Somnigroup International Inc Price & Performance (SGI)

And filed with the SEC. Our comments will supplement the detailed information provided in this press release. And now with that introduction, my pleasure to turn the call over to Scott. Thank you, Albrin. Good morning and thank you for joining us on our first ever earnings and business update call [indiscernible] SGI on the New York Stock Exchange. As we previously reported, we successfully completed the merger of Mattress Firm and Tempur Sealy on February 5. And we subsequently changed our parent company names from Tempur Sealy International to Somnigroup Group International. And as I mentioned changed our common stock picker from TPx to SGI. We're excited to start this new chapter for our company a global provider of sleep solutions with a portfolio of outstanding businesses and iconic product brands. As we've previously shared, Denver Sealy, Dreams and Mattress Firm will all operate under their own name as decentralized business units [indiscernible] Somnigroup International. Mattress Firm and Dreams will continue to operate as multi branded retailers and Tempur Sealy primarily a manufacturer who continue to serve third party retailers as well as Mattress Firm. [indiscernible] Tempur Sealy's direct to consumer channel. We'll begin reporting Mattress Firm's operations next quarter.

Turning to today's earnings release. I'll begin with some highlights from the fourth quarter and full year 2024. And then turn the call over to Bhaskar to review our financial performance in more detail and discuss our 2025 guidance. After that, I will share some thoughts about the opportunities unlocked by the transaction. Before opening the call up, for Q and A. In the fourth quarter of twenty twenty four, net sales were approximately $1,200,000,000 and adjusted EPS was $0.6 We outperformed our fourth quarter expectations. Led by strong performance in our international business. Our North America business continued to extend its lead in the industry. As we delivered fourth quarter sales consistent with prior year Despite an estimated single digit decline in the overall industry. Excluding the negative impact from foreclosed distribution, resulting from an unanticipated customer being acquired our North America sales grew low single digits Turning to a few highlights. First, is the enduring strength of our business model. Which allows us to invest in growth initiatives and aggressively explore long term opportunities while remaining responsive to near term industry conditions. In 2024, Kemper Steely, outperformed the industry worldwide differentiated by its strong fundamentals of its business model.

We delivered the strongest sales and gross margins in Tempur Sealy's history and reinforced our strategic third party partnerships by upholding our commitments to industry leading product quality, and service. We also delivered our strongest operating margin in even as we continue to invest The future. We've ramped our advertising spend opened more than 100 company owned stores and invested in e commerce platforms for Sealy, and Stearns and Foster in The U. S. Over the three year period. We reported a robust $569,000,000 in free cash flow, our strongest annual free cash flow since 02/2001. We also decreased our debt to adjusted EBITDA leverage ratio from 2.9 times 12/31/2023, [indiscernible] 2.3 times at 12/31/2024. As we prepared for the Mattress Firm transactions. Demonstrating our disciplined cash management and ability to quickly deleverage [indiscernible] Our results are particularly notable when putting context to the broader industry trend. 2024 was another challenging year for Betty. As we believe industry demand declined high single digits in The U. S. And the trend similarly in many other key markets in the world. Looking at the last few years, we believe The U. S. Industry volume decline more than 30% of peak mattress sales in 2021 to 2024.

However, we are confident in the fundamentals of the betting industry remains solid. We believe the market is clearly poised for growth. Driven by GDP, and population growth, housing turnover, and ASP expansion. We anticipate the market will begin to normalize in 2025 and return to some growth in the back half of the year. Over time, we are confident in the return to the driven by innovation, population growth replacement cycle, and ASP expansion. Additionally, based on the volume decline in the last three years, We also believe that pent up demand from deferred purchases could provide additional upside to growth assumptions. Second highlight, the outperformance of our U. S. Business.

Supported by innovative new products, targeted advertising initiatives, and expanded distribution. Our Tempur brand outperformed the market and delivered profitable sales growth in 2024. Supported by the success of our new products. Refreshed Tempur lineup with its new Breeze products and Smartbase launched in 2023 followed by the rollout of our updated Adapt collection NACCOB Reaves Halo product in 2024 drove retail traffic and ASP. These products are attracting a growing number of health conscious consumers include our newest innovative features which address key barriers to achieving better sleep, including cutting edge cooling technologies, advanced pressure relief, and AI driven sleep insights. Durns and roster also performed well in 2024 driven by last year's news product launch. Our ongoing investment in advertising, and over 20% growth in our Stearns and Foster e commerce platform. Our Sealy and OEM business performed well relative to the industry. For mounting industry pressure over the last three years resulted in consolidation, restructuring and bankruptcies. Across The U. S. Industry. In 2024, results include the negative sales impact of these events on our Sealy, and OEM products. As well as incremental provisions or losses triggered by these events. Turning to our 2025 We're excited to share that after months of incredible retail, excitement and feedback, the launch of our all new Sealy Posturepedic product ticked off last month.

This is the largest product launch in betting history. Orders for the new collection are on track with an estimate 80% floor samples to be shipped before Memorial Day.

This highly anticipated line is a significant reimagining of the Posturepedic products brands and marketing. And is aimed at reigniting growth in the value to mid tier price point. Where we and retailers see tremendous opportunities. This updated Sealy Posturepedic collection is clearly differentiated from competitive offerings with all new proprietary coil technology. These patent pending precision fit coils were expertly designed and engineered in house to provide superior support which has been the mission of Sealy Posturepedic since its inception in 1950. The 2025 Posturepedic collection also features a bold [indiscernible] Thoughtfully designed offer a fresh style and appeal to a broad audience while staying connected to the Sealy brand legacy, Our new PrecisionFit coils have an initial feel that is highly flexible and conform for lighter support and body types. It then reacts progressively but individuals unique weight and shape to give the right amount of total support. These new post orthopedic products deliver a demonstrable step change improvement in comfort, and support. This has resonated well with customers and retailers. Despite this launch, we will kick off a national advertising campaign. The first national ad campaign for Sealy. In over a decade. Beginning Memorial Day, 2025. This top of funnel multimedia is designed to reinforce the post therapeutic difference and drive excitement and purchase intent for the company's largest product brand, and America's number one mattress brand.

As evidenced by the above, we continue to make high return investments in brand and product to drive. Retailer success. Turning to our third highlight, we are pleased to report strong international business performance in 2024. Driven by both continued strength in our legacy Tempur operations and our Dream business. They delivered solid mid single digit growth and expanded operating margin for the full year 2024 reflecting robust momentum despite a generally subdued global market. A key driver of this performance has been the continued success of our all new international temper collection. Which completed its main rollout mid 2024 with several channels and customer specific products continuing to roll out in 2025. This collection of bed base pillows are significantly out performed expectations in key markets such as The UK, Germany, [indiscernible] Since the start, its launch in 2023, we've expanded wholesale distribution distribution by more than 10% and we see substantial opportunities for further growth in distribution over the long term. The strong demand for these products coupled with the additional expansion opportunity underscores our confidence that the international temper collection will remain a key growth driver in the years to come. Our fourth highlight is our significant gross margin expansion.

In 2024, we achieved year over year improvement of 130 basis points in our consolidated gross margin.

Driven by our ongoing investment in new product innovation and improved product mix and the optimization of our manufacturing processes and cost reduction initiatives. These strategic initiatives have allowed us to increase operating efficiency which in turn has provided us with more resources to reinvest in advertising, product development and our people. While we've made strides to grow and fortify the business in 2024, we believe that significant opportunities still lie ahead. Our continued focus on key growth and cost efficiency initiatives will ensure that we are in an optimal position to benefit in the global betting industry recovery. With that, I'll turn the call over to Bhaskar. Thank you, Scott. In the fourth quarter of twenty twenty four, consolidated sales were approximately $1,200,000,000 and adjusted earnings per share was $0.6 We have $45,000,000 of pro form a adjustments in the quarter all of which are consistent with the terms of our senior credit facility. These adjustments are largely comprised of costs incurred for professional fees related to the acquisition of Mattress Firm. And the unexpected foreclosed distribution Scott previously mentioned, including transition Turning to North American results. Net sales in the fourth quarter were consistent to the prior year.

On a reported basis, the wholesale channel was consistent and the direct channel is 3%. North American adjusted gross profit margin improved to 40.8% primarily driven by operational efficiency North American adjusted operating margin declined to 14.8% driven by operating expense deleverage from investments in advertising and fully reserving the balance sheet for the event Scott mentioned a moment ago. Now turning to international. Net sales increased 14% on a reported basis and 13% on a constant currency basis in the fourth quarter As compared to the prior year, our international gross margin improved to 58%. Driven by operational efficiencies, and favorable mix, Our international operating margin improved to 21.2% driven by the improvement in gross margin, and operating expense leverage partially offset by a decline in our Asian joint venture performance as it manages through a weak Chinese market. Now moving on to the balance sheet and cash flow items. At the end of the fourth quarter, consolidated debt less cash was $2,100,000,000 and our leverage ratio under our credit Within our historical target range of two to three times, [indiscernible] fourth quarter, we generated operating cash flow of $129,000,000 Following the close of the Mattress Firm transaction, our net leverage was approximately 3.5 times.

We expect to return to our target leverage range of two to three times and for share repurchases to be minimal over the near term. Should note that under the terms of our credit facility, our leverage calculation going forward will include the benefit of run rate synergies.

Our expectation is that we will realize at least $100,000,000 in annual run rate synergies by 2028 Before I discuss the 2025 outlook detail, I want to highlight how we are reflecting the transaction in our guidance. Our guidance considers the previously announced divestiture and the elimination of intercompany sales between Mattress Firm and Tempur Sealy. We expect the intercompany sales to represent approximately 18% of global Tempur Sealy 2024 sales. Intercompany eliminations will reduce Tempur Sealy sales but will be accretive sorry, will be margin accretive and neutral to EPS. Please note these two factors will import will impact our reported sales going forward. I will be highlighting like for like to normalize these items in some of the guidance commentary that follows We also expect first year synergies to benefit of approximately $10,000,000 primarily realized in the back half of the year with an anticipated ramp in subsequent years. I should also note there will be some P and L landscaping across COGS, and operating expenses to align accounting policies for the two organizations. Please refer to the investor presentation posted to our IR website this morning for further detail on the impact of this policy alignment and other acquisition related items.

As we begin reporting Mattress Firm in our consolidated results in the first quarter, we will maintain our historical reporting segment with the addition [indiscernible] for the mattress firm business Now turning to our 2025 guidance. We expect adjusted EPS to be in the range of $2.6 $3 which at the midpoint is a 10% growth versus 2024 Our guidance is based on sales after intercompany eliminations to be between 7.5 and $7,800,000,000 on a reported basis. Our guidance also reflects our expectations of the global betting industry will be stable versus Prior year, which implies slight headwind in the first half and recovery in the second half of twenty twenty five.

Our like for like Tempur Sealy sales growing slightly and on a reported basis down high teens due to the acquisition factors previously discussed. Our Tempur Sealy North America sales to be flattish on a like for like basis driven by the outperforming the industry due to the continued momentum of our product and channel strategies, and comping over the Foreclosed Distribution and prior year floor models, which combined represent mid single Headwind in North America Tempur Sealy sales. Our international business growing low single digits which includes the continued momentum of our omni channel expansion strategy and a slight headwind in the first quarter as we lap prior year launch. We also expect high single digit growth on a constant currency basis in our international segment. And our like for like matches from sales growing slightly supported by in store initiatives to drive average order value and conversion. We also expect reported gross margins to be similar to recorded 2024 gross margin. Which includes a $15,000,000 headwind from foreign exchange. Dollars $730,000,000 of advertising investment, which implies a slight step up in temporarily advertising. All resulting in adjusted EBITDA of approximately $1.321400000000.0 dollars Regarding capital expenditures, we expect 2025 CapEx of approximately $250,000,000 including $50,000,000 of investments to refresh Mattress Firm stores, Over the long term, we expect normalized run rate Lastly, I would like to flag a few modeling items For the full year 2025, we have two ninety five to $3.00 $5,000,000 Interest expense of approximately $2.65 $275,000,000 On a tax rate of 25%, with a diluted share count of two ten million shares.

With that, I'll turn the call back to Scott. Thank you, Bhaskar. Great job. Before turning the call over for Q and A, I'd like once again to express my long term optimism about the recently completed acquisition of We have collaboratively worked with Mattress Firm for over thirty five years and we are thrilled to welcome them into our organization and unlock incremental benefits to all stakeholders. Let me conclude by taking a step back to share our long term perspective. We've seen our markets performing below their historical trend line growth and despite this, our execution has led to adjusted earnings per share growth. We believe 2025 will benefit from continued execution and the Mattress Firm transaction Looking beyond this year, we are planning for markets to return to growth while simultaneously realizing incremental [indiscernible] From the Mattress Firm transaction and continued industry leading execution. We're internally targeting sales to grow at a compound annual growth rate of mid single digits starting in 2026. This indicates Somni Group adjusted EPS would increase from the $2.8 the midpoint of the guidance for 2025 to approximately $4.85 by 2028. A compound annual growth rate of 20%, That ends our prepared remarks, operator.

Please open the call up for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Susan Maklari with Goldman Sachs. Your line is now open. Thank you. Good morning, everyone. Good morning, Susan. Good morning, Scott. I want to start with your expectations for some normalization in the industry. Driving that? Driving that outlook given the macro environment that we're coming into the year with and the state of the consumer? And then just talk a bit about your ability to ex execute against that and how we should think about first half versus second half? Sure.

Thank you for the question. Look, I mean, I would say we're still in that bouncing around the bottom. Which we've used here for the last couple of years where you have starts and stops. I would expect the first half of the year to be a little bit less robust. Than the back half.

We had a strong period towards the end of, call it, last year. And the start of this year, then ran into a little bit of air pocket during Presidents' Day, which I think has been well reported. It's a little bit slow. Or muted during Presidents' Day. But we're continuing to see what I call steady business but I would say we're expecting normalization really until you get to 2026. Think some of that is driven based on new product. We're very optimistic about the CELE launch. Some of Sealy products been in the market for a while. So this is, as we've mentioned, the largest launch in Betty history. That product is just now getting on the floors and where it's being placed. It's being well received. But we're continuing to be, we'll call it, cautious near term and optimistic long term. Now for some reason the market is is different than we expect, I think as you know. The business model is relatively flexible and we can flex up if we need to. Or we can flex down if the market tells us that's what we need to do.

Your next question comes from Rafe Jadrosky with Bank of America. Your line is now open.

Hi, good morning. Thanks for taking my question. Thank you. I just I wanted to follow-up on the long term guidance that you provided, the four eighty five Can you give a little bit more color on how much of that is accretions maybe relative to core TPx? And is that assuming $100,000,000 of synergies? Or is that just getting operating leverage on Mattress Firm And then just so I know it's a long question, but then the mid single digit growth you're assuming, is that industry or is that CPX and then industry something below that? Thank you. Great. Let me talk for a while and I'm sure I'm going to miss some of the 12 questions in there and lots of playing me up a little bit. We wanted to give you a perspective, I wouldn't call that quote guidance. But look, this was such a transformational acquisition. We knew we'd blow up people's models. And we thought we ought to put Somnigroup there to give people put something in that tell you kind of internally. Generally, it's got $100,000,000 synergies in it over the period. With what I'd call a slow start. For lots for some reasons we can talk about in a second, primarily in that FTC wouldn't let us talk to each other for a while, so the teams are just now getting back together.

And shows the industry getting back to normal. And the 5%, we'll call it for talking terms, that's our revenue growth in the perspective may be conservative, may not I think we mentioned that there may be pent up demand. We don't know yet. But I think it's a good baseline assumption. And then I hope the teams are going to work harder and have a a bigger synergy number over time. I think that gives you a good idea internally what we're targeting. Basu, you want to speak to some of that? Absolutely. So just a little bit of a double So when you think about the category, think about it globally. As Scott mentioned, is that we would expect to grow market share ahead from a category standpoint. So as you think about that globally, again, anywhere between 3% to 5% as mentioned. Also synergy is absolutely [indiscernible] And yes, there is a component of incremental product productivity going through our manufacturing process. So both leverage as those units start to become that come back. Interestingly, at the end of twenty twenty eight, assuming the category assumptions, units we don't have to add any more incremental capacity or incremental CapEx to be able support that level of business.

As I think about the rest of the investments as we continue to support our brand through advertising, Also, we had called out that we're going to invest some dollars in refurbishing the mattress firm stores. So that cash flow is embedded in that as well as the incremental depreciation that would come to that So you put all that together, you get to a mid single digit growth on the top line with EPS growing at 20% CAGR.

Your next question comes from Bobby Griffin with Raymond James.

Good morning, everybody. Thanks for taking my questions and congrats on getting the deal done. Thank you.

So I guess I wanted to first foster hit on just the core Tempur Shealy manufacturing efficiencies and kind of your view of the growth margins that we saw in fiscal year twenty twenty four. Is that a fair starting base? Where do you think things are? Is the business over earning on some assets, under earning on others? Just Kind of level set us then. And then my second part, I'm going to do a two part question that Scott loves. The $260,000,000 low end of guidance versus reporting two five Can you maybe disconnect that? Is that just industry down again in 2025 just that basically flat despite having Mattress Firm in there, just curious on the low end of guidance drivers behind that? So maybe I'll start with from a gross profit standpoint. Absolutely, Bobby.

Is that when I think about the opportunities and a go forward standpoint on a temporarily lease standalone. And just from a definitional standpoint, we'll introduce a like for like. The like for like is everything outside of acquisition items. So yes, nice gross margin expansion in the fourth quarter caught over 100 basis points. And if I think about the big driver of that it's really the productivity and the leverage going through plants. And as an expectation going forward is I would think about that on a like for like basis as we get into 2025 and beyond on a temporary standalone basis. What I would further say is as it relates to not or recurring good guys, in fact, if you look at our fourth quarter, we did eat some some items. So we called out the Foreclosed business, the large big box retail that is now fully reserved. So that was about $10,000,000 of bad debt we had to step over. Also, the abrupt foreclosure of a of our OEM business or piece of our OEM business and that cost us a couple of percent in the fourth quarter as it relates to top line. So in fact, when I look at the fourth quarter, we're pleased with how revenue came in.

International was super exciting as well as the landscaping of across the P and L gross profit continues to be a great story. A bit of deleverage, however, that deleverage is really talking about fully protecting our [indiscernible] So you really what you're saying is you were under earning on your assets in 2025.

That's and then I had a question on guidance, the low end of guidance with Mattress Firm in the pod. So when I think about the two sixty to $2.80, is long year, we talked about the category. When I think about it's been a fast two weeks, I think, since the acquisition. We remain getting our head around us. So I think specifically the question is what would you have to believe as it relates to hitting that low end of guidance. I think we feel good about the industry has to be down, exactly, which is what Bobby said. Said.

Exactly. Yes. I would say the low end of the guidance is protecting us a little bit that if 2025 the industry is is down as opposed to bouncing around the bottom might be the I think that high level. The other interesting things here is is it's been a couple of years in the making. We're excited about the as Scott said, Mattress Firm coming into the family. There are some open items still got to work through. So the divestitures are happening. And the expectation is that that by May 1, is that divestitures both on the Mattress Firm side as well as Sleep five footer side is that those will be transferred or those will be part of the mattress warehouse family. You put all that together, a Scott mentioned as well, that Presidents Day is less than stellar is that we expect that the acquisition will start to be accretive in the second quarter and for obviously in the balance of the year [indiscernible] Your next question comes from Peter Keith with Piper Sandler. Your line is now open.

Hey, thanks. Good morning. Nice finish to the year. Congrats on the acquisition. If we just think about that EPS range for the full year of $2.6 to 2.8 Is there a way you could break out how you're contemplating the EPS accretion from that Matches from acquisition? Absolutely. So just leveraging off the last question that came at us, us is the expectation is that the acquisition would start to be accretive beginning in the second quarter and ramping throughout the year. A couple of items that are happening is as I mentioned, the divestitures of stores, so that's a body of work as well as it's just a process. You got people involved, so it's a process that we have to work through. And you think about looking forward to the continued relationship with Mattress Warehouse. So when I think about the accretion, starting in the second quarter and then ramping as you go into the third and fourth.

Your next question comes from Michael Lasser with UBS. Your line is now open.

Good morning. This is Dan Silverstein on for Michael. Great. Good morning. Thanks. Thanks so much for taking our question.

Our question is on the potential for synergies beyond $100,000,000 that you've identified. Specifically around advertising do you think you could see some benefit from consolidating your buying power or will you lean in further and explore some new opportunities? Thank you. Sure.

On synergies, just to clarify this ground, I mean the $100,000,000 are the cost synergies. We haven't ever budgeted any revenue synergies. That would be in addition to the extent there are revenue synergies. And then specifically on your question, you're drilling down on advertising. There's no question that advertising is is a big bucket and a big opportunity. I think on a consolidated basis, Somni Group will be the largest betting average okay, to be clear. So it's a big number. It's a strong we'll call it weapon or asset for us and it is a focus point. Think the synergies in advertising come in two ways.

Yes, buying power and we'll call that kind of a dollar center just a traditional volume versus price But I think the big unlock is the quality of advertising and to an extent the coordination of the advertising so that one one equals more than two when you spend it. And I think both teams will work collaboratively together to get that efficiency. And it will take a little while. When I say a little while, I'll talk of quarters, not years. But I think that there is great opportunity but primarily in the effectiveness of advertising more than just the absolute dollars. Of course, it will flow through the income statement through improved sales both for us and I believe the industry.

Your next question comes from Keith Hughes with Truist Securities. Your line is now open.

Keith, are you with Oh, it's got mute button. Can you hear me now?

Dan, I can hear you now. It wasn't me again. Sorry about that. It's alright. So Bill, building on the last question, I know you haven't been able to as you said, talk, really talk to Mattress Firm much during the trial. At what point do you think you will have a better view of what other things you could do together? Is that something at the beginning of next year? How long do you think it will take? It's not going to take that long.

And to be just to get everybody grounded, during the trial, basically the teams were not talking. And so everything having to do with synergies got shut down seven months ago?

Yes, Scott.

So we got a little bit of a start. And then when we went to litigation, we walls were put up and these would be hard walls. And so, we're just getting restarted there. Our groups that are meeting starting next week.

To get reengaged And I think we'll know a lot more by the end of the second quarter.

And by the end of the third quarter, I think we'll be we'll know a lot more.

Okay? So I don't think it's going to take very long. But as you can see in Boxer's prepared remarks, we're not budgeting an aggressive amount of realizing synergies in the first year, letting the teams get together make sure that we have buy in from both sides. Anytime you're doing synergies, this affects people. And that means when I say affects people, I don't mean their jobs are going away. I mean, have to change what they're doing or the way they're doing it by the way.

But I think we'll get some of that implemented this year. We'll get full benefits in 2026. And I think we'll have a robust funnel of activity more several years. From a synergy standpoint. So I think we've got a pretty good idea of what we what we want to look at. But we need to process it through both organizations and get buy in.

Your next question comes from Seth Aschwan with Wedbush Securities. Your line is now open.

Thanks a lot. Good morning and congratulations. Just on the long term guidance Scott, in terms of 20% EPS growth, maybe you could break that down for us and tell us how much you expect from deleveraging other words, how much growth do you expect over the time period in EBITDA versus EPS? Thank you.

Okay. I'll let Bhaskar give you you the details. As I remember, that particular calculation doesn't have any stop buyback in it. I think we just threw the cash in deleveraging just to make the model simple. That's right. But on the EBITDA growth, do you have that number on top of your head?

Or would it be similar? I mean, what does happen is as Scott said, from a capital allocation standpoint, we don't have any buyback in it. Top line or EPS growing at that 20%. However, we will be generating cash flow in that period. And what we've assumed is that we've built a we will pay down debt. However, if the vast majority of the growth is coming from EBITDA Yes, you got to have EBITDA growth double digit. 100%. That's But there's still a question. There is some coming from deleveraging. Nothing coming from stock buyback. Or future accretive acquisitions. So I think it's a relatively conservative computation. But it is fair we did benefit it for cash flow and reduced debt. That's right.

So that again, vast majority coming from EBITDA growth. With the delta being just debt pay down. No share buyback. Your next question comes from Bradley Thomas with Capital Market.

Your line is now open.

Congrats again on on closing the deal here.

My question was just, Scott, if you could talk a little bit about the recent trends that you've been seeing at Mattress Firm if you could talk a little bit how you're thinking about same store sales for the business in 2025? And then maybe lastly, if you could just suggest address the leadership transition underway [indiscernible] Sure. Let me take a crack at some of those.

First of all, on trends, which again, I think it's been fairly well published. We've got a we'll call it a benefit in the fourth quarter with the peaceful transition of government in The U. S. Which may not have been expected.

And we'll call it the Trump month.

And I think you saw that in various places.

And that went through certainly December, went through January.

And then I'm going to call it the activities in Washington. Which have created some uncertainty in The U. S. And maybe the world.

Began to kind of felt like it probably hit the market like right at February 1, okay. And Presidents' Day in The U. S. Was less robust or muted compared to expectations. No question, some of that is weather. But weather does not explain what I would call the muted impact for Presidents' Day overall. So again, not not too troublesome, Kind of what we've been seeing as we get these starts where the clear solid growth for a period of time. Year over year and then you hit a period where it's soft. And it's negative. And so we that's kind of what I call the current trends On the same store sales growth, it matches Firm, generally the history of Mattress Firm is is share gain.

We'll call it minor share gain but share gain. And so their same store sales growth going to be dependent somewhat on the market. And then we have not gotten into their real estate strategy in detail and store expansion and all of that. And some of that may or may not have an impact on how we think about it.

So it's a little early to say, but most of their same store sales will be dependent on on market.

Correct.

Then I think the third part of your question was management change. We recently made a change in the leadership at Mattress Firm We'll continue to work with the team at Mattress Firm and make sure that we've got the right team, people in the right positions the right authority for success in the future. And that's my day job right now. And we'll have that knocked out I mean, within a quarter. I think we'll be able to you some more information in that area.

Your next question comes from Jonathan Matuszewski with Jefferies.

Your line is now open. [indiscernible] for taking my question. It was a follow-up on synergies recognizing kind of those hard walls are just coming down now. But just curious about kind of the cadence of that realization Obviously, dollars 10,000,000 in the second half.

That'll ramp in $26,000,000 and $27,000,000 But just trying to understand how the buckets will evolve over time in terms of what that $10,000,000 is initially coming from, whether it's logistics or manufacturing efficiencies or lifecycle management, etcetera, and kind of how those buckets evolve as those synergies ramp in 2026 and 2027?

Yes. Okay. Let me talk about the process and then you kind of answer his question. Let me make sure that people understand the process. The process is each leader of each of the companies will get together and form a committee and in their area of responsibility they will come up with proposed synergies. And then they will present them to top management to for us to kind of pick which ones we want to go after. And so like operations and logistics, actually they're meeting next week next day, probably met a little bit this week, but the big groups, next week. Those two leaders will work there. Their group. Merchandising will be working.

And then of course accounting, we'll call it back office stuff. I suspect most of the really quick hits of back office, kind of stuff that are easier to consolidate.

But much to give them some perspective. Absolutely. So just to put some color on the $10,000,000 Again, you got it right back half primarily loaded. And where I think that that coming from is, let's call it, sourcing initiatives, principally in the those corporate type of functions where we get the power of scale. So think about it that way. Also, I would imagine that from there's going to be a bit of manufacturing efficiencies as well now that we can being observant. From a firewall standpoint, however, we could more easily work with each other. I imagine that there is some opportunities that lie in that area, 2025. As I think about the cadence, let's call it a slow build, let's say, again, big round numbers, we got a $10,000,000 let's say, it doubles a little bit more than doubles thereafter and then fill in the gap. In that terminal year of '20 of the third year.

But to get $10,000,000 in your numbers this year with already into the second going to be in the second quarter by the time you do an implementation, which you're actually getting done is much bigger than 10. That's when you'll get the wraparound Exactly. In 2026 even just for the start of the year.

And plus a little bit more, yes. Your next question comes from Laura Chappein with Loop Capital.

Your line is now open. But once you digest Mattress Firm, what's your outlook for retail location growth, call it 26% and beyond, in across your platforms U. S. And UK?

Yes, great question. We do dreams first of all. Because I'm very familiar with it because we've owned it for a while. They still have opportunities in The U. K. For store expansion.

And that team has a long term plan for what would I guess I'd call it single digit percentage growth in stores, something like that. So So they still got that opportunity. In the Mattress Firm real estate, we've not got into the details of their stores. They have a very sophisticated department. That has worked through their real estate over a number of years that we've got confidence in. But we haven't been fully through that and we have not seen any store level data We'll start that next week And so I don't really have a perspective at this point So I'm going to say, let's just call it store count flat today would be kind of my guess. Again, not fully knowledgeable of the detail. But within that, what quite a bit of rotation. From some markets that are over concentrated and then new markets or new areas where there are growth opportunities.

So we'll have more information on that in detail throughout the year as we get we'll call it fully informed on their real estate strategy. Your next question comes from Philip Lee with William Blair.

Your line is now open.

Hi, good morning. Appreciate the comments.

Can you talk a bit more about the upcoming Sealy launch?

How you think about that brand's growth potential this year? Comparing to Tempur, Stearns over the past few years during their product launches?

And what kind of contribution that can have this year? And then BOSS on the margins, I know that there's a lot going on with gross margin this year, but how should we think about any headwinds related to brand mix going forward? Thank you. As you know, Sealy is the largest brand in The U. S. And this is what we're betting on in The U. S. And Sealy has been challenged in 2025 as the product left it in the marketplace, it was its last year before end of life. And so this is this is a big refresh And I would expect the growth potential for Sealy in 2025 to probably exceed Stearns and Foster and Tempur Bosco.

I'm looking at Foster, but I never really answered that question directly. That's right. I think that would be our expectation.

Because of the freshness of the product, the innovation that's in it, and the the excitement that we feel through the retailers and where it's [indiscernible] [indiscernible] But I think the other thing that's going to impact that is, I think you know this is that Sealy is generally lower ASP. Than in Kemper and Stearns and Foster. And over the last few years, the the lower end customer has been more challenged So it is will be impacted some by that.

But I think even with that, I would expect Sealy's growth to be more than Temperance Stearns and Foster this year.

Timber for a moment for 2025. On a like for like basis, is I would think productivity again continues to drive. I would expect again on lock front basis, Tempur to grow about 100 basis points, maybe a little bit above The primary item of that is going to be the productivity. Which will be offset by some commodities. Sitting here today, it looks like going to have a bit of commodities headwind. However, you put those two together, it's still going to be favorable for us. The other item that we call that was FX. So within going through gross margin line, is that there are some countries, geos where we buy in US dollars. The US dollar is strong relative to those currency. So causing us an FX segment of about $15,000,000 And then finally, I would say a couple of items, four models will be at head [indiscernible] sitting here today is that we've assumed the industry, the category is going to be kind of stable. Which would imply a little bit down, a little bit up in the back half. So we're not assuming that that low end consumer comes back, which would be great for EBITDA.

However, dilutive to rate So at this point, we're not considering any of that. But the one thing to be mindful of is that mix will be favorable for a couple of reasons. One, the foreclosed business that we talked about. Foreclosed business was associated with some of our OEMs as well as the big box. And then the other item that will be that will help from a favorability standpoint is the international sitting here today is expected to grow a bit faster, which will be favorable as well. That's all on a temporary like for like, which should drive at least 100 basis point of growth. Our last question comes from William Reuter with Bank of America.

Your line is now open. Hi. I just have one.

Was wondering if you've given any thoughts to the new reciprocal tariffs that maybe put into place If you've done any work around what that could mean if the policies that were announced last Thursday, so February 13, were put in place in terms of margin headwinds. That's it. Thanks.

When I think about tariffs, they are moving around a lot, you rightly, whether it's the reciprocal tariffs and Canada Mexico tariffs, the ones that we're thinking about or they're out there from China, if they aluminum steel. The way that we're thinking about it is what to to date, it feels like maybe one of those have stuck around China. Relatively de minimis as it relates to how we're thinking about currently, because it's not only the impact of tariff, we do have good relationship with our suppliers and we do have some lag in between when that tariff is enacted and when it goes forward, when we see it in our P and L. And it gives opportunity to think about from a pricing standpoint there. So that's a lot of words to say that things are moving around. We and we do have what we kept visibility on and what has stuck we have that forecast. As it relates to the reciprocal tariffs and the one thing I would think that often comes to mind is our adjusted impacted by that is Vietnam. So again, we have flexibility. We have the opportunity to move things around. But what we see in front of us is a lot of uncertainty as it relates to that and there's also the upside as well.

So in terms tariffs, they go both ways. So as those tariffs and those finished goods are coming into U. S, so it's an opportunity for us as well.

Yes.

I mean, obviously, it's complicated right now, but we're going to benefit from any tariffs that are put on imports. So that's kind of we'll call that a good guy. In our terminology. Then probably just tariffs in general, the ones that get our components and stuff, from a competitive standpoint, actually an advantage to us because of our size and our volume, it's easier for us to deal with the suppliers on that issue than the smaller people who don't have that buy. So as much as it's a kind of a, we'll call it a pain from a competitive position standpoint, I think it would actually it puts us in a better competitive position relatively speaking. And then all of it is all before you do any mitigation. And from an industry standpoint, the industry has had a history of if you have true cost increase in your components, the industry passes that on to the consumer if that's what ends up happening. And then quite frankly, all our suppliers are working through this and working on where to move production And when we're talking about components, that's most of what you're talking about. That production can be moved.

Within a reasonable period of time. It's not like the auto industry where you can't move very quickly. So all in all, the way I think about it, with no guarantees because I don't think any of us know exactly where things are going to land, is we may have a little impact for a quarter or two when depending on how the tariffs land but within a few quarters, I would expect the impact to be insignificant. Because of mitigating factors in our competitive position.

There are no further questions at this time. I will now turn the call over to Scott Thompson for closing remarks. Thank you, operator.

To our 20,000 associates around the world, including our new 8,000 Matches Firm employees, Thank you for what you do every day. [indiscernible] To our retail partners, thank you for your outstanding representation of our brands and to our shareholders and lenders thank you for your confidence in Somnigroup leadership team and its Board of Directors. This ends our call today, operator.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.