we first introduced the television advertising in 2021.

Oscar: And in 2023, helping the brand to achieve the industry's highest year over year growth in Google search fall.

Scott Thompson: Internationally, we continue to increase our marketing investments to support the positive momentum of our recently launched new Tempur product range. Our creative assets highlight the many benefits of the latest generation of Tempur materials, cover all retail assortments, and reach all relevant media channels. We continue to see positive results with uplifts in awareness, share, assert, Web Sessions, and Retail Traffic. Our market intelligence reaffirms that we are outperforming the market in a challenging retail environment.

Oscar: Internationally, we continue to increase our marketing investments to support the positive momentum of our recently launched new Tempur product range.

Oscar: <unk> asset highlights the many benefits of our latest generation of Kimpton materials covered all retail assortment and reaches all relevant media channels.

Oscar: We continue to see positive results with uplift and awareness.

Search.

Oscar: Web sessions and.

Oscar: And retail traffic.

Oscar: Our market intelligence reaffirms that we are outperforming the market and a challenging retail environment.

Scott Thompson: We recently announced the signing of David Beckham as our newest brand ambassador for our key market in a high-growth Asia-Pacific region. The campaign consists of television assets, content for our online channels, and point-of-sale material for our own stores and retail partners. The campaign launched in March in Australia.

Oscar: We recently announced the signing of David Beckham as our newest brand ambassador for our key markets in the high growth Asia Pacific region.

Oscar: Campaign consist of TV assets content for our online channel and point of sale material for our own stores and retail partners.

Oscar: Campaign launched in March and Australia.

Scott Thompson: You'll also go online at our other Asia Pacific subsidiaries later this year, and we will host an event with David Beckham and key retail partners in China during the second quarter. Our advertising efforts worldwide are designed to break through to consumers at all points in their purchase journey, driving near-term sales while also continuing to build long-term support for our brands. Our research shows that our brands continue to be top of mind for consumers seeking high-quality sleep solutions. Third highlight:

Oscar: We'll also go log in our other Asia Pacific subsidiaries later this year.

Oscar: And we will host an event with David Beckham and key retail partners in China during the second quarter.

Oscar: Our advertising efforts worldwide are designed to break through to consumers at all points in their purchase journey.

Oscar: Driving near term sales, while also continuing to build long term support for our brands.

Oscar: Our research shows that our brands continue to be top of mind for consumers seeking high quality sleep solutions.

Oscar: Third highlight.

Scott Thompson: We continue to expand and optimize our diverse omni-channel distribution platform to meet the consumer wherever they want to shop. Our brands and private labels continue to gain traction in the wholesale segment across existing and new distribution channels. In the first quarter, we expanded our OEM relationship with a large specialty betting retailer, and in April, we expanded our products into additional big box stores with one of the largest U.S. betting retailers. Consumers are also engaging with our product through our company-owned stores and e-commerce presence.

Oscar: We continue to expand and optimize our diverse omnichannel distribution platform to meet the consumer wherever they want to shop.

Oscar: Our brands and private label continues to gain traction in the wholesale segment across existing and new distribution channels.

Oscar: In the first quarter, we expanded our OEM relationship with a large specialty bedding retailer.

Oscar: And in April we expanded our products into additional big box stores with one of the largest U S getting retailers.

Oscar: Consumers are also engaging with our product through our company owned stores and E Commerce presence, our North American direct channel performance was solid in the quarter delivering a robust 8% sales growth year over year, driven by strength in our ecommerce business.

Scott Thompson: Our North American direct channel performance was solid in the quarter, delivering robust 8% sales growth year over year, driven by strength in our e-commerce business. [Inaudible] We continue to drive year-over-year improvements in cost through sourcing and operational efficiency. During the quarter, our operations team focused on enhancing supply contracts, improving labor productivity, and optimizing logistics. These efforts, combined with the impact of normalizing commodity prices, resulted in a 270 basis point benefit to North America's first quarter adjusted gross margin and 130 basis point benefit to International's first quarter adjusted gross margin. With that, I'll turn the call over to Bhaskar to provide more detail. Thank you, Scott.

Oscar: Finally.

Oscar: We continue to drive year over year improvements in cost through sourcing and operational efficiencies during the quarter. Our operations teams focused on enhancing supply contracts, improving labor productivity and optimizing logistics.

Oscar: These efforts combined with the impact of normalizing commodity prices resulted in 270 basis point benefit to the <unk>.

Oscar: North America first quarter, adjusted gross margin and 130 basis point benefit to International's first quarter adjusted gross margin.

Speaker Change: With that I'll turn the call over to <unk> to provide more detail.

unknown: Thank you Scott.

Bhaskar Rao: As mentioned, in the first quarter of 2024, consolidated sales were approximately $1.2 billion, and adjusted earnings per share was $0.50. There are approximately $18 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility. These adjustments are primarily related to costs incurred in connection with our planned acquisition of Mattress Firm. Turning to North American results, Net sales declined 2% in the first quarter. On a reported basis, the wholesale channel declined 3%, and the direct channel grew 8%.

Speaker Change: As mentioned in the first quarter of 2024 consolidated sales were approximately $1 2 billion and adjusted earnings per share was <unk> 50.

Speaker Change: There are approximately $18 million of pro forma adjustments in the quarter all of which are consistent with the terms of our senior credit facility.

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

Bhaskar Rao: North American adjusted gross margins improved 160 basis points to 39.5% driven by commodities and operational efficiencies, partially offset by changeover costs to support new OEM distribution and product launch costs. North American Adjusted Operating Margin was consistent to the prior year at 15.3%, driven by improvement in gross margin, offset by investment and growth initiatives, now turning to international. International net sales were consistent year over year on a reported basis but declined 2% on a constant currency basis.

Speaker Change: Turning to North American results.

Net sales declined 2% in the first quarter on a reported basis the wholesale channel declined 3% in the direct channel grew 8%.

Speaker Change: North American adjusted gross margin improved 160 basis points to 39, 5% driven by commodities and operational efficiencies, partially offset by changeover costs to support new OEM distribution and product launch costs.

Speaker Change: North American adjusted operating margin was consistent to the prior year at <unk>, 3% driven by improvement in gross margin offset by investments in growth initiatives.

Speaker Change: Now turning to international.

Speaker Change: International net sales were consistent year over year on a reported basis and declined 2% on a constant currency basis.

Bhaskar Rao: As compared to the prior year, our international gross margin improved 140 basis points to 55.4%, driven by commodities and operational efficiencies. Our International Adjusted Operating Margin improved 20 basis points to 15.5%, driven by the improvement in gross margin, partially offset by investments in growth initiatives. Moving on to balance sheet and cash flow items, at the end of the first quarter, consolidated debt, less cash, was $2.5 billion, and our leverage ratio under our credit facility was 2.85 times, within our historical target range of two to three times. We generated a record first quarter operating cash flow of $130 million, an improvement of $30 million year over year.

Speaker Change: As compared to the prior year, our international gross margin improved 140 basis points to 55, 4% driven by commodities and operational efficiencies.

Speaker Change: Our international adjusted operating margin improved 20 basis points to 15, 5% driven by the improvement in gross margin, partially offset by investments in growth initiatives.

Speaker Change: Now moving on to balance sheet and cash flow items.

Speaker Change: At the end of the first quarter consolidated debt less cash was $2 $5 billion and our leverage ratio under our credit facility was $2 eight five times within our historical target range of two to three times.

Speaker Change: We generated record first quarter operating cash flow of $130 million, an improvement of $30 million year over year.

Bhaskar Rao: We have already started to execute elements of our strategy to finance the mattress firm transaction, which is consistent with our history of balancing financial flexibility, leverage, and cost of capital. We successfully expanded and extended our credit facilities in late 2023 and executed a delayed draw term loan in the first quarter of 24. We anticipate raising incremental borrowings closer to the closing of the transaction and expect net leverage after closing 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 two to three times in the first 12 months after the closing. Now turning to 24 guidance.

Speaker Change: We have already started to execute elements of our strategy to finance the mattress firm transaction.

Speaker Change: Which is consistent with our history of balancing financial flexibility leverage and cost of capital.

Speaker Change: We successfully expanded and extended our credit facilities in late 2023 and executed a delayed draw term loan in the first quarter of 'twenty four.

Speaker Change: We anticipate raising incremental borrowings closer to the closing of the transaction and expect net leverage after closing to be between three and three five times.

Speaker Change: Assuming a closing in the second half of 'twenty four.

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

Bhaskar Rao: Consistent with previous expectations, we expect adjusted EPS to be in the range of $2.60 to $2.90. The midpoint of the range just represents a robust 15% growth rate year over year in a challenged market. 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 flat to slightly down versus the prior year, which implies headwinds in the first half and some recovery in the second half of fiscal 24.

Speaker Change: Now turning to 2004 guidance consistent with previous expectations, we expect adjusted EPS to be in the range of $2 60.

Speaker Change: Two $2 90.

Speaker Change: At the midpoint of the range. This represents a robust 15% growth rate year over year in a challenged market.

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

Speaker Change: This also considers our expectation that the U S. Bedding industry unit volumes are flat to slightly down versus the prior year, which implies headwinds in the first half and some recovery in the second half of 'twenty four.

Bhaskar Rao: Our sales are outperforming the industry due to recently gaining distribution in the US and the continued success from new product launches. Advertising spend of approximately $500 million as we continue to support our leading brands and new products. All of this resulting in adjusted EBITDA of approximately a billion dollars at the midpoint of the range. Our guidance also considers the following allocations of capital in 2024. CapEx of approximately $150 million, down significantly from the prior years as our major capital projects are complete.

Speaker Change: Our sales outperforming the industry due to recently won distribution in the U S and the continued success from new product launches.

Speaker Change: Advertising spend of approximately $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.

Speaker Change: Our guidance also considers the following allocations of capital in 2020 for Capex of approximately $150 million down significantly from the prior years as our major capital projects are complete.

Bhaskar Rao: This is a more normalized level of spend driven by maintenance capex of $110 million and growth capex of approximately $40 million and a quarterly dividend of $0.13, an increase of 18% over prior years. Lastly, I would like to flag a few modeling items. For the full year 24, we expect revenue of approximately 200 to 210 million dollars, interest expense of approximately $135 million to $140 million, on a tax rate of 25 percent, with a diluted share count of 179 million shares.

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

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

Speaker Change: An increase of 18% over prior year.

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

Speaker Change: For the full year 'twenty, four we expect DNA of approximately $200 million to $210 million.

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

Speaker Change: On a tax rate of 25%.

With a diluted share count of 179 million shares.

Scott Thompson: With that, I'll turn the call back over to Scott. Nice job. Thank you, Bhaskar.

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

Scott Thompson: Thanks, Jeff Thank you Bosker.

Scott Thompson: Before opening up the call for questions, let me provide a brief update on our pending acquisition of Mattress. As previously announced in the fourth quarter of 2023, we certify substantial completion with the Federal Trade Commission's second request. We continue to work with the FTC to advance the transaction's approval process and anticipate the FTC to complete its review in the second quarter. As previously disclosed, we continue to expect the transaction to close in mid to late 2024. In connection with and contingent upon this acquisition, we are proactively pursuing a divestiture plan.

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

Scott Thompson: As previously announced in the fourth quarter of 2023, we certified substantial completion with the Federal Trade Commission second request.

Scott Thompson: We continue to work with the FTC to advance the transaction's approval process and anticipate the FTC to complete its review in the second 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 this acquisition, we are proactively pursuing divestiture client.

Scott Thompson: We are also engaged with numerous mattress firm suppliers on post-merger supply agreements. I'm pleased to share that six of the seven suppliers we've offered post-closing supply agreements have successfully negotiated and executed a win-win agreement with us. Lastly, a brief comment on Mattress Firm's financial performance; Mattress Firm recently made their quarterly results available on their website. We encourage you to review the Massachusetts firm's website for more information on their financial performance for the most recent quarter, which we believe was consistent with or slightly ahead of the U.S. industry trend. In summary, we're making good progress on closing the proposed transact, and we look forward to working with the Mattress Firm team. And with that, I'll open up the call for questions. Operator?

Scott Thompson: We are also engaged with numerous mattress firm suppliers on post merger supply agreements.

Scott Thompson: I am pleased to share that.

Scott Thompson: Six of the southern suppliers, we've offered post closing supply agreements have successfully negotiated and executed a win win agreement with us.

Scott Thompson: Lastly, a brief comment on mattress firm's financial performance.

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

Scott Thompson: We encourage you to review the mattress firm's website for more information on their financial performance for the most recent quarter, which we believe with consistent to slightly ahead of the U S industry trends.

Scott Thompson: In summary, we're making good progress on closing the proposed transaction 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.

Speaker Change: Thank you.

Operator: Thank you. At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2.

Speaker Change: At this time, if you would like to ask a question. Please press the star and one on your telephone keypad.

Speaker Change: Remove yourself from the queue at any time by pressing star queue. Please limit your questions to one at a time.

Speaker Change: Again to ask a question. Please press star one we will pause for a moment to allow questions to queue.

Operator: Please limit your questions to one at a time. Again, to ask a question, please press star 1. We will pause for a moment to allow questions to queue, and we will take our first question from Susan Maklari of Goldman Sachs.

And we will take our first question from Susan Mike Laurie with Goldman Sachs.

Susan Marie Maklari: Thank you. Good morning, everyone. Good morning, Susan. Good morning.

Speaker Change: Thank you good morning, everyone.

Speaker Change: Good morning, Susan.

Scott Thompson: Scott, I wanted to talk a little bit about how you think the year coming together. I think coming into 2024, the expectation was that earnings in the first half would be driven more by margin recovery, while the top line was still perhaps a bit soft, and then we would see some recovery in volumes in the second half. I know you mentioned in your prepared remarks that you continue to expect that. Can you talk a bit about what gives you the confidence that we will see that second half improvement in volume? Any thoughts on the puts and takes on how earnings may come together as we move through the balance of the year now that we're one quarter in? Sure. Thank you for that very much.

Speaker Change: <unk>.

Susan: Scott I wanted to talk a little bit about how you're thinking of the year coming together I think coming into 2024. The expectation was that earnings in the first half would be driven more by margin recovery, while the top line was still perhaps a bit soft and then you guys seeing.

Susan: Some recovery in the volumes in the second half I know you mentioned in your prepared remarks, you continue to expect that I guess can you talk a bit about what gives you the confidence that we will see that second half improvement in the volume and any thoughts on the puts and takes to how the earnings may come together as we move through the balance of the year now that we're one quarter in.

Scott Thompson: Sure. Thank you for that very short and simple question. Look, when we look at it, the first thing that you ask is confidence in the back half. Quite frankly, the comps get easier. That's probably one of the biggest things, because the comps in the back half are much easier than in the front half.

Speaker Change: Sure. Thank you for that very short and simple question.

Speaker Change: Thanks.

Speaker Change: Look.

Speaker Change: Look when we look at it.

Speaker Change: First thing that you asked kind of confidence in the back half.

Speaker Change: Quite frankly, the comps get easier that's probably one of the biggest things is with the comps in the back half are much easier than the front half also when we look at our products that have been launched they're resonating in the marketplace and they should have momentum both from an international and domestic standpoint, we also obviously had good.

Scott Thompson: Also, when we look at our products that have been launched, they're responding in the marketplace, and they should have momentum, both from an international and a domestic standpoint. We also obviously had good margin performance this quarter. I guess the last thing I would throw into your question is, if you look at the historical data and where the betting industry is, I think everyone who looks at that data, and I'll talk primarily about the US at this point, because that's where the data is the easiest to look at, would have to say the betting industry is in a depression and has been in one for a number of quarters.

Speaker Change: Margin performance this quarter.

Speaker Change: Spec that we're going to have a positive gross margin performance.

Speaker Change: Throughout throughout the year.

Speaker Change: And I guess, the last thing I would kind of throw into to your question is if you look at the historical data and where the bedding industry is.

Speaker Change: I think everyone, who had looked at that data and I'll talk primarily about the U S. At this point, because that's where the data is the easiest to look at it.

Speaker Change: As you would have to say the bedding industry is in a depression and has been and one for a number of quarters.

Scott Thompson: It's got to normalize at some point, whether it's this quarter or whether it's a quarter out or two. There's no reason to believe it wouldn't normalize. There haven't been any new products or any changes or any structural changes in the need for mattresses. We may be building up pent-up demand. I don't know. It's hard to always tell.

Speaker Change: And so it's got to it's got to normalize at some point, whether it's this quarter or whether its a quarter out or two.

Speaker Change: There is no reason to believe it wouldn't normalize there haven't been any products or any changes or any structural changes in the need for mattresses.

Speaker Change: And we may be building up pent up demand I don't know its hard to always tell.

Scott Thompson: But certainly, we've been bouncing around the bottom for a long time. It just seems very reasonable that we should begin to normalize into what I call relatively minor growth from an industry standpoint. Then, quite frankly, even if the industry doesn't deliver that growth, as you know, we've been a fairly robust market share gainer over a number of quarters, and we don't see any reason why that won't continue going into the back half of the year.

Speaker Change: Certainly we've been bouncing around the bottom for a long time.

Speaker Change: And it just seems very reasonable that.

Speaker Change: We should begin to normalize into what I call relatively minor growth.

Speaker Change: From an industry standpoint, and then quite frankly, even at the industry doesn't delay.

Speaker Change: Deliver that growth as you know we've been a fairly robust market share gainer.

Speaker Change: Over a number of quarters and we don't see any reason why that won't continue.

Speaker Change: Going into the back half of the year.

Scott Thompson: And Susan, as it relates to puts and takes from an earnings standpoint, outside of the volume items that Scott mentioned, again, some new distribution that we have in the U.S., products responding and whatnot, we do have some margin drivers as well. If you think about gross margin, we had some nice performance in the first quarter. As Scott mentioned, we'd expect margin expansion as we go throughout the year. A couple, double tapping into a couple of those items, the operational efficiencies that we've been speaking about for some time now, we saw the green shoots in the back half of last year, and we continue to see that in the first quarter.

Speaker Change: And Susan as it relates to puts and takes from an earnings standpoint outside of the volume items as Scott mentioned again, some new distribution that we have in the U S products resonating and whatnot, we do have some margin drivers as well if you think about gross margin. We had some nice performance in the first quarter as Scott mentioned, we would expect margin expansion as we go.

Speaker Change: Out the year, a couple of double tapping in a couple of those items the operational efficiencies that we've been speaking about for some time now we saw the green shoots in the back half of last year, and we continue to see that in the first quarter that should give us a benefit more in the first half, but in the back half as well and the commodities have been a bit of a tailwind for us that we would expect.

Scott Thompson: That should give us a benefit more in the first half but in the back half as well. And then commodities have been a bit of a tailwind for us, which we'd expect throughout the year as well.

Speaker Change: Out the year as well.

Robert Kenneth Griffin: Thank you. And we will take our next question from Bobby Griffin with Raymond James.

Speaker Change: Thank you and we will take our next question from Bobby Griffin with Raymond James.

Robert Kenneth Griffin: Good morning, everybody. Thanks for taking the time to answer my questions. I guess I want to follow up there on gross margins. Really nice performance during the quarter on a consolidated basis as well as on a segment basis. Can you maybe talk a little bit about how some of the puts and takes played out? Did the launch cost, as well as the new manufacturing facility startup cost, play out as expected, or did any of that cost get shifted maybe into 2Q?

Robert Kenneth Griffin: Good morning, everybody. Thanks for taking my questions.

Robert Kenneth Griffin: I guess I wanted to follow up there on gross margins really nice performance during the quarter on a consolidated basis as well on a segment basis can you maybe talk a little bit how some of the puts and takes played out did the launch cost as well as the new manufacturing facility startup cost play out as expected or that any of that cost gets shifted maybe into <unk>.

Bhaskar Rao: Bobby it played out as as expected so we did indicate that from a new capacity standpoint specifically Crawfordsville is that would be in ramp mode and that that did happen very largely consistent with what we had imagined as we get into the second quarter and beyond is we will start seeing some revenue from the new distribution specifically in OEM that that would offset that also for models we did indicate from a phasing standpoint year over year we'd have a little bit more in the first quarter than we did in the prior year and that played out as expected in the second quarter we'll have the continuation of temper but largely in line from an expectation standpoint so again when you think about what the expectations for margin as we get throughout the year those tailwinds will will continue whether it be the the things that we have under our control which is the operations group again hitting on all cylinders as it relates to driving productivity and just as a reminder once we get what we recoup what we from a 2019 level then we'll go back to what we've historically had which is driving productivity out of those addressable costs from a go-forward standpoint And, Bhaskar, I mean, to highlight, if I'm not mistaken, I mean, Crawfordsville was a little bit of a headwind. That's correct. Gross margin in the first quarter. Yes. And even with that very strategic headwind, we were still able to step over it and deliver a solid gross margin performance.

Robert Kenneth Griffin: Bobby It played out as expected. So we did indicate that from a new capacity standpoint, specifically crawfordsville as that would be in ramp mode and that that did happen very largely consistent with what we had imagined as we get into the second quarter and beyond as we will start seeing some revenue from the new distribution specifically in OEM.

That would offset that also for models, we did indicate from a phasing standpoint year over year, we'd have a little bit more in the first quarter than we did in the prior year and that played out as expected in the second quarter. We will have the continuation of tempur, but largely in line from an expectation standpoint. So again when you think about what.

Robert Kenneth Griffin: The expectations for margin as we get throughout the year those tailwind will continue whether it be the things that we have under our control, which is the operations group again hitting on all cylinders as it relates to driving productivity and just as a reminder.

Robert Kenneth Griffin: Once we get we recoup what we from a 2019 levels. Then we'll go back to what we've historically had which is driving productivity out of those addressable Cogs from a go forward standpoint.

Robert Kenneth Griffin: In Boston to highlight if I'm not mistaken in crawfordsville with a little bit of a headwind that's correct gross margin in the first quarter and even with that very strategic headwind, we're still able to step over it and deliver a solid gross margin performance.

Raph Jadrzejewski: Thank you. And we will take our next question from Raph Jadrzejewski with Bank of America.

Bhaskar Rao: Thank you. And we will take our next question from Raph Jadrzejewski with Bank of America. Hi, good morning. Thanks for taking the time.

Robert Kenneth Griffin: Thank you and we will take our next question from Ross <unk> with Bank of America.

Ross: Hi, good morning, Thanks for taking my question.

Ross: I wanted to ask on the share gains that you've been driving how do you think you perform versus the industry.

Ross: The first quarter.

Ross: And then.

Ross: Or was that just the shelf space gains that you've made can you just talk about the timing there and if theres additional white space and some of those retailers.

Scott Thompson: Sure, and let me start out by saying information is not perfect when you're working in this industry and market sharing, kind of guessing how everybody performs. So this is kind of what I'll call our best thinking, and we're talking about the U.S. market primarily when we talk about this. So if you look at the information you get about springs, and if you look at other data, you would perceive that the industry was down. What do you think, Bhaskar? Double digits from a sales standpoint, call it 10% for rounding. Yes, Scott.

Ross: Sure.

Speaker Change: And let me start out by saying the information is not perfect when youre working in this industry and market share and kind of guessing <unk>.

Speaker Change: Everybody performed so this is this is kind of what I'll call. Our best thinking is and we're talking about in the U S.

Speaker Change: Market, primarily when we talk about this so.

Speaker Change: If you look at like information you get about Springs.

Speaker Change: And if you look at other data.

Speaker Change: You would perceive that the industry was down what do you think bosker double digits from a sales standpoint call it 10% rounding yes, Scott round.

Scott Thompson: So just round it to 10, okay, for the first quarter. And then you know we're a pretty big share of the market, and you can see we're down, call it 2% to 3%. So you can do a little bit of math and say, "What was everybody else down?".

Speaker Change: Rounded to 10-K for the first quarter and then you know we're a pretty good size of the market and you can see were down call. It 2% to 3%. So you can do a little bit of math and say what was everybody else down and you should probably come up with everybody else, excluding us would've been down probably.

Scott Thompson: And you should probably come up with everybody else, excluding us, would have been down probably close to 15% in the first quarter. So, as a preliminary look and based on the data we have today, I would say, you know, call us 3% and call the rest of the industry 15% down would be kind of how we would quantify the share gains. Then you ask specifically for white space, shelf space; you look, our gains come in two pieces, and the most important piece is slot velocity.

Speaker Change: Close to 15%.

Speaker Change: In the first quarter, so as a preliminary look and based on the data we have today I would say.

Speaker Change: Call us, 3% and call the rest of the industry 15.

Speaker Change: Down would be kind of how we would quantify the share gains and then you asked specifically white space shelf space.

Speaker Change: You look our gains come in two pieces and the most important piece is slot velocity.

Scott Thompson: For what we'll call the installed base, how fast do we get sales from the installed base, and that's where the lion's share of share gains come from because we're fairly well distributed. But yes, there's still some white space, and there's at least a couple that come online in the second quarter, which would be new space, we call it. And they were not in the first quarter, and they'll come in the second quarter.

Speaker Change: For what we'll call it the installed base, how fast do we get sales from the installed base and that's where the lion's share of share gains come from because we are fairly well distributed but yes. There is still some white space and there is.

Speaker Change: At least a couple.

Speaker Change: That come online in the second quarter, which would be new space, we'll call it.

Speaker Change: And they were not in the first quarter and they'll come in the second quarter and you asked about okay. After that or is there more yes. There are still several other white spaces to work on but really the secret to we'll call it share gains and future success is slot velocity and making what we've got in the marketplace more productive both for us and for the REIT.

Scott Thompson: Then you ask, okay, after that, is there more? Yeah, there's still several other white spaces to work on. But really, the secret to, we'll call it, share gains and future success is slot velocity and making what we've got in the marketplace more productive, both for us and for the retailers. That's a win-win when we're talking about the U.S. Thank you, and we will take our next question from

Speaker Change: Taylor's.

Speaker Change: That's that's a win win when we're talking about the U S. If you could talk about internationally. There is a lot more white space in the international market, where we're not as well distributed.

Speaker Change: Across the world and every country is different.

Scott Thompson: Thank you. And we will take our next question from Peter Keith with Piper Sandler.

Speaker Change: Thank you and we will take our next question from Peter Keith with Piper Sandler.

Peter Jacob Keith: Oh, Hey, good morning, everyone. Thank you.

Peter Jacob Keith: Just regarding the FTC decision I guess I was curious on what gives you confidence on predicting the timing of that by the end of the second quarter.

Scott Thompson: If you look at it, this goes back to the original disclosure of the transaction. And first, let me say, we're on our original timeline that we originally disclosed when we started this journey or gauntlet, however you'd like to describe it. And it's based on, we've always said, look, if we need to go through litigation, we'll go through litigation. And we've always kind of put that in the budget from a timing standpoint because we're very comfortable if that's the road that we need to take.

Peter Jacob Keith: Yes, if you look at and this goes back to the original disclosure.

Peter Jacob Keith: Disclosure of the transaction and will let me say, we're on our original timeline.

Peter Jacob Keith: That we originally disclosed when we started this.

Peter Jacob Keith: Journey or gauntlet ever how you'd like to describe it.

Peter Jacob Keith: And it's based on we've always said look if we need to go through litigation will go through litigation and we've always kind of put that in the budget from a timing standpoint.

Peter Jacob Keith: We're very comfortable.

Peter Jacob Keith: That's the road that we need need to take.

Scott Thompson: We clearly have given the FTC additional time because those conversations have been constructive and productive. We're dealing with high-quality people who are taking their job very seriously and learning more and more about the industry. And we think the more they learn about the industry, it's more likely that we'll have a meeting of the minds. But there are certainly no guarantees, and we're certainly not finished yet. But the timing framework has always been that we assumed that we would have litigation and went through litigation.

Peter Jacob Keith: We clearly have given the FTC additional time.

Peter Jacob Keith: Because of those conversations have been constructive and productive we're dealing with high quality people, who are taking their job very seriously and learning more and more about the industry and we.

Peter Jacob Keith: I think the more they learned about the industry.

Peter Jacob Keith: It's more likely that we'll have a meeting of the minds, but there are certainly no guarantees and we're certainly not finished yet.

Peter Jacob Keith: But the timing framework has always been.

Peter Jacob Keith: We assumed that we would have litigation and went through litigation, but.

Scott Thompson: But I think the most important thing when we started the process was it was important to do this, what I'll call, right and get the right answer as opposed to just maybe do it fast. And we're using that principle as we work through with the FTC in all areas. Thank you, and we will take our next question from Seth Basham with Wedbush. Thanks. A two-part question, if you don't mind.

Peter Jacob Keith: I think the most important thing when we started the process was it was important to do this what I'll call right and get the right answer as opposed to just maybe do it fast and we're using that principle.

Peter Jacob Keith: As we worked through with.

Peter Jacob Keith: With the FTC in all areas.

Seth Mckain Basham: Thank you. And we will take our next question from Seth Basham with Wedbush.

Peter Jacob Keith: Thank you and we will take our next question from Seth Basham with Wedbush.

Seth Mckain Basham: Two part question would be on my first a follow up on your response you got in the FTC.

Seth Mckain Basham: If we do need to litigate. This do you still expect to be able to close the transaction. This year and then secondly regarding your sales trends in the quarter can you give us a little bit of perspective on the cadence and then how the second quarter has started out thank you.

Scott Thompson: The answer to your first question is yes. We still would expect to be able to close it within this calendar year. On cadence, I'm going to break up the cadence question into kind of two buckets, which I don't normally do, but this time I think the two buckets kind of differed a little bit.

Speaker Change: The answer to your first question is yes.

Speaker Change: We still would expect to be able to close it within within this calendar year.

Speaker Change: On cadence I'm going to break up the cadence.

Speaker Change: Question in kind of two buckets, which I don't normally do but at this time.

Speaker Change: I think the two buckets.

Speaker Change: Deferred a little bit there is a cadence of sales at retail.

Scott Thompson: You know, there is a cadence of sales at retail, okay, and those are called end-user sales, and then there's a cadence of wholesale on how we get orders, and I think if you go back and listen to the fourth-quarter earnings call, when we disclosed that last time, we were getting mixed messages. So if you look at it from a retail perspective, end-user, there's no question that January was a tough market in the U.S., one, because January was tough, and two, because of weather.

Speaker Change: Those end user sales and then there is a cadence of sales wholesale on how we get orders and as I think if you go back and listen to the fourth quarter earnings call in January when we disclosed it last time, we were getting mixed messages. So.

Speaker Change: If you look at it from a retail perspective end user. There's no question that January was a tough market in the U S.

Speaker Change: One because January was tough and two because of weather then February was positive and I think probably comped positive February over February and was obviously a holiday period.

Scott Thompson: And February was positive, and I think it probably compared positively February over February, and it was obviously a holiday period. And then I think March was down at retail. Then moving to the beginning of the second quarter, I would say that retail sales were flattish, is what it feels like. Again, information is not too precise.

Speaker Change: And then I think March was down.

Speaker Change: At retail.

Speaker Change: And then moving to the beginning of the second quarter.

Speaker Change: I'd say that retail sales were flattish is what it feels like again information is not too precise if youre talking about our orders and our sales will call at wholesale we were actually up.

Scott Thompson: You're talking about our orders and our sales. We'll call it wholesale. We were actually up in January and started the quarter slightly positive, as I think probably the retailers were stocking up in anticipation of President's Day. Then our orders kind of flattened out, we'll call it, in February as they kind of were working through the stock, and then they were slightly down in March, and then they picked up, and are flattish in April, again, in a non-promotional period.

Speaker Change: In January and started the quarter slightly positive is I think probably the retailers were stocking up in anticipation.

Speaker Change: Presidents' day than our orders kind of flattened out we'll call it in February.

Speaker Change: As they kind of working through the stock and then were slightly down in March and then have picked up.

Speaker Change: Our flattish in April.

Speaker Change: Again in a non promotional period and although.

Scott Thompson: And although flat is not a word I particularly like, I like it better than down, I like things that are different than flat that go up, actually, flat in our orders in a non-promotional period would be better than we've experienced over the last, you know, call it three or four quarters. Generally, the trends have been that during non-promotional periods, orders have been slightly negative, and then they've been positive during promotional

Speaker Change: Flat is not a word I, particularly like I like it better than down I like things that are different than flat to go up.

Speaker Change: Actually flat in our orders in a non promotional period would be better than we've experienced over the last call. It three or four quarters generally the trends have been gearing.

Speaker Change: Non promotional periods orders have been slightly negative and then they've been positive during promotional periods. So I don't know if thats, a green shoot or not but that's that's the best information we have.

Scott Thompson: So I don't know if that's a green shoot or not, but that's the best information we have as of today. Thank you. And we will take our next question from Michael Lasser with UBS. Good morning. Thank you so much for taking my question. If you're...

Speaker Change: As of today.

Michael Lasser: Thank you, and we will take our next question from Michael Lasser with UBS.

Speaker Change: Thank you and we will take our next question from Michael Lasser with UBS.

Michael Lasser: Good morning. Thank you so much for taking my question.

Michael Lasser: So instead of being up low to mid single digits. This year are down low to mid single digits, what would that mean for your profitability.

Michael Lasser: Also if the transaction does not go through can you give us a sense of how aggressively you would be in buying back your stock.

Scott Thompson: Sure, Bhaskar and I both work on that a little bit. But, from the sales standpoint, it matters where the sales are. If the decline is in, we'll call it O, the starter bed, the entry-level product, that margin is not very high and probably is not too significant. But if that decline is in high-end beds, primarily Tempur, it would be very noticeable. Now, why don't you give them a little bit more around that, Bhaskar? Then I'll take the capital allocation. Absolutely.

Speaker Change: Sure Oscar night at both work on that a little bit.

Michael Lasser: I think first from a sales standpoint, it matters, where the sales are if the decline is and we'll call it.

Michael Lasser: Oh starter beds entry level product that margin is not very high.

Michael Lasser: And probably not too significant if that decline is in high end beds, primarily temper.

Michael Lasser: It would be very noticeable and I wonder if you can.

Speaker Change: Give me a little bit more around that.

Speaker Change: Then I'll take the capital allocation, absolutely. So generally the way I thought about the business within certain confines, meaning within a certain band as I thought about our incremental or decremental being somewhere around 30% to 35. So as Scott mentioned, if it comes from the value, let's call. It the value price points it would be let's call it something.

Bhaskar Rao: So, generally, the way I thought about the business within certain confines, meaning within a certain band, I thought about our incremental or decremental being somewhere around 30 to 35. So, as Scott mentioned, if it comes from the value, let's call it the value price points, it would be, let's call it something lower than 30 to 35. If it's coming from the luxury brands, whether it be Stearns and Foster or Tempur, it is going to be something north of that. So, let's call it 40-ish above if it was in those luxuries and if it was in the same kind of quantum in those value price points.

Speaker Change: Lower than the 30% to 35, it's if it's coming from the luxury.

Speaker Change: Brands, whether it be Stearns <unk> Foster a temper it is going to be something north of that so let's call. It 40 ish above if it was in those luxuries and if it was in the in the same kind of quantum if you get in those value price points.

Scott Thompson: And then I think the second part of your question, because you squeezed two in in one, was, "what would we do in the unfortunate case if the mattress firm transaction were not to close?" We would clearly be overcapitalized, and we would do what we always do, which is we would look to deploy that capital in a way that has a high return on invested capital, probably because of the size of the amount of money we would have accumulated.

Speaker Change: And I think the second part of your question could you squeezed two and in one.

Speaker Change: It was what would we do and the unfortunate case of the mattress firm transaction were not to close.

Speaker Change: Clearly.

Speaker Change: Would be overcapitalized.

Speaker Change: And we would do as we always do which would be look we would look to deploy that capital in a way that has a high return on invested capital.

Speaker Change: Because of the size of the amount of money we will ever.

Speaker Change: Cumulated.

Scott Thompson: The vast majority would probably end up in share repurchase, but that would be dependent on opportunities and stock price. But probably, if you ask me today, that's going to end up in share repurchase, my guess. It will be a board decision, and the velocity of that decision will depend on the price of the stock, and it will probably depend on the outlook and the uncertainty in the economy. But under a fairly reasonable period of time, we would want to get back in line with what we think is more of our leverage target, which is two to three times. So we would probably be pretty quick, but again, it would be dependent on factors like stock price and economic outlook.

Speaker Change: The vast majority would end up probably than share repurchase, but that would be dependent on opportunities and stock price.

Speaker Change: But probably if you ask me today.

Speaker Change: It's going to end up in share repurchase would be my guess it will be a board decision and the velocity of that will depend on the price of the stock and it will probably depend on the outlook and the uncertainty in the economy.

Speaker Change: But under a fairly reasonable period of time, we would want to get back.

Speaker Change: Back in line with our what we think is more of our leverage target, which is two to three times.

Speaker Change: So we would probably be pretty quick, but again it would be dependent on factors like stock price and economic outlook.

Bradley Bingham Thomas: Thank you. And we will take our next question from Brad Thomas with KeyBank Capital Markets.

Speaker Change: Thank you and we will take our next question from Brad Thomas with Keybanc capital markets.

Scott Thompson: Thanks, good morning. I want to ask you something about advertising. And Scott, as we're out talking to retailers, we continue to hear that Tempur is the most successful with its advertising and its share of voice. And so I was just wondering if you could comment, number one, on whether you think there could be any changes on the horizon from a competitive standpoint in terms of your competitors trying to lean in and be more effective with advertising this year?

Bradley Bingham Thomas: Thanks, Good morning, I wanted to ask about advertising and Scott as we're out talking to retailers. We continue to hear that tempers. The most successful with its advertising its share of voice and so I was just wondering if you could comment number one.

Bradley Bingham Thomas: Do you think there could be any changes on the horizon from a competitive standpoint in terms of.

Bradley Bingham Thomas: Have your competitors trying to lean in and be more effective at out with advertising. This year and then just as you think about the upcoming election are there any nuances that we should think about.

Speaker Change: In terms of your add plans for this year.

Scott Thompson: And then, just as you think about the upcoming election, are there any nuances that we should think about in terms of your ad plans for this year? Well, we would be thrilled with our competition increasing their advertising. I think that would actually be a net positive, certainly to the industry and to us, because I think the biggest problem, and I've talked about it before on open mics, is getting people in the funnel. And I think that's why the unit decline is so drastic this time and what is a minor downturn in the U.S. industry and U.S. economy. So I hope so.

Speaker Change: We would be thrilled with our competition.

Speaker Change: Upping their advertising.

Speaker Change: I think thats actually would be a net positive.

Speaker Change: Certainly the industry and us because I think the biggest problem and I've talked about it before an open mic is getting people in the funnel.

Speaker Change: And I think Thats why the unit decline is so drastic this time in what is a minor downturn in the U S industry in the U S economy.

Speaker Change: I hope so.

Speaker Change: I would love to see all the manufacturers do.

Scott Thompson: I would love to see all the manufacturers do more top-of-the-funnel advertising and pull their weight to help retailers. The biggest problem retailers have is floor traffic, and I think that's part of our responsibility as manufacturers to help drive traffic into the store. So I haven't seen anything, but I think some retailers are putting pressure on other manufacturers to kind of, quote, get in the game. So we're hoping there's a change there. As far as the advertising market and the elections go, there'll be certain markets where it'll be a complete mess. Pricing at times gets a little bit weird.

Speaker Change: Do more top of the funnel advertising and pull their weight to help retailers.

Speaker Change: Biggest problem retailers have which is floor traffic and I think thats part of our responsibility as manufacturers to help drive traffic.

Speaker Change: The stores, so I haven't seen anything.

Speaker Change: But.

Speaker Change: I think some retailers are putting pressure on other manufacturers to kind of get in the game. So we're hoping there's a change there.

Speaker Change: As far as.

Speaker Change: The advertising market in the elections, there'll be certain markets, where it'll be a complete mess.

Speaker Change: Reising at times gets a little bit weird, we've accounted for that in our thinking on our guidance.

Scott Thompson: We've accounted for that in our thinking on our guidance. But it's always a little bit weird when there's an election, but we hopefully we've got that covered. Certainly, we've been planning for it for more than a year. Thank you, and we will take our next question from.

Speaker Change: But it's always a little bit weird when there's when there's an election, but.

Speaker Change: But we hopefully we've got that covered certainly we've been planning for it for more than a year.

Keith Brian Hughes: Thank you, and we will take our next question from Keith Hughes with Truist.

Speaker Change: Thank you and we will take our next question from Keith Hughes with Truest.

Keith Brian Hughes: Thank you the question is on international.

Keith Brian Hughes: If you could talk about how the year is shaping up in terms of the guidance on the comp there just to be a bit harder than what you have in North America.

Bhaskar Rao: You want to take that, Bhaskar? Absolutely. Is it harder? I don't, I don't think it's harder.

Speaker Change: You want to take that boss is it harder I don't I don't think its harder is it well what I would say is.

Bhaskar Rao: Is it? Well, what I would say is it is. You can answer that two different ways. One way is, I would think about in the first half, we did have four models that we have to compare. However, when you think about the back half of 2020-2023, those four models weren't there. However, we did see some growth. So, what does all that mean?

Speaker Change: It is you can answer that two different ways. One way is I would think about in the first half. We did have four models that we have to comp over however, when you think about the back half of 2000 22023, those four models Werent. There. However, we did see some growth.

Bhaskar Rao: As I think about the international market, and let's call it outside of dreams, the products have resonated with the consumers, and we have effectively wrapped up that launch in the United Kingdom. And our expectation is that the growth rate that we saw exiting in 2023 will continue as we get into 2024. So, call that mid to high single digits from a growth rate standpoint.

Speaker Change: What does all that mean as I think about the international and let's call. It outside of Dreams is the products have resonated with the with the consumers and we have effectively wrapped up that launch in the United Kingdom and our expectation is that the growth rate that we saw exiting in 2020.

Speaker Change: Three is that would continue as we get into 2024, so call that mid to high single digits from a growth rate standpoint, when I, just when I pan across international just from a Geo standpoint.

Scott Thompson: When I just, when I pan across international just from a geo standpoint, the international market is as interesting from a macro standpoint as the U.S. And, however, with all that, our business continues to outperform the competitive set. Yeah, I think the way I think about international business is that we've got some great products in the marketplace, that we've got a lot better slot velocity, and there's a lot more white space.

Speaker Change: The international market is as from a macro standpoint is as interesting as the U S. And however, with all that is that our business continues to outperform the competitive set.

Speaker Change: Yes, I think the way I think the international business, we've got some great products in the marketplace.

Speaker Change: It.

Speaker Change: We've gotten a lot better slot velocity and Theres a lot more white space. So that feels good the only call out would be and you mentioned it a little bit was dreams dreams does have tougher comps in the U K.

Scott Thompson: So that feels good. The only callout would be, and you mentioned it a little bit, Dreams. Dreams does have tougher comps, and the UK retail market is worse than it was last year in the betting section. So that one's a little bit choppy, but the traditional Tempur business around the world feels like it's got some really good momentum. Thank you. And we will take our next question from Phillip Lee with William Blair.

Speaker Change: Retail market is is worse than it was last year and the <unk>.

Speaker Change: Adding sections, so that one's a little bit choppy, but the traditional temporary business around the world.

Speaker Change: Like it's got some really good momentum.

Speaker Change: Thank you and we will take our next question from Philip Lee with William Blair.

Philip Lee: Hi, good morning, Thanks for taking my question.

Philip Lee: I wanted to piggyback on the earlier question here can you talk about your sales assumptions for brand mix for the remainder of the year should we expect this mix to remain relatively consistent and then how does that comparative performance in the first quarter and then how should we think about mix shift impact on gross margin throughout the remainder of the year under those assumptions. Thank you.

Phillip Lee: Thank you. Okay, I'll start at the top and then give you details later so you can have time to think through that. Thank you. Look, if you look at the first quarter, the higher ASP beds did better than the lower ASP beds, and the brand that obviously did the best was Tempur and Grew, and then Terns would be in the middle, and then Sealy had some pressure on it and was negative in the first quarter, and that's been kind of the trend. Going forward, that's where I'll look at Bhaskar and let him go. What do you want to talk about?

Speaker Change: I'll start the top and then.

Speaker Change: Details. So you can have time to think through that thank you look if you look at the if you look at the first quarter.

Speaker Change: The higher <unk>.

Speaker Change: Asps.

Speaker Change: Beds did better than the lower ASP beds and the brand.

Speaker Change: Obviously, you did the best as timber.

Speaker Change: <unk> grew and then.

Speaker Change: Turns would be in the middle and then Sealy.

Speaker Change: <unk> had some pressure on it and was negative in the first quarter and that's been that's been kind of kind of the trend.

Speaker Change: Going forward, that's where I'll look at Bosker and let him go what do you want talk about absolutely. So when you think about the first quarter. The uniqueness of it is that we have new distribution that we're very excited about and really that begins in the second quarter and beyond and just as a reminder, that new distribution is through our is through our OEM channel. So when you.

Scott Thompson: Absolutely. So when you think about the first quarter, the uniqueness of it is that we have new distribution that we're very excited about, and really, that begins in the second quarter and beyond. And just as a reminder, that new distribution is through our OEM channel. So when you think about what's going to be different from the rest of the year versus the first quarter, I would think about that OEM mix.

Speaker Change: Think about what's going to be different from the rest of the year versus the first quarter is I would think about that OEM mix again, what we've said we've highlighted an open mic is on an annualized basis, that's about $100 million revenue, we're not going to get all of that in the current period think of that happening from Q2 through the end of the year. However, when you think about mix overall.

Scott Thompson: Again, what we've said and highlighted on open mics is, on an annualized basis, that's about $100 million of revenue. We're not going to get all that in the current period. Think of that happening from Q2 through the end of the year. However, when you think about mix overall and being a gross margin driver, that's not going to show up on a bridge. And the way I think about that is when you think about that revenue mixing in, as Scott said, with the temper and the Sturms and Foster business, it's not a big needle mover.

Speaker Change: And being a gross margin driver.

Speaker Change: Is that going to show up in our bridge.

Speaker Change: And the way I think about that is when you think about that revenue mixing in as Scott said with that with the Tempur and Stearns <unk> Foster business is not a big needle mover also with that OEM does for US is it it's more units through a plant, which makes every other unit cheaper.

Scott Thompson: Also, what that OEM does for us is it gets more units through the plant, which makes every other unit cheaper. Thank you. Once again, if you would like to ask a question or have a follow-up, please press star and one on your telephone keypad.

Operator: Thank you. Once again, if you would like to ask a question or have a follow-up, please press star and one on your telephone keypad now. We will take our next question from Laura Champine with Loop Capital.

Speaker Change: Thank you once again, if you would like to ask a question or have a follow up please press star one on your telephone keypad now.

Speaker Change: We will take our next question from Laura Champine with loop capital.

Laura Allyson Champine: Thanks for taking my question, it's a follow up on the international business, which did decelerate sequentially. It seem like that deceleration was worse in the direct business I'm wondering if that might have to do with higher price points in that segment of your business, but just any color you can give us.

Laura Allyson Champine: The detail on the international side would be helpful.

Laura Allyson Champine: Laura, great double tap. So here's the way I would answer that. If you think of the, let's call it the legacy international business, which is everything outside of dreams, if you go from 4Q to 1Q and you were to remove the impact of the 4 model comp, the growth that we saw in the fourth quarter, that momentum continued in the first quarter. So no, no deceleration there.

Laura Allyson Champine: Laura Great double tap so here's the way I would answer that if you think of the let's call. It the legacy International business, which is everything outside of dreams. If you go from <unk> to <unk> and you were to remove the impact of the floor model comp.

Laura Allyson Champine: The growth that we saw in the fourth quarter that momentum continued in the first quarter.

Laura Allyson Champine: No no deceleration there the one the item I would call out is as Scott mentioned is the UK market.

Laura Allyson Champine: Market is when you think about the totality of the world and what Geos or are more than the others is the UK market is going through something.

Laura Allyson Champine: And we still continue at dreams continues to perform well and performed outsized from a outperformance standpoint versus the competitive set however, it's a highly competitive market.

Laura Allyson Champine: Yes.

Bhaskar Rao: The one thing I would call out is, as Scott mentioned, the UK market. The UK market, when you think about the totality of the world and what GOs are more than others, is going through something. And we still continue; Dreams continues to perform well and performs outsized from a outperformance standpoint versus a competitive set. However, it's a highly competitive market. Thank you. And we will take our next question from William Reuter with Bank of America. Hi, I just.

William Michael Reuter: Thank you. And we will take our next question from William Reuter with Bank of America. Hi.

Laura Allyson Champine: Thank you and we will take our next question from William Reuter with Bank of America.

William Michael Reuter: Hi, I just have one in terms of.

William Michael Reuter: The weakness you're seeing.

William Michael Reuter: The U S is seeing in existing home sales when you've looked at existing home sales historically, what do you think that the correlation is between that data and your sales and do you think we really need that to pick up to see a little bit of a rebound.

Scott Thompson: Yes and no. The way we think about housing is that it's either a little bit of a headwind or a little bit of a tailwind. It would be helpful if there were more housing formation. I don't have an exact percentage or correlation number, but it's probably, housing starts are probably in the top, sure, top five, maybe top three things to look at, but really, consumer confidence would be number one, and number two would be things like innovation, the quality of advertising that stimulates demand, and then you'd probably bump into housing maybe number three or number four.

William Michael Reuter: Yeah.

William Michael Reuter: Yes and no.

Scott Thompson: The way, we think about housing is it's either a little bit of a headwind or a little bit of a tailwind. It would be helpful. If there were more housing formation.

Scott Thompson: I don't have an exact percentage of correlation number but.

Scott Thompson: But it's probably housing start to probably in the top sure top five yes, Scott maybe top three things, we look at but really consumer confidence.

Scott Thompson: As would be number one and number two would be things like innovation quality of advertising that stimulates demand and then you'd probably bump into housing maybe number three or number four so.

Scott Thompson: So, you know, what I'll call a slight uptick in housing or a slight downtick in housing isn't something that we feel a lot of, but we would rather have more housing formation than not. So I don't think we have to have it, especially considering the low level we're working from, but it would certainly be helpful.

Scott Thompson: I'll call a slight uptick in housing or a slight downtick in housing isn't something that we feel a lot of but we would rather more housing formation than not so I don't think we have to have it, especially considering the low level, we're working from.

Scott Thompson: It would certainly certainly be helpful.

Scott Thompson: Okay.

Scott Thompson: Thank you. And we will take our next question from Bobby Griffin with Raymond James.

Scott Thompson: Thank you Andrew we will take our next question from Bobby Griffin with Raymond James.

Robert Kenneth Griffin: Hey guys, thanks for letting me jump back in here. I just wanted to quickly ask on 2Q, anything you want to call out as we think about the model? I know we still have some carryover, the new product launch costs, and then with the new distribution wins, is the timing of those pretty clean for the quarter where, I mean, I think that would imply North America revenue could flip positive if the industry stays about the same? Is that fair, or am I thinking about it wrong? No, a great question.

Robert Kenneth Griffin: Hey, guys. Thanks for let me jump back in here just wanted to quickly ask on <unk> anything you want to call out as we think about the model I know, we still have some carryover the new product launch costs and then with the new distribution wins is the timing of those pretty clean for the quarter were I mean, I think that would imply North America revenue could flip positive if the industry stays about.

Robert Kenneth Griffin: The same is that fair or am I thinking about it wrong.

Scott Thompson: No. A great question, Bobby.

Speaker Change: Great question, Bobby So the way I would think about that is let's call our expectation for the second quarter on a consolidated basis would be let's call. It flattish.

Bhaskar Rao: So, the way I would think about that is, let's call our expectation for the second quarter on a consolidated basis would be, let's call it sladdish. The call out there, you're exactly right, from an OEM standpoint, we do that new distribution. That will start in the second quarter and then, from the back half of the year, continue to gain momentum. When you think about the uniqueness of the second quarter on a year-over-year basis, there was a fair amount of floor models that flowed in 2Q of 2023, and think about that as about a 3% headwind. So, when you think about, on a consolidated basis, what our growth would be without those floor models, it is absolutely reasonable to expect that we would see some growth. However, all in, the expectation is that we would be sladdish.

Bhaskar Rao: The call out there you're exactly right from an OEM standpoint, with that new distribution that will.

Bhaskar Rao: Start in the second quarter, and then from the back half of the year continue to gain momentum when you think about the uniqueness of the second quarter on a year over year basis.

Bhaskar Rao: Is there was a fair amount of floor models.

Bhaskar Rao: That flowed into Q of 2023, and think about that as about a 3% headwind. So when you think about on a consolidated basis, what would our growth be without those for our models absolutely reasonable that we would see some growth. However, all in the expectation is is that we would be flattish if I just do a little bit more landscape.

Bhaskar Rao: If I just do a little bit more landscaping from a P&L standpoint, the gross margin is that we would continue to, on a year-over-year basis, would continue to expand and the normal seasonality that you'd see from going from Q1 to Q2. And then, as you think about the advertising, it's a big period. We've got Memorial Day, and it's the timing of the fourth; some of that spend gets pulled into Q2.

Bhaskar Rao: From a P&L standpoint, the gross margin is that we would continue to.

Bhaskar Rao: On a year over year basis.

Bhaskar Rao: We will continue to expand and the normal seasonality that you would see from going from Q1 to Q2, and then as you think about the advertising.

Bhaskar Rao: It's a big period, we've got memorial day, and just the timing of the fourth some of that spend gets pulled into into into Q2. So advertising as we called out is we're going to make some investments in there not only to support our retailers in this very important period, but also the new products that we have the adapt in the U S as well as what we're doing.

Bhaskar Rao: So, advertising, as we've called out, is we're going to make some investments in it, not only to support our retailers in this very important period, but also the new products that we have, the ADAPT in the U.S., as well as what we're doing internationally.

Bhaskar Rao: Nationally.

Bradley Bingham Thomas: Thank you. And we will take our last question from Brad Thomas with KeyBank Capital Markets.

Bhaskar Rao: Thank you and we will take our last question from Brad Thomas with Keybanc capital markets.

Scott Thompson: Hi, thanks for letting me get back in here. Two quick follow-ups. Maybe, Scott, I'm wondering if you could talk a little bit about, once the mattress firm deal closes, assuming it goes as planned, a little bit about what year one looks like for you. And then, Bhaskar, in case I missed it, did you give us an update on commodity and raw material inputs for the year? Thanks so much. I think that's a great question that I'm not going to answer.

Bradley Bingham Thomas: Hi, Thanks for letting me get back in here.

Scott Thompson: Two quick follow ups here, maybe Scott I'm wondering if you could talk a little bit about.

Scott Thompson: Once the mattress firm deal closes assuming it goes as plan a.

Scott Thompson: A little bit what what year, one looks like for you and then Boston or in case I missed it did you give us an update on commodity and raw material inputs on the year. Thanks, so much.

Speaker Change: I think thats, a great question that im not going to answer.

Scott Thompson: Look, we're not going to roll out too much detail on the first year business plan until things are a little more settled and set, other than to say we believe that that business unit would run separately and decentralized. But we're going to keep the plans and the forecast and the accretion detail and all that until we finish this little exercise we're doing in DC.

Speaker Change: Look we have we're not going to roll out too much detail on the first year business plan.

Scott Thompson: So until things are a little more settled and set up the.

Scott Thompson: Other than to say.

Scott Thompson: We believe that that business unit would run separately and decentralized.

Scott Thompson: But we were.

Scott Thompson: We're going to keep the plans and the forecast and the accretion detail in all of that until we finish this whole exercise we're doing it.

Scott Thompson: D C.

Bhaskar Rao: And Brad, as it relates to commodities and raw material assumptions, largely speaking, they're consistent with how we entered the quarter. Just a reminder, what we're thinking is, on a consolidated basis, gross margins would be up for the full year, call it about 150-ish basis points, and about, let's call it 50 or so basis points would come from that. When you think about what happened, and that remains, as we sit here today, as you think about commodities overall, and when I think about commodities, it's everything from logistics to ocean cargo to traditional lumber, oil, and whatnot, or the oil derivatives, there are some puts and takes in that portfolio. However, largely speaking, it remains consistent when you think about it at the aggregate level.

Scott Thompson: And Brad as it relates to commodities and raw material assumptions largely speaking there consistent with how we entered the quarter.

Bhaskar Rao: Just a reminder, what we're thinking is on a consolidated basis gross margins would be up for the full year call. It about 150 ish basis points.

Bhaskar Rao: And about let's call it 50, or so basis points would come from that from commodities. When you think about what happened and that remains as we sit here today as you think about the commodities overall and when I think about commodity thats everything from logistics to ocean cargo.

Bhaskar Rao: Traditional lumber oil and whatnot or the oil derivatives is theres been some puts and takes in that portfolio. However, largely speaking it remains consistent when you think about it at the aggregate level.

Bhaskar Rao: Okay.

Scott Thompson: Thank you. It appears that we have no further questions at this time. I will now turn the program over to Scott Thompson for closing remarks.

Bhaskar Rao: Thank you. It appears that we have no further questions at this time I will now turn the program over to Scott Thompson for closing remarks.

Scott Thompson: Thank you, operator. To our over 12,000 employees around the world, thank you for what you do every day to make the company successful. To our retail partners, thank you for your outstanding representation of our brands. To our shareholders and lenders, thank you for your confidence in the company's leadership and its board of directors.

Scott Thompson: Thank you operator to over 12000 employees around the world. Thank you for what you do every day to make the company successful to our retail partners. Thank you for your outstanding representation of our brands to our shareholders and lenders. Thank you for your confidence in the company's leadership and its board of directors. This end.

Operator: This ends the call today, operator. Thank you. Thank you. This does conclude today's conversation.

Scott Thompson: The call today operator, thank you.

Operator: Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time. Thank you for your participation; you may disconnect at any time.

Operator: Thank you. This does conclude today's program. Thank you for your participation you may disconnect at any time.

Operator: Okay.

Operator: Sam Thank you for your participation you may disconnect at any time.