Sealy Corporation Reports Fiscal Second Quarter 2012 Results

TRINITY, N.C., June 26, 2012 /PRNewswire/ -- Sealy Corporation (NYSE: ZZ), a leading global bedding manufacturer, today announced results for its second quarter of fiscal 2012. 

Fiscal 2012 2nd Quarter Recap for Continuing Operations

• Net sales decreased by $9.3 million to $312.0 million, a 2.9% decrease compared to the second quarter of fiscal 2011.
• Gross profit increased by $1.9 million to $127.0 million compared to the second quarter of fiscal 2011. Gross margin increased 1.8 percentage points to 40.7%.
• Income from operations increased by $3.7 million to $26.0 million compared to the second quarter of fiscal 2011.   
• Net income from continuing operations was $2.8 million or $0.03 per diluted share, compared to net income from continuing operations of $0.8 million or $0.01 per diluted share in the prior year quarter. The corresponding share counts for 2012 and 2011 second quarter earnings per share were 110.1 million and 107.9 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 9.7% or $3.2 million to $36.0 million compared to the prior year quarter.

"We delivered solid financial and operational performance in the second quarter of 2012," stated Larry Rogers, Sealy's President and Chief Executive Officer. "Our increased gross margin and Adjusted EBITDA performance for the quarter were driven by the successful rollout of our Next Generation Stearns & Foster line, and our strategic commitment to driving profitable sales." 

Fiscal 2012 Second Quarter Results

Total U.S. net sales decreased 5.2% to $240.2 million from the second quarter of fiscal 2011. Excluding third party sales from the component plants, wholesale average unit selling price increased 5.4%, while wholesale unit volume decreased 10.4%. The increase in average unit selling price was driven primarily by increases in all major innerspring lines and improved product mix related to the newly introduced Next Generation Stearns & Foster product line. The decrease in unit volume is attributable to relatively lower sales of Posturepedic beds, which grew 14.2% in the prior year quarter.

International net sales increased $4.0 million, or 5.9%, from the second quarter of fiscal 2011 to $71.8 million. This increase was primarily due to increased sales in Canada coupled with stronger sales performance in Argentina. In Canada, local currency sales increases of 6.1% translated into increases of 2.7% in U.S. dollars due to a weaker Canadian dollar. Local currency sales performance in Canada was driven by a 2.3% increase in unit volume, coupled with a 3.7% increase in average unit selling price. The increase in unit volume and average unit selling price was attributable to a successful, strategic shift in promotional events to higher priced products in the portfolio resulting in unit volume and market share growth.

Gross profit increased by $1.9 million to $127.0 million from the prior year quarter.  Gross margin increased 1.8 percentage points to 40.7%.  The increase in percentage of net sales was primarily due to an increase in gross profit margin in our U.S. operations, which was partially offset by decreases in gross profit margin in our Mexico and Canada operations. U.S. gross profit margin increased 2.5 percentage points to 40.8% of net sales. The increase in the U.S. gross profit percentage was due, in part, to advances made in the manufacturing processes, which resulted in a 1.3 percentage point increase in U.S. gross profit margin. A reduction in product launch costs, compared to those experienced in the second quarter of fiscal 2011 for our Next Generation Posturepedic product, contributed an additional 1.3 percentage point increase in U.S. gross profit margin. We also saw an improvement of 1.0 percentage points in U.S. gross profit margin due to improved pricing and a shift in the mix of our product sales to higher priced Next Generation Stearns & Foster products in the second quarter of fiscal 2012. These improvements were partially offset by the deleveraging of costs on lower unit volume. In local currency, the gross profit margin in Canada was 40.1% as a percentage of net sales, which represents a decrease of 0.5 percentage points. This decrease was primarily driven by the impact of higher raw material costs.

Selling, general, and administrative expenses were $106.5 million for the second quarter of fiscal 2012, a decrease of $0.9 million versus the comparable period a year earlier. As a percentage of net sales, this expense was 34.1% and 33.4% for the quarters ended May 27, 2012 and May 29, 2011, respectively. The increase as a percentage of net sales was principally due to an increase in national advertising expenses in connection with the promotion of Sealy Posturepedic innerspring and Optimum lines of products surrounding the Memorial Day holiday and increases in incentive compensation and defined contribution expenses. These increases were offset by decreases in other product launch, cooperative advertising and promotional costs driven by the Next Generation Posturepedic rollout in the second quarter of fiscal 2011.

Income from operations for the second quarter of fiscal 2012 increased 16.5% or $3.7 million to $26.0 million. Prior year results included $1.7 million of higher product launch costs, which were associated with the launch of the 2011 Next Generation Posturepedic line.

Net income from continuing operations for the second quarter of fiscal 2012 was $0.03 per diluted share. 

Fiscal 2012 Six Month Results

Net sales for the six months ended May 27, 2012 decreased 0.4% to $624.3 million from $626.8 million for the comparable period a year earlier. Gross profit was $249.4 million, or 39.9% of net sales, versus $243.6 million, or 38.9% of net sales, for the comparable period a year earlier.  Net income from continuing operations was $4.4 million, versus net income of $0.9 million in the prior year period. Adjusted EBITDA increased 15.2% to $72.4 million, or 11.6% of net sales, from $62.8 million, or 10.0% of net sales, compared to the same period in the prior year.  

As of May 27, 2012, the Company's debt net of cash was $680.9 million and Net Debt to Adjusted EBITDA ratio (excluding the Convertible Payment In Kind Notes) was 3.71x, compared to 4.02x at November 27, 2011.  During the quarter, we redeemed $25 million of our Senior Secured Notes and amended and renewed our ABL facility to extend the maturity to 2017 and take advantage of more attractive rates.

"As we look forward in 2012, we are focused on driving continued performance from the Next Generation Stearns & Foster line, our value priced Sealy Promotional Line, and the premium priced Optimum by Sealy Posturepedic line.  Our Sealy Promotional and Optimum lines began shipping in the second quarter of 2012 and we expect both of them to perform well during the second half of the year." stated Mr. Rogers.  "Finally, we remain committed to investing behind our recent product rollouts with our advertising campaign.  Specifically, we will be increasing our commitment to the Optimum line in Q3 to take advantage its momentum moving into Q4 and 2013," concluded Mr. Rogers.

Sealy Corporation Acquires a Stake in Comfort Revolution

On June 13, 2012, the company acquired a non-controlling interest in Comfort Revolution, a company known for innovative foam products that offer an especially comfortable night's sleep.  This latest move signals Sealy is taking a broader approach to the entire specialty products category and is willing to invest in new technologies and expertise to drive growth.

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 EBITDA 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 second quarter 2012 results at 5:00 p.m. (Eastern Daylight Time).  The conference call can be accessed live over the phone by dialing 1-877-941-1427, or for international callers, 1-480-629-9664. 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 4545946. The replay will be available until July 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