• Net Sales: Approximately $1.2 billion in Q1 2024.

• Adjusted EPS: $0.50 for Q1 2024.

• Adjusted EBITDA: $198 million, consistent with the previous year.

• North American Net Sales: Declined 2% in Q1 2024.

• North American Adjusted Gross Margin: Improved by 160 basis points to 39.5%.

• International Net Sales: Consistent year-over-year on a reported basis; declined 2% on a constant currency basis.

• International Adjusted Gross Margin: Improved by 140 basis points to 55.4%.

• Operating Cash Flow: Record first quarter operating cash flow of $130 million, an improvement of $30 million year-over-year.

• 2024 Adjusted EPS Guidance: Expected to be in the range of $2.60 to $2.90.

• 2024 Sales Growth: Expected to increase low- to mid-single digits versus 2023.

• 2024 Advertising Spend: Approximately $500 million to support brands and new products.

• 2024 Adjusted EBITDA: Expected to be approximately $1 billion at the midpoint of the range.

• 2024 Capital Expenditures: Approximately $150 million, with $110 million for maintenance and $40 million for growth.

• Quarterly Dividend: $0.13, an increase of 18% over the prior year.

• Warning! GuruFocus has detected 2 Warning Sign with TPX.

Release Date: May 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Tempur Sealy International Inc (NYSE:TPX) reported strong net sales of approximately $1.2 billion and adjusted EPS of $0.50 for the first quarter.

• The company successfully launched new high-quality bedding products, including the Adapt and ActiveBreeze systems, which are well-received in the market.

• Tempur Sealy International Inc (NYSE:TPX) is expanding its omnichannel distribution platform, enhancing consumer engagement through both physical and digital channels.

• Operational efficiencies and normalizing commodity prices contributed to a 270 basis point benefit to North America's first quarter adjusted gross margin and a 130 basis point benefit to International's adjusted gross margin.

• The company continues to invest in compelling marketing, including signing David Beckham as a brand ambassador, which is expected to boost brand visibility and sales.

Negative Points

• Net sales in North America declined by 2% in the first quarter, with the wholesale channel down by 3%.

• The company faces challenges from reduced brick-and-mortar retail traffic, impacting overall sales momentum.

• Tempur Sealy International Inc (NYSE:TPX) is experiencing increased costs associated with new product launches and the expansion of OEM distribution.

• The U.S. bedding industry is showing signs of a downturn, with potential impacts on consumer spending and sales volumes.

• Despite operational efficiencies, there are ongoing investments and costs related to growth initiatives that could affect short-term profitability.

Q & A Highlights

Q: Scott, can you discuss your confidence in the second half improvement in volume and the factors influencing the earnings composition through the year? A: Scott L. Thompson - Tempur Sealy International, Inc. - Chairman of the Board, CEO & President: The confidence for improvement in the second half is primarily due to easier comparisons from the previous year. Additionally, newly launched products are performing well, which should continue to drive momentum. The company expects positive gross margin performance throughout the year, supported by operational efficiencies and favorable commodity prices.

Q: Can you elaborate on the gross margin performance in the quarter and the impact of new manufacturing facilities and product launch costs? A: Bhaskar Rao - Tempur Sealy International, Inc. - Executive VP & CFO: The gross margin performance aligned with expectations, despite the costs associated with ramping up new facilities like Crawfordsville and launching new products. These factors were anticipated and factored into our financial planning, and we expect to see revenue offsetting these costs in future quarters.

Q: How did Tempur Sealy perform in terms of market share in the first quarter, and what are the expectations for shelf space gains moving forward? A: Scott L. Thompson - Tempur Sealy International, Inc. - Chairman of the Board, CEO & President: The company estimates that while the industry was down approximately 10%, Tempur Sealy's sales were only slightly down, suggesting significant market share gains. There are opportunities for additional shelf space in the future, but the primary focus is on increasing sales velocity from existing placements.

Q: What is the expected timing for the FTC's decision on the Mattress Firm acquisition, and what gives you confidence in this timeline? A: Scott L. Thompson - Tempur Sealy International, Inc. - Chairman of the Board, CEO & President: The company remains on its original timeline for the FTC's decision, expecting a conclusion by the end of the second quarter. This confidence is based on productive discussions with the FTC and the quality of engagement from both sides.

Q: Can you provide insights into the sales trends for the quarter and the start of the second quarter? A: Scott L. Thompson - Tempur Sealy International, Inc. - Chairman of the Board, CEO & President: Retail sales were challenging in January, improved in February, and declined in March. The second quarter started off flat, which is an improvement over previous trends. Wholesale orders followed a similar pattern, with a slight increase in January, stability in February, and a decrease in March, with a return to flat in April.

Q: Regarding the potential impact of a downturn in sales on profitability and the strategy for stock buybacks if the Mattress Firm transaction does not proceed, what are your plans? A: Scott L. Thompson - Tempur Sealy International, Inc. - Chairman of the Board, CEO & President: A downturn in high-end products would significantly impact profitability. If the Mattress Firm deal does not close, the company would likely be overcapitalized and would consider aggressive stock buybacks to align with its leverage targets, depending on market conditions and stock prices.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.