LEXINGTON, Ky. – In this morning’s conference call with analysts following the closing of its acquisition of Mattress Firm, Tempur Sealy International’s CEO discussed post-closing supply agreements, slot commitments and building synergies with the 2,300-unit specialty sleep retailer.
In the federal court case, in which the Federal Trade Commission tried to block the nearly $5 billion deal, all three topics played a central role as the agency argued that the acquisition would result in increased prices of mattresses and ultimately harm consumers. The judge, ruling late last week, sided with Tempur Sealy and Mattress Firm, ruling against the FTC on nearly every issue of its case.
During the nearly 45-minute call, Scott Thompson, chairman and CEO, called the acquisition a “significant milestone” that created the “world’s largest bedding company” including design, manufacturing, distribution and retail of mattresses. He also touted the company’s ownership of “the most highly recognized brands” in the industry.
Thompson emphasized that Mattress Firm and Dreams, its U.K.-based retail arm, will continue to operate as multi-branded retailers. “Tempur Sealy will continue to serve third-party retailers, as well as Mattress Firm, Dreams and Tempur Sealy’s direct-to-consumer business,” he said.
Addressing the post-closing supply agreements with other mattress brands, Thompson said the company sought agreements from seven manufacturers, and six signed. Under the terms, Thompson said the agreements assumed contracts the manufacturers had in place with Mattress Firm while extending the “termination for convenience” clause to a year to “allow us to get comfortable with each other.”
He went on to say that currently the company does not have a post-closing agreement in place with Serta Simmons Bedding, the industry’s second largest mattress maker, but “I’m sure we’ll be talking to them.”
Regarding Mattress Firm’s merchandising mix moving forward – a concern voiced by a number of executives in retail and manufacturing circles – Thompson dug deeper into the company’s “slot commitment” that had been entered into the court record. Currently, he said, Tempur Sealy brands – Tempurpedic, Stearns & Foster, Sealy – hold a 43% balance of share on Mattress Firm’s showroom floors.
“The ones on the floor will be the ones that perform and make sense for Somnigroup International (Tempur Sealy’s new name beginning Feb. 18),” Thompson said. Ultimately, he said, the balance of share on the retail floor will be determined by the consumer.
“To the extent that brands advertise and innovate, that’s how the balance of share will shift,” he told analysts on the call. “Do I think our products will increase in balance of share? Sure, I do. We may find that there are some products on the floor that don’t meet our standards, and that will matter.”
He outlined the the slot commitment, saying the average Mattress Firm store has 50 slots. Focusing on the luxury segment of beds as the FTC did in its case, Thompson said the average store has 30 slots for mattresses that retail at $1,500 or more. Of those 30, he said, a dozen would be for other mattress brands. For mattresses that retail for less than $1,500, 18 slots are open for Tempur Sealy or Mattress Firm brands.
In aligning Mattress Firm’s floor with other mattress brands, Thompson said Tempur Sealy’s technical prowess and expertise will allow the company to negotiate with partners. “With our expertise, we can tell you what any bed on the floor costs to make,” he said. “We will be able to build it up from cost and have the conversation with suppliers.”
Innovation will continue to drive the company’s growth, Thompson said, adding that having “distribution locked up” for new products will allow for more research and development.
“In talking about investment in product that is more complex and more innovative as beds get more complicated, to know that we have a sister company with the distribution locked up, takes some of the volatility out of that and gives you better confidence in making those long-term investments,” Thompson said. “With this we’re more likely to make more significant investments in R&D and bring new product for all retailers, not just Mattress Firm. We might have been hesitant in doing that without committed distribution.”
As for the timing of the acquisition, about 21 months after it was first announced in May 2023, Thompson voiced optimism, saying the deal is closing at a low point for the industry.
“The industry has been much weaker than we thought,” he said. “Historically, the U.S. business is at a low volume. The downdraft has been deeper than we expected, and it has lasted longer than expected.”
He cited Mattress Firm’s performance in the down environment saying the company had performed better than expected. “That’s given us more confidence in the business model going in,” Thompson added.
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