Sealy Corporation Reports Fiscal First Quarter 2012 Results

TRINITY, N.C., March 27, 2012 /PRNewswire/ -- Sealy Corporation (NYSE: ZZ), a leading global bedding manufacturer, today announced results for its first quarter of fiscal 2012.  

Fiscal 2012 1st Quarter Recap for Continuing Operations

• Net sales increased by $6.8 million to $312.3 million, a 2.2% increase compared to the first quarter of fiscal 2011.
• Gross profit increased by $3.9 million to $122.4 million compared to the first quarter of fiscal 2011.  Gross Margin increased 40 basis points to 39.2%
• Income from operations increased by $6.2 million to $25.9 million compared to the first quarter of fiscal 2011.  Prior year results included $3.7 million of higher product launch and advertising costs, which were associated with the launch of the 2011 Next Generation Posturepedic line.
• Net income from continuing operations was $1.6 million or $0.01 per diluted share, compared to net income from continuing operations of $0.1 million or $0.00 per diluted share in the prior year quarter.  The corresponding share counts for 2012 and 2011 first quarter earnings per share were 109.3 million and 107.8 million, respectively. For further information on the calculation of diluted shares, please see the attached Reconciliation of Fully Diluted Sharecount schedule.  
• Adjusted EBITDA increased by 21.2% or $6.4 million to $36.4 million compared to the prior year quarter.

"We delivered positive financial and operational performance in the first quarter of 2012," stated Larry Rogers, Sealy's President and Chief Executive Officer.  "Our positive sales, gross margin and Adjusted EBITDA performance for the quarter were driven by the success of our Next Generation Stearns & Foster line, which began shipping in Q4, 2011."  

Fiscal 2012 First Quarter Results

Total U.S. net sales increased 0.7% to $240.3 million from the first quarter of fiscal 2011. Excluding third party sales from the component plants, wholesale average unit selling price increased by 4.3%, while wholesale unit volume decreased 4.0%. The increase in average unit selling price was driven by the performance of the newly introduced Next Generation Stearns & Foster product line. The decrease in unit volume is attributable to lower sales volumes in the middle and lower price points, partially offset by growth from the Next Generation Stearns & Foster product line.

International net sales increased $5.2 million, or 7.7%, from the first quarter of fiscal 2011 to $71.9 million. This increase was primarily due to increased sales in Canada coupled with stronger sales performance in the Mexico and Argentina markets. In Canada, local currency sales increases of 10.2% translated into increases of 8.2% in U.S. dollars due to a weaker Canadian dollar. Local currency sales performance in Canada was driven by a 15.5% increase in unit volume, offset by a 4.6% decrease in average unit selling price. The increase in unit volume and decrease in average unit selling price was attributable to strategic promotional events to drive increases in unit volumes and market share.

Gross profit for the first fiscal quarter increased by $3.9 million to $122.4 million from the prior year quarter.  Gross margin increased 0.4 percentage points to 39.2%.

The increase in percentage of net sales was primarily due to an increase in gross profit margin in U.S. operations which was partially offset by decreases in gross profit margins in Canada and other international operations. U.S. gross profit margin increased 0.8 percentage points to 38.7%. The increase in gross profit margin was due primarily to relatively better pricing and a shift in the mix of product sales to higher priced Next Generation Stearns & Foster products which resulted in an improvement in gross profit margin of approximately 1.6 percentage points. Also contributing to the improvement in gross profit margin were advances made in manufacturing processes including value engineering efforts which resulted in a 1.0 percentage point increase in U.S. gross profit margin. These gains were partially offset by higher material costs related to increased commodity prices, which resulted in a 1.5 percentage point decrease in U.S. gross profit margin.

Selling, general, and administrative expenses were $100.1 million for the first quarter of fiscal 2012, a decrease of $3.6 million versus the comparable period a year earlier. As a percentage of net sales, this expense was 32.1% and 34.0% for the quarters ended February 26, 2012 and February 27, 2011, respectively.  The decrease as a percentage of net sales was principally due to reductions in product launch and national advertising expenses relative to those experienced in the prior year period for the introduction of the Next Generation Posturepedic line.  

Income from operations for the first quarter increased 31.7% or $6.2 million to $25.9 million. Prior year results included $3.7 million of higher product launch and advertising costs, which were associated with the launch of the 2011 Next Generation Posturepedic line.

Net income from continuing operations for the first quarter of fiscal 2012 was $0.01 per diluted share.  

As of February 26, 2012, the Company's debt net of cash was $682.7 million and Net Debt to Adjusted EBITDA ratio (excluding the Convertible Payment In Kind Notes) was 3.76x, compared to 3.95x at November 27, 2011.  During the quarter, we redeemed $10 million of our Senior Secured Notes.  

"As we look forward in 2012, we are focused on driving continued performance of the new Stearns & Foster line at retail, and initiating the rollouts of the new, value priced Sealy Promotional Line, and the premium priced Optimum by Sealy Posturepedic line.  These two lines were introduced at the January 2012 Las Vegas Furniture Market and will begin shipping in the second quarter of 2012," stated Mr. Rogers.  "Finally, we remain focused on driving organizational and operational improvements throughout the company in 2012," concluded Mr. Rogers.

Results from Discontinued Operations

During the fourth quarter of 2010, the company divested the assets of its manufacturing operations in France and Italy, which represented all of the assets in its Europe segment.  In addition, the company discontinued manufacturing operations in Brazil.  The company has transitioned to a license arrangement with third parties in both of these markets.  These businesses are accounted for as discontinued operations, and accordingly, the company has reclassified its financial data for all periods presented to reflect these actions.  Unless otherwise noted, the reported financial data pertains to Sealy's continuing operations.  

Non-GAAP Measures

Sealy provides information regarding Adjusted EBITDA and Adjusted EBITDA Margin which are not recognized terms under GAAP (Generally Accepted Accounting Principles) and do not purport to be alternatives to operating income or net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. The Company presents Adjusted EBITDA, because the covenants contained in the Company's senior debt agreements are based upon these measures and Adjusted EBITDA is a material component of those covenants. Additionally, management uses Adjusted EBITDA to evaluate the Company's operating performance.  The Company also presents Adjusted EBITDA margin, which is Adjusted EBTIDA reflected as a percentage of net sales because it believes that this measure provides useful incremental information to investors regarding the Company's operating performance.  Additionally, these measures are not intended to be measures of available cash flow for management's discretionary use, as these measures do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Because not all companies use identical calculations, this presentation may not be comparable to other similarly titled measures of other companies.  A reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin to the Company's net income is provided in the attached schedule.  

Additionally, the Company provides certain information on a constant currency basis which reflects a comparison of current period results translated at the prior period currency rates.  This information is provided because the Company believes that it provides useful incremental information to investors regarding the Company's operating performance.

Conference Call

The Company will hold a conference call today to discuss its fiscal first quarter 2012 results at 5:00 p.m. (Eastern Standard Time).  The conference call can be accessed live over the phone by dialing 1-877-941-4774, or for international callers, 1-480-629-9760. A replay will be available one hour after the call and can be accessed by dialing 1-877-870-5176, or for international callers, 1-858-384-5517. The passcode for the live call and the replay is 4524490. The replay will be available until April 3, 2012.

Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the Investors section of the Company's website at www.sealy.com. The on-line replay will be available for a limited time beginning immediately following the call in the Investors section of the Company's website at www.sealy.com.

About Sealy

Sealy owns one of the largest bedding brands in the world, with sales of $1.2 billion in fiscal 2011. The Company manufactures and markets a broad range of mattresses and foundations under the Sealy®, Sealy Posturepedic®, Sealy Embody™, Optimum™ by Sealy Posturepedic®, Stearns & Foster®, and Bassett® brands.  Sealy operates 25 plants in North America, and has the largest market share and highest consumer awareness of any bedding brand on the continent. In the United States, Sealy sells its products to approximately 3,000 customers with more than 7,000 retail outlets. Sealy is also a leading supplier to the hospitality industry. For more information, please visit www.sealy.com.

This document contains forward-looking statements within the meaning of the safe harbor provisions of the Securities Litigation Reform Act of 1995. Terms such as "expect," "believe," "continue," and "grow," as well as similar comments, are forward-looking in nature. Although the Company believes its growth plans are based upon reasonable assumptions, it can give no assurances that such expectations can be attained. Factors that could cause actual results to differ materially from the Company's expectations include: general business and economic conditions, competitive factors, raw materials purchasing, and fluctuations in demand. Please refer to the Company's Securities and Exchange Commission filings for further information.

The condensed consolidated statements of operations and related information presented below have been adjusted for discontinued operations presentation for all periods presented.  However, the condensed consolidated balance sheets and statements of cash flows have not been adjusted for such presentation.

SOURCE Sealy Corporation