Q3 2024 Tempur Sealy International Inc Earnings Call
Later, you'll have the opportunity to ask questions. During the question and answer session. You may registered to ask a question over the phone at any time by pressing the star and one on your telephone keypad.
Thanks for watching!
[music]
Please note today's call will be recorded and we will be standing by if you should need any assistance.
Speaker Change: It is now my pleasure to turn today's conference over to operating more with Investor Relations. Please go ahead.
Speaker Change: Thank you operator good morning.
Speaker Change: Everyone and thank you for participating in today's call.
Joining me today are Scott Thompson, Chairman, President and CEO, and Bob rout, Executive Vice President and Chief Financial Officer.
[music]
This call includes forward looking statements that are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.
These forward looking statements involve uncertainties and actual results may differ materially due to a variety of factors that could adversely affect the company's business.
These factors are discussed in the company's SEC filings, including its annual report on Form 10-K, and quarterly reports on Form 10-Q.
Any forward looking statements speak only as upon the date it is made.
The company undertakes no obligation to update any forward looking statements.
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 investors thought Tempur Sealy Dot com and filed with the SEC.
Speaker Change: Comments will supplement the detailed information provided in the press release.
Scott: And now with that introduction I will turn the call over to Scott.
Scott Thompson: Thank you Robert.
Scott Thompson: Good morning, and thank you for joining us.
Scott Thompson: Third quarter 2024 earnings call.
Scott: Ill begin with some highlights from the quarter and then turn the call over to Bob to review the financial performance in more detail after that.
Speaker Change: Good day everyone and welcome to the Tempur-Sele 3rd quarter 2024 earnings call.
Speaker Change: Two comments on our proposed acquisition of matrix.
Scott: And then open up the call for Q&A.
Speaker Change: At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question and answer session. You may register to ask a question over the phone at any time by pressing the star and 1 on your telephone keypad.
Scott: In the third quarter net sales grew 2% to $1 3 billion and.
Scott: And adjusted EBITDA grew a solid 6% to $275 million compared to the same period last year.
Speaker Change: Please note, today's call will be recorded and we will be standing by if you should need any assistance. It is now my pleasure to turn today's conference over to Aubrey Moore with Investor Relations. Please go ahead.
Scott: Our GAAP EPS grew 14% <unk> 73 per share and our adjusted EPS grew 7% to 82.
Scott: Per share compared to the same period last year.
Aubrey Moore: Thank you, Operator. Good morning, everyone, and thank you for participating in today's call. Joining me today are Scott Thompson, Chairman, President and CEO, and Bhaskar Rao, Executive Vice President and Chief Financial Officer.
Scott: The overall bedding industry remained significantly below historical volumes. However, we are pleased with Tempur Sealy results in the third quarter.
Scott: With an outstanding International performance and a solid domestic results.
Aubrey Moore: This call includes forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Scott: For adjusted EBITDA to net debt leverage ratio declined to two four times, which is below our midpoint of our targeted range of two to three times.
Aubrey Moore: These forward-looking statements involve uncertainties, and actual results may differ materially due to a variety of factors that could adversely affect the company's business.
Scott: As we reported previously we are preparing our financial position, where the planned closing of the mattress firm transaction.
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. Any forward-looking statement speaks only as of when the date it is made. The company undertakes no obligation to update any forward-looking statement.
Scott: Cash generation in the quarter was very strong despite the soft market and we delivered $240 million in free cash flow, our strongest quarter of free cash flow.
Aubrey Moore: This morning's commentary will also include non-GAAP financial information. Reconciliations of this non-GAAP financial information can be found in the accompanying corrector release, which is posted on the company's investor website at investors.tempersealy.com and filed with the SEC.
Scott: Third quarter of 2021.
Scott: Turning to the third quarter highlights.
Scott: Our first highlight is our adjusted EBITDA margin of 21, 1% in the third quarter, which is the strongest margin.
Aubrey Moore: Our comments will supplement the detailed information provided in the press release.
Scott: 10 quarters, driven by our consolidated growth, coupled with our operating efficiency initiatives and diverse business platform.
Aubrey Moore: And now, with that introduction, I will turn the call over to Scott.
Scott: We continue to invest in brand through advertising and best in class service levels, while also remaining agile and responsive to industry conditions.
Thank you, Aubrey.
Scott Thompson: Good morning and thank you for joining us on our third quarter 2024 earnings call.
Aubrey Moore: I'll begin with some highlights from the quarter and then turn the call over to Bhaskar to review the financial performance in more detail. After that, I'll provide some comments on a proposed acquisition of mattress firm and then open up the call for Q&A.
Scott: We expect to see significant upside once the market normalizes, which we estimate to be in 2025 and to be led by the new <unk> product launch, which I'll discuss in a minute.
Aubrey Moore: In the third quarter, net sales grew 2% to $1.3 billion and adjusted EBITDA grew a solid 6% to $275 million compared to the same period last year.
Scott: Turning to our second highlight.
Scott: Our U S business continues to perform well compared to the broader market driven by the continued success of our newly launched products and recent distribution units.
Scott: We recently completed the full refresh of our Tempur Pedic brand.
Aubrey Moore: Our GAAP EPS grew 14% to $0.73 per share, and our adjusted EPS grew 7% to $0.82 per share compared to the same period last year.
Scott: With the new generation of Breeze products and smart basis launched in 2023.
Scott: Followed by the 2020 for rollout of our updated debt collection and active Breeze Halo product.
Aubrey Moore: The overall betting industry remains significantly below historical volumes. However, we are pleased with Kemper Stele's results in the third quarter with an outstanding international performance and a solid domestic results.
Scott: These newest generation products, featuring a broad range of innovative solutions.
Scott: Such as industry, leading cooling technology.
Scott: <unk> press release, and AI, driven insights to help consumers overcome common barriers to quality sleep.
Scott: Our ongoing commitment to and investment in consumer centric innovation is clearly delivering returns as.
Scott: As we see a growing trend in consumers' attaching a smart base to their mattress purchases, which is driving an increase in average transaction value for both our retail partners and our direct to consumer business.
Aubrey Moore: As we recorded previously, we are preparing our financial position for the planned closing of the mattress loan transaction.
Aubrey Moore: Cash generation in the quarter was very strong, despite the soft market. And we delivered $240 million in free cash flow. Our strongest quarter of free cash flow was the third quarter of 2021.
Scott: Additionally, our sleep tracker AI app continues to enhance our product value.
Scott: Offering users real time personalized coaching to help them achieve better sleep.
turning to the third quarter highlights.
Scott: We're particularly pleased to report that.
Aubrey Moore: Our first highlight is our adjusted EBITDA margin of 21.1% in Q3, which is the strongest margin in 10 quarters, driven by our consolidated growth.
Scott: Apps downloads reached a record level in both August and September demonstrating strong consumer engagement and interest in our innovative solutions.
Scott: These results prove that our products are resonating with premium health and wellness focused customers.
coupled with our Operating Efficiency Initiatives and Diverse Business Platform.
Scott: Turning to foster was our strongest performing brand in the quarter and delivered solid growth through both wholesale and direct to consumer channels, driven by last year's new product launch or.
Aubrey Moore: We continue to invest in brand through advertising and best-in-class service levels, while also remaining agile and responsive to industry conditions.
Aubrey Moore: We expect to see significant upside once the market normalizes, which we estimate to be in 2025, and to be led by the new Feeley Posturepedic product launch, which I'll discuss in a minute.
Scott: Our rapidly expanding e-commerce platform and our ongoing investments in advertising.
Scott: Our value products also performed relatively well in a challenging demand environment aided by recent distribution wins in two large U S retailers.
Turning to our second highlight.
Aubrey Moore: Our U.S. business continues to perform well compared to the broader market, driven by the continued success of our newly launched products and recent distribution events.
Scott: Turning to our third highlight.
Scott: We're excited to share that we'll be launching our all new collection of U S. Sealy posture pubic products.
Aubrey Moore: We recently completed the full refresh of our Tempur-Kedec brand, starting with the new generation of Breeze products and SmartBases launched in 2023, followed by the 2024 rollout of our updated Adapt Collection and Active Breeze Halo product.
Scott: Half of 2020.
Scott: This is a significant re imagining the past strategic product branding and marketing as we work to ignite growth in the U S bedding market, where sealy is the largest brand.
Scott: This new product line is targeted at the mid to entry level market, where industry volumes have been weak the last few years.
Aubrey Moore: These newest generation products feature a broad range of innovative solutions, such as industry-leading cooling technology, advanced pressure relief, and AI-driven sleep insights to help consumers overcome common barriers to quality sleep.
Scott: This updated Kiwi part strategic collection of mattresses.
Speaker Change: Hold it.
Scott: Multi year R&D cycle and will feature new proprietary coiled technology.
Aubrey Moore: Our ongoing commitment to, and investment in, consumer-centric innovation is clearly delivering returns.
Scott: These patent pending precision fit coils were designed in house by our engineers to provide superior support which has been the common threat of past strategic collection since its inception in 1950.
Aubrey Moore: As we see a growing trend in consumers attaching a smart base to their mattress purchases, which is driving an increase in average transaction value for both our retail partners and our direct-to-consumer business.
Scott: We've also simplified merchandising provide a clear value proposition and more compelling step up story.
Aubrey Moore: Additional, our Sleep Tracker AI app continues to enhance our product value by offering users real-time personalized coaching to help them achieve better sleep.
Scott: The update will feature a new look thoughtfully designed.
Scott: For a fresh style, while staying connected to sealy brands legacy.
Aubrey Moore: We are particularly pleased to report that app downloads reached a record level in both August and September, demonstrating strong consumer engagement and interest in our innovative solutions.
Scott: The launch will be supported.
Scott: A national advertising campaign, beginning Memorial day 2025.
Scott: The advertising is designed to reinforce the sealy past repeat a difference.
Aubrey Moore: These results prove that our products are resonating with premium health and wellness focused customers.
Scott: This is top of the funnel multimedia campaign will be a national advertising efforts to drive excitement for the Companys largest brands.
Aubrey Moore: Burns and Foster was our strongest performing brand in the quarter and delivered solid growth through both wholesale and direct-to-consumer channels, driven by last year's new product launch, our rapidly expanding e-commerce platform, and our ongoing investments in advertising.
Scott: Our messaging will be amplified by an all new sealy posture pubic in store experience and we plan to elevate series brick and mortar presence with updated in store material and training.
Scott: We're continuing to make high return investments in brand and product.
Aubrey Moore: Our value products also performed relatively well in a challenging demand environment aided by recent distribution wins in two large U.S. betting retailers.
Scott: Five hour and our third party retailers success.
Scott: Shifting to international for a fourth highlight.
Turning to our third highlight.
Scott: Both our legacy international business, and our dreams operations performed very well in the third quarter.
Aubrey Moore: We're excited to share that we'll be launching our all-new collection of U.S. speleoposterpedic products.
Scott: A healthy double digit growth in international sales.
Scott: And 200 basis points of expansion international operating margins, representing significant momentum relative to the overall subdued international market.
Aubrey Moore: This is a significant re-imagining of the Prostituted Product branding and marketing as we work to ignite growth in the U.S. betting market, where Sealy is the largest brand.
Scott: Our newly launched international Tempur collection, with mattresses that basis, and pillows continued to drive growth and market outperformance across key markets like the U K, Germany, China and Australia.
Aubrey Moore: This new product line is targeted at the mid to entry level market where industry volumes have been weak the last few years.
Aubrey Moore: This updated Sealy Posturepedic collection of mattresses is the result of a multi-year R&D cycle and will feature new proprietary coil technology.
Scott: Notably since the collection launched last year, we expanded our wholesale distribution by more than 10% and see continued opportunities to broaden distribution over the long term.
Aubrey Moore: These patent-pending precision-fit coils were designed in-house by our engineers to provide superior support, which has been the common thread of post-trapetic collection since its inception in 1950.
Scott: We're supporting our new international products with strategic investments in advertising.
Scott: Our continued investments throughout the funnel insurers.
Aubrey Moore: We've also simplified merchandising, provided clear value proposition and more compelling step-up story.
Scott: Drive both brand awareness and conversion seeding the market for sustainable long term growth.
Aubrey Moore: The update will feature a new look thoughtfully designed to offer a fresh style while staying connected to Sealy brand legacy.
Scott: The highlight for the quarter.
Scott: Our U S. Tempur Pedic brand was recently awarded number one in customer satisfaction in both the in store retail mattress and the online mattress segment of J D. Power's 2020 for mattress satisfaction report.
The advertising is designed to reinforce the C-postrapedic difference.
Scott: We are honored to achieve this distinction for the last five added six years for the retail category and for the fourth consecutive year in the online category.
Aubrey Moore: This top-of-the-funnel multimedia campaign will be a national advertising effort to drive excitement for the company's largest brand.
Aubrey Moore: Our messaging will be amplified by an all-new Sealy Posturepedic in-store experience. And we plan to elevate Sealy's brick-and-mortar presence with updated in-store material and training.
Scott: With these recognitions temp repeat it has been named the most awarded brand in the history of the J D power U S mattress satisfaction study.
Scott: This recognition is a testament to our consumer centric innovation and our unwavering commitment to product quality and service.
Aubrey Moore: We're continuing to make high-return investments in brand and product to drive our and our third-party retailers' success.
Speaker Change: And with that I'll turn the call over to basket.
Shifting to international for our fourth highlight.
Speaker Change: Thank you Scott.
Aubrey Moore: Both our legacy international business and our dreams operations performed very well in the third quarter driving healthy double-digit growth in international sales and 200 basis points of expansion international operating margins.
Speaker Change: In the third quarter of 2024 consolidated sales were $1 $3 billion.
Speaker Change: And adjusted earnings per share was <unk> 82.
Speaker Change: There are approximately $22 million of pro forma adjustments in the quarter.
Speaker Change: All of which are consistent with the terms of our senior credit facility.
represents significant momentum relative to the overall subdued international market.
Speaker Change: These adjustments are primarily related to costs incurred in connection with our planned acquisition mattress firm and manufacturing footprint optimization initiatives.
Aubrey Moore: Our newly launched international temper collection of mattresses, bed bases, and pillows continue to drive growth and market outperformance across key markets like the UK, Germany, China, and Australia.
Speaker Change: The manufacturing optimization involves the closing of two small facilities as we transferred their volume into our full service manufacturing plant.
Aubrey Moore: Notably, since the collection launched last year, we've expanded our wholesale distribution by more than 10% and see continued opportunities to broaden distribution over the long term.
Speaker Change: The shift will allow us to lower our future cost per manufactured unit, while continue to make product to our industry leading quality standards.
Scott: Turning to North American results.
Aubrey Moore: We're supporting our new international products with strategic investments in advertising.
Scott: Net sales through both our wholesale and direct channel declined approximately 1% in the third quarter.
Aubrey Moore: Our continued investments throughout the funnel ensures that we drive both brand awareness and conversion, feeding the market for sustainable long-term growth.
Scott: North American adjusted gross margin declined 10 basis points to 43, 1% driven by the mix impact of the new distribution win for our OEM business, partially offset by commodity cost and operational efficiencies.
Aubrey Moore: The highlight for the quarter.
Aubrey Moore: Our final highlight for the quarter, our U.S. Tempur-Fedic brand was recently awarded number one in customer satisfaction in both the in-store retail mattress and the online mattress segment of J.D. Power's 2024 Mattress Satisfaction Report.
Aubrey Moore: Our U S. Tempur Pedic brand was recently awarded number one in customer satisfaction in both the in store retail mattress and the online mattress segment of J D. Power's 2020 for mattress satisfaction report.
Scott: North American adjusted operating margin declined 20 basis points to 21% driven by the decline in gross margin and operating expense deleverage.
Aubrey Moore: We're honored to achieve this distinction.
Scott: Now turning to international results.
Aubrey Moore: We are honored to achieve this distinction for the last 5 out of 6 years for the retail category and for the 4th consecutive year in the online category.
Scott: International net sales grew a robust 12% on a reported basis and 11% on a constant currency basis.
Aubrey Moore: Five out of six years for the retail category and for the fourth consecutive year in the online category.
Scott: As compared to the same period last year, our international gross margin improved 70 basis points to 57, 3% driven by operational efficiencies.
Aubrey Moore: With these recognitions temp repeat it has been named the most awarded brand in the history of the J D power U S mattress satisfaction study.
Aubrey Moore: that these recognitions Tempur-Pedic has been named the most awarded brand in the history of the J.D. Power U.S. Mattress Satisfaction Study.
Scott: Our international adjusted operating margin improved 200 basis points to 18, 2% driven by operating expense leverage and the improvement in gross margin, partially offset by the Asia joint venture performance.
Aubrey Moore: This recognition is a testament to our consumer centric innovation and our unwavering commitment.
Aubrey Moore: This recognition is a testament to our consumer-centric innovation and our unwavering commitment to product quality and service.
Aubrey Moore: The quality and service.
Speaker Change: And with that I'll turn the call over to basket.
And with that, I'll turn the call over to Vaskar.
Scott: We're pleased to share that our Asian joint venture recently opened our first manufacturing plant in India.
Speaker Change: Thank you Scott.
Vaskar: Thank you, Scott. In the third quarter of 2024, consolidated sales were $1.3 billion and adjusted earnings per share was $0.82.
Vaskar: The third quarter of 2024 consolidated sales were $1 3 billion and adjusted earnings per share was <unk> 82.
Scott: Although not expected to be material to our operations in the near term. It is further evidence of the long term vision and willingness to invest in the future.
Vaskar: There are approximately $22 million of pro forma adjustments in the quarter all of which are consistent with the terms of our senior credit facility fees.
Vaskar: There are approximately 22 million dollars of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility.
Scott: Now moving to the balance sheet and cash flow items.
Scott: At the end of the third quarter consolidated debt less cash was $2 2 billion and as Scott mentioned, our leverage ratio under our credit facility was two four times within our historical target range of two to three times.
Vaskar: These adjustments are primarily related to costs incurred in connection with our planned acquisition mattress firm and manufacturing footprint optimization initiatives.
Vaskar: These adjustments are primarily related to cost incurred in connection with our planned acquisition of the mattress firm and manufacturing footprint optimization initiatives.
Vaskar: The manufacturing optimization involves the closing of two small facilities as we transferred their volume into our full service manufacturing plant.
Scott: As previously announced we have executed a $1 $6 billion term loan b.
Vaskar: The manufacturing optimization involved the closing of two small facilities as we transferred their volume into our full-service manufacturing plant.
Scott: We are now positioned to fully fund the mattress firm acquisition at close.
Vaskar: This shift will allow us to lower our future cost per manufactured unit, while continue to make product to our industry leading quality standards.
Vaskar: This shift will allow us to lower our future cost per manufactured unit while continue to make product to our industry-leading quality standards.
Scott: Now turning to 2020 for guidance.
Scott: We have narrowed our adjusted EPS outlook to be between $2 45.
Vaskar: Turning to North American results.
Turning to North American results.
Vaskar: Net sales through both our wholesale and direct channel declined approximately 1% in the third quarter.
Scott: And $2 55.
Vaskar: Net sales to both our wholesale and direct channel declined approximately 1% in the third quarter. North American adjusted gross margin declined 10 basis points to 43.1% driven by the mixed impact of the new distribution win for our OEM business.
Scott: At the midpoint of the range. This represents a 4% growth year over year.
Vaskar: North American adjusted gross margin declined 10 basis points to 43, 1% driven by the mix impact of the new distribution win for our OEM business, partially offset by commodity cost and operational efficiencies.
Scott: A notable expansion of profitability in a prolonged challenge market.
Scott: Our guidance at the midpoint is based on the full year sales that are slightly below the prior year, which implies the fourth quarter will it be approximately consistent to the prior year.
partially offset by commodity costs and operational efficiencies.
Vaskar: North American adjusted operating margin declined 20 basis points to 21% driven by the decline in gross margin and operating expense deleverage.
Vaskar: North American Adjusted Operating Margin declined 20 basis points to 20.1% driven by the decline in gross margin and operating expense de-leverage.
Scott: This also considers our current expectation that 2024 U S. Bedding industry unit volume will be down high single digits, which implies the industry will be down approximately mid single digits on dollars in the fourth quarter consistent with what we saw in the third quarter.
Vaskar: Now turning to international results.
Now turning to international results.
Vaskar: International net sales grew a robust 12% on a reported basis and 11% on a constant currency basis.
Vaskar: International net sales grew a robust 12% on a reported basis and 11% on a constant currency basis.
Vaskar: As compared to the same period last year, our international gross margin improved 70 basis.
Scott: This represents more than a 30% decline from peak mattress unit demand in 2021.
Vaskar: As compared to the same period last year, our international gross margin improved 70 base points to 57.3% driven by operational efficiency.
Vaskar: The 57, 3% driven by operational efficiencies.
Scott: Our sales outperformed the global industry due to recent distribution wins and the continued success of new product launches.
Vaskar: Our international adjusted operating margin improved 200 basis points to 18, 2% driven by operating expense leverage and the improvement in gross margin, partially offset by the Asia joint venture performance.
Scott: With advertising spreads approaching $465 million as we support our leading brands and new products.
Scott: Resulting in adjusted EBITDA of approximately $915 million at the midpoint of the range.
Vaskar: We're pleased to share that our Asia joint venture recently opened our first manufacturing plant in India.
Vaskar: We're pleased to share that our Asian joint venture recently opened our first manufacturing plant in India. Although not expected to be material to our operations in the near term, it is further evidence of a long-term vision and willingness to invest in the future.
Scott: Our guidance also considers the following allocations of capital in 2024.
Vaskar: Although not expected to be material to our operations in the near term. It is further evidence of the long term vision and willingness to invest in the future.
Scott: Capex of approximately $125 billion down significantly from prior years as our major capital projects are complete.
Vaskar: Now moving to the balance sheet and cash flow items.
Now moving to the balance sheet and cash flow items.
Vaskar: At the end of the third quarter consolidated debt less cash was $2 2 billion.
Scott: This level of spend is primarily driven by maintenance capex of $110 million.
Vaskar: At the end of the third quarter, consolidated debt less cash was $2.2 billion, and as Scott mentioned, our leverage ratio under our credit facility was 2.4 times, within our historical target range of 2 to 3 times.
Speaker Change: And as Scott mentioned, our leverage ratio under our credit facility was two four times within our historical target range of two to three times.
Scott: In a quarterly dividend of 13, an increase of 18% over prior year.
Vaskar: As previously announced we have executed a $1 6 billion term loan B. We are now positioned to fully fund the mattress firm acquisition at close.
Scott: Lastly, I would like to flag a few modeling items.
Vaskar: As previously announced, we have executed a $1.6 billion term loan B. We are now positioned to fully fund the mattress firm acquisition at close.
Scott: For the full year 2024, we expect DNA of approximately $200 million to $205 million.
Scott: Interest expense of approximately $125 million to $130 million.
Vaskar: Now turning to 2020 for guidance.
Now turning to 2024 guidance.
Vaskar: We have narrowed our adjusted EPS outlook to be between $2 45.
Vaskar: We have narrowed our adjusted EPS outlook to be between $2.45 and $2.55.
Scott: On a tax rate of 24%.
Scott: With a diluted share count of 179 million shares.
Vaskar: And $2 55.
Vaskar: At the midpoint of the range. This represents a 4% growth year over year.
Scott Thompson: With that I'll turn the call back to Scott.
Vaskar: At the midpoint of the range, this represents a 4% growth year-over-year, a notable expansion of profitability in a prolonged challenge market.
Vaskar: A notable expansion of profitability in a prolonged challenged market.
Scott Thompson: Thanks, John Basket.
Scott Thompson: I'd like to take a moment to share some updates related to our mattress firm acquisition.
Vaskar: Our guidance at the midpoint is based on the full year sales that are slightly below the prior year, which implies the fourth quarter will it be approximately consistent to the prior year.
Scott Thompson: Yeah.
Vaskar: Our guidance at the midpoint is based on the full year sales that are slightly below the prior year, which implies the fourth quarter will be approximately consistent to the prior year.
Scott Thompson: First the federal Court hearing is scheduled to begin next Tuesday November 12, 2024, and expected to last about two weeks.
Scott Thompson: We continue to believe a successful litigation process and be completed in the coming months, allowing for a potential transaction closed in late 2024 or early 2025 in.
Vaskar: This also considers our current expectation that the 2024 U.S. betting industry unit volume will be down high single digits, which implies the industry will be down approximately mid-single digits on dollars in the fourth quarter, consistent with what we saw in the third quarter.
Scott Thompson: In line with our previous expectations.
Vaskar: This represents more than a 30% decline from peak mattress unit demand in 2021.
Scott Thompson: As previously announced as part of our engagement with the FTC on the proposed acquisition of mattress firm we.
Speaker Change: Are sales outperforming the global industry due to recent distribution wins and the continued success of new product launches?
Scott Thompson: Conducted a divestiture process, which led to an agreement with mattress warehouse.
Scott Thompson: With extensive mattress retail experience a strong capital base.
Vaskar: with advertising spend approaching $465 million as we support our leading brands and new products.
Scott Thompson: And a capable leadership team.
Vaskar: resulting in adjusted EBITDA of approximately 915 million dollars at the midpoint of the range.
Scott Thompson: The executed purchase agreement provides for the contingent sale of 73 mattress firm retail locations.
Scott Thompson: And our sleep Outfitters subsidiary, which includes a 103 specialty mattress retail locations and seven distribution centers.
Vaskar: CapEx of approximately 125 billion dollars down significantly from prior years as our major capital projects are complete.
Scott Thompson: We expect the divestiture to close approximately one quarter after the closing of the mattress firm transaction.
Vaskar: and a quarterly dividend of $0.13, an increase of 18% over prior year.
Scott Thompson: Turning to our recently filed.
Scott Thompson: Seeking an injunction against the FTC commission's administrative proceeding.
Lastly, I would like to flag a few modeling items.
Scott Thompson: The actions asked the court to prevent the FTC some challenging the mattress from merger through its own separate.
Vaskar: For the full year 2024, we expect DNA of approximately $200 to $205 million.
Scott Thompson: Administrative proceedings. In addition to the federal Court proceeding, which starts next week effectively giving the FTC two shots at us by using two different courts.
interest expense of approximately 125 to 130 million dollars
on a tax rate of 24%.
Scott Thompson: This is an issue of jurisdiction and constitutional law.
With that, I'll turn the call back to Scott.
Scott Thompson: Nice job, Bhaskar. I'd like to take a moment to share some updates related to our mattress phone acquisition.
Scott Thompson: As the litigation process is ongoing our.
Scott Thompson: Comments are limited and we cannot take questions on pending litigation.
Scott Thompson: First, the federal court hearing is scheduled to begin next Tuesday, November 12, 2024, and expected to last about two weeks.
Scott Thompson: Finally, moving to brief comments on mattress firm's financial performance mattress firm recently made their quarterly results available on their website.
Scott Thompson: And they were consistent with our expectations.
Scott Thompson: We believe they are weathering a difficult U S market well.
Scott Thompson: We encourage you to review mattress firm's website for more information on their financial performance in the most recent quarter.
Scott Thompson: Before opening up the call questions I'd.
as previously announced.
Scott Thompson: I'd like to take a minute and reflect on the evolution of can pursue it.
Scott Thompson: Over the last 175 years.
Scott Thompson: Dedicated our efforts and expertise to continuous innovation.
Scott Thompson: Benefit of customers.
Scott Thompson: We have grown to become a leading global bedding company with highly recognized brands.
Scott Thompson: Advanced manufacturing capabilities.
Scott Thompson: And a diverse omnichannel platform.
Scott Thompson: Our ongoing investments to strengthen and diversify our business have resulted in nearly 60% expansion in sales since 2019, and an 80% expansion in adjusted EBITDA over the same period.
Speaker Change: And our sleep Outfitters subsidiary, which includes a 103 specialty mattress retail locations and seven distribution centers.
Scott Thompson: We expect the divestiture to close approximately one quarter after the closing of the mattress firm transaction.
Scott Thompson: While we've made significant strides to grow and fortify the business we.
Scott Thompson: Turning to our recently filed.
Scott Thompson: We believe that significant opportunities lie ahead.
Scott Thompson: <unk> seeking an injunction against the FTC commission's administrative proceeding.
Scott Thompson: Our continued focus on key growth and cost efficiency initiatives.
Scott Thompson: The actions asked the court to prevent the FTC some challenging the mattress from merger through its own separate.
Scott Thompson: Ensure success in a fragmented an evolving marketplace.
Scott Thompson: But we're also optimally positioned to capitalize on a resurgence in demand with global industry returns to growth.
Scott Thompson: Administrative proceedings. In addition to this federal court proceeding, which starts next week effectively given the FTC two shots at us by using two different courts.
Speaker Change: And with that I'll open the call up for questions operator.
Speaker Change: Absolutely.
Speaker Change: This time, if you'd like to ask a question. Please press the star one key on your telephone keypad keep in mind Humira remove yourself from the question queue by pressing star and two.
Speaker Change: Ken Starr and wanted to ask a question today.
Speaker Change: And we'll take our first question from Susan Mcclary with Goldman Sachs. Please go ahead. Your line is open.
Speaker Change: Thank you good morning, everyone.
Speaker Change: Good morning, Susan.
Speaker Change: Good morning, Scott.
Speaker Change: A little bit about demand as we can.
Speaker Change: <unk> gotten past the election, we think about the potential for the fed cutting rates can you talk a bit about how you think the consumer may react thoughts on how we could see demand trending as we get late this year and early next year and then your ability to respond to that with the utilization rate that you've got across the business and some of them.
Speaker Change: Product introductions that you talk to.
Speaker Change: Sure. Thank you for your question Susan.
Speaker Change: Now look the bedding industry has really been in recession, maybe even depression, it's been a tough three years, probably from peak to where we are now kind of down 30%, which is by historical standards.
Speaker Change: Yes.
Speaker Change: Period, we've never seen before so we do think we are set for a recovery of our normalization.
Speaker Change: It will be led by <unk>.
Speaker Change: Which is the largest launch.
Speaker Change: <unk> history, and probably the largest bedding launch in history and if he does see recent number one brand.
Speaker Change: In the U S. If you look at kind of the consumer to be frankly honest, we've gotten through the election.
Speaker Change: And we've gotten through the election very well.
Speaker Change: Peaceful transition of government, maybe a little more.
Speaker Change: Stability, certainly retailers may be more confident to advertise which we're going to have lower rates.
Speaker Change: Maybe not quite as low as we expected six months ago, but clearly the trend in the right way and as you know better than most of us were going to have some some better housing formation.
Speaker Change: Oh, it looks like we should get to some normalization some time call. It in 2025.
Speaker Change: And we think we're perfectly positioned to take advantage of it as you know we've taken market share for <unk>.
Speaker Change: Probably more quarters than I can remember I don't see any reason why we will continue to take market share and in fact that probably based on the numbers I see right. Now I think we took a step forward as far as our market share capture.
Speaker Change: In the third quarter as compared to probably the first two quarters of the.
Speaker Change: A year and we've got the capacity.
Speaker Change: To address the market.
Speaker Change: It does it expands.
Speaker Change: Maybe one other quick call out because it was all really kind of more you would ask this is I think one of the real highlights in the quarter as the international team, both what we call legacy and dreams.
Speaker Change: Both of them had just a few.
Speaker Change: <unk> performance double digit growth in what is also a very difficult market globally.
Scott Thompson: Now look the bedding industry has really been in recession, maybe even depression, it's been a tough three years and probably from peak to where we are now kind of down 30%, which is by historical standards.
Speaker Change: Okay. Good good share.
Speaker Change: And their relative markets.
Speaker Change: Feels like Thats sustainable.
Speaker Change: Taken a lot of good international Rolling, but we think we've got a really good place going forward.
Speaker Change: Im curious.
Speaker Change: Curious we've never seen before so we do think we are.
Speaker Change: Okay. That's very helpful color. Thank you good luck with everything.
Scott Thompson: Set for recovery of our normalization, but can we think it will be led by theory at repeat it.
Speaker Change: Thank you.
Speaker Change: We will take our next question from Bobby Griffin with Raymond James. Please go ahead. Your line is open.
Scott Thompson: Which is the largest march.
Scott Thompson: Sealy history, and probably the largest bedding launch in history.
Speaker Change: Everybody. Thanks for taking the questions Scott I appreciate the details there on the pending acquisition.
Scott Thompson: C rated number one brand.
Scott Thompson: In the U S.
Scott Thompson: You look at kind of the consumer to be frankly honest, we've gotten through the election.
Speaker Change: Thank you.
Speaker Change: I guess so my question on <unk> I think it's probably more centered on the numbers for you but.
Scott Thompson: And we've gotten through the election very well.
Scott Thompson: Peaceful transition of government, maybe a little more.
Speaker Change: Can we talk a little bit about the contribution margin of the business today, there's been a lot of changes you called out manufacturing optimization, new distribution some growth in the OEM and then obviously the so far very successful launch internationally. So can you maybe just unpack kind of what your view is on international and in North Americas.
Scott Thompson: Stability, certainly retailers may be more confident to advertise which we're going to have lower rates maybe.
Scott Thompson: Maybe not quite as low as we expected six months ago, but clearly the trend in the right way and as you know better than most of us were going to have some some better housing formation.
Speaker Change: Go forward contribution margin and is there anything in 2024 results that we should be mindful of when we think about kind of level setting our model on that going forward either good guys are bad guys against the P&L.
Scott Thompson: Oh, it looks like we should get to some normalization some time call. It in 2025.
Scott Thompson: And we think we're perfectly positioned to take advantage of it as you know we've taken market share for probably more quarters than I can remember I don't see any reason why we won't continue to take market share and in fact that probably based on the numbers I see right. Now I think we took major steps forward as far as our market share capture.
Speaker Change: Absolutely let me start with the latter one first as I think about from a go forward standpoint, let's just let's just assume status quo, which is the existing new distribution that continues in the mix of the brands those continue as well as international perform perform so there isn't any transitory items that I would specifically call out one time.
Speaker Change: Peter on the.
Speaker Change: Third quarter as compared to probably the first two quarters.
Scott Thompson: Year.
Speaker Change: Good guys are onetime bad bad guys work.
Scott Thompson: And we've got the capacity.
Scott Thompson: To address the market.
Speaker Change: We're confident where we're proud of the performance that the business is produced in the third quarter as it relates to the contribution profit from a go forward standpoint, how I would think about it is again, assuming status quo and I'll define what I mean by that international business is doing extremely well that new addressable market that we've been going after for a number of years, we've seen the green shoots now we're seeing the <unk>.
Scott Thompson: As it expands.
Scott Thompson: Maybe one other real quick call out because it was all really kind of more you would ask us.
Scott Thompson: I think one of the real highlights in the quarter as the international team, both what we call legacy and dreams.
Scott Thompson: Both of them had just a fabulous performance double digit growth in what is also a very difficult market globally.
Speaker Change: <unk> grow and internationally, we're growing low double digits, so and.
Speaker Change: As you know historically that the contribution profit on that side of the pond is a little bit richer than the U S. Just given the price point. They historically play out so when I think about the fleet being about 35% from a contribution standpoint that international should come at a bit higher than that as I think about from a U S standpoint, North America is.
Scott Thompson: A good bit of share.
Scott Thompson: And their relative markets and that feels like Thats sustainable.
Scott Thompson: And a lot of good international rolling but.
Scott Thompson: We've got a really good place going forward.
Speaker Change: Okay. That's very helpful color. Thank you good luck with everything.
Speaker Change: Thank you.
Speaker Change: Let's think about it as again, assuming the status quo.
Speaker Change: We'll take our next question from Bobby Griffin with Raymond James. Please go ahead. Your line is open.
Speaker Change: As I think about it in and around sleek, let's call it 30% to 35% from an incremental dollar standpoint now the item to come back to US is that we do believe that low end consumer that's been sitting on their hands. They are going to come back and as Scott pointed out we've got an exciting new product launch coming in next year right at that value consumer so as that.
Bobby Griffin: Everybody. Thanks for taking the questions Scott I appreciate the details there on the pending acquisition.
Speaker Change: Thank you.
Speaker Change: I guess so for my question on <unk> I think it's probably more centered on the numbers towards you but.
Speaker Change: Can we talk a little bit about the contribution margin of the business today, there's been a lot of changes you called out manufacturing optimization, new distribution some growth in the OEM and then obviously the so far very successful launch internationally. So can you maybe just unpack kind of what your view is on international and in North Americas.
Speaker Change: Mix is that it will be incremental EBITDA dollars. However, it would be something to be mindful of as that mix is and from a contribution standpoint.
Speaker Change: So you guys you basically have a product mix.
Speaker Change: The issue that you have to keep an eye on but as a cluster pointed out incremental EBITDA into the meat in the market.
Speaker Change: As we looked at the third quarter as I mentioned in the prepared remarks.
Speaker Change: Go forward contribution margin and is there anything in 2024 results that we should be mindful of when we think about kind of level setting our model on that going forward either good guys are bad guys against the P&L.
Speaker Change: Tempur grew and actually Stearns <unk> Foster was the best performing brand. So clearly the weakness has been lower price point.
Speaker Change: Absolutely, let me start with the latter one first.
Speaker Change: About from a go forward standpoint, let's just let's just assume status quo, which is the existing new distribution that continues in the mix of the brands and those continue as well as international perform perform so there isn't any transitory items that I would specifically call out one time. Good guys are onetime bad bad guys work, where we are.
Speaker Change: And we'll take our next question from profit Generoso <unk> with Bank of America. Please go ahead. Your line is open.
Speaker Change: Hi, good morning, Thanks for taking my questions.
Speaker Change: Good morning.
Speaker Change: I was just heading into <unk>.
Speaker Change: So it's sort of 25 I was wondering if you could just sort of give a state of the industry. You've had as you mentioned you have three years of declines mattress industry is depressed 30% below peak.
Speaker Change: But we're also looking at some of the housing indicators existing home sales that haven't turned yet.
Speaker Change: Still feels like it's under pressure just sort of where do you think we are kind of broadly in.
Speaker Change: And the market heading into 2025.
Speaker Change: Sure.
Speaker Change: First of all let me just talk a little bit with the housing market.
Speaker Change: Never really thought the housing market was the primary driver for Betty we've always described it.
Speaker Change: I can't winter slight tailwind.
Speaker Change: Been a slight headwind obviously for a little while so.
Speaker Change: We expect it to be maybe a slight tailwind really we think more advertising innovation consumer confidence is the bigger drivers.
Speaker Change: And I think if you think about all the stuff that went on.
Speaker Change: We call it third quarter and into the fourth quarter.
Speaker Change: <unk> in the United States.
Speaker Change: Consumer has held up very well so if we can get to some sort of more normal.
Speaker Change: Politics, a little more normal housing.
Speaker Change: When I look at the bedding industry, specifically the product innovation is very strong and of course I'm talking my own book of business, but I will comment, but from an industry standpoint, I would tell you that products that all our competitors are making are also innovative.
Speaker Change: So the products are really good.
Speaker Change: <unk> been very conservative on their advertising and as I've talked about on previous calls.
Speaker Change: We think we ought to be spend more money on the top of the funnel driving customers into stores and thinking about bidding and less on the bottom of the funnel chasing last three customers with.
Speaker Change: With search AD.
Speaker Change: Got.
Speaker Change: It looks like it's set up pretty well.
Speaker Change: Yes, we're not going to 2025 guidance today.
Speaker Change: But clearly there is there are some green shoots out there and as Bob talked about a second ago International is really really good.
Speaker Change: Doing well again as I mentioned also little while ago. This posture <unk> launch.
Speaker Change: It is I mean, it is the entire cost sealy parts repeated brand. It is to re imagining the brand for the first time and for I don't know a decade, plus we're going to put national advertising behind it. It is in the meat of the market that has had problems.
Speaker Change: And we think we could we think we've got something here, but as far as something that will help turn the industry back to normalization, which is call it five or 6%.
Speaker Change: Right and maybe you don't get that in 2025, but you get the path to getting back to our.
Speaker Change: I'll call a normal industry.
Speaker Change: When you look at G to population growth and everything else the number of units we're selling today.
Speaker Change: Extremely low.
Speaker Change: I am not a big person on bleeding of pent up demand, but you can't stay at these levels based on any stat that you would look at their sole per person in the country or anything else. So.
Scott Thompson: call it third quarter and into the fourth quarter, particularly in the United States, the U.S. consumer has held up very well.
Speaker Change: When I look at it we've been in this decline not only deep we've been in for a long time, and so where we are.
Scott Thompson: So if we can get to some more normal, we'll call it politics, a little more normal housing.
Speaker Change: Looking forward to getting back to a normal market.
Speaker Change: Leveraging off off Scott one of your comments about volumes and what the industry is doing is as this does come back in as Scott mentioned, we're not due in 2025 is the leverage component is going to be extremely powerful from a business standpoint as that goes through the gross margin. So when you think about the mix that I talked about previously as well as the leverage that will go through those plants.
When I look at the betting industry specifically...
Scott Thompson: The product innovation is very strong and of course I'm talking my own book of business But I'll talk from an industry standpoint. I would tell you that products that all our competitors are making are also innovative
Scott Thompson: so the products are really good. Everybody's been very conservative on their advertising and I've talked about on on previous calls.
Scott Thompson: Everybody has been very conservative on their advertising and <unk> talked about on previous calls.
Speaker Change: Combined with the productivity initiatives that we continue to drive margin expansion in the third quarter. We think all of those items have legs that will that will be very constructive as it relates to EBITDA margins and profitability.
Scott Thompson: Probably think we ought to be spend more money on the top of the funnel driving customers into stores and thinking about bidding and less on the bottom of the funnel chasing last three customers.
Scott Thompson: I probably think we ought to spend more money on the top of the funnel, driving customers into stores and thinking about betting less on the bottom of the funnel, chasing the last three customers.
Scott Thompson: Research.
Scott Thompson: <unk>.
with search ads.
Scott Thompson: <unk>.
Scott Thompson: It looks like it's set up pretty well.
Speaker Change: And we will take our next question from Michael Lasser with UBS. Please go ahead. Your line is open.
Scott Thompson: but it looks like it's set up, you know, pretty well. And, you know, we're not gonna do 2025 guidance today, but, you know, clearly there's some green shoots out there. And as Bhaskar talked about a second ago, international is really, really.
Speaker Change: Yes, we're not going to 2025 guidance today.
Michael Lasser: Good morning. Thank you so much for taking my question is is it's a two parter first how does the north American gross margin performance in the third quarter inform how we should think about the gross margin into next year, given the mix shift to the Sealy <unk>.
Scott Thompson: But clearly there is there are some green shoots out there and his thoughts were talking about a second ago International is really really do.
Scott Thompson: Well again as I mentioned also little while ago. This posture <unk> launch.
Scott Thompson: doing well. Again, as I mentioned also a little while ago.
Scott Thompson: It is I mean, it is the entire cost of Sealy parts repeated brand. It is to re imagining the brand for the first time and for I don't know a decade, plus we're going to put national advertising behind it. It is in the meat of the market that has had problems.
Scott Thompson: This Posture-Pedic launch, I mean, it is the entire Sealy Posture-Pedic brand. It is the reimagining of the brand. For the first time in, I don't know, a decade plus, we're going to put national advertising behind it. It is in the meat of the market that has had problems.
Speaker Change: <unk>.
Speaker Change: Q, how does the prospect of tariff.
Speaker Change: Impact the outlook for Tempur Sealy into 2025 and beyond thank you so much.
Speaker Change: And we think we could we think we've got something here as far as something that will help turn the industry back to normalization, which is call it five or 6% growth rate and maybe you don't get that in 2025, but you get the path to getting back to I'll.
Scott Thompson: And we think we've got something here, as far as something that will help turn the industry back to normalization, which is call it a 5 or 6 percent.
Speaker Change: Great questions I'll take the easy one the gift box through the hardware and the assurance as the last part of the question. We don't think the tariffs.
Speaker Change: Impact as much we don't really buying anything from China directly anymore.
Scott Thompson: growth rate, and maybe you don't get that in 2025, but you get on the path to getting back to, you know, I'll call it a normal industry.
Speaker Change: So any <unk>.
Scott Thompson: I'll call it a normal industry.
Speaker Change: Additional tariffs on China.
Speaker Change: When you look at G to population growth and everything else the number of units we're selling today.
Speaker Change: Impact is as far as overseas about the only thing we import our adjustable bases that come in through Mexico, and Vietnam, maybe theres, a little Nick there if theres some tariffs related to those countries. The history of the industry as we pass those tariffs on.
Scott Thompson: When you look at population growth and everything else, the number of units we're selling today
Scott Thompson: Extremely low.
Scott Thompson: And I'm not a big person on believing it pent up demand, but you can't stay at these levels based on any stat that you would look at their sole per person in the country or anything else. So.
Speaker Change: You could put.
Scott Thompson: When I look at it we've been in this declined nominally deep we've been in for a long time and so we're looking forward to getting back to a normal market.
Speaker Change: Put some tariffs and maybe it helps a little bit.
Scott Thompson: When I look at it, we've been in this decline, not only is it deep, we've been in it for a long time.
Speaker Change: But that would be on the low end bedding and I wouldn't expect it to be material really one way or the other is the way we think about we'll call it the new tariff and tariff environment and.
Scott Thompson: And so we're looking forward to getting back to a normal market.
Speaker Change: Leveraging off Scott one of your comments about volumes and what the industry is doing is as this does come back and as Scott mentioned, we're not during 2025 is the leverage component is going to be extremely powerful from a business standpoint as that goes through gross margin. So when you think about the mix that I talked about previously as well as the leverage that will go through those plants.
Thank you.
Speaker Change: Just leveraging off, Scott, one of your comments about volumes and what the industry is doing is, as this does come back, and as Scott mentioned, we're not doing 2025, is the leverage component is going to be extremely powerful from a business standpoint as that goes through its gross margin. So when you think about the mix that I talked about previously, as well as the leverage that will go through those plans combined with the productivity initiatives that would continue to drive margin expansion in a third quarter, we think all of those items have legs that will be very constructive as it relates to even dot margins and profitability.
Speaker Change: And then you get the complex question about mix into gross margin pretty straightforward. So when I think about North America, <unk> margins and how that informs the outlook is again, we saw on a consolidated basis. We saw a nice gross margin expansion, we did see profit productivity driving gross margin expansion.
Speaker Change: Bind with the productivity initiatives that we continue to drive margin expansion in the third quarter. We think all of those items have legs that will that will be very constructive as it relates to EBITDA margins and profitability.
Speaker Change: In the quarter offset by mix as you get into the fourth quarter and beyond that mix will start lapping itself a little bit in the fourth quarter and start being grandfathered as we get more into 2025, so as a as a take or as a headwind I wouldn't think about that on a go forward standpoint again incremental EBITDA.
Speaker Change: And we will take our next question from Michael Lasser with UBS. Please go ahead. Your line is open.
Scott Thompson: We will take our next question from Michael Lasser with UBS. Please go ahead your line is open.
Speaker Change: But it is something to think about as it relates to margins. However, what I do think about the productivity and we feel like we feel good about what we've accomplished so far and we do feel like that has legs from a go forward standpoint, and then overall.
Speaker Change: Good morning. Thank you so much for taking my question. It's a two parter first how does the north American gross margin performance in the third quarter inform how we should think about the gross margin into next year, given the mix shift to the Sealy <unk>.
Scott Thompson: Good morning. Thank you so much for taking my question. It's a two-parter. First, how does the North American
Growth Margin Performance
Speaker Change: Is temporary continues we have a new product launch and temporary relative to the fleet.
in the third quarter, inform...
Speaker Change: how we should think about the gross margin into next year given the makeshift to the Sealy products? And two, how does the prospect of tariffs impact the outlook for Tempur-Sealy into 2025 and beyond? Thank you so much.
Speaker Change: It will be constructive and Stearns <unk> Foster as Scott pointed out here with a leading growth driver of the overall business, which will be constructive to the fleet. So when I think about tailwind to.
Speaker Change: <unk> in Q, how does the prospect of tariff.
Speaker Change: Packed the outlook for Tempur Sealy into 2025 and beyond thank you so much.
Speaker Change: The North American margins is a nice tailwind again the item to be mindful of is as this low end consumer comes back is that will mix and incremental EBITDA, but it is something to be mindful of from a rate standpoint.
Speaker Change: Great questions I'll take the easy one the gift box through the hardware.
Speaker Change: Great questions. I'll take the easy one and give Vaskar the hard one. And the easy one is the last part of the question. We don't think the tariffs impact us much. We don't really buy anything from China directly anymore.
Speaker Change: Sure.
Speaker Change: As part of the question, we don't think the tariffs.
Speaker Change: And we will take our next question from Peter Keith with Piper Sandler. Please go ahead. Your line is open.
Speaker Change: additional tariffs on China really don't impact us. As far as overseas, about the only thing we import are adjustable bases.
Peter Keith: Hey, good morning, guys.
Speaker Change: They come in through Mexico and Vietnam, maybe there's a little nick there if there's some tariffs related to those countries. The history of the industry is we pass those tariffs, you know, on.
Speaker Change: Our best you kind of a two parter here, but just on the advertising spend we know the importance. It seems like you've pulled back on AD spend in Q3, because you saw a nice sales and marketing leverage could you talk about kind of the AD strategy going from Q3 into Q4, and then on a related basis, just maybe the domestic versus international.
Speaker Change: Thompson Institute for Research and the specific purpose of this webinar was briefly to give you some feedback about this course.
Speaker Change: Sales dynamics implied for Q4 do you think international is going to slow from the strong growth does does domestic a little worse, how should we think about those two.
And then you get the complex question about the mix.
Speaker Change: Okay, Let me see if I could get it's about a five point question, but I think.
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host
Speaker Change: Tony Basket, if I missed any.
Speaker Change: First of all from an advertising spin that naturally flexes up and down.
Speaker Change: is, again, we saw on a consolidated basis, we saw a nice gross margin expansion. We did see productivity driving gross margin expansion in the quarter offset by mix. As you get into the fourth quarter and beyond, that mix will start lapping itself a little bit in the fourth quarter, and it'll start being grandfathered as we get more into 2025. So as a headwind, I wouldn't think about that on a go-forward standpoint. Again, incremental EBITDA, but it is something to think about as it relates to margins.
Speaker Change: Based on what's going on in the market if youre talking about the DTC spend.
Speaker Change: Literally changes daily depending on performance marketing.
Speaker Change: In general we were relatively conservative in the fourth quarter, considering the election and the noise around the election. So I would say we've been a little conservative, but we are pretty much pretty much spent the same percentage of sales.
Speaker Change: So I would say consistent.
Speaker Change: I would expect will be a little more aggressive next year.
Speaker Change: However, when I do think about the productivity, we feel like we feel good about what we've accomplished so far, and we do feel like that has legs from a go-forward standpoint. And then overall, TEMPURS continues. We have a new product launch in TEMPURS relative to the fleet.
Speaker Change: With the advertising.
Speaker Change: As far as momentum internationally, we would expect them to continue to have significant momentum. We don't think this is a one quarter thing, whether it's double digits or high single I don't know, but.
Speaker Change: And what is a market thats clearly down I expect the international group.
Speaker Change: <unk>.
Speaker Change: Very good performance both.
Speaker Change: In total numbers, but relatively speaking of outstanding performance.
Speaker Change: What else is in that question Bhaskar.
Speaker Change: I think thats.
Speaker Change: Fair just just to cover that let's call. It about 929, 3% advertising versus so consistent on a prior year basis I think specifically you had a question about growth rates.
Speaker Change: And average devices, which may be noteworthy.
Speaker Change: As other people have pulled back and advertising quite frankly, we found our advertising to be much more effective cost.
Speaker Change: Because it's not quite as noisy out there. So that's been a good guide you from an effectiveness standpoint.
Speaker Change: So as Scott mentioned consistent on a rate basis, and total dollars about $119 million in the third quarter for total advertising as I think about profiling in the fourth quarter, what we've assumed and we read it in the prepared material. The U S industry, it's kind of chugging, along where it is call it down mid single digits from a dollar standpoint, we've assumed.
Speaker Change: That same in the fourth quarter. So when you think about <unk>.
Speaker Change: <unk> from this side of the pond or the other.
Speaker Change: Distant profile, it's got debt, whether it's high high single low double internationally and from a North America standpoint, but let's call it consistent perhaps slightly slightly down a little bit so similar profiling.
Speaker Change: We'll take our next question from Seth Basham with Wedbush Securities. Please go ahead. Your line is open.
Seth Basham: Thanks, a lot and good morning. My question is regarding the third quarter can you just give us some color on the shape of sales through the quarter, how labor day performance and your promotional strategy during and after labor day, how does that shake out and where the competition due to react.
Seth Basham: Sure.
Speaker Change: Consistent with what we've seen in previous quarters.
Seth Basham: The trough is deeper into peak is higher so and holiday periods, we would have actual growth.
Seth Basham: And a good bit of growth and then the trough we would be negative and then you blend it altogether.
Seth Basham: That's the trend we've seen for I don't know four five quarters post pandemic. So that's kind of the kind of the shape.
Speaker Change: I don't think our promotional activity with significantly different year over year Oscar do.
Speaker Change: Correct.
Speaker Change: Tuned it here here and there.
Speaker Change: We did we did.
Seth Basham: We did work a little bit on it to match some some promotions.
Seth Basham: Some other externally that we talked about last quarter that was what I call, a nickel and dime kind of stuff.
Seth Basham: And then I would say more recently I would say the promotional environment in general has gotten less.
Seth Basham: And in the marketplace.
Seth Basham: Is it looks like others are being a little less promotional and trying to squeeze out some dollars to advertise which I would consider it should be a net positive for them and the industry.
Speaker Change: Later, we will take our next question from Brad Thomas with Keybanc Capital markets. Please go ahead. Your line is open.
Brad Thomas: Okay. Thanks for taking my question.
Brad Thomas: Scott you talked a bunch about your industry outlook, we get a lot of questions about how the luxury part of the market is performing could you talk a bit more about that and how you think about the luxury in terms of how much its decline from peak.
Brad Thomas: You think about it going forward specifically thanks.
Brad Thomas: Yes.
Speaker Change: Actually is holding up well.
Speaker Change: Tempur Sealy as I've mentioned in the prepared remarks actually Stearns <unk> Foster was the best performing brand.
Speaker Change: And temporary and both of those.
Speaker Change: Brands had growth in the third quarter and for talking terms and no one's numbers are perfect when talking about the industry and I'm talking U S. I would guess the U S industry was probably down maybe 9% to 10% in sales.
Speaker Change: And like I said, both those brands were were in growth.
Seth Basham: I've seen other reports of some other public companies that are that.
Speaker Change: They were down.
Speaker Change: Significantly so it's hard for me to make a general impression general call on high end customer, but from what we're seeing on our products. The high end is holding up.
Seth Basham: Well.
Speaker Change: And we'll take our next question from Judy Merrick with Truest. Please go ahead. Your line is open.
Speaker Change: Thank you this is <unk> on for Keith Hughes.
Speaker Change: I was wondering if you could give us a sense of how much the new sealy, possibly eight launch would be a drag on earnings in first half of next year either from the advertising you talked about at the <unk>.
Speaker Change: Yes, great question.
Speaker Change: From a year over year standpoint, there really won't be any incremental launch costs. When you compare the sealy posture PD launch in 2025 to what we did in 2024, so there will be incremental op cost when.
Speaker Change: When you go to advertising advertising would be incremental cost, but we expect to be able to self funded through cost reductions.
Speaker Change: The initiatives that we're working through so we're thinking about that incremental advertising it will not be an incremental expense as we offset.
Speaker Change: Other cost reductions.
Speaker Change: And we will take our next question from Laura Champagne.
Speaker Change: Loop capital. Please go ahead your line is open.
Speaker Change: Thanks for taking my question and I thought the international growth was impressive and I hear you Scott that you view that at a sustainable can you put a little more meat on those bones and tell us why growth.
Speaker Change: In international markets should be that sustainable in a pretty tough macro there too.
Speaker Change: Yeah.
Speaker Change: And I know you follow US closely if you remember we worked on new products that tempered for four years before we launched this new tempur product.
Speaker Change: And it was expensive it was painful took us a long time, but we finally got it where we need it to so the first big driver is the new Tempur product, we got the product right.
Speaker Change: And the market has been receptive and we backed it up with new creative AD advertising.
Speaker Change: So all of that would be execution.
Speaker Change: Very difficult market.
Speaker Change: The Tempur side, we've also had a strategy to.
Speaker Change: Bring the Tempur product a little closer to call. It high end of the market, but not the super premium being down just a little bit.
Speaker Change: And we're working through that and as I mentioned in the prepared remarks, we had some expansion in distribution.
Speaker Change: I don't think were true from that standpoint, if you go to the dream side of the Ledger. The dream team has executed very well in the U K.
Speaker Change: Taking significant share and being very crisp.
Speaker Change: From an for an execution standpoint, and the UK economy, although not robust at least stabilized and it feels like it's beginning to.
Speaker Change: Pick up a little bit.
Speaker Change: Is that kind of interest rates and stuff.
Speaker Change: So.
Speaker Change: Its product on the Tempur side, and it's execution on both the dreams side and.
Speaker Change: The Tempur side.
Speaker Change: And we will take our last question today from Bobby Griffin with Raymond James.
Speaker Change: Please go ahead your line is open.
Speaker Change: Guys. Thanks for let me back in real quick Scott.
Speaker Change: I just wanted to.
Speaker Change: <unk> been a little bit more on Stearns <unk> Foster you called it out strongest brand during the quarter I think that's a reversal and maybe some of the prior trends in the past couple of quarters. So can you maybe just unpack that a little did you did you pushed a little bit more on advertising anything to help us understand the turnaround there that's pretty encouraging.
Speaker Change: Given the opportunity on storms over a multi year basis.
Speaker Change: Yes, I don't have all the numbers from a Bobby.
Speaker Change: Perception is Stearns was really hot.
Speaker Change: For a little while last couple of quarters.
Speaker Change: But it certainly has it cooled down a little bit I think there is still a growth.
Speaker Change: And then in the third quarter had a very strong third quarter I think that I would give credit first of all the sales group because we noticed that it slowed down a little bit in the sales group.
Speaker Change: Made it a focus we also had one SKU.
Speaker Change: 102, Skus at two one on.
Speaker Change: One or two skus in Stearns <unk>.
Speaker Change: Aren't as productive as we would have liked them to bid and we tweak them brought in new skus to replace them and got those floored where.
Speaker Change: Where we had a couple of underperforming.
Speaker Change: Skus.
Speaker Change: And with that.
Speaker Change: Is that a very strong quarter.
Speaker Change: No no additional promotions.
Speaker Change: Speak of no additional advertising in fact that the advertisements little bit downstream actually.
Speaker Change: Yeah.
Scott Thompson: There are no further questions on the line at this time I'll return the call to Scott for any additional or closing remarks.
Scott Thompson: Thank you operator.
Scott Thompson: To our 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 ends the call today operator, Thank you very much.
Speaker Change: Thank you and thank you everyone for your participation today you may now disconnect.