Q3 2025 Somnigroup International Inc Earnings Call
Speaker #1: Good morning , ladies and gentlemen , and welcome to the third quarter 2020 Earnings call . At this time , all lines are in listen only mode .
Speaker #1: Following the presentation , we will conduct a question and answer session . If at any time during this call , you require me to assistance , please press star zero for the operator .
Speaker #1: This call is being recorded on Thursday , November 6th , 2025 . I will now like to turn the conference over to Aubrey Moore of Investor Relations .
Speaker #1: Please go ahead .
Speaker #2: Thank you . Operator . Good morning , 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 .
Speaker #2: 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 .
Speaker #2: These factors are discussed in the company's SEC filings , including its annual report on Form 10-K and quarterly Report on Form 10-q . Any forward looking statement speak only as of the date on which it is made .
Speaker #2: The company undertakes no obligation to update any forward looking statements . This morning's commentary will also include non-GAAP financial information , reconciliations of non-GAAP financial information can be found in the accompanying press release , which is posted on the company's website at .
Speaker #2: WW . And filed with the SEC . Our comments will supplement the detailed information provided in the press release . As a reminder , year over year comparisons are impacted by the acquisition of Mattress Firm in the first quarter of 2025 and the related divestiture of Sleep Outfitters in certain mattress and retail locations .
Speaker #2: In the second quarter . At certain times in the call . To better illustrate underlying business trends , we will focus on , like for like numbers defined as reported numbers adjusted for the acquisition and divestiture impacts .
Speaker #2: We would also like to mark your calendars for March 4th , 2026 , as we will be having our Investor Day in New York that will include various members of executive management from SOMNIGROUP INTERNATIONAL INC. and Mattress Firm .
Speaker #2: Formal invitations will be sent out closer to the event . And now with that introduction , it's my pleasure to turn the call over to Scott .
Speaker #3: Good morning , and thank you for joining us on our third quarter 2020 earnings call . I'm pleased to share with you that SOMNIGROUP INTERNATIONAL INC. delivered a record quarter across nearly all key operating metrics .
Speaker #3: These results were driven by the early benefits from the Mattress Firm combination and successful execution of our key operating initiatives . Importantly , we achieved this strong financial performance while the US betting market remains basically flat from a sales perspective and it is still at trough levels .
Speaker #3: While the US housing market has yet to recover and international markets continue to face numerous challenges . Additionally , we have not fully realized all of the benefits from the Mattress Firm combination .
Speaker #3: This backdrop underscores the potential of our business , the strength of our competitive position , and the meaningful opportunity ahead for our markets improve , and we continue to deploy capital and optimize our vertical structure .
Speaker #3: In the third quarter of 2025 , we're pleased to achieve record net sales , adjusted EBITDA and adjusted EPs . Net sales were up approximately 63% to 2.1 billion .
Speaker #3: Adjusted EBITDA was up approximately 52% to 419 million . And adjusted EPs was up approximately 16% to $0.95 per share . Now turning to some highlights for the third quarter .
Speaker #3: First , highlight our aggregate like for like sales growth was 5% over the same period last year . LED by strong performance in our international operations , which I'll discuss in a minute .
Speaker #3: Tempur Sealy North America reported 5% like for like sales growth , which is the strongest quarterly sales trend in nine quarters . This performance was broad based across our portfolio and price points .
Speaker #3: As we significantly increased our balance of share at Mattress Firm and experienced growth with our other third party retailers . Both Tempur-Pedic and cloud Brands reported solid growth in the quarter , driven by our new Sealy Posturepedic products and our strong commitment to advertising , including over 110 million invested in the third quarter to keep our brands top of mind and drive valuable customer traffic to all retailers .
Speaker #3: Our collaborative marketing approach focused on delivering high quality , brand centric advertising , retail partners continues to drive strong results for us and the industry .
Speaker #3: Retailers who have actively participated in our brand activation program have seen a significant boost in sales of Tempur-Pedic and Sealy products . In short , we continue to win in the market with great product , robust advertising and a dedicated sales force to help our customers improve their business .
Speaker #3: Second , highlight Mattress Firm continues to outperform the market , reporting strong same store sales growth of 5% in the quarter . The strong performance was possible due to our relentless focus on delivering superior in-store execution and equipping our sleep experts with the tools and training they need to meet customer sleep needs .
Speaker #3: Further , we continue to invest in consumer experience for our store refresh program , including installing timber brand walls to support increased customer engagement and education where third quarter placed .
Speaker #3: Temporary brand walls have shown to drive higher resale tickets , resulting in strong return on investment . We began scaling this initiative in the back half of the quarter and expect to finish rolling it out to all 2200 store locations nationwide by the end of next year .
Speaker #3: Other retailers have also taken part in this program , as we are committed to an omnichannel approach . Additionally , we are ramping up our previously disclosed three year program to invest a total of $150 million between 2025 and 2027 to refresh certain Mattress Firm stores , ensuring all locations meet our brand standards .
Speaker #3: Third , highlight our international business continues to deliver impressive sales growth despite a challenging operating environment . Our temper international sales grew 11% in the quarter and continue to outperform the market by a solid clip driven by the refreshed temper product lineup , expanded distribution , strong local execution combined with meaningful investments in advertising that significantly boosts brand visibility , consumer engagement resulted in double digit performance .
Speaker #3: We continued to refine our late stage customization manufacturing process to support this momentum . This approach allows us to efficiently tailor products for specific markets , channels , and customer segments with a solid foundation in significant long term potential .
Speaker #3: We're confident in the growth trajectory of our international operations . Dreams . Our UK based bedding retailer also delivered strong quarterly market outperformance , driven by same store sales growth and new store openings .
Speaker #3: Greens continues to drive cost efficiencies , advanced strategic growth initiatives and deliver exceptional product quality in industry leading customer satisfaction . Our final highlight is related to the progress on our sales and cost synergy initiatives .
Speaker #3: Following the combination of Mattress Firm , Mattress Firm is focused on retailing high quality products with differentiated innovation at all price points . While driving industry demand with market leading advertising investments on synergies .
Speaker #3: We are ahead of our expectations in achieving a more market driven distribution of Tempur Sealy brands and private label products at Mattress Firm .
Speaker #3: We now expect temper , Sealy to represent a mid 50% of Mattress Firm's total sales in 2025 , up from our previous estimate of low 50% in total .
Speaker #3: We now expect sales synergies to result in $60 million of benefit to adjusted EBITDA this year . Looking to 2026 , we expect an incremental $40 million benefit from the wraparound impact of the share gains , but is on track to comfortably achieve our targeted $100 million of run rate sales synergies .
Speaker #3: As a reminder , we held Mattress Firm sales flat in estimating the balance of share opportunity as the US bedding industry recovers and Mattress Firm sales increase , we expect the dollar synergies to grow our increased scale and vertical integrated operations are unlocking efficiencies throughout manufacturing , logistics and sourcing .
Speaker #3: Additionally , improved insights into consumer demand patterns is enabling us to optimize production , upcoming product introductions , and product end of life strategies .
Speaker #3: We remain on pace to achieve a minimum of 100 million in annual run rate , net cost synergies , beginning with 15 million projected for 2025 .
Speaker #3: An incremental 50,000,000 in 2026 , and a further 35,000,000 in 2027 . Long term , we're excited about the potential to align Tempur Sealy and Mattress Firm's messaging to increase our advertising efficiency and opportunity , which is not yet quantified in our cost synergy targets today .
Speaker #3: As a unified group entity, we're positioned to deliver more cohesive, high-impact advertising to support both our brands and the broader U.S. setting market.
Speaker #3: Our new Mattress Firm advertising campaign , Sleep Easy , launched mid third quarter , aligns our messaging with a cohesive voice . The campaign educates consumers on the importance of a well suited mattress for restorative sleep , and activates them to take the next step in their purchase journey .
Speaker #3: It highlights some of the most common impacted sleep disruptors and shows how certain products and mattress Firm's sleep experts can effectively address these sleep issues .
Speaker #3: We're very encouraged by the strong consumer response to sleep Easy campaign . Initial research has identified it as the highest performing campaign mattress firms .
Speaker #3: Recent history across all metrics . Subsequent studies have reinforced this finding , showing the campaign significantly outperformed both industry benchmarks and Mattress Firm's previous messaging , although it's still early in the campaigns rollout .
Speaker #3: We're confident that we're on the right path . We expect the positive impact to grow as the campaign becomes more established in the marketplace .
Speaker #3: Overall , we're pleased with the rapid progress in both sales and cost synergy efforts and remain excited about the long term opportunities for retail customers , to group employees and shareholders .
Speaker #3: And with that , I'll turn the call over to Oscar to review the financial statements . Oscar . Thank you . Scott . In the third quarter of 2025 , consolidated sales were $2.1 billion , and adjusted earnings per share was a record $0.95 , up 16% over the prior year .
Speaker #3: There are approximately $40 million of pro forma adjustments in the quarter , all of which are consistent with the terms . of our senior credit facility .
Speaker #3: These adjustments are primarily related to cost incurred in connection with the combination . We expect pro forma adjustments to decline going forward . As a reminder , we have aligned accounting for store occupancy costs across semigroup , which resulted in Tempur Sealy reclassifying their store occupancy costs from operating expense to cost of goods sold .
Speaker #3: We have adjusted prior year temper Sealy Financial information included in today's earnings release to reflect this change . For ease of comparability , I will be highlighting like for like comparisons to normalize for these items in our commentary .
Speaker #3: Now turning to Mattress Firm results net sales through Mattress Firm were approximately $1.1 billion in the third quarter on a like for like basis , Mattress Firm sales grew 3% over the prior year , which includes strong same store sales growth of 5% .
Speaker #3: Mattress firms adjusted gross margin was 35.6% and adjusted operating margin was 9.4% . In line .
Speaker #2: With .
Speaker #3: Our expectations . Now turning to temper Sealy , North American results like for like net sales through the wholesale channel grew approximately 10% in the third quarter .
Speaker #3: Normalizing for the previously disclosed foreclosed distribution . Without this normalization , the wholesale channel grew approximately 6% . Like for like net sales through our direct channel declined 4% in the third quarter .
Speaker #3: North American adjusted gross margins increased 1,700 basis points to 58.6%, primarily driven by the elimination of the intercompany sales to Mattress Firm from Tempur Sealy on a like-for-like basis.
Speaker #3: North American adjusted gross margins declined 40 basis points versus the prior year , primarily driven by merchandising mix , which includes strong Sealy performance .
Speaker #3: This was partially offset by operational efficiencies and fixed costs absorption . North American adjusted operating margins improved 940 basis points to 29.5% , primarily driven by Mattress Firm intercompany sales , elimination on a like for like basis , North American adjusted operating margins increased 60 basis points versus the prior year , primarily driven by fixed cost leverage , partially .
Speaker #3: offset by the decline in gross margins . Now , turning to Tempur Sealy international results . International net sales grew robust 11% on a reported basis , and 7% on a constant currency basis .
Speaker #3: Our international gross margins declined 40 basis points versus the prior year , primarily driven by a competitive U.K. marketplace , partially offset by operational efficiencies .
Speaker #3: Our international operating margin was consistent with the prior year at 18.1% , with fixed cost leverage offsetting the decline in gross margins . In July , Tempur Sealy rolled out a price increase equating to approximately 2% of total North America sales , largely focused on the higher end products in our portfolio .
Speaker #3: We believe this price increase would generally lower than the industry peers in succeeded in offsetting implemented tariff headwinds , with no discernible impact and consumer demand as the tariff landscape has continued to evolve , we see another $20 million of incremental cost exposure , primarily on our adjustable basis .
Speaker #3: To offset this headwind , we announced a small price increase earlier this week that will go into effect in early 2026 . We remain confident in our ability to adapt to tariff changes supported by our strong product offerings .
Speaker #3: Agile team and supportive supply partners . Now moving on to some balance sheet and cash flow items . At the end of the third quarter , consolidated debt less cash was $4.6 billion , down $300 million versus the second quarter .
Speaker #3: And our leverage ratio under our credit facility was 3.3 times down 30 basis points , or 8% , versus the second quarter . We expect our leverage to return to our target leverage range of 2 to 3 times early in 2026 .
Speaker #3: We achieved record operating cash flow of $408 million and record free cash flow of $360 million in the quarter , demonstrating the power of our business model .
Speaker #3: Even in the soft market , our strong cash generation positioned us well to continue to optimize our debt structure . We expect to continue to pay down debt and benefit from lower market interest rates and improved cost of our variable priced debt .
Speaker #3: As we return to our target leverage range , we expect this trend to add to future EPs growth . As a reminder , our guidance considers the elimination of intercompany sales between Mattress Firm and Temper .
Speaker #3: Sealy , which we expect to represent approximately 20% of global Tempur Sealy 2025 sales . Intercompany eliminations . In accordance with GAAP , will reduce temper .
Speaker #3: Sealy sales , but the margin accretive and neutral to dollars of operating profit consistent with prior quarter . Our guidance also reflects the divestiture of Tempur Sealy Sleep Outfitters retail business , as well as 73 Mattress Firm stores in May of 2025 .
Speaker #3: Before turning to our annual guidance , let me also share our perspective on the fourth quarter . We expect continued like for like sales growth across all of our business units , with an underlying assumption that the demand environment will be stable .
Speaker #3: Now to our revised 2025 guidance . We have raised our adjusted earnings per share guidance to be between $2.60 and $2.75 . This guidance range contemplates a sales midpoint of approximately $7.5 billion after intercompany eliminations .
Speaker #3: This revision includes our expectations for the betting industry to be down low to mid single digits versus prior year . A slight improvement from our prior outlook .
Speaker #3: Our annual guidance also reflects like for like ten Sealy sales to be flattish and reported sales to be impacted by intercompany elimination . I referenced a moment ago , Tempur Sealy North America sales declining low single digits on a like for like basis , which includes our continued market outperformance , a mid-single digit headwind from foreclosed distribution and the industry pressures .
Speaker #3: International business growing low , double digits on a reported basis and constant currency basis , which include the continued momentum of our omnichannel expansion strategy .
Speaker #3: And our like for like Mattress Firm sales to be flattish , supported by in-store initiatives to grow AOV and conversion , and reflecting the industry pressures .
Speaker #3: We also expect gross margins to be slightly above 44% . Our outlook also contemplates our updated assumptions for Tempur Sealy to be in the mid 50 percentage of Mattress Firm's total sales .
Speaker #3: This represents about a $60 million EBITDA benefit for 2025 , compared to 2020 . For . And $700 million of advertising investments , all of which we expect to result in adjusted EBITDA of approximately $1.3 billion at the midpoint .
Speaker #3: Regarding capital expenditures , we expect 2025 CapEx to include approximately $150 million of normal recurring CapEx and an investment of approximately $25 million to bring stores acquired by Mattress Firm .
Speaker #3: Prior to the acquisition, up to our standards, we expect to invest an additional $125 million over the next couple of years to refresh these stores. Over the long term, we expect normalized run rate Semigroup CapEx to be approximately $200 million.
Speaker #3: Lastly , I would like to flag a few modeling items for the full year 2025 . We expect DNA of approximately $295 million , interest expense of approximately $260 million on a tax rate of 25% , with a diluted share count of 210 million shares .
Speaker #3: With that , I'll turn the call back over to Scott . Thank you . Oscar . Well done . Just a couple of thoughts on Capital allocation .
Speaker #3: First, we are pleased to report our investment in Kingstown, acquiring a 25% passive interest in this leading North American luxury mattress manufacturer and valuable flyer to Mattress Firm.
Speaker #3: This will allow SGI to participate in expected growth in Kingstown sales and profits as their presence on mattress firms floor expands and they pursue other growth opportunities .
Speaker #3: This decision reflects our disciplined capital allocation strategy , which is focused on high return investments . To strengthen our competitive position and drive long term value for shareholders .
Speaker #3: Second , we're ahead of our financial plan , and we believe that we've mitigated significant risk over the last few quarters , including those related to the mattress combination .
Speaker #3: As a result , in the first quarter of 2026 , we intend to begin to allocate approximately 50% of free cash flow to capital returns to shareholders in the form of dividends and share repurchase .
Speaker #3: At the same time , we will continue to deleverage , targeting our historical range of 2 to 3 times adjusted EBITDA . After we are comfortably back within our targeted leverage range , we'll reevaluate this allocation .
Speaker #3: In closing, this quarter's performance reaffirms the strength of our strategic direction and underscores the momentum we have gained through the combination with Mattress Firm.
Speaker #3: We've demonstrated our focus on long term growth and our ability to navigate a complex industry backdrop across our Tempur Sealy Mattress Firm and dreams operations .
Speaker #3: We're positioned as a global industry leader committed to delivering products that provide customers with innovative solutions that can change their lives through improved sleep .
Speaker #3: Our operational agility , strong manufacturing capabilities , trusted brands , retail leadership and exceptional workforce drives , Omni Group's performance , and we expect will drive future value creation .
Speaker #3: That ends our prepared remarks . Operator . You can open the call up for questions .
Speaker #1: Thank you . Ladies and gentlemen , we will now begin the question and answer session . Should you have a question , please press star followed by the number one on your touch tone phone .
Speaker #1: We'll hear a prompt that your hand has been raised. We ask everyone to limit themselves to one question. You can rejoin the queue to ask additional questions.
Speaker #1: Told you wish to decline from the polling process ? Please press star followed by the number two . If you are using a speakerphone , please leave the handset before pressing any key .
Speaker #1: One moment please . For your first question . Your first question comes from Susan McClary from Goldman Sachs . Please go ahead .
Speaker #4: Thank you . Good morning everyone .
Speaker #3: Good morning Susan .
Speaker #4: Talk about good morning Scott . I wanted to talk about demand . It's interesting to see how it sounds like the industry is starting to come back a bit .
Speaker #4: And that's really counter to what we've seen in the housing market . But also just what we're hearing in terms of housing and consumer related categories broadly .
Speaker #4: Can you talk about what is driving the relative divergence that we're seeing in bedding , and how much of it do you think is attributable to the efforts that you've put in over the last several months and years around new products ?
Speaker #4: More recently , some of the ad spend and the initiatives there , and how we should think about the sustainability of it , just given the macro and the environment that we're in .
Speaker #3: Thank you for your question , Susan . All 12 of them that you wound into one . First of all , I think we've talked about this before .
Speaker #3: Look , the housing market can be a headwind or a tailwind for the betting industry , but we've always thought of it as , you know , it's in the top five items that we think about .
Speaker #3: But it's certainly not the first or second . And I think the point you make in your question is exactly right . The betting industry can be successful without the housing market necessarily be turning around .
Speaker #3: And what we've always thought about in the betting industry , what drives the betting industry , of course , is innovation . And clearly the new Sealy Posturepedic product that came out this summer is helping us Mattress Firm and the industry .
Speaker #3: It's also the other thing we think that drives the industry is advertising . And you know that we've completely retooled . We'll call it the advertising .
Speaker #3: At Mattress Firm . And Mattress Firm is the leading advertiser in the US by a factor of two . And we've changed their creative and we've changed the placement and some of the strategies there .
Speaker #3: And we're seeing benefits again for for us and for the industry , for the first time in , I think probably 15 or 20 years , we had direct advertising coming out of temper .
Speaker #3: Sealy on the on the Sealy brand in support of of the new Sealy product that certainly has been incremental . And then the other things we watch are obviously are consumer confidence .
Speaker #3: And it hasn't been robust , but at least it been negative . So you know when we look forward hasn't we're hoping for lower interest rates .
Speaker #3: And I think if you put a five handle on the 30 year , you might get quite a quite a bit of activity in housing and probably furniture and bedding or we're getting close , you know , we're low six , but we can be successful without the housing market turning around .
Speaker #3: And it does feel like if you look at the numbers in the industry , it's you can't get perfect industry numbers . But there's no question the industry I think Steph had a good step forward from the second quarter .
Speaker #3: So sequentially , certainly improved . I think we're calling it somewhere close to flat from a sales standpoint . And then as expected and as designed , you know , we performed better than the marketplace .
Speaker #3: And you can see that in our numbers . I think one of the things that that I really focused on this quarter was what I take a look back , you know , in the first quarter , we delivered basically flat EPs , adjusted EPs in the in the second quarter , we were down 16% .
Speaker #3: We had some lunch launch costs in there , and then we delivered , you know , quarter to day at plus 16 . And obviously people can squeeze out what the implied fourth quarter is .
Speaker #3: And we'll call that 15 to 20% . So you can see the momentum as the industry has gotten slightly better . We have implemented some of our strategies , and we're getting the synergies both in sales and cost from Mattress Firm acquisition .
Speaker #1: Thank you . Your next question comes from Bobby Griffin from Raymond James . Please go ahead .
Speaker #5: Good morning buddy . Thanks for taking my question . And congrats on the momentum here in the quarter . I guess I'm going to hit you with with a two part question .
Speaker #5: Unfortunately . But when you kind of sit and look at the business today , starting to reflect and you kind of look at the enterprise as it's set up now , where do you see the most opportunities for growth among the different brands that SGI is pushing into ?
Speaker #5: And on the optimization of the enterprise , is there a big unlock to come , or is it more little parts that get more optimized over the next 3 to 5 years ?
Speaker #5: During the recovery ?
Speaker #3: Okay , I think I got your question . And help me out . So when you when you look at it by brand , okay , obviously I think the Sealy Posturepedic brand probably has the greatest growth potential in the short term .
Speaker #3: Next few quarters , some of that is new technology . Some of that's new advertising . And quite frankly , it's got an easier compare in that the product will replacing had a little bit of age on it .
Speaker #3: Then you have Stearns coming out and we've cannibalized a little bit of Stearns with the new Posturepedic product . As we moved it upstream from a pricing standpoint , and we'll have new Stearns out .
Speaker #3: Call it late , late 2026 with some interesting technology . And that's that's certainly an opportunity there . And then , as you know , I mean , tempers tempers just magical .
Speaker #3: And it continues to take share every quarter a little bit . And I would expect it to continue . But I think also when you look at opportunities now as you look at the whole enterprise , you'd have to say all the changes we've made in Mattress Firm are really just getting started .
Speaker #3: I mean , we've , we've changed the advertising program . There's certainly a more sophisticated and broad based looking products on the floor are good for customers first and are good for for Mattress Firm .
Speaker #3: And I think that's going to continue to pay to pay benefits . And then you've got the whole bucket of of synergy cost synergies , which as we've talked about , are going to take .
Speaker #3: It's a multiyear project . As you work through logistics , warehousing , delivery , you know , lots of stuff . But there's a there's a good trail there that's going to be it's going to gift that keeps on giving for for for a number of years .
Speaker #3: And I would be remiss if I didn't mention the international operations , which is I don't know how many quarters is this double digits , ten quarters of double digit growth in an international market that is not robust .
Speaker #3: I mean , it's challenging . And we sometimes underestimate how difficult that's been . But both the dreams operation , which has been fighting a UK economy which has not been pleasant or has been grumpy , as they like to say , has done very well over there .
Speaker #3: And the temper International , what we call the legacy Tempur Sealy operation , has done , has done a great job opening up new customers and in taking share .
Speaker #3: So I mean , those are all kind of we'll call it company specific opportunities . And robust . But the other thing is just just can't miss is if you look at the betting industry in the US and I'm going to use round numbers and say that it's down 30% , and it has been down 30% for multiple years .
Speaker #3: Okay . And if you just whether it's pent up demand or just going back to trend line , if you layer in going back to trend line , okay , not just give me back the 30% that fell the flow through on that is is very robust as we've positioned the company during this downturn .
Speaker #1: Thank you . Your next question comes from Ralph from Bank of America . Please go ahead .
Speaker #6: Hi . Good morning . Thanks for taking my question . There are a lot of moving pieces here . Just on the guidance in terms of the kind of guide to guide changes .
Speaker #6: Can you just walk us through what assumptions have changed from the prior guidance ? It sounds like a lot of that is just just better synergies on the revenue side .
Speaker #6: And then what's embedded in terms of like for like an underlying industry growth in the in the fourth quarter ? Thank you .
Speaker #2: Absolutely , absolutely .
Speaker #3: And if I were to just think about it , high level , there's only been a couple of items that we've refreshed on as it relates to our expectations .
Speaker #3: The first one is around the industry . We expected the industry to be , let's call it down mid-single digits . That's for the full year .
Speaker #3: Sitting here today , our expectation is , is that it's going to be down low to mid single digits . So an improvement from industry environment standpoint then what I would go to is the balance of share .
Speaker #3: Previously where we were at is thinking about it as low 50% from a balance of share of the family brands . Into into Mattress Firm .
Speaker #3: Now we're at the mid 50s , so as it relates to a high level , those are the two moving pieces that impacted how we how we performed in the third quarter .
Speaker #3: And then our expectations for the full year as it relates to the fourth quarter , specifically , let me disaggregate that a bit .
Speaker #3: So, given our sales guidance of around $7.5 billion for the full year, we are thinking about the fourth quarter being somewhere a little north of $1.9 billion.
Speaker #3: If you ratchet that down , what that would what that would get you is from a temper Sealy . Let's call it like for like legacy standpoint .
Speaker #3: That would put the growth rate in temper . Sealy somewhere between mid to high single digits going to North America on a like for like basis .
Speaker #3: That would imply a mid-single digits . And then then turning to Mattress Firm we call that out specifically . But think about that as low single digits from a growth standpoint .
Speaker #3: In the fourth quarter , as you go below the line , just call out for gross profit . Naturally , what happens is , is that you get the seasonality of the business .
Speaker #3: The third quarter being the highest on a consolidated and on a business unit perspective . And the natural step down that you'd expect going from the third into the fourth .
Speaker #1: Thank you . Your next question comes from Peter Kick from Piper Sandler . Please go ahead .
Speaker #7: Thanks . Good morning . Great results guys . If I could just follow up on that . There's a little bit of short term investor anxiety around the fourth quarter just because following last year's election , the industry did improve .
Speaker #7: So we'll just say kind of high level compares , get a little bit tougher . It seems like the the outlook . You just gave on the life for life is basically a continuation from Q3 against slightly tougher compare .
Speaker #7: So if you break out your crystal ball , I guess , how do you think about the fourth quarter ? Is this I don't know , coming off the bottom , but still a little bit more challenged compared year on year .
Speaker #3: Great . Great question . I'm going to jump in and let you clean me up because I also thought that there was I'm going to call it a pretty good size bump in the fourth quarter last year when we had peaceful transition of government is what we call it .
Speaker #3: And so we studied that . And because we we now own Mattress Firm , we have more data . Before , when we talked about that , we had to look at our wholesale orders , which can kind of be lumpy .
Speaker #3: And sometimes they don't totally track retail sales from a timing standpoint . So getting that kind of data was difficult . But now that we had have Mattress Firm and we could go back and look at last year's fourth quarter on a day by day basis and week by week , and then look at our data .
Speaker #3: I would tell you that I do not believe that we had a bump in our business in bedding . It matches firm or temper .
Speaker #3: Sealy from a peaceful transition of government , which was different than my thinking going into preparing for the preparing for the quarter fair Bhaskar Rao you look through that data , but but they they basically had to pull that data to get me off of that same anxiety that you're mentioning .
Speaker #1: Thank you . Your next question comes from Daniel Silberstein from UBS . Please go ahead .
Speaker #7: Good morning , and thanks for taking our question . Given the strong progress you're making in gaining the balance of share at Mattress Firm , what penetration level is reasonable at this point in 2026 or 2027 ?
Speaker #7: What's the upper bound ? We should think about from that standpoint ? And then maybe just one quick follow up . Where will Kingsdown fit in the assortment at Mattress Firm ?
Speaker #7: Thank you .
Speaker #3: Sure , sure . Let me let me answer it this way . The way we think about Mattress Firm is that that a reasonable balance of share for the strength of our brands .
Speaker #3: And they're running a multi-branded retailer . When we look across all of our customers and everything is to think about it in the low 60s , 62% of the business would probably land in the family brands .
Speaker #3: Okay . And I think we'll be there . There's still some merchandising changes that will go on in the fourth quarter . So but we'll be there .
Speaker #3: Probably give or take at that run rate by the end of the year . Now , after that , that's going to bounce around a bit .
Speaker #3: And it'll bounce around based on the strength of the innovation at each brand , whether it be family , brand or outside brand .
Speaker #3: And the strength of their sales force and their advertising , that supports that . And so if it one day is 60% , that's not the end of the world .
Speaker #3: Someday it might be 64% , but there will be a reasonable bandwidth around that 62% . Again , based on strength of innovation , strength of advertising is is the way we think about the business model consistent with that .
Speaker #3: And we ran into the Kingstowne brand and the merchandising team at Mattress Firm , which is in charge of their floor to optimize what the customer wants and to drive their business .
Speaker #3: It became apparent that Kingstowne was underrepresented at Mattress Firm compared to what we think the customers want . What the Rsas want , and to bring some more differentiated products to the floor .
Speaker #3: And when we looked at that , it was clear that they were going to be expanded . Some in the store . And when we thought through the financial impact of that , it appeared to us to be the best way to participate in that economics was with a passive equity investment .
Speaker #3: So that we could win in that success , and they could win . And so they'll they'll be at the high end . Concentrate primarily in spring area high profile and have good brand strength in Canada .
Speaker #3: And the northeast . So they're good people . And we're glad to be a passive investor .
Speaker #1: Thank you . Ladies and gentlemen . As a reminder , if you wish to ask a question , please press star one . Your next question comes from Brad Thomas from Capital Markets .
Speaker #1: Please go ahead .
Speaker #8: Hi . Good morning and congrats on the great quarter here . My question was going to be around . Any thoughts . Thanks , Scott .
Speaker #8: My question was going to be around 2026 . And any early thoughts you might be willing to share , particularly in light of longer term target that you have for earnings by 2028 , which does imply sort of a mid 20s growth rate .
Speaker #8: How should we think about the shape of earnings and any particular high-level comments on 2026 that you might want to share? Thanks.
Speaker #3: That I want to share . That of course would be no comments . What I will share will be some comments . Okay , a couple a couple of observations .
Speaker #3: I mean , this quarter you can see with with just what I'll call minimum sales growth , the flow through is really the first quarter we've printed that you can see .
Speaker #3: So you can see some of the dynamics of the business model . So you don't need much from the top line to get to the bottom line numbers that you're talking about .
Speaker #3: And I think you're referencing what we call we're calling a prospectus . But now we're just going to go ahead and just call it a target , because now we've we've done enough .
Speaker #3: It Mattress Firm integrated enough , have enough confidence in the plan that I think we can call that three year glide path on EPs .
Speaker #3: More of a target than a prospective . I think the only other call out I would give that probably new to me that I probably talked much about is the impact of interest rates on the consolidated Omni Group , because there's a there's a couple of items there .
Speaker #3: I mean , you can obviously see from a debt standpoint , obviously interest rates go down . We got some variable debt that's good , blah , blah , blah .
Speaker #3: Of course then as you pay down your debt , you get into a lower spread grid , blah blah , blah . That's good to the one that sometimes I don't think people fully appreciate because I know I didn't fully appreciate is the cost of the promotion .
Speaker #3: When Mattress Firm or the temper stores offer a 60 month , 0% financing or 72 month . That is a retailer's expense . But that is that's grid priced based on short term rates .
Speaker #3: So short term rates come down . The cost of that financing comes down . And that's kind of you don't see that in the balance sheet when you're looking for the impact of 100 basis points .
Speaker #3: So I'm going to give you the number that for me was a little surprising , which is 100 basis point change in interest rates on our on our cost okay .
Speaker #3: Is equates to 18 to $0.20 per share or about a 7% lift of EPs based on our midpoint . Okay , that's that's more leverage to falling interest rates probably than people were thinking .
Speaker #3: And that does not include the benefit that we would get from falling interest rates from a recovering housing market . So the way I think about it , it may be the big , big , the newest news for 26 , although we're certainly not doing any guidance or anything or prospectuses is really the benefits of a of a falling , falling interest rates .
Speaker #3: Are , I think , more robust than the market is perceiving .
Speaker #1: Thank you . Your next question comes from Keith Hughes from tourism . Please go ahead .
Speaker #9: Thank you . You've given us kind of cash flow uses next year . Shifting back to some cash flow to shareholders because you you're delivered this thing pretty fast I guess at what point would you consider instead of doing these passive investments in brands , would you consider a purchase of another retailer or another manufacturing brand ?
Speaker #9: Is that something on the horizon ?
Speaker #3: Yeah , the the way we think about utilization of capital , is it really hasn't changed . I mean , obviously we've got to keep being disciplined and keep our balance sheet properly leveraged , not overleveraged .
Speaker #3: Okay . And then we are constantly looking at opportunities to do exactly what you just said . Other manufacturers , other adjacent other retailers .
Speaker #3: And we are constantly in discussions around the world . And have been for years that nothing changes with us and we're constantly considering considering it .
Speaker #3: And we we basically look at that and said we'd rather do that or buy stock back . So I do think that it's it's likely that we will do some more acquisitions over the next few years .
Speaker #3: But that will be dependent on on finding the right acquisition at the right price . If we don't do another acquisition , that would be fine with me .
Speaker #3: We never do one . We don't budget them , we don't target them . But I think the nature of the market , the competitive advantages we bring to a company when they join us , are such that it's probably likely that we that we will do something in the future , and that may slow down a little bit on the glide path on deleveraging .
Speaker #3: Or it might slow down the actual ending ratio , but we continue to to be to be active in looking at various companies .
Speaker #1: Thank you . There are no further questions at this time . I will now turn the call over to Scott Thompson for closing remarks .
Speaker #1: Please go ahead .
Speaker #3: Thank you . Operator . To our 20,000 associates around the world . Thank you for what you do every day to make the company successful .
Speaker #3: 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 .
Speaker #3: This ends the call today . Operator thank you .