Sealy Reports Net Sales Decline of 9.3% For Quarter

Furniture World Magazine

Sealy Corporation, the largest bedding manufacturer in the world, today announced results for its third quarter of fiscal 2008. Net sales for the fiscal quarter ended August 31, 2008 decreased 9.3% to $405.0 million compared to the same period in the prior year. Net income for the third quarter was $10.9 million or $0.12 per diluted share versus $21.5 million or $0.22 per diluted share for the comparable period last year. Total domestic net sales for the third quarter of 2008 were $296.1 million compared to $335.1 million in the third quarter of 2007. Wholesale domestic net sales, which exclude third party sales from Sealy's component plants, were $289.0 million, compared to $330.9 million in the third quarter of 2007, as a 3.3% increase in Average Unit Selling Price (AUSP) was offset by a 15.5% decline in unit volume. Wholesale domestic unit volumes were affected by weak retail demand. Sales of the Company's new Posturepedic and Smart Latex(TM) product lines and Sealy-branded products outperformed the rest of the U.S. portfolio. International net sales decreased 2.2% from the third quarter of 2007, or 8.3% excluding the effects of currency fluctuation, to $108.9 million. A deteriorating retail environment in Canada and Europe were partially offset by sales gains in Mexico and Argentina. Larry Rogers, Sealy's President and Chief Executive Officer, stated, "Sealy's third quarter performance once again demonstrated our ability to positively impact our results despite ongoing challenges in the retail environment and heightened cost inflation. We completed the rollout of our new Posturepedic line during the quarter, which continued to gain traction and was a key driver of our results. The improvement in our sales of this product line above the $1,000 price point is helping us gain share in this key portion of the market, while the strength of the Posturepedic line below $1,000 helped us to successfully implement a July price increase on our mattresses in this price band. We also continued to make progress during the third quarter on reducing our cost structure and effectively managing working capital." "Although we expect increased market weakness and cost pressures in the near term to continue, we will keep managing those areas of our business that we can control and focus on executing against our strategic operating initiatives. We are confident that the actions we are taking will allow us to emerge as a leaner organization with improved earnings potential when the market turns," Mr. Rogers concluded. Third quarter gross profit was $164.1 million, or 40.5% of net sales, versus 40.3% of net sales for the same quarter in fiscal 2007. This increase in gross margin was primarily due to price increases implemented since December 2007, a favorable mix shift towards higher end products in the Company's new Posturepedic line, continued improvements in manufacturing efficiencies and lower sales discounts on floor samples versus the comparable period in the prior year due to an accelerated rollout of the new line. These factors were partially offset by an increase in material costs, including inflation on steel and foam, deleveraging of overhead expense on lower volumes and a pre-tax charge of $1.4 million related to the Company's exit of the air bed business. Internationally, gross margins declined primarily due to deleveraging of manufacturing expenses on lower volumes. Selling, general, and administrative (SG&A) expenses were $132.9 million, a decrease of $7.2 million versus the comparable period a year earlier. As a percentage of net sales, SG&A expenses were 32.8% in the third quarter of 2008 compared to 31.4% in the third quarter of 2007. The reduction in the amount of SG&A expenses is primarily due to a $6.3 million decline in volume-driven variable expenses. In addition, the Company benefited from the implementation of cost saving initiatives which generated a $5.3 million decline in fixed expenses. Actions taken to reduce costs in the third quarter of 2008 included a reduction in promotional expenses due to a more efficient new product launch, decreases in salary and fringe benefit-related costs, and reduced spending on professional services and other discretionary items. These were partially offset by an increase in advertising costs related to the launch of the Company's national advertising program. During the three months ended August 31, 2008, the Company also recorded a $2.4 million restructuring charge related to the closure of select Company facilities. Net sales for the nine months ended August 31, 2008 decreased 7.0% to $1,172.3 million from $1,260.8 million for the comparable period a year earlier. Gross profit was $465.7 million, or 39.7% of net sales, versus $529.7 million, or 42.0% of net sales, for the comparable period a year earlier. Net income was $39.1 million or $0.42 per diluted share versus net income of $62.2 million or $0.64 per diluted share for the comparable period a year earlier. As of August 31, 2008, the Company's debt net of cash was $748.9 million, a reduction of $42.7 million compared to debt net of cash as of the quarter ended August 26, 2007. About Sealy: Sealy is the largest bedding manufacturer in the world with sales of $1.7 billion in 2007. The Company manufactures and markets a broad range of mattresses and foundations under the Sealy®, Sealy Posturepedic®, Stearns & Foster®, and Bassett® brands. Sealy operates 26 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 2,900 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 .