Sealy Corporation Reports Fiscal Second Quarter 2010 Results

TRINITY, N.C., June 29 /PRNewswire-FirstCall/ --

Sealy Corporation (NYSE: ZZ), the bedding industry's largest global manufacturer, today announced results for its second quarter of fiscal year 2010.  

Net sales for the second fiscal quarter were $316.5 million, an increase of 6.1% compared to the same prior year period, the third consecutive quarter of year-over-year sales growth.

Gross profit for the second fiscal quarter increased by $6.3 million to $128.2 million from the prior year quarter.  Gross margin declined by 35 basis points to 40.5% from the prior year quarter, driven by changes in product mix and investments associated with new product introductions.

Income from operations for the second fiscal quarter, which included an incremental charge of $3.9 million relating to non-cash compensation, was $24.7 million, compared to $28.9 million in the same prior year period.  

Net Income in the second quarter of 2010 was $0.8 million, compared to a loss of $5.4 million in the comparable prior year quarter.  Earnings per share (EPS) in the second quarter of 2010 were $0.01 per diluted share, or $0.02, excluding a $0.01 charge related to the redemption of $35 million of the Company's senior secured notes and the payment of PIK interest.  The diluted share count for 2010 second quarter EPS was 106.8 million shares.  For further information on the calculation of diluted shares, please see the attached schedule.  

Adjusted EBITDA for the second fiscal quarter decreased 6.6% to $38.9 million from $41.6 million. Adjusted EBITDA margin decreased to 12.3%, compared to 13.9% in the prior year period.  These results reflect the previously anticipated impact of promotional and new product launch costs.  

"We are pleased with our second quarter 2010 results and the strategic actions completed throughout the quarter.  We delivered our third consecutive quarter of year-over-year sales growth, driven by both domestic unit and Average Unit Selling Price (AUSP) growth.  Our Stearns & Foster line continues to perform extremely well and take market share in the premium bedding category.  Our focus on developing and bringing new and innovative products to market continued, as we began rolling out the Sealy Promotional line and prepare to roll out the Embody specialty bedding line over the remainder of the year.  We expect these new products to drive future market share gains in both innerspring and the fast growing specialty sector, while better positioning us to take advantage of resurgent luxury price points with both Stearns & Foster and Embody.  The company also continues to focus on further deleveraging our balance sheet, as demonstrated by the March 2010 redemption of $35 million of our 10 7/8% senior notes," stated Larry Rogers, Sealy's President and Chief Executive Officer.

Fiscal 2010 Second Quarter Results

Total U.S. net sales increased 3.0% to $229.1 million from the second quarter of fiscal 2009.  The continued success of the new Stearns & Foster line and a more stable retail environment drove the positive performance. Wholesale unit volume increased 2.2%, while wholesale average unit selling price increased 0.7% on a year-over-year basis.

International net sales increased $11.4 million, or 15.0%, from the second quarter of 2009 to $87.4 million. Excluding the effects of currency fluctuation, international net sales increased 5.9% from the second quarter of 2009. This increase was primarily due to increased sales in the Canadian market stemming from the success of our new Stearns & Foster line, better execution of promotions and an improvement in retail demand. Canadian unit volume for the quarter increased 17.8% from the comparable prior year quarter.

Gross profit increased 5.2% to $128.2 million compared to $121.9 million in the second quarter of fiscal 2009.  Gross profit margin was 40.5%, a decrease of 35 basis points compared to the prior year second quarter.  U.S. gross profit margin decreased 176 basis points to 41.6%.  The decrease in percentage of net sales was driven primarily by changes in product mix and investments made to introduce new products. Partially offsetting these decreases were improvements in operations efficiencies as well as higher absorption of fixed costs as a result of higher unit volumes.

Selling, general, and administrative (SG&A) expenses were $107.2 million for the second quarter of fiscal 2010, an increase of $11.6 million versus the comparable period a year earlier primarily due to a $5.1 million increase in volume driven variable expenses. Fixed operating costs, exclusive of non-cash compensation expense, increased $1.7 million from the prior year period primarily due to increases in expected defined contribution plan payments and cash compensation costs. Non-cash compensation expense increased by $3.9 million compared to the second quarter of fiscal 2009 due primarily to the recognition of expense related to the restricted share units that were granted in the third quarter of fiscal 2009.

Fiscal 2010 Six Month Results

Net sales for the six months ended May 31, 2010 increased 7.8% to $656.2 million from $608.4 million for the comparable period a year earlier. Gross profit was $268.4 million, or 40.9% of net sales, versus $239.6 million, or 39.4% of net sales, for the comparable period a year earlier.  Net income was $6.6 million, versus a loss of $1.0 million in the prior year period.  Adjusted EBITDA increased 14.3% to $88.1 million, or 13.4% of net sales, from $77.1 million, or 12.7% of net sales, compared to the same period in the prior year.

As of May 31, 2010, the Company's debt net of cash was $729.0 million.  This represents a decrease of $31.9 million compared to $760.9 million as of May 31, 2009, at the conclusion of our 2009 refinancing. The Net Debt to Adjusted EBITDA ratio excluding the 8.0% Payment In Kind Convertible Notes was 3.07x as of May 31, 2010, as compared to 4.03x as of May 31, 2009.  

"We continue to see stabilization in the macro-economic and consumer credit environments, leading to improved stability in retail demand.  Coupled with our new and innovative product portfolio, and our on-going cost control efforts, we remain confident in our ability to achieve our previous stated goal of generating a 10% increase in adjusted EBITDA for 2010 as part of our commitment to deliver increasing value for our shareholders," added Mr. Rogers.  

Adjusted EBITDA

Within the information above, 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. We present Adjusted EBITDA, because the covenants contained in our 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.  We also present Adjusted EBITDA margin, which is Adjusted EBITDA reflected as a percentage of net sales because we believe that this measure provides useful incremental information to investors regarding our 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.

Conference Call

The Company will hold a conference call today to discuss its fiscal second quarter 2010 results at 5:00 p.m. (Eastern Daylight Time).  The conference call can be accessed live over the phone by dialing 1-877-941-2068, or for international callers, 1-480-629-9712. A replay will be available one hour after the call and can be accessed by dialing 1-800-406-7325, or for international callers, 1-303-590-3030. The passcode for the live call and the replay is 4317413. The replay will be available until July 6, 2010.

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 is the bedding industry's largest global manufacturer with sales of $1.3 billion in fiscal 2009. The Company manufactures and markets a broad range of mattresses and foundations under the Sealy(R), Sealy Posturepedic(R), Sealy Embody(TM), Stearns & Foster(R), and Bassett(R) 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.

(1)  For the three months ended May 30, 2010, the outstanding Convertible Notes were excluded from the computation of diluted earnings per share since their inclusion would be antidilutive.  The Convertible Notes not included in the computation of diluted earnings per share for the three months ended May 30, 2010 convert into a weighted average 181,777 shares (in thousands).  Interest expense recognized during the three months ended May 30, 2010 related to these Convertible Notes was $4.1 million.

SOURCE Sealy Corporation