With the direct-to-consumer channel delivering standout results, the company also seeks growth in its OEM and international businesses
Scott Thompson had a welcome challenge in July when he joined analysts on a conference call.
The chair, chief executive officer and president of Tempur Sealy International Inc. was looking for the best words to describe the company’s stellar second-quarter performance.
He began by noting the “record” results, and then went on to call the company’s numbers “robust,” “very robust,” and “strong.”
Later, responding to an analyst whose own assessments added “awesome” and “fantastic” to the mix, Thompson allowed that the performance was “awesome or outstanding or whatever terminology you want to use.” For good measure, he added: “Clearly, it was over our expectations.”
The numbers spoke volumes. With the second-quarter performance, Tempur Sealy had grown year-over-year sales and adjusted earnings per share by double digits for eight of the past nine quarters, a period that included the onset of the Covid-19 pandemic and the myriad business challenges that the pandemic produced.
Second-quarter net sales of $1.169 billion were up a sizzling 76% over the same quarter a year earlier. More notably, the company said sales were up “a very robust 62%” compared to the second quarter of 2019 — pre-Covid days. Thompson said that was one of the most impressive achievements in the quarter.
Adjusted earnings before interest, taxes, depreciation and amortization, a closely watched metric of overall profitability, were $270 million, an increase of 147% over the year-earlier quarter. Adjusted earnings per share were $0.79, an increase of 295% over the year-earlier quarter.
As the numbers make clear, Tempur Sealy is firing on all cylinders. It expects to record 2021 sales growth of about 60% over 2019. Tempur Sealy had sales of about $3.677 billion in 2020, an 18.4% increase over the prior year.
Thompson said business was strong in North America and in the international arena, where Tempur Sealy sees more growth ahead and has recently signed an agreement to acquire Dreams, the leading bedding retailer in the United Kingdom.
Sales are growing for all Tempur Sealy’s bedding brands, a stable which includes the iconic Tempur-Pedic, Sealy, and Stearns & Foster brands, and that growth is in all sales channels and all price points, he said.
“Our strong sales performance was driven by successful company initiatives, record demand for Tempur-Pedic in the U.S. and a solid industry backdrop,” Thompson said.
What made those results even more impressive was that they came amid significant supply chain disruptions that are “constraining the entire bedding industry,” he said. Those issues limited Tempur Sealy’s ability to fully meet strong demand for its products — a situation that was expected to continue through the third quarter, Thompson said.
Bhaskar Rao, Tempur Sealy’s executive vice president and chief financial officer, who joined Thompson on the call with analysts, estimated that North American sales for Tempur Sealy would have been $150 million higher in the second quarter without those supply chain constraints.
Tempur Sealy, which currently has customers (and its own online and retail operations) on allocation and is not accepting new orders, hoped to “clean up” its supply chain issues in the fourth quarter and enter 2022 “unconstrained,” Thompson said. He admitted that some customers were “getting a little hot” with their allocation status.
Channels for growth
Tempur Sealy has found success with what Thompson calls “a comprehensive omnichannel strategy,” one that continues to drive growth and profitability.
“Our direct channel, both company-owned stores and e-commerce, had a standout performance compared to both 2020 and 2019,” he said. “We saw strong foot traffic at our retail locations as more customers return to shopping in-store. We also saw an uptick in conversion and strong average selling price growth.
“Our web sales generated strong double-digit growth, a remarkable performance considering the difficult comp from the second quarter 2020, where our online business was up over 125% from 2019. Like our third-party retailers, our direct channel and company-owned stores also had to navigate the current quarter supply issues, which are equally impacting all channels of distribution.”
Tempur Sealy’s DTC channel is on the rise. With the acquisition of Dreams, which will be reported in the company’s direct channel, direct-to-consumer business will represent 25% of global sales on a trailing 12-month basis. The DTC channel, which accounted for just 4% of the company’s business five years ago, has grown over that time at a compound annual growth rate of 40%.
While Tempur Sealy is benefitting from the overall strength of the bedding market, its growth has outpaced overall industry growth. Tempur Sealy initiatives are paying off for the company, officials said.
Thompson estimated that new distribution has driven approximately 50% of the company’s two-year growth. “To be clear,” he said, “these are new customers.” Another third of the company’s growth is from acquisitions and share gains from previously untapped markets, including expansions in the direct-to-consumer and OEM channels.
Tempur Sealy said four key initiatives will drive its long-term growth:
• Develop the highest quality bedding products in all of the markets it serves
• Promote worldwide brands with compelling marketing
• Optimize its omnichannel distribution platform
• Drive increased EBITDA and prudently deploy capital
On the product front, Tempur Sealy will continue to be active in developing new products offering “breakthrough sleep solutions,” Thompson said. He notes that more than two-thirds of the company’s second-quarter sales were from products that did not exist five years ago.
Tempur Sealy has about 900 patents on its products and other patents pending.
“We have a robust pipeline of products currently being developed to integrate cutting-edge technologies, capabilities and construction to continuously bring an improved sleep experience to the market,” Thompson said on the call.
He added that the company’s products are supported by “compelling marketing, designed to drive increased brand awareness and purchase intent. We have a track record of success here. And currently, our research indicates that consumers show record levels of purchase intent and consideration of our products.”
While Tempur Sealy’s brands are broadly distributed, there is a segment of the U.S. market Tempur Sealy only recently has begun serving: The OEM market. A year ago, Tempur Sealy began expanding its reach into that segment and generated $150 million in net sales in 2020. That’s just scratching the surface, the company said.
“We believe we can reach $600 million of OEM sales over the next five years as we utilize our best-in-class manufacturing and logistic capability to sell a nonbranded product,” Thompson noted. “This will allow us to earn our fair share of the OEM bedding market, which makes up about 20% of total domestic bedding. This expansion has the added benefit of driving down our cost per unit of our branded product as we spread fixed costs and drive more advantageous supply agreements.”
Tempur Sealy also has a plan to accelerate its market share gains in the $30 billion international retail bedding market. The company plans to “unlock organic sales growth” by expanding the distribution of its branded products in the rapidly growing Asian market and is broadening its international market offerings through the launch of a new line of Tempur-Pedic mattresses beginning in 2022, the company said. It also is repositioning the Sealy brand in the United Kingdom to fulfill high-end needs of consumers.
On the financial front, Tempur Sealy will continue to leverage its “robust cash flow and balance sheet” as it deploys its capital. This includes making operational investments, pursuing “compelling” merger and acquisition opportunities and returning capital to investors through dividends and share repurchase, the company said.
Thompson also noted that success at Tempur Sealy is about more than just sales and profits, as important as those are.
The company is proud that its Tempur Sealy Foundation recently contributed its largest gift to date, a $2 million donation to support the establishment of the Tempur Sealy Pediatric Sleep Center at the Kentucky Children’s Hospital in Lexington.
During the second quarter, Tempur Sealy also made progress toward its goal of achieving carbon neutrality for its global operations. The company completed the installation of solar panels at its largest manufacturing facility in Albuquerque, New Mexico. Those panels will generate enough clean energy to power all of the plant’s mattress assembly lines. Tempur Sealy recently approved the installation of solar panels at its European Tempur manufacturing facility, as well.
Thompson is careful to single out Tempur Sealy’s employees, licensees and its retail partners for the company’s success, but analysts say Thompson also deserves his share of the credit.
“He’s a very good strategic thinker and a good leader,” one analyst observed. “The execution at the company has been really clean.”
The numbers — however you want to describe them — confirm that assessment.
At a Glance
Company Tempur Sealy International Inc., which owns the Tempur-Pedic, Sealy, and Stearns & Foster brands, each of which began as separate companies
Headquarters Lexington, Kentucky
Specialty Produces a broad range of mattresses and sleep accessories, and a growing direct-to-consumer business
History Stearns & Foster was founded in Cincinnati in 1846 by George Stearns and Seth Foster, who initially focused on cotton goods and upholstery for horse carriages before entering the mattress category. Sealy was founded in 1881 in Sealy, Texas, by cotton gin builder Daniel Haynes, who began making cotton-filled mattresses for friends. Tempur-Pedic was founded in the United States by Robert “Bobby” Trussell in 1992. Its first two products were a 3-inch topper and a “Swedish neck pillow.” Stearns & Foster merged with Sealy in 1993. Tempur-Pedic announced its acquisition of Sealy in 2012 and completed the deal in 2013, changing the company’s name to Tempur Sealy International Inc.
Ownership The company is publicly held and trades on the New York Stock Exchange under the banner of TPX
Learn more TempurSealy.com
Tempur Sealy Adding Three U.S. Plants
to Boost Manufacturing Capacity
Enjoying strong demand for its bedding lines, Tempur Sealy International Inc. is making significant investments to boost its manufacturing capacity in the United States. Three new facilities are in the works, officials said.
Scott Thompson, Tempur Sealy’s chair, chief executive officer and president, said the company is making those investments “to service long-term demand outlook we see for our brands and products.”
The company, based in Lexington, Kentucky, recently announced that it has selected a location in Crawfordsville in central Indiana as a site for what it expects to be the largest Tempur Sealy manufacturing facility in the world. It will be the company’s third domestic foam-pouring plant. The first phase is planned for approximately 700,000 square feet, and the company will have the ability to expand over time to approximately 1 million square feet.
Tempur Sealy began construction on the site in the fourth quarter and expects the plant to be operational in 2023.
That plant will enhance Tempur Sealy’s ability to service its customers in the Northeast and will be able to produce bedding products for the Tempur-Pedic, Sealy and Stearns & Fosters brands, as well as for OEM mattresses.
Additionally, the company opened two new facilities in 2021. One is a fifth Sherwood facility, this one in the Northeast, which also supports OEM initiatives, a market the company has targeted for growth. The other is a new mixed-use assembly facility in Reno, Nevada, which supports Tempur Sealy’s West Coast retailers. It is expected to shorten order-to-delivery times, the company said.
“As you can see,” Thompson said, “we are positioning the company for long-term organic growth.”
Tempur Sealy Sees “Healthier Operating Environment” For All Players
Major changes in the bedding marketplace, including enhanced digital marketing efforts and an increasing customer focus, have transformed the industry, producing a healthier operating environment for all bedding players.
That’s the upbeat assessment of Scott Thompson, chair, chief executive officer and president of Tempur Sealy International Inc., the Lexington, Kentucky-based bedding major.
On a recent conference call with analysts at which Tempur Sealy announced strong results, Thompson took time to provide a broad overview of the overall bedding marketplace. He said he likes what he sees.
“We have never felt better about the bedding industry,” he said. “In the past few years, there certainly has been a transformative period that created a healthier operating environment for all bedding players. This transformation has been driven by the rationalization of retail store footprints; expanding digital marketing and retail capabilities; a more customer-centric focus; antidumping actions curbing the sale of import mattresses into the U.S. market; bed-in-the-box start-ups shifting their focus toward profitability; and industry stabilization resulting from a reconciliation with the largest U.S. bedding retailer” — a reference to Tempur Sealy’s renewed partnership with Mattress Firm, which began in 2019 after two years in which the companies went their separate ways.
“Over the past decade, we see that consumers have been consistently under-investing their discretionary income in home and furnishings,” he said. “In the last year, consumers have invested a slightly larger portion of their discretionary income in the category. Although their spending as a percentage of their share of wallet has not returned to the pre-Great Recession levels, we expect consumer spending to continue to be strong.”
“Before the pandemic, we already started to see strong trends toward a greater focus on health and wellness, and the trend has accelerated over the past year,” he continued. “Consumers are increasingly connecting a good night sleep with their overall health and are more willing to invest in a high-quality, innovative mattress, and we can help them achieve just that. This has resulted in strong demand, increased average selling prices, and a potential shortening of the replacement cycle.”
Thompson also is impressed with an overall macro consumer environment that continues to be strong.
“The bedding market performance has historically been positively correlated to various macroeconomic metrics,” he said. “Key economic indicators, such as consumer confidence, consumer spending, consumer savings, unemployment trends and housing metrics, all continue to be strong. This indicates to us that consumer spending on health and wellness will likely continue to be robust going forward. We expect that a health-conscious consumer, robust consumer spending and a strong bedding industry will provide an attractive backdrop for us to continue our track record of growing our market share in the $50 billion global bedding market.”
And he said that retailers’ advertising campaigns are impressive in their professionalism and their focus on customers.
“If you look at the quality of the industry’s advertising, both in content and how they go to market, whether it be online or in print, it has improved,” he said. “I mean our major customers have really done an outstanding job in the marketing department. And I think that is part of the underlying demand that the whole industry is seeing. I continue to be impressed by the retailers’ new ad campaigns, which are more professional and more customer focused. The industry in total and especially the large retailers have become so much more focused on the customer, the customer experience and customer service. I couldn’t be prouder of our customers in the way they have pivoted over the last five years from a go-to-market standpoint.”
Thompson also said that the bedding industry has been constrained by supply chain issues and can realize more growth as those problems are resolved.
“I don’t think we’ve been pulling forward sales,” he said. “I think we’ve been pushing off sales. I don’t think it’s been that big a booming market because we haven’t been able to build the beds as an industry.”
Tempur Sealy’s Recapture Strategy
The new year of 2017 got off to a rocky start for Tempur Sealy International Inc. Late that January, the company announced that it was ending its relationship with its largest customer, Houston-based Mattress Firm.
The shock waves of that divorce echoed across the industry, creating opportunities for Tempur Sealy’s rivals.
But behind the scenes, Tempur Sealy was planting the seeds for its resurgence in the marketplace, one that occurred more quickly than some observers were expecting and that vaulted its brands to the top of the bedding marketplace.
With the loss of the Mattress Firm account, Tempur Sealy executives immediately got down to work, looking for new retail partners and coming together as a team.
“Our separation from Mattress Firm really energized our organization,” said Steve Rusing, Tempur Sealy’s executive vice president and president of U.S. sales. “We focused on the theme of ‘Recapture.’ We converted a lot of sales floors and retailers to our brands. And our Retail Edge program of retail insights was born then.”
By the end of 2018, the company was back to its normal growing ways. That was also the year that Mattress Firm and Tempur Sealy resumed their long-standing business relationship, one that the companies recently extended.
Industry observers say that Tempur Sealy’s sales gains have come as the result of a strong management team, key strategic moves (including the company’s embrace of a comprehensive omnichannel push), strong product development and marketing initiatives, and skillful execution in the marketplace.
Tempur Sealy officials said their company has seen strong growth in the direct-to-consumer channel, where Tempur Sealy competes with a host of brands. More important, the company said, is what it has done to grow its business.
Scott Thompson, Tempur Sealy’s chair, chief executive officer and president, told BedTimes that the company’s growth is the result of several strategic initiatives and a focused approach to operating its business.
“Our growth over the past five years has been driven by strong underlying fundamentals, which included investments in our products, our powerful and balanced omnichannel platform, our people and our processes,” he said. “The groundwork that we laid over the previous years established a strong foundation for our company and allowed us to become even stronger. I am proud of how the entire team stepped up to meet the unprecedented challenges we have faced in that time, and that our focused efforts have resulted in the No. 1 and No. 2 top-selling brands in the U.S.”
He added that he sees a strong future for the industry.
“I think history demonstrates that both companies and the industry as a whole are stronger working with each other,” he said. “I am incredibly excited for what the future holds for our industry.”